Competition cuts Asian Hotels (AHPL) annual profit in half

Sri Lankan military personnel inspect a vehicle up on arrival at the Cinnamon Grand Hotel in Colombo, Sri Lanka, on Monday, April 22, 2019. Sri Lanka has blamed local jihadist group National Thowheed Jamath for one of Asias deadliest terrorist attacks in years, admitting there had been several warnings from foreign intelligence agencies about the impending violence. Photographer: Tharaka Basnayaka/Bloomberg via Getty Images

May 31, 2019 (LBO) – Profits at Sri Lanka’s leading city hotel operator, Asian Hotels and Properties (AHPL), were down more than 50% for the year ended March 31, 2019. For the year, profits came in at Rs1.83/share as opposed to Rs3.81 a year earlier. Shares currently trade at a price just above Rs30/share. AHPL is approximately 80% owned by Colombo Stock Exchange blue chip John Keells Holdings (JKH).

With total annual profits of just over Rs800mn on an equity base of Rs36bn, return on equity amounted to just over 2% for the year. The company is almost debt free, allowing it to run at a profit despite weak operating performance. Last year return on equity was just over 4%.

The lacklustre performance is due to increased competition in the segment. The new Shangri La hotel has added 500 rooms and top end function venues to the marketplace. This new capacity took a bite out of revenue from AHPL’s Cinnamon Grand and Cinnamon Lakeside properties. Revenue for the group was down over 10%.
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The weak results for AHPL are for the period before Sri Lanka’s Easter Sunday terror attacks took place, therefore results for the next year are likely to be significantly worse. Struck buy two suicide bombers, the Shangri La still remains closed, with a reopening expected on June 10th. Cinnamon Grand, also hit by terrorism, opened shortly after the attacks. The reopening was with significant additional security measures making entry into the hotel cumbersome for visitors.

Occupancy at all city hotels remain’s very low with some sources citing figures of just 10% of the month of May. The tourism sector is feeling the brunt of the economic fallout from the Easter Sunday terror attacks. Losses to the industry are forecast to be in excess of US$1bn. Sri Lanka’s tourist industry generated receipts of over US$4bn in 2018.

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