1H23 performance is in line with our expectations
Shangri-La (Asia) announced 1H23 results. 1) Financial data: 1H23's revenue increased 60.3% to US$1,006 million, recovering to 84% of the same period in '19 (hotel properties also increased 75% to US$902 million, recovered to 88% in the same period in '19, and investment properties increased slightly to US$52.49 million); EBITDA (including associated companies) also increased 134.3% to US$397 million, recovering to 88% of the same period in '19, recovering to 88% of the same period in '19, recovering to 88% in the same period in '19, recovering to 88% of the same period in '19; company Net profit reverted to $131 million (1H22 loss of $158 million). The company's overall EBITDA margin reached 26.4% (1H19:25.2%), including the joint company's EBITDA Margin of 32.3% (19 years: 29.7%). Both exceeded pre-pandemic levels, mainly due to effective cost side control.
2) Operating data: 1H23 RevPar for all hotels in operation reached $103, recovering to about 94% in the same period in '19. ADR rose about 2% compared to 1H19, and OCC declined by about 6 ppt; among them, Hong Kong, Mainland China/Singapore RevPar recovered to about 77%/91%/122% in the same period in '19, respectively.
Development trends
1H23 RevPAR in mainland China has recovered more than 90%, focusing on the return process of international travelers. 1H23 RevPAR in mainland China recovered to 91% of the same period in '19. Among them, RevPAR in Tier 1, 2, 3, and 4 cities reached 81%/98%/115%, respectively. We believe that the slightly slow recovery rate in high-tier cities is mainly due to the fact that international tourist demand has not fully recovered (we expect the company's international passenger business to account for about 30%). Benefiting from the release of leisure demand, RevPar in second-tier, third-tier, and fourth-tier cities in mainland China increased by 15%/32% in July-August, respectively, compared to '19. According to flight manager data, the number of international flights in August recovered to 48% of the same period in '19 (January '23:8%). We believe that the gradual recovery of international travelers may bring strong performance compensation to the mainland. It is recommended to pay attention to the subsequent progress of the recovery in international demand. Based on the release of demand for summer leisure and the return of potential international travelers, the company indicates that the RevPAR recovery rate in mainland China may reach a high level of 85-95% in the second half of the year.
Focus on optimizing the debt structure. 1) Capital expenses: The company expects core capital expenses in 23 years to be the Fuzhou Shangri-La Phase II and Singapore's The Palawan @Sentosa construction project (about 35 million US dollars); at the same time, the company plans to renovate some mainland hotels in the future to meet the diverse needs of young travelers. 2) Financing method: By the end of '22, more than 50% of the company's assets were located in China, but RMB bonds accounted for less than 10% of the total borrowed amount. The company plans to use offshore RMB bonds to replace some US dollar bonds with higher interest rates (the company expects the share of RMB bonds to rise to 25-30% by the end of 23) to reduce interest expenses (the current interest protection ratio is 2.2, target is 3-3.5). We believe this plan is expected to optimize free cash flow and solve structural problems between the company's assets and liabilities.
Profit forecasting and valuation
Considering the overall recovery of the hotel business, we raised 2023/24 EBITDA (including associated companies) by 5%/2% to US$86/ 990 million, maintaining the outperforming industry rating and target price of HK$7.50, corresponding to 8x 2024e EV/EBITDA (including associated companies) and 39.9% of upward space. The current stock price corresponds to 7x 2024e EV/EBITDA (including associated companies).
risks
The recovery in consumption power fell short of expectations; the restoration of international routes fell short of expectations; the progress of construction under construction fell short of expectations.