E Better Than The Maestro

According to its most recent report, its revenues are ~65% from hotels, 40% from restaurants, and the rest from retail stores and contract manufacturing, called “Lifestyle”.

Under Thai GAAP on its 9-mo data which showed revaluation gains from the Tivoli buy and also from its investment in BreadTalk Group of Singapore, and Sun International and Oaks Elan Darwin hotels in Australia, which would have produced a 46% gain over the 9-mo figures in 2015. Eliminating those, MINT core net profit excluding non-recurring items rose 11% to 3,229 bn Thai bahts in the 9-mos, mostly because of its restaurant and hotel operations. It is unclear if the same eliminations applied to the Q3 results.

For validation of sorts, note that the Q3 corporate tax applied by Thailand and other jurisdictions rose 338% which probably confirms the real rise. There is an offsetting negative, a rise in minority interest to 56 mn bahts from 25, mn, up 125%. I assume this is Mr Heinecke looking after himself.

The Tivoli hotels which were acquired early this year boosted results as did the Thai ones and those in another new site, Zambia. The original business—fast food and restaurants—also did will with a 16% net profit growth, also excluding one-offs. The newest business, “lifestyle”, branded franchise stores, saw profits drop by 37% because of the costs of investing in new stores. However, there also was also an impact of deep aggressive discounting of fashion brands. In Q3, separated out only for this, the drop was on​ly 15% vs 2015. Other Q3 data is not separated out.

I am not upset that Mr Heinecke did not play the patriot game as a youngster but I think his reporting is not altogether up front. It would help if its accounts were less opaque. For what it is worth, the stock is mostly rated hold by those following it. It upped its liabilities by 10% by issuing new debt to buy the Tivoli chain and it owes 66.015 bn bahts while its shareholder equity is only 38.85 bn. It is leveraged to the hilt.

Its p/e ratio is about 18x. It pays a modest dividend. But its net profit margin in Q3 this year was 8% after removing the one-offs and paying the interest, down about 9 basis points from last year but still a nice pile of cash.

My reasons for buying now are because of the death of King Bhumibol and MINT's position as a partner with the Royal Project Foundation in Thailand to help farmers get out of poverty by producing food instead of opium. It is also green, aiming to reduce energy consumption in its hotels, and actively recycle and support sustainability.

The other reasons for buying now are specifically Thai. First, China is cracking down on Chinese tour operators which offered virtually free trips to Bangkok and then tried to force tourists to spend a lot of money at stores which gave the operators kickbacks. This was not the shops owned by MINT but helps explain the heavy discounting by competition this summer.

To make up for the lost China business, Thailand then cut taxes applied on foreign tourist spending in hotels and restaurants by over 25%. This will help continue to lure Chinese bargain seekers to Thailand who use hotels and restaurants it own​s. It will also boost sales at MINT's cheap chain stores selling fashion items. While the going has not been easy I think there is a market for fashion brands in Thailand under the Esprit, Etam, GAP, Banana Republic, Brooks Brothers, and other global marques.

So far mostly in the future is MINT's real estate arm which will develop and sell vacation homes around its hotels in Bangkok, Phuket, and via a jv in Chiang Mai, plus eventually via a different brand in New Zealand, Bali, and Sanya, China.

It is a gamble. There is a bit of sulphur in the air. But I can take the risk more easily with an ADR than in Bangkok. Note that the ADR has a very wide bid-ask spread but you can offer to buy in the middle as I did today.

*To pay for this one we sold Gemalto (GTOMY) at $26.04/sh today. GTOMY is a disappointing Dutch security firm​.

Oil Patch

*Schlumberger Ltd (SLBwhich is incorporated in the Dutch Antilles signed an agreement to provide Iran with technical evaluation of an oilfield there. It said it is complying with the laws and regs of countries where it operates. SLB has form in going early into troubled lands as it flogged its wellhead services to Opec countries back when they ousted the oil majors in the wake of the Yom Kippur War of 1973. Note that SLB's owners are mostly French nationals and its CEO is Norwegian. SLB has an edge against the largest US alternative supplier of wellhead services, the future combo of GE and Baker Hughes.

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