The current situation of the company
The company released hotel operation data for June 2018:
Domestic hotels: 1) Comprehensive RevPAR increased by 5.4% year-on-year (economical / mid-range:
The percentage of mid-range hotel rooms with higher RevPAR increased by 10 percentage points to 37%, up from 27% in the same period last year. 2) Occ fell 5 percentage points to 79%, while ADR increased 12% to RMB 198, contributing to the medium-unit growth of RevPAR.
Overseas hotels: comprehensive RevPAR increased by 0.9% year-on-year (economical / mid-range:
+ 2.5% Universe 3.8%).
Number of stores: by the end of June, the number of hotels opened by the company reached 7035, with a net increase of 177in the second quarter. The number of hotels, including hotels under construction, reached 10162, a record high.
Comment
The magnificent demeanor of China's hotel industry is expected to continue and the company will benefit from it. 1) demand side:
Steady macroeconomic growth drives the demand for accommodation. 2) supply side: the rise of labor, rent and channel costs leads to the withdrawal of individual hotels and the integration of industry supply, and chain hotels are expected to expand rapidly in the recovery stage with the help of brand advantages. 3) structural upgrading: consumption upgrading brings huge development space to the originally small mid-range hotel market. 4) the overall prosperity of the hotel industry has benefited hotel leaders. Huazhu Hotel's comprehensive RevPAR grew by 13.4% in the second quarter of 18, and Jinjiang's comprehensive RevPAR growth rate reached 7.7%, 5.5% and 5.4% respectively from April to June.
The company accelerated store expansion in 2018, with the fastest opening speed. It is expected that at least 900 new hotels will be added in 2018 and 341 hotels have been completed in the first and second quarters. It is expanding faster than Huazhu (650,700 new stores are expected to open in 2018) and first Travel Home (400,500 stores are expected to open in 2018).
With the opportunity of the reform of state-owned enterprises, single-room profits have room for improvement. The company's single-room profit in 2017 was 137000 yuan, 39% and 75% of that of Huazhu and Home respectively, with the potential to improve.
The company is one of the first four pilot units in Shanghai to reform employee stock ownership, and is expected to take advantage of the reform of state-owned enterprises and brand integration to improve operational efficiency and profit level.
Valuation proposal
We keep our profit forecast unchanged. At present, the company's A-share price corresponds to a price-to-earnings ratio of 23 times the price-to-earnings ratio of 29 Universe in 2018. We maintain the recommended rating and the target price of 38.91 yuan / $3.60 for Aamp B shares, which is 55.7% upside from the current share price. The price list price of A & B shares is based on the price-to-earnings ratio of 35 + 20 times 2018 respectively.
Risk
The macroeconomic environment changes; the supply growth of the hotel industry is higher than expected.