Luxury resorts operator Banyan Tree has sunk deeper in the red for the second quarter, more than doubling its losses on-year to 9.2 million Singapore dollars (214 million baht). The Phuket property, which was sold this week, helped keep the revenues up.
China is the next growth market for the resorts operator where it hopes to tap into the potential of the Chinese upper middle income group.
There has been strong response to the Banyan Tree China Hospitality Fund, valued at US$150 million.
The company anticipates a first close of the fund in September, and possibly a second China fund.
“We have more than 60 per cent of our total assets in Thailand, and in the past, we thought that we would not actively divest; (so) we would just reduce that mix by growing elsewhere. We would hope to get it to be below 50 per cent for sure over the next few years," Banyan Tree Holdings executive chairman Ho Kwon Ping said.
“As a result of what has been happening, we decided to accelerate this whole process, not just by growing elsewhere, but also by actively reducing that concentration in Thailand. Under the terms and agreement for China funds, number one, we are not allowed to form a second fund until 70 per cent of the first fund’s monies have already been committed. So broadly speaking, I would say it would take us roughly about 12 to 18 months to probably commit the entire 70 per cent of the first fund and then we will probably start raising for a second fund,” Mr Ho said.
Analysts covering Banyan tree has an ‘underperform’ recommendation on the stock, which is traded on the Singapore Stock Exchange.
Analyst Derek Tan of DBC Vickers Securities says that reducing the Phuket exposure for the company is positive.
“Apart from reaping S$68.4m gains on the sale, reduced Thailand exposure (currently 2/3 of topline) is positive for the group going forward. Earnings have been volatile amid political instability in Thailand that affected the tourism industry over past 2 years. Sale of one of its non-core branded hotels will also enable the group to re-deploy capital, leveraging on its Banyan Tree and Angsana franchises”, says Mr. Tan.
He suggests investors hold on to the stock, but believe the company is in the midst of another difficult quarter.
“Based on Laguna Resorts & Hotels (Phuket) latest reported numbers, attributable loss to Banyan Tree is estimated at S$5.8m on the back of weak operational performance in Thailand, further aggravated by the political crisis in Bangkok back in Mar-April”, according to Tan.
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