The way he sees it, property sales will drive growth, not hotel earnings. Management has stated that its residences arm will drive its Patmi growth in 2026 and 2027 due to strong sales in Thailand. Pre-sales of its projects in Phuket, Thailand, totalled $329 million in 2024 (+23% y-o-y) and while there should be a slight decline in 2025, the timing of revenue recognition could result in strong double-digit Patmi growth in 2026 and 2027.
"We note that the company has recorded consecutive historic highs for its pre-sales in 2022-2024. Importantly, this segment is now larger than hotel investments with 1HFY2025 ended June 30 segmental profit having jumped 121% y-o-y, generating a record 26% profit margin (+9.3ppt y-o-y)," says Loh.
Banyan Tree's key customers for its residences are from Russia while the potential return of Chinese buyers could be a blue-sky scenario.
On the hotel investment segment, there has been no new investments due to the company's efforts to move toward a more asset-light model. Management stated that it will not look to invest in new hotels except for those located in Phuket. The group expects to add around 15 new hotel management contracts per year.
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Meanwhile, the fee-based business expected to experience steady growth. This business comprises hotel management, spa, interior design and other services. Banyan Tree currently manages 80 resorts and hotels, 73 spas, 68 gallery outlets and three golf courses, with profits from this segment having recovered strongly after the Covid-19 pandemic.
Going forward, one relatively new area that the group will focus on is the licensing of its brands to branded residences which attracts a licence fee (valid for 20 years) as well as fees for other services.
Looking at the group's 1HFY2025 financials, it delivered a strong rebound in earnings with revenue rising 15% y-o-y to $206 million with growth seen across all segments. Operating profit gained 21% y-o-y to $43 million, thanks to the handover of 83 Laguna Beachside units and contributions from new branded residences. The highlight was Patmi, which rose 45% y-o-y to $9 million due to a turnaround in associate contributions and lower finance costs; Patmi would have been higher if not for higher staff, administrative and marketing expenses.
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During the half year period, the group also reported positive operating cash flow of $16.1 million, compared to a net outflow in the same period a year ago, reflecting stronger earnings and tighter working capital management. Free cash flow, however, was negative after $29.5 million of investing cash outflows with spending on resort refurbishments, property acquisitions and the acquisition of an additional stake in a Thai subsidiary. This resulted in a 7% decrease in cash to $107.4 million as end-1HFY2025, compared to $115.4 million in FY2024.
In 1HFY2025, total borrowings increased to $348 million, bringing gearing higher to 0.3x, compared to 0.25x as at FY2024.
One issue that Loh pointed out is the stock's free float due to its key shareholders – the Ho family, Qatar Investment Authority, Far East Organisation, Accor SA and China Vanke. This, on top of other management and board ownership, the company's free float amounts to 26.09% or just $142.5 million based on its market capitalisation of $546.1 million.
"However, we highlight that in 2025, the company’s average daily trading liquidity has increased 10-fold and since the beginning of September has averaged around $900,000/day," notes Loh. He adds that the stock is trading at 0.8x 1HFY2025 P/B despite its share price seeing a significant ytd increase.
As at 11.15am, shares in Banyan Tree are trading at 64 cents, representing an 81.4% increase ytd.
