Shangri-La profit picks up on rebounding China market

The hotelier said its operating profit rose 35% in the first half of 2026, accelerating sharply from a 6% rise for all of 2025

Key Takeaways:

• Shangri-La Asia’s profit growth picked up sharply in the first half of this year, as the China market that accounts for about half of its business began to rebound
• Signals from other major Chinese hotel operators indicate the market began to recover in the last year’s fourth quarter, lifting most companies back to positive revpar growth

By Doug Young

It used to be that China was a profit booster for global companies, turbocharging their bottom lines with fat margins that outpaced the rest of the world. But lately that model has been flipped on its head, with a slowing Chinese economy dragging down profits for many multinationals, especially consumer-facing companies.

That dichotomy is nicely captured in regional hotel giant Shangri-La Asia Ltd. (0069.HK), whose revenue is evenly divided between Mainland China and a smattering of other markets, mostly in Asia. The company’s latest profit alert, released last Friday, shows that after a difficult year in 2025, the Mainland China hotel market may finally be making a comeback.

The company’s upbeat forecast, led by a return to strong double-digit profit growth, echoes similar signals coming from the rest of China’s sprawling hotel sector. The group, which includes local giants like H World Group (HTHT.US; 1179.HK) and Atour (ATAT.US), alongside global names such as Accor (AC.PA) and Marriott (MAR.US), reported that most of 2025 was a weak year in China, until things finally started to improve at the end of the year.

According to its profit forecast, Shangri-La expects to report an operating profit of $87 million or more for the first half of 2026, up 70% or more from the $51 million it reported a year earlier. The rise was smaller after excluding positive effects from changes in foreign currency exchange rates. But even excluding that, the company’s operating profit rose 35% or more in the first half of the year to $81 million or higher from $60 million a year earlier.

By comparison, the company’s operating profit rose by a far smaller 6% last year to $123 million from $116 million in 2024, as the weak China market dragged down much healthier performances for its properties in the rest of Asia. This kind of diversification is textbook “Business 101” material, making Shangri-La look especially attractive for investors who prefer a strong Asia-oriented hotel play versus one wholly reliant on a single market.

Shangri-La credited the strong start to the year to greater operational efficiency, as well as higher revenue per available room (revpar), the most widely watched metric for the hotel industry that combines occupancy rates with room prices. It also credited lower interest expense on better management of its finances.

Mainland China is easily Shangri-La’s largest market by hotel count, with 48 of its 82 owned and leased properties – or nearly 60% – in that market. But the Mainland market’s share of the company’s revenue is lower due to far lower room prices, reflecting China’s status as a developing market. In addition, Shangri-La has aggressively built up its portfolio in smaller Chinese markets, where revpar was as low as just $43 per night last year in third- and fourth-tier cities – less than half the $109 it recorded in tier-1 cities like Beijing and Shanghai.

The result is that overall revpar for Shangri-La in China was the second lowest of the company’s 13 major markets, totaling just $71 last year, ahead of only Sri Lanka at $65. What’s more, China was one of only two of the company’s markets where revpar declined last year, falling about 2.7%.

Difficult year

China’s hotel industry has been through some major ups and downs since the turn of the century, mostly thriving in the first two decades of the 21^st century as millions of newly affluent tourists and travelers from growing businesses took to the road. But the industry hit a brick wall during the pandemic, with most operators suffering huge losses as people stopped traveling.

The industry rebounded sharply in 2023 after pandemic restrictions were lifted, with hotels emerging as one of the big beneficiaries of “revenge travel.” But that rebound began to peter out in 2024 as China’s slowing economy led both consumers and businesses to rein in their spending.

Most companies reported weak conditions through the first three quarters of last year before things began to look up. H World was typical of the sector, reporting its revpar fell or was flat through the first three quarters of last year before becoming positive again in the fourth quarter. Atour’s revpar fell throughout the year, though the figure was down only slightly by the fourth quarter.

Shangri-La doesn’t release quarterly data, though its China revpar for all last year was down 2.7%. And while it only specified a return to systemwide revpar growth in the first half of this year, without getting more specific, that also mirrors previous signals from its peers. Atour previously reported it returned to 2.6% revpar growth in the first quarter of 2026, while H World’s revpar rose 2.9%. That means we can probably expect Shangri-La to report 2% to 4% revpar growth for the first half of 2026, assuming the recovery was steady in the second quarter.

One other place where Shangri-La stands apart from fast-growth, younger companies like Atour and H World is its preference for hotel ownership. By comparison, Atour and H World are expanding their hotel portfolios much faster by focusing on a “manchise” model, which sees them manage hotels on behalf of other property owners.

Shangri-La’s approach reflects its more conservative nature, which is quite a common distinction between older Hong Kong companies and their newer Mainland rivals, which tend to be more growth oriented. Some argue the self-ownership approach is more capital intensive, though Shangri-La seems to be doing quite well these days in terms of cash. It had $2.24 billion in its coffers at the end of last year, up 23% from $1.82 billion a year earlier.

The company currently trades at a price-to-earnings (P/E) ratio of 17, the same as Atour and just slightly behind the 18 for H World. But all of those are well behind the multiples of 30 or higher for most of the big global operators. That could imply some potential upside for the Chinese-focused companies if the market continues to improve, with Shangri-La well positioned to benefit from its China-centric diversified geographic footprint.

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