2023 results are in line with our expectations
Shangri-La (Asia) announced its full year 2023 results. 1) Financial data: Annual revenue also increased 46.5% to US$2.142 billion, recovering to about 88.1% in '19 (hotel properties rose 52.7% to US$1,926 million; investment properties rose 8.6% to US$108 million); EBITDA (including associated companies) rose 97.8% to US$884 million, recovering to approximately 101.0% in '19; the company's net profit to mother was reversed to US$184 million ('22: -US$159 million). The EBITDA margin, including associated companies, reached 31.5% (2019:29.7%), the highest level since 2016. 2) Operating data: All active hotel RevPAR reached US$108 in 2023, recovering to about 98.2% in '19 (ADR up about 6.8% compared to '19, OCC down about 6ppt); Mainland China/Singapore RevPAR recovered to about 94%/116% in '19, respectively, and Hong Kong's RevPAR recovered to about 80% in '18.
Development trends
Mainland China's RevPAR recovered about 94% in '23, focusing on potential growth brought about by the two-way effects of entry and exit. Mainland China's RevPAR recovered to about 94% in the same period in '19 (1H23:91%), and Tier 1, Tier 2, and Tier 3 and Tier 4 cities each recovered to about 85%/100%/116% in the same period in '19. We believe that the lower recovery in first-tier cities is still in the process of recovery (flight manager data shows that 3.18-24, international flight volume recovered to about 70% during the same period in '19); Mainland China/Hong Kong/Singapore RevPar increased 44%/21%, respectively, over the same period of the Spring Festival in '19/ 26% Looking at segmented regions, based on the return of travelers from mainland China, the Hong Kong government's support for the tourism industry, and the renovation of Shangri-La on Hong Kong Island (launch of family-themed houses, etc.), etc., the company believes that Hong Kong, China may lead growth in 24, while Singapore and mainland China may follow. Looking ahead, we believe that based on the continued release of leisure demand and the gradual return of international travelers (3.14-11.30), mainland China's RevPAR may still be resilient. Furthermore, the company points out that Chinese outbound travelers will resume or become a catalyst for the next phase of growth outside mainland China. We recommend focusing on the two-way effect of entry and exit on performance growth.
Continuously optimize the debt structure and focus on sustainable shareholder returns. 1) The company continues to use offshore RMB bonds to replace some US dollar bonds with higher interest rates to reduce interest expenses and optimize structural issues between assets and liabilities (RMB bonds accounted for about 25% of the total loan amount at the end of '23, and the company plans to reach 50% by the end of '24). 2) Based on improvements in cash flow conditions (free cash flow corrected year-on-year to US$145 million in '23; net debt narrowed to US$4.72 billion for the first time since 18 years), the company announced a dividend of HK$0.15 per share, with a total cash dividend of approximately US$70 million, corresponding to a dividend ratio of approximately 2.8%. The company stated that subsequent dividends may be sustainable, and it is recommended to focus on potential future shareholder returns.
Profit forecasting and valuation
Carefully considering continued investment in the business recovery process, we lowered the 24-year EBITDA (including associated companies) by 5% to US$940 million, and introduced a new 25-year EBITDA (including associated companies) of US$1.0 billion. We maintain our outperforming industry rating and target price of HK$7.5, corresponding to 8/7x 24/25eEV/eBITDA (including associated companies) and 56% upside. The current stock price corresponds to 7/6x24/25e 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.