At that price the Singapore listing-candidate is valued at a slight discount to its peers, but the fact that it was able to avoid pricing at the very bottom in the current volatile market environment was a clear testament to the quality attached to this name and the strength and prestige of the brand, observers say.
The Singapore stock market fell 3.6% during the two-week bookbuilding and has plunged 13.7% from its record high on May 3. The two newcomers to the market during this time û Thai Beverage and Pacific Shipping Trust û have both slipped below their offering prices.
Banyan TreeÆs order books closed on Wednesday (June 7) before yesterdayÆs 2.5% drop in the market, which was perhaps fortunate, but by the time joint bookrunners DBS and UBS decided on the price yesterday morning it was already clear Asian markets were in for another sizeable sell-off.
FinanceAsiaÆs own FA100 index, which tracks 100 bluechips in Asia outside of Japan, plunged 50 points, or 3.5%, yesterday to 1,354.5 which left it 6.1% below the level where it started the year. The index has lost 16.7% since its peak on May 8.
One source notes that Banyan TreeÆs subscription levels werenÆt exactly overwhelming, but the book was still ôfairly bluechip in terms of qualityö after some momentum-type funds pulled their orders in response to the battering in the secondary market.
ôThe market timing couldnÆt have been worse, but a lot of people wanted to buy this regardless of the markets and saw value at the mid-point. As long as the markets arenÆt too bad before (the trading debut) this should actually be okay,ö the source says.
The stock will start trading next Wednesday (June 14).
The company sold 380.1 million shares at S$0.97 each after marketing the deal to investors in a range between S$0.87 and S$1.07.
About 73.2% of the offer was made up of secondary shares that were sold by a number of existing shareholders, including Executive Chairman Ho Kwon Ping. The remainder were new shares issued by the company.
According to sources most of the interest came from institutional investors in Asia and the US and included funds specialising in the lodging, tourism and property sectors. European investors were less well represented, which perhaps also reflects the fact that European hotel stocks trade at below average valuations.
Retail investors were also more sceptical and the 5.3% of the offer that was earmarked for them was just one times subscribed, compared with a coverage ratio of two times for the total deal, the sources says.
The final price values Banyan Tree at 17.3 times its projected 2006 earnings, which was slightly below the average of about 20 times for its main comparables at the time of pricing. Looking at individual stocks, Shangri-La Asia was quoted at 23 times earnings, Intercontinental at 24 times, Hong Kong & Shanghai Hotels at 18.5 times and the European comparables at about 18 times.
Four Seasons is well ahead of the rest with a 2006 PE multiple of 32 times, but is not directly comparable because of its greater number of rooms per hotel.
Banyan Tree currently operates 18 resorts and hotels with a total of 1,986 rooms as of the end of March. It specialises in luxury villa-style accommodation with each facility typically having only between 50 and 100 rooms and commanding prices at the very top end of the particular market where it is located. To broaden and build its customer base it also operates slightly less pricy hotels and resorts under the Angsana brand and also operates 49 spas, 53 galleries and two golf courses.
It also owns a 51.8% stake in Laguna Phuket, the leading integrated resort in Thailand, which includes five resorts, five spas, galleries and a golf course and is being marketed as a travel destination within Phuket û the island where the first ever Banyan Tree resort was opened in 1994
While the average room rate at the Banyan Tree hotels and resorts tend to range between $300 and $2,200 per night, the Angsana brands commands less hefty prices ranging from $200 to $900. As its resorts are typically located in low-cost areas the company is able to achieve wide operating margins, which according to the listing document stood at 26.6% in the three months to December 2005 and 34.1% in the first quarter 2006.
However, investors were said to be more focused on the companyÆs plan to leverage its brand and expand beyond its existing markets.
ôFor this story to really work, it needs to become a global brand rather than just a niche player, which is what a lot of people still perceive it as,ö one observer says, noting that this would help reduce event risk such as the December 2004 Tsunami, which hit its resorts in Phuket and the Maldives hard.
It took the company just about three quarters to get its revenues back to the levels it had before the Tsunami. The natural disaster, which killed more than 200,000 people in Southeast and South Asia, also put a spanner in the works for the companyÆs IPO which was initially targeted for the first half of last year.
The company has already entered into management agreement to open new hotels and resorts in various locations around the world, including Morocco, Sri Lanka, Indonesia (including Bali), Mexico, Greece, Barbados, China and the United Arab Emirates. It is also looking to open two new resorts in Thailand, in Chiang Mai and Koh Samui.
Over the next four years, the company said it plans to open 21 resorts and hotels, 12 of which it will manage but not own itself. It stressed that the ability to command premium rates will be a key consideration as it expands geographically.
ôThe beauty of its strong brand is that it can set up in a place that is relatively cheap and tourists will come and make it a new tourist destination,ö the observer says. ôThe donÆt need too focus on places where there are already a lot of competitors.ö
While noting that such expansion is not without execution risk, syndicate analysts project the number of rooms will quadruple between now and 2009, which should lead to 15% earnings growth per year. In 2005 the company posted a net profit of S$1 million ($600,000), down from S$30.4 million in 2004. In the first three months this year the bottom line had already reached S$11.1 million ($6.9 million), however.
Revenues fell close to 15% to $112.6 million in 2005, but amounted to $49.8 million in January-March 2006.
Banyan Tree said it intends to invest S$70 million, or about 70%, of its net IPO proceeds in existing and new resorts. The remainder will be used to redeem preference shares, to make the final payments for an acquisition of Trademarks and for future investments in hotels and resorts that are currently under discussion.
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