UBS published a report that initially gave Shangri-La a “neutral” rating, with a target price of 15.8 yuan. It is expected to be driven by new hotel rooms. The compound annual growth rate of hotel EBITDA in 2012-15 reached 8%, but the average room rental income (RevPAR) is challenging, and the growth rate for the same period is expected to be 2%.

According to the report, the five-star hotel RevPAR in the mainland has stagnated in the past 10 years. This structural trend is expected to continue, while the company's model of holding and operating, and volume-driven growth has led to low return on capital (ROIC). This phenomenon is also expected to continue.

On the other hand, UBS believes that the market underestimates the value of its investment assets. It is estimated that rental profit in 2012-15 can grow at a compound annual rate of 18%, accounting for 36% of the total net share by 2015.

The bank pointed out that Shangri-La's balance sheet is the biggest concern. In the first half of this year, the debt-to-EBITDA ratio was 5.5 times, and the estimated reasonable value should be 4 times. Selling non-core investment properties will help the company release potential value and reduce the level of leverage. However, its capital balance sheet situation means that the possibility of equity financing cannot be ruled out.