Company overview - Mantra Group Limited is engaged in the provision of accommodation and hotel related services, food and beverage operations and central reservations. The Company's segments include Resorts, which operate retreats and resorts in leisure destinations, principally under Management Letting Right (MLR) agreements; CBD, which operates properties in major cities throughout Australia, principally under Lease Right (LR) agreements; Central Revenue and Distribution, which contains the Company's in-house customer management and booking services, through which it earns fees from bookings made through its central reservation system, and Corporate, which includes revenue received under Marketing Services Agreements and from the Renovation and Design department. Its portfolio ranges from luxury retreats and coastal resorts to serviced apartments in CBD and leisure destinations, under its over three brands, including Peppers, Mantra and BreakFree.
 

MTR Details
 
Response to media speculation:Mantra Group Ltd (ASX: MTR), the leading Australian-based hotel and resort operator, gave a response to media speculation regarding possible corporate interest in MTR. MTR has confirmed that it is not in discussions with any potential buyers. Recently, InterContinental Hotel Group and Marriott International were rumored to be interested in the group.
 
Mantra plus and Mantrahotels.com:The website conversion figures since the launch of Mantra+ are tracking above forecast with 10% conversion of the database. 1,000,000 guests in marketing database have so far converted 100,000 to Mantra+ members with on-boarding strategy in place. Moreover, MantraHotels.com was launched in July and the booking engine has been due for release in June 2017. This is the consolidated, 'mobile first' distribution platform for all Mantra Group brands and territories, which has the personalization capability. On the other side, the Commonwealth Games that is scheduled for April 2018, will see participation from 6,600 athletes and team officials from 70 nations, and this 11-days sporting and cultural event is expected to be positive for the group. This will be the largest sporting event that Australia will see this decade and is estimated to have a $2 billion of economic impact. Moreover, there will be 17 competition venues consisting of 18 sports and 7 para-sports while over 1.5m spectators are expected. The group would largely benefit as it is the largest accommodation provider on the Gold Coast. Meanwhile, the group has completed 1,138 accommodation refurbishments this year to date (YTD). 10 hotel projects including 2 restaurants and 7 foyers are completed YTD. The 18 foyer and hotel guest spaces are currently underway and 5 major projects are to be completed in FY17.

Strong first half of 2017 Financial Performance:The group had reported 15.1% growth in the underlying Net Profit after Tax (NPAT) of $31.8m in the first half year results for the period ended December 31, 2016, up $4.2m on H1FY2016. The underlying EBITDAI grew 10.3% to $58.7m (underlying results are the statutory results excluding transaction costs of $1.7m (H1FY2016: $4.8m) incurred in respect of acquisitions). The total revenue grew by 15.9% to $356.2m. The Revenue, Underlying EBITDAI, NPAT and NPATA all performed ahead of the previous corresponding period (pcp). Further, the business has performed strongly in H1FY2017 due to the strength of resorts and acquisitions more than offsetting softness in CBD. Moreover, the strong revenue growth is due to the four property acquisitions completed in the period (increase of $27.9m) and also due to the organic growth (increase of $20.9m). Additionally, the Underlying EBITDAI margin has decreased from 17.3% to 16.5% due to ARR decrease in CBD and there was continued strong Asian inbound trends.
 


1H 17 Financial Performance (Source: Company Reports)
 
Strong growth in the resorts:MTR has posted 30.1% growth in the Resorts revenue to $163.0 million in the first half year 2017 as compared to prior corresponding period (pcp). The new Resorts properties contributed $27.9m in the revenue and $4.7m in EBITDAI. There is an organic growth in Resorts revenue and EBITDAI of the order of $9.8m (7.8%) and $1.7m (7.7%), respectively. Moreover, the total rooms available increased by 16.4% due to the addition of Mantra Ala Moana from July 2016 to the portfolio. The Occupancy has increased by 5.3% as a result of increased demand from domestic and international travelers. Furthermore, the average room rate has increased by 7.6% as a result of the increased demand, particularly in Queensland destinations. The average room rate had increased in all Resorts regions.
 


Resort Segment (Source: Company Reports)
 
Weak CBD Segment EBITDAI: MTR has posted 3.4% growth in the CBD revenue to $162.8 million in the first half year 2017 as the segment benefitted principally from full year contributions from two CBD properties added during mid and late H1FY2016. However, EBITDAI has decreased by 5.1% due to challenging rates in certain CBD locations (Perth, Brisbane and Darwin). Otherwise, in the CBD business segment, the overall rooms available increased by 4.1%, which primarily came from a full six months contribution from two CBD properties added in H1FY2016 (Peppers Waymouth and Mantra on Mary). The occupancy of the CBD segment has increased by 0.5% following strong conference business and special events in Melbourne and Canberra. The occupancy at all CBD regions has increased with the exception of Darwin. Additionally, RevPAR has decreased by 1.6% as a result of the continued subdued operating conditions in Brisbane, Perth and Darwin. Excluding these regions, RevPAR has increased by $3.10.


CBD Segment (Source: Company Reports)
 
CR&D Segment tracking well:MTR in the first half year 2017 has posted Central Revenue and Distribution (CR&D) revenue of $28.3m exceeding the prior corresponding period by $5.2m. The H1FY2017 EBITDAI of the CR&D segment was $18.8m, which is an increase on H1FY2016 of $2.0m (12.1%). The management fees also increased while there was an increase in the volumes generated through Mantra Group online booking channels. Further, there was increased fees from management agreements.
 
Well positioned to leverage the improving hotels market in Australia: Australia tourism is witnessing an improvement since last year with an 11% rise from international arrivals in 2016. U.S. visits generated an increase of 16% in 2016. New Zealand continued to be Australia's leading source market and witnessed a 3% visitor rise. But, China is second-largest source market, and is growing at a rapid pace wherein the arrivals have enhanced 17% in 2016. UK is the third largest source market while U.S. is the fourth-largest source market. As per the Tourism Research, Australia's 10-year outlook looks lucrative which is expected to witness an International visitor nights and domestic visitor night’s rise at 5.6% and 3.1% annually, respectively. Australia-wide market delivered a "revenue per available room" (RevPAR) of $139 during 2016 generating a year-on-year growth of 2.2%. Sydney's luxury segment benefited from this positive trend and delivered an occupancy of 85.9%, generating a RevPAR of $291, which rose 5.7%. Melbourne's luxury segment reported a RevPAR of $271.

 

Mantra well positioned to capitalize the booming hotel sector (Source: Company Reports)
 
Outlook and Strategy for 2017: The group has reaffirmed the guidance provided in August 2016 of EBITDAI, NPAT and NPATA in the range of $101.0m - $107.0m, $48.5m - $52.5m and $51.0m - $55.5m, respectively. The guidance for FY2017 excludes the impact of any additional conditional or uncontracted properties as at June 2016, and any transaction costs and foreign currency translation costs associated with FY2017 acquisitions. Moreover, in line with its key strategies, the group continues to assess suitable acquisition opportunities both domestically and abroad. Additionally, the dividend payout ratio for full year is expected to be in the range of 60% to 80% of the Statutory NPAT. In addition, the second half of the financial year had a solid start with early H2FY2017 showing great momentum.
 
Stock Performance:The shares of MTR have risen over 8.99% in the last three months (as of June 06, 2017) and we believe the bullish momentum in the stock would continue in the coming months. The stock has a decent dividend yield. MTR is strengthening its leisure market while the CBD segment is performing up to the expectation. The inbound market is buoyant. The market supply growth is in line with expectations while the group’s Hawaii property is outperforming. There is healthy portfolio growth across the group’s hotels while they maintained FY 17 market guidance. We give a “Buy” recommendation on the stock at the current price of $ 3.01 
 

MTR Daily Chart (Source: Thomson Reuters)
 

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