Banyan Tree Holdings (BTH SP) - UOB Kay Hian 2018-02-28: 4Q17 Results In Line; Turnaround Year Ahead

Banyan Tree Holdings (BTH SP) - UOB Kay Hian 2018-02-28: 4Q17 Results In Line; Turnaround Year Ahead BANYAN TREE HOLDINGS LIMITED B58.SI

Banyan Tree Holdings (BTH SP) - 4Q17 Results In Line; Turnaround Year Ahead

  • 4Q17 results were in line with our expectations, bringing Banyan Tree’s full-year net profit to S$12.9m (2.9% above our estimates). 4Q17 revenue grew 9.4% y-o-y due to higher revenue recognition from property sales and hotel revenue growth fuelled by strong demand in Banyan Tree’s key markets of Thailand and Seychelles. 
  • A bright outlook for tourism and bumper property sales await Banyan Tree. 
  • Maintain BUY and SOTP-based target price of S$0.92, implying 48.4% upside.



RESULTS


4Q17 net profit in line with expectations. 

  • Banyan Tree Holdings’ (BT) 4Q17 profit came in at S$3.9m, which had overall profit beating our estimate by 2.9%. 
  • PATMI declined 53.6% y-o-y mainly due to reclassification of net fair value gains after Thai Wah became the group’s associate in 2016. Barring this one-off gain, 4Q16’s attributable profit will be an estimated loss of S$3.3m against 4Q17’s S$3.9m.

Property sales and Thailand tourism boom continues unabated. 

  • Fuelled by a broad based economic recovery as well as pick-up in growth in its key markets, Banyan Tree’s property sales registered 38.3% y-o-y growth while hotel investments’ sales (managed and owned) increased 5.1% y-o-y. 
  • Laguna Park townhomes/villas and Cassia Phuket (Phase 2) condominiums were the main contributors to the higher revenue recognition for the property sales segment.


STOCK IMPACT


Huge hidden book value in Thailand to be unlocked. 

  • We believe there is significant hidden book value for Banyan Tree’s landbank and property assets in Phuket, Thailand, as these were recorded at historical cost and there have been substantial increases in their economic value and conditions. The company sold 195 new units in 2017 (93 units in 2016) and intends to speed up progress of developments going forward. 
  • Management shared that the full development of the seaside land in Phuket (574,000 sqm sellable area) can yield as much as S$1.8b in revenue. 
  • We opine that Banyan Tree should partner with an experienced developer such as its strategic shareholder Vanke to speed up the process.

Bright outlook for international tourism, particularly in Thailand. 

  • International tourist arrivals grew by a remarkable 7% in 2017 to reach a 7-year high of 1,322m, according to the latest UNWTO World Tourism Barometer. This strong momentum is expected to continue in 2018 at a rate of 4-5%. Similarly, in Thailand, tourism is a key sector which contributed to the country’s 3.9% GDP growth in 2017. 
  • Just for the 2018 Chinese New Year holiday alone, Phuket saw 900,000 foreign tourists visiting the island, of which 1/3 were Chinese nationals (+20% y-o-y). As a result, Banyan Tree saw a 15% y-o-y jump in hotel forward bookings for its owned hotel (Thailand 20% higher, non-Thai 5% higher).

Bumper property sales ahead. 

  • As the global economy continues to hum away, management expressed optimism for property sales in 2018 and beyond as they saw Chinese property purchases overtake the Russian and European purchases. Banyan Tree saw a 3.6x increase in property sales deposits received (units and sales value) in 4Q17 against 4Q16. 
  • As at 31 Dec 17, unrecognised revenue rose 91% y-o-y to S$166.2m with approximately S$50.7m due to be recognised in 2018. With only two months into the new year, this already represents 65% of our full-year estimate and may potentially surprise on the upside.

Bullishness towards LRH’s Phuket landbank. 

  • The recent announcement of the voluntary tender offer to acquire remaining shares of Laguna Resorts & Hotels Public Company Limited (LRH), reflects management’s bullishness surrounding the landbank and property assets in Phuket, Thailand. 
  • In the event where Banyan Tree is able to acquire the remaining shares in which they do not exercise control (approximately 34.25% of total paid up shares in LRH), Banyan Tree will be valued at approximately S$875.5m.


EARNINGS REVISION/RISK


Maintain 2018-19 earnings forecasts, introduce 2020 forecast. 

  • We maintain our 2018-19 net profit forecasts of S$3.6m and S$12.0m respectively. We also introduce our 2020 earnings forecast of S$21.3m incorporating:
    1. Angsana Beachfront Residence Phuket’s completion in 2020; and
    2. growth in hotel keys under management to 11,054, in line with management’s guidance.


VALUATION/RECOMMENDATION


Maintain BUY and SOTP-based target price of S$0.92, implying 48.4% upside. 

  • We roll over our RNAV valuation into 2018-20 with the following expectations:
    1. Vanke will buy out Banyan Tree’s remaining stake in BTAC for another S$81m; and
    2. Banyan Tree’s disposal of its 5% holding in Banyan Tree China Hospitality Fund. 
  • We value Banyan Tree at S$775.7m, based on 12.9x 2018F EV/ EBITDA for its hotel management services (10% discount to peers’ average), and 0.6x of the cap value for its hotel/property development businesses.


SHARE PRICE CATALYST

  • Execution risk.
  • Geopolitical risks and external events affecting tourism/property development in key markets.
  • Foreign currency fluctuations.







Edison Che UOB Kay Hian | Yeo Hai Wei UOB Kay Hian | http://research.uobkayhian.com/ 2018-02-28
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.920 Same 0.920



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