We expect CENTEL to report a core profit of Bt200mn in 2Q23, surging from only Bt22mn in 2Q22 off a low base but down 67% QoQ on seasonally weaker hotel operations in Maldives. We keep our earnings forecast unchanged and see 3Q23 as unexciting due to a higher lease payment. With limited upside gain to our TP, we stay Neutral on CENTEL with an end-2023 TP of Bt50/share.
2Q23: Slow quarter, mainly from Maldives. We expect CENTEL to report a core profit of Bt200mn, surging from only Bt22mn in 2Q22 off a low base but down 67% QoQ on seasonally weaker hotel operations in Maldives. It will release results on August 15.
Expectations/assumptions.
- Profit from hotel operations of Bt100mn (from loss of Bt116mn in 2Q22 but down from profit of Bt538mn in 1Q23). Excluding the Dubai JV, we estimate a 31% QoQ drop in RevPar in 2Q23 (5% below pre-COVID-19) dragged down by hotels in Maldives (21% of hotel revenue) where RevPar will sink 52% QoQ due to falls in both occupancy rate and ARR. Hotels in Thailand should have a lower seasonal impact than Maldives and we expect RevPar at hotels in Bangkok (28% of revenue) to slip 4% QoQ and RevPar of hotels in the provinces (51% of revenue) to drop 33% QoQ. We expect EBITDA margin to narrow to 26% in 2Q23 (from 40% in 1Q23) on weaker operations and ~Bt25-30mn pre-operating expenses for the hotel in Osaka (opened in July).
- Profit from food business of Bt100mn (down from Bt138mn in 2Q22 but up from Bt91mn in 1Q23), with SSS at 3% (vs. 19% in 2Q22 and 8% in 1Q23) and EBITDA margin at 18.5%, down from 23% in 2Q22 from rising operating costs (raw materials and staff) but up slightly from 18% in 1Q23.
Unexciting 3Q23. We keep leave 2023F as is, as our 2Q23 preview suggests 1H23 will account for 48% of our full-year forecast and 46% of consensus. We expect 3Q23 core earnings to improve only slightly QoQ since better operations will be pulled down by a higher lease payment. On May 15, CENTEL renewed lease contracts for Centara Grand Beach Resort & Villas Hua Hin (6% of hotel revenue) with the State Railway of Thailand (SRT). This is a 4-year sublease for construction and a 30-year sublease for benefit utilization. CENTEL has not disclosed the new lease payment. Based on a recent interview by SRT, we estimate the payment at ~Bt190mn/year, above the ~Bt100mn/year in the latest year. CENTEL plans to renovate the existing hotel and build a new hotel for asset enhancement, but has disclosed no details yet.
Neutral rating maintained. Our end-2023 TP is Bt50/share, based on SOTP valuation. We maintain our Neutral rating on CENTEL on unexciting earnings in the near-term and limited upside gain to our TP.
Risks 1) An economic slowdown that would derail travel demand and 2) cost inflation that would damage the profitability of its hotel and food businesses.
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