Hi, everyone. Welcome to 2Q 2025 analyst meeting of The Erawan Group Public Company Limited. Today we have management joining, Youssef El Khomri , President, and Ms. Apinya Ngamapichon, CFO. Let's start.
Thank you. Today we're going to go through the second quarter of 2025 overview. Then we'll be presenting the hotel performance and overall consolidation performance as well, and then we'll touch on the outlook for the year. Obviously, as you know, the Thai tourism sector in the second quarter has experienced quite of a decline with the arrivals that dropped 12% versus last year. There were various factors that led to the low performance, with the earthquake that hit Thailand end of March and affected most of the month of April. There was also a continued decline of arrivals from East and Southeast Asian that accelerated in Q2, and also geopolitical concern, both internationally and domestically.
These events have put a lot of pressure overall on the market, for both occupancies and ADR across all the segments. However, on the positive side, we've seen upward trend from various markets, like Indian market have increased in term of arrivals. There were more scheduled flights to Thailand. The Middle East as well, very resilient. We saw that the production coming from the Middle East has been increasing. The European market, also supported by a strong euro, have contributed quite well and the numbers are increasing. For our Thailand hotel in particular, the luxury segment have seen the softest trend, while other segments were more resilient.
If we look at the domestic market, for instance, has been quite stable in general and has contributed especially for our budget hotel HOP INN. From a business standpoint, we have swiftly adjusted our strategy to mitigate the challenging market conditions. We've adjusted the rate to meet with the market demand. We've also focused on driving volume business and increasing our marketing exposure towards the markets that were still growing despite those challenges. For Q3 in Thailand, the outlook is improving compared to Q2, but remain challenging as arrivals are yet to regain the level that we've seen last year.
Q4, our pace for Thailand is on par with last year. However, it's a bit early to say how that will play out because the incoming booking that we have now are all from long-haul markets that usually book early. However, the markets that we book on shortly that are Asian markets, those will have to see how the pace will come closer to Q4. But so far, the signs show a good trend for Q4 for Thailand. For the Philippines, the trend of international tourism was soft, recording a decline of 8%.
For our properties, we rely less on international demand. Domestic continue to be our strongest market, and we are putting special focus to solidify our position locally in the Philippines. The outlook for Q3 remains stable, while Q4, the trend is looking better, improving with more corporate demand. For Japan on the other hand, Q2 was very strong with a year-on-year growth of 19% of arrivals. The country shown strong inbound growth from China, Taiwan, and South Korea. Those three markets have been very strong. Thai market has been slightly lower compared to last year for the second quarter. The weak yen continue to enhance Japan competitiveness and value destination. But our hotels in general have performed very well and still showing growth, compared to last year, especially with the average room rate that has been substantially grown.
The outlook for Q3 for Japan is a bit softenin, so Q2 was the high season. Q3 is a bit softer, and we are entering into a lower demand period. However, we are still going to show growth year- on- year. In Q4, we will see a return to higher demand environment for Japan, and we should be doing quite well, looking at the current trend. That is in general the overview. Again, challenging market environment, but there are some positive signs of other markets where we are putting focus on diversification and getting share from those markets, specifically for Thailand, where we are seeing more pressure from the decline of tourist arrival.
In term of operational performance for the second quarter, for the total group, we have achieved an occupancy of 74% versus 79% last year. We had a five-point occupancy decline year- on- year. The rate was close at 1,700 THB, compared to 1,834 THB last year, so a 7% decline. That translates in a total RevPAR decline of 13%. Looking at it by segments, the luxury and economy had the highest impact, with -13%. However, our budget brand, as I referred to earlier, with the resilience and the strength of the domestic market as well as the newer hotel are ramping up, continue to yield growth, and we close at 2% year- on- year in term of RevPAR.
Let us now dive deeper into performance of the Hotel by segment, starting from luxury to economy segment. Based on the tourism environment that we just reviewed, let us now move on the trend of international arrival in Thailand which is the key driver for performance luxury to economy segment. In Q2, international tourist arrival to Thailand declined by 12% year- on- year. Our top five source markets remain Malaysia, China, India, Russia, and South Korea, collectively contributed around 46% of total arrivals. The sharpest decline was observed among Chinese and South Korea tourists. Arrivals from China dropped by 45%, while South Korea recorded a 27% decline.
Conversely, arrival from India increased by 13% year- on- year. This growth was supported by rising spending power and visa exemption policy that have encouraged traveling to Thailand. Based on the trend of international arrival, I would like to move on to our key source market within luxury to economy segment. In Q2, our top five source market remained consistent with Q1. They were China, United States, Thailand, India, and Singapore. Collectively, this market accounted for 51% of room revenue in our luxury to economy hotel portfolio. For China, it remained our largest contributor, making up 14% of segment revenue. However, room revenue from Chinese guests declined by 27% year-on-year due to soft booking momentum.
This was still a relatively better performance than the broader market, where Chinese arrival dropped by 45%. For United States, it contributed to 11% of the room revenue of the contribution to luxury to economy segment, while room revenue declined by 14% compared to the previous year. While U.S. arrival to Thailand increased by 2%, our performance was partially impacted by reduced corporate demand, particularly from U.S. government-related bookings. Among the top five, India stood out as the most stable market. It contributed 8% of room revenue and experienced only 2% decline, despite some short-term fluctuations in group travel segment.
Following macroeconomy and tourism trend we have discussed, it is important to see how these external dynamics translated into our actual performance across luxury to economy segment. In quarter two, our occupancy and average room rate declined, primarily due to softer demand resulting from slowdown of Chinese tourist arrival and temporary pause of the booking following the late March earthquake. As a result, RevPAR across this segment dropped by 13% year-on-year, with occupancy decreasing 8% and rate decreasing by 4%.
Now let's take a closer look at the performance by segment, starting from luxury segment first. In the luxury segment, both occupancy and rate declined by 13% and 3% respectively, resulting in 19% decrease in RevPAR. This was largely attributed to lower Chinese tourist arrivals, reduced MICE activity, and the phase renovation of The Naka Island, a luxury r esort in Phuket. The renovation is ongoing between April to November 2025. For mid-scale segment, it maintained the occupancy rate, compared to last year. However, a 5% decline in the rate led to a drop of RevPAR of 5% year-on-year.
This stable performance compared to the other segments was partly supported by a full-quarter contribution from Holiday Inn Pattaya renovation that was completed in September 2024. Moving from mid-scale to economy segment, we observed different challenges, particularly on seasonal factors and regional volatility in key leisure destinations. Properties in Pattaya and Phuket experienced additional seasonality in Q2, combining with reduced Chinese arrival and temporary business disruption from repair and maintenance work in several properties due to the earthquake. This led to a 13% drop in occupancy and 3% drop in rate. As a result, RevPAR decreased 18% year-on-year.
Having reviewed operational trend, let's now move on to the financial performance of our luxury to economy portfolio in Q2. In Q2, operating revenue from luxury to economy segments was THB 1,258 million, decreasing 18% year-on-year. While EBITDA for this segment was THB 292 million, a 22% reduction year-on-year impacted by softer demand. As a result, due to the soft revenue, our margin declined from the previous year by around 3%. Looking at the first half of the year, revenue in total, it is THB 2,912 million, which mark a 4% decrease year-on-year.
While EBITDA stood at THB 877 million, a 6% decline from last year. We would like to move on to budget segment performance. We have built on our strategic focus, so let's now take a look at our latest expansion report within the budget segment first. in this quarter, we opened three new HOP INN hotels in Ranong, Khon Kaen, and Saraburi, adding 219 rooms into our network. This location was strategically chosen to target local demand. Following this addition, our hotel in our Erawan portfolio now consists of 99 hotels, 12,000 rooms, and operating across three countries, Thailand, Philippines, and Japan.
Let's now look at market trends within budget segment, where we continue to see solid performance across our region. Across the budget portfolio, excluding newly opened hotels since April 2024, we implemented efficient pricing strategy and drove solid result in Q2. The rate increased by 7% year-on-year, while occupancy declined by 4% year-on-year. As a result, RevPAR grew by 2% year-on-year. If we exclude FX impact from the performance, RevPAR grew even stronger by 5% year-on-year. Starting with Thailand, while GDP growth expectation for Q2 dropped to 2.4% compared to 3.1% in Q1, and domestic arrival, we see the decreasing trend of 1% year-on-year.
However, HOP INN Thailand performance benefited from both organic growth and new hotel opening. So in total, the performance remains stable. For Philippines, domestic travel remained robust, supported by 5% growth in the GDP, and our performance is growing in terms of organic and new hotel. Lastly, for Japan, our performance was particularly strong. We saw increasing demand from Thai and Filipino travelers during the cherry blossom season, which drove strong performance in Q2. So, in summary, budget segment continues to offer significant upside supported by stable domestic demand and strategic international exposure.
Now, let's take a deeper look at the operational results in budget segment, focusing on the performance by market. For Thailand, revenue from existing hotel, 56 hotel in qaurter two, revenue was THB 235 million, which was flat year-on-year. If we include all hotel in operation, total revenue rose to THB 269 million, a 14% increase year-on-year. In the first half of the year, the performance also grew by 15% year-on-year. Now we move on to Philippines. Revenue of existing hotel was THB 90 million in quarter two, a 7% year-on-year decrease. However, if you look at peso term in the green box, it's dropped by 1% year-on-year.
If we including new hotel, total revenue reached THB 118 million, up by 13% year-on-year, while peso growth reached 21% growth. Lastly, for Japan, as mentioned earlier, this quarter performance in Japan is very impressive. There's no new hotel opening, so the performance of the four hotel in Japan resulted in total revenue of THB 97 million, showing 27% growth in Thai baht and 32% growth in yen. Revenue of total, our hotel also increasing as well. So let's now move on to the financial budget segment. With the strong operational performance, financial performance of budget segment is impressive for the quarter. Total operating revenue from HOP INN was THB 496 million, marking a 16% growth year-on-year. While we record EBITDA as THB 203 million, representing 17% year-on-year growth.
For the six-month performance, total revenue reached THB 978 million, up by 22%, and EBITDA also up by 28% year- on- year. The margin for this segment continued to improve, supported by sales growth and disciplined cost control. Let's look at the performance of the entire group. Revenue performance during this quarter was directly impacted by soft operational performance in the non-budget segment. In response, our company took proactive measures to optimize financial outcome by implementing strict cost control and capitalizing on favorable interest rate trend because our loan portfolio is 100% float.
In terms of financial performance, total revenue from the group reached THB 1,754 million, representing a 5% decrease year- on- year, and EBITDA recorded at THB 495 million, a 9% decline from the same period last year. While the net profits stood at THB 63 million, down 51% year- on- year, mainly due to softer revenue and softer performance in non-budget segment. For the first half of 2025, normalized total revenue reached THB 3,890 million, showing 1% growth. The EBITDA is THB 1,280 million, showing 3% growth, indicating operational efficiency and improved profitability in the budget segment. However, net profit was slightly down by 1% year- on- year to THB 408 million, due primarily to the increase in tax expense.
Let's turn into our financial position, which continued to provide a strong base for long-term growth. So Erawan has maintained an increase in equity base compared to year end 2024, strengthening our financial stability and supporting future investment. In addition, our floating loan portfolio gives us the flexibility to benefit from the current downward trend in interest rate. In quarter two, average cost of fund dropped to 4.01%. If we compare to last year at the same time, the cost of funds was around 4.4%. Leverage ratio remains healthy at 1.1x , keeping us well positioned for the future expansion. In addition, we have ample credit facility available, ensuring that we can continue to fund pipeline projects and seize new opportunities in the future.
Moving on to the outlook. We've adjusted our guidance for this year, down, obviously with the current market conditions. We are expecting so far to see a revenue growth of 3%-5% for the year. When we look at it by segment, luxury and economy, luxury to economy would eventually be flat, and most of the growth will be driven by the budget segment. Just a note on the luxury to economy, and I would like to refer to my first comments. We don't have very good visibility on Q4. I think it will really depend on how those source markets, especially Southeast Asian market and East Asia, would book Thailand destination on the short lead. Whether we'll be able to achieve similar numbers to last year, above that or below that.
That is still lacking visibility, but so far we see the good trend from long-haul markets. Again, I think forecasting at the moment is quite challenging, but we are hopeful that the second half of this year, both Q3 and Q4, would have good results. I think that the guidance may again be adjusted depending on how the tourism demand, the evolution in the next couple of months. That is so far where we stand in term of guidance. Some of the tailwinds, the markets that still have potential of growth this year, India, Middle East, as well as Europe, actually, where we are putting a special focus. The strong euro is supporting the tourist arrival into Thailand, so that is we need to capitalize on, making sure we increase our share of European market into our hotels.
Some of the headwinds, there is continue to be uncertainties in term of regional, geopolitical, and as well as local. There is macroeconomic situation with the tariff that is still ongoing. There are some potential headwinds, but so far we see that we are on pace for a recovery from the challenges we have seen on the first half. We should look better moving forward. Q3 is trending much better than Q2. Q4 will be even better, so we are getting back to a normalized trend. From an operating strategies, we continue to focus on making sure that we have a strong cost discipline to protect our margins, and also continue to expand our portfolio of HOP INN and ensuring that we deliver growth to our shareholders.
For 2025 pipeline, Khun Petch already mentioned about the second quarter opening that we have achieved with Ranong, Khon Kaen and Saraburi. On the third quarter, we have another three hotels coming, one in Chiang Mai and another two locations. Then we have another hotel that we will be opening on the fourth quarter. In total, we are confident we will achieve 10 hotels this year, opening for HOP INN. All right, so we have an additional agenda today just to give you an update on a project which we already referred to a couple of meetings ago. But before we go to that, I just would like to recap on our development strategy. Basically, we are still looking at adding properties to our portfolio in Bangkok, Pattaya, Phuket, so specifically focusing on Thailand.
We are still very confident on the long-term growth prospect of Thai tourism. We continue to seek great locations in those three cities and developing projects that bring value to tourism in general, and also that can yield a good return for our company and for our shareholders. We have secured a new site on Sukhumvit, which we shared earlier. Before we go to the detail, I just would like to play a short video just to give you a bit of a view of the perspective of the building and the location, and then I will share with you more details on the overall development project. We have secured a site on the intersection Sukhumvit 26 and Sukhumvit Road. This is a prime area. The site is located a walking distance to the BTS, 50 m.
It is also very close to the EM District with access to EmQuartier, Emporium, EmSphere, and Benjasiri Park. Overall, a great location. We have a property actually next door on Soi 24, walking distance as well. We are very happy with this new land that we were able to secure for a long-term lease. A bit more specific on the location. As you can see, in Phrom Phong now, it is a key demand area in Bangkok at the moment. In the previous years, Siam Square used to be the main attraction. Most of the demand was going to Siam, Ratchaprasong. Phrom Phong, with the development of EM District, becomes another key area of demand. When we look at the performance now in Phrom Phong, we see most of the highest occupancies of Bangkok within that area.
As you can see from the picture, we were very fortunate to have this land because across from the BTS surrounding, there are very few hotels within Sukhumvit Road. There will be a property development next to EmSphere, which is a Conrad. That will be in front of Sukhumvit. Apart from that, there are shopping malls, offices, or high-end condominiums. Basically, we are benefiting from a key location. Most of the inventory and accommodation in Phrom Phong are within the Soi. We are having a prime location that we will have to make sure that we capitalize on. The location, again, is really focusing on that proximity to the EM District, which will create a lot of value for the property.
In terms of development, we are planning to develop 449 keys. It will be 34 floors and a dual-brand property. This is going to be our fourth combo hotel, a dual brand. We already have three that are performing really well, so this is the fourth one. At The Erawan, we are really focusing on that combo concept because it gives us so much flexibility and targeting different markets with two brands. It works really well for us, and we continue to do that wherever we see the opportunity. Here we are going to be developing two brands within the mid-scale segment. We are looking at mid-scale and upper mid-scale. In terms of the construction cost, we are looking at THB 2 billion in terms of approximate amount.
The opening year will be early 2029, so we are looking at January, February, and it will depend on how the EIA process goes. We may be able to open, let us say December 2028. That is the range where we are targeting for the opening. In terms of business target, we are looking at occupancy of around 80%-85%. If we look at actual occupancy of hotels in Phrom Phong, it is way above 85%. Even today on the current market condition, hotels are running over 85%. It is a really high demand area. We believe that 85% will be achievable for this project. In terms of ADR, we are looking at THB 3,500-THB 4,000. THB 3,500 for the entry level mid-scale, and then THB 4,000+ for the upper mid-scale.
The reason why we choose mid-scale is this segment has the most potential in Bangkok. In terms of demand, highest demand goes to mid-scale segment. In terms of the ratio between construction cost and return, it has the best ratio. We are very keen on the mid-scale segment because that is where we have the best yields. Looking at our properties, our mid-scale are performing really well in that aspect. When we look at the demand globally, the majority of the global population growth is coming in that mid-scale segment, economy and mid-scale segment. We believe that long term, this segment will continue to yield good return.
In term of product facilities, when we looked at the programming of the building, we looked at the customer demographic going to Phrom Phong. Phrom Phong is very driven by leisure market, very small corporate demand. One of the reason that we decided not to have meeting rooms, it is going to be a pure room product with very limited F&B offering. No MICE business. One of the reason we did not do MICE is because not only the demand is not there, but MICE and mid-scale segment do not really work. MICE works really good in five-star hotel rather than lower segments.
We decided not to go for meeting facilities and to allocate that space to other facilities and rooms. There will be one all-day dining, one pool bar, one lobby lounge, and one cafe at the lobby. Pretty straightforward. We did not want to expend too much on food and beverage because of all the offering around. People do not stay at the hotel. They go out, they eat at EmQuartier, EmSphere. We want to make sure that we are offering a good and comfortable accommodation, very basic offering in term of food and beverage.
We have the accessibility to everything around that customer can have easy reach to. That is overall the project summary. The branding we will be able to share with you in a future meeting in term of brand selection. I think today was really to give you an overview of where we are heading for this project and sharing with you the exact location of this project.