The Positives

+ Effective cost control across the board. Total costs and expenses were down more-than-proportionately compared to the decline in revenue, attributable to all expense categories. Administrative expenses were lower YoY in 1Q19 mainly due to lower legal and professional fee and higher foreign exchange gain. There were lower provision for bonus and incentives, lower travel agent commissions and also a write-off for land purchase deposits in 1Q18 that did not occur in 1Q19.

– Forward bookings edged back up after a decline in 1Q19. Forward bookings for all hotels were up 11% YoY for 2Q19 (+6% YoY for Thailand market and +26% YoY for Non-Thailand markets). Comparatively, forward bookings in 1Q19 recorded a decline of -10%. Notwithstanding any cancellations or deferments, this could flow in positively into the Hotel Investments segment in 2Q19.

The Negatives

– Hotel investments segment still suffering from Thailand underperformance. Excluding the deconsolidation of the Seychelles portfolio (Nov 2018), revenue from this segment would still have declined c.6% YoY in 1Q19. Thailand has been the drag, with Thailand RevPAR decreasing 17% YoY to S$226 in 1Q19. Ongoing renovations at BTH’s flagship resort, Banyan Tree Phuket (c.60% of Hotel Investments segment) – which is expected to complete by end-2019 – had been the main reason for weaker bookings. RevPAR in Maldives recovered 14% to S$499 in 1Q19 as there was a 45-day declaration of state of emergency in that quarter.

Outlook

Going forward, one-off items will continue to be recorded through the year as 1) BTH pared down its stake in Banyan Tree Assets (China) Holdings Pte. Ltd. (BTAC, the holding company for Banyan Tree-branded hotels and assets in China) to 4.2% on 21 Nov 2018 from 50% (50:50 JV) on 10 Aug 2017; and 2) BTH disposed its entire Seychelles assets portfolio in Nov 2018 with continued operation on a management agreement.

On property sales, total unrecognized revenue as at end-1Q19 stood at S$222.1mn (end-1Q18: S$209.8mn), of which c.40% will be recognised through the rest of FY2019.

Notwithstanding one-off items such as the lower write-back of provision for doubtful debts, BTH’s fee-based segment remains resilient and is poised to be the upcoming segment to break through.

Long-term growth catalysts remain intact as the Group transitions to an increasingly asset-light model. Based on the current inventory of management contracts secured by BTH, 53 hotels under the Banyan Tree umbrella of brands are slated to open from 2019 to 2022. The securing of such management contracts, especially with strong partners such as Accor and Vanke, will be the main driver for BTH’s fee-based income.

Maintain ACCUMULATE with Unchanged Target Price of S$0.76.

Our target price translates to a 0.7x FY19e P/NAV.

Source: Phillip Capital Research - 22 May 2019