JINJIANG INTERNATIONAL HOTELS DEV’T(600754)：OVER 10 000 HOTELS IN OPERATION;FOCUSING ON ENHANCED BRANDING AND EFFICIENT OPERATION

3Q21 results in line with our expectations

    Jinjiang International Hotels announced its 3Q21 results: Revenue rose 6% YoY to Rmb3.09bn, attributable net profit increased 491.5% YoY to Rmb92.12mn, and recurring net profit turned positive to Rmb88.45mn (vs. net loss of Rmb26.36mn in 3Q20). In 1-3Q21, revenue grew 19.24% YoY to Rmb8.35bn and attributable net profit dropped 67.84% YoY to Rmb96.77mn, largely in line with our expectations.

    Hotel business: Total revenue from this segment rose 6.14% YoY to Rmb3.03bn in 3Q21, of which 74.11% came from the Chinese mainland and 25.89% from overseas markets. 1) Domestic hotels’ blended RevPAR in 3Q21 recovered to 82.3% of the 3Q19 level (mid-range and economy hotels recovered to 78.43% and 73.51% of the same period in 2019). 2) Overseas hotels’ blended RevPAR in 3Q21 recovered to 79.82% of the 3Q19 level (2Q21: 49.26%, 1H21: 51.49%), presenting obvious sequential recovery trend.

    The food and restaurant segment generated revenue of Rmb61.36mn (down 0.53% YoY) in 3Q21. In 1-3Q21, revenue from this segment grew 10.57% YoY to Rmb184mn.

    Trends to watch

    Reaching scale of over 10,000 hotels in operation; number of net hotel openings in 3Q21 hit a new high. In 3Q21, net hotel openings reached 370 (485 new openings, 59 closures, and 56 hotels suspending operation), a new high since 2018. As of end-3Q21, the firm had 10,195 hotels in operation, and the number of hotels including those in the pipeline reached 15,344. In 1-3Q21, the firm recorded 789 net hotel openings, of which 763 were mid-range hotels. Specifically, the number of hotels of core brands Vienna Hotels, Lavande Hotels, and Vienna International Hotels reached 131, 122, and 113 net openings in 1-3Q21. The firm maintained rapid and high-quality hotel expansion amid COVID- 19 resurgence. We think this reflects strengths in its brand portfolio.

    Continued to implement " Brand enhancement+ Asset-light model+ Concentration on operation" strategy; members of Vienna Hotels have been upgraded to JinJiang’s membership system. 1) On October 22, Jinjiang International Hotels reiterated its focus on "Brand enhancement+ Asset-light model+ Concentration on operation" strategy at an investor conference held in Shanghai. It is enhancing its presence in the Yangtze River Delta, strengthening its competitive advantages in the Pearl River Delta, and proactively developing businesses in southwestern and central China. 2) In June 2021, members of Vienna Hotels had their membership upgraded to Jinjiang’s membership. Therefore, Jinjiang now has 186mn members. According to the firm, it will step up efforts in acquiring high-quality paying members. We believe the integration of the membership systems will help the firm enlarge the proportion of direct- sales channels and attract more franchisees.

    Financials and valuation

    Considering possible COVID-19 resurgence in 4Q21 and 2022, we cut our 2021 and 2022 earnings forecasts 66.2% and 17.3% to Rmb132mn and Rmb1.41bn. Considering its strong brand portfolio and improvements in its membership system, we maintain NEUTRAL for Jinjiang International Hotels A- and B-shares, with our TP at Rmb50 (38x 2022e P/E with 7.4% downside) for A-shares and US$1.9 (10x 2022e P/E with 1.3% downside) for B-shares. The Jinjiang International Hotels A- and B-shares are trading at 41x 2022e and 10x 2022e P/E.

    Risks

    Impact of COVID-19 worse than expected; slower-than-expected hotel expansion, cost reduction, and efficiency enhancement.