Hua Ju In The "Stress Test": How Can A Hotel Giant Break The Epidemic?

Under the surge of Hong Kong stocks listed in China, the domestic hotel giant Hua Hua Group has been added to the "return" list. Although the twenty-first Century economic report reporter confirmed to Hua Hua Group for the first time and responded, "no comment on market speculation". However, insiders pointed out that the two listing of the return to Hong Kong is of practical significance to China Housing Group, and does not exclude the possibility of happening.

Since this year, the epidemic has brought great impact to the hotel industry, and Hua Hua Group has not been spared. Under the trend of normalization of epidemic prevention and control in China, the retaliatory rebound expected by the domestic hotel industry is hard to come in the near future. Under such circumstances, domestic hotel giants such as Hua Ju group have adjusted their strategies to cope with the new challenges in the new situation of the industry.

Operating "grinding bottom"

The new crown outbreak this year is a severe stress test for The Globe Hotel industry. As a leader in the industry, Hua Hua group feels the same pressure. Up to now, Hua Hua Group has not disclosed its first quarter earnings. However, according to the forecast data released earlier, the net revenue of the group fell 15% to 20% during the reporting period, and has not yet provided the annual performance guidelines.

According to the data released by the China Hotel Association, the proportion of hotels and homestay shops directly closed in the first quarter of this year reached 74.29%, and the net profit of the industry dropped sharply. The loss of turnover in the first two months was more than 67 billion yuan. The pressure can be imagined. At the end of March the performance conference call, Jinhui, a joint venture president of Hua Hua group and CEO of Hua Hua China, once said that the occupancy rate of the company was low to one digit in January.

In fact, even if the impact of the epidemic is eliminated, the Chinese hotel industry is facing a cyclical challenge. In recent years, due to the macroeconomic impact, the domestic hotel industry is in a state of slowing development. According to the report of the foresight Industry Research Institute, in 2011, the growth rate of China's hotel industry market scale was 17.19%, but after 2012, the growth rate dropped sharply and was at a low level. In 2019, the figure fell further to 2.72%.

Against this background, Hua Hua Group operates "grinding bottom". Financial data show that the group achieved operating income of 11 billion 212 million yuan in 2019, an increase of 11.42% over the same period, and a decline in revenue growth for two consecutive years. In terms of net profit, although Hua Hua Group achieved a net profit of 1 billion 769 million yuan last year, an increase of 147.07% over the same period last year, its single quarter profit fluctuated significantly. At the same time, in the RevPAR (all single room income in the battalion Hotel), the data of Hua Zhong Group in the fourth quarter of 2019 were 191 yuan, continuing negative growth.

However, under pressure, Hua Hua group also has bright spots. As of December 31, 2019, there were 5618 hotels and 536876 guest rooms in the group, which exceeded the 2019 annual opening plan. The number of hotels exceeded 5600, and the total number of rooms exceeded 530 thousand.

But the epidemic "black swan" has disrupted the pace of development of Hua Hua group this year. One of them is overseas business.

In 2019, Hua Hua group promoted the global expansion process from two aspects of personnel changes and asset acquisitions. In terms of personnel changes, in November 8th, the group appointed former CEO Aman Chang as executive vice president of the group, focusing on the international expansion of the group. In the aspect of asset acquisition, in November 4th, the China Lodging Holding Singapore, a wholly owned subsidiary of the group, completed the Deutsche Hotels Group (Deutsche). Hospitality) the signing of the 100% equity purchase agreement is about 700 million euros in cash consideration.

Compared with other competitors, Hua Hua Group's overseas expansion is a bit late. The uncertain overseas epidemic has slowed its pace. Recently, Hua Hua Group reiterated its importance to the domestic market.

In June this year, Hua Hua Group adjusted its organizational structure to set up Hua Hua China, and was appointed by Jinhui as CEO. Ji Qi, founder, chairman and CEO of Hua Hua group, said that the fundamental and main body of the company's business is still the Chinese market.

According to Ji Qi's internal letter, because the domestic epidemic will go towards the trend of normalization of prevention and control, the "V" strong recovery expected by the market will not come. The hotel industry will show a relatively mild recovery trend, and the recovery process will also lengthen.

Zhao Huanyan, chief knowledge officer and senior economist of Huamei consultancy, also told reporters on twenty-first Century economic report that the recovery of domestic hotel industry should be gradual, but the Chinese hotel industry is the most hopeful recovery in the world.

At present, Hua Hua group is recovering its momentum at the speed of leading peers. According to the data provided by the group to the economic news reporters in twenty-first Century, the opening rate of Hua Hua Group's current stores is 100%, and the average occupancy rate is 70%.

Ji Qiceng said that the most difficult period of Hua Hua Group has passed. The next goal is to raise the average rental rate to more than 85%, and strive for RevPAR to return to the same period last year.

Back to Hong Kong listed rumors behind

Under the influence of the epidemic, reaffirming the importance of Hua Hua group, which attaches importance to the domestic market, how to "return blood"?

In this regard, the twenty-first Century economic news reporter learned from the Hua Ju group that the "thousand cities and thousands of stores" plan is the core strategy for the group to further expand the domestic market.

The so-called "thousand city stores" is a plan implemented by Hua Hua group to dig deeper into the market. "We want to drive to the three or four tier city and drive to a small town." Ji Qi believes that the essence of Hua Hua Group lies in the economic and mid-range hotels. After the outbreak, the plan for the group to sink the market is more clear.

According to the survey data, 900 thousand hotels in China now account for nearly 80% of the small and medium-sized monomer hotels, and these single hotels exist in three or four cities and cities below. In this epidemic, the population of three or four cities and cities below is small and the risk is low.

"At present, domestic chain hotel giants are mainly developing middle end hotels, while the three line and below market single property generally do not have the conditions to become a middle end franchise in the field of property quality or surrounding business environment. Therefore, the domestic hotel giants are not yet involved in the channel sinking market." Citic securities analysis shows that the moat built by the domestic hotel's competitive advantage is very attractive to the monomer property of the three and below cities.

As a result, in the plan of "thousand cities and ten thousand stores", Hua Hua Group aims to lay more than 1 qualified stores in 1000 cities in the next 3 to 5 years.

However, the strategy of sunken market means that Hua Hua group seems to be back on the track of the former economic and middle end hotels. This will test the financial strength of the group.

In recent years, the asset liability ratio of Wah Group has increased due to the accelerated pace of expansion. By the end of 2019, the group had a debt ratio of 85.84%.

Under the influence of the epidemic, the current occupancy rate of Hua Hua group is not high, and the return space is not large enough to maintain the capital preservation business. Therefore, in order to achieve further expansion, increasing diversified financing channels has practical significance for Hua Hua group.

Financial data show that as at the end of 2019, the balance of cash and cash equivalents at the end of Hua Hua group was 14 billion yuan. In May this year, Hua Hua group also announced convertible bonds with a total value of not more than 450 million US dollars.

Although Hua Hua Group has said, "do not comment on market speculation". But returning to Hong Kong for the two time listing will undoubtedly benefit directly from China's housing group. Zhao Huanyan told the twenty-first Century economic news reporter that the advantage of the two listing is to increase the financing channels and the amount of financing to avoid possible policy risks.

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