Matters:

The company achieved revenue of 5.889 billion yuan in the first three quarters, down 0.37% year on year; net profit to mother was 0.723 billion yuan, up 5.63% year on year, net profit after deducting non-return net profit of 0.661 billion yuan, up 5.77% year on year; non-recurring profit and loss mainly included 29.3 million yuan in non-current asset disposal, 21.88 million yuan in government subsidies, and 17.56 million yuan in fair value changes. The gross profit margin was 39.59%, down 0.15 pct year on year, and the net profit margin to mother was 12.28%, up 0.7 pct year on year.

The company achieved revenue of 2.156 billion yuan in a single quarter, down 6.38% year on year; net profit to mother was 0.366 billion yuan, down 9.54% year on year, after deducting non-return net profit of 0.338 billion yuan, down 13.75% year on year. The gross profit margin was 43.09%, down 2.33 pcts year on year, the net profit margin to mother was 16.96%, down 0.59 pcts year on year.

Commentary:

Revenue remained close to flat year over year, in line with expectations. Hotel profits rose and scenic spot profits declined. By business, in the first three quarters, the company's hotel and scenic area business achieved revenue of 5.503 billion yuan and 386 million yuan, respectively, -0.5% and +0.9% year-on-year; total profit was 0.803 and 0.185 billion yuan, respectively, +6.2% and -9.1% compared to the same period last year.

Affected by the market environment, Q3 companies' average housing prices declined. The 24Q3 Company's total hotel RevPAR, excluding light management, fell 6% year on year to 195 yuan (OCC fell 1.0 pct year on year, ADR fell 4.7% year on year); the National Day holiday increased 4.5% year on year to 254 yuan on a comparable scale, mainly driven by leisure travel. The 24Q3 company's high-end, economical, and light-managed hotel RevPAR was -8.2%, -7.1%, and -8.1% respectively; among them, OCC was -0.5, -1.4, and -2.1pct, respectively, and ADR was -7.5%, -5.3%, and -4.7%, respectively.

Standard brands open stores faster. In the third quarter of '24, the company opened 385 new hotels, including 5 directly managed and 380 franchised hotels; 142, 90, and 153 high-end, economical, and light-managed hotels respectively. The share of standard brand stores (not lightly managed and other stores) increased significantly. 24Q3 accounted for 52.8% of all newly opened hotels (28.8% for the full year of 2023, an increase of 24.1pct). By the end of September, the company had opened a total of 6,748 stores and had 1,876 stores in reserve.

Investment advice: Industry supply has increased this year, and consumer price sensitivity has increased. With a relatively high base of 23, occupancy rates and housing prices have all been affected this year. The company has remained relatively stable in terms of profit through cost control.

We expect that with a relatively normal base next year, the company's operating data and profit will also be relatively manageable and stable. We expect revenue of 7.74, 8.15, and 8.59 billion yuan respectively for 2024-2026, and net profit of 0.825, 0.933, and 1.137 billion yuan, up 3.8% year-on-year, respectively. The corresponding PE is 19/17/14x, with a target price of 16.7 yuan for 25 years, maintaining the “recommended” rating.

Risk warning: Industry supply continues to increase, recovery falls short of expectations, declining willingness to travel, corporate cost reduction and efficiency limits differences, etc.