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Erawan Group PCL/The: Huge 1Q21 loss as expected, high leverage position post RO

  • Loss per our estimate and the street forecast
  • ERW reported core loss of Bt492m in 1Q21
  • Capital increase is expected to cool down gearing ratio to 2.8-2.9x end-June 2021

ERW would be hard hit by a new wave of COVID-19 outbreak given full exposure to hotel business and high leverage. We recommend investors await a convincing sign of quarterly earnings recovery. Valuations are not compelling, as share price trades near the best case of replacement value estimate of Bt3.12/share (in Figure 2). We have assigned a post-RO YE21 target price of Bt3.20 (50% discount to DCF-value, 8.9% WACC and 2.0% terminal growth) of which price in dilution of RO (yet to price in ERW-W3 dilution).

Loss per our estimate and the street forecast  

ERW reported core loss of Bt492m in 1Q21, higher than core loss of Bt104m in 1Q20 and Bt344m in 4Q20. Core loss was in line with our estimate and the consensus number. However, there was a positive surprise for us and the market in the lack of COVID-19 asset impairment (TAS36) in 1Q21 after checking (due to historical low cost at book value).


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