• Revenue and earnings outperformed our forecasts due to stronger performance from Group-owned hotels.
• Better operating performance from Group-owned hotels in biggest market Thailand offset weakness in Maldives.
• Improved profitability in Fee-based segment.
• Property sales segment turned in losses even with 155% YoY increase in revenue.
• Maintain ACCUMULATE with higher target price of S$0.73 after factoring in divestment gains.

The Positives

+ Better operating performance from Group owned hotels in biggest market Thailand offset weakness in Maldives.  Strong RevPAR growth in Thailand (13%) and Seychelles (27%) more than offset weakness in Maldives. Profitability in the segment improved following the divestment and deconsolidation of the less profitable China operations. Weakness in Maldives was largely expected and within our expectations with the state of emergency in the country.

+ Improved profitability in Fee-based segment. Despite lower revenue, operating margins for the segment improved as a result of write-back of provision for doubtful debts and non-consolidation of China operations. Operating margins improved YoY to c.33% from 18% for the segment.

The Negatives

– Property sales segment turned in losses even with 155% YoY increase in revenue. This is as a result of the write-off of deposit paid for land purchase in Thailand and higher expenses on projects where revenue recognition has not commenced.

– Increase in head office expenses by 53% (or S$1.4mn).  This was mainly due to higher travelling expenses and provision for founder’s grant.

Outlook

Outlook is positive as we expect the strong RevPAR growth in the Group’s biggest market in Thailand to sustain given the low base effect last year. Profitability of the Group should improve with the divestment of the China operations which had lower profitability. Lower depreciation expenses as a result should also improve profitability. 

Maintain ACCUMULATE with higher target price of S$0.73 (from S$0.71).

Our target price is raised after factoring in divestment gains. We expect earnings to be driven by sustained strength in the Group’s largest market in Thailand and less challenging conditions in Maldives in 2H18. The new partnerships with Accor and Vanke offer opportunities for BTH to scale up at a much faster pace than before. Our target price translates to c.0.94x FY18e P/NAV.