Q2 2026 Minor International Public Co Ltd Earnings Call
Speaker #1: Caucasian for the second quarter results. Well, but the presentation today probably not going to focus much on the results, which you have already digested anyway.
Speaker #1: We'll recap it a little bit at the very end of the presentation, but I would like to call out some of the recent developments: strategic move and other highlights that I'd like to call out that happened in the second quarter, and also in the second half of the year as well.
Speaker #1: I have to do it in English for the benefit of a lot of people online that dialed in as well. Maybe we start off with the agenda as recent development.
Speaker #1: I said earlier, strategic highlights and also financial highlights. Start with the recent development. If you look at the new openings in the second quarter, we opened 7 hotels and rebranded 1 property in the second quarter of the year.
Speaker #1: We further expand our asset portfolio across both existing and new markets. And if you look at the destination that we went to, we continue to deepen our presence in the existing markets that we already had our footprint, including Thailand, Italy, Australia, Zambia, and Laos.
Speaker #1: In the second quarter, for Thailand in particular, we're increasingly leveraged brand conversions. As an effort route to expansion, we have Avani, Koh Phangan, and we have Colbert Collection in Samui.
Speaker #1: There are management contract conversions from other brands. I wouldn't mention what brand we converted from, but it's also amplified our ability to show our capability that gained trust from the owners and switch the brand to use our brands.
Speaker #1: And for Colbert Collection that I mentioned, also marked the debut of Colbert Collection in Asia. If you remember, we announced the four new brands last year, in addition to the existing brands that we have.
Speaker #1: Last year, we announced the Wusli brand, the Colbert Collection brand, Minor Hotel Reserve Collections, and I-Stay, if you remember. But now we make it happen with Colbert Collection debuted in Asia in Samui.
Speaker #1: In Italy, Tivoli Palazzo 1880, Lessee Hotel brings Minor Hotel's portfolio in Italy to 60 properties already. And it represents conversion from other brands as well.
Speaker #1: And those brands in that particular brand that we convert to is Elite Brand. So that show that we can convince the owners to switch from another Elite Brand to our brand.
Speaker #1: In Australia, Avani, Mulu, Laba Beach Hotels is the first internationally branded hotel on Queensland Sunshine Coast. In the past 40 years, that's the first international brand that happened in that particular location.
Speaker #1: So we're proud of we're quite proud of it. In Zambia, Anantara Kafuri Bird Tented Camp extends the Anantara brand into a differentiated luxury safari experience in Zambia.
Speaker #1: This is the first tented safari camp for Anantara brand. But if you recall, we have other tented camps elsewhere under other brands, especially Elawana brand, that we work with the partner.
Speaker #1: But this is tented camp under Anantara brand. For Laos, if you follow us closely, you travel to Laos before you probably are familiar with Avani, Luang Prabang, which is quite popular among us all.
Speaker #1: But we opened another one, an Avani Plus Lanseng Vientiane Hotel just opened. And it becomes Avani second property in Laos. At the same time, we enter a new market in Turkey.
Speaker #1: Through Anantara Kolkasa Mansions Istanbul in the heart in the city of Istanbul. This is a brand conversion from another renowned international brand too. I would mention the brand, but it showed that we can convince the owner to switch to our brand.
Speaker #1: Finally, the rebranding of NH Collection in Italy. We rebrand NH Collection into Porta Rossa Colbert Collection in Florence. This is a well-known property under NH Collection for a while.
Speaker #1: But we rebrand into Anantara we rebrand into Colbert Collection, a new brand of ours, which demonstrates the flexibility of our broader brand architecture providing owners with more options to join Minor Hotel's platform.
Speaker #1: Under the brand best suited to their property and their positions. So next slide. We talk about the asset light pipeline. We try to accelerate the signed contracts a lot of people ask whether we're on track.
Speaker #1: We've been delayed. We're ahead of the promise that we made to the investment community. I have to say, it's beyond a little bit beyond our expectation.
Speaker #1: Our asset light strategy continues to gain momentum. We signed 9 contracts in the first quarter of the year and 21 contracts in second quarter of the year, gaining stronger momentum the second quarter.
Speaker #1: Bringing a total to 30 new contracts, new fee-based contracts in the first half. And we remain on track to achieve more than 50 signings for the full year.
Speaker #1: That we promised at the very beginning of the year. Now we're ahead more than halfway through. And the pipelines is geographically diversified across Asia, the Middle East, and Europe.
Speaker #1: You look at some examples in Asia. We signed new projects in Thailand and India. Including Avani, Koh Phangan, I alluded earlier last slide, got Samui Colbert Collection, got Lipet Colbert Collections, and Anantara Musuri Sengen and Anantara Varanasi.
Speaker #1: In India as well. So that's some of the examples in Asia. In the Middle East, we strengthened our presence through signings in Egypt, Saudi Arabia, and UAE.
Speaker #1: Including Anantara Soma Bay on Egypt's Red Sea coast. NH Prime Square Riyadh in Saudi. And several Colbert Collection properties in the UAE. This is conversion from another well-known brand as well in the UAE.
Speaker #1: In Europe, we secure opportunities in Italy, Switzerland, Hungary, all SMA or management contract conversions from local brands. Further expanding our footprint in established tourism markets.
Speaker #1: In Europe. That's Minor Hotels. For Minor Food, this is Minor Food. We're growing portfolio across brands and geographies. For our strong business, the focus remains on innovation, expansions, and creating new growth platforms.
Speaker #1: Firstly, we launched new concepts: chicken tendies. I don't know if you've tried this concept. We have the pizza company come up with the new crispy concept chicken concept.
Speaker #1: We transformed the brand from food service dine-in into quick service restaurant concepts. With we pilot certain number of the outlets that we have. You probably remember the pizza company are more casual dining restaurant concept in the past with selling not only pizza, but pasta, salads, other dishes.
Speaker #1: But now we try to pilot certain concepts for certain outlets that we have. Scope down into quick service restaurants with self-ordering kiosks or self-ordering stations.
Speaker #1: And menu items or streamline for more operational efficiencies. With serving time reduced in few minutes only. For this concept. So new product categories will be Longzilla chicken.
Speaker #1: It's a long pizza. Long chicken and long egg tart. And we opened we pilot one in Suvarnabhumi outlet, Robinson Suvarnabhumi. And by year end, we target to have this kind of outlets of about 7 to 10 stores by this year end.
Speaker #1: But by next year end, we hopefully will get to hopefully 100 stores for this concept that concept will transform and increase and drive TPC.
Speaker #1: Sales under our strategy. So that's pizza company. And we have some new brands in Singapore. Kaji, a contemporary Japanese Western dining in Singapore. And we come up with new concept baked babe in Singapore.
Speaker #1: It's a Bangkok originated premium banana cake concepts. So we still have this cross-territory across country expansion with different brands. For product innovation, we mainly key driver for us with strong launches across several brands.
Speaker #1: You probably experienced and heard about this new launches Bonchon's new Ramyun. Rice series. K-Port, not K-Pop. K-Port, Korean pork offerings. Drop boat same store sales.
Speaker #1: Growth for us and transaction growth. Demonstrating the sales growth was driven by higher customer traffic rather than easier lever of price increases. And we jazz up Sizzler.
Speaker #1: We have Sizzler special concept. It's an elevated salad bar concept, which was a key contributor to strong same store sales growth for Sizzler. And why Swenson's and the pizza company's benefit from successful menu innovations.
Speaker #1: Including if you went to Swenson, I just went one yesterday. We have young coconut and pandan series by Swenson's. And also at the pizza company, we have croissant pizza.
Speaker #1: So we never stop innovating with new products just to jazz up and create excitement in the market. And Dairy Queen and Swenson's if you noticed we capitalized on the very growing gelato craze.
Speaker #1: With the launch of their ultra smooth series. Helping both brands achieve nearly 20% same store sales growth. We just capitalized that very quick. Some viral drama that happened over one weekend.
Speaker #1: And we did it over that same weekend. And that results in a very impressive sales growth for these two brands. Next slides. Growing it's still Minor Food.
Speaker #1: We're still growing portfolio across brand geographies. Brand's highest momentum also continue in Thailand. And international markets. In Thailand, we continue to roll out Swenson's the steak and more.
Speaker #1: Dairy Queen and Gaga still it's still our driver in Thailand. Internationally, we continue to roll out in Singapore. Vietnam, Indonesia, and India across several brands.
Speaker #1: I wouldn't go into detail. You probably have some details in the slides already. If it's in the interest of times, I'm just going to focus on high level.
Speaker #1: And another important milestone this quarter was our partnership with BTTOR. We're targeting more than 150 outlets under the pizza And we create new brands just for OR.
Speaker #1: Called Chi Ho Ramen. So this will be in PTTOR stations nationwide. This provides a highly efficient way to expand multiple brands using an attractive capital light model and strong partnership with the prominent company another prominent company in Thailand.
Speaker #1: Minor Food also enter into an agreement to acquire well, this is the news that we released, I think, before public holiday yesterday. We acquired we enter into an agreement to acquire ownership of Bonchon's intellectual properties rights.
Speaker #1: Outside the Americas. Which include egg Asian countries. I think currently we have about 345 stores. And in Thailand, the Philippines, Vietnam, Myanmar, Taiwan, Laos, Cambodia, and want to come in Malaysia.
Speaker #1: So the acquisitions is financially attractive and strategically aligned transaction with Minor Food asset light strategy. With a net investment of 50 million US dollars or roughly about 1.6 billion baht.
Speaker #1: And the transaction I have to say will be earnings accretive from day one. And supported by Bonchon's highlight highly franchise and royalty driven business model.
Speaker #1: Going forward, we'll see further value creation through network expansion franchise growth. And Bonchon integrated sauce supply chain. We get the manufacturing capability of the sauce as well.
Speaker #1: So the whole thing will produce us with the recurring royalty fees as well as the proprietary sauce sales for us. This opportunity emerge when the owner decided to divest the global IP.
Speaker #1: A rare event in the market. So we have to seize this opportunity. Given our seven year track record successfully operating Bonchon here in Thailand.
Speaker #1: We know the brand really well. And we were able to acquire it at a valuation and return of profile that met our thresholds. So we see such opportunities.
Speaker #1: Tapex didn't really go up because we streamlined down, trimmed down other capex of ours. And I will talk about it later on that our capex amount or level.
Speaker #1: This year remained the same. Because we trimmed out capex somewhere else. Just to get this capex to acquire the opportunity that we cannot refuse which will drive out the return.
Speaker #1: And a creative to our earnings on day one. So we get that we have to seize that. We're buying ownership of one of the leading Korean food brands globally.
Speaker #1: Outside the Americas. You know how successful we are in Thailand. We're going to replicate such success elsewhere. The value comes from royalty stream as I said.
Speaker #1: Franchise growth rights. And intellectual property ownership. And long term brand expansion. So moving on to 26 and beyond. I'll aspirations. Just to recap. We talk about this slides many times in the past.
Speaker #1: Just want to recap. Overall performance for this year. 26 is expect to remain above prior year levels. I'll say. Supported by relatively resilient operating performance despite geopolitical uncertainties that we all seen.
Speaker #1: Related to Iran, Middle East situation. Meanwhile, our medium term aspirations remain unchanged. So we target by 28 to reach approximately 850 hotels. And 4,150 restaurants.
Speaker #1: Including signed contracts to by the end of 2028. That still remain our target. Even though something a lot of things happened this year. This expansion will be driven by a combination of asset light growth.
Speaker #1: As I said earlier. Selective new market entry. And deeper penetration in high growth regions too. And financially, we're targeting high single digit revenue growth as I said.
Speaker #1: 15 to 20% annual profit growth on a three year KRA basis. And RRC of around 12%. That's remain our target like KRA A three year.
Speaker #1: Whatever happened this year and probably we would probably going to try to drive the three year KRA at the level that we commit to the market still.
Speaker #1: At the same time, remain focused on balance sheet strength. Subject to successful execution and timeline of value unlocking exercise. Initiatives or asset rotations. We talk about it in previous quarters as well.
Speaker #1: Subject to this and subject to market conditions and all. We still target net debt to equity in the range of 0.75 to 0.85. And net debt to EBITDA to four below four.
Speaker #1: But just a matter of timeline and market windows for us to execute at the best timing and best financial parameters and metrics for us.
Speaker #1: Next slides. Just to I just want to talk about margins. As we continue to grow maintaining margins still remain a key priority. Amid ongoing cost inflation across several markets.
Speaker #1: As you all know with this Iran US crisis we have to deal with top line and we have to deal with cost. But I have to say that we remain resilient on both.
Speaker #1: And in terms of cost labor represents our largest cost category at about 28% of our revenue base. We're managing this through demand based initiatives.
Speaker #1: Process standardizations and greater use of automation and digital tools. As a result, we expect labor cost inflation to be contained at mid single digit levels.
Speaker #1: And direct costs including raw materials logistics packaging and energy account for about 24% of revenue. We continue to mitigate pressures through procurement efficiencies. I think we talk about it before.
Speaker #1: I did talk about it last quarter. We have a very proactive central supply chain management to negotiate and have some bargaining power with our suppliers.
Speaker #1: And we also diversify our supplier base as well. Inventory planning logistics optimization and many re engineering. And selective pricing actions for certain products. That help us too.
Speaker #1: And in Europe in particular where energy costs remain a key area focus. I have to reiterate this. More than 90 or up to 100 of energy requirements have been hedged.
Speaker #1: You remember we talk about it before. This provide cost visibility and reducing volatility for us. Overall direct cost inflation is expected to be manageable with low single digit increases.
Speaker #1: And considering that we still manage to increase our top line or rapport or food total system sales growth. And you have to see in later slides.
Speaker #1: We start to see good traction in terms of same store sales growth in the primary market like Thailand as well. That will pretty much protect our margins.
Speaker #1: In this current environment. If you look at other play in the market. Margin gets squeezed. But we'll try our best not to get not to see margin coming down.
Speaker #1: These protected at the same level. Least expenses represent approximately 7% of revenue we continue to increase the proportion of variables. Least structures where appropriate.
Speaker #1: And providing to provide us with greater flexibility during periods of volatile demand or soft demand. So that's margin. Next slides. Also talk about margin as well.
Speaker #1: 26 is about protecting and maintaining margins. As I said amid external cost pressure. While 27 onwards should mark the net base of margin expansions.
Speaker #1: From 2027 onwards we expect initiatives we mentioned earlier. To increasingly translate into margin expansion. This will also support by greater contribution from asset light business model.
Speaker #1: Because it's provide us with higher margins. Normally compared with other business model. And also fee based businesses too. That will further operating efficiency digitalization and lower financial leverage.
Speaker #1: That's will help. Protect our margins. Next slides. Just to highlight some of the enterprise technology and digital initiatives on our side. Technology still core margin lever for us.
Speaker #1: Not just a cost line. It supports both our efficiency agenda and our customer strategy. And it's central to how we get to our medium term to long term margin and our IC targets.
Speaker #1: We oftentime we talk about margins in terms of cost of raw materials cost of labor cost of police and all that. But longer term we overhaul streamline transform our back office just to make it scalable standardize it in a way that create more efficiency and reduce cost and improve margin over the long term.
Speaker #1: Something that I would love to share with you too. We have to core pillars we have a lot of workstreams now within the organization.
Speaker #1: But I just scoped down into just two core pillars. Just for you to just for you to easily understand us better. Backup house driver cost out and scalability.
Speaker #1: And customer facing. Drive revenue and loyalty. So and then we have AI layer on top. Which is embedded across both pillars. So backup house efficiency and cost leadership.
Speaker #1: As I think I share with some of you before in several meetings. We have done enterprise platform modernization. We migrate our ERP system from EBS to Oracle cloud.
Speaker #1: The journey that we've done for year two. And we still in the middle of it. We standardizing finance supply chain. Reporting. We implement we are embarking on enterprise performance management which will automate our reporting system.
Speaker #1: Globally. Because you all know we have very operation in different geographies with different system with different reporting. Framework. But now we try to streamline everything to be a one global standard for the sake of standardization.
Speaker #1: Which will have the financials or the reporting in time. In a very quick manner for us to make decision faster. So that will that will help.
Speaker #1: We targeting at least 20% process efficiency gains from this exercise. Secondly we have vendor AI and outsource that let us scale without scaling cost.
Speaker #1: We're shifting activity to lower cost hubs. We have a business process outsource. We outsource some of the transfer tax activities to India. Center help us with this.
Speaker #1: So the outsource some of the example is outsource transactional accounting. And we're also partnering with major consultancy for complex works. And we overlay this with enterprise grade AI on top to live productivity and eliminate operational pain points.
Speaker #1: So the efficiency gains keep building. For customer facing. We have done hyper personalization. We have said it many time about our dynamic pricing strategy.
Speaker #1: So we have dynamic pricing to optimize revenue in real time. We have contact center overhaul and use AI to improve response time and reduce service failures.
Speaker #1: It frees our agents to focus on upselling and experiences instead. And we personalize service and targeted marketing. Move us from mass to one to one engagement.
Speaker #1: The right offer to the right guest. I have to say we have I said we have quite a few projects. Underway now. But I have to share with you that the transformations happening.
Speaker #1: And we're going to see the result of this transformation in no time. The guest data platform also ties together. Data is something that we're within.
Speaker #1: It's important. It's critical. Customer insights will drive conversion and enhance loyalty platform. Which also support our direct bookings and sales through our own direct channels as well.
Speaker #1: This initiatives I have to say it's not just about cost cutting or cost savings. But they're built a more scalable data driven and customer centric platform.
Speaker #1: The standardization in a unified platform. Global unified platform instead of fragmented all over the place. This unified platform can also help support our growth and ambitious expansion plan that we aspire.
Speaker #1: Next one. Minor hotel expansion pipeline. We talk about the past before. Now we talk about the future. Our expansion strategies remains intact. Prioritizing quality over quantity.
Speaker #1: Not just that we have to get the number of managed contracts to the point where we aspire. But we want high value contracts too.
Speaker #1: Not just contract but high value contract. We remain confident in achieving at least 50 contracts signing this year. And we have already signed 30 contracts so far as I said in the first half.
Speaker #1: More importantly the Middle East conflict has not disrupted our discussion or contract signings. With asset owners as the reasons medium to long term growth fundamentals.
Speaker #1: Remain compelling in our view for Middle East. In fact more than 40% of our hotel signing the first half were in the Middle East.
Speaker #1: Demonstrating continue owner confidence and strong demand for our brands. Next slide. Future. Some new hotel openings that will happen in the second half. This is just some examples.
Speaker #1: The pipelines already translating into openings now in the second half. We expect at least 11 additional openings but we only show six pictures with the limited space that we have here.
Speaker #1: The 11 additional opening across eight countries and five continents. Showing how our brands are expanding globally. Across region and segments. And most of these are managed and franchise properties.
Speaker #1: Supporting our asset life strategy. In Europe we're further strengthen our presence in Italy. And we entering Malta for the first time. And across Asia and Indian Ocean we're adding properties in Malaysia.
Speaker #1: China and Australia. And in the Americas we're expanding into Mexico and entering into the US. I think this slides show you the Wesley in New York.
Speaker #1: Charger collection Corbeil collection in UAE. Anantra Ceiling Snow Mountain in China. In this residence Kuala Lajada in Mexico. And Anantra Chow Ching in China.
Speaker #1: And the first Malta entry which is in H collection Cilema Bay. So that's some examples of new hotel openings that are going to happen at least in the second half of the year.
Speaker #1: Now I would like to talk about the outlook on the book that we have. Looking into second half of the year. Our on the book position is encouraging still.
Speaker #1: Although conditions differ by geography. In Europe and the Americas which remain our largest earnings contributor. And on the book revenue still ahead year on year compared with same time last year.
Speaker #1: But both third quarter and fourth quarter. Demand still supported by receiving intra European leisure travel. And strong events calendar. Across several of our major markets.
Speaker #1: In Asia booking trends in Thailand and the Maldives continue to indicate year on year room revenue growth too. While optimizing mix and adapt to commercial strategies to local market conditions too.
Speaker #1: In the Middle East represent a limited share of earnings contribution. While geopolitical volatility may affect the hotel performance temporarily. Our exposure is limited and largely asset light.
Speaker #1: But nevertheless as I said earlier long term opportunity in this region remains intact. We still believe in long term. Of the Middle East region.
Speaker #1: Barring what happened currently. But over the long term still going to be a strong contribution for us too. For ocean near like Australia New Zealand on the book revenues also ahead of same time last year.
Speaker #1: Majority of demands come from Australia and New Zealand. And we have seen consumer and business confidence begin to recover since July the year. Next slide.
Speaker #1: We talk about branded residents before last quarter. I just want to update a little bit. It's another important growth avenue for minor hotels. We currently have a pipeline of 29 projects across 15 countries.
Speaker #1: Combining own enjoy venture developments with a much larger fee based pipeline. On the left hand side our selective own JV projects provide high IRR of up to 30% in some cases.
Speaker #1: Where we believe the return justified investments. And at the same time the pipeline of fee based branded residence project is expanding. The fee based project I think in the right hand side span the Middle East Africa Asia Pacific Europe and the Americas.
Speaker #1: With estimated residential fee currently of approximately 65 million US dollars over the project pipeline. This allow us to monetize our brands and operating expertise.
Speaker #1: While generating management fee with no capital deployment. And the flow through of this fee will go through. We'll go to our bottom line with a fat and high margin.
Speaker #1: And ROIC. So that's residents. Now we talk I would like to touch a little bit about food growth expansion similar to hotel strategy. Our asset light expansion remains central to minor foods growth model.
Speaker #1: By 2028 franchise outlets will account for a larger share. Of the network. Supporting margin stability and strong cash generation. So the mix which currently own split higher than franchise.
Speaker #1: But we're going to reverse the split in the next three years. Having more franchise more higher margin business model. Have a higher mix for us.
Speaker #1: So geographically we're prioritizing high growth markets. Such as Indonesia and India. Alongside continue expansion in Thailand and broader Southeast Asia. Next slide. Growth strategy.
Speaker #1: For minor food can be summarized. I'll say I would frame it around total system sales growth. You look at total system sales growth. It's a function of same store sales growth and outlet expansion.
Speaker #1: The first component is same store sales growth. We're driving this through new brand concepts. Manual innovation. Marketing agilities and new store formats. New brand concepts.
Speaker #1: For instance the creation which offer a more personalized customer craft ice cream experience. I don't know if some of you have tried it before.
Speaker #1: TPC chicken tendies. I talk about it earlier. The quick restaurant concepts. Extend the brand into the QSR segment. And sizzler special and sizzler sun and moon.
Speaker #1: Which demonstrate the elevated salad bar. Offerings with the sun and moon introducing differentiated day and night menus. Some of the sizzlers ers sun and moon you've got to try.
Speaker #1: It jazz up the excitement and even the brand has been around for so long. This effort has made the brand fresh all the time.
Speaker #1: Menu innovation continue product launch across key brands. Including Bonchon I talk about it before. Rice bowl series K pork. Dairy queen Belgium chocolate. Terraro the pizza company croissant pizza.
Speaker #1: And marketing agility I talk about it already. Ride on market trend fast. Introducing dairy queen for instance ultra smooth series. And we would keep continuing to ride on trend.
Speaker #1: Any trend any craze any viral we capitalize on that. In the very timely manner. New store formats. Dairy queens modular and TPC modular format.
Speaker #1: Which have lower capex. Longer operating hours and higher sales per square meter. And also TPC express concept. Which also increase occasions to individual servings.
Speaker #1: Will help rides same store sales growth for us as well. So these are just examples of how we drive or propel our same store sales for minor food.
Speaker #1: Second component which drive total system sales is outlet expansion. In which the majority will be through franchising or asset light. We're expanding our new store formats and geographic footprint through both domestic and international outlets.
Speaker #1: Domestically we continue to scale brands such as dairy queen the steak and more. Gaga Bonchon the pizza company and for instance. Internationally we're expanding into markets such as Indonesia Vietnam Laos and India.
Speaker #1: And the third is creating and scaling new brands. We build new brands while you know we talk about the steak and more before. Now we scale it up to more than 10 outlets now.
Speaker #1: We have other new brands. The stone the udon brand. Grab Grab station. I don't know if you've tried it. Or some other new brands that happen outside of Thailand like Dim Sum Club or Kaji.
Speaker #1: In Singapore. So we create new brands all the time with this competitive environment with new concepts coming out. We never stop innovating. Or refresh our existing brands.
Speaker #1: All the time. All right. That's growth strategy. And then as I said you have probably seen our results before. Second quarter results and first half results.
Speaker #1: I just want to recap very quickly. We deliver core revenue of 82.8 billion baht. Which represents a 3% on year increase. This was driven by stronger performance across the own and lease hotel portfolio.
Speaker #1: A mixed use operations as well. And restaurant business as well. And look in the core net profit with sheep 3.7 billion baht. Which is a growth of 6% year on year.
Speaker #1: From ability to capture demand and operating discipline which help absorb higher operating costs across selected region. As a result core net profit margin improved by 10 basis points.
Speaker #1: Year on year. Now I'm going to scope down into each business unit. Starting with minor hotels. In first half 26 rep par starting with the operating stats first.
Speaker #1: Rep par increase across most of our major region. In within first quarter and also in second quarter. I have to say second quarter I would frame it as a resilient quarter.
Speaker #1: Despite everything that happened we still managed to get our rep par growth across the regions especially our bread and butter like Europe. Or even in Thailand.
Speaker #1: For own and lease portfolio in Europe and the Americas. Rep par increased 5% year on year in Euro terms. Led by ADR growth. And in July I just we just got the number.
Speaker #1: Also increased also by 5% year on year in July. In Europe. Italy remained a standout market. Benefit from major events such as Winter Olympics in the first quarter.
Speaker #1: In Milan and Italy Italian Open in Rome. As well as continue leisure demand as well. Meanwhile Spain and Central Europe also recorded solid growth as well.
Speaker #1: For Thailand rep par also surged by 11% year on year. Driven by room rate uplift and targeted sales initiatives which focus on high potential source markets.
Speaker #1: Resort destination continue to outperform the broader market. This is support by resilient leisure demand. And strong queue to both domestic and international guests. The Maldives increase 4% support by higher occupancy and diversified feeder market mix.
Speaker #1: And in Australia rep par was slightly soft softer down by 1% only. Stronger performance in Sydney and New Zealand. Was partially offset by softer result in Melbourne and Brisbane.
Speaker #1: So where fewer major events compare with the same time of last year. That's the reason why we still we saw a slight dip in rep par in Australia.
Speaker #1: Financially core hotel revenue increased 3% support by improved performance across own and lease hotels and mixed use. In terms of profit it increased 7% to about 2.4 billion baht.
Speaker #1: So let's shift to minor food performance. It deliver 4% year on year growth in core revenue in the first half. Support by top line growth across all key hubs including Thailand China Singapore Australia.
Speaker #1: We saw all improving revenue or top line. Moving to operating metrics. Thailand deliver positive same store sales growth of 0.8%. And total system sales growth of 4.3%.
Speaker #1: Amid concern on macro backup and everything. We still manage to be up our same store sales growth and total system sales growth. Brand momentum was led by Bonchon.
Speaker #1: Dairy queen. For instance. Supported by product launches and network expansion as well. China performed strongly as well. Same store sales growth of 8.2%. And total system sales growth 8.6%.
Speaker #1: And growth was driven by higher traffic. Broader customer base. Strong brand awareness. Effective marketing and social media engagement. And product innovation. Including additional protein options and wider range of grilled fish sauces.
Speaker #1: And earlier this year we launched what we call Riverside 2.0. They include new menu. New store design. More efficient operations. And this results have been more than I'll say 50% above our internal sales target.
Speaker #1: Beyond our expectation. We now rolling out this format across the rest of the network in China as well. In Singapore same store sales were softer but total system sales increased by 5%.
Speaker #1: As we continue to expand the network and into new brands. I have to say Singapore is a very fast dynamic market. We have to keep producing launching new brands just to keep up with the trend and the competition in the market.
Speaker #1: So total system sales probably matter more to a same store sales at this point. Australia saw higher average ticket value and stronger growth from Nomad our coffee roasting manufacturing.
Speaker #1: Total system sales and same store sales were nevertheless impacted by lower franchise store base. And softer transaction volume reflecting cautious consumer spending and ongoing cost of living pressures in Australia.
Speaker #1: So on the bottom line minor food core profit was up 3% to 1.3 billion baht despite a challenging consumer backdrop. I have to say second quarter gaining more momentum than first quarter.
Speaker #1: Profit growth by about 5% in the second quarter. Slight 24 capex I alluded to it earlier. In when I talk about Bonchon. For 26 we expect total capex of about 15 to 16 billion.
Speaker #1: Pretty much the same as we expect in the previous quarters. We have cut down some unnecessary and low priority capex. And we also deferred certain capex particularly at MSGA which officially offset the incremental capex associated with the plan Bonchon acquisitions too.
Speaker #1: So our capital deployment focus on value creation still. The key area of investment in food ROI driven. And margin enhancing. Asset maintenance and upgrades.
Speaker #1: Capital efficient. Branded residents that I talked about earlier. Where we capture broad development returns and fee upside. So we have to invest in that.
Speaker #1: Highly selective expansion in high growth markets. And organization wide efficiency and transformation initiatives. Including digital and operational enhancement as well. Next balance sheet management.
Speaker #1: Finally this is one of our still our key priorities. Our net interest bearing debt to equity. Through that 1.1 times and net debt to EBITDA at 4.72 times.
Speaker #1: At the end of second quarter. I have to say higher from the end of 25. This was mainly due to higher borrowing and a lower equity base following the perpetual bond redemption in the second quarter.
Speaker #1: As you all know we talk about it discuss it in the previous quarter too. As well as additional funding for working cap requirement during the seasonally low period in Europe in the first quarter.
Speaker #1: So we will continue to strike the right balance between growth opportunity and deleveraging. We continue to I'll say proactively find ways to reduce leverage.
Speaker #1: Through operating cash flow generation proactive capital expenditure or capex management. And optimize funding. And now we currently evaluate asset rotation opportunities to unlock capital from mature assets improve capital efficiency and generate additional proceeds for debt reduction.
Speaker #1: These initiatives I expect to strengthen the balance sheet while preserving financial flexibility to support long-term growth. So the capital unlocking exercise is still on the card on the way.
Speaker #1: We are working on so many work stream but maybe we won't be able to disclose a lot of detail about it because it could just it could have some impact on our negotiating process and the return the price that we like to succeed.
Speaker #1: So but rest assured that we working on several asset rotations to bring down the debt. And it's also depends on the market window. The timing.
Speaker #1: You have to we're well aware of the situation we're in today. The volatility in the market. The situation in the Middle East. And that creates some volatility and disrupt the market window that we originally planned.
Speaker #1: So depend on that which is still something that we have to monitor every day. The deleveraging still on the card for us. And it's still remain our high priority for us.
Speaker #1: But note that in the second quarter average cost of debts declined to about 4.1%. Down from 4.4% in the same period of last year.
Speaker #1: I think that's it for presentation slides here. Now I'll open to any Q&A. That you might have. And we're open to Q&A from people online as well.
Speaker #1: Yeah. Go ahead. Online. Online. Okay. Online. Questions from online. The first questions is on core net profit margin. In 2027. So why does the core net profit margin target in 2027 increase from 2026?
Speaker #1: Could you walk through the drivers of this expansion?
Speaker #2: Well a few catalyst to expand our margin. Definitely asset light business model that we always highlight will help expand our margin and profitability. And also our effort to have more sales and revenue coming through our own direct channels bypassing commissions that we have to pay to the middlemen.
Speaker #2: That also help improve margins. Thirdly the efficient gains productivity gain that we get from the backup house cost protection transformation in terms of I highlight in one of the slides earlier the ERP system the business process outsource the automated EPM systems the standardization of the work process overall.
Speaker #2: We increase efficiency in productivity gain that will help expand margin as well. So we'll see margin improvement. Actually we are seeing margin slightly improve year on year in the first half already.
Speaker #2: Not very much. But I will consider it as a good margin protection in the middle of this whole thing that happened around the world already.
Speaker #2: So we still manage to protect our margins. But borrowing this whole situation going forward with the effort and then with the catalyst as just mentioned earlier.
Speaker #2: The 27 28 we're still aim for margin expansion. But we have the magnitude of it under our three-year plan. But I wouldn't be able to disclose.
Speaker #2: But as I said even the hardest hit quarter in second quarter of this year we're still protect our margin or margin improves slightly. Rest assured that in the second half where we see top line on the book still bear better year on year with the same time last year.
Speaker #2: We likely we're not going to see margin erosion we're probably going to see margin expansion in these three years as well. Anyone in question?
Speaker #2: So so clear there's no question.
Speaker #1: More questions from online. This is about Bonchon acquisitions. So there are like around four layers of questions under this topic. So the first one what is the expected contribution from Bonchon IP?
Speaker #1: And what's the threshold of return that we mentioned that the deal looks financially accretive? Two questions.
Speaker #2: Right. Well I have to say we're still we use the word entering and then the transaction will close at the end of the month.
Speaker #2: So I since the transaction hasn't closed yet exact number and detail probably wouldn't be able to disclose. But rest assured the return ROIC it's double digit.
Speaker #2: IRR it's high double digit as well. And earnings accretive right away. I'll say EPS if you look at min overall of 10 billion net profit earning accretive will be hovering around like low single digit accretive growth.
Speaker #2: That's all I can say now. But rest assured longer term we acquired we transform and we scale always we're going to see more momentum of Bonchon acquisitions which will contribute more to our P&L.
Speaker #2: But on day one as I said it's going to increase our profit right away around low to mid single digit. But long term with the success that we have in Thailand we have about 130 something outlets in Thailand.
Speaker #2: And now we have the Philippines Indonesia Vietnam and all that. We're going to replicate the success that we have here throughout the rest of the world exclude America's.
Speaker #2: So that I think that's the beauty of having Bonchon IP globally now.
Speaker #1: Two additional questions about Bonchon acquisition. Could you please elaborate on Bonchon expansion plans going forward and how is the interest for Bonchon franchisees in the international market at this point in time?
Speaker #1: That's the first question.
Speaker #2: Well we capitalize a lot of things from Bonchon. I have to say our investment rationale it's about it provides us with asset light franchise platform deliver strong capital efficiency.
Speaker #2: And it's a Korean price chicken which stand out in terms of differentiated proposition support by the popularity of K-pop or food culture not in Thailand not only in Thailand around the world.
Speaker #2: So we capitalize in that trend as well. And they have well defined pipeline supporting growth. I have to say for the at the moment we roughly Bonchon outlets around exclude America's that we have is 300 I'll say 345 outlets now.
Speaker #2: We scale it up. We hopefully in the next five years would get to 500 or more. At least. So that's something that we want to scale up.
Speaker #2: And you look at the footprint that we have on the food side not Bonchon but on our minor food where we have footprint in other part of the world.
Speaker #2: We could also have the rights to expand Bonchon there as well. So that's I think that's something that we think is worthwhile acquiring at the moment.
Speaker #2: But we still maintain Fernandez's discipline by trim down other CapEx x elsewhere. To maintain our CapEx and that's not to be higher than what we originally anticipated.
Speaker #1: Final question on the Bonchon acquisition. Would you say Bonchon brand has been a success since the Thai unit acquisition in 2018? And how was the success be measured?
Speaker #2: Well it can be measured by a lot of variables. The profitability and the performance it succeed what we originally planned or proposed to our to our committee.
Speaker #2: And if you look at the stats in terms of same store sales growth Bonchon have shown a very good turnaround. In the second quarter and then the in six months I'll say Bonchon same store sales growth whole around five to seven percent in the first half of 2026 in Thailand.
Speaker #2: July they're still showing positive same store sales strong positive same store sales growth. We acquired and during the COVID we turned Bonchon help us with the delivery and with the cloud kitchen.
Speaker #2: We turned some of the out some of the outlets or somewhere in the shophouse to be a cloud kitchen. And Bonchon become popular as a delivery brand during COVID.
Speaker #2: And it helped us went through COVID successfully with minor food exhibiting profit during COVID hotels losses minor international losses but food group still making profit during COVID because of the delivery that we have including Bonchon as well.
Speaker #2: After COVID with Bonchon resonate as a delivery brand we tried to convert into a dining brand now. And successfully done so we come up with new menu not just fried chickens.
Speaker #2: We have ramyeon we have hot pot we have Korean cuisine in Bonchon. So you can go to Bonchon and enjoy not just fried chicken and other things that we innovated over time.
Speaker #2: So that I think that was a success and that's why it's still we can still sustain positive same store sales growth. And I think five to seven percent same store in the first half it's quite something in the middle of this market condition.
Speaker #2: And if you look at other player in the market they still see same store sales in a very suppressed figures. Okay. Anything else? Okay.
Speaker #2: More?
Speaker #1: More question. Can you mention about the debt level and cost of debt trend in 2026 and perhaps in the first half of 2027 as well?
Speaker #2: Well the debt trend it went up because of the redemption of US dollar perks. That used to be booked or recorded under equity sections but once we refi redeemed this perpetual bond using debts that recorded in the P&L in the liability section instead.
Speaker #2: And then also interest will move from equity section to P&L as well. Nothing changed cash wise because the debts there but it's just the movement in our financials.
Speaker #2: But as I said we continue to focus on deleveraging using not only cash flow from operating activities. We currently evaluating asset rotations. And with that coming through a few asset rotation and capital unlocking exercise that we modeling right now will help improve leverage ratio once the timing and the market window open for us.
Speaker #2: So but we are so committed in terms of deleveraging at this point. For cost of funds we if you remember in 2024 it was 5.14.
Speaker #2: We reduced it down to 4.29 in 2025. And in 2026 we anticipating it will come down further. Maybe from 4.3 to about I'll say 4.1 to 4.2.
Speaker #2: Slightly down but you have to bear in mind that now the benchmark rate it's probably going to stay this level longer. Probably not going to see interest rate coming down.
Speaker #2: Wait significantly. But we see that it's not going to go up substantially either in the rest of this year. Next year we have to see.
Speaker #2: But I'll say next year we conservatively project around the same level or slightly higher. Okay. Anything else? Okay. Well if you have any other questions after our IR teams here I'm here and then we open for more question online through email and we'll address all your concerns and questions with the IR team and myself.
