Huazhu Group Ltd (NASDAQ: HTHT) stock falls on bad results

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Huazhu Group Ltd (NASDAQ: HTHT) stock lost over 4.4% (as of 11:26 am GMT-4 ; Source: Google finance) after the company posted lower than expected results for the fourth quarter of FY 19. The company posted the adjusted income from operations for the fourth quarter of 2019 was RMB508 million (US$73 million), compared to RMB619 million for the fourth quarter of 2018. Adjusted operating margin, for the fourth quarter of 2019 has fallen to 17.4%, compared to 23.1% in the fourth quarter of 2018 and 24.0% in the previous quarter. The year-over-year decline in adjusted operating margin was mainly due to the investments to accelerate the network expansion, acquisition-related costs for the Deutsche Hospitality acquisition as well as pre-opening expenses for the upscale brands.

HTHT in the fourth quarter of FY 19 has reported the adjusted earnings per share of RMB1.38, missing the analysts’ estimates for the adjusted earnings per share of RMB1.39. The company had reported the adjusted revenue growth of 8.5 percent to RMB2.9 billion in the fourth quarter of FY 19, missing the analysts’ estimates for revenue of RMB2.93 billion. The year-over-year increase was mainly due to the hotel network expansion.

Due to the impact of COVID-19, Huazhu now projects the gross opening of 1,600-1,800 hotels in 2020. In 2020, Huazhu is anticipated to close 350-450 hotels, including planned closure of 300-350 hotels and special closure of 50-100 hotels impacted by COVID-19.

In the first quarter of 2020, Huazhu projects net revenues to decline in the range of 15% to 20% year-over-year or 45% to 50% if excluding the addition of Deutsche Hospitality. On the back of the uncertainties amid the mix of recovery in China and wider spread of COVID-19 outside of China, the company is not able to provide meaningful revenue guidance for the full year 2020 at this time. HTHT is closely monitoring these developments and provide more updates when needed.

Meanwhile, the ADR (average daily rate for all hotels in operation) was RMB232 in the fourth quarter of 2019, compared with RMB230 in the fourth quarter of 2018 and RMB245 in the previous quarter. The year-over-year increase of 0.9% is driven by an increase in the proportion of mid- and up-scale hotels with higher ADR in the Company’s brand mix. The occupancy rate for all hotels in operation has fallen to 82.2% in the fourth quarter of 2019, compared with 85.2% in the fourth quarter of 2018 and 87.7% in the previous quarter. The year-over-year decline of 3.0 percentage point was due to the soft macro economy and a dilutive impact from newly-opened hotels.

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