20170804-辉立证券-A_new_era_through_partnerships_15页_774kb

Banyan Tree Holdings Limited (BTH) Summary

Core Content

Banyan Tree Holdings Limited (BTH) is a premium resort, hotel, residence, and spa developer and operator with a presence in 25 countries. As of FY16, the group owns 40 hotels and resorts, 64 spas, 77 retail galleries, and three golf courses. BTH operates under four main brands: Banyan Tree, Angsana, Cassia, and Dhawa. The company has also signed strategic partnerships with China Vanke and AccorHotels, which are expected to significantly boost its financial performance and global expansion.

Main Points and Key Information

Strategic Partnerships and Growth Opportunities

• Partnership with China Vanke:

  • BTH is expected to gain significant capital from the disposal of its China assets into a new joint venture, Banyan Tree China (BTC), with Vanke.
  • The revaluation gain is estimated at S$66 million or 9c/share, due to the appreciation of Chinese land and property prices.
  • Key assets for disposal include:
    • 40% of Banyan Tree Hotels Management (CHMC)
    • 100% of Laguna Chengdu
    • 100% of Banyan Tree Lijiang
    • 100% of Banyan Tree Ringha
  • The total valuation of the disposal group is estimated at S$230 million, with S$115 million in cash proceeds from a 50% divestment.

• Partnership with AccorHotels:

  • The partnership involves co-developing hotels and serviced residences under BTH's four brands over 12 years, with the option to extend.
  • Accor has subscribed for S$24 million in convertible debentures, convertible into a 5% stake in BTH at a S$0.60 strike price, with an option to increase to 10%.
  • This partnership enables BTH to expand into non-Asian markets such as Africa, the Middle East, and the US, leveraging Accor's global network and loyalty programme.
  • BTH is projected to launch 3–5 new properties per year, contributing S$0.33 million in annual revenue and S$0.23 million in EBITDA per property.
  • These new properties are expected to increase BTH's EBITDA margin to 70% in the long term, with the earliest revenue contributions expected in FY20.

Financial Impact

• Capital Injection:

  • Potential S$50 million capital injection from both Vanke and Accor, which can be used to reduce gearing and interest costs.
  • Assuming a 4% cost of debt, interest cost savings of S$4 million/year could increase FY18e NPAT by ~48% and EPS by ~23%.

• Valuation and Investment Rating:

  • Initiation of coverage with a BUY rating and a target price of S$0.77, implying a 36% upside from the last done price of S$0.57.
  • The SOTP valuation includes:
    • 20% discount on PPE for owned hotel business
    • 30% discount on RNAV for development properties
    • 10x EV/EBITDA multiple for the fee-based segment
  • The FY18e P/NAV is estimated at 0.91, which is below the post-GFC average of 0.90.

Financial Performance (FY15–FY18e)

Shareholder Structure

Price Performance

Price vs STI

• BTH has underperformed the STI over the past year, with a return of 29.1% compared to 21.4% for the STI.

Key Financials

• Net assets of disposal group (as at FY16): S$163.7 million
• Estimated valuation gains: S$66 million
• Estimated total disposal group valuation: S$229.7 million
• Cash proceeds to BTH (50% divestment): S$114.855 million
• Total number of shares (mn): 761,057
• Fair value/share: S$0.77

Valuation Methodology

• SOTP (Sum-of-Parts Valuation):
  • Owned hotel business: S$541.555 million (20% discount on PPE book value)
  • Property development: S$223.164 million (30% discount on RNAV)
  • Fee-based segment: S$250.425 million (10x EV/EBITDA multiple, 30% EBITDA margin)
  • Total valuation: S$1,015.145 million
  • Minus total debt: S$616.585 million
  • Add cash: S$186.477 million
  • Final valuation: S$585.037 million
  • Fair value/share: S$0.77

Conclusion

BTH's strategic partnerships with China Vanke and AccorHotels present significant opportunities for capital gains, management fee income, and debt reduction. The company is expected to benefit from the divestment of Chinese assets, which could generate S$66 million in revaluation gains. Additionally, the asset-light expansion strategy with Accor could increase BTH's EBITDA margin to 70% in the long term. The SOTP-derived target price of S$0.77 implies a 36% upside, and the company is currently valued at a P/NAV of 0.91, suggesting potential for further growth.