Hotel Industry

Stocks News Thursday September 29, 2016 11:00 —TRIS News Release

Hoteliers Relieved As Tourism Booms

Reports issued by the Department of Tourism showed the number of tourist arrivals during the first half of 2016 grew by 12% compared with the same period in 2015. In early 2016, the number of tourists arriving into the Kingdom reached a new record of 2.7 million per month or about 90,000 tourists a day. The number of tourist arrivals in 2016 is projected to reach 33.6 million, about 13% more than a year earlier . Tourist arrivals from China have been growing the fastest and comprise the largest share of tourist arrivals into Thailand since 2012.

As tourist arrivals increase, so does the occupancy rates of hoteliers. The average occupancy rate (OR) of tourist accommodations across country has improved. From January to July 2016, the average occupancy rate equaled 68.31%, up from 65.55% in 2015 and 60.49% in 2014.

The tourism industry will remain a major driver of the Thai economy. According to data collected by Tourism Authority of Thailand (TAT), the supply of lodging properties grew rapidly in 2016. There are 665,321 rooms nationwide as of August 2016, up by 30% from 2014. The number of rooms grew especially fast in small tomedium-size properties such as resorts, serviced apartments, and other types of lodging.

The southern region continues to have the highest RevPAR at Bt1,908 per night, up by 3.3% over the same period in 2015. The lowest RevPAR was in the northeastern region where average RevPAR in the first half of 2016 was Bt350, down by 14% year-on-year (y-o-y). The drop probably reflects the prolonged economic slowdown in the northeastern region. The economy of this region relies heavily on the agricultural sector, and the region has limited tourist attractions compared with other parts of the country. The weakness in the agricultural sector over the past two years may have reduced demand for hotel stays and other holiday-making activities.

Returns at most hotel operators improved as the industry grew

Eleven major hoteliers listed in the Stock Exchange of Thailand (SET) reported rapid rises in earnings before interest, tax, depreciation and amortization (EBITDA) in 2015 and the first half of 2016. Summed across these eleven listed firms, EBITDA in 2015 registered Bt24,180 million, up 19.4% from 2014. During the first half of 2016, EBITDA grew by 26.3% compared with the same period in 2015. This rise was especially pronounced during the first quarter.

Out of the eleven listed hoteliers, Minor International PLC. (MINT; issuer rating A+/Stable) accounted for 54% of the total amount of EBITDA in the first half of 2016. MINT derives its EBITDA from multiple business segments.Hotel operations, restaurant services, and retail trading comprised of 51.5%, 46.7% and 1.8% respectively of MINT’s EBITDA in the first half of 2016. MINT also reported exceptional year-on-year growth. EBITDA soared by 49% during the first two quarters of 2016 to Bt7,411 million. The strong results reflected solid returns from the hotel segment and the restaurant segment in Thailand and overseas, and the consolidation of MINT’s restaurant and hotel businesses abroad. RevPar across all of MINT’s hotel properties dropped marginally during the first half of 2016, slipping by 3% y-o-y. The drop was the result of lower RevPar values at newly-acquired hotels abroad, weaker demand, and renovations at some properties. However, excluding MINT’s new hotels, organic growth yielded a 4% rise in Revpar. RevPar at MINT’s hotels in Thailand grew by 5.2% to Bt3,750 per night.

Central Plaza Hotel PLC. (CENTEL; issuer rating A/Stable) reported EBITDA of 2016 of Bt2,380.9 million during the first half. The value represents 17.5% of EBITDA of the eleven listed hotels during this period. CENTEL’s business is about evenly split between the hotel and food segments, with 47% of total EBITDA from the hotel segment and 53% from the food segment. CENTEL posted a 6.6% year-on-year rise in EBITDA during the first half of 2016, coupled with a 3.7% year-on-year rise in RevPar in the first half of 2016. RevPar at CENTEL’s hotels in Thailand increased by 2.4% to Bt3,286 per night.

EBITDA at Dusit Thani PLC (DTC; issuer rating BBB+/Stable) grew by 4.4% during the first half of 2016. DTC derives its EBITDA from the hotel segment (48%), education (23%), and other sources (29%). DTC’s average RevPar as of 2015 was Bt2,679 per night.

Leverage ratios moved only slightly

During 2012 through 2015, most hotel operators maintained their leverage ratios. Some showed slight increases, some lowered the level of outstanding debt, and some boosted borrowing to fund expansions. Over 2012-2015, MINT expanded abroad. The leverage ratios, measured by the debt to capitalization ratio (interest-bearing debt/debt plus equity) rose to over 50% in the second quarter of 2016. The debt to capitalization ratios of other listed hotel operators varied widely, ranging from 0%, as reported by Shangri-La Hotel PLC (SHANG), to over 60%, as reported by Erawan Group PLC (ERW). CENTEL’s leverage ratio has been declining since 2013 as it has made no major investments and returns from the hotel and food segments have been rising. DTC has long had a leverage ratio lower than the industry average. DTC keeps the leverage ratio under 30%, reflecting a conservative financial policy.

Industry Outlook: Positive
TRIS Rating holds a positive outlook for the hotel industry based on our belief that Thailand will remain one of the world’s attractive tourist destinations. In addition, some major hotel operators have expanded abroad, in an effort to mitigate country economic risk and the risk from political upheavals. The effects of diversification, by geography and customer type, make the operations and financial performances of many hoteliers more stable than those that rely heavily on only a few assets and a small customer base. A hotelier which owns a single asset or derives income from a single location faces greater risk from unanticipated events that could cause abruptly adverse changes in financial performance.
Some hotel operators also earn income from non-hotel businesses such as food services, restaurants, and real estate development. Though we view these diversification efforts as beneficial, the EBITDA earned from the hotel segment is generally larger than the earnings contributions from other segments. Moreover, the returns from non-hotel businesses are under pressure because domestic consumption expenditures are growing slowly.
TRIS Rating Co., Ltd.
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