LUX - AXYS Group · LUX was the first hotel group to feel the brunt of the crisis and suffered...
Transcript of LUX - AXYS Group · LUX was the first hotel group to feel the brunt of the crisis and suffered...
Overview
Performance: Review & Prospects
Valuation: Upgraded to Accumulate
Rs 20.45 Rs 42.5
CDS Code:ISIN Code:Bloomberg Code:Reuters Code:
Trading datan n No of Shares:n n Market capitalisation:n n Weight on SEM:
Weight in ALEX-20:Weight in ALCAPEX-12:
Revenue [RsM] Med. daily value traded:EBITDA [RsM] Med. daily volume tradedPAT [RsM] YoY Total Return:R/Occ. Room [Rs] All time high:Adj EPS [Rs] NAV [Rs]Debt/Share [Rs]DPS [Rs]
EBITDA Marg. [%]PER [x]PEG [x]PBV [x]EV/Room [RsM]ROE [%]DY [%]DER [%]
AXYS Stockbroking Ltd, Bowen Square, Dr Ferrière Street, Port-Louis | BRN C07007947Tel (230) 213 3475 | Fax (230) 213 3478 | Email [email protected] | www.axysstockbroking.com
5.84 5.491.146.64
5.11.2
0.00 0.00
0.0 — — 1.0 0.3— 26.0
91.0
Threats
2015F3,933
812224
10,8251.90
37.44
0.50
2015F
5.21 6.26
2012 2013 2014E
20.722.4
0.20.70 1.17
0.00 0.00 0.50
Rating ACCUMULATE
130.8 165.9 154.6 138.6 102.90.0 0.0 0.0 0.0 1.2
-14.1 0.2 0.8 2.8 4.55.36
368.9 78.6 25.2
0.88 0.87 0.65
Rs 114.5(09-Jan-08)
Rs 4.8bn
829
1.8%
NRL MPNRL.MZ
107.7%
30-May-14
1.63
Assuming LUX continues to show strong progress in the Maldives and a steady decline in interest charges,we forecast LUX’s FY14 PER to stand at 26.0x then 22.4x in FY15. While these PER figures are well belowthe Industry PER of 89.3x, it does stand above the ALEX-20 PER (16.3x) and Total Market PER (14.5x).LUX’s FY-13 Price:Earnings Growth (PEG) Ratio stood at 1, and is poised to drop well below 1x in both FY-14 and FY15. Although we would have preferred dividends be used to refurbish LUX* Grand Gaube, DY isestimated to reached 1.2% in FY15. Assuming LUX pays down borrowings at Rs500M per and benefitsfrom the conversion into equity of its bonds, its FY15 DER falls from its current 139% to 91% in FY-15, i.e.with a Debt per Share of Rs34. Based on the above, the group’s willingness to accommodate burgeoningmarkets, and the fact that LUX’s current management has a track record of turning things around, weupgrade LUX’s rating from “Reduce” to “Accumulate”.
0.07 0.25 0.87
-485 13 35 107 193
Improved occ. rate from TUI deal
Sale of hotel in Reunion
Prolongued difficulties in Mauritius
Contraction of Reunion tourism
Loss of management contracts
LUXExecutive Summary
PERDY
NRL.N0000
23.68xLUX
105.3%
4,0733,771
1.24x2.4%
42.5021.80
PBVFP
▲
2010 20112.6%3.3%
MU0049N00000
1.18%
New hotel management contracts
254 19,400
Opportunities
Highlights
Low High— 52-Wk Range —
113.7M
Rs 0.66M
LUX was the first hotel group to feel the brunt of the crisis and suffered accordingly with losses close toRs0.5bn in FY10. Since, management was changed, and debt re-structured through a Rs1bn rights-cum-convertible bond issue. Under its new identity, LUX has embraced the new markets, and has fared betterin relative terms. Results turned around as revenue hovered above Rs3.7bn over the last two years, butPAT improved from Rs35M to Rs107M in part due to the absence of re-branding costs. As for its 9Mthresults, revenue has grown by 10.5%, and PAT by 45% to Rs304M.
Domestic operating conditions will remain difficult and thus local growth for LUX is expected to stagnatein coming years. Nonetheless, the completion of LUX* Belle Mare’s renovation (funded from sale of villas)might help further improve Rev/Room as from FY15, but its closure will affect FY15 results. LUX cancontinue to grow in the Maldives from increased average room rates, now that its occupancy rate hassurpassed the national average. In Reunion, the industry is suffering, however the sale of hotel shouldhelp alleviate both debt and the adverse impact on P&L. The group’s most promising endeavours involvesthe internationalisation of its brand and using its know-how to manage hotels worldwide. Two projects,namely LUX* Al Zorah in UAE and LUX* Tea Horse Road in China should open for business in the next two
LUX* Resorts & Hotels Ltd (LUX), formerly Naïade Resorts, is among the newer Mauritian hotel groups,however its recent disruptive business model under new management has made of it an innovator. Thegroup offers a harmonised approach in its 5-Star LUX*hotels in Mauritius (3), Maldives (1), and Reunionisland (1). Going forward, LUX has adopted an asset light strategy and intends to take up managementcontracts rather than simultaneously own and run resorts and hotels.
Valuations 2010 2011 2012 2013 2014E
2,315 3,095 3,714
30.04 29.86 30.65 31.62 36.32
665 667 774
5,575 6,670 8,255 9,305 10,055-4.25
39.28 49.55 47.38 43.83 37.36 34.06 Key P&L Trends
11.0 21.5 18.0 20.5 20.4
3.10
3.71 3.77
4.07 3.93
0.07 0.25 0.87
1.63 1.90
3
3
3
3
3
4
4
4
4
2011 2012 2013 2014E 2015F
Revenue [Rs bn]EPS [Rs]
21.5
18.0
20.5 20.4 20.7
EBITDA Marg. [%]
40
60
80
100
120
140
Indi
ces
= 10
0 o
n 1
5-Ap
r-11
LUXALEX-20 TRI
VWAP
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LUX LUX* Resorts & Hotels Ltd
AXYS Stockbroking Ltd, Bowen Square, Dr Ferrière Street, Port-Louis | BRN C07007947 Jun-13 Tel (230) 213 3475 | Fax (230) 213 3478 | Email [email protected] | www.axysstockbroking.com
FINANCIAL PERFORMANCE
I. Revenue
LUX Resorts & Hotels (LUX) operates five LUX* branded hotels in
Mauritius [48% of Turnover], Maldives [32% of Turnover] and
Reunion [20% of Turnover] as well as a few mid-market hotels.
Although Mauritius remains the group’s principal source of income
and profits, Maldives is – by far – a more efficient source.
Mauritius
Following an initial 6% growth to Rs1.83bn in FY-11, local revenue
has since stagnated at Rs1.82bn ±1.0%. This is in-line with arrivals
trends: tourist arrivals grew 7% from FY10 to FY11, and thereafter
stagnated at 966k ±0.4%. Although occupancy rates fell from 74%
in FY11 & FY12 to 68% in FY13, LUX managed to grow1 RevPOR in
MUR to Rs9,400 (+7%) and EUR to €232 (+8%) since FY11; however
rates in EUR varied mildly between €231 and €232 over the last
two financial years. On a 9Mth basis, FY-14 revenue has improved
to Rs1.59bn (+11%) or €38.6M (+6%). In spite of positive signs from
LUX, the macro-level decline in Receipts per Visitor and increasing
competition among hotels compels us to maintain a conservative
stance. This is why we believe LUX will grow local FY14 revenue by
10% in-line with 9Mth results, then expect a 6% dip in FY15 due to
LUX* Belle Mare’s closure for refurbishment2.
Fig 1. LUX’s sales revenue split by destination
Maldives
LUX* Maldives has only been fully consolidated in LUX’s financials
starting FY12. Revenue grew by 9% boosted principally by
improved occupancy rates at the hotel, given that RevPOR stood
slightly lower at $773 (-2%). On a 9Mth basis, FY-14 revenue has
1 at an annualised rate 2 Financed from the sale of LUX* Belle Mare villas under the IHS scheme
grown by 15% in both MUR and USD terms to Rs1.07bn and
$35.1M, boosted by both, growth in rooms rates and occupancy. In
spite of the atoll’s marred history of political Coups and flip-flops
on Spa and alcohol policies, its potential disappearance, and virgin
ocean wilderness, maintains its unique appeal. In addition, the tiny
island state has been proactive and astute at seeking new markets
during of the crisis. It has now overtaken taken Mauritius in terms
of arrivals. LUX* Maldives has operated at occupancy levels below
the national average, which the group has surpassed to reach 80%.
Increased average room rate would be the next step, which is why
we believe LUX should be able to grow its business at an
annualised rate of 10% to Rs1.45bn by FY15.
Reunion
Île de la Réunion, being a department of France, is experiencing
tepid growth rates in a market presumably highly axed towards the
French. The island’s tourism industry – albeit mostly domestic –
has thus suffered. Consequently, revenue has stagnated at Rs770M
±0.8% since FY11; which the group achieved by growing RevPOR at
an annualised rate of 3.5% to offset lower occupancies. On a 9Mth
basis, FY-14 revenue has improved to Rs615M (+3%) but decreased
to €14.9M (-1%) in EUR terms. Given the slow growth rates of the
French economy, we expect income from Reunion to slide by 1% in
FY14 and then by a sharper 18% in FY15 assuming LUX sells Le Recif
during the course of FY15.
II. Risk Assessment
The Mauritian tourism industry is experiencing a difficult spell for a
plethora of reasons which we delved into in our industry deep
dive: poor connectivity, large supply of hotel rooms, decrease in
core markets, and principally the absence of a coherent forward
industry strategy. Subsequently a poor home performance remains
LUX’s greatest short term risk. However, we are not overly worried
about the group’s Mauritian business given the turnaround under
the leadership of Mr Paul Jones who was appointed as CEO in Oct-
10. Under a dynamic new leadership, the LUX* brand was created
offering innovative features, and has strived to differentiate itself
from peers. LUX has also invested heavily in upping its service level
through continuous training programmes its employees undergo.
Based on its track record since FY10, we believe LUX will continue
to manage RevPAR in spite of the sub-optimal industry conditions.
Overseas, Reunion represents the greatest threat to LUX. Based on
the state of the French economy, business is likely to worsen
before getting any better. This segment has been a drain on profits
in the past and after a profitable spell, became loss-making once
again in Q1-14. With respect to the Maldives, the socio-political
2
LUX LUX* Resorts & Hotels Ltd
AXYS Stockbroking Ltd, Bowen Square, Dr Ferrière Street, Port-Louis | BRN C07007947 Jun-13 Tel (230) 213 3475 | Fax (230) 213 3478 | Email [email protected] | www.axysstockbroking.com
unrest and changing tax regimes are a greater concern than rising
ocean levels. The former could cause major disruptions in arrivals
which would affect revenue, while the latter would directly impact
profits. At the moment, LUX’s management contracts offer an
upside potential, and thus not a material risk factor.
III. Forward Strategy
LUX’s forward strategy involves the “premiumising” of its current
brand. In essence, the group operates at the entry level of among
5-Star hotels, and is aiming to improve its offering to climb higher
by a notch. The group intends to achieve this by completing the
renovation of LUX* Belle Mare3 which would become its new
Flagship hotel; as well as improving customer service through on-
going staff training. The second step in its strategy involves
managing a variety of resorts and hotels globally under its
coherent LUX* brand. LUX is thus poised to manage a series of
boutique hotels – in the backdrop of mountains, rivers and lakes –
along the ancient tea horse road in southern China, as well as LUX*
Al Zorah in Ajman, United Arab Emirates (UAE). Amid this asset
light strategy, and steady repayment of its debt, LUX has chosen to
start paying dividends to shareholders.
Fig 2. LUX’s operating profits split by destination
III. Earnings
Although LUX has managed to grow revenue since FY10, the
group’s profits remain well under the Rs550M peak achieved in
FY07. In FY07, the group’s EBITDA margins peaked at 35% then
rapidly cascaded to 11% by FY10, but have since partially
recovered to the low 20s. A change in management ensued, Rs1bn
was raised from the market through a rights-cum-convertible bond
issue. The latter brought in funds required to repay bank debt
therein easing pressure from banks. Further, LUX increased its
shareholding in Maldives which coupled with the re-branding has
3 We believe an ageing LUX* Grand Gaube is also in need of refurbishment
helped reverse trends. Thus is why we expect PAT to almost double
in FY14, then improve by a further 16% in FY15 driven by growth in
Maldives and declines in interest charges.
Fig 3. LUX’s recurrent PAT evolution & key ratios against the industry
CORPORATE STRUCTURE
I. Overview
LUX* Resorts & Hotels Ltd (LUX) began operations in 1987 as
Naïade Resorts Ltd (NRL) with 3-Star Le Tropical. During the
troubled first few post-crisis years, the latter was sold to Attitude
Resorts, and a new management, led by Mr Paul Jones, was set up.
NRL was re-baptised as LUX under which a brand creation process
began. LUX hotel offerings, colour schemes, innovative features,
and its beverages (Coffee, Tea, & Wines) have been harmonised
across its hotels. LUX owns and operates five 5-Star LUX*hotels in
Mauritius (3), Maldives (1), and Reunion island (1); as well as a
three non-LUX* 3 to 4-Star hotels in Mauritius and Reunion island.
Fig 4. Geographical distribution of LUX resorts & hotels
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LUX LUX* Resorts & Hotels Ltd
AXYS Stockbroking Ltd, Bowen Square, Dr Ferrière Street, Port-Louis | BRN C07007947 Jun-13 Tel (230) 213 3475 | Fax (230) 213 3478 | Email [email protected] | www.axysstockbroking.com
II. Business Model
Fig 5. LUX’s resort and hotel segments
LUX’s philosophy is to manage/run hotels instead of
simultaneously owning and running hotels; which has been the
traditional business model. Having established a coherent product
offering, LUX is internationalising its business. As part of this
process, LUX intends to operate in three segments: Beach, City and
Nature. In coming years, will manage LUX* Al Zorah {beach} in
Ajman, UAE; and LUX* Tea Horse Road {nature}, a series of
boutique hotels along the ancient tea horse road in southern
China. LUX is involved during the conception phase of a new hotel
as a consultant prior to taking over the management of the day-to-
day operations. Under its forward mode, LUX will generate income
from consultancy fees, brand licensing as well as management fees
based on turnover and profits.
II. Shareholding
LUX’s primary shareholder remains GML Investissement Ltée;
however, a significant change in shareholding occurred this
financial year, when The Mauritius Commercial Bank Ltd (MCB)
acquired Cie d’Investissement Immobilier de Flacq Ltée’s 6.6% stake
in the company. A slight shareholder dilution is expected on Dec
31st
2014, at which time bondholders could exercise their option to
convert their debentures into LUX shares.
Fig 6. LUX’s shareholding structure
MARKET PERFORMANCE
I. Share price
The Travel & Leisure (T&L) industry outperformed the market in
2013. The sector rocketed by 57% - LUX claimed the SEM top spot
with a massive 143% surge - thus making it 2013’s best performing
sector. Improved tourist arrivals figures turned investor sentiment
around, thus propelling hotel counters up from multi-year lows. On
a Year-on-Year (YoY) basis, LUX (+108%) beat the SEMTRI (+10.6%)
and the ALEX-20 (+10.8%); as well as peers SUN (+43.6%) and
NMHL (+20.4%). On a Year-to-Date (YTD) basis, the picture is
slightly different: the sector has underperformed the broader
market. Profit taking – in the wake of 2013’s strong rally – was
inevitable. Also investor sentiment cooled after Q1-14 arrivals
growth figures turned out to be below expectations. However, LUX
has been among the very few listed hotels to have steadily grown
local revenue per room. The stock has thus continued to
outperform both the market and peers with its 9.4% increase. By
contrast, the SEMTRI lost 0.02%, the ALEX-20 edged up by 1.2%,
and peers SUN (-2.6%) and NMHL (-4.9%) are trading in negative
territory.
Fig 7. LUX’s stock price performance against peers and benchmark
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LUX LUX* Resorts & Hotels Ltd
AXYS Stockbroking Ltd, Bowen Square, Dr Ferrière Street, Port-Louis | BRN C07007947 Jun-13 Tel (230) 213 3475 | Fax (230) 213 3478 | Email [email protected] | www.axysstockbroking.com
Tick-size change
A change in the minimum step-size for price changes was
precipitated by SBM’s out-of-the-ordinary share split in Feb-12.
The smaller 10-cent movement on LUX has given investors greater
wiggle room. Prior to the split, 95% of the time LUX would close
within 5-ticks of its previous price. Since, 31% of the time, LUX
closes either above or below its previous close price by more than
five ticks.
Fig 8. Probability distribution function of day-to-day changes (measured
in tick-sizes instead of Rs or %). Data: 304 sessions prior to and post split.
I. Foreign Participation
The Travel & Leisure (T&L) sector has seen its market share of
foreign investor trades half from 21% in 2010 to 10% in 2013. This
relegation to 3rd
spot is not reflective of a lack of interest for the
sector, but because of the listing of foreign owned companies
investing in REITs and/or Real-Estate. Overseas funds investing in
African & Frontier markets have continued to seek Financial stocks
(blue chip banks) followed by T&L counters. In a sector dominated
by NMHL, LUX lost foreign investor confidence during troubled
times, and has seen its market share fall from 9% to 4%.
Fig 9. Share of foreign activity within T&L sector
The direction of foreign flows into T&L has been dictated by both
Mauritian fundamentals and global direction of flows in-and-out of
asset and sub-asset classes. LUX has recorded net divestment in
recent years due to loss of investor confidence; however the stock
did register positive inflows in 2013 amid a stellar market
performance.
Fig 10. Net portfolio investment on liquid hotels
In recent years, foreign participation on hotel stocks other than
NMHL has been on the decline. This trend has been in-line with the
sector’s sub-par profitability and extreme gearing levels. However,
following the change in management and LUX subsequent
turnaround, participation levels could increase in years to come.
Fig 11. Extent of foreign participation on liquid hotels and SEM
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LUX LUX* Resorts & Hotels Ltd
AXYS Stockbroking Ltd, Bowen Square, Dr Ferrière Street, Port-Louis | BRN C07007947 Jun-13 Tel (230) 213 3475 | Fax (230) 213 3478 | Email [email protected] | www.axysstockbroking.com
VALUATION & RECOMMENDATION
Our fragmented tourism industry is still attuning itself to the post-
crisis operating environment: core markets in decline, poor
connectivity and a stable currency. Revenue per Visitor has fallen
to its lowest in years, and burgeoning Chinese market has made its
way into the Top 5. Hoteliers that have been slow at embracing
this change will continue to struggle. Further, the increasing
presence of global brands in Mauritius will make a complicated
operating environment even harder for local hotels. American
household names such as Hilton, Four Seasons, St Regis, and
Outrigger have opened shop; in addition to the above Asian
behemoths The Oberoi, Angsana and Centara are also present. The
Shangri-La is also expected to take over SUN’s Touessrok in the
near future. In our opinion, swift adaptation to change and product
differentiation/Mauritianisation will be key in driving survival in an
increasingly competitive industry.
LUX’s forward growth will stem from its overseas properties which
coupled with an asset light strategy will generate additional
income without capital expenditure. This bodes well for the
group’s Debt:Equity Ratio which it is paying down at the rate of
~Rs500M per year after peaking at Rs5.7bn in FY-11. Under the
leadership of Mr Jones, LUX’s local operations have turned around.
They have been the only group to have consistently improved
margins in recent quarters as well as grow revenue per room. LUX
believes in the Chinese market which it has embraced, innovated
its product, and achieved double digit growth in RevPAR thus far in
FY-14. Although the local conditions remain tepid, LUX is poised to
fare better than peers in relative terms given its evolving model
and dynamic management. The thorn in LUX portfolio is its hotel in
Reunion which it is in the process of selling.
Assuming LUX continues to show strong progress in the Maldives
and a steady decline in interest charges, we forecast LUX’s FY14
PER to stand at 26.0x then 22.4x in FY15. While these PER figures
are well below the Industry PER of 89.3x, it does stand above the
ALEX-20 PER (16.3x) and Total Market PER (14.5x). LUX’s FY-13
Price:Earnings Growth (PEG) Ratio stood at 1, and is poised to drop
well below 1x in both FY-14 and FY15. Although we would have
preferred dividends be used to refurbish LUX* Grand Gaube, DY is
estimated to reached 1.2% in FY15. Assuming LUX pays down
borrowings at Rs500M per and benefits from the conversion into
equity of its bonds, its FY15 DER falls from its current 139% to 91%
in FY-15, i.e. with a Debt per Share of Rs34. Based on the above,
the group’s willingness to accommodate burgeoning markets, and
the fact that LUX’s current management has a track record of
turning things around, we upgrade LUX’s rating from “Reduce” to
“Accumulate”.
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LUX LUX* Resorts & Hotels Ltd
AXYS Stockbroking Ltd, Bowen Square, Dr Ferrière Street, Port-Louis | BRN C07007947 Jun-13 Tel (230) 213 3475 | Fax (230) 213 3478 | Email [email protected] | www.axysstockbroking.com
Appendix A
I. Calculations Methods
Bottom-line profit figures, e.g. Profits after Tax, Attributable
Earnings, and EPS among, have all been adjusted for non-recurrent
exceptional items.
All ‘per Share’ metrics or calculations requiring the ‘No. of Shares’
have been computed using a single constant. AXYS has used the
total number of issued shares by the company excluding treasury
shares as given by its latest annual report.
II. Price to Earnings Growth (PEG) Ratio
PEG Ratio
0 ≤ PEG < 1 Under-valued
PEG = 1 Fair-Valued
PEG > 1 Over-valued
III. Turnover per Room
∑
∑
III. Revenue per Occupied Room
∑
∑
IV. Enterprise Value per Room
(∑ ) ∑
∑
References
Bank of Mauritius, Monthly Statistical Bulletin, Jul 2007 –
Apr 2014.
LUX Resorts & Hotels Ltd, Annual Report, 2007 – 2013.
LUX Resorts & Hotels Ltd, Interim Results, Q1-07 – Q3-14.
Disclaimer
AXYS Stockbroking Ltd has issued this document without
consideration of the investment objectives, financial situation or
particular needs of any individual recipient. Recipients should not
act or rely on any recommendation in this document without
consulting their financial adviser to determine whether the
recommendation is appropriate to their investment of this
document. This document is not, and should not be construed as,
an offer to sell or the solicitation of an offer to purchase or
subscribe for any investment. This document has been based on
information obtained from sources believed to be reliable but
which have not been independently verified. AXYS Stockbroking
Ltd makes no guarantee, representation or warranty and accepts
no responsibility or liability as to its accuracy or completeness.
AXYS Stockbroking Ltd and its officers, directors and
representatives may have positions in securities mentioned in this
document, or in related investments, and may from time to time
add to or dispose of such securities or investments. AXYS
Stockbroking Ltd is a member of the Stock Exchange of Mauritius
and is licensed by the Financial Services Commission.
Authors
Bhavik Desai
Head of Research
Melvyn Chung Kai To
Trader
Vikash Tulsidas
Manager
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