ERW – Strong 3Q26 expected, continuing into 4Q26

We expect ERW’s 3Q26 performance to exceed guidance, with RevPAR for its Luxury-to-Economy portfolio, rising 7% YoY, above the company’s target of 5% YoY growth. The key driver is stronger ARR, which should continue to support margin expansion. We forecast 3Q26 core profit of Bt110mn, up 42% YoY and 66% QoQ. Earnings momentum is expected to strengthen further and peak in 4Q26. With fundamentals entering an upcycle while the share price has fallen 8% over the past month vs. a 3% decline in the SET, we view the weakness as an attractive accumulation opportunity. ERW remains one of our top picks. OUTPERFORM with a mid-2027 TP of Bt4.3.

3Q26 performance tracking ahead of guidance. We expect ERW's 3Q26 performance to exceed guidance, with RevPAR for the Luxury-to-Economy portfolio (74% of 1H26 revenue) rising 7% YoY vs. the company's target of 5% YoY growth. The key driver is stronger ARR, supported by increasing demand from high-yield guests, particularly from Europe and the Middle East. Chinese guest demand remains solid, while revenue from Indian guests has declined by a single-digit rate but still outperformed industry trends, where Indian tourist arrivals to Thailand fell around 18% YoY. In the HOP INN segment (26% of 1H26 revenue), occupancy at the new South Korea hotel improved from 40% in 2Q26 to around 80% in 3Q26, although FX headwinds continue to weigh on operations in the Philippines and Japan.

4Q26 bookings remain robust. Management indicated that flood-related impacts are limited and temporary, mainly affecting a few provincial HOP INN hotels. Bangkok properties have not been directly impacted, and cancellations remain manageable. Bookings for October-November continue to show strong YoY growth, with October recording double-digit growth. ERW remains positive on 4Q26, supported by the high season, Chinese Golden Week, IMF-World Bank Group Annual Meetings (October 12-18) and Tomorrowland Thailand (December 11-13).

2027: Continued growth driven by ARR increase. For 2027, management expects ARR to increase by at least 3-5% YoY, while occupancy growth is likely to be more modest as occupancy levels are already high at around 80%. Bangkok should remain the key driver, supported by strong pricing power. Grand Hyatt Erawan Bangkok is expected to be a key growth driver following the completion of its renovation in 2Q27. Management anticipates a 10-15% uplift in room rates following the renovation, before growth normalizes to around 3-5% per annum thereafter.

Expect strong earnings momentum ahead. We forecast ERW’s 3Q26 core profit at Bt110mn, up 42% YoY and 66% QoQ, driven by: 1) 7% YoY RevPAR growth in the Luxury-to-Economy portfolio, mainly from ARR expansion; 2) EBITDA margin improvement to 28.7%, from 28.2% in 3Q25 and 27.3% in 2Q26, as higher ARR generates stronger operating leverage with limited incremental operating costs; and 3) lower interest expense of Bt134mn, down 13% YoY and 7% QoQ, as there will be no prepayment fee similar to that recorded in 1H26. We continue to expect ERW’s core profit to peak for the year in 4Q26. Our positive view is reflected in our 2026 core profit forecast, which is 4% above consensus. We maintain our mid-2027 DCF-based TP of Bt4.3, based on a WACC of 6.5% and a long-term growth rate 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).