1H24 results are in line with our expectations

Jin Jiang Hotel recently announced 1H24 results and held a results conference call. 1) Finance: 1H24 revenue also increased 0.2% to 6.892 billion yuan, and net profit to mother increased by 59.2% to 0.848 billion yuan, at the upper limit of the previous forecast (0.8-0.85 billion yuan). The sharp year-on-year increase was mainly due to 2Q selling 100% of Fashion Tour's shares to confirm investment income; net profit after deducting non-return to mother also increased 4.0% to 0.389 billion yuan (previous forecast: 0.37-0.4 billion yuan); corresponding 2Q24 revenue also decreased 4.8% to 0.389 billion yuan 3.686 billion yuan, net profit to mother also increased 68.0% to 0.658 billion yuan, and net profit after deducting non-return to mother also increased 15.3% to 0.326 billion yuan. The overall results are in line with previous forecasts and our expectations. 2) Operation: In 2Q, domestic limited-service hotel RevPar decreased by 7.2% (ADR decreased by 1.8%, OCC fell by 3.7ppt); in the second quarter, 458 stores were opened, 115 stores closed, and 343 net stores were opened. The net number of stores opened in a single quarter hit a record high in a single quarter in 22 years; as of 2Q24, the company had a total of 12,938 hotels in operation. 3) Repurchase: Previously, the company announced repurchases for equity incentives. As of 8/26, the company had repurchased 8 million shares, accounting for about 0.75% of the company's total share capital. The average repurchase price was 23.63 yuan, and the capital used was about 0.189 billion yuan.

4) Interim dividend: A cash dividend of 1.2 yuan is distributed for every 10 shares, with a total dividend of about 0.127 billion yuan.

Development trends

The summer RevPAR fell by about 7%, focusing on the results of measures to improve the quality of existing stores. In the second quarter, the RevPAR for limited-service hotels in Jinjiang fell 7.2% year on year. Among them, the mid-range RevPar fell 9.6% and the economy RevPar fell 4.6%. Since the summer season, RevPAR declined by 9% and 5% in July and August, respectively.

The company is currently renovating its stock of old stores (277 franchisees have started renovation and over 100 completed inspections since 24 years), and has also launched a “fitness plan” (encouraging stores to develop more surrounding customers and raise awareness) and the “old friend plan” (optimizing product presentation and improving service quality). We recommend observing the decline in the RevPAR base from September and the operational changes after store-side measures to improve quality and efficiency were implemented.

Channel revenue is optimized, direct-run stores are under pressure, and we continue to pay attention to overseas loss reduction processes. We raised our concerns about three potential changes in the previous report. Now let's look at: 1) Channel: 1H24 booking channel revenue also increased 32% to 0.45 billion yuan (of which CRS channel revenue also increased by about 39% to 0.25 billion yuan), CRS accounted for about 2.3ppt to 31%. As of the first half of the year, CRS stores that can charge a 5% rate accounted for about 52%. We believe that the CRS channel is being steadily optimized, and it is recommended to track the CRS share and rate increase progress.

2) Direct management: The gross margin of 1H24 domestic and overseas limited-service direct-run hotel rooms fell by about 5.8ppt to 11.7%, mainly due to the year-on-year decline in RevPAR and the closure of some direct-run stores resulting from the cancellation costs. We believe that the improvement results of 1H24 direct management are slightly lower than expected. It is recommended to focus on the number of direct store closures in the second half of the year and the optimization results of active stores. 3) Overseas loss reduction: Overseas interest expenses increased by about 94 million yuan year on year in the first half of the year, but based on the net profit attributable to the overseas limited service sector decreased by about 52 million yuan year on year under the control of marketing and management expenses, we recommend focusing on changes in interest costs 2H after the implementation of measures such as capital increase (0.3 billion euros) and interest rate optimization (variable interest rate converted to a fixed interest rate of about 3.6-3.8% and early repayment).

Profit forecasting and valuation

Considering the investment income generated by 2Q's sale of Fashion Tour, the 24-year net profit was raised by 18% to 1.474 billion yuan; considering that the current industry RevPar is under pressure, we lowered the 24/25 non-return net profit of 10/ 8% to 1.015/1.331 billion yuan; considering the company's potential performance improvements, we maintained the outperforming industry rating and target price of A/B shares unchanged, corresponding to the 21/9x 25e price-earnings ratio and 11/ 13% upward space for A/B shares, respectively. The stock price corresponds to the price-earnings ratio after deducting 25/19x 24/25e for A shares, and 11/8x 24/25e after deducting the price-earnings ratio for B shares.

risks

Consumption power and travel demand are under pressure; scale expansion is slower than expected; the results of various reforms are weaker than expected, etc.