The company released its report for the third quarter of 2024. The Q3 company achieved operating income of 2.156 billion yuan, a year-on-year decrease of 6.38%; net profit to mother was 0.366 billion yuan, a year-on-year decrease of 9.54%; the company's Q3 hotel RevPar, which did not include light management, fell 6.0% year on year due to high base and market environment factors. Looking at the first three quarters as a whole, the company's profit continued to grow, and store expansion progressed steadily, and we maintained our rating of increasing our holdings.

Key points to support ratings

There was a slight decline in Q3 revenue and profit, and the performance in the first three quarters was fair. The company's 24H1 revenue and profit both achieved restorative growth, but revenue and profit performance declined year-on-year in Q3 due to factors such as high base and business travel market demand for the same period last year. Among them, the company achieved operating income of 2.156 billion yuan, a decrease of 6.38% year on year; Q3 net profit to mother/ net profit after deducting net profit from non-mother was 0.366 billion yuan/0.338 billion yuan, respectively, down 9.54%/13.75% year on year. Looking at the first three quarters as a whole, revenue/profit/ net profit attributable to mothers/ net profit after deducting non-attributable net profit were -0.37%/+2.94%/+5.63%/+5.77%, respectively. Among them, hotel business profit increased 6.2% year on year; scenic spot business profit decreased 9.1% year on year, and the company's profit continued to grow in the first three quarters.

RevPAR declined due to market conditions. Last summer was the first summer vacation since getting rid of the factors affected by the epidemic. Travel demand was released centrally against the backdrop that supply in the hotel industry had not been fully restored, and inbound and outbound travel recovered at the time. Some outbound travel demand switched to domestic travel. Various factors led to high hotel prices in the 3rd quarter of '23. However, due to the impact of the market environment this year, the average price in the hotel industry dropped by 7.8%. The total hotel RevPAR for Q3 companies fell by 7.8%, and ADR/OCC respectively -5.5%/-1.8pct; the total RevPAR for hotels excluding lightly managed hotels was 195 yuan, down 6.0% year-on-year, and OCC/ADR was -4.7% /-1.0pct respectively.

Store expansion is progressing steadily, and the share of standard stores is growing. The company opened 385 new stores in the third quarter, including 232 standard brand stores, accounting for 60.3%, +18.4pct; the company's net opening of 273 stores in Q3 reflects the gradual increase in the company's emphasis on standard brand stores and store quality. Among the new stores, 90 budget hotels were opened, +91.5%; 142 mid-range and high-end hotels, +51.1%. As of Q3, the share of mid-range and high-end hotels continued to rise to 41.4%. The company opened 952 stores in Q1-Q3, and has achieved 79.33% of the annual target of 1,200 stores.

valuations

The company's operating data for the first three quarters of 24 was stable, and Q3 revenue and profit declined slightly. In opening new stores, more attention is paid to the expansion of standard stores and the quality of store openings, which is expected to help the long-term goal of upgrading quality. Considering high base factors and the impact of the market environment, we slightly adjusted the company's 24-26 EPS forecast to 0.74/0.88/0.98 yuan, corresponding to a price-earnings ratio of 18.7/15.8/14.2 times, and maintained an increase in holdings rating.

The main risks faced by ratings

Market competition risk, franchise management risk, risk of business travel demand recovery falling short of expectations.