BTG HOTELS(600258)：LOWERS 2022 GUIDANCE FOR NEW OPENINGS;PORTION OF AIR HOTEL CLOSURES RISES IN 2Q22

　　1H22 results in line with our expectation
BTG Hotels announced its 1H22 results: Revenue fell 25.9% YoY to Rmb2.33bn, attributable net loss totaled Rmb384mn, and recurring attributable net loss equaled Rmb435mn. In 2Q22, revenue declined 40.3% YoY to Rmb1.12bn, with attributable net loss at Rmb152mn, and recurring attributable net loss at Rmb176mn, in line with our expectation.
　　Business operations: In 2Q22, the firm’s blended RevPAR recovered to 56% of the 2Q19 level (vs. 61% in 1Q22 and 71% in 4Q21), overall average daily rate (ADR) dropped 10.4% compared with 2Q19, and occupancy rate fell 29.9ppt compared with 2Q19. Same-hotel RevPAR recovered to 58.7% of the 2Q21 level and 53.2% of the 2Q19 level. In 2Q22, BTG Hotels opened 152 new hotels and closed 203 hotels, implying net hotel closure of 51. As of 2Q22, the firm had 5,942 hotels in operation and 1,889 hotels in the pipeline.
　　Trends to watch
　　Lowered 2022 guidance for new hotel openings to 1,300-1,400. BTG Hotels lowered its 2022 guidance for new hotel openings from 1,800-2,000 to 1,300-1,400 due to COVID-19 resurgence. RevPAR of HomeInn has recovered to 75% of the level in the same period of 2019 in July and 71% in August (vs. 57% in May and 69% in June). We suggest keeping an eye on the recovery in demand from business travelers.
　　Portion of Air hotel closures rose in 2Q22; watch further expansion of Air hotels. In 2Q22, BTG Hotels opened 152 hotels and closed 203 hotels, corresponding to a net hotel closure of 51. Specifically, the firm opened 90 Air hotels, 42 upper midscale hotels, 18 economy hotels and two hotels categorized as others. The firm shut down 96 economy hotels, 62 Air hotels, 29 other hotels and 16 upper midscale hotels, with the number of closed Air hotel as a percentage of its total closures rising QoQ to 31% (vs. 24% in 1Q22 and 7% in 4Q21). Among all the hotel closures in 2Q22, 76% (from 35% in 1Q22) of the hotels were shut down due to poor operations or lack of compliance with management standards amid the COVID-19 pandemic. However, the proportion of hotel closures due to urban renewal and property management as well as hotel renovation and upgrades decreased. We believe the firm closed more hotels in 2Q22 mainly due to the resurgence of COVID-19. Most of BTG Hotels’ small-sized hotels operate under the Air hotel model, which requires a low initial investment to become a franchisee, thus making it less costly for a franchise owner to exit when its operations come under pressure. In 2021, the number of hotels with 70 and below rooms accounted for 77% of the total in China, with hotel chains accounting for 19% of the total number of hotels with 70 and below rooms (vs. 35% of the hotels were hotel chains in the industry). We see upside potential in the increase in the penetration rate of small-sized hotel chains with 70 and below rooms. We suggest watching the expansion of Air hotels, with its model further enhancing the operating capabilities of small-sized hotels.
　　Financials and valuation
　　Given the impact of COVID-19 resurgence on BTG Hotels’ business expansion, we lower our 2022 earnings forecast to -Rmb195mn from -Rmb73mn, and revise our 2023 earnings forecast down by 8.1% to Rmb848mn. We maintain an OUTPERFORM rating, but cut our TP 4% to Rmb25 (implying 33x 2023e P/E), with 18% upside. The stock is trading at 28x 2023e P/E.
　　Risks
　　Negative impact from COVID-19 worse than expected; hotel expansion slower than expected; more Air hotel closures than expected.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。