GreenTree(GHG) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenues decreased by 21.4% year-over-year to RMB216 million [8] - Gross profit decreased by 38.2% to RMB121.1 million, with gross margin dropping from 71.3% to 56.1% [21] - Net income decreased by 26.3% to RMB93.7 million, with net margin decreasing from 46.2% to 43.4% [21] - Non-GAAP adjusted EBITDA decreased by 47.2% to RMB91.4 million, with adjusted EBITDA margin decreasing to 42.3% [21] - Net income per ADS decreased by 19.7% to RMB1.01, while core net income per ADS decreased by 40.9% to RMB0.72 [22] Business Line Data and Key Metrics Changes - Total revenue from franchised-and-managed (F&M) hotels decreased by 22.7% to RMB165.7 million, while revenue from leased-and-operated (L&O) hotels decreased by 16.8% to RMB50.3 million [18] - RevPAR for F&M hotels decreased by 35.2% to RMB90, while RevPAR for L&O hotels decreased by 47.1% to RMB80 [16] - The number of hotels in operation increased by 37.6% year-over-year to 4,066, with 111 new hotels opened during the quarter [14] Market Data and Key Metrics Changes - The occupancy rate averaged 63.4%, with a significant recovery from a low of 21.5% at the end of January [7][11] - RevPAR for tier 3 and smaller cities decreased by 27%, while tier 2 cities saw a decrease of 42%, and tier 1 cities experienced a decrease of 50% [60] - The economy segment's RevPAR decreased by 39%, mid-scale by 30%, mid-to-upscale by 29%, and luxury by 54% [62] Company Strategy and Development Direction - The company is focusing on expanding its market presence across China, with a pipeline of 1,087 hotels, up 82.4% year-over-year [7] - The strategy includes increasing cooperation with corporate clients and travel management companies to attract more business travelers [11] - The company aims to enhance its position in tier 3 and smaller cities, where 66.8% of its hotels are located [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about recovery in domestic tourism and business travel following the lifting of interprovincial travel restrictions [13] - The company expects a decline in total revenues of 10% to 15% for the full year 2020 compared to 2019 [24] - Management noted that the business model is resilient due to a loyal membership base and strong operational capabilities [13] Other Important Information - The company had a total balance of cash and cash equivalents of RMB1.7 billion as of June 30, 2020, an increase from RMB1.6 billion at the end of Q1 2020 [22] - The company is evaluating options for a potential secondary listing in Hong Kong or other markets to increase liquidity [33] Q&A Session Summary Question: Guidance on RevPAR for Q3 and Q4 compared to 2019 - Management is optimistic about a 10% to 15% recovery in RevPAR for Q3 and expects Q4 to be around 5% to 10% below last year [25][27] Question: Level of competition in the market - Management noted increased competition from various hotel classes, which may compress ADR, but they believe their business model remains resilient [25][28] Question: Considerations for a secondary listing - Management is exploring options for a secondary listing to increase liquidity and financial resources [33] Question: Prebooking status for the upcoming October 1 Golden Week - Prebooking is slightly less than last year, but there is strong demand in the pipeline [35][36] Question: Competition in lower-tier cities - Management observed less competition in lower-tier cities as many competitors have exited the market [39] Question: Details on bad debt accrual - The bad debt accrual is a precautionary measure related to potential financial burdens on franchisees due to COVID-19 [40][41] Question: Changes in business demand from corporate clients - Management noted that business travelers are cautious but demand remains strong for essential travel [44][45] Question: Factors driving ADR changes - Management indicated that ADR is under pressure due to competition and promotional packages, but they aim to maintain a stable pricing strategy [51][55]