MCI(P) 046/11/2013 Ref. No.: TH2014_0118 1 of 7

Central Plaza Hotel - CENTEL 1HCY14 earnings under political and weak consumption pressures Bloomberg │ Reuters CENTEL TB │CENTEL.BK

Phillip Securities Research Pte Ltd 27 March 2014

Report type: Company Update

Company Overview CENTEL operates in two segments: hotel and restaurant/food businesses. It owns and operates hotels and resorts in Bangkok and the provinces. Its restaurant portfolio includes KFC, Mister Donut and Auntie Anne’s. CENTEL is expected to experience weak earnings in the

first half of 2014 as the hotel division, hotels in Bangkok in particular, has been hurt by political unrest while weak consumption appears to take a big bite of growth.

We cut CY14 earnings projection by 23% to reflect subdued performance in 1HCY14.

We reiterate a ‘BUY’ rating on CENTEL with a revised target price of Bt38 (earlier Bt44.50).

What is the news? CENTEL hotel network in Bangkok was hurt by the political unrest but the hotels in the upcountry markets and in Maldives have been faring well. In the first two months of year, an occupancy rate of CTW and hotel at Ladpraow dropped to 42%, dragging overall occupancy rate (including hotels in Maldives) down to 74%. Average daily rate grew 22% y-y while RevPar rose 9.9%. Food chain business also felt the weak consumption and sluggish economy with same-store-sales growth falling to 1.9% and total-store-sales growth standing at 6.6%.

How do we view this? An improvement in the tourism industry and consumption will be a key driver to CY14 earnings growth. However, the slower pace of decline prompts us to trim revenue from core businesses by 9% to Bt18,134mn (+6% y-y) and net profit by 23% to Bt1,522mn (+15% y-y).

Investment Actions? Reflecting a downward revision in earnings projection, our price target arrives at Bt38 (lower from earlier Bt44.50), based on DCF valuation (WACC 8.71% and terminal growth 3%). As political situations have eased which will benefit the tourism and hotel industry in the near term, we see it as a good opportunity to accumulate stocks and thus weighing a ‘BUY’ call for CENTEL.

Centel Plaza Hotel

Rating 1.00 Buy

- Previous Rating 1.00 Buy

Target Price (Bt) 38

- Previous Target Price (Bt) 44.5

Closing Price (Bt) 29.25

Expected Capital Gains (%) 29.91

Expected Dividend Yield (%) 1.43

Expected Total Return (%) 31.34

Raw Beta (Past 2yrs w eekly data) 1.56

Market Cap. (USD mn) 1,213

Enterprise Value (USD mn) 1,563

Market Cap. (Bt mn) 39,488

Enterprise Value (Bt mn) 50,948

3M Average Daily T/O (mn) 4.4

52 w eek range 24 - 43.25

Closing Price in 52 w eek range

Major Shareholders (%)

5.0

3.9

3.7

CG Report - 2013

(Very Good)

Key Financial Summary

FYE 12/12 12/13 12/14F 12/15F

Revenue (Btmn) 14,504 17,096 18,134 20,175

Net Profit, adj. (Btmn) 1,581 1,322 1,522 2,073

Net Profit (Btmn) 1,581 1,322 1,522 2,073

EPS, adj. (Bt) 1.17 0.98 1.13 1.54

EPS, (Bt) 1.17 0.98 1.13 1.54

P/E (X),adj. 25.0 29.9 26.0 19.0

BVPS (Bt) 6.64 7.66 8.95 9.89

P/B (X) 4.4 3.8 3.3 3.0

DPS (Bt) 0.30 0.40 0.42 0.57

Div. Yield (%) 1.0 1.4 1.4 1.9

Source: Bloomberg, PSR est.

*All multiples & yields based on current market price

Valuation Method

DCF (WACC = 8.71%, Terminal G = 3%)

2. Mrs. NUTTHEERA BOONSRI

3. Mr. SUTHICHAI CHIRATHIVAT

1. TIANG CHIRATHIVAT Co., Ltd.

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Volume, mn CENTEL TB EQUITY SETI rebased

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Analyst

Phillip Research Team

+65 65311240 research@phillip.com.sg

Central Plaza Hotel - CENTEL Phillip Securities Research Pte Ltd 27 March 2014

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Hotel in Maldives as key contributor in CY13 In CY13, normalized profit grew 25.4% to Bt1,334mn but net profit dropped 17.2% to Bt1,322mn as CENTEL booked Bt579mn extra gains in CY12. Total revenue increased 17.8%, thanks to strong growth in both hotel and food chain businesses. Revenue from hotel division accelerated 29.2% on the back of two hotels in Maldives and improved tourism industry. Occupancy rate picked up 9.8% to 79.8% and average daily rate rose 9.2% to Bt4,370. Revenue from food chain business increased 9.7% on higher selling prices and the additional 66 restaurants. At end-CY13, there were a total of 743 restaurants with SSSG of 0.9% on average and TSSG of 9.7%, lower from the prior year’s 6.2% and 27.1%, respectively. Figure 1: Revenue structure and EBITDA, 2012-2013 Source: CENTEL Figure 2: Hotel revenue breakdown, 2012-2013 Source: CENTEL Source: CENTEL Figure 3: CENTEL visitor portfolio in 2013 Source: CENTEL

Figure 4: Food revenue breakdown in 2013 Source: CENTEL 1QCY14 outlook subdued on weak consumption and poor performance in hotel division In hotel business, even though CENTEL hotels at CTW and Ladpraow had been seriously hurt by an occupying of major intersections in the central areas of Bangkok by the anti-government parties led by the PDRC, its hotels in the upcountry and Maldives remain strong. In Jan-Feb, occupancy rate of hotels at CTW and Ladpraow dropped drastically to 42%, on average, from 74% the same period last year. Average daily rate slipped 7% y-y while RevPar fell 47%. In Feb, occupancy rate of both hotels and average daily rate of hotel at Ladpraow saw improvement. Overall, occupancy rate stood at 73%, well below 82.8% a year ago, while average daily rate increased 7.9%, resulting to a 4.5% decline in RevPar. Including hotels in Maldives, occupancy rate would increase to 74% and average daily rate up 22%, pushing RevPar up 9.9%. The food chain business also felt the sluggish economy and weak purchasing power. Particularly, light food segment – Mister Donut and Auntie Anne’s – appears to suffer the most. Overall, SSSG slipped 1.9% and TSSG stood at 6.6% in Jan-Feb. Improvement anticipated in 2HCY14 Prolonged political unrest and weak consumption demand has pressured the first-quarter performance and probably the entire first half of the year, given low season in the country’s tourism industry and a lack of growth stimulus policy. Nevertheless, we are growing optimistic about earnings performance in the second half of the year. The tourism industry is expected to rebound within 2-3 months if the currently political stalemate is resolved, evidenced by the previous records after the country suffered from the Red Shirt rallies in 2010 and the great flood in late 2011.

56% 53%

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Food

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Food

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Overseas

Upcountry

Bangkok

Europe36%

Asia27%

Thailand16%

Australia10%

Middle East3%

USA2%

Ohers6%

KFC52%

Mister Donut20%

Anutie Anne's8%

Ootoya9%

Other Heavy Food8%

Other Light Food3%

Central Plaza Hotel - CENTEL Phillip Securities Research Pte Ltd 27 March 2014

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CY14 earnings projection cut by 23% reflecting weak 1HCY14 outlook According to guidance, despite an optimistic performance in 2HCY14, CENTEL trims its hotel business projections to reflect the weaker-than-expected revenue from hotels in Bangkok, accounting for 32% of the total. Occupancy rate estimate is down to 75%-76%, on average, from earlier 81%-82%, while average daily rate is expected to grow 6%-7% y-y and RevPar would grow 3%-4% (lower vs previous estimate of 10%). In food chain business, SSSG estimate is also revised down to 1%-2% from 5%-6% and TSSG forecast at 9%-10%. Revenue target is set at Bt1.9mn. To reflect CENTEL’s outlook downgrade, we lower revenue from core businesses by 9% to Bt18,134mn (+6% y-y) and net profit by 23% to Bt1,522mn (+15% y-y). A sharp reduction in net profit forecast is due largely to lower revenue and narrower gross margin estimates. EPS is estimated Bt1.13. Breaking into business divisions, revenue from hotel business is forecasted to grow 6% y-y to Bt8,532mn on the back of stronger performance of hotels in Maldives. Income from managed hotel is expected to rise 12% to Bt210mn. CENTEL got two managed hotel deals, totaling 336 rooms, in 1QCY14 – The Blue Marine Resort & Spa, Phuket has 226 rooms and Centara Grand Azuri Residences & Suites Mauritius 70 rooms. There are also the total of 772 rooms -- 238 in Thailand and 534 in overseas -- that will be gradually opened in 2Q-4QCY14. In food chain business, revenue would increase 6% y-y to Bt9,602mn. CENTEL plans to open 2-3 branches of a brand new Japanese Tonkatsu-style restaurant, namely Katsuya this year. According to management, CENTEL would add 75 restaurants during the year. Managed hotel and food chain restaurant in focus in the next three years In 2014-2016, CENTEL plan to diversify its revenue sources into the upcountry markets to fuel long-term growth. The company expects revenue to grow at CAGR of 12% in the next three years and EBITD up 15% per annum. CENTEL has focused on managed hotel segment that the company is expected to increase by 8-10 hotels on an annual basis. Income from this segment is expected to grow at CAGR of 17% in the same period. Additionally, CENTEL plans to open up to 3-4 COSI hotels per year that the company will launch two COSI hotels at Phuket and Samui in late 2015 and to develop its own hotel near Bangkok. In sum, CENTEL aims to increase its hotel portfolio (ownership and managing) to 65 with a total of 13,136 rooms in 2016. At end-1QCY14, there are 43 hotels with a total of 8,176 rooms – 15 owned hotels with 3,812 rooms and 28 managing hotels of 4,364 rooms

Figure 5: Expected number of managed hotels, as part of CENTEL asset light strategy Source: CENTEL Figure 6: Hotel expansion plan Source: CENTEL In food chain business, CENTEL plans to open two brand new restaurants and will increase a total of restaurants to 920 in 2016 from 743 restaurants at end-2013. Regarding the REIT, the company is waiting for an appropriate time to sell its assets to the property fund. Figure 7: Restaurant expansion plan Source: CENTEL

2,866 3,065

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#of JV and managedrooms

2Q-4Q14 2015 2016 2017 Total

Thailand 238 350 551 1,121 2,260

Bali 259 259

China 125 125

Maldives 110 110

Vietnam 668 668

Sri Lanka 165 226 391

Ethiopoa 300 300

Doha 360 360

Total 772 1,244 911 1,546 4,473

Hotels in Pipeline: 4,473 rooms

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Bangkok

603 677 743 920

Central Plaza Hotel - CENTEL Phillip Securities Research Pte Ltd 27 March 2014

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Figure 8: Revenue target by businesses Source: CENTEL Figure 9: EBITDA target by businesses Source: CENTEL ‘BUY’ maintained with Bt38 price target A downward revision in our CY14 earnings projection results in lower price target of Bt38 (earlier Bt44.50), based on DCF valuation (WACC 8.71% and terminal growth 3%). As political situations have eased which will benefit the tourism and hotel industry in the near term, we see it as a good opportunity to accumulate stocks and thus weighing a ‘BUY’ call for CENTEL.

56% 53% 56% 55% 58%

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Target Revenue

Hotel

Food

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62% 68% 69% 69% 66%

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Target EBITDA

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Central Plaza Hotel - CENTEL Phillip Securities Research Pte Ltd 27 March 2014

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Total Returns Recommendation Rating

> +20% Buy 1

+5% to +20% Accumulate/Trading Buy 2

-5% to +5% Neutral 3

-5% to -20% Reduce/Trading Sell 4

>-20% Sell 5

We do not base our recommendations entirely on the above quantitative return bands. We

consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market

sentiment, recent rate of share price appreciation, presence or absence of stock price

catalysts, and speculative undertones surrounding the stock, before making our f inal

recommendation

Ratings History

Phillip Group Rating System

Remarks

12345

Source: Bloomberg, PSR

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Target Price

M arket Price

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We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation

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Total ReturnTotal ReturnTotal ReturnTotal Return RecommendationRecommendationRecommendationRecommendation RatingRatingRatingRating RemarksRemarksRemarksRemarks >+20%>+20%>+20%>+20% BuyBuyBuyBuy 1111 >20% upside from the current price>20% upside from the current price>20% upside from the current price>20% upside from the current price

+5% to +20%+5% to +20%+5% to +20%+5% to +20% AccumulateAccumulateAccumulateAccumulate 2222 +5% to +20%upside from the curren+5% to +20%upside from the curren+5% to +20%upside from the curren+5% to +20%upside from the current pricet pricet pricet price ----5% to +5%5% to +5%5% to +5%5% to +5% NeutralNeutralNeutralNeutral 3333 Trade within ± 5% from the current priceTrade within ± 5% from the current priceTrade within ± 5% from the current priceTrade within ± 5% from the current price ----5% to 5% to 5% to 5% to ----20%20%20%20% ReduceReduceReduceReduce 4444 ----5% to 5% to 5% to 5% to ----20% downside from the current price20% downside from the current price20% downside from the current price20% downside from the current price

<<<<----20%20%20%20% SellSellSellSell 5555 >20%downside from the current price>20%downside from the current price>20%downside from the current price>20%downside from the current price

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