Following new information from the analyst briefing and our bullish expectation on pent-up demand recovery, we raised target price to Bt5.8 (based on FY22F) from Bt3.3 (+75%; based on FY21F). However, we cut FY21F-22F earnings but raised FY23F profit in anticipation of a strong recovery in tourist arrivals supported by pent-up demand. Earnings growth should accelerate in FY22F following aggressive expansion of Hop INN chain (+46 hotels over 2022-25; 10-12 per year).

Returning to growth cycle with a stronger financial position

We left ERW’s analyst briefing with a positive long-term tone. They explained the capital utilization plan would not only strengthen D/E ratio to comply with their 2.5x debt covenant, but would allow them to resume their aggressive expansion plan for budget hotel Hop INN. Armed with a Bt8-10b budget, by 2025, ERW expects to add 100 budget hotels in Thailand (vs 46 by 4Q20) and 15 in the Philippines (vs 5 by 4Q20). The management its strong position in this segment would help them to capture future growth, while demand in this segment would be less volatile than the segment that targets foreign tourists. The company is also open to M&A opportunities.

Cut FY21F-22F earnings on weaker-than-expected recovery, raised FY23F profit on aggressive expansion of Hop Inn chain

We project a larger loss for FY21F and cut FY22F earnings by 57% due to slower-than-expected recovery. But we raised FY23F earnings by 59 to reflect aggressive expansion of Hop INN chain (add up to 46 new hotels over 2022-2025; 10-12 per year) and strong pent-up demand supporting the recovery of non-Hop INN revenues.

Upgrade to BUY with higher TP of Bt5.8

The near-term outlook remains weak with current occupancy hurt by the latest outbreak and slow reopening in 2021. However, ERW’s long-term growth prospects will only be visible from 2022. Hence, we rolled our valuation base to FY22F with a new pre-dilution TP of Bt5.8/share, and upgrade ERW to BUY. Adjusting for RO and warrant dilution, our TP would be Bt3.6/sh. We will adjust our TP after XR on 11 May. also raised long-term growth rate by 50bps to 2%, which lifted TP to Bt161 (from Bt128).