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01/11 11:27
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call revealed significant financial challenges, including a 20.5% revenue decline and reduced RevPAR. Despite a cash dividend, the lack of a share buyback program and flat future guidance are concerning. The Q&A highlighted continued RevPAR declines and management's vague responses on liquidity improvement, indicating uncertainty. The withdrawal of restaurant guidance and economic pressures further contribute to a negative outlook. While the company plans to open new restaurants and maintain dividends, these positives are overshadowed by declining revenues and competitive pressures, suggesting a negative stock reaction.
Total Revenues RMB329.7 million, down 20.5% year-over-year, mainly due to decreased hotel revenue and restaurant revenue.
Hotel Revenue RMB264.6 million, down 14.8% year-over-year, primarily due to a 10.8% decrease in RevPAR and the closure of some hotels.
Restaurant Revenue RMB65.3 million, down 37.8% year-over-year, as a result of the strategy to close underperforming restaurants.
Income from Operations RMB84.4 million, down year-over-year, with a margin of 25.6%.
Net Income RMB62.3 million, down 38.9% year-over-year, with a margin of 18.9%.
Adjusted EBITDA RMB83.1 million, down 34.5% year-over-year, with a margin of 25.2%.
Hotel RevPAR RMB125, down 10.8% year-over-year.
Restaurant ADS RMB4,737, down 22.1% year-over-year.
Cash and Cash Equivalents RMB1,737.2 million as of June 30, 2024, up from RMB1,517.1 million as of March 31, 2024, mainly due to operating cash inflow and property disposal.
Group Net Income per ADS RMB0.61, down 39.9% year-over-year.
Core Net Income per ADS RMB0.69, up 3% year-over-year.
Market Expansion: We further expanded in the mid-to-upscale segment and in Tier 3 and the lower cities in South China.
Membership Growth: Individual memberships grew to 96 million, up from 84 million a year ago, and corporate memberships grew to 2.1 million, up from 1.96 million a year ago.
Operational Efficiency in Restaurants: We continued to execute on our strategy to return our Restaurant business to profitability by moving away from leased and operated restaurants in supermarkets and regional shopping centers towards franchised street stores.
Cost Management: Total costs and expenses in the Restaurant business decreased 44% year-over-year to RMB34.3 million.
Strategic Shift in Restaurant Business: We have implemented a three-pronged approach to reposition the business, focusing on closing unprofitable LO stores, increasing FM stores, and expanding street stores.
Economic Factors: China's economy continues to recover, but consumers and businesses are exercising caution in discretionary spending, negatively impacting overall performance.
Competitive Pressures: The company is facing increasing competition, prompting upgrades to hotels in the portfolio.
Revenue Decline: Hotel revenue decreased 14.8% year-over-year, primarily due to a 10.8% decrease in RevPAR and the closure of some hotels.
Restaurant Business Challenges: Restaurant revenue decreased 37.8% year-over-year as the company shifts from leased and operated restaurants to franchised street stores.
Operational Costs: Total Hotel operating costs increased 2.1% year-over-year, with a notable rise in general and administrative expenses due to increased bad debt provisions.
Guidance Revision: The company has revised its revenue guidance for the Hotel business, anticipating performance in 2024 to remain flat compared to the previous year.
Hotel Upgrades: Continued upgrading of hotels in the portfolio to respond to increasing competition.
Restaurant Business Strategy: Shift from leased and operated restaurants in supermarkets to franchised street stores to return the Restaurant business to profitability.
Expansion in Mid-to-Upscale Segment: Further expansion in the mid-to-upscale segment and in Tier 3 and lower cities in South China.
Franchised and Managed Stores: Increased focus on franchised and managed restaurant stores, which accounted for 86.9% of total stores.
Membership Growth: Growth in individual memberships to 96 million and corporate memberships to 2.1 million.
Hotel Revenue Guidance: Revised revenue guidance for the Hotel business to remain flat compared to last year.
Cash Dividend: Board approved cash dividends of US$0.10 per ordinary share or ADS, payable on September 30, 2024.
Cash Dividend: The Board of Directors has approved the payment of cash dividends of US$0.10 per ordinary share or US$0.10 per American deposit share (ADS), payable to holders of the company’s ordinary shares shown on the company’s record at the closing of trading on September 30, 2024.
Share Buyback Program: None
The earnings call indicates several negative factors: a significant revenue decline due to hotel closures, increased expenses in the restaurant business, and a flat revenue forecast for 2025. Despite some positive aspects like adjusted net income increase and planned hotel expansions, the overall sentiment is negative due to economic uncertainties, competitive pressures, and lack of clear guidance on improving shareholder returns. The Q&A section highlights management's unclear responses and flat RevPAR expectations, reinforcing a negative outlook. Thus, the stock is likely to see a negative movement in the range of -2% to -8%.
The earnings call reveals a challenging financial performance with significant revenue and net income declines, alongside a cautious outlook. The Q&A section highlights industry pressures, uncertain RevPAR trends, and vague management responses, particularly regarding dividends and liquidity. Despite some optimism in future quarters, the flat hotel revenue guidance and lack of a share buyback program further dampen sentiment. The strategic review's impact and supply chain issues add to the negative outlook, suggesting a potential stock price decline in the short term.
The earnings call revealed significant financial challenges, including a 20.5% revenue decline and reduced RevPAR. Despite a cash dividend, the lack of a share buyback program and flat future guidance are concerning. The Q&A highlighted continued RevPAR declines and management's vague responses on liquidity improvement, indicating uncertainty. The withdrawal of restaurant guidance and economic pressures further contribute to a negative outlook. While the company plans to open new restaurants and maintain dividends, these positives are overshadowed by declining revenues and competitive pressures, suggesting a negative stock reaction.
The earnings call presents mixed signals: strong growth in adjusted EBITDA and membership, but declines in RevPAR and restaurant ADS. The strategic expansion into Tier 3 cities and focus on profitability are positives, yet challenges in F&M hotels and unclear guidance on dividends and RevPAR dampen sentiment. The Q&A reveals management's vague responses and lack of specific guidance, adding uncertainty. Despite optimistic revenue growth projections, the lack of clarity and RevPAR declines balance out positives, resulting in a neutral sentiment prediction.
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