A benchmark for high-end hotels, differentiated positioning+quality management team solidifies the foundation. The company was founded in 2007. Over the years, it has focused on the operation and management of high-end hotel chains, and is committed to building a national brand with cultural characteristics and the characteristics of the times. Founder Wu Qiyuan and his wife Ding He hold a total of 36.41% of the shares. The management has stable shareholding. The company's management and first-line team have many years of experience in designing, developing, operating and investing in high-end hotels, and have a good reputation in the Chinese hotel industry. The company strategically focuses on direct-run projects, lean management creates a closed loop of capabilities, teams work hard in the industry, digital platforms help enterprises develop, and the future development strategy is clear.

In 2023, the company's revenue increased year-on-year, and directly-managed hotels performed well.

In terms of performance, the company achieved operating income of 534 million yuan, +56.16% year over year; net profit of 0.31 million yuan, +2.60% year over year; net profit after deduction of 0.28 million yuan, +8.31% year over year, mainly due to a further increase in travel demand in 2023. The company focused more on the main hotel business, increased investment in direct-run hotels, and increased number of direct-run hotels. ① By quarter: Q1-Q4 achieved revenue of 0.96/1.25/1.61/152 billion yuan, respectively, +55.63%/+58.29% /+50.23/ +61.45%, and net profit to mother of 0.04/0.16/0.04/0.07 billion yuan, respectively, +4.21%/+48.10%/-65.36/ +71.40%, respectively. ② By product: Accommodation services/catering services/other ancillary services/hotel management achieved revenue of 3.53/0.47/0.17/117 million yuan respectively, +79.19%/+42.14%/38.40%/+39.07% year-on-year. Revenue in major sectors increased year-on-year, mainly due to the development of the trusteeship management model. ③ In terms of directly-managed hotel single store performance: The RevPAR for directly-managed hotels under Junting in '23 was 332.78 yuan/+53.39% year over year, OCC was 67.85% /year over year +25.46 pct, and ADR was 490.46 yuan/room/year over year. ④ In terms of store performance: In 2023, the company signed 55 new hotels, including 12 Junting brands, 27 Junlan brands, 16 Jinglan brands; 34 newly opened hotels.

In terms of profitability, ① in terms of gross margin, the company's overall gross profit margin in 2023 was 39.74% /year over year +3.74 pct, mainly due to a significant increase in the gross margin of core business (hotel operation: 29.41% /year over year +3.63 pct, hotel operation: accommodation service: 38.24%/year over year +8.38 pct, hotel management: 76.56%/year on year +9.26 pct); ② in terms of rate, the overall cost ratio of the company in 2023 was 29.22%/year over year +4.7pct, of which sales expenses ratio was 8.43% /year over year + 1.87pct, mainly due to an increase in manpower costs, reservation service fees, etc. in the sales department corresponding to the increase in the number of directly-managed hotels; the financial expenses rate was 6.14% /y-0.21pct, and the management fee ratio was 14.65% /y-o-y +3.04pct, mainly due to the change in rent corresponding to the preparation of the construction project and the company's interest income +3.69pct year-on-year. ③ In terms of net interest rate, the company's net interest rate in 2023 was 7.92% /year over year - 1.65pct. The main reason was that the rental expenses and management expenses incurred during the preparation period of investment in directly-managed hotels increased 97% over the same period of the previous year, and the company included the balance of the rent difference caused by the subleasing of commercial properties at Huihe Junting Hotel back to the owners, which had a great impact on net profit and loss.

24Q1 revenue increased year-on-year, and the project developed steadily on merit. 24Q1 achieved revenue of 160 million yuan/year on year +67.28%, and net profit attributable to mother +13.94% year over year to 0.05 billion yuan, mainly due to the accelerated recovery of the hotel industry. 24Q1's gross profit margin was 30.12%, -2.94 pct year on year, -5.30 pct month on month; overall expense ratio 26.44%, -0.07 pct year on year; net profit margin 3.88%, -2.21 pct year on year, -2.03 pct month on month. During the reporting period, RevPAR of the Group's direct-run stores increased by 12.23% compared to the same period last year, up 20.97% from the same period in 2019. Seventeen hotels including Junlan have already entered and prepared to open, and Jinglan has signed 3 new hotels, adding nearly 500 new guest rooms. The company continues to stabilize the Yangtze River Delta market, further expand the Beijing region, Pearl River Delta region, and southwest region. Stock & incremental projects are progressing well. The 2024 performance is expected to accelerate recovery.

Brand integration builds a new multi-brand matrix, project expansion & scale expansion promote steady performance development, and digital construction helps reduce costs and increase efficiency.

The three major brands expand collaborative sharing advantages: The company continues to take advantage of the collaborative sharing advantages of the “Junting”, “Junlan” and “Jinglan” brand development teams to establish regional development centers in Beijing, Southwest China, Yangtze River Delta and Greater Bay Area, and comprehensively implement the “direct management+entrustment management” business model. By the end of 2023, the group had invested and managed hotels in 393 hotels, 81,263 guest rooms across 28 provinces, cities and autonomous regions in China. ① The Junting series of direct-run hotels, which mainly focus on direct investment, have successively opened in cities such as Chengdu, Shenzhen, Hangzhou, Beijing, and Chongqing; ② The Junlan brand, which is mainly managed by entrustment, continues to increase cooperation with state-owned enterprises and leading domestic companies, focusing on deepening the strategic layout of Beijing, Shanghai, Guangdong, etc. The total number of projects has reached 240, and continues to expand the brand's regional coverage capacity; ③ The Jinglan brand has increased product innovation and service innovation for non-standard hotels to promote the expansion of the sinking market. The first project of the new brand Jinglan Qingtang was officially signed and landed in Jinhua. Yangzhou, Jinkai, Linyi and other places have signed contracts one after another.

Strategic layout of the project: The company adheres to the development strategy of “stabilizing the Yangtze River Delta market and further expanding the Beijing, Southwest and Pearl River Delta regions”, and relies on “one store, one product” planning capabilities, the existing high-quality single store model, and the Junting style selection service system to comprehensively promote the large-scale operation of the group. In 2023, the company accelerated preparations for the construction of 6 direct-run stores, successively opened in cities such as Chengdu, Shenzhen, Hangzhou, Beijing, Chongqing, etc.; Junting signed 12 new hotels, and new hotel projects opened in first-tier cities and first-tier cities such as Chengdu, Shenzhen, Hangzhou, Beijing, and Chongqing; Jinglan signed 16 new hotels, focusing on deepening the strategic layout of Beijing, Shanghai, Guangdong, etc.; Junlan signed 27 new hotels, deepening ties with cities such as Pearl River Delta, Jiangsu, and Shanxi., gradually increasing brand awareness.

Digital construction: The company has built a pre-stay service ecosystem integrating multiple platforms such as the Group's WeChat Mini Program, Alipay Mini Program, UnionPay, and Airlines to achieve the effect of reducing costs and increasing efficiency and improving customer experience and brand stickiness. Among them, China Travel's “Experience Club” and Junting's “Four Seasons Lanjia Club” members interacted, and the partner's membership system was expanded to nearly 13 million members, further improving service quality; and Hetai's supply chain system was introduced to use digital management methods to optimize logistics, inventory and production processes, improve the operational efficiency of the entire group, and reduce procurement costs and inventory costs.

Complementarity and cooperation seek win-win advantages, seek diversified development in commercial exploration, and enter high-potential markets in the southwest. Combining a broad market space with good investment policies is expected to enhance the company's future performance. ① In February 2023, the company signed a “Strategic Cooperation Framework Agreement” with China Travel Group Hotel Holdings Co., Ltd. to give full play to each other's advantages in hotel investment, management, operation and innovation to upgrade the hotel industry; in November 2023, based on the above agreement, the company signed the “Hong Kong China Travel Hotel Co., Ltd. & Junting Hotel Group Member Alliance Cooperation Agreement” to focus on the upgrading of the hotel industry and focus on the high-end hotel market. ② In March 2023, the company established a new Shanghai Jundacheng Commercial Development Co., Ltd., and plans to launch asset management business this year, combining the Group's core hotel management capabilities with pre-REITs and industrial mergers and acquisitions funds to cultivate the Group's asset management level covering the entire life cycle of hotel investment, finance, construction, management and withdrawal. ③ In June 2023, the company signed the “Junting Hotel Southwest Headquarters Project Cooperation Agreement” with the Chongqing Yuzhong District Culture and Tourism Development Committee. After negotiations, it is planned to invest 210 million yuan to open a number of high-quality hotels in Chongqing in batches. In 2023-2024, the first batch of projects will invest in Chongqing Luhai International Center and the former Grand World Hotel, with a total guest room size of about 500 rooms, and the southwestern headquarters of Kanting Hotel in Yuzhong District.

Investment advice: As a benchmark for high-end hotels, the company perfects the Group's brand matrix through acquisitions and integration, breaks through bottlenecks, digital platforms reduce costs and increase efficiency, and continues to increase brand value, helping the company form barriers in the high-end hotel industry. Along with the expected recovery of the May 1st holiday travel market, combined with high consumer enthusiasm, the company's performance and valuation can be expected to be flexible. It is estimated that in 2024-2026, the company's net profit to mother will be 1.16/1.73/224 million yuan, respectively, and EPS will be 0.60/0.89/1.15 yuan, respectively. Corresponding to the current PE of 40/27/21 times, respectively, coverage for the first time, giving a “buy” rating.

Risk warning: The effects of mergers and acquisitions fall short of expectations, slow progress in store expansion, increased risk of competition, risk of macroeconomic policy changes, and consumer spending intentions fall short of expectations.