The Zhitong Finance app learned that CICC released a research report saying that since 2023, the recovery of the social service sub-industry has been divided, but the valuations of various sectors are already low. Looking ahead to 2024, the industry will maintain a steady recovery. It is optimistic about cost-effective brands and changes in experience-oriented consumption habits. At the same time, it is recommended to focus on investment opportunities in tracks and companies that replicate the long-term logic of expansion and refined management.

▍ The main views of CICC are as follows:

The recovery of the sub-sector has been divided since 2023; valuations of various sectors are already low.

Scenario consumption has clearly recovered since 2023. The social service recovery slope is greater than commodity consumption, but there is some segmentation in the sub-industry: hotels and high-quality tourist destinations during the holiday season stand out; duty-free tax exemptions are affected by factors such as consumption power, and sales performance lags behind passenger flow performance; restaurants are more local consumption, continuing a steady recovery trend, and same store revenue is still not as good as in the same period in '19.

Judging from the valuation level, after a correction since the beginning of the year, the overall valuation level of the social service sector is currently at the lowest level since 22 years, and the valuation is already cost-effective.

2024 Investment Strategy: Quality to price ratio and focus on experience are long-term trends, and companies with excellent business models and management are expected to cross the cycle.

The following trends and long-term logic are worth paying attention to: 1) The cost performance route is more resilient in the stage where consumption power is gradually recovering. Since this year, we have observed a trend of returning to a relatively leading trend in cost performance route categories and brands in the domestic restaurant and hotel sector, and there is also this pattern after the overseas epidemic (the recovery of the fast food industry in Japan and the US is ahead of other business formats such as meals), and consumers may not be simply low prices, but cost performance with a certain level of quality assurance.

2) For essential travel formats & strong travel-related business formats (represented by hotels and high-quality tourist attractions), experience again or sustainable changes in consumption habits.

3) It is recommended to focus on a circuit with the ability to replicate and expand. The chain rate and concentration of the Chinese hotel and catering industry may continue to increase; companies with strong comprehensive product, operation, and brand strength and the ability to adapt to the development stage can still continue to increase market share. Furthermore, refined management, cost reduction and efficiency are expected to bring about a sustainable increase in profitability; and continuous price reduction and promotion may trigger clear supply, leading companies are expected to usher in competitive pattern optimization; it is worth noting that some outstanding leading companies are shifting to value stocks, or paying more attention to shareholder returns.

It is recommended to focus on investment opportunities in companies that adapt to long-term trends and have excellent business models and management capabilities.

1) Catering: Valuations are very attractive, and the competitive track and the operational resilience of quality management enterprises are highlighted. 2) Hotels: Leaders have both growth and a stable competitive position, and the advantages of high-quality brands have expanded.

3) Human service: Demand recovery may bring about performance elasticity, and seize leading growth potential. 4) Tourism: The industry as a whole faces a high base of 23 years, focusing on the short-term performance elasticity and long-term growth potential of high-quality leaders. 5) Tax exemption: Focus on the improvement process of daily sales and how the Hainan customs closure policy was implemented in '25.

risks

The recovery in consumption power was weaker than expected; the competitive landscape worsened; and enterprises failed to improve management to cope with the changes.