Siam Wellness Group: Tourist arrivals’ slowdown a temporary setback
- SPA set a revenue target of THB2bn for FY25F, +23% y/y driven by SSSG and a 10-branch expansion
- Operating margin to remain healthy in 2025 as tax base normalises
- Slowdown of Chinese tourist arrivals to be temporary
- Reiterate BUY with unchanged DCF-based TP of THB7.00
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Management remains positive on FY25F outlook
FY25F revenue is set to achieve THB2bn per management guidance. During its analyst meeting, management noted they expect FY25F revenue at THB2bn – implying growth of 23% y/y. The growth should be driven by SSSG (5-10%) and branch expansion. SSSG would mainly be boosted by management’s attempts to push higher average spending per head as well as higher traffic volume in the branches. Management believes the further increase in price is challenging in 2025 given tourism conditions and competition.
In 2025, management aims to launch 10 branches on top of the 78 branches as of end-2024. YTD, the company already launched three Let’s Relax branches in Chiang Mai, Phuket, and Bangkok. The new branches launched this year would be 50% owned and 50% hotel-managed and 60-70% should be in Bangkok.
Management also highlighted that the company recently opened the onsen-format branch early March in Lumipini and have received strong feedback so far. SPA will open another onsen-format in Ratchdamri area by end-2025 or early-2026. Despite the high capex for onsen-format, this format yields higher margin from a greater price point compared to a normal Let’s Relax branch.
Healthy operating margin to be maintained. Management believes FY25F GPM should range 32-34% (vs. 32.4% in FY24 and 33.7% in our FY25F forecast) with further well-controlled SG&A expenses this year – despite more proactive branch expansion of 10 branches vs. six last year.
The branch roll-out plan for FY25F should be smoothened throughout the year, unlike FY24, where the expansion was accelerated and packed in 3Q24. The rise in expenses from onsen-format should be also manageable as this onsen-format branch is operated under revenue sharing scheme (no impact on TFRS 16).
Tourist arrivals slowed after the Chinese New Year. According to Ministry of Tourism and Sports (MOTS) data, there was a 4% y/y decline of foreign tourist arrivals in February 2025 following the plunge of Chinese tourists, down 45% y/y in the same month. We believe the drop in Chinese tourist was impacted by seasonality and calendar effects following early Chinese New Year festival in 2025 and leap year in 2024. Also, there is lingering negative sentiment from the call centre kidnapping incident related to a Chinese actor, which has raised safety concerns among the Chinese on travelling to Thailand.
In March, the situation has not shown any significant improvement of overall tourist on a w/w basis yet, mainly affected by seasonal impact of Ramadan festival which started from 1 March 2025 (vs. from 11 March in 2024). However, we also note a mild recovery of 5% w/w.
Overall, foreign tourist arrivals 1 January-9 March 2025 came in at 7.7mn (+4.4% y/y) vs Bank of Thailand’s target of 39.5mn for 2025. We believe the number of tourist growth should be able to accelerate from 2Q25. SPA noted that YTD SSSG is in line with foreign tourist arrival growth.
Attempts to diversify spa guest portfolio. Management noticed the slowdown of Chinese tourists which made up the biggest chunk of SPA’s total guests (c.45% including tourists from China, Hong Kong, and Taiwan). Hence, SPA is in the effort to lessen concentration impact on Chinese tourist with well-diversified portfolio of spa business.
Management notes that the company spot the fast-growing growth potential including Middle East and Europe which already contributed 10% and 7% of total spa guests in 2024, respectively. Management has executed several marketing tools to promote and reach out to the potential markets to build brand awareness.
We note that, going forward, SPA intends to further diversify their international guest portfolio but is likely to keep 30% contribution of Thai guest to prevent any adverse scenarios regarding inbound tourism in the future.
Competition intensifying but with room to grow. Although we see intensifying competition in the spa and wellness business, management believes the company still has plenty of room to grow, both Bangkok and upcountry. As per management estimate and industry data, SPA’s market share in this segment is only c.4-5% while the segment is still very fragmented.
Management also affirms SPA’s competitiveness over competitors which include strong brand recognition, prime and convenience location, and better economy of scales. Over the next three to five years, the company aims to mostly retain its expansion pace – 60% Bangkok and 40% upcountry expansion.
Outlook
Steady growth to resume in 2025. In FY25F, we expect net profit to resume steady growth of 18% y/y, following further recovery in inbound tourism, store expansion attempts, and operating margin improvements. Based on discussions with management, the company targets revenue growth of c.23% in 2025 (vs. 14.3% in our forecast).
Although in 1Q25, the company may have some effects from the slowdown of tourist arrivals in February and March 2024, we still expect decent revenue growth after the expansion which has accelerated since 3Q24. The operating margin would remain healthy. Without the tax impact, we should see the y/y earnings growth in 1Q23 to come in line with our FY25 growth.
Recommendation
Reiterate BUY with an unchanged TP of THB7.0. We maintain our earnings forecast and our DCF-based TP of THB7.0 (with WACC of 8.5% and terminal growth of 1%). We note that our forecast in FY25F is more conservative compared to management’s guidance to achieve revenue of THB2bn this year as we reflect the recent slowdown of tourist arrivals after the Chinese New Year in late February 2025.
Nonetheless, we believe the slowdown would be temporary and that tourist arrivals should show an improving trend from 2Q25. With upsides and steady profit growth to break in from FY25F, we retain our BUY call.
FY Dec | 4Q2023 | 3Q2024 | 4Q2024 | % chg y/y | % chg q/q |
Revenue | 386 | 425 | 429 | 11.1 | 1.0 |
Cost of Goods Sold | (265) | (286) | (286) | 7.6 | 0.0 |
Gross Profit | 120 | 139 | 143 | 18.8 | 2.8 |
Other Oper. (Exp)/Inc | (40.7) | (42.4) | (47.5) | 16.7 | 12.1 |
Operating Profit | 79.6 | 96.7 | 95.5 | 19.9 | (1.2) |
Other Non Opg (Exp)/Inc | 0.0 | 0.0 | 0.0 | nm | nm |
Associates & JV Inc | (0.5) | 0.0 | 0.02 | nm | nm |
Net Interest (Exp)/Inc | (8.8) | (7.9) | (7.9) | 9.8 | (0.2) |
Exceptional Gain/(Loss) | 0.0 | (4.0) | 0.0 | nm | (100.0) |
Pre-tax Profit | 84.4 | 102 | 99.4 | 17.7 | (2.9) |
Tax | 55.6 | (20.6) | (7.5) | (113.5) | (63.6) |
Minority Interest | 0.0 | 0.0 | 0.0 | (78.5) | (40.5) |
Net Profit | 140 | 81.7 | 91.8 | (34.4) | 12.4 |
Net profit bef Except. | 140 | 85.7 | 91.8 | (34.4) | 7.2 |
EBITDA | 158 | 188 | 186 | 17.3 | (0.9) |
Margins (%) |
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Gross Margins | 31.2 | 32.7 | 33.4 |
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Opg Profit Margins | 20.6 | 22.8 | 22.3 |
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Net Profit Margins | 36.3 | 19.2 | 21.4 |
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