SINGAPORE (Aug 15): Phillip Capital is maintaining its “buy” call on Banyan Tree with a lower target price of 74 cents to account for lower than expected disposal gain.
In a Monday report, Phillip Capital says Banyan Tree’s earnings outlook brightens on growing RevPARs.
“We expect RevPAR growth to continue in 2H17 in Thailand as tourism slowly recovers from the passing of the Thai king,” says lead analyst Tan Dehong in a Monday report.
Revenue recognition from property sales are also expected to be higher too.
As of June 17, the group has unrecognised revenue of $154 million, 77% higher a year ago.
“Thirty percent of this will be recognised in 2H17,” says Tan.
Interest cost savings is also expected to drive bottom line growth.
Profits from the disposal of China assets into Banyan Tree Assets (China) amounted to $39 million versus Phillip Capital’s estimated $66 million.
However, the group has stated its intention to utilise proceeds to reduce gearing.
“Assuming a 4% cost of debt, interest cost savings of $4.6 million can increase FY18e NPAT by 54% or FY18e EPS by 46%,” says Tan.
In 2Q17, Banyan Tree reported a turnaround in operating profit driven by hotel investments and the fee-based segment.
Thailand, which accounts for 40% of group revenue, continued its growth momentum from 1Q17, driving most of the 10% y-o-y increase in revenue for the Hotel Investments segment.
RevPAR for Thailand grew 15% and Seychelles 28%, offsetting a 9% decrease for Maldives due to an increase in resort supply and moderating growth in Chinese tourists.
“The lowering of our target price by 3 cents 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,” says Tan.
As at 3.42pm, shares in Banyan Tree are trading at 56 cents.
