Hong Kong company reporting season

Hongkong and Shanghai Hotels hit with 43pc slump in H1 profit

As tourist numbers to HK continue to suffer, occupancy at the company’s iconic Peninsula hotel in Kowloon drops 4 percentage points to 68pc

PUBLISHED : Wednesday, 10 August, 2016, 12:56pm
UPDATED : Wednesday, 10 August, 2016, 10:58pm

Peninsula hotel chain owner The Hongkong and Shanghai Hotels Limited saw its underlying profits for the first half slump 43 per cent year on year to HK$152 million, blamed largely on earnings disruption from the partial closures of its hotels in Beijing and Chicago.

Its interim net profit dropped 58 per cent year on year to HK$198 million, the company said on Wednesday.

Excluding the operating results of the two hotels, its earnings before interest, tax, depreciation and amortisation were 4 per cent lower from a year back. The company has declared a 4 HK cents interim dividend, compared with 5 HK cents a year earlier.

The Peninsula Hong Kong, the 150-year-old company’s iconic 300-room hotel in Tsim Sha Tsui in Kowloon, which contributes a quarter of its total revenue, saw its occupancy rate slip 4 percentage points in the first half to 68 per cent, with revenue per available room (RevPAR)—a gauge of hotel profitability—further down 5 per cent from last year’s HK$3,439.

“Our other Asia markets operated well, but that was not enough to compensate the decrease in Hong Kong market,” chief executive officer Clement Kwok said in the a results briefing, adding that the 5 per cent RevPAR drop in the city was satisfactory.

Kwok said the second half is usually a high season for hotel industry. The company will strengthen its labour cost control and increase promotions to overseas customers, but sees no necessity to cut price or headcount, he said.

The Peninsula Chicago’s renovation was completed in April, and the Beijing hotel will see the first phase completed in August, which could generate more earnings to the company, Kwok added.

Market watchers still doubt whether the Hong Kong market will pick-up in the second half amid the Chinese economic slowdown and mainlanders shifting their interest to overseas destinations.

The city’s hotel industry is facing a sharp drop off in tourist arrivals, as well as sliding prices amid pressure to attract more customers, said Hanna Li Wai-han, a strategist at UOB Kay Hian (Hong Kong).

“We do not see any pick-up in that trend for the time being. The drop in mainland tourists is still affecting their operation,” said Li.

The Peninsula’s results come as Kong Kong witnessed a 7.4 per cent drop in year on year visitor arrivals in the first half, to 27.2 million, according to data from Hong Kong Tourism Board.

In July, the company signed a non-legally binding agreement with its British development partner Grosvenor, to restructure its 50-50 joint development plan for the London Peninsula Hotel, to fully own and develop the project.

Kwok said Brexit would not affect its London business in long term, while the fall of British pound could help reduce some construction expenditures.

Shares of Hongkong and Shanghai Hotels fell 3.24 per cent on Wednesday to end at HK$8.06. Its shares enjoyed a 3.6 per cent rebound since Brexit vote, as high-dividend payers became the new darling of risk-averse investors.

The Hongkong and Shanghai Hotels Limited is the oldest company on the Hong Kong Companies Registry. It runs ten Peninsula hotels around the world, including in Tokyo, Paris and New York.

The Hongkong and Shanghai Hotels reported HK$688 million in underlying profit attributable to shareholders in 2015, down 14.4 per cent year on year due to the drop of tourist inflows to Hong Kong, and the partial closure of The Peninsula Beijing and The Peninsula Chicago for renovation. Its annual net profit fell 12.7 per cent year on year to HK$1 billion, including property valuation gains.