Owner of Club Med resort chain says business from core tourism operations slumped 42% in first half of 2020, an improvement from 74.5% drop in first quarter

Key points:

  • Fosun Tourism’s business continued to drop in the second quarter despite very weak comparisons from the year-ago period
  • Company continues to see rebound coming, with bookings at 86% pre-pandemic levels in the second half of the year

By Doug Young

Tourism may be staging a nascent comeback as China and the west bring their pandemics under control. But you might have difficulty seeing that by looking at the latest profit warning from Fosun Tourism Group (1992.HK), owner of the Club Med resort chain, which the company released after markets closed on Thursday.

China’s largest resort operator’s latest update for its first-half performance actually does try to paint a picture of a recovery that’s just around the corner. But it painted a similar picture in its first-quarter update three months ago, only to put out these latest numbers that continue to look quite bleak.

In fact, the latest numbers do show an improvement on the first quarter when business volume from the company’s core tourism operations plunged 74.5%. By comparison, the new update shows that the company’s total business volume dropped by a milder 42% in the first half of the year. That would imply a relatively mild second-quarter drop in the 10% to 20% range.

While it’s certainly positive that declines are shrinking, the more troubling sign is that business was still declining at all in this year’s second quarter. That’s because last year’s second quarter was probably the worst quarter globally for everyone, since that’s when China’s Covid outbreak peaked and also when the rest of the world went into lockdown as the pandemic spread beyond China’s borders.

Thus, the fact that business was down in this year’s second quarter at all, even if it was just by 10% or 20%, seems somewhat alarming when one considers business had nearly ground to a halt in the year-ago period.

Investors seem to be waking up to this new reality, which is that the expected roaring comeback for the global tourism sector may not arrive quite as quickly as many had predicted.

Hopes for a quick recovery had helped to fuel a rally for Fosun Tourism and many other tourism-related stocks in the first part of this year. But the group has pulled back somewhat since then as people realize that perhaps they were expecting too much too soon.

Fosun Tourism is typical of the group. Its shares rallied as much as 83% between the start of the year and late May, briefly pushing them above its IPO price of HK$15.60 for the first time since shortly after its Hong Kong listing in late 2018. Since then the shares have lost about 24% of their value, though they’re still up about 40% year-to-date.

Las Vegas Sands, which operates resorts mostly in Las Vegas and Macao, saw a similar trend with a rally that peaked in March, only to see the shares slump 25% since then. Wynn Resorts, which has a similar geographic portfolio to Sands, staged a similar rally in the first part of the year, only to see its shares slump 23% since a mid-March peak.

The bottom line is that the sector’s highly anticipated recovery isn’t coming quite as quickly as many had hoped. Despite that, Fosun and others from the sector continued to dish out positive forward-looking numbers for investors in hopes that everyone will stay patient for the day that recovery finally comes.

Investor Unfazed

All that said, we’ll look next at a few of the other numbers from Fosun Tourism’s latest guidance, as well as the size of the massive loss it expects to post in the first half and some of the encouraging signs it’s seeing that point to recovery.

We should start by saying that investors weren’t too worried by the latest forecast, with Fosun Tourism’s shares actually rising 5.8% in Friday trade the day after the report came out.

Apart from the headline figure that business volume dropped 42% in the first half, the next most important data point was a 64% year-on-year decline in business volume at its resorts that are at the core of its operations in the first half of the year.

That compares with an 85.3% drop in its resorts business in this year’s first quarter, implying that Fosun’s resorts business was down by around 40% in the second quarter. The company points out that most of its ski resorts that are popular during the winter months had to shut down for the entire winter season this year. But again, many of those ski resorts were largely shut down during last year’s second quarter as well, so it’s a bit worrying that business continued to slide so much.

With business so depressed, the company said it expects to report a massive first-half loss of between 2 billion yuan ($310 million) and 2.15 billion yuan. But it’s quick to add it has plenty of financial resources to weather the storm, including 5.1 billion yuan in cash and 4.3 billion in undrawn bank facilities.

Truth be told, cash crunches are probably one of the last things investors need to worry about when it comes to any of the companies under the Fosun Group umbrella, as this particular group is probably one of the best-run and best-capitalized of China’s big conglomerates. Still, sustained big losses are never good for even the best run companies, regardless of circumstances beyond their control.

All that said, we’ll close out with some of Fosun Tourism’s upbeat guidance also provided in the update, once again trying to show that recovery is just around the corner.

The rosiest outlook comes from the company’s home China market, where the outbreak has largely been under control for a year and domestic travel patterns have started to approach pre-pandemic levels. Reflecting that, business at the company’s seven Club Med resorts in China was up 172% in the first half of the year compared with the depressed first-half of 2020.

From a global perspective, the company said it had reopened 41 of its resorts worldwide as of early July, representing about two-thirds of the 65 resorts it operated at the end of last year. It added that bookings for all of its properties worldwide were up 90% year-on-year for travel in the second half of 2021. And bookings in the second half were at about 86% of levels for the same period of 2019, meaning they were approaching pre-pandemic levels.

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