Home > > eHi upbeat about prospects despite marginal loss in Q4

eHi upbeat about prospects despite marginal loss in Q4

04/05/2016| 10:12:31 PM| ChinaTravelNews

eHi expects 2016 to be another record year for its revenue growth. The team is counting on its integrated business model, brand awareness and mobile infrastructure.

eHi Car Services has asserted that the company possesses a strong balance sheet even as there was a slight dip in the performance in the fourth quarter

There was a dip in the company’s total fleet RevPAC (went down to RMB142 for Q4, from RMB164 for the same period in 2014). Also, eHi’s net loss for Q4 was RMB12.3 million. RevPAC refers to average daily net revenue per available car, which is calculated by dividing the net revenues during a given period by the aggregate number of days in which our fleet was in operation during the same period.

Two factors behind marginal loss 

As it emerged after eHi’s Q3 results, the company achieved GAAP net income on the operating level. “We believe this is the beginning of our path to profitability,” Ray Zhang, eHi’s Chairman and CEO had stated in November last year. 

So explaining what drove eHi’s net loss for Q4, the company mentioned that there were two reasons behind this. First, the cost or interest related to fund insurance (meaning that US unsecured notes) and second, to a lesser degree was a certain foreign currency loss considering the RMB devaluation incurred in the second half of last year. 

“…all of the close to RMB12 million is contributed to those two factors,” said CFO Colin Chitnim Sung. 

Operating fleet size and RevPAC

As for the RevPAC, the total fleet RevPAC decreased to RMB142 in Q4. 

RevPAC for car rental and car services was RMB116 and RMB482, respectively, for Q4 compared with RMB127 and RMB597, respectively, for Q4 of 2014. 

“The decrease in RevPAC was mainly due to increased operating fleet size in Q4 of 2015,” mentioned Sung. Sequential-wise, “we see RevPAC as little bit dropping on the car rental side”, he said. In 2015, the rental utilization rate was 71.4% compared with 71.8% in 2014.

He said it needs to be considered that the company chose to increase its operating fleet size, particularly in Q4 towards the end of the quarter gearing up for the Chinese New Year for the Q1 season. 

“So, to a certain degree, those vehicles (added) in Q4 is not generally revenue or at least partial revenue in Q4. Those kind of skew our RevPAC for the Q4 rental,” said Sung. 

“On the car services side, there has been an improvement in RevPAC from Q3 to Q4. We saw increase from 440 in Q3 of this year to 482 RevPAC for this Q4 in 2015 and that reflects a certain level of corporate demand or corporate user as the more heavier (usage) during the travel season or business conference segment in Q4 versus the B2C car services the company started with the channel marketing partnership in Q3,” he said. 

“So overall we believe the whole RevPAC for car services will be paying off improve to above RMB500 RevPAC (level) and then car rental side, we are able to maintain in the range around the current level around 120 to 125 range.” 

Saving on the margin expansion

The company indicated that its total period-end fleet size will reach approximately 57,000 vehicles as of December 31, 2016. 

As of last year, total period-end fleet size was 38,070 vehicles.    

At the end of the 2015, eHi had stepped up its period-end rental fleet per store to 96 vehicles, compared with 87 vehicles per store at the end of the previous quarter and 57 vehicles per store at the end of 2014.

The team is targeting operating synergies among its service networks. By 2015-end, the company was operating a network of 1861 service locations in 151 cities including 369 stores and 1492 pick-up drop-off points. 

Zhang said over the past few quarters, the company has been increasing the fleet size to complement its existing infrastructure. “(This) is reflecting the saving on the margin expansion,” he said. “So in terms of fixed costs we will maintain or at least control the current level, while we are looking for a certain geographic expansion…the company is more focusing on the efficiency of return.”

Long way to go 

Only few months ago eHi had highlighted that leisure travel is still an emerging market in China with increasing demand for renting cars as a preferred choice for “mass” consumers looking to enjoy self-organized trips. 

For its part, eHi is not only looking at diversifying its vehicle models, but it is also looking at introducing new services and optimize customers’ booking, pickup and return, and the post-transaction experience. 

A major contribution in this endeavour is from mobile. 

The company tests its website, and mobile app every day, and teams are separate for these two screens/ devices. 

According to Zhang, last year around 62% of eHi’s car rental reservations were made via mobile devices and in total 92% of the reservations were made via mobile and website. 

“During 2015, we recorded around 3.2 million mobile application downloads,” said Zhang. When we interacted with the company in November last year, the company “was witnessing 10000 downloads” of its app on a daily basis. Also, Ctrip has proven to be a big contributor in eHi transactions, as the OTA has been featuring and promoting eHi’s services on its official website, mobile client application etc. eHi has been focused on refining its reservation channels to create a comfortable and reliable customer service experience, while integrating its reservation function in Ctrip’s app to reach a broader customer base. 

Future 

“Looking ahead, while our strategy focuses on delivering strong organic growth, we will also explore potential strategic co-operations and investment opportunities to enhance our operating synergies and the competitive position,” said Zhang. 

More specifically, the company intends to continue focusing on organic growth mainly on the car rental business. Sung said, “…if you look at the whole ecosystem of the value chain, the company is also looking at opportunities in this space to support company’s (plans) – the growth not only in car rental, but also in the car service segment…yes we are looking at both (organic growth and strategic alliances), looking at opportunity in the value chain or certain niche market companies in the car service segment.”

For his part, Zhang added in 2016, the company will keep a vigil on those opportunities that will potentially benefit eHi’s core business and given the strong balance sheet, “we do have some flexibilities to do some of the potential M&As or any other opportunities”. 

TAGS: eHi | car rental | China
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