SINGAPORE (July 17): Phillip Capital is maintaining its “accumulate” call on Banyan Tree Holdings with a target price of 73 cents.

“Outlook is positive as we expect the strong RevPAR growth in the group’s biggest market in Thailand to be sustainable, underpinned by the ongoing recovery in the tourism industry,” says analyst Dehong Tan in a Monday report.

According to Tan, Thailand is expected to see a strong growth in tourism. This bodes well for Banyan Tree, as Thailand is its largest revenue contributor by geography.

Meanwhile, China remains the group’s most important target group of tourists, accounting for about 44% of its total room revenue in FY17. Banyan Tree also notes that Korea is a fast growing target market.

According to Tan, Banyan Tree had, at a recent marketing event hosted by Phillip, highlighted the lapse of options granted to Accor and Vanke to subscribe an additional 5% stake in the group each.

This was due to Vanke having to contend with stricter capital controls and regulations in China regarding overseas investments in the hotel industry. It is unclear why Accor did not exercise the option.

Currently, both Accor and Vanke hold about 5% stake in Banyan Tree, respectively, which were purchased at 60 cents per share.

“Management contracts remain key growth catalysts from the partnerships,” says Tan.

However, the group does not typically announce management contract signing, possibly due to contractual confidentiality reasons.

Apart from the Accor/Vanke deals, the group is expecting to open 28 new hotels in the next three years, largely for hotels under management contracts it has secured.

In addition, the group’s partnership with Accor/Vanke has brought other benefits, including lower commission rates paid to online travel agencies (OTA), due to Accor’s scale.

“We understand that these commission rates can range from low-mid teens for big operators such as Accor, to 20+% for smaller operators,” says Tan.

The group also has access to the AccorHotel’s global reservations and sales network.

In 1Q18, more than half of the Chinese who bought development projects from the group were from Vanke’s network. And the Chinese contributed to about 60% of the group’s property sales in 1Q18.

As at 3.00pm, shares in Banyan Tree are trading flat at 52 cents, or 0.6 times FY19 book with a 1.9% dividend yield.

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