Huazhu under the stress test: how can Hotel giants solve the epidemic dilemma?

category:Finance
 Huazhu under the stress test: how can Hotel giants solve the epidemic dilemma?


This years new outbreak is a severe stress test for the global hotel industry. As the industry leader, Huazhu group is also under pressure. So far, Huazhu group has not disclosed its first quarter results. However, according to the previously released forecast data, the Group expects net revenue to decline by 15% to 20% year-on-year during the reporting period, and does not provide full year performance guidance.

According to the data disclosed by China Hotel Association, in the first quarter of this year, the proportion of hotels and accommodation directly closed in China reached 74.29%, the net profit of the industry fell sharply, and the turnover loss of accommodation enterprises in the first two months exceeded 67 billion yuan. The pressure can be imagined. At the performance conference call held at the end of March, Jin Hui, CO president of Huazhu group and CEO of Huazhu China, said that the companys occupancy rate in January was once as low as a single digit.

In fact, even if the impact of the epidemic is eliminated, Chinas hotel industry is facing periodic challenges. In recent years, under the influence of macro-economy, the domestic hotel industry has fallen into the situation of slow development. According to the report of prospective industry research institute, in 2011, the growth rate of the market scale of Chinas hotel industry was 17.19%, but after 2012, the growth rate fell sharply and was in low volatility. In 2019, this figure further drops to 2.72%.

In this context, Huazhu group has been grinding the bottom. Financial data shows that the groups operating revenue reached 11.212 billion yuan in 2019, an increase of 11.42% year-on-year, and the growth rate of revenue fell for two consecutive years. In terms of net profit, although Huazhu group achieved a net profit of 1.769 billion yuan last year, a year-on-year increase of 147.07%, its single quarter profit fluctuated significantly. At the same time, in RevPAR (single room revenue of all hotels in operation), the data of Huazhu group in the fourth quarter of 2019 is 191 yuan, continuing the negative growth trend.

However, under pressure, China Housing Group also has bright spots. As of December 31, 2019, the group has 5618 hotels in operation and 536876 guest rooms, exceeding the opening plan of 2019. The number of hotels exceeded 5600 and the total number of guest rooms exceeded 530000.

But the outbreak of the black swan incident disturbed the original pace of development of Huazhu group this year. One of them is overseas business.

In 2019, Huazhu group will promote the global expansion process from two aspects: personnel change and asset acquisition. In terms of personnel changes, on November 8, the group appointed former CEO Zhang Min as executive vice president of the group, focusing on the groups international expansion; in terms of asset acquisition, on November 4, China lodgingholding Singapore, a wholly-owned subsidiary of the group in Singapore, completed the signing of a 100% equity acquisition agreement for Deutsche hospitality, with a cash consideration of about 700 million euros.

Compared with other competitors, China Housing Groups overseas expansion pace is later. The uncertain overseas epidemic has slowed it down. Recently, Huazhu group reiterated its emphasis on the domestic market.

In June this year, Huazhu group adjusted its organizational structure and established Huazhu China, with Jin Hui as the CEO, taking full charge of Huazhu China business. Ji Qi, founder, chairman and CEO of Huazhu group, said that the fundamental and main body of the companys business is still the Chinese market.

According to Ji Qis internal letter, due to the trend of normalization of domestic epidemic prevention and control, the V type strong recovery expected by the market before will not come, the hotel industry will show a relatively gentle recovery trend, and the recovery process will be prolonged.

Zhao Huanyan, chief knowledge officer and senior economist of Huamei consulting agency, also told 21st century economic reporter that the recovery of domestic hotel industry should be gradual, but Chinas hotel industry is the most promising one in the world.

At present, Huazhu group is recovering at the speed of leading peers. According to the data provided by the group to the 21st century economic reporter, the current opening rate of Huazhu groups stores is 100%, with an average rental rate of 70%.

Ji Qi once said that the most difficult period of China Housing Group has passed. The next goal is to increase the average rental rate to over 85% and strive for RevPAR to return to the same level last year.

Behind the rumor of listing in Hong Kong

Under the influence of the epidemic, how should Huazhu group, which once again attaches importance to the domestic market, return blood?

In this regard, the 21st century economic reporter learned from Huazhu group that the thousand cities and ten thousand stores plan is the core strategy of the group to further expand the domestic market.

At present, the domestic chain hotel giants mainly focus on the development of middle-end hotels, while the single property in the third tier and below sinking market generally does not have the conditions to become the middle-end franchise property in the fields of property quality or surrounding business environment, so the domestic hotel giants have not yet large-scale access to the channel sinking market. According to the analysis of CSC securities, the moat shaped by the competitive advantages of domestic hotel leaders has a huge attraction for single property in the third tier and below cities.

Therefore, in the plan of thousands of stores in thousands of cities, Huazhu group aims to build more than 10000 qualified stores in 1000 cities in the next three to five years.

However, the strategy of sinking the market means that the group seems to return to the track of the former economic and mid tier hotels. This will test the groups financial strength.

In recent years, due to the accelerated pace of expansion, the asset liability ratio of China Housing Group has increased. As of the end of 2019, the groups asset liability ratio reached 85.84%.

Under the influence of the epidemic, the current rental rate and profit of Huazhu group is not high, and the return space is not large, so it maintains the principal guaranteed operation. Therefore, in order to achieve further expansion, increasing diversified financing channels is of practical significance for China Housing Group. Financial data shows that, as of the end of 2019, the balance of cash and cash equivalents of Huazhu group at the end of the period was 14 billion yuan. In May this year, Huazhu group announced the issuance of convertible preferred bonds with a total amount of no more than US $450 million. Although Huazhu group has said that it will not comment on market speculation. But going back to Hong Kong for secondary listing will undoubtedly benefit Huazhu group directly in financing. Zhao Huanyan told 21st century economic news that the benefits of secondary listing are to increase financing channels and amount, and avoid possible policy risks. Source: Zhang Mei, editor in charge of 21st century economic report_ NF2100

Under the influence of the epidemic, the current rental rate and profit of Huazhu group is not high, and the return space is not large, so it maintains the principal guaranteed operation. Therefore, in order to achieve further expansion, increasing diversified financing channels is of practical significance for China Housing Group.

Although Huazhu group has said that it will not comment on market speculation. But going back to Hong Kong for secondary listing will undoubtedly benefit Huazhu group directly in financing. Zhao Huanyan told 21st century economic news that the benefits of secondary listing are to increase financing channels and amount, and avoid possible policy risks.