BTG HOTELS(600258):COVID-19 RESURGENCE WEIGHED ON RESULTS RECOVERY IN 2Q22;WATCH EXPANSION OF “AIR” HOTELS

类别:公司 机构:中国国际金融股份有限公司 研究员:Sijie LIN/Linggang JIANG/Haiyan GUO 日期:2022-07-19

  Preannounced 1H22 net loss reached Rmb360-Rmb420mn

    BTG Hotels preannounced its 1H22 results. The firm estimates that its 1H22 net loss attributable to shareholders will range between Rmb360mn and Rmb420mn and recurring net loss attributable to shareholders will range between Rmb410mn and Rmb470mn, indicating 2Q22 net loss attributable to shareholders of Rmb128mn-Rmb188mn and recurring net loss attributable to shareholders of Rmb151mn-Rmb211mn. The firm’s preannounced results are largely in line with our estimates.

      Trends to watch

      RevPAR of hotel industry has recovered significantly WoW since June; pandemic control measures marginally improved. The COVID-19 outbreaks in regions such as Shanghai and Beijing weighed on recovery of the industry in 2Q22. Entering June, weekly RevPAR of the hotel industry exhibited a visible sequential recovery amid improvement in COVID-19 conditions. According to STR data, during the 3 weeks from June 19 to July 9, RevPAR reached Rmb243, Rmb264, and Rmb298. Recently, COVID-19 resurged yet again in some regions. However, considering the adoption of refined pandemic control mechanism and marginal improvement in pandemic control measures (China adjusted the application range of the circuit-breaker mechanism from the provincial level to city level[1], the quarantine period for close contacts and inbound travelers was adjusted from “14 days of centralized medical observation + 7 days of health monitoring at home” to “7 days of centralized quarantine and medical observation + 3 days of health monitoring”[2], and China removed the asterisk symbol that previously appeared on the digital itinerary cards)[3], we believe the COVID-19 situation will gradually improve and pandemic control measures will continue to be refined, and the industry is well-positioned to experience a gradual recovery in 2H22.

      Continued implementation of “Air” hotels; focus on pace of hotel openings in 2H22. In 1Q22, the firm opened 190 new hotels, while in 2Q22, the numbers of newly signed and newly opened hotels were negatively affected by COVID-19 resurgence. To date, the firm has not made adjustment to its 2022 hotel-opening plan (1,800-2,000 new hotels). The firm has continued to implement its “Air” hotels amid the pandemic, with the number of Huayi and “Air” Hotels up to 1,711 in 1Q22 from 510 in 4Q19, and we project “Air” hotels could account for more than 60% of the total number of newly opened hotels in 2022. We believe the reasons behind the firm’s rapid hotel network expansion amid COVID-19 resurgence include:

      1) Compared to standard hotels, “Air” hotels feature relatively small investment at the initial stage and short construction and operation cycle, which enable the firm to usher in business expansion opportunities by lowering barriers to entry as franchisees hold a wait-and-see attitude.

      2) The firm has an independent development team of “Air” hotels (about 100 employees), which launched online marketing campaigns on “Air” hotels during the pandemic in a bid to increase consumer awareness of “Air” hotels.

      3) As local demand accounts for a bigger share of total demand in low-tier cities, the momentum of recovery in low-tier cities was stronger than in high-tier cities. Against such a background, franchisees’ sentiment was relatively strong, boding well for the penetration of “Air” in low-tier markets.

      4) Stand-alone small-sized hotels have faced mounting pressure amid the pandemic (according to reports on the hotel industry, the number of hotels continued to decline in 2021, down 26,775 vs. in 2020. The number of hotels with less than 70 rooms decreased by around 17,290 in 2021, accounting for 65% of the total decline).

      We believe “Air” hotels could offer an avenue for stand-alone small-sized hotels to convert to chain hotels. We suggest watching the opening of “Air” hotels and the operation and profits in 2H22.

      Financials and valuation

      Considering the marginal refinement of pandemic control measures and potential results growth after the pandemic subsides, we keep our 2022 and 2023 earnings forecasts unchanged, and maintain OUTPERFORM rating and our TP of Rmb26, corresponding to 32x 2023e P/E and 17% upside. The stock is trading at 27x 2023e P/E.

      Risks

      Worse-than-expected pandemic situation; disappointing hotel network expansion.