Key points of investment

Incident: On October 29, 2024, Junting Hotel released its 2024 three-quarter report. The 2024Q1-Q3 company's revenue was 0.503 billion yuan, +32% year over year; net profit to mother was 0.018 billion yuan, -24% year over year; net profit without return to mother was 0.017 billion yuan, -24% year over year.

Q3 revenue/net profit to mother +7%/+19%: Single Q3's revenue was 0.173 billion yuan, +7% year over year; net profit to mother was 0.005 billion yuan, +19% year over year; net profit without return to mother was 0.003 billion yuan, -15% year over year. Revenue growth was driven by an increase in the number of direct-run stores, and increased costs and depreciation and amortization of new stores dragged down profit-side performance. Q3 gross margin was 30%, -10pct year on year; Q3 net profit margin was 2.7%, +0.3pct year over year.

Q3 direct-run store RevPar -15% year-on-year: Q3 direct-managed hotels OCC/ADR/RevPar were 64.9% /484 yuan/314 yuan respectively, or -5pct/ -9%/-15% year-on-year respectively. Increased industry supply, weak recovery in demand for business travel, year-on-year decline in demand for weekend leisure, compounded by a slowdown in the climbing speed of newly opened stores, and OCC and ADR pressure led to a significant year-on-year decline in RevPAR. Overall, consumption has declined. There are obvious differences between cities. Among the Yangtze River Delta regions, Shanghai and some second- and third-tier markets performed well.

Q3: As of the end of Q3, the company's brand structure is that Junting/ Junlan/ Jinglan had 70/124/42 active hotels, with 10322/31397/4679 rooms; 22/130/35 hotels to open, and 3541/32820/4249 guest rooms to be opened. In 2024, Q1-Q3, the company opened 4 new Junting direct-run hotels, of which 1 was newly opened in Q3; the company signed 32 new projects, with a target of 60 for the whole year.

Profit prediction and investment rating: As the leading high-end service hotel, Junting Hotel has achieved full coverage of high-end and high-end business and resort brands. The direct management model is the main focus, and differentiated operations create scarce brand advantages. As the performance of new projects climbs and the nationwide expansion of direct management & management, the company's profitability is expected to continue to recover. Based on the year-on-year decline in RevPAR, the profit forecast for Junting Hotel was lowered. The net profit returned to mother for 2024-2026 was 0.04/0.07/0.09 billion yuan (previous value was 0.09/0.13/0.18 billion yuan), and the corresponding PE valuation was 116/70/51 times, maintaining the “gain” rating.

Risk warning: Risks such as increased competition in the industry, pressure on the performance of direct-run stores due to declining demand, dragging down performance during the climbing period of new direct-managed projects, and falling short of expectations in store expansion.