ERW – 3Q26 check: Tracking ahead of guidance

We maintain our positive outlook on ERW and keep it as our top pick in the tourism sector. We estimate that RevPAR for luxury to economy hotels increased 8% YoY during July-August, beating management's 3Q26 target of 5%. ARR-driven growth supports operating leverage and earnings strength. We expect core profit growth to accelerate in 3Q26 and peak in 4Q26, fueled by the high season, major global events, and domestic tourism stimulus. Despite a 29% rally over the past 3 months, improving demand and an upward earnings trend should sustain share price support. Valuation remains reasonable at 19x 2026F PE (its 2-year average), dropping to 17x 2027F PE.

July–August check: Performance tracking ahead of guidance. We estimate RevPAR for ERW’s Luxury-to-Economy portfolio, which accounted for 74% of 1H26 revenue, increased by 8% YoY during July–August, exceeding the company’s 3Q26 growth target of 5%. Luxury hotels were the main driver, with estimated RevPAR growth of approximately 15% YoY, supported by JW Marriott Bangkok, The Naka Island and Grand Hyatt Erawan Bangkok, despite renovation-related room closures at the latter representing around 25–30% of its room inventory. Midscale and economy hotels are estimated to have delivered mid-single-digit RevPAR growth. However, booking trends for October show strengthening demand from Chinese tourists ahead of Golden Week (Chinese guests account for 15% of Luxury-to-Economy room revenue). HOP INN, representing 26% of 1H26 revenue, remained on track during July–August to achieve its 2026 revenue growth target of 10%. Thailand remains the key driver, helping offset currency translation headwinds affecting revenue from the Philippines and Japan.

ARR-led growth supports operating leverage. Beyond the stronger-than-guided RevPAR growth, we are encouraged by its composition: Luxury-to-Economy ARR is estimated to have increased by 8% YoY during July–August, while occupancy remained broadly flat. Higher ARR incurs limited incremental operating costs compared to higher occupancy, aiding operating leverage and profit growth. Assuming 3Q26 RevPAR growth for luxury to economy hotels reaches 5% YoY (in line with company target) to 7% YoY (reflecting strong July-August momentum followed by seasonal slowdown in September, typically the weakest month of the quarter) and factoring in lower interest expense, we preliminarily estimate ERW's 3Q26 core profit at Bt90-120mn (+16-55% YoY, +35-80% QoQ), accelerating from 7% YoY growth in 2Q26.

Earnings peak expected in 4Q26. We expect ERW’s core profit to rise from its 2Q26 trough to an annual peak in 4Q26. Key drivers include the high season and additional demand catalysts, notably the IMF–World Bank Group Annual Meetings (October 12–18) and Tomorrowland Thailand (December 11–13). The Thai Travel Thai Plus domestic tourism stimulus should provide further support. We view ERW as a prime beneficiary due to its nationwide portfolio, particularly midscale and budget hotels, which stand to gain from fixed room subsidies under the scheme. Our positive view is reflected in our 2026 core profit forecast, which is 4% above consensus. Our mid-2027 DCF TP is Bt4.3, using a WACC of 6.5% and LT growth of 1.5%.

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).