Can the Hong Kong stock listing help JINJIANG HOTELS reduce its global burden?

The "hotel giant" Jinjiang Hotels (600754.SH) has recently officially submitted its prospectus, accelerating the "A+H" listing process.

The company stated that the funds raised will mainly be used for the construction and upgrading of overseas hotels, digital transformation, repaying bank loans, and supplementing working capital.

Among these, the primary purpose of repaying loans and other uses may point to alleviating the debt and loss pressure of overseas operations.

As the approved overseas asset of Jinjiang Hotels, the Louvre Group in France is expected to operate 1,168 hotels by the end of 2024, contributing revenue of €556 million.

Affected by changes in the international environment, the slowdown of the European economy, and intensified market competition, the Louvre Group has been in continuous losses since 2020, with cumulative losses exceeding €210 million by the end of 2024.

As of the end of September 2024, the total bank loans of the Louvre Group reached €180 million, with related party loans of €410 million, and the debt-to-asset ratio exceeded 70%.

High financial leverage combined with rising overseas financing costs has led this business segment to rely heavily on group financial support in the long term.

In April 2024, Jinjiang Hotels increased its investment in the Louvre Group by 2.35 billion yuan.

Additionally, within the year, it provided guarantees for new loans to the Louvre Group twice, with an additional guarantee amount of €10,000.

Zhao Huanyan, a senior economist in the tourism and hotel industry, believes that Jinjiang Hotels' choice to list on the Hong Kong stock market at this time may accelerate the optimization of its overseas balance sheet and promote operational efficiency improvements.

Jinjiang Hotels stated that the Louvre Group will formulate a five-year plan to actively promote various measures for business recovery, including focusing on asset disposal, renovation, and improving system contribution rates.

CFO Ai Gengyun stated that this year they will increase efforts in asset disposal to recover funds for optimizing asset layout, "investing in hotel projects that can yield higher returns."

For example, there are plans to renovate 80 repositioned hotels, mainly concentrated in France.

With the favorable visa-free travel for outbound tourism, the domestic hotel industry is once again seeing a wave of overseas expansion, with target markets shifting from Europe and the United States to Southeast Asia and countries along the "Belt and Road."

Zhao Huanyan told Xinfeng that local hotel groups have accumulated certain experience in brand building, management, and marketing. "Therefore, in this round of overseas expansion, they are more inclined to choose investment risk-lowering light asset brand output models."

By the end of 2024, Jinjiang Hotels announced a partnership with Malaysian hotel management group RIYAZ to promote the establishment of five brands—Jinjiang Metropolo, Jingge, Feifan Yunjv, Lavande, and Jinjiang Inn—in the Southeast Asian market.

The RIYAZ Group is responsible for project development, construction support, and operational management of the above brands in Malaysia, Indonesia, Vietnam, Laos, Cambodia, and the Philippines.

Jinjiang Hotels will provide brand, management standards, services, and supply chain systems.

The company's expansion model in the Southeast Asian market will shift from "overseas team-led + local investors" to a model primarily led by the Chinese team, attracting local investors and Chinese investors.

Domestic supply surplus and intensified competition are indeed forcing the hotel industry to accelerate its overseas expansion.

In 2024, the RevPAR (Revenue per Available Room) of Jinjiang Hotels' limited-service hotels abroad has recovered to 112.27% of the 2019 level, an increase of 0.35% compared to 2023 During the same period, the RevPAR of domestic limited-service hotels decreased by 5.78%, remaining basically flat compared to 2019.

Some analysts pointed out that local hotel groups generally choose to seize the still unsaturated local markets before the industry's chain rate peaks, in hopes of contributing to long-term performance after industry recovery and store maturity.

Huazhu, ShouLü, and Atour plan to open 2,300, 1,500, and 500 new hotels respectively by 2025, corresponding to an increase of 20.9%, 21.4%, and 30.9% in the number of hotels by the end of 2024.

JINJIANG HOTELS plans to add 1,300 new hotels, corresponding to an increase of approximately 9.7%.

In addition, the company will "accelerate the construction of its membership system," converting OTA channel customer sources to its official website to drive revenue growth and reduce franchisee commission costs.

The effectiveness of the transformation remains to be observed.

In the first quarter, JINJIANG HOTELS' revenue and net profit decreased by 8% and 81% year-on-year, respectively.

By the end of the first quarter, JINJIANG HOTELS' cash and cash equivalents decreased by 23.2% year-on-year to 8.1 billion yuan; the cash ratio fell by 0.07 to 0.62, and short-term debt repayment pressure still exists