+ Sustained improvements in RevPARs for BTH’s biggest market Thailand (61% of FY16 revenue for Group-owned hotels): 3Q17 RevPAR for Thailand grew 10% YoY, continuing growth trends for the year. Maldives, 2nd largest market for Group-owned hotels accounting for 23% of FY16 Group-owned revenue, continue to be plagued by oversupply of rooms with RevPAR dropping 33%.
+ Improved property sales with sales value jumping 2.5x YoY: 23 new units, mainly for Cassia Bintan, were sold in 3Q17, with sales value jumping 2.5x YoY to S$20.4mn.
– Increase in operating expenses hurt EBITDA margins. The increase in administrative and salaries expenses were ahead of our expectations as a result of higher exchange losses from the USD depreciation and higher provision of bonus and incentives.
– Weakness in Maldives continues, but expected to ease in FY18. Drop in RevPAR for Maldives was main cause of 7% drop in revenue from Hotel Investments segment. We expect conditions in Maldives to stabilise in FY18 for reasons outlined in outlook below.
We expect RevPAR strength for Thailand to sustain, given the low base caused by weak tourism numbers in the quarters following the King’s passing in Oct 2016. Recovery in tourist numbers for Maldives was unable to offset the 14.7% growth in industry operational hotel beds in MYTD. We expect conditions in Maldives to improve in 2H18 as new supply tapers off after 2018. (8.2% expected new supply in 2018).
Interest cost savings to drive bottom line growth. The Group has stated intentions to utilise cash proceeds from the disposal of China assets and placement to reduce gearing. Assuming a 4% cost of debt, interest cost savings of $4.6mn can increase FY18e NPAT by 54% (or FY18e EPS by 46%). We have factored in interest cost savings in our FY18e forecasts.
Unrecognised revenue of S$132mn from property sales as at Sept 2017 (57% jump YoY) will also provide support to earnings. ~$22.5mn is expected to be recognised in 4Q17.
Maintain BUY with lowered target price of S$0.71 (from S$0.74).
We trim our adjusted FY17e EBITDA margin to 8%, leading to a lower resultant cash balance at FY17e which trimmed our SOTP target price. We maintain our FY18e forecasts as growth in earnings is expected to be driven by sustained strength in the Group’s largest market in Thailand and less challenging conditions in Maldives in FY18. The new partnerships with Accor and Vanke offer opportunities for BTH to scale up at a much faster pace than before. As the Group takes on more management contracts under these partnerships, improving EBIT margins should further drive earnings going forward. Our target price translates to 0.7x FY18e P/NAV.
Figure 1: Valuation Table