Key points of investment
Junting Hotel is a scarce high-end select service hotel group in China. The alpha potential of high-end hotels is highlighted: Established in 2007, Junting Hotel is a leading domestic high-end select service hotel group, ranking 18th among China's hotel groups in overall scale in 2022. The company has three major brand lines: Junting, Junlan and Jinglan, to achieve full coverage of high-end and high-end business and leisure. As of September 2023, Junting has opened 213 hotels, covering 28 provinces and cities. In the future, it will continue to increase the high-end market and achieve nationwide expansion through direct management and management models.
Hotel industry: growth and cycle resonance, seeking growth in the cycle of advantage: 1) The growth and cycle of the hotel industry resonate at the same frequency. At the end of 2022, the chain rate of the Chinese hotel industry was 39%, and the CR3 of the hotel chain market was 43%. There is still plenty of room for improvement compared to Europe and the US. Customer sources, products, and management advantages drive the branded and group development of the hotel industry; differences in supply and demand growth rates lead to cyclical changes in industry operating data; production capacity cleared during the epidemic, and post-epidemic recovery led to a rapid transformation in performance. 2) Looking for Marriott's international growth path, domestic high-end hotels have structural opportunities. As the world's largest hotel group, Marriott International continues to achieve full coverage of luxury and selection brands, the asset-light model continues to expand, and stock prices continue to rise. At the end of 2022, domestic high-end and luxury brands accounted for 21.4% of the housing volume. High-end supply was low, the competitive landscape was scattered, and local brands had structural opportunities. 3) Current state of the resort industry: Resorts mostly rely on core scenic spots and key cities to provide visitors with high-quality services. The concentration of the resort industry in China is low, and the recovery of the tourism market is driving the development of the industry.
Direct management & management build scarce brand power, and the national market has repeatedly built benchmark hotels to show strength: 1) Products: “Jun Ting”, “Jun Lan”, etc. achieve full coverage of high-end and high-end brands. 2023Q3 has opened 113/63/37 hotels in Maojunting/ Junlan/ Jinglan. Junting pioneered the “BAS” model to provide differentiated selection services; Junlan is deeply involved in the high-end resort field to create a high-quality vacation circle. 2) Operation:
“One store, one product” is a differentiated operation, and the direct single-store model is mature. The profitability of direct-run single stores is higher than that of comparable companies. “One store, one product” creates a differentiated competitive advantage for brands, and it is estimated that the annual net profit of Chengdu Pagoda during its maturity period can reach 0.2 billion yuan. 3) Expansion: High-quality expansion of direct-run stores creates scarce brand power and outstanding profitability. Direct management focuses on core cities and projects, and has established a benchmark position. ADR of direct-managed stores drives RevPar's leading industry, and profitability continues to improve. Entrusted management complements the expansion of the national market. Set up industrial funds to incubate new projects, and smooth the financial impact of opening stores.
Profit prediction and investment rating: As the leading high-end service hotel, Junting Hotel has achieved full coverage of high-end and high-end business and resort brands. The direct management model is the main focus, and differentiated operations create scarce brand advantages. As the performance of new projects climbs and the nationwide expansion of direct management & management, the company's profitability is expected to continue to recover. We predict that Junting Hotel's net profit for 2023-2025 will be 0.4/1.4/220 million yuan respectively, corresponding to the PE valuation 106/32/20 times, maintaining the “increase” rating.
Risk warning: Risks such as increased competition in the industry, pressure on the performance of direct-run stores due to declining demand, dragging down performance during the climbing period of new direct-managed projects, and falling short of expectations in store expansion