錦江股份(600754)

Jinjiang is also on the way of products upgrade

We reiterate Buy on Jinjiang Hotels with a TP of RMB37. We believe Jinjiangis also in the process of upgrading its product to meet higher demand fromChinese customers’ trading-up, especially in tier 1-2 cities. We also believe thecompany will start to focus on internal consolidation of its current four hotelbrands and that it is likely to halt further expansion through acquisition.

Earnings growth driven by new brand full-year consolidation; RevPAR growth

Recall, 9M17 core earnings increased by 62% yoy to RMB494m (vs. RMB306min 9M16). This is mainly due to 1) Plateno and Vienna’s full-year consolidationin 2017, 2) reduced cost and expenses after acquisition, and 3) 9M17 JinjiangRevPAR growth of 4.3% (9M17 blended RevPAR growth of 6-7% if excludingVAT reform effect), driven by the Chinese economy hotels’ recovery.

Midscale hotels expansion driven by Vienna

The hotel sector’s recovery is mainly due to the robust domestic travel growth.In addition, mid-high-scale economy hotels’ growth is driven by the rise indemand of domestic and business travelers, as well as consumer trade-up.Jinjiang is upgrading its products aggressively to mid-to-upscale hotels, mainlythrough the Vienna brand, just like China Lodging’s strategy for more mid-toupscale hotels and the Hanting upgrade. Management had guided previouslythat more than 1,000 hotels were mid-scale out of a total of 6,503 hotels inoperation as of 9M17. In addition, 50-60% of the hotel portfolio pipelines aremidscale. As of 9M17, the Vienna brand led the midscale hotel marketexpansion with more than 300 hotels added in 2017 YTD.

Valuation and risks

TP based on SOTP methodology (12-month weighted average EV/EBITDA);Jinjiang operates in multiple business segments (we use DCF as the primarymethodology for other hotel companies to capture secular growth over themedium term). We separately calculate EBIDTA of Jinjiang’s Chinese andoverseas selected hotel businesses. We assign a 12x multiple to Hotel Louvre,which is in line with the high end of European peers. We assign a 14x multipleto Plateno (7 days) and the original Jinjiang Chinese selected hotel business,which is the average for peers. Downside risks: 1) lower tourism demand; 2)stronger RMB, leading to more outbound travel; and 3) govt policy changes.