China Lodging Group (Huazhu) announced its unaudited financial results for the second quarter ended June 30, 2017.
* A total of 3,541 hotels or 359,530 hotel rooms in operation as of June 30, 2017.
* Net revenues increased 20.1% to RMB 1,989.2 million (USD 293.4 million), above the previously-announced guidance without the acquisition of Crystal Orange
* EBITDA (non-GAAP) increased 26.5% to RMB 703.1 million (USD 103.7 million), or 47.8% excluding investment gain.
* Net income attributable to China Lodging Group increased 23.5% to RMB 389.6 million (USD 57.5 million), or 67.8% excluding investment gain.
* The Company expects Q3 2017 net revenues growth of 30% to 34% (or 13% to 16% excluding the impact of Crystal Orange); and revises up the full year 2017 net revenues growth to 23% to 26% (or 12% to 15% excluding the impact of Crystal Orange, from 10% to 13%)
Operational Highlights
During the second quarter, China Lodging Group opened 272 hotels, including 72 leased ("leased-and-operated") hotels and 200 manachised ("franchised-and-managed") hotels and franchised hotels. These newly-opened hotels included 140 hotels (69 leased and 71 manachised and franchised hotels) from Crystal Orange Hotel Holdings Limited ("Crystal Orange")3. The Company closed 6 leased hotels and 61 manachised and franchised hotels during the quarter. The Company closed a total of 89 hotels during the first half of 2017.
As of June 30, 2017, the Company had 686 leased and owned hotels, 2,654 manachised hotels, and 201 franchised hotels in operation in 369 cities. The number of hotel rooms in operation totaled 359,530, an increase of 14.2% from a year ago. As of June 30, 2017, the Company had a total number of 612 hotels contracted or under construction, including 30 leased hotels and 582 manachised and franchised hotels.
The ADR, which is defined as the average daily rate for all hotels in operation, was RMB 199 in the second quarter of 2017, compared with RMB 184 in the second quarter of 2016 and RMB 182 in the previous quarter. The year-over-year increase of 7.9% was due to both an increase in ADR of the mature hotels, as well as an increase in the proportion of midscale and upscale hotels with higher ADR in the Company's brand mix. The sequential increase resulted mainly from seasonality.
The occupancy rate for all hotels in operation was 90.1% in the second quarter of 2017, compared with 85.2% in the second quarter of 2016 and 83.9% in the previous quarter. The year-over-year increase of 4.9-percentage points due to improved performance across all brands as driven by strong travel demand and increasing popularity of the Company's brands. The sequential increase resulted mainly from seasonality.
RevPAR, defined as revenue per available room for all hotels in operation, was RMB 179 in the second quarter of 2017, compared with RMB 157 in the second quarter of 2016 and RMB 152 in the previous quarter. The year-over-year increase of 14.0% was attributable to both higher ADR and occupancy. The sequential increase resulted mainly from seasonality.
As of June 30, 2017, the Company's loyalty program had approximately 88 million members, who contributed approximately 76% of room nights sold during the second quarter of 2017. In the second quarter of 2017, approximately 87% of room nights were sold through the Company's own channels. The strong leisure travel demands as well as the expansion of our newly launched midscale brands attract increasing bookings from third party channels.
"We are confident that the consumption upgrade in China will continue to feed into the growing demand for mid- and up-scale hotels. Midscale and upscale hotel rooms contribute 24% and 57% of our hotels in operation and in pipeline, respectively. We are well positioned to capture growth opportunity in consumption upgrade, and look forward to creating more value for our shareholders." said Ms. Jenny Zhang, Chief Executive Officer of China Lodging Group.
Mr. Wu Hai, the founder and CEO of Crystal Orange, added to his responsibilities the role of Executive Vice President of High-End Product Innovation in Huazhu. He will be responsible for the brand strategy and promotion, product design and development for our high-end brands.
Net revenues were RMB 1,989.2 million (USD 293.4 million), representing a 20.1% year-over-year increase and a 24.9% sequential increase. The increase was primarily due to the Company's hotel network expansion, improved blended RevPAR and the acquisition of Crystal Orange.
Since the acquisition completion date May 25 until June 30, 2017, the net revenues consolidated from Crystal Orange were RMB 119.1 million, contributing 7.2 percentage points to the year-over-year net revenues growth.
Net income attributable to China Lodging Group was RMB 389.6 million (USD 57.5 million), as 19.6% of net revenues, compared to RMB 315.5 million, as 19.0% of net revenues in the second quarter of 2016 and RMB 148.1 million, as 9.3% of net revenues in the previous quarter.
The net income included an investment gain of RMB 37.8 million, compared to RMB 105.8 million during the same period in 2016. Excluding the investment gains, the increase would have been higher at 67.8% year-over-year.
EBITDA (non-GAAP) for the second quarter of 2017 was RMB 703.1 million (USD 103.7 million), as 35.3% of net revenues, compared with RMB 556.0 million, as 33.6% of net revenues in the second quarter of 2016 and RMB 357.7 million, as 22.5% of net revenues in the previous quarter. This demonstrated a 26.5% year-over-year increase and a 96.6% sequential increase. Excluding the investment gains, the increase would have been higher at 47.8% year-over-year.
As of June 30, 2017, the Company had a total balance of cash and cash equivalents and restricted cash of RMB 3,447.9 million (USD 508.6 million).
Guidance
For the third quarter of 2017, the Company expects net revenues to grow 30% to 34% year-over-year. For the full year of 2017, the Company raises its net revenues growth range to 23% to 26%, given the consolidation of Crystal Orange and better-than-expected performance. Excluding the impact of the Crystal Orange acquisition, the net revenues is expected to grow 13%-16% and 12%-15% for the third quarter and the full year of 2017, respectively, up from the previous guidance of 10%-13% for the full year of 2017.
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