Short-Term Profit Dip Despite Hop Inn Strength
According to Kiatnakin Phatra Securities (KKPS), The Erawan Group (ERW) is projected to experience a significant decline in its core profit for the second quarter of 2025. The company’s core profit is expected to drop by 57% year-on-year to THB 54 million. This decrease is attributed primarily to a 13% year-on-year slump in non-Hop Inn RevPAR (revenue per available room), a key performance indicator for the hospitality sector. This downturn is a direct result of a lower occupancy rate of 72% in the second quarter, a considerable drop from the 80% recorded a year earlier, reflecting the continued sluggishness in Thailand’s inbound tourism. While this has a negative impact on overall total revenue for the quarter, which is estimated to recede by 6% from the prior year, it is important to note that the impact is largely concentrated in the non-Hop Inn segment, as the overall Hop Inn business continues to demonstrate strong performance.
Projected Recovery and Operational Momentum
Despite the short-term challenges faced by its non-Hop Inn properties, The Erawan Group’s Hop Inn segment is showing robust growth that is helping to offset some of the negative pressures. Hop Inn revenue is forecast to increase by a strong 15% year-on-year in Q2 2025, largely driven by exceptional momentum in Japan, where revenues are projected to jump between 20% and 24%. The brand’s properties in Thailand and the Philippines are also expected to maintain healthy growth, with revenue rising 15% and 12% respectively, boosted by increased room capacity. The outlook for the second half of the year appears more optimistic, with a rebound anticipated in the third quarter. Non-Hop Inn occupancy rates are expected to recover to a range of 77-79% in July, a notable improvement from the previous quarter’s 72% and nearing last year’s performance.
Positive Long-Term Outlook Driven by Valuation and Rate Cuts
Looking beyond the current quarter’s anticipated slump, the long-term forecast for The Erawan Group remains positive. While the full-year core profit is estimated to dip by 3% to THB 877 million, analysts at KKPS have reiterated a ‘Buy’ rating for the company, setting a target price of THB 3.00 per share. This positive stance is supported by two key factors. First, ERW shares are currently trading at an attractive valuation, offering a compelling entry point for investors. Second, the company is poised to benefit significantly from potential interest rate cuts due to its high proportion of baht-denominated, floating-rate loans. For every 25-basis-point reduction in interest rates, the company could save approximately THB 25 million annually in interest expenses. This projected saving is equivalent to a notable 3% of the company’s estimated 2026 profit, highlighting the significant financial leverage that makes ERW an attractive investment despite current tourism challenges.
