JKH’s two city hotels record disappointing 3Q results

Asian Hotels & Properties PLC (AHPL), the owner of Cinnamon Grand and Cinnamon Lakeside hotels, reported weak financial performance with subdued profits and revenues for the December quarter (3Q18), possibly reflecting the increasing competition in the city hotels sector in Colombo.  

AHPL saw its December group top line narrowing by 9.0 percent year-on-year (YoY) to Rs.2.26 billion.

The group reported earnings of 69 cents a share or Rs.306 million during 3Q18 amid pressure on margins compared to Rs.1.25 a share or Rs.552.7 million after-tax profits reported for the same period, last year. 

The share ended 90 cents or Rs.1.69 percent lower at Rs.52.50 on Friday. 

The performance reflects the tougher operating conditions for the Colombo city hotels with the increasing room inventory and a large informal sector that provides relatively cheap accommodation to tourists.   

The two Cinnamon hotels command a market share of over 50 percent in the 5-star category and Cinnamon Grand is the leading city hotel in Sri Lanka with a market share of 31 percent, according to company data released a year ago. 

A significant rise in the room inventory in the 3-star and 4-star categories during the last couple of years has exerted pressures on the average room rates in the 5-star category.  In addition, new entrants like Jetwing, Movenpick and Shangri-La have entered 5-star city hotel market intensifying the competition. 

The Grand Hyatt, Colombo, which is nearing completion, will add to the woes of the existing 5-star players.

The 23 percent increase AHPL’s marketing and distribution expenses during the quarter under review is a clear reflection of the struggles the hotel firm underwent in attracting tourists into its properties. 

Besides the two hotels, AHPL owns and manages its premier shopping complex, Crescat Boulevard. 

During the nine months to December 31, 2017, Crescat Boulevard added Rs.308.2 million into the group top line and Rs.198.3 million into the bottom line. 

This is in comparison to the Rs.6.2 billion in revenues and Rs.984 million in earnings by the two hotels during the nine months.  The consolidated revenue for the nine months was Rs.6.5 billion against the Rs.6.8 billion YoY.

The nine months earnings were Rs. 997 million or Rs.2.25 a share, down 31 percent YoY.

As of December 31, 2017, John Keells Holdings PLC held 78.56 percent in AHPL, while the state-controlled private sector pension fund, Employees’ Provident Fund, held 10.22 percent stake being the second largest shareholder.