Japan Leisure Hotels Downgrades Revenues and EBIDTA (18%)

Japan Leisure Hotels warns that revenue and EBITDA for the year to the end of December will be lower than current market expectations.

The Yokkaichi hotel was closed for renovation for the majority of the first six months of the current financial year.

Some other hotels were experiencing reduced occupancy due to competitors aggressively reducing prices and some hotels nearing their scheduled refurbishment.

The firm said: "The asset manager is taking immediate steps to address these short term issues, where possible, and is confident that it they will be quickly resolved."

The firm said the board's long term confidence in the company's business model, based on the unique features of Japanese culture and demographics, remains unchanged.

The company will announce its half year results for the six months to the end of June on 28 September.

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Analyst, Hardman has the following to say -

A Trading Statement this morning says that revenue and EBITDA
for the current year will be lower than market expectations, so we
are reducing our estimates.
• Price cutting by competitors has been impacting some hotels.
One of the units has seen its REVPAR fall by 12% in recent
weeks. But some hotels are holding up well and this is not a
general trend.
• The newly refurbished Yokkaichi, the second largest hotel in
the group, has experienced a slower than expected build-up
after the refurbishment that took it out of action between
January and May. It would be premature to read too much into
eight weeks’ trading after what was supposed to be a ‘soft’ reopening,
but we (and the management) will be watching
closely for lessons to be applied to other refurbishments likely
in 2011.
• Market conditions are aggressive. This is not a surprise,
because the Japanese economy is flat, and still experiencing
price deflation. JPLH has been reducing costs, and has been
introducing marketing initiatives such as a loyalty card.
We already expected the first half to show a modest loss, because
of the loss of income from the Yokkaichi during its refurbishment.
We are now reducing our second half estimate. The effect for the
full year will be:
• Revenue growth of 2% rather than the 7% we had previously
expected.
• EBITDA of Y274m rather than the Y334m we previously
forecast. Our new forecast is still higher than the 2009
EBITDA however, the company is still moving forward.
• Adjusted profit of Y34m and eps of UK0.3p, still ahead of the
previous year, in spite of the Yokkaichi closure.
• We retain our dividend forecast at UK1.5p, 50% up on 2009.
We have pulled back our 2011 estimates also.
Overall, the announcement should have limited impact upon the
share price, because JPLH’s value lies in its potential once the
chain has reached three to five times its current size, rather than
its 2010 or 2011 earnings.