Banyan Tree Holdings - UOB Kay Hian 2018-04-20: Expecting Stellar 1Q18 Results; Buying Up A Subsidiary On The Cheap

Banyan Tree Holdings (BTH SP) - UOB Kay Hian 2018-04-20: Expecting Stellar 1Q18 Results; Buying Up A Subsidiary On The Cheap BANYAN TREE HOLDINGS LIMITED B58.SI

Banyan Tree Holdings (BTH SP) - Expecting Stellar 1Q18 Results; Buying Up A Subsidiary On The Cheap

  • Banyan Tree Holdings’s turnaround story continues as the tourism boom in Thailand fuels expectations of a stellar 1Q18. 
  • Putting aside the hidden value in Laguna Resorts & Hotels (LRH), the enlargement of Banyan Tree’s stake in Laguna Resorts & Hotels represents a steal as Banyan Tree is only paying 54 S cents on the dollar for LRH’s NAV. Also, the deadline for Accor/Vanke to exercise their options (at 15% premium) creeps closer. 
  • We tweak earnings upwards due to the increased stake. Maintain BUY and raise our SOTP-based target price to S$1.00.



WHAT’S NEW


Paying 54 S cents on the dollar for 20.53% of LRH. 

  • Banyan Tree’s (BT) tender offer of subsidiary Laguna Resorts & Hotels’ (LRH) shares has increased its effective stake in LRH by 20.53% to 86.28%. 
  • The estimated cost of this acquisition is estimated to be S$57.5m (Bt1: S$0.042). Putting aside the hidden value in LRH, the low price Banyan Tree paid for its 20.53% stake translates to about 54 S cents on the dollar for LRH’s net asset value (NAV), getting about double the book value for the price paid. 
  • Given the bright outlook in Thailand, this increased stake at a low price will help Banyan Tree’s performance going forward.

Highly accretive share buybacks. 

  • With Banyan Tree’s turnaround story continuing but its stock still lagging behind (trading at a significant discount to its NAV), Banyan Tree’s capital has been put to use effectively, going into the market to conduct share buybacks. 
  • In Apr 18, Banyan Tree purchased 1m outstanding shares at highly accretive prices. This accretive buyback showed not only management’s confidence in the turnaround but also its active stance in rewarding shareholders and maximising capital usage.


STOCK IMPACT


Expecting stellar 1Q18 results, fuelled by Thailand’s tourism boom. 

  • According to officials, Thailand is expecting a 16.7% y-o-y increase in tourist spending to Bt2.1t with tourist arrivals increasing to 37.6m (+6.1% y-o-y) in 2018. Robust fundamentals continue to support the steady pick-up in tourist arrivals and had led to 1Q18 forward bookings for owned hotels in Thailand rising 20% y-o-y. Tourist arrivals have already surged 16.27% y-o-y in the latest March figures. 
  • With hotels being one of the biggest beneficiaries of Thailand’s improving tourism industry, we expect a strong showing from Banyan Tree in 1Q18.

Capturing a greater share of value. 

  • Banyan Tree’s strategy to unlock the value of its landbank on Phuket coupled with improving fundamentals of Thailand’s hospitality industry only sweetens the deal as Banyan Tree increases its economic interest in LRH’s bright prospects. 
  • We view Banyan Tree’s increased stake in LRH positively and as a sign of management’s confidence in the improving fundamentals of this key market.

Listing status of LRH remains. 

  • After Banyan Tree’s transaction, the resultant free float of 13.72% does not trigger any mandatory delisting criteria of the Stock Exchange of Thailand (SET). 
  • We note Banyan Tree had stated in an earlier statement that it has no plan to delist shares of LRH from SET.

Divestment of China Fund and China Assets continues unabated. 

  • The divestment of Banyan Tree’s 5% stake in China Fund effectively transferred all China Funds under Banyan Tree Assets (China) Holdings Pte. Ltd. (BTAC). Banyan Tree China’s stake in BTAC was diluted from 50% to 22.8% after the respective contributions of Banyan Tree and Vanke in respect to China Fund’s purchase by BTAC.

Further exercise of options by Vanke/Accord will happen at a 15% premium. 

  • We further note that should Vanke or Accor wish to exercise their options, they will have to do so at 15% premium to Volume Weighted Average Price (VWAP). 
  • Accor’s option will last six months after the issuance of conversion shares on 19 Dec 17 while Vanke’s first option is a bit sooner, five market days before Banyan Tree’s AGM on 26 Apr 18. (Vanke’s exercise price could also be higher, being the higher of 115% of 90 days VWAP or 10% discount to that day’s VWAP). Vanke will receive another option if it decides to exercise the first.



EARNINGS REVISION/RISK


Earnings revision due to reduced minority interests. 

  • We have tweaked our core earnings to S$4.2m (16.7%), S$13.2m (10.0%) and S$22.1m (3.8%) for 2018-20 respectively, taking into account factors such as reduced minority interests post tender offer.

Risks include:

  1. execution risk with regard to its Phuket landbank development,
  2. geopolitical risks and external events affecting tourism/property development in key markets, and
  3. foreign currency fluctuations.


VALUATION/RECOMMENDATION


Maintain BUY and raise SOTP-based target price to S$1.00. 

  • We incorporated the increased stake of Banyan Tree Holdings in LRH’s RNAV, outstanding shares post-share buybacks, updated the value of Banyan Tree’s stake in Thai Wah and cash used in the acquisition of 20.53% LRH’s outstanding shares. 
  • 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 overtures in achieving an asset-light model and leveraging on strategic partners’ core competencies.


SHARE PRICE CATALYST

  • Better-than-expected operating results in 1Q18.
  • Signing of more hotel management contracts with Vanke and/or Accor.







Edison Chen UOB Kay Hian | Yeo Hai Wei UOB Kay Hian | http://research.uobkayhian.com/ 2018-04-20
SGX Stock Analyst Report BUY Maintain BUY 1.00 Up 0.920



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