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Banyan Tree Holdings Limited 2Q18 Results Summary

Core Content

This report provides an analysis of Banyan Tree Holdings Limited's 2Q18 financial results, highlighting key performance indicators, operational updates, and valuation insights. The report is issued by Phillip Securities Group, with the editor being Vaughn LI, and includes a detailed SOTP (Sum-of-Parts) valuation model and investment recommendation.

Main Points

Financial Performance

• Revenue: S$68.4 million for 2Q18, a 2.1% decline YoY.
• Segment Breakdown:
  • Hotel Investments: Revenue dropped 7.7% to S$38.7 million, mainly due to the deconsolidation of China operations and weaker Maldives performance.
  • Property Sales: Revenue increased 31.5% to S$15.1 million, driven by the handover of Cassia Phuket (Phase 2) and Cassia Bintan.
  • Fee-based Segment: Revenue fell 11.1% to S$14.6 million, but EBITDA rose 73% due to lower operating expenses.
• Total Costs and Expenses: Decreased by 13.9% to S$60.3 million, primarily due to deconsolidation of China operations.
• Operating Profit (EBITDA): Rose to S$9.6 million, up from S$0.4 million in 2Q17.
• Net Profit: S$-5.3 million for 2Q18, compared to S$-12.3 million in 2Q17.

Shareholder Returns

• The Group is transitioning to an asset-light model, which is seen as a positive for long-term shareholder value.
• Deals with Vanke and Accor are part of this strategy, including the divestment of China assets and operating them on a management contract basis.
• The company is maintaining an Accumulate rating with an unchanged target price of S$0.73.

Forward Bookings

• Forward bookings increased by 6% YoY, indicating healthy tourism sentiment.
• Hotels outside Thailand saw an 18% increase in bookings, which offset the 2% decline in Thailand due to MICE and events business slowdown.

Operational Risks

• Thailand operations face near-term uncertainties due to the Phuket boat accident, which may lead to cancellations and impact revenue.
• The report expects the impact to be transitional and short-term, lasting 1-2 quarters.

Key Financials

Valuation

• SOTP Valuation:
  • Owned hotel business: S$527,949 million (20% discount to FY18e PPE book value)
  • Property development: S$249,284 million (30% discount to RNAV, 20% development margins)
  • Fee-based segment: S$257,938 million (30% EBITDA margins, EV/EBITDA multiple of 10)
  • Total Valuation: S$1,035,170 million
  • Minus Total Debt: S$-565,946 million
  • Add Cash: S$142,648 million
  • Total Fair Value: S$611,872 million
  • Fair Value per Share: S$0.73
• Valuation Ratios:
  • P/B (X): 0.77 (FY18e)
  • P/E (X), adj.: 18.0 (FY18e)
  • Dividend Yield: 1.7%
  • ROE (%): 3.4% (FY18e)
  • ROA (%): 1.6% (FY18e)
  • Gearing (X): 0.33 (FY18e)

Outlook

• The Group is expected to benefit from its asset-light strategy, which is seen as a growth catalyst.
• Near-term challenges in Thailand are anticipated but are expected to be short-lived.
• The target price remains unchanged at S$0.73, translating to a c.0.94x FY18e P/NAV.

Investment Recommendation

• Maintain ACCUMULATE with an unchanged target price of S$0.73.
• The recommendation is based on both quantitative and qualitative factors, including market sentiment, risk reward profile, and the presence of stock price catalysts.

Shareholder Data

• Major Shareholders:
  • BIBACE INVESTMENT LTD: 34.1%
  • QATAR INVESTMENT AUTHORITY: 24.5%
  • PLATINUM ENTERPRISE LTD: 3.7%
• Market Cap: SGD 450 million
• 52-Week High/Low: SGD 0.68 / SGD 0.49
• 3M Average Daily T/O: SGD 0.18 million

Risk and Disclaimer

• Investment involves risks, and the report does not provide tailored investment advice.
• The recommendation is not based solely on quantitative return bands but also considers qualitative factors.
• The report is not for redistribution without express written consent from Phillip Securities (Hong Kong) Limited.

Contact Information

• Hong Kong Representatives:
  • Benny WANG: Dealing Director, (852)22776720, bennywang@phillip.com.hk
  • ZHANG Jing: Research Analyst, (86) 2151699400-103, zhangjing@phillip.com.cn
  • Terry LI: Research Analyst, (852) 2277 6527, terryli@phillip.com.hk
  • Eurus ZHOU: Research Analyst, (852) 2277 6515, euruszhou@phillip.com.hk
  • Tracy KU: Research Analyst, (852) 2277 6516, tracyku@phillip.com.hk
• Sales Contact:
  • Aric AU: Manager, Corporate & Institutional Sales, (852) 2277 6783, corporatesales@phillip.com.hk
  • Matthew WONG: Manager, International Sales, (852) 22776678, foreignstock@phillip.com.hk
  • Yoshikazu SHIKITA: Manager, International Sales (Japan Team), (852) 2277 6624, yshikita@phillip.com.hk

Summary

Banyan Tree Holdings Limited reported improved financial results for 2Q18, with narrowed losses and increased forward bookings indicating resilience in the tourism sector. The property sales segment saw a significant revenue boost, while the fee-based segment improved EBITDA despite a revenue decline due to deconsolidation of China operations. The company is maintaining an Accumulate rating and an unchanged target price of S$0.73, reflecting confidence in its asset-light strategy and long-term growth potential. However, short-term operational risks in Thailand, particularly following the Phuket boat accident, are noted. The SOTP valuation model provides a fair value per share of S$0.73, and the company's financial metrics such as P/B, ROE, and ROA are closely monitored. The report emphasizes the importance of qualitative factors in investment decisions and includes contact information for analysts and sales representatives.