Incident: Jinling Hotel announces 2024H1 results. In the first half of the year, the company achieved revenue of 0.905 billion yuan, a year-on-year increase of 2.04%; realized net profit to mother of 23.19 million yuan, a year-on-year decrease of 25.62%; and realized deduction of non-net profit of 17.73 million yuan, a year-on-year decrease of 6.22%.

The company's main business is relatively steady, and brand building continues to be strengthened: in the first half of the year, the revenue of direct-managed/commissioned hotels was +1.73%/-2.34%, respectively. Among them, Nanjing Jinling Hotel (directly-managed store) promoted guest room renovation on some floors, innovation in marketing activities, and actively expanded the business market. Revenue still achieved 1.28% growth under a high base. The scale of hotel entrustment management stores continued to expand. In the first half of the year, the assets of 11 unlisted hotels belonging to the Jinling Hotel Group were included in the integrated control of listed companies through the “equity entrustment management” method. In the first half of the year, the sugar sugar business achieved revenue of 0.508 billion yuan, an increase of 2.08% over the previous year, which is relatively steady.

Strong fee control, steep slope in new stores, and weak alcohol consumption have put pressure on performance. In the first half of the year, the company's gross margin was -0.19pct, relatively stable; sales/management/finance/R&D expense ratios were +0.05/-1.40/ -0.41/-0.03pct, respectively. The main reasons for the decline in net profit returned to the mother in the first half of the year were 1) Nanjing Jinling Hotel and New Jinling Company were affected by the cancellation of real estate tax and land use tax exemption policies; 2) the newly opened Nanjing Nancheng Jinling Wenjing Hotel (Nanjing Laomendong Project) is still in the market development period; 3) Sugar Sugar was affected by factors such as weak growth in alcohol consumption and increases in factory prices for famous wines.

Investment advice: The company is a national hotel brand with outstanding operational advantages in the middle and high-end full-service hotel sector. It is driven by two-wheel drive with brand operation and capital expansion. The hotel chain continues to expand, compounding the rapid growth of the commodity trade sector, and the potential for growth is visible in the context of deepening national reform. We expect the company's net profit to be 0.074/0.087/0.094 billion yuan in 2024-2026, respectively, and the corresponding PE is 32.32/27.67/25.42X, adjusted to an “incremental” rating.

Risk warning: competition in the industry intensifies; the prepared food business falls short of expectations; store expansion falls short of expectations