appConfigEntityId

bodyType

customContents

entityId

entityUuid

isVideo

articlePageQuery

article

articleSchemaContent

content

hooksArticlePageAdvertisementConfigArticle

hooksArticlePageFloatingButtonConfigArticle

appConfig

filter

json

liveArticle

Brendan Clift

Analysts are turning positive on China hotels as the country’s appetite for travel drives domestic tourism to new heights.
It’s a welcome reversal after several tough years in which the sector became a victim of its own ambition, plagued by oversupply, while external forces like the national anti-corruption campaign helped to suppress demand for luxury accommodation.
Those factors have not yet disappeared. According to Fitch, four in 10 rooms still sit empty in China as a result of overexpansion by hotel chains.
But third quarter RevPAR – an industry measure of occupancy and daily room rates – grew 0.3 per cent year on year, the first positive result in four years. In Beijing, demand for high-end hotel accommodation is growing almost twice as fast as supply.
Although offshore travel is growing faster, domestic tourism still accounts for more than 80 per cent of China’s travel expenditure. Official figures show 1.65 trillion yuan was spent on domestic travel in the first half, up 14.5 per cent on last year.
Fitch analysts forecast double digit growth to continue for the coming five years, as domestic destinations become more attractive and accessible and an increasing number of households acquire the financial means to travel.
“The improvement in domestic transportation infrastructure, new investments and upgrading of domestic tourist spots … will continue to boost the demand for visitor accommodation in China,” Fitch analysts wrote in a note on Wednesday.
While the hotel industry recovery is still in its early days, analysts say there are already good buys in a sector which may look overpriced at first glance.
“We believe the sector’s average valuation is misleading as some outliers among the A share tourism stocks trade above 100x, which raises the average,” wrote Deutsche analysts on September 21, noting that key stocks were tracking at 21x rather than the general tourism industry’s 37x.
“We believe that now is a good entry point to China tourism and leisure stocks with good fundamentals,” the analysts said.
Bigger isn’t necessarily better, with the luxury hotel oversupply in tier one cities likely to continue, according to Fitch. Credit Suisse analysts point out that competition among travel agencies, especially online, has opened up an array of cheaper options for the cost-conscious Chinese tourist.
“Although the press has been calling him a walking wallet, this wallet is actually much thinner versus those in the most developed countries and some other neighbouring countries. So, value for money is still the top priority,” Credit Suisse analysts wrote in a 24 April report.
But with budget hotels showing poor cost discipline and hurting one other in a price war, analysts tip the mid-scale and boutique segment – hotels rated 3 or 4 stars and charging 200 to 600 yuan per night – which they say appeals to the new generation of independent travellers and remains under-exploited by major brands.
China Lodging, Jin Jiang and Homeinns are listed groups with good prospects in the mid-scale segment, while the privately owned Atour Hotel is an attractive acquisition target, Credit Suisse says.
As ever, location remains a key success factor for hotels which are proximate to natural or cultural attractions, while entertainment, shopping and modern transport infrastructure are also becoming prerequisites for growth.
The tropical island city of Sanya is the country’s number one summer holiday destination for independent travellers, according to travel agency Ctrip, and number four for tour groups. Industry research group STR Global says the city will increase hotel capacity by 69.1 per cent over the next five years.
Around the country, Deutsche analysts forecast strong second half tourism volumes for Wuzhen, Gubei, Huangshan and Lijiang, driven respectively by major events, a hot spring project, a new high speed rail connection and a popular cable car attraction.
Credit Suisse sees Jin Jiang as a proxy for strong tourism demand for Shanghai Disney, as well as a likely beneficiary of state-owned enterprise reform, while Bank of China picks Hong Kong-listed integrated resort developer China Travel International Investment on its fundamentals.
Despite an improving outlook, the sector is not immune to risks. Analysts point out vulnerabilities to a drop in demand growth, the development of excess or cut-price competition, and capacity issues or safety incidents on major attractions.


No more empty prospects for China hotels

**THIS PHOTO MAYBE REUSED** JW Marriott Hotel Beijing Central For MICE Biz, September 21, 2015 keith.wkchan@scmp.com

Photo shows the Baiyulan Plaza of Puxi in Shanghai, east China which is made up of the main building and hotel. Photo: Xinhua

Business

Companies

China Business

Markets

Property

Hong Kong & China

Opportunities for hotels to cash in as domestic tourism goes from strength to strength


.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Opportunities for hotels to cash in as domestic tourism goes from strength to strength

Opportunities for hotels to cash in as domestic tourism goes from strength to strength