With the exception of Junting, leading domestic hotels currently have dynamic valuations of around 20x in 2024, which is in a historically low position. It is recommended that medium- to long-term investors can position themselves as excellent hotel leaders.
The Zhitong Finance App learned that Guoxin Securities released a research report saying that after 2023, the differentiated performance of leading hotel companies brought about differences in stock price trends, followed by a general decline in recovery expectations and uncertainty about future betas. It has now returned to the end of 2019 or around May 2020, and expectations for leading growth and industry concentration have returned to a low point. The bank believes that under uncertain cycles, short-term fluctuations and pressure may occur, but to a certain extent, it can provide medium- to long-term investors with certain allocation opportunities. With the exception of Junting, leading domestic hotels currently have dynamic valuations of around 20x in 2024, which is in a historically low position. It is recommended that medium- to long-term investors can position themselves as excellent hotel leaders.
Guoxin Securities's views are as follows:
The 2020-2022 pandemic disrupted the situation, but due to good expectations of industry clearance and concentration of leaders, the stock prices of leading hotel companies bucked the trend, reaching a stage peak at the end of 2022 and the expected strong recovery in 2023. After 2023, the differentiated performance of leading hotel companies brought about differences in stock price trends, and then along with weakening recovery expectations and uncertainty about future betas, general decline. It has now returned to the end of 2019 or around May 2020, and expectations for leading growth and industry concentration have returned to a low point.
Based on the present, in a situation where the market is cautious about the future expectations of the industry and leaders, it is necessary for the bank to re-objectively examine the iterations and leading changes in the hotel industry and rationally discuss the possible future cycle and leading growth of the hotel industry.
A discussion on the cycle: There are uncertainties that need to be followed up, but once expectations are fully established, stage opportunities will not be ruled out next year. Currently, the core limitation of leading hotels is beta. The bank's text attempts to comprehensively discuss the characteristics of this year's supply and demand and possible interpretations next year, but objectively speaking, it still needs to be tracked and inconclusive. However, if the performance of the industry and companies in 2019 is resumed at the end of 2018 (the industry is under downward pressure in 2019), leading stock prices tend to bottom out before fundamentals and still rebound by 25-30% when data stabilizes or is better than pessimistic expectations (dynamic valuations are fixed to around 25x from within 20x), and opportunities for a rebound are not ruled out at this stage. The advantages of a first-moat, such as card membership in leading hotel chains, lay the foundation for investment value.
Second, on growth: Compared with before the pandemic, are there any new changes in the hotel industry? Is there growth in the comprehensive capabilities of leading hotels? Yes! The industry chain rate has increased markedly, and pricing power has been relatively strengthened under leading management optimization; under changes in the real estate cycle, investment income in the hotel industry chain has changed from “owner-side property appreciation +franchisee rent dividends+operating income” to overall dominance of operating income. Future industry investment and hotel groups will experience new changes, etc. The past era of pursuing cost optimization and scale has gradually faded away, and the pursuit of brand premium management and iterative optimization of hotel groups has become the core of future development.
Three long-term discussions: 1) There is still plenty of room for chain growth in China's sinking market. Further concentration and iteration of leaders in core regions, and opportunities for high-end and local high-end hotels still help domestic hotel leaders to grow in the long term; 2) Take Marriott and other international leaders as an example, even in a mature development period, brand optimization and dividend repurchases supported by excellent cash flow in franchise models still bring good shareholder returns, helping excellent hotel leaders still have a premium over the long term.
Admittedly, the double click/double kill characteristics of hotel leaders who have invested in Davis in the past are obvious. Under uncertain cycles, short-term fluctuations and pressures may occur, but to a certain extent, they can provide medium- to long-term investors with certain allocation opportunities.
Hotel Review and Review: Exploring Poor Expectations in Cycles and Growth Iterations. 1) Before the pandemic, the hotel industry experienced an economic/mid-range cycle, with prices lagging behind; after the pandemic, prices were mainly price driven, and rental rates gradually recovered; 2) Watch the recovery of leading hotel stock prices: After experiencing the 2017-2018Q1 upward cycle, along with the slowdown in growth, the leading hotel stock prices bottomed out in early 2019. Since then, even though the hotel industry fluctuated downwards in 2019, there were still two opportunities to rebound. 3) After the rise in optimistic expectations over the past 3 years and differentiated verification and adjustments since this year, most of the leading hotels have now returned to prices in early 2020, and are cautious about next year's economic expectations.
Hotel industry trend outlook: First, look at total supply and demand and structure driven by cyclical changes, and second, look at the iterative revenue structure of the hotel industry chain having a profound impact. 1) Although this year's supply has recovered (release of quarantined stores and some small to medium capacity hotels), it is expected that this year's supply will not be fully reached before the epidemic; the chain rate is 1.8 times higher than before the epidemic, and the chain rate in core cities has increased from 30% + to 50-60%, which has led to changes in the supply structure, helping leaders to increase their bargaining power; on the demand side, “business travel is weak and leisure is strong” this year, but demand still needs to follow economic trends next year. However, demand will still be relatively stable if the low base for business travel is steadily increasing and leisure is more balanced next year. 2) Changes in the composition of hotel earnings: With the decline of real estate dividends, “owner-side property appreciation” and “franchisee rental dividends” are expected to gradually decline in the future. Brand operating income will become the core of hotel investment, supply will become more rational and mature, and more emphasis will be placed on investment cost performance, thus helping the industry to concentrate supply more, and the importance of premium management for leading hotel brands is becoming more prominent.
Leading growth: 1) “National property scale card+member operation+asset-light expansion” constructs leading first-mover advantages and basic value for economies of scale; 2) Advanced value: Hotel leaders from store operations to brand premiums, from brand management to group optimization. The transformation of the chain competition pattern and the improvement of system and management capabilities over the past three years. Hotel operations have begun to simply focus on “cost optimization and scale expansion in a single store” to balance revenue management, focusing more on regional housing prices, operating efficiency, and overall improvement in member contributions. At the same time, under the battle of hotel groups, more emphasis will be placed on the comprehensive implementation of “front-end brand/membership+mid-range operation+back-office support” in the future. Regional management will be flat and efficient, and overall operation optimization.
Valuation review: 1) International hotel review: Taking Marriott as an example, its maturity period can still bring considerable investment returns through management optimization and dividend repurchases (cash flow advantage under asset-light expansion). Stock prices will still rise fivefold in 2013-2023; 2) Domestic hotels: 2013-2015 budget hotels were stable and volatile period (RevPAR shocks and pressure, and growth expectations are cautious), like home, Huazhu, the lowest valuation is 15-18x, most 20-30x, and A-shares are still 20-30x+; in the new cycle of 2017-2019, A-shares are still 20-30x+; 35- At 40x, Huazhu has a management premium of 60-80 or more, the downward cycle is as low as 17-18x, and fluctuates between 17-25x most of the time, and the period of resonance between the cycle and growth is the highest.
Investment advice: It is recommended that medium- to long-term investors can position themselves in excellent hotel leaders.
With the exception of Junting, leading domestic hotels currently have dynamic valuations of around 20x in 2024, which is at an all-time low position. Combining the evolution of the investment income structure of the hotel industry chain, changes in the chain concentration pattern, the increase in pricing power and the strengthening of member contributions under the subjective management optimization of hotel leaders, the “front+middle+back office” under the gradual group battle, the bank is still optimistic about the future growth of hotel leaders, especially Huazhu Group-S (01179) and Yaduo Hotel, and is also concerned about the future performance of Junting. At the same time, with the strengthening of state-owned management assessments and the impressive performance of peers, the bank is also concerned about the huge potential for future business improvement of the state-owned Jin Jiang Hotel (600754.SH) and First Travel Hotel (600258.SH). If market incentives are further strengthened in the future, product iterative upgrades are accelerated, and active profit management is strengthened, their growth is still worth looking forward to. It is recommended that medium- to long-term investors can position their positions.