Investment highlight
For the first time covering Shangri-La (Asia) (00069), the outperforming industry is rated with a target price of HK $7.50, corresponding to 8x 2024 EV/EBITDA (including associates). The reasons are as follows:
The supply scale of luxury hotels in China is stable, and the demand side has a long-term driving force. 1) supply side: the overall scale of China's luxury hotel market is relatively stable, and the leading international hotel chains are actively layout. at present, the market still has opportunities for stock integration in first-tier cities and new supply increments in new first-and second-tier cities. International leading penetration is expected to continue to increase. 2) demand side: taking into account the increase in per capita disposable income and the number of high net worth people, the emergence of diversified service demand, and the long-term vitality of the business travel market, the market demand for luxury hotels shows a growing trend in the long run.
Shangri-La (Asia): a leading luxury hotel based in the Asia-Pacific region. The company's business model is an asset management model with hotel business as the core and investment property as the auxiliary. 1) Shangri-La brings brand premium and customer recognition by virtue of its unique brand strength and its service quality advantages supported by its "Asian style of hospitality". 2) Shangri-La continues to distribute high-end business travel and resort business in the core locations of Chinese mainland cities, Hong Kong, China and Singapore, and we believe that after the impact of the epidemic continues to weaken, with the gradual recovery of domestic demand from foreign tourists and the spending power of residents, Shangri-La's asset management model is expected to help the company achieve better profitability. 3) the company has a series of property resources located at the core high-quality point, considering the relatively low cost of initial purchase of property and the long-term accumulation of brand value in Shangri-La, the company's assets have high long-term value and scarcity in the market.
What is the biggest difference between us and the market? Shangri-La, as a leading company with long-term accumulation in the luxury hotel industry, we believe that the market underestimates the role of its RevPAR recovery and business travel demand recovery in restoring profit elasticity and the long-term value of its scarce property resources. Based on the fact that there is still room for chain rate improvement in the luxury hotel market and the excellent brand power accumulated by Shangri-La itself, we are optimistic that the company will achieve a steady recovery and growth in profitability.
Potential catalysts: RevPAR recovery exceeded expectations, business travel and conference demand returned better than expected.
Profit forecast and valuation
We estimate that the company's 24-year EPS is US $0.04 / US $0.07, CAGR is 9% (19-24), 23gamer 24-year EBITDA is US $503 million / US $613 million, and 23gamer 24-year EBITDA (including associates) is US $819 million / US $976 million, respectively. We believe that Shangri-La is the leader of mature luxury hotels with long experience, covering the rating based on outperforming industry for the first time, giving 8x 2024 EV/EBITDA (including associates), corresponding to the target price of HK $7.50, which has 24% upside compared to the current share price, and the current share price corresponds to 7x 2024 EV/EBITDA (including associates).
Risk
The recovery of consumption power is not as expected, the intensification of competition in the industry leads to lower-than-expected business performance, the resumption of international routes is not as expected, and the progress of projects under construction is not as expected.