Siam Wellness: 2025 headwinds priced in
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Earnings review
1Q25 results fell short of expectations. SPA reported a core profit of THB51mn in 1Q25 (-26% y/y, -44% q/q). The softer results were impacted by negative same-store sales growth (SSSG) and increased costs from newly opened branches.
SSSG declined by 13%. SPA’s revenue largely depends on inbound tourism, with a substantial portion of 40% coming from Chinese tourists in 1Q25 (down from 45% in 2024). In 1Q25, the number of Chinese tourists decreased by 26% y/y due to concerns on a call centre scam, which contributed to the 13% contraction in SSSG.
Despite this, SPA’s total revenue only fell 3% y/y, partially supported by contributions from new branches. During 1Q25, the company launched three new Let’s Relax branches in Phuket, Chiang Mai, and Bangkok, bringing the total store count to 80 by the end of the quarter (78 domestic and two international), marking a 11% branch growth y/y.
Operating margin under pressure. SPA’s gross margin dropped to 28.9%, down 4.6ppts y/y and 4.5ppts q/q. Meanwhile, SG&A expenses-to-sales rose to 12.4%, up 2.1ppts y/y and 1.3ppts q/q. The decline in operating margin was mainly due to reduced cost leverage amid the SSSG decline and increased expenses related to new branches.
Core margin narrowed. Interest expenses showed a downward trend, falling 11% y/y and 7% q/q, benefiting from lower market interest rates. The effective tax rate normalised to 19.2% in 1Q25, compared to 20.6% in 1Q24. Nonetheless, the core profit margin declined from 17.6% in 1Q24 to 13.4% in 1Q25, reflecting the weaker operating margin.
Industry challenges continue QTD
No significant improvement in inbound tourist numbers. We note that growth started to slow in February (-7% y/y), especially from China, given the Chinese New Year falling on January this year (vs. February in 2024) and the impact of a Chinese call centre scam concern in Thailand early this year. In March 2025, we saw that foreign tourists contracted 9% y/y following the early Ramadan festival and soft Chinese tourist numbers.
The number of tourists in April 2025 was 2.5mn (-7.6% y/y) still dragged by Chinese tourist numbers, which dropped 47% y/y. Tourists from China accounted for c.35% of the pre-COVID level (vs. 63% of the pre-COVID level in December 2024).
The number of foreign tourists from 1 January-18 May 2025 was 13.4mn – inching down 1.8% y/y. We note that as per our calculations, MTD figures continued to show a y/y contraction of 13.9% for total inbound tourists and a 44% y/y drop in in Chinese tourists (full month prorated).
YTD, Chinese tourists were still the biggest market feeders and contributed c.14% of total foreign tourists; followed by Malaysia (c.13%), Russia (c.7%), India (c.7%), and South Korea (c.5%). Nonetheless, we spot strong growth in some nations including India, Russia, and the Middle East which grew 16.5%, 14.4%, and 14.2% y/y, respectively, from January to April 2025.
The Tourism Authority of Thailand (TAT) has recently slashed its target of inbound tourist numbers from 39mn to 35.5mn for 2025, a similar level to 2024. TAT also lowered total tourism receipts to THB3tn (THB3.4-3.5tn previously).
TAT plans to introduce tourism stimulus measures. TAT is preparing to submit a revised tourism stimulus plan to the Ministry of Tourism and Sports, with the aim of presenting it to the Cabinet for approval. The proposal seeks to utilise a mid-year 2025 central budget allocation of THB3.5bn from the emergency and contingency reserve fund. The funding will support efforts to stimulate both the domestic and international tourism markets through three main projects:
Project 1: “We Travel Together”
This project aims to stimulate domestic travel among Thai tourists during this year's low season. Based on recent discussions, there is a tendency to reduce the number of available entitlements to fewer than 1mn, with a cap of no more than 10 entitlements per person. This is intended to ensure a wider distribution of benefits and manage the budget more efficiently.
Project 2: Joint promotion with Online Travel Agencies (OTAs)
This initiative targets Free Independent Travelers (FIT) by partnering with online travel platforms to launch promotional campaigns. The promotions will be carried out in collaboration with accommodation booking and transportation ticketing platforms, with the goal of incentivising travel to Thailand.
Project 3: Travel promotion in partnership with airlines
This project specifically targets the Chinese tourist market by supporting charter flights. An initial condition for the support is that each flight must maintain a minimum passenger load factor of 85%. This requirement is intended to ensure the efficiency and cost-effectiveness of the support provided.
In addition to the three stimulus projects funded by the mid-year 2025 central budget, TAT will also launch the “Sawasdee Ni Hao” campaign under its own marketing budget. The initiative includes a mega fam trip in late May 2025, inviting 500 participants from across China – 300 tour operators and 200 media/KOLs – to explore Thailand’s tourism offerings, aiming to boost awareness and travel demand in 2H25.
Outlook in 2Q25
Negative SSSG QTD lingers. Based on discussions with management, we note that SPA’s SSSG remained negative QTD given the drop in tourist numbers, especially Chinese, in April and May (a > 40% y/y drop). Nonetheless, with proactive branch expansion from 2H24, we believe their contribution would partially offset the impact of negative SSSG as total revenue growth should decline at a low- to mid-single-digit level y/y in 2Q25F.
The company’s spa portfolio still largely relies on Chinese tourists despite attempts to diversifying the portfolio into other markets such as Europe and the Middle East. For SPA, BKK branches (up to 60% of revenue) outperformed upcountry branches given the higher local percentage.
Nonetheless, management highlights that they see a more cautious spending trend among locals amid fluid economic situations as well as more intense promotion offerings by players, especially in the mid to premium segments to boost revenue.
Hence, we believe SPA’s 2Q25 net profit should be softer y/y following sales inching down and in expense levels rising from new branches and lower benefits from costs leverage. We expect a narrower earnings contraction in 3Q25 and further improve in 4Q25 after tourist numbers recover.
2025 guidance to likely be slashed. SPA’s management is now revisiting their guidance to achieve THB2bn in revenue growth with a 5-10% SSSG given the sluggish tourist numbers and rising global economic uncertainties. On the expansion front, management planned to roll out c.10 branches this year (vs. six branches in our forecast) on top of 78 branches at end-2024.
YTD, the company has already opened four branches (and closed one), and management believes that 50% of the rest will need to be opened as those are branches in departments and hotels which have strict opening schedules. The company may delay the expansion of some of the remaining branches if the tourism slowdown prolongs.
Recommendation
Reiterate BUY with a lower TP of THB4.00. We cut our earnings forecasts by 20%/18% for FY25/26F to reflect more conservative revenue growth and lower operating margins from less benefits of cost leverage. We now assume a revenue growth of 2%/8% in FY25F/FY26F instead of 6%/9% previously, with gross margin of 29.4%/30.9% in FY25F/26F vs. 32.6%/33.3% previously.
Overall, our 10-year profit CAGR was down from 6.8% to 4.7%. For DCF valuation, we also assume a more conservative terminal growth of 0% vs. 1% previously to reflect potential tourism volatility and intense competition (with a WACC of 9.7%). As a result, our TP dropped from THB5.30 to THB4.00. Given that upside and long-term outlook remains intact, we retain our BUY call. We note that SPA is now trading at a 2.9 FY25F P/B (-2.5SD of its five-year average P/B).
Quarterly / Interim Income Statement (THB mn)
FY Dec | 1Q2024 | 4Q2024 | 1Q2025 | % chg y/y | % chg q/q |
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Revenue | 394 | 429 | 381 | (3.3) | (11.2) |
Cost of Goods Sold | (262) | (286) | (271) | 3.3 | (5.2) |
Gross Profit | 132 | 143 | 110 | (16.6) | (23.1) |
Other Oper. (Exp)/Inc | (40.6) | (47.5) | (47.3) | 16.5 | (0.4) |
Operating Profit | 91.1 | 95.5 | 62.6 | (31.3) | (34.4) |
Other Non Opg (Exp)/Inc | 0.0 | 0.0 | 0.0 | nm | nm |
Associates & JV Inc | (0.5) | 0.02 | 0.0 | nm | (100.0) |
Net Interest (Exp)/Inc | (8.2) | (7.9) | (7.4) | 10.7 | 7.3 |
Exceptional Gain/(Loss) | 4.50 | 0.0 | 0.0 | nm | nm |
Pre-tax Profit | 92.0 | 99.4 | 63.2 | (31.3) | (36.3) |
Tax | (18.1) | (7.5) | (12.1) | (33.0) | 61.3 |
Minority Interest | 0.0 | 0.0 | 0.0 | nm | (44.0) |
Net Profit | 74.0 | 91.8 | 51.1 | (30.9) | (44.3) |
Net profit bef Except. | 69.5 | 91.8 | 51.1 | (26.4) | (44.3) |
EBITDA | 169 | 186 | 144 | (14.9) | (22.5) |
Margins (%) |
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Gross Margins | 33.4 | 33.4 | 28.9 |
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Opg Profit Margins | 23.1 | 22.3 | 16.4 |
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Net Profit Margins | 18.8 | 21.4 | 13.4 |
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Source: DBSVTH, Company
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