Hongkong and Shanghai Hotels net profit drops 12.7pc to HK$1b amid tourist decline

Lower tourist flows and closure of two flagship hotels for renovations cited among reasons for the profit drop

PUBLISHED : Wednesday, 16 March, 2016, 10:54pm
UPDATED : Wednesday, 16 March, 2016, 11:15pm

Peninsula hotel chain owner Hongkong and Shanghai Hotels said on Wednesday that net profit for 2015 declined due to lower tourist flows and the renovation-related closure of two flagship hotels.

The company said net profit dropped 12.7 per cent to HK$1 billion from HK$ 1.146 billion in 2014. Underlying profit attributable to shareholders fell 14 per cent to HK$688 million last year from HK$804 million in 2014.

Clement Kwok, chief executive of The Hongkong and Shanghai Hotels said the ongoing renovation work will have an impact on earnings for this year.

For much of 2015, renovation works have been underway at The Peninsula Chicago and The Peninsula Beijing. The company noted that renovations at its flagship hotel in Beijing has slipped behind schedule and that an additional negative impact on earnings can be expected.

“This impact will continue into 2016 as the commencement of the renovation of The Peninsula Beijing was delayed due to the additional time required to achieve the necessary permits,” the company said in the results announcement.

“The renovation work will put pressure on the company’s profitability in the short term,” said Linus Yip, chief strategist at First Shanghai Securities. “However, since most of the work is being done in the off-peak season, it will not have that much of an impact.”

Kwok, however, expressed concerns about the sharp drop in tourist inflows to Hong Kong. “As a Hong Kong company with the majority of our assets located in Hong Kong, we are concerned about the trend,” he said.

“Overall tourist arrivals declined 2.5 per cent year-on-year in 2015, while Chinese mainland arrivals fell 3 per cent in the same period. As a result, average room rates have been under pressure, not just for The Peninsula Hong Kong, but also for our competition,” he said.

Admitting that the outlook for this year did not offer much hope, he said, “Hong Kong may continue to see lower tourist arrivals this year. It will have an adverse impact on the entire hotel industry.”

Kwok said the company is scouting for suitable opportunities to operate hotels in first-tier cities of China and abroad. “Cooperating with mainland cities is a good strategy for us as Chinese consumers are the biggest spenders,”said Yip.

Responding to queries on emerging competition from chains like Airbnb, Kwok said that their fast growth was not a hindrance as the two companies serve different segments.

Shares of Hongkong and Shanghai Hotels rose marginally on Wednesday to close at HK$8.13.