1992.HK
Fosun Tourism trades at all time low

The resort unit of one of China’s leading conglomerates posted modest growth in the first quarter, as its broader outlook was clouded by debt issues at its parent 

Key Takeaways:

  • Fosun Tourism said business volume at its Atlantis Sanya mega-resort and Club Med chain rose 4.5% and 15.2%, respectively, in the first quarter
  • The company’s shares are trading near an all-time low, following reports earlier this year that its two major assets may be up for sale to raise cash for its debt-strapped parent

  

By Doug Young

There’s not much fun these days at Fosun Tourism Group (1992.HK), one of China’s leading tourism companies and owner of the Club Med resort chain.

The company’s latest quarterly update shows it’s suffering from a post-Covid hangover, with its China business significantly underperforming the market. Its global business, anchored by the Club Med chain, did slightly better, but was nothing to write home about either. Meantime, the company’s stock is down more than 40% this year and now trades at all-time lows, in sharp contrast to Chinese peers that have mostly posted strong gains this year.

So, why all the gloom at a company whose formation dates back to the roughly $1 billion purchase of Club Med in 2015 by Fosun International (0656.HK), one of China’s leading conglomerates? While the latest quarterly operating data isn’t too exciting, it hardly explains Fosun Tourism’s recent fall from grace in the investment community.

The biggest factor behind the gloom probably owes to reports in March that Fosun International was considering selling part of Club Med, as well as Fosun Tourism’s other major asset, its Atlantis Sanya mega-resort, to raise cash to pay down its massive debt. Thus, anyone who holds Fosun Tourism stock now doesn’t really know if the company will still own one or both of its major assets at this time next year.

At the same time, the people at Fosun Tourism are probably having difficulty staying focused on their business while knowing major changes could soon be coming.

All that said, we’ll return to Fosun Tourism’s first-quarter update that provides one of the first real indicators of how China’s tourism industry will fare in the post-Covid era. This year’s first quarter is significant in China, since it marks the first time that the latest data and year-ago comparisons are both in the country’s post-Covid period.

That means that Covid-era volatility should be largely gone from most Chinese tourism-related companies going forward, giving a clearer picture of how the sector is doing as the Chinese economy slows and consumers become more cautious.

Previously released national data showed the sector was holding up quite well during the long Lunar New Year holiday in February despite the economic slowdown. The number of domestic trips during the weeklong period rose 34.3% to 474 million, while domestic tourism spending was up by an even stronger 47.3% to 632.7 billion yuan ($87 billion), according to government data.

But Fosun Tourism’s data wasn’t nearly so buoyant. Business volume at the company’s Atlantis Sanya mega-resort was up just 4.5% to 576 million yuan during the first quarter, according to the company’s quarterly update. The number of visits to the resort rose at a slightly faster rate of 7.5% to 2.1 million. But in a slightly ominous sign, the average daily room rate was actually down 2.8% to 2,500 yuan.

Here we should point out that year-ago figures for the resort might have been artificially high, since China ended its Covid restrictions at the end of 2022 and “revenge travel” was at a peak in January and February 2023 as many people took some of their first major vacations in three years during those months.

Dead cat bounce

Fosun tourism shares got a lift from the update, rising more than 5% in early trade on Tuesday. But the jump was a bit of a “dead cat bounce,” since the stock was previously at an all-time low, and it’s quite likely the shares could resume their downward trend later this week.

Even after the slight rally, the stock is still well behind its peers in terms of valuation. It trades at a forward price-to-earnings (P/E) ratio of just 10, compared to a 20 for Trip.com (TCOM.US; 9961.HK), China’s leading online travel agent that has a similar mix of domestic and international business. While Fosun Tourism’s shares are down sharply this year, Trip.com’s stock has risen about 40% over that period.

While Sanya Atlantis posted single-digit gains, the performance was slightly better at Club Med, whose worldwide chain of resorts accounts for more than 80% of Fosun Tourism’s business. The chain’s business volume rose 15.2% to 6.08 billion yuan in the first quarter, while average occupancy at its rooms rose 1.4 percentage points to 76.9%. Its average bed rate rose 8.8% to 2,190 yuan.

Here, we should point out that Fosun Tourism is doing quite a bit better now, at least in terms of business volume, than it was before the pandemic. The company’s latest overall first-quarter business volume of 7.16 billion yuan was up nearly 50% from the 4.8 billion yuan it reported in the first quarter of 2019. The big jump most likely reflects the fact that Fosun Tourism, like many of its peers, continued to upgrade existing properties and build new ones during the pandemic, in anticipation of business eventually returning to normal.

While the first-quarter numbers don’t look too impressive, Fosun Tourism also didn’t impress investors too much with its results for all of 2023 released last month. Those results show its revenue rose 25% last year to 17.2 billion yuan. Within the total, Sanya Atlantis posted much stronger revenue growth, with the figure nearly doubling to 1.76 billion yuan from 897 million yuan a year earlier. Club Med revenue rose by a slower 22% to 14.6 billion yuan, reflecting the fact that its business is mostly outside China and thus already began to rebound in 2022.

Still, the company’s overall revenue growth last year was well behind the 122% growth for Trip.com, whose revenue reached 44.5 billion yuan for the period.

The bottom line is that investors have recently become quite bearish on Fosun Tourism, partly due to its underwhelming post-Covid rebound. But the bigger reason is probably the cloud hanging over the company due to its parent’s financial difficulties, meaning no one is really sure what Fosun Tourism might look like a year from now – assuming it continues exists in its current form.

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