\u3000\u3000 Zhejiang Ssaw Boutique Hotels Co.Ltd(301073) (301073)
Key investment points
After 15 years of intensive cultivation of medium and high-end selected service hotels, the net interest rate and roe far exceed the competition
The company is positioned as a medium and high-end selected service chain hotel and belongs to a high-end brand in the field of medium-sized hotels. 1) Scale: at the end of 21, the company opened 47 hotels and has 19 hotels that have signed contracts to be opened. 2) Brand matrix: its four major brands develop in multiple steps, focus on the medium and high-end market, fully cover the price band of medium and high-end hotels of 300-2000 yuan, and cover more consumer groups through differentiated design styles. 3) Regional distribution: deeply rooted in the Yangtze River Delta and involved in 10 provinces across the country, the total number of hotels opened in the core region of the Yangtze River delta accounts for 81%.
The founder is at the helm, the management has rich experience in high-end hotel management, and the company has excellent profitability. The founder of the company is the actual controller, and the management is relatively stable, mostly from the “Junlan” Department of medium and high-end hotels. At the end of 21q3, the main executives held a total of 71.55%. In 2019, the net profit margins of Junting, Huazhu, ShouLv and Jinjiang were 19.1%, 15.8%, 11.1% and 8.5% respectively; Roe was 30.8%, 26.1%, 10.3% and 8.4% respectively.
A major feature of the company is that it attaches importance to the direct sales model. Under the strong management ability, the gross profit margin of the company’s direct sales stores is far higher than that of the competition. In 2019, the direct sales stores contributed 93% of the gross profit. In 2019, there were 16 and 23 directly operated and entrusted hotels respectively, with operating revenue accounting for 96% and 4% respectively, and gross profit margin of 34% and 62% respectively. The gross profit of directly operated and entrusted hotels accounted for 93% and 7% respectively, and 82% and 18% respectively in 2020.
The chain rate of the industry continues to improve, and the proportion of medium and high-end hotels has more room to improve
The structure of China’s hotel industry is scattered, and medium and high-end hotels are still the blue ocean market. The epidemic accelerated the liquidation of individual hotels. At the end of the 20th year, the hotel chain rate in China increased by 5.6pct to 31.5% year-on-year, but there is still much room for improvement compared with the global average of 41.9% and 72.9% in the United States. In the future, the leading hotel chain groups are expected to fully benefit from the industry chain dividends. At present, China’s hotel market has a pyramid structure (medium and high-end accounts for 32%). With the change of income structure, it is expected to gradually evolve to the olive structure of the United States (medium and high-end accounts for 75%).
The demand of generation Z and middle-class people for high-quality products and personalized experience is growing, and medium and high-end hotels are in line with the trend of consumption upgrading. According to the report of China Hotel Association, the number of hotel reviews by business and parent-child travel customers accounts for 60%, and this group continues to pay more attention to services. According to the report of marhive, the consumption power of generation Z accounted for 40% of the whole in 2020, and the scale of the middle class is also increasing. Since 2016, the standard of travel expenses has been improved. In recent years, hotel consumers have higher and higher demand for “personalization” and “high quality”, and the demand space of medium and high-end hotels is broad.
Aiming at the medium and high-end blue ocean market, the premium is high under the strong product + service system
Junting aims at the potential business opportunities in the market, locates the high-end brands in the field of medium and high-end hotels, breaks through the middle-end Red Sea upward, moves towards the middle and high-end blue ocean, and moves from the subdivided market to a broader range market. From the perspective of incremental space, the proportion of medium and high-end hotels in China is expected to approach 75% in the United States from 32%; From the perspective of pattern, at the end of 2020, the CR10 of China’s mid-range, high-end and luxury hotel markets were 71%, 26% and 34% respectively. The mid-range and high-end with low concentration are still blue ocean markets.
Strong product power and leading premium. The company has excellent performance in hotel location, hardware and service. It has created the innovative advantages of Junting service system of “product selection, culture selection and service content selection”, showing strong product power and high premium in hotels of the same grade. In 2019, the single store income of Junting direct store was 22.92 million yuan, 2.0, 2.5 and 3.1 times that of Huazhu, Jinjiang and BTS respectively.
The entrusted management mode implemented by the company has both stability and flexibility. Unlike the traditional chain hotels, which implement the franchise mode (platform empowerment), the company realizes “from heavy to light” with the help of the entrusted management mode (Management empowerment). The mode of basic management fee + incentive management fee not only brings strong stability, but also brings greater flexibility. In 2019, the company entrusted the management store with a single store income of 650000 yuan, exceeding the single store income of the first brigade franchise store; In 2020, the impact of the epidemic was 550000 yuan, surpassing Jinjiang and Huazhu.
Listing and financing, acquisition of Junlan / Jinglan, and acceleration of large-scale competition
After listing + acquisition, the company entered the fast lane of expansion. On September 30, 2021, the company was listed on the gem and actually raised about 189 million yuan, which is mainly intended to invest in medium and high-end hotel design and development projects. On January 22, 2022, the company announced to change the purpose of part of the raised funds for the acquisition of the company’s equity and trademark, and planned to change the purpose of the raised funds of RMB 140 million for the acquisition of 79% equity (RMB 66 million) of Zhejiang Junlan Hotel Management Co., Ltd Jinglan Hotel Investment Management Co., Ltd. has 70% equity (14 million yuan) and “Junlan” series trademarks (60 million yuan).
After the acquisition, the market scale ranking is expected to rise from 49th to 13th, and the provincial coverage is expected to expand from 28% to 81%, so as to achieve leapfrog development. Zhejiang Junlan group is the top 10 of China Hotel Group and the top 50 of global hotel group; After the acquisition, the company’s hotel scale (including preparation) will be expanded from 66 to more than 300, and the number of provinces covered will rise from 11 to 26. M & A of mature brands is a key measure for the large-scale development of the hotel industry. Jinjiang and BTL have achieved leapfrog development through “small revenue and large revenue”.
The number of Direct stores accounts for 34% and the gross profit accounts for 93%. China’s demand recovery shows high performance elasticity
The company’s Direct stores account for 34%, which is the highest among listed companies. The demand recovery stage will bring high performance flexibility. According to STR data, in December 2021, RevPAR of Chinese hotels was about 200 yuan, a year-on-year decrease of 26%. Under the dual guarantee of vaccine and specific drugs, the recovery of China’s market demand in 2022 is expected.
Based on the recovery of demand to 2019 (see the text for key assumptions), the profit elasticity under a single variable is calculated. 1) if the company net increases one direct store, the net profit of hotel operation business will increase by about 4.23 million yuan, an increase of about 6.2% compared with 2019. 2) If the occupancy rate is + 1%, the net profit of hotel operation business will increase by about 3.56 million yuan, an increase of about 5%; 3) If the house price is + 1%, the net profit of hotel operation business will increase by about 2.39 million yuan, an increase of about 3.3%.
Profit forecast and valuation
Considering that the proportion of Direct stores of the company is the highest, it is expected to show high performance elasticity in the recovery stage of Chinese market demand; Due to the small scale of the company (regardless of the merger and acquisition of Jinglan and Junlan), the performance of the company may grow rapidly. It is estimated that the company’s operating revenue from 2021 to 2023 will be 293 million yuan, 455 million yuan and 604 million yuan respectively, and the net profit attributable to the parent company will be 37 million yuan, 84 million yuan and 126 million yuan, with corresponding EPS of 0.61, 1.40 and 2.09 yuan / share respectively, and the current price corresponding to PE of 77, 34 and 23 times. Based on the fact that the company is on the eve of growth transition and its scale is still small, it is expected to drive into the fast lane of expansion in the future under the expectation of M & a Junlan and Jinglan. We give 38 times in 2023, the corresponding target price is 79.53 yuan / share, and the discount is 73.64 yuan / share by 2022, covering the “buy” rating for the first time.
Risk tips
The epidemic repair is less than expected, the demand recovery is less than expected, and the risk of M & a failure.
