Q3 2024 GreenTree Hospitality Group Ltd Earnings Call
Thank you.
Speaker Change: Good day and welcome to the Green Tree Hospitality Group third quarter 2024 financial results conference call.
All participants will be in listening mode.
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Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. And to withdraw your question, please press star then two.
Please note, today's event is being recorded.
Speaker Change: I would now like to turn the conference over to Rene Vanguestaine. Please go ahead.
Thank you, Rocco.
Hello, everyone, and thank you for joining us.
Speaker Change: Green Trees Earnings release was distributed earlier today and is available on our IR website at ir.998.com as well as on PR Newswire services.
Speaker Change: As a reminder, we also posted a PowerPoint presentation that accompanies our comments to the CMIR website.
Speaker Change: On the call from Green Tree, I'm Mr. Alex Xu, Chairman and Chief Executive Officer, and Ms. Selina Yang, Chief Financial Officer.
Speaker Change: Mr. Xu will present the company's performance overview for the third quarter of 2024 and Ms. Yang will then discuss financials and guidance.
Speaker Change: They will be available to answer your questions during the Q&A sessions which follows.
For more information, visit www.FEMA.gov
Speaker Change: Before we begin, I'd 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 as amended.
Speaker Change: and as defined in the U.S. Private Securities Litigation Reform Act of 1995.
Speaker Change: These forward-looking statements can be identified by terminology such as may, will, expect, anticipate,
Speaker Change: Aims, Future, Intent, Plans, Beliefs, Estimates, Continue, Target, Is, Or, Are, Likely To, Going Forward, Confident, Outlook, and Similar Statements.
Speaker Change: Any statements that are not historical facts, including statements about the company and its industry, are forward-looking statements.
Speaker Change: Such statements are based upon management's current expectations and current market and operating conditions.
Speaker Change: and relate to events that involve known as well as unknown risks, uncertainties and other factors.
Speaker Change: all of which are difficult to predict and many of which are beyond the company's control which may cause the company actual results performance or achievements to differ materially from those in the forward-looking statements.
You should not place undue reliance on these forward-looking statements.
Speaker Change: Further information regarding these and other risks, uncertainties, or factors is included in the company's filings with the U.S. Securities and Exchange Commission.
Speaker Change: All information provided, including the forward-looking statements made during this conference call, are current as of today's date.
Speaker Change: 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.
Speaker Change: It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Alex Xu. Mr. Xu, please go ahead.
Thank you.
Speaker Change: Thanks, Rene. Hello, everyone, and thank you for joining us today.
Speaker Change: I am pleased to report that our hotel business improved in the third quarter over the first two quarters of this year as the economy continued to recover.
Travel patterns have normalized following last year's surge.
which has influenced year-over-year comparisons.
We're back to a more positive environment.
Speaker Change: focusing on growing our pipeline and upgrading numerous hotels across our portfolio.
Speaker Change: We are confident that we are on the right track and will benefit from the ongoing stimulus measures implemented by the government.
For more information, visit www.FEMA.gov
Speaker Change: Our restaurant business net income remained positive for a second consecutive quarter as we continued to grow the number of franchised three stores and stores with stable consumer traffic.
Such stores now accounted for 55.5% of our store count.
compared to 44.6% a year ago.
Speaker Change: Following the closing of unprofitable stores over the past year, the number of restaurants in operation had stabilized at 182 at the end of the quarter.
We are now focusing on growing head number.
For more information, visit www.fema.gov
Please turn to slide 5.
Speaker Change: Compared with the third quarter of 2023, hotel raw power was 135 RMB, a decrease of 13.6
Speaker Change: and the restaurant ADS was 4,891 RMB, a decrease of 25.6%.
Speaker Change: Total revenues were 357 million RMB, a decrease of 22.5 percent.
and the other.
Speaker Change: Hotel revenues were 286.9 million RMB, a decrease of 15.4%, mainly due to a 13.6% year-over-year decrease in rail power and the closure of L.O.A. Hotels.
partially offset by new openings.
Speaker Change: Income from operations decreased to 106.4 million RMB with a margin of 29.8%.
Speaker Change: adjusted the EBITDA non-gap was 122.5 million RMB, a decrease of 32.1% with a margin of 34.3%.
Speaker Change: Slide 6 shows detailed numbers for total revenues, income from operations, net income, and adjusted EBITDA.
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Slide seven shows the trend in our quarterly operating performance.
Speaker Change: In the third quarter, compared to a year ago, road price for our L.O. hotels decreased by 7.5% to 196 RMB.
Speaker Change: The raw power of FM hotels decreased by 13.8% to 133 RMB.
Speaker Change: ADR for our LO hotels decreased by 3.6% to 258 RMB and ADR for our FM hotels decreased by 6.1% to 179 RMB.
Speaker Change: occupancy at our L.O. hotels decreased to 75.9 percent from 79 percent and occupancy at our F.M. hotels decreased to 74.6 percent from 81.3 percent.
Thank you.
Slide eight highlights the growth in our membership programs.
which accounted for most of our direct sales.
Speaker Change: individual memberships grow to 100 million up from 88 million a year ago and corporate memberships grow to 2.1 million up from 2 million a year ago
Speaker Change: Slide 9 shows the operating performance of restaurant with ADS decreased year over year to RMB 4,891
but increased sequentially from quarter to.
Speaker Change: Starting with the slide 11 to slide 13, I will review our strategic execution across our businesses.
Speaker Change: In our hotel business, we further expanded in the mid-to-upscale segment and in tier three and the lower cities, especially in South China.
We also added more hotels in the Tier 2 cities.
As you can see on slide 12,
Speaker Change: We continued to grow our mid to upscale segment with 527 hotels.
Speaker Change: That's 12.1% of our total portfolio at the end of the quarter.
Speaker Change: Well, the mid-scale segment remains the core of our hotel business at 68.4%.
We continue our expansion into the higher-end segments.
Speaker Change: We also continue to grow our economy segment, ending the quarter at 19.5%.
Please turn to slide 13.
Speaker Change: both of our current pipeline and the hotels in operations are growing in the tier two cities.
Speaker Change: On slide 14, we continue to turn around our restaurant business to ensure that it is sustainably profitable going forward by focusing on areas with greater food traffic.
We have closed all stores and opened the FM stores.
Speaker Change: completing the strategic transformation to our new business model. As a result, FM restaurants accounted for 87.9% at the end of the quarter compared to 74.8% a year ago.
Speaker Change: and street stores accounted for 48.9% compared to 38.6% a year ago.
Next, Selina will review operating and financial highlights.
Thank you, Alex.
I will first review our hotel business.
Speaker Change: Please turn to slide 16. In the third quarter, total hotel revenues decreased 15.4% to 286.9 million RMB, compared to the third quarter of 2023.
Speaker Change: Total revenues from L.O. Hotels were 118.2 million RMB, a decrease of 22.2% year-over-year.
Speaker Change: The decrease was primarily attributable to a 7.5% year-over-year decrease in repa of aero hotels.
Speaker Change: The closing of six hotels and the reduction in sublet's revenues mainly due to the disposal of property in the second quarter.
Speaker Change: to 167.9 million RMB, primarily due to a 13.8% decrease in RAPPA, partially offset by a new opening.
Speaker Change: On slide 17, total hotel operating costs and expenses decreased 4.9% year-over-year to 201.9 million RMB.
Speaker Change: Costs decrease less than revenues because of the costs associated with the clothing of Aero hotels.
Speaker Change: Sally and Mark's expenses were $12.9 million RMB, a year-over-year decrease of $1.4 million RMB.
The decrease was mainly due to lower advertising expenses.
Speaker Change: General Administrative Expenses were $35.3 million RMB, up 32.5% compared with the same quarter of last year.
Speaker Change: The increase was mainly due to an increase of 11 million RMB in bad debt provisions for long-age accounts receivables.
Turning to slide 18.
Speaker Change: The decline in revenue resulted in a decrease in profitability for our hotel business, despite lower operating costs and expenses.
Thank you for watching. See you next time.
Speaker Change: Income from hotel operations decreased from 127.5 million RMB to 99.5 million RMB year-over-year.
Speaker Change: Net income was 58.6 million RMB compared to 108.5 million RMB in the third quarter of 2023.
Speaker Change: Adjusted EBITDA decreased 32.8% to 110.5 million RMB and core net income decreased 21.4% to 86.9 million RMB year over year.
Next, let me review our restaurant business.
Please turn to slide 19.
Speaker Change: In the third quarter, as Alex mentioned, we substantially completed the strategic transformation of our business model.
Speaker Change: Total revenues were 17.6 million RMB, a decrease of 42% year-over-year, mainly due to lower ADS and the closure of Aero stores.
Speaker Change: Total cost expenses decreased for 2.8% year-over-year to 63.9 million RMB due to better cost management of personnel expenses and sales channel commission.
Speaker Change: And on slide 20, income from operations for restaurant business was 6.9 million RMB. Adjusted dividend was 9.4 million RMB.
Please turn to slide 21.
Speaker Change: Group net income at 65.2 million RMB compared to 117.4 million RMB a year ago.
Speaker Change: That was negatively impacted by a foreign exchange loss of approximately 33 million RMB.
Speaker Change: Group net income per ADS, that's basic and diluted, decreased by 44% to $0.65 RMB.
Speaker Change: and CoreNet Income ADS Basic and Diluted Lung Gap decreased by 26.1% to $0.92 RMB.
Let's now take a look at slide 22.
Speaker Change: As of September 30, 2024, the company had total cash and cash equivalents
Restricted Cash, Short-Term Investments
Speaker Change: investment in equity securities and hand deposits of 1,883.9 million RMB
compared to 1737.2 mA as of 2-30-2024.
Silent. Silence. Silence. Silence.
Speaker Change: The increase was mainly attributable to continued operating cash inflow and repayments of loans from franchisees.
Rene Vang.
On slide 23.
Speaker Change: This is based on our operating performance so far this year, in particular lower than expected travel in the third quarter.
Speaker Change: and a strategic review of our L.O. Hotels that led to the net closure of nine hotels by the end of the third quarter.
and contributed nearly half of the decline.
This concludes our prepared remarks.
Speaker Change: Operator, we are now ready to begin the Q&A session. Thank you.
Speaker Change: Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad.
Speaker Change: If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys.
To withdraw your question, please press star then 2.
Speaker Change: Once again, ladies and gentlemen, that's far more than one to ask a question. And we'll pause for just a moment to assemble our roster.
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Speaker Change: And our first question today comes from Kevin Wong with Spica Capital. Please go ahead.
Kevin Wong: Good evening. Thank you for taking my question. I would like to have two, if I may. The first one is, can you talk about the trend of the industry? How does the company's performance in the third quarter compare to other peers?
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Okay, Kevin, this is Alex. Thanks for the two questions.
Speaker Change: comparing with the newly opened hotels portfolio. And we noticed our newly opened hotels has a much better performance than the aged hotels.
Speaker Change: and we have a track record of 20 years, so we have accumulated more legacy hotels in that end.
Speaker Change: downward pressure is more noticeable after the mid-August like August 15th
Speaker Change: and we'll see a more downward trend in the travel industry.
Speaker Change: but in October we have also happily observed, you know, an improvement in the occupancy trend.
Speaker Change: So we expected the fourth quarter will be performing better than the third quarter.
Speaker Change: and with more and more newer hotels adding to our portfolio, we think our trend
Speaker Change: on the restaurant. And we have worked really, really hard on trying to reposition our business model. The past.
Speaker Change: Our stores are located in, for instance, in supermarket anchored shopping malls.
which severe drop of the food traffic.
Speaker Change: and a substantial number of those are closed, repositioned into street stores.
Speaker Change: and secondly we also made improvement in the supply chain side because in the restaurant
Speaker Change: The business model heavily relied on, you know, the food traffic.
the supply chain, the management system, and also the team.
So as a result, I think we have
Speaker Change: performed better than the industry average in the restaurant chain side. We're happy to see a continued profitability.
Speaker Change: and we will continue to select new locations to add the new stores at our own pace.
Speaker Change: So, to make sure that, as I pointed out to you, the profitability can be sustained so we have all business segments contributing to the bottom line.
So, Kevin, that's the end.
this trend in the restaurant.
Speaker Change: and we are still optimistically cautious about the restaurant business because
Speaker Change: We will see how the consumer trend will change, will shift.
Speaker Change: and how we can deliver more value at a more affordable price and that's I think what the majority of the consumer is looking for. So we'll continue to improve our restaurant operating model.
Thank you so much for these two questions.
Very clear. Thanks.
Thank you.
Speaker Change: Thank you. And as a reminder, to ask a question, please press star then 1. We'll pause for just a moment to assemble our roster.
Speaker Change: Today's next question comes from Betty Du with UBS. Please go ahead.
Betty Du: Thanks management for giving me this chance to ask questions. I also have two questions and the first might be could you give us some more color on your expectation for the sector supply and demand landscape going forward. Would the current fast supply expansion continue in 2025?
Uh, we'll see. You know, the downward industrywide. Rural product decrease.
And you can see from our old hotel segment.
uh, the downward pressure was not as much as the our, you know, franchise hotels because our franchise hotels has a lot more
older.
Models there. So we are pretty confident.
Our new products in the new locations.
And are going to be a lot more competitive. So we expected the a better performance.
In the 2025.
Uh, for the year. Um, both of the world power, as well as our hotel openings, because we see and we have many, many
new hotels in the pipeline and not only in the third tier City.
We also had a substantially more.
New hotel in the pipeline in the Second City. The second tier City consists of the primarily the um, Regional economic centers and the provincial capital cities.
I think that those locations.
That once we have newer hotels, well better showcase.
Uh, our hotels presence and in those regions will further help to improve our tier 3 cities hotels performance.
So overall.
um,
we are very optimistic about our own.
2025.
Outlooks and performance in terms of raw Park.
um,
as I said to Kevin earlier, we see a Improvement in the Q4 official already.
and, um, however it is really I think a difficult to project the travel pattern next year because the light of the right now, the economic environment,
uh, but the green please business model has been more resilient
uh, for instance, as you can see from our mix of portfolio,
uh, we may be heard a little bit by the in in the company side because
when you have more hotel in the second or third year cities,
our world power is not as high in the first city. So as a result, our fee, incomes are the, you know, related incomes are not as high as compared with some of the peers which has a large Hotel portfolios in the first year City.
However, the second necessary cities has a higher profit margin than the first year cities, the first year cities basically you have higher rent, higher, personal cost, and the um uh as a result, the profit margin is a much smaller than the second strategy of City. So our uh franchisee has a lot more room to grow and we expect that, you know, our profitability and the raw power for the second third year cities.
And will be stable uh, to say the least and or at least we will with withhold the pressure.
We stand the pressure from the um, the market fluctuations.
So, uh, hopefully back here, I answered your questions regarding our 2025.
Thank you. And as a reminder, our next, uh, if you would like to ask a question, please press star 1 on your telephone keypad,
Our next question, today comes from lewen Liu, with China security, please go ahead.
Okay, thanks. Uh, thank you. Uh, thank you for uh, for taking my question. And I have 2 questions. Uh, the first is about, uh, as we see like the the the third quarter Financial part for the OPA is like crap and Junction. We still see uh, they can achieve double digit growth in the hotel industry, despite the situation. So uh, what do you think about the bugging power? Like as a hotel side, like
Uh, like for 6 for, for, for the following, like for the next year or and uh, this is my first question and the second question is what I see that we have like a investment or a new project like inu-oh Province like so I think the call is very slow that uh can you show some color on this uh project? Yeah.
Uh, thanks 11. Um, we uh, with the required to the OS and online travel agencies, taking more market, share, I think that's really understandable because we are moving into the digital period.
And that, uh, the I think that the doubles double, uh, you did growth is taking the shares from the offline.
and not necessarily in in in terms of the overall you know Industry hotel Hospitality demand that increased, the double digit
and we are, uh, working closely with, uh,
All of the reputable online travel agencies, I think, as long as the mutually profitable, um we can bring in their business with affordable.
Information cost, I think that's will become, you know, the new ecosystem and the new win-win situation.
and that we are, you know we uh,
We think that, that, that Trend, uh, the average consumer become younger and younger, and that, they will use their, you know, digital.
Tools to make the reservations.
And uh, so we are basically taking um, notice of that Trend working closely with them.
with regard to the, uh, um,
uh, guidel, uh, project and we are working with
Uh, we have a strategic Partners in the, uh, 4 or 5 star hotels.
Which we potentially will bring into the into the groups in the future.
Uh, there. Um, there is a
noticeable, uh, well, no projects over there. That's ideal for a showcase.
4 star 5 star hotel there.
and the local government has sought our
cooperation to help to reposition that asset and to
To make it, you know, that the a workable uh, reopen that reposition reopen that in the near future. So we're really uh, happy to help the opportunity to work with the local government.
And to make the non-performing asset work.
Thank you. Thank you for for you. Thank you.
Once again to ask a question, please press star then 1.
We'll pause for just a moment to assemble our roster.
and once again that started in 1, if you have a question,
Today's next question comes from Victor Lee with the mhi, please go ahead.
Good evening Amendment. Thank you for taking my question. I have 2 questions. Um, the first 1 about the data then,
The dividend was announced in the second quarter. And now we see the performance in the third quarter is lower than expected. So do you have any plan to continue to paying the dividends in the future?
And my second question is about the liquidity. Um, can you tell us how you plan to improve the liquidity in the Capital Market? Um, since uh, company has previous mentioned that uh the company is considering several passes to boost the liquidity. So, is there any progress or timetable now? Thank you.
Uh, thanks Victor. I will answer the question and uh, uh, you know, Selena you can always jump in
uh, with the regard to the dividend Victor that will even though we see the third quarter,
net income dropped and looks like a large number of Drop Like 44%.
Um however uh we are pretty confident because some of the uh cost of the drop as uh Selena mentioned to you in the report.
33 million of that. Drop is really a paper loss of the foreign currency exchange.
Because we have a portion of the deposit is in US Dollars. I think the third quarter at the beginning of the end, the conversion, uh, basically there is a 33 million people lost their
then I think there is a 11 million, uh, a bad debt probation for, you know, the long aged accounts, receivable will will be, also confident that a lot of them eventually will be worked out with given the opportunity for the franchisee to work out their you know, um Hotel performance, improved, the hotel performance a little bit better and slowly and those um some of those will be you know, paid back
So in the, in addition, we have a legacy hotels being improved.
and uh, um
That.
Resulted because we have large percentage in the Legacy hotels, so resulted of the railroad decrease and, um, more than the industry, uh, we also the, uh, um, we also see that the large number of newly open, the hotels, had a better performance.
So, on the going for the basis, we we think our opportunity income and the EB.
We also improve significantly as a result. Our dividend policy, uh, will continue and uh, uh, like we stated in the past, were not, you know, deviate from the past, uh, plan and the strategy we have announced
And regarding to the liquidity.
Uh, we have, uh, I think also shared with our analysts and the investors that we are our company is going through a real organization and uh, as a result, uh, our mutual the parent company.
Will.
Merge with our gxd as a result of that. And uh, some of the shareholders in the parent company will become a direct shareholders of the ghg and therefore will increase.
Uh the liquidity and uh hopefully that will help and boost our liquidity in the in the long run.
I think that's, um,
Our.
um,
Analysis. That's our current. Uh, we are, we are still unscheduled and uh, but because there are a number of approving, you know, approval process.
So, um, hopefully that will will be completed soon.
And thanks, Victor.
Thank you, thank you for your answer.
Thank you. And as a reminder, if you'd like to ask a question, please press star 1 at this time.
and ladies and gentlemen, as a final reminder, if you'd like to ask a question please press star then 1
This concludes our question and answer session. I like to turn the conference back over to Selena Yang for closing remarks.
Thank you. Operator 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 passed to with us. Please feel free to contact us. Thank you. All
Thank you. Thank you. This concludes today's conference call. We thank you all for attending. Today's presentation.
You may now disconnect your lines and have a wonderful day or evening. Thank you.