Incident: The company released the 2024Q1 performance report. 2024Q1. The company achieved operating income of 1,845 million yuan/year over year, net profit of 121 million yuan/year on year +49.83%, net profit of 97 million yuan/year on year after deducting net profit of not to mother of 97 million yuan/year on year +102.19%. The performance slightly exceeded expectations.

Hotel business: RevPAR increased slightly year-on-year, and the proportion of standard stores opened increased. 1) RevPar: 2024Q1, the company's total hotel RevPar without light management was 147 yuan, +2.0%, of which ADR was 233 yuan/year over year, a key factor in RevPAR growth, with occupancy rate 63.4%, down 0.1 pct year on year; by category, economic/high-end and light management hotel RevPar were +1.3%/-2.1%, respectively, and direct-operated/franchised RevPAR was +7.7%/-1.4%, respectively, with better direct management performance. 2) Store opening: 2024Q1, the company opened 205 new stores and closed 173 hotels, a net increase of 32; among them, 36/66/103 new hotels were opened and 56/14/103 (including light management) stores were closed, with a net increase of -20/52/0. The proportion of standard stores opened increased markedly. 3) By brand: 2024Q1 Home Hotel - 19, Home Home Selection/Home Business Travel +17/+15, Aifei/Puyin +8/4 each, Huayi and Cloud Hotel +56/56 respectively, further increasing the proportion of high-end hotels. 4) Pipelines: 2024Q1's Pipelines 1940, 95 compared to the previous month, were relatively stable. Among them, economic/mid/high-end, light management/other pipelines were 301/599/1039/1, respectively, to support subsequent exhibitions.

Scenic area operating business grew steadily, total expenses increased slightly year-on-year, and performance exceeded expectations. During the reporting period, the company's scenic area operating business grew steadily. 2.47 million people visited the Nanshan Scenic Area, +17.3% YoY, and achieved revenue of 206 million yuan/year on year +10.90%. Overall profit side: 1) Benefiting from increased revenue, restoration of direct-run stores, and increased franchise share, 2024Q1's gross margin was +5.9pct to 36.6% year over year; 2) Total expenses increased slightly year-on-year, mainly due to last year's base figure. Among them, sales/management/financial expense ratios were +2.2pct/+1.3pct/-1.3pct to 8.2%/13.4%/5.2%, respectively. Overall, the company achieved revenue of 1,845 million yuan/year over year +11.47% in 2024Q1, of which the hotel business achieved operating income of 1,639 million yuan/year over year +11.54%, mainly benefiting from scale expansion and CRS and franchise fee growth; total profit realized was 174 million yuan/year over year +42.10%, of which total profit from hotel business was 52 million yuan/+649.82%, total profit from scenic area operation business was 122 million yuan/year on year +5.65%, and the company's net profit to mother was 121 million yuan/year on year + At 49.83%, net profit not attributable to mother was 97 million yuan/+102.19% YoY. The performance exceeded expectations.

Investment proposal: In 2023, all hotels under the company, excluding light management, will recover to 106.5% in 2019, with stable exhibition stores throughout the year, with good operating quality; the company plans to open 1200-1,400 stores in 2024. While expanding the scale, focus on increasing quality and product iteration, while developing high-end core brands, and strive to build a membership system and use technology and digitally to improve operational efficiency. The above are confirmed by 2024Q1, and the performance exceeded expectations. We raised the company's 2024-2026 operating income forecast to 7.845 billion yuan/8.436 billion yuan/9.156 billion yuan, net profit to mother of 954 million/1,126 million/1.02 billion yuan, EPS of 0.85/1.01/1.17 yuan/share, respectively. The current stock price corresponds to PE of 18X/15X/13X respectively, maintaining the “buy” rating.

Risk warning: 1) external environmental disturbances; 2) risk of cyclical economic fluctuations; 3) risk of falling short of expectations in store expansion; 4) intensification of industry competition.