2,000 Premier Hotels And Sleep Economy Will Drive Future Success

Key Takeaways

• Expansion strategy targeting premier hotels and Atour Light 3.0 brand positions the company for significant revenue growth and increased market presence.
  
• Retail growth and investment in the sleep economy offer strong revenue and margin enhancements by capturing emerging consumer trends.
  
• Challenges in RevPAR stability, increased costs, and competitive pressures may negatively affect Atour Lifestyle Holdings' hotel revenue, net margins, and retail growth potential.

Catalysts

Through its subsidiaries, develops lifestyle brands around hotel offerings in the People’s Republic of China.

• The strategic goal of achieving 2,000 premier hotels by 2025 and the recent record openings and signings highlight strong expansion prospects, which can significantly increase revenue through greater market presence and operational scale.
  
• Continued growth in the Atour Light 3.0 hotel brand, with over 100 hotels in operation and a strong pipeline, indicates a solid foundation for revenue expansion in second-tier cities and above, potentially boosting earnings and market penetration.
  
• Rapid growth in the retail business, with an expectation of outpacing hotel business revenue growth and contributing significantly to overall revenues in 2025, offers strong revenue and margin enhancement opportunities due to higher-margin retail sales.
  
• Investment in the sleep economy, led by aTOUR PLANET’s innovative products like the deep sleep memory foam pillow series, is expected to leverage emerging consumer trends, enhancing revenue and widening net margins.
  
• The strengthening of the ACARD membership ecosystem to capture cross-consumption between accommodation and retail can enhance customer loyalty and recurring revenue, positively impacting net margins and earnings growth.

Atour Lifestyle Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Atour Lifestyle Holdings's revenue will grow by 22.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.6% today to 18.8% in 3 years time.
• Analysts expect earnings to reach CN¥2.5 billion (and earnings per share of CN¥17.64) by about April 2028, up from CN¥1.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.2x on those 2028 earnings, up from 19.0x today. This future PE is lower than the current PE for the US Hospitality industry at 21.8x.
• Analysts expect the number of shares outstanding to grow by 0.46% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.68%, as per the Simply Wall St company report.

Atour Lifestyle Holdings Future Earnings Per Share Growth

Risks

• The decrease in RevPAR (Revenue per Available Room) for the year and anticipated challenges in achieving stable RevPAR in 2025 are concerning, as this could impact hotel revenues and overall earnings.
  
• The decrease in leased hotel revenue due to a decrease in the number of leased hotels reflects challenges in optimizing product needs, potentially affecting overall revenue and net margins.
  
• The rise in selling and marketing expenses relative to net revenues indicates increased costs that may pressure net margins despite revenue growth.
  
• The competitive pressure in the sleep economy and the need for differentiation pose risks to Atour PLANET’s retail business's revenue growth and product innovation efforts.
  
• Fluctuations in RevPAR and structural factors like an increasing retail business proportion may lead to unstable profit margins, potentially affecting net earnings despite other growth areas.

Valuation

• The analysts have a consensus price target of $36.358 for Atour Lifestyle Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $40.83, and the most bearish reporting a price target of just $33.17.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥13.2 billion, earnings will come to CN¥2.5 billion, and it would be trading on a PE ratio of 19.2x, assuming you use a discount rate of 8.7%.
• Given the current share price of $24.02, the analyst price target of $36.36 is 33.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.