Value accretion from recent deals; potential record profits, 4Q14, 1Q15
Minor International Plc (MINT)
MINT is our top pick in the sector for its scope for earnings upside and because it has the lowest PER of our Tourism coverage. FY15 core profit growth of 20% is likely, supported by acquisitions in July-Aug and a residential project. For 3Q14, MINT will post the best Hotel RevPar growth and core profit growth of our coverage and, possibly, record earnings for 4Q14 and 1Q15. We have a DCF-derived YE15 target price of Bt41.5 (9.6% WACC and 2% terminal growth). BUY!
Our model is yet to price in the value of three acquisitions in July-Aug worth Bt5.4bn and a luxury residential project in Phuket (Bt5bn). We preliminarily estimate Bt5.0/share of value accretion to our YE15 target price—Bt2.7/share from The Residence by Anantara, Layan Phuket, Bt2.0/ share from eight hotels in five countries in Africa (profitable operating assets), Bt0.2/share from BreakTalk (a 50% JV to operate Breaktalk in Thailand), and Bt0.1/share from a hotel and mixed-use investment in Mozambique—details in Figure 1.
The residential project will start transferring in 1Q15. Assuming a 20% take-up rate, there would be 4% upside to our FY15 profit forecast. The recent acquisition of eight hotels in Africa will start contributing earnings in 1Q15; we estimate 2.4% upside to our FY15 profit forecast. The contributions from BreadTalk and Mozambique will be small in FY15.
Good QTD Hotel and Food performances
For July-Aug, we assume Food SSSG of 2% YoY and double-digit TSSG. Food margins in 3Q14 should fatten YoY and QoQ. MINT guides that July-Aug, Hotel RevPar growth was in double digits (following 10% growth in 2Q14), led by overseas hotels and provincial Thailand. MINT will be the RevPar growth leader of our coverage in 3Q14 (low single-digit growth for CENTEL and a decline for ERW).
Earnings growth leadership of coverage (potential record for 4Q14)
We expect MINT to post YoY and QoQ core profit expansion for 3Q14 against YoY core profit declines for peers (both CENTEL and ERW look set to report losses for their hotel operations during July-Sept low season). MINT is likely to set new core earnings records for 4Q14 and 1Q15 (high season).
Balance sheet is in control—no recap risk
Despite Bt5.4bn in acquisitions in July-Aug (financed by internal cash flows and borrowing), MINT's balance sheet will remain strong. The net gearing ratio is estimated at about 0.9-1.0x at YE14, far below MINT's policy ceiling of 1.3x. Apart from normal CAPEX of Bt20-25bn for FY14-18, the firm has set an acquisition budget of Bt10-12bn for the period—acquisitions comprise a major component of the growth strategy.