The deduction of non-net profit is at the upper limit of the forecast, and profitability increased year-on-year

Jin Jiang Hotel's 1H24 revenue 6.892 billion/yoy +0.2%, net profit of 0.848 billion/yoy +59.2%, including confirmed investment income of 0.42 billion from the sale of fashion tours and 0.389 billion/yoy +4.0% after deducting non-net profit, is within the forecast range (net non-net profit: 0.37-0.4 billion). Among them, 2Q revenue was 3.686 billion/yoy -4.8%, net profit of 0.658 billion yuan, deducted non-net profit of 0.326 billion, deducted non-net interest rate of 8.9% /yoy+1.6pct, and management efficiency improved. Due to the impact of the business travel environment in 2Q, RP was under relative pressure of -7.8% compared to the same period last year. It is expected that 3Q pressure will still exist. In the long run, the company released an equity incentive plan for the first time to support the promotion of a new round of reforms, demonstrating management's determination for long-term development, and looking forward to improved profitability brought about by CRS channel revenue growth, direct product upgrades, and overseas operation optimization. EPS is expected to be 1.26/1.42/1.67 yuan in 24/25/26, with a target price of 27.72 yuan, corresponding to 22X24PE (comparable to Wind and Bloomberg's average PE average expectations of 23X in 24. Domestic business travel needs to be improved, and there is some uncertainty in the early stages of reform, so discounts are given). “Buy” rating.

Domestic RP was under pressure in 2Q24, and overseas losses decreased year-on-year

1H24's domestic revenue was 4.899 billion/yoy +1.1%, and the economic/mid-range RP was 102/173 yuan, corresponding to yoy-3.0/ -7.1%, deducting 0.326 billion in non-net profit, and 8.9% /yoy+1.6pct. The results of the reform and efficiency gains were verified in stages. Overseas revenue of 1.993 billion/yoy -1.8% was recorded, and a net loss of 0.181 billion yuan was recorded. The capital structure gradually improved, financial expenses declined, and the year-on-year loss was reduced by 0.052 billion yuan. Quarterly, 2Q domestic revenue was 2.639 billion/yoy -3.5%, limited service hotel RP/ADR/OCC year-on-year -7.8%/-3.7pct, of which economical RP/ADR/OCC year-on-year ratio was -4.6%/+0.3%/-3.1 pct, and mid-range RP/ADR/OCC year-on-year ratio was -3.2%/-4.2% /+0.9pct. 2Q overseas revenue was 1.109 billion/yoy -7.3%, and overall RP was -1.0% year-on-year, showing strong performance.

Direct stores continue to be renovated and optimized, and equity incentives show confidence

1H24's sales expense ratio/management expense ratio was 7.1%/18.3%, -0.5/-1.6pct compared to -0.5/-1.6pct, showing the results of the reform cost reduction. As of 2Q24, the number of hotels reached 12,938 homes and a net total of 343. 11,755 domestic households, 349 net stores; 1,183 overseas hotels and 6 net customs stores. The company continues to optimize direct-run stores, close 40 direct-run stores in 2Q, and upgrade the existing direct-run stores. Looking at the structure, the Jinjiang economic/midrange/high star ratio reached 40.4/59.2/ 0.5%, -0.5/+0.6/0.0pct month-on-month, increasing the proportion of mid-range models. The company released a “12+3+1" brand development strategy based on long-term multi-link development. On August 10, it was announced that the first equity incentive policy was implemented. The store side requires 1,200 new stores to be opened every year (1H24 has completed 680), and the profit side requires a 24-26 year deduction of 1.01/1.28/1.55 billion in non-return net profit.

Focus on the release of efficiency improvement momentum driven by organizational reform & equity incentives, maintain the “buy” company to deepen the 3.0 reform, and the 1H24 organizational structure adjustments have basically been completed. The results of subsequent reforms are expected to gradually become apparent. EPS is expected to be 1.26/1.42/1.67 yuan in 24/25/26, with a target price of 27.72 yuan, corresponding to 22X24PE (comparable to Wind and Bloomberg's average PE average expectations of 23X in 24. Domestic business travel needs to be improved, and there is some uncertainty in the early stages of reform, so discounts are given). Maintain a “buy” rating.

Risk warning: Risk of demand falling short of expectations; market competition increases risk.