1、China Tourism and HotelsInitiate coverage: Chain reaction gives hotel leaders room to growThe move to mid-market hotels is set to drive industry growthThis should help Chinas leading hotel chains rapidly increase their market shareInitiate coverage on Jinjiang Hotels (Buy), BTG Hotels (Hold) and Chi

2、na CYTS Tours (Hold)Disclosures & Disclaimer: This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.Why read this report?We analyse the major shift to mid-market hotelswhich leaves Chinas major hotel c

3、hains very well positionedWe initiate coverage on two major hotel groups and a leading tourism companyMoving up to the mid-marketFor the hotel industry, the key to growth is limited service hotelsThe words “China” and “tourism” usually conjure up familiar images of the dominant force in the global t

4、ravel industry. But there is another side to that story the countrys huge domestic tourism industry. This report initiates coverage on two major hotel groups and a leading tourism company and assesses the state of these industries as they emerge from lockdown following the coronavirus outbreak.For h

5、otels, we think the key to growth is limited service hotels (LSH), an established part of the hospitality industry in Europe and the US, but a relatively new phenomenon in China. These hotels strip the amenities offered down to the basics, usually little more than a bed and a bathroom, with limited

6、catering options. The business model is attractive as it lowers both the investment outlay and operational costs. Hotel guests are happy, too, as they get a comfortable room at a reasonable price.Within the LSH segment, the mid-market hotels are growing their market share much faster than economy ho

7、tels, which is good for margins and profits. This hotel category is increasingly dominated by Chinas large hotel chains. We think this shift to the mid-market is the main driver of structural change in the countrys hotel industry. Domestic hotel leaders are trading at an average of 24.6x 2021e PE, i

8、n comparison to 26.8x for international leaders. We believe domestic hotel leaders deserve a valuation premium, given their much greater growth potential than international peers. We initiate coverage on:Jinjiang Hotels (600754 CH, Buy, TP RMB49.00)The company enjoys strong scale and brand advantage

9、s. As of end-2019, the number of guest rooms had reached 845,177, ranking it first in China. According to Euromonitor, Jinjiangs mid- end LSH hotels have the largest market share in China, based on sales revenue.BTG Hotels (600258 CH, Hold, TP RMB19.00)BTG Hotels is the No. 3 in economy and mid-end

10、hotel market share, based on sales revenue. Its main brand Home Inns is Chinas No. 2 economy brand based on room number. Its strategy is to gradually increase the proportion of mid-end LSH hotels.CYTS (600138 CH, Hold, TP RMB12.00)CYTS runs a travel agency, an exhibition business, resort operations,

11、 and hotels as well as a strategic investment business. The jewel in the crown that generates most of the profit is a themed resort built around the ancient town of Wuzhen, often called the Venice of China. But its not clear when visitor numbers will fully recover after the COVID-19 outbreak.Tourism

12、 and hotels facts and figures6.01bnNumber of domestic tourism trips taken in 2019, up 8.4% y-o-yx vs 2.4xDifference in number of annual trips between urban and rural residentsRoom to grow. The proportion of mid- end hotels is only 9% in China vs 33% in the US.22% CAGROur forecast for the rise in the

13、 number of mid-end chain hotels over 2019-24e26%The market share of hotel chains in China in developed markets it is more than 60%8,647The number of hotels Jinjiang operated at the end of 1Q204,640and the number in thepipelineAt the end of March 2020, Jinjiang had 855,944 guest rooms, making it No.

14、1 in China by room scale.Jinjiang largest hotel group in China35% to 43%The increase in the ratio of Jinjiangs mid- end hotels between 1Q19 and 1Q2087% to 89%The rise in the ratio of Jinjiangs franchisehotels between 1Q19 and 1Q20Contents HYPERLINK l _TOC_250008 Why read this report? 1 HYPERLINK l _

15、TOC_250007 Tourism and hotels facts and figures 2 HYPERLINK l _TOC_250006 Executive summary 4 HYPERLINK l _TOC_250005 Industry analysis 12 HYPERLINK l _TOC_250004 Company section 27 HYPERLINK l _TOC_250003 Jinjiang Hotels (600754 CH) 28 HYPERLINK l _TOC_250002 BTG Hotels (600258 CH) 41 HYPERLINK l _

16、TOC_250001 China CYTS Tours (600138 CH) 50 HYPERLINK l _TOC_250000 Disclosure appendix 60Disclaimer 63Executive summaryThe mid-end chain hotel market is on a fast growth track despite a deceleration in the broader hotel industryChain hotel rooms account for only 26% of the hotel industry vs over 60%

17、 in developed markets. Consolidation is set to accelerateWe believe leading companies with scale and brand advantages deserve a valuation premiumRapid growth of mid-end chain hotelsChinas domestic tourism market expanded at a CAGR of nearly 12% over 2017-19This report initiates coverage on two major

18、 hotel groups and a leading tourism company and assesses the state of these industries as they emerge from lockdown following the coronavirus outbreak.TourismAccording to the National Bureau of Statistics (NBS), Chinas domestic tourism market expanded at a CAGR of nearly 12% over 2017-19 and we expe

19、ct it to increase at an 11% CAGR over 2019-22. This will be driven by the governments strong support for the tourism industry, the consumption upgrade trend, and the anticipated absence of the coronavirus in 2021e.According to the NBS data, Chinas domestic tourist arrivals and per capita tourism spe

20、nding grew 8% and 2% y-o-y in 2019, respectively. We believe that the increase in tourist arrivals will remain the industrys major growth driver. According to the NBS, the tourism penetration rate among rural residents is around half of that among urban counterparts. We expect significant upside for

21、 Chinas overall level of tourism penetration, given the rising urbanisation rate and increase in per capita disposable income.Domestic tourism revenue comes from a wide range of sources, such as transportation, accommodation, catering, visits to resorts and shopping. In this report, we focus on reso

22、rts and hotels as we believe these two sub-sectors will benefit from the increase in domestic tourist numbers and per capita tourism spending.Exhibit 1. Changes in domestic trips in ChinaExhibit 2. Per capita spending on domestic tourism in China7,0006,0005,0004,0003,0002,0001,000094 96 98 00 02 04

23、06 08 10 12 14 16 1830%（mil）25%20%15%10%5%0%-5%1,000900800700600500400300200100094 96 98 00 02 04 06 08 10 12 14 16 1830%（RMB per year）25%20%15%10%5%0%-5%-10%-15%Travel population (LHS)y-o-y (RHS)Per capita travel spending (LHS)y-o-y (RHS)Source: NBS, HSBC Qianhai SecuritiesSource: NBS, HSBC Qianhai

24、 SecuritiesThe key performance metric is revenue per available room, or RevPARThe hotel industryAlthough not as developed as in western markets, Chinas hotel industry is now relatively mature after a period of rapid expansion. Euromonitor estimates it will grow at a CAGR of 4% over 2019-24. We belie

25、ve this relatively modest growth rate disguises that fact that the countrys massive consumer base can drive much faster expansion of the mid-market hotel market, with demand led by business trips, tourism, the growth of branded hotel chains, and consumer aspirations to stay in comfortable yet afford

26、able rooms.The key industry performance metric is revenue per available room, or RevPAR. It is calculated by multiplying a hotels average daily room rate (ADR) by its occupancy rate (OCC). We see slower growth in the number of hotels in China, suggesting that the period of aggressive expansion has t

27、emporarily come to an end. Consumer upgrades and the resulting higher RevPAR have become the hotel industrys major growth drivers.Consumption upgrade will help the mid-end chain hotel market grow rapidlyThe current structure of Chinas hotel industry features an oversupply of luxury hotels, insuffici

28、ent numbers of mid/high-end hotels, and a balanced yet abundant supply of economy hotels.Despite the slower growth in total hotel numbers, we see structural opportunities for limited service hotels (LSH), especially those run by hotel chains. We estimate the number of mid-end chain hotels will incre

29、ase at a 22% CAGR over 2019-24e, much higher than the rate for economy hotels. From the supply side, there are two reasons for this:Hotel groups are upgrading their existing economy hotels in response to the shift in market demand towards mid/high-end hotels.Amid intensifying competition, there is h

30、uge demand among many standalone hotel owners to join established hotel chains on a franchise basis. There are still a lot of standalone hotels and chain hotel rooms account for only 26% of the hotel industry in China, vs over 60% in developed markets, according to the industry consultancy Inntie.Th

31、is should allow the large hotel operators to improve their room mix, improving margins, profits and market share.Exhibit 3. The number of LSH (economy/mid-end chain hotels) and forecastsNumber of LSHEco CAGR: 19%Eco CAGR: 2%Mid CAGR: 59%Mid CAGR: 22%70,00060,00050,00040,00030,00020,00010/p>

32、92024eMid-end chain hotelEconomy chain hotelSource: Inntie, HSBC Qianhai Securities estimatesWe think the industry is set to bottom outMid-end chain leaders are likely to benefit from the industry troughWe believe that the growth of leading mid-end chain players will rely on their brand building abi

33、lity and improvements in the industry cycle. This is a cyclical sector due to the heavy upfront capex involved and long payback period. As a result of the recent macroeconomic slowdown, the performance of the overall hotel industry has declined since 2018, with growth of industry revenue falling to

34、5% in 2019, according to Euromonitor.But we think the industry is set to bottom out, especially once the impact of the coronavirus outbreak is behind us. In fact, the pandemic should help industry leaders find new opportunities for market consolidation as smaller operators struggle to recover. In ou

35、r view, big hotel companies with a franchise system or established brand will become stronger, increasing the pace of industry consolidation. Leading hotel players should benefit from:Robust demand for mid/high-end hotels. The increasing per capita income will boost RevPAR growth as people take more

36、 vacations, and spend more money on holiday and on business trips.Acceleration in market consolidation. Leading players will likely gain more market share, backed by their wide range of brands, advanced IT platforms and integrated membership systems.The franchise model. In China, more and more hotel

37、s now operate under franchise arrangements as leading hotel players shift towards an asset-light business model to reduce the impact of the industry cycle. Given the substantial growth potential of the brand franchise model, we believe its increasing penetration will drive up the profit margins of t

38、he top brands.We prefer Jinjiang Hotels for its scale advantage and premiumisationWe like Jinjiang Hotels as it has the largest number of hotels across the country as well as more mid-end hotels than peers both in absolute terms and as a percentage of the total.Domestic hotel leaders are trading at

39、an average of 24.6x 2021e PE, in comparison to an average of 26.8x for international leaders (Bloomberg). We believe domestic hotel leaders deserve a valuation premium, given their much greater growth potential than international peers.Exhibit 4. Value share of leading players in the mid-end hotel m

40、arket (23% for the top three, 2019)JinjiangChina Lodging11%8%4%3%69%BTGInterContinentalExhibit 5. Hotel numbers Jinjiang and BTG (end 1Q20)Hotel count60005000400030002000Wyndham AccorHotels Others3%10002%0Jinjiang Mid/high end hotelsBTGHTHTEconomy hotelsSource: Euromonitor, HSBC Qianhai SecuritiesSo

41、urce: Company data, HSBC Qianhai SecuritiesInitiating coverage on two hotel leaders and a tourism leaderJinjiang enjoys strong scale and brand advantagesJinjiang Hotels (600754 CH, Buy, TP RMB49.00)Founded in 1994, Jinjiang Hotels is a well-established state-owned enterprise based in Shanghai. In 19

42、96, the company launched the brand “Jinjiang Inn” to tap into the limited service hotel (LSH) market. In the past few years, Jinjiang acquired Louvre Hotels Group, Plateno Group and Vienna Hotels Group. As of end-2019, Jinjiang owned 8,514 hotels, of which 7,221 are in mainland China. The companys c

43、hain hotels now cover 31 provinces in China and 65 overseas countries and regions.Jinjiang enjoys strong scale and brand advantages. As of end-2019, the number of guest rooms had reached 845,177, ranking it first in China. According to Euromonitor, Jinjiangs mid-end and budget hotels had the largest

44、 market share of 11% and 20% in China by sales, in 2019. The company has an asset light business model. The industry-leading ratio of franchised hotels (87% of total rooms) supports earnings during industry troughs and, as Jinjiang continues to expand its franchise business, this will create further

45、 growth opportunities.We estimate 2019-22e revenue and attributable net profit to grow at CAGRs of 7% and 15%. Considering the scale advantages and strong middle-end brands mix, we expect the company to benefit from the rising share of franchised mid-end hotels and increase in market share. We initi

46、ate coverage with a Buy rating.BTG Hotels (600258 CH, Hold, TP RMB19.00)Headquartered in Beijing, state-owned BTG Hotels was founded in 1999 and listed on the Shanghai Stock Exchange in June 2000. The companys business model has changed. In 2014 travel services generated 95% of total revenue. The fo

47、llowing year it divested its travel services business and switched the focus to hotels.In 2016, it expanded into the economy hotel industry by acquiring Home Inns, one of the biggest economy hotel brands which was then delisted from the NASDAQ. This made the company the second largest hotel operator

48、 in China at the time.BTG Hotels is ranked No. 3 in economy and mid-end hotel market share in China, based on sales revenue. The main brand Home Inns is Chinas No.2 economy brand based on room numbers. Its strategy is to gradually increase the proportion of mid-end LSH hotels.The jewels in the crown

49、 that drive profits are two themed resorts built around ancient townsBTG Hotels is one of the Top 3 hotel leaders in China, owning Chinas No.2 brand based on room numbers. It is also the No.3 in economy (16%) and mid-end hotel market share (4%), based on sales revenue. As at end-2019, BTG Hotels had

50、 4,450 hotels, of which 81% were franchised and 19% directly operated. With a strategy of gradually increasing the proportion of mid/high-end hotels, the company is penetrating the mid-end market via its strong brands like Yitel and Home Inn Plus, upgrading existing economy brand Home Inn (to NEO3.0

51、) and developing a new mid/high-end brand with Hyatt.We forecast CAGRs of 7% and 9% for revenue and attributable net profit over 2019-22e. As it owns Chinas leading economy chain brand, Home Inns, the company is a leading player in the LSH industry. However, its larger share of self-operated and eco

52、nomy hotels means it is more exposed to an industry down-cycle. We initiate coverage with a Hold rating.CYTS (600138 CH, Hold, TP RMB12.00)China CYTS Tours was founded and listed in 1997. Beijing based, the companys actual controller was the Central Committee of the China Communist Youth League, but

53、 after an equity transfer in 2018, the company is now controlled by China Everbright Group and the actual overall controller is the State Council.CYTS has four main revenue streams a travel agency, integrated marketing services (exhibition business), resort operations, and hotels as well as a strate

54、gic investment business. The jewels in the crown that drive profits are two themed resorts built around ancient towns, Wuzhen and Gubei that have been turned into tourist attractions. Core tourist attraction Wuzhen (the company has a 66% stake) contributed 80% of the after-tax profit in 2019.We esti

55、mate revenue and attributable net profit CAGRs of 4% and 8% over 2019-22e. We believe Wuzhen and Gubei will benefit from rising per capita tourism consumption. However, given the low earnings contribution from the other business segments, the long investment cycle of new resorts and uncertainties ab

56、out reopening, we initiate coverage with a Hold rating.Exhibit 6. LSH leaders business breakdown2019 revenueOwned hotelManachised*OtherMid-to-high-EconomyMid-to-high-(RMBm)revenue hotel revenue contribution % contribution %businessend room numberroom numbersend room as % of totalJinjiang15,09959%39%

57、2%424,088421,08950%BTG Hotel8,31176%19%5%108,462306,49026% Major mid-end brands JinjiangJinjiang Metropolo, Lavande, Coffetel, Vienna, Golden TulipBTG HotelYitel, Home Inn Plus, Home Inn SelectedSource: Company data, HSBC Qianhai Securities. *”Manachised” is an industry term covering both managed an

58、d franchised hotels.Exhibit 7. Ratings and TPsCompanyTicker Mkt Cap (USDm)CP (RMB)TP Rating (RMB)Upside PE EPS 2020e2021e2022eCAGR%PEG19-22e21eJinjiang-A 600754 CH 4,81539.8849.00 Buy23%62.827.923.314.51.9BTG H.600258 CH 2,56918.2019.00 Hold4%223.319.315.88.62.2CYTS600138 CH 1,08210.4512.00 Hold15%6

59、3.611.510.77.71.5Source: Wind, HSBC Qianhai Securities estimates. CP = current price, as at 28 July 2020.Our estimates vs. market consensusOur estimates on 2020e net profit of three companies are generally below consensus, as we foresee stronger COVID-19 impacts on travel and hotel industry this yea

60、r. Our estimates on 2021-22e revenue for the two hotel companies are generally higher than consensus as we are more bullish on their market expansion, as we think the pandemic could accelerate market concentration.Exhibit 8. HSBC Qianhai Securities estimates vs. consensus HSBC Qianhai estimates _ Ma