The Erawan Group

The Erawan Group Plc  

 

Better than expected. ERW reported 4Q15 net profit of Bt103mn (Bt0.042/share), up from Bt51mn in 4Q14 and back from a loss of Bt20mn in 3Q15, beating the market (Bt90mn) and SCBS (Bt95mn) on a strong recovery in operation from the bomb in August. 2015 net profit was at Bt198mn, up nicely from the loss of Bt112mn in 2014. 

 

Key highlights:  

 

 4Q15 revenue was Bt1.4bn, up 2% YoY and 14% QoQ. By location, ERW reported a fall in revenue from hotels in Bangkok (~65% of revenue) of 3% YoY from the aftermath of the bomb in August at Rajprasong, felt most keenly at its flagship, Grand Hyatt Erawan Bangkok Hotel (GHEB). Revenue from hotels in the provinces grew a stronger 11% YoY. For 2015, revenue was Bt5.3bn, up 24% YoY. 

 

- 4Q15 occupancy rate (excluding budget hotels) was 75%, down from 77% in 4Q14 but up from 74% in 3Q15. The YoY slimming came from the luxury hotel segment as ~40% of GHEB’s guests are business travelers attending MICE (Meetings, Incentive travel Conventions and Exhibitions), which softened due to the turmoil. The 2015 occupancy rate (excluding budget hotels) was 77%, up from 67% in 2014. 

 

- 4Q15 average room rate (ARR) (excluding budget hotels) slid 2% YoY but rose 12% QoQ. The slip YoY is due to the addition of new hotels in the midscale and economy segments, which carry lower room rates. ARR in 2015 (excluding budget hotels) was flat YoY. 

 

- 4Q15 revenue per available room (RevPar) (excluding budget hotels) slipped 4% YoY but rose 13% QoQ. This rose 14% YoY for the full year 2015. 

 

- Operations at its HOP INN budget hotels strengthened to a 62% occupancy rate in 4Q15 (up YoY and QoQ). In 2015, this hotel segment reported a 54% occupancy rate and is already in the small profit, according to management guidance. 

 

- ERW operates 5,676 rooms as of Dec 2015, up 7% YoY, mainly from more HOP INN hotels (15 hotels with 1,175 rooms). 

 

- Interest-bearing debt to equity was 1.7x as of Dec 2015, well below ERW’s debt covenant of 2.5x. 

 

Better earnings and laggard price. We maintain a positive view on Thai tourism and believe ERW will reap this benefit with strong earnings growth in 2016. Over the past six months, ERW’s share price has increased by +11%, far behind +22% for CENTEL and +48% for MINT, presenting ERW as an attractive laggard play with better earnings ahead. We maintain our BUY on ERW at Bt6.5/share and keep ERW as one of our top picks in the tourism sector.