Banyan Tree Holdings (BTH SP) - UOB Kay Hian 2018-05-16: 1Q18 Spectacular Results, Positioned For Growth

Banyan Tree Holdings (BTH SP) - UOB Kay Hian 2018-05-16: 1q18 Spectacular Results, Positioned For Growth BANYAN TREE HOLDINGS LIMITED SGX: B58

Banyan Tree Holdings (BTH SP) - 1q18 Spectacular Results, Positioned For Growth

  • In 1Q18, Banyan Tree Holdings outperformed our expectations with attributable core profit of S$4.1m (+240% y-o-y), which excludes S$16.1m in one-off divestment gains. 
  • Revenue grew 8.6% y-o-y due to higher revenue recognition from property sales as well as hotel revenue growth fuelled by strong demand in Banyan Tree’s key markets of Thailand and Seychelles. Surging property demand and tourism boom paint a rosy macro picture.
  • Maintain BUY and SOTP-based target price of S$1.00, implying 72.2% upside.



RESULTS

  • 1Q18 results above expectations. Banyan Tree Holdings' (BT) 1Q18 net profit came in at S$20.2m (1Q17: S$1.2m), mainly due to higher operating profit from hotel investments on higher revenue, higher share of profits of associates/JVs and S$16.1m gains from the sale of stake in BTAC. Stripping out one-off divestment gains of S$16.1m, core net profit was S$4.1m, up 240% y-o-y.
  • Tapping on surging property demand and tourism boom. The global upswing in economic activity fuelled broad-based growth in Banyan Tree’s key markets of China and Russia. Against this backdrop, Banyan Tree’s property sales jumped 155% y-o-y while hotel investments' sales (managed and owned) registered 4.5% growth in 1Q18.


STOCK IMPACT

  • Thailand’s tourism targeting high-end segment for a year of growth. Thailand is expecting 37.5m international tourists in 2018, up 6.1% y-o-y. Even with tourist arrivals growing at a clip faster than the global rate of 4-5%, Thailand's Ministry of Tourism and Sports is not resting on its laurels and is targeting higher-end tourists for both Chinese and European tourist markets. 
  • We expect Banyan Tree’s branding association with luxury to be a major beneficiary of this trend.
  • Litigation coming to a close. According to Laguna Resorts & Hotels (LRH), a settlement on the long-drawn litigations (to which it is a defendant) has been agreed with the plaintiffs. As part of the settlement, Bt10m will be paid to the plaintiffs. As at 31 Mar 18, the outstanding balance of provision of Bt31m for the legal case will be adjusted when the case is final. 
  • We view this development positively as it removes a potential overhang over Banyan Tree’s share price and also allows management to focus resources on unlocking the value of its Laguna Phuket landbank.


EARNINGS REVISION/RISK

  • Raise 2018-20 net profit forecasts by 16-43%. In view of the better-than-expected 1Q18 performance, we raise our net profit estimates to S$6.0m (+42.9%), S$15.6m (+18.2%) and S$26.0m (+17.6%) for 2018-20 respectively. 
  • With an upswing in higher-end tourist arrivals in Thailand, we expect Banyan Tree to reap outsized benefits compared to its competitors.

Risks include:

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


VALUATION/RECOMMENDATION

  • Maintain BUY and SOTP-based target price of S$1.00, implying 72.2% upside. With the bright outlook in Banyan Tree’s key operating markets, 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

  • Signing of more hotel management contracts with Vanke and/or Accor.





Edison Chen UOB Kay Hian | Yeo Hai Wei UOB Kay Hian | https://research.uobkayhian.com/ 2018-05-16
SGX Stock Analyst Report BUY Maintain BUY 1.000 Same 1.000



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