Company Overview
The Erawan Group, a leading hotel investment company in Thailand, boasts a diverse portfolio that spans luxury to mid-scale and economy hotels across Thailand’s major tourist destinations. The company is identified on the Bloomberg ticker as ERW TB and falls under the Consumer Discretionary sector.
Current Market Performance
The Erawan Group’s shares are currently priced at Bt3.92 with a target price set at Bt4.60, indicating a potential upside of 17.3%. However, this target price is a reduction from the previous Bt6.60. Over the past year, the stock has experienced a high of Bt5.55 and a low of Bt3.40.
The market capitalization stands at Btm 19,156.8, which is approximately US\$m 547.4, with a 3-month average daily turnover of US\$m 2.2.
Major Shareholders
The Wattanavekin family holds 28.2% of the shares, while the Vongkusolkit family possesses 28.4% of the total shares issued, indicating strong family ownership and influence.
Recent Developments and Challenges
Recently, The Erawan Group announced a new project involving substantial capital expenditure, which has introduced a more cautious outlook. The project involves a long-term land lease agreement near BTS Phrom Phong and targets the premium economy to upscale segments with an estimated project IRR of 8-9%.
Despite significant spending, the project will operate under a Franchise or Hotel Management Agreement, which raises concerns about the company’s reluctance to launch its own brand. This decision may prolong the company’s downcycle and limit its revenue recognition potential.
The ongoing lease negotiations for the Grand Hyatt further complicate the outlook, with potential increased lease rates impacting profitability until renovations are complete.
Financial Performance and Projections
For the fiscal years ending December 31, the company’s net turnover is projected to rise from Btm 7,039 in 2023 to Btm 8,891 in 2026. EBITDA is expected to follow a similar trend, increasing from Btm 2,167 to Btm 2,926 over the same period.
Despite a projected net profit increase from Btm 742.7 in 2023 to Btm 967 in 2026, the company faces challenges with renovation-related expenses and the financial burdens of new project developments.
Key financial metrics include a consistent EBITDA margin of around 30.8% to 32.9% and a net margin improving from 10.5% to 10.9% by 2026.
Stock Impact and Outlook
During low travel seasons, earnings are pressured by ongoing renovations, such as the recent Holiday Inn Pattaya upgrades, which negatively impacted earnings. The company anticipates similar challenges with the upcoming Grand Hyatt renovation.
Despite these setbacks, the company maintains a positive outlook for 4Q24, driven by strong occupancy rates at the Grand Hyatt and increased room rates post-renovation at Holiday Inn Pattaya.
Valuation and Recommendations
UOB Kay Hian maintains a ‘BUY’ recommendation for The Erawan Group but has lowered the target price to Bt4.60 due to a reduced EV/EBITDA multiplier. The company’s core operations remain robust, with strong hotel statistics heading into the high travel season.
Environmental, Social, and Governance (ESG) Considerations
The Erawan Group prioritizes effective resource use and greenhouse gas reduction, with a strong focus on ecosystem management. Socially, the company emphasizes human rights, equality, and enhancing employee quality of life. Governance practices include a diverse board composition with a 3:1 male-to-female ratio and 33% independent directors.
