Half Year 2023 GreenTree Hospitality Group Ltd Earnings Call
Hello ladies and gentlemen, thank you for standing by for Green Tree's first half 2023 earnings conference call.
At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session.
As a reminder, today's conference call is being recorded.
I would now like to turn the meeting over to your host for today's call, Mr. Renee Van Gerstain of Christiansen, Green Tree's investor relations firm. Please proceed, Renee.
Thank you, Ashley.
Hello everyone and thank you for joining us.
Green Tree's earnings release was distributed earlier today and is available on our IIR website at IIR.998.com as well as on PR NewsWire Services.
As a reminder, we also posted a PowerPoint presentation that accompanies our comments to the CMIL website.
On the call from Green3, I'm Mr. Alex Xu, Chairman and Chief Executive Officer. Ms. Selina Yang, Chief Financial Officer. Ms. Megan Huang, Vice President of Sales and Marketing. Mr. Bill Zhu, Financial Director of the Restaurant Business.
Mr. Xu will present the company's performance overview of the first half of 2023, followed by Ms. Wang and Mr. Xu, who will discuss business operations.
Ms. Yang and Mr. Zhu will then discuss financials and guidance.
They will all be available to answer your questions during the Q&A session which follows.
Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, is recommended, and is defined in the U.S. Private Securities Litigation Reform Act of 1995.
These forward-looking statements can be identified by terminologies such as may, will, expect, anticipate, aims, future, intent, plans, beliefs, estimates, continue, target, is or are likely to going forward, confident, outlook and similar statements.
Any statements that are not historical facts, including statements about the company and its industry, are forward-looking statements.
Such statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve known and unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements.
to defer materially from those in the forward-looking statements.
You should not place undue reliance on these forward-looking statements.
Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the US Securities and Exchange Commission.
All information provided, including the forward-looking statements made during this conference call, are current as of today's date.
The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.
It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Alex Hsu. Mr. Hsu, please go ahead.
Thanks, Renee. Hello, everyone, and thank you for joining us today.
2023 marked a new start of the post-COVID recovery in the economy across China.
Flow par compared to the same period of 2019 reached more than 120% at the beginning of February , exceeding our expectations as demand for business travel rebounded after the Spring Festival.
During the second quarter, especially during the National Labor Day holiday early in May, it reached more than 115%. And during the summer vacation, it was almost stable at 110% as tourism further expanded.
As we did throughout the pandemic, we continued to execute our long-term strategic growth plan that strives to assist the franchisees in maintaining quality operations, extend our hotel network, deliver stable operating profitability, and maintain healthy cash flow.
Please turn to slide five. Compared to the first half of 2022, Hotel Royal Parr was 130 RMB, up 35.8%, and the restaurant ADR, that is average daily sales per store, was 6,213 RMB, up 22.9%.
Total revenues were 794.2 million RMB, up 12.1 percent.
The increase was partially due to the recovery in Valpar, the increase in the number of hotels.
increase in the restaurant.
increase in the restaurant every daily sales.
partially offset by the closure of the 64 restaurants.
Income from operations turned positive at 150.9 million RMB with a margin of 19%.
Net income was 177.3 million RMB with a margin of 22.3%.
adjusted EDD-down, non-gap was 226.9 milling RMB, up 137.8%, with a margin of 28.6%.
Core net income non-GAAP was 136.1 million RMB with a margin of 17.1%.
Cash provided by operating activities was 313.1 million RMB.
Slide six shows detailed numbers for total revenues, income from operations, net income, and adjusted EBITDA.
on slide seven.
operating performance greatly improved.
during the first half of 2023.
RALPA was 120 RMB and 141 RMB.
in the first and second quarter respectively.
At the bottom of the slide, you can see the weekly VRAUPR performance in the first half of 2023 compared with 2019. In the first half of 2023, due to the recovery from COVID-19, VRAUPR exceeded 124% of its pre-pandemic levels after spring festival. Thanks to the stable recovery in demand and in the economy, VRAUPR gradually recovered to more than 120% of its pre-pandemic levels in the Labor Day Golden Week of 2023.
While the Ralpa recovery slowed during the Dragon Boat Festival, it resumed a growth and stable development trend again in the summer vacation at the Travel Sword.
Slide eight shows operating performance of the restaurant.
ADS had a good trend in the first half of 2023.
Now, starting with slide 10, let's talk about the strategy and the execution of hotels with further expansion in the mid to upscale segment on the tier 3 and the lower cities in South China.
Besides, we are continuously adding our old hotels in strategic locations.
Let's take a look at the slide 11.
we have been continuously growing our mid to upskill segment over the past few years.
For an apple to apple comparison, we have excluded the argyle and urban hotels.
By the end of the first half of 2023, we had 438 hotels.
10.7% of our total portfolio in the mid to up-field segment.
up from only 50 in 2017, and we plan to open more this year.
while the mid-scale segment remains the core of our business with 71.4% of all of our hotels.
we continued our expansion into the higher-end segments.
By the end of the second quarter,
mid-to-upscale hotels accounted for 10.7% of our total portfolio, while the economy segment remained stable at 17.9%.
Please send to slide 12.
over the past five years. Most of our new hotels...
have been in China subscribing to the three and the lower cities.
In addition, hotels in some lower tier cities are performing well.
As we continue to execute our strategic plan, 73.3% of hotels in our current pipelines are in such cities and will further capitalize on substantial opportunities in such locations.
continue to execute our strategic plan, 73.3% of hotels in our current pipelines are in such cities and will further capitalize on the substantial opportunities in such locations. On slide 13. On slide 14.
During the first half of 2023, we opened three LO hotels at Chongqing North railway station.
Chongqing, Jiangbei International Airport, and Shenzhen, Sichuan, Huaqiang North.
All of our old hotels are located around transportation clubs.
central business district or government centres.
By showcasing our brand and the operating standards, we believe that these hotels will help us attract more high quality franchisees.
further contributing to growth.
Slide 14.
Our strategy for our restaurant business focuses on increasing profitability with the closing of unprofitable stores.
and expansion in the proportion.
of franchise and man of the restaurants.
and the growing numbers of street stores.
On slide 15.
During the first half of 2023, we closed 64 restaurants in areas of increased economic activities and reduced food traffic.
helping improving the overall profitability of our restaurant businesses.
slide 16.
You can see the growth in the proportion of franchise and man-made restaurants following the acquisition of the Bologio during the first quarter of 2023.
growth in the proportion of franchise and man-made restaurants following the acquisition of Danyan Companies and Bellagio during the first quarter of 2023. Slide 17. Slide 18.
shows that currently most of our restaurants are in shopping malls. However, we believe there is substantial potential for street stores and we intend to develop more in this format.
I want to emphasize that in the new era, we are strategically focusing on growing high-quality hotels and restaurants to build a better and stronger foundation for future growth.
Now, let me turn the call over to Megan and Mr. Joe.
Thank you, Alex.
Please come to slide 18 to start reviewing the operating and financial highlights.
Slide 19 shows the trend in our quarterly operating performance.
In the second quarter of 2023, red power for our LO hotels increased to 190 RMB. Red power for our FM hotels increased to 139 RMB.
ADR for our LO hotels increased to 265 RMB and ADR for our FM hotels increased to 179 RMB.
Occupancy at our LO hotels increased to 74.6% and occupancy at our FM hotels increased to 77.9%.
Slide 20 highlights the growth in our membership programs, which accounted for the most of our direct sales.
Individual memberships grew to 84 million, up from 74 million a year ago, and corporate membership.
grew to 1.99 million, up from 1.91 million a year ago.
Now please come to slide 21. In the restaurant business, the number of individual members grew to 2.67 million, up to 2.3 percent year over year. The SES increased 57.3 percent to 6,371 RMB in the second quarter of 2023.
In the restaurant business, the number of individual members grew to 2.67 million, up to 2.3 percent year over year. ABS increased 57.3 percent to 6,371 RMB in the second quarter of 2023 compared to one year before.
With that, I will pass the call over to our CFO , Selena Yang. Thank you, Bill. First, let's review our hotel business. Please turn to slide 22.
In the first half, total hotel revenues increased 23.1% year-over-year.
to 563.2 milliRMB.
The increase was primary due to the recovery in Red Park and increase in the number of hotels.
Total hotel revenues increased 23% to 300, 10.6 million RMB in the second quarter of 2023 compared with the first quarter.
Total refuse for FM hotels were 347.4 million RMB up to 26.1% year over year.
Wire total revenues from aero hotels increased 24.7% to 213.6 milli RMB.
On slide 23, total hotel operating costs and expenses decreased 54.7% year-over-year to 416.6 million RMB.
Excluding other general expenses, total hotel operating costs and expenses also decreased at 2.8% year over year.
and total hotel operating costs and expenses increased 5% to 213.3 million RMB in the second quarter compared with the first quarter.
Total costs and expenses are composed of hotel operating costs.
selling and marketing expenses.
general and administrative expenses.
Operating costs were 284.4 mAhm, down 7.6% year-over-year.
The decrease was mainly due to the deconsorvation of agro and disposal of our interest in urban.
and partially offset by higher concealer bursts.
higher utilities due to the recovery from COVID-19.
and a higher rent with lower exemptions compared to last year.
Operating costs increased 11.8% to 150.1 million RMB in the second quarter compared with the first quarter.
Selling and marketing expenses were 24.8 million RMB, a year-over-year increase of 31.8%.
The increase was mainly attributable to higher sales channel commissions.
higher sales tax salary, and higher travel expenses.
The selling and marketing expenses increased 24.3% to 13.8 million RMB in the second quarter of 2023 compared with the first quarter.
General and administrative expenses were 19.5 million RMB in the first half of 2023, down 9.2% compared with the first half of last year.
The decrease was mainly due to the deconsolidation of agar and disposal of our interest in urban.
and partially offset by higher consulting fees and higher staff-related expenses.
The G&A expenses decreased 3.6% to 44.4 million RMB in the second quarter of this year compared with the first quarter.
Turning to slide 24.
Income from hotel operations was 160.4 million RMB.
And income from hotel operations increased 108.7% to 108.5 million RMB in the second quarter of 2023 compared with the first quarter.
Net income of hotels was 191.8 million RMB.
Net income of hotels increased 138.4% to 135.1 million RMB in the second quarter of 2023 compared with the first quarter.
Adjusted EBITDA increased 127.5% to 212.2 million RMB and Core Net Income increased 42% to 150.4 million RMB.
Now, let me turn this call over to Bill, our Financial Director of Restaurant Business.
Now let's review our restaurant's business.
Please turn to slide 25.
In the first half of 2023, total restaurant revenue was 127.2 million RMB and 104.9 million RMB in the first and the second quarter of 2023 respectively. You can also see the revenue breakdown for FM restaurant and LO restaurants.
On slide 26, total operating costs and expenses decreased 9.9% year-over-year to 242 million RMB. And the total restaurant operating costs and expenses decreased 9.7% to 114.9 million RMB. In the second quarter of 2023 compared with the first quarter.
You can also observe the downstream in material costs, personal costs, and the rent.
Turning to slide 27, income from restaurant operations was netting 9 million RMB in the first half of 2023.
Income from restaurant operation was $0.6 million and negative $9.6 million, IMB in the first quarter and the second quarter of 2023, respectively.
Net income was negative 14.1 million RMB in the first half of 2023.
Net income decreased to negative 11.9 million RMB in the second quarter of 2023 compared with negative 2.2 million RMB of the first quarter.
Adjusted EPIBA increased 473.1% to 15.2 million RMB. CONET's income was negative 13.9 million RMB.
Next, Selena, please introduce the probability of our group.
Please turn to slide 28.
Group net income per ADS, basic and diluted, was 1.79 RMB.
Group connect income for ADS, basic and diluted non-GAAP was 1.33 RMB.
Let's now take a look at slide 29.
As of June 30, 2023, the company had total cash and cash equivalents, restricted cash, short-term investments, investment equity securities and time deposits of 1,440.1 million each of which wereJones other cash fragments of the 21st century.
compared to 1,119.4 million RMB as of December 31, 2022.
The increase was primary due to cash for operating activities, repayment for franchisees, proceeds for disposal of subsidiaries, and partially offset by the repayment of bank loans and investment in properties.
All slides 30.
Take into account the recovery long-term trends and short-term industry fluctuations.
We expect total revenues of organic hotels for the full year of 2023 to grow 30% to 35% of the 2022 levels.
Total revenues for our restaurant business and our organic hotel business.
For the full year of 2023, I expect to grow 16% to 20% over the 2022 levels.
This concludes our prepared remarks.
Operator, we are now ready to begin the Q&A session. Thank you.
Thank you. We will now begin the question and answer session. To ask a question you may press star then 1 on your touch tone phone.
If you're using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question please press star then 2.
Your first question comes from Jiaozhu with Zhejiang Capital. Please go ahead.
Hello management.
As we know, you must...
Kettering was incorporated into the listed company. Can you introduce the recovery of Kettering? Thank you.
Okay, thank you for your question. Our financial director Bill will answer this question.
Hello, the restaurant sales compared to 2019 sales recovered to 80% and compared to 2022, sales recovered to 100.7%.
Thank you. Once again, if you have a question, please press star then one. We will now pause momentarily to allow questioners to enter the queue.
Once again if you have a question please press star then 1.
Thank you. Your next question comes from Bessie Zhu with UBS. Please go ahead.
Hi, hello, the management. So could you give us some color and guidance on the webinar in Q4 2023 and 2024? Thank you.
Thank you for your question. So let me first answer your question. Just Alex introduced just now, in the summer vacation, the RAPA in July and August kept stable about 110% of the 2019 levels. And we see that in September , the RAPA decreased a little bit due to thedis 351 dps code.
So for the fourth quarter, yes, we forecasted a rapid recovery. Also keeps the stable level of the 2019 levels. That is about 10% increase by the 2019 levels.
So for the next year, I think it will be difficult for us to forecast for the long term, but for the long term trend, yes, we can see a good trend because of the recovery of the industry and especially for some locations in the year of 2023. Thank you.
So, let me add a couple more comments here. The Q3, the performance is better than Q2, based on the first two-and-a-half months, that's July , August , and September , a substantial improvement over the Q2.
the trend and the Q4 will stabilize because our hotel portfolio focuses primarily on theBuilder 3 who have a lot more on the Q3 coming days or the Q4.
I think the tier 3, tier 4 cities' performance are very stable. They are stable during the past three years of COVID control period.
And so their performance, we expect to be continuously improving and stable over the next few years, especially that China's policy has been focusing on.
re-during the hydration of the countryside and also encouraging drop growth in those two tier-three, tier-four cities.
So even though the recovery after the post-COVID period, we see the performance much better in the first tier cities.
because there are many, many new conventions and people have been traveling to the first-year cities for business.
and for exchange. We think the trend.
for the future growth will continuously reach out to the tier 3 and tier 4 cities.
Thank you very much.
Thank you. Your next question comes from Adam Su with China Cinder Securities. Please go ahead.
Adam, sir, your line is now live. Please proceed with your question.
Once again if you have a question please press star then 1. Thank you. Your next question comes from Simon Chung with Goldman Sachs. Please go ahead.
Hi Alex and Selena and thanks for the presentation. I got a couple questions. One, just on the hotel, I saw that you did a decent 38% EPDOT margin for the business and remember before COVID you were offering at about 50%. Just wanted to get a sense, the difference between the two. I know there's actually some exchange and closure or deconsolidation of some of the business but wanted to get a sense whether you feel that once your reply, by the way your reply is already over 100% anyway, do you feel that you can go back to 50% on the hotel business? Those first questions. And then on the second question on hotel, so you have been closing down COVID 50, 60 restaurants every six months and that you finally get to an even level. Then I guess the question is how many closure or do you have any target as to how many restaurants you're going to be running and what sort of profitability level you feel comfortable maybe in a one or two year time? Thank you.
Thank you for your question. This is Selena. Let me introduce the background of the ? relating to your first question about the EBITDA margin of the hotel business. As you are very correct, previously our EBITDA margin was as high as 50%, but in the first half of this year our EBITDA margin was about 38%. Even though it recovered greatly from COVID-19, however, still lower than before, there are two reasons. The first one is due to our newly opened list of opening hotels.
in the COVID, during the COVID-19. Okay, so according to our calculation, the impact of our newly opened news operating hotels was negative 10% of the EBITDA margin. So that means if we're excluding the impact for our unprofitable newly opened news operating hotels, our EBITDA margin was about 48.7%. Okay, that's nearly 10% higher than now.
Simon, let me add a couple of more points to Selena's answers. Compared to the pre-COVID area, we have a margin of depth.
because our tick rate is also a little bit reduced from the pre-pandemic levels for the following reasons. Coming up on the R
run, the competition is heating up in order to support the franchisees. We lower the overall our CRS fees.
potentially, and so that's one. Secondly, that because the last three years we have not.
really forced the standardization of the renovation of the older hotels. And so with the 2023, post-COVID, we started actually enforcing and starting the renovation of hotels. And during the renovation, we typically gave six months to a year for free.
the waiving of certain fees, especially if they upgrade to a different version.
Those two factors also added a little more reduced of the top line even though the RAL-PAR on the group that...
recovered more than the 2019 levels. So that's also added to the reduction of the margin.
Mer overe pride en Francais et façade sunscreen. still.
I'll be happy to answer this question. OK. From this year, I think the adjustment of our restaurant strategy change is almost done. So maybe next year, we will try to start to find a partner to open more restaurants for the dancing restaurants and our restaurant business.
Thanks, Bill. Thanks, Simon. This is a good question that the consumer trend...
has been rapidly changing. For instance, in the past, a substantial number of Danyan Dumpling's restaurants are located in supermarket malls, the street.
shopping malls anchored by the supermarket.
anchored by the supermarket.
the food traffic to the supermarket mall have substantially reduced. I think this leads to the closure of most of the 64 restaurants.
And we are actually
actually finding the
in a new consumer pattern of consumption and finding the strategic location, for instance, the street product stores.
consumer patterns of consumption and finding the strategic located for instance the street from its source and they're trying to
we organize our team, especially the developers, and that because of the trend.
has been shifting and then with that new format, and then we are able to open more, develop more restaurants in this new format.
Thanks Simon. Sorry, can I quickly follow up? Just on the two respective...
So on the two respective segments, hotel and restaurant, do you have a sense or can you give us a target of the addition of the stores? For example, for the full year, how many hotels you are expecting to add and equally for the restaurants, I saw obviously it has dropped a lot. Do you have indications maybe in medium term, what sort of store count are you expecting?
For the hotel side, we have actually moved to more focus on those high quality hotels and that we think that will build a better foundation for the future. So this year, I think the signing of the new contracts is going to be more than 600. Because of the openings, it takes more time.
and that we calculated in the pipeline, the number of new stores, new hotels can be around 420.
for the year of 2023.
and for the building for the new restaurants.
For the restaurant side, it's easy to add more. I think that we focus on more high quality growth and making sure it doesn't burn a lot of cash to make sure that we can catch the consumer trend.
and the inside of this day are growing the number of locations. And so that's all.
strategy for the remaining of the next year's seminar.
for the remaining of the next year's seminar.
Once again, if you have a question, please press star then one.
We will now pause momentarily to allow questioners to enter the queue.
Once again, if you have a question, please press star then 1.
Your next question comes from Adam Su with China Cinder Securities. Please go ahead.
Hello, can you hear me?
How do you like the competition and the market structure of the lower tier city market? For the first reason, I hear the saying that the recovery of the lower tier city market is not that good as tier 1 city this year. For the second reason, I saw so many players coming into this lower tier city market. How do you like the competition in this market? For the second reason, what is the attitude from our franchisee partners?
over the past seven or eight months. Is there any changes from their attitude? That's all. Thank you.
Okay. Thanks, Adam. The competition in the lower cities.
has grown stronger in the past few years.
But we do not see it becoming stronger this year. I think that some players went to the third tier foster cities.
I think the performance due to the challenge of managing them closely and effectively.
we see some changes of the brand, a change of the closure. We see more closures and changes of the brand in the tier 3, tier 4 cities.
But I think our strengths have always been managing remotely, we're managing third and fourth-tier cities very effectively. So our hotels have been performing really well during the COVID and after the COVID. And they've been very stable in generating substantial cash flows to our franchisees.
I think our strengths has always been managing remotely. We're managing third, fourth-tier cities very effectively. So our hotels have been performing really well during the COVID and after the COVID. They've been very stable and generating substantial cash flows to our franchisees.
We think that our strengths have been there, leading players in those diversified, booming lower tier cities. In terms of
attitude of franchisees, it takes a little bit more time for our franchisees to adapt to the new environment because the first few months, they have many, many issues we have to solve that accumulated during the pandemic era. And secondly, we also have experienced substantial boom in the number of travelers, especially in first and second cities. So our franchisees have been busy in terms of forgetting everything, getting our people along with Green Tree hired, we trained.
to meet the new demand. So the first few months have been very busy. But I think that I will use the word. It takes a little bit more time for franchisee's attitude towards expansion and growth.
compared with the pre-pandemic levels. But we see the more and more confidence coming to the market, especially on the hotel side. I think the restaurant, because the trend has been shifting very quickly, the food traffic has been changing. And so we do see the franchise be a little more reserved, conservative.
in the restaurant segment. But in the long run, we have a
we have been pretty confident that our franchisees, we already see some existing franchisees and started reaching out, other than to researching additional properties and working with us. We need to have a lot more products in the pipeline.
I'm pretty confident that our franchisees, we already see some of our existing franchisees and started reaching out, researching additional properties and working with us. So we have a lot more products in the pipeline and especially high quality ones.
On the competition of the property side, that is a little bit less, which is good for our franchisees because the rent.
the rent pressure is somewhat reduced compared to 2019 levels.
So Adam, those are the sentiments that we have experienced.
Once again, if you have a question, please press star then one. We will now pause momentarily to allow questioners to enter the queue.
Once again if you have a question please press star then 1.
no further questions at this time. This concludes our question and answer session.
I would like to turn the conference back over to Ms. Selena Yang for any closing remarks. Thank you. In closing, on behalf of the entire Green Tree Management team, we thank you for your interest in Green Tree and your participation in today's call. If you require any further information or have chance to reach us, please feel free to contact us. Thank you all. Thank you operators. Thank you. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.