Guidance raised again plus massive dividends

Atour Lifestyle: Robust Retail Sales Drive Growth, Dividend Policy Boosts Yield

Key Points:

1. Retail Business Performance: Atour's retail sales have shown explosive growth, with a 160%+ year-over-year (YoY) increase in the second quarter (Q2) of 2024. The sales mix from e-commerce is about 90%, and new product launches, such as the Deep Sleep Thermo-Regulating Comforter PRO, have been well-received.

2. Hotel Segment Outlook: While the hotel sector remains under pressure in the third quarter (Q3) of 2024, Atour's retail business and better-than-expected sales of hotel supplies can offset these challenges. The company forecasts a recovery rate of 107% for the hotel segment in both Q3 and Q4 compared to 2019 levels.

3. New Dividend Policy: Atour has introduced a new annual dividend policy, setting a minimum payout ratio of 50% over the next three years. A cash dividend of $0.15 per share ($0.45 per American Depositary Share) has been declared, increasing the potential yield to approximately 3%.

4. Target Price and Ratings: The target price for Atour stock has been raised to $29.42, reflecting a 54.7% upside from the current price of $19.02. This maintains a "Buy" rating based on the raised guidance for sales growth and new store openings, alongside improved financial projections.

5. Store Expansion: The company aims to open 400 new hotels in fiscal year (FY) 2024, including formats like Atour 4.0 and Atour light 3.0, which have shown promising results. The number of hotels under development stands at 712, indicating a stable demand for franchises.

6. Financial Projections: For FY 2024, Atour targets a revenue growth of 48% to 52%, with a projected gross profit margin above 40% and a net profit margin of over 18%. This growth is largely driven by the retail business, which is targeting 100% growth for FY 2024.

7. Dividend Policy Impact: The new dividend policy is expected to raise the FY 2024 earnings yield to around 3% to 4%, making the stock attractive for income-seeking investors.

In summary, Atour Lifestyle's strategic focus on its retail business, coupled with a robust dividend policy, positions the company for continued growth and investor appeal, despite ongoing challenges in the hotel sector.