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Thai Hotels Summary

Core Content

The Thai hotel sector is analyzed with a focus on growth potential, investment thesis, and key players. Despite short-term challenges such as political unrest, the long-term outlook remains positive due to strong tourism fundamentals and expansion strategies.

Main Points

• Sector Outlook: The tourism industry is a key driver of the Thai economy, contributing 7.4% of GDP and providing over 2.2 million jobs. The sector is expected to grow with a three-year CAGR of 8% in tourist arrivals, reaching 33 million in 2016F.
• Political Impact: The current political unrest in Bangkok affected the 2014 high season, leading to a 40% occupancy rate. However, the situation is expected to normalize within six months as the government is unlikely to extend the emergency decree.
• Company Performance:
  • ERW (Erawan Group): A pure hotel operator with the highest EBITDA and net profit growth (3-yr CAGR of 25% and 93%). It is expected to post a THB517m net profit in 2016F.
  • MINT (Minor International): A diversified operator with a strong presence in 16 countries, focusing on hotel management contracts. It is rated as Buy with a three-year CAGR of 16% in earnings.
  • CENTEL: Rated as Hold, with slower growth (3-yr CAGR of 12%). It has a more asset-light strategy and is less aggressive in expansion compared to MINT and ERW.

Key Information

• Valuation Summary:
  • MINT: Market cap of THB3,047.1m, Price of 24.7 LC, Target Price (TP) of 30.00 LC, Upside of 21%.
  • CENTEL: Market cap of THB1,321.5m, Price of 31.8 LC, TP of 35.00 LC, Upside of 10%.
  • ERW: Market cap of THB293.0m, Price of 3.8 LC, TP of 4.50 LC, Upside of 17%.
• Growth Drivers:
  • Tourism Growth: Expected to grow by 8.5% CAGR over the next three years, driven by the middle-income class growth (from 27% to 43% in 2018F), low-cost carriers (LCC), and value-for-money proposition.
  • Diversification: MINT and ERW are preferred over CENTEL due to their diversified portfolio and focus on budget and economy hotels.
  • Hop Inn: ERW's new budget hotel chain, expected to account for 9% of revenue and 17% of EBITDA in 2016F.
• Market Trends:
  • Tourist Traffic: Reached 26.7 million in 2013, with 53% from East Asia.
  • Seasonality: High season (1st and 4th quarters) and low season (2nd quarter) are clearly defined, with 65%–70% occupancy rate during high season.
  • Occupancy Rate: Expected to rebound to pre-crisis levels within 4.3 months after political tensions ease.
  • Tourist Spending: International tourists spend THB1,321 per day, with 32% of total expenditure going to accommodation. The Middle East and Oceania are key spenders.

Investment Thesis

• The Thai hotel sector is rated OVERWEIGHT due to structural growth in the tourism industry.
• ERW is highlighted as a top pick due to its aggressive expansion into budget hotels and strong EBITDA and profit growth.
• MINT is also a top pick with diversified operations and a strong brand presence in multiple countries.
• CENTEL is given a Hold due to slower growth and less aggressive expansion.

Risk Factors

• Political Turmoil: Can disrupt business and affect occupancy rates. Normalization is expected within 3–6 months.
• Natural Disasters and Global Economic Slowdown: May impact the sector directly.
• Intensifying Competition: Especially in the luxury and budget hotel segments.
• Contract Termination: Risk of losing revenue from hotel and food management contracts.
• Exchange Rate Fluctuations: Affect franchise income and import costs.
• Interest Rate Changes: Impact cash flow and operating results due to high leverage.
• Technological Changes: May lead to operational inefficiencies if not adapted.

Strategy & Expansion Plans

• ERW is shifting focus to budget hotels and has a clear market segmentation.
• Expansion Plans:
  • ERW plans to open 10 hotels in 2H14 and 30 hotels in 2015F–2016F under the Hop Inn brand.
  • MINT and CENTEL are expanding hotel management contracts, with 85% of new inventory in 2014F being in this category.
  • Investment: Expected to reach THB28.5b over the next three years, leading to a 10.5% increase in hotel capacity.
  • Food Outlets: Expected to grow to 2,971 outlets in 2016F, a three-year CAGR of 10.4%.

3 Numbers That Matter

1. 7% of GDP: Tourism contributes 7.4% of GDP.
2. 26.7 million tourists: In 2013, with 53% from East Asia.
3. 9,865 hotels and guesthouses: In 2012, with Southern Thailand having the highest number of rooms.

Conclusion

The Thai hotel sector is poised for long-term growth, supported by tourism expansion, low-cost travel, and diversified strategies. Despite short-term political challenges, the sector is expected to recover quickly, and operators like ERW and MINT are leading the way with aggressive expansion and diversification.