Hong Kong owner of Peninsula hotels posts weak but better-than-expected annual result, says more pain ahead in first quarter
- Company’s unaudited revenue for two months ending February 29 is down 21 per cent year on year
- Its 2019 revenue drops 5 per cent but is better than a forecast 7.1 per cent drop, while its net profit falls 59 per cent but is better than a forecast 68.4 per cent fall
The Hongkong and Shanghai Hotels, which owns and operates Peninsula hotels globally, said on Tuesday it faces an operating loss in the first quarter of 2020, as the Covid-19 outbreak brings global tourism to a grinding halt.
In an annual results filing to the Hong Kong stock exchange, made after the market close, it said the operating loss would come “despite measures to contain costs”. Its unaudited revenue for the two months ending February 29 was down by 21 per cent year on year, the company said.
“We are currently facing a very concerning situation with the outbreak of the Covid-19 coronavirus, which has had a devastating impact on the Chinese mainland and has spread around the world,” Clement Kwok, The Hongkong and Shanghai Hotels’ managing director and chief executive, said in the filing. “Amidst the downturn in business brought about by these crises, we are striving to preserve jobs as a key priority. I would like to express my appreciation for all my colleagues around the world, for their loyalty and their hard work at such a difficult time.”
As of June last year, the company employed more than 7,500 people, according to Bloomberg. It owns 10 Peninsula hotels globally – six in Asia, one in Europe and three in the United States – and is building three in London, Istanbul and Yangon. It also owns and runs commercial and residential properties in Asia, the US and Europe.
On Tuesday, the company posted weak but better-than-expected full-year results for 2019. Its revenue dropped 5 per cent to HK$5.87 billion (US$755.8 million), but was better than the 7.1 per cent drop forecast by two analysts polled by Bloomberg. Its net profit fell 59 per cent to HK$494 million, better than a forecast of a 68.4 per cent fall.
The Hongkong and Shanghai Hotels’ share price shed 24 per cent through 2019, and is down a further 16 per cent this year. Its last close, HK$7.00, sits 25.5 per cent lower than a 12-month target price of HK$9.40 set by analysts polled by Bloomberg.
The company’s flagship hotel in Hong Kong, its largest business, recorded HK$1.1 billion in revenue last year, while Tokyo, its next largest contributor, brought in HK$876 million.
In a profit warning issued at the end of February, the company said business was likely to be hit through the first half of 2020, and that net profit would be “significantly lower” than the same period in 2019. It said the coronavirus had “substantially declined” occupancy levels, and hit spending in restaurants and shops at its Beijing, Shanghai and Hong Kong hotels, while it was starting to see an impact on other hotels in Asia and to sales at its Hong Kong Peak Tram tourist attraction.
The Covid-19 outbreak has put Hong Kong’s hotel and tourism industry under huge pressure. It follows the city’s anti-government protests, which hit local consumption and tourism to send Hong Kong’s economy into its first technical recession in more than a decade last year. It outbreak has infected about 157 people in Hong Kong, and led to four deaths.
Hotel occupancy rates were averaging in single digits, in percentage terms, in February and March, according to the Federation of Hong Kong Hotel Owners. Tourist arrivals slowed to a daily average of 3,000 in the middle of February, from 100,000 in January and 200,000 in the same period last year, according to government figures. These numbers are worse than those during the outbreak of the severe acute respiratory syndrome (Sars) in May 2003, when 10,000 people visited Hong Kong each day on average, and occupancy remained in double digits.
The Hongkong and Shanghai Hotels also viewed the continued political volatility in Hong Kong as a headwind to business. “We continue to be concerned about the political situation in Hong Kong and the possibility that the social unrest may continue and escalate again in 2020,” Kwok said in Tuesday’s filing. “Besides the Hong Kong political situation, various other global uncertainties may continue to affect our business, such as the impact of Brexit, the political situation in France and uncertainties in Turkey and Syria.”
