'Weekend Break' 1,079_ China Hotel Debate

Summary of Key Points from the Conference Call Industry Overview - Industry: Leisure & Hotels, specifically focusing on the European and Chinese markets - Key Companies Mentioned: TUI, Carnival, Sodexo, IHG, Edenred, SSP Group Core Insights and Arguments 1. China RevPAR Performance: - Greater China's RevPAR is tracking -8% vs 2019 YTD, indicating a significant underperformance compared to Europe and the US, which are tracking at +29% and +15% respectively [1][3] - The local hotels team anticipates a sequential weakening in RevPAR, with expectations of -2% YoY RevPAR in Mainland China for the next year, and a worse outlook for Q1 2025 at -3% to -5% [3] 2. TUI's Financial Forecast: - TUI is expected to report FY24 revenues of €22.8 billion (+11%) and underlying EBIT of €1,286 million (+32%) [11] - The company is focusing on strong Hotel/Cruise performance and improving free cash flow (FCF) [11][12] 3. Carnival's Q4 Expectations: - Carnival is forecasted to have Q4 EPS of $0.09, with guidance for FY25 yields of 3-4$6.0 billion (+12%) and adjusted EBITDA of $1,199 million (+27%) [21] 4. Sodexo's Sales Growth: - Forecasted organic sales growth of 5.3% and revenues of €6.5 billion for Q1 [3] 5. IHG's Market Position: - IHG has significant exposure to the Chinese market, with 20% of its rooms located there, and is facing challenges due to persistent deflation and weak consumer fundamentals [3] Additional Important Insights 1. Market Dynamics: - Chinese hotel demand has recovered to nearly 100% of 2019 levels, driven by strong domestic leisure travel, but business and inbound travel remain weak [1] - The overall hotel industry outlook has been downgraded due to concerns over deflation and supply growth impacting room rates [3] 2. Future Guidance: - TUI's guidance for FY25 is expected to align with a mid-term ambition for a 7-10% EBIT CAGR, with a focus on cruise operations and improved operational efficiencies [17] - Carnival's guidance for FY25 is anticipated to reflect a cautious but optimistic outlook, with a focus on maintaining pricing power and managing costs effectively [26] 3. Valuation Metrics: - TUI shares are trading at 6.6x P/E and 4.4x EV/EBITDA for 2025e, which is considered inexpensive compared to pre-Covid averages [18] - Carnival's shares are currently trading at 15x FY25e P/E, above its historical average, raising concerns about high leverage and operational performance [29] 4. Operational Challenges: - The hotel industry is facing challenges with occupancy rates down in the low to mid single digits compared to 2019 levels, and room rates have decreased by 3% vs 2019 [1][3] 5. Upcoming Events: - Key upcoming reports include TUI's FY24 results on December 11 and Carnival's Q4 results towards the end of December [5][21] This summary encapsulates the critical insights and forecasts from the conference call, highlighting the current state and future outlook of the leisure and hotel industry, particularly in Europe and China.