20140428-Maybank_KERPL-Lacklustre_1Q14,_rebound_in_2H14F_12页_744kb

Erawan Group (ERW TB) Summary

Core Content

Erawan Group (ERW TB) is a Thailand-based company with a current share price of THB3.86 and a target price of THB4.50 (+17%). The company has a market capitalization of USD299M and an average daily trading volume of USD1M. The company is primarily engaged in the hotel industry.

Main Points

• 1Q14 Performance:

  • The company reported a lackluster 1Q14 with a net profit of THB7m, significantly lower than the THB148m in 1Q13 and THB70m in 4Q13.
  • Revenue from hotel operations fell by 22% YoY to THB1,018m, with the main drag from Bangkok hotels.
  • Occupancy rate dropped to 65% in 1Q14, compared to 78% in 4Q13 and 85% in 1Q13.
  • ADR rose 1% QoQ and 2% YoY, but RevPAR dropped 15% QoQ and 22% YoY.
  • EBITDA fell by 8% YoY to THB267m, with SG&A to sales increasing to 28% from 25% in 1Q13.

• Political Impact:

  • Political unrest and the closure of main streets in Bangkok led to a significant drop in international tourist arrivals, affecting hotel performance.
  • The company has five hotels in Bangkok near protest areas, which account for 55% of its revenue.
  • The political situation is expected to resolve, leading to a rebound in the second half of 2014.

• Future Outlook:

  • The company expects a rebound in 2Q14 with an occupancy rate of 70%, though still 6% lower than 2Q13.
  • RevPAR is projected to decline 8% QoQ and 6% YoY in 2Q14.
  • The company maintains a BUY rating with a target price of THB4.50, based on the assumption of political stability and seasonal recovery.

Key Financial Metrics

Key Data

• 52-week high/low (THB): 5.70 / 3.08
• 3-month average turnover (USDm): 1.1
• Free float (%): 42.4
• Issued shares (m): 2,475
• Market capitalization: THB9.7B
• Major Shareholders:
  • Wattanavekin Sukakarn: 16.1%
  • Vongkusolkit Family: 9.1%
  • City Holding Co., Ltd.: 8.5%

Share Price Performance

• 1 Month: -0.5%
• 3 Months: +17.5%
• 12 Months: -28.4%
• Relative to Index: -5.6%, +8.5%, -21.8%

Analyst Recommendations

• Maybank Target Price (THB): 4.50
• Bloomberg Consensus Target Price (THB): 4.40
• Maybank vs Market:
  • '14 PATMI (THBm): 88 vs 116
  • '15 PATMI (THBm): 332 vs 358
  • % +/-: -24.0 vs -7.1

Earnings and Performance

• 1Q14F Earnings:
  • Revenue: THB1,018m (-22% YoY)
  • Net profit: THB7m
  • Operating profit: THB107m (-62% YoY)
  • EBITDA: THB267m (-40% YoY)
  • Net profit margin: 1%
  • SG&A to sales: 28%
• Segment Performance:
  • Luxury BKK: Occupancy 47%, ARR 4,843, RevPAR 2,259
  • Luxury Resort: Occupancy 72%, ARR 9,410, RevPAR 6,807
  • Midscale: Occupancy 58%, ARR 2,974, RevPAR 1,712
  • Economy: Occupancy 76%, ARR 1,569, RevPAR 1,190

Outlook

• 1Q14 Rebound: Expected to be weak, with a net profit of 8% of the full year forecast.
• Market Reaction: Likely to disappoint, leading to a correction in the share price.
• Seasonality: The company is entering the low season in 2Q14, with a recovery expected in 3Q14.
• RevPAR Recovery: Room rate is expected to increase after occupancy exceeds 70% in 4Q14.

Summary

Erawan Group's performance in 1Q14 was significantly impacted by political unrest in Bangkok, which led to a drop in occupancy rates and tourist arrivals. The company's net profit was THB7m, much lower than previous quarters. Despite this, the company maintains a BUY rating with a target price of THB4.50, based on the expectation of a rebound in the second half of 2014. The company's financial metrics indicate a need for improvement in profitability and a potential for recovery as the political situation stabilizes.