The Chinese hospitality sector received a notable vote of confidence yesterday when Atour Lifestyle Holdings Limited, one of China’s fastest-growing upper-midscale hotel chains, announced an ambitious $400 million share repurchase program alongside revised revenue projections that exceeded market expectations.
The Nasdaq-listed company (ATAT) saw its stock climb 7.4% following the announcement, reflecting investor optimism about both the buyback initiative and the company’s upwardly revised financial forecast for the remainder of 2024.
“This buyback program demonstrates our confidence in Atour’s business outlook and long-term growth trajectory,” said Wang Haijun, founder and CEO of Atour, during the company’s quarterly earnings call. The repurchase authorization, representing approximately 18% of the company’s current market capitalization, will remain in effect through December 2026.
What’s particularly telling about this development is the timing. While China’s broader economy continues to face headwinds, Atour’s management expressed robust confidence in both their business model and the recovery of China’s domestic travel market. The company now anticipates full-year 2024 revenue to reach between RMB 3.05 billion and RMB 3.15 billion (approximately $431 million to $445 million), representing an upward revision from previous forecasts.
Financial data from the company reveals the drivers behind this confidence. During Q2 2024, Atour achieved a hotel occupancy rate of 83.9%, significantly outperforming the industry average of 68.3% reported by STR Global for the Chinese hospitality sector during the same period. The company’s revenue per available room (RevPAR) also showed impressive growth of 18.2% compared to the same quarter last year.
According to data from China’s Ministry of Culture and Tourism, domestic travel in China has been steadily recovering since the removal of COVID-19 restrictions, with travel spending in the first half of 2024 reaching approximately 90% of pre-pandemic levels. Atour appears well-positioned to capitalize on this recovery trend.
The company’s asset-light franchise model has proven particularly effective in the current market environment. “By the end of the second quarter, our hotel network expanded to 1,263 properties across 181 cities in China, with over 93% operated under franchise agreements,” noted Atour’s Chief Financial Officer, Li Jianming. This represents a net addition of 64 new hotels during the quarter, underscoring the company’s rapid expansion despite market challenges.
Industry analysts at Citigroup have taken notice of Atour’s performance, with analyst Lydia Ling maintaining a “Buy” rating and raising the price target to $32, citing the company’s “superior execution capabilities and brand premium” as key differentiators in China’s competitive hotel landscape.
What makes Atour’s strategy particularly interesting is its focus on the upper-midscale segment, a sweet spot in China’s accommodation market. “The upper-midscale segment offers the optimal balance between affordability and quality that today’s Chinese travelers are seeking,” explained hospitality consultant Zhang Wei from the China Hospitality Association. “Atour has successfully created a distinct brand identity in this high-potential segment.”
The company’s technology investments have also played a crucial role in its performance. Atour’s proprietary app has achieved a direct booking rate of 76%, substantially reducing dependency on third-party platforms and the associated commission costs. This digital ecosystem also boasts over 43 million registered members, a 24% increase year-over-year.
However, challenges remain on the horizon. China’s broader economic growth has been slowing, with recent data from the National Bureau of Statistics showing GDP growth of 4.7% in the second quarter, below the government’s annual target of around 5%. Consumer spending has also remained somewhat restrained, potentially impacting discretionary travel expenditures.
Real estate market instability represents another potential risk factor for hotel operators like Atour. Several major Chinese property developers continue to struggle with debt issues, which could impact commercial real estate development and, by extension, hotel expansion opportunities.
Despite these challenges, Atour’s management appears confident in their growth trajectory. The company has announced plans to expand into new tier-2 and tier-3 cities across China, targeting underserved markets with growing middle-class populations. “We see significant untapped potential in China’s emerging urban centers,” Wang stated during the earnings call.
The share buyback program itself sends a powerful message to the market. As Goldman Sachs analyst Michelle Cheng observed in a recent research note, “The size and timing of this repurchase authorization suggests management views the current share price as significantly undervalued relative to the company’s growth prospects.”
For investors monitoring China’s consumption recovery, Atour’s performance and strategic initiatives may offer valuable insights into the resilience and evolution of the country’s domestic tourism industry as it navigates post-pandemic dynamics and broader economic challenges.
As the Chinese hospitality industry continues its recovery journey, Atour’s confident stride forward suggests that well-positioned players with strong brand differentiation and technological advantages may find opportunities for growth even amid challenging macroeconomic conditions.
