Saturday, 17 May 2008

Banyan Tree – The luxury tree

Banyan Tree posted 38% increase in Q1 net profit for FY08. Total revenue rose 34% because of strong growth in hotel investment and property sales. The company is expanding the resort and hotel business into new location.

The hotel business remain stable despite the cloudy global economic environment. They expect good response to the branded residence sales and property sales. In the result presentation, management has shown the planned expansion strategy. It looks pretty impressive. There should be a significant growth on the number of hotel they are going to manage.

The company has 3 business segment – hotel investment, hotel residence and property sales. The company first started as resort operator in Phuket and slowly diversify the business into related area. It is now trying to capitalize on the strong brand name it has built to expand and grow. I think the growth strategy is well articulated and with the strong management focus, it is more likely to succeed in the mid term. The key risks are funding issue and demand for the luxury resort and hotel.

I once owned a few lot from the IPO allocation. Unfortunately, I am not that familiar with the hotel and property business, so I sold off my position. It looks like a wrong decision now. I am considering to add it back to my portfolio base on the following points

  • Strong luxury brand. As Asia people get richer, they would find way to indulge themselves. The luxury resort business should not be affect greatly by economic condition.
  • Dedicated management who is focusing on growth. Look at the expansion plan, they have lots of work to do. If everything goes nicely, we shall see a different company 3 years later.

2 comments:

Financial Journalist said...

Some Asia stocks continue to report very healthy earnings, a sign that Asia has indeed decoupled from US economy. Their share prices are down 30% - 50% due to broad market pessimistic sentiment, but their fundamentals just get better and better;

These are the stocks I think have the potential to double their share prices over the next 2 -3 years since there is a gap between the valuation of their stock price and fundamental of their business are very wide now.

Swiber, Advanced Holdings, China Sports, KS Energy, Gold ETF.

Alen said...

Hi Brendan,

The Asia demand is getting stronger internally, so that would provide cushion to the company earning. Especially for the non US exporter. This would be a chance for us to pick up companies with strong fundamental and selling at discounted share price.

For Swiber and China Sports, they have a high chance to succeed.