We hosted management of Banyan Tree Holdings (BTH) at a recent marketing event. Key issues discussed include updates on the partnerships with Accor and Vanke, future growth pillars and outlook for the Group’s key markets. Below are some highlights.

• Lapse of options granted to Accor and Vanke for the subscription of an additional 5% stake in BTH each. Vanke had to contend with stricter capital controls and regulations in China with regards with overseas investments in the hotel industry. Accor’s rationale for not exercising the option is less clear, though both Accor and Vanke still hold c.5% of BTH shares each, purchased at 60 cents per share.
• Management contracts remain key growth catalysts from the partnerships. While no management contracts have been officially announced, we note that the Group does not typically announce such signings, perhaps due to contractual confidentiality reasons. Excluding the Accor/Vanke deals, BTH is slated to open 28 new hotels in the next 3 years, largely for hotels under management contracts secured by the Group.
• Other benefits from the partnerships with Accor/Vanke. These include lower commission rates paid to online travel agencies (OTA) as a result of Accor’s scale. We understand that these commission rates can range from low-mid teens for big operators such as Accor, to 20+% for smaller operators. BTH also has access to AccorHotels’ global reservations and sales network. More than half of the Chinese who bought development projects from BTH in 1Q18 were from Vanke’s network of contacts. The Chinese made up c.60% of property sales for BTH in 1Q18.
• Strong growth in tourism still expected in Thailand, the largest contributor to Group revenue by geography. Thailand’s international tourist arrivals grew c.13% YoY for the first five months this year, compared with 4% for the same period last year.
• China remains the most important target group of tourists for Group. Asia, in particular China, is the fastest growing target group of tourists for the Group. We note that Chinese tourists account for c.44% of total room revenue in FY17 for the Group. Management also highlighted Korea as a fast growing target market.

Investment Action

Outlook is positive as we expect the strong RevPAR growth in the Group’s biggest market in Thailand to be sustainable, underpinned by the ongoing recovery in the tourism industry. Other growth catalysts include management contracts from the Accor/Vanke partnerships. Maintain Accumulate with target price of S$0.73, translating to 0.94x FY18 P/NAV.