thailand hotel sector research report

Property Sector - ASEAN 1

July 2013

Refer to last page for important disclosures.

T H A I L A N D

HOTEL SECTOR

Riding On Thai Tourism Boom

Contents Executive Summary ................................................................................................ 1

Comparative Analysis ............................................................................................. 3

Industry ................................................................................................................... 8

Key Recommendations

- Central Plaza Hotel (CENTEL TB) .................................................................. 15

- Minor International (MINT TB)....................................................................... 15

- The Erawan Group (ERW TB) ......................................................................... 55

Pornthipa Rayabsangduan +662 659 8302

[email protected]

This report uses the closing prices of 28 June 2013.

Hotel Sector 1

Executive Summary We initiate coverage on the hotel sector with a BUY for Central Plaza Hotel (CENTEL), Minor International (MINT) and The Erawan Group (ERW). We are OVERWEIGHT on the hotel sector for its promising outlook underpinned by solid fundamentals, resilient domestic consumption and the sector’s secular growth story. Our picks in order of preference are CENTEL, MINT and ERW. Solid fundamentals to accommodate long-term tourism growth. Thailand is a favourite tourist destination in Asia and serves as a gateway to a number of tourist destinations in ASEAN. Tourist arrivals to Thailand surged 19.1% yoy to 10,688,133 in 5M13, the highest among ASEAN countries. Thai tourism prospects are quite promising since the sector has the solid fundamentals for long-term growth. Key drivers for tourism growth include: a) Thailand’s attractiveness, b) the rise of Asia’s middle class, which boosts tourism, particularly in intra-regional destinations, c) the Asean Economic Community (AEC) integration in late-15, d) travelling becoming more convenient and affordable with the rising share of low-cost carriers, and e) Thailand as a beneficiary of the territorial spats between China and Japan. Tourist arrivals are expected to reach 30m in 2015, implying a 10.4% CAGR in 2013-15 vs 7.5% in 2003-12. Resilient domestic consumption to drive the restaurant business. Domestic consumption will remain strong on the back of a growing middle class, urbanisation and continued economic growth of 4-5% over the next three years. In addition, we see the change in the lifestyles of the Thai people in the urban areas, particularly in Bangkok and its vicinity, as well as in major provincial urban areas, prompting dining out to become more popular. The promising domestic consumption outlook is supportive of the expansion of the restaurant business. Central Plaza Hotel (CENTEL TB/BUY/Target: Bt44.00). CENTEL is focusing on an asset-light model to expand its hotel portfolio through hotel management contracts under its own brands. It targets to add 8-10 hotel management contracts per year. Unlike MINT, CENTEL is expanding its restaurant business only through its owned outlets domestically along with the expansion of mall operators. A near-term catalyst should come from the signing a franchise agreement for a new Japanese food brand in 3Q13. The company plans to add at least one new brand a year, which would diversify the risk of depending on one specific brand while sustaining the growth of its restaurant business. We like CENTEL for its strong revenue growth in both the hotel and restaurant businesses, as well as for its margin improvement. Our target price is Bt44.00, based on sum-of-the-parts valuation. We value its hotel business at Bt29.40 on 15.6x 2014F EV/EBITDA, and its restaurant business at Bt14.60 on 22.5x PE, a 7% discount to regional peers’ average PE. Minor International (MINT TB/BUY/Target: Bt32.25). Leveraging on its own brands is key to its growth strategy. The majority of its hotel expansion over the next three years will be outside of Thailand under hotel management contracts and management letting rights (MLR). This will enable MINT to expand its portfolio of hotels at a faster pace and with the least equity drain. For its quick-service restaurant (QSR) business, MINT expands through opening its equity-owned outlets and via franchising. We expect a strong performance from its own hotels and from the real estate business, which is another key contributor to its bottom line. China operations should no longer be a drag on its restaurant business. The catalyst from the acquisition of hotels and food brands would lead to immediate earnings accretion. Our target price is Bt32.25, based on sum-of-the-parts valuation.

Hotel Sector 2

We value MINT’s hotel & mixed-use business at Bt18.80 on 15.6x 2014F EV/EBITDA, its restaurant business at Bt12.32 on 22.5x PE, a 7% discount to regional peers’ average PE, and its retail trading business at Bt1.12 on 20.0x PE, a 10% discount to the sector PE. The Erawan Group (ERW TB/BUY/Target: Bt5.60). As a pure hotel play, we believe ERW would be a key beneficiary of the tourism boom. It targets to become the largest listed hotel investment company in Thailand by 2015 with the number of owned hotels increase to over 20 with over 5,000 rooms. Its new hotel developments will be in the economy and mid-range segments. Contribution from the non-luxury segment is likely to increase to 45% of total hotel revenue in 2015, from 35% in 2012. The company plans to continue divesting its hotel property to ERWPF at a rate of about one hotel per year, which will boost its bottom line, lower its gearing ratio and enhance its dividend yield. Our target price is Bt5.60, based on 13.0x 2014F EV/EBITDA, and equivalent to an 18% discount to our RNAV/share. Figure 1: Peer Comparison

EV/EBITDA ------ PE ------ ----- PBV ---- Yield ----- ROE ----- PEG 2013F 2014F 2013F 2014F 2013F 2014F 2014F 2013F 2014F 2014F Company Ticker

Share Price

28 Jun 13(Bt)

Rec Target Price (Bt)

Market Cap

(USDm) (x) (x) (x) (x) (x) (x) (%) (%) (%) (x)

Minor International MINT TB 24.80 BUY 32.25 3,194.6 14.1 12.1 24.8 20.6 4.7 4.0 1.6 20.6 21.1 1.0 Central Plaza Hotel CENTEL TB 33.25 BUY 44.00 1,447.1 14.0 11.7 29.0 22.3 4.4 3.9 1.6 16.2 18.6 0.7 The Erawan Group ERW TB 3.74 BUY 5.60 271.5 11.0 9.9 38.7 24.7 1.9 1.9 1.5 26.5 7.9 0.4

Note: EPS based on fully-diluted share capital Source: Bloomberg, UOB Kay Hian

Hotel Sector 3

Comparative Analysis We compare CENTEL, ERW and MINT in terms of brand, growth strategy, capex, catalysts and valuation. The business profiles of MINT and CENTEL are similar as they are operators of hotels and QSRs. ERW is a hotel investment company. The three companies have ambitious expansion plans over the next 3-5 years. The three biggest differences are in brand ownership, hotel segment and growth strategy. MINT and CENTEL have their own hotel brands. ERW is a hotel investor and all its hotels are managed by international hotel chains. MINT is expanding its hotel portfolio in the luxury and upscale segments under the Anantara, Avani and Oaks brands. CENTEL’s expansion pipeline includes hotels in the luxury to mid-range segments. It launched a new brand, Cosi, to serve budget travellers. Meanwhile, ERW’s new hotel development focuses on the non-luxury segments (mid-range and economy). Both MINT and CENTEL are expanding their hotel portfolios through management contracts (an asset-light model) and building owned and joint-venture hotels. However, ERW’s growth strategy is more capital-intensive as all the new hotel developments will be financed by its own equity. For the restaurant business, MINT has successfully created its own brand, The Pizza Company, and acquired several brands, such as The Coffee Club, Thai Express, Ribs & Rumbs, and Riverside. MINT has been able to franchise these brands in Thailand and international markets. Its restaurant business is expanding through opening new owned outlets and via franchising. On the other hand, CENTEL is expanding only through its owned outlets domestically. Most of its restaurant revenue comes from franchised brands, such as KFC, Mister Donut, Auntie Anne’s and Ootoya. The potential growth for MINT is higher since the company can expand faster through franchising. However, one could argue that the execution risk on CENTEL’s growth strategy is lower since it is more flexible in its restaurant portfolio management relative to MINT as CENTEL only operates the brands. Figure 2: Comparative Analysis

MINT CENTEL ERW

BRANDS Own brands: Anantara, Oaks, Avani, and Elewana

Own brands: Centara Grand, Centara, Centra, Centara boutique collection, Centara Residence & Suites, Cosi

Own brand: None

Segment: Luxury and upscale Segment: Luxury to mid-range; most in upscale (48.2% of total rooms) and luxury (42.6% of total rooms)

Segment: Luxury to economy

- Hotel business

Partnership with international hotel operators: Some properties managed by Four Seasons, Marriott and Starwood

Partnership with international hotel operators: None

Partnership with international hotel operators: All properties managed by Hyatt, Marriott, IHG, Starwood and Accor

Own brands: The Pizza Company, Thai Express, The Coffee Club, Ribs & Rumps, and Riverside

Own brands: Ryu, The Terrace Own brand: None

- Restaurant business Franchised brands: Swensen's, Sizzler, Dairy Queen and Burger King

Franchised brands: Mister Donut, KFC, Auntie Anne's, Pepper Lunch, Beard Papa's, Chabuton, Cold Stone, Café Andonand, Yoshinoya and Ootoya

Franchised brand: None

GROWTH STRATEGY

Expands portfolio of its own brands through hotel management contracts and management letting rights (an asset-light model), building new hotels under equity-owned and via joint ventures

Expands portfolio of its own brands through hotel management contracts (an asset-light model), building new hotels under equity-owned and via joint ventures

Investing equity-owned hotels with focus on economy and mid-range segments

Expands in Thailand and overseas; all hotel management contracts are outside of Thailand.

Expands in Thailand and overseas; prefers to expand internationally through management contracts and JVs

Thai-centric expansion and looking for opportunity in CLMV

Develops mixed-use projects and operate timeshare business under its own brand (Anantara Vacation Club)

n.a. n.a.

- Hotel business

Acquires hotel brands and properties Acquires hotel properties Acquires hotel properties

Cont’d…

The three biggest differences among MINT, CENTEL and ERW are brand ownership, hotel segment and growth strategy.

Hotel Sector 4

… Cont’d Comparative Analysis Of MINT, CENTEL And ERW

MINT CENTEL ERW

Expands portfolio of its own brands through opening equity-owned outlets and franchising in Thailand and international markets

Expand only through equity-owned outlets in Thailand

n.a.

- Restaurant business

Strategic acquisition of food brands Acquires food outlets; gets franchise licence of new food brands

n.a.

CAPEX IN 2013-15F Bt15,000m Bt4,620m Bt6,500m

REVENUE BREAKDOWN IN 2012

By business 50% from hotels, 40% from restaurants, 10% from retail trading

44% from hotels, 56% from restaurants 100% from hotel & mixed use business

By geography 71% from operations in Thailand; the rest (29%) from overseas

99% from operations in Thailand 100% from operations in Thailand

1) Acquisition of hotels or food brands 1) Acquisition of hotel properties or food outlets 1) Injects hotel properties into a property /REIT

2) Invests in hotels or food companies 2) Injects assets into a REIT CATALYSTS

3) Injects assets into a REIT

Source: Respective companies, UOB Kay Hian In terms of geography, the growth of ERW will be Thai-centric while MINT is the most diversified and CENTEL is in the middle. MINT’s revenue from international operations accounted for 29% of total revenue in 2012 vs CENTEL’s 1% and none for ERW. Figure 3: Occupancy Rate Figure 4: Average Room Rate

0%10%20%30%40%50%60%70%80%90%

2008 2009 2010 2011 2012 2013F2014F2015F

MINT CENTEL ERW

(%)

7,1876 ,8456 ,4576 ,035

5,377

4 ,7355,0145,562

4 ,8 8 04 ,60 04 ,370

3 ,278 3 ,409 3 ,663

3 ,367

3 ,7444 ,471

2 ,399 2 ,3262 ,8 9 32 ,72 02 ,5462 ,474

2 ,731

0

1,0002,000

3,0004,000

5,000

6,0007,000

8,000

2008 2009 2010 2011 2012 2013F2014F2015F

(Bt)

MINT CENTEL ERW

Note: Occupancy rates based on owned hotels Source: Respective companies, UOB Kay Hian

Note: Average room rates based on owned hotels Source: Respective companies, UOB Kay Hian

Figure 5: RevPar Figure 6: Hotel EBITDA Margin

2 ,6 9 13 ,13 3

3 ,9 774 ,52 0

4 ,9 2 85,2 47

2 ,799

3 ,6 9 2

1,9 83 1,9792 ,3 4 0

2 ,6 17

3 ,14 93 ,4 6 5

3 ,770

2 ,16 2

2 ,6 4 0

1,40 0 1,6 2 2 1,8 08 1,94 62 ,14 9 2 ,3 48

1,59 3

0

1,000

2,000

3,000

4,000

5,000

6,000

2008 2009 2010 2011 2012 2013F2014F2015F

MINT CENTEL ERW

(Bt)

0%

10%

20%

30%

40%

50%

2008 2009 2010 2011 2012 2013F2014F2015F

MINT CENTEL ERW

(%)

Note: RevPar based on owned hotels Source: Respective companies, UOB Kay Hian

Source: Respective companies, UOB Kay Hian

Hotel Sector 5

Figure 7: Restaurant EBITDA Margin Figure 8: D/E Ratio

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012 2013F 2014F 2015F

MINT CENTEL

(%)

Source: Respective companies, UOB Kay Hian Source: Respective companies, UOB Kay Hian

Figure 9: Core Net Margin Figure 10: Core EPS (Fully-diluted) Growth

-10%

-5%

0%

5%

10%

15%

2008 2009 2010 2011 2012 2013F 2014F 2015F

MINT

CENTEL

ERW

(%)

0.0

0.5

1.0

1.5

2.0

MINT CENTEL ERW

(Bt)

2013F 2014F 2015F

15.6% CAGR30.3% CAGR

63.7% CAGR


Figure 11: Revenue By Business In 2013F Figure 12: Revenue By Geography In 2013F

100

4649

5441

10

0%

20%

40%

60%

80%

100%

MINT CENTEL ERW

Hotel & Mixed-use Restaurant Retail trading

(%)

10094

70

30

6

0%

20%

40%

60%

80%

100%

MINT CENTEL ERW

Thailand International

(%)


0.0

0.5

1.0

1.5

2.0

2.5

3.0

2008 2009 2010 2011 2012 2013F 2014F

(x)

MINT CENTEL ERW

Hotel Sector 6

MINT is trading at higher valuations of 12.1x 2014F EV/EBITDA, 4.0x 2014F P/B and 1.0x 2014 PEG (fully-diluted) since it has its own brands for both the hotel and restaurant businesses. It can adopt an asset-light model, which is less capital intensive and hence, expands at a faster pace. In terms of earnings growth, ERW is likely to report the strongest core EPS (fully-diluted) CAGR of 63.7% in 2013-15, driven by strong demand growth in the luxury and non-luxury segments, improving performance from its existing hotels, especially The Naka Island Phuket, and contributions from new hotels. MINT’s and CENTEL’s core EPS (fully-diluted) should grow at 15.6% and 30.3% CAGR respectively over the next three years due to strong revenue growth in the hotel and restaurant businesses as well as from margin improvement. MINT’s growth could be higher than our current estimates, thanks to the possible acquisitions of hotel and food brands, which would lead to immediate earnings accretion. MINT sets a capex of Bt15b-18b over the next five years for new opportunities, such as the acquisitions of hotel and food brands. Figure 13: 2014F PE vs Fully-diluted EPS Growth Figure 14: 2014F P/B vs ROE

0%

10%

20%

30%

40%

50%

60%

0 10 20 30

2014F PE (x)

MINT

ERW

CENTEL

2014

F Fu

lly-d

ilute

d E

PS G

row

th (

%

0

5

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15

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25

0 1 2 3 4 5

2014FPBV (x)

2014

F R

OE

(%)

ERW

CENTEL

MINT


Figure 15: 2014F EV/EBITDA vs EBITDA Margin

29%30%30%31%31%32%32%33%33%34%34%

9.5 10 10.5 11 11.5 12

2014F EV/EBITDA (x)

ERW

CENTEL

MINT

2014

F E

BIT

DA

Mar

gin

(%)

Source: Respective companies, UOB Kay Hian

MINT, CENTEL and ERW trade at 2%, 5% and 20% discounts respectively to regional peers’ EV/EBITDA. However, their PEG ratios are below the regional peers’ average of 1.4x.

Hotel Sector 7

Figure 16: Regional Peer Comparison

Market Share Price EV/EBITDA ------ PE ------ ------ P/B ------ ----- Yield ---- ---- ROE ---- PEG Company Ticker Cap (local 2013F 2014F 2013F 2014F 2013F 2014F 2013F 2014F 2013F 2014F 2014F (US$bn) currency) (x) (x) (x) (x) (x) (x) (%) (%) (%) (%) (x)

Hotel Business

Marriott International MAR US 12.4 40.25 12.4 11.1 19.7 16.7 n.a. n.a. 1.3 1.5 (46.9) (48.9) 0.9

Starwood Hotels & Resorts HOT US 12.4 63.77 11.2 11.0 22.6 21.5 3.6 3.2 2.0 2.2 17.4 16.2 4.2

Choice Hotels International CHH US 2.4 40.37 14.8 13.6 21.4 19.5 n.a. n.a. 1.8 1.9 (21.9) (28.5) 2.0

InterContinental Hotels Group IHG LN 7.3 1,812.0 11.1 10.7 17.9 16.6 91.7 25.7 2.5 2.8 80.3 54.4 2.2

Banyan Tree Holdings BTH SP 0.4 0.69 11.8 11.0 68.5 32.6 0.9 0.9 1.6 1.2 3.9 2.7 0.3

Mandarin Oriental International MAND SP 1.6 1.62 11.4 10.2 22.7 20.2 1.7 1.7 4.3 5.0 8.0 8.9 1.6

Formosa International Hotels 2707 TT 1.1 353.0 21.4 18.6 26.0 21.3 9.4 8.5 3.1 3.7 37.8 41.5 1.0

Shangri-La Asia 69 HK 5.4 13.40 15.0 13.4 29.3 24.7 0.9 0.9 1.6 1.7 2.8 3.3 1.3

The Hongkong & Shanghai Hotels

45 HK 2.4

12.60 15.3 13.3 36.7 30.5 n.a. n.a. 1.3 1.6 1.9 n.a. 1.6

The Ambassador Hotel 2704 TT 0.4 30.10 16.8 13.9 29.6 21.7 1.3 1.2 1.8 2.2 4.8 5.7 1.2

Minor International MINT TB 3.2 24.80 14.1 12.1 24.8 20.6 4.7 4.0 1.3 1.6 20.6 21.1 1.0

Central Plaza Hotel CENTEL TB 1.4

33.25 14.0 11.7 29.0 22.3 4.4 3.9 1.3 1.6 16.2 18.6 0.7

The Erawan Group ERW TB 0.3 3.74 11.0 9.9 38.7 24.7 1.9 1.9 4.4 1.5 26.5 7.9 0.4

Average 13.9 12.3 29.8 22.5 12.1 5.2 2.2 2.2 11.6 8.6 1.4

Restaurant Business

Yum! Brands YUM US 31.3 69.60 12.2 10.4 22.7 18.6 11.9 9.7 2.0 2.2 61.0 66.5 0.8

McDonald's Corporation MCD US 99.9 99.65 10.7 10.0 17.5 15.9 6.3 5.9 3.2 3.5 38.5 41.4 1.7

Domino's Pizza DPS US 9.4 46.00 9.0 8.7 14.9 13.9 4.2 4.1 3.3 3.6 28.0 30.0 1.9

Dunkin' Brands Group DNKN US 4.6 43.16 16.6 15.1 28.3 24.0 13.4 9.0 1.8 2.0 42.3 36.1 1.3

Cafe De Coral Holdings 341 HK 1.7 23.20 13.4 12.4 23.9 21.5 4.0 3.7 3.1 3.4 16.5 17.0 1.3

Berjaya Food Bhd BFD MK 0.1 1.75 18.8 13.0 24.3 15.9 3.0 2.6 1.1 2.6 18.2 18.3 1.9

YOSHINOYA HOLDINGS 9861 JP 0.8 115,900.0 10.3 11.0 148.9 83.9 1.3 1.4 1.7 1.7 0.9 1.7 0.3

Oishi Group Public OISHI TB 0.7 123.00 14.6 9.8 24.1 16.7 6.3 5.1 2.3 3.8 27.4 33.0 1.1

Ajisen (China) Holdings 538 HK 0.9 6.07 11.2 9.1 30.5 23.8 2.1 2.0 1.9 2.2 7.0 8.4 0.4

Tao Heung Holdings 573 HK 0.8 6.08 13.9 12.0 19.0 16.7 3.6 3.2 2.8 3.3 17.6 21.6 0.8

Gourmet Master 2723 TT 0.8 173.00 n.a. n.a. 21.4 14.5 n.a. n.a. 3.0 3.8 17.7 19.1 1.2

Average 13.1 11.1 34.1 24.1 5.6 4.7 2.4 2.9 25.0 26.6 1.2

Note: 1) Share prices as of 28 Jun 13, 2) EPS of MINT, CENTEL, and ERW based on fully-diluted share capital. Source: Bloomberg, UOB Kay Hian

Hotel Sector 8

Industry Thai tourism sector – Solid fundamentals to accommodate long-term tourism growth Thailand is a favourite destination in Asia and serves as a gateway to a number of tourist destinations in ASEAN and Indochina. Tourism is a major source of foreign exchange income for Thailand, contributing around 8.9% of GDP in 2012. Tourist arrivals to Thailand surged 19.1% yoy to 10,688,133 in 5M13, the highest visitor arrivals among ASEAN countries. Chinese visitors soared 93.0% yoy to 1,906,137, making them the biggest group of visitors and accounting for 17.8% of total tourist arrivals in 5M13. We believe the tourism sector outlook is promising since it has the solid fundamentals for long-term growth. Figure 17: Monthly Tourist Arrivals vs Events

-

500

1,000

1,500

2,000

2,500

3,000

Jan06

Jul06

Jan07

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Jul11

Jan12

Jul12

Jan13

('000 visitors)

-40%

-20%

0%

20%

40%

60%

80%

Airpo rt Clo s ure

P attaya Rio t

Red-s hirt Ra jpras o ng

Rio t

Tha iland flo o ds

September Co up

(% yoy growth)

Yello w-s hirt P ro tes t

Source: Tourism Authority of Thailand (TAT), UOB Kay Hian Figure 18: Tourist Arrivals To Thailand Figure 19: Tourist Arrivals Breakdown In 5M13

7.8 8 .6 9 .510 .110 .810 .011.7 11.513 .814 .514 .614 .115.9 19 .222 .32 4 .52 7.330 .0

-7%

11%11%

8%

6 %7%

16%

20 %

-1%

5%

1%-3 %

13%

21%

16 %

11%

10 % 10%

0

5

10

15

20

25

30

35

1998 2000 2002 2004 2006 2008 2010 20122014F

-10%

-5%

0%

5%

10%

15%

20%

25%

International Tourist Arrivals % yoy growth

(%)(m)

East Asia56.3%

Europe27.6%

The Americas

4.7%

South Asia5.0%

Africa0.6%

Middle East2.1%

Oceania3.7%

Source: TAT, UOB Kay Hian Source: TAT, UOB Kay Hian

Tourist arrivals to Thailand grew 19.1% yoy in 5M13. Chinese travellers, the biggest group of visitors, surged 93.0% yoy.

Hotel Sector 9

Key drivers for tourism growth 1) Thailand’s attractiveness. Thailand is recognised as one of the world’s top

attractions and best destinations from a “value-for-money” standpoint. Time magazine recently reported that Bangkok was the most visited city in the world according to the 2013 Global Destination Cities Index. According to CBRE, the average daily rate (ADR) of hotels in Bangkok was US$97 in 2012, the lowest among top Asian cities.

2) Economic growth engine shifting to Asia. As economic growth shifts from

the US and Europe to Asia, especially China, this boosts travelling to Asia and increases Asian wealth. According to Ernst & Young, Asia Pacific is expected to represent 54% of the global middle class by 2020 and two-thirds by 2030, up from 28% in 2009. The growing middle class in the Asia-Pacific region represents potential demand for tourism, particularly in intra-regional destinations.

3) AEC integration in 2015. This is likely to create a US$1.5t geographical

economy and should lead to greater labour mobility and development of common infrastructure networks. Travelling within the region will become borderless with strategic connectivity plans in development.

4) Travelling becoming more convenient and affordable. Transportation of all

modes is becoming more affordable and convenient. We see the rising market share of low-cost carriers, driven by continued expansion with an aim to double capacity and coverage in the next three years. The Thai government’s Bt2.2t infrastructure investment, including four high-speed rail projects and railway improvement, should benefit Thai tourism since Thailand is located in the centre of the development.

5) Beneficiary of the territorial spat between China and Japan. The dispute

between China and Japan over the Senkaku Islands has led to more tourists from both countries to Thailand. In addition, a popular Chinese movie, “Lost in Thailand”, also contributed to higher awareness of Thailand’s tourist attractions.

We expect tourist arrivals to Thailand to increase 10% yoy to 24.5m in 2013 and 30.0m in 2015. This represents a CAGR of 10.4% in 2013-15 vs 7.5% in 2003-12. Chinese visitors made up the largest share of 17.8% of total tourist arrivals to Thailand in 5M13, followed by Malaysia (10%), Russia (7.8%), Japan (5.8%), and Korea (4.8%). We see a growing number of visitors from China and Russia since the economic slowdown in the US and Europe in 2008. We believe these two markets should continue to be the key contributors to Thai tourism over the next three years.

Hotel Sector 10

Figure 20: Top 10 Tourist Arrivals And 3-Year CAGR Figure 21: Top 10 Tourist Arrivals In 5M13


Figure 22: ADR Across Asian Cities In 2012 Figure 23: Global Hotel Performance In 5M13

245 240

197 189 185

146129

116 115 109 101 97

0

50

100

150

200

250

300

Hon

g

Sing

apor

e

Tai

pei

Seou

l

Tok

yo Bal

i

Ho

Chi

Shan

ghai

KL

Bei

jing

Jaka

rata

Ban

gkok

(US$)

020406080

100120140160180200

As ia P acific Thailand Americas Euro pe MiddleEas t/Africa

(US$)

ARR RevPar

Source: CBRE, STR Source: STR Global

Figure 24: Tourist Arrivals And Occupancy Rate In Thailand

Figure 25: Tourist Arrivals By Nationality

14.6m 14.1m 15.9m 19.2m

22.3m 24.5m

64%61%56% 58%

50%49%

0

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10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

2008 2009 2010 2011 2012 2013F

0%10%20%30%40%50%60%70%

Eas t As ia Euro peThe Americas So uth As iaOceania Middle Eas tAfrica Marke t Occupancy Rate

(%)(visitor)

1813975

1011131312

2

854

6

66667

5554

5

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 5M13

China Malaysia Russia JapanKorea India UK GermanyAustralia US Others

(%)


7.0%12.9%5.9%

1.1 %

53.1% CAGR

13. 4%

57. 5% 10. 9%23. 7% 18.2%

0

500,000

1,000,000

1,500,000

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3,000,000C

hina

Mal

aysi

a

Rus

sia

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Kor

ea

Indi

a

UK

Ger

man

y

Aus

tral

ia US

(visitors)

2010 2012

93. 0%

9.8% 33. 9%

18. 0% 15. 6% 3.5% 1.4% 11.8% -2.3% 6.2%

0

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Chi

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a

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Ger

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ia

US

(visitors)

5M12 5M13

Hotel Sector 11

Future hotel supply in downtown Bangkok to slow down. According to data from CBRE, the total number of hotel rooms in downtown Bangkok is estimated to rise 15% yoy to 40,100 in 2013. The additional supply of 5,100 rooms consists of 300 luxury rooms, 1,700 four-star rooms, 2,800 mid-range rooms and 300 economy rooms. Future hotel supply growth is expected to slow down in the next few years due to a decline in the number of new hotel construction permits issued over the past two years as well as rising land prices and construction costs, which make it harder to justify financially the development of new hotels. We believe the strong tourism demand and a slower new supply should be positive to hotel performance in terms of higher occupancy rates and ADR. Figure 26: Hotel Supply In Downtown Bangkok Figure 27: Hotel Supply In Downtown Bangkok By

Segment

42,200

41,90040,100

35,000

10%

5%

1%

15%

05,000

10,00015,00020,00025,00030,00035,00040,00045,000

2012 2013F 2014F 2015F

(keys)

0%

2%

4%

6%

8%

10%

12%

14%

16%

No. of hotel rooms in Downtown Bangkok% yoy growth

(%

Economy

15%

Mid-range45% 4-star hotel

22%

Luxury18%

Source: CBRE Source: CBRE

QSR sector - Resilient domestic consumption to drive the restaurant business in Thailand We expect domestic consumption to remain strong on the back of an expanding middle class, urbanisation and continued economic growth of around 5% over the next three years. In addition, we see the change in the lifestyles of Thai people in urban areas, particularly in Bangkok and its vicinity, as well as in major provincial urban areas, prompting dining out to become more popular. Solid domestic consumption and a change in lifestyles are key drivers for the QSR business in Thailand. The SSS growth of the QSR operators is positively correlated to real GDP growth. The expected good GDP growth of 4.7% in 2013 and 5.0% in 2014 is supportive to the QSR business. The QSR sales are estimated to grow 12-15% per year, driven by growing demand, innovative products, value for money and continued outlet expansion. The expansion of the QSR business will be in line with the expansion of mall operators, especially in upcountry, since QSR outlets are mostly located in shopping malls, community malls and hypermarkets.

Resilient domestic consumption on the back of a growing middle class, urbanisation and good economic growth outlook is a key driver for the restaurant business in Thailand.

Hotel Sector 12

Figure 28: Real GDP Growth vs SSS Growth Of MINT And CENTEL

Figure 29: Consumer Confidence Index

2%0%

6%5% 5%

-2%

8%

-10%

-5%

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012 2013F 2014F

Real GDP growth SSS growth - CENTELSSS growth - MINT

(%

50

60

70

80

90

100

110

2008 2009 2010 2011 2012 2013

CCI: Overall Economy CCI : Job Opportunity

CCI : Future Income

Source: MINT, CENTEL, UOB Kay Hian Source: The Thai Chamber of Commerce

Figure 30: Proportion Of Population Living In Municipal And Non-municipal Areas

Figure 31: Household Income By Geography

403430

19

60667082

0%

20%

40%

60%

80%

100%

2000 2007 2011 2020F

Municipal Non-municipal

(%)

0

10,000

20,000

30,000

40,000

50,000

Thailand GreaterBangko k

Central Northern No rtheas ternSouthern

2007 2009 2011

6.0% CAGR

8.7% CAGR

6.2% CAGR

1.9% CAGR

5.7% CAGR

8.9% CAGR

(Bt)

Source: National Statistical Office (NSO), UOB Kay Hian Source: National Statistical Office (NSO), UOB Kay Hian

Figure 32: Market Size Of QSR In Thailand Figure 33: Total System Sales Growth Of MINT And CENTEL

0%

5%

10%

15%

20%

25%

30%

2008 2009 2010 2011 2012 2013F 2014F

(%)

TSS Growth - CENTEL

TSS Growth - MINT

Source: Euromonitor Source: MINT, CENTEL, UOB Kay Hian

Hotel Sector 13

QSR Sector - Regional Perspective

According to our regional consumer strategist, the outlook for the QSR business in Greater China is not as bright as Thailand’s. While Thailand has been enjoying increases in spending power due to higher incomes, the growth momentum in Greater China has slowed down. It is important to distinguish between absolute wealth and the momentum of wealth growth because we think it is the momentum in personal wealth growth that drives the strong growth trends in Thailand.

On the other hand, Greater China faces three negative trends, which are difficult to reverse in the foreseeable future, namely:

Trading down due to income effect. We see Chinese consumers trading down from higher-end banquet halls to QSRs, and from QSRs to food courts. At the highest levels, politicians in China, who are important customers of banquet halls, are becoming less wealthy due to President Xi Jinping’s anti-corruption campaign, while the middle class no longer sees the same level of wealth growth in the past. Also, with the emergence of new malls, the best locations have generally gone to the food courts, which also charge less than QSRs and have lower price points.

Food safety. There is a general slowdown in SSS growth to 5-8% for QSRs in China for food safety reasons. Yum Brands’ Kentucky Fried Chicken, a major player in China, now faces questions by the government and public regarding the safety and source of its chickens. In general, many Chinese have shunned QSRs as they prefer to have greater control of their food preparation at home.

Higher rents. Apart from a slowdown in revenue growth, profitability is expected to remain flat or decline. Rents in Hong Kong have skyrocketed at 30-50% per year and account for a higher proportion of total sales at QSRs than that in Thailand and China. Relocating outside of key areas or malls is not possible despite the high rents because these are the areas with the best traffic flow.

With regards to MINT’s investment in Riverside, we feel it is quite challenging. Chinese consumers in Beijing and Shanghai, where Riverside’s 21 stores are based, like to try out new fads, and Riverside’s offering, a dish that appears to be based on Sichuan cooking of whole fish and noodles, may be popular in the early stages. However, the long-term success of this small chain is not guaranteed. In our view, it really depends on the locations that Riverside has secured and whether it can scale up quickly enough.

Figure 34: Rents As % Of Total Sales

0%

5%

10%

15%

20%

25%

30%

Thailand Hong Kong China MINT's Chinaoperations

(%)

Source: MINT, UOB Kay Hian

Hotel Sector 14

Key Recommendations

Company Name 2 15

T H A I L A N D

4 July 2013 Initiate Coverage

C E N T R A L P L A Z A H O T E L ( C E N T E L T B )

Best Of The Pack


Central Plaza Hotel (CENTEL) is Thailand’s leading operator of hotels both in Thailand and overseas, as well as Quick Service Restaurants (QSR) in Thailand. CENTEL is part of the Central Group of companies. It was established in 1980 by the Chirathivat family and listed on the Stock Exchange of Thailand in 1990. The company owns several hotel brands, ranging from luxury to economy brands. Its food portfolio consists of 12 brands with a total of 681 outlets. Expanding hotel portfolio via an asset-light strategy. CENTEL plans to

increase its hotel portfolio to over 80 hotels in more than 30 countries by 2017. It is adopting an asset-light strategy to expand its hotel portfolio through hotel management contracts under its own brands. It targets to add 8-10 new hotel management contracts per year. Managed hotel rooms are expected to account for 66.7% of total hotel rooms in 2015 vs 24.9% in 2005.

Expect record-high RevPar. We expect CENTEL’s revenue per available room (RevPar) in 2013 to hit a record high, growing strongly by 20.3% yoy to Bt3,149 driven by a) growing tourist arrivals, especially from Asian countries and Russia, b) the consolidation of Centara Grand Island Resort & Spa Maldives and c) the opening of Centara Ras Fushi Resort & Spa Maldives.

Organic growth through outlet expansion across Thailand, especially in upcountry areas. CENTEL’s growth strategy for its restaurant business is to expand its own outlets. It targets to grow organically, opening approximately 50-70 outlets per year in 2013-16 in Thailand especially in upcountry areas through modern trade expansion and increased variety of brands in upcountry areas.

Potential upside from the addition of one food brand per year. CENTEL targets to add one new brand a year through securing a franchise licence to operate in Thailand or acquiring outlets of existing brands. It expects to sign a franchise agreement for a new brand, which is likely to be Japanese in 3Q13. It targets to have 16 food brands with over 1,000 outlets by end-17.

Initiate with BUY and target price of Bt44.00, based on sum-of-the-parts (SOTP) valuation. CENTEL’s hotel & mixed use business is pegged at 15.6x 2014F EV/EBITDA multiple while its restaurant business is based on 22.5x 2014F PE. Our target price also implies 2014F PE-to-growth (PEG) of 0.99x. The catalyst for CENTEL is the possibility of injecting its hotel property to a REIT.

Key Financials

Year to 31 Dec (Btm) 2011 2012 2013F 2014F 2015F

Net turnover 11,574 14,922 17,900 20,461 23,244 EBITDA 2,316 3,157 3,956 4,595 5,258 Operating profit 1,182 1,806 2,367 2,945 3,538 Net profit (rep./act.) 550 1,581 1,546 2,009 2,484 Net profit (adj.) 550 1,123 1,546 2,009 2,484 EPS (Bt) 0.4 0.8 1.1 1.5 1.8 PE (x) 81.6 40.0 29.0 22.3 18.1 P/B (x) 7.7 5.0 4.4 3.9 3.4 EV/EBITDA (x) 24.3 17.9 14.3 12.3 10.7 Dividend yield (%) 0.5 0.9 1.3 1.6 2.0 Net margin (%) 4.8 10.6 8.6 9.8 10.7 Net debt/(cash) to equity (%) 167.1 130.7 105.3 75.3 49.2 Interest cover (x) 5.6 6.5 7.5 9.5 12.4 ROE (%) 9.5 21.4 16.2 19.6 22.3 Consensus net profit - - 1,568 1,995 2,476 UOBKH/Consensus (x) - - 0.99 1.01 1.00

Source: Central Plaza Hotel, Bloomberg, UOB Kay Hian

BUY Share Price Bt33.25 Target Price Bt44.00 Upside +32.3% Company Description CENTEL is Thailand’s leading operator of hotels both in Thailand and overseas, as well as Quick Service Restaurants (QSR) in Thailand. CENTEL is part of the Central Group of companies. Stock Data GICS sector Consumer DiscretionaryBloomberg ticker: CENTEL TBShares issued (m): 1,350.0Market cap (Btm): 44,887.5Market cap (US$m): 1,446.63-mth avg daily t'over (US$m): 2.4 Price Performance (%) 52-week high/low Bt41.50/Bt12.501mth 3mth 6mth 1yr YTD (7.6) (12.5) 27.9 159.8 27.9 Major Shareholders % Chirathivat Family 64.0 Local Investors 26.0 Foreign Investors 10.0 FY13 NAV/Share (Bt) 7.48FY13 Net Debt/Share (Bt) 7.87 Price Chart

80

120

160

200

240

280

320

10

15

20

25

30

35

40

45

(%)(lcy)CENTRAL PLAZA HOTEL PCL

Central Plaza Hotel Pcl/SET Index

0

10

20

Jun 12 Aug 12 Oct 12 Dec 12 Feb 13 Apr 13

Volume (m)

Source: Bloomberg

Analysts

Pornthipa Rayabsangduan +662 659 8302 [email protected]

Hotel Sector 16

Investment Highlights Expanding hotel portfolio via an asset-light strategy. CENTEL plans to increase its hotel portfolio to over 80 hotels in more than 30 countries by 2017 from only 7 hotels in Thailand in 2005. It is adopting an asset-light strategy to expand its hotel portfolio through hotel management contracts under its own brands. This approach is less capital intensive and allows the company to expand at a faster pace compared to building its own hotels. It targets to add 8-10 hotel management contracts per year. The proportion of managed hotel rooms is expected to increase to 66.7% of total hotel rooms in 2015 from 24.9% in 2005. Expect record-high RevPar. We expect CENTEL’s RevPar to hit a record high in 2013, growing strongly by 20.3% yoy to Bt3,149 as a result of a 16.7% increase in average room rate (ARR) to Bt4,370 and higher occupancy rate of 73% compared with 69.9% in 2012. The key drivers for its impressive hotel performance would be a) growing tourist arrivals, especially from Asian countries and Russia, b) the consolidation of Centara Grand Island Resort & Spa Maldives (CENTEL increased its stake to 74% in Dec 12), and c) the opening of Centara Ras Fushi Resort & Spa Maldives in Mar 13. Organic growth through outlet expansion across Thailand, especially in upcountry areas. CENTEL’s growth strategy for its restaurant business is expanding its outlets in Thailand. It targets to grow organically, opening approximately 50-70 outlets per year in 2013-16 in Thailand especially in upcountry areas. Outlet expansion in overseas markets is likely to be its long-term plan. The company believes there is potential to grow its QSR business in upcountry areas driven by rising household income and urbanisation. It will focus on expanding outlets of its key brands ie KFC, Mister Donut, Auntie Anne’s, Ootoya, and Yoshinoya. Outlets in upcountry areas are estimated to account for 50% of total outlets in 2016, an increase from 40% currently driven by modern trade expansion and increased variety of brands in upcountry markets. Potential upside from the addition of one food brand per year. CENTEL’s revenue from the restaurant business is estimated to grow 16.1% yoy to Bt9,704.7m in 2013 thanks to a) strong same-store sales (SSS) growth of 4.0% on the back of good economic outlook and b) the addition of 76 outlets (+11.2% yoy). The potential upside to our forecasts should come from the contribution from its new food brand. CENTEL targets to add at least one new brand a year through securing a franchise licence to operate in Thailand or acquiring outlets of existing brands. The company expects to sign the franchise agreement for its new brand, which is likely to be Japanese in 3Q13. The addition of new brands helps CENTEL diversify the risk of depending on one specific brand and sustain the growth of its restaurant business. It targets to have 16 food brands with over 1,000 outlets by end-17. Initiate with BUY and target price of Bt44.00, based on SOTP valuation. We value CENTEL’s hotel business at Bt29.40 based on 15.6x 2014F EV/EBITDA and its restaurant business at Bt14.60 based on 22.5x 2014F PE, which is a 7% discount to regional average PE. Our target price also implies 2014F PEG of 0.99x. The catalyst for CENTEL is the possibility of injecting its hotel property into a REIT. Risks. Key risks to our investment case for CENTEL include: a) external risks, b) political uncertainty, c) currency fluctuation, d) increasing competition, e) domestic consumption slowdown, and f) termination of franchised food brand.

CENTEL targets to grow organically, opening approximately 50-70 outlets per year in Thailand, especially in upcountry areas.

The potential upside to our forecasts should come from the contribution from its new food brand. CENTEL expects to add one new brand a year.

Initiate coverage with a BUY and a target price of Bt44.00, based on SOTP valuation.

We expect CENTEL’s RevPar to hit a record high, growing strongly by 20.3% yoy to Bt3,149 in 2013 driven by the promising tourism outlook and the consolidation of two resorts in Maldives.

CENTEL’s strategy is to expand its hotel portfolio via an asset-light approach.

Hotel Sector 17

Valuation We are initiating coverage on CENTEL with a target price of Bt44.00, which is based on SOTP valuation. We value CENTEL’s hotel business at Bt29.40 based on 15.6x 2014F EV/EBITDA and its restaurant business at Bt14.60 based on 22.5x 2014F PE, which is a 7% discount to regional average PE. Our target price also implies 2014F PEG of 0.99x. We believe this is reasonable given a) the strong growth potential for the businesses, which CENTEL operates with normalised EPS CAGR of 30.3% in 2013-15F, b) its asset-light approach, which will reduce capital requirements for growth and c) the company’s good execution track record. The catalyst for CENTEL is the addition of a new food brand and the sale of its hotel property to a REIT. The company is interested in injecting Centara Grand Island Resort & Spa Maldives into a REIT. This could lift our earnings forecast. The proceeds from the asset sale will be used to finance new opportunities for the hotel business. Figure 1: Sum-of-the-Parts Valuation

(Btm)

Hotel Business: EV/EBITDA multiple method 2014F EBITDA from hotel business (Btm) 3,099.8 EV/EBITDA multiple (x) 15.6 EV (Btm) 48,418.9 2014F Net debt (Btm) 8,687.6 No. of fully diluted shares (m) 1,350.0 Equity value per share (Bt) 29.4 Restaurant Business: PE multiple method Net profit from restaurant business (Btm) 874.3 PE multiple (x) 22.5 Equity value (Btm) 19,672.2 No. of fully diluted share (m) 1,350.0 Equity value per share (Bt) 14.6 Sum-of-the-parts value (Bt) 44.0

Source: CENTEL, UOB Kay Hian Figure 2: EV/EBITDA Band

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

2006 2007 2008 2009 2010 2011 2012 2013

Mean: 8.3x

+0.5SD: 9.6x

-0.5SD: 6.9x

EV/EBITDA (x)

+1.5SD: 12.3X

+1SD: 11.0x

-1SD: 5.6x

-1.5SD: 4.3x

+2SD: 13.7X

Source: Bloomberg, UOB Kay Hian

Hotel Sector 18

Earnings Outlook CENTEL’s Hotel Business Expanding hotel portfolio via an asset-light strategy. CENTEL plans to increase the number of hotels to over 80 hotels in more than 30 countries by 2017 from only 7 hotels in Thailand in 2005. Its hotel portfolio as of 30 Apr 13 consisted of 38 hotels with a total of 7,340 keys including 13 hotels, 1 hotel under Centara Hotels & Resorts Leasehold Property Fund (CTARAF), 1 JV hotel, and 23 managed hotels. The company expands the portfolio of its hotels by using debt financing and internal cashflows. CENTEL has opened its second resort in Maldives, Centara Ras Fushi Resort & Spa Maldives (CENTEL holds a 75% stake) in Mar 13. In addition, the company is planning to acquire another 50% equity stake in Centara Kata Resort Phuket from Lehman Brothers. At present, Centara Kata is a 50%:50% JV between CENTEL and Lehman. The deal should be finalised by end-13 or early next year. According to the recent update with management, the company is likely to develop new hotels on its own in Thailand compared with entering into a JV with strategic partners for overseas hotel projects. Figure 3: No. Of Hotels By Ownership Figure 4: No. Of Rooms By Ownership

6 10 12 13 131

17 2032

40 42

13

0

10

20

30

40

50

60

70

2005 2011 2012 2013F 2014F 2015F

Owned hotel Property fund hotelJoint venture hotel Managed hotel

7

5 75 5

4 7

3 43 1

(No. of Hotels)

1546 2865 3312 3452 3452512

1997 29075063

6851 7632

3452

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2005 2011 2012 2013F 2014F 2015F

(rooms)

Owned hotel Property fund hotel

Joint venture hotel Managed hotel

2 ,0 5 8

11,4 4 4 10 ,6 6 3

8 ,8 7 5

6 ,5 7 9 5 ,6 6 9

Source: CENTEL, UOB Kay Hian Source: CENTEL, UOB Kay Hian

Figure 5: Investment In Hotels In 2011-13

Hotel Property Investment

Period Investment value (Btm)

% holding after

investment Description

23 Sep 11 154.4 50.0 CENTEL invested for a 50% equity stake. 30 Jan 12, 28 Mar 12 155.0 50.0 Additional investment.

1) Centara Ras Fushi Resort & Spa Maldives

07 Jun 12 157.4 75.0 Acquired another 25% stake.

27 Feb 12 179.2 83.9 Acquired additional 33.92% stake. CENTEL's holding increased to 83.92% from 50% previously.

2) Centara Karon Resort

Feb 13 120.0 99.3 Acquired additional 15.39% stake. CENTEL's holding increased to 99.31% from 83.92% previously.

3) Centara Grand Island Resort & Spa Maldives 03 Dec 12 264.6 74.0

Acquired another 49% stake. CENTEL's holding increased to 74% from 25% previously.

Source: CENTEL, UOB Kay Hian

Hotel Sector 19

CENTEL is adopting an asset-light strategy to expand its hotel portfolio through hotel management contracts under its own brands. This approach is less capital intensive and allows the company to expand at a faster pace compared to building its own hotels. It targets to add 8-10 new hotel management contracts per year. According to its current pipeline as of 30 Apr 13, there were 19 hotels (4,104 rooms) under development from 2H13-2015. All 19 hotels under development will be management-contract hotels. Therefore, there will be 42 managed hotels from the total of 57 hotels by end-15. The proportion of managed hotel rooms is expected to increase to 66.7% of total hotel rooms in 2015 from 24.9% in 2005. CENTEL prefers to expand internationally through hotel management contracts. Almost 45% of total rooms in development pipeline (1,832 out of 4,104 managed hotel rooms) will be located overseas including Bali, China, Maldives, Mauritius, Vietnam, and Sri Lanka. Figure 6: Hotel Portfolio

Hotel name Country Segment No. of rooms Operate %

holding

Owned Hotel 1. Centara Grand at Central World Thailand 5-star 512 4Q08 100.0 2. Centara Grand Bangkok (Ladprao) Thailand 5-star 565 2Q83 100.0 3. Centara Grand Resort & Villas Hua Hin Thailand 5-star 249 1Q86 63.9 4. Centara Grand Beach Resort Phuket Thailand 5-star 262 4Q10 100.0 5. Centara Grand Beach Resort & Villas Krabi Thailand 5-star 192 4Q05 100.0 6. Centara Grand Mirage Beach Resort Pattaya Thailand 5-star 555 4Q09 100.0 7. Centara Villas Phuket Thailand 4-star 72 2Q00 100.0 8. Centara Karon Resort Phuket Thailand 4-star 335 2Q06 99.3 9. Centara Mae Sot Hill Resort Thailand 4-star 113 4Q89 98.4 10. Centara Hat Yai Thailand 4-star 245 4Q95 100.0 11. Centara Villas Samui Thailand 4-star 100 2Q00 100.0 12. Centara Grand Island Resort & Spa Maldives Maldives 5-star 112 4Q09 74.0 13. Centara Ras Fushi Resort & Spa Maldives Maldives 4-star 140 Mar-13 75.0 Total 13 Owned Hotels 3,452 Property Fund Hotel 1. Centara Grand Beach Resort Samui Thailand 5-star 202 2Q96 100.0 JV Hotel 1. Centara Kata Resort Phuket Thailand 4-star 158 2Q06 50.0 Managed Hotel 1. Khum Phaya Resort, Centara Boutique Collection Thailand Boutique 87 3Q10 2. Centara Hotel & Convention Centre Udon Thani Thailand 4-star 259 2Q10 3. Centara Chaan Talay Resort & Villas Trat Thailand 4-star 44 1Q08 4. Centara Duangtawan Hotel Chiang Mai Thailand 4-star 512 4Q04 5. Centara Sappaya Design Resort Rayong Thailand 4-star 13 2Q10 6. Centra Ashlee Hotel Patong Thailand 3-star 110 2Q10 7. Away Suansawan Chaing Mai, Centara Boutique Collection Thailand Boutique 50 2Q10 8. Centara Anda Dhevi Resort & Spa Krabi Thailand 4-star 138 4Q11 9. Centara Plaza Hotel Pattaya Thailand 4-star 152 4Q11 10. Nova Hotel & Spa Pattaya, Centara Boutique Collection Thailand Boutique 79 4Q11 11. Chen La Resort & Spa Phu Quoc, Centara Boutique Collection Thailand Boutique 108 1Q11 12. Waterfront Suites Phuket by Centara Thailand Residence 39 1Q11 13. Centra Tuam Resort Bali Indonesia 3-star 90 4Q11 14. Centara Grand West Sands Resort & Villas, Phuket (Phase 1) Thailand 5-star 316 3Q11 15. Centara Hotel & Convention Centre Khonkaen Thailand 4-star 196 2Q12 16. Centara Sandy Beach Da Nang Vietnam Vietnam 4-star 198 4Q12 17. Centara Koh Chang Tropicana Resort Thailand 4-star 157 2Q12 18. Centara Poste Lafayette Resort & Spa Maurittius Mauritius 4-star 100 4Q12 19. Centra Government Complex Hotel & Convention Centre Chang Wattana Thailand 3-star 204 4Q12 20. Centra Coconut Beach Resort Samui Thailand 3-star 55 3Q12 21. Centara Passikudah Resort & Spa Srilanka SriLanka 4-star 125 1Q13 22. Centara Watergate Hotel & Spa Bangkok Thailand 4-star 281 2Q13 23. Khao Lak Seaview Resort & Spa, Managed by Centara Thailand 4-star 215 2Q13 Total 23 Managed Hotels In Operation 3,528 Total 38 Hotels In Operation 7,340

Cont’d …

CENTEL is adopting an asset-light strategy, which is less capital intensive and allows the company to expand at a faster pace.

Hotel Sector 20

…Cont’d Hotel Portfolio

Hotel name Country Segment No. of rooms Operate %

holding

1. Centara Wuku Resort & Spa Bali Indonesia 4-star 213 3Q13 2. Centara Grand Resort & Spa Pattaya Thailand 5-star 160 3Q13 3. Centara Grand Modus Pattaya Thailand 5-star 215 3Q13 4. Centra Central Station Bangkok Thailand 3-star 150 3Q13 5. Fisherman Harbour Hotel & Spa Patong by Centara Thailand 4-star 364 4Q13 6. Centara Ceysands Resort & Spa Srilanka SriLanka 4-star 166 4Q13 7. Centara Grand Azuri Resort & Spa Mauritius Mauritius 5-star 100 4Q13 8. Centara Grand Azuri Residences & Suites Mauritius Mauritius Residence 85 4Q13 9. Centara Grand Nusa Dua Resort & Villas, Bali Indonesia 5-star 82 4Q13 10. Centara Hudhufushi Resort & Spa, Maldives Maldives 4-star 110 1Q14 11. Centara Avenue Residence and Suites. Pattaya Thailand 4-star 96 3Q14 12. Centara Grand San Simeon Resort and villas Vietnam Vietnam 5-star 196 4Q14 13. Centara Nha Trang Bay Residence & Suites Vietnam Vietnam 4-star 530 4Q14 14. Centara Grand Shanghai Sheshan Resort China 5-star 125 4Q14 15. Centara Waves Resort Spa Sri Lanka SriLanka 4-star 225 4Q14 16. Centara Resort Hua Hin Thailand 4-star 156 4Q14 17. Centara Grand Moringa Resort and Spa, Phuket Thailand 5-star 350 4Q14 18. Centara Grand Resort & Spa Jomtien Thailand 5-star 120 4Q15 19. Centara Koh Lan Resort & Spa Thailand 4-star 100 2015 20. Centara Grand West Sands Resort & Villas, Phuket (Phase 2) Thailand 5-star 561 2015 Total 19 Managed Hotels Under Development 4,104 Grand Total 57 Hotels 11,444

Source: CENTEL, UOB Kay Hian Figure 7: Hotel Rooms Breakdown By Ownership Figure 8: Hotel Management Fee

75%65%

56%43% 36% 33%

25%35%

44%57% 64% 67%

0%

20%

40%

60%

80%

100%

2005 2011 2012 2013F 2014F 2015F

Owned + PFPO + JV hotel Managed hotel

(%)

57.5 132.8 165 200 240 280 330 400

9

3341

49

59

21

80

20

050

100150200250300350400450

2009 2011 2012 2013F2014F2015F2016F2017F

(Btm)

0102030405060708090

(hotels)

Management fee No. of managed hotels


CENTEL’s hotel management fee is based on a) fixed percentage of gross revenue ranging from 2-3% and b) incentive fees ranging from 6-10% on gross operating profit. We estimate its hotel management fee to grow by 21.2% yoy to Bt200m in 2013 and reach Bt400m from 80 managed hotels in 2017. Hotel management fee from overseas properties is likely to account for 40% of total hotel management fee in 2017 from around 30% in 2012. Figure 9: Managed Hotels Under Development

Country 2H13 2014 2015 Total rooms % Breakdown

Thailand 889 602 781* 2,272 55.4 Bali, Indonesia 295 - - 295 7.2 China - 125 - 125 3.0 Maldives - 110 - 110 2.7 Mauritius 185 - - 185 4.5 Vietnam - 726 - 726 17.7 Sri Lanka 166 225 - 391 9.5 Total 1,535 1,788 781 4,104 100.0

* We include second phase of Centara Grand West Sand of 561 rooms Source: CENTEL, UOB Kay Hian

Hotel Sector 21

Unlike The Erawan Group (ERW) that hires international hotel operators to manage their property, CENTEL manages the hotels under its own brands, including Centara Grand for its luxury (5-star) hotels, Centara for its 4-star hotels, Centra for its mid-range hotels and Centara Boutique Collection for its boutique hotel segment. CENTEL’s residential segment comes under the Centara Residence and Suites brand. The various brands allow the company to position hotels, set room rates, and target different customer groups. In addition, its hotel portfolio under various brands would mitigate a drop in revenues due to any possible damage of one brand. Centara brand is estimated to account for 48.2% of total hotel rooms in 2015, followed by 42.6% under Centara Grand, 5.3% under Centra, 2.8% under Centara Boutique Collection, and 1.1% under Centara Residence & Suites. It is worth highlighting that CENTEL’s hotel portfolio is mostly in upscale and luxury segments. Figure 10: Hotel Brand Portfolio

Brands Thailand Bali China Maldives Mauritius Vietnam Sri Lanka Total % breakdown

4,259 82 125 112 100 196 - 4,874 42.6%

3,706 213 - 250 100 728 516 5,513 48.2%

519 90 - - - - - 609 5.3%

216 - - - - 108 - 324 2.8%

39 - - - 85 - - 124 1.1%

Total 8,739 385 125 362 285 1,032 516 11,444 100.0% Source: CENTEL, UOB Kay Hian Introduction of Cosi Brand for budget hotels. CENTEL introduced a new brand -Cosi in the economy segment, targeting cost-conscious travellers in 4Q12. The company targets to open five hotels under the Cosi brand (including one owned hotel and four managed hotels) per year starting from 2015 onwards. The standard Cosi hotel has 200 rooms with an investment cost of Bt1.6m per room or Bt320m per hotel. Note that we have not factored in the contribution from Cosi hotels. This should be the potential upside to our forecasts in 2015 onwards. At present, CENTEL signed MOUs with 3-4 investors, who are interested in building budget hotels under the Cosi brand and CENTEL will manage their hotels. Figure 11: Expansion Plan Of Cosi Hotels Figure 12: Management Fee of Cosi Hotels

1 2 34 5 6

4

8

12

16

20

24

0

5

10

15

20

25

30

2015F 2016F 2017F 2018F 2019F 2020F

(hotels)

Owned hotel Managed hotel

4

8

12

16

20

24

0

20

40

60

80

100

120

140

2015F 2016F 2017F 2018F 2019F 2020F

(Btm)

0

5

10

15

20

25

30

(hotels)

Management fee No. of managed hotels


Hotel Sector 22

Expect record-high RevPar. We expect CENTEL’s RevPar in 2013 to hit a record high, growing strongly by 20.3% yoy to Bt3,149 in 2013 as a result of a 16.7% increase in ARR to Bt4,370 and higher occupancy rate of 73% compared with 69.9% in 2012. The key drivers for its impressive hotel performance would be a) growing tourist arrivals, especially from Asian countries and Russia and b) the consolidation of Centara Grand Island Resort & Spa Maldives and c) the opening of Centara Ras Fushi Resort & Spa Maldives. According to CENTEL’s guest-mix based on the number of room nights, the contribution from Asian guests increased to 21% in 2012 from 17% in 2008 due to solid growth of Chinese guests. Meanwhile, the contribution from European guests declined from 49% in 2008 to 40% in 2012 owing to the European economic slowdown. We see the trend of the change in the company’s feeder market mix has moved in line with the pattern of international tourist arrivals.

Figure 13: ARR, Occupancy Rate & RevPar Figure 14: Revenue Contribution By Property

2,162 1,983 1,9792,340

2,6173,149

3,4653,770

64.260.5 58.1

63.969.9 73.0 75.1 77.1

0

1,000

2,000

3,000

4,000

5,000

6,000

2008 2009 2010 2011 2012 2013F2014F2015F

(Bt)

0%10%20%30%40%50%60%70%80%90%

RevPar ARR Occupancy rate

(%) Centara Grand at Central World22.7%

Centara Grand

Pattaya17.0%

Centara Grand

Ladprao15.0%

Centara Grand

Phuket11.0%

Centara Grand Hua

Hin9.0%

Others25.3%

Note: ARR, occupancy rate, and RevPar are based on CENTEL’s owned and JV hotels Source: CENTEL, UOB Kay Hian

Source: CENTEL

CENTEL’s total revenue from the hotel business is likely to surge 26.6% yoy to Bt8,195.3m in 2013 driven by a) continued improving performance of its existing properties with average RevPar growth of 8.9%, b) the full-year consolidation of Centara Grand Island Resort & Spa Maldives, which is estimated to contribute Bt800m revenue, as well as c) the contribution from Centara Ras Fushi Resort & Spa Maldives, which opened in Mar 13, of approximately Bt300m. EBITDA margin from the hotel business is expected to continue rising to 32.6% in 2013 from 31% in 2012 thanks to better operating performance of all properties especially Centara Grand at Central World, which turned around in 2012 and Centara Grand Bangkok (Ladprao), which closed for renovation after the floods and re-opened in 1Q12.

Figure 15: Hotel Business – Revenue And EBITDA Figure 16: Guest Breakdown By Nationality

34.133.532.631.0

26.0

19.0

22.0

30.0

0

2,000

4,000

6,000

8,000

10,000

12,000

2008 2009 2010 2011 20122013F2014F2015F

(Btm)

0%

5%

10%

15%

20%

25%

30%

35%

40%

Total revenue EBITDA EBITDA margin

(%)

4 940

50

23

2 117

1712

15

5126

0%

20%

40%

60%

80%

100%

2008 2012 1Q13Europe Asia ThailandAustralia Middle East USAOthers

(%)

Source: CENTEL, UOB Kay Hian Source: CENTEL

CENTEL’s RevPar is expected to grow strongly by 20.3% yoy to Bt3,149 in 2013 as a result of a 16.7% increase in ARR to Bt4,370 and higher occupancy rate of 73% compared with 69.9% in

Hotel Sector 23

CENTEL’s Restaurant Business Organic growth through outlet expansion across Thailand, especially in upcountry areas. CENTEL has operated its QSR business since 1978 by introducing Mister Donut in Thailand. As at end-1Q13, the company’s food portfolio consisted of 12 brands with a total of 681 outlets in 71 provinces in Thailand. 89.4% of revenue from the restaurant business comes from its top four brands, which are KFC, Mister Donut, Ootoya, and Auntie Anne’s. CENTEL has franchise agreements to operate QSR outlets in Thailand for 10 brands, including KFC, Mister Donut, Auntie Anne’s, Ootoya, Pepper Lunch, Beard Papa’s, Chabuton, Cold Stone, Yoshinoya, and Café Andonand. The other two brands, which are The Terrace and Ryu, are its own brands. Note that all outlets are owned and operated by CENTEL to maintain quality and service standard. CENTEL plans to grow the number of outlets organically, opening approximately 50-70 outlets per year during 2013-16 in Thailand especially in upcountry areas. Outlet expansion in overseas markets is likely to be its long-term plan. The company believes there is potential to grow its QSR business in upcountry areas driven by rising household income and urbanisation. It will focus on expanding outlets of its key brands ie KFC, Mister Donut, Auntie Anne’s, Ootoya, and Yoshinoya. The outlet expansion will be in shopping malls where Central Pattana (CPN) operates and hypermarkets such as Tesco Lotus and Big C. Revenue per outlet in upcountry areas is generally higher than in Greater Bangkok. We expect the number of its outlets to increase to 903 outlets in end-16. Outlets in upcountry areas are estimated to account for 50% of total outlets in 2016, an increase from 40% at present. Apart from KFC, Mister Donut, and Auntie Anne’s, CENTEL plans to open Yoshinoya outlets in upcountry areas in 2013 and Ootoya in the next few years. Figure 17: No. Of Outlets In 2009-16F Figure 18: Outlet Expansion In 2011-16F

0

200

400

600

800

1,000

2009 2010 2011 2012 2013F2014F2015F2016F

(outlets)

KFC Pepper Lunch ChabutonRYU The Terrace YoshinoyaOotoya Mister Donut Café AndonandAuntie Anne's Beard Papa's Cold Stone

478

903853803

753677

603512

62

30

40

26 26 26

33

44

36

24 24 24

0

10

20

30

40

50

60

70

2011 2012 2013F 2014F 2015F 2016F

(outlets)

Heavy Food Light Food


CENTEL plans to grow the number of outlets organically, opening approximately 50-70 outlets per year in 2013-16 in Thailand, especially in upcountry areas.

Hotel Sector 24

Figure 19: Quick Service Restaurant Portfolio

Brand Type of food Brand ownershipNo. of outlets

in 2012 Brand Type of food Brand ownershipNo. of outlets

in 2012

Heavy FoodInternational Franchise

Agreement181 Heavy Food Franchise Agreement 12

Light FoodMaster Franchise

Agreement289 Heavy Food Ow n Brand 1

Light Food Franchise Agreement 1 Light FoodMaster Franchise

Agreement10

Light FoodDevelopment Agreement and Trademark License

Agreement100 Heavy Food Ow n Brand 4

Heavy FoodMaster Franchise

Agreement16 Heavy Food Franchise Agreement 9

Light FoodMaster Franchise

Agreement17 Heavy Food

Master Franchise Agreement

36

Source: CENTEL, UOB Kay Hian Figure 20: Outlet Breakdown By Location Figure 21: Food Revenue Breakdown By Brand In

1Q13

60%50%

40%50%

0%

20%

40%

60%

80%

100%

2012 2016F

Greater Bangkok Upcountry

(%)

KFC52.9%

Mister Donut19.6%

Ootoya8.1%

Auntie Anne's 8.8%

CBT2.8% RYU

0.3%

PL2.3%

CSC2.1%

Yo1.5%

BP0.8% TT

0.8%

Source: CENTEL Source: CENTEL, UOB Kay Hian

According to the recent update with management, CENTEL will focus on outlet expansion in Thailand in the next three years. It is considering expanding outlets of its new brand through a 50:50 JV with local investors as a JV investment should help CENTEL to expand at a faster rate than operating on its own. Note that capex for its heavy food brand is about Bt7m-10m per outlet and Bt3m-5m per outlet for its light food brand. Potential upside from the addition of one food brand per year. CENTEL’s total revenue from the restaurant business is likely to grow 16.1% yoy to Bt9,704.7m in 2013 thanks to a) strong SSS growth of 4.0% on the back of good economic outlook and b) the addition of 76 outlets (+11.2% yoy). The potential upside to our forecasts should come from the contribution from its new food brand. CENTEL targets to add at least one new brand a year through either getting a franchise licence to operate in Thailand or acquiring outlets of existing brands. The company expects to take on a franchise licence for its new brand, which is likely to be Japanese in 3Q13. The addition of new brands would diversify the risk of depending on one specific brand and sustain the growth of its restaurant business. The company targets to have 16 food brands with over 1,000 outlets by end-17.

CENTEL targets to add one new brand a year through either getting franchise licence to operate in Thailand or acquisition of outlets of existing brands.

Hotel Sector 25

Figure 22: Same-store-sales Growth, Total-system-sales Growth, And No. Of Outlets In 2008-14F

Figure 23: Restaurant Business – Revenue And EBITDA

254

6

15

-5

14

17 15272429 15

478 512

603677

753803

853

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2008 2009 2010 2011 2012 2013F 2014F

0

100200

300400

500600

700800

900

(outlets)

SSS TSS No. of outlets

(%

13%13% 13%13%13%14%16%17%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2008 2009 2010 2011 2012 2013F2014F2015F

(Btm)

0%2%

4%6%8%

10%12%14%

16%18%

Total revenue EBITDA EBITDA margin

(%)


Figure 24: Adjustment Of Food Brand Portfolio In 2009-11

Year Portfolio adjustment

- Terminated Pizza Hut totaling 25 outlets 2009 - Terminated Baskin Robbins totaling 37 outlets

2010 Added five new brands consisting of Chabuton, Cold Stone, Ryu, The Terrace, and Café Andonand

- Acquired Ootoya totaling 33 outlets 2011 - Added Yoshinoya to the portfolio

Source: CENTEL Funding the growth. CENTEL set a capex of Bt1,820m for 2013, which will be used for annual hotel renovation and food outlet expansion (Bt1,215m), investment in Centara Ras Fushi Resort & Spa Maldives (Bt485m), and acquisition of an additional 15.4% stake in Centara Karon Phuket (Bt120m). The company is looking into new opportunities in the hotel business in 2014-16, which will be financed by internal operating cash flow. Figure 25: Capex In 2013-17F Figure 26: EBITDA vs D/E Ratio

0200400

600800

1,0001,2001,400

1,6001,8002,000

2013F 2014F 2015F 2016F 2017F

(Btm)

0.8

1.1

1.3

1.0

1.41.6 1.7

0

1,000

2,000

3,000

4,000

5,000

2008 2009 2010 2011 2012 2013F 2014F

(Btm)

0.0

0.5

1.0

1.5

2.0

(x)

EBITDA D/E ratio


Hotel Sector 26

We anticipate CENTEL’s normalised profit to surge 37.7% yoy to Bt1,546.4m in 2013 as a result of strong revenue growth from the hotel (+26.6% yoy) and restaurant (+16.1% yoy) businesses as well as margin improvement. We expect the hotel business to contribute 46% of total revenue in 2013 (vs 44% in 2012). However, contribution of the hotel business is likely to be higher at 68% of total EBITDA in 2013 (vs 64% in 2012). Figure 27: Revenue Breakdown By Business Figure 28: EBITDA Breakdown By Business

42 46 44 43 45454644

5555545657565458

0%

20%

40%

60%

80%

100%

2008 2009 2010 2011 2012 2013F2014F2015F

Hotel Restaurant

(%)

676768645448

5863

3333323646

524237

0%

20%

40%

60%

80%

100%

2008 2009 2010 2011 2012 2013F2014F2015FHotel Restaurant

(%)


Hotel Sector 27

Company Background CENTEL is Thailand’s leading operator of hotels both in Thailand and overseas, as well as QSRs and casual dining restaurants in Thailand. The company is part of the Central Group of companies. It operates its hotel business under Centara Hotel & Resort Group and its restaurant business under Central Restaurant Group. CENTEL was established in 1980 by the Chirathivat family. The company was listed on the Stock Exchange of Thailand in 1990. Its hotel portfolio as of 30 Apr 13 consisted of 13 owned hotels, 1 JV hotel, 1 hotel under a property fund, and 23 managed hotels with total 7,340 keys. The company’s proprietary hotel brands range from 5-star to economy segments. Meanwhile, CENTEL’s food portfolio as at end-1Q13 consisted of 12 brands with total 681 outlets in 71 provinces in Thailand. Figure 29: CENTEL - Hotel Brand Portfolio

Hotel Brand Description

Flagship 5-star hotels & resorts in prime locations

Spacious 4-star hotels & resorts with excellence in service

High quality serviced apartments for the long stay guests

Uniquely intimate boutique hotels

Affordable quality 3-star hotels in the most convenient locations

Economy hotels with convenient and value-for-money accommodation for cost-conscious travellers

Source: CENTEL

CENTEL is Thailand’s leading operator of hotels and QSR business. The company is part of the Central Group of companies.

Hotel Sector 28

Figure 30: CENTEL – Quick Service Restaurant Portfolio

Food Brand Description Brand Ownership

CENTEL introduced Mister Donut in 1978 to Thai consumers as a pioneer of QSR business in Thailand.

Franchised brand

In 1984, CENTEL was the authorised franchisee of KFC, a well-known global fried chicken brand.

Franchised brand

In 1998, CENTEL entered the snack segment in Thailand with the premium soft pretzel brand Auntie Anne's from the US.

Franchised brand

In 2007, CENTEL brought in Japanese quick-service steak restaurant chain. Franchised brand

In 2009, CENTEL brought in cream puffs originated from Japan Beard Papa's. Franchised brand

CENTEL introduced Chabuton, premium ramen, TV champion chef's Japanese ramen restaurant in 2010.

Franchised brand

In 2010, CENTEL launched super-premium mix-in ice cream from the US. Franchised brand

In 2010, CENTEL developed RYU, a unique and competitive concept of All-you-can-eat Osaka style shabu shabu restaurant.

Own brand

In 2010, CENTEL acquired The Terrace, a renowned and long established Thai casual dining restaurant from Central Retail Company.

Own brand

In 2010, CENTEL introduced the well-known premium donut brand Café Andonand from Japan.

Franchised brand

In 2011, CENTEL brought in the largest chain of beef bowl restaurants and one of the leading Japanese fast food chains.

Franchised brand

In 2011, CENTEL acquired Ootoya, home cooking style Japanese restaurant, total of 33 outlets

Franchised brand

Source: CENTEL

Hotel Sector 29

Figure 31: Revenue Breakdown By Business in 2008-12

Figure 32: EBITDA Breakdown By Business in 2008-12

4443444642

58 54 565756

0%

20%

40%

60%

80%

100%

120%

2008 2009 2010 2011 2012

Hotel Food

(%)

635448

5863

37 42 374652

0%

20%

40%

60%

80%

100%

2008 2009 2010 2011 2012

Hotel Food

(%)


As of 8 May 13, CENTEL’s major shareholders consisted of Chirathivat family (60.4%), followed by Thai NVDR (1.7%), Norbax (1.2%), and Government Pension Fund (1.1%). Figure 33: Central Group Structure Figure 34: Major Shareholders As Of 8 May 13

Chirathivat

Family60.4%

Others35.7%

Thai NVDR1.7%

Norbax1.2%

GPF1.1%

Source: CENTEL Source: CENTEL, SET

Hotel Sector 30

Figure 35: Corporate Milestones

Source: CENTEL

Hotel Sector 31

Risk Factors External risks. Epidemic, natural disasters and the global economic slowdown

would affect the demand for tourism. The outbreak of Bird Flu would have an impact on CENTEL’s QSR and hotel business. These external risks could be a source of downside risk to our earnings forecasts for CENTEL.

Political uncertainty. Political instability, such as the military coup in 2006,

airport closure in 2008, and red-shirt protest in 2010, could hit Thai tourism sector severely. The recurrence of political unrest would adversely affect CENTEL’s hotel operations.

Currency fluctuation. The strengthening of the baht will cause foreign visitors to

pay more for their tour packages and be more careful with their spending. Thai tourism’s competitive advantage in terms of good value for money may be affected by the stronger baht trend.

Increasing competition. A significant increase in new supply from other hotel

operators would be a downside risk to CENTEL’s profit margin and earnings outlook.

Slowdown of domestic consumption. Deterioration of Thailand’s economic

prospects could lead to weak consumer confidence and a slowdown in domestic consumption. This would adversely affect CENTEL’s QSR business.

Termination of franchised food brand. Food brands such as KFC, Chabuton,

and Yoshinoya could be recalled by brand owners. CENTEL prevents this risk by creating its own brands ie Ryu and The Terrace, extending the franchise period, and adding new brands to diversify the risk.

Key risk factors include external risks, political uncertainty, currency fluctuation, increasing competition, domestic consumption slowdown, and termination of franchise food brand.

Hotel Sector 32

Figure 36: Profit & Loss


Revenue, net 11,574 14,922 17,900 20,461 23,244

Operating expenses (10,393) (13,117) (15,533) (17,516) (19,706)

EBIT 1,182 1,806 2,367 2,945 3,538

Other non-operating income 0 0 0 0 0

Associate contributions 78 59 45 45 45

Net interest income/(expense) (414) (486) (529) (483) (425)

Pre-tax profit 846 1,378 1,883 2,507 3,159

Tax (255) (213) (276) (418) (576)

Minorities (40) (43) (61) (80) (99)

Extraordinary items 0 458 0 0 0

Net profit(rep./act.) 550 1,581 1,546 2,009 2,484

Net profit(adj.) 550 1,123 1,546 2,009 2,484

Deprec. & amort. 1,135 1,351 1,589 1,650 1,720

EBITDA 2,316 3,157 3,956 4,595 5,258

Per share data (Bt)

EPS - diluted 0.4 0.8 1.1 1.5 1.8

Reported EPS - diluted 0.4 1.2 1.1 1.5 1.8

Book value per shares (BVPS) 4.3 6.6 7.5 8.5 9.8

Dividend per share (DPS) 0.2 0.3 0.4 0.5 0.7

Source: CENTEL, UOB Kay Hian Figure 37: Balance Sheet


Cash/Near cash equiv. 316 356 343 392 1,674

Accounts receivable/debtors 647 836 1,005 1,147 1,302

Stocks 400 473 560 627 702

Other current assets 400 323 354 383 414

Current assets 1,763 1,989 2,262 2,549 4,092

Fixed assets 13,320 19,192 19,691 19,605 19,655

Investments 1,332 1,080 1,125 1,170 1,215

Other financial assets 508 491 519 526 531

Other non-current tangible assets 4,761 5,222 5,004 4,782 4,557

Total non-current assets 19,921 25,986 26,340 26,083 25,959

Total assets 21,684 27,975 28,602 28,632 30,051

Accounts payable/creditors 1,592 1,851 2,188 2,450 2,743

Short-term debt/borrowings 3,993 5,080 3,588 3,557 4,357

Other current liabilities 937 911 1,050 1,142 1,245

Current liabilities 6,523 7,843 6,827 7,149 8,345

Long-term debt 6,010 6,973 7,377 5,522 3,855

Other non-current liabilities 3,102 3,403 3,440 3,479 3,520

Total non-current liabilities 9,112 10,376 10,818 9,001 7,375

Total liabilities 15,635 18,220 17,645 16,150 15,720

Minority interest - accumulated 253 804 865 945 1,044

Shareholders' equity 5,796 8,951 10,092 11,536 13,287

Liabilities and shareholders' funds 21,684 27,975 28,602 28,632 30,051


Hotel Sector 33

Figure 38: Cash Flow


Operating cashflows 1,908 2,505 3,341 3,809 4,392

Pre-tax profit 846 1,378 1,883 2,507 3,159

Tax (255) (213) (276) (418) (576)

Deprec. & amort. 1,135 1,351 1,589 1,650 1,720

Associates (78) (59) (45) (45) (45)

Working capital changes 261 47 190 115 135

Others 0 0 0 0 0

Cash from investing activities (1,818) (6,598) (1,861) (1,309) (1,510)

Capex (growth) (1,863) (7,026) (1,853) (1,300) (1,500)

Investments (81) 310 0 0 0

Others 125 118 (9) (9) (10)

Cash from financing activities (73) 4,133 (1,493) (2,451) (1,600)

Dividend payments (68) (203) (405) (564) (733)

Issue of shares 0 0 0 0 0

Proceeds from borrowings 550 2,051 (1,088) (1,886) (867)

Others/interest paid (555) 2,285 0 0 0

Net increase/(decrease) in cash 17 40 (13) 49 1,282

Beginning cash 299 316 356 343 392

End cash 316 356 343 392 1,674

Source: CENTEL, UOB Kay Hian Figure 39: Key Metrics

Year to 31 Dec (%) 2011 2012 2013F 2014F 2015F

Growth

Turnover 22.0 28.9 20.0 14.3 13.6

EBITDA 31.3 36.3 25.3 16.2 14.4

Pre-tax profit 310.9 63.0 36.6 33.1 26.0

Net profit n.a. 187.2 (2.2) 29.9 23.7

Net profit (adj.) n.a. 104.0 37.7 29.9 23.7

EPS n.a. 104.0 37.7 29.9 23.7

Profitability

EBITDA margin 20.0 21.2 22.1 22.5 22.6

EBIT margin 10.2 12.1 13.2 14.4 15.2

Gross margin 39.7 41.9 42.8 44.0 44.8

Pre-tax margin 7.3 9.2 10.5 12.3 13.6

Net margin 4.8 10.6 8.6 9.8 10.7

ROE 9.5 21.4 16.2 19.6 22.3

ROA 2.6 6.4 5.5 7.1 8.6

ROIC 5.7 10.9 9.7 11.8 13.5

RONTA 9.5 13.5 12.8 14.5 15.8

Leverage

Interest cover (x) 5.6 6.5 7.5 9.5 12.4

Debt to total capital 62.3 55.3 50.0 42.1 36.4

Debt to equity 172.6 134.7 108.7 78.7 61.8

Net debt/(cash) to equity 167.1 130.7 105.3 75.3 49.2

Current ratio (x) 0.3 0.3 0.3 0.4 0.5


Hotel Sector 34

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Company Name 2 35

T H A I L A N D


M I N O R I N T E R N A T I O N A L ( M I N T T B )

Premium Quality Hotel Collection


BUY Share Price Bt24.80 Target Price Bt32.25 Upside +30.0% Company Description MINT is one of the largest hospitality companies in the Asia Pacific region. It also operates restaurants in Thailand and overseas under nine brands. It is also engaged in residential property development, timeshare and retail trading businesses. Stock Data GICS sector Consumer DiscretionaryBloomberg ticker: MINT TBShares issued (m): 3,995.8Market cap (Btm): 99,095.6Market cap (US$m): 3,193.53-mth avg daily t'over (US$m): 10.4 Price Performance (%) 52-week high/low Bt28.00/Bt13.601mth 3mth 6mth 1yr YTD(10.6) 3.3 26.5 77.1 26.5 Major Shareholders % Minor Group & Heinecke Family 34.0 Foreign Fund 27.0 Local Fund 12.0 FY13 NAV/Share (Bt) 5.31FY13 Net Debt/Share (Bt) 5.23 Price Chart

70

90

110

130

150

170

190

210

10

15

20

25

30

(%)(lcy)MINOR INTERNATIONAL PCL

Minor International Pcl/SET Index

0

50

100

150

Jun 12 Aug 12 Oct 12 Dec 12 Feb 13 Apr 13

Volume (m)

Source: Bloomberg

Analyst


Minor International (MINT) is one of the largest hospitality and leisure companies in the Asia Pacific region. It was founded in 1976 and listed on the Stock Exchange of Thailand in 1988. As at 1Q13, it had 84 hotel properties in the luxury segment with a total of 10,606 rooms. It also operates restaurants with 1,406 outlets under nine brands. In addition, it develops residential property, operates the Anantara Vacation Club, runs retail and entertainment outlets and has a chain of luxury spas. Building a portfolio of its own brands. Leveraging on its own brands of

Anantara, Oaks and Avini is key to MINT’s growth strategy in the hospitality business. The company is expanding on a portfolio of its own brands via building new hotels under equity-owned and via joint ventures, as well as expanding internationally with a preference for management contracts. By 2017, MINT’s own brands are estimated to represent 87% of total hotel rooms, from 19% in 2005.

Real estate business enhances profitability. Anantara Vacation Club and residential property are the other key contributors to MINT’s hotel & mixed-use business due to the high profitability and ongoing development pipeline. While real estate revenue is likely to account for 18.9% of the hotel & mixed-use revenue in 2013, earnings contribution could be much higher at 40%.

Acquisitions speed up MINT’s overseas expansion. Acquisitions of food brands help MINT expand in the international markets at a faster pace. Its presence in overseas markets increased to 34% of total outlets in 2012 after several acquisitions since 2007. The possible new acquisitions over the next five years should increase MINT’s restaurant business growth to above its target organic growth of 12-15% per year.

Turnaround in China operations likely to improve margins. MINT’s China business is expected to turn around in 2013 as a result of the Riverside acquisition and rationalisation of The Pizza Company outlets. We expect EBITDA margin from the restaurant business to improve to 17.5% this year from 17% in 2012.

Initiate with BUY and target price of Bt32.25, based on sum-of-the-parts valuation. We value the hotel & mixed-use business at 15.6x EV/EBITDA, the restaurant business at 22.5x PE and the retail trading business at 20.0x PE. Catalysts include the acquisition of hotels and food brands, and the sale of hotels to a REIT.

Key Financials


Net turnover 27,107 32,547 37,648 42,214 47,922 EBITDA 4,976 6,643 8,043 9,264 10,467 Operating profit 2,996 4,442 5,574 6,611 7,576 Net profit (rep./act.) 2,880 3,409 4,070 4,882 5,744 Net profit (adj.) 1,919 3,409 4,070 4,882 5,744 EPS (Bt) 0.5 0.9 1.0 1.2 1.4 PE (x) 46.7 27.1 24.8 20.6 17.5 P/B (x) 5.7 5.0 4.7 4.0 3.5 EV/EBITDA (x) 24.4 18.3 15.1 13.1 11.6 Dividend yield (%) 0.6 1.2 1.3 1.6 1.8 Net margin (%) 10.6 10.5 10.8 11.6 12.0 Net debt/(cash) to equity (%) 130.0 113.0 98.5 77.8 62.7 Interest cover (x) 5.7 6.1 6.7 7.0 8.0 ROE (%) 21.1 21.0 20.6 22.7 24.3 Consensus net profit - - 4,005 4,672 5,421 UOBKH/Consensus (x) - - 1.02 1.04 1.06

Source: Minor International, Bloomberg, UOB Kay Hian

Hotel Sector 36

Investment Highlights Growth strategy through expanding its own hotel brands. Leveraging on its own brands of Anantara, Oaks and Avini is key to MINT’s growth strategy for its hospitality business. The company is expanding the portfolio of its own brands via building new hotels under equity-owned and via joint ventures, as well as expanding internationally with a preference for management contracts. The expansion (about 83% of total hotel rooms under development) over the next three years will mainly be outside of Thailand under hotel management contracts and management letting rights (MLR). This will enable MINT to expand its portfolio of hotels at a faster pace and with the least equity drain. By 2017, the company will have over 140 hotels, from 10 hotels in 2005. MINT’s own brands are estimated to account for 87% of total hotel rooms in 2017 vs 19% in 2005. Real estate business enhances profitability. Anantara Vacation Club (AVC) and residential property are the other key contributors to the hotel & mixed-use business due to the high profitability and ongoing development pipeline of AVC’s inventories and residential projects. We estimate real estate revenue to grow 21.7% yoy to Bt3,527.4m in 2013, driven by strong growth from AVC. Real estate revenue is likely to account for 18.9% of hotel & mixed-use revenue in 2013 but earnings contribution could be much higher at 40%. Acquisitions speed up MINT’s overseas expansion. For its quick service restaurant (QSR) business, MINT grows the portfolio of its own brands through opening owned-equity outlets and franchising. Acquisitions of food brands help MINT expand in the international markets at a faster pace. Its presence in overseas markets increased to 34% of total outlets in 2012 vs 8% in 2006 after it acquired The Coffee Club, Thai Express, Ribs & Rumbs, and Riverside. The company targets organic growth from the opening of new outlets in Thailand and overseas at 8-10% per year over the next five years. However, the new acquisitions should have an immediate impact on its portfolio size and bottom line. Revenue from the restaurant business is likely to grow 19.2% yoy to Bt15.7b in 2013, driven by: a) strong same-store sales (SSS) growth of 4.5%, b) outlet expansion of 8.6% yoy, and c) full-year contribution from Riverside, which MINT acquired in Dec 12. Turnaround in China operations likely to improve margins. We expect EBITDA margin from the restaurant business to gradually improve to 17.5% in 2013, from 17% in 2012, mainly due to effective cost management, increased franchising fee and a turnaround in China operations. MINT expects its restaurant business in China to make a small loss in 2013 and start making profit from 2014 onwards, a turnaround from a Bt100m loss last year and seven years of losses. The turnaround in China operations is due to acquisition of Riverside, which resulted in economies of scale in back-office operations. In addition, MINT will open more Sizzler outlets while rationalising The Pizza Company outlets due to intense competition from Pizza Hut. The company also plans to expand Thai Express and The Coffee Club in China in the future. Initiate with BUY and target price of Bt32.25, based on sum-of-the-parts valuation. We value the hotel & mixed-use business at Bt18.80, based on 15.6x 2014F EV/EBITDA, the restaurant business at Bt12.32 on 22.5x PE, which is a 7% discount to regional peers’ average PE, and the retail trading business at Bt1.12 on 20.0x PE, a 10% discount to the sector PE. Risks. Key risks to our investment case include: a) external factors and political uncertainty, b) slowdown of domestic consumption, c) termination of franchised food brands, d) currency fluctuation, e) increased competition, and f) execution risks.

MINT targets organic growth of its restaurant business at 12-15% per year. Acquisitions would speed up its overseas expansion and have an immediate impact on the bottom line.

MINT’s China business is expected to turn around in 2013 as a result of the Riverside acquisition and rationalisation of The Pizza Company outlets.

Initiate coverage with a BUY and a target price of Bt32.25, based on SOTP valuation.

AVC and residential property significantly complement MINT’s hotel business due to high profitability and ongoing development pipeline.

MINT’s growth strategy is to expand its own hotel brands. The expansion will mainly be overseas under management contracts.

Hotel Sector 37

Valuation Initiate coverage with a target price of Bt32.25, based on sum-of-the-parts valuation. We value the hotel & mixed-use business at Bt18.80, based on 15.6x 2014F EV/EBITDA, the restaurant business at Bt12.32 on 22.5x PE, a 7% discount to regional peers’ average PE, and the retail trading business at Bt1.12 on 20.0x PE, a 10% discount to the sector PE. Note that our SOTP-based per share factors in the conversions of MINT-W4, MINT ESOP5 and MINT-W (ESOP). We believe our target price is justified, given MINT’s well-diversified business model, which should sustain its strong earnings growth in the long term. We estimate its fully-diluted EPS CAGR at 15.6% in 2013-15, assuming no new acquisitions. The catalysts for MINT include: a) the acquisition of hotels and food brands, which would significantly increase MINT’s growth, size and returns, and b) the sale of its hotels to a REIT. Our share price objective implies a 30% upside from the current share price plus a dividend yield of 1.3%. Figure 1: Sum-of-the-parts Valuation

(Btm)

Hotel Business: EV/EBITDA multiple 2014F EBITDA 6,123.4 EV/EBITDA multiple (x) 15.6 EV 95,806.2 2014F Net debt 19,411.3 No. of fully diluted shares (m) 4,063.0 Equity value per share (Bt) 18.80 Restaurant Business: PE multiple Net profit 2,225.4 PE multiple (x) 22.5 Equity value 50,072.0 Equity value per share (Bt) 12.32 Retail Trading Business: PE multiple Net profit 227.4 PE multiple (x) 20.0 Equity value 4,548.3 Equity value per share (Bt) 1.12 Sum-of-the-parts value (Bt) 32.25

Source: MINT, UOB Kay Hian Figure 2: EV/EBITDA Band Figure 3: PE Band

5.0

7.5

10.0

12.5

15.0

17.5

20.0

2005 2006 2007 2008 2009 2010 2011 2012 2013

Mean: 13.6x

+0.5SD:15.2x

-0.5SD: 12.0x

(x)

+1.5SD: 18.4X

+1SD: 16.8x

-1SD: 10.4x

-1.5SD: 8.8x

+2SD: 20.0X

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2006 2007 2008 2009 2010 2011 2012 2013

(x)+3SD: 34.0x

Mean: 19.9x

-2.0SD: 10.5x

+2.5SD: 31.6x

+2.0SD: 2.93x

+1.5SD: 26.9x+1SD: 24.6x

+0.5SD: 22.2x

-0.5SD: 17.5x-1.0SD: 15.2x

-1.5SD: 12.8x

Source: Bloomberg, UOB Kay Hian Source: Bloomberg, UOB Kay Hian

Hotel Sector 38

Earnings Outlook HOTEL & MIXED-USE BUSINESS Growth strategy through expanding its own hotel brands. MINT’s hotel business started with a single resort in Pattaya in 1978. Since then, it has partnered strong international brands, such as Four Seasons, Marriott and Starwood, which helped position its hotels in the luxury segment. The company has used its experience over the past three decades to develop its own brands in this segment. It launched Anantara, its first 5-star hotel brand, in 2001, and Avani, its 4-star hotel brand in 2011. Anantara targets travellers requiring luxurious design and superior services, while Avani targets those who appreciate good design, excellent services and value for money. The acquisition of Oaks in 2Q11 helped MINT establish a presence in the Australian market. Oaks is one of Australia’s largest hotel and resort operators in the 4-star segment with a 17% share of serviced suites. It services short-to-medium-stay corporate and leisure guests. Oaks has a leading position in the Australia’s Management Letting Rights (MLR) business. MLR are rights that allow Oaks to operate and rent residential condominium units participating in the rental pool as a hotel or serviced suite. Figure 4: Hotel Portfolio As At End-1Q13

Source: MINT Figure 5: Hotel Acquisitions In 2008-13

Hotel Property

Investment Period

Investment value (Btm)

% holding after investment Description

1. Elewana Mar 08 379.5 50.0 Elewana owns and operates safari camps in Tanzania, Africa.

2. Kani Lanka Aug 10 372.6 80.1 MINT bought the hotel property in Sri Lanka. 3. Oaks Jun 11 2,577.3 100.0 MINT acquired Oaks for A$84.5m. 4. Grand Hotel Jun 11 364.2 100.0 Oaks purchased Grand Hotel in Gladstone, Australia. 5. Paradise Island Resorts Sep 12 37.6 80.1 MINT's 80.1%-owned subsidiary acquired the resort in Sri

Lanka. 6. Bundarika Villas & Suites Jun 12 190.0 95.0 MINT acquired 95% of Bundarika Villas & Suites on

Layan Beach, Phuket. 91% in Life Hoi An 7. Life Hoi An and Life Quy

Nhon Feb 13

480.0 100% in Life Quy Nhon MINT purchased the two hotels in Vietnam.

Total 4,401.1


Hotel Sector 39

Building its own brands. As at end-1Q13, MINT had 84 hotel properties with a total of 10,606 rooms (including 17 majority-owned hotels, 38 Oaks properties, 13 joint-venture hotels and 16 purely-managed hotels). Leveraging on its own brands of Anantara, Oaks and Avini is key to MINT’s growth strategy in the hospitality business. The company is expanding on a profitable portfolio of its own brands via building new hotels under equity-owned and via joint ventures, as well as growing hotels under management contracts. MINT prefers to expand internationally through management contracts (an asset-light model). The majority of its expansion (about 83% of total hotel rooms under development) over the next three years will be outside of Thailand through hotel management contracts and MLR. This will enable MINT to expand its portfolio of hotels at a faster pace and with the least equity drain. According to its expansion plan, MINT received hotel management contracts and MLR to manage 29 hotels under the Anantara, Oaks and Avani brands in international markets, ie China, India, Indonesia, Australia, UAE and Oman. The number of rooms under its management contracts and MLR is estimated to surge to 11,497 rooms, accounting for 75% of total hotel rooms in 2015, from none in 2005. Apart from expanding through hotel management contracts and MLR, MINT continues to develop its own hotels over the next three years with a plan to grow the number of rooms by a CAGR of 10.6%. The expansion continues to be in Thailand, Vietnam, Sri Lanka and Australia, where MINT has experience in. It is worth highlighting that the number of its own hotels may be higher than the existing pipeline if MINT acquires more properties. By 2015, the company will have 123 hotels with a total of 15,440 rooms and its portfolio will grow to over 140 hotels in 2017. Hotels under management contracts and MLR will account for three-fourths of MINT’s hotel portfolio of 15,440 rooms while the rest (25% of total rooms) will come from its owned and joint-venture hotels. Figure 6: No. Of Rooms By Ownership Figure 7: Hotel Expansion By Ownership

92 26 23 22 21 20 7 7 7 6 5

8

67% 70% 72% 74%

75%

02,0004,0006,0008,000

10,00012,00014,00016,00018,000

2005 2011 2012 2013F 2014F 2015F

Owned equity JV Managed & MLR

2 ,16 9

15 ,4 4 0

13 ,4 5 3

11,7 5 110 ,2 7 1

9 ,8 2 1

(rooms)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Ownedequity

JV Oaks Managed

2012 2013F 2014F 2015F

35.4%

7.7% CAG

2.1%

10.6%

(rooms)

Source: MINT, UOB Kay Hian Source: MINT, UOB Kay Hian

If we classify MINT’s hotel portfolio by brand, its own brands (Anantara, Oaks and Avani) are estimated to account for 87% of total hotel rooms in 2017, from 19% in 2005. In terms of location, its hotels outside of Thailand are likely to account for 79% of total rooms in 2017, vs only 8% in 2005.

MINT’s growth strategy is expanding on its profitable portfolio of its own brands. The majority of its expansion will be outside of Thailand through hotel management contracts and MLR.

Hotel Sector 40

Figure 8: No. of Rooms By Brand Figure 9: No. of Rooms By Location

0.01 0.050.09

0.54 0.51 0.45

4.05.08.0

55.0

5.0 5.0 3.0

20.0

26.024.0

19.0

33.0

6.08.08.06.0

0%

20%

40%

60%

80%

100%

2005 2011 2012 2017F

Marriott Four Seasons AnantaraAvani Oaks Others

(%)

36 .0

16 .0 15.0 11.0

10 .015.017.0

56 .0 79 .070 .0

8 .0

6 7.0

0%

20%

40%

60%

80%

100%

2005 2011 2012 2017F

Bangkok Outside Bangkok International

(%)


Figure 10: Hotel Expansion Pipeline In 2013-15

Hotel Country No. of rooms Operate

Majority Owned Equity Hotels Anantara Layan Phuket (formerly known as Bundarika) Thailand 77 2013 Anantara Hoi An Vietnam 96 1Q13 Avani Quy Nhon Vietnam 63 1Q13 Grand Hotel, Gladstone Australia 143 2014 Avani Ambalangoda Sri Lanka 80 2014 Anantara Sri Lanka Sri Lanka 141 2015 Avani Bangkok Thailand 227 2015 Total 7 827 Joint-Venture Hotels Masai Mara Camp Kenya 16 2013 Amboseli Camp Kenya 16 2013 Meru Camp Kenya 16 2015 Total 3 48 Oaks Portfolio Oaks Sanya China 120 2013 Oaks Liwa Suites, Abu Dhabi UAE 54 2013 Oaks Jimbaran, Bali Indonesia 212 2013 Oaks William St., Melbourne Australia 220 2013 Oaks Carlyle Australia 87 2014 Oaks Radius Australia 91 2014 Oaks Milton Australia 298 2015 Oaks Emerald Australia 120 2015 Oaks Nusa Dua, Bali Indonesia 96 2015 Total 9 1,298 Managed Hotels Anantara Xishuangbanna China 103 1Q13 Anantara E-Mei, Chengdu China 150 2013 Anantara Palm Jumeirah UAE 293 2013 Anantara Al Yamm UAE 30 2013 Anantara Al Sahael UAE 30 2013 Anantara Chongqing China 150 2014 Anantara Baoting China 130 2014 Anantara Qiandao Lake China 120 2014 Anantara Luang Prabang Laos 115 2014 Anantara Salalah Oman 136 2014 Anantara Al Akhdar Oman 123 2014 Anantara Al Madina Oman 120 2014 Anantara Doha Island Qatar 117 2014 Anantara Mahabalipuram India 130 2014 Anantara La Chaland Mauritius 160 2014 Anantara Tangalle Sri Lanka 150 2015 Anantara Dongguan China 120 2015 Anantara Udaipur India 70 2015 Anantara Wayanad India 95 2015 Avani Nusa Dua, Bali Indonesia 654 2015 Total 20 2,996 Grand Total 39 5,169


Hotel Sector 41

Real estate business enhances profitability. MINT initiated the mixed-use development of a hotel and residential project. The 14-villa Estates Samui, adjacent to and managed by Four Seasons Resort in Koh Samui, was launched in 2007. MINT later introduced The St. Regis Residences Bangkok, consisting of 53 residences and penthouses on top of the St. Regis Hotel. The next project in the pipeline is Anantara Estates Phuket, next to Anantara Phuket Layan Resort & Spa (formerly known as Bundarika), which will be launched in early-14. Apart from the residential property development, MINT’s point-based vacation club under its own brand, AVC, is the other real estate development launched in Dec 10. AVC is a collection of luxurious shared-ownership villas and apartments located in a variety of resort destinations for the use of its owners. AVC owners purchase Club Points that are backed by real estate assets. The number of Club Points owned determines your resort destination, the time of the year, length of stay and the type of accommodation. Current property locations include Thailand (Samui, Phuket, Bangkok), Indonesia (Bali), Australia (Queenstown) and China. MINT will be adding destinations to this list in the coming years. Revenue from the real estate business, which includes residential sales and AVC, is one of the key contributors to the hotel & mixed use business due to the high profitability and ongoing development pipeline of AVC inventories and residential projects. Note that real estate revenue contributed about 18% of hotel and mixed-use revenue in 2012, but earnings contribution was much higher at about 40%. We estimate real estate revenue to grow 21.7% yoy to Bt3,527.4m in 2013, driven by strong growth from AVC to US$80m in 2013 from US$51m last year. Real estate revenue is likely to increase to 18.9% of hotel & mixed use revenue in 2013 (2012: 17.7%) but earnings contribution could be much higher at 40%. We believe the real estate business should remain a significant contributor to the hotel & mixed use business going forward on the back of additional residential projects next to its hotel properties and the growing popularity of the timeshare business. Figure 11: Residential Projects

Project No. of Units

Project Value (Btm) Details % Sold

The Estates Samui 14 1,500 Luxury villas adjacent to Four Seasons in Koh Samui Nine villas sold.

St. Regis Residence 53 6,000 Residences and penthouses 92% signed contracts

Anantara Estates Phuket 16 3,600 3-8 bedroom pool villas, with sizes at 700-1,800sqm, and selling at US$5m-10m per villa

Expected launch in early-14

Source: MINT, UOB Kay Hian Figure 12: AVC Inventories And Revenue

2246

96

171

246

400

321

25

050

100150200

250300350

400450

2010 2011 2012 2013F 2014F 2015F 2016F 2017F

0500

1,0001,5002,000

2,5003,0003,500

4,0004,500

AVC inventories Revenue from sales of AVC

(Btm)(units)


Real estate revenue is one of the key contributors to the hotel & mixed-use business due to the high profitability.

Hotel Sector 42

Figure 13: Real Estate Revenue Figure 14: Hotel and Mixed-Use Revenue Contribution In 2013

0500

1,000

1,5002,0002,5003,000

3,5004,000

2012 2013F 2014F 2015F

St Regis Residence The Estate SamuiAnantara Residence Phuket AVC

2,89

3,52 3,313,73

(Btm)

Owned hotels42.8%

Oaks26.8%

Real estate18.9%

Others11.5%


Hotel performance continues to improve. We see growth in Asia, especially China and Russia, to lead to increasing contribution to MINT’s feeder markets. Although European guests still made up the largest share of 35% in 1Q13, the share from East Asia has risen to 32% in 1Q13 from 18% in 2007. We see the trend of the change in the company’s feeder-market mix has moved in line with the pattern of international tourist arrivals. MINT’s hotel & mixed-use revenue is expected to grow at a CAGR of 12.8% in 2013-15, driven by: a) improving RevPar, especially from its majority-owned hotels on the back of promising tourism outlook, b) solid growth of AVC, c) contribution from new owned hotels, and d) higher management fees, supported by 20 hotel management contracts in the pipeline. We think its diverse business strategies have helped to maintain its high rate of growth via expanding the profitable portfolio of its Anantara, Oaks and Avani brands, management contracts, MLR, and developing new hotels under equity-owned and via joint ventures. Figure 15: Owned Hotels - ARR, Occupancy Rate And RevPar

Figure 16: System-wide Hotels – ARR, Occupancy Rate And RevPar

72%70%66%

58%57%56%

66%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2008 2009 2010 2011 2012 2013F 2014F

0%

10%

20%

30%

40%

50%

60%

70%

80%

ARR RevPar Occupancy rate

(%(Btm)

52%

65%

52%

65%69% 70%70%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2008 2009 2010 2011 2012 2013F 2014F

0%

10%

20%

30%

40%

50%

60%

70%

80%


(Btm) (%)


Hotel Sector 43

Figure 17: Feeder Markets Figure 18: Hotel And Mixed-Use Business - Revenue, EBITDA And EBITDA Margin

3530323640

31282318 32

14 11 119

11

11128 13 8

0%

20%

40%

60%

80%

100%

2007 2010 2011 2012 1Q13

Europe East Asia The AmericasThailand Middle East OceaniaSouth Asia Africa & others

(%)

30%30%29%28%26%30%

35%

40%

0

5,000

10,000

15,000

20,000

25,000

2008 2009 2010 2011 2012 2013F2014F2015F

0%5%

10%15%20%

25%30%35%

40%45%

Revenue EBITDA EBITDA margin

(Btm) (%)


RESTAURANT BUSINESS Acquisitions speed up MINT’s overseas expansion. Like its hotel business, MINT’s growth strategy for its QSR business is expanding the portfolio of its own brands through opening equity-owned outlets and franchising. Acquisitions help MINT expand in the international markets at a faster pace. Its restaurant business currently comprises nine brands - The Pizza Company, Swensen’s, Sizzler, Dairy Queen, Burger King, The Coffee Club, Thai Express, Ribs & Rumps, and Riverside. MINT currently operates 1,406 outlets in Thailand and overseas. Of these brands, its own The Pizza Company contributed the largest share of 27% of QSR revenue in 2012. MINT developed The Pizza Company in 2000 following the loss of its franchise rights after The Pizza Hut brand in Thailand was recalled. It is worth highlighting that since 2007, MINT has made several strategic acquisitions and investments, including The Coffee Club, Thai Express, S&P, Ribs & Rumps, Riverside and BreadTalk. Its presence in overseas markets has increased to 34% of total outlets in 2012 vs 8% in 2006. Expansion through acquisition takes less time than developing the brands itself. The acquired companies can also contribute to bottom line immediately. MINT targets to grow its portfolio organically by expanding the number of outlets in Thailand and overseas by 8-10% per year over the next five years. These acquisitions should have an immediate impact on its portfolio size and bottom line. Note that MINT does not include 31%-owned S&P as part of its expansion plan. However, it has continued strengthening its partnership with S&P.

Strategic acquisitions help MINT expand its QSR business faster, especially in international markets.

Hotel Sector 44

Figure 19: QSR Portfolio As At End-1Q13

Source: MINT, UOB Kay Hian Figure 20: Acquisitions And Investments In The QSR Business in 2008-13

QSR brand Investment

Period Investment value (Btm)

% holding after investment Description

1. The Coffee Club Oct 07 660.0 50.0 MINT acquired a 50% stake in TCC, a restaurant franchise business with more than 180 outlets in Australia and New Zealand.

May 08 939.8 70.0 Thai Express is a multiple-brand restaurant company (selling Thai food, Chinese food, Japanese food and western food) operating in Singapore, Malaysia, Indonesia, Mongolia, China, Australia and New Zealand.

2. Thai Express

Sep 11 406.2 100.0 MINT acquired another 30% stake in Thai Express from the founders.

3. S&P Aug 11 346.0 31.3 MINT made a tender offer for S&P shares at Bt70/share; its stake in S&P increased to 31.3% from 26.3%. Total investment in S&P amounted to Bt1,097m since its first investment in 2006.

4. Ribs and Rumps Sep 11 362.2 50.0 A 100%-owned subsidiary of The Coffee Club purchased Ribs & Rumps.

5. Riverside Dec 12 1,200.0 49.0 MINT acquired a 49% stake in Riverside, a chain of casual-concept restaurants in China.

6. BreadTalk Apr 13 459.0 10.0 MINT acquired a 10% stake in BreadTalk, a chain of bakery outlets, food atria and restaurants in 15 countries.

Total 4,373.2

Source: MINT, UOB Kay Hian For its expansion in Thailand, MINT will continue to expand the number of outlets with the operators of shopping malls, community malls and hypermarkets. It prefers to use a franchise model in the upcountry. The majority of the new outlets will be under The Pizza Company, Swensen’s, Dairy Queen, Sizzler, Burger King and The Coffee Club. Note that the fee structure for local franchising consists of: a) an initial fee or upfront fee of about Bt1.0m-1.5m per outlet when the franchised outlet opens, b) a royalty fee of about 5% of total revenue, and c) marketing fee based on 5% of total revenue, which MINT uses for the advertising of its brands.

Hotel Sector 45

Figure 21: Revenue By Brand In 2012 Figure 22: No. Of Outlets Of Acquired Brands

The Pizza Company

27%

Swensen's14%

Sizzler16%Dairy Queen

10%

Burger King5%

The Coffee Club2%

Thai Express

18%

Others8%

188

275 319 333

363 410 422

0

100

200

300

400

500

2007 2008 2009 2010 2011 2012 1Q13

The Coffee Club Thai ExpressRibs & Rumps Riverside

(Outlets)

Source: MINT Source: MINT, UOB Kay Hian

International operations are another important part of MINT’s restaurant business. MINT is focusing on its major markets, including Australia, Singapore and China. The company uses franchising (an asset-light model) to expand its outlets in the international markets that it has a presence in and in new markets, ie Indochina and the Middle East. Apart from franchising its own brands, MINT can sub-franchise Swensen’s in 33 countries in Asia. For the Sizzler brand, the company holds exclusive rights in China. The company has a 50:50 joint venture with Sizzler's parent company to license a franchise on a long-term basis in China. The fee structure that MINT currently charges for overseas franchises consists of: a) an opening fee or initial fee charged to franchisees at US$25,000-30,000 per outlet when it opens, b) a royalty fee at 5% of total revenue, the same as franchising in Thailand, and c) a territory fee, which is a one-time charge to franchisees depending on the number of outlets that will be opened in the territory. By 2015, the number of outlets is expected to increase to 1,800, based on an 8-10% organic growth per year. The outlets in Thailand should account for 64% of total outlets in 2015 while overseas outlets are likely to account for the rest. In terms of ownership, the number of equity-owned outlets should represent 55% of total outlets and the rest are franchised outlets. Figure 23: Restaurant Outlets By Geography Figure 24: Restaurant Outlets By Ownership

93% 92% 69% 66% 66% 66% 65% 64% 7% 8%

31%

34% 34%

34% 35%

36%

0

500

1,000

1,500

2,000

2005 2006 2007 2011 2012 2013F2014F2015F

Thailand International

55 63

1,2571,381

1,5001,636

1,800

90

(Outlets)

86% 84% 65% 57% 55% 55% 55% 55% 14% 16% 35%

43% 45% 45%

45% 45%

0

500

1,000

1,500

2,000

2005 2006 2007 2011 2012 2013F 2014F2015F

Owned Franchised

558

1,8001,636

1,5001,381

1,257

631

905

(Outlets)


Hotel Sector 46

Turnaround in China operations likely to improve margins. Revenue from the restaurant business is likely to grow 19.2% yoy to Bt15.7b in 2013, driven by: a) strong SSS growth of 4.5%, supported by the positive economic growth outlook in Thailand, b) outlet expansion of 8.6% yoy through opening equity-owned outlets and franchising both in Thailand and overseas, and c) full-year contribution from Riverside, which MINT acquired in Dec 12. The company targets to maintain organic growth of 12-15% annually on the back of SSS growth of 4-5% and outlet expansion of 8-10% per year. Meanwhile, we expect EBITDA margin from the restaurant business to gradually improve to 17.5% in 2013 from 17% in 2012 mainly due to effective cost management, increased franchising fees and a turnaround in its China operations. MINT expects its restaurant business in China to make a small loss in 2013 and start making profit from 2014 onwards, a turnaround from the Bt100m loss last year and seven years of losses. The acquisition of Riverside has resulted in economies of scale in its back-office operations. In addition, MINT will open more Sizzler outlets while rationalising The Pizza Company outlets due to intense competition from Pizza Hut. The company also plans to expand Thai Express and The Coffee Club in China in the future. Figure 25: SSS Growth And No. Of Outlets Figure 26: Restaurant Revenue And EBITDA

3% 4% 9% 6% 5% 5% 5%

-3%

1,112 1,1471,257

1,3811,500

1,6361,800

1,043

-4%

-2%

0%

2%

4%

6%

8%

10%

2008 2009 2010 2011 2012 2013F2014F2015F

0

500

1,000

1,500

2,000

SSS growth No. of outlets

(Outlets)(%)

18.5%

18.3%

17.5%17.0%

15.6%

16.6%16.3%

13.8%

0

5,000

10,000

15,000

20,000

25,000

2008 2009 2010 2011 2012 2013F2014F2015F

0%

5%

10%

15%

20%

Revenue EBITDA EBITDA margin

(Btm) (%)


Well-diversified business model. MINT’s net profit is likely to hit another record high of Bt4,091.3m in 2013, +20.0% yoy, due to strong revenue growth from the hotel & mixed-use and restaurant businesses as well as margin improvement. We estimate contribution from the hotel & mixed-use business in 2013 at 49% of total revenue, followed by 41% from the restaurant business and 10% from the retail trading business. However, the hotel & mixed-use business is expected to contribute 63% of total EBITDA in 2013, followed by 32% from the restaurant business and 5% from the retail trading business. We view MINT as a well-diversified company in terms of business and geography. The hotel business is seasonality driven while the restaurant business is less equity-drained and stable. In addition, its international expansion helps lessen the Thai-specific risks. MINT targets overseas revenue to increase to 40% of total revenue in 2017 (2011: 24%) and contribute 50% of total net profit, a surge from only 7% in 2011. The catalysts to MINT’s share price should come from: a) the acquisition of hotels and food brands, which will increase MINT’s growth, size and returns, and b) injecting its hotel properties to a REIT.

Hotel Sector 47

Figure 27: Revenue By Business Figure 28: EBITDA By Business

4848495046313139

4242414043555545

10101011141416 9

0%

20%

40%

60%

80%

100%

2008 2009 2010 2011 2012 2013F 2014F2015F

Hotel & Mixed-use Restaurant Retail

(%)

63626364644853

70

3433323236

484328

2450452 4

0%

20%

40%

60%

80%

100%

2008 2009 2010 2011 2012 2013F 2014F 2015F

Hotel & Mixed-use Restaurant Retail

(%)


Figure 29: Revenue By Geography Figure 30: Net Profit By Geography

607176

292440

0%

20%

40%

60%

80%

100%

2011 2012 2017FThailand Overseas

(%)

50

7993

50

217

0%

20%

40%

60%

80%

100%

2011 2012 2017F

Thailand Overseas

(%)


To achieve its growth strategy, MINT has a capex of Bt6b for 2013, which will be used for hotel renovations, expansion of QSR outlets and retail shops, and development of its own hotels. The company also sets a capex of Bt15b-18b over the next five years for new opportunities, such as the acquisition of hotels and food brands.

Figure 31: Capex Figure 32: EBITDA vs D/E Ratio

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013F 2014F 2015F 2016F 2017F

New Opportunity/AcquisitionRetail tradingHotel & Mixed-useRestaurant

(Btm)

1.051.19

1.331.38

1.111.03

0.77

0

2,000

4,000

6,000

8,000

10,000

12,000

2008 2009 2010 2011 2012 2013F 2014F

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

EBITDA D/E ratio

(Btm) (x)


Hotel Sector 48

Company Background MINT is one of the largest hospitality and leisure companies in the Asia Pacific region. It was founded in 1976 with a single beachfront resort in Pattaya and listed on the Stock Exchange of Thailand in 1988. As at 1Q13, it had 84 hotel properties (including 17 majority-owned hotels, 38 MLR properties, 13 joint-venture hotels, and 16 purely-managed hotels) with a total of 10,606 rooms under the Four Seasons, Marriott, Anantara, Oaks, and Avani brands. The company also operates the QSR business with a total of 1,406 outlets under the Pizza Company, Swensen’s, Sizzler, DairyQueen, Burger King, The Coffee Club, Ribs & Rumps, Riverside, and Thai Express brands. In addition, it develops residential property, operates the Anantara Vacation Club, runs retail and entertainment outlets and has a chain of luxury spas. It services customers in Thailand and 22 markets from Africa to Australia. Figure 33: Corporate Milestones

Source: MINT

MINT is one of the largest hospitality and leisure companies in the Asia Pacific region with 84 hotels and resorts, 1,406 restaurants, 240 retail outlets in Thailand and 22 markets from Africa to Australia.

Hotel Sector 49

Figure 34: Hotel Portfolio As At End-1Q13

Hotel Country No. of Rooms % Holding

Majority Owned 1. Anantara Bangkok Riverside Thailand 407 81.2 2. Anantara Hua Hin Thailand 187 100.0 3. Anantara Golden Triangle Thailand 77 100.0 4. Anantara Bophut Koh Samui Thailand 106 100.0 5. Anantara Phuket Thailand 83 100.0 6. Anantara Kihavah Maldives 78 100.0 7. Anantara Hoi An Vietnam 96 91.0 8. Four Seasons Bangkok Thailand 354 98.9 9. Four Seasons Chiang Mai Thailand 76 71.4 10. Four Seasons Tented Camp Chiang Rai Thailand 15 100.0 11. Four Seasons Koh Samui Thailand 60 100.0 12. JW Marriott Phuket Thailand 265 100.0 13. Pattaya Marriott Thailand 298 100.0 14. Bundarika (to be rebranded into Anantara) Thailand 77 95.0 15. St. Regis Hotel & Residence Thailand 224 100.0 16. Avani Kalutara SriLanka 105 80.0 17. Life Quy Nhon (to be rebranded into Avani) Vietnam 63 100.0 Total 17 2,571 Management Letting Rights

Australia 4,721 New Zealand 290 Oaks Hotels & Resort Dubai 165

Total 38 5,176 Joint Venture 1. Anantara Veli Maldives 50 50.0 2. Anantara Dhigu Maldives 110 50.0 3. Naladhu Resort Maldives 19 50.0 4. Harbour View Hotel Vietnam 122 30.4 5. Avani Bentota Sri Lanka 90 20.0 6. Club Hotel Dolphin Sri Lanka 146 20.0 7. Hotel Sigiriya Sri Lanka 79 20.0 8. Arusha Coffee Lodge Tanzania 18 50.0 9. Serengeti Migration Camp Tanzania 20 50.0 10. Tarangire Tree Top Tanzania 20 50.0 11. The Manor at Ngorongoro Tanzania 20 50.0 12. Kilindi Tanzania 19 50.0 13. AfroChic Retreat Kenya 20 50.0 Total 13 733 Purely Managed 1. Anantara Sikao, Krabi Thailand 139 2. Anantara Baan Rajprasong Thailand 97 3. Anantara Lawana, Koh Samui Thailand 122 4. Anantara Sathorn Thailand 321 5. Anantara Rasananda Thailand 64 6. Anantara Seminyak, Bali Indonesia 60 7. Anantara Bali Uluwatu, Bali Indonesia 77 8. Desert Islands by Anantara UAE 64 9. Qasr Al Sarab Desert by Anantara UAE 206 10. Eastern Mangroves by Anantara UAE 222 11. Anantara Mui Ne Vietnam 89 12. Anantara Sanya China 122 13. Anantara Xishuangbanna China 103 14. Oaks Sathorn Thailand 115 15. Avani Sepang Malaysia 315 16. Serengeti Pioneer Camp Tanzania 10 Total 16 2,126 Grand Total 84 10,606

Source: MINT

Hotel Sector 50

Figure 35: QSR Portfolio Brand Description Brand Ownership

MINT launched The Pizza Company Brand in 2001 and began to expand its franchise internationally in 2004.

Ow n brand

In 1986, MINT took on the franchise for Sw ensen's and developed it into Thailand's largest premium ice cream brand. The f irst launch of the international franchise w as in 2004.

Master franchise rights to 32 countries across the Middle East

and Asia (MINT can sub-franchise.)

MINT introduced Sizzler in Thailand in 1992. The company has a 50:50 joint venture w ith Sizzler's parent company to license a franchise on a long-term basis in China.

Exclusive rights for Thailand and China (MINT can sub-franchise.)

MINT opened the f irst Dairy Queen in Thailand in 1996. It started to franchise the Dairy Queen brand in Thailand in 2011.

Exclusive rights for Thailand (MINT can sub-franchise.)

MINT is the Thai franchisee of Burger King. Sole operator for Thailand

The Coffee Club is Australia's largest home-grow n café group. MINT bought a 50% stake in The Coffee Club in Jun 08. MINT is looking to appoint master franchisees for The Coffee Club in Hong Kong, Singapore, New Caledonia, and Dubai.

Ow n brand

In 2011, MINT acquired Ribs & Rumps, casual steakhouse dining w ith premium quality ingredients at affordable prices.

Ow n brand

In 2012, MINT acquired 49% stake in Riverside, a chain of casual-concept restaurants in China, specializing in Sichuan barbecue fish.

Ow n brand

MINT bought 70% stake in Thai Express in 2008. In addition to its Thai Express brand, Thai Express also operates Hong Kong concept restaurants under Xin Wang Hong Kong Café, American concept restaurants under New York New York, and Japanese concept restaurants under Shokudo in Singapore.

Ow n brand

MINT has a joint venture w ith SSP International to operate restaurants in airports in Thailand under MINT's brands and other external brands.

Restaurant operator at airports

Source: MINT

Figure 36: 5-Year Average Revenue Contribution By Business

Figure 37: 5-Year Average EBITDA Contribution By Business

Hotel & Mixed use

43%

Others9%

Restaurant48%

Hotel & Mixed use

61%

Others2%Restaurant

37%


As of 18 Apr 13, MINT’s major shareholders were Minor Group (34%), foreign funds (27%), Thai funds (12%), Osathanugrah (10%) and the Royal Family (6%).

Figure 38: Shareholding Structure As Of 18 Apr 13

Foreign Fund27%

Minor Group34%

Others11%

Royal Family6%

Thai Fund12%

Osathanugrah10%


Hotel Sector 51

Risk Factors External factors. External factors such as epidemics, natural disasters and the

global economic slowdown would affect MINT’s hotel and QSR businesses. Political uncertainty. Political instability such as the military coup in 2006, the

airport closure in 2008 and the red-shirt protest in 2010 hit the tourism sector hard. The recurrence of political unrest would have a negative impact on MINT’s hotel operations.

Slowdown in domestic consumption. A deterioration of Thailand’s economic

prospects could lead to weak consumer confidence and a slowdown in domestic consumption. This would affect MINT’s QSR business.

Termination of franchise QSR brands. QSR brands such as Swensen’s, Sizzler,

Dairy Queen and Burger King could be recalled by the brand owners. MINT tries to prevent and diversify such risk by creating its own brand (The Pizza Company was formed after Yum Group recalled the Pizza Hut brand from MINT in 2000), extending the franchise period of existing brands and acquiring new brands (The Coffee Club, Riverside, and Thai Express).

Currency fluctuation. The strengthening of the baht will cause foreign visitors

to pay more for their tour packages and be more careful with their spending. Thai tourism’s competitive advantage in terms of value for money may be affected by a stronger baht.

Increasing competition. A significant increase in new supply from other hotel

operators in the luxury segment would be a downside risk to MINT’s margins and earnings.

Execution risks. Since growth over the next five years will be overseas-driven,

MINT may face unexpected difficulties in executing its expansion plans. When MINT expands internationally through acquisition, it mitigates this risk by keeping the founders of the acquired company for a certain period of time. MINT has a sales-and-purchase agreement with the founders where MINT will pay them additional amounts in the next few years if the acquired company meets certain financial performance thresholds.

Hotel Sector 52



Revenue, net 27,107 32,547 37,648 42,214 47,922


EBIT 2,996 4,442 5,574 6,611 7,576



Net interest income/(expense) (879) (1,085) (1,205) (1,327) (1,313)

Pre-tax profit 2,380 3,803 4,858 5,835 6,874

Tax (415) (393) (786) (951) (1,127)

Minorities (47) (2) (2) (2) (3)


Net profit(rep./act.) 2,880 3,409 4,070 4,882 5,744

Net profit(adj.) 1,919 3,409 4,070 4,882 5,744

Deprec. & amort. 1,980 2,201 2,469 2,653 2,892

EBITDA 4,976 6,643 8,043 9,264 10,467

Per share data (Bt)

EPS - diluted 0.5 0.9 1.0 1.2 1.4


Book value 4.4 4.9 5.3 6.1 7.2

Dividend 0.2 0.3 0.3 0.4 0.5

Source: MINT, UOB Kay Hian Figure 40: Balance Sheet


Cash/Near cash equiv. 1,146 3,702 4,393 6,676 4,764

Accounts receivable/debtors 2,344 2,955 3,418 3,826 4,343

Stocks 3,062 2,663 3,046 3,192 3,605

Other current assets 806 941 1,087 1,217 1,381

Current assets 7,358 10,261 11,944 14,912 14,093

Fixed assets 16,914 18,189 20,932 21,711 23,269

Investments 4,593 5,296 5,786 6,337 6,948


Other non-current tangible assets 11,829 17,326 17,718 18,538 19,387


Total assets 41,623 51,977 57,292 62,411 64,607

Accounts payable/creditors 3,992 4,640 5,225 5,774 6,532

Short-term debt/borrowings 3,461 3,271 3,331 4,771 1,271

Other current liabilities 1,134 1,027 1,164 1,286 1,455


Long-term debt 16,363 20,892 22,075 21,317 21,756

Other non-current liabilities 1,738 2,820 2,952 3,091 3,236



Minority interest - accumulated 567 1,213 1,215 1,217 1,220




Hotel Sector 53



Operating cash flows 4,360 5,360 5,781 6,972 7,861

Pre-tax profit 2,380 3,803 4,858 5,835 6,874

Tax (415) (393) (786) (951) (1,127)

Deprec. & amort. 1,980 2,201 2,469 2,653 2,892

Associates (264) (446) (490) (551) (611)

Working capital changes 678 195 (270) (14) (166)

Others 0 0 0 0 0

Cash from investing activities (8,029) (8,124) (5,479) (4,114) (5,151)

Capex (growth) (10,040) (7,110) (5,342) (4,000) (5,000)

Investments (492) (257) 0 0 0

Others 2,504 (757) (136) (114) (151)

Cash from financing activities 3,658 5,321 389 (575) (4,623)

Dividend payments (503) (828) (1,185) (1,303) (1,562)

Issue of shares 90 1,241 331 45 0

Proceeds from borrowings 5,456 4,339 1,242 683 (3,061)

Others/interest paid (1,386) 569 0 0 0

Net increase/(decrease) in cash (10) 2,557 691 2,283 (1,913)

Beginning cash 1,156 1,146 3,702 4,393 6,676

End cash 1,146 3,702 4,393 6,676 4,764

Source: MINT, UOB Kay Hian Figure 42: Key Metrics

Year to 31 Dec (%) 2011 2012 2013F 2014F 2015F

Growth

Turnover 43.6 20.1 15.7 12.1 13.5

EBITDA 45.7 33.5 21.1 15.2 13.0

Pre-tax profit 48.5 59.8 27.8 20.1 17.8

Net profit 132.9 18.3 19.4 19.9 17.6

Net profit (adj.) n.a. 77.6 19.4 19.9 17.6

EPS 41.0 72.5 9.5 19.9 17.6

Profitability

EBITDA margin 18.4 20.4 21.4 21.9 21.8

EBIT margin 11.1 13.6 14.8 15.7 15.8

Gross margin 58.4 57.6 58.8 59.4 59.5

Pre-tax margin 8.8 11.7 12.9 13.8 14.3

Net margin 10.6 10.5 10.8 11.6 12.0

ROE 21.1 21.0 20.6 22.7 24.3

ROA 7.7 7.3 7.5 8.5 9.9

ROIC 11.4 10.6 10.8 12.1 13.7

RONTA 14.7 13.4 13.3 14.5 16.0

Leverage

Interest cover (x) 5.7 6.1 6.7 7.0 8.0


Debt to equity 138.0 133.4 119.1 104.5 79.0


Current ratio (x) 0.9 1.1 1.2 1.3 1.5


Hotel Sector 54

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Company Name 2 55

T H A I L A N D


T H E E R A W A N G R O U P ( E R W T B )

Pure Tourism Play

The Erawan Group (ERW) is a leading hotel investment company in Thailand. It was established in 1982 and listed on the Stock Exchange of Thailand in 1994. Its hotel portfolio spans from luxury to mid-range and economy hotels across Thailand’s major tourist destinations. The company owns 16 hotels with 3,885 rooms, all under hotel management partnerships with world-class hotel operators.

To be Thailand’s largest listed hotel investment company by 2015. The number of its owned hotels will increase to over 20 with over 5,000 rooms in 2015, up from only 899 rooms in 2006. The company’s strategy is to expand its hotel portfolio through investments in owned-equity hotels, with a focus on the economy and mid-range segments in Thailand.

Key beneficiary of promising Thai tourism outlook. The Tourism Authority of Thailand expects international tourist arrivals to reach 30m (+10.4% CAGR) in 2015. We expect ERW’s revenue from the hotel business to grow strongly at a CAGR of 15.1% per year in 2013-15 due to solid hotel demand and improving core operations in all of its segments.

Well-diversified revenue streams from luxury and non-luxury segments. We estimate ERW’s revenue from the non-luxury segment to grow at a stronger 25.3% CAGR in 2013-15, driven by new hotels and solid market fundamentals with a favourable demand-supply balance. Meanwhile, its luxury segment is expected to grow at an 8.2% CAGR on the back of improving performances at existing hotels. Contribution from the non-luxury segment is likely to increase to 45% of total hotel revenue in 2015 from 35% in 2012.

Enhancing returns to shareholders through hotel monetisation programme. ERW sold Ibis Patong Phuket and Ibis Pattaya hotels to Erawan Hotel Growth Property Fund in Apr 13. We estimate the gain from the asset disposal at Bt860m, to be booked in 2Q13. The potential upside to our earnings forecasts should come from ERW’s future asset monetisation.

Initiate coverage with BUY and target price of Bt5.60, pegged at 13.0x EV/EBITDA. Our target price is also equivalent to an 18% discount to RNAV.

Key Financials


Net turnover 3,756 4,302 4,933 5,651 6,484 EBITDA 904 1,202 1,447 1,737 2,037 Operating profit 259 561 760 983 1,187 Net profit (rep./act.) 491 106 1,100 378 494 Net profit (adj.) (176) 101 240 378 494 EPS (Bt) (0.1) 0.0 0.1 0.2 0.2 PE (x) n.m. 83.4 39.1 24.8 19.0 P/B (x) 2.3 2.4 1.9 1.9 1.8 EV/EBITDA (x) 18.4 13.9 11.5 9.6 8.2 Dividend yield (%) 2.1 0.5 4.4 1.5 2.0 Net margin (%) 13.1 2.5 22.3 6.7 7.6 Net debt/(cash) to equity (%) 196.6 212.7 166.2 192.2 191.7 Interest cover (x) 2.2 3.1 3.3 3.5 3.9 ROE (%) 14.6 3.0 26.5 9.1 11.4 Consensus net profit - - 1,044 396 425 UOBKH/Consensus (x) - - 0.23 0.95 1.16

Source: The Erawan Group, Bloomberg, UOB Kay Hian

BUY Share Price Bt3.74 Target Price Bt5.60 Upside +49.7% Company Description The Erawan Group is a leading hotel investment company in Thailand. Its hotel portfolio spans from luxury to mid-range and economy hotels across Thailand’s major tourist destinations. Stock Data GICS sector Consumer DiscretionaryBloomberg ticker: ERW TBShares issued (m): 2,251.2Market cap (Btm): 8,419.7Market cap (US$m): 271.33-mth avg daily t'over (US$m): 1.8 Price Performance (%) 52-week high/low Bt6.35/Bt2.581mth 3mth 6mth 1yr YTD(25.2) (34.4) (15.8) 45.0 (15.8) Major Shareholders % Wattanavekin family 30.0 Vongkusolkit family 29.8 FY13 NAV/Share (Bt) 1.94FY13 Net Debt/Share (Bt) 3.22 Price Chart

80

110

140

170

200

230

260

2.00

3.00

4.00

5.00

6.00

7.00

(%)(lcy)ERAWAN GROUP PCL/THE

Erawan Group Pcl/The/SET Index

0

200

400

Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13

Volume (m)

Source: Bloomberg

Analyst



Hotel Sector 56

Investment Highlights To be Thailand’s largest listed hotel investment company by 2015. Starting with two luxury hotels in Bangkok, ERW targets to become the largest listed hotel investment company in Thailand by 2015. The number of owned hotels will increase to over 20 with over 5,000 rooms in 2015, up from only 899 rooms in 2006. The company’s strategy is to expand its hotel portfolio through investments in owned-equity hotels, with a focus on the economy and mid-range segments in Thailand. It is looking for investment opportunities in the CLMV countries, ie Cambodia, Laos, Myanmar and Vietnam. Note that ERW’s properties are managed by international hotel chains such as Hyatt, Marriott, IHG, Starwood and Accor. Its new hotel development pipeline includes Holiday Inn Pattaya Extension (200 rooms), scheduled to open in 3Q14, and Mercure Pattaya (210 rooms), slated to open in 4Q14. Key beneficiary of promising Thai tourism outlook. As a pure-play hotel owner, ERW is expected to be a key beneficiary of Thailand’s tourism boom. The Tourism Authority of Thailand expects international tourist arrivals to reach 30.0m (+10.4% CAGR) in 2015. The outlook for Thai tourism is quite promising, supported by: a) the rise of global mega-trends, including Asia becoming a new growth engine; rising spending power of the middle class, especially in Russia, India and China; and low-cost carriers making air transport more affordable; and b) Thailand’s attractiveness. We expect ERW’s revenue from the hotel business to grow strongly at a CAGR of 15.1% per year in 2013-15 due to solid hotel demand and improving core operations in all segments. Well-diversified revenue streams from luxury and non-luxury segments. We estimate ERW’s revenue from the non-luxury segment to grow at a stronger 25.3% CAGR in 2013-15, driven by the opening of new hotels and solid market fundamentals with a favourable demand-supply balance. Meanwhile, its luxury segment is expected to grow at an 8.2% CAGR on the back of renovations at existing hotels and the turnaround of its Naka Island Resort in Phuket. Contribution from the non-luxury segment is likely to increase to about 45% of total hotel revenue in 2015 from 35% in 2012. Enhancing returns to shareholders through hotel monetisation programme. ERW sold Ibis Patong Phuket and Ibis Pattaya hotels worth Bt1,831m to Erawan Hotel Growth Property Fund (ERWPF) in Apr 13. We estimate the gain from the asset disposal at Bt860m, to be booked in 2Q13. In addition, net cash flow of Bt920m from the disposal will bolster ERW’s war chest for additional hotel investment by almost Bt2b. The company plans to continue divesting its hotel property to ERWPF at a rate of about one hotel per year. The asset monetisation programme will help to boost the bottom line, lower the D/E ratio and enhance dividend yield. Initiate with BUY and target price of Bt5.60, by applying 13.0x EV/EBITDA to our 2014F EBITDA. Our target price is also equivalent to an 18% discount to our RNAV (based on the number of fully-diluted shares to factor in the exercise of ERW-W2 and ESOP#3). The potential upside to our earnings forecasts should come from the gains from asset sales to ERWPF in the future. Risk factors. Key risks to our investment case for ERW include: a) political instability, b) an external shock to global or Thailand-specific tourism, c) currency fluctuation, and d) increasing competition.

Contribution from the non-luxury segment is likely to increase to 45% of total hotel revenue in 2015 from 35% in 2012.

We estimate the gain from the sale of Ibis Patong and Ibis Pattaya hotels at Bt860m, to be booked in 2Q13.

Initiate coverage with BUY and target price of Bt5.60, pegged at 13.0x EV/EBITDA.

As a pure-play hotel owner, ERW would likely be a key beneficiary of Thailand’s tourism boom.

ERW’s strategy is to expand its hotel portfolio by focusing on the economy and mid-range segments.

Hotel Sector 57

Valuation We initiate coverage on ERW with a BUY rating and target price of Bt5.60, which is derived by applying 13.0x EV/EBITDA to our 2014F EBITDA. Note that EV/EBITDA of 13.0x is in line with ERW’s historical average EV/EBITDA since 2006. Our target price is also equivalent to an 18% discount to our RNAV (based on the number of fully-diluted shares to factor in the exercise of ERW-W2 and ESOP#3). We use replacement value per room of existing hotels, including Grand Hyatt Erawan, JW Marriott, Renaissance Koh Samui Resort & Spa, The Naka Island, mid-scale hotels, and Ibis hotels, as well as the replacement value for its non-hotel property (Erawan Bangkok). For hotels under development, we use capex as replacement cost for new hotel projects. ERW’s RNAV per share is valued at Bt6.83. ERW is currently trading at 9.9x 2014F EV/EBITDA below its historical mean. ERW is likely to be re-rated due to its outstanding earnings growth in 2013-15 and catalysts from future asset monetisation. Figure 1: EV/EBITDA Method

Hotel business: EV/EBITDA multiple method 2014F EBITDA from hotel & mixed use business (Btm) 1,783.5 EV/EBITDA multiple (x) 13.0 EV (Btm) 23,221.6 2014F Net debt (Btm) 9,194.8 No. of fully diluted shares (m) 2,505.0 Equity value per share (Bt) 5.60

Source: ERW, UOB Kay Hian Figure 2: RNAV

Hotel Business No of rooms Avg replacement value

per room (Btm) Ownership

(%) Replacement value

(Btm)

Grand Hyatt Erawan 380 14.0 73.6 3,917.6 JW Marriott 441 12.0 100.0 5,292.0 Renaissance Koh Samui Resort & Spa 78 12.0 100.0 936.0 The Naka Island, a luxury Collection 67 26.0 100.0 1,742.0 Courtyard by Marriott 316 8.0 100.0 2,528.0 Holiday Inn Pattaya 367 8.0 100.0 2,936.0 Mercure Siam 189 8.0 100.0 1,512.0 Ibis Sathorn 213 2.5 100.0 532.5 Ibis Nana 200 2.5 100.0 500.0 Ibis Riverside 266 2.5 100.0 665.0 Ibis Siam 189 2.5 100.0 472.5 Ibis Kata 258 2.5 100.0 645.0 Ibis Samui Bophut 209 2.5 100.0 522.5 Ibis Hua Hin 200 2.5 100.0 500.0 Holiday Inn Extension - under development 200 100.0 1,297.5 Mercure Pattaya - under development 210 100.0 812.5 Investment in ERWPF 20.0 350.4 Land for future development 100.0 124.8 Total Hotel 25,286.4

Non-hotel Business Rentable area

(sqm) Avg replacement value (Bt

per sqm) Ownership

(%) Replacement value

(Btm)

Erawan Bangkok 6,275 42,500 100.0 266.7 Total Non-hotel 266.7 Total value 25,553.1 Less: Net debt end of 2014 (9,194.8) Proceeds from exercise of ERW-W2 and ESOP#3 739.3 Equity value 17,097.6 No. of fully diluted shares 2,505.0 RNAV per share (Bt) 6.83 Target price (18% discount to RNAV) 5.60

Source: ERW, UOB Kay Hian

Hotel Sector 58

Figure 3: Details of ERW-W2 and ESOP#3

No. Of Units Exercise Ratio Exercise

Price (Bt) Share Allotment Exercise Period

ERW-W2 224,477,900 1 warrant : 1 common share 2.80 224,477,900 (100% of share allotment) 17-Dec-13 ESOP#3 35,743,099 1 warrant : 1 common share 2.90 3,574,310 (10% of share allotment) 1 Jan 12 - 30 Dec 15 3.00 7,148,620 (20% of share allotment) 1 Jan 13 - 30 Dec 15 3.10 10,722,930 (30% of share allotment) 1 Jan 14 - 30 Dec 15 3.20 14,297,239 (40% of share allotment) 1 Jan 15 - 30 Dec 15 Total 260,220,999

Source: ERW Figure 4: EV/EBITDA Band

5.0

7.5

10.0

12.5

15.0

17.5

20.0

2006 2007 2008 2009 2010 2011 2012 2013

Mean: 13.2x+0.5SD: 14.5x

-0.5SD: 11.9x

(x)

+1.5SD: 17.1X+1SD: 15.8x

-1SD: 10.6x

-1.5SD: 9.3x

+2SD: 18.4X

Source: Bloomberg, UOB Kay Hian

Hotel Sector 59

Financials Hotel growth strategy. ERW’s growth strategy since 2005 has been to expand and diversify its hotel portfolio in terms of segment and destination. Prior to 2005, the company had only two luxury hotels: Grand Hyatt Erawan and JW Marriott in Bangkok. At present, its hotel portfolio consists of 16 hotels spanning across the luxury, mid-range and economy segments with 3,885 rooms in total, all under hotel management partnerships with world-class hotel operators. ERW targets to become the largest listed hotel investment company in Thailand by 2015. The number of owned hotels will increase to over 20 with over 5,000 rooms in 2015, up from 821 rooms in 2004. Its strategy over the next three years is to expand its hotel portfolio through investments in owned-equity hotels, with a focus on the economy and mid-range segments in Thailand and ASEAN. The integration of ASEAN Economic Community (AEC) in 2015 forms a new economic landscape and creates opportunities for Thailand to become a strategic hub for AEC. This will increase demand for business travel and create new opportunities for ERW to invest in provincial Thailand and the CLMV countries. Note that ERW does not have its own brand. All of its hotel properties are managed by international hotel managers such as Hyatt, Marriott, IHG, Starwood and Accor. ERW’s new hotel development pipeline includes Holiday Inn Pattaya Extension (200 rooms), scheduled to open in 3Q14, and Mercure Pattaya (210 rooms), slated to open in 4Q14. In addition, the company has purchased land in border provinces such as Ubonratchathani, Mukdahan and Kanchanaburi for future hotel development. Figure 5: Hotel Rooms By Segment Figure 6: Hotel Rooms Breakdown

8 21 8 99 9 66 96 6 96 6

31668 3 872

12 829 34

1,6 582 ,04 7

2 ,04 7

9 66

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

1997-2004

2006 2008 2010 2012 2014F

(Rooms)

Luxury Mid-scale Economy

3 ho te ls 2 ho te ls

18 ho te ls16 ho te ls

13 ho te ls

9 ho te ls

22252944

100100

302221

14

48535042

0%

20%

40%

60%

80%

100%

1997-2004

2006 2008 2010 2012 2014F

Luxury Mid-scale Economy

(%)

Source: ERW, UOB Kay Hian Source: ERW, UOB Kay Hian

ERW’s strategy in 2013-15 is to expand its portfolio through investments in owned-equity hotels with a focus on the economy and mid-range segments in Thailand and ASEAN.

Hotel Sector 60

Figure 7: Hotel Rooms By Destination Figure 8: ERW’s World-class Alliances

821 8211350

18162194 2194

254

621621

78

287

287

287

325

583583

1031287

583

200200

0

1,000

2,000

3,000

4,000

5,000

1997-2004

2006 2008 2010 2012 2014F

Bangkok Pattaya Samui Phuket Hua Hin

(Rooms)

Luxury

Mid-scale

Economy


Figure 9: Hotel Portfolio

Hotel Location Segment No. Of Rooms

Year Of Commencement Ownership Land

Grand Hyatt Erawan Bangkok Luxury 380 Jun-91 73.6% Leasehold JW Marriott Bangkok Luxury 441 Sep-97 100.0% Leasehold Renaissance Koh Samui Resort & Spa Samui Luxury 78 May-05 100.0% Freehold The Naka Island, a luxury Collection Phuket Luxury 67 Jul-08 100.0% Freehold Total 4 luxury hotels 966 Courtyard by Marriott Bangkok Midscale 316 Nov-07 100.0% Leasehold Holiday Inn Pattaya Pattaya Midscale 367 Oct-09 100.0% Freehold Mercure Siam Bangkok Midscale 189 Dec-12 100.0% Leasehold Total 3 midscale hotels 872 Ibis Sathorn Bangkok Economy 213 Sep-08 100.0% Leasehold Ibis Nana Bangkok Economy 200 Mar-09 100.0% Leasehold Ibis Riverside Bangkok Economy 266 Nov-10 100.0% Leasehold Ibis Siam Bangkok Economy 189 Dec-12 100.0% Leasehold Ibis Patong Phuket Economy 258 May-08 100.0% Freehold Ibis Kata Phuket Economy 258 Dec-09 100.0% Freehold Ibis Pattaya Pattaya Economy 254 Jul-08 100.0% Freehold Ibis Samui Bophut Samui Economy 209 Oct-08 100.0% Freehold Ibis Hua Hin Hua Hin Economy 200 Jan-12 100.0% Freehold Total 9 economy hotels 2,047 Grand total 16 hotels 3,885 Hotels under development: Holiday Inn (Extension) Pattaya Midscale 200 3Q14 100.0% Freehold Mercure Pattaya Pattaya Midscale 210 4Q14 100.0% Freehold Total hotels under development 410

Source: ERW Key beneficiary of promising Thai tourism outlook. As a pure-play hotel owner, we see ERW as a potential key beneficiary of Thailand’s tourism boom. The Tourism Authority of Thailand expects international tourist arrivals to achieve a new record of 24.5m (+10% yoy) in 2013. The outlook for Thai tourism is quite promising, supported by: a) the rise of global mega-trends, including Asia becoming a new growth engine; rising spending power of the middle class, especially in Russia, China and India; and low-cost carriers making air transport more affordable; and b) Thailand’s attractiveness.

As a pure-play hotel owner, ERW is likely to be a key beneficiary of Thailand’s tourism boom.

Hotel Sector 61

Figure 10: Average Occupancy vs Foreign Tourist Arrivals

Figure 11: Room Revenue By Nationality (2012)

14.6 14.115.9

19.222.3

24.5 30.027.370%

82% 84%79%75%

58%58%59%

0%10%20%30%40%50%60%70%80%90%

2008 2009 2010 2011 2012 2013F2014F2015F

0

5

10

15

20

25

30

35(m)

Foreign tourist arrivals (million) Average occupancy

(%)

Thailand12%

US13%

Russia5%

India5%China

6%

Ocenia5%

Middle East10%

Europe (ex Russia)16%

East Asia (ex China)

25%

Source: ERW, UOB Kay Hian Source: ERW

To reap the benefits of the tourism boom and maximise its competitive edge, ERW has implemented an asset improvement programme to improve its returns on investment. Grand Hyatt Erawan Hotel has renovated all of its rooms in 2012-13. About 60% of the rooms completed renovation in 2012 and the rest will be completed around end-3Q13. The company expects to raise room rates after the completion of the renovation programme. Another driver for ERW’s operations is the turnaround of The Naka Island, A Luxury Collection Resort & Spa, Phuket, which was rebranded from Six Senses in Nov 11. We expect Naka Island’s EBITDA to turn positive in 2013 and its bottom line to turn positive in 2015. Given the country’s promising tourism prospects and ERW’s asset improvement programme, the company’s overall RevPar is likely to grow at a 9.1% CAGR per year in 2013-15. Figure 12: Asset Improvement Programme (2011-15)

Hotel Property Details

Renaissance Samui Renovation of villas in 2011 Ibis Samui Room portfolio adjustment in 2011 Naka Island Rebranding from Six Senses to A luxury collection in 2011 JW Marriott Bangkok New meeting venue in 2012 Courtyard Bangkok Executive lounge in 2012 Grand Hyatt Erawan All room renovation in 2012-13

Source: ERW Figure 13: ERW – Occupancy, ARR, RevPar Figure 14: RevPar Of Naka Island After Rebranding

84%

82%79%75%70%

58%58%59%

0

1,000

2,000

3,000

4,000

5,000

2008 2009 2010 2011 20122013F2014F2015F

(Bt)

0%10%20%30%40%50%60%70%80%90%


(%)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2010 2011 2012 2013F 2014F

(Bt)

+36.5

+16.0

+53.1

+33.2

Source: ERW, UOB Kay Hian Source: ERW

Hotel Sector 62

ERW’s revenue from the hotel business is expected to increase strongly at a CAGR of 15.1% per year over the next three years, driven by improving core operations in all segments. Figure 15: Revenue Of Hotel Business (2007-15F)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2007 2008 2009 2010 2011 2012 2013F 2014F 2015F

(Btm)

15.1% CAGR


Well-diversified revenue streams from luxury and non-luxury segments. We expect ERW’s revenue from the non-luxury segment to grow at a stronger 25.3% CAGR in 2013-15, driven by the opening of new hotels and solid market fundamentals with a favourable demand-supply balance. Meanwhile, its luxury segment is expected to grow at an 8.2% CAGR on the back of the renovation of existing hotels and the turnaround of its Naka Island in Phuket. ERW’s hotel revenue will diversify into non-luxury segments. Contribution from the non-luxury segment is expected to increase to 45% of total hotel revenue in 2015 from 35% in 2012. Meanwhile, the contribution from the luxury segment is expected to drop to 55% of total revenue in 2015 vs 65% in 2012. Figure 16: Revenue Mix By Segment Figure 17: Revenue By Segment

55606165

99100

403935

1

45

0%

20%

40%

60%

80%

100%

2004 2007 2012 2013F 2014F 2015F

Luxury Non Luxury

(%)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2011 2012 2013F 2014F 2015F

(Btm)

Luxury hotel Non Luxury hotel


Contribution from the non-luxury segment is likely to increase to 45% of total hotel revenue in 2015 from 35% in 2012.

Hotel Sector 63

Enhancing returns to shareholders through hotel monetisation programme. ERW sold Ibis Patong Phuket and Ibis Pattaya hotels worth Bt1,831m to ERWPF in Apr 13. We estimate the gain from the asset disposal at Bt860m, to be booked in 2Q13. The company used the proceeds from the disposal to repay debt, invest 20% in ERWPF, and pay dividends to shareholders. The remaining net cash flow of Bt920m will bolster ERW’s war chest for additional hotel investment by almost Bt2b. The company will use the asset monetisation programme as an ongoing financial vehicle for ERW’s future asset monetisation and potential asset acquisitions. The asset monetisation programme helps boost the bottom line, lower the D/E ratio and enhance dividend yield. ERW plans to divest its hotel property to ERWPF at a rate of about one hotel per year. Note that we have not factored the hotel monetisation programme into our forecasts for 2014 and beyond. The asset sales to ERWPF in the future should provide potential upside to our earnings forecasts. Figure 18: Hotel Monetisation Programme

Source: ERW

Funding the growth. ERW has set the capex budget for 2013-15 at about Bt6.4b, which will be used for new hotel developments, an asset improvement programme, regular maintenance, and new investment opportunities. Capex will be financed through operating cash flows, new debt, proceeds from asset sales to ERWPF, and proceeds from the exercise of ERW-W2 and ESOP#3. Figure 19: Capex (2012-15F) Figure 20: EBITDA vs D/E Ratio

1,200

2,400

2,000 2,000

0

500

1000

1500

2000

2500

3000

2012 2013F 2014F 2015F

(Btm)

1.7

2.22.1

2.7

2.1

2.5

0

500

1,000

1,500

2,000

2,500

2008 2009 2010 2011 2012 2013F

(Btm)

0.0

0.5

1.0

1.5

2.0

2.5

3.0(x)

Gain from asset saleEBITDA from core operationsD/E ratio


Hotel Sector 64

Earnings outlook. We expect ERW’s net profit to hit a record high of Bt1,090.8m in 2013, a surge of 930.2% yoy due to strong demand growth in the luxury and non-luxury segments, improving performances at its existing hotels, contributions from new hotels, and the Bt860m gain from the asset disposal. Stripping out the gain from the disposal, ERW’s profit from core operations is likely to increase 128.5% yoy to Bt230.8m in 2013. Figure 21: EBITDA & EBITDA Margin Figure 22: Net Profit, Normalised Profit &

Normalised Profit Growth

32.2%31.6%30.2%29.3%

25.8%24.1%24.7%

29.8%

0

500

1000

1500

2000

2500

2008 2009 2010 2011 2012 2013F2014F2015F

(Btm)

0%

5%

10%

15%

20%

25%

30%

35%

EBITDA from core operations EBITDA margin

(%)

-400

-200

0

200

400

600

800

1,000

1,200

2007 2008 2009 2010 2011 2012 2013F2014F2015F

(Btm)

Net profit Normalized profit

+128.5%

+32.6%+55.7%


Hotel Sector 65

Company Background ERW is a leading hotel investment company in Thailand. Founded in 1982 by the Vongkusolkit, Wattanavekin and Janewattanavit families, it was listed on the Stock Exchange of Thailand in 1994. Its hotel portfolio spans from the luxury to mid-range and economy segments spread across Thailand’s major tourist destinations. The company owns 16 hotels with 3,885 rooms, all under hotel management partnerships with world-class hotel operators Hyatt, Marriott, IHG, Starwood and Accor. Its investments include Erawan Bangkok, an upscale shopping mall adjacent to Grand Hyatt Erawan Bangkok. As of 15 Mar 13, ERW’s major shareholders included the Wattanavekin (30.0%) and Vongkusolkit (29.8%) families. Chase Nominees Limited and KBANK Flexible Equity Fund held 1.7% each. Figure 23: Revenue By Segment Figure 24: Major Shareholders As Of 15 Mar 13

6% 6%

5656566573

65

7

17149

817

151392 17361112 11

0%

20%

40%

60%

80%

100%

2008 2009 2010 2011 2012Luxury BKK Luxury Resort Midscale

Economy Rental

(%)

Wattanavek

in family30.0%

Others36.7%

Vongkusolkit family29.8%

Chase Nominees

1.7%

K Flexible Equity Fund

1.7%


Figure 25: Business Structure

Source: ERW

ERW’s hotel portfolio ranges from luxury to mid-range and economy hotels across Thailand’s major tourist destinations.

Hotel Sector 66

Risk Factors Political uncertainty. Political instability i.e. a military coup in 2006, airport

closure in 2008, and red-shirt protests in 2010, hit the country’s tourism sector severely as potential tourists shied away from Thailand. The recurrence of political unrest would adversely affect ERW’s hotel operations.

An external shock to global or Thailand-specific tourism. Epidemics, natural

disasters, the global economic slowdown and deterioration of Thailand’s economic outlook would affect demand in the tourism sector and could also be a source of downside risk to our earnings forecasts for ERW.

Currency fluctuation. The strengthening of the baht will mean foreign visitors

have to pay more for their tour packages, so they will be more careful with their spending. Thai tourism’s competitive advantage in terms of good value for money may be affected by the stronger baht trend.

Increasing competition. A significant increase in new supply by other hotel

operators, particularly in the non-luxury segment, would pose a threat to ERW’s profit margin and earnings outlook.

Key risk factors include political uncertainty, an external shock to global or Thailand-specific tourism, currency fluctuation and increasing competition.

Hotel Sector 67



Revenue, net 3,756 4,302 4,933 5,651 6,484


EBIT 259 561 760 983 1,187



Net interest income/(expense) (407) (393) (441) (491) (523)

Pre-tax profit (83) 225 376 554 727

Tax (53) (63) (67) (97) (142)

Minorities (39) (61) (69) (79) (91)


Net profit(rep./act.) 491 106 1,100 378 494

Net profit(adj.) (176) 101 240 378 494

Deprec. & amort. 646 641 686 754 851

EBITDA 904 1,202 1,447 1,737 2,037

Per share data (Bt)

EPS - diluted (0.1) 0.0 0.1 0.2 0.2


Book value per shares (BVPS) 1.6 1.6 1.9 1.9 2.1

Dividend per share (DPS) 0.1 0.0 0.2 0.1 0.1

Source: ERW, UOB Kay Hian Figure 27: Balance Sheet


Cash/Near cash equiv. 450 410 350 530 307

Accounts receivable/debtors 134 195 223 256 293

Stocks 90 111 118 131 148

Other current assets 96 102 118 136 156

Current assets 771 819 810 1,053 904

Fixed assets 11,203 11,775 13,632 14,927 16,121

Investments 3 2 2 2 2


Other non-current tangible assets 261 239 265 286 301


Total assets 12,238 12,834 14,709 16,267 17,328

Accounts payable/creditors 257 466 495 548 618

Short-term debt/borrowings 773 1,082 1,345 1,345 1,345

Other current liabilities 416 472 502 556 627


Long-term debt 6,731 6,796 6,989 8,380 8,840

Other non-current liabilities 292 303 303 303 303



Minority interest - accumulated 181 203 272 351 442




Hotel Sector 68



Operating cash flows 596 981 991 1,240 1,487

Pre-tax profit (83) 225 376 554 727

Tax (53) (63) (67) (97) (142)

Deprec. & amort. 646 641 686 754 851

Associates 0 0 (11) (15) (15)

Working capital changes 87 178 7 44 67

Others 0 0 0 0 0

Cash from investing activities 764 (1,174) (1,699) (2,055) (2,045)

Capex (growth) 966 (1,211) (1,710) (2,070) (2,060)

Investments 0 1 11 15 15

Others (203) 37 0 0 0

Cash from financing activities (1,130) 153 647 995 334

Dividend payments 0 (218) (42) (407) (140)

Issue of shares 5 8 235 11 14

Proceeds from borrowings (1,096) 375 455 1,391 460

Others/interest paid (39) (11) 0 0 0

Net increase/(decrease) in cash 230 (40) (60) 180 (223)

Beginning cash 220 450 410 350 530

End cash 450 410 350 530 307

Source: ERW, UOB Kay Hian Figure 29: Key Metrics

Year to 31 Dec (%) 2011 2012 2013F 2014F 2015F

Growth

Turnover 13.1 14.6 14.7 14.5 14.7

EBITDA 18.7 33.0 20.3 20.1 17.3

Pre-tax profit n.a. n.a. 67.5 47.2 31.4

Net profit n.a. (78.5) 938.7 (65.7) 30.9

Net profit (adj.) n.a. n.a. 137.4 57.5 30.9

EPS n.a. n.a. 113.4 57.5 30.9

Profitability

EBITDA margin 24.1 27.9 29.3 30.7 31.4

EBIT margin 6.9 13.0 15.4 17.4 18.3

Gross margin 52.3 54.3 57.6 59.0 59.7

Pre-tax margin (2.2) 5.2 7.6 9.8 11.2

Net margin 13.1 2.5 22.3 6.7 7.6

ROE 14.6 3.0 26.5 9.1 11.4

ROA 3.9 0.8 8.0 2.6 3.3

ROIC 7.3 3.9 12.1 6.2 7.1

RONTA 11.7 8.6 15.8 10.7 12.0

Leverage

Interest cover (x) 2.2 3.1 3.3 3.5 3.9


Debt to equity 209.1 224.4 173.5 203.3 197.6


Current ratio (x) 0.5 0.4 0.3 0.4 0.3


Property Sector - ASEAN 4

As of 3 July 2013, the analysts and their immediate families do not hold positions in the securities recommended in this report. We have based this document on information obtained from sources we believe to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Expressions of opinion contained herein are those of UOB Kay Hian Research Pte Ltd only and are subject to change without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of the addressee only and is not to be taken as substitution for the exercise of judgement by the addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. UOB Kay Hian and its affiliates, their Directors, officers and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add to or dispose of any such securities. UOB Kay Hian and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. UOB Kay Hian (U.K.) Limited, a UOB Kay Hian subsidiary which distributes UOB Kay Hian research for only institutional clients, is an authorised person in the meaning of the Financial Services and Markets Act 2000 and is regulated by Financial Services Authority (FSA). In the United States of America, this research report is being distributed by UOB Kay Hian (U.S.) Inc (“UOBKHUS”) which accepts responsibility for the contents. UOBKHUS is a broker-dealer registered with the U.S. Securities and Exchange Commission and is an affiliate company of UOBKH. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact UOBKHUS, not its affiliate. The information herein has been obtained from, and any opinions herein are based upon sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions and estimates herein reflect our judgement on the date of this report and are subject to change without notice. This report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, the firm preparing this report or its affiliates or the principals or employees of such firm or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal in transactions in any of these securities. Any such non-U.S. persons may have purchased securities referred to herein for their own account in advance of release of this report. Further information on the securities referred to herein may be obtained from UOBKHUS upon request. UOB Kay Hian Research Pte Ltd, 130 - 132, 3rd Sindhorn Building Tower 1 Wireless Road, Lumpini, Pathumwan Bangkok 10330, Thailand Tel: (662) 659 8000, Fax: (662) 263 2306 http://research.uobkayhian.com MCI (P) 122/03/2013 RCB Regn. No. 198700235E

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