AWC – 3Q24: In line with market but beat INVX

3Q24: Core profit up YoY and QoQ, in line with market but beat INVX. AWC reported a 3Q24 net profit of Bt1.1bn (flat YoY but down 9% QoQ). Excluding changes in fair value of investment properties shows a core profit of Bt288mn, surging 129% YoY and 42% QoQ, driven by a stronger hospitality business and lower tax expense. Core profit was in line with market estimate but 19% ahead of our estimate on lower tax expense.

Highlights:

• Hospitality business (76% of revenue, 61% of EBITDA): RevPar in 3Q24 grew 16% YoY and 9% QoQ on a rise in occupancy rate to 72% in 3Q24 from 63% in 3Q23 and 66% in 2Q24 and a 2% YoY and 1% QoQ rise in ARR.
• Office business (14% of revenue, 25% of EBITDA). Occupancy rate was 66%, down from 68% in 3Q23 but flat QoQ, suggesting rising competition in the office building industry. However, rental rate increased 1% YoY and 1% QoQ, reflecting benefit from asset improvement.
• Retail business (10% of revenue, 14% of EBITDA). Improvement was seen in a rise in rental rate of 6% YoY and 4% QoQ, while the occupancy rate was flat at 69%.
• Tax expense of Bt188mn (down 31% YoY and 38% QoQ), giving an effective tax rate of 14% in 3Q24 due to tax benefit adjustment, which is expected to be lower in following quarters.
  
  

2025 strategy. Hospitality business: AWC is focusing on ramping up hotel operations and hotel expansion, planning to open Melia Pattaya in December 2024, Pattaya Marriott Resort & Spa at Jomtien Beach and Fairmont Bangkok Sukhumvit in 1H25. Retail business: It plans to introduce a new attraction, Jurassic Park, at Asiatique in 2Q26. Office business: Besides adding F&B outlets, it plans to add more wellness services at Empire Tower.

Earnings forecast maintained. 9M24 core profit accounted for 71% of our full-year forecast and we maintain our earnings projection. We expect 4Q24 core earnings to grow YoY and QoQ on high tourism season and limited impact from October’s flooding in Chiang Mai. We expect AWC to deliver strong 23% core earnings growth in 2025 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) the 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).