Banyan Tree Holdings - UOB Kay Hian 2018-08-15: 2Q18 Mixed Bag Of Results, Awaiting Divestment Of China Assets

BANYAN TREE HOLDINGS LIMITED SGX:B58

Banyan Tree Holdings - 2q18 Mixed Bag Of Results, Awaiting Divestment Of China Assets

Banyan Tree reported a 2Q18 attributable net loss of S$5.3m representing a 56.3% improvement y-o-y. 2Q18 net loss was attributable to the decline in revenue and share of losses at China associates.
Despite a seasonally weak quarter, Banyan Tree narrowed its net loss position y-o-y and our investment thesis of a turnaround remains intact as long as the China assets are fully divested.
Maintain BUY and SOTP-based target price of S$1.00, implying 86.9% upside.

Banyan Tree Holdings’ 2Q18 net loss came in at S$5.3m compared to a S$12.3m loss in 2Q17. PATMI rose mainly due to a reversal into operating profit which was partially offset by share of losses from its China associates.
Banyan Tree registered a 2Q18 operating profit of S$3.7m compared to 2Q17’s operating loss of S$6.1m, due to the de-consolidation of China operations with a decline in costs and expenses (-13.9% y-o-y) outstripping the decline in revenue (-2.1% y-o-y).

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Banyan Tree Holdings’ 2Q18 revenue decreased S$1.4m (-2.1% y-o-y) to S$68.4m, mainly attributable to the de-consolidation of China operations and weaker sales from hotel investments and fee-based business segments. This was partially offset by higher revenue from property sales. Revenue from hotel investments declined 7.7% y-o-y to S$38.7m as Maldives and Thailand faced softer demand in a seasonally weak quarter.
Property sales surged 31.5% y-o-y to S$15.1m due to the completion of Phase 2 of Cassia Phuket and Cassia Bintan condominiums.

Thailand is expecting to welcome 37.5m international tourists to its shores in 2018, up 6.1% y-o-y. Even with tourist arrivals growth 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 from both the Chinese and European tourist markets.
We expect Banyan Tree’s branding and its association with luxury will be a major beneficiary of this trend.

According to the International Monetary Fund, growth of Banyan Tree’s key clientele markets Europe and China is likely to slow gradually against the backdrop of a rising US dollar and escalating trade tensions. While we remain wary of further escalation in trade frictions which may affect tourism, we are cautiously optimistic of Banyan Tree’s strategy to diversify its clientele base and product range to partially offset weak demand from different market segments.
According to management, forward bookings were 6% higher y-o-y in 2Q18.

Banyan Tree has unrecognised revenue of S$202.3m (+31.4% y-o-y) where 25% will be progressively recognised in 2H18, anchoring at least S$50.6m of revenue through property sales in the next two quarters. Correspondingly, Banyan Tree’s 2H18 property sales may only come in slightly below its 2017 full-year property sales of S$51.4m.

Banyan Tree entered into a share purchase agreement to sell its entire portfolio of Seychelles assets as part of its strategy to unlock value of its mature assets. Subsequent to the sale, Banyan Tree will continue to manage Banyan Tree Resorts Seychelles under a hotel management agreement.
We are positive on this development which will unlock asset value while ensuring Banyan Tree continues to build on its asset-light strategy.
We also note that the additional cash flow arising from this sale will allow Banyan Tree to shed its debt and reduce gearing.

No changes to estimates.
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.

Maintain BUY and SOTP-based target of S$1.00, implying 86.9% upside.
With multiple factors aligning themselves, 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.
We did not incorporate the sale of Seychelles as we await approval and completion of the relevant transaction.

Yeo Hai Wei UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2018-08-15

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