New Hotel Openings And SAVHE Hotel Launch Will Increase Capacity And Customer Loyalty

Key Takeaways

• Expansion in hotel network and new upscale brand could boost future revenue, occupancy, and RevPAR through increased capacity and strategic positioning.
  
• Growth in retail segment and membership base likely to enhance revenue and margins through high-margin products and customer loyalty.
  
• Shift to lower-margin business and higher expenses impacts profitability, while asset-light model raises operational efficiency concerns, and rapid expansion risks affecting revenue sustainability.

Catalysts

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

• Significant expansion of the hotel network, with the addition of 140 new hotels in the third quarter and 732 hotels under development, is expected to drive future revenue growth through increased capacity.
  
• The introduction of new upscale brand SAVHE Hotel, strategically positioned in core business districts, could enhance occupancy and average daily rate (ADR), positively impacting future RevPAR and earnings.
  
• Robust growth in the retail segment, particularly in the 'deep sleep' product line, with a 107.7% year-over-year GMV growth, is likely to boost overall revenue and net margins, given the high margin nature of these products.
  
• The rapid expansion of Atour's membership base, exceeding 83 million members, enhances revenue potential through increased customer loyalty and repeated business across both hotel and retail segments.
  
• A projected increase in the number of Atour Light 3.0 hotels, capitalizing on midscale market opportunities, may increase overall occupancy rates and RevPAR, despite initial pressure on blended RevPAR.

Atour Lifestyle Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Atour Lifestyle Holdings's revenue will grow by 23.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.5% today to 19.6% in 3 years time.
• Analysts expect earnings to reach CN¥2.4 billion (and earnings per share of CN¥17.56) by about December 2027, up from CN¥1.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 2.4x on those 2027 earnings, down from 23.5x today. This future PE is lower than the current PE for the US Hospitality industry at 23.6x.
• Analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.41%, as per the Simply Wall St company report.

Atour Lifestyle Holdings Future Earnings Per Share Growth

Risks

• The shift towards a higher proportion of lower-margin supply chain business and increased selling and marketing expenses have led to a decrease in profit margins, impacting net margins negatively.
  
• The high base effect from the previous year, coupled with factors like market fluctuations and weather disruptions, have placed pressure on RevPAR (Revenue per Available Room), impacting overall revenue growth prospects.
  
• The increased number of hotel closures and the decision to shift towards an asset-light franchise model over leased hotels might indicate potential issues with maintaining operational efficiency and cost management, which could affect earnings and profitability.
  
• Rapid network expansion, with a significant number of new hotel openings, could lead to execution risks, including overextension and quality control issues, potentially impacting long-term revenue sustainability and brand reputation.
  
• The retail business's performance is subject to seasonal fluctuations and competition in the sleep economy market, which could create risks to consistent revenue contribution and impact overall earnings stability.

Valuation

• The analysts have a consensus price target of CN¥33.09 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 CN¥38.42, and the most bearish reporting a price target of just CN¥29.03.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be CN¥12.4 billion, earnings will come to CN¥2.4 billion, and it would be trading on a PE ratio of 2.4x, assuming you use a discount rate of 8.4%.
• Given the current share price of CN¥27.31, the analyst's price target of CN¥33.09 is 17.5% 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.