Top Thai Spa Operator Seeks China Expansion to Boost Growth

(Bloomberg) -- Thailand’s biggest massage and spa chain plans to expand its outlets in China to take its services closer to its largest group of customers.

Siam Wellness Group Pcl is in talks with potential partners to operate its “Let’s Relax” shops under license in cities in the world’s most populous country, said President Wiboon Utsahajit, without specifying the number of outlets planned. Expansion in China, where the company now has just one outlet, underpins achieving the company’s annual earnings growth target of more than 20%, he added.

Siam Wellness joins Thai companies including Carabao Group Pcl and Taokaenoi Food & Marketing Pcl in looking to leverage the Southeast Asian nation’s popularity among Chinese tourists directly in their home country. Prime Minister Prayuth Chan-Ocha’s government has wooed Chinese tourists and investors to spur the economy as the trade dispute between China and U.S. saps exports.

“We have conducted a very careful study and now have the confidence to expand in China,” Wiboon said in an interview Friday. “China is a very tough market for most foreign players, but the risk versus reward is worth it.”

To be sure, a more than 7% appreciation in the baht against the U.S. dollar in the past year has contributed to a slowdown in Thailand’s crucial tourism industry. Chinese arrivals moderated earlier this year, although recent reports indicate a revival in visitors.

“Siam Wellness’s earnings are expected to hit new highs in coming years” as it expands, said Nantika Wiangphoem, an analyst at DBS Vickers Securities (Thailand) Co. Still, risks to its outlook include the possibility of a slump in foreign tourist arrivals to Thailand, a global economic slowdown and increased competition, she added.

Wiboon said baht strength hasn’t damped demand. In the three months through September, Siam Wellness posted its highest quarterly earnings since listing, according to data compiled by Bloomberg.

About 75% of Siam Wellness’s 3,000 daily customers are foreigners, and most of them are from China, according to Wiboon. The Chinese expansion will operate under franchise agreements with local partners, he said. The company now has 62 outlets, with six located abroad in countries including Myanmar and Cambodia.

The shares have gained 39% this year, after losing almost half of their value in 2018, now valuing the company at $294 million, compared with the about $76,000 Wiboon invested to start it up 20 years ago. It’s the second-biggest stock by market value in the Market for Alternative Investment, the Thai stock exchange’s bourse for 161 small- and medium-sized companies.

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