Thailand Hotel Sector Research Report

HOTEL SECTOR
THAILAND
Riding On Thai Tourism Boom
July 2013
Refer to last page-for important disclosures. Property Sector ASEAN
Contents
Executive Summary ................................................................................................ 1 Comparative Analysis ............................................................................................. 3 Industry ................................................................................................................... 8 Key Recommendations - Central Plaza Hotel (CENTEL TB) .................................................................. 15 - Minor International (MINT TB) ....................................................................... 15 - The Erawan Group (ERW TB) ......................................................................... 55
Pornthipa Rayabsangduan +662 659 8302

pornthipa@uobkayhian.co.th
This report uses the closing prices of 28 June 2013.
Executive Summary
We initiate coverage on the hotel sector with a BUY for Central Plaza Hotel (CENTEL), Minor International (MINT) and The Erawan Group (ERW). We are OVERWEIGHT on the hotel sector for its promising outlook underpinned by solid fundamentals, resilient domestic consumption and the sectors secular growth story. Our picks in order of preference are CENTEL, MINT and ERW. Solid fundamentals to accommodate long-term tourism growth. Thailand is a favourite tourist destination in Asia and serves as a gateway to a number of tourist destinations in ASEAN. Tourist arrivals to Thailand surged 19.1% yoy to 10,688,133 in 5M13, the highest among ASEAN countries. Thai tourism prospects are quite promising since the sector has the solid fundamentals for long-term growth. Key drivers for tourism growth include: a) Thailands attractiveness, b) the rise of Asias middle class, which boosts tourism, particularly in intra-regional destinations, c) the Asean Economic Community (AEC) integration in late-15, d) travelling becoming more convenient and affordable with the rising share of lowcost carriers, and e) Thailand as a beneficiary of the territorial spats between China and Japan. Tourist arrivals are expected to reach 30m in 2015, implying a 10.4% CAGR in 2013-15 vs 7.5% in 2003-12. Resilient domestic consumption to drive the restaurant business. Domestic consumption will remain strong on the back of a growing middle class, urbanisation and continued economic growth of 4-5% over the next three years. In addition, we see the change in the lifestyles of the Thai people in the urban areas, particularly in Bangkok and its vicinity, as well as in major provincial urban areas, prompting dining out to become more popular. The promising domestic consumption outlook is supportive of the expansion of the restaurant business. Central Plaza Hotel (CENTEL TB/BUY/Target: Bt44.00). CENTEL is focusing on an asset-light model to expand its hotel portfolio through hotel management contracts under its own brands. It targets to add 8-10 hotel management contracts per year. Unlike MINT, CENTEL is expanding its restaurant business only through its owned outlets domestically along with the expansion of mall operators. A nearterm catalyst should come from the signing a franchise agreement for a new Japanese food brand in 3Q13. The company plans to add at least one new brand a year, which would diversify the risk of depending on one specific brand while sustaining the growth of its restaurant business. We like CENTEL for its strong revenue growth in both the hotel and restaurant businesses, as well as for its margin improvement. Our target price is Bt44.00, based on sum-of-the-parts valuation. We value its hotel business at Bt29.40 on 15.6x 2014F EV/EBITDA, and its restaurant business at Bt14.60 on 22.5x PE, a 7% discount to regional peers average PE. Minor International (MINT TB/BUY/Target: Bt32.25). Leveraging on its own brands is key to its growth strategy. The majority of its hotel expansion over the next three years will be outside of Thailand under hotel management contracts and management letting rights (MLR). This will enable MINT to expand its portfolio of hotels at a faster pace and with the least equity drain. For its quick-service restaurant (QSR) business, MINT expands through opening its equity-owned outlets and via franchising. We expect a strong performance from its own hotels and from the real estate business, which is another key contributor to its bottom line. China operations should no longer be a drag on its restaurant business. The catalyst from the acquisition of hotels and food brands would lead to immediate earnings accretion. Our target price is Bt32.25, based on sum-of-the-parts valuation.
Hotel Sector
We value MINTs hotel & mixed-use business at Bt18.80 on 15.6x 2014F EV/EBITDA, its restaurant business at Bt12.32 on 22.5x PE, a 7% discount to regional peers average PE, and its retail trading business at Bt1.12 on 20.0x PE, a 10% discount to the sector PE. The Erawan Group (ERW TB/BUY/Target: Bt5.60). As a pure hotel play, we believe ERW would be a key beneficiary of the tourism boom. It targets to become the largest listed hotel investment company in Thailand by 2015 with the number of owned hotels increase to over 20 with over 5,000 rooms. Its new hotel developments will be in the economy and mid-range segments. Contribution from the non-luxury segment is likely to increase to 45% of total hotel revenue in 2015, from 35% in 2012. The company plans to continue divesting its hotel property to ERWPF at a rate of about one hotel per year, which will boost its bottom line, lower its gearing ratio and enhance its dividend yield. Our target price is Bt5.60, based on 13.0x 2014F EV/EBITDA, and equivalent to an 18% discount to our RNAV/share. Figure 1: Peer Comparison
Company Ticker Share Price 28 Jun 13 (Bt) 24.80 33.25 3.74 Rec Target Price (Bt) 32.25 44.00 5.60 EV/EBITDA Market 2013F 2014F Cap (USDm) (x) (x) 3,194.6 1,447.1 271.5 14.1 14.0 11.0 12.1 11.7 9.9 ------ PE -----2013F 2014F (x) 24.8 29.0 38.7 (x) 20.6 22.3 24.7 ----- PBV ---2013F 2014F (x) 4.7 4.4 1.9 (x) 4.0 3.9 1.9 Yield 2014F (%) 1.6 1.6 1.5 ----- ROE ----2013F 2014F (%) 20.6 16.2 26.5 (%) 21.1 18.6 7.9 PEG 2014F (x) 1.0 0.7 0.4
Minor International Central Plaza Hotel The Erawan Group
MINT TB CENTEL TB ERW TB
BUY BUY BUY
Note: EPS based on fully-diluted share capital Source: Bloomberg, UOB Kay Hian
Hotel Sector
Comparative Analysis
We compare CENTEL, ERW and MINT in terms of brand, growth strategy, capex, catalysts and valuation. The business profiles of MINT and CENTEL are similar as they are operators of hotels and QSRs. ERW is a hotel investment company. The three companies have ambitious expansion plans over the next 3-5 years. The three biggest differences are in brand ownership, hotel segment and growth strategy. MINT and CENTEL have their own hotel brands. ERW is a hotel investor and all its hotels are managed by international hotel chains. MINT is expanding its hotel portfolio in the luxury and upscale segments under the Anantara, Avani and Oaks brands. CENTELs expansion pipeline includes hotels in the luxury to mid-range segments. It launched a new brand, Cosi, to serve budget travellers. Meanwhile, ERWs new hotel development focuses on the non-luxury segments (mid-range and economy). Both MINT and CENTEL are expanding their hotel portfolios through management contracts (an asset-light model) and building owned and joint-venture hotels. However, ERWs growth strategy is more capital-intensive as all the new hotel developments will be financed by its own equity. For the restaurant business, MINT has successfully created its own brand, The Pizza Company, and acquired several brands, such as The Coffee Club, Thai Express, Ribs & Rumbs, and Riverside. MINT has been able to franchise these brands in Thailand and international markets. Its restaurant business is expanding through opening new owned outlets and via franchising. On the other hand, CENTEL is expanding only through its owned outlets domestically. Most of its restaurant revenue comes from franchised brands, such as KFC, Mister Donut, Auntie Annes and Ootoya. The potential growth for MINT is higher since the company can expand faster through franchising. However, one could argue that the execution risk on CENTELs growth strategy is lower since it is more flexible in its restaurant portfolio management relative to MINT as CENTEL only operates the brands. Figure 2: Comparative Analysis
MINT BRANDS Own brands: Anantara, Oaks, Avani, and Elewana Segment: Luxury and upscale - Hotel business Partnership with international hotel operators: Some properties managed by Four Seasons, Marriott and Starwood Own brands: The Pizza Company, Thai Express, The Coffee Club, Ribs & Rumps, and Riverside Franchised brands: Swensen's, Sizzler, Dairy Queen and Burger King Own brands: Centara Grand, Centara, Centra, Centara boutique collection, Centara Residence & Suites, Cosi Segment: Luxury to mid-range; most in upscale (48.2% of total rooms) and luxury (42.6% of total rooms) Partnership with international hotel operators: None Own brands: Ryu, The Terrace Own brand: None CENTEL ERW
The three biggest differences among MINT, CENTEL and ERW are brand ownership, hotel segment and growth strategy.
Segment: Luxury to economy
Partnership with international hotel operators: All properties managed by Hyatt, Marriott, IHG, Starwood and Accor Own brand: None
- Restaurant business
Franchised brands: Mister Donut, KFC, Auntie Anne's, Pepper Lunch, Beard Papa's, Chabuton, Cold Stone, Caf Andonand, Yoshinoya and Ootoya
Franchised brand: None
GROWTH STRATEGY Expands portfolio of its own brands through hotel management contracts and management letting rights (an asset-light model), building new hotels under equity-owned and via joint ventures Expands in Thailand and overseas; all hotel management contracts are outside of Thailand. Develops mixed-use projects and operate timeshare business under its own brand (Anantara Vacation Club) Acquires hotel brands and properties Expands portfolio of its own brands through hotel management contracts (an asset-light model), building new hotels under equity-owned and via joint ventures Expands in Thailand and overseas; prefers to expand internationally through management contracts and JVs n.a. Investing equity-owned hotels with focus on economy and mid-range segments
- Hotel business
Thai-centric expansion and looking for opportunity in CLMV n.a.
Acquires hotel properties
Acquires hotel properties
Contd Hotel Sector 3
Contd Comparative Analysis Of MINT, CENTEL And ERW

MINT Expands portfolio of its own brands through opening equity-owned outlets and franchising in Thailand and international markets Strategic acquisition of food brands CENTEL Expand only through equity-owned outlets in Thailand Acquires food outlets; gets franchise licence of new food brands Bt4,620m 44% from hotels, 56% from restaurants 99% from operations in Thailand 1) Acquisition of hotel properties or food outlets 2) Injects assets into a REIT ERW n.a.
- Restaurant business
n.a. Bt6,500m 100% from hotel & mixed use business 100% from operations in Thailand 1) Injects hotel properties into a property /REIT
Bt15,000m CAPEX IN 2013-15F REVENUE BREAKDOWN IN 2012 50% from hotels, 40% from restaurants, 10% By business from retail trading 71% from operations in Thailand; the rest By geography (29%) from overseas 1) Acquisition of hotels or food brands CATALYSTS 2) Invests in hotels or food companies 3) Injects assets into a REIT
Source: Respective companies, UOB Kay Hian
In terms of geography, the growth of ERW will be Thai-centric while MINT is the most diversified and CENTEL is in the middle. MINTs revenue from international operations accounted for 29% of total revenue in 2012 vs CENTELs 1% and none for ERW. Figure 3: Occupancy Rate
(%) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2008 2009 2010 2011 2012 2013F2014F2015F MINT CENT EL ERW
Figure 4: Average Room Rate

(Bt) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
5,56 2 5,0 14 4 ,4 71 3 ,2 78 3 ,3 6 7 2 ,73 1 2 ,3 9 9 3 ,4 0 9 4 ,73 5
6 ,0 3 5 5,3 77
6 ,4 57
6 ,8 4 5
7,18 7
4 ,3 70 3 ,6 6 3 3 ,74 4
4 ,6 0 0
4 ,8 8 0
2 ,3 2 6
2 ,4 74
2 ,54 6
2 ,72 0
2 ,8 9 3
2008 2009 2010 2011 2012 2013F2014F2015F MINT CENT EL ERW
Note: Occupancy rates based on owned hotels Source: Respective companies, UOB Kay Hian
Note: Average room rates based on owned hotels Source: Respective companies, UOB Kay Hian
Figure 5: RevPar
(Bt) 6,000 5,000 4,000 3,000 2,000 1,000 0 2008 2009 2010 2011 2012 2013F2014F2015F MINT CENT EL ERW
3 ,6 9 2 2 ,79 9 2 ,6 4 0 1,9 8 3 2 ,16 2 1,59 3 1,4 0 0 1,6 2 2 1,8 0 8 3 ,13 3 2 ,6 9 1 2 ,3 4 0 1,9 79 1,9 4 6 2 ,14 9 2 ,3 4 8 2 ,6 17 3 ,9 77 3 ,14 9 3 ,4 6 5 4 ,52 0 4 ,9 2 8
Figure 6: Hotel EBITDA Margin

(%)
5,2 4 7
50% 40%
3 ,770
30% 20% 10% 0% 2008 2009 2010 2011 2012 2013F 2014F2015F
MINT CENT EL ERW
Note: RevPar based on owned hotels Source: Respective companies, UOB Kay Hian
Hotel Sector
Figure 7: Restaurant EBITDA Margin

(%) 20% 15%
Figure 8: D/E Ratio

(x) 3.0 2.5 2.0
10% 5% 0% 2008 2009 2010 2011 2012 2013F 2014F 2015F MINT CENT EL
1.5 1.0 0.5 0.0 2008 2009 2010 2011 2012 2013F 2014F MINT CENTEL ERW
Figure 9: Core Net Margin

(%) 15% 10% 5% CENT EL 0% MINT
Figure 10: Core EPS (Fully-diluted) Growth

(Bt) 2.0
30.3% C AGR 15.6% C AGR
1.5 1.0 0.5

63.7% C AGR
-5% ERW -10% 2008 2009 2010 2011 2012 2013F 2014F 2015F
0.0 MINT 2013F CENT EL 2014F ERW 2015F
Figure 11: Revenue By Business In 2013F

(%) 100% 80%
41
Figure 12: Revenue By Geography In 2013F

(%)
10 54 100
100% 80% 60%

30
60% 40% 20% 0% MINT Hotel & Mixed-use CENT EL Restaurant ERW Retail trading
49 46
94
100
40% 20% 0%
70
MINT
CENT EL T hailand International
ERW
Hotel Sector
MINT is trading at higher valuations of 12.1x 2014F EV/EBITDA, 4.0x 2014F P/B and 1.0x 2014 PEG (fully-diluted) since it has its own brands for both the hotel and restaurant businesses. It can adopt an asset-light model, which is less capital intensive and hence, expands at a faster pace. In terms of earnings growth, ERW is likely to report the strongest core EPS (fully-diluted) CAGR of 63.7% in 2013-15, driven by strong demand growth in the luxury and non-luxury segments, improving performance from its existing hotels, especially The Naka Island Phuket, and contributions from new hotels. MINTs and CENTELs core EPS (fully-diluted) should grow at 15.6% and 30.3% CAGR respectively over the next three years due to strong revenue growth in the hotel and restaurant businesses as well as from margin improvement. MINTs growth could be higher than our current estimates, thanks to the possible acquisitions of hotel and food brands, which would lead to immediate earnings accretion. MINT sets a capex of Bt15b-18b over the next five years for new opportunities, such as the acquisitions of hotel and food brands. Figure 13: 2014F PE vs Fully-diluted EPS Growth
2014F Fully-diluted EPS Growth (% 60% 50% 40% 30% 20% 10% 0% 0 10 20 2014F PE (x) 30 CENT EL MINT
2014F ROE(%)
Figure 14: 2014F P/B vs ROE

25
ERW
MINT 20 CENT EL 15 10 5 0 0 1 2 3 4 5 2014FPBV (x) ERW
Figure 15: 2014F EV/EBITDA vs EBITDA Margin

34% 34% 33% 33% 32% 32% 31% 31% 30% 30% 29% 9.5 2014F EBITDA Margin (%)
CENT EL
ERW MINT 10 10.5 2014F EV/EBIT DA (x) 11 11.5 12
MINT, CENTEL and ERW trade at 2%, 5% and 20% discounts respectively to regional peers EV/EBITDA. However, their PEG ratios are below the regional peers average of 1.4x.
Hotel Sector
Figure 16: Regional Peer Comparison

Company Hotel Business Marriott International Starwood Hotels & Resorts Choice Hotels International InterContinental Hotels Group Banyan Tree Holdings Mandarin Oriental International Formosa International Hotels Shangri-La Asia The Hongkong & Shanghai Hotels The Ambassador Hotel Minor International Central Plaza Hotel The Erawan Group Average MAR US HOT US CHH US IHG LN BTH SP MAND SP 2707 TT 69 HK 45 HK 2.4 2704 TT MINT TB CENTEL TB ERW TB 0.4 3.2 1.4 0.3 3.74 11.0 13.9 9.9 12.3 38.7 29.8 24.7 22.5 1.9 12.1 1.9 5.2 4.4 2.2 1.5 2.2 26.5 11.6 7.9 8.6 0.4 1.4 30.10 24.80 33.25 16.8 14.1 14.0 13.9 12.1 11.7 29.6 24.8 29.0 21.7 20.6 22.3 1.3 4.7 4.4 1.2 4.0 3.9 1.8 1.3 1.3 2.2 1.6 1.6 4.8 20.6 16.2 5.7 21.1 18.6 1.2 1.0 0.7 12.4 12.4 2.4 7.3 0.4 1.6 1.1 5.4 40.25 63.77 40.37 1,812.0 0.69 1.62 353.0 13.40 12.60 12.4 11.2 14.8 11.1 11.8 11.4 21.4 15.0 15.3 11.1 11.0 13.6 10.7 11.0 10.2 18.6 13.4 13.3 19.7 22.6 21.4 17.9 68.5 22.7 26.0 29.3 36.7 16.7 21.5 19.5 16.6 32.6 20.2 21.3 24.7 30.5 n.a. 3.6 n.a. 91.7 0.9 1.7 9.4 0.9 n.a. n.a. 3.2 n.a. 25.7 0.9 1.7 8.5 0.9 n.a. 1.3 2.0 1.8 2.5 1.6 4.3 3.1 1.6 1.3 1.5 2.2 1.9 2.8 1.2 5.0 3.7 1.7 1.6 (46.9) 17.4 (21.9) 80.3 3.9 8.0 37.8 2.8 1.9 (48.9) 16.2 (28.5) 54.4 2.7 8.9 41.5 3.3 n.a. 0.9 4.2 2.0 2.2 0.3 1.6 1.0 1.3 1.6 Ticker Market Cap (US$bn) Share Price (local currency) EV/EBITDA 2013F 2014F (x) (x) ------ PE -----2013F 2014F (x) (x) ------ P/B -----2013F 2014F (x) (x) ----- Yield ---2013F 2014F (%) (%) ---- ROE ---2013F 2014F (%) (%) PEG 2014F (x)
Restaurant Business Yum! Brands McDonald's Corporation Domino's Pizza Dunkin' Brands Group Cafe De Coral Holdings Berjaya Food Bhd YOSHINOYA HOLDINGS Oishi Group Public Ajisen (China) Holdings Tao Heung Holdings Gourmet Master Average YUM US MCD US DPS US DNKN US 341 HK BFD MK 9861 JP OISHI TB 538 HK 573 HK 2723 TT 31.3 99.9 9.4 4.6 1.7 0.1 0.8 0.7 0.9 0.8 0.8 69.60 99.65 46.00 43.16 23.20 1.75 115,900.0 123.00 6.07 6.08 173.00 12.2 10.7 9.0 16.6 13.4 18.8 10.3 14.6 11.2 13.9 n.a. 13.1 10.4 10.0 8.7 15.1 12.4 13.0 11.0 9.8 9.1 12.0 n.a. 11.1 22.7 17.5 14.9 28.3 23.9 24.3 148.9 24.1 30.5 19.0 21.4 34.1 18.6 15.9 13.9 24.0 21.5 15.9 83.9 16.7 23.8 16.7 14.5 24.1 11.9 6.3 4.2 13.4 4.0 3.0 1.3 6.3 2.1 3.6 n.a. 5.6 9.7 5.9 4.1 9.0 3.7 2.6 1.4 5.1 2.0 3.2 n.a. 4.7 2.0 3.2 3.3 1.8 3.1 1.1 1.7 2.3 1.9 2.8 3.0 2.4 2.2 3.5 3.6 2.0 3.4 2.6 1.7 3.8 2.2 3.3 3.8 2.9 61.0 38.5 28.0 42.3 16.5 18.2 0.9 27.4 7.0 17.6 17.7 25.0 66.5 41.4 30.0 36.1 17.0 18.3 1.7 33.0 8.4 21.6 19.1 26.6 0.8 1.7 1.9 1.3 1.3 1.9 0.3 1.1 0.4 0.8 1.2 1.2
Note: 1) Share prices as of 28 Jun 13, 2) EPS of MINT, CENTEL, and ERW based on fully-diluted share capital. Source: Bloomberg, UOB Kay Hian
Hotel Sector
Industry
Thai tourism sector Solid fundamentals to accommodate long-term tourism growth Thailand is a favourite destination in Asia and serves as a gateway to a number of tourist destinations in ASEAN and Indochina. Tourism is a major source of foreign exchange income for Thailand, contributing around 8.9% of GDP in 2012. Tourist arrivals to Thailand surged 19.1% yoy to 10,688,133 in 5M13, the highest visitor arrivals among ASEAN countries. Chinese visitors soared 93.0% yoy to 1,906,137, making them the biggest group of visitors and accounting for 17.8% of total tourist arrivals in 5M13. We believe the tourism sector outlook is promising since it has the solid fundamentals for long-term growth. Figure 17: Monthly Tourist Arrivals vs Events
('000 visitors) 3,000 2,500 2,000 1,500 1,000 500 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13
S e pte m be r C o up Ye llo w-s hirt P ro te s t Airpo rt C lo s ure R e d-s hirt R a jpra s o ng R io t Tha ila nd flo o ds
Tourist arrivals to Thailand grew 19.1% yoy in 5M13. Chinese travellers, the biggest group of visitors, surged 93.0% yoy.
(% yoy growth) 80% 60% 40% 20% 0% -20% -40%
P a tta ya R io t
Source: Tourism Authority of Thailand (TAT), UOB Kay Hian
Figure 18: Tourist Arrivals To Thailand

(m) 35
20% 2 1% 16 % 13 % 6% 8% -7% -1% 7% 10 % 5% -3 % 1% 10 % 11%
Figure 19: Tourist Arrivals Breakdown In 5M13

(%) 25%
South Asia Oceania 5.0% 3.7% T he Americas 4.7%
Middle East 2.1%
Africa 0.6%
30 25
11% 11%
16 %
20% 15% 10% 5% 0% -5% -10%
20 15 10 5 0
7.8 8 .6 9 .5 10 .110 .810 .011.7 11.513 .814 .514 .614 .1 15.9 19 .2 2 2 .3 2 4 .5 2 7.3 3 0 .0
1998 2000 2002 2004 2006 2008 2010 20122014F International T ourist Arrivals % yoy growth
Europe 27.6%
East Asia 56.3%
Source: TAT, UOB Kay Hian
Hotel Sector
Key drivers for tourism growth 1) Thailands attractiveness. Thailand is recognised as one of the worlds top attractions and best destinations from a value-for-money standpoint. Time magazine recently reported that Bangkok was the most visited city in the world according to the 2013 Global Destination Cities Index. According to CBRE, the average daily rate (ADR) of hotels in Bangkok was US$97 in 2012, the lowest among top Asian cities. Economic growth engine shifting to Asia. As economic growth shifts from the US and Europe to Asia, especially China, this boosts travelling to Asia and increases Asian wealth. According to Ernst & Young, Asia Pacific is expected to represent 54% of the global middle class by 2020 and two-thirds by 2030, up from 28% in 2009. The growing middle class in the Asia-Pacific region represents potential demand for tourism, particularly in intra-regional destinations. AEC integration in 2015. This is likely to create a US$1.5t geographical economy and should lead to greater labour mobility and development of common infrastructure networks. Travelling within the region will become borderless with strategic connectivity plans in development. Travelling becoming more convenient and affordable. Transportation of all modes is becoming more affordable and convenient. We see the rising market share of low-cost carriers, driven by continued expansion with an aim to double capacity and coverage in the next three years. The Thai governments Bt2.2t infrastructure investment, including four high-speed rail projects and railway improvement, should benefit Thai tourism since Thailand is located in the centre of the development. Beneficiary of the territorial spat between China and Japan. The dispute between China and Japan over the Senkaku Islands has led to more tourists from both countries to Thailand. In addition, a popular Chinese movie, Lost in Thailand, also contributed to higher awareness of Thailands tourist attractions.
2)
3)
4)
5)
We expect tourist arrivals to Thailand to increase 10% yoy to 24.5m in 2013 and 30.0m in 2015. This represents a CAGR of 10.4% in 2013-15 vs 7.5% in 2003-12. Chinese visitors made up the largest share of 17.8% of total tourist arrivals to Thailand in 5M13, followed by Malaysia (10%), Russia (7.8%), Japan (5.8%), and Korea (4.8%). We see a growing number of visitors from China and Russia since the economic slowdown in the US and Europe in 2008. We believe these two markets should continue to be the key contributors to Thai tourism over the next three years.
Hotel Sector
Figure 20: Top 10 Tourist Arrivals And 3-Year CAGR

(visitors) 53. 1% CAGR 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Japan China Russia Korea India Malaysia
Figure 21: Top 10 Tourist Arrivals In 5M13

(visitors) 2,500,000 2,000,000
93. 0%
13. 4%
57. 5%
10. 9% 23. 7%
1,500,000
18.2% 1.1 % 12.9% 5.9% 7.0 %
1,000,000 500,000
9.8% 33. 9% 18. 0% 15. 6%
3.5% 1.4 % 11. 8% -2.3% 6.2%
UK
Germany
Australia
US
Malaysia
Japan
India
UK
0 China Russia
Germany
Australia
5 6 8 10 18
2010
2012
5M12
Korea
5M13
Figure 22: ADR Across Asian Cities In 2012

(US$) 300 250 200 150 100 50 0 Singapore Shanghai Seoul Beijing Bangkok Hong Bali Ho Chi Taipei KL Jakarata Tokyo
245 240 197 189 185 146 129 116 115 109
Figure 23: Global Hotel Performance In 5M13

(US$) 200 180 160 140 120 100 80 60 40 20 0
As ia P a c ific Tha ila nd Am e ric a s Euro pe
101 97
ARR
RevPar
M iddle Ea s t/Afric a
Source: CBRE, STR
Source: STR Global
Figure 24: Tourist Arrivals And Occupancy Rate In Thailand

(visitor) 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 2008 2009 2010 2011 2012 2013F
Ea s t As ia The Am e ric a s Oc e a nia Afric a Euro pe S o uth As ia M iddle Ea s t M a rke t Oc c upa nc y R a te 14.6m 14.1m 56% 49% 58% 50% 15.9m 19.2m 61% 22.3m 64% 24.5m
Figure 25: Tourist Arrivals By Nationality

(%) 100% 80% 60% 40% 20% 0%
4 7 2 12 5 5 6 4 13 7 5 6 5 13 9 5 6 6 11 13
(%) 70% 60% 50% 40% 30% 20% 10% 0%
2009 China Korea Australia
2010 Malaysia India US
2011
2012 Russia UK Others
5M13 Japan Germany
10
Hotel Sector
US
Future hotel supply in downtown Bangkok to slow down. According to data from CBRE, the total number of hotel rooms in downtown Bangkok is estimated to rise 15% yoy to 40,100 in 2013. The additional supply of 5,100 rooms consists of 300 luxury rooms, 1,700 four-star rooms, 2,800 mid-range rooms and 300 economy rooms. Future hotel supply growth is expected to slow down in the next few years due to a decline in the number of new hotel construction permits issued over the past two years as well as rising land prices and construction costs, which make it harder to justify financially the development of new hotels. We believe the strong tourism demand and a slower new supply should be positive to hotel performance in terms of higher occupancy rates and ADR. Figure 26: Hotel Supply In Downtown Bangkok
(keys) 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 (%
15% 42,200 10% 40,100 35,000 5% 41,900
Figure 27: Hotel Supply In Downtown Bangkok By Segment

Economy 15% Luxury 18%
1%
16% 14% 12% 10% 8% 6% 4% 2% 0%
2012 2013F 2014F 2015F No. of hotel rooms in Downtown Bangkok % yoy growth
Mid-range 45%
4-star hotel 22%
Source: CBRE
Source: CBRE
QSR sector - Resilient domestic consumption to drive the restaurant business in Thailand We expect domestic consumption to remain strong on the back of an expanding middle class, urbanisation and continued economic growth of around 5% over the next three years. In addition, we see the change in the lifestyles of Thai people in urban areas, particularly in Bangkok and its vicinity, as well as in major provincial urban areas, prompting dining out to become more popular. Solid domestic consumption and a change in lifestyles are key drivers for the QSR business in Thailand. The SSS growth of the QSR operators is positively correlated to real GDP growth. The expected good GDP growth of 4.7% in 2013 and 5.0% in 2014 is supportive to the QSR business. The QSR sales are estimated to grow 12-15% per year, driven by growing demand, innovative products, value for money and continued outlet expansion. The expansion of the QSR business will be in line with the expansion of mall operators, especially in upcountry, since QSR outlets are mostly located in shopping malls, community malls and hypermarkets.
Resilient domestic consumption on the back of a growing middle class, urbanisation and good economic growth outlook is a key driver for the restaurant business in Thailand.
Hotel Sector
11
Figure 28: Real GDP Growth vs SSS Growth Of MINT And CENTEL
(% 20% 15% 10% 5% 0% -5% -10% 2008 2009 2010 2011 2012 2013F 2014F SSS growth - CENT EL Real GDP growth SSS growth - MINT
-2% 2% 0% 8% 6% 5% 5%
Figure 29: Consumer Confidence Index
110 100 90 80 70 60 50 2008
2009 2010 CCI: Overall Economy CCI : Future Income
2011
2012 2013 CCI : Job Opportunity
Source: MINT, CENTEL, UOB Kay Hian
Source: The Thai Chamber of Commerce
Figure 30: Proportion Of Population Living In Municipal And Non-municipal Areas

(%) 100% 80% 60% 40% 20%
19 30 34 40 82 70 66 60
Figure 31: Household Income By Geography

(Bt) 50,000 40,000 30,000 20,000 10,000 0
Thailand
5.7% C AGR 6.0% C AGR 8.9% C AGR
1.9% C AGR
6.2% C AGR
8.7% C AGR
0% 2000 2007 Municipal 2011 2020F Non-municipal
Greater Bang ko k
Central
No rthern No rt heas tern So ut hern
2007
2009
2011
Source: National Statistical Office (NSO), UOB Kay Hian
Source: National Statistical Office (NSO), UOB Kay Hian
Figure 32: Market Size Of QSR In Thailand
Figure 33: Total System Sales Growth Of MINT And CENTEL

(%) 30% T SS Growth - CENT EL 25% 20% 15% 10% 5% 0% 2008 2009 2010 2011 2012 2013F 2014F T SS Growth - MINT
Source: Euromonitor
Source: MINT, CENTEL, UOB Kay Hian
12
Hotel Sector
QSR Sector - Regional Perspective According to our regional consumer strategist, the outlook for the QSR business in Greater China is not as bright as Thailands. While Thailand has been enjoying increases in spending power due to higher incomes, the growth momentum in Greater China has slowed down. It is important to distinguish between absolute wealth and the momentum of wealth growth because we think it is the momentum in personal wealth growth that drives the strong growth trends in Thailand. On the other hand, Greater China faces three negative trends, which are difficult to reverse in the foreseeable future, namely: Trading down due to income effect. We see Chinese consumers trading down from higher-end banquet halls to QSRs, and from QSRs to food courts. At the highest levels, politicians in China, who are important customers of banquet halls, are becoming less wealthy due to President Xi Jinpings anti-corruption campaign, while the middle class no longer sees the same level of wealth growth in the past. Also, with the emergence of new malls, the best locations have generally gone to the food courts, which also charge less than QSRs and have lower price points. Food safety. There is a general slowdown in SSS growth to 5-8% for QSRs in China for food safety reasons. Yum Brands Kentucky Fried Chicken, a major player in China, now faces questions by the government and public regarding the safety and source of its chickens. In general, many Chinese have shunned QSRs as they prefer to have greater control of their food preparation at home. Higher rents. Apart from a slowdown in revenue growth, profitability is expected to remain flat or decline. Rents in Hong Kong have skyrocketed at 3050% per year and account for a higher proportion of total sales at QSRs than that in Thailand and China. Relocating outside of key areas or malls is not possible despite the high rents because these are the areas with the best traffic flow.
With regards to MINTs investment in Riverside, we feel it is quite challenging. Chinese consumers in Beijing and Shanghai, where Riversides 21 stores are based, like to try out new fads, and Riversides offering, a dish that appears to be based on Sichuan cooking of whole fish and noodles, may be popular in the early stages. However, the long-term success of this small chain is not guaranteed. In our view, it really depends on the locations that Riverside has secured and whether it can scale up quickly enough. Figure 34: Rents As % Of Total Sales
(%) 30% 25% 20% 15% 10% 5% 0% T hailand Hong Kong China MINT 's China operations
Source: MINT, UOB Kay Hian
Hotel Sector
13
Key Recommendations
14
Hotel Sector
THAILAND
4 July 2013
Initiate Coverage
CENTRAL PLAZA HOTEL (CENTEL TB)

Best Of The Pack
Central Plaza Hotel (CENTEL) is Thailands leading operator of hotels both in Thailand and overseas, as well as Quick Service Restaurants (QSR) in Thailand. CENTEL is part of the Central Group of companies. It was established in 1980 by the Chirathivat family and listed on the Stock Exchange of Thailand in 1990. The company owns several hotel brands, ranging from luxury to economy brands. Its food portfolio consists of 12 brands with a total of 681 outlets. Expanding hotel portfolio via an asset-light strategy. CENTEL plans to increase its hotel portfolio to over 80 hotels in more than 30 countries by 2017. It is adopting an asset-light strategy to expand its hotel portfolio through hotel management contracts under its own brands. It targets to add 8-10 new hotel management contracts per year. Managed hotel rooms are expected to account for 66.7% of total hotel rooms in 2015 vs 24.9% in 2005. Expect record-high RevPar. We expect CENTELs revenue per available room (RevPar) in 2013 to hit a record high, growing strongly by 20.3% yoy to Bt3,149 driven by a) growing tourist arrivals, especially from Asian countries and Russia, b) the consolidation of Centara Grand Island Resort & Spa Maldives and c) the opening of Centara Ras Fushi Resort & Spa Maldives. Organic growth through outlet expansion across Thailand, especially in upcountry areas. CENTELs growth strategy for its restaurant business is to expand its own outlets. It targets to grow organically, opening approximately 50-70 outlets per year in 2013-16 in Thailand especially in upcountry areas through modern trade expansion and increased variety of brands in upcountry areas. Potential upside from the addition of one food brand per year. CENTEL targets to add one new brand a year through securing a franchise licence to operate in Thailand or acquiring outlets of existing brands. It expects to sign a franchise agreement for a new brand, which is likely to be Japanese in 3Q13. It targets to have 16 food brands with over 1,000 outlets by end-17. Initiate with BUY and target price of Bt44.00, based on sum-of-the-parts (SOTP) valuation. CENTELs hotel & mixed use business is pegged at 15.6x 2014F EV/EBITDA multiple while its restaurant business is based on 22.5x 2014F PE. Our target price also implies 2014F PE-to-growth (PEG) of 0.99x. The catalyst for CENTEL is the possibility of injecting its hotel property to a REIT.
Key Financials
Year to 31 Dec (Btm) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (Bt) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x) 2011 11,574 2,316 1,182 550 550 0.4 81.6 7.7 24.3 0.5 4.8 167.1 5.6 9.5 2012 14,922 3,157 1,806 1,581 1,123 0.8 40.0 5.0 17.9 0.9 10.6 130.7 6.5 21.4 2013F 17,900 3,956 2,367 1,546 1,546 1.1 29.0 4.4 14.3 1.3 8.6 105.3 7.5 16.2 1,568 0.99 2014F 20,461 4,595 2,945 2,009 2,009 1.5 22.3 3.9 12.3 1.6 9.8 75.3 9.5 19.6 1,995 1.01 2015F 23,244 5,258 3,538 2,484 2,484 1.8 18.1 3.4 10.7 2.0 10.7 49.2 12.4 22.3 2,476 1.00
BUY
Share Price Target Price Upside Bt33.25 Bt44.00 +32.3%
Company Description CENTEL is Thailands leading operator of hotels both in Thailand and overseas, as well as Quick Service Restaurants (QSR) in Thailand. CENTEL is part of the Central Group of companies. Stock Data GICS sector Consumer Discretionary Bloomberg ticker: CENTEL TB Shares issued (m): 1,350.0 Market cap (Btm): 44,887.5 Market cap (US$m): 1,446.6 3-mth avg daily t'over (US$m): 2.4 Price Performance (%) 52-week high/low 1mth 3mth 6mth (7.6) (12.5) 27.9 Major Shareholders Chirathivat Family Local Investors Foreign Investors FY13 NAV/Share (Bt) FY13 Net Debt/Share (Bt) Price Chart
(lcy) 45 40 35 30 25 20 15 10 20 Volume (m) 10 0 Jun 12 Aug 12 Oct 12 Dec 12 Feb 13 Apr 13
CENTRAL PLAZA HOTEL PCL Central Plaza Hotel Pcl/SET Index
Bt41.50/Bt12.50 1yr YTD 159.8 27.9 % 64.0 26.0 10.0 7.48 7.87
(%) 320 280 240 200 160 120 80
Source: Bloomberg
Analysts Pornthipa Rayabsangduan +662 659 8302 pornthipa@uobkayhian.co.th 15
Source: Central Plaza Hotel, Bloomberg, UOB Kay Hian Company Name 2 Refer to last page for important disclosures.
Investment Highlights
Expanding hotel portfolio via an asset-light strategy. CENTEL plans to increase its hotel portfolio to over 80 hotels in more than 30 countries by 2017 from only 7 hotels in Thailand in 2005. It is adopting an asset-light strategy to expand its hotel portfolio through hotel management contracts under its own brands. This approach is less capital intensive and allows the company to expand at a faster pace compared to building its own hotels. It targets to add 8-10 hotel management contracts per year. The proportion of managed hotel rooms is expected to increase to 66.7% of total hotel rooms in 2015 from 24.9% in 2005. Expect record-high RevPar. We expect CENTELs RevPar to hit a record high in 2013, growing strongly by 20.3% yoy to Bt3,149 as a result of a 16.7% increase in average room rate (ARR) to Bt4,370 and higher occupancy rate of 73% compared with 69.9% in 2012. The key drivers for its impressive hotel performance would be a) growing tourist arrivals, especially from Asian countries and Russia, b) the consolidation of Centara Grand Island Resort & Spa Maldives (CENTEL increased its stake to 74% in Dec 12), and c) the opening of Centara Ras Fushi Resort & Spa Maldives in Mar 13. Organic growth through outlet expansion across Thailand, especially in upcountry areas. CENTELs growth strategy for its restaurant business is expanding its outlets in Thailand. It targets to grow organically, opening approximately 50-70 outlets per year in 2013-16 in Thailand especially in upcountry areas. Outlet expansion in overseas markets is likely to be its long-term plan. The company believes there is potential to grow its QSR business in upcountry areas driven by rising household income and urbanisation. It will focus on expanding outlets of its key brands ie KFC, Mister Donut, Auntie Annes, Ootoya, and Yoshinoya. Outlets in upcountry areas are estimated to account for 50% of total outlets in 2016, an increase from 40% currently driven by modern trade expansion and increased variety of brands in upcountry markets. Potential upside from the addition of one food brand per year. CENTELs revenue from the restaurant business is estimated to grow 16.1% yoy to Bt9,704.7m in 2013 thanks to a) strong same-store sales (SSS) growth of 4.0% on the back of good economic outlook and b) the addition of 76 outlets (+11.2% yoy). The potential upside to our forecasts should come from the contribution from its new food brand. CENTEL targets to add at least one new brand a year through securing a franchise licence to operate in Thailand or acquiring outlets of existing brands. The company expects to sign the franchise agreement for its new brand, which is likely to be Japanese in 3Q13. The addition of new brands helps CENTEL diversify the risk of depending on one specific brand and sustain the growth of its restaurant business. It targets to have 16 food brands with over 1,000 outlets by end-17. Initiate with BUY and target price of Bt44.00, based on SOTP valuation. We value CENTELs hotel business at Bt29.40 based on 15.6x 2014F EV/EBITDA and its restaurant business at Bt14.60 based on 22.5x 2014F PE, which is a 7% discount to regional average PE. Our target price also implies 2014F PEG of 0.99x. The catalyst for CENTEL is the possibility of injecting its hotel property into a REIT. Risks. Key risks to our investment case for CENTEL include: a) external risks, b) political uncertainty, c) currency fluctuation, d) increasing competition, e) domestic consumption slowdown, and f) termination of franchised food brand.
CENTELs strategy is to expand its hotel portfolio via an asset-light approach.
We expect CENTELs RevPar to hit a record high, growing strongly by 20.3% yoy to Bt3,149 in 2013 driven by the promising tourism outlook and the consolidation of two resorts in Maldives.
CENTEL targets to grow organically, opening approximately 50-70 outlets per year in Thailand, especially in upcountry areas.
The potential upside to our forecasts should come from the contribution from its new food brand. CENTEL expects to add one new brand a year.
Initiate coverage with a BUY and a target price of Bt44.00, based on SOTP valuation.
16
Hotel Sector
Valuation
We are initiating coverage on CENTEL with a target price of Bt44.00, which is based on SOTP valuation. We value CENTELs hotel business at Bt29.40 based on 15.6x 2014F EV/EBITDA and its restaurant business at Bt14.60 based on 22.5x 2014F PE, which is a 7% discount to regional average PE. Our target price also implies 2014F PEG of 0.99x. We believe this is reasonable given a) the strong growth potential for the businesses, which CENTEL operates with normalised EPS CAGR of 30.3% in 2013-15F, b) its asset-light approach, which will reduce capital requirements for growth and c) the companys good execution track record. The catalyst for CENTEL is the addition of a new food brand and the sale of its hotel property to a REIT. The company is interested in injecting Centara Grand Island Resort & Spa Maldives into a REIT. This could lift our earnings forecast. The proceeds from the asset sale will be used to finance new opportunities for the hotel business. Figure 1: Sum-of-the-Parts Valuation
(Btm) Hotel Business: EV/EBITDA multiple method 2014F EBITDA from hotel business (Btm) EV/EBITDA multiple (x) EV (Btm) 2014F Net debt (Btm) No. of fully diluted shares (m) Equity value per share (Bt) Restaurant Business: PE multiple method Net profit from restaurant business (Btm) PE multiple (x) Equity value (Btm) No. of fully diluted share (m) Equity value per share (Bt) Sum-of-the-parts value (Bt) 3,099.8 15.6 48,418.9 8,687.6 1,350.0 29.4 874.3 22.5 19,672.2 1,350.0 14.6 44.0
Source: CENTEL, UOB Kay Hian
Figure 2: EV/EBITDA Band

EV/EBIT DA (x) 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 2006 2007 2008 2009 2010 2011
+2S D: 13.7X +1.5S D: 12.3X +1S D: 11.0x +0.5S D: 9.6x M e a n: 8.3x -0.5S D: 6.9x -1S D: 5.6x -1.5S D: 4.3x
2012
2013
Source: Bloomberg, UOB Kay Hian
Hotel Sector
17
Earnings Outlook
CENTELs Hotel Business
Expanding hotel portfolio via an asset-light strategy. CENTEL plans to increase the number of hotels to over 80 hotels in more than 30 countries by 2017 from only 7 hotels in Thailand in 2005. Its hotel portfolio as of 30 Apr 13 consisted of 38 hotels with a total of 7,340 keys including 13 hotels, 1 hotel under Centara Hotels & Resorts Leasehold Property Fund (CTARAF), 1 JV hotel, and 23 managed hotels. The company expands the portfolio of its hotels by using debt financing and internal cashflows. CENTEL has opened its second resort in Maldives, Centara Ras Fushi Resort & Spa Maldives (CENTEL holds a 75% stake) in Mar 13. In addition, the company is planning to acquire another 50% equity stake in Centara Kata Resort Phuket from Lehman Brothers. At present, Centara Kata is a 50%:50% JV between CENTEL and Lehman. The deal should be finalised by end-13 or early next year. According to the recent update with management, the company is likely to develop new hotels on its own in Thailand compared with entering into a JV with strategic partners for overseas hotel projects. Figure 3: No. Of Hotels By Ownership
(No. of Hotels) 70 60 50 40 30 20 10 0
17 7 1 6 10 12 13 13 13 20 31 34 32 47 40 42 55 57
Figure 4: No. Of Rooms By Ownership

(rooms) 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
2 ,0 5 8 512 1546 1997 2865 5 ,6 6 9 6 ,5 7 9 5063 2907 3312 3452 3452 3452 10 ,6 6 3 8 ,8 7 5 6851 7632 11,4 4 4
2005
2011 2012 Owned hotel Joint venture hotel
2013F 2014F 2015F Property fund hotel Managed hotel
2005
2011
2012
2013F 2014F 2015F Property fund hotel Managed hotel
Owned hotel Joint venture hotel
Figure 5: Investment In Hotels In 2011-13

Investment Period 23 Sep 11 30 Jan 12, 28 Mar 12 07 Jun 12 27 Feb 12 2) Centara Karon Resort Feb 13 120.0 99.3 Investment value (Btm) 154.4 155.0 157.4 179.2 % holding after investment 50.0 50.0 75.0 83.9
Hotel Property
Description CENTEL invested for a 50% equity stake. Additional investment. Acquired another 25% stake. Acquired additional 33.92% stake. CENTEL's holding increased to 83.92% from 50% previously. Acquired additional 15.39% stake. CENTEL's holding increased to 99.31% from 83.92% previously. Acquired another 49% stake. CENTEL's holding increased to 74% from 25% previously.
1) Centara Ras Fushi Resort & Spa Maldives
3) Centara Grand Island Resort & Spa Maldives
03 Dec 12
264.6
74.0
18
Hotel Sector
CENTEL is adopting an asset-light strategy, which is less capital intensive and allows the company to expand at a faster pace.
CENTEL is adopting an asset-light strategy to expand its hotel portfolio through hotel management contracts under its own brands. This approach is less capital intensive and allows the company to expand at a faster pace compared to building its own hotels. It targets to add 8-10 new hotel management contracts per year. According to its current pipeline as of 30 Apr 13, there were 19 hotels (4,104 rooms) under development from 2H13-2015. All 19 hotels under development will be management-contract hotels. Therefore, there will be 42 managed hotels from the total of 57 hotels by end-15. The proportion of managed hotel rooms is expected to increase to 66.7% of total hotel rooms in 2015 from 24.9% in 2005. CENTEL prefers to expand internationally through hotel management contracts. Almost 45% of total rooms in development pipeline (1,832 out of 4,104 managed hotel rooms) will be located overseas including Bali, China, Maldives, Mauritius, Vietnam, and Sri Lanka. Figure 6: Hotel Portfolio
Hotel name Owned Hotel 1. Centara Grand at Central World 2. Centara Grand Bangkok (Ladprao) 3. Centara Grand Resort & Villas Hua Hin 4. Centara Grand Beach Resort Phuket 5. Centara Grand Beach Resort & Villas Krabi 6. Centara Grand Mirage Beach Resort Pattaya 7. Centara Villas Phuket 8. Centara Karon Resort Phuket 9. Centara Mae Sot Hill Resort 10. Centara Hat Yai 11. Centara Villas Samui 12. Centara Grand Island Resort & Spa Maldives 13. Centara Ras Fushi Resort & Spa Maldives Total 13 Owned Hotels Property Fund Hotel 1. Centara Grand Beach Resort Samui JV Hotel 1. Centara Kata Resort Phuket Managed Hotel 1. Khum Phaya Resort, Centara Boutique Collection 2. Centara Hotel & Convention Centre Udon Thani 3. Centara Chaan Talay Resort & Villas Trat 4. Centara Duangtawan Hotel Chiang Mai 5. Centara Sappaya Design Resort Rayong 6. Centra Ashlee Hotel Patong 7. Away Suansawan Chaing Mai, Centara Boutique Collection 8. Centara Anda Dhevi Resort & Spa Krabi 9. Centara Plaza Hotel Pattaya 10. Nova Hotel & Spa Pattaya, Centara Boutique Collection 11. Chen La Resort & Spa Phu Quoc, Centara Boutique Collection 12. Waterfront Suites Phuket by Centara 13. Centra Tuam Resort Bali 14. Centara Grand West Sands Resort & Villas, Phuket (Phase 1) 15. Centara Hotel & Convention Centre Khonkaen 16. Centara Sandy Beach Da Nang Vietnam 17. Centara Koh Chang Tropicana Resort 18. Centara Poste Lafayette Resort & Spa Maurittius 19. Centra Government Complex Hotel & Convention Centre Chang Wattana 20. Centra Coconut Beach Resort Samui 21. Centara Passikudah Resort & Spa Srilanka 22. Centara Watergate Hotel & Spa Bangkok 23. Khao Lak Seaview Resort & Spa, Managed by Centara Total 23 Managed Hotels In Operation Total 38 Hotels In Operation Country Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand Maldives Maldives Segment 5-star 5-star 5-star 5-star 5-star 5-star 4-star 4-star 4-star 4-star 4-star 5-star 4-star
No. of rooms 512 565 249 262 192 555 72 335 113 245 100 112 140 3,452
Operate 4Q08 2Q83 1Q86 4Q10 4Q05 4Q09 2Q00 2Q06 4Q89 4Q95 2Q00 4Q09 Mar-13
% holding 100.0 100.0 63.9 100.0 100.0 100.0 100.0 99.3 98.4 100.0 100.0 74.0 75.0
Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand Indonesia Thailand Thailand Vietnam Thailand Mauritius Thailand Thailand SriLanka Thailand Thailand
5-star 4-star Boutique 4-star 4-star 4-star 4-star 3-star Boutique 4-star 4-star Boutique Boutique Residence 3-star 5-star 4-star 4-star 4-star 4-star 3-star 3-star 4-star 4-star 4-star
202 158 87 259 44 512 13 110 50 138 152 79 108 39 90 316 196 198 157 100 204 55 125 281 215 3,528 7,340
2Q96 2Q06 3Q10 2Q10 1Q08 4Q04 2Q10 2Q10 2Q10 4Q11 4Q11 4Q11 1Q11 1Q11 4Q11 3Q11 2Q12 4Q12 2Q12 4Q12 4Q12 3Q12 1Q13 2Q13 2Q13
100.0 50.0
Contd
Hotel Sector
19
Contd Hotel Portfolio

Hotel name 1. Centara Wuku Resort & Spa Bali 2. Centara Grand Resort & Spa Pattaya 3. Centara Grand Modus Pattaya 4. Centra Central Station Bangkok 5. Fisherman Harbour Hotel & Spa Patong by Centara 6. Centara Ceysands Resort & Spa Srilanka 7. Centara Grand Azuri Resort & Spa Mauritius 8. Centara Grand Azuri Residences & Suites Mauritius 9. Centara Grand Nusa Dua Resort & Villas, Bali 10. Centara Hudhufushi Resort & Spa, Maldives 11. Centara Avenue Residence and Suites. Pattaya 12. Centara Grand San Simeon Resort and villas Vietnam 13. Centara Nha Trang Bay Residence & Suites Vietnam 14. Centara Grand Shanghai Sheshan Resort 15. Centara Waves Resort Spa Sri Lanka 16. Centara Resort Hua Hin 17. Centara Grand Moringa Resort and Spa, Phuket 18. Centara Grand Resort & Spa Jomtien 19. Centara Koh Lan Resort & Spa 20. Centara Grand West Sands Resort & Villas, Phuket (Phase 2) Total 19 Managed Hotels Under Development Grand Total 57 Hotels Country Indonesia Thailand Thailand Thailand Thailand SriLanka Mauritius Mauritius Indonesia Maldives Thailand Vietnam Vietnam China SriLanka Thailand Thailand Thailand Thailand Thailand Segment 4-star 5-star 5-star 3-star 4-star 4-star 5-star Residence 5-star 4-star 4-star 5-star 4-star 5-star 4-star 4-star 5-star 5-star 4-star 5-star No. of rooms 213 160 215 150 364 166 100 85 82 110 96 196 530 125 225 156 350 120 100 561 4,104 11,444 Operate 3Q13 3Q13 3Q13 3Q13 4Q13 4Q13 4Q13 4Q13 4Q13 1Q14 3Q14 4Q14 4Q14 4Q14 4Q14 4Q14 4Q14 4Q15 2015 2015 % holding
Figure 7: Hotel Rooms Breakdown By Ownership

(%) 100%
25%
Figure 8: Hotel Management Fee

(Btm) 450 400 350 300 250 200 150 100 50 0 (hotels)
80 59 49 41 33 20 9 57.5 132.8 165 200 240 280 330 400 21
80% 60% 40% 20% 0% 2005

75%
35%
44% 57% 64% 67%
65%
56%
43%
36%
33%
90 80 70 60 50 40 30 20 10 0
2011
2012
2013F 2014F 2015F Managed hotel
2009 2011 2012 2013F2014F2015F2016F2017F Management fee No. of managed hotels
Owned + PFPO + JV hotel
CENTELs hotel management fee is based on a) fixed percentage of gross revenue ranging from 2-3% and b) incentive fees ranging from 6-10% on gross operating profit. We estimate its hotel management fee to grow by 21.2% yoy to Bt200m in 2013 and reach Bt400m from 80 managed hotels in 2017. Hotel management fee from overseas properties is likely to account for 40% of total hotel management fee in 2017 from around 30% in 2012. Figure 9: Managed Hotels Under Development
Country Thailand Bali, Indonesia China Maldives Mauritius Vietnam Sri Lanka Total 2H13 889 295 185 166 1,535 2014 602 125 110 726 225 1,788 2015 781* 781 Total rooms 2,272 295 125 110 185 726 391 4,104 % Breakdown 55.4 7.2 3.0 2.7 4.5 17.7 9.5 100.0
* We include second phase of Centara Grand West Sand of 561 rooms Source: CENTEL, UOB Kay Hian
20
Hotel Sector
Unlike The Erawan Group (ERW) that hires international hotel operators to manage their property, CENTEL manages the hotels under its own brands, including Centara Grand for its luxury (5-star) hotels, Centara for its 4-star hotels, Centra for its midrange hotels and Centara Boutique Collection for its boutique hotel segment. CENTELs residential segment comes under the Centara Residence and Suites brand. The various brands allow the company to position hotels, set room rates, and target different customer groups. In addition, its hotel portfolio under various brands would mitigate a drop in revenues due to any possible damage of one brand. Centara brand is estimated to account for 48.2% of total hotel rooms in 2015, followed by 42.6% under Centara Grand, 5.3% under Centra, 2.8% under Centara Boutique Collection, and 1.1% under Centara Residence & Suites. It is worth highlighting that CENTELs hotel portfolio is mostly in upscale and luxury segments. Figure 10: Hotel Brand Portfolio
Brands Thailand Bali China Maldives Mauritius Vietnam Sri Lanka Total % breakdow n
4,259
82
125
112
100
196
4,874
42.6%
3,706
213
250
100
728
516
5,513
48.2%
519
90
609
5.3%
216
108
324
2.8%
39 Total 8,739
385
125
362
85 285
1,032
516
124 11,444
1.1% 100.0%
Introduction of Cosi Brand for budget hotels. CENTEL introduced a new brand Cosi in the economy segment, targeting cost-conscious travellers in 4Q12. The company targets to open five hotels under the Cosi brand (including one owned hotel and four managed hotels) per year starting from 2015 onwards. The standard Cosi hotel has 200 rooms with an investment cost of Bt1.6m per room or Bt320m per hotel. Note that we have not factored in the contribution from Cosi hotels. This should be the potential upside to our forecasts in 2015 onwards. At present, CENTEL signed MOUs with 3-4 investors, who are interested in building budget hotels under the Cosi brand and CENTEL will manage their hotels. Figure 11: Expansion Plan Of Cosi Hotels
(hotels) 30 25
20 24
Figure 12: Management Fee of Cosi Hotels

(Btm) 140 120
20 24
(hotels) 30 25 20 15 10 5 0 2015F 2016F 2017F 2018F 2019F 2020F Management fee No. of managed hotels
20 15 10 5 0 2015F 2016F 2017F

4 1 2 8 3 4 12
100 80 60
8 4 12
16
16
40 20 0
2018F
2019F
2020F
Owned hotel
Managed hotel
Hotel Sector
21
Expect record-high RevPar. We expect CENTELs RevPar in 2013 to hit a record high, growing strongly by 20.3% yoy to Bt3,149 in 2013 as a result of a 16.7% increase in ARR to Bt4,370 and higher occupancy rate of 73% compared with 69.9% in 2012. The key drivers for its impressive hotel performance would be a) growing tourist arrivals, especially from Asian countries and Russia and b) the consolidation of Centara Grand Island Resort & Spa Maldives and c) the opening of Centara Ras Fushi Resort & Spa Maldives. According to CENTELs guest-mix based on the number of room nights, the contribution from Asian guests increased to 21% in 2012 from 17% in 2008 due to solid growth of Chinese guests. Meanwhile, the contribution from European guests declined from 49% in 2008 to 40% in 2012 owing to the European economic slowdown. We see the trend of the change in the companys feeder market mix has moved in line with the pattern of international tourist arrivals. Figure 13: ARR, Occupancy Rate & RevPar
(Bt) 6,000 5,000 4,000 3,000 2,000 1,000 0 2008 2009 2010 2011 2012 2013F2014F2015F RevPar ARR Occupancy rate
2,162 1,983 1,979 2,340 2,617 64.2 60.5 63.9 58.1 3,149 3,465 69.9 73.0
CENTELs RevPar is expected to grow strongly by 20.3% yoy to Bt3,149 in 2013 as a result of a 16.7% increase in ARR to Bt4,370 and higher occupancy rate of 73% compared with 69.9% in
Figure 14: Revenue Contribution By Property

(%) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Others 25.3% Centara Grand at Central World 22.7%
75.1
77.1
3,770
Centara Grand Hua Hin 9.0%
Centara Grand Phuket 11.0%
Centara Grand Ladprao 15.0%
Centara Grand Pattaya 17.0%
Note: ARR, occupancy rate, and RevPar are based on CENTELs owned and JV hotels Source: CENTEL, UOB Kay Hian
Source: CENTEL
CENTELs total revenue from the hotel business is likely to surge 26.6% yoy to Bt8,195.3m in 2013 driven by a) continued improving performance of its existing properties with average RevPar growth of 8.9%, b) the full-year consolidation of Centara Grand Island Resort & Spa Maldives, which is estimated to contribute Bt800m revenue, as well as c) the contribution from Centara Ras Fushi Resort & Spa Maldives, which opened in Mar 13, of approximately Bt300m. EBITDA margin from the hotel business is expected to continue rising to 32.6% in 2013 from 31% in 2012 thanks to better operating performance of all properties especially Centara Grand at Central World, which turned around in 2012 and Centara Grand Bangkok (Ladprao), which closed for renovation after the floods and re-opened in 1Q12. Figure 15: Hotel Business Revenue And EBITDA
(Btm) 12,000 10,000 8,000 6,000 4,000 2,000 0 2008 2009 2010 2011 20122013F 2014F 2015F T otal revenue EBIT DA EBIT DA margin
30.0 26.0 22.0 19.0 31.0 32.6 33.5
Figure 16: Guest Breakdown By Nationality

(%) 100% 80% 60% 40% 20% 0% 2008 Europe Australia Others 2012 Asia Middle East 1Q13 T hailand USA
49 40 50 6 15 17 12 17 23 21 5 12
34.1
(%) 40% 35% 30% 25% 20% 15% 10% 5% 0%
Source: CENTEL
22
Hotel Sector
CENTELs Restaurant Business

Organic growth through outlet expansion across Thailand, especially in upcountry areas. CENTEL has operated its QSR business since 1978 by introducing Mister Donut in Thailand. As at end-1Q13, the companys food portfolio consisted of 12 brands with a total of 681 outlets in 71 provinces in Thailand. 89.4% of revenue from the restaurant business comes from its top four brands, which are KFC, Mister Donut, Ootoya, and Auntie Annes. CENTEL has franchise agreements to operate QSR outlets in Thailand for 10 brands, including KFC, Mister Donut, Auntie Annes, Ootoya, Pepper Lunch, Beard Papas, Chabuton, Cold Stone, Yoshinoya, and Caf Andonand. The other two brands, which are The Terrace and Ryu, are its own brands. Note that all outlets are owned and operated by CENTEL to maintain quality and service standard. CENTEL plans to grow the number of outlets organically, opening approximately 50-70 outlets per year during 2013-16 in Thailand especially in upcountry areas. Outlet expansion in overseas markets is likely to be its long-term plan. The company believes there is potential to grow its QSR business in upcountry areas driven by rising household income and urbanisation. It will focus on expanding outlets of its key brands ie KFC, Mister Donut, Auntie Annes, Ootoya, and Yoshinoya. The outlet expansion will be in shopping malls where Central Pattana (CPN) operates and hypermarkets such as Tesco Lotus and Big C. Revenue per outlet in upcountry areas is generally higher than in Greater Bangkok. We expect the number of its outlets to increase to 903 outlets in end-16. Outlets in upcountry areas are estimated to account for 50% of total outlets in 2016, an increase from 40% at present. Apart from KFC, Mister Donut, and Auntie Annes, CENTEL plans to open Yoshinoya outlets in upcountry areas in 2013 and Ootoya in the next few years. Figure 17: No. Of Outlets In 2009-16F
(outlets) 1,000
803 903
CENTEL plans to grow the number of outlets organically, opening approximately 50-70 outlets per year in 2013-16 in Thailand, especially in upcountry areas.
Figure 18: Outlet Expansion In 2011-16F

(outlets)
853
70 60 50 40 30 20
62
800 600 400 200 0

603 478 512
677
753
44 33 30
40
36 26 24 26 24 26 24
2009 2010 2011 2012 2013F2014F2015F2016F KFC Pepper Lunch Chabuton RYU T he T errace Yoshinoya Ootoya Mister Donut Caf Andonand Auntie Anne's Beard Papa's Cold Stone
10 0 2011 2012 2013F 2014F 2015F 2016F Heavy Food Light Food
Hotel Sector
23
Figure 19: Quick Service Restaurant Portfolio

Brand Type of food Heavy Food Brand ow nership International Franchise Agreement Master Franchise Agreement Franchise Agreement Development Agreement and Trademark License Agreement Master Franchise Agreement Master Franchise Agreement No. of outlets in 2012 181 Brand Type of food Heavy Food Brand ow nership Franchise Agreement No. of outlets in 2012 12
Light Food
289
Heavy Food
Ow n Brand Master Franchise Agreement Ow n Brand
Light Food
Light Food
10
Light Food
100
Heavy Food
Heavy Food
16
Heavy Food
Franchise Agreement Master Franchise Agreement
Light Food
17
Heavy Food
36
Figure 20: Outlet Breakdown By Location
Figure 21: Food Revenue Breakdown By Brand In 1Q13

CSC PL 2.1% CBT 2.3% 2.8% Auntie Anne's 8.8% Ootoya 8.1% Mister Donut 19.6% Yo BP 1.5% 0.8% T T 0.8% RYU 0.3%
(%) 100% 80% 60% 40%

60% 40% 50%
20% 0% 2012 Greater Bangkok
50%
2016F Upcountry
KFC 52.9%
Source: CENTEL
According to the recent update with management, CENTEL will focus on outlet expansion in Thailand in the next three years. It is considering expanding outlets of its new brand through a 50:50 JV with local investors as a JV investment should help CENTEL to expand at a faster rate than operating on its own. Note that capex for its heavy food brand is about Bt7m-10m per outlet and Bt3m-5m per outlet for its light food brand. Potential upside from the addition of one food brand per year. CENTELs total revenue from the restaurant business is likely to grow 16.1% yoy to Bt9,704.7m in 2013 thanks to a) strong SSS growth of 4.0% on the back of good economic outlook and b) the addition of 76 outlets (+11.2% yoy). The potential upside to our forecasts should come from the contribution from its new food brand. CENTEL targets to add at least one new brand a year through either getting a franchise licence to operate in Thailand or acquiring outlets of existing brands. The company expects to take on a franchise licence for its new brand, which is likely to be Japanese in 3Q13. The addition of new brands would diversify the risk of depending on one specific brand and sustain the growth of its restaurant business. The company targets to have 16 food brands with over 1,000 outlets by end-17.
CENTEL targets to add one new brand a year through either getting franchise licence to operate in Thailand or acquisition of outlets of existing brands.
24
Hotel Sector
Figure 22: Same-store-sales Growth, Total-systemsales Growth, And No. Of Outlets In 2008-14F
(% 30% 25% 20% 15% 10% 5% 0% -5% -10% (outlets) 900 803 753 800 853 677 700 603 600 512 478 500 14 15 400 5 4 2 2 9 6 15 24 300 17 15 27 200 100 -5 0 2008 2009 2010 2011 2012 2013F 2014F SSS T SS No. of outlets
Figure 23: Restaurant Business Revenue And EBITDA

(Btm) 14,000 (%) 18% 16% 17% 14% 13% 12,000 16% 13% 13% 13% 13% 14% 10,000 12% 8,000 10% 8% 6,000 6% 4,000 4% 2,000 2% 0 0% 2008 2009 2010 2011 2012 2013F2014F2015F T otal revenue EBIT DA EBIT DA margin
Figure 24: Adjustment Of Food Brand Portfolio In 2009-11

Year 2009 2010 2011 Portfolio adjustment - Terminated Pizza Hut totaling 25 outlets - Terminated Baskin Robbins totaling 37 outlets Added five new brands consisting of Chabuton, Cold Stone, Ryu, The Terrace, and Caf Andonand - Acquired Ootoya totaling 33 outlets - Added Yoshinoya to the portfolio
Source: CENTEL
Funding the growth. CENTEL set a capex of Bt1,820m for 2013, which will be used for annual hotel renovation and food outlet expansion (Bt1,215m), investment in Centara Ras Fushi Resort & Spa Maldives (Bt485m), and acquisition of an additional 15.4% stake in Centara Karon Phuket (Bt120m). The company is looking into new opportunities in the hotel business in 2014-16, which will be financed by internal operating cash flow. Figure 25: Capex In 2013-17F
(Btm) 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2013F 2014F 2015F 2016F 2017F
Figure 26: EBITDA vs D/E Ratio

(Btm) 5,000
1.6 1.7 1.3 1.1 0.8
(x) 2.0
1.4 1.0
4,000 3,000 2,000 1,000 0
1.5 1.0 0.5 0.0
2008 2009 2010 2011 2012 2013F 2014F EBIT DA D/E ratio
Hotel Sector
25
We anticipate CENTELs normalised profit to surge 37.7% yoy to Bt1,546.4m in 2013 as a result of strong revenue growth from the hotel (+26.6% yoy) and restaurant (+16.1% yoy) businesses as well as margin improvement. We expect the hotel business to contribute 46% of total revenue in 2013 (vs 44% in 2012). However, contribution of the hotel business is likely to be higher at 68% of total EBITDA in 2013 (vs 64% in 2012). Figure 27: Revenue Breakdown By Business
(%) 100% 80%
58 54 54 55
Figure 28: EBITDA Breakdown By Business

(%) 100%
56
57
56
55
80% 60% 40%
37
42
52
46
36
32
33
33
60% 40% 20% 0% 2008 2009 2010 2011 2012 2013F2014F2015F Hotel Restaurant
42 46 44 43 44 46 45 45
63
58
20% 0%
48
54
64
68
67
67
2008 2009 2010 2011 2012 2013F2014F2015F Hotel Restaurant
26
Hotel Sector
Company Background
CENTEL is Thailands leading operator of hotels both in Thailand and overseas, as well as QSRs and casual dining restaurants in Thailand. The company is part of the Central Group of companies. It operates its hotel business under Centara Hotel & Resort Group and its restaurant business under Central Restaurant Group. CENTEL was established in 1980 by the Chirathivat family. The company was listed on the Stock Exchange of Thailand in 1990. Its hotel portfolio as of 30 Apr 13 consisted of 13 owned hotels, 1 JV hotel, 1 hotel under a property fund, and 23 managed hotels with total 7,340 keys. The companys proprietary hotel brands range from 5-star to economy segments. Meanwhile, CENTELs food portfolio as at end-1Q13 consisted of 12 brands with total 681 outlets in 71 provinces in Thailand. Figure 29: CENTEL - Hotel Brand Portfolio
Hotel Brand Description
CENTEL is Thailands leading operator of hotels and QSR business. The company is part of the Central Group of companies.
Flagship 5-star hotels & resorts in prime locations
Spacious 4-star hotels & resorts with excellence in service
High quality serviced apartments for the long stay guests
Uniquely intimate boutique hotels
Affordable quality 3-star hotels in the most convenient locations
Economy hotels with convenient and value-for-money accommodation for cost-conscious travellers
Source: CENTEL
Hotel Sector
27
Figure 30: CENTEL Quick Service Restaurant Portfolio

Food Brand Description CENTEL introduced Mister Donut in 1978 to Thai consumers as a pioneer of QSR business in Thailand. Brand Ownership
Franchised brand
In 1984, CENTEL was the authorised franchisee of KFC, a well-known global fried chicken brand.
Franchised brand
In 1998, CENTEL entered the snack segment in Thailand with the premium soft pretzel brand Auntie Anne's from the US.
Franchised brand
In 2007, CENTEL brought in Japanese quick-service steak restaurant chain.
Franchised brand
In 2009, CENTEL brought in cream puffs originated from Japan Beard Papa's.
Franchised brand
CENTEL introduced Chabuton, premium ramen, TV champion chef's Japanese ramen restaurant in 2010.
Franchised brand
In 2010, CENTEL launched super-premium mix-in ice cream from the US.
Franchised brand
In 2010, CENTEL developed RYU, a unique and competitive concept of All-you-can-eat Osaka style shabu shabu restaurant.
Own brand
In 2010, CENTEL acquired The Terrace, a renowned and long established Thai casual dining restaurant from Central Retail Company.
Own brand
In 2010, CENTEL introduced the well-known premium donut brand Caf Andonand from Japan.
Franchised brand
In 2011, CENTEL brought in the largest chain of beef bowl restaurants and one of the leading Japanese fast food chains.
Franchised brand
In 2011, CENTEL acquired Ootoya, home cooking style Japanese restaurant, total of 33 outlets
Franchised brand
Source: CENTEL
28
Hotel Sector
Figure 31: Revenue Breakdown By Business in 2008-12

(%) 120% 100% 80%
58 54 56 57 56
Figure 32: EBITDA Breakdown By Business in 2008-12

(%) 100% 80% 60% 40%
63 58 37 42 52 46 37
60% 40% 20% 0% 2008 2009 2010 Hotel 2011 Food 2012
42 46 44 43 44
20% 0% 2008 2009 Hotel
48
54
63
2010 Food
2011
2012
As of 8 May 13, CENTELs major shareholders consisted of Chirathivat family (60.4%), followed by Thai NVDR (1.7%), Norbax (1.2%), and Government Pension Fund (1.1%). Figure 33: Central Group Structure Figure 34: Major Shareholders As Of 8 May 13
Chirathivat Family 60.4%
Others 35.7%
GPF 1.1% Norbax 1.2% T hai NVDR 1.7%
Source: CENTEL
Source: CENTEL, SET
Hotel Sector
29
Figure 35: Corporate Milestones
Source: CENTEL
30
Hotel Sector
Risk Factors
External risks. Epidemic, natural disasters and the global economic slowdown would affect the demand for tourism. The outbreak of Bird Flu would have an impact on CENTELs QSR and hotel business. These external risks could be a source of downside risk to our earnings forecasts for CENTEL. Political uncertainty. Political instability, such as the military coup in 2006, airport closure in 2008, and red-shirt protest in 2010, could hit Thai tourism sector severely. The recurrence of political unrest would adversely affect CENTELs hotel operations. Currency fluctuation. The strengthening of the baht will cause foreign visitors to pay more for their tour packages and be more careful with their spending. Thai tourisms competitive advantage in terms of good value for money may be affected by the stronger baht trend. Increasing competition. A significant increase in new supply from other hotel operators would be a downside risk to CENTELs profit margin and earnings outlook. Slowdown of domestic consumption. Deterioration of Thailands economic prospects could lead to weak consumer confidence and a slowdown in domestic consumption. This would adversely affect CENTELs QSR business. Termination of franchised food brand. Food brands such as KFC, Chabuton, and Yoshinoya could be recalled by brand owners. CENTEL prevents this risk by creating its own brands ie Ryu and The Terrace, extending the franchise period, and adding new brands to diversify the risk.
Key risk factors include external risks, political uncertainty, currency fluctuation, increasing competition, domestic consumption slowdown, and termination of franchise food brand.
Hotel Sector
31
Figure 36: Profit & Loss

Year to 31 Dec (Btm) Revenue, net Operating expenses EBIT Other non-operating income Associate contributions Net interest income/(expense) Pre-tax profit Tax Minorities Extraordinary items Net profit(rep./act.) Net profit(adj.) Deprec. & amort. EBITDA Per share data (Bt) EPS - diluted Reported EPS - diluted Book value per shares (BVPS) Dividend per share (DPS) Source: CENTEL, UOB Kay Hian 2011 11,574 (10,393) 1,182 0 78 (414) 846 (255) (40) 0 550 550 1,135 2,316 2012 14,922 (13,117) 1,806 0 59 (486) 1,378 (213) (43) 458 1,581 1,123 1,351 3,157 2013F 17,900 (15,533) 2,367 0 45 (529) 1,883 (276) (61) 0 1,546 1,546 1,589 3,956 2014F 20,461 (17,516) 2,945 0 45 (483) 2,507 (418) (80) 0 2,009 2,009 1,650 4,595 2015F 23,244 (19,706) 3,538 0 45 (425) 3,159 (576) (99) 0 2,484 2,484 1,720 5,258
0.4 0.4 4.3 0.2
0.8 1.2 6.6 0.3
1.1 1.1 7.5 0.4
1.5 1.5 8.5 0.5
1.8 1.8 9.8 0.7
Figure 37: Balance Sheet

Year to 31 Dec (Btm) Cash/Near cash equiv. Accounts receivable/debtors Stocks Other current assets Current assets Fixed assets Investments Other financial assets Other non-current tangible assets Total non-current assets Total assets Accounts payable/creditors Short-term debt/borrowings Other current liabilities Current liabilities Long-term debt Other non-current liabilities Total non-current liabilities Total liabilities Minority interest - accumulated Shareholders' equity Liabilities and shareholders' funds Source: CENTEL, UOB Kay Hian 2011 316 647 400 400 1,763 13,320 1,332 508 4,761 19,921 21,684 1,592 3,993 937 6,523 6,010 3,102 9,112 15,635 253 5,796 21,684 2012 356 836 473 323 1,989 19,192 1,080 491 5,222 25,986 27,975 1,851 5,080 911 7,843 6,973 3,403 10,376 18,220 804 8,951 27,975 2013F 343 1,005 560 354 2,262 19,691 1,125 519 5,004 26,340 28,602 2,188 3,588 1,050 6,827 7,377 3,440 10,818 17,645 865 10,092 28,602 2014F 392 1,147 627 383 2,549 19,605 1,170 526 4,782 26,083 28,632 2,450 3,557 1,142 7,149 5,522 3,479 9,001 16,150 945 11,536 28,632 2015F 1,674 1,302 702 414 4,092 19,655 1,215 531 4,557 25,959 30,051 2,743 4,357 1,245 8,345 3,855 3,520 7,375 15,720 1,044 13,287 30,051
32
Hotel Sector
Figure 38: Cash Flow

Year to 31 Dec (Btm) Operating cashflows Pre-tax profit Tax Deprec. & amort. Associates Working capital changes Others Cash from investing activities Capex (growth) Investments Others Cash from financing activities Dividend payments Issue of shares Proceeds from borrowings Others/interest paid Net increase/(decrease) in cash Beginning cash End cash Source: CENTEL, UOB Kay Hian 2011 1,908 846 (255) 1,135 (78) 261 0 (1,818) (1,863) (81) 125 (73) (68) 0 550 (555) 17 299 316 2012 2,505 1,378 (213) 1,351 (59) 47 0 (6,598) (7,026) 310 118 4,133 (203) 0 2,051 2,285 40 316 356 2013F 3,341 1,883 (276) 1,589 (45) 190 0 (1,861) (1,853) 0 (9) (1,493) (405) 0 (1,088) 0 (13) 356 343 2014F 3,809 2,507 (418) 1,650 (45) 115 0 (1,309) (1,300) 0 (9) (2,451) (564) 0 (1,886) 0 49 343 392 2015F 4,392 3,159 (576) 1,720 (45) 135 0 (1,510) (1,500) 0 (10) (1,600) (733) 0 (867) 0 1,282 392 1,674
Figure 39: Key Metrics

Year to 31 Dec (%) Growth Turnover EBITDA Pre-tax profit Net profit Net profit (adj.) EPS Profitability EBITDA margin EBIT margin Gross margin Pre-tax margin Net margin ROE ROA ROIC RONTA Leverage Interest cover (x) Debt to total capital Debt to equity Net debt/(cash) to equity Current ratio (x) Source: CENTEL, UOB Kay Hian 2011 22.0 31.3 310.9 n.a. n.a. n.a. 2012 28.9 36.3 63.0 187.2 104.0 104.0 2013F 20.0 25.3 36.6 (2.2) 37.7 37.7 2014F 14.3 16.2 33.1 29.9 29.9 29.9 2015F 13.6 14.4 26.0 23.7 23.7 23.7
20.0 10.2 39.7 7.3 4.8 9.5 2.6 5.7 9.5
21.2 12.1 41.9 9.2 10.6 21.4 6.4 10.9 13.5
22.1 13.2 42.8 10.5 8.6 16.2 5.5 9.7 12.8
22.5 14.4 44.0 12.3 9.8 19.6 7.1 11.8 14.5
22.6 15.2 44.8 13.6 10.7 22.3 8.6 13.5 15.8
5.6 62.3 172.6 167.1 0.3
6.5 55.3 134.7 130.7 0.3
7.5 50.0 108.7 105.3 0.3
9.5 42.1 78.7 75.3 0.4
12.4 36.4 61.8 49.2 0.5
Hotel Sector
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Hotel Sector
THAILAND
4 July 2013
Initiate Coverage
MINOR INTERNATIONAL (MINT TB)

Premium Quality Hotel Collection
Minor International (MINT) is one of the largest hospitality and leisure companies in the Asia Pacific region. It was founded in 1976 and listed on the Stock Exchange of Thailand in 1988. As at 1Q13, it had 84 hotel properties in the luxury segment with a total of 10,606 rooms. It also operates restaurants with 1,406 outlets under nine brands. In addition, it develops residential property, operates the Anantara Vacation Club, runs retail and entertainment outlets and has a chain of luxury spas. Building a portfolio of its own brands. Leveraging on its own brands of Anantara, Oaks and Avini is key to MINTs growth strategy in the hospitality business. The company is expanding on a portfolio of its own brands via building new hotels under equity-owned and via joint ventures, as well as expanding internationally with a preference for management contracts. By 2017, MINTs own brands are estimated to represent 87% of total hotel rooms, from 19% in 2005. Real estate business enhances profitability. Anantara Vacation Club and residential property are the other key contributors to MINTs hotel & mixeduse business due to the high profitability and ongoing development pipeline. While real estate revenue is likely to account for 18.9% of the hotel & mixeduse revenue in 2013, earnings contribution could be much higher at 40%. Acquisitions speed up MINTs overseas expansion. Acquisitions of food brands help MINT expand in the international markets at a faster pace. Its presence in overseas markets increased to 34% of total outlets in 2012 after several acquisitions since 2007. The possible new acquisitions over the next five years should increase MINTs restaurant business growth to above its target organic growth of 12-15% per year. Turnaround in China operations likely to improve margins. MINTs China business is expected to turn around in 2013 as a result of the Riverside acquisition and rationalisation of The Pizza Company outlets. We expect EBITDA margin from the restaurant business to improve to 17.5% this year from 17% in 2012. Initiate with BUY and target price of Bt32.25, based on sum-of-the-parts valuation. We value the hotel & mixed-use business at 15.6x EV/EBITDA, the restaurant business at 22.5x PE and the retail trading business at 20.0x PE. Catalysts include the acquisition of hotels and food brands, and the sale of hotels to a REIT.
Key Financials
Year to 31 Dec (Btm) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (Bt) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x) 2011 27,107 4,976 2,996 2,880 1,919 0.5 46.7 5.7 24.4 0.6 10.6 130.0 5.7 21.1 2012 32,547 6,643 4,442 3,409 3,409 0.9 27.1 5.0 18.3 1.2 10.5 113.0 6.1 21.0 2013F 37,648 8,043 5,574 4,070 4,070 1.0 24.8 4.7 15.1 1.3 10.8 98.5 6.7 20.6 4,005 1.02 2014F 42,214 9,264 6,611 4,882 4,882 1.2 20.6 4.0 13.1 1.6 11.6 77.8 7.0 22.7 4,672 1.04 2015F 47,922 10,467 7,576 5,744 5,744 1.4 17.5 3.5 11.6 1.8 12.0 62.7 8.0 24.3 5,421 1.06
BUY
Company Description MINT is one of the largest hospitality companies in the Asia Pacific region. It also operates restaurants in Thailand and overseas under nine brands. It is also engaged in residential property development, timeshare and retail trading businesses. Stock Data GICS sector Consumer Discretionary Bloomberg ticker: MINT TB Shares issued (m): 3,995.8 Market cap (Btm): 99,095.6 Market cap (US$m): 3,193.5 3-mth avg daily t'over (US$m): 10.4 Price Performance (%) 52-week high/low 1mth 3mth 6mth (10.6) 3.3 26.5
Bt28.00/Bt13.60 1yr YTD 77.1 26.5 % 34.0 27.0 12.0 5.31 5.23
Major Shareholders Minor Group & Heinecke Family Foreign Fund Local Fund FY13 NAV/Share (Bt) FY13 Net Debt/Share (Bt) Price Chart
(lcy) 30
MINOR INTERNATIONAL PCL Minor International Pcl/SET Index
(%) 210 190
25
170 150
20 130 15 110 90 10 150 100 50 0 Jun 12 Aug 12 Oct 12 Dec 12 Feb 13 Apr 13 Volume (m) 70
Source: Bloomberg
Analyst Pornthipa Rayabsangduan +662 659 8302 pornthipa@uobkayhian.co.th
Source: Minor International, Bloomberg, UOB Kay Hian
Company Name 2 Refer to last page for important disclosures.
35
Growth strategy through expanding its own hotel brands. Leveraging on its own brands of Anantara, Oaks and Avini is key to MINTs growth strategy for its hospitality business. The company is expanding the portfolio of its own brands via building new hotels under equity-owned and via joint ventures, as well as expanding internationally with a preference for management contracts. The expansion (about 83% of total hotel rooms under development) over the next three years will mainly be outside of Thailand under hotel management contracts and management letting rights (MLR). This will enable MINT to expand its portfolio of hotels at a faster pace and with the least equity drain. By 2017, the company will have over 140 hotels, from 10 hotels in 2005. MINTs own brands are estimated to account for 87% of total hotel rooms in 2017 vs 19% in 2005. Real estate business enhances profitability. Anantara Vacation Club (AVC) and residential property are the other key contributors to the hotel & mixed-use business due to the high profitability and ongoing development pipeline of AVCs inventories and residential projects. We estimate real estate revenue to grow 21.7% yoy to Bt3,527.4m in 2013, driven by strong growth from AVC. Real estate revenue is likely to account for 18.9% of hotel & mixed-use revenue in 2013 but earnings contribution could be much higher at 40%. Acquisitions speed up MINTs overseas expansion. For its quick service restaurant (QSR) business, MINT grows the portfolio of its own brands through opening owned-equity outlets and franchising. Acquisitions of food brands help MINT expand in the international markets at a faster pace. Its presence in overseas markets increased to 34% of total outlets in 2012 vs 8% in 2006 after it acquired The Coffee Club, Thai Express, Ribs & Rumbs, and Riverside. The company targets organic growth from the opening of new outlets in Thailand and overseas at 8-10% per year over the next five years. However, the new acquisitions should have an immediate impact on its portfolio size and bottom line. Revenue from the restaurant business is likely to grow 19.2% yoy to Bt15.7b in 2013, driven by: a) strong same-store sales (SSS) growth of 4.5%, b) outlet expansion of 8.6% yoy, and c) full-year contribution from Riverside, which MINT acquired in Dec 12. Turnaround in China operations likely to improve margins. We expect EBITDA margin from the restaurant business to gradually improve to 17.5% in 2013, from 17% in 2012, mainly due to effective cost management, increased franchising fee and a turnaround in China operations. MINT expects its restaurant business in China to make a small loss in 2013 and start making profit from 2014 onwards, a turnaround from a Bt100m loss last year and seven years of losses. The turnaround in China operations is due to acquisition of Riverside, which resulted in economies of scale in back-office operations. In addition, MINT will open more Sizzler outlets while rationalising The Pizza Company outlets due to intense competition from Pizza Hut. The company also plans to expand Thai Express and The Coffee Club in China in the future.
MINTs growth strategy is to expand its own hotel brands. The expansion will mainly be overseas under management contracts.
AVC and residential property significantly complement MINTs hotel business due to high profitability and ongoing development pipeline.
MINT targets organic growth of its restaurant business at 12-15% per year. Acquisitions would speed up its overseas expansion and have an immediate impact on the bottom line.
MINTs China business is expected to turn around in 2013 as a result of the Riverside acquisition and rationalisation of The Pizza Company outlets.
Initiate with BUY and target price of Bt32.25, based on sum-of-the-parts valuation. Initiate coverage with a BUY We value the hotel & mixed-use business at Bt18.80, based on 15.6x 2014F and a target price of Bt32.25, EV/EBITDA, the restaurant business at Bt12.32 on 22.5x PE, which is a 7% discount based on SOTP valuation. to regional peers average PE, and the retail trading business at Bt1.12 on 20.0x PE, a 10% discount to the sector PE. Risks. Key risks to our investment case include: a) external factors and political uncertainty, b) slowdown of domestic consumption, c) termination of franchised food brands, d) currency fluctuation, e) increased competition, and f) execution risks.
36 Hotel Sector
Valuation
Initiate coverage with a target price of Bt32.25, based on sum-of-the-parts valuation. We value the hotel & mixed-use business at Bt18.80, based on 15.6x 2014F EV/EBITDA, the restaurant business at Bt12.32 on 22.5x PE, a 7% discount to regional peers average PE, and the retail trading business at Bt1.12 on 20.0x PE, a 10% discount to the sector PE. Note that our SOTP-based per share factors in the conversions of MINT-W4, MINT ESOP5 and MINT-W (ESOP). We believe our target price is justified, given MINTs well-diversified business model, which should sustain its strong earnings growth in the long term. We estimate its fully-diluted EPS CAGR at 15.6% in 2013-15, assuming no new acquisitions. The catalysts for MINT include: a) the acquisition of hotels and food brands, which would significantly increase MINTs growth, size and returns, and b) the sale of its hotels to a REIT. Our share price objective implies a 30% upside from the current share price plus a dividend yield of 1.3%. Figure 1: Sum-of-the-parts Valuation
(Btm) Hotel Business: EV/EBITDA multiple 2014F EBITDA EV/EBITDA multiple (x) EV 2014F Net debt No. of fully diluted shares (m) Equity value per share (Bt) Restaurant Business: PE multiple Net profit PE multiple (x) Equity value Equity value per share (Bt) Retail Trading Business: PE multiple Net profit PE multiple (x) Equity value Equity value per share (Bt) Sum-of-the-parts value (Bt) 6,123.4 15.6 95,806.2 19,411.3 4,063.0 18.80
2,225.4 22.5 50,072.0 12.32
227.4 20.0 4,548.3 1.12 32.25

(x)
+2S D: 20.0X
Figure 3: PE Band
(x) 35.0 30.0 25.0
M e a n: 13.6x
20.0 17.5 15.0 12.5
+1.5S D: 18.4X +1S D: 16.8x +0.5S D:15.2x
20.0
-0.5S D: 12.0x -1S D: 10.4x -1.5S D: 8.8x
+3S D: 34.0x +2.5S D: 31.6x +2.0S D: 2.93x +1.5S D: 26.9x +1S D: 24.6x +0.5S D: 22.2x M e a n: 19.9x -0.5S D: 17.5x -1.0S D: 15.2x -1.5S D: 12.8x -2.0S D: 10.5x
10.0 7.5
15.0 10.0 5.0 2006
5.0 2005 2006 2007 2008 2009 2010 2011 2012 2013
2007 2008
2009 2010 2011
2012 2013
Hotel Sector
37
Earnings Outlook
HOTEL & MIXED-USE BUSINESS
Growth strategy through expanding its own hotel brands. MINTs hotel business started with a single resort in Pattaya in 1978. Since then, it has partnered strong international brands, such as Four Seasons, Marriott and Starwood, which helped position its hotels in the luxury segment. The company has used its experience over the past three decades to develop its own brands in this segment. It launched Anantara, its first 5-star hotel brand, in 2001, and Avani, its 4-star hotel brand in 2011. Anantara targets travellers requiring luxurious design and superior services, while Avani targets those who appreciate good design, excellent services and value for money. The acquisition of Oaks in 2Q11 helped MINT establish a presence in the Australian market. Oaks is one of Australias largest hotel and resort operators in the 4-star segment with a 17% share of serviced suites. It services short-to-medium-stay corporate and leisure guests. Oaks has a leading position in the Australias Management Letting Rights (MLR) business. MLR are rights that allow Oaks to operate and rent residential condominium units participating in the rental pool as a hotel or serviced suite. Figure 4: Hotel Portfolio As At End-1Q13
Source: MINT
Figure 5: Hotel Acquisitions In 2008-13

Hotel Property 1. Elewana 2. Kani Lanka 3. Oaks 4. Grand Hotel 5. Paradise Island Resorts 6. Bundarika Villas & Suites 7. Life Hoi An and Life Quy Nhon Total Investment Period Mar 08 Aug 10 Jun 11 Jun 11 Sep 12 Jun 12 Feb 13 480.0 4,401.1 Investment value (Btm) 379.5 372.6 2,577.3 364.2 37.6 190.0 % holding after investment 50.0 80.1 100.0 100.0 80.1 95.0 91% in Life Hoi An 100% in Life Quy Nhon Description Elewana owns and operates safari camps in Tanzania, Africa. MINT bought the hotel property in Sri Lanka. MINT acquired Oaks for A$84.5m. Oaks purchased Grand Hotel in Gladstone, Australia. MINT's 80.1%-owned subsidiary acquired the resort in Sri Lanka. MINT acquired 95% of Bundarika Villas & Suites on Layan Beach, Phuket. MINT purchased the two hotels in Vietnam.
38
Hotel Sector
MINTs growth strategy is expanding on its profitable portfolio of its own brands. The majority of its expansion will be outside of Thailand through hotel management contracts and MLR.
Building its own brands. As at end-1Q13, MINT had 84 hotel properties with a total of 10,606 rooms (including 17 majority-owned hotels, 38 Oaks properties, 13 joint-venture hotels and 16 purely-managed hotels). Leveraging on its own brands of Anantara, Oaks and Avini is key to MINTs growth strategy in the hospitality business. The company is expanding on a profitable portfolio of its own brands via building new hotels under equity-owned and via joint ventures, as well as growing hotels under management contracts. MINT prefers to expand internationally through management contracts (an asset-light model). The majority of its expansion (about 83% of total hotel rooms under development) over the next three years will be outside of Thailand through hotel management contracts and MLR. This will enable MINT to expand its portfolio of hotels at a faster pace and with the least equity drain. According to its expansion plan, MINT received hotel management contracts and MLR to manage 29 hotels under the Anantara, Oaks and Avani brands in international markets, ie China, India, Indonesia, Australia, UAE and Oman. The number of rooms under its management contracts and MLR is estimated to surge to 11,497 rooms, accounting for 75% of total hotel rooms in 2015, from none in 2005. Apart from expanding through hotel management contracts and MLR, MINT continues to develop its own hotels over the next three years with a plan to grow the number of rooms by a CAGR of 10.6%. The expansion continues to be in Thailand, Vietnam, Sri Lanka and Australia, where MINT has experience in. It is worth highlighting that the number of its own hotels may be higher than the existing pipeline if MINT acquires more properties. By 2015, the company will have 123 hotels with a total of 15,440 rooms and its portfolio will grow to over 140 hotels in 2017. Hotels under management contracts and MLR will account for three-fourths of MINTs hotel portfolio of 15,440 rooms while the rest (25% of total rooms) will come from its owned and joint-venture hotels. Figure 6: No. Of Rooms By Ownership
(rooms) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2 ,16 9 8 2,000 92 0 2005
Figure 7: Hotel Expansion By Ownership

(rooms) 7,000
15 ,4 4 0
6,000 5,000 4,000
7.7% C AG
13 ,4 5 3 9 ,8 2 1 10 ,2 7 1 11,7 5 1
35.4% 10.6%
67%
7 26
70%
7 23
72%
7 22
74%
75%
3,000 2,000 1,000 0
2.1%
6 21
5 20
2011
2012 JV
2013F
2014F 2015F
Owned equity 2012
JV 2013F
Oaks 2014F
Managed 2015F
Owned equity
Managed & MLR
If we classify MINTs hotel portfolio by brand, its own brands (Anantara, Oaks and Avani) are estimated to account for 87% of total hotel rooms in 2017, from 19% in 2005. In terms of location, its hotels outside of Thailand are likely to account for 79% of total rooms in 2017, vs only 8% in 2005.
Hotel Sector
39
Figure 8: No. of Rooms By Brand

(%) 100% 80% 60% 40% 55.0 20% 0% 2005 Marriott Avani
6.0 19.0 8.0 8.0 6.0
Figure 9: No. of Rooms By Location

(%) 100% 80% 60%
56 .0 6 7.0 70 .0 79 .0
8 .0
20.0
0.54
0.01 24.0
0.51
0.05 26.0
0.45
0.09 33.0
40% 20% 0% 2005 Bangkok

17.0 3 6 .0 16 .0 15.0 10 .0 15.0 11.0
5.0 8.0 2011
5.0 5.0 2012 Four Seasons Oaks
3.0 4.0 2017F Anantara Others
2011 2012 2017F Outside Bangkok International
Figure 10: Hotel Expansion Pipeline In 2013-15

Hotel Majority Owned Equity Hotels Anantara Layan Phuket (formerly known as Bundarika) Anantara Hoi An Avani Quy Nhon Grand Hotel, Gladstone Avani Ambalangoda Anantara Sri Lanka Avani Bangkok Total 7 Joint-Venture Hotels Masai Mara Camp Amboseli Camp Meru Camp Total 3 Oaks Portfolio Oaks Sanya Oaks Liwa Suites, Abu Dhabi Oaks Jimbaran, Bali Oaks William St., Melbourne Oaks Carlyle Oaks Radius Oaks Milton Oaks Emerald Oaks Nusa Dua, Bali Total 9 Managed Hotels Anantara Xishuangbanna Anantara E-Mei, Chengdu Anantara Palm Jumeirah Anantara Al Yamm Anantara Al Sahael Anantara Chongqing Anantara Baoting Anantara Qiandao Lake Anantara Luang Prabang Anantara Salalah Anantara Al Akhdar Anantara Al Madina Anantara Doha Island Anantara Mahabalipuram Anantara La Chaland Anantara Tangalle Anantara Dongguan Anantara Udaipur Anantara Wayanad Avani Nusa Dua, Bali Total 20 Grand Total 39 Country Thailand Vietnam Vietnam Australia Sri Lanka Sri Lanka Thailand No. of rooms 77 96 63 143 80 141 227 827 16 16 16 48 120 54 212 220 87 91 298 120 96 1,298 103 150 293 30 30 150 130 120 115 136 123 120 117 130 160 150 120 70 95 654 2,996 5,169 Operate 2013 1Q13 1Q13 2014 2014 2015 2015
Kenya Kenya Kenya
2013 2013 2015
China UAE Indonesia Australia Australia Australia Australia Australia Indonesia
2013 2013 2013 2013 2014 2014 2015 2015 2015
China China UAE UAE UAE China China China Laos Oman Oman Oman Qatar India Mauritius Sri Lanka China India India Indonesia
1Q13 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2015 2015 2015 2015 2015
40
Hotel Sector
Real estate business enhances profitability. MINT initiated the mixed-use development of a hotel and residential project. The 14-villa Estates Samui, adjacent to and managed by Four Seasons Resort in Koh Samui, was launched in 2007. MINT later introduced The St. Regis Residences Bangkok, consisting of 53 residences and penthouses on top of the St. Regis Hotel. The next project in the pipeline is Anantara Estates Phuket, next to Anantara Phuket Layan Resort & Spa (formerly known as Bundarika), which will be launched in early-14. Apart from the residential property development, MINTs point-based vacation club under its own brand, AVC, is the other real estate development launched in Dec 10. AVC is a collection of luxurious shared-ownership villas and apartments located in a variety of resort destinations for the use of its owners. AVC owners purchase Club Points that are backed by real estate assets. The number of Club Points owned determines your resort destination, the time of the year, length of stay and the type of accommodation. Current property locations include Thailand (Samui, Phuket, Bangkok), Indonesia (Bali), Australia (Queenstown) and China. MINT will be adding destinations to this list in the coming years. Revenue from the real estate business, which includes residential sales and AVC, is one of the key contributors to the hotel & mixed use business due to the high profitability and ongoing development pipeline of AVC inventories and residential projects. Note that real estate revenue contributed about 18% of hotel and mixed-use revenue in 2012, but earnings contribution was much higher at about 40%. We estimate real estate revenue to grow 21.7% yoy to Bt3,527.4m in 2013, driven by strong growth from AVC to US$80m in 2013 from US$51m last year. Real estate revenue is likely to increase to 18.9% of hotel & mixed use revenue in 2013 (2012: 17.7%) but earnings contribution could be much higher at 40%. We believe the real estate business should remain a significant contributor to the hotel & mixed use business going forward on the back of additional residential projects next to its hotel properties and the growing popularity of the timeshare business. Figure 11: Residential Projects
Project The Estates Samui St. Regis Residence Anantara Estates Phuket No. of Units 14 53 16 Project Value (Btm) 1,500 6,000 3,600 Details Luxury villas adjacent to Four Seasons in Koh Samui Residences and penthouses 3-8 bedroom pool villas, with sizes at 7001,800sqm, and selling at US$5m-10m per villa
Real estate revenue is one of the key contributors to the hotel & mixed-use business due to the high profitability.
% Sold Nine villas sold. 92% signed contracts Expected launch in early-14
Figure 12: AVC Inventories And Revenue

(units) 450 400 350 300 250 200 150 100 50 0 (Btm) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
400 321 246 171 96 22 46 25
2010
2011
2012
2013F
2014F
2015F
2016F
2017F
AVC inventories
Revenue from sales of AVC
Hotel Sector
41
Figure 13: Real Estate Revenue

(Btm) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
Figure 14: Hotel and Mixed-Use Revenue Contribution In 2013

3,73 3,31
3,52 2,89
Real estate 18.9%
Others 11.5%
Owned hotels 42.8%
2012 2013F St Regis Residence Anantara Residence Phuket
2014F 2015F T he Estate Samui AVC
Oaks 26.8%
Hotel performance continues to improve. We see growth in Asia, especially China and Russia, to lead to increasing contribution to MINTs feeder markets. Although European guests still made up the largest share of 35% in 1Q13, the share from East Asia has risen to 32% in 1Q13 from 18% in 2007. We see the trend of the change in the companys feeder-market mix has moved in line with the pattern of international tourist arrivals. MINTs hotel & mixed-use revenue is expected to grow at a CAGR of 12.8% in 2013-15, driven by: a) improving RevPar, especially from its majorityowned hotels on the back of promising tourism outlook, b) solid growth of AVC, c) contribution from new owned hotels, and d) higher management fees, supported by 20 hotel management contracts in the pipeline. We think its diverse business strategies have helped to maintain its high rate of growth via expanding the profitable portfolio of its Anantara, Oaks and Avani brands, management contracts, MLR, and developing new hotels under equity-owned and via joint ventures. Figure 15: Owned Hotels - ARR, Occupancy Rate And RevPar
(Btm) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2008 2009 2010 2011 2012 2013F 2014F ARR RevPar Occupancy rate
66% 56% 57% 58% 66% 70%
Figure 16: System-wide Hotels ARR, Occupancy Rate And RevPar

(Btm) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2008 2009 2010 2011 2012 2013F 2014F ARR RevPar Occupancy rate
65% 52% 52% 65% 69% 70%
72%
(% 80% 70% 60% 50% 40% 30% 20% 10% 0%
70%
(%) 80% 70% 60% 50% 40% 30% 20% 10% 0%
42
Hotel Sector
Figure 17: Feeder Markets
Figure 18: Hotel And Mixed-Use Business Revenue, EBITDA And EBITDA Margin
(Btm) 25,000 (%) 45% 40% 40% 35% 35% 30% 29% 30% 30% 28% 30% 26% 25% 20% 15% 10% 5% 0% 2008 2009 2010 2011 2012 2013F2014F2015F Revenue EBIT DA EBIT DA margin
(%) 100% 80% 60% 40% 20% 0% 2007 Europe T hailand South Asia 2010 2011 2012 1Q13 East Asia Middle East Africa & others T he Americas Oceania
40 36 8 14 18 13 11 23 12 11 28 11 11 31 8 9 32
20,000 15,000 10,000
32
30
35
5,000 0
RESTAURANT BUSINESS Acquisitions speed up MINTs overseas expansion. Like its hotel business, MINTs growth strategy for its QSR business is expanding the portfolio of its own brands through opening equity-owned outlets and franchising. Acquisitions help MINT expand in the international markets at a faster pace. Its restaurant business currently comprises nine brands - The Pizza Company, Swensens, Sizzler, Dairy Queen, Burger King, The Coffee Club, Thai Express, Ribs & Rumps, and Riverside. MINT currently operates 1,406 outlets in Thailand and overseas. Of these brands, its own The Pizza Company contributed the largest share of 27% of QSR revenue in 2012. MINT developed The Pizza Company in 2000 following the loss of its franchise rights after The Pizza Hut brand in Thailand was recalled. It is worth highlighting that since 2007, MINT has made several strategic acquisitions and investments, including The Coffee Club, Thai Express, S&P, Ribs & Rumps, Riverside and BreadTalk. Its presence in overseas markets has increased to 34% of total outlets in 2012 vs 8% in 2006. Expansion through acquisition takes less time than developing the brands itself. The acquired companies can also contribute to bottom line immediately. MINT targets to grow its portfolio organically by expanding the number of outlets in Thailand and overseas by 8-10% per year over the next five years. These acquisitions should have an immediate impact on its portfolio size and bottom line. Note that MINT does not include 31%-owned S&P as part of its expansion plan. However, it has continued strengthening its partnership with S&P.
Strategic acquisitions help MINT expand its QSR business faster, especially in international markets.
Hotel Sector
43
Figure 19: QSR Portfolio As At End-1Q13
Figure 20: Acquisitions And Investments In The QSR Business in 2008-13

QSR brand 1. The Coffee Club 2. Thai Express Investment Period Oct 07 May 08 Investment value (Btm) 660.0 939.8 % holding after investment 50.0 70.0 Description MINT acquired a 50% stake in TCC, a restaurant franchise business with more than 180 outlets in Australia and New Zealand. Thai Express is a multiple-brand restaurant company (selling Thai food, Chinese food, Japanese food and western food) operating in Singapore, Malaysia, Indonesia, Mongolia, China, Australia and New Zealand. MINT acquired another 30% stake in Thai Express from the founders. MINT made a tender offer for S&P shares at Bt70/share; its stake in S&P increased to 31.3% from 26.3%. Total investment in S&P amounted to Bt1,097m since its first investment in 2006. A 100%-owned subsidiary of The Coffee Club purchased Ribs & Rumps. MINT acquired a 49% stake in Riverside, a chain of casual-concept restaurants in China. MINT acquired a 10% stake in BreadTalk, a chain of bakery outlets, food atria and restaurants in 15 countries.
Sep 11 3. S&P Aug 11
406.2 346.0
100.0 31.3
4. Ribs and Rumps 5. Riverside 6. BreadTalk Total
Sep 11 Dec 12 Apr 13
362.2 1,200.0 459.0 4,373.2
50.0 49.0 10.0
For its expansion in Thailand, MINT will continue to expand the number of outlets with the operators of shopping malls, community malls and hypermarkets. It prefers to use a franchise model in the upcountry. The majority of the new outlets will be under The Pizza Company, Swensens, Dairy Queen, Sizzler, Burger King and The Coffee Club. Note that the fee structure for local franchising consists of: a) an initial fee or upfront fee of about Bt1.0m-1.5m per outlet when the franchised outlet opens, b) a royalty fee of about 5% of total revenue, and c) marketing fee based on 5% of total revenue, which MINT uses for the advertising of its brands.
44
Hotel Sector
Figure 21: Revenue By Brand In 2012

Others 8%
Figure 22: No. Of Outlets Of Acquired Brands

(Outlets) 500
T hai Express 18% T he Coffee Club 2% Burger King 5%
T he Pizza Company 27%
410 363 319 275 333
422
400 300 200 100

188
Dairy Queen 10%
Sizzler 16%
Swensen's 14%
0 2007 2008 2009 2010 T he Coffee Club Ribs & Rumps 2011 2012 1Q13 T hai Express Riverside
Source: MINT
International operations are another important part of MINTs restaurant business. MINT is focusing on its major markets, including Australia, Singapore and China. The company uses franchising (an asset-light model) to expand its outlets in the international markets that it has a presence in and in new markets, ie Indochina and the Middle East. Apart from franchising its own brands, MINT can sub-franchise Swensens in 33 countries in Asia. For the Sizzler brand, the company holds exclusive rights in China. The company has a 50:50 joint venture with Sizzler's parent company to license a franchise on a long-term basis in China. The fee structure that MINT currently charges for overseas franchises consists of: a) an opening fee or initial fee charged to franchisees at US$25,000-30,000 per outlet when it opens, b) a royalty fee at 5% of total revenue, the same as franchising in Thailand, and c) a territory fee, which is a one-time charge to franchisees depending on the number of outlets that will be opened in the territory. By 2015, the number of outlets is expected to increase to 1,800, based on an 8-10% organic growth per year. The outlets in Thailand should account for 64% of total outlets in 2015 while overseas outlets are likely to account for the rest. In terms of ownership, the number of equity-owned outlets should represent 55% of total outlets and the rest are franchised outlets. Figure 23: Restaurant Outlets By Geography
(Outlets) 2,000 1,500 1,000
55 90 63 1,381 1,500 1,636
Figure 24: Restaurant Outlets By Ownership

(Outlets)
1,800
2,000
1,636
1,800
1,257
34%
34%
34%
35%
36%
1,500
1,257
1,381
1,500
1,000
66% 66% 65% 64%
905
43%
45%
45%
45%
45%
31 % 8% 92% 69% 66%
500 0
7% 93%
500 0
1 4% 86%
558
631
35% 65% 57% 55% 55% 55% 55%
16% 84%
2005 2006 2007 2011 2012 2013F2014F2015F T hailand International
2005 2006 2007 2011 2012 2013F 2014F2015F Owned Franchised
Hotel Sector
45
Turnaround in China operations likely to improve margins. Revenue from the restaurant business is likely to grow 19.2% yoy to Bt15.7b in 2013, driven by: a) strong SSS growth of 4.5%, supported by the positive economic growth outlook in Thailand, b) outlet expansion of 8.6% yoy through opening equity-owned outlets and franchising both in Thailand and overseas, and c) full-year contribution from Riverside, which MINT acquired in Dec 12. The company targets to maintain organic growth of 12-15% annually on the back of SSS growth of 4-5% and outlet expansion of 8-10% per year. Meanwhile, we expect EBITDA margin from the restaurant business to gradually improve to 17.5% in 2013 from 17% in 2012 mainly due to effective cost management, increased franchising fees and a turnaround in its China operations. MINT expects its restaurant business in China to make a small loss in 2013 and start making profit from 2014 onwards, a turnaround from the Bt100m loss last year and seven years of losses. The acquisition of Riverside has resulted in economies of scale in its back-office operations. In addition, MINT will open more Sizzler outlets while rationalising The Pizza Company outlets due to intense competition from Pizza Hut. The company also plans to expand Thai Express and The Coffee Club in China in the future. Figure 25: SSS Growth And No. Of Outlets
(%) 10% 8% 6% 4% 2% 0% -2% -4% 2008 2009 2010 2011 2012 2013F2014F2015F SSS growth No. of outlets 0
1,043 1,112 1,381 1,147 1,257 1,636 1,500
Figure 26: Restaurant Revenue And EBITDA

(Btm) 25,000
16.3% 16.6% 15.6% 17.0% 17.5% 18.3% 18.5%
(Outlets) 2,000 1,800 1,500 1,000

3% -3% 4% 9% 6% 5% 5% 5%
(%) 20% 15%

13.8%
20,000 15,000 10,000
10% 5% 0% 2008 2009 2010 2011 2012 2013F 2014F 2015F Revenue EBIT DA EBIT DA margin
500
5,000 0
Well-diversified business model. MINTs net profit is likely to hit another record high of Bt4,091.3m in 2013, +20.0% yoy, due to strong revenue growth from the hotel & mixed-use and restaurant businesses as well as margin improvement. We estimate contribution from the hotel & mixed-use business in 2013 at 49% of total revenue, followed by 41% from the restaurant business and 10% from the retail trading business. However, the hotel & mixed-use business is expected to contribute 63% of total EBITDA in 2013, followed by 32% from the restaurant business and 5% from the retail trading business. We view MINT as a well-diversified company in terms of business and geography. The hotel business is seasonality driven while the restaurant business is less equity-drained and stable. In addition, its international expansion helps lessen the Thai-specific risks. MINT targets overseas revenue to increase to 40% of total revenue in 2017 (2011: 24%) and contribute 50% of total net profit, a surge from only 7% in 2011. The catalysts to MINTs share price should come from: a) the acquisition of hotels and food brands, which will increase MINTs growth, size and returns, and b) injecting its hotel properties to a REIT.
46
Hotel Sector
Figure 27: Revenue By Business

(%) 100%
1 6
Figure 28: EBITDA By Business

(%) 100%
2 28 43 48 5 4 0 36 4 32 5 32 4 33 2 34
14
14
11
1 0 40
1 0 41
1 0
80% 60% 40% 20% 0% 2008 2009 2010 2011 2012 2013F 2014F2015F Hotel & Mixed-use Restaurant Retail
39 46 31 31 50 49 48 48 45 43 55 55 42 42
80% 60% 40% 20% 0%
70 53 48
64
64
63
62
63
2008 2009 2010 2011 2012 2013F 2014F 2015F Hotel & Mixed-use Restaurant Retail
Figure 29: Revenue By Geography

(%) 100%
24 29 40
Figure 30: Net Profit By Geography

(%) 100% 80% 60%
93
7 21 50
80% 60% 40% 20% 0% 2011

76
71
40%
60
79 50
20% 0%
2012 T hailand 2017F Overseas
2011
2012 T hailand Overseas
2017F
To achieve its growth strategy, MINT has a capex of Bt6b for 2013, which will be used for hotel renovations, expansion of QSR outlets and retail shops, and development of its own hotels. The company also sets a capex of Bt15b-18b over the next five years for new opportunities, such as the acquisition of hotels and food brands. Figure 31: Capex
(Btm) 12,000 10,000 8,000 6,000 4,000 2,000 0 2012 2013F 2014F 2015F 2016F 2017F New Opportunity/Acquisition Retail trading Hotel & Mixed-use Restaurant
10,000 8,000
0.77 1.03 1.11

(Btm) 12,000 (x) 1.6
1.19 1.05
1.38
1.33
1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0
6,000 4,000 2,000 0 2008 2009 2010 2011 2012 2013F 2014F EBIT DA D/E ratio
Hotel Sector
47
Company Background
MINT is one of the largest hospitality and leisure companies in the Asia Pacific region. It was founded in 1976 with a single beachfront resort in Pattaya and listed on the Stock Exchange of Thailand in 1988. As at 1Q13, it had 84 hotel properties (including 17 majority-owned hotels, 38 MLR properties, 13 joint-venture hotels, and 16 purely-managed hotels) with a total of 10,606 rooms under the Four Seasons, Marriott, Anantara, Oaks, and Avani brands. The company also operates the QSR business with a total of 1,406 outlets under the Pizza Company, Swensens, Sizzler, DairyQueen, Burger King, The Coffee Club, Ribs & Rumps, Riverside, and Thai Express brands. In addition, it develops residential property, operates the Anantara Vacation Club, runs retail and entertainment outlets and has a chain of luxury spas. It services customers in Thailand and 22 markets from Africa to Australia. Figure 33: Corporate Milestones
MINT is one of the largest hospitality and leisure companies in the Asia Pacific region with 84 hotels and resorts, 1,406 restaurants, 240 retail outlets in Thailand and 22 markets from Africa to Australia.
Source: MINT
48
Hotel Sector
Figure 34: Hotel Portfolio As At End-1Q13

Hotel Majority Owned 1. Anantara Bangkok Riverside 2. Anantara Hua Hin 3. Anantara Golden Triangle 4. Anantara Bophut Koh Samui 5. Anantara Phuket 6. Anantara Kihavah 7. Anantara Hoi An 8. Four Seasons Bangkok 9. Four Seasons Chiang Mai 10. Four Seasons Tented Camp Chiang Rai 11. Four Seasons Koh Samui 12. JW Marriott Phuket 13. Pattaya Marriott 14. Bundarika (to be rebranded into Anantara) 15. St. Regis Hotel & Residence 16. Avani Kalutara 17. Life Quy Nhon (to be rebranded into Avani) Total 17 Management Letting Rights Oaks Hotels & Resort Total 38 Joint Venture 1. Anantara Veli 2. Anantara Dhigu 3. Naladhu Resort 4. Harbour View Hotel 5. Avani Bentota 6. Club Hotel Dolphin 7. Hotel Sigiriya 8. Arusha Coffee Lodge 9. Serengeti Migration Camp 10. Tarangire Tree Top 11. The Manor at Ngorongoro 12. Kilindi 13. AfroChic Retreat Total 13 Purely Managed 1. Anantara Sikao, Krabi 2. Anantara Baan Rajprasong 3. Anantara Lawana, Koh Samui 4. Anantara Sathorn 5. Anantara Rasananda 6. Anantara Seminyak, Bali 7. Anantara Bali Uluwatu, Bali 8. Desert Islands by Anantara 9. Qasr Al Sarab Desert by Anantara 10. Eastern Mangroves by Anantara 11. Anantara Mui Ne 12. Anantara Sanya 13. Anantara Xishuangbanna 14. Oaks Sathorn 15. Avani Sepang 16. Serengeti Pioneer Camp Total 16 Grand Total 84 Australia New Zealand Dubai 4,721 290 165 5,176 Country Thailand Thailand Thailand Thailand Thailand Maldives Vietnam Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand SriLanka Vietnam No. of Rooms 407 187 77 106 83 78 96 354 76 15 60 265 298 77 224 105 63 2,571 % Holding 81.2 100.0 100.0 100.0 100.0 100.0 91.0 98.9 71.4 100.0 100.0 100.0 100.0 95.0 100.0 80.0 100.0
Maldives Maldives Maldives Vietnam Sri Lanka Sri Lanka Sri Lanka Tanzania Tanzania Tanzania Tanzania Tanzania Kenya
50 110 19 122 90 146 79 18 20 20 20 19 20 733
50.0 50.0 50.0 30.4 20.0 20.0 20.0 50.0 50.0 50.0 50.0 50.0 50.0
Thailand Thailand Thailand Thailand Thailand Indonesia Indonesia UAE UAE UAE Vietnam China China Thailand Malaysia Tanzania
139 97 122 321 64 60 77 64 206 222 89 122 103 115 315 10 2,126 10,606
Source: MINT
Hotel Sector
49
Figure 35: QSR Portfolio

Brand Description MINT launched The Pizza Company Brand in 2001 and began to expand its franchise internationally in 2004. In 1986, MINT took on the franchise for Sw ensen's and developed it into Thailand's largest premium ice cream brand. The first launch of the international franchise w as in 2004. MINT introduced Sizzler in Thailand in 1992. The company has a 50:50 joint venture w ith Sizzler's parent company to license a franchise on a long-term basis in China. MINT opened the first Dairy Queen in Thailand in 1996. It started to franchise the Dairy Queen brand in Thailand in 2011. MINT is the Thai franchisee of Burger King. The Coffee Club is Australia's largest home-grow n caf group. MINT bought a 50% stake in The Coffee Club in Jun 08. MINT is looking to appoint master franchisees for The Coffee Club in Hong Kong, Singapore, New Caledonia, and Dubai. In 2011, MINT acquired Ribs & Rumps, casual steakhouse dining w ith premium quality ingredients at affordable prices. In 2012, MINT acquired 49% stake in Riverside, a chain of casual-concept restaurants in China, specializing in Sichuan barbecue fish. MINT bought 70% stake in Thai Express in 2008. In addition to its Thai Express brand, Thai Express also operates Hong Kong concept restaurants under Xin Wang Hong Kong Caf, American concept restaurants under New York New York, and Japanese concept restaurants under Shokudo in Singapore. MINT has a joint venture w ith SSP International to operate restaurants in airports in Thailand under MINT's brands and other external brands. Brand Ow nership Ow n brand Master franchise rights to 32 countries across the Middle East and Asia (MINT can sub-franchise.) Exclusive rights for Thailand and China (MINT can sub-franchise.) Exclusive rights for Thailand (MINT can sub-franchise.) Sole operator for Thailand
Ow n brand
Ow n brand Ow n brand
Ow n brand
Restaurant operator at airports
Source: MINT
Figure 36: 5-Year Average Revenue Contribution By Business
Figure 37: 5-Year Average EBITDA Contribution By Business
Others 9%
Hotel & Mixed use 43%
Restaurant 37%
Others 2%
Restaurant 48%
Hotel & Mixed use 61%
As of 18 Apr 13, MINTs major shareholders were Minor Group (34%), foreign funds (27%), Thai funds (12%), Osathanugrah (10%) and the Royal Family (6%). Figure 38: Shareholding Structure As Of 18 Apr 13
Royal Family 6% T hai Fund 12% Others 11%
Minor Group 34%
Osathanugrah 10%
Foreign Fund 27%
50
Hotel Sector
Risk Factors
External factors. External factors such as epidemics, natural disasters and the global economic slowdown would affect MINTs hotel and QSR businesses. Political uncertainty. Political instability such as the military coup in 2006, the airport closure in 2008 and the red-shirt protest in 2010 hit the tourism sector hard. The recurrence of political unrest would have a negative impact on MINTs hotel operations. Slowdown in domestic consumption. A deterioration of Thailands economic prospects could lead to weak consumer confidence and a slowdown in domestic consumption. This would affect MINTs QSR business. Termination of franchise QSR brands. QSR brands such as Swensens, Sizzler, Dairy Queen and Burger King could be recalled by the brand owners. MINT tries to prevent and diversify such risk by creating its own brand (The Pizza Company was formed after Yum Group recalled the Pizza Hut brand from MINT in 2000), extending the franchise period of existing brands and acquiring new brands (The Coffee Club, Riverside, and Thai Express). Currency fluctuation. The strengthening of the baht will cause foreign visitors to pay more for their tour packages and be more careful with their spending. Thai tourisms competitive advantage in terms of value for money may be affected by a stronger baht. Increasing competition. A significant increase in new supply from other hotel operators in the luxury segment would be a downside risk to MINTs margins and earnings. Execution risks. Since growth over the next five years will be overseas-driven, MINT may face unexpected difficulties in executing its expansion plans. When MINT expands internationally through acquisition, it mitigates this risk by keeping the founders of the acquired company for a certain period of time. MINT has a sales-and-purchase agreement with the founders where MINT will pay them additional amounts in the next few years if the acquired company meets certain financial performance thresholds.
Hotel Sector
51

Year to 31 Dec (Btm) Revenue, net Operating expenses EBIT Other non-operating income Associate contributions Net interest income/(expense) Pre-tax profit Tax Minorities Extraordinary items Net profit(rep./act.) Net profit(adj.) Deprec. & amort. EBITDA Per share data (Bt) EPS - diluted Reported EPS - diluted Book value Dividend Source: MINT, UOB Kay Hian 2011 27,107 (24,111) 2,996 0 264 (879) 2,380 (415) (47) 961 2,880 1,919 1,980 4,976 2012 32,547 (28,106) 4,442 0 446 (1,085) 3,803 (393) (2) 0 3,409 3,409 2,201 6,643 2013F 37,648 (32,074) 5,574 0 490 (1,205) 4,858 (786) (2) 0 4,070 4,070 2,469 8,043 2014F 42,214 (35,603) 6,611 0 551 (1,327) 5,835 (951) (2) 0 4,882 4,882 2,653 9,264 2015F 47,922 (40,346) 7,576 0 611 (1,313) 6,874 (1,127) (3) 0 5,744 5,744 2,892 10,467
0.5 0.8 4.4 0.2
0.9 0.9 4.9 0.3
1.0 1.0 5.3 0.3
1.2 1.2 6.1 0.4
1.4 1.4 7.2 0.5

Year to 31 Dec (Btm) Cash/Near cash equiv. Accounts receivable/debtors Stocks Other current assets Current assets Fixed assets Investments Other financial assets Other non-current tangible assets Total non-current assets Total assets Accounts payable/creditors Short-term debt/borrowings Other current liabilities Current liabilities Long-term debt Other non-current liabilities Total non-current liabilities Total liabilities Minority interest - accumulated Shareholders' equity Liabilities and shareholders' funds Source: MINT, UOB Kay Hian 2011 1,146 2,344 3,062 806 7,358 16,914 4,593 929 11,829 34,264 41,623 3,992 3,461 1,134 8,587 16,363 1,738 18,101 26,688 567 14,367 41,623 2012 3,702 2,955 2,663 941 10,261 18,189 5,296 905 17,326 41,716 51,977 4,640 3,271 1,027 8,938 20,892 2,820 23,712 32,650 1,213 18,114 51,977 2013F 4,393 3,418 3,046 1,087 11,944 20,932 5,786 911 17,718 45,348 57,292 5,225 3,331 1,164 9,720 22,075 2,952 25,027 34,746 1,215 21,330 57,292 2014F 6,676 3,826 3,192 1,217 14,912 21,711 6,337 913 18,538 47,499 62,411 5,774 4,771 1,286 11,830 21,317 3,091 24,408 36,238 1,217 24,955 62,411 2015F 4,764 4,343 3,605 1,381 14,093 23,269 6,948 910 19,387 50,514 64,607 6,532 1,271 1,455 9,258 21,756 3,236 24,993 34,251 1,220 29,137 64,607
52
Hotel Sector

Year to 31 Dec (Btm) Operating cash flows Pre-tax profit Tax Deprec. & amort. Associates Working capital changes Others Cash from investing activities Capex (growth) Investments Others Cash from financing activities Dividend payments Issue of shares Proceeds from borrowings Others/interest paid Net increase/(decrease) in cash Beginning cash End cash Source: MINT, UOB Kay Hian 2011 4,360 2,380 (415) 1,980 (264) 678 0 (8,029) (10,040) (492) 2,504 3,658 (503) 90 5,456 (1,386) (10) 1,156 1,146 2012 5,360 3,803 (393) 2,201 (446) 195 0 (8,124) (7,110) (257) (757) 5,321 (828) 1,241 4,339 569 2,557 1,146 3,702 2013F 5,781 4,858 (786) 2,469 (490) (270) 0 (5,479) (5,342) 0 (136) 389 (1,185) 331 1,242 0 691 3,702 4,393 2014F 6,972 5,835 (951) 2,653 (551) (14) 0 (4,114) (4,000) 0 (114) (575) (1,303) 45 683 0 2,283 4,393 6,676 2015F 7,861 6,874 (1,127) 2,892 (611) (166) 0 (5,151) (5,000) 0 (151) (4,623) (1,562) 0 (3,061) 0 (1,913) 6,676 4,764

Year to 31 Dec (%) Growth Turnover EBITDA Pre-tax profit Net profit Net profit (adj.) EPS Profitability EBITDA margin EBIT margin Gross margin Pre-tax margin Net margin ROE ROA ROIC RONTA Leverage Interest cover (x) Debt to total capital Debt to equity Net debt/(cash) to equity Current ratio (x) Source: MINT, UOB Kay Hian 2011 43.6 45.7 48.5 132.9 n.a. 41.0 2012 20.1 33.5 59.8 18.3 77.6 72.5 2013F 15.7 21.1 27.8 19.4 19.4 9.5 2014F 12.1 15.2 20.1 19.9 19.9 19.9 2015F 13.5 13.0 17.8 17.6 17.6 17.6
18.4 11.1 58.4 8.8 10.6 21.1 7.7 11.4 14.7
20.4 13.6 57.6 11.7 10.5 21.0 7.3 10.6 13.4
21.4 14.8 58.8 12.9 10.8 20.6 7.5 10.8 13.3
21.9 15.7 59.4 13.8 11.6 22.7 8.5 12.1 14.5
21.8 15.8 59.5 14.3 12.0 24.3 9.9 13.7 16.0
5.7 57.0 138.0 130.0 0.9
6.1 55.6 133.4 113.0 1.1
6.7 53.0 119.1 98.5 1.2
7.0 49.9 104.5 77.8 1.3
8.0 43.1 79.0 62.7 1.5
Hotel Sector
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Hotel Sector
THAILAND
4 July 2013
Initiate Coverage
THE ERAWAN GROUP (ERW TB)

Pure Tourism Play
The Erawan Group (ERW) is a leading hotel investment company in Thailand. It was established in 1982 and listed on the Stock Exchange of Thailand in 1994. Its hotel portfolio spans from luxury to mid-range and economy hotels across Thailands major tourist destinations. The company owns 16 hotels with 3,885 rooms, all under hotel management partnerships with world-class hotel operators. To be Thailands largest listed hotel investment company by 2015. The number of its owned hotels will increase to over 20 with over 5,000 rooms in 2015, up from only 899 rooms in 2006. The companys strategy is to expand its hotel portfolio through investments in owned-equity hotels, with a focus on the economy and mid-range segments in Thailand. Key beneficiary of promising Thai tourism outlook. The Tourism Authority of Thailand expects international tourist arrivals to reach 30m (+10.4% CAGR) in 2015. We expect ERWs revenue from the hotel business to grow strongly at a CAGR of 15.1% per year in 2013-15 due to solid hotel demand and improving core operations in all of its segments. Well-diversified revenue streams from luxury and non-luxury segments. We estimate ERWs revenue from the non-luxury segment to grow at a stronger 25.3% CAGR in 2013-15, driven by new hotels and solid market fundamentals with a favourable demand-supply balance. Meanwhile, its luxury segment is expected to grow at an 8.2% CAGR on the back of improving performances at existing hotels. Contribution from the non-luxury segment is likely to increase to 45% of total hotel revenue in 2015 from 35% in 2012. Enhancing returns to shareholders through hotel monetisation programme. ERW sold Ibis Patong Phuket and Ibis Pattaya hotels to Erawan Hotel Growth Property Fund in Apr 13. We estimate the gain from the asset disposal at Bt860m, to be booked in 2Q13. The potential upside to our earnings forecasts should come from ERWs future asset monetisation. Initiate coverage with BUY and target price of Bt5.60, pegged at 13.0x EV/EBITDA. Our target price is also equivalent to an 18% discount to RNAV.
Key Financials
(lcy)
BUY
Company Description The Erawan Group is a leading hotel investment company in Thailand. Its hotel portfolio spans from luxury to mid-range and economy hotels across Thailands major tourist destinations. Stock Data GICS sector Consumer Discretionary Bloomberg ticker: ERW TB Shares issued (m): 2,251.2 Market cap (Btm): 8,419.7 Market cap (US$m): 271.3 3-mth avg daily t'over (US$m): 1.8 Price Performance (%) 52-week high/low 1mth 3mth 6mth (25.2) (34.4) (15.8) Major Shareholders Wattanavekin family Vongkusolkit family FY13 NAV/Share (Bt) FY13 Net Debt/Share (Bt) Price Chart
ERAWAN GROUP PCL/THE Erawan Group Pcl/The/SET Index
Bt6.35/Bt2.58 1yr YTD 45.0 (15.8) % 30.0 29.8 1.94 3.22
(%) 260 230 200 170
Year to 31 Dec (Btm) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (Bt) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
2011 3,756 904 259 491 (176) (0.1) n.m. 2.3 18.4 2.1 13.1 196.6 2.2 14.6 -
2012 4,302 1,202 561 106 101 0.0 83.4 2.4 13.9 0.5 2.5 212.7 3.1 3.0 -
2013F 4,933 1,447 760 1,100 240 0.1 39.1 1.9 11.5 4.4 22.3 166.2 3.3 26.5 1,044 0.23
2014F 5,651 1,737 983 378 378 0.2 24.8 1.9 9.6 1.5 6.7 192.2 3.5 9.1 396 0.95
2015F 6,484 2,037 1,187 494 494 0.2 19.0 1.8 8.2 2.0 7.6 191.7 3.9 11.4 425 1.16
7.00
6.00
5.00
4.00 140 3.00 110 80 Volume (m) 200 0 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13
2.00 400
Source: Bloomberg
Analyst Pornthipa Rayabsangduan +662 659 8302 pornthipa@uobkayhian.co.th 55
Source: The Erawan Group, Bloomberg, UOB Kay Hian
Company Name 2 Refer to last page for important disclosures.
To be Thailands largest listed hotel investment company by 2015. Starting with two luxury hotels in Bangkok, ERW targets to become the largest listed hotel investment company in Thailand by 2015. The number of owned hotels will increase to over 20 with over 5,000 rooms in 2015, up from only 899 rooms in 2006. The companys strategy is to expand its hotel portfolio through investments in ownedequity hotels, with a focus on the economy and mid-range segments in Thailand. It is looking for investment opportunities in the CLMV countries, ie Cambodia, Laos, Myanmar and Vietnam. Note that ERWs properties are managed by international hotel chains such as Hyatt, Marriott, IHG, Starwood and Accor. Its new hotel development pipeline includes Holiday Inn Pattaya Extension (200 rooms), scheduled to open in 3Q14, and Mercure Pattaya (210 rooms), slated to open in 4Q14. Key beneficiary of promising Thai tourism outlook. As a pure-play hotel owner, ERW is expected to be a key beneficiary of Thailands tourism boom. The Tourism Authority of Thailand expects international tourist arrivals to reach 30.0m (+10.4% CAGR) in 2015. The outlook for Thai tourism is quite promising, supported by: a) the rise of global mega-trends, including Asia becoming a new growth engine; rising spending power of the middle class, especially in Russia, India and China; and lowcost carriers making air transport more affordable; and b) Thailands attractiveness. We expect ERWs revenue from the hotel business to grow strongly at a CAGR of 15.1% per year in 2013-15 due to solid hotel demand and improving core operations in all segments. Well-diversified revenue streams from luxury and non-luxury segments. We estimate ERWs revenue from the non-luxury segment to grow at a stronger 25.3% CAGR in 2013-15, driven by the opening of new hotels and solid market fundamentals with a favourable demand-supply balance. Meanwhile, its luxury segment is expected to grow at an 8.2% CAGR on the back of renovations at existing hotels and the turnaround of its Naka Island Resort in Phuket. Contribution from the non-luxury segment is likely to increase to about 45% of total hotel revenue in 2015 from 35% in 2012. Enhancing returns to shareholders through hotel monetisation programme. ERW sold Ibis Patong Phuket and Ibis Pattaya hotels worth Bt1,831m to Erawan Hotel Growth Property Fund (ERWPF) in Apr 13. We estimate the gain from the asset disposal at Bt860m, to be booked in 2Q13. In addition, net cash flow of Bt920m from the disposal will bolster ERWs war chest for additional hotel investment by almost Bt2b. The company plans to continue divesting its hotel property to ERWPF at a rate of about one hotel per year. The asset monetisation programme will help to boost the bottom line, lower the D/E ratio and enhance dividend yield. Initiate with BUY and target price of Bt5.60, by applying 13.0x EV/EBITDA to our 2014F EBITDA. Our target price is also equivalent to an 18% discount to our RNAV (based on the number of fully-diluted shares to factor in the exercise of ERW-W2 and ESOP#3). The potential upside to our earnings forecasts should come from the gains from asset sales to ERWPF in the future. Risk factors. Key risks to our investment case for ERW include: a) political instability, b) an external shock to global or Thailand-specific tourism, c) currency fluctuation, and d) increasing competition.
ERWs strategy is to expand its hotel portfolio by focusing on the economy and midrange segments.
As a pure-play hotel owner, ERW would likely be a key beneficiary of Thailands tourism boom.
Contribution from the nonluxury segment is likely to increase to 45% of total hotel revenue in 2015 from 35% in 2012.
We estimate the gain from the sale of Ibis Patong and Ibis Pattaya hotels at Bt860m, to be booked in 2Q13.
Initiate coverage with BUY and target price of Bt5.60, pegged at 13.0x EV/EBITDA.
56
Hotel Sector
Valuation
We initiate coverage on ERW with a BUY rating and target price of Bt5.60, which is derived by applying 13.0x EV/EBITDA to our 2014F EBITDA. Note that EV/EBITDA of 13.0x is in line with ERWs historical average EV/EBITDA since 2006. Our target price is also equivalent to an 18% discount to our RNAV (based on the number of fully-diluted shares to factor in the exercise of ERW-W2 and ESOP#3). We use replacement value per room of existing hotels, including Grand Hyatt Erawan, JW Marriott, Renaissance Koh Samui Resort & Spa, The Naka Island, mid-scale hotels, and Ibis hotels, as well as the replacement value for its non-hotel property (Erawan Bangkok). For hotels under development, we use capex as replacement cost for new hotel projects. ERWs RNAV per share is valued at Bt6.83. ERW is currently trading at 9.9x 2014F EV/EBITDA below its historical mean. ERW is likely to be re-rated due to its outstanding earnings growth in 2013-15 and catalysts from future asset monetisation. Figure 1: EV/EBITDA Method
Hotel business: EV/EBITDA multiple method 2014F EBITDA from hotel & mixed use business (Btm) EV/EBITDA multiple (x) EV (Btm) 2014F Net debt (Btm) No. of fully diluted shares (m) Equity value per share (Bt) 1,783.5 13.0 23,221.6 9,194.8 2,505.0 5.60
Source: ERW, UOB Kay Hian
Figure 2: RNAV
Hotel Business Grand Hyatt Erawan JW Marriott Renaissance Koh Samui Resort & Spa The Naka Island, a luxury Collection Courtyard by Marriott Holiday Inn Pattaya Mercure Siam Ibis Sathorn Ibis Nana Ibis Riverside Ibis Siam Ibis Kata Ibis Samui Bophut Ibis Hua Hin Holiday Inn Extension - under development Mercure Pattaya - under development Investment in ERWPF Land for future development Total Hotel Non-hotel Business Erawan Bangkok Total Non-hotel Total value Less: Net debt end of 2014 Proceeds from exercise of ERW-W2 and ESOP#3 Equity value No. of fully diluted shares RNAV per share (Bt) Target price (18% discount to RNAV) No of rooms 380 441 78 67 316 367 189 213 200 266 189 258 209 200 200 210 Avg replacement value per room (Btm) 14.0 12.0 12.0 26.0 8.0 8.0 8.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Ownership (%) 73.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 20.0 100.0 Ownership (%) 100.0 Replacement value (Btm) 3,917.6 5,292.0 936.0 1,742.0 2,528.0 2,936.0 1,512.0 532.5 500.0 665.0 472.5 645.0 522.5 500.0 1,297.5 812.5 350.4 124.8 25,286.4 Replacement value (Btm) 266.7 266.7 25,553.1 (9,194.8) 739.3 17,097.6 2,505.0 6.83 5.60
Rentable area (sqm) 6,275
Avg replacement value (Bt per sqm) 42,500
Hotel Sector
57
Figure 3: Details of ERW-W2 and ESOP#3

No. Of Units ERW-W2 ESOP#3 224,477,900 35,743,099 Exercise Ratio 1 warrant : 1 common share 1 warrant : 1 common share Exercise Price (Bt) 2.80 2.90 3.00 3.10 3.20 Total Share Allotment 224,477,900 (100% of share allotment) 3,574,310 (10% of share allotment) 7,148,620 (20% of share allotment) 10,722,930 (30% of share allotment) 14,297,239 (40% of share allotment) 260,220,999 Exercise Period 17-Dec-13 1 Jan 12 - 30 Dec 15 1 Jan 13 - 30 Dec 15 1 Jan 14 - 30 Dec 15 1 Jan 15 - 30 Dec 15
Source: ERW

(x) 20.0 17.5 15.0 12.5
-0.5S D: 11.9x +2S D: 18.4X +1.5S D: 17.1X +1S D: 15.8x +0.5S D: 14.5x M e a n: 13.2x
10.0 7.5 5.0 2006
-1S D: 10.6x -1.5S D: 9.3x
2007
2008
2009
2010
2011
2012
2013
58
Hotel Sector
Financials
Hotel growth strategy. ERWs growth strategy since 2005 has been to expand and diversify its hotel portfolio in terms of segment and destination. Prior to 2005, the company had only two luxury hotels: Grand Hyatt Erawan and JW Marriott in Bangkok. At present, its hotel portfolio consists of 16 hotels spanning across the luxury, mid-range and economy segments with 3,885 rooms in total, all under hotel management partnerships with world-class hotel operators. ERW targets to become the largest listed hotel investment company in Thailand by 2015. The number of owned hotels will increase to over 20 with over 5,000 rooms in 2015, up from 821 rooms in 2004. Its strategy over the next three years is to expand its hotel portfolio through investments in owned-equity hotels, with a focus on the economy and midrange segments in Thailand and ASEAN. The integration of ASEAN Economic Community (AEC) in 2015 forms a new economic landscape and creates opportunities for Thailand to become a strategic hub for AEC. This will increase demand for business travel and create new opportunities for ERW to invest in provincial Thailand and the CLMV countries. Note that ERW does not have its own brand. All of its hotel properties are managed by international hotel managers such as Hyatt, Marriott, IHG, Starwood and Accor. ERWs new hotel development pipeline includes Holiday Inn Pattaya Extension (200 rooms), scheduled to open in 3Q14, and Mercure Pattaya (210 rooms), slated to open in 4Q14. In addition, the company has purchased land in border provinces such as Ubonratchathani, Mukdahan and Kanchanaburi for future hotel development. Figure 5: Hotel Rooms By Segment
(Rooms) 5,000 18 h o t e ls 4,500 16 h o t e ls 4,000 13 h o t e ls 3,500 2 ,0 4 7 3,000 2 ,0 4 7 9 h o t e ls 1,6 58 2,500 2,000 934 3 h o t e ls 12 8 2 1,500 2 h o t e ls 8 72 683 3 16 1,000 966 966 966 966 500 899 821 0 1997- 2006 2008 2010 2012 2014F 2004 Luxury Mid-scale Economy
ERWs strategy in 2013-15 is to expand its portfolio through investments in owned-equity hotels with a focus on the economy and mid-range segments in Thailand and ASEAN.
Figure 6: Hotel Rooms Breakdown

(%) 100% 80% 60%
100 100 14 21 44 29 25 22 22 30 42 50 53 48
40% 20% 0% 19972004 2006 Luxury 2008
2010
2012
2014F
Mid-scale
Economy
Hotel Sector
59
Figure 7: Hotel Rooms By Destination

(Rooms) 5,000
200
Figure 8: ERWs World-class Alliances
4,000 3,000 2,000 1,000

821 78 821 325 287 254 1350 583 287 621 1816
200 583 287 621
583 287
Luxury
1031
2194
2194
Mid-scale
0 19972004 Bangkok 2006 2008 2010 Samui 2012 Phuket 2014F Hua Hin
Economy
Pattaya
Figure 9: Hotel Portfolio

Hotel Grand Hyatt Erawan JW Marriott Renaissance Koh Samui Resort & Spa The Naka Island, a luxury Collection Total 4 luxury hotels Courtyard by Marriott Holiday Inn Pattaya Mercure Siam Total 3 midscale hotels Ibis Sathorn Ibis Nana Ibis Riverside Ibis Siam Ibis Patong Ibis Kata Ibis Pattaya Ibis Samui Bophut Ibis Hua Hin Total 9 economy hotels Grand total 16 hotels Hotels under development: Holiday Inn (Extension) Mercure Pattaya Total hotels under development Location Bangkok Bangkok Samui Phuket Bangkok Pattaya Bangkok Bangkok Bangkok Bangkok Bangkok Phuket Phuket Pattaya Samui Hua Hin Segment Luxury Luxury Luxury Luxury Midscale Midscale Midscale Economy Economy Economy Economy Economy Economy Economy Economy Economy No. Of Rooms 380 441 78 67 966 316 367 189 872 213 200 266 189 258 258 254 209 200 2,047 3,885 200 210 410 Year Of Commencement Jun-91 Sep-97 May-05 Jul-08 Nov-07 Oct-09 Dec-12 Sep-08 Mar-09 Nov-10 Dec-12 May-08 Dec-09 Jul-08 Oct-08 Jan-12 Ownership 73.6% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Land Leasehold Leasehold Freehold Freehold Leasehold Freehold Leasehold Leasehold Leasehold Leasehold Leasehold Freehold Freehold Freehold Freehold Freehold
Pattaya Pattaya
Midscale Midscale
3Q14 4Q14
100.0% 100.0%
Freehold Freehold
Source: ERW
Key beneficiary of promising Thai tourism outlook. As a pure-play hotel owner, we see ERW as a potential key beneficiary of Thailands tourism boom. The Tourism Authority of Thailand expects international tourist arrivals to achieve a new record of 24.5m (+10% yoy) in 2013. The outlook for Thai tourism is quite promising, supported by: a) the rise of global mega-trends, including Asia becoming a new growth engine; rising spending power of the middle class, especially in Russia, China and India; and low-cost carriers making air transport more affordable; and b) Thailands attractiveness.
As a pure-play hotel owner, ERW is likely to be a key beneficiary of Thailands tourism boom.
60
Hotel Sector
Figure 10: Average Occupancy vs Foreign Tourist Arrivals

(%) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
84% 30.0
Figure 11: Room Revenue By Nationality (2012)
70% 59% 58% 58% 19.2 14.6 14.1 15.9
75% 22.3
79% 24.5
82% 27.3
(m) 35 30 25 20 15 10 5 0
Middle East 10% Europe (ex Russia) 16%
Ocenia 5%
US 13%
T hailand 12% Russia 5% India 5%
2008 2009 2010 2011 2012 2013F2014F2015F Foreign tourist arrivals (million) Average occupancy
East Asia (ex China) 25%
China 6%
Source: ERW
To reap the benefits of the tourism boom and maximise its competitive edge, ERW has implemented an asset improvement programme to improve its returns on investment. Grand Hyatt Erawan Hotel has renovated all of its rooms in 2012-13. About 60% of the rooms completed renovation in 2012 and the rest will be completed around end-3Q13. The company expects to raise room rates after the completion of the renovation programme. Another driver for ERWs operations is the turnaround of The Naka Island, A Luxury Collection Resort & Spa, Phuket, which was rebranded from Six Senses in Nov 11. We expect Naka Islands EBITDA to turn positive in 2013 and its bottom line to turn positive in 2015. Given the countrys promising tourism prospects and ERWs asset improvement programme, the companys overall RevPar is likely to grow at a 9.1% CAGR per year in 2013-15. Figure 12: Asset Improvement Programme (2011-15)
Hotel Property Renaissance Samui Ibis Samui Naka Island JW Marriott Bangkok Courtyard Bangkok Grand Hyatt Erawan Details Renovation of villas in 2011 Room portfolio adjustment in 2011 Rebranding from Six Senses to A luxury collection in 2011 New meeting venue in 2012 Executive lounge in 2012 All room renovation in 2012-13
Source: ERW
Figure 13: ERW Occupancy, ARR, RevPar

(Bt) 5,000
75%
Figure 14: RevPar Of Naka Island After Rebranding

(%)
79%
82% 84%
4,000 3,000 2,000 1,000 0
70% 59% 58% 58%
90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
(Bt) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2010 2011 2012 2013F 2014F
+36.5 +33.2 +53.1 +16.0
2008 2009 2010 2011 20122013F2014F 2015F ARR RevPar Occupancy rate
Source: ERW
Hotel Sector
61
ERWs revenue from the hotel business is expected to increase strongly at a CAGR of 15.1% per year over the next three years, driven by improving core operations in all segments. Figure 15: Revenue Of Hotel Business (2007-15F)
(Btm) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F
15.1% C AGR
Well-diversified revenue streams from luxury and non-luxury segments. We expect ERWs revenue from the non-luxury segment to grow at a stronger 25.3% CAGR in 2013-15, driven by the opening of new hotels and solid market fundamentals with a favourable demand-supply balance. Meanwhile, its luxury segment is expected to grow at an 8.2% CAGR on the back of the renovation of existing hotels and the turnaround of its Naka Island in Phuket. ERWs hotel revenue will diversify into non-luxury segments. Contribution from the non-luxury segment is expected to increase to 45% of total hotel revenue in 2015 from 35% in 2012. Meanwhile, the contribution from the luxury segment is expected to drop to 55% of total revenue in 2015 vs 65% in 2012. Figure 16: Revenue Mix By Segment
(%) 100% 80% 60%
100 99 65 61 60 55
Contribution from the nonluxury segment is likely to increase to 45% of total hotel revenue in 2015 from 35% in 2012.
Figure 17: Revenue By Segment

(Btm) 4,000
1 35 39 40 45
3,500 3,000 2,500 2,000 1,500 1,000 500 0 2011 2012 Luxury hotel 2013F 2014F 2015F
40% 20% 0% 2004 2007 2012 Luxury 2013F 2014F 2015F Non Luxury
Non Luxury hotel
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Hotel Sector
Enhancing returns to shareholders through hotel monetisation programme. ERW sold Ibis Patong Phuket and Ibis Pattaya hotels worth Bt1,831m to ERWPF in Apr 13. We estimate the gain from the asset disposal at Bt860m, to be booked in 2Q13. The company used the proceeds from the disposal to repay debt, invest 20% in ERWPF, and pay dividends to shareholders. The remaining net cash flow of Bt920m will bolster ERWs war chest for additional hotel investment by almost Bt2b. The company will use the asset monetisation programme as an ongoing financial vehicle for ERWs future asset monetisation and potential asset acquisitions. The asset monetisation programme helps boost the bottom line, lower the D/E ratio and enhance dividend yield. ERW plans to divest its hotel property to ERWPF at a rate of about one hotel per year. Note that we have not factored the hotel monetisation programme into our forecasts for 2014 and beyond. The asset sales to ERWPF in the future should provide potential upside to our earnings forecasts. Figure 18: Hotel Monetisation Programme
Source: ERW
Funding the growth. ERW has set the capex budget for 2013-15 at about Bt6.4b, which will be used for new hotel developments, an asset improvement programme, regular maintenance, and new investment opportunities. Capex will be financed through operating cash flows, new debt, proceeds from asset sales to ERWPF, and proceeds from the exercise of ERW-W2 and ESOP#3. Figure 19: Capex (2012-15F)
(Btm) 3000 2500 2000 1500 1000 500 0 2012 2013F 2014F 2015F
1,200 2,400 2,000 2,000

(Btm) 2,500
2.5
2.7 2.1 2.1 2.2 1.7
(x) 3.0 2.5 2.0 1.5 1.0 0.5 0.0
2,000 1,500 1,000 500 0
2008
2009
2010
2011
2012
2013F
Gain from asset sale EBIT DA from core operations D/E ratio
Hotel Sector
63
Earnings outlook. We expect ERWs net profit to hit a record high of Bt1,090.8m in 2013, a surge of 930.2% yoy due to strong demand growth in the luxury and nonluxury segments, improving performances at its existing hotels, contributions from new hotels, and the Bt860m gain from the asset disposal. Stripping out the gain from the disposal, ERWs profit from core operations is likely to increase 128.5% yoy to Bt230.8m in 2013. Figure 21: EBITDA & EBITDA Margin Figure 22: Net Profit, Normalised Profit & Normalised Profit Growth
(%)
29.8% 31.6% 32.2% 29.3% 30.2% 24.7% 24.1% 25.8%
(Btm) 2500 2000 1500 1000 500 0
35% 30% 25% 20% 15% 10% 5% 0%
(Btm) 1,200 1,000 800 600 400 200 0 -200 -400 2007 2008 2009 2010 2011 2012 2013F2014F2015F Net profit Normalized profit
+32.6% +55.7% +128.5%
2008 2009 2010 2011 2012 2013F2014F2015F EBIT DA from core operations EBIT DA margin
64
Hotel Sector
Company Background
ERW is a leading hotel investment company in Thailand. Founded in 1982 by the Vongkusolkit, Wattanavekin and Janewattanavit families, it was listed on the Stock Exchange of Thailand in 1994. Its hotel portfolio spans from the luxury to mid-range and economy segments spread across Thailands major tourist destinations. The company owns 16 hotels with 3,885 rooms, all under hotel management partnerships with world-class hotel operators Hyatt, Marriott, IHG, Starwood and Accor. Its investments include Erawan Bangkok, an upscale shopping mall adjacent to Grand Hyatt Erawan Bangkok. As of 15 Mar 13, ERWs major shareholders included the Wattanavekin (30.0%) and Vongkusolkit (29.8%) families. Chase Nominees Limited and KBANK Flexible Equity Fund held 1.7% each. Figure 23: Revenue By Segment
(%) 100% 80% 60% 40% 20% 0% 2008 2009 Luxury BKK Economy 2010 2011 2012 Luxury Resort Midscale Rental
73
ERWs hotel portfolio ranges from luxury to mid-range and economy hotels across Thailands major tourist destinations.
Figure 24: Major Shareholders As Of 15 Mar 13

Others 36.7% Wattanavek in family 30.0%
12 2 8 5
1 1 9 9 6
1 1 1 3 1 4 6%
6 1 5 1 7 6%
3 1 7 1 7 7
65
56
56
56
K Flexible Equity Fund 1.7%
Chase Nominees 1.7%
Vongkusolki t family 29.8%
Figure 25: Business Structure
Source: ERW
Hotel Sector
65
Risk Factors
Political uncertainty. Political instability i.e. a military coup in 2006, airport closure in 2008, and red-shirt protests in 2010, hit the countrys tourism sector severely as potential tourists shied away from Thailand. The recurrence of political unrest would adversely affect ERWs hotel operations. An external shock to global or Thailand-specific tourism. Epidemics, natural disasters, the global economic slowdown and deterioration of Thailands economic outlook would affect demand in the tourism sector and could also be a source of downside risk to our earnings forecasts for ERW. Currency fluctuation. The strengthening of the baht will mean foreign visitors have to pay more for their tour packages, so they will be more careful with their spending. Thai tourisms competitive advantage in terms of good value for money may be affected by the stronger baht trend. Increasing competition. A significant increase in new supply by other hotel operators, particularly in the non-luxury segment, would pose a threat to ERWs profit margin and earnings outlook.
Key risk factors include political uncertainty, an external shock to global or Thailand-specific tourism, currency fluctuation and increasing competition.
66
Hotel Sector

Year to 31 Dec (Btm) Revenue, net Operating expenses EBIT Other non-operating income Associate contributions Net interest income/(expense) Pre-tax profit Tax Minorities Extraordinary items Net profit(rep./act.) Net profit(adj.) Deprec. & amort. EBITDA Per share data (Bt) EPS - diluted Reported EPS - diluted Book value per shares (BVPS) Dividend per share (DPS) Source: ERW, UOB Kay Hian 2011 3,756 (3,497) 259 65 0 (407) (83) (53) (39) 667 491 (176) 646 904 2012 4,302 (3,741) 561 57 0 (393) 225 (63) (61) 5 106 101 641 1,202 2013F 4,933 (4,173) 760 45 11 (441) 376 (67) (69) 860 1,100 240 686 1,447 2014F 5,651 (4,668) 983 47 15 (491) 554 (97) (79) 0 378 378 754 1,737 2015F 6,484 (5,297) 1,187 48 15 (523) 727 (142) (91) 0 494 494 851 2,037
(0.1) 0.2 1.6 0.1
0.0 0.0 1.6 0.0
0.1 0.4 1.9 0.2
0.2 0.2 1.9 0.1
0.2 0.2 2.1 0.1

Year to 31 Dec (Btm) Cash/Near cash equiv. Accounts receivable/debtors Stocks Other current assets Current assets Fixed assets Investments Other financial assets Other non-current tangible assets Total non-current assets Total assets Accounts payable/creditors Short-term debt/borrowings Other current liabilities Current liabilities Long-term debt Other non-current liabilities Total non-current liabilities Total liabilities Minority interest - accumulated Shareholders' equity Liabilities and shareholders' funds Source: ERW, UOB Kay Hian 2011 450 134 90 96 771 11,203 3 0 261 11,467 12,238 257 773 416 1,445 6,731 292 7,023 8,468 181 3,589 12,238 2012 410 195 111 102 819 11,775 2 0 239 12,015 12,834 466 1,082 472 2,020 6,796 303 7,100 9,120 203 3,511 12,834 2013F 350 223 118 118 810 13,632 2 0 265 13,899 14,709 495 1,345 502 2,341 6,989 303 7,293 9,634 272 4,803 14,709 2014F 530 256 131 136 1,053 14,927 2 0 286 15,215 16,267 548 1,345 556 2,448 8,380 303 8,683 11,132 351 4,785 16,267 2015F 307 293 148 156 904 16,121 2 0 301 16,424 17,328 618 1,345 627 2,590 8,840 303 9,143 11,733 442 5,153 17,328
Hotel Sector
67

Year to 31 Dec (Btm) Operating cash flows Pre-tax profit Tax Deprec. & amort. Associates Working capital changes Others Cash from investing activities Capex (growth) Investments Others Cash from financing activities Dividend payments Issue of shares Proceeds from borrowings Others/interest paid Net increase/(decrease) in cash Beginning cash End cash Source: ERW, UOB Kay Hian 2011 596 (83) (53) 646 0 87 0 764 966 0 (203) (1,130) 0 5 (1,096) (39) 230 220 450 2012 981 225 (63) 641 0 178 0 (1,174) (1,211) 1 37 153 (218) 8 375 (11) (40) 450 410 2013F 991 376 (67) 686 (11) 7 0 (1,699) (1,710) 11 0 647 (42) 235 455 0 (60) 410 350 2014F 1,240 554 (97) 754 (15) 44 0 (2,055) (2,070) 15 0 995 (407) 11 1,391 0 180 350 530 2015F 1,487 727 (142) 851 (15) 67 0 (2,045) (2,060) 15 0 334 (140) 14 460 0 (223) 530 307

Year to 31 Dec (%) Growth Turnover EBITDA Pre-tax profit Net profit Net profit (adj.) EPS Profitability EBITDA margin EBIT margin Gross margin Pre-tax margin Net margin ROE ROA ROIC RONTA Leverage Interest cover (x) Debt to total capital Debt to equity Net debt/(cash) to equity Current ratio (x) Source: ERW, UOB Kay Hian 2011 13.1 18.7 n.a. n.a. n.a. n.a. 2012 14.6 33.0 n.a. (78.5) n.a. n.a. 2013F 14.7 20.3 67.5 938.7 137.4 113.4 2014F 14.5 20.1 47.2 (65.7) 57.5 57.5 2015F 14.7 17.3 31.4 30.9 30.9 30.9
24.1 6.9 52.3 (2.2) 13.1 14.6 3.9 7.3 11.7
27.9 13.0 54.3 5.2 2.5 3.0 0.8 3.9 8.6
29.3 15.4 57.6 7.6 22.3 26.5 8.0 12.1 15.8
30.7 17.4 59.0 9.8 6.7 9.1 2.6 6.2 10.7
31.4 18.3 59.7 11.2 7.6 11.4 3.3 7.1 12.0
2.2 66.6 209.1 196.6 0.5
3.1 68.0 224.4 212.7 0.4
3.3 62.2 173.5 166.2 0.3
3.5 65.4 203.3 192.2 0.4
3.9 64.5 197.6 191.7 0.3
68
Hotel Sector
As of 3 July 2013, the analysts and their immediate families do not hold positions in the securities recommended in this report. We have based this document on information obtained from sources we believe to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Expressions of opinion contained herein are those of UOB Kay Hian Research Pte Ltd only and are subject to change without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of the addressee only and is not to be taken as substitution for the exercise of judgement by the addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. UOB Kay Hian and its affiliates, their Directors, officers and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add to or dispose of any such securities. UOB Kay Hian and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. UOB Kay Hian (U.K.) Limited, a UOB Kay Hian subsidiary which distributes UOB Kay Hian research for only institutional clients, is an authorised person in the meaning of the Financial Services and Markets Act 2000 and is regulated by Financial Services Authority (FSA). In the United States of America, this research report is being distributed by UOB Kay Hian (U.S.) Inc (UOBKHUS) which accepts responsibility for the contents. UOBKHUS is a broker-dealer registered with the U.S. Securities and Exchange Commission and is an affiliate company of UOBKH. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact UOBKHUS, not its affiliate. The information herein has been obtained from, and any opinions herein are based upon sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions and estimates herein reflect our judgement on the date of this report and are subject to change without notice. This report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, the firm preparing this report or its affiliates or the principals or employees of such firm or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal in transactions in any of these securities. Any such non-U.S. persons may have purchased securities referred to herein for their own account in advance of release of this report. Further information on the securities referred to herein may be obtained from UOBKHUS upon request. UOB Kay Hian Research Pte Ltd, 130 - 132, 3rd Sindhorn Building Tower 1 Wireless Road, Lumpini, Pathumwan Bangkok 10330, Thailand Tel: (662) 659 8000, Fax: (662) 263 2306 http://research.uobkayhian.com
MCI (P) 122/03/2013 RCB Regn. No. 198700235E
Property Sector - ASEAN

Thailand Hotel Sector Research Report

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Thailand Hotel Sector Research Report

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HOTEL SECTOR

Riding On Thai Tourism Boom

Pornthipa Rayabsangduan +662 659 8302

This report uses the closing prices of 28 June 2013.

Minor International Central Plaza Hotel The Erawan Group

MINT TB CENTEL TB ERW TB

BUY BUY BUY

Segment: Luxury to economy

Franchised brand: None

Thai-centric expansion and looking for opportunity in CLMV n.a.

Acquires hotel properties

Acquires hotel properties

Contd Hotel Sector 3

Contd Comparative Analysis Of MINT, CENTEL And ERW

Source: Respective companies, UOB Kay Hian

Figure 4: Average Room Rate

5,56 2 5,0 14 4 ,4 71 3 ,2 78 3 ,3 6 7 2 ,73 1 2 ,3 9 9 3 ,4 0 9 4 ,73 5

2008 2009 2010 2011 2012 2013F2014F2015F MINT CENT EL ERW

Figure 6: Hotel EBITDA Margin

Source: Respective companies, UOB Kay Hian

Figure 7: Restaurant EBITDA Margin

Figure 8: D/E Ratio

Source: Respective companies, UOB Kay Hian

Source: Respective companies, UOB Kay Hian

Figure 9: Core Net Margin

Figure 10: Core EPS (Fully-diluted) Growth

1.5 1.0 0.5

0.0 MINT 2013F CENT EL 2014F ERW 2015F

Source: Respective companies, UOB Kay Hian

Source: Respective companies, UOB Kay Hian

Figure 11: Revenue By Business In 2013F

Figure 12: Revenue By Geography In 2013F

100% 80% 60%

CENT EL T hailand International

Source: Respective companies, UOB Kay Hian

Source: Respective companies, UOB Kay Hian

Figure 14: 2014F P/B vs ROE

MINT 20 CENT EL 15 10 5 0 0 1 2 3 4 5 2014FPBV (x) ERW

Source: Respective companies, UOB Kay Hian

Source: Respective companies, UOB Kay Hian

Figure 15: 2014F EV/EBITDA vs EBITDA Margin

ERW MINT 10 10.5 2014F EV/EBIT DA (x) 11 11.5 12

Source: Respective companies, UOB Kay Hian

Figure 16: Regional Peer Comparison

(% yoy growth) 80% 60% 40% 20% 0% -20% -40%

Source: Tourism Authority of Thailand (TAT), UOB Kay Hian

Figure 18: Tourist Arrivals To Thailand

Figure 19: Tourist Arrivals Breakdown In 5M13

South Asia Oceania 5.0% 3.7% T he Americas 4.7%

Middle East 2.1%

20% 15% 10% 5% 0% -5% -10%

East Asia 56.3%

Source: TAT, UOB Kay Hian

Source: TAT, UOB Kay Hian

Figure 20: Top 10 Tourist Arrivals And 3-Year CAGR

Figure 21: Top 10 Tourist Arrivals In 5M13

9.8% 33. 9% 18. 0% 15. 6%

3.5% 1.4 % 11. 8% -2.3% 6.2%

Source: TAT, UOB Kay Hian

Source: TAT, UOB Kay Hian

Figure 22: ADR Across Asian Cities In 2012

Figure 23: Global Hotel Performance In 5M13