The company released the 2023 Annual Report and the 2024 First Quarter Report:
1) 2023: The company achieved revenue of 534 million yuan/ +56.16%, net profit of 31 million yuan/ +2.60%, mainly because the company increased investment in direct-run hotels and reduced other non-core businesses such as transferring operating property to leasing; net profit after deducting non-return to mother was 0.28 million yuan/ +8.31%, and net cash flow from operating activities was about 245 million yuan/ +103.88%.
2) 2023Q4: The company achieved revenue of about 152 million yuan/ +61.45%, net profit of about 0.07 billion yuan/ +71.40%, and net profit of non-return to mother about 06 million yuan/ +48.27%.
3) 2024Q1: The company achieved revenue of about 160 million yuan/ +67.28%, net profit of about 0.04 billion yuan/ +13.94%, net profit after deducting non-return to mother about 05 billion yuan/ +52.45%, and net cash flow from operating activities of about 50 million yuan/ +160.73%.
Management costs have been effectively controlled, direct management projects are strategically arranged, and the quality of management projects has been further improved:
1) 2023: Sales expense ratio 8.43% /+1.87pcts, management expense ratio 14.65% /+3.04pcts, financial expense ratio 6.14% /-0.21pct, gross profit margin 39.74% /+3.74pcts.
2) 2024Q1: Sales expense ratio 7.61% /+0.32pct, management expense ratio 12.33% /-2.21pcts, financial expense ratio 6.50% /+1.82pcts, gross profit margin 30.12%/-2.94pcts; 3) In terms of management, the company expects to increase and improve the standardized management system, strengthen the overall management of the group in terms of planning management and quality management, and establish a new regional management mechanism, start-up management mechanism, and quality management mechanism. In terms of directly-managed hotels, we insist on focusing on core cities and core projects, and adhering to the development strategy of “deepening the Yangtze River Delta and focusing on expanding Beijing, the southwest region, and the Pearl River Delta region”. Based on the first store in the southwest, the first store in Beijing, and the first store in Shenzhen, develop in depth to key cities such as Beijing, Shenzhen, Chengdu, and Shanghai: simultaneously promote the development of the same urbanization with the preparation of signed projects in cities such as Chongqing; accelerate the selection of core projects in regions such as Changsha and Wuhan. Through the development of urban circles in regional core cities, the scale of the group is effectively promoted. The new direct management project will actively expand the scale of “Pagoda Junting Design Hotel” in order to establish a benchmark position for high-end domestic selected service hotels.
Accelerate project expansion layout and increase group scale:
Throughout 2023, the Group signed 55 new hotels, of which the number of Junlan/Junting/ Jinglan was 27/12/16 respectively, and the Group opened 34 new hotels, of which the number of Junlan/Junting/ Jinglan was 16/9/9 respectively. The Junting series of direct-run hotels opened successively in cities such as Chengdu, Shenzhen, Hangzhou, Beijing, Chongqing, etc., and new direct-run stores are being implemented at an accelerated pace. The Junlan brand has created multiple brand labels for the vacation series to meet the new changes in the Chinese resort market, and the scope of the Junlan vacation circle continues to expand; the Jinglan brand is increasing product innovation and service innovation for non-standard hotels, promoting project expansion in the sinking market in a flexible and diverse manner, further setting a benchmark for rural revitalization and the construction of a beautiful China. In 2024, the Group aims to sign 60 projects and open 63 new projects.
Optimize the organizational structure and continue to promote talent team building, training and development:
The company is expected to start optimizing its hotel organization in 2024, adjust and optimize departmental settings and division of responsibilities to improve the operational efficiency of the organization, and continue to promote the flat management of hotels of various brands, reduce management levels, improve the efficiency of information transmission and decision-making, and enhance the flexibility and responsiveness of the organization. The company will train employees by providing training and development opportunities for frontline employees, developing practical training courses for frontline employees, etc., and establish career development channels to provide grassroots employees with clear career development paths and promotion opportunities to motivate employees to continuously improve their abilities.
Investment advice:
Buy-A investment rating, 6-month target price of $28.03. We expect the company's revenue growth rates from 2024 to 2026 to be 65.0%, 29.0%, and 16.8%, respectively, and the net profit growth rates will be 296.9%, 81.7%, and 8.0%, respectively; given a buy-A investment rating, the target price for 6 months is 28.03 yuan, which is equivalent to a dynamic price-earnings ratio of 45 times that of 2024.
Risk warning: Expansion is falling short of expectations, macroeconomic impact, increased industry competition, etc.