+ Turnaround in operating profit driven by hotel investments and fee-based segment: Thailand, which accounts for 40% of Group revenue, continued its growth momentum from 1Q17, driving most of the 10% YoY increase in revenue for the Hotel Investments segment.
+ General improvements in RevPARs except for Maldives: RevPAR for Thailand grew 15% and Seychelles 28%, offsetting a 9% decrease for Maldives. Increase in resort supply and moderating growth in Chinese tourists continue to hurt Maldives’ performance.
– Disposal gains of China properties lower than expected: Profits from the disposal of China assets into Banyan Tree Assets (China) amounted to S$39mn vs our estimated S$66mn. The Group has stated its intention to utilise proceeds to reduce gearing.
Stable earnings outlook on growing RevPARs. We expect RevPAR growth to continue in 2H17 in Thailand as tourism slowly recovers from the passing of the Thai king. Revenue recognition from property sales will also be higher in 2H17. As of June 17, the Group has unrecognised revenue of S$154mn (77% jump YoY) for this segment. 30% of this will be recognised in 2H17.
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%).
Maintain BUY with lower target price of S$0.74.
We have incorporated the effects of the actual China disposal gain and the utilisation of the placement proceeds to reduce gearing (see Figure 1 for details of finalised Vanke deal). The lowering of our TP by 3c is mainly due to the lower than forecasted gains on disposal of China assets. Our target price translates to a FY18e P/NAV of 0.87.
Figure 1: Completion of definitive agreements with China Vanke
Figure 2: Valuation Table