Focus of opinion
Investment suggestion
In 2018, the revenue of Jinjiang Hotel was 20.631 billion yuan, an increase of 4.4% over the same period last year, and the net profit was 762 million yuan, an increase of 0.1% over the same period last year. We lowered Jinjiang Hotel to neutral mainly because the inflection point in the hotel industry has not yet arrived and the reform of the company's state-owned enterprises has made slow progress.
The reasons are as follows:
The operation of the hotel is in line with expectations. 1) full-service hotels: revenue and net profit increased by 10% and 59% respectively in 2018 compared with the same period last year, mainly due to the consolidation of the Yangtze River Hotel and the sale of shares in Huating Hotel. RevPAR (average room revenue) of 5-star hotels increased by 3.8%. RevPAR of 4-star hotels was the same as the same period last year. 2) Limited service hotels: revenue in 2018 increased by 8% compared with the same period last year, domestic hotel RevPAR increased by 5.8% compared with the same period last year, and overseas hotel RevPAR remained unchanged. The company's RevPAR growth rate and operating efficiency are relatively lower than Huazhu's (RevPAR grew by 10% in 2018).
The macroeconomic downturn affects the performance of short-term hotel operations; waiting for the industry inflection point to appear. We expect the economic downturn to affect industry demand, occupancy, and RevPAR. RevPAR in the hotel industry fell by about 1.1 per cent from January to February 2019 compared with the same period a year earlier, according to STR. The RevPAR growth rate of the company's limited service hotels slowed to about 2.8 per cent from 4.5 per cent in December 2018.
The reform of state-owned enterprises is relatively slow. Profits fell or lost in the company's sectors other than hotels and restaurants in 2018. Travel agency business revenue fell 31% compared with the same period last year, with a loss of about 155 million yuan, mainly due to a decrease in the number of outbound travel customers. The progress of the reform of state-owned enterprises is slow, and it is difficult to realize the rich value through the sale of core assets.
What is the biggest difference between us and the market? In the short term, we are cautious about the hotel industry and the reform process of state-owned enterprises.
Potential catalyst: industry recovery is slower than expected.
Profit forecast and valuation
Keep the profit forecast for 2019-2020 unchanged. The current share price corresponds to a price-to-earnings ratio of 13 times 2020. Maintain the target price of HK $2.41, corresponding to 15 times 2020 price-to-earnings ratio, which has 14% upside from the current share price. Downgrade to neutral, mainly due to the lack of growth momentum in the short term.
Risk.
The industry recovered faster than expected; the reform of state-owned enterprises exceeded expectations.