Rebounding Atour Nears IPO Finish Line With Slashed New York Offering

The upscale hotel operator’s ninth updated prospectus for a U.S. listing lowers its fundraising target to $62 million from previous $350 million

Key Takeaways:

• Atour has slashed the fundraising target for its long-delayed U.S. IPO plan to $62 million from a previous $350 million
• The upscale hotel operator’s latest prospectus shows its business rebounded sharply in the third quarter after a big slowdown in the first half of the year

By Doug Young

If any single company can be said to represent all the ups and downs for U.S.-listed Chinese stocks over the past year, hotel operator Atour Lifestyle Holdings Ltd. certainly looks like a good candidate. The upscale brand filed an updated prospectus for its long-delayed New York IPO earlier this week, marking its ninth such update since it filed its original prospectus in June last year.

The latest prospectus gives a new fundraising target that is sharply lower than the company’s earlier goals. It also gives a new lower price range, which shouldn’t come as a huge surprise in the current turbulent market. But perhaps more important than any of that is the signal coming from this latest update, namely that Atour looks tantalizingly close to finally completing its listing more than a year after it first filed.

Such a listing would represent a major milestone in the saga for U.S.-listed Chinese stocks because Atour would become the first IPO in more than a year underwritten by major western investment banks, in this case BofA Securities and Citigroup, in addition to Chinese majors CICC and CMBI.

Those top underwriters have avoided Chinese IPOs in New York since around last June, when regulators from both China and the U.S. expressed major concerns about such cross-border IPOs for different reasons. China’s concerns involving data security appear to be largely settled by now.

The U.S. concerns are still pending, and involved the inability of U.S. regulators to directly access working papers from the auditors of New York-listed Chinese companies due to a prohibition by Chinese law. But that issue looks like it could be settled soon, after the U.S. and Chinese securities regulators signed a landmark information-sharing agreement in August to address that issue.

In the latest development there, foreign media reported that officials connected with the U.S. Securities and Exchange Commission (SEC) wrapped up some trial audits being conducted in Hong Kong under the new agreement’s framework late last week and were heading back to the U.S. One of the reports, by Bloomberg, said the U.S. officials had completed their work ahead of schedule, implying things may have moved more smoothly than initially anticipated.

That signal sparked a rally for battered U.S.-listed Chinese stocks, with the Nasdaq Golden Dragon Index spiking by a combined 13% last Thursday and Friday. Since then it has given most of that back, including a 7% decline on Wednesday, mostly on pessimism about China’s struggling economy.

The SEC is set to deliver a preliminary report on its Hong Kong-based inspections next month. A positive assessment, which looks like a relatively strong possibility, would probably spark another major rally for the more than 200 Chinese companies listed in the U.S., removing a major overhang for the group. But the longer-term concerns about China’s economy would still remain as the country posts some of its slowest growth in decades.

Case study

Atour is a sort of microcosm of many of these big-picture factors we’ve just described. The company is nicely situated at the more lucrative upper-end of China’s hotel sector, setting it apart from rivals like H World Group (HTHT.US) and GreenTree (GHG.US) that have a more diverse portfolio of brands with heavy concentration at the lower end of the market. Atour also represents a breed of new economy companies experimenting with e-commerce by making significant money from selling items in its room to guests.

At the same time, the company is facing major headwinds these days due to China’s economic slowdown. The hotel industry has been hit especially hard due to the nation’s strict epidemic control measures that strongly discourage travel under a strict “zero Covid” policy.

That uncertainty was probably a major factor that led Atour to slash its fundraising target to just $62 million in its latest IPO prospectus filed on Monday. The last time it gave a target, about a year ago, it was aiming to raise $350 million. The company has also lowered its price range to $11 to $13 per American depositary share (ADS) from a previous $13.50 to $15.50.

The most significant thing here is the fact that Atour has updated both its fundraising target and price range for the first time in months, indicating it could finally be close to completing the offer. The fact that BofA and Citigroup are moving ahead with the plan could also indicate the big banks are increasingly confident the SEC will be satisfied with the new information-sharing agreement.

Even after the slashing of the fundraising target and price range, Atour is still seeking a premium compared to its peers, reflecting its focus at the more profitable high end of the market. The company would have a market value of $1.7 billion if its shares price at the top of their range, giving it a price-to-earnings (P/E) ratio of 52, based on its expected earnings for this year.

That’s ahead of H World Group’s P/E of 40 times, and light years ahead of the more down market GreenTree’s 17. It’s even well ahead of the P/E of 34 for global giant Hilton Worldwide (HLT.US).

We’ll close with a quick look at some new third-quarter financial data contained in Atour’s latest prospectus, which shows that, like many companies in China, its business began to rebound in the second half of the year after a difficult first half.

The company’s revenue grew 9.6% to 650 million yuan ($90 million) in the third quarter from 593 million yuan a year earlier, based on our calculations using nine-month data. That marks a significant improvement from the 23% revenue decline in the first half of the year. Similarly, the company’s profit grew 164% to 111 million yuan in the latest quarter, representing a sharp improvement from its 4.5% profit decline in the first half of the year.

Such improving numbers were probably a major factor that gave Atour the confidence to finally move ahead with its listing, even if it had to sharply lower its fundraising target. If we were betting, we would wager the company stands a strong chance, perhaps 80% or higher, of completing its listing in the next month. It looks like a good-longer term bet after that, though it’s shares will probably move in sync with the broader group of U.S.-listed Chinese stocks, at least initially.

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