The Erawan Group: A play on tourism growth, time for a check-in April 11, 2018

FY18 profit set to rise 20.2% y-y on back of tourism growth

We expect ERW to see sequential profit growth this year as it is in a strong position to reap the full benefits of tourism growth thanks to its well-diversified customer base ranging from budget to luxury hotel segments. Our forecast shows its FY18 profit will rise 20.2% y-y to Bt608mn on expectations that total revenue will grow 9.3% y-y to Bt6,613mn. Increasing tourist arrivals and expansion of hotel chains would be key contributors to growth. The Tourism and Sports Ministry has forecast the number of foreign tourist arrivals to Thailand will rise 5% y-y to 37.0mn this year from 35.4mn last year. Government tourism policy, notably tax breaks for tourism spending in 55 second-tier tourism provinces from Jan 1-Dec 31, 2018 should also encourage more Thai people to travel domestically. To cash in on tourism boom, ERW plans to add nine new hotel properties to its portfolio this year, comprising four Hop Inn budget hotels in Thailand, three Hop Inn hotels in the Philippines, and its combo-hotel concept project, which houses two hotels of different grades with a total number of 300 rooms under one roof, comprising a midscale Novel hotel and an economy hotel Ibis Styles in Sukhumvit Soi 4, slated to open in 4QFY18. However, EBITDA margin is expected to narrow slightly to 30.3% this year from 30.5% a year earlier as a result of (i) soaring SG&A expenses, fueled by pre-operating expenses for the above Novotel & Ibis Styles hotels and losses from new hotels during the ramp-up period, and (ii) higher renovation expenses for JW Marriott Bangkok in 2QFY18-3QFY18. ERW plans to renovate 178 out of the total 441 rooms in the second phase of asset improvement at JW Marriott Bangkok as part of its return enhancing strategy this year after the first-phase renovation of 129 rooms was completed last year. No midscale and economy hotels were added to its portfolio last year as ERW opened only 11 Hop Inn budget hotels.

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