Discounted cash flow valuation of the Erawan group public company limited.

Abstract

This thematic paper is a production of studying valuation and applying in the practical stock of The Erawan Group Public Company Limited (ERW) which I decided on applying the concept of discount cash flow valuation (DCF valuation). According to the ERW’s business strategy, we estimated that company will open 56 new hotels within 2021 which ERW will have hotels in the portfolio up to 95 hotels to serve all market segmentations (from luxury/5-stars hotel to budget hotel). In addition, ERW believes that “HOP Inn” will be the flag ship for the company to diversify revenue concentration on luxury hotels and high competitions in hotel industry to turn its performance to positive by know-how from the hotel chain managements. In addition, the company is likely to be relied on long - term debts with stable financial structure. Under the organic growth, ERW has potential to grow its business from expanding new hotels to penetrate into the new market segment. While FCFF is likely a mechanism to reflect the value of the company based upon the time value of money, DCF valuation looks forward to the future growth as well as long term perspective. As our team’s estimate, the target price would be anticipated to THB 6.44 where the target price is considered “overvalued” by the DCF valuation when compares to the stock price as of December 8, 2016 at 4.62 THB. Therefore, I recommend “BUY”.