ERW - 3Q24: Weak quarter, as expected

ERW reported a weak 3Q24 net profit of Bt124mn (-16% YoY and -66% QoQ), as expected by INVX and the market due to a weak luxury hotel segment and rising interest expense. We expect 4Q24 core profit to be flat YoY (higher interest expense) but up QoQ (seasonality). We view 2025 as an unexciting year for ERW since operations will have a short-term hiccup from hotel renovation. We stay Neutral with an end-2025 DCF TP of Bt4.6/share.

3Q24: Weak, as expected. ERW reported a 3Q24 net profit of Bt124mn (-16% YoY and -66% QoQ); excluding extra items in 2Q24 of an accounting gain on its 20% holding in ERWPF after the fund was dissolved, core profit shows a drop of 20% YoY and 1% QoQ. Dragged down by a weak luxury hotel segment and rising interest expense, earnings lined up with INVX and market estimates.

Highlight:

• Luxury hotel segment (35% of revenue): RevPar in 3Q24 slid 4% YoY and 6% QoQ on a weak occupancy rate at 72% (down from 82% in 3Q23 and 79% in 2Q24), pulled down by flagship The Grand Hyatt Erawan Bangkok Hotel which saw cancellations following an incident with guests on July 16 that was unrelated to the hotel itself. However, ARR surged 10% YoY and 4% QoQ.
  
  
• Other segments: RevPar for mid-scale inched up 1% YoY (but grew 6% QoQ) due to renovations at Holiday Inn Pattaya Tower 1. The economy segment showed strong RevPar growth at 14% YoY and 4% QoQ, driven by rising occupancy rate and ARR.
  
  
• HOP INN segment: RevPar for hotels in Thailand grew 5% YoY but dropped 2% QoQ. RevPar for hotels in the Philippines fell 12% YoY and 9% QoQ due to the opening of three hotels in 2Q-3Q24. RevPar for hotels in Japan decreased 15% QoQ on seasonality.
• Interest expense was Bt179mn, up 19% YoY (but down 2% QoQ) due to rising interest rates and more loans to make the acquisition of assets from ERWPF and investments in hotel projects in Japan and Thailand.

4Q24F to improve QoQ but be flat YoY. 9M24 core earnings were Bt539mn, up 5% YoY, accounting for 70% of our full-year forecast. We leave it unchanged, which suggests 4Q24 core profit will be flat YoY (higher interest expense) but rise QoQ (seasonality and the completion of renovation at Holiday Inn Pattaya Tower 1). We see 2025 as an unexciting year for ERW since operations will have a short-term hiccup from renovations at The Grand Hyatt Erawan Hotel starting in 2Q25. Key to monitor is clarification of the 20-year renewal of that hotel’s lease as ERW is currently finalizing the contract details with the lessor and a specific timeline is as yet undetermined. We maintain Neutral on ERW with end-2025 DCF TP of Bt4.6/share, based on WACC at 6.2% and LT growth at 2%.

Risks are: 1) an economic slowdown that would derail travel demand,
2) political uncertainty and 3) cost inflation that would damage profitability. We see ESG risk as effective environmental management (E).