GreenTree Hospitality Group Ltd (GHG) 2024 Q4 法說會逐字稿

Good day and welcome to the GreenTree Hospitality Group Limited fourth quarter and fiscal year 2024 financial results conference call. (Operator Instructions)

I would now like to turn the conference over to Rene Vanguestaine with Christensen. Please go ahead.

Thank you, Rocco. Hello, everyone, and thank you for joining us. GreenTree's earnings release was distributed earlier today and is available on our IR website at ir.998.com. As well as on PR Newswire services. We also posted a PowerPoint presentation that accompanies our comments to the same IR website.

On the call from GreenTree, Mr. Alex Xu, Chairman and Chief Executive Officer, and Mr. Selina Yang, Chief Financial Officer. Mr. Xu will present the company's performance overview of the fourth quarter and fiscal year of 2024. And Ms. Yang will then discuss financials and guidance. They will both be available to answer your questions during the Q&A sessions which follows.

Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21 of the Securities Exchange Act of 1934 as amended and as defined in the US Private Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by terminology such as may, will, expect, anticipates, aims, future. Intents, 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 differ 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 the 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 Xu. Mr. Xu, please go ahead.

Thanks, Rene. And hello, everyone, and thank you for joining us today. Our performance in the fourth quarter was negatively impacted by the closure of 12 leased and managed hotels during the year. And lower raw par compared to a higher base last year and the continued optimization of our restaurant business.

In our hotel business, we are simultaneously accelerating the opening of new hotels with a planned 418 in 2025, that's an increase from 405 in 2024. And upgrading our existing portfolio with an absolute focus on quality to ensure higher standards of products and services.

We believe that rejuvenation of our portfolio that was slowed down by the pandemic will be completed by the summer of 2026. While mid-scale remains our core segment, hotel openings in 2024 and our pipeline highlights our strategic commitment to expanding our mid to upscale segment where we expect the growth over the next two years to deliver a significant economy of scale.

Finally, we'll continue the phased closure of leased and managed hotels, especially in the lower tier cities. Retaining only select flagship properties in key cities to serve as a showcase of our capabilities for the prospective franchisees.

The strategic transformation of our restaurant business made further progress on our two priorities. At the end of the quarter, franchised and managed stores accounted for almost 90% of all stores. That's up from 78% a year ago. And the street stores that benefited from more stable consumer traffic accounted for 50% of all stores, up from 40% a year ago.

Additionally, we have been wide sizing many of our stores, reflecting the new economic reality to improve overall profitability. We believe we now have a strong foundation to build on and will grow the overall numbers of restaurants in 2025 with a particular focus on franchise and man as well as street stores.

Please change to slide five. Compared with the fourth quarter of 2023, Hotel RevPAR was RMB116, a decrease of 9.6%, and the restaurant ADS was a decrease of 16.8%. Total revenue was [RMB304.5 million]. And a decrease of 18.2%. Hotel revenues were RMB240.2 million and they decrease of 17.1%, mainly due to the closure of 12 of all hotels in 2024 and a year over year decrease in world power of 9%.

Net income was negative RMB72.8 million, mainly as a result of the impairments of goodwill's and trademarks of our restaurant businesses, impairment of assets and the provisions for loan receivables related to franchise loans.

Adjusted net income defined as excluding these impacts was RMB77.3 million. An increase of 26.8% with a margin of 25.4%. Core net income was RMB57.8 million, a decrease of 22.3% with a margin of 19%. And adjust the EBITDA was RMB71.5 million, a decrease of 38.3% with a margin of 23.5%. Cash from operation was RMB74.2 million. It's up from a negative RMB13.5 million a year ago.

Slide six shows detailed numbers for total revenues, net income, adjust the EBITDA, and the core net income. Slide seven shows the trend in our quarterly operating performance. In the first quarter compared to a year ago, RevPAR for LO hotels decreased by 2.1% to RMB158.

RevPAR for FM hotels decreased by 9.8% to RMB115. ADR for our LO hotels was largely aligned with that of last year, and ADR for our FM hotels decreased by 4.6% to RMB167.

Occupancy at our LO hotels decreased to 65.5% from 66.9%. And occupancy at our FM hotels decreased to 68.6% from 72.5%. Flight eight highlights the growth in our membership programs, which are accounted for most of our direct sales. Individual memberships grow to 12 million, up from 91 million a year ago, and the corporate memberships grow to 2.17 million, up from 2.05 million a year ago.

Slide nine shows the operating performance of restaurant with the ADS decreasing year on year to RMB4234. Starting with slide 11, I'll review our strategy, strategic execution across our businesses. In our hotel business, we further expanded in the mid to upscale segment and in tier two, tier three and lower cities.

As you can see on slide 12, we continue to grow our mid upscale segment with 553 hotels. That's 12.5% of our total portfolio at the end of the quarter. While the mid-scale segment remains the core of our hotel business at 67.3%, we continue our expansion into the higher end markets.

We also continue to grow our economy segment ending the quarter at 20.2%. Please turn to slide 13. Our current pipeline is growing in two cities, and we also open more hotels in such cities. On flight 14. We continue to turn around our restaurant business to ensure that it is sustainably profitable going forward by focusing on areas with greater foot traffic.

We have closed our old stores and opened the new FM stores, completing the strategic transformation to our new business model. As a result, FM restaurants accounted for 89.6% at the end of the quarter compared to 78.4% a year ago, and the street stores accounted for 50.5% compared to 39.7% a year ago.

Next, Selina will review operating and financial highlights.

Thank you, Alex. I will first review our hotel business. Please change to slide 16. In the fourth quarter, total hotel revenues were RMB240.2 million, at 17.1% year over year decrease. The decrease was mainly to blow to our LO hotel segment and a 9.8% decrease in RevPAR in our FM hotel segment.

Our air all hotel segment was impacted by the closure of 12 hotels in the year of 2024, while in 2023, it benefited from a one-time revenue recognition of recognition rooms and a successful lawsuit against the sublease.

Total revenues from our all hotels were RMB91 million, but 27.5% year over year decreased. Excluding the impact of the above-mentioned factors, same air or hotel revenue in the fourth quarter of 2024 decreased by 2.4% year over year.

Total revenues from FM hotels were RMB148.2 million and 9% year decrease. Mainly due to a 9.8% decrease in FM hotel's wrap up. On slide 17. Total hotel printing costs and expenses decreased 10.5% year over year to RMB225.7 million. Operating costs decreased 9.5% to RMB139.9 million year over year.

The decrease was mainly attributable to the closure of 12 hotels in 2024. Which resulted in lower rental, consumable food and beverage, and staff-related costs. Selling and marketing expenses were RMB13.5 million a year over year increase of 61.7%. The increase was mainly attributable to the reclassification of selling stuff related expenses previously recorded as GNA expenses excluding this factor, selling and marketing expenses increased by 22.2% year over year.

General administrative expenses were RMB39.7 million down 20.1% compared with the same quarter of 2023. The decrease was mainly due to lower consulting fees, lower back debts due to accounts receivables, and the lower GNA staff-related expenses.

Turning to slide 18. The decline in revenue resulted in a decrease in profitability for our hotel business despite lower operating costs and expenses. Cash from hotel operations, however, increased from RMB18.4 million to RMB68.8 million year over year.

Net income was RMB28.4 million compared to RMB8.1 million in the fourth quarter of 2023. Adjusted EBITDA 34% to RMB71.1 million and core net income decreases 24.2% to RMB46.1 million year over year.

Next let me review our restaurant business. Please change to slide 19. In the fourth quarter, restaurant revenues were RMB65.1 million. A 25.8% year over year decrease. The decrease was mainly due to the closure of our stores and a 16.8% decrease in ADS. Same store revenue decreased by 3.1% to RMB31.2 million.

Total costs and expenses increased by 98.7% year by year to RMB187.4 million, mainly due to the impairment of goodwill and trademarks. Excluding these impairments. Total cost and expenses for restaurant business decreased by 14% year over year to 67.3 million. The improvement in profitability of our restaurant business due to our strategic execution.

Cash from operations turned positive at RMB5.5 million in the fourth quarter of 2024. Net income excluding the empowerment of goodwill and trademarks, increased the 44.3% to RMB18.9 million in the fourth quarter. Next, I will review the probability of our group.

Please turn to slide 21. Group cash from operations, despite the revenue decrease, increased the year over year from negative RMB13.5 million to RMB74.2 million. Net income in the fourth quarter, excluding the impairment of goodwill and trademarks of our restaurant business, impairment of assets, and provisions for loan receivables related to franchising loans increased from RMB60.9 million to RMB77.3 million.

Adjusted EBITDA that was RMB71.5 million compared to RMB115.8 million one year ago. And core net income was RMB57.8 million of flight 22. Net income per ADS basically diluted for our hotel business increased year over year to RMB0.29 that's USD0.04.

And core net income per ADS basically and diluted from a hotel business was RMB0.45, that's USD0.06. Group net income per ADS that's basically diluted was negative RMB0.70 that's negative USD0.10. And the group net income per ADS basic diluted was RMB0.57 RMB that's USD0.08.

Let's now look at flight 23. As of December 31, 2024, the company had total cash and cash equivalents, restrict cash, short-term investments in equity securities and deposits of RMB1839.1 million compared to RMB1883.9 million as of September 30, 2024.

The decrease was primarily due to dividend distribution to our shareholders and investment in property, partially offset by cash from operating activities. On flight 24. Taking into account the recovery in long term trends and short-term industry fluctuations. We expect the total revenues of our organic hotel business for the full year of 2025 to be flat compared to their 2024 level.

We expect to open approximately 480 hotels and close about 200 hotels for net addition of 280 hotels. This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

Thank you. If you would like to ask a question, (Operator Instructions). Today's first question comes from Bruce Neal with UBS. Please go ahead.

Hi Alex, hi Selina, thanks for taking my question. So, I have a question on the hotel RevPAR. So, may I know what's your assumption, RevPAR assumption on your four-year, flat, organic hotel, revenue, forecast, and, secondly, what's your observation on the recent trend and what's your expectation on the business travel. Demand outlook in this quarter and the rest of the year. Thank you.

Okay. Thank you. And the RevPAR trend, our expectation for the year of 2025 is going to be flat. Because we observed the first quarter. We have done about 5% in your car. And we expect the, that's compared with a little bit higher base of last year.

And the second and third quarter, we see a gradual recovery and to be flat on the RevPAR for the year. So, in terms of the demand, we do see more cyclical demand that that is more from leisure side and, especially during the weekend and also during the holidays.

So, we do observe, take up in terms of the leisure travelers and the business travelers. So those are the two observations we have and that's why we expected the for the full year, the RevPAR we expect that in our company we should maintain, we should be maintaining the flat level. Thanks.

That's very clear. Thank you.

Thank you. And our next question comes from [Frank Ma with Quicken Capital]. Please go ahead. Hello Frank Ma, your line is open please proceed.

Okay, thank you, management. I have two questions. The first one is, can you give, please give us an overview of the strategy for the hotel business in 2025, and in particular how fast we are making progress in upgrading older hotels. And the second one is can you provide a bit of color on our strategy for the hotel LO segment going forward? Why are we closing so many of those? Thank you.

Okay. Thanks, Frank, that Selina will pick up those questions. Okay, in terms of our hotel business in 2025. We do a plan and from our pipeline and from our compilation of the interested parties, so we have planned to open 480 new hotels. That's, about 20% more than that of 2024.

And that's one our core focus. The second is upgrading of our existing portfolio, the aged hotels. We still have a 700 to 800 of those that needs to be upgraded and hopefully that's going to be done by the summer of 2026.

And we are making tremendous amount of progress in terms of, incentivizing our hotel owners, because right after the pandemic, they need a couple of years recovery time to accumulate some capital to start upgrading the existing hotels.

And then the third is we're improving the overall the efficiency in terms of our management system and our team. And so that we can better support both the new franchisees and the existing franchisees for the businesses. So, with that, we feel that in 2025, we are able to have a fresher portfolio of the hotels.

And in terms of the closing of LO east in the operated hotels, that's for a couple of reasons. One is a lot of them are because of the lease expired, and we feel that those in the second tier, third tier locations that are no longer ideal to be a flagship hotel locations. So, we want to focus on our resources on the tier one flagship hotels and also on the franchise manage the segment.

And the closure of least operated hotels really will depend on the lease term. Once the lease term is up for renewal, we'll carefully review the status to see whether we should make the further investment, continue to extend the lease term or terminate.

And sometimes it's a mutual discussion issues. And our focus is going to be bring the focus into the franchise and the manage the sectors. So that's our strategy and our focus in the future and we'll continue to evaluate the LO hotel segment to make sure does not consume a lot of additional resources from ourselves.

Okay, got it. Thank you, Alex.

Thank you. And as a reminder, if you'd like to ask a question, please press stars in one. Our next question comes from [Elsau with Current Capital]. Please go ahead.

Hello, thanks for taking my question. My first question is, in our restaurant business, we're increasing the proportion of of street street stores and reducing the number of more restaurants. Do you expect this trend to continue? That's my first question.

Okay. Yes, we do expect that that trend to continue. The number of shopping malls and the traffic to the malls, I think are changing very fast. So, in addition, the rent and all the expenses associated to be a reenter in the mall is also very high and plus, the mall has certain operating hours. That's also limiting sometimes the traffic. And we have not really find the great operating models to operating more.

And therefore, that we have focused on the opening of the street stores where at least we have the, stable consumer traffic, foot traffic, and we can control our own operating hours and the results are really showing that in light of the very competitive environment in the food businesses, that we're still maintaining a profitable operation while we are transforming from, the older existing legacy brand into a fresher and more trendy concept.

So, we are making, I believe, a great progress in that end. And we'll continue to focus on that end. And the second is we're also changing and adjusting. The size of the restaurant to make sure, they are the most economical, most efficient, and deliver the best profitable result to our franchisees. So, that's the overall plan and the strategy for our food business for the 2025.

Thank you. My second question is, at the end of 2024, we had 182 restaurants, the same number as three months earlier. You mentioned that the business transition is over. What can we expect in 2025? That's my second question.

Yes, we, in terms of net openings, we have not done a good job, and we have not pushed really hard in terms of opening the new restaurant, especially considering the sentiment in the marketplace.

But this year, I think that we see, with the profitable operation for our existing restaurant. And we feel confident that the trend and also the pipelines, we should be able to deliver 60 new openings of the restaurant for the year of 2025.

Awesome thank you.

Thank you. And our next question is a follow up from [Frank Ma at Quicken Capital]. Please go ahead.

I thank you. I have one more question. You have talked on previous earnings call about the initiative to increase the trading liquidity in our shares. Any progress on this? Thank you.

Thank you. We have, evaluated a number of options to increase liquidity. And we have a planned, the reverse merger, which took a little bit longer time than we originally planned.

And once that is done, I think that our liquidity should increase substantially. The second is, the last, couple of quarters have been a transitional quarter. We've been, trying to uplifting, upgrading our existing portfolios, opening up new hotels.

And so, we have a focus on really. Running a profitable operation for both restaurant and hotel businesses and trying to have a strong cash flow and stable dividend and eventually I think that we will earn the confidence and of our shareholders and that they will potentially also increase the share price and the liquidity.

So, And we feel that the the merger and other available financing will be available to us in the near future. And I would make those announcements as soon as they become available to you.

Thank you. Got it, Alex, and have a good day.

Thank you. And as a reminder, if you'd like to ask a question, please press start and one at this time. We'll pause for just a moment to assemble our roster. And as a final reminder, if you'd like to ask a question, please press star and one at this time.

This includes the question-and-answer session. I'd like to turn the conference back over to Selina Yang for any closing remarks.

In closing, on behalf of the entire GreenTree management team, we thank you for your interest in GreenTree and the participation in today's call. If you require any further information or have plans to with us, please feel free to contact us. Thank you all.

Thank you.

Thank you. This includes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.