Key investment points:
China’s hotel industry is in the period of M & A integration. Hotels are the main accommodation facilities in China, accounting for 95% of China’s accommodation industry according to the size of guest rooms. However, China’s hotels are still dominated by economy hotels, accounting for 82% of the scale of hotel facilities. This is because the change of hotel demand is greatly affected by the change of economic cycle, but the investment and construction of the hotel industry lags behind the change of demand, resulting in periodicity. China’s Hotel development history is relatively short. At present, it is still in the M & A integration period of the end of the dividend period of economy hotels and the slow growth of the demand of medium and high-end hotels.
The industry is oversupplied, and a leading hotel group has initially formed after M & A and integration. China has experienced the golden decade of economy hotels from 2002 to 2012. The supply of economy hotels is seriously surplus, and the cost expenditure rises rapidly. At the same time, the average house price is almost unchanged, entering the stage of continuous clearing. A number of leading hotel groups, such as Jinjiang, Huazhu and ShouLv, have emerged in the industry, which are mainly based on Franchise mode and expand rapidly through mergers and acquisitions, and expand rapidly by relying on asset light mode and turnover transformation. Under the asset light mode, the revenue of hotel groups is linked to the speed of new stores. Major hotel groups expand rapidly and the concentration of leaders gradually increases. It is expected to form an oligarch competition pattern similar to that in the United States and improve profitability.
Industry development trend. Referring to the United States, China’s hotel industry will have three development trends in the future: (1) the asset light model will expand rapidly. Under the asset light mode, the income of the hotel group is a one-time franchise fee and a continuous franchise fee calculated based on profit, which can effectively reduce the risk and weaken the fluctuation of revenue. In order to weaken the periodicity of the hotel, it is an inevitable trend to improve the franchise hotel. (2) The hotel structure is medium and high-end. The fierce competition in China’s economy hotels and the increase in the proportion of middle-class families have gradually expanded the demand for medium and high-end hotels. (3) Non standard hotels raise prices. With the consumption upgrading, the travel demand is gradually diversified and personalized, and they are more willing to pay for the experience. Non standard hotels have become the key to improving the average house price.
Investment strategy. Maintain the recommended rating of the industry, focusing on the leading enterprises and subdivided leaders. In terms of supply, after a decade of de supply, the hotel supply has been close to balance, the covid-19 epidemic has intensified, the hotel supply has been cleared, the hotel supply has decreased by 17% year-on-year in 2020, and the decline of epidemic prevention subsidies in 2021 has deepened the impact of the epidemic, or further reduced the capacity of the hotel industry. However, the demand for wine travel continues to be limited by the epidemic prevention policy. At present, the sequential vaccination has begun, and Pfizer covid-19 oral specific drug has been approved in China. After two years of adaptation, tourists’ panic about the epidemic has gradually reduced. After the release of the epidemic prevention policy, the demand for wine travel is expected to rebound more strongly than that in Europe and America, and quickly cross the grinding bottom stage to open a new round of hotel upward cycle. In terms of price, major hotel leaders will gradually upgrade their economic products, increase income through renovation and upgrading and increasing consumption scenes, and gradually launch medium and high-end hotel brands. Under consumption upgrading, the average house price will gradually rise. It is suggested to focus on Shanghai Jin Jiang International Hotels Co.Ltd(600754) (600754), Btg Hotels (Group) Co.Ltd(600258) (600258), the largest and fastest-growing chain hotel leaders, and Zhejiang Ssaw Boutique Hotels Co.Ltd(301073) (301073), which conforms to the trend of medium and high-end hotel and is expected to increase rapidly.
Risk warning. Intensified industry competition, policy changes, increased dependence on distribution platforms, slower than expected speed of newly opened hotels, repeated epidemics, etc.
