SI Research: Banyan Tree Holdings – Beginning A New Chapter Of Growth

Jimmy Ng

The hospitality industry plays a very crucial role in the global economy as according to the World Travel and Tourism Council, travel and tourism generated in total US$7.6 trillion (approximately 10.2 percent of global gross domestic product) and 292 million jobs in 2016, which is equivalent to around one in 10 jobs in the global economy. With rising disposable incomes from both emerging and developed markets and consumers’ increasing desire to experience the world, the real impact of growing tourism cannot be underestimated.

Underpinned by improving macro-economic conditions recently where economic problems in Europe and Russia have eased and prolonged slowdown in China has turned for the better, global tourism looks on track to enter another phase of growth. Coupled with the resilient tourism sector in Thailand following the end of a year of mourning for its late King, this would further hasten the speed of recovery of global hospitality industry.

When it comes to luxurious travel, Banyan Tree Holdings (Banyan Tree) comes to mind. Being the leading operator and developer of premium resorts, hotels, spas and residences in the Asia Pacific, the group boasts the pioneering of tropical garden spa and pool villa concepts. Moreover, starting off with a humble beginning of just a flagship resort – Banyan Tree Phuket – launched in Thailand in 1994, this home-grown brand has done Singapore proud by morphing into a global business with a portfolio of 40 resorts and hotels, 64 spas and 77 galleries over 25 countries.

Business Profile

Banyan Tree’s revenue is generated from three core business segments, namely hotel investments, property sales and fee-based segments.

The hotel investments segment is the largest contributor to Banyan Tree’s FY16 revenue at 64 percent. The group holds equity interest in 19 hotels comprising over 2,000 keys which it owns and manages under the world-renowned Banyan Tree and Angsana brands. Subsequently, Banyan Tree also launched Cassia and Dhawa in 2014 and 2015 respectively to target different travellers groups. Majority of hotel investments revenue came from Thailand (61 percent), followed by Indian Ocean (31 percent), China (6 percent) and others (2 percent).

Apart from that, Banyan Tree also offered Laguna property, luxury residences and apartments for sale to investors. This segment contributed 16 percent to the group’s FY16 revenue.

Fee-based revenue accounted for 20 percent of Banyan Tree’s FY16 revenue, comprising managing of hotels for other owners which the group holds a minority or no interest in, managing of spas and retail galleries as well as income received for provision of design services and operating of golf clubs.

Partnerships With The Big Names

Banyan Tree announced the formation of a strategic alliance with Accor, one of the largest hotel groups in the world, in December 2016. This mutually beneficial partnership will see Accor enhancing its position in the luxury hotel space benefitting from Banyan Tree’s iconic branding, while the latter can also leverage on the former’s development and operational infrastructure worldwide to accelerate its expansion in the Europe, Middle East, Africa and American markets. Furthermore, Banyan Tree’s fee-based revenue from managing the hotels is also expected to increase as the group takes on more co-development projects with Accor. Under the agreement, the collaboration further allows Banyan Tree to offer more competitive rates through online booking systems.

Meanwhile, Banyan Tree’s joint venture with China Vanke (Vanke), the largest real estate developer in China, has led to the creation of Banyan Tree China (BTC) which helps to consolidate the ownership of Banyan Tree-branded hotels and assets in China. With Vanke taking the lead, owners of other hotels might be drawn to inject their properties into BTC and engage the group to manage their hotels in China. Banyan Tree stood to benefit from the collaboration with Vanke immediately with the potential valuation gains from assets disposal to BTC. Over the longer term, the group’s management fees is expected to rise as Vanke transfers its hotels and serviced apartments under the group’s management.

Banyan Tree’s ability to attract world-class partners in above two instances with its unique and distinctive brands brings forth a new phase of growth for the group.

Staging A Turnaround

Banyan Tree reported flat revenue in 9M17 in comparison to 9M16 at $228.6 million attributable to higher contributions from its hotel investments and fee-based segments, but offset by weaker property sales results. Despite the flat revenue, net profit jumped to $9.5 million mainly due to $40.2 million of other income arising from divestment gains of the group’s hotels and assets in China to BTC.

Based on hotel forward bookings for owned hotels in 4Q17, Banyan Tree’s overall forward bookings is about nine percent above the same period last year. Coupled with unrecognised revenue of $132.4 million from the property sales segment of which approximately 17 percent will be progressively recognised in 4Q17, we foresee that FY17 is very likely going to be a profitable year for the group. This marked Banyan Tree’s successful turnaround reversing from two consecutive years of losses in FY15 and FY16.

Source: Company Annual Reports

Source: Company Annual Reports

Proxy Into Vietnam’s Gaming Boom

In a meeting in January 2018 with the provincial authorities of Thua Thein-Hue, Vietnamese Prime Minister Nguyen Xuan Phuc gave the nod to approve in principle with the group’s proposal to add a casino to Banyan Tree’s Laguna Lang Co resort, which the group has an effective 17.8 percent interest in.

Previously with doors opened strictly only to foreigners, the Vietnam government is slowly loosening casino access to locals by allowing Vietnamese citizens over the age of 21 with a monthly income of at least VND10 million to gamble in the local casinos. With Vietnamese in the mid-to-high income level expected to double by 2020, demand for gaming and luxury hospitality will likely see a boost in the coming years.

Banyan Tree revealed that the group will work out the details with its US partner once it receives its official licence, and has earlier planned to launch the casino in 2021 with sufficient room to house 1,340 players at a single time. The addition of a casino in Laguna Lang Co will drive incremental tourist arrivals thereby allowing the development to reap its full potential through increasing project value over time.

Valuation

Trading at the market price of $0.64 as at 29 January 2018, Banyan Tree’s share price has already rebounded 75.3 percent from its low of $0.365 in November 2016. Current price translated to a price-to-earnings ratio at 28.5 times and a price-to-book ratio of 0.9 times, which we deem as not too demanding in comparison to the industry average at 26 times and 1.1 times respectively, considering the exciting future which lays in store for the group.

Source: Singapore Exchange, updated 29 January 2018

Source: Singapore Exchange, updated 29 January 2018