Banyan Tree Holdings (BTH SP) - UOB Kay Hian 2017-11-13: Beginning Of A Turnaround

Banyan Tree Holdings (BTH SP) - UOB Kay Hian 2017-11-13: Beginning Of A Turnaround BANYAN TREE HOLDINGS LIMITED B58.SI

Banyan Tree Holdings (BTH SP) - Beginning Of A Turnaround

  • Banyan Tree Holdings' 3Q17 results were in line with a S$20.1m profit, a reversal from S$10.8m losses a year ago, thanks to an expected S$40.4m gain from disposals to Vanke
  • Property sales also moved into positive territory and looks set to supplement the 4Q17 results. 
  • Banyan Tree is looking forward to launching 8 new resorts and 11 spas as well as a bright outlook for its Thai business. We cut our earnings forecast to account for deal expenses and minority interest. 
  • Maintain BUY with SOTP target price of S$0.92.



WHAT’S NEW


3Q17 results largely in line. 

  • Banyan Tree Holdings’ (BT) 3Q17 results were in line with expectations with net profit of S$20.1m, a reversal from S$10.8m losses a year ago. This was largely thanks to an expected S$40.4m from gains in divestments to Vanke, though revenue had also improved 9.1% yoy on higher revenue recognition from property sales as Cassia Bintan (Phase 1) was completed. 
  • However, there was lower contribution from fee-based and hotel investments segments as well as higher forex loss during the period. Banyan Tree's key market, Thailand, performed well as a market in terms of both its hotel investment and property sales segments.

Hotel Investments: China divestment and Thailand strength. 

  • Lower revenue and operating profit came as a result of the sale of China assets in August. While there was some softness in RevPar for Maldives (-33% yoy), Banyan Tree's key Thailand market continued to register strong RevPar growth (+10% yoy). 
  • Other markets such as Seychelles also registered stellar performances culminating in a 39% rise in RevPar in the quarter.

Property sales moved into operating profit territory. 

  • Property sales supported revenue in the quarter and moved the segment into positive operating profit territory as compared to a year ago. In its property sales segment, deposits for 23 units with total sales value of S$20.4m was received in 3Q17 (3Q16: 15 units, S$8.1m). This translates into unrecognised revenue of S$132.4m as at 3Q17 (+56.7% yoy).

One-off deal related charges and future minority interests impact clarified. 

  • While we had anticipated professional fees and minority interest impact in relation to the China asset divestment, we chose not to account for it until we had full clarity on these items. Management has now guided on one-off charges of about S$5.0m for deal related fees in relation to the China asset divestment. 
  • At the same time, the divestment of China assets (96%-owned Ringha and 83%-owned Lijiang) had also provided visibility into the complex minority interest impact owing to Banyan Tree's smorgasbord of percentage-termed stake holdings.


STOCK IMPACT


Bright outlook for global economy and Thailand in particular. 

  • IMF’s latest World Economic Outlook Update in October shows an upward revision in global economy outlook, reflecting a strengthening pick-up in global growth. 
  • Banyan Tree has already seen some of the effects as hotel forward bookings for BT-owned hotels for 4Q17 had grown 9% yoy, in particular hotels in Thailand saw outstanding 15+% growth while other hotels still saw 1+% growth. Management shared optimism on Thailand as independent research has upgraded business growth forecasts for Banyan Tree's key market. 
  • We expect hotel investments and hotel management to bounce back in 4Q17 from seasonal weakness in 3Q17.

Property sales to supplement 4Q17 results. 

  • For property sales, with around 17% of the group’s S$132.4m (+56.7% yoy) in unrecognised revenue to be progressively recognised in 4Q17, we believe the segment will support Banyan Tree's trajectory to register full-year revenue of at least S$55.3m.

8 new resorts and 11 spas to open in the next 12 months. 

  • Banyan Tree currently has 8 new resorts set up for launch in the next 12 months. This includes two Angsanas, one Dhawa and one Banyan Tree in China, one Banyan Tree and one Royale Pavilion by Banyan Tree in Malaysia and finally one Angsana in Cuba and one in Greece. 11 spas under management are also set to open in the next 12 months.


EARNINGS REVISION/RISK


Earnings forecast revised downwards. 

  • We revised our core earnings forecasts downwards to -S$21.6m (-9.2%), S$3.6m (-23.7%) and S$11.8m (-16.4%) for 2017-19 respectively. 
  • We have factored in increased visibility on minority interests post the China assets divestment but this should not distract investors from the strong EBITDA for 9M17 which continues to be part of the valuation benchmark for capital intensive companies such as hotels.


VALUATION/RECOMMENDATION


BUY with a SOTP-based target price of S$0.92. 

  • With a bright outlook for Banyan Tree's key Thailand market, we opine that Banyan Tree is only in the first innings of spectacular growth from its overture in achieving an asset-light model and leveraging on strategic partners’ core competencies.


SHARE PRICE CATALYST

  • Better-than-expected operating results in 4Q17.
  • Capital injection from Vanke and/or Accor.
  • Signing of hotel management contracts with Vanke and/or Accor.







Edison Chen UOB Kay Hian | Yeo Hai Wei UOB Kay Hian | http://research.uobkayhian.com/ 2017-11-13
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.920 Same 0.920



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