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BA N YA N T R E E
BANYAN TREE HOLDINGS LIMITED
HOLDING LIMITED
Chew
Zi
Yi
Gillian
GoH
Cliffton
Ho
Gerald
Lee
Gregory
Zhou
S8710557A
S9017105D
S8729934A
S8830084Z
S8705793C
Date
of
Submission:
Nov
2,
2011
Instructor:
Wang
Jiwei
Page
BA N YA N T R E E
BANYAN TREE HOLDINGS LIMITED
HOLDING LIMITED
RESTRUCTURING-IN-PROGRESS
HOLDINGS
LIMITED
www.banyantree.com
SELL
S$0.55
Bloomberg:
Reuters:
SGX:
Trading
Data
As
at
28-10-2011
Market
Cap:
Volume:
Avg
Vol
(3m):
52wk
Range:
Days
Range:
restructuring
with
focus
turning
towards
fee-based
segments
in
a
bit
to
reduce
its
exposure
in
Thailand.
To
fund
its
restructuring,
BTH
continues
its
divestment
efforts
to
sell
off
Laguna
BTH
SP
BANY.
SI
B58.SI
Beach
Resort
for
USD$23.6mn
to
free
up
cash
for
developments
in
other
regions.
BTH
is
expected
to
reduce
its
proportion
of
EBITDA
generated
by
Thailand
from
52%
in
2010
to
40%
in
2013;
hence,
we
expect
divestment
progress
in
Thailand
to
decelerate
in
the
current
period
given
Thailands
current
economic
outlook,
especially
with
the
recent
m assive
flood.
Nonetheless,
its
aggressive
expansion
in
China
may
be
offsetting
divestment
efforts
in
615.310M
113,000
87,952
0.55
-
1.21
0.80
-
0.82
Page
Page
SWOT ANALYSIS
STRENGTHS
-
Diversied
revenue
streams
-
Niche
presence
in
key
tourism
markets
-
Strong
brand
equity:
Reputable,
award-winning
resort
and
spa
name
largely
in
Asia
-
Strategic
brand
names,
Banyan
Tree
&
Angsana
to
market
to
high-end
&
upper-mid
markets
-
Over
16
years
of
management
expertise
-
Internationally
acclaimed
corporate
social
responsibility
eorts
&
committment:
Banyan
Tree
Global
Foundation
OPPORTUNITIES
-
Matured
assets
ready
to
be
divested
-
Large
growth
potential
with
growing
auence
in
China:
inbound
&
outbound
tourism
-
Tapping
on
real
estate
property
boom
in
China:
develop
branded
holiday
homes
-
Debuts
in
new
destinations
e.g.
Resorts,
Hotels
&
Spas:
Vietnam,
Oman,
Spain,
Greece
Residences
available
for
sale:
China,
Vietnam,
Oman,
Mexico
WEAKNESSES
-
High
dependability
on
Thailand
-
Extensive
outreach,
but
small-scale
operations
(spa
operations)
-
Weak
corporate
governance:
non-independent
directors
-
Risk
of
litigations
THREATS
-
Global
tourism
demand
expected
to
dip
slightly
amid
global
economic
uncertainty
-
Property
sales:
Thai
shrinking
personal
wealth,
currency
risk
-
Holiday
home
markets
&
property
sales
subjected
to
global
property
demand;
investor's
condence
is
taking
a
dip
-
Risk
of
property
bubble
&
government
tightening
measures
-
Entering
saturated
property
developer
market
in
China
-
Major
portfolio
holdings
in
Thailand:
great
political
instability
risk
-
Middle
East
expansion
plans:
subjected
to
high
political
play
BUSINESS
STRATEGY
BTH
aims
to
establish
itself
as
an
internationally
recognized
operator
in
the
premium
boutique
resort,
residences
and
spa
industry.
It
is
moving
into
the
next
phase
of
expansion
both
in
Asia
and
other
new
regions.
As
of
2010,
it
has
94
hotels,
resorts
and
spas
in
27
countries,
which,
by
2014,
is
projected
to
grow
to
193
hotels,
resorts
and
spas
in
34
countries.
It
seeks
to
gain
a
competitive
advantage
through
these
strategies:
Aggressive
expansion
mainly
in
Asia,
with
China
as
its
central
plank
of
growth
strategy.
BTHs
revenue
from
2006
2010
from
North
East
Asia
recorded
a
growth
rate
of
26.7%.
Pipeline
projects
are
set
to
increase
the
number
of
hotel/resort
keys
by
370.4%,
from
839
to
3947
and
triple
number
of
spas
in
China
alone.
BTH
will
enter
new
market,
Vietnam,
by
2012
with
resorts,
spas
and
residences
available
for
sale.
Page
Diversification
from
Thailand
is
underway
to
reduce
the
proportion
of
EBITDA
generated
by
Thailand
from
52%
in
2010
to
40%
in
2013.
Divestments
in
Thailand
help
unlock
value
from
matured
assets
such
as
Dusit
Thani
Laguna
Phuket
and
Laguna
Beach
Resort
has
freed
up
some
cashflow
of
USD$85.5mil
and
USD$23.6mil.
Adding
more
depth
to
the
property
segment,
mainly
in
China
Branded
primary
housing
in
Chinas
2nd/3rd
tier
cities
where
land
is
relatively
less
expensive
and
riding
on
PRCs
government
plans
to
boost
rural
tourism.
Thus
number
of
keys
for
residences
available-for-sale
is
set
to
increase
by
127.4%.
Ability
to
finance
project
expansions
with
the
creation
of
private
equity
funds
worth
USD$440
mil
under
the
Banyan
Tree
Indochina
Hospitality
Fund
(2009)
funding
the
development
of
Laguna
Hue
Resort
in
Vietnam
&
Banyan
Tree
China
Hospitality
Fund
(2011)
intended
to
finance
the
property
growth
in
China.
Major
hotel
developments
and
refurbishments
in
key
resorts
have
been
rolled
out
to
enhance
and
expand
the
presence
of
the
Groups
resort
options
for
travellers
worldwide
through
the
Banyan
Tree
and
Angsana-branded
resorts.
Improvements
include
upgrading
of
Villas
from
Standard
to
Deluxe
level,
floor
space
enlargement
and
renovating
of
facilities
and
spa
treatment
rooms.
Leveraging
on
their
innovative
&
award-winning
spa
concept
as
a
means
of
market
entry,
BTH
is
opening
new
resorts
in
existing
regions.
China
839
China
1101
China
2005
2010A
2011E
2012E
China
3947
China
2891
2013E
2014E
China
Thailand
Middle East
Vietnam
Maldives
Australia
Indonesia
Spain
Greece
Mexico
India
Portugal
Seychelles
Mauritius
South Korea
Laos
Page
Page
RATIO
ANALYSIS
Banyan
Trees
profitability
ratios
were
observed
to
be
volatile
throughout
the
years.
This
was
largely
attributed
to
externalities
like
the
2008
financial
crisis
and
political
unrest
in
Thailand.
The
ratios
prove
the
2006
2007
2008
2008
Return of Asset
2009
1.82
1.76
7.9%
26.5%
1.18
1.13
1.26
1.19
1.58
1.63
1.39
1.33
0.5
largely
attributable
to
recorded
in
2007
and
2010
were
0.0
2008
2010
1.58
1.08
Quick Ra>o
0.72
0.80
1.38
0.96
0.77
1.19
0.84
Current Ra>o
2009
1.56
1.10
2007
0.76
2006
0.84
1.23
0.86
rebounded in 2010.
Return on Equity
1.0
1.00
16.5%
2010
1.5
0.0%
2007
1.2%
0.5%
2.4%
2.4%
2.0%
2.0
4.0%
2010
6.0%
2006
2009
EBIT(Opera>ng Income)
3.6%
4.4%
6.8%
8.4%
8.0%
7.1%
8.7%
EBITDA Margin
10.0%
1.50
21.9%
0.0%
2.00
1.1%
10.0%
9.4%
21.9%
4.3%
20.0%
13.0%
12.6%
30.0%
21.7%
33.1%
40.0%
13.7%
28.9%
27.4%
point
that
BTHs
revenues
are
too
heavily
reliant
on
certain
countries
like
Thailand.
Hence,
there
is
a
need
to
diversify
its
geographic
and
operating
portfolio
to
lower
idiosyncratic
risk
and
generate
m ore
stable
returns.
0.50
0.00
2006
2007
2008
2009
2010
Page
FORECAST
METHODOLOGY
Forecast
of
Growth
The
growth
rate
for
our
forecast
is
based
largely
on
the
projected
pipeline
project
of
the
company.
We
derived
the
growth
rate
using
two-tiered
weighted
average
method.
On
the
1st
Tier,
we
broke
down
the
total
revenue
streams
of
the
company
into
its
operating
segments
and
identified
the
main
revenue
drivers;
subsequently
for
each
segment
we
identified
the
geographic
breakdown
of
the
each
business
segments
revenue
driver
in
2015.
Lastly,
we
extracted
each
countrys
hotel
and
spa
industrys
growth
rate
(regional
rates
used
if
country
rates
unavailable)
and
used
them
as
the
basis
to
pool
the
growth
rate.
The
final
weighted-average
growth
is
8.9%.
Segment
Revenue
Breakdown
100%
50%
32.7%
31.4%
31.7%
16.7%
17.7%
18.6%
50.6%
51.0%
49.7%
2006
2007
15.4%
9.3%
25.0%
28.7%
59.6%
62.0%
2009
2010
0%
Hotel Investments
2008
Fee-Based
Property Sales
We
foresee
the
segment
proportion
to
remain
relatively
constant
given
the
current
global
economic
conditions
Forecasting
of
Financial
Statements
Plant,
Property
&
Equipment:
Historically,
BTHs
PPE
has
been
increasing
steadily,
possibly
due
to
its
aggressive
expansion
strategies
especially
in
China.
However,
the
Group
has
recently
announced
decisions
to
commence
divestments
of
its
resorts
in
Thailand
and
some
parts
of
China
in
order
to
shift
their
focus
on
fee-based
management
contracts
instead
of
equity
investments.
For
these
reasons,
we
expect
a
consistent
decrease
in
its
PPE-to-sales
ratio.
Page
Income
Tax
Expenses
/
Profit
before
taxation:
BTHs
reported
income
tax
expense
included
figures
for
deferred
tax
assets
not
recognized,
withholding
taxes
etc.,
resulting
in
a
reported
tax
expense
that
was
preposterously
high
(approximately
42%).
To
adjust
for
this,
we
used
the
2010
figures
of
(Income
tax
using
Singapore
tax
rate
of
17%
+
Effect
of
different
tax
rates
in
other
countries)/Accounting
Profit
Before
Taxation
as
an
indication
of
their
true
tax
expense.
We
expect
this
to
remain
at
the
same
level.
Dividend/
Net
Income:
BTH
paid
dividends
in
the
first
couple
of
years
subsequent
to
listing
but
failed
to
declare
dividends
in
the
last
three
years.
However,
the
Group
has
announced
that
they
do
intend
to
pay
dividends
in
the
near
future,
so
our
team
used
a
conservative
estimate
of
10%
of
net
income
(as
compared
to
its
historical
dividend
payouts)
to
forecast
the
annual
dividends
BTH
might
pay.
VALUATION
Cost
of
Equity
=
11.75
%
(Bloomberg)
2010
2011
2012
2013
2014
2015
71,601,770
723,518,824
78,126,139
-6,524,370
758,837,980
-0.0086
8.5106
0.6412
-0.0469
Actual
Residual
Income
Method
NPAT
Book
value
of
owner's
e quity
l ess
MI
Required
e arnings
Abnormal
Earnings
Oustanding
shares
AE
per
share
Discount
Factor
of
Perpetuity
at
Cost
of
Equity
Discount
Factor
at
Cost
of
Equity
Present
value
of
AE
Price
per
share
based
on
RIM
477,081,223
758,837,980
Forecasted
45,993,949
518,780,370
56,057,044
-10,063,094
758,837,980
-0.0133
52,732,813
561,736,141
60,956,694
-8,223,881
758,837,980
-0.0108
60,310,033
611,107,873
66,003,997
-5,693,963
758,837,980
-0.0075
65,713,812
664,903,313
71,805,175
-6,091,363
758,837,980
-0.0080
0.8949
-0.0119
0.8008
-0.0087
0.7166
-0.0054
0.6412
-0.0051
0.55
Relying
on
the
Residual
Income
Model
to
valuate
BTHs
shares,
our
team
arrived
at
a
figure
of
$0.55
as
compared
to
the
market
price
of
S$0.80
(2
November
2011)
suggesting
that
BTHs
shares
may
be
overpriced.
In
support
of
our
findings,
the
market
price
of
BTHs
shares
was
indeed
in
the
S$0.50
region
merely
three
weeks
ago.
Between
then
and
now,
the
STI
in
general
saw
a
steady
bull
run
buoyed
by
optimism
in
the
EU
that
greater
steps
are
being
taken
to
resolve
the
Greek
crisis.
Therefore,
the
share
price
of
BTH
increased
correspondingly
and
could
be
due
plainly
to
positive
investor
sentiment
instead
of
strong
fundamentals.
We
would
like
to
highlight
the
negative
abnormal
earnings
per
share
forecasted
for
2011
through
2015,
which
we
expect
to
perpetuate.
This
implies
value
destruction
by
the
firm;
which
can
be
explained
by
a
number
of
possible
reasons:
Page
BTH
plans
to
create
a
niche
in
the
branded
property
housing
market
in
the
2nd
and
3rd
tier
cities
of
China.
However,
there
is
a
high
risk
to
it.
Although
the
property
market
has
been
expanding,
research
has
shown
that
there
might
be
a
property
bubble.
Moreover,
BTHs
core
competency
is
in
its
hotel,
resort
and
service
residences
industry.
Although
it
has
been
doing
property
sales,
they
are
mainly
resorts.
Hence,
it
is
counterintuitive
to
venture
into
a
relatively
new
risky
market
with
a
new
product.
BTH
also
plans
to
expand
aggressively
in
Chinas
different
regions
in
the
next
few
years.
However,
this
is
contrary
to
international
business
theories.
The
reason
is
that
China
markets
are
diversified:
each
region
has
its
own
idiosyncratic
economic,
political
and
social
condition.
Hence,
it
takes
time
to
understand
the
different
culture
before
undertaking
aggressive
international
expansion.
Aggressive
expansion
without
understanding
the
markets
will
lead
to
undesirable
ramifications.
Evidently,
its
rapid
expansion
(without
first
understanding
the
market)
in
the
Middle
East
in
the
past
has
led
to
subsequent
losses
and
disputes.
BANKRUPTCY:
ALTMANS
Z-SCORE
Also,
our
calculated
Z-score
of
1.28
(Bloomberg
Z-score
is
1.4)
illustrates
that
BTHs
probability
of
bankruptcy
is
high.
Further,
as
established
earlier,
the
industry
and
economic
outlook
is
not
rosy.
Hence,
a
sell
is
recommended
since
current
price
indicates
overvaluation.
Revenue Growth
SENSITIVITY
ANALYSIS
Sensitivity
Analysis
of
Price
per
Share
0.55
9.75%
10.25%
6.50%
$
0.625 $
0.586
7.00%
$
0.641 $
0.600
8.50%
$
0.689 $
0.646
7.50%
$
0.657 $
0.615
8.00%
$
0.673 $
0.630
8.50%
$
0.689 $
0.646
8.96%
$
0.705 $
0.660
9.50%
$
0.723 $
0.677
10.00%
$
0.740 $
0.694
10.50%
$
0.758 $
0.710
11.00%
$
0.776 $
0.727
11.50%
$
0.794 $
0.744
10.75%
$
0.550
$
0.564
$
0.607
$
0.578
$
0.592
$
0.607
$
0.620
$
0.636
$
0.652
$
0.667
$
0.683
$
0.699
Cost
of
Equity
11.25%
$
0.518
$
0.531
$
0.571
$
0.544
$
0.557
$
0.571
$
0.584
$
0.599
$
0.613
$
0.628
$
0.643
$
0.658
11.75%
$
0.488
$
0.501
$
0.539
$
0.513
$
0.526
$
0.539
$
0.551
$
0.565
$
0.579
$
0.593
$
0.607
$
0.621
12.25%
$
0.461
$
0.473
$
0.509
$
0.485
$
0.497
$
0.509
$
0.521
$
0.534
$
0.547
$
0.560
$
0.574
$
0.587
12.75%
$
0.437
$
0.448
$
0.482
$
0.459
$
0.470
$
0.482
$
0.493
$
0.506
$
0.518
$
0.531
$
0.543
$
0.556
13.25%
$
0.414
$
0.425
$
0.457
$
0.435
$
0.446
$
0.457
$
0.467
$
0.480
$
0.491
$
0.503
$
0.515
$
0.528
13.75%
$
0.393
$
0.403
$
0.434
$
0.413
$
0.424
$
0.434
$
0.444
$
0.456
$
0.467
$
0.478
$
0.490
$
0.501
Page
10
We
stressed-tested
our
Residual
Income
Valuation
using
sensitivity
analysis,
varying
our
assumptions
on
the
cost
of
equity
and
terminal
growth
rate.
SCENARIO
ANALYSIS
Bear
1.
Our
bear
case
scenario
assumes
that
Thailand
growth
rate
will
drop
from
4.62%
to
2%
due
to
worsened
political
uncertainities
and
prolonged
flooding.
This
scenario
represents
a
downside
of
36.4%
below
our
forecasted
fair
value
($0.55
to
$0.35).
2. Our
second
bear
case
scenario
assumes
that
China
growth
rate
will
drop
from
12%
to
5%
due
to
tightening
of
property
regulations.
This
scenario
represents
a
downside
of
10.91%
below
our
forecasted
fair
value
($0.55
to
$0.49).
Bull
3. Our
Bull
case
scenario
assumes
that
Thailand
growth
rate
will
increase
from
4.62%
to
8%
due
to
improved
political
situation.
This
scenario
represents
an
upside
of
3.64%
above
our
forecasted
fair
value
($0.55
to
$0.57)
APPENDIX
FIGURE
1:
NUMBER
OF
HOTEL/RESORT
KEYS
Page
11
8000
7000
6000
5000
4000
3000
2000
1000
0
4935
1398
1825
1023
450
690
326
546
0
2601
1278
0
SOURCE:
BANYAN
TREE
ANNUAL
REPORT
2010
FIGURE
1:
TOTAL
NO.
OF
RESORTS/HOTELS
WITH
RESIDENCES
AVAILABLE
FOR
SALE*
800
700
600
500
400
300
200
100
0
474
27
108
0
128
379
68
47
283
SOURCE:
BANYAN
TREE
ANNUAL
REPORT
2010
Page
12
Hotel Investments
Fee-Based
Hotel
Investments
62%
Property Sales
Hotel Investments:
Banyan Tree Holdings own and manage luxury hotels under two brands: a) Banyan Tree b) Angsana. They also own hotels
that are managed by other operators.
Fee-Based:
a) Hotel/Fund/Club management, where they receive fees based on management contracts for managing hotels for
other owners under the Banyan Tree and Angsana brands BTH also manages asset-backed destination clubs and two
private equity funds
b) Spa operations mgmt within BTH's own resorts and resorts owned by other operators.
c) Gallery operations
d) Design & others, as most of BTH's resorts are designed by an in-house division
Property Sales:
a) Hotel Residences: currently available in 6 regions; primarily sold under the Banyan Tree Residences brand
b) Laguna Property Sales: Properties are sold under BTH's subsidiary, Laguna Resorts & Hotels and its subsidiaries.
BTH also manages Laguna Holiday Club, a timeshare vacation club.
Page
13
Property, 30%
Management, 49%
Investment Holdings
Management
Property
Investment
Holding:
Investment holding companies own investments such as properties and shares for long term investment and
derives investment income such as dividend
Management:
Providing management, consultancy and operational services such as resort, spa, F&B, project, and golf
management services. Also includes marketing, hotel design services, travel agency services, ancillary services
related to the hospitality industry, tourism management services, trading and retailing of consumer goods in
resorts. Subsidiary companies also manage and operate the Banyan Tree Indochina Hospitality Fund, L.P. A
particular currently dormant subsidiary company also provides tax planning services for BTH.
Property:
Property holding companies are legal entities used by groups of companies to invest in real estate or to hold
shares or participations in other companies investing in real estate. A property holding company may be used to
invest in a single property or a large number of properties forming part of a large development project. In some
cases, a property holding company will be used for each property forming part of large development project. In
addition to the holding of immovable property, property holding companies may engage themselves in other
activities such as:
a. Leasing real estate to companies forming part of the same group or to un-related third parties; and
b. Financing of immovable property development projects.
Includes construction and development of properties, property holding and investments, property leases, rental of
apartments, lease of office building space, holiday club memberships, to own, buy, sell, take on lease, develop or
otherwise deal in immovable property
*Subsidiary companies may be involved and considered under more than one segment.
Page
14
4.1%
26.0%
7.4%
1.2%
4.7%
6.7%
1.9%
38.9%
China
Mexico
India
UAE
Thailand
Morocco
Australia
Maldives
Indonesia
Sri
Lanka
Seychelles
Korea
Laos
Page
15
2%
3%
3%
4%
4%
46%
3%
3%
2%
2%
17%
1%
China
Thailand
Maldives
Seychelles
Mexico
Morocco
Indonesia
Korea
India
Australia
Sri Lanka
Laos
UAE
Vietnam
Portugal
Greece
Oman
Montenegro
Mauritius
Egypt
Spain
Page
16
20%
0%
4%
0%
46%
China
Thailand
Maldives
Seychelles
Mexico
Morocco
Indonesia
Korea
India
Australia
Sri Lanka
Laos
UAE
Page
17
8%
12%
30%
7%
5%
0%
0%
17%
8%
2%
1%
4%
0%
0%
China
Morocco
Sri
Lanka
Greece
Thailand
Indonesia
Laos
Oman
Maldives
Korea
UAE
Montenegro
0%
0%
Seychelles
India
Vietnam
Mauritius
Mexico
Australia
Portugal
Egypt
Page
18