Thailand Initiating Coverage
28 September 2017 Property | Real Estate Buy The Platinum Group Target Price: THB10.30 Price: THB9.15 Harnessing The Power Of Recurring Income Market Cap: USD669m Bloomberg Ticker: PLAT TB
We initiate coverage on Platinum, a recurring income-based firm that suits Share Data long-term investment, with BUY and a DCF-based FY18F TP of THB10.30 Avg Daily Turnover (THB/USD) 21.7m/0.65m (12% upside). The solid performance of its major mixed-use properties may allow for a favourable hike in upcoming rental rate renewals. Also, its 52-wk Price low/high (THB) 5.80 - 8.95 new hotels and shopping malls in prime locations, to be opened in 2018- Free Float (%) 26 2019, may add value to existing properties and boost earnings growth to Shares outstanding (m) 2,800 average 21% over a 3-year period. Its (debt-free) balance sheet and huge Estimated Return 12% cash pile also supports capex. The stock offers a 3% dividend yield. Shareholders (%) R ecurring income play. The Platinum Group (Platinum) operates shopping malls and hotels in Bangkok and Koh Samui. Two-thirds of its revenue comes Mr Surachai Chotjurangkool 28.3 from sources that offer recurring turnover. We expect secured earnings from its Ms Punjaporn Chotjurangkool 17.6 major property, The Platinum Fashion Mall in Pratunam, due to its positioning Mr Wuttichai Wijitthanarak 8.0 as the biggest wholesale mall for value-for-money modern clothing in the prime Bangkok shopping district, which attracts local retailers and foreign tourists. Share Performance (%) YTD 1m 3m 6m 12m More mixed-use assets. Its Novotel Bangkok Platinum Pratunam (Novotel), located in the same compound as the fashion mall and catering to international Absolute 9.0 12.9 12.9 11.3 25.4 tourists, is a success. Novotel has booked robust revenue per available room Relative 1.4 6.9 7.4 3.5 11.9 (RevPar) growth almost every year since opening in 2011. Given the value-add Source: Bloomberg from mixed-use assets, it aims to open more three hotels – two at its The Wharf
Samui by 4Q18 and one at its The Market Bangkok in 2021. These may The Platinium Group (PLAT TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) strengthen its integrated projects’ operations over the longer term. 8.5 123 8.0 118 The Market Bangkok to be a key growth driver. Platinum plans to open a 7.5 113 7.0 108 retail mall, The Market Bangkok, in 4Q18. The new bazaar may be successful, 6.5 103 6.0 98 as it is located in the last vacant land plot of the Ratchaprasong shopping area 5.5 93 60 and focuses on the middle- and lower-income segments. This differentiates it 50 from other mid- to high-end retail projects there. It could become the company’s 40 biggest project in terms of leasable space (3x larger than The Platinum Fashion 30 Mall) and may contribute 27-28% of total revenue in time. This would be a 20 10 significant earnings growth driver in 2019. Vol m Jul-17 Jan-17 Mar-17 Nov-16 Sep-16 3-year earnings CAGR of 21%. We expect earnings to grow 11% YoY to May-17 THB779m this year, 13% YoY to THB878m in 2018, and jump by 41% YoY to THB1.23bn in 2019. This is on the back of new project openings, the rental rate Source: Bloomberg hike from contract renewals, and economies of scale in its operations that would lead to opex savings. The rising net profit growth may drive its ROE to Table Of Contents Financial Exhibits 2 13.2% in 2019F from 8.5% in 2016. Its healthy balance sheet (without interest- Investment Merits 3 bearing debt), sturdy cash pile and solid operating cash flow would be able to Valuation And Recommendation 3 support a combined investment capex of THB6.7bn over 2017-2019. Business Overview 4 Our DCF-derived TP of THB10.30 implies a Industry Overview 6 Initiate coverage with a BUY call. Investment Highlights 7 FY18F target P/E of 33x. The superior earnings growth in the next three years Financial Analysis 11 may lower the company’s current FY19F P/E to an attractive 18x, while a Risks 13 moderate average dividend yield of 3% is expected. Meanwhile, a strong SWOT 14 outlook for Thailand’s tourism and a focus on wholesales at its key shopping mall should help limit concerns over online retail trade. Downside risks include delays in opening of new projects, weak local consumption and political gatherings (protests used to be located close to Platinum’s shopping malls).
Forecasts and Valuations Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total turnover (THBm) 1,623 1,718 1,895 2,150 3,551 Reported net profit (THBm) 630 704 779 878 1,235 Recurring net profit (THBm) 630 704 779 878 1,235 Recurring net profit growth (%) 43.6 11.9 10.7 12.6 40.7 Recurring EPS (THB) 0.26 0.25 0.28 0.31 0.44 DPS (THB) 0.06 0.16 0.17 0.20 0.28 Recurring P/E (x) 30.7 31.4 28.4 25.2 17.9 P/B (x) 2.70 2.61 2.53 2.44 2.28 Dividend Yield (%) 0.8 2.0 2.2 2.5 3.5 Analyst Return on average equity (%) 11.6 8.4 9.1 9.9 13.2 Vatcharut Vacharawongsith Return on average assets (%) 9.2 7.3 7.8 8.6 11.4 Net debt to equity (%) (70.2) (66.8) (63.5) (11.6) (19.9) +66 2088 9736 Our vs consensus EPS (adjusted) (%) 2.0 3.5 3.8 [email protected]
Source: Company data, RHB
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The Platinum Group Thailand Initiating Coverage
28 September 2017 Property | Real Estate
Financial Exhibits
Financial model updated on : 2017-09-15. Asia Financial summary Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Thailand Recurring EPS (THB) 0.26 0.25 0.28 0.31 0.44 Property EPS (THB) 0.26 0.25 0.28 0.31 0.44 The Platinium Group DPS (THB) 0.06 0.16 0.17 0.20 0.28 Bloomberg PLAT TB BVPS (THB) 2.93 3.03 3.12 3.24 3.46 Buy Weighted avg adjusted shares (m) 2,450 2,800 2,800 2,800 2,800
Valuation basis Valuation metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F DCF Recurring P/E (x) 30.7 31.4 28.4 25.2 17.9 P/E (x) 30.7 31.4 28.4 25.2 17.9 Key drivers P/B (x) 2.70 2.61 2.53 2.44 2.28 i. Positive outlook for tourist arrivals and FCF Yield (%) 0.1 1.2 (8.8) (7.2) 6.8 consumer spending; Dividend Yield (%) 0.8 2.0 2.2 2.5 3.5 ii. Opening of new development projects; EV/EBITDA (x) 15.1 15.8 14.2 14.8 10.7 iii. Enhancement of existing properties to improve EV/EBIT (x) 18.1 18.7 17.0 19.2 13.1 foot traffic.
Key risks Income statement (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F i. Delay in opening of new projects; Total turnover 1,623 1,718 1,895 2,150 3,551 ii. Popularity of online trading channels; Gross profit 992 1,069 1,187 1,342 2,023 iii. Uncertainties stemming from events like natural EBITDA 950 1,043 1,168 1,422 1,887 disasters, riots and terrorism. Depreciation and amortisation (160) (161) (193) (325) (343)
Operating profit 790 882 975 1,098 1,544 Company Profile Net interest (0) (1) (1) (1) (1) The Platinum Group develops properties for leasing and operates a hotel business. Properties that are its Pre-tax profit 790 881 974 1,097 1,544 assets include The Platinum Fashion Mall in Bangkok, Taxation (160) (177) (195) (219) (309) The Wharf Samui, and Novotel Bangkok Platinum Recurring net profit 630 704 779 878 1,235 Pratunam hotel.
Cash flow (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F
Change in working capital (208) 485 (73) 53 166 Cash flow from operations 329 1,121 900 1,255 1,744 Capex (317) (861) (2,850) (2,850) (250) Cash flow from investing activities (5,252) (733) (400) (700) (1,100) Proceeds from issue of shares 5,110 0 0 0 0 Dividends paid (174) (441) (504) (553) (623) Cash flow from financing activities 4,950 (439) (504) (553) (623) Cash at beginning of period 79 107 56 52 54 Net change in cash 28 (51) (4) 2 20 Ending balance cash 107 56 52 54 74
Balance sheet (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total cash and equivalents 5,755 5,658 5,554 1,056 1,927 Tangible fixed assets 3,279 3,737 4,057 8,945 8,865 Intangible assets 108 255 242 228 215 Total investments 1 1 1 1 1 Total other assets 40 62 62 62 62 Total assets 9,547 9,822 10,047 10,436 11,290 Other liabilities 796 738 711 764 881 Total liabilities 1,344 1,356 1,305 1,370 1,613 Shareholders' equity 8,207 8,471 8,746 9,070 9,682 Total equity 8,203 8,466 8,741 9,066 9,678 Net debt (5,755) (5,658) (5,554) (1,056) (1,927) Total liabilities & equity 9,547 9,822 10,047 10,436 11,290
Key metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Revenue growth (%) 16.7 5.8 10.3 13.4 65.2 Recurrent EPS growth (%) 18.6 (2.1) 10.7 12.6 40.7 Gross margin (%) 61.1 62.2 62.6 62.4 57.0 Operating EBITDA margin (%) 58.5 60.7 61.6 66.2 53.1 Net profit margin (%) 38.8 41.0 41.1 40.8 34.8 Dividend payout ratio (%) 27.6 62.6 62.6 62.6 62.6 Capex/sales (%) 19.5 50.1 150.4 132.6 7.0 Interest cover (x) 2,733 1,653 1,949 2,196 3,088
Source: Company data, RHB
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The Platinum Group Thailand Initiating Coverage
28 September 2017 Property | Real Estate
Investment Merits Why Platinum is a BUY Established mixed-use property. Located at the heart of Bangkok’s Pratunam shopping district, Platinum’s key asset – The Platinum Fashion Mall – offers a one-stop wholesale and retail experience for shoppers looking for modern fashion. It focuses on a mass, middle-income segment that has strong purchasing power, while its tenants frequently update their new collections. These are key factors of the mall’s success. The mall has attracted much customer traffic and has a 98% occupancy rate, with a possible average rental rate hike of 5% pa. It is now Thailand’s largest fashion mall, and a well-known destination among small fashion retailers throughout the kingdom. The mall is also one of the must-visit places for international tourists who come to shop. We believe its wholesale positioning would be a major factor that helps to sustain the project’s earnings over the long run, amidst the advent of online retail shops. Apart from the buoyant environment for Thai tourism, its prime location would also help strengthen the operations of its 4-star hotel business. The hotel is located under the same roof as the mall – and Novotel has an occupancy rate of over 85%. This mixed-used project is the biggest source of the company’s cash flow and may act as an alternative source of financing for major expansion projects in the longer term. Upcoming new value-added projects to accelerate earnings growth. Platinum has three upcoming projects to be opened in 2018: i. Holiday Inn Resort Samui; ii. Holiday Inn Express Samui; iii. The Market Bangkok retail mall. The two hotels in Koh Samui have a combined 350 keys, and will be located in the same compound as its owned beachfront shopping mall, The Wharf Samui. As they will be operated by the world-class Holiday Inn chain, we assume that the hotels could add value to the shopping mall. This would also increase The Wharf Samui’s customer traffic and raise the project’s occupancy rate to 70% by 2019, from a moderate 62% currently. Meanwhile, Platinum’s other large-scale bazaar, The Market Bangkok, is set to open its retail space by end-2018. We expect this to significantly boost the company’s earnings growth in the following year. Focusing on the middle- to low-income segments may also fulfil demand at Bangkok’s prime shopping street, Ratchaprasong. Its leasing progress is set to begin by 3Q17 and we expect its occupancy rate to be at 75% when operations commence. A longer-term plan to construct a hotel and office building at the project may create further upside for its earnings. We estimate Platinum’s net profit growth to accelerate to 13% YoY in 2018 and jump to 41% YoY in 2019, from 11% YoY in 2017, based on the full-year operation of the two hotels in Samui and the new retail mall in Bangkok. Valuations become more attractive. We believe Platinum offers value as a long-term investment, based on its solid cash flow from established projects. Its dividend may be paid at moderate yields of 3-4%, while accelerating earnings growth over the next three years may bring down its forward P/E to 18x in 2019F, from 28x in 2017F. As such, we also expect ROE to increase to 13% in 2019 from just 8% last year. Such valuations make it deserving of an investor’s attention (and eventual entry).
Valuation And Recommendation We initiate coverage on Platinum with a BUY rating, and expect it to post strong net profit growth of 11% YoY in 2017, and 13% YoY in 2018, mainly due to the expected hikes in rental rates for retail malls and hotel average room rates. The opening of two new hotels in Samui and one new retail mall, The Market Bangkok, at end-2018 would boost earnings growth to 41% in 2019. We also think its long-term earnings prospects remain attractive, based on; i. The buoyant outlook for Thai tourism ii. The addition of further developments such as retail malls, hotels and office buildings to complete its mixed-use projects which may offer some upside to our forecasts.
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The Platinum Group Thailand Initiating Coverage
28 September 2017 Property | Real Estate
Its superior earnings outlook over the 3-year period may bring down its P/E and PEG to 18x and 0.4x respectively in 2019, from 28x and 2.7x this year. Our TP of THB10.30 is derived from a DCF (WACC: 8.7%, TG: 3%) valuation. Our TP implies 33x FY18F P/E and offers an upside of 30%. We expect moderate dividend yields of 2.5-4% over 2017-2019, assuming a payout ratio of 71%. This is based on its average payment record for FY15 and FY16 performances (vs the company’s policy of less than 40% of net profit after tax). Its ROE may also escalate to 13% in 2019, vs 9% projected for this year.
Figure 1: Platinum’s DCF valuation THBm 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F EBIT 1,098 1,544 1,659 1,766 1,839 1,908 1,979 2,054 2,132 2,214 EBIT (1-t) 878 1,235 1,327 1,413 1,471 1,526 1,583 1,643 1,706 1,771 Depreciation & Amortization 325 343 345 349 526 340 343 345 350 360 Net working capital 126 113 (125) (14) 3 (3) 2 1 0 1 Capex (2,850) (250) (100) (50) (50) (50) (50) (50) (100) (200) Net free cash flow to firm (1,773) 1,215 1,697 1,725 1,945 1,820 1,874 1,937 1,956 1,930
Terminal value 34,889 PV (1,631) 1,028 1,321 1,236 1,282 1,103 1,045 994 923 15,992 Terminal growth 3.0% WACC 8.7% Total discounted firm value 23,295 Less: Net debt (5,554) Less: Minority interest 0 Equity value 28,849 Number of shares (m) 2,800 Equity value per share (THB) 10.30 Source: RHB
Figure 2: Regional peer comparison Name Ticker Mkt. Cap. Net profit growth (%) Net P/E (x) P/BV (x) EV/EBITDA (x) Dividend yield (%) ROE ( %) (USDm) 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2018F MITSUI FUDOSAN CO LTD 8801 JP 21,605 12.8 12.2 18.8 16.9 1.2 1.2 16.2 14.8 1.3 1.5 6.5 7.0 HONGKONG LAND HOLDINGS LTD HKL SP 17,223 5.9 4.7 18.2 17.1 0.5 0.5 19.7 19.3 2.7 2.8 3.0 3.1 CAPITALAND LTD CAPL SP 15,322 17.0 7.1 17.7 17.4 0.8 0.8 16.9 17.7 2.8 3.0 6.1 5.4 AEON MALL CO LTD 8905 JP 4,202 6.3 14.1 17.9 15.8 1.3 1.3 9.2 8.5 1.3 1.6 7.6 8.2 AGILE PROPERTY HOLDINGS LTD 3383 HK 6,100 72.3 15.7 9.0 7.8 1.0 0.9 6.4 5.8 4.5 5.2 11.1 12.0 SHUI ON LAND LTD 272 HK 2,178 0.7 -4.7 7.9 8.3 0.3 0.3 9.3 9.6 2.5 2.6 4.2 4.2 SM PRIME HOLDINGS INC SMPH PM 19,857 12.6 13.9 36.8 32.5 4.0 3.6 23.9 21.2 0.8 0.9 11.4 11.9 IGB CORPORATION BHD IGB MK 900 15.5 -24.6 11.8 15.7 0.8 0.7 n.a. n.a. 3.5 3.5 6.4 4.6 SIAM FUTURE DEVELOPMENT PCL SF TB 344 -10.9 15.1 13.3 11.6 1.2 1.1 15.4 13.9 3.3 3.6 7.8 8.3 CENTRAL PATTANA PUB CO LTD CPN TB 9,394 11.9 21.2 31.7 26.2 5.5 4.8 18.6 15.7 1.3 1.5 18.4 19.6 THE PLATINUM GROUP PLAT TB 669 10.7 12.6 28.4 25.2 2.5 2.4 18.9 15.6 2.5 2.8 9.1 9.9 Average (ex-PLAT TB) 14.42 7.46 18.30 16.92 1.66 1.53 15.06 14.07 2.40 2.61 8.25 8.42 Note: Data as of 15 Sep 2017. Valuations in red are from RHB. Consensus valuations are in black. Source: Bloomberg, RHB
Business Overview Platinum was established in 2002 to develop retail property projects. It currently operates three businesses including rental and services, hotels, and a food & beverage (F&B) centre. The company went public in 2014 and listed on the Thai stock exchange in Mar 2015. As of end-2016, it has four key properties in Bangkok and Koh Samui: i. The Platinum Fashion Mall (opened in 2005) – the country’s largest clothing wholesale and retail centre. It is located in the heart of Bangkok’s Pratunam shopping district. Designed to be a national wholesale centre, the mall has vendors selling men’s and women’s apparel, bags, leatherwear, shoes and ornaments. It comes equipped with various facilities. ii. The Wharf Samui (opened in Jan 2015) – the new seafront shopping mall located on Koh Samui’s Bophut beach. This project’s architecture features a combination of vintage western and eastern styles. It offers products and services that cater to all lifestyles and attracts both Thai and foreign tourists.
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The Platinum Group Thailand Initiating Coverage
28 September 2017 Property | Real Estate
iii. Novotel Bangkok Platinum Pratunam (opened in 2011) – a 4-star hotel with 283 rooms located in The Platinum Fashion Mall. It is fully equipped with facilities like dining outlets, banquet rooms, a spa, a swimming pool and fitness centre. iv. Neon Night Market Bangkok (opened in Dec 2016), an outdoor night market in Bangkok’s downtown Pratunam area. It has over 900 vendors selling fashion, miscellaneous gadgets and food. It also has a food truck zone, which is open all night and a container zone, where businesses have shops in containers.
Figure 3: Platinum’s current projects
Source: Company data
As of 2016, The Platinum Fashion Mall is the biggest property, and contributes 63% of total revenue. However, from 2018 onwards, its revenue mix profile may significantly change as three new properties are set to be injected into its portfolio; i. The Market Bangkok – The first fully air-conditioned market, located in the city centre, ie the Ratchaprasong area. This market will have a variety of products and services to meet demand from a whole spectrum of customers. Potential tenants include food & beverage vendors, grocery stalls, small fashion retailers, and healthcare & beauty shops. The investment cost for the 12-storey project is THB5.8bn. The Market Bangkok is scheduled to open by end-2018. Going forward, Platinum may construct a hotel and office building within this project – these would have a combined investment cost of THB2.9bn, and could be completed in 2Q21. ii. Holiday Inn Resort Samui – a 4-star hotel with 150 rooms, located on the Bophut beach of Koh Samui and next to The Wharf Samui’s shopping mall. Total investment is THB475m and operations are expected to kick off in 4Q18. iii. Holiday Inn Express Samui – the 3-star hotel with 200 rooms close to the Holiday Inn Resort Samui. Total investment is THB425m and it is scheduled to open its doors in 4Q18.
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The Platinum Group Thailand Initiating Coverage
28 September 2017 Property | Real Estate
Figure 4: Platinum’s future projects
Source: Company data
Industry Overview Less supply of new retail malls while occupancy rates are high We expect consumer spending to increase, based on the improvement in Thailand’s Consumer Confidence Index since Dec 2016. The index’s trend is likely to continue going forward, as: i. The cut in the personal income tax rate may benefit consumption in big cities; ii. A rise in certain major farm product prices may boost consumption in rural areas. Consequently, tenants at Platinum’s shopping malls, which mainly focus on apparel for the middle- to low-income segments, may benefit from such a recovery. According to CBRE, the total supply of retail space in Bangkok amounted to 7.33m sqm (+3% YoY). 30% of the total new supply (ie 0.23m sqm) in 2016 was for Show DC shopping mall. However, the incremental number was still lower than that of 2014-2015. In terms of occupancy rate, Bangkok’s overall market was at 94% at end-2016, which was higher than 93% recorded in end-2015. Platinum’s occupancy rate of 98% was well beyond the industry average. It is likely that retail developers have focused on enhancing existing properties and selectively expanding their businesses in the upcountry. Future supply of retail space in Bangkok may be limited, which would lift occupancy rates. Meanwhile, the increase in rental rates could be capped by the growing competition and uncertainties over the recovery in domestic consumption. The Pratunam area, where The Platinum Fashion Mall is located, is the centre of Thailand’s clothing distribution industry. The improving domestic economy and strengthening tourism environment may continue to boost spending and demand – but new supply of leasable space may be limited as the land surrounding the area is fully occupied.
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Figure 5: Bangkok’s retail market (m sq m) Total supply Total take-up Occupancy rate - RHS (%) 8.0 100
7.0
6.0 95
5.0
4.0 90
3.0
2.0 85
1.0
0.0 80 2012 2013 2014 2015 2016
Source: CBRE, RHB
Recovery in consumption to benefit the mass market We expect consumer spending to increase, as Thailand’s Consumer Confidence Index has been improving since Dec 2016. This is likely to continue going forward, as the personal income tax rate cut may also benefit consumption in big cities, while rising farmers’ income could also boost consumption in rural areas. Consequently, tenants of Platinum’s shopping malls – which mainly focus on value-for- money products, especially apparel, for the middle- to low-income segments may benefit from the recovery. Meanwhile, the market for modern fashion is very dynamic, as new collections are released every week. It may attract demand among youngsters and adults who indulge in frequent purchasing.
Coping with fast-growing online trade We believe that Platinum’s shopping mall business would be able to cope with the rapid growth of e-commerce transactions, including fashion purchases. Leading clothing wholesalers that have opened their own online trade channels may also be tenants of The Platinum Fashion Mall – and they need to have their own physical shops as collection points and showrooms. These types of tenants would help to sustain the mail and Platinum’s earnings growth over the long run.
Investment Highlights Largest shopping mall for clothing The Platinum Fashion Mall is considered as Thailand’s biggest one-stop wholesale shopping centre for clothing. Foot traffic into the mall is high – it clocked 38,000 visitors per day in 2016. The success of the mall lifted its occupancy rate to over 98% throughout the past seven years. Its superior average rental rate of c.THB3,000 psm per month is also on par with that of Central Pattana’s top-tier shopping malls like Central Plaza Ladprao in northern Bangkok. A key reason behind the mall’s success hails back to 2003-2005, when it marketed space and focused on small and medium enterprises (SMEs) in the fashion and garment industries that have their own production facilities, as well as strong growth potential. A major portion of Platinum’s shareholders also have a solid background in the wholesale clothing business – which gives the company an added advantage. The mall’s target customers are in the low- to middle-income segments, where tastes are ever-changing. Thus, the frequent introduction of new fashion collections would be a boost for the number of transactions made there. We conducted ground checks and found that the store layout and shopping atmosphere at The Platinum Fashion Mall is the liveliest compared to other malls in the Pratunam area.
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Most small fashion retailers throughout Thailand and from neighbouring countries try to visit the mall every week to update and pick up new items for sale. Apart from local retail vendors and shoppers, foreign visitors – mainly from Malaysia, Indonesia and Hong Kong – also flock to the mall. In fact, foreign visitors account for over half of the mall’s traffic. The ongoing uptrend in foreign visitors coming to Thailand may continue to support the popularity of the mall. We believe that recurring income from the well-established Platinum Fashion Mall may sustain the company’s earnings and act as its key generator of operating cash flow over the long term.
Figure 6: Breakdown of The Platinum Fashion Mall’s tenants Figure 7: Guest profiles at Novotel according to nationality by rental area
Fashion Storage 15% Others 33% Singapore clothing and 29% accessories 68% Restaurants 8% Indonesia 10% Services 4% Hong Kong Malaysia Banks 3% 4% China 4% 10% Other products 2% India 5% Thailand 5%
Source: Company data Source: Company data
Figure 8: The Platinum Fashion Mall’s main building Figure 9: Skywalk connecting BTS mass transit with Platinum’s projects
Source: RHB Source: RHB
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Figure 10: The Platinum Fashion Mall offers a one-stop Figure 11: The Platinum Fashion Mall is always busy, even shopping experience for those looking for trendy apparel on weekday mornings
Source: RHB Source: RHB
Figure 12: Other fashion wholesale malls in the Pratunam Figure 13: Other fashion wholesale malls in Pratunam area area are seeing less foot traffic are less busy than Platinum’s project
Source: RHB Source: RHB
Opening of The Market Bangkok is a catalyst The Market Bangkok is set to become Platinum’s biggest shopping centre in its portfolio when it opens in 4Q18. Its net leasable area of 64,740 sqm would be three times larger than that of The Platinum Fashion Mall. The mall is positioned to cater to the lower- to middle-income segments, ie the remaining segments that do not have retail space dedicated to them in Ratchaprasong’s shopping area. We believe there is still demand for retail space among small vendors in Bangkok’s prime shopping area, for both locals and foreigners. Apart from small fashion retailers, food & beverage vendors and healthcare & beauty store chains have shown strong interest to open outlets in The Market Bangkok. The leasing process is set to kick off by 3Q17, and we conservatively expect it to have an occupancy rate of 75% when it opens in 4Q18. We also anticipate the occupancy rate to increase gradually to 80% in FY19.
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Figure 14: An artist’s impression of The Market Bangkok Figure 15: Construction progress as of end-Jul 2017
Source: Company Source: RHB
Hotels complete Platinum’s mixed-use property projects We like Platinum’s approach of applying the mixed-use concept to add value to its properties. To facilitate international customers at The Platinum Fashion Mall, it opened its first hotel, Novotel, under the same roof in 2011. Novotel has been a success, recording a solid room occupancy rate of up to 87% and an average room rate hike of 4% YoY in 2016. We expect Novotel to continue delivering a strong performance over the next three years, based on popularity of the shopping mall. Two more properties, 3-star and 4-star hotels in Samui Island with a total of 350 rooms, are scheduled to open in 4Q18. Applying the worldwide Holiday Inn franchise may help strengthen their operations, and we expect the hotels to help boost incoming traffic for The Wharf Samui. The beachfront shopping centre’s occupancy rate may grow to 70% in 2019, from a moderate 62% in 2016. Over the longer term, Platinum plans to construct hotels and leasable office spaces at its The Market Bangkok project, which it expects to complete in 2021. These hotels and office space are not included in our earnings forecasts, but may be factors that could trigger a rerating of the stock.
Figure 16: Platinum’s key assumptions for its shopping centre business Shopping centre projects Opening Land NLA (sqm) Full-year average occupancy rates period tenure As of 2016 2014 2015 2016 2017F 2018F 2019F The Platinum Fashion Mall Pratunam 2005 Freehold 22,840 99% 98% 98% 98% 98% 98% The Wharf Samui Jan 2015 Leasehold 5,303 70% 62% 62% 65% 70% Talad Neon Night Market Pratunam Dec 2016 Leasehold 3,550 8% 95% 97% 97% The Market Bangkok 4Q18 Leasehold 64,740 9% 80% Total all projects Year-end net leasable area (NLA) (sqm) 22,330 27,633 31,693 31,693 96,433 96,433 Full-year average occupancy rate 99% 97% 97% 97% 94% 88% Blended average rental rate (THB/sqm/month) 2,767 2,495 2,229 2,560 1,892 1,966
Source: Company data, RHB
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28 September 2017 Property | Real Estate
Figure 17: Platinum’s key assumptions for its hotel business 2014 2015 2016 2017F 2018F 2019F Novotel Bangkok Platinum Pratunam Number of rooms 283 283 283 283 283 283 Full-year average occupancy rate 70% 86% 87% 89% 90% 90% ARR (THB) 2,498 2,960 3,078 3,263 3,426 3,529 RevPar (THB) 1,754 2,541 2,674 2,904 3,083 3,176 Holiday Inn Resort Samui (to be opened in 4Q18F) Number of rooms 150 150 Full-year average occupancy rate 10% 60% ARR (THB) 3,000 3,300 RevPar (THB) 600 1,980 Holiday Inn Express Samui (to be opened in 4Q18F) Number of rooms 200 200 Full-year average occupancy rate 10% 65% ARR (THB) 1,500 1,650 RevPar (THB) 300 1,073 Source: Company data, RHB
Financial Analysis Established recurring income Platinum’s total revenue grew 17% YoY in 2015 on the opening of its project, The Wharf Smui, a shopping mall in Koh Samui, and a low base of earnings in the previous year (as its performance was affected by political gatherings in downtown Bangkok, which were next to The Platinum Fashion Mall). Revenue moderately grew 6% YoY in 2016, on a normal increase in the rental rate for its shopping centre and the solid performance of its hotel business. However, we expect the company’s revenue to grow at stronger rates of 10% YoY in 2017 and 13% in 2018, before accelerating even more to 65% in 2019. This would be supported by the following: i. Renewal of short-term 1-3 year contracts for 968 tenants (54% of total tenants and 58% of occupied net leasable area) in 2017, and renewal of 10-year contracts for all 752 long-term tenants (33% of leasable area) in 2019; ii. Solid RevPar growth of 9% YoY this year and 6% YoY next year for Novotel Bangkok Platinum Pratunam; iii. The opening of two 4-star hotels in Koh Samui – Holiday Inn Resort and Holiday Inn Express in 4Q18 – which may improve The Wharf and boost 2019F earnings once they are in operation for a full year; iv. The opening of its biggest retail mall project, The Market Bangkok, by end-2018 which should strongly boost the company’s topline in 2019. We expect the revenue contributions from Platinum’s shopping malls to remain at 65% over the next three years. However, The Platinum Fashion Mall’s contribution to the company’s shopping mall revenue may decrease to 35% in 2019 from 55-60% in 2017 and 2018 respectively, as The Market Bangkok could also begin contributing to revenue (27% of shopping mall revenue) that year. Platinum’s overall gross profit margin may increase to 62.6% in 2017 (2016: 62.2%) following the rental rate hike from the renewal of a big chunk of short-term leasable contracts at The Platinum Fashion Mall. The gross margin may gradually decline to 57% in 2019, as we assume The Market Bangkok’s retail segment may record lower rental rates and a slimmer GPM than The Platinum Fashion Mall. We expect earnings to grow 11% YoY to THB779m this year, 13% YoY to THB878m in 2018, and jump by 41% YoY to THB1.23bn in 2019 on the back; i. New project openings; ii. The rental rate hike stemming from contract renewals; iii. Economies of scale in its operations, which would lead to opex savings.
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The rising net profit growth may also drive its RoE to 13.2% in 2019F, from 8.5% in 2016. Platinum has no interest-bearing debt, and net cash amounting to THB54m as of 2016. We expect its healthy balance sheet position to continue throughout 2017-2019, giving it ample room to finance major investments in the longer term. We expect its THB5.6bn current investments (received since its IPO in 2015) and operating cash flow of THB1- 1.2bn for FY17F-18F to support the construction of The Market Bangkok and two new hotels. The combined capex for the three projects is THB6.7bn.
Figure 18: Platinum’s revenue breakdown % Contribution to total revenue 2014 2015 2016 2017F 2018F 2019F Shopping centre business 66% 64% 64% 65% 65% 65% The Platinum Fashion Mall Pratunam 66% 62% 63% 60% 55% 35% The Wharf Samui 2% 1% 1% 1% 1% Talad Neon Night Market Pratunam 0% 4% 4% 3% The Market Bangkok 5% 27% Hotel business 18% 21% 21% 21% 20% 18% Novotel Bangkok Platinum Pratunam 18% 21% 21% 21% 19% 12% Holiday Inn Resort Samui 0% 4% Holiday Inn Express Samui 0% 2% Revenue from food and beverage sales Food center at The Platinum Fashion Mall 16% 15% 14% 14% 15% 16% Total revenue (THBm) 1,391 1,623 1,718 1,895 2,150 3,551 % total revenue growth 25% 17% 6% 10% 13% 65%
Source: Company data, RHB
Figure 19: Tenants’ leasing contracts at The Platinum Fashion Mall (as of end-2016) Leasing contracts Rental Occupied area Average rental Unit (sq m) rate (2016) 1-3 Years 1,052 13,913 3,821 10 Years 752 8,287 1,605 Total 1,804 22,200 2,974 Occupancy rate 98%
Contract expiration (units) Expired in Expired in Expired in 2017 2018 2019 onwards 1-3 Years 968 12 4 10 Years 752
Source: Company data
Figure 20: Profit margin trend Figure 21: Net profit, net profit growth and ROE Gross margin SG&A/sales ratio EBITDA margin Net profit margin (THBm) Net profit ROE - RHS 70% 66.2 1,400 20% 62.2 62.6 18.1 61.1 +40.7% 60.1 18% 57.0 60% 62.5 1,200 60.7 61.6 16% 58.6 50% 53.1 1,000 14% 51.7 +12.7% 41.0 41.1 40.8 11.6 38.8 +10.7% 13.2 12% 40% 800 34.8 +11.9% 31.5 +43.6% 10% 30% 600 9.9 23.4 9.1 8% 21.4 +65.6% 8.5 19.4 19.4 19.4 19.0 20% 400 6% 4% 10% 200 2%
0% 0 0% 2017F 2018F 2019F 2017F 2018F 2019F 2014 2015 2016 2014 2015 2016 Source: Company data, RHB Source: Company data, RHB
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The Platinum Group Thailand Initiating Coverage
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Risks Delay in opening of new projects including The Market Bangkok and the two hotels in Koh Samui. There are also future plans to launch a hotel and office building at The Market Bangkok project by 2021, but they are not reflected in our forecasts. Popularity of online trading. Penetration of e-commerce activities in Thailand are likely to surge over the next decade. We expect Platinum’s key shopping malls to remain healthy, based on their key positioning that focuses on wholesales and tourism. The company’s diversification into hotel and office building businesses may also help balance its recurring income portfolio. A potential new project in Pratunam. An independent entity, SPC Properties and Development Co Ltd (SPC), owned by one of Platinum’s major shareholders, has won its bid to Thailand’s Royal Crown Property Bureau to utilise the 7-rai leasehold land plot (c.11,200 sqm) which is the current location of Pratunam Market (Chalermlarp Market). The site is opposite The Platinum Fashion Mall. SPC plans to develop a new fashion wholesale mall there, and Platinum has the first right to run this project. If it does so, this may help boost Platinum’s earnings and add value – over the long term – to The Platinum Fashion Mall. Note that we have not yet factored this into our numbers. Presently, however, the Royal Crown Property Bureau is in the midst of expropriating the land from previous lessees, and this may take few more years before it is finalised. A delay in the expropriation process may lengthen the period of development for the new project. Political uncertainty. The company’s major projects – The Platinum Fashion Mall, Novotel Bangkok Platinum Pratunam and The Market Bangkok – are located next to the Ratchaprasong shopping district, where political gatherings like the 2010 and 2013-2014 anti-government protests were held. Any further demonstrations may block public traffic headed towards the malls and this could lead to a weaker performance.
Figure 22: Pratunam Market land plot (shophouses) located opposite The Platinum Fashion Mall
Source: Google Map, RHB
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SWOT Analysis
• Market leader in shopping malls focusing on modern • Popularity of fashion, with its strong background in the clothing online retail business distribution channels • Prime location for properties in Bangkok’s downtown shopping district • Political unrest and weak • Potential development of mixed-use property projects economic recovery may threaten consumer spending • Strong outlook for Thailand’s tourism industry • Trend of new graduates who opt to start their own businesses creates demand for small retail spaces • Ability to develop new projects in the upcountry or • Earnings are highly dependent on a few major abroad in the development projects longer term • Difficulty in penetrating the upper market segment due to its focus on the middle-to-lower middle income group
Recommendation Chart
Date Recommendation Target Price Price Price Close 2017-09-22 8.1 Source: RHB, Bloomberg 7.6 7.1
6.6
6.1
5.6
5.1
4.6 Mar-15 Nov-15 Jul-16 Mar-17
Source: RHB, Bloomberg
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RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage
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The Platinum Group Thailand Initiating Coverage
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Thai Institute of Directors Association (IOD) – Corporate Governance Report Rating 2016
Excellent CG Scoring AMATA BTS DELTA EGCO INTUCH KTB MINT PPS QTC SCB SNC THCOM TSC AOT BWG DEMCO GFPT IRPC KTC MONO PS RATCH SCC SPALI TISCO TTCL BAFS CK DRT GPSC IVL LHBANK NKI PSL SAMART SCCC SSSC TKT TU BAY CPF DTAC GRAMMY KBANK LPN NYT PTT SAMTEL SE-ED STEC TMB UV BCP CPN DTC HANA KCE MBK OTO PTTEP SAT SIM SVI TNDT VGI BIGC CSL EASTW HMPRO KKP MCOT PHOL QH SC SITHAI TCAP TOP WACOAL WAVE
Very Good CG Scoring 2S ASIMAR CGH ERW IRC MFC PCSGH Q-CON SMK SYNTEC TIPCO TSR AAV ASK CHG FORTH JSP MOONG PDI RICHY SMPC TAE TK TSTE ACAP ASP CHO FPI K MSC PE ROBINS SMT TAKUNI TKS TSTH ADVANC AUCT CHOW GBX KSL MTI PG RS SNP TASCO TMC TTA AGE AYUD CI GC KTIS MTLS PJW RWI SPI TBSP TMI TTW AH BANPU CIMBT GCAP L&E NCH PLANB S SPPT TCC TMILL TVD AHC BBL CKP GL LANNA NOBLE PM S & J SPRC TF TMT TVO AKP BDMS CM GLOBAL LH NSI PPP SABINA SR TFI TNITY TWPC ALUCON BEM CNS GLOW LHK NTV PR SALEE SSF TGCI TNL UAC AMANAH BFIT CNT GUNKUL LIT OCC PRANDA SAMCO SST THAI TOG UP ANAN BLA COL HOTPOT M OGC PREB SCG STA THANA TPC UPF AP BOL CPI HYDRO MACO OISHI PRG SEAFCO SUSCO THANI TPCORP VIH APCO BROOK DCC ICC MALEE ORI PRINC SFP SUTHA THIP TRC VNT APCS CEN EA ICHI MBKET PACE PT SIAM SWC THRE TRU WINNER ARIP CENTEL ECF IFEC MC PAP PTG SINGER SYMC THREL TRUE YUASA ASIA CFRESH EE INET MEGA PB PYLON SIS SYNEX TICON TSE ZMICO
Good CG Scoring AEC BA CHARAN EARTH GIFT ITD LALIN NCL PMTA SMG TLUXE VPO AEONTS BEAUTY CITY EASON GLAND J LPH NDR PPM SMIT TMD VTE AF BEC CMR ECL GOLD JMART MAJOR NEP PRIN SORKON TNP WICE AIRA BH COLOR EFORL GSTEL JMT MAKRO NOK PSTC SPA TOPP WIIK AIT BIG COM7 EPCO GYT JUBILE MATCH NUSA QLT SPC TPA WIN AJ BJC CPL EPG HPT JWD MATI PATO RCI SPCG TPAC XO AKR BJCHI CSC ESSO HTC KASET M-CHAI PCA RCL SPVI TPIPL AMARIN BKD CSP FE HTECH KBS MDX PDG RICH SSC TPOLY AMATAV BR CSR FER IFS KCAR MFEC PF RML STANLY TRITN AMC BROCK CSS FOCUS IHL KGI MJD PICO RPC STPI TRT APURE BRR CTW FSMART ILINK KKC MK PIMO SANKO SUC TTI AQUA BTNC DCON FSS INSURE KOOL MODERN PL SAPPE TACC TVI ARROW CBG DIMET FVC IRCP KWC MPG PLAT SAWAD TCCC TWP AS CGD DNA GEL IT KYE NC PLE SCI TCMC U SCN TEAM UBIS SEAOIL TFD UMI SENA TFG UPOIC SIRI TIC UT SKR TIW UWC SLP TKN VIBHA
IOD (IOD Disclaimer) การเปิดเผลผลการสํารวจของสมาคมส่งเสริมสถาบันกรรมการบริษัทไทย (IOD) ในเรื่องการกํากับดูแลกิจการ (Corporate Governance) นี ้เป็ นการ ดําเนินการตามนโยบายของสํานักงานคณะกรรมการกํากับหลักทรัพย์และตลาดหลักทรัพย์ โดยการสํารวจของ IOD เป็นการสํารวจและประเมินจากข้อมูลของบรษัทจด ทะเบียนในตลาดหลักทรัพย์แห่งประเทศไทยและตลาดหลักทรัพย์เอ็มเอไอ ที่มีการเปิดเผยต่อสาธารณะและเป็นข้อมูลที่ผู้ลงทุนทั่วไปสามารถเข้าถึงได้ ดังนั้นผลสํารวจ ดังกล่าวจึงเป็นการนําเสนอในมุมมองของบุคคลภายนอกโดยไม่ได้เป็นการประเมินการปฏิบัติและมิได้มีการใช้ข้อมูลภายในในการประเมิน อนึ่ง ผลการสํารวจดังกล่าว เป็นผลการสํารวจ ณ วันที่ปรากฎในรายงานการกํากับดูและกิจการบริษัทจดทะเบียนไทยเท่านั้น ดังนั้นผลการสํารวจจึงอาจ เปลี่ยนแปลงได้ภายหลังวันดังกล่าว ทั้งนี้บริษัทหลักทรัพย์ อาร์เอชบี จํากัด (มหาชน) มิได้ยืนยันหรือรับรองถึงความถูกต้องของผลการสํารวจดังกล่าวแต่อย่างใด
ขอมูล Anti-Corruption Progress Indicator ของบริษัทจดทะเบียน
ระดับ 1 ACD AEONTS AFC AIRA AJ ALUCON AMC AQUA ARIP AUCT BAT-3K BIG BJC BLISS BMCL BOL BRR BSBM CBG CCET CCN CGD CMR CPH CSC CSP CTW DCON DRACO DSGT DTCI E EMC ESSO FOCUS FSMART GIFT GLAND GRAND GUNKUL HFT HTECH IHL ILINK ITD JSP KDH KTIS KTP LEE LST MAJOR MATCH MAX M-CHAI MDX MIDA ML MPIC NC NEP NNCL NWR OHTL PICO PK PL PPM PRAKIT PRECHA PRIN PSTC PYLON RAM RICH RS SANKO SAUCE SAWAD SAWANG SCN SEAFCO SF SHANG SIRI SMART SMM SOLAR SPACK SPG SPPT SPVI STA STAR SVH SVOA SWC TAPAC TC TCCC TCJ TCOAT TH TKS TNH TNPC TPA TPAC TPOLY TRC TRUBB TSE TTA TTI TTL TTTM TWP TWZ U UMS UPA UPOIC UTP UVAN VARO VI VIBHA VIH VTE WG
ระดับ 2 2S ABICO AF AKP AMARIN AMATA AOT APCO AYUD BEAUTY BFIT BH BKD BLAND BTNC CCP CI CSR CSS EFORL EPCO FE FNS FVC GEL GLOBAL HEMRAJ IEC IFS INET JUTHA KASET KCAR KKC KSL L&E LALIN LTX M MALEE MBK MBKET MEGA MK MPG MTLS NCH NCL NPP OCC OCEAN PB PCA PRINC QH ROCK RPC S & J SGP SIAM SIS SKR SMG SMIT SORKON SUSCO TAKUNI TEAM TF TIC TIP TIPCO TMC TMI TPP TRT TRU TRUE TSC TSI TTW TVD TVO UKEM UNIQ UWC VNG WIIK WIN XO
ระดับ 3A ABC ACAP ADVANC AEC AGE AH AIE AMANAH ANAN AP APCS APURE AS ASIA ASIAN ASIMAR BIGC BROOK BTS BWG CEN CENTEL CFRESH CHARAN CHO CHOTI CM CNT COL CPALL CPF CPI CPL DELTA DEMCO DIMET DNA DTAC EA ECF EE EVER FPI GBX GC GFPT GLOW HMPRO HOTPOT ICC ICHI IFEC INOX INSURE IRC JAS JTS JUBILE KC KTC KYE LHK LPN LRH MAKRO MC MCOT MFC MFEC MINT MJD MONO MOONG NBC NDR NINE NMG NSI NTV OGC PACE PCSGH PDI PG PHOL PLAT PPS PR PRANDA PREB PS QLT RATCH RML ROBINS ROJNA RWI SAMCO SCCC SCG SEAOIL SE-ED SENA SINGER SITHAI SMK SMPC SPALI SPC SPCG SPI SRICHA SSI STANLY SUPER SVI SYMC SYNEX SYNTEC TASCO TCMC TFI THAI THRE THREL TICON TKT TLUXE TMILL TMT TNL TPCORP TSTE TSTH TTCL TU TVI UOBKH UREKA VGI VNT WACOAL WHA ZMICO
ระดับ 3B AAV AHC AI AIT AKR ARROW ASK BA BDMS BEC BECL BJCHI BUI CGH CHG CHOW CIG CITY CK CKP COLOR CWT EARTH EASON EPG F&D FANCY FIRE FMT FORTH GENCO GL GOLD GPSC GRAMMY HYDRO IRPC IT JCT KCM KWC LH LIT LOXLEY MACO MANRIN MATI MODERN MSC NOBLE NOK NPK NUSA OISHI OTO PAF PAP PATO PF PJW PLANB PLE POLAR PRG PTL Q-CON QTC RCI S11 SALEE SAM SAMART SAMTEL SAPPE SC SCP SFP SIM SLP SMT SPA SPORT SSC SST STEC STPI SUC SUTHA T TAE TBSP TCC TFD TGCI TGPRO THANA THIP TIW TK TMW TNDT TOPP TPC TPCH TPIPL TSR TT TYCN UAC UBIS UEC UMI UP UPF UT UV VPO WAVE WINNER YUASA
ระดับ 4 ASP BAFS BANPU BAY BBL BKI BLA CIMBT CNS CSL DCC DRT DTC EASTW ECL EGCO ERW FSS GCAP HANA HTC INTUCH IRPC IVL KBANK KCE KGI KKP KTB LANNA LHBANK MTI NKI PSL PTG PTTEP SABINA SCB SNC SNP SSF SSSC TCAP THCOM TISCO TMB TMD TNITY TOG
ระดับ 5 BCP CPN GYT PE PM PPP PT PTT PTTGC SAT SCC THANI TOP
ไมเปดเผยหรือไมมีนโยบาย A ACC AJD AQ BCH BGT BROCK BSM BTC CHUO
CPR CRANE EIC FER JMART JMT KAMART KBS KIAT LDC
MBAX MCS METCO NEW NEWS NYT PAE PDG PERM PMTA POST RCL RICHY ROH S SIMAT TCB TR TSF TVT WORK
หมายเหตุ ระดับ 1: มีนโยบาย ระดับ 2: ประกาศเจตนารมณ ระดับ 3: มีมาตรการปองกัน ซึ่งทั้ง 2 กรณี ถือเปนผลการประเมินในระดับเดียวกัน 3A: บริษัทมีการประกาศเจตนารมณเขารวมโครงการ CAC หรือภาค 3B: บริษัทมีคํามั่นและนโยบายของบริษัท แตมิไดประกาศเจตนารมณเขารวมโครงการ CAC หรือภาค ระดับ 4: ไดรับการรับรอง ระดับ 5: ขยายผลสูผูที่เกี่ยวของ