High Conviction: AWC – Preview 3Q24: Sector’s outperformer

Our 3Q24 preview of hoteliers suggests AWC will outperform its sector, with core earnings growth both YoY and QoQ while peers will drop QoQ. We estimate AWC’s core profit at Bt242mn, jumping 92% YoY (hospitality business) and 19% QoQ (on seasonality). We expect strong core earnings growth of 57% in 2024 and 23% in 2025, underwritten by ramping up hotel operations. We are optimistic about AWC and see its good earnings as a near-term catalyst. It is on our sector top picks list. We rate it as Outperform with an end-2025 DCF TP of Bt4.4/share.

Catalyst #1: Preview of 3Q24 suggests outperformance to sector. Our 3Q24 preview of hoteliers suggests AWC will outperform its sector, with core earnings growing both YoY and QoQ. On the QoQ basis, AWC will gain directly from better Thai tourism (international tourists grew 6% QoQ), moving contrary to peers, whose earnings are expected to drop QoQ on specific factors: ERW due to weak operations at flagship The Grand Hyatt Erawan Bangkok Hotel, CENTEL due to a weak food business and hotel operations in Maldives and MINT from seasonally lower tourism in Europe. We estimate AWC’s core profit at Bt242mn, jumping 92% YoY on the hospitality business and 19% QoQ. At the hospitality business (74% of revenue), we expect RevPar to grow 14% YoY and 7% QoQ, driven by an occupancy rate of 69% in 3Q24 (up from 63% in 3Q23 and 66% in 2Q24) and ARR growth of 4% YoY and 3% QoQ.

Catalyst #2: Strong earnings in 4Q24 and 2025. October’s flooding in Chiang Mai may cause an operational hiccup, but we expect limited impact since those hotels account for ~5% of AWC’s revenue and its insurance covered property damage and business disruption. We expect core earnings growth YoY and QoQ again in 4Q24, as it is Thailand’s high tourism season. We maintain our forecast of 2024 core earnings growth of 57%. In 2025, Thai tourism will continue to grow but hotelier earnings will be mixed per company-specific factors. We expect AWC to deliver the strongest core earnings growth in 2025 at 23%, underwritten by ramping up hotel operations, with MINT’s core earnings growth normalizing at 8%. We view 2025 as unexciting for ERW (short-term hiccup from hotel renovation) and CENTEL (initial costs at two new hotels in Maldives).

Catalyst #3: Attractive valuation. With the strong earnings growth outlook, AWC is trading at PE-to-earnings growth in 2024 of 1.3x, below sector median of 2.2x.

Action & recommendation. Over the past month, share price has risen 2%, outperforming peers, who dropped 5-11%. We are optimistic about AWC and see near-term catalysts from its strong earnings. AWC is on our tourism top pick list and we rate it Outperform with an end-2025 DCF TP of Bt4.4/share: Bt4.0 based on projects in the pipeline in 2024-26 and Bt0.4 from long-term projects after 2026 (WACC at 6.6% and long-term growth at 2%).

Risks. 1) An economic slowdown, 2) cost inflation that would erode profitability and 3) slow ramp-up of developing assets in the portfolio. We see ESG risk as effective environmental management of greenhouse gases, energy, wastewater, and waste (E).