Matters:

In the first three quarters of 2024, the company achieved revenue of 10.79 billion yuan, down 2.55% from the same period last year (compared with last year's adjusted value, same below); realized net profit attributable to mother of 1.106 billion yuan, up 12.13% year on year; realized net profit deducted from mother of 0.639 billion yuan, a year-on-year decrease of 20.39%. Non-recurring profit and loss mainly included government subsidies of 31.44 million yuan, profit and loss of 57.94 million yuan due to changes in the fair value of transactional financial assets. The investment income from 100% equity of the trip was 0.42 billion yuan.

The 2024Q3 company achieved revenue of 3.898 billion yuan in a single quarter, down 7.10% from the same period last year (compared with last year's adjusted value, same below); realized net profit attributable to mother 0.258 billion yuan, a year-on-year decrease of 43.08%; and realized net profit without deduction of 0.25 billion yuan, a year-on-year decrease of 41.65%. (Note: The company completed the acquisition of 100% of Jinjiang Liquor's shares in December 23, and the same controlling company merged Jinjiang Liquor Management in 2023, so the data after the 23Q3 restatement includes the financial data of Jinjiang Liquor Management)

Commentary:

The company's 24Q3 revenue and profit fell slightly short of expectations, mainly affected by increased industry supply and average housing prices.

Domestic decline in 24Q3, steady overseas. 24Q3 achieved domestic revenue of 2.588 billion yuan, a year-on-year decrease of 10.88%, and overseas revenue of 1.251 billion yuan, an increase of 1.93% year-on-year, accounting for 67.4% and 32.6% of revenue respectively.

Domestic hotel operations are under pressure. 24Q3 RevPAR for the company's full-service hotels, mid-range hotels, and budget hotels declined by 18.17%, 10.78%, and 4.67% respectively. High-end prices and hotel prices were even more damaged. Looking at occupancy rates and average room prices, the occupancy rates of the three types of hotels were -1.6, +1.5, and +1.1 pct, respectively. The average room price growth rate was -15.9%, -12.6%, and -6.3% year-on-year, respectively.

The pace of opening is steady, and the rate of signing contracts has slowed down. 24Q3 opened 469 new hotels, with a net increase of 248. A total of 1,149 hotels were opened and withdrawn in the first three quarters, with a net increase of 738. By the end of September '24, the company had opened a total of 13,186 hotels, and the number of pipeline hotels that had been contracted and not opened was 3936 (180 fewer than at the end of June 24).

Investment suggestion: The company has completed the fashion travel transfer in the first half of the year. At the same time, considering the increase in price pressure in the hotel industry this year, we adjusted the 2024-2026 net profit forecast to 1.23, 1.29, 1.62 billion yuan (original 1.47, 1.49, 1.74 billion yuan), corresponding to PE 25/23/19 times; based on continued company management reforms and expected future financial expenses, refer to comparable company valuations. We will give 25 times PE in 2025, corresponding to a target price of 30.2 yuan. “Recommended” rating.

Risk warning: The company failed to open stores as expected, residents' willingness to travel and spend declined, changes in the overseas economic environment, and the effects of reforms fell short of expectations, etc.