Incident: In the first three quarters of 2024, the company achieved revenue of 5.89 billion yuan/-0.4% year on year, net profit of 0.72 billion yuan/year on year +5.6%, after deducting non-net profit of 0.66 billion yuan/year on year. Among them, Q3 achieved revenue of 2.16 billion yuan/-6.4% YoY, net profit of 0.37 billion yuan/-9.5% YoY to mother, deducted non-net profit of 0.34 billion yuan/13.8% YoY

Q3 Hotel and scenic spot businesses are under pressure. Affected by the external macro environment and industry supply release, 3Q24's hotel revenue was -6.3% year-on-year. Among them, the company's total hotel RevPAR was 170 yuan/-7.8%, and the RevPAR for all hotels excluding light management stores was 195 yuan/-6.0% year over year. Judging from volume and price data, ADR is still the main source of the decline in RevPAR: the ADR for all hotels in 3Q24 was 244 yuan/-5.5%, and the ADR for all hotels excluding light management stores was 264 yuan/-4.7%; on the Occ side, the OCC for all hotels was 69.7%/-1.8 pct year on year, and all OCC hotels without light management stores were 73.9% /-1.0 pct year on year. Furthermore, due to pressure on the Hainan Q3 tourism market, the company's scenic spot operating revenue was -9.1% year-on-year.

Store openings accelerated month-on-month, and standard brand expansion accelerated. The company opened 952 new hotels in the first three quarters, of which 205, 362, and 385 were opened in Q1-Q3, respectively, and continued to accelerate from month to month. From a structural point of view, the company's standard brand expansion accelerated. Q3 opened 90/142/153 new economic/high-end and light-management hotels. Among them, budget hotels benefited from the introduction of new products selected by Rujia 4.0. New stores increased 91.5% year over year, middle and high-end +51.1% year over year. All standard brands accounted for 60.3% of new stores, +18.4pct year on year, and overall store opening quality improved markedly.

Investment advice: Although the poor external environment has put a lot of pressure on the company's overall operation, since this year, the company has continued to promote the improvement of the store structure and quality, and optimize the membership system, laying the foundation for growth after the reversal of the industry in the medium term. We expect the company's net profit to be 0.84, 1.01, and 1.23 billion yuan respectively in 2024-26, and the current stock price corresponding to PE is 19X, 15X, and 13X, respectively, maintaining the “recommended” rating.

Risk warning: (1) the risk that the macroeconomy will continue to decline; (2) the risk that the progress of franchise expansion falls short of expectations.