China China Hotels Initiation of Coverage -...
Transcript of China China Hotels Initiation of Coverage -...
Deutsche Bank Markets Research
Asia
China
Consumer
Hotels / Leisure / Gaming
Industry
China Hotels
Date
1 February 2016
Initiation of Coverage
Disney magic in Shanghai; initiating on Jinjiang Hotels - A&H
How many visitors can Disney attract in 2016 and 2017?
________________________________________________________________________________________________________________
Deutsche Bank AG/Hong Kong
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015.
Tallan Zhou
Research Analyst
(+852) 2203 6464
Karen Tang
Research Analyst
(+852) 2203 6141
Key Changes
Company Target Price Rating
2006.HK – to 3.70(HKD) NR to Buy
600754.SS – to 36.00(CNY) NR to Hold
Source: Deutsche Bank
Top picks
Jinjiang International Hote (2006.HK),HKD2.77
Buy
Source: Deutsche Bank
Companies Featured
Jinjiang International Hote (2006.HK),HKD2.77
Buy
2014A 2015E 2016E
P/E (x) – – 20.7
EV/EBITDA (x) 15.8 16.4 10.5
Price/book (x) 1.3 1.5 1.4
Jinjiang Hotels Development (600754.SS),CNY33.44
Hold
2014A 2015E 2016E
P/E (x) 78.2 74.6 40.5
EV/EBITDA (x) 9.3 19.2 15.2
Price/book (x) 2.32 2.94 2.27
Songcheng Performance (300144.SZ),CNY24.48
Buy
2014A 2015E 2016E
P/E (x) 96.4 57.5 40.0
EV/EBITDA (x) 52.7 33.7 23.9
Price/book (x) 11.7 6.5 5.7
China CYTS Tours (600138.SS),CNY19.47 Buy
2014A 2015E 2016E
P/E (x) 37.0 35.9 26.9
EV/EBITDA (x) 11.1 14.7 12.1
Price/book (x) 2.7 3.0 2.7
Source: Deutsche Bank
We expect Disney Shanghai, which is set to open on 16 June 2016, to attract 6.9m visitors in 2016 and 16.5m in 2017. We derive our estimates by assigning a discount to Tokyo Disney’s 31m annual visitors. If we conservatively assume 50% of the visitors will stay one night in Shanghai, with a stable supply of hotel rooms in Shanghai between 2016 and 2017, Shanghai’s hotel occupancy rate should increase 2.4ppts to 79.4% in 2016 and 5.9ppts to 83.0% in 2017.
Hotel occupancy strongly correlated to international exhibitions Hotel RevPAR increased 60% yoy during the Shanghai World Expo (May-October 2010), and Tokyo achieved 21% yoy RevPAR growth when Tokyo Disney opened two new major facilities in 2013. We believe it is clear that the hosting of large international exhibitions and the opening of new world-class resorts benefit the local hotel industry.
Shanghai government aims to attract more people outside of Shanghai Our channel check in Shanghai confirmed our view that the Shanghai government intends to attract visitors outside of Shanghai rather than local ones. This is very different from Disney Tokyo’s visitors, with 65% being local residents. The Shanghai government aims to attract more visitors to stay at least one or two nights, thus driving up the growth of local 1) dining; 2) hotels; 3) transportation; and 4) other local leisure resorts.
Jinjiang chain of hotels in Shanghai will be a direct beneficiary Jinjiang Hotels, as a well recognized hotel brand in Shanghai, should enjoy a premium occupancy rate above the industry average. We expect Jinjiang’s full service hotel occupancy rate to increase to 78%/82% in 2016/17 from 73% in 2015 and its econ hotel occupancy rate to grow to 83%/84% from 80%. Meanwhile, given its convenient locations (many of its hotels are located alongside MTR lines, which easily connect to Line No.11, the Disney line), we expect its full service/econ hotel rates to moderately increase by 3%/4% yoy in 2016 and 2%/4% yoy in 2017. Therefore, we expect full service/econ hotel RevPAR to increase 10%/7% yoy and 7%/6% yoy, pushing up EBITDA in 2016/17.
Songcheng (300144.SZ) and CYTS (600138.SS) should also benefit We believe Songcheng, which is constructing its Shanghai project at Shanghai Grand Stage (30km away from Shanghai Disney), and CYTS’s Wuzhen (located 130km from Shanghai) should also benefit from the traffic outflow from Shanghai Disney. We expect tourist volumes in Wuzhen to grow 18% yoy in 2016 and 16% yoy in 2017, supported partially by the Disney visitor outflow.
Valuation and risks We initiate on Jinjiang Hotels-H (2006.HK) with a Buy and Jinjiang Hotels-A (600754.SS) with a Hold rating. We use SOTP EV/EBITDA in our main valuations of both companies. We believe Jinjiang Hotels-H is undervalued as we also used NAV to cross-check Jinjiang Hotels-H’ valuation level. Its NAV of self-owned hotels is at a 50% discount to our price target (meaning all other segments are free to investors). However, Jinjiang Hotels-A’s valuation seems fair and has priced in all positives (18x EV/EBITDA). Risks: margin tightening due to competition, domestic tourism market downturn, uncertainty over Disney visitor volumes.
1 February 2016
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China Hotels
Page 2 Deutsche Bank AG/Hong Kong
Table Of Contents
Executive summary ............................................................. 3
The potential Disney impact ................................................ 9
Tickets and shuttle bus...................................................... 24
Indirect beneficiaries – tourism and hotels ....................... 27
Hotel peer comps .............................................................. 29
Appendix A ........................................................................ 30
Company section ............................................................... 33
Jinjiang International ......................................................... 34
Jinjiang Hotels Develop ..................................................... 60
1 February 2016
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Deutsche Bank AG/Hong Kong Page 3
Executive summary
We expect 6.5/16.5 million visitors to Disney in 2016/2017
Our methodology is to take Disney Tokyo as a benchmark and apply a discount
We believe the key metric to gauge the benefits of the opening of Shanghai
Disney for hotels in Shanghai is incremental traffic. We think international
events/exhibitions clearly boost a region’s hotel rates and occupancy rates.
In this report, we cross-reference Shanghai Disney to Tokyo Disney when
projecting the number of visitors at the initial stage and at the mature stage.
Given that Shanghai Disney will have a similar playground area to that of
Tokyo Disney, at approximately 289 acres, we think the number of visitors will
track closely but as the novelty premium is reduced – given this is the third
Disneyland in APAC region – we apply a discount of 20% to Tokyo Disney. We
believe Shanghai Disney will be able to attract 25m visitors per annum at the
maturity stage (cf. 31.4m of Tokyo Disney in 2014), and forecast 6.5m and
16.5m annual visitors in 2016 and 2017, respectively.
Hotel occupancy rate to increase 2.4/5.9ppt in 2016/17
According to WIND, Shanghai’s hotel supply will remain largely unchanged
increasing slightly from 177,595 in 2015 to 184,776 in 2106 and 191,798 in
2017. Therefore, we expect occupancy rates across Shanghai hotels to
increase as visitor volume picks up with the opening of Shanghai Disney. We
assume an average 50% of visitors attracted by Shanghai Disney will stay
overnight in the first two years. The RevPAR data for the Shanghai World Expo
and Tokyo Disney supports our argument:
During the 2010 Shanghai World Expo, when visitor volume
significantly increased thanks to big events, the regional hotel industry
enjoyed improving occupancy rates and increasing ADR. In 2010,
Shanghai visitor volume rose 35% yoy, driven primarily by the World
Expo held between May and October. The average occupancy rate
during the six months increased 25ppts yoy and average ADR rose
29% yoy. Average RevPAR increased 60% yoy to RMB380 in 2010.
The opening of two new major facilities at Tokyo Disney helped boost
Tokyo’s RevPAR by 21% yoy in 2013.
Shanghai government aims to bring more visitors from outside Shanghai rather
than locals
Our channel check in Shanghai confirmed our view that the Shanghai
government intends to attract visitors from outside of Shanghai rather than
locals. This is very different from Disney Tokyo’s visitors, with 65% being local
residents. The Shanghai government aims to attract more visitors to stay at
least one or two nights, thus driving up the growth of local 1) dining; 2) hotels;
3) transportation; and 4) other local leisure resorts.
Hotel occupancy up by 4.7ppts and 5.9ppts in 2H16 and 2017, respectively
We believe the opening of Shanghai Disney, which will attract more visitors to
Shanghai, should boost the overall performance of Shanghai hotels. In our
base case, we expect hotels’ average occupancy rate to increase 2.4ppts in
2016 (mainly in 2H16) and 5.9ppts in 2017, compared to the current level of
77%.
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Page 4 Deutsche Bank AG/Hong Kong
We illustrate our methodology in the figure below.
Figure 1: Our methodology at a glance
Assume 25m visitor in the
long run
Shanghai Disney to open on 16 June 2016
6.9m visitors in
2016
16.5m visitors in
2017
Assume: 50% visitors stay one night in Shanghai
3.5m overnight visitors
8.3m overnight visitors
198 days 365 days
17.5k visitors /day
22.7k visitors /day
SH room capacity: 185k rooms
SH room capacity:192k rooms
Assume: 2 people per room
To occupy 8.7k rooms
To occupy 11.3k rooms
Incremental occupancy
rate: 4.7ppts
Incremental occupancy
rate: 5.9ppts
2016 2017
Tokyo Disney -31.4m in 2014
20% discount
50% discount
35% discount
Source: Deutsche Bank
Figure 2: Occupancy rate calculation in 2H16 – scenario analysis
2H16 Bull Base Bear
Number of visitors to Disney (a) 7,590,499 6,900,454 5,520,363
% overnight (b) 65% 50% 35%
Number of overnight visitors (c=a*b) 4,933,825 3,450,227 1,932,127
Number of hotel rooms needed (d=c/2) 2,466,912 1,725,114 966,064
Total rooms in Shanghai (e) 184,776 184,776 184,776
Econ hotels 121,856 121,856 121,856
Star hotels 62,920 62,920 62,920
Number of Disney openning days in 2016 (f) 198 198 198
Hotel rooms * nights (g=e*f) 36,585,698 36,585,698 36,585,698
Incremental occupancy % (d/g) 6.7% 4.7% 2.6%
Current occupany rate 77.1% 77.1% 77.1%
Econ hotels 82.9% 82.9% 82.9%
Star hotels 65.7% 65.7% 65.7%
Occupany rate in 2H16 (est.) 83.8% 81.8% 79.7%
Occupany rate in 2016 (est.) 80.4% 79.4% 78.4% Source: Deutsche Bank estimate, WIND, Company data
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Deutsche Bank AG/Hong Kong Page 5
Figure 3: Occupancy rate calculation in 2017 – scenario analysis
2017 Bull Base Bear
Number of visitors to Disney (a) 18,190,363 16,536,694 13,229,355
% overnight (b) 65% 50% 35%
Number of overnight visitors (c=a*b) 11,823,736 8,268,347 4,630,274
Number of hotel rooms needed (d=c/2) 5,911,868 4,134,174 2,315,137
Total rooms in Shanghai (e) 191,798 191,798 191,798
Econ hotels 128,878 128,878 128,878
Star hotels 62,920 62,920 62,920
Number of Disney openning days in 2017 (f) 365 365 365
Hotel rooms * nights (g=e*f) 70,006,375 70,006,375 70,006,375
Incremental occupancy % (d/g) 8.4% 5.9% 3.3%
Current occupany rate 77.1% 77.1% 77.1%
Econ hotels 82.9% 82.9% 82.9%
Star hotels 65.7% 65.7% 65.7%
Occupany rate in 2017 (est.) 85.5% 83.0% 80.4% Source: Deutsche Bank estimate, WIND, Company data
Two new businesses: ticket distribution and shuttle bus
As one of the key shareholder of Disney Shanghai, Jinjiang International Group
(parent company of Jinjiang Hotels, the HK listco) is in charge of Disney’s
supporting facilities such as its ticket distribution and transportation. We have
confirmed with the management that Jinjiang Hotels’ two subsidiaries will be
responsible for the above two businesses.
Ticket distribution. In addition to Disney’s own ticket distribution
channel, Jinjiang International Travel (900929.SS) will be one of the
key tier-one wholesale distributors. We expect ticketing to contribute
RMB52m additional revenue and RMB47m incremental operating
profit.
Shuttle bus. Jinjiang Industrial Investment (600650.SS) will be
responsible for the shuttle bus service between Disney and the MTR
(Line 11). We expect the new service to bring in RMB86m revenue and
RMB65m incremental operating profit.
1 February 2016
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Page 6 Deutsche Bank AG/Hong Kong
Figure 4: Shuttle bus from Disney station to Disney resort
Shanghai Disneyland Resort (under construction)
Line 11 Disney Station
Total distance: 4.3kmTaxi fare: RMB20-30
Source: Deutsche Bank, Gaode map
Initiating on Jinjiang Hotels-H Buy, Jinjiang Hotels-A Hold
We use SOTP EV/EBITDA to derive our valuations of both Jinjiang Hotels and
Jinjiang Hotels-A.
We believe EV/EBITDA makes more sense than PER-based valuation as
earnings of the Jinjiang Hotels -A&H is likely to be distorted by short-term
financial cost surge.
We expect net finance cost to double in the short term due to increase in debt
for acquisitions – Jinjiang Hotels -A completed the acquisition of Groupe du
Louvre in 2015 and will complete the acquisition of 7 Days in 2016.
Figure 5: Jinjiang Hotels-A’s cash outflows for acquisitions in 2015 and 2016
RMBm
Major cash inflow in 2015&16
Operating cash in 2015 1,171
Operating cash flow in 2016 1,596
Net proceed from borrowing in 2015 8,169
Private placement (announced to complete by April 2016) 4,518
Total cash inflow 15,454
Major cash inflow in 2015&16
Capex in 2015 (731)
Capex in 2016 (1,049)
Acquisition of Groupe du Louvre (completed ) (2,957)
Acquisition of 7 Days (to be completed in beginning 2016) (8,269)
Repayment of debt (as guided by company) (4,518)
Restricted bank deposits pledged for borrowings (4,724)
Total cash outflow (22,248)
Source: Deutsche Bank estimates
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Deutsche Bank AG/Hong Kong Page 7
We initiate on Jinjiang Hotels-H (2006.HK) with a Buy rating and target
price of HKD3.7. The stock is trading at 10x EV/EBITDA, below the
industry average of 12x. We cross check our target price with NAV –
its NAV is currently trading at a 50% discount to our price target,
which we believe is undervalued as it implied that all other segments
are free to investors
We initiate on Jinjiang Hotels-A (600754.SS) with a Hold rating and
target price of RMB36. We believe Jinjiang Hotels-A’ current valuation,
trading at 15x 2016E EV/EBITDA, is fair and has priced in all the upside
potential.
We believe the Jinjiang brand should enjoy a premium
Jinjiang is the largest and most established hotel brand in Shanghai. While
Shanghai hotels in general should benefit from Disney’s opening, we believe
Jinjiang will see a more significant RevPAR increase given its large exposure to
Shanghai:
Full service hotels. Note that Jinjiang’s full service hotels on average
have an occupancy rate of 66%, lower than the 83% of econ hotels,
and they generally enjoy much stronger occupancy rate growth when
tourist volumes increase. As a result, we expect the occupancy rate of
Jinjiang’s full service hotels, the majority of which are located in prime
locations in Shanghai, to increase to 78%/82% in 2016/17. We
estimate RevPAR growth of 10% yoy in 2016 and 7% yoy in 2017.
Economy hotels. We expect the occupancy rate of Jinjiang Hotels-A, a
subsidiary of Jinjiang Hotels-H, to increase slightly to 83%/84% in
2016/17, supported by both organic growth and growth from its hotels
in Shanghai.
Overall EBITDA increase for Jinjiang Hotels (2006.HK)
Breaking down Jinjiang Hotels’ incremental EBITDA in 2016, we believe
Shanghai Disney should lead to RMB192m additional EBITDA for Jinjiang
Hotels-H, with other factors such as the acquisition of 7 Days and the growth
of Louvre contributing to the other RMB975m.
We forecast RMB114m additional revenue from Jinjiang’s full service
hotels in 2016. With a 20% operating margin, which is at the low-end
of the industry average of 20%-30%, we expect RMB23m additional
EBITDA.
We expect Jinjiang select service hotels to contribute RMB232m
additional revenue in 2016. With a 25% operating margin, this
business should provide Jinjiang with RMB58m incremental EBITDA.
Commission from tier-one Disney ticketing contributes the majority of
Jinjiang International Travel’s additional earnings. Given that ticketing
involves little cost, we assign a 90% profit margin to the service for
incremental earnings of RMB47m.
The shuttle bus service, which runs on electricity, should also enjoy a
relatively high margin. We assign a 75% profit margin and thus arrive
at incremental EBITDA of RMB65m.
Figure 6: Hotel performance,
2016/17E
2016 2017
Full Service
Occupancy rate (%) 78% 82%
ADR (RMB) 663 676
RevPAR (RMB) 518 553
Select Service
Occupancy rate (%) 83% 84%
ADR (RMB) 200 200
RevPAR (RMB) 165 168
Source: Deutsche Bank estimates
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Page 8 Deutsche Bank AG/Hong Kong
Figure 7: EBITDA increase, 2016E
Revenue (RMBm) Margin (est) EBITDA (RMBm)
Disney Impact
Full service hotel 114 20% 23
Selective (econ) service hotel 232 25% 58
Ticketing 52 90% 47
Shuttle bus 86 75% 65
Acquisition
7 Days 2,565 25% 641
Louvre 650 25% 162
Others 171
Total incremental EBITDA (RMBm) 1,167
Source: Deutsche Bank estimate
Our estimates vs. consensus, however consensus number varies
For Jinjiang Hotels-A, our 2016 revenue estimate is 17% higher than
Bloomberg consensus and EBITDA is 18% higher. For Jinjiang Hotels-H, our
2016 revenue estimate is 14% higher than Bloomberg consensus and our
EBITDA is 12% higher. We believe consensus may not have fully factored in
the revenue contribution from 7 Days in 2016.
Figure 8: Our estimates vs. consensus, Jinjiang Hotels-A, 2016
RMBm Our estimate BBG consensus Difference
Revenue 9,467 8,071 17%
Revenue excl. 7 Days 6,902 8,071 -14%
EBITDA 2,212 1,868 18%
Net profit 748 771 -3%
Source: Deutsche Bank, Bloomberg Finance LP
Figure 9: Our estimates vs. consensus, Jinjiang Hotels-H, 2016
RMBm Our estimate BBG consensus Difference
Revenue 16,515 14,542 14%
Revenue excl. 7 Days 13,949 14,542 -4%
EBITDA 2,951 3,121 -5%
Net profit 628 716 -12%
Source: Deutsche Bank, Bloomberg Finance LP
We would like to remind investors that Bloomberg consensus only has 4
brokers’ estimates. In addition, their estimate is very diversified. We have
listed broker’s detailed estimates. As a result, although we compare our
numbers to consensus for a basic benchmark, we do not think the sample of
consensus number is big enough to be trustworthy.
Figure 10: Brokers’ estimates on Jinjiang Hotels-H, 2016
Brokers Revenue (RMBm) EBITDA (RMBm) Net profit (RMBm)
Broker A 13,554 3,232 564
Broker B 16,296 3,029 467
Broker C 14,418 3,322 1,136
Broker D 13,898 2,901 697
Average 14,542 3,121 716
Std Dev 1,222 191 295 Source: Deutsche Bank, Bloomberg Finance LP
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 9
The potential Disney impact
What level of traffic could Disney attract?
One of the most exciting (and talked about) market events in 2016 is the
opening of Disney Shanghai. Disney recently announced the official opening
date: 16 June 2016.
In this report, we attempt to quantify the potential numbers of visitor volume
and provide base-, bull- and bear-case scenarios.
Shanghai Disney will be the first Disney resort in mainland China and the third
in Asia. Shanghai Disney’s total area will be 963 acres, much larger than its
Hong Kong resort. The park is majority owned by Shanghai Shendi Group, a
state-owned company consortium; Disney owns only 43%. However, Disney
share ownership of the resort management company is 70%. With the local
government having a majority stake in the park, we believe the interests of
both parties are aligned. The opening of Disneyland in Shanghai will have
significant spillover effect on the whole tourism industry, including: 1) hotels;
2) transportation; 3) travel agencies; and 4) tourist attractions in the vicinity of
Disney park.
We quantified the potential number of visitors by benchmarking Shanghai
Disneyland to Tokyo Disneyland. In 2014, Tokyo Disneyland and Disney Sea
attracted 31.4m visitors. We believe Shanghai Disney, which is a similar size to
Tokyo, could attract 25m visitors annually once the resort matures.
Shanghai vs. Tokyo. Similar to Tokyo, Shanghai is a highly populated
area with around 30m population at end-2014. According to Disney’s
estimates, 330m people (with sufficient income levels) live within three
hours of Shanghai and will become its target guests thanks to
convenient highways and high-speed railways.
Park area. The total gross area of the Disney project in Shanghai will
be 1,730 acres (seven square km), with 767 acres to be developed in
phases II and III. Phase I will have 963 acres in total, of which 289
acres will be the actual playground area, similar to in Japan (292
acres).
As the novelty premium is reduced, given this is the third Disneyland
in the APAC region, we apply a 20% discount to Tokyo Disney’s traffic
volume and arrive at 25m visitors annually for Shanghai Disney.
We expect Shanghai Disney’s visitor volumes to show a relatively high growth
rate in the initial years as the resort gains popularity and efficiency improves.
We forecast 6.5m visitors from 16 June to 31 December 2016.
We expect 16.5m traffic volume in 2017 and 20.4m in 2018.
1 February 2016
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Page 10 Deutsche Bank AG/Hong Kong
Figure 11: Disney branded resorts by number of visitors, 2014
Location Resort Theme Parks / Water Parks Launch Year Area (acres) Visitors (m)GDP/capita (USD)
Florida, USA Walt Disney World Resort 27,258 56.0 41,899
Magic Kingdom Park 1971 107 19.3
Epcot 1982 300 11.8
Disney's Animal Kingdom 1998 500 10.4
Disney's Hollywood Studios 1989 135 10.3
Disney's Typhoon Lagoon Water Park 1989 61 2.2
Disney's Blizzard Beach Water Park 1995 66 2.0
Tokyo, Japan Tokyo Disney Resort 494 31.4 43,664
Tokyo Disneyland 1983 126 17.3
Tokyo Disney Sea 2001 121 14.1
California, USA Disneyland Resort 512 25.5 58,940
Disneyland Park, California 1955 163 16.8
Disney California Adventure Park 2001 54 8.8
Marne-La-Vallee, Paris, FranceDisneyland Resort Paris 4,800 14.2 57,241
Disneyland Park, Paris 1992 141 9.9
Walt Disney Studios Park 2002 126 4.3
Hong Kong Hong Kong Disneyland Resort 311 7.5 57,244
Hong Kong Disneyland Park 2005 126 7.5
Shanghai, China Shanghai Disneyland Resort 16-Jun-16 963 24,065
Top Disney branded resorts in 2014
Source: Deutsche Bank, company data, Brookings
Figure 12: Area of Disneyland parks (playground)
Park space (acres) Annual visitor volume (m)
Magic Kingdom Park 106 19.3
Tokyo Disneyland 116 17.3
Tokyo Disney Sea 175 14.1
Disneyland Park, California 161 16.8
Disney California Adventure Park 67 8.8
Disneyland Park, Paris 141 9.9
Hong Kong Disneyland Park 68 7.5 Source: Deutsche Bank
We expect visitor volumes to likely be below 25m in the first three years as a
new resort generally takes a few years to fully ramp up. To estimate the visitor
volumes in the initial three years, we apply discount rates of 20-50%.
We apply a 50% discount to the theoretical volume and arrive at
12.7m for 2016 (annualized). As Shanghai Disney is scheduled to open
on 16 June 2016 and will operate for only 198 days in 2016, we pro-
rate our full year 2016 estimate to arrive at 6.5m for 16 June to 31
December 2016.
We apply 35% and 20% discounts to the potential full visitor volume in
2017 and 2018, respectively. Our visitor volume estimates come in at
16.5m for 2017 and 20.4m for 2018.
1 February 2016
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Deutsche Bank AG/Hong Kong Page 11
Figure 13: Our Disney visitor expectations, 2016-2018E
2016 2017 2018
Our theoretical visitor volume (million) 25.1 25.1 25.1
Discount (%) 50% 35% 20%
Annualized visitors (million) 12.7 16.5 20.4
yoy% 30% 23%
Opening days 198 365 365
Our Disney visitor expectation (million) 6.9 16.5 20.4 Source: Deutsche Bank estimate
Disney’s magical touch to Asia tourism – HK and Tokyo
Both Hong Kong Disney and Tokyo Disney have reached a mature stage, in our
view, with visitor volume per annum stabilizing at around 7.5m for Hong Kong
Disney and 31.4m for Tokyo Disney, as shown in Figure 15 and Figure 16.
Figure 14: Comparison of three Disney resorts
Shanghai Disney HK Disney Tokyo Disneyland / Tokyo Disney Sea
Open Year 16-June 2016 2005 1983
Area (acre) 963 (1st phase) 311 494
Playgound area (acre) 289 (1st phase)s 69 292
No of theme parks 1 1 2
No of themed areas 6 7 14
No of hotels 2 2 existing
1 open in 2017
3 Disney branded
6 non-Disney branded
No of hotel rooms 1,220 1,000 existing
750 to open in 2017
1,711
Source: Deutsche Bank, Company data
Figure 15: Hong Kong Disney visitor volume, 2008-14 Figure 16: Tokyo Disney visitor volume, 2008-14
4.5 4.6
5.2
5.9
6.7
7.4 7.5
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2008 2009 2010 2011 2012 2013 2014
Hong Kong Disneyland (million)
26.8 25.7
27.1 25.9
27.5
31.3 31.4
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2008 2009 2010 2011 2012 2013 2014
Tokyo Disneyland (million)
Japan earthquake in 2011
Source: Deutsche Bank, AECOM
Source: Deutsche Bank, AECOM
Addition of two new facilities at Tokyo Disney drove up RevPAR by 21%
Tokyo Disneyland opened in 1983. Due to a lack of data back then, we look at
2013, when Tokyo Disney celebrated its 30th anniversary and introduced two
major facilities (Tokyo Story Mania! and Goofy’s House).
As a result of the opening of the two new facilities, total visitors to Tokyo
Disney increased 14% yoy to 31.3m in 2013, and overall Tokyo tourist arrivals
jumped 11% yoy. Tokyo’s hotel industry benefited and reported a 21% yoy
increase in RevPAR.
1 February 2016
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Page 12 Deutsche Bank AG/Hong Kong
Figure 17: New launches at Tokyo Disney drove tourism in Tokyo
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
-
200
400
600
800
1,000
1,200
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Tourist Arrival Tourist Arrival Growth (YoY)
(m)
In FY3/14, Tokyo tourists arrival jumped
+11% yoy upon Disneyland 30th anniversary.
Note: FY3/14 = Mar2013 – Mar2014 Source: Company data, Bureau of Industrial and Labor Affairs
Opening of Hong Kong Disney drove RevPAR up by 17-19%
Visitors to Hong Kong increased 9% yoy to 16.6m in September 2005 to April
2006. The surge in the number of visitors was partly due to the introduction of
Hong Kong Disneyland on 12 September 2005.
For Hong Kong’s hotel industry, average RevPAR of Hong Kong’s 5-star hotels
increased 19% yoy in the first year after Disney opened, while that of all hotels
increased 17% yoy during the same period.
Figure 18: Hong Kong visitor arrivals and RevPAR before and after Disneyland
opening
(m) (HKD) (HKD)
09/2004-08/2005 23 1,281 765
09/2005-08/2006 25 9% 1,521 19% 897 17%
Visitor Arrival RevPAR
all hotels5-star hotels
Source: Hong Kong Tourism Board
Let us recap the record of Shanghai World Expo in 2010
In recent years, the largest event held in Shanghai was the World Expo in
2010, we recap the impact of this event on local tourism industry. We remind
investors that the World Expo in Shanghai was a one-time event, while the
Disney projects are permanent tourists attraction. Nonetheless, we believe
Shanghai Expo’s visitor growth and its impact on the hotel and tourism
industry around Shanghai can be used as a good reference for Disney
Shanghai.
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 13
In 2010, Shanghai World Expo attracted 12m visitors per month Shanghai
visitor volume up 35% yoy in 2010. Expo 2010 in Shanghai attracted 73.1m
visitors during its six months, helping to boost visitor volume to Shanghai by
35% yoy in 2010, up from a 2.5% CAGR over 2005-2009. Annualizing this
number would give a total visitor count of 146m. This is 4x larger than the top
Asian theme park in Tokyo, Tokyo Disney (Disneyland + DisneySea), which
attracted 31.4m visitors in 2014.
Significant impact on hotel sector – three key charts
The significant growth of visitor volume has benefited the most of the hotel
sector in Shanghai. The following three key charts demonstrate growth in
occupancy rate, hotel rate and RePAR. (Figure 19, Figure 20, and Figure 21.)
Occupancy rate – The average occupancy rate during the six months
(May-October 2010) jumped more than 25ppts yoy. The whole range
of hotels benefited, from luxury 5-star to selective service 1-star.
ADR – Average ADR across all hotel categories increased 29% yoy
during the six months, with 3-star, 4-star and 5-star hotels raising their
room rates by 37% yoy, 33% yoy and 29% yoy, respectively.
RevPAR – As a result, RevPAR was boosted 60% yoy to RMB380 in
2010 (from RMB237 in 2009), reversing the previously declining trend.
Figure 19: Average occupancy rate (%) of hotels in Shanghai, 2009-2011
30
40
50
60
70
80
90
3 star 4 star 5 star Average
World Expo period
Source: Deutsche Bank, Shanghai Municipal Tourism Administration
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Figure 20: Average ADR growth (%) of hotels in Shanghai, 2009-2011
(30.0)
(20.0)
(10.0)
-
10.0
20.0
30.0
40.0
50.0
60.0
3 star 4 star 5 star Average
World Expo period
Source: Deutsche Bank, Shanghai Municipal Tourism Administration
Figure 21: RevPAR of all hotels in Shanghai, 2005-17E
-40%-30%-20%-10%0%10%20%30%40%50%60%70%
-
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
500.0
2005 2007 2009 2011 2013 2015E 2017E
RevPAR for Shanghai Hotels (RMB) RevPAR growth (YoY)
RMBWorld Expo held in Shanghai
from May to Oct 2010.
+60% yoy
in 2010
Source: Deutsche Bank, Shanghai Municipal Tourism Administration
Supply and demand of Shanghai hotels in 2016-17
Additional demand
We believe Shanghai Disney will bring additional overnight visitors to Shanghai,
which should benefit Shanghai hotels in terms of both occupancy rate and
ADR.
In our view, a higher percentage of visitors will likely come from outside
Shanghai in the initial years. To be conservative, we assume a 50% conversion
rate (i.e., 50% of the visitors will stay at hotels) for an average of one night. As
a result, we expect
an additional 3.5m overnight tourists in 2H16 (50% of 6.9m), and
an additional 8.3m overnight tourists in 2017 (50% of 16.5m).
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Current supply
On the supply side, we believe the number of hotel rooms in Shanghai is
unlikely to increase significantly in the initial years.
Shanghai Disney plans to open two hotels at the resort: 1) Shanghai
Disneyland Hotel with 420 rooms; and 2) Toy Story Hotel with 800 rooms. This
will add a total of 1,220 full service hotel rooms to Shanghai’s overall supply in
2H16.
Despite news that several luxury hotel brands are planning to enter Shanghai
to benefit from the opening of Shanghai Disney, we believe these additional
luxury hotels are likely to come into the market in late-2017 or 2018.
We expect 184,776 hotels rooms by the end of 2016 and 191,798 rooms by
the end of 2017, as shown in Figure 22.
The number of star hotels has been declining over the past few years.
We expect the number of star hotel rooms to stabilize over the next
few years at 62,920 (including the 1,220 additional rooms at Disney).
Econ hotels should continue to grow at single digits: we forecast
121,856 rooms by the end of 2016 and 128,878 rooms by the end of
2017.
Figure 22: Shanghai hotel supply estimates
121,856
128,878
62,920
-10%
-5%
0%
5%
10%
15%
20%
25%
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
130,000
140,000
2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Econ hotel rooms Star hotel rooms
Econ hotel rooms yoy% Star hotel rooms yoy%
Source: Deutsche Bank estimates, WIND, Shanghai Statistics
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Figure 23: Shanghai hotel performance, 2008-10M15
2008 2009 2010 2011 2012 2013 2014 10M15
Occupancy rate (%)
Overall 55.4 50.2 65.7 55.3 56.9 59.2 63.5 65.3
5-star 59.9 53.5 68.1 59.9 59.1 60.1 62.8 65.1
4-star 55.2 50.2 66.8 55.8 59.6 61.8 67.0 68.0
3-star 52.0 47.4 63.3 49.2 49.8 53.2 58.6 60.3
2-star 55.6 49.6 62.3 55.8 60.4 63.3 68.9 68.2
1-star 60.5 44.9 51.6 55.5 57.3 51.5 35.1 49.4
ADR (RMB)
Overall 658 563 683 627 627 629 648 678
5-star 1,233 1,010 1,151 1,039 956 942 945 967
4-star 618 508 612 526 534 500 492 511
3-star 324 297 373 326 322 314 320 332
2-star 212 209 261 218 217 214 241 242
1-star 105 126 159 119 111 132 139 143
RevPAR (RMB)
Overall 365 282 449 347 357 372 412 443
5-star 738 540 784 623 565 566 594 630
4-star 342 255 409 294 318 309 330 347
3-star 169 141 236 160 160 167 187 200
2-star 118 104 163 122 131 135 166 165
1-star 64 57 82 66 64 68 49 71
Yoy growth
Occupancy rate (ppts)
Overall (6.0) (5 .3) 15.5 (10.4) 1 .7 2 .3 4 .4 1 .8
5-star (8.3) (6.4) 14.6 (8.2) (0.9) 1.0 2.7 2.3
4-star (8.2) (5.0) 16.6 (11.0) 3.8 2.2 5.2 1.0
3-star (4.9) (4.5) 15.9 (14.1) 0.6 3.4 5.3 1.7
2-star (1.8) (6.0) 12.7 (6.5) 4.6 3.0 5.6 (0.7)
1-star (5.4) (15.6) 6.6 3.9 1.7 (5.8) (16.4) 14.3
ADR (RMB)
Overall -1% -15% 21% -8% 0% 0% 3% 5%
5-star -8% -18% 14% -10% -8% -1% 0% 2%
4-star -5% -18% 20% -14% 1% -6% -2% 4%
3-star 0% -8% 25% -13% -1% -2% 2% 4%
2-star 0% -1% 25% -16% 0% -2% 13% 1%
1-star -32% 20% 26% -25% -7% 19% 5% 3%
RevPAR (RMB)
Overall -11% -23% 59% -23% 3% 4% 11% 8%
5-star -19% -27% 45% -21% -9% 0% 5% 6%
4-star -17% -25% 60% -28% 8% -3% 7% 5%
3-star -9% -16% 67% -32% 0% 4% 12% 7%
2-star -3% -12% 57% -25% 8% 3% 22% 0%
1-star -37% -11% 45% -19% -4% 7% -28% 45% Source: Deutsche Bank, WIND
Shanghai hotels’ occupancy rate to improve
We expect the hotel occupancy rate in Shanghai to improve by 4.7ppts in
2H16 and 5.9ppts in 2017, compared to the current level of 77.1% (including
both econ hotels and star hotels).
Currently, Shanghai’s star hotels have an occupancy rate of 66% on
average.
As we lack exact data for econ hotels, we use the weighted average
occupancy rate of China’s top four econ hotel groups as a proxy
(Figure 24). We estimate an average occupancy rate of 83%.
Figure 24: Econ hotels’ current occupancy rate, 9M2015
Number of rooms 1Q15 2Q15 3Q15 Average
Home Inns 311,608 79% 83% 87% 83%
China Lodging 264,076 82% 86% 89% 86%
Jinjiang Hotels-A 125,115 72% 79% 81% 78%
7 Days 212,706 na na na 83%
Overall 913,505 83% Source: Deutsche Bank
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Impact in 2H16 – We believe the occupancy rate of Shanghai hotels will
increase by 2.6-6.7ppts on average in 2H16, compared to the current level.
Our base-case scenario suggests 4.6ppts growth in the occupancy rate of
Shanghai hotels to 81.8% in 2H16. This should help boost the hotels’ full-year
performance to a 79.4% occupancy rate.
We apply our 6.9m visitor volume estimate for 16 June to 31
December in our base-case scenario, with 10% upside in the bull case
and 10% downside for the bear case.
In the base case, we assume 50% of the visitors to Disney will stay in
Shanghai, implying 3.5m overnight visitors stemming from Disney.
Assuming 2 people per room night, 3.5m overnight visitors should
bring additional 1.7m hotel rooms demand.
To be conservative, we assume each hotel room on average
accommodates two people. With a total number of 184,776 hotel
rooms, Shanghai should be able to provide 36.6m hotels rooms during
the period that Disney is open in 2016 (184,776 rooms x 198 nights).
An additional 1.7m additional hotel rooms demand implies 4.7ppts
growth in occupancy rate purely from visitors to Shanghai Disney.
Figure 25: Occupancy rate calculation in 2H16 – scenario analysis
2H16 Bull Base Bear
Number of visitors to Disney (a) 7,590,499 6,900,454 5,520,363
% overnight (b) 65% 50% 35%
Number of overnight visitors (c=a*b) 4,933,825 3,450,227 1,932,127
Number of hotel rooms needed (d=c/2) 2,466,912 1,725,114 966,064
Total rooms in Shanghai (e) 184,776 184,776 184,776
Econ hotels 121,856 121,856 121,856
Star hotels 62,920 62,920 62,920
Number of Disney openning days in 2016 (f) 198 198 198
Hotel rooms * nights (g=e*f) 36,585,698 36,585,698 36,585,698
Incremental occupancy % (d/g) 6.7% 4.7% 2.6%
Current occupany rate 77.1% 77.1% 77.1%
Econ hotels 82.9% 82.9% 82.9%
Star hotels 65.7% 65.7% 65.7%
Occupany rate in 2H16 (est.) 83.8% 81.8% 79.7%
Occupany rate in 2016 (est.) 80.4% 79.4% 78.4% Source: Deutsche Bank estimate, WIND, Company data
Impact in 2017 – We believe the occupancy rate of Shanghai hotels will
increase by 3.3-8.4ppts on average in 2017, compared to the current level.
Our base-case scenario suggests 5.9ppts growth in Shanghai hotels’
occupancy rate to 83.0%.
We apply our 16.5m visitor volume estimate in 2017 in our base-case
scenario, with 10% upside in the bull case and 10% downside in the
bear case.
In the base case, we assume 50% of the visitors to Disney stay in
Shanghai, which gives us 8.3m overnight visitors.
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Assuming 2 people per room night, 4.1m overnight visitors should
bring additional 1.7m hotel rooms demand.
To be conservative, we assume each hotel room on average
accommodates two people. With a total number of 191,798 hotel
rooms, Shanghai should be able to provide 70m hotels rooms in full
year 2017 (191,798 rooms x 365 nights).
An additional 4.1m additional hotel rooms demand implies 5.9ppts
growth in occupancy rate compared to the current occupancy level.
Figure 26: Occupancy rate calculation in 2017 – scenario analysis
2017 Bull Base Bear
Number of visitors to Disney (a) 18,190,363 16,536,694 13,229,355
% overnight (b) 65% 50% 35%
Number of overnight visitors (c=a*b) 11,823,736 8,268,347 4,630,274
Number of hotel rooms needed (d=c/2) 5,911,868 4,134,174 2,315,137
Total rooms in Shanghai (e) 191,798 191,798 191,798
Econ hotels 128,878 128,878 128,878
Star hotels 62,920 62,920 62,920
Number of Disney openning days in 2017 (f) 365 365 365
Hotel rooms * nights (g=e*f) 70,006,375 70,006,375 70,006,375
Incremental occupancy % (d/g) 8.4% 5.9% 3.3%
Current occupany rate 77.1% 77.1% 77.1%
Econ hotels 82.9% 82.9% 82.9%
Star hotels 65.7% 65.7% 65.7%
Occupany rate in 2017 (est.) 85.5% 83.0% 80.4% Source: Deutsche Bank estimate, WIND, Company data
What about Jinjiang?
We believe Jinjiang Hotels is likely to benefit the most from Shanghai Disney,
thanks to: 1) its strong brand name as the largest hotel group in China; 2) its
relatively high exposure to Shanghai; and 3) its prime location in central
Shanghai with convenient metro access. As shown in Figure 27, Jinjiang’s full
service hotels enjoy a premium occupancy rate over the average Shanghai star
hotels.
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Deutsche Bank AG/Hong Kong Page 19
Figure 27: Jinjiang hotels have a higher occupancy rate than peers
50.0
55.0
60.0
65.0
70.0
75.0
2007 2008 2009 2010 2011 2012 2013 2014
Jinjiang Hotels occupancy % Shanghai star hotel average occupancy %
Source: Deutsche Bank, Company data, WIND
The largest hotel group after two recent acquisitions
After the acquisition of Keystone (formerly known as 7 Days), Jinjiang Hotels’
capacity in mainland China will surpass Home Inns’ to became the No.1 in
China’s economy hotel sector, with a 25% market share.
Jinjiang Hotels-A also has around 22% exposure in Shanghai, compared to the
low-teens to high-teens exposure of the other econ hotel groups. Meanwhile,
71% of Jinjiang-owned full service hotels are located in Shanghai.
Given the company’s leading position in China’s hotel market, and its
advantageous position in the Shanghai market, we believe Jinjiang is likely to
benefit more than other players from the Disney tourism flow into Shanghai.
Figure 28: Hotel market share, by number of rooms
,2014
Figure 29: Shanghai exposure , 2015
Jinjiang Hotel, 25%
Home Inns, 22%
China Lodging, 16%
Green Tree, 7%
Jinling Hotels, 3%
Others, 27%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Jinjiang full service
Jinjiang econ service
7 Days Home Inns China Lodging
Source: Deutsche Bank,, China Hotel Association, Company data
Source: Deutsche Bank estimate, Company data
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Located around Metro Line 2
The extension of the metro’s Line 11 to Shanghai Disney Resort has been
confirmed, and this line could potentially be extended to Shanghai Pudong
International airport. Passengers will be able to transfer to Line 11 from almost
all other metro lines, as shown by the red dots in Figure 30.
The majority of Jinjiang’s hotels are located in central Shanghai – 13 out of
Jinjiang’s 15 owned hotels in Shanghai are located near commercial centers
and popular tourism sites. In addition, nine of those hotels are located right
next to one of Shanghai’s major metro lines – Line 2 (as shown in Figure 31). In
our view, Jinjiang’s hotels could benefit from their prime locations and attract
more Disney visitors than other remote hotels.
Jian Guo Hotel is located near Xujiahui station, through which Line 11
passes.
Peace Hotel and Sofitel Hotel are located near the Nanjing E Rd station
of Line 2 and Line 10.
Shanghai Hotel and Shanghai Jing An Hotel are located right next to
Jing’an Temple station on Line 2.
Jin Jiang Tomson Hotel is located next to Century Avenue station,
where Lines 2, 4, 6 and 9 pass.
Figure 30: Line 11 Metro to Shanghai Disney
Source: Deutsche Bank, Baidu Map
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Figure 31: Location of Jinjiang Hotel-H’s full service hotels in Shanghai
2
3
41
No. 2 Metro Line
Shanghai Disney
(1) Shanghai Yangtze Hotel 上海扬子江万丽大酒店, Jin Jiang Rainbow Hotel 锦江虹桥宾馆
(2) Jinjiang Hotel 锦江饭店, Jinjiang Tower 新锦江大酒店, Jinjiang Shanghai Hotel 锦江上海宾馆, Jinjiang Jing'an Hotel 锦江静安宾馆
(3) Jinjiang Park Hotel 锦江国际饭店, Jinjiang Pacific Hotel 锦江金门大酒店
(4) Shanghai Jinjiang Tomson Hotel 上海锦江汤臣洲际大酒店
Source: Shanghai Municipal Tourism Administration, Deutsche Bank
Disney’s impact on Jinjiang Hotels-A
In our base case we expect Jinjiang Hotels-A to generate RMB232m additional
revenue for the group in 2016. This is based on our assumption of a 2.6ppts
yoy occupancy rate improvement and 3.5% yoy increase in ADR.
In our bull case, we assume the occupancy rate will improve 6.5ppts yoy
coupled with a 6.1% yoy increase in ADR. Under this scenario, we expect econ
hotels to generate RMB413m additional revenue in 2016. Our bear case
assumes a 1.5ppts yoy occupancy rate improvement and 1% yoy ADR growth.
This would provide the group with RMB141m additional revenue.
We expect Jinjiang Hotels-A, which has close to a quarter of its hotels
in Shanghai, to see an overall 2.6ppts yoy increase in occupancy rate
to 82.5% in 2016. This is supported by 3ppts yoy organic growth in
1H16E given the low base in 1H15 and 2.2ppts upside in 2H16E. We
expect the occupancy rate to further improve by 1.5ppts yoy to 84% in
2017, supported by the full-year Disney impact.
As occupancy rates reach above 80%, hotels – especially econ hotels,
which have relatively low ADRs – generally raise their room rates to
capture further revenue growth. We expect Jinjiang Hotels-A’s ADR to
increase 3.5% yoy in 2016 and 4% yoy in 2017.
As a result, we forecast 7% yoy growth in Jinjiang Hotels-A’s 2016
RevPAR to RMB165, and a 6% yoy increase in its 2017E RevPAR to
RMB175.
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Figure 32: Disney impact on Jinjiang-owned/leased econ hotels, 2016
Bull Case Base Case Bear Case
Occupancy rate (%) 86.5% 82.5% 81.4%
ADR (RMB) 205 200 195
RevPAR (RMB) 177 165 159
Incremental revenue (RMBm) 413 232 141
Assumptions
Incremental occupancy rate (ppt) 6.5% 2.6% 1.5%
Incremental ADR (%) 6.1% 3.5% 1.0%
Incremental RevPAR (%) 14.7% 6.9% 2.8% Source: Deutsche Bank estimate
Disney impact on Jinjiang full service hotels
In 2016, we expect the opening of Shanghai Disney to boost the revenue of
Jinjiang’s full service hotels by RMB114m. This is based on our assumption of
a 5.2ppts yoy occupancy rate improvement and 3% yoy increase in ADR.
In our bull case, we assume an occupancy rate improvement of 12ppts yoy
coupled with a 10% yoy increase in ADR. Under this scenario, we would
expect full service hotels to generate RMB289m additional revenue in 2016.
Our bear case assumes 0.5ppts yoy occupancy rate improvement and 1% yoy
ADR growth, which would provide the group with RMB29m additional revenue.
Note that star hotels, which have relatively low occupancy rates,
generally experience higher occupancy rate growth than econ hotels.
For Jinjiang full service hotels, we expect occupancy rate to increase
5.2ppts yoy to 78% in 2016, and 3.7ppts yoy to 82% in 2017.
An increase in occupancy rate generally comes with an increase in
ADR, as hotels tend to increase room rates when demand rises. For
full service hotels, which have relatively high room rates, we remain
conservative on the percentage of ADR growth. We forecast Jinjiang
full service hotels to increase room rates by 3% yoy in 2016 and 2%
yoy in 2017.
As a result, we forecast 10% yoy growth in Jinjiang full service hotel
RevPAR to RMB518 in 2016 and a 7% yoy increase to RMB553 in
2017.
Figure 33: Disney impact on Jinjiang-owned/leased full service hotels, 2016
Bull Case Base Case Bear Case
Occupancy rate (%) 85.0% 78.2% 74%
ADR (RMB) 708 663 650
RevPAR (RMB) 602 518 478
Incremental revenue (RMBm) 289 114 29
Assumptions
Incremental occupancy rate (ppt) 12.0% 5.2% 0.5%
Incremental ADR (%) 10.0% 3.0% 1.0%
Incremental RevPAR (%) 28.1% 10.3% 1.7% Source: Deutsche Bank estimate
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Below we perform a sensitivity analysis looking at the impact of changes in
occupancy rate and ADR on EBITDA growth.
A 5.2ppts increase in occupancy rate coupled with a 3% rise in full
service hotels’ average ADR leads to an 11.2ppts EBITDA growth rate
increase in full service hotels’ EBITDA growth rate, as shown in Figure
34.
Due to the limited contribution from full service hotel segment, we
expect this to translate into a 1.5ppts increase in EBITDA growth rate
for Jinjiang Hotels-H, as shown in Figure 35.
Figure 34: Analysis on full service hotels’ 2016E EBITDA growth of increase in
ADR and occupancy rate
0.0% 2.0% 4.0% 5.2% 7.0% 10.0% 15.0%
0.0% 0.0 3.0 5.9 7.7 10.4 14.8 22.3
1.0% 1.1 4.1 7.1 8.9 11.6 16.1 23.6
2.0% 2.2 5.2 8.2 10.0 12.8 17.3 24.9
3.0% 3.2 6.3 9.4 11.2 13.9 18.5 26.2
5.0% 5.4 8.5 11.6 13.5 16.3 21.0 28.8
7.0% 7.6 10.8 13.9 15.8 18.7 23.5 31.4
9.0% 9.7 13.0 16.2 18.2 21.1 25.9 34.0
Increase in
ADR
Increse in occupancy rate
Source: Deutsche Bank estimate
Figure 35: Analysis on Jinjiang Hotels-H (2006.HK)’s 2016E EBITDA growth of
increase in ADR and occupancy rate
0.0% 2.0% 4.0% 5.2% 7.0% 10.0% 15.0%
0.0% 0.0 0.4 0.8 1.0 1.4 1.9 2.9
1.0% 0.1 0.5 0.9 1.2 1.5 2.1 3.1
2.0% 0.3 0.7 1.1 1.3 1.7 2.3 3.3
3.0% 0.4 0.8 1.2 1.5 1.8 2.4 3.4
5.0% 0.7 1.1 1.5 1.8 2.1 2.7 3.8
7.0% 1.0 1.4 1.8 2.1 2.4 3.1 4.1
9.0% 1.3 1.7 2.1 2.4 2.8 3.4 4.5
Increse in occupancy rate
Increase in
ADR
Source: Deutsche Bank estimate
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Tickets and shuttle bus
Ticketing and transportation services
We believe two subsidiaries of Jinjiang Hotels-H will benefit directly from the
opening of Shanghai Disney: Jinjiang International Travel Co. (900929.SS) and
Jinjiang Industrial Investment Co. (600650.SS).
Jinjiang International Travel will be one of the tier-one agents for
Shanghai Disney’s ticketing, and will receive a percentage of the
ticketing revenue as agency service fee.
Jinjiang Industrial Investment, which offers passenger transportation
and logistics services, will be the only operator of the Disney employee
shuttle bus and Disney park shuttle bus from the Disney station to the
main gate.
The benefits of being a shareholder in Shanghai Disney
We believe one of the reasons Jinjiang International Travel and Jinjiang
Industrial Investment have become the sole ticket agency and transportation
service provider for Shanghai Disney is their background as subsidiaries of
Jinjiang International Group, the second largest shareholder of Shanghai
Shendi Group, which owns a 57% stake in Shanghai International Theme Park.
Please see the Shanghai Disney ownership organization chart in Appendix A
for the detailed ownership structure of Shanghai Disney.
The project is operated by Shanghai International Theme Park
Company, a joint venture between Walt Disney (DIS.N) (43% stake)
and Shanghai Shendi Group (57% stake).
Shanghai Shendi Group is controlled by four state-owned companies
operating in the retail, hospitality, media and travel industries.
Jinjiang International Group, Jinjiang Hotel-H’s parent company, holds
a 25% stake in Shanghai Shendi, which implies 14.25% ownership of
the Shanghai Disney project.
Company impact – Jinjiang Hotels-H
We believe Jinjiang Hotels-H (2006.HK) will benefit directly from the opening
of Shanghai Disney as two of its subsidiaries control the ticketing and
transportation.
Our analysis to quantify the potential revenue and earnings contribution is
based on our visitor volume assumptions provided in a previous section of this
report (“What level of traffic could Disney attract in theory?”). As explained
previously, we benchmark Shanghai Disney with Tokyo Disney to arrive at
tourist volumes of 6.9m in 2016, 16.5m in 2017, and 20.4m in 2018.
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Deutsche Bank AG/Hong Kong Page 25
Ticketing
In our view, the Disneyland ticketing agent business, which has an extremely
high margin, is likely to become one of the key revenue and earnings
contributors to Jinjiang International Travel.
We expect the ticketing agent service for Shanghai Disney to bring in
additional revenue of RMB52m in 2016, RMB124m in 2017, and RMB153m in
2018 for Jinjiang International Travel, as shown in Figure 36. Our calculation is
based on our overall visitor estimates and the following two assumptions:
Jinjiang has been confirmed as one of the tier-one ticket agents for
Shanghai Disney. We assume that 25% of tickets will be sold through
Jinjiang International Travel.
We expect Shanghai Disney’s ticket price to fall in the range of
RMB300-500. We assume Jinjiang to receive a RMB30 handling fee
per ticket sold, which is about 6-10% of the ticketing revenue as a
commission.
Figure 36: Revenue from Disney ticketing
2016E 2017E 2018E
Number of visitors (million) 6.9 16.5 20.4
% tickets sold through Jinjiang 25% 25% 25%
Ticket commission (RMB) 30 30 30
Revenue (RMBm) 52 124 153
Source: Deutsche Bank estimate
Figure 37 shows our sensitivity analysis for the revenue contribution from
Disney ticketing based on different visitor volumes and agent fees per ticket.
Figure 37: Sensitivity of ticketing revenue to visitor volume and agent fee
124.03 6.5 8.5 10.5 12.5 14.5 16.5 18.5 20.5 22.5 24.5 26.5
15 25 32 40 47 55 62 70 77 85 92 100
20 33 43 53 63 73 83 93 103 113 123 133
25 41 53 66 78 91 103 116 128 141 153 166
30 49 64 79 94 109 124 139 154 169 184 199
35 57 75 92 110 127 145 162 180 197 215 232
40 65 85 105 125 145 165 185 205 225 245 265
45 74 96 119 141 164 186 209 231 254 276 299
Agent
fee per
ticket
(RMB)
Annual visitor volume (million)
Source: Deutsche Bank estimate
In addition to the direct agent fee on tickets, we believe Jinjiang International
Travel could also leverage its Disney ticket resource to introduce domestic
travel packages (cross-sell) and encourage tourists to book through Jinjiang’s
travel agencies.
Transportation: shuttle bus service
Jinjiang Industrial Investment is currently in discussions with Disney
management regarding a shuttle bus service. According to management, the
current arrangement is for Jinjiang Industrial Investment to operate 40 shuttle
buses at Shanghai Disney.
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We believe the service will enjoy a high margin as the 40 buses running
between Disney station and the Disney park main gate will use electricity
instead of fuel.
As shown in the map below, the distance between the Disney station and the
main gate is approximately 4.3km. If travelling by taxi, this should cost
RMB20-30 per trip. As a result, we assume RMB25 per ticket charged by
Jinjiang Industrial Investment.
As a result, we estimate RMB86m revenue generated from the shuttle bus
service in 2016, RMB207m in 2017 and RMB255m in 2018, as shown in Figure
38.
Figure 38: Revenue from Disney shuttle bus service
2016E 2017E 2018E
Number of visitors (million) 6.9 16.5 20.4
% of visitors taking shuttle bus 50% 50% 50%
Ticket price (RMB) 25 25 25
Revenue (RMBm) 86 207 255
Source: Deutsche Bank estimate
Figure 39: Shuttle bus from Disney station to Disney resort
Shanghai Disneyland Resort (under construction)
Line 11 Disney Station
Total distance: 4.3kmTaxi fare: RMB20-30
Source: Deutsche Bank, Gaode map
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 27
Indirect beneficiaries – tourism and hotels
Jinjiang Hotels (600754.SS and 2006.HK) – hotels in Shanghai
With a recovery in the occupancy rate of the entire hotel sector in Shanghai to
66%, we think Shanghai Disney can play a vital role in Shanghai’s hotel
segment.
Disney will open two hotels right next to the theme park, although these will
add only 1,220 hotel rooms. We believe Jinjiang Hotels-H will benefit from the
huge influx of visitors to the theme park.
We forecast 10% yoy growth in RevPAR in 2016 to RMB518, and a 7%
yoy increase in 2017 to RMB553, for Jinjiang Hotels’ full service
hotels.
We expect Jinjiang Hotels-A to achieve 7% yoy growth in 2016
RevPAR to RMB165, and a 6% yoy increase in 2017 to RMB175.
Figure 40: Full service hotel RevPAR, 2012-18E Figure 41: Selective service hotel RevPAR, 2012-18E
348
384
433
470
518
553 562
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
200
250
300
350
400
450
500
550
600
2012 2013 2014 2015E 2016E 2017E 2018E
Average RevPAR (RMB) overall average yoy%
160155
152 155
165
175179
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
100
110
120
130
140
150
160
170
180
190
2012 2013 2014 2015E 2016E 2017E 2018E
RevPAR yoy %
Source: Deutsche Bank estimate, company data
Source: Deutsche Bank estimate, company data
CYTS (600138.SS) – Wuzhen
CYTS is one of our top growth stories for this year. (Please refer to our The year
of the Monkey for our three top growth stock picks.) We believe Wuzhen,
which is located 130km from Shanghai, will benefit from the visitor volume
overflow from Shanghai Disneyland.
We expect Wuzhen to see continuous volume and revenue growth over the
next three to five years. We forecast a 19% revenue CAGR over 2015-18,
supported by a 16% CAGR in visitor volume over the same period.
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Page 28 Deutsche Bank AG/Hong Kong
Figure 42: Wuzhen to Disney
Source: Deutsche Bank, Google map
Songcheng (300144.SZ) – Hangzhou and Shanghai parks
In November 2015 Songcheng Performance announced that it would establish
a subsidiary, Shanghai Songcheng Expo Performance, to develop the
Songcheng Performance – Expo Grand Stage project located in the Expo Park.
The Shanghai Expo Center is only 30km away from Shanghai Disney, as
shown in Figure 43. As the project is due to be launched in 2017/18, it should
benefit from the tourist volume growth.
Hangzhou Songcheng, Songcheng Performance’s main park, is also likely to
benefit from the spillover effect of Shanghai Disney.
Figure 43: Expo Grand Stage to Disney
Source: Deutsche Bank, Google map
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 29
Hotel peer comps
Figure 44: Peer comparisons
DB Global Hotel operators Valuation
Price TP Mkt Cap EV/EBITDA (x) PE (x) Div Yield (%) PB (x) EBITDA margin (%) D/E (%) EPS Cagr
Ticker Rec Local Local US$m 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2014-2016E
HK/China luxury hotel companies
HK & Shanghai Hotels 0045.HK NR 7.7 NA 1,518 12.0 13.2 19.5 21.2 2.8 2.7 NA NA 25.4 20.9 NA NA -6.8
Mandarin Oriental MOIL.SI NR 1.3 NA 1,683 13.9 13.4 23.1 20.9 3.4 3.7 NA NA 21.6 21.8 NA NA 6.0
Shangri-La Asia 0069.HK Hold 7.1 9.2 4,931 10.3 8.7 23.5 16.8 1.4 2.0 0.5 0.5 24.6 25.3 54.8 52.1 37.0
HK/China luxury hotels average 12.1 11.7 22.0 19.7 2.5 2.8 0.5 0.5 23.9 22.7 54.8 52.1 12.0
China economy hotel companies
China Lodging HTHT.OQ Hold 28.1 26.0 1,575 8.9 7.9 26.7 24.8 0.0 0.0 3.3 3.0 17.1 14.8 -19.8 -21.3 18.0
Home Inns HMIN.OQ Buy 33.9 35.8 1,553 8.0 6.9 24.0 23.9 0.0 0.0 2.0 1.8 25.6 24.5 -5.0 -12.3 -5.4
Shanghai Jin Jiang Int'l Hotel Dev 600754.SH Hold 32.7 36.0 4,050 19.0 15.1 73.9 40.1 1.3 1.3 2.9 2.3 226.4 24.2 44.5 54.0 30.8
China economy hotels average 11.9 10.0 41.5 29.6 0.4 0.4 2.7 2.4 89.7 21.2 6.6 6.8 14.5
Asia hotel companies
Ambassador Hotel 2704.TW NR 26.5 NA 289 9.6 8.8 23.0 NA 2.8 2.8 1.0 1.0 23.0 NA -15.8 -16.7 NA
Banyan Tree Hldgs BANY.SI NR 0.4 NA 197 NA NA NA NA NA NA NA NA NA NA NA NA NA
BTG Hotel Group 600258.SH NR 22.5 NA 791 NA NA 33.3 30.8 1.6 3.0 1.3 0.9 7.2 NA NA NA 14.3
Central Plaza Hotel Plc CENTEL.BKHold 40.0 40.0 1,417 14.0 12.7 29.1 25.2 1.6 1.8 4.5 4.1 23.2 23.9 66.8 63.5 36.1
Dorsett Hospitality Int'l 2266.HK NR 1.5 NA 415 NA NA 0.0 0.0 NA NA NA NA NA NA NA NA NA
Eih Ltd EIHO.NS NR 120.3 NA 1,011 NA NA 40.1 NA 0.9 NA 2.4 NA 22.8 NA NA NA NA
Formosa Int'l 2707.TW NR 216.0 NA 815 14.0 12.8 20.3 18.3 4.2 4.7 6.7 6.4 27.0 28.1 17.0 13.8 12.1
Indian Hotels Co IHTL.NS NR 110.4 NA 1,310 17.5 13.9 74.6 NA 0.8 0.9 3.5 3.1 15.5 NA 177.0 162.0 NA
Jin Jiang Int'l Hotels Group 2006.HK Buy 2.7 3.7 1,915 16.0 10.3 19.5 19.1 2.2 2.2 1.4 1.4 11.0 17.9 55.3 78.6 7.7
Jinling Hotel Corp 601007.SH NR 11.1 NA 506 NA NA 28.7 21.7 1.0 NA 2.1 1.9 NA NA NA NA NA
Langham Hospitality Inv 1270.HK No Recommendation2.5 0.0 772 18.7 18.0 12.8 12.2 9.1 9.7 0.6 0.6 82.4 81.6 63.0 63.0 -0.9
Minor International Inc MINT.BK Hold 32.5 33.0 3,978 16.1 14.0 30.7 25.3 1.5 1.6 4.6 4.1 23.8 25.9 118.3 123.2 14.7
Asia hotels average 15.1 12.9 28.4 19.1 2.6 3.3 2.8 2.6 26.2 35.5 68.8 69.6 14.0
Global major hotel companies
Belmond Ltd BEL.N Buy 8.2 15.0 1,354 11.3 10.5 NA NA NA NA 1.3 1.2 20.7 20.6 64.4 59.0 NA
Hilton Worldwide HLT.N Buy 17.9 27.0 23,167 9.4 8.3 22.2 19.8 0.0 0.0 3.3 3.0 39.6 41.2 168.1 134.6 NA
Hyatt Hotels H.N Hold 37.9 46.0 8,576 8.8 8.6 42.3 31.6 0.0 0.0 1.4 1.4 16.7 17.1 21.4 28.1 NA
InterContinental Hotels Group IHG.L Hold 2,323 2,770 9,094 5.0 9.5 19.7 17.5 2.5 2.9 52.2 21.9 90.7 46.4 NA NA 10.4
Melia Hotels Int'l MEL.MC Buy 10.1 15.0 2,172 8.7 9.0 34.0 26.0 0.4 0.5 1.6 1.5 17.6 16.2 59.0 50.8 NA
Millennium & Copthorne Hotels MLC.N NR 403.6 NA 1,869 8.3 7.7 16.0 14.9 3.2 3.4 0.5 0.5 26.3 26.8 2.6 2.3 1.7
NH Hoteles NHH.MC NR 3.9 NA 1,472 NA NA NA NA 0.0 0.4 1.2 1.1 13.3 14.7 NA NA NA
Rezidor Hotel Group REZT.SK NR 28.7 NA 587 4.7 4.2 11.8 10.0 3.4 2.9 2.0 1.7 10.6 11.4 -0.5 -0.5 28.8
Global major hotels average 8.0 8.3 24.3 20.0 1.4 1.4 7.9 4.0 29.4 24.3 52.5 45.7 13.6
Global major economy hotel companies
Choice Hotels CHH.N Hold 43.4 56.0 2,860 12.8 11.6 19.8 17.9 1.8 1.9 NM NM 28.4 28.9 -156.4 -174.7 NA
Extended Stay America STAY.N Buy 12.8 22.0 4,624 8.2 8.1 14.0 13.3 7.1 5.5 1.9 1.7 45.9 46.7 172.1 150.8 9.0
Whitbread WTB.L Buy 3,984 6,000 9,128 11.1 9.9 16.9 15.0 2.4 2.7 3.2 2.8 26.1 26.2 40.3 43.7 12.3
Wyndham Worldwide WYN.N Hold 64.6 71.0 9,278 8.2 7.8 12.8 11.4 2.6 2.8 8.4 9.6 23.5 24.0 317.1 388.2 NA
Global major economy hotels average 10.1 9.4 15.9 14.4 3.5 3.2 4.5 4.7 31.0 31.4 93.3 102.0 10.6
China online travel company average 46.6 20.2 16.1 28.7 0.0 0.0 -7.2 -8.4 -25.7 0.5 15.6 6.9 40.7
China internet company average 40.5 14.0 30.9 21.1 0.3 0.4 6.9 5.1 21.1 22.3 -54.1 -68.7 18.8
Large cap China property company average 7.2 6.8 9.2 8.4 3.3 3.6 1.2 1.1 22.2 22.0 65.8 67.2 30.2
Small cap China property company average 5.4 4.8 4.9 4.4 7.8 8.6 0.4 0.4 22.4 22.2 77.2 70.7 13.9
Source: Deutsche Bank estimates, company data
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Page 30 Deutsche Bank AG/Hong Kong
Appendix A
Shanghai Disney at a glance
A quick overview of Shanghai Disney
The Shanghai Disney project was approved by the Shanghai Municipal
Government in 2009. It started construction in April 2010 and is expected to
open in June 2016. The project is operated by Shanghai International Theme
Park Company, a joint venture between Walt Disney (DIS.N) (43% stake) and
Shanghai Shendi Group (57% stake). Shanghai Shendi Group is controlled by
four state-owned companies operating in the retail, hospitality, media and
travel industries. Jinjiang International Group, Jinjiang Hotel-H’s parent
company, is the second largest shareholder of Shanghai Shendi Group. It owns
a 14.25% share of the Shanghai Disney project.
Shanghai Disney will be the first Disney resort in mainland China and the third
in Asia. Shanghai Disney’s total area will be 963 acres, which is approximately
three times the size of Hong Kong Disney.
On 28 April 2015, Walt Disney and Shanghai Shendi announced an additional
investment of RMB5.4bn (equivalent to USD0.8bn), aimed at further expanding
Shanghai Disney’s capacity. This decision was based on the results of market
assessments during the construction period, which indicate a substantial
potential attendance.
Figure 46: Shanghai Disney facts
Location Southeast of Shanghai central city, Pudong district
21km to People’s Square; 18km to Lujiazui Financial Center
12km to Pudong International Airport; 30km to Hongqiao Transportation Hub
Components
Shanghai Disneyland Park Six theme areas
The biggest Enchanted Storybook Castle in the world
The first theme area based on Pirates of Caribbean - War of the Treasures
A Chinese culture enlightened theme area – 12 Friends Park
Shanghai Disneyland Hotel 420 rooms
Toy Story Hotel 800 rooms
Disney Town 46,000 square meter dining, shopping centers etc.
Walt Disney Theatre Broadway style
1,200 audiences capacity
The first mandarin version of The Lion King musical
Central lake 40 hector
Cost Estimation USD5.4bn (Disneyland Park: USD4.7bn; Associated facilities: USD0.7bn)
Government support A subway extension from the airport to the resort site
Source: Deutsche Bank, Company data
Figure 45: Ownership/management
structure of Shanghai Disney
Ownership structure
Walt Disney Company 43%
Shanghai Shendi 57%
- Lujiazui Group 26%
- Jinjiang International Group 14%
- Shanghai Media Group 11%
- Bailian Group 6%
Management structure
Walt Disney Company 70%
Shanghai Shendi 30%
Source: Deutsche Bank, company data
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 31
Figure 47: Shanghai Disney resort planned location
Source: Deutsche Bank, Company data
Figure 48: Shanghai Disneyland hotel Figure 49: Toy Story hotel
Source: Company data
Source: Company data
Flagship Disney store opened in May 2015
The Shanghai Disney flagship store opened on 20 May 2015. On the first day
of opening, it attracted hundreds of customers who queued for more than
three hours to get inside and the store had to be closed only one hour after
opening due to overcrowding. The popularity of the Shanghai Disney store is a
positive indicator of Chinese tourists’ attitude towards the upcoming Shanghai
Disney.
Shanghai
Shanghai Disney
Shanghai Pudong
Airport Shanghai Disney
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Page 32 Deutsche Bank AG/Hong Kong
Figure 50: Shanghai Disney ownership organization
The Walt Disney Company Shanghai Shendi Group
Shanghai Disney Resort
State-owned Assets Supervision and
Administration Commission
25%
Jinjiang International (Group)
Hotel operation and managementTravelTransportation & Logistics
100%
45%
Shanghai Lujiazui(Group)
100%
20%
Shanghai Radio, Film and Television Development
Co. Ltd.
Travel & EntertainmentMediaCultural estate
100%
Shanghai Media & Entertainment Group
100%
10%
Bailian Group
Retail
100%
Shendi Travel Shendi Construction Shendi DevelopmentWD Holdings (Shanghai) LLC.
100%
Shanghai International Theme Park Co. Ltd.
Developing and operating the theme park.
WD Holding(47%) Shendi (53%)
Shanghai International Theme Park Associated Facilities Co. Ltd.
Developing and operating the associated facilities, i.e. hotels, shopping center.WD Holding(47%) Shendi (53%)
Shanghai International Theme Park and Resort Management Co. Ltd.
Managing and maintaining the them park and associated facilities.
WD Holding(70%) Shendi (30%)
100%
Source: Deutsche Bank, Company data
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 33
Company section
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Page 34 Deutsche Bank AG/Hong Kong
Reuters Bloomberg
2006.HK 2006 HK
Forecasts And Ratios
Year End Dec 31 2013A 2014A 2015E 2016E 2017E
Sales (CNYm) 9,288.3 9,364.1 12,791.6 16,514.9 18,390.4
EBITDA (CNYm) 1,257.9 585.8 1,402.6 2,951.4 3,494.6
Reported NPAT (CNYm) 443.8 621.2 533.2 520.6 688.6
Reported EPS FD(CNY) 0.08 0.11 0.10 0.09 0.12
DB EPS FD(CNY) -0.05 -0.05 -0.03 0.11 0.15
DB EPS growth (%) – -3.7 42.7 – 28.7
PER (x) – – – 20.7 16.1
EV/EBITDA (x) 5.2 15.8 16.4 10.5 8.9
DPS (net) (CNY) 0.04 0.05 0.05 0.05 0.05
Yield (net) (%) 3.7 2.6 2.1 2.1 2.1
Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses
the year end close
Undervalued company with huge upside when Disney opens We initiate on Shanghai Jinjiang International Hotels-H (Jinjiang Hotels-H) with a Buy rating and price target of HKD3.7, and 34% upside potential. Jinjiang Hotels-H is the HK-listed parent company, trading at 10x our 2016 EV/EBITDA vs. industry average of 12x and its A-share subsidiary Jinjiang Hotels-A (15x our EV/EBITDA). In addition, our cross-check reveals the PT is at a 50% discount to its NAV (its self-owned hotels), implying all other segments are free for investors. Operationally, we believe all of Jinjiang’s segments will benefit from the traffic attracted by Disney. We expect 16% and 24% of the company's incremental EBITDA in 2016 and 2017 to be driven by Disney alone.
Full service hotels’ occupancy rate to increase by 5.2/3.7ppts yoy in 2016/17 We expect Disney to ultimately boost occupancy of full service hotels by 5.2ppts yoy to 78% in 2016 and by a further 3.7ppts to 82% in 2017. We expect the improving occupancy rate, coupled with a slight room rate increase, to lead to RevPAR growth of 10% yoy in 2016 and 7% yoy in 2017.
Additional revenue from travel agency service and transportation business We expect Jinjiang International Travel, one of Shanghai Disney’s tier-one ticketing agents, to make an incremental RMB52m ticketing revenue and RMB47m EBITDA contribution to Jinjiang Hotels-H in 2016. We estimate Jinjiang Industrial Investment, which will provide the Disney shuttle bus service, will contribute an additional RMB86m revenue and RMB65m EBITDA in 2016.
Initiating with Buy rating for 34% upside potential We derive our HKD3.7 PT using SOTP, based on 2016 EV/EBITDA of each segment. We value Jinjiang Hotels-A using our derived fair valuation, the full service hotel business on 10x EV/EBITDA, and transportation and logistics and travel agency on 8x EV/EBITDA. Risks: 1) margin tightening due to increasing competition; 2) potential inability to locate new sites due to the aggressive pace of expansion by its competitors; 3) domestic tourism market downturn.
Rating
Buy Asia
China
Consumer
Hotels / Leisure / Gaming
Company
Jinjiang International
Well-diversified hotel operator – initiating with Buy
Price at 1 Feb 2016 (HKD) 2.77
Price target - 12mth (HKD) 3.70
52-week range (HKD) 4.02 - 2.16
HANG SENG INDEX 19,683
Tallan Zhou
Research Analyst
(+852) 2203 6464
Karen Tang
Research Analyst
(+852) 2203 6141
Price/price relative
1.6
2.0
2.4
2.8
3.2
3.6
4.0
4.4
2/14 8/14 2/15 8/15
Jinjiang Internation
HANG SENG INDEX (Rebased)
Performance (%) 1m 3m 12m
Absolute -15.3 14.5 7.4
HANG SENG INDEX -10.2 -13.1 -19.7
Source: Deutsche Bank
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 35
Model updated:01 February 2016
Running the numbers
Asia
China
Hotels / Leisure / Gaming
Jinjiang International Hote Reuters: 2006.HK Bloomberg: 2006 HK
Buy Price (1 Feb 16) HKD 2.77
Target Price HKD 3.70
52 Week range HKD 2.16 - 4.02
Market Cap (m) HKDm 15,418
USDm 1,980
Company Profile
Jin Jiang Hotels is one of the leading hotels operators and managers in China. It engages in 2-5 star-rated hotel operation and management, budget hotel operation and franchising, and restaurant operation. Over the years, the group has invested in a diverse portfolio of hotel assets comprising landmark hotels, 4-5 star luxury hotels, 2-3 star commercial hotels and Jin Jiang Inn budget hotels.
Price Performance
1.62.02.42.83.23.64.04.4
Feb 14May 14Aug 14Nov 14Feb 15May 15Aug 15Nov 15
Jinjiang International HoteHANG SENG INDEX (Rebased)
Margin Trends
-4048
121620
12 13 14 15E 16E 17E
EBITDA Margin EBIT Margin
Growth & Profitability
0
2
4
6
8
10
0
10
20
30
40
12 13 14 15E 16E 17E
Sales growth (LHS) ROE (RHS)
Solvency
0
1
2
3
4
5
-20
0
20
40
60
80
100
12 13 14 15E 16E 17E
Net debt/equity (LHS) Net interest cover (RHS)
Tallan Zhou +852 2203 6464 [email protected]
Fiscal year end 31-Dec 2012 2013 2014 2015E 2016E 2017E
Financial Summary
DB EPS (CNY) 0.01 -0.05 -0.05 -0.03 0.11 0.15
Reported EPS (CNY) 0.06 0.08 0.11 0.10 0.09 0.12
DPS (CNY) 0.03 0.05 0.05 0.05 0.05 0.05
BVPS (CNY) 1.3 1.4 1.5 1.6 1.6 1.7
Weighted average shares (m) 5,566 5,566 5,566 5,566 5,566 5,566
Average market cap (CNYm) 5,059 6,759 10,592 13,018 13,018 13,018
Enterprise value (CNYm) 5,243 6,489 9,248 22,979 31,130 31,062
Valuation Metrics P/E (DB) (x) 106.1 nm nm nm 20.7 16.1
P/E (Reported) (x) 16.0 15.2 17.1 24.4 25.0 18.9
P/BV (x) 0.92 1.54 1.27 1.47 1.43 1.37
FCF Yield (%) 4.8 20.2 nm 7.5 3.0 2.7
Dividend Yield (%) 3.3 3.7 2.6 2.1 2.1 2.1
EV/Sales (x) 0.6 0.7 1.0 1.8 1.9 1.7
EV/EBITDA (x) 4.2 5.2 15.8 16.4 10.5 8.9
EV/EBIT (x) 18.4 20.6 nm 73.8 17.8 13.6
Income Statement (CNYm)
Sales revenue 9,004 9,288 9,364 12,792 16,515 18,390
Gross profit 2,522 2,577 2,619 3,912 5,741 6,601
EBITDA 1,234 1,258 586 1,403 2,951 3,495
Depreciation 876 855 862 995 991 988
Amortisation 73 88 75 96 214 214
EBIT 285 314 -352 311 1,746 2,292
Net interest income(expense) -76 -112 -80 -261 -535 -591
Associates/affiliates 221 131 141 141 141 141
Exceptionals/extraordinaries 0 0 0 0 0 0
Other pre-tax income/(expense) 440 943 1,841 1,294 166 166
Profit before tax 870 1,276 1,551 1,485 1,518 2,008
Income tax expense 162 434 474 394 403 533
Minorities 391 399 455 558 595 787
Other post-tax income/(expense) 0 0 0 0 0 0
Net profit 317 444 621 533 521 689
DB adjustments (including dilution) -269 -717 -904 -695 107 120
DB Net profit 48 -273 -283 -162 628 808
Cash Flow (CNYm)
Cash flow from operations 898 2,044 -796 1,864 1,477 1,457
Net Capex -655 -677 -772 -883 -1,081 -1,110
Free cash flow 243 1,367 -1,568 980 396 346
Equity raised/(bought back) 0 0 0 0 2,245 0
Dividends paid -478 -411 -501 -278 -278 -278
Net inc/(dec) in borrowings 368 1,882 -278 12,521 -518 0
Other investing/financing cash flows 263 -899 3,749 -11,910 -8,269 0
Net cash flow 396 1,939 1,402 1,313 -6,425 68
Change in working capital -78 -257 642 530 375 189
Balance Sheet (CNYm)
Cash and other liquid assets 2,536 4,475 5,877 7,189 765 832
Tangible fixed assets 7,212 7,302 7,154 10,953 11,255 11,367
Goodwill/intangible assets 2,254 2,462 2,391 8,482 11,632 11,428
Associates/investments 4,098 4,041 5,807 5,883 5,883 5,883
Other assets 2,029 3,556 2,934 6,800 12,636 13,522
Total assets 18,129 21,836 24,163 39,307 42,170 43,032
Interest bearing debt 1,995 3,861 3,583 16,103 15,585 15,585
Other liabilities 3,999 6,025 5,205 7,399 8,294 8,745
Total liabilities 5,994 9,886 8,787 23,502 23,879 24,330
Shareholders' equity 7,312 7,566 8,619 8,874 9,117 9,527
Minorities 4,823 4,384 6,757 6,930 9,175 9,175
Total shareholders' equity 12,135 11,950 15,376 15,804 18,292 18,702
Net debt -541 -614 -2,294 8,914 14,820 14,752
Key Company Metrics
Sales growth (%) nm 3.2 0.8 36.6 29.1 11.4
DB EPS growth (%) na na -3.7 42.7 na 28.7
EBITDA Margin (%) 13.7 13.5 6.3 11.0 17.9 19.0
EBIT Margin (%) 3.2 3.4 -3.8 2.4 10.6 12.5
Payout ratio (%) 52.7 56.4 44.8 52.2 53.5 40.4
ROE (%) 4.6 6.0 7.7 6.1 5.8 7.4
Capex/sales (%) 8.2 8.4 9.1 7.1 6.5 6.0
Capex/depreciation (x) 0.8 0.8 0.9 0.8 0.9 0.9
Net debt/equity (%) -4.5 -5.1 -14.9 56.4 81.0 78.9
Net interest cover (x) 3.7 2.8 nm 1.2 3.3 3.9
Source: Company data, Deutsche Bank estimates
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Page 36 Deutsche Bank AG/Hong Kong
Investment thesis
Outlook
We initiate coverage on Jinjiang Hotels-H with a Buy rating and target price
of HKD3.7, implying upside potential of 34%. We expect Jinjiang Hotels-H to
capitalise on the opportunity stemming from Shanghai Disney Resort’s
opening in June 2016. We believe the company has a significant first-mover
advantage in both Shanghai and overseas, which should allow it to gain a
critical occupancy rate and develop its footprint.
Shanghai Disneyland beneficiary
Jinjiang Hotels-H is poised to benefit from the opening of Shanghai Disney.
Phase 1 of the USD5.4bn construction is scheduled to open in June 2016.
Full service hotels. We expect Jinjiang Hotels-H’s full service hotels
(71% of owned/leased hotel properties located in Shanghai) to
benefit from the large influx of visitors thanks to its market position
and prime locations in Shanghai. We expect Jinjiang Hotels-H’s full
service hotels to enjoy 10%/7% yoy RevPAR growth in 2016/2017.
Ticketing and shuttle bus. We expect Jinjiang Hotels-H’s two
subsidiaries – Jinjiang International Travel and Jinjiang Industrial
Investment – to benefit from being the tier-one ticketing agent and
shuttle bus provider for Shanghai Disney. We expect a RMB47m
profit from ticketing and RMB65m from shuttle bus in 2016.
Valuation
We value Jinjiang Hotels-H using SOTP, based on 2016E EV/EBITDA. We
arrive at a target price of HKD3.7 and initiate with a Buy rating. We value
Jinjiang Hotels-A (i.e. select service hotel business and food & restaurant)
using our derived fair valuation, while we value the full service hotel
business on 10x EV/EBITDA, and Jinjiang Industrial Investment (passenger
transportation and logistics) and Jinjiang International Travel (travel agency)
on 8x EV/EBITDA. The stock is currently trading at 10x our 2016E
EV/EBITDA. We believe Jinjiang Hotels-H is attractive in valuation terms.
We cross-check with a NAV valuation: our target price implies a 50%
discount to our estimated NAV of HKD7.3 share.
Risks
Key risks to our call: 1) margin tightening due to increasing competition in
the economy hotel sector and online travel agency business; 2) potential
inability to locate new sites due to competitors’ more aggressive pace of
expansion; and 3) a domestic tourism market downturn.
Broad risk factors for the hotel industry include unforeseen events (natural
disasters, epidemics, etc), geopolitical risks (terrorist attacks, wars) and
environmental degradation, all of which could have a significant impact on
tourism and demand for hotel rooms, putting our earnings call at risk.
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 37
Valuation
We value Jinjiang Hotels-H at HKD3.7, on EV/EBITDA
We value Jinjiang Hotels-H using a SOTP based on 2016E EV/EBITDA. We
arrive at a target price of HKD3.7. The stock is currently trading at 10x our
2016E EBITDA compared to an industry average of 12x, which we believe is
attractive.
We assign 10x 2016E EV/EBITDA to the full service hotel business,
which is at a 20% discount to the industry average of 12x.
We value Jinjiang Hotels-A (600754.SS) using our derived fair
valuation of HKD39bn, based on our target price of RMB36.
We value Jinjiang Industrial Investment (600650.SS), which provides
passenger transportation and logistics services, at 8x EV/EITDA,
compared to the 9x of CAR Inc (0699.HK) and an average of 14x of US
car rental companies.
We assign 8x 2016E EV/EBITDA to Jinjiang International Travel
(900929.SS), at a 30% discount to CITS’s 12x (601888.SS, Buy, TP
RMB65, CP RMB46).
We deduct net debt of HKD8.6bn carried by Jinjiang Hotels-H by the
end of 2016E (excluding HKD9.3bn from Jinjiang Hotels-A).
Figure 51: SOTP valuation
Market value (HKD m)
Stake Valuation (HKDm)
Value per share
Full service hotel EV/EBITDA=10x 7,661 100% 7,661 1.4
Jinjiang Hotels (600754.CH) Valuation on our TP 39,119 50% 19,683 3.5
Jinjiang Industrial Investment (600650.CH) EV/EBITDA=8x 3,955 39% 1,524 0..3
Jinjiang International Travel (900929.CH) EV/EBITDA=8x 343 50% 172 0.0
Sub-total 29,041 5.2
Total group net debt (17,633)
add back net debt from Jinjiang Hotels 9,338
Net debt (8,594)
Equity value 20,446 3.7 Source: Deutsche Bank estimate
EV/EBITDA makes more sense than PER
We believe a relative valuation based on EV/EBITDA makes more sense at the
current stage, due to the doubling of net finance costs in the short term.
We expect net finance cost to surge in the short term due to increase in debt
for acquisitions – Jinjiang Hotels -A completed the acquisition of Groupe du
Louvre in 2015 and will complete the acquisition of 7 Days in 2016.
Jinjiang Hotels-A completed the acquisition of Groupe du Louvre in
2015 and will complete the acquisition of 7 Days at the beginning of
2016.
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Page 38 Deutsche Bank AG/Hong Kong
Upon completion of the 7 Days acquisition, we expect net debt to
increase to RMB14.8bn in 2016 from RMB8.9bn in 2015.
We believe the current financial situation is not representative of Jinjiang
Hotels-H’s long-term financial position.
Figure 52: Peer comparison
DB Global Hotel operators Valuation
Price TP Mkt Cap EV/EBITDA (x) PE (x) Div Yield (%) PB (x) EBITDA margin (%) D/E (%) EPS Cagr
Ticker Rec Local Local US$m 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2014-2016E
HK/China luxury hotel companies
HK & Shanghai Hotels 0045.HK NR 7.7 NA 1,518 12.0 13.2 19.5 21.2 2.8 2.7 NA NA 25.4 20.9 NA NA -6.8
Mandarin Oriental MOIL.SI NR 1.3 NA 1,683 13.9 13.4 23.1 20.9 3.4 3.7 NA NA 21.6 21.8 NA NA 6.0
Shangri-La Asia 0069.HK Hold 7.1 9.2 4,931 10.3 8.7 23.5 16.8 1.4 2.0 0.5 0.5 24.6 25.3 54.8 52.1 37.0
HK/China luxury hotels average 12.1 11.7 22.0 19.7 2.5 2.8 0.5 0.5 23.9 22.7 54.8 52.1 12.0
China economy hotel companies
China Lodging HTHT.OQ Hold 28.1 26.0 1,575 8.9 7.9 26.7 24.8 0.0 0.0 3.3 3.0 17.1 14.8 -19.8 -21.3 18.0
Home Inns HMIN.OQ Buy 33.9 35.8 1,553 8.0 6.9 24.0 23.9 0.0 0.0 2.0 1.8 25.6 24.5 -5.0 -12.3 -5.4
Shanghai Jin Jiang Int'l Hotel Dev 600754.SH Hold 32.7 36.0 4,050 19.0 15.1 73.9 40.1 1.3 1.3 2.9 2.3 226.4 24.2 44.5 54.0 30.8
China economy hotels average 11.9 10.0 41.5 29.6 0.4 0.4 2.7 2.4 89.7 21.2 6.6 6.8 14.5
Asia hotel companies
Ambassador Hotel 2704.TW NR 26.5 NA 289 9.6 8.8 23.0 NA 2.8 2.8 1.0 1.0 23.0 NA -15.8 -16.7 NA
Banyan Tree Hldgs BANY.SI NR 0.4 NA 197 NA NA NA NA NA NA NA NA NA NA NA NA NA
BTG Hotel Group 600258.SH NR 22.5 NA 791 NA NA 33.3 30.8 1.6 3.0 1.3 0.9 7.2 NA NA NA 14.3
Central Plaza Hotel Plc CENTEL.BKHold 40.0 40.0 1,417 14.0 12.7 29.1 25.2 1.6 1.8 4.5 4.1 23.2 23.9 66.8 63.5 36.1
Dorsett Hospitality Int'l 2266.HK NR 1.5 NA 415 NA NA 0.0 0.0 NA NA NA NA NA NA NA NA NA
Eih Ltd EIHO.NS NR 120.3 NA 1,011 NA NA 40.1 NA 0.9 NA 2.4 NA 22.8 NA NA NA NA
Formosa Int'l 2707.TW NR 216.0 NA 815 14.0 12.8 20.3 18.3 4.2 4.7 6.7 6.4 27.0 28.1 17.0 13.8 12.1
Indian Hotels Co IHTL.NS NR 110.4 NA 1,310 17.5 13.9 74.6 NA 0.8 0.9 3.5 3.1 15.5 NA 177.0 162.0 NA
Jin Jiang Int'l Hotels Group 2006.HK Buy 2.7 3.7 1,915 16.0 10.3 19.5 19.1 2.2 2.2 1.4 1.4 11.0 17.9 55.3 78.6 7.7
Jinling Hotel Corp 601007.SH NR 11.1 NA 506 NA NA 28.7 21.7 1.0 NA 2.1 1.9 NA NA NA NA NA
Langham Hospitality Inv 1270.HK No Recommendation2.5 0.0 772 18.7 18.0 12.8 12.2 9.1 9.7 0.6 0.6 82.4 81.6 63.0 63.0 -0.9
Minor International Inc MINT.BK Hold 32.5 33.0 3,978 16.1 14.0 30.7 25.3 1.5 1.6 4.6 4.1 23.8 25.9 118.3 123.2 14.7
Asia hotels average 15.1 12.9 28.4 19.1 2.6 3.3 2.8 2.6 26.2 35.5 68.8 69.6 14.0
Global major hotel companies
Belmond Ltd BEL.N Buy 8.2 15.0 1,354 11.3 10.5 NA NA NA NA 1.3 1.2 20.7 20.6 64.4 59.0 NA
Hilton Worldwide HLT.N Buy 17.9 27.0 23,167 9.4 8.3 22.2 19.8 0.0 0.0 3.3 3.0 39.6 41.2 168.1 134.6 NA
Hyatt Hotels H.N Hold 37.9 46.0 8,576 8.8 8.6 42.3 31.6 0.0 0.0 1.4 1.4 16.7 17.1 21.4 28.1 NA
InterContinental Hotels Group IHG.L Hold 2,323 2,770 9,094 5.0 9.5 19.7 17.5 2.5 2.9 52.2 21.9 90.7 46.4 NA NA 10.4
Melia Hotels Int'l MEL.MC Buy 10.1 15.0 2,172 8.7 9.0 34.0 26.0 0.4 0.5 1.6 1.5 17.6 16.2 59.0 50.8 NA
Millennium & Copthorne Hotels MLC.N NR 403.6 NA 1,869 8.3 7.7 16.0 14.9 3.2 3.4 0.5 0.5 26.3 26.8 2.6 2.3 1.7
NH Hoteles NHH.MC NR 3.9 NA 1,472 NA NA NA NA 0.0 0.4 1.2 1.1 13.3 14.7 NA NA NA
Rezidor Hotel Group REZT.SK NR 28.7 NA 587 4.7 4.2 11.8 10.0 3.4 2.9 2.0 1.7 10.6 11.4 -0.5 -0.5 28.8
Global major hotels average 8.0 8.3 24.3 20.0 1.4 1.4 7.9 4.0 29.4 24.3 52.5 45.7 13.6
Global major economy hotel companies
Choice Hotels CHH.N Hold 43.4 56.0 2,860 12.8 11.6 19.8 17.9 1.8 1.9 NM NM 28.4 28.9 -156.4 -174.7 NA
Extended Stay America STAY.N Buy 12.8 22.0 4,624 8.2 8.1 14.0 13.3 7.1 5.5 1.9 1.7 45.9 46.7 172.1 150.8 9.0
Whitbread WTB.L Buy 3,984 6,000 9,128 11.1 9.9 16.9 15.0 2.4 2.7 3.2 2.8 26.1 26.2 40.3 43.7 12.3
Wyndham Worldwide WYN.N Hold 64.6 71.0 9,278 8.2 7.8 12.8 11.4 2.6 2.8 8.4 9.6 23.5 24.0 317.1 388.2 NA
Global major economy hotels average 10.1 9.4 15.9 14.4 3.5 3.2 4.5 4.7 31.0 31.4 93.3 102.0 10.6
China online travel company average 46.6 20.2 16.1 28.7 0.0 0.0 -7.2 -8.4 -25.7 0.5 15.6 6.9 40.7
China internet company average 40.5 14.0 30.9 21.1 0.3 0.4 6.9 5.1 21.1 22.3 -54.1 -68.7 18.8
Large cap China property company average 7.2 6.8 9.2 8.4 3.3 3.6 1.2 1.1 22.2 22.0 65.8 67.2 30.2
Small cap China property company average 5.4 4.8 4.9 4.4 7.8 8.6 0.4 0.4 22.4 22.2 77.2 70.7 13.9
Source: Deutsche Bank estimates, company data, closing as of 27 Jan 2016
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 39
Cross-check with NAV
Our target price of HKD3.7 implies a 50% discount to Jinjiang Hotels-H’s NAV
of HKD7.3.
Some investors may argue that the NAV for Jinjiang Hotels-H is not
meaningful as SOEs tend not to sell their assets in the market. However,
Jinjiang Hotels-H has disposed two hotel assets in recent years.
In 2013, the company disposed 45% stake of Shanghai Huating Hotel
& Tower for a total consideration of RMB901m.
In 2014, the company disposed 80% stake in Shanghai Galaxy Hotel
for a total consideration of RMB1.7bn.
We believe the company may continue to dispose underperforming assets in
the future.
When estimating the assets value, we refer to other luxury hotels in Shanghai
owned by listed property companies in Hong Kong and derive RMB8.4m per
room for full service hotels in Shanghai, as shown in the figure below.
Given the global brand name of the three hotel groups, we assign a
10% discount to the average RMB8.4m asset value per room, and
estimate that Jinjiang Hotels-H’s five-star full service rooms have an
asset value of RMB7.6m per room.
Jinjiang Hotels-H’s four-star hotel rooms have a RevPAR that is 40%
less on average than five-star hotel rooms. As a result, we assign an
additional 40% discount to the RMB7.6m per room asset value, and
arrive at RMB4.5m per room for four-star hotel rooms.
Deducting RMB14.8bn net debt in 2016, our estimated net asset value
for Jinjiang Hotels-H is HKD7.3.
Figure 53: Value per room for luxury hotels in Shanghai
Hotel(s) City Market Value (RMBm)
No. of rooms Est. Value Per Room (RMBm)
Company Stock Code % Stake
Grand Hyatt Shanghai 3,829 555 6.9 Franshion 0817.HK 67%
Ritz-Carlton Hotel Shanghai 4,084 578 7.1 SHKP 0016.HK 100%
The Peninsula Shanghai Shanghai 2,670 235 11.4 HK&SH Hotel 0045.HK 50%
Average 8.4 Source: Deutsche Bank, Company data
1 February 2016
Hotels / Leisure / Gaming
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Page 40 Deutsche Bank AG/Hong Kong
Figure 54: Jinjiang Hotels-H – Estimated NAV
Source: Deutsche Bank estimates, Company data
NAV breakdown # of rooms Stake # of rooms % of NAV Year end Dec 2016 total 2016 2016 attr RMBm/rm RMBm HK$/shr 2016 A) Hotel property assets a) Shanghai 4-5 star owned hotels 5,424
85% 4,608 5.7
26,070 5.7
78% 1 Jin Jiang Hotel 5 star 442
100% 442 7.6
3,342 0.7
10% 2 Peace Hotel 5 star 270
100% 270 7.6
2,041 0.4
6% 3 Jin Jiang Tower 5 star 582
100% 582 7.6
4,400 1.0
13% 4 Jin Jiang Tomson Hotel 5 star 398
50% 199 7.6
1,504 0.3
5% 5 Yangtze Renaissance Hotel 5 star 540
40% 216 7.6
1,633 0.4
5% 6 Park Hotel 4 star 261
100% 261 4.5
1,184 0.3
4% 7 Jian Guo Hotel 4 star 455
65% 296 4.5
1,342 0.3
4% 8 Shanghai Galaxy Hotel 4 star -
100% - 4.5
- -
0% 9 Rainbow Hotel 4 star 640
100% 640 4.5
2,903 0.6
9% 10 Cypress Hotel 4 star 149
100% 149 4.5
676 0.1
2% 11 Shanghai Hotel 4 star 527
100% 527 4.5
2,390 0.5
7% 12 Shanghai Jing An Hotel 4 star 228
100% 228 4.5
1,034 0.2
3% 13 Sofitel Hotel 4 star 401
67% 267 4.5
1,213 0.3
4% 14 Holiday Inn Downtown Shanghai 4 star 531
100% 531 4.5
2,409 0.5
7%
b) Beijing 4-5 star owned hotels 646 48% 307
4.5 1,392
0.3 4%
1 Beijing Kunlun Hotel 5 star 646 48% 307
4.5 1,392
0.3 4%
c) Owned hotels elsewhere in China 1,605 72% 1,155
1.5 1,746
0.4 5%
1 Wuhan Jin Jiang Int'l Hotel 5 star 407 100% 407
1.5 615
0.13 2%
2 Wuxi Jin Jiang Grand Hotel 4 star 353 25% 88
1.5 133
0.03 0%
3 Kunming Jin Jiang Hotel 4 star 320 100% 320
1.5 484
0.11 1%
4 West Capital International Hotel 4 star 216 100% 216
1.5 327
0.07 1%
5 Jiangsu Nanjing Hotel 4 star 309 40% 124
1.5 187
0.04 1%
d) Owned hotels elsewhere in China 189 100% 189
1.0 189
0.0 1%
1 Shanghai Pacific Hotel 189 100% 189
1.0 189
0.04 1%
* Beijing Jin Jiang Club - 100% -
1.0 -
- 0%
Sub-total: Hotel property assets - Full Service 7,864 80% 6,259
4.7 29,397
6.4 88%
e) Owned selected service hotels Jinjiang Econ Hotels - economy hotel (China) 37,340
50% 18,788 0.3
5,666 1.23
17% Jinjiang Econ Hotels - economy hotel (Overseas) 19,085
50% 9,603 0.5
4,694 1.02
14% Jinjiang Econ Hotels - F&B 50% 11
0.002 0.03%
Sub-total: Hotel property assets - Selected Service 56,425 50% 28,392
0.4 10,371
2.3 31%
B) Associates & JVs Jinjiang Industrial (600650.CH) - car rental & logistics @ share price Rmb31.5 39% 6,686
1.5 20%
Jinjiang Travel (900929.CH) - travel agency @ share price Rmb25.6 50% 1,701 0.4
5% Sub-total: Associates & JVs at market prices 8,387
1.8 25%
Gross asset value 48,156 10.5
144% less consolidated net debt (end-2016) (14,820)
(3.2) -44%
Net asset value 33,336 7.3
100%
2016 Asset value (att)
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 41
Full service hotels
Bound to benefit from the opening of Shanghai Disney
We expect that Jinjiang Hotels-H will be the key hotel-business beneficiary of
Shanghai Disney, given 1) its established position in the Shanghai area, 2) its
hotels’ prime locations, and 3) its well-recognised brand name.
Shanghai-focused hotel assets
For full service hotels, Jinjiang Hotels-H owns and manages 101 hotels, of
which 50 are five-star luxury hotels, 47 are four-star, and the remaining four
are commercial hotels. Of the 101 hotels, 21 are owned by Jinjiang Hotels-H,
as shown in the figure below.
71% of Jinjiang’s self-owned full service hotels are located in
Shanghai.
Based on our estimate, over 60% of Jinjiang Hotels-H’s revenue is
generated from business in the Shanghai region.
Figure 55: Jinjiang Hotels-H overview (China), 1H15
Full service hotels Select service hotels
In Shanghai 15 60
In other cities 6 212
Owned/Leased 21 272
In Shanghai 11 63
In other cities 69 687
Franchised/Management 80 750
Total 101 1 ,022
owned/leased hotels in Shanghai as % of
total owned/leased hotels71% 22%
owned/leased hotels in other cities as % of
total owned/leased hotels29% 78%
Owned/Leased as % of total 21% 27%
franchised/managed hotels in Shanghai as
% of total franchised/managed hotels14% 8%
franchised/managed hotels in other cities as
% of total franchised/managed hotels86% 92%
Franchised/Management as % of total 79% 73%
Total 100% 100% Source: Deutsche Bank, Company data
1 February 2016
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Page 42 Deutsche Bank AG/Hong Kong
Figure 56: Jinjiang Hotels-H’s own full service hotels by
area, 1H15
Figure 57: Revenue from Shanghai as % of total, 1H15
Shanghai
71%
Beijing
4%
Wuhan
5%
Wuxi
5%
Nanjing
5%
Kunming
5%
Xian
5%Total: 21 hotels
Shanghai>60%
Other locations
<40%
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank estimates, Company data
Occupying golden locations
The extension of the metro’s Line 11 to Shanghai Disney Resort has been
confirmed, and this line could potentially be extended to Shanghai Pudong
International airport. Passengers will be able to transfer to Line 11 from almost
all other metro lines. 13 of Jinjiang Hotels-H’s 15 owned hotels in Shanghai are
located near commercial centres (Hongqiao District, Jingan District, Lujiazui)
and popular tourist sites (People’s Square, Oriental Pearl, Wai Tan, Nanjing
Road Shopping Mall). Moreover, the main transportation line – the No.2 Metro
line, which connects the main tourist and commercial sites – also passes by
nine hotels owned by Jinjiang Hotels-H. We expect that Jinjiang Hotels-H will
benefit from its geographical advantage in capturing an externality effect from
Shanghai Disney’s visitors.
Figure 58: Jinjiang Hotels-H’s full service hotel locations in Shanghai
2
3
41
No. 2 Metro Line
Shanghai Disney
(1) Shanghai Yangtze Hotel 上海扬子江万丽大酒店, Jin Jiang Rainbow Hotel 锦江虹桥宾馆
(2) Jinjiang Hotel 锦江饭店, Jinjiang Tower 新锦江大酒店, Jinjiang Shanghai Hotel 锦江上海宾馆, Jinjiang Jing'an Hotel 锦江静安宾馆
(3) Jinjiang Park Hotel 锦江国际饭店, Jinjiang Pacific Hotel 锦江金门大酒店
(4) Shanghai Jinjiang Tomson Hotel 上海锦江汤臣洲际大酒店
Source: Shanghai Municipal Tourism Administration, Deutsche Bank
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 43
Highly recognised brand name
Jinjiang Hotels-H is a Shanghai-founded and developed hotel brand, of which
the establishment of several of its hotel assets dates back to the 1920s and
1930s such as Shanghai Jinjiang Hotel and Shanghai Pacific Hotel. The long-
term local presence has led to very solid consumer recognition of the brand.
Furthermore, Jinjiang Hotels-H’s brand name has recently become even better
recognised. According to the Meadin Brand Index (a hotel brand index
provided by Meadin, a Chinese hotel database), Jinjiang Hotels-H moved up to
the no. 1 place in early 2015 from its previous rankings of between six and
nine in 2014, indicating an improvement in brand image and recognition.
Figure 59: Full service hotels owned by Jinjiang Hotels-H, 2015
Full service hotels
5-star luxury hotels Stake No. of rooms
Shanghai Jin Jiang Hotel 上海锦江饭店 100.0% 442
Shanghai Peace Hotel 上海和平饭店 100.0% 270
Shanghai Jin Jiang Tower 上海新锦江大酒店 100.0% 582
Shanghai Jin Jiang Tomson Hotel 上海锦江汤臣洲际大酒店 50.0% 398
Shanghai Yangtze Hotel 上海扬子江万丽大酒店 40.0% 540
Beijing Kunlun Hotel 北京昆仑饭店 47.5% 646
Wuhan Jin Jiang International Hotel 武汉锦江大酒店 100.0% 407
4-star luxury hotels
Shanghai Park Hotel 上海国际饭店 100.0% 261
Shanghai Jian Guo Hotel 上海建国宾馆 65.0% 455
Shanghai Galaxy Hotel 100.0%
Shanghai Rainbow Hotel 上海虹桥宾馆 100.0% 640
Shanghai Cypress Hotel 上海龙柏饭店 100.0% 149
Shanghai Hotel 上海宾馆 100.0% 527
Shanghai Jing An Hotel 上海静安宾馆 100.0% 228
Shanghai Sofitel Hotel 上海海仑宾馆 66.7% 401
Holiday Inn Downtown Shanghai 上海广场长城假日大酒店 100.0% 531
Wuxi Jin Jiang Grand Hotel 无锡锦江大酒店 25.0% 353
Kunming Jin Jiang Hotel 昆明锦江大酒店 100.0% 320
West Capital International Hotel 西安西京国际饭店 100.0% 216
Jiangsu Nanjing Hotel 江苏南京饭店 40.0% 309
Commercial hotels
Shanghai Pacific Hotel 锦江金门大酒店 100.0% 189
Source: Deutsche Bank, Company data
Full service hotels’ occupancy rate to increase to 78%/82% in 2016/17
As we mentioned in our sector piece, we forecast that there will be 6.9 million
visitors to Shanghai Disney in June-December 2016 and 16.5 million in 2017.
In 2016, we expect that the opening of Shanghai Disney will bring additional
revenue of RMB114m to Jinjiang Hotels-H’s full service hotels. This is based
on our assumption of a 5.2ppts yoy improvement in the occupancy rate and a
3% yoy increase in ADR.
1 February 2016
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Page 44 Deutsche Bank AG/Hong Kong
We note that star hotels, which have a relatively low occupancy rate,
generally experience higher occupancy rate growth than select service
hotels. For Jinjiang Hotels-H full service hotels, we expect that the
occupancy rate will increase by 5.2ppts yoy to 78% in 2016 and by
3.7ppts yoy to 82% in 2017.
An increase in the occupancy rate is generally accompanied by an
increase in ADR, as hotels tend to increase their room rates when
demand rises. For full service hotels which have relatively high room
rates, we remain conservative on ADR growth and forecast Jinjiang
Hotels-H’s full service hotels to increase their ADR by 3% yoy in 2016
and by 2% yoy in 2017.
As a result, we expect RevPAR of full service hotels to increase 10%
yoy to RMB518 in 2016, and to further grow by 7% yoy to RMB553 in
2017.
Figure 60: Disney impact on Jinjiang Hotels-H’s full service hotels, 2016E
Bull Case Base Case Bear Case
Occupancy rate (%) 85.0% 78.2% 74%
ADR (RMB) 708 663 650
RevPAR (RMB) 602 518 478
Incremental revenue (RMBm) 289 114 29
Assumptions
Incremental occupancy rate (ppt) 12.0% 5.2% 0.5%
Incremental ADR (%) 10.0% 3.0% 1.0%
Incremental RevPAR (%) 28.1% 10.3% 1.7% Source: Deutsche Bank estimate
Overall, we expect revenue from full service hotels to increase by 8% yoy to
RMB2.1bn in 2016, driven by a 10% yoy increase in RevPAR. We estimate that
revenue will increase by a further 6% yoy in 2017 to RMB2.2bn, supported by
7% yoy RevPAR growth.
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 45
Figure 61: Full service hotels revenue, 2012-17E
Year end Dec (RMB m) 2012 2013 2014 2015E 2016E 2017E
Room revenue 1,118 1,013 894 973 1,087 1,160
Food and beverage sales 889 813 622 595 607 631
Rendering of ancillary services 107 105 97 106 118 126
Rental revenue 190 199 196 186 186 186
Sales of hotel supplies 39 15 31 10 10 10
Hotel management 76 80 79 78 92 105
Total revenue 2,420 2,225 1,919 1,948 2,101 2,219
Breakdown
Room revenue 46% 46% 47% 50% 52% 52%
Food and beverage sales 37% 37% 32% 31% 29% 28%
Rendering of ancillary services 4% 5% 5% 5% 6% 6%
Rental revenue 8% 9% 10% 10% 9% 8%
Sales of hotel supplies 2% 1% 2% 1% 0% 0%
Hotel management 3% 4% 4% 4% 4% 5%
yoy%
Room revenue -17% -9% -12% 9% 12% 7%
Food and beverage sales -14% -9% -23% -4% 2% 4%
Rendering of ancillary services -17% -2% -8% 9% 12% 7%
Rental revenue 3% 5% -2% -5% 0% 0%
Sales of hotel supplies -86% -62% 109% -68% 0% 0%
Hotel management -97% 5% -1% -1% 18% 14%
Total revenue -55% -8% -14% 2% 8% 6% Source: Deutsche Bank estimate, Company data
Select service hotels & food and restaurants (i.e. Jinjiang Hotels-A, 600754.SS)
This segment is run entirely under the group’s subsidiary, Jinjiang Hotels
Development (600754.SS). Please refer to our company initiation report on
Jinjiang Hotels-A (600754.SS) for details.
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Page 46 Deutsche Bank AG/Hong Kong
Travel agency & logistics
Travel agency – Jinjiang International Travel (900929.SS)
The travel agency business is operated under Jinjiang International Travel
(900929.SS). As one of China's leading travel service enterprises, Jinjiang
International Travel provides a comprehensive service, which includes hotel
reservations, flight bookings, package tours, a corporate travel management
service, cruises, and booking tickets for theme parks and events. We expect
the business contributed 18% of Jinjiang Hotels-H’s revenue in 2015.
In our view, the Disneyland ticketing agent business, which has an extremely
high margin, is likely to become one of the key revenue and earnings
contributors to Jinjiang International Travel.
We expect that the ticketing agent service for Shanghai Disney will bring in
additional revenue of RMB52m in 2016, RMB124m in 2017 and RMB153m in
2018 for Jinjiang International Travel, as shown in Figure 62. Our calculation is
based on our overall visitor estimates and the following two assumptions:
Jinjiang has been confirmed as one of the tier-one ticket agents for
Shanghai Disney. We assume that 25% of tickets will be sold through
Jinjiang International Travel.
We forecast that the ticket price for Shanghai Disney will be in the
range of RMB300 to RMB500. We expect Jinjiang to receive RMB30
per ticket sold, which is a commission of about 6-10% of the ticket
price.
Figure 62: Revenue from Disney ticketing
2016E 2017E 2018E
Number of visitors (million) 6.9 16.5 20.4
% tickets sold through Jinjiang 25% 25% 25%
Ticket commission (RMB) 30 30 30
Revenue (RMBm) 52 124 153 Source: Deutsche Bank estimate
Below, we perform a sensitivity analysis on the revenue contribution from
Disney ticketing and visitor volume and agent fee per ticket.
Figure 63: Sensitivity analysis of visitor volume and agent fee
124.03 6.5 8.5 10.5 12.5 14.5 16.5 18.5 20.5 22.5 24.5 26.5
15 25 32 40 47 55 62 70 77 85 92 100
20 33 43 53 63 73 83 93 103 113 123 133
25 41 53 66 78 91 103 116 128 141 153 166
30 49 64 79 94 109 124 139 154 169 184 199
35 57 75 92 110 127 145 162 180 197 215 232
40 65 85 105 125 145 165 185 205 225 245 265
45 74 96 119 141 164 186 209 231 254 276 299
Agent
fee per
ticket
(RMB)
Annual visitor volume (million)
Source: Deutsche Bank estimate
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Deutsche Bank AG/Hong Kong Page 47
In addition to the agent’s direct fee from tickets, we believe Jinjiang
International Travel could also leverage its Disney ticket resources to introduce
domestic travel packages and encourage tourists to book through their
Jinjiang travel agencies.
Overall, we expect revenue from the group’s transportation and logistics
business to grow 6% yoy in 2016 and 2017.
Figure 64: Travel agency revenue, 2012-17E
Year end Dec (RMB m) 2012 2013 2014 2015E 2016E 2017E
Outbound travel 1,052 1,217 1,262 1,342 1,409 1,480
Inbound travel 144 119 144 129 132 135
Domestic travel 237 203 163 175 180 186
Ticketing 375 345 351 351 351 351
MICE 242 196 209 209 209 209
Other related business 12 13 11 10 10 10
Real estate 24 24 24 24 24 24
Disney - - - - 52 124
Total revenue 2,086 2,116 2,164 2,241 2,367 2,518
Breakdown
Outbound travel 50% 57% 58% 60% 60% 59%
Inbound travel 7% 6% 7% 6% 6% 5%
Domestic travel 11% 10% 8% 8% 8% 7%
Ticketing 18% 16% 16% 16% 15% 14%
MICE 12% 9% 10% 9% 9% 8%
Other related business 1% 1% 1% 0% 0% 0%
Real estate 1% 1% 1% 1% 1% 1%
Disney 0% 0% 0% 0% 2% 5%
yoy%
Outbound travel 19% 16% 4% 6% 5% 5%
Inbound travel -14% -17% 21% -10% 2% 2%
Domestic travel -6% -14% -20% 8% 3% 3%
Ticketing 4% -8% 2% 0% 0% 0%
MICE 8% -19% 7% 0% 0% 0%
Other related business -38% 7% -10% -12% 0% 0%
Real estate -1% -1% 0% 0% 0% 0%
Disney na na na na na 140%
Total revenue 8% 1% 2% 4% 6% 6% Source: Deutsche Bank estimate, Company data
Logistics – Jinjiang Industrial Investment (600650.SS)
Headquartered in Shanghai, Jinjiang Industrial Investment (600650.SS) is one
of the largest logistics company in China. It provides a full range of services
including international air/sea freight, supply chain management and third
party logistics.
As of December 2014, the company had a presence in China via 21 branches
and 64 service stations in the major cities in China.
We expect the business contributed 18% of Jinjiang Hotels-H’s revenue in
2015.
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Figure 65: Market share of car rental services in China in
2014
Figure 66: Revenue contribution from Jinjiang Hotels-H’s
passenger transportation and logistics segment in 2015
Car Inc 神州租车
51%
Yestock 赢时通
12%
eHi 一嗨11%
Avis 安飞士
8%
Dazhong 大众
5%
Shouqi 首汽
3%
Reocar 瑞卡便利租车
3%
U-Lin 友邻
3%
Topone 至尊
2%
Jinjiang 锦江
2%
Vehicle operating,
56%
Trading or automobile
, 37%
Hotel business
and related, 0%
Refrigerated logistics,
6%
Other revenue,
1%
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Jinjiang Industrial Investment is also currently in discussions with Disney
management regarding a shuttle bus service. According to management, the
current arrangement is that Jinjiang Industrial Investment will operate 40
shuttle buses at Shanghai Disney, operating between the Shanghai Disney
metro station and the main gate.
We believe that the service will enjoy a high margin, as the 40 buses running
between Disney station and the Disney park main gate will be powered by
electricity rather than by fuel.
As shown in the map below, the distance between the Disney station and the
main gate is approximately 4.3km. If travelling by taxi, this should cost
RMB20-30 per trip. As a result, we assume RMB25 per ticket charged by
Jinjiang Industrial Investment.
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Deutsche Bank AG/Hong Kong Page 49
Figure 67: Shuttle bus from Disney station to Disney resort
Shanghai Disneyland Resort (under construction)
Line 11 Disney Station
Total distance: 4.3kmTaxi fare: RMB20-30
Source: Deutsche Bank, Gaode map
As a result, we estimate that the revenue generated from the shuttle bus
service will be RMB86m in 2016, RMB207m in 2017 and RMB255m in 2018,
as shown in Figure 68.
Figure 68: Revenue from Disney shuttle bus service
2016E 2017E 2018E
Number of visitors (million) 6.9 16.5 20.4
% of visitors taking shuttle bus 50% 50% 50%
Ticket price (RMB) 25 25 25
Revenue (RMBm) 86 207 255
Source: Deutsche Bank estimate
Overall, we expect revenue from the group’s transportation and logistics
business to grow 6% yoy and 7% yoy in 2016 and 2017, respectively.
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Figure 69: Transportation and logistics revenue, 2012-17E
Year end Dec (RMB m) 2012 2013 2014 2015E 2016E 2017E
Vehicle operating 1,173 1,216 1,236 1,256 1,276 1,297
Trading or automobile 708 730 796 843 877 903
Hotel business and related - - - - - -
Refrigerated logistics 121 119 127 133 139 143
Other revenue 23 23 24 24 25 26
Disney - - - - 86 207
Total revenue 2,026 2,089 2,182 2,257 2,403 2,576
Breakdown
Vehicle operating 58% 58% 57% 56% 53% 50%
Trading or automobile 35% 35% 36% 37% 36% 35%
Hotel business and related 0% 0% 0% 0% 0% 0%
Refrigerated logistics 6% 6% 6% 6% 6% 6%
Other revenue 1% 1% 1% 1% 1% 1%
Disney 0% 0% 0% 0% 4% 8%
yoy%
Vehicle operating -2% 4% 2% 2% 2% 2%
Trading or automobile 19% 3% 9% 6% 4% 3%
Hotel business and related na na na na na na
Refrigerated logistics 12% -2% 7% 5% 4% 3%
Other revenue na 1% 3% 3% 3% 3%
Disney na na na na na 140%
Total revenue 6% 3% 4% 3% 6% 7% Source: Deutsche Bank estimate, Company data
Others
Jinjiang Group also conducts other business activities, which contributed 1%
of Jinjiang Hotels-H’s revenue and 25% of operating profit in 2014. Jinjiang
Hotels-H has a subsidiary, Jinjiang International Finance, which handles all
other financial-related businesses. Its major role is as a non-bank financial
institution within the group. Jinjiang International Finance provides deposits
and short-term financing within subsidiaries, JVs and associates, which
reduces the group’s interest expenses incurred from bank loans.
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Financials
Consolidated income statement
We forecasted a net loss of RMB162m in 2015, due mainly to high
administrative cost on employee benefit, and a doubled finance cost
as the company took RMB10.5bn LT borrowing.
We expect that core net profit will turn positive in 2016 to RMB628m,
and forecast 29% yoy growth to RMB808m in 2017. We are positive
about Jinjiang Hotels-H’s ability to turn around in 2016, as the
company expand through acquisition – Groupe du Louvre in February
2015 and 7 Days in 1Q16.
Revenue breakdown We forecast that revenue will increase 29% yoy to RMB16.5bn in 2016
due to the consolidation of 7 Days (9 months, as we factored in 7
Days’ contribution from April 2016), a contribution from new business
(including Disney ticketing and shuttle bus services), and an
improvement in RevPAR driven by visitor volume at Shanghai Disney.
We expect revenue from full service hotels to increase 8% yoy to
RMB2.1bn in 2016, driven by 10% yoy growth in RevPAR of the
company’s owned/leased hotels.
We forecast a 56% yoy revenue increase to RMB9.2bn in select
service hotels, due mainly to the consolidation of 7 Days for 9
months.
The transportation and logistics business will provide the shuttle
bus service between the Disney metro station and the main gate.
We expect this additional contribution to support a 6% yoy
revenue increase to RMB2.4bn in 2016E. Organically, we forecast
3% yoy growth in 2016.
The travel agency business should benefit from being a tier-one
Disney ticket agent, which should drive revenue by 6% yoy in
2016E to RMB2.4bn. We forecast 3% yoy organic growth in 2016.
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Figure 70: Segment summary, 2012-17E
Year end Dec (RMB m) 2012 2013 2014 2015E 2016E 2017E
Revenue
Full service hotels 2,420 2,225 1,919 1,948 2,101 2,219
Select service hotels 2,102 2,407 2,635 5,897 9,178 10,584
Jinjiang 2,103 2,410 2,636 3,128 3,193 3,465
7 Days - - - - 2,565 3,639
Lourvre - - - 2,770 3,419 3,480
Food and restaurants 314 358 376 375 393 421
Passenger transportation vehicles and logistics 2,020 2,082 2,178 2,257 2,403 2,576
Travel agency 2,078 2,116 2,164 2,241 2,367 2,518
Others 71 100 93 73 73 73
Breakdown
Full service hotels 27% 24% 20% 15% 13% 12%
Select service hotels 23% 26% 28% 46% 56% 58%
Jinjiang 23% 26% 28% 24% 19% 19%
7 Days 0% 0% 0% 0% 16% 20%
Lourvre 0% 0% 0% 22% 21% 19%
Food and restaurants 3% 4% 4% 3% 2% 2%
Passenger transportation vehicles and logistics 22% 22% 23% 18% 15% 14%
Travel agency 23% 23% 23% 18% 14% 14%
Others 1% 1% 1% 1% 0% 0%
yoy%
Full service hotels -55% -8% -14% 2% 8% 6%
Select service hotels 11% 15% 9% 124% 56% 15%
Jinjiang 11% 15% 9% 19% 2% 8%
7 Days na na na na na 42%
Lourvre na na na na 23% 2%
Food and restaurants 16% 14% 5% 0% 5% 7%
Passenger transportation vehicles and logistics -37% 3% 5% 4% 6% 7%
Travel agency 8% 2% 2% 4% 6% 6%
Others 73% 41% -7% -22% 0% 0% Source: Deutsche Bank estimate, Company data
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Figure 71: Income statement summary, 2012-17E
Source: Deutsche Bank estimate, Company data *Note: Adjusted EBITDA, Adjusted EBIT excluded loss on financial assets, compensation charges on early termination, and employee benefit expenses ** Note: Core net profit adjusted for gain on disposals
Year end Dec (RMB m) 2012 2013 2014 2015E 2016E 2017E
Revenue 9,004 9,288 9,364 12,792 16,515 18,390 Net revenue 8,643 8,911 8,997 12,338 15,929 17,738 Gross profit 1,573 1,633 1,682 2,821 4,535 5,398 SG&A (1,288) (1,319) (2,034) (2,510) (2,789) (3,106) Adj. EBITDA (*) 1,234 1,258 1,291 1,784 2,951 3,495 EBIT 285 314 (352) 311 1,746 2,292 Adj. EBIT (*) 285 314 353 693 1,746 2,292 Pre-tax profit 870 1,276 1,551 1,485 1,518 2,008 Net profit 317 444 621 533 521 689 Core net profit (**) 48 (273) (283) (162) 628 808 EPS (RMB) 0.01 (0.05) (0.05) (0.03) 0.11 0.15 Margin %
Gross margin 17% 18% 18% 22% 27% 29% SG&A as % of revenue -14% -14% -22% -20% -17% -17% Adj. EBITDA margin 14% 14% 14% 14% 18% 19% EBIT margin 3% 3% -4% 2% 11% 12% Adj. EBIT margin 3% 3% 4% 5% 11% 12% Tax rate 19% 34% 31% 27% 27% 27% Net profit 4% 5% 7% 4% 3% 4% Core net margin 1% -3% -3% -1% 4% 4% yoy%
Revenue na 3% 1% 37% 29% 11% Gross profit na 4% 3% 68% 61% 19% SG&A na 2% 54% 23% 11% 11% Adj. EBITDA (*) na 2% 3% 38% 65% 18% EBIT 6% 10% na na 461% 31% Adj. EBIT (*) 6% 10% 12% 96% 152% 31% Pre-tax profit na 47% 21% na 2% 32% Net profit na 40% 40% na na 32% Core net profit (**) na na na na na 29% EPS na na na na na 29%
No. of shares (year-end) 5,566 5,566 5,566 5,566 5,566 5,566 No. of shares (weighted-average) 5,566 5,566 5,566 5,566 5,566 5,566
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Balance sheet and cash flow
Dividend
We expect a constant dividend per share of RMB0.05 from Jinjiang Hotels-H,
as guided by the company.
Net debt
We expect Jinjiang Hotels-H’s net debt to increase to RMB14.8bn in 2016 from
RMB8.9bn in 2015, due to the cash payment of RMB8.3bn for the acquisition
of 7 Days (to be completed in beginning 2016).
As a result, we forecast a net gearing ratio of 81% in 2016. Nonetheless, we
believe this gearing ratio is not representative of the company’s long-term
financial position.
Financial expense
As a result of long-term loans increasing to RMB10.9bn and the drop in cash
balance to less than RMB1bn, we expect net financial expenses to be
RMB535m in 2016, 6x of the financial expense in 2014 (RMB80m).
Figure 72: Balance sheet, 2012-17E
Year end Dec (RMB m) 2012 2013 2014 2015E 2016E 2017E
Fixed assets 7,026 7,074 6,932 10,738 11,045 11,163
Investment properties 186 228 222 216 210 204
Land use rights 1,867 2,030 1,962 1,903 1,844 1,785
Intangibles 386 432 429 6,579 9,788 9,594
Investments in JVs & associates 2,071 1,950 1,947 2,023 2,023 2,023
Available -for-sale financial assets 1,964 1,888 3,644 3,644 3,644 3,644
Other LT assets 271 704 428 3,956 8,649 8,649
Non-current assets 13,772 14,306 15,564 29,058 37,203 37,062
Cash 2,536 4,475 5,877 7,189 765 881
Short term investments 62 202 216 216 216 216
Trade & other receivables 1,063 1,306 1,198 1,636 2,112 2,352
Inventory 151 177 168 218 262 284
Other ST assets 544 1,370 1,141 989 1,612 2,236
Current assets 4,357 7,530 8,600 10,249 4,968 5,970
Issued share capital 5,566 5,566 5,566 5,566 5,566 5,566
Retained earnings 1,524 1,730 2,020 2,275 2,517 2,928
Other reserves 222 269 1,033 1,033 1,033 1,033
Share capital 7,312 7,566 8,619 8,874 9,117 9,527
Non-controlling interests 4,823 4,384 6,757 6,930 9,175 9,175
Total equity 12,135 11,950 15,376 15,804 18,292 18,702
LT loans 1,394 1,712 1,862 10,912 10,912 10,912
Deferred income tax liabilities 639 500 938 2,114 2,114 2,114
LT Trade and other payables 114 211 608 608 608 608
Capital employed 14,282 14,373 18,784 29,438 31,925 32,335
ST loans (incl. current portion of LT loans) 601 2,150 1,721 5,191 4,673 4,673
Trade & other payables 3,143 4,767 3,421 4,440 5,334 5,785
Other current liabilites 103 547 238 238 238 238
Current liabilities 3,847 7,463 5,379 9,869 10,245 10,696
Total assets less current liabilities 14,282 14,373 18,784 29,438 31,925 32,335 Source: Deutsche Bank estimates, Company data
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Figure 73: Cash flow, 2012-17E
Year end Dec (RMB m) 2012 2013 2014 2015E 2016E 2017E
Profit before income tax 870 1,276 1,551 1,485 1,518 2,008
Depreciation & amortisation 949 943 937 1,091 1,205 1,251
Working capital changes (78) (257) 642 530 375 189
Other adjustments (521) (883) (1,781) (558) (595) (787)
Cash generated from operations 1,219 1,080 1,349 2,549 2,503 2,662
Interest paid (96) (125) (157) (394) (623) (623)
Taxation (225) (203) (570) (394) (403) (533)
Others - 1,292 (1,419) 102
Net cash generated from operation 898 2,044 (796) 1,864 1,477 1,506
Capex (736) (784) (851) (903) (1,081) (1,110)
Proceeds from disposals of PPE/Intangibles 81 107 80 20
Acquisitions of equity - (654) (71) (2,957) (8,269)
Repayments of borrowings from acquisition - (636) - (5,554) -
Proceeds from disposals(capital increase) of subsidiaries (113) 768 1,526 423
Other investments 410 (497) 821 822
Net cashflow from investment activities (358) (1,695) 1,505 (8,149) (9,350) (1,110)
Dividends paid (478) (411) (501) (278) (278) (278)
Proceeds from issue of shares - - - 2,245
Net proceeds(repayment) from borrowings 368 1,882 (278) 12,521 (518) -
Other financing inflows(outflows) (33) 125 1,471 (4,715)
Net cashflow from financing activites (143) 1,596 691 7,527 1,448 (278)
Exchange differences (0) (5) 1 71
Change in net cash 396 1,939 1,402 1,313 (6,425) 117
Source: Deutsche Bank estimates, Company data
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Risks
Downside risks
Margin tightening: Due to increasing competition in the economy
hotel sector and online travel agency business, aggressive price cuts
and an increasing number of promotions will be introduced. There
may be a risk of declining margins and challenging market conditions.
Potential inability to locate new sites: In the economy hotel sector, as
Jinjiang Hotels-A’s competitors are growing at a faster pace (China
Lodging to add 680+ economy hotels and Home Inns to add 400
economy hotels, while the group is to add 200-250 economy hotels in
2015), there may be difficulties in locating ideal sites for growth.
Domestic tourism market downturn − decline in domestic business
travellers/tourists in China: Due to an anti-graft campaign, there has
been a decrease in domestic tourists travelling locally, which has
affected the RevPAR of hotels in China. Furthermore, with the
depreciation of other countries’ currencies and the relaxation of their
visa policies for Chinese citizens, Chinese tourists are more willing to
spend their money abroad.
Terrorist attacks and natural disasters: Terrorist attacks, such as the
one in Paris, France, have had a significant impact on outbound
tourism and the hotel business in that region. As Jinjiang Hotels-A
expands overseas to capture China’s outbound tourism growth,
terrorist attacks in a region in which Jinjiang expands would hurt hotel
performance.
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Deutsche Bank AG/Hong Kong Page 57
Company profile
Overview
Shanghai Jinjiang International Hotels (Group) Company Limited (Jinjiang
Hotels-H) is one of the leading comprehensive tourism-centric conglomerates
in China that provides one-stop tourism-related services in hotel, dining,
transportation and logistics. The group is the listed entity of Jinjiang
International, an SOE in Shanghai. It is also recognised as one of the leading
hotel operators and managers with a focus on China.
Over the years, the group has engaged primarily in operating and managing
star-rated hotels, operating and franchising budget hotels, operating
restaurants, and other businesses.
Businesses
Jinjiang Hotels-H operates four major businesses: 1) full service hotels; 2)
select service hotels with food and restaurant chains; 3) passenger
transportation logistics; and 4) travel agency. Together with its inter-segment
financial service (Others), the group generated RMB9.4bn revenue in 2014.
Figure 74: Jinjiang Hotels-H’s revenue breakdown for
2014
Figure 75: Jinjiang Hotels-H’s EBIT breakdown for 2014
Full service
hotels21%
Select
service hotels and
F&B32%
Passenger
transportation vehicles
and logistics
23%
Travel
agency 23%
Others
1%
Full service
hotels37%
Select
service hotels and
F&B22%
Passenger
transportation vehicles
and logistics
11%
Travel
agency 5%
Others
25%
Source: Deutsche Bank, company data
Source: Deutsche Bank, company data
Figure 76: Segment revenue and EBIT breakdown – 2014
RMBm Full Service Hotels
Select Service and F&B
Transportation & Logistics
Travel Agency Others Total
Revenue 1,929 3,011 2,178 2,164 93 9,364
20% 32% 23% 23% 1% 100%
EBIT 575 346 179 71 391 1,568
24% 23% 24% 6% 23% 100%
Source: Deutsche Bank, Company data
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Management profile
Mr Yu Minliang (俞 ), chairman and executive director of the group, is the
key person at Jinjiang Group. Mr Yu, aged 56, graduated from Fudan
University with a Master’s degree in economics. He is well-recognised as an
economist. Mr Yu has extensive experience in hotel management. He joined
Jinjiang International in 1984. Prior to that, he was the senior executive of a
number of hotel management firms such as Shanghai Yangtze Hotel Co. Ltd.,
Jinjiang Hotels Development and New Asia (Group) Company Limited. Mr Yu
currently also holds the position of chairman of Jinjiang Hotels Development
and Shanghai Yantze Hotel Co. Ltd.
Figure 77: Management profile
Name Title Age
Mr. Yu Minliang ( 俞敏亮) Chairman and Executive Director 56
Mr. Yang Weimin ( 楊衛民) Vice Chairman and Executive Director 59
Ms. Chen Wenjun (陳文君) Executive Director 58
Mr. Yang Yuanping (楊原平) Executive Director 58
Mr. Shao Xiaoming (邵曉明) Executive Director 55
Mr. Han Min (韓敏) Executive Director and Chief Investment Officer 56
Mr. Kang Ming (康鳴) Executive Director, Company Secretary 42
Source: Deutsche Bank, Company Data
1 February 2016
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Shareholding structures
Figure 78: Ownership organisation
50%
100%
75%
State-owned Assets Supervision and Administration Commission
资产监 员
Jinjiang International (Group) Co.锦 际( 团)
Limited service hoteloperations & managementFood and Restaurant
Jinjiang International Hotel Development Co.(600754 CH A share; 900934 CH B share)
锦 际 发
Jinjiang International Hotels (Group) Co.锦 际 团 (2006 HK)
Star-rated hotel operation and management
Free Float
37%39%
Travel Agency
Jinjiang International Travel Co.锦 际
(900929 CH)
Passenger TransportationLogistics
Jinjiang Industrial Investment Co.锦 际实业 资
(600650 CH)
50%
Hony Capital资
13%
100% Jinjiang Financial Ltd. Co.锦 财务 责
Source: Deutsche Bank, Company data
Strategic Investors
Jinjiang International, the parent group, holds all of the domestic shares in
Jinjiang Hotels-H (75.0% of total shares). The remaining 25.0% H-shares are
free-floating shares. As of May 2015, Harvest Fund Management (5.1%
outstanding shares), Citigroup (5.0%), Deutsche Bank AG (5.0%) and
Dimensional Fund Advisors (2.1%) were the major investors in the group. In
December 2014, its subsidiary Jinjiang Hotels Development added the
strategic investor Hony Capital. Hony Capital acquired around 201m A shares
with a lock-up of three years.
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Reuters Bloomberg
600754.SS 600754 CH
Forecasts And Ratios
Year End Dec 31 2013A 2014A 2015E 2016E 2017E
Sales (CNYm) 2,542.3 2,763.2 5,945.1 9,151.3 10,505.5
EBITDA (CNYm) 618.5 630.5 1,567.0 2,212.2 2,657.1
Reported EPS FD(CNY) 0.63 0.79 0.86 0.85 0.97
DB EPS FD(CNY) 0.37 0.23 0.45 0.83 0.95
DB EPS growth (%) -23.7 -38.6 96.2 84.3 15.4
PER (x) 36.1 78.2 74.6 40.5 35.1
EV/EBITDA (x) 12.3 9.3 19.2 15.2 12.5
DPS (net) (CNY) 0.38 0.40 0.43 0.42 0.49
Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses
the year end close
Expanding through acquisitions We initiate coverage of Jinjiang Hotels Development-A (Jinjiang Hotels-A) with a Hold rating and a target price of RMB36. As a part of the ”going-out“ plan, Jinjiang Hotels-A acquired Groupe du Louvre in February 2015. Domestically, Jinjiang Hotels-A announced to acquire Keystone (economy hotel brand of 7 Days) in September 2015 (to be completed in 1H16). We believe the overseas acquisition should help Jinjiang capture outbound tourism growth, while domestic consolidation could help it further leverage its market position.
Expanding overseas to capture long-term outbound tourism growth Jinjiang Hotels-A aims at the high-growth outbound travel trend. Jinjiang Hotels-A acquired the second largest hotel group in Europe, Groupe du Louvre, in February 2015, for a total payment of EUR1.3bn, which implies a trailing EV/EBITDA of 12x. Despite the short-term impact from the terrorist attack (which we forecast to result in flat 2016 EBITDA), we are positive on long-term outbound growth trend and expect EBITDA gradually to increase from 2017.
To enhance domestic leading position by completing acquisition of 7 Days The acquisition of 7 Days, which will be complete in 1H16, should help Jinjiang Hotels-A to further enhance its leading position in the domestic market. After consolidating 7 Days in 1H16, Jinjiang Hotels-A will become the largest econ hotel group in China, with 25% market share.
Targeting the growing midscale hotel market The midscale hotel market in China is growing, driven by the anti-corruption moves and increasing disposable income. We believe Jinjiang Hotels-A has a high-quality image among consumers, with higher-than-average ADR and the spillover effect of the parent company’s luxury hotel brand name.
Valuation and risks We derive our target price using SOTP EV/EBITDA. Our 12-month target price of RMB36 implies 18x our 2016 EBITDA estimate. We think the stock, trading at 15x EV/EBITDA is fairly valued. Downside risks include operation integration risk, acquisition deal failure, and terrorist attacks. Upside risks include faster-than expected RevPAR recovery.
Rating
Hold Asia
China
Consumer
Hotels / Leisure / Gaming
Company
Jinjiang Hotels Develop
Premium hotel franchise – initiating with Hold
Price at 1 Feb 2016 (CNY) 33.44
Price target - 12mth (CNY) 36.00
52-week range (CNY) 55.41 - 24.12
Shanghai Composite 2,738
Tallan Zhou
Research Analyst
(+852) 2203 6464
Karen Tang
Research Analyst
(+852) 2203 6141
Price/price relative
10
20
30
40
50
60
2/14 8/14 2/15 8/15
Jinjiang Hotels Deve
Shanghai Composite (Rebased)
Performance (%) 1m 3m 12m
Absolute -34.9 -11.6 28.5
Shanghai Composite -22.7 -19.1 -14.8
Source: Deutsche Bank
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 61
Model updated:29 January 2016
Running the numbers
Asia
China
Hotels / Leisure / Gaming
Jinjiang Hotels Development Reuters: 600754.SS Bloomberg: 600754 CH
Hold Price (1 Feb 16) CNY 33.44
Target Price CNY 36.00
52 Week range CNY 24.12 - 55.41
Market Cap (m) CNYm 26,903
USDm 4,091
Company Profile
Jinjiang Economy Hotels is a state-owned-hotel company, primarily operating in the economy hotel segment. Its two key businesses are: (i) limited-service hotels; and (ii) F&B.
Price Performance
10
20
30
40
50
60
Feb 14May 14Aug 14Nov 14Feb 15May 15Aug 15Nov 15
Jinjiang Hotels DevelopmentShanghai Composite (Rebased)
Margin Trends
8
12
16
20
24
28
12 13 14 15E 16E 17E
EBITDA Margin EBIT Margin
Growth & Profitability
0
2
4
6
8
10
020406080
100120140
12 13 14 15E 16E 17E
Sales growth (LHS) ROE (RHS)
Solvency
0
10
20
30
40
-40
-20
0
20
40
60
12 13 14 15E 16E 17E
Net debt/equity (LHS) Net interest cover (RHS)
Tallan Zhou
+852 2203 6464 [email protected]
Fiscal year end 31-Dec 2012 2013 2014 2015E 2016E 2017E
Financial Summary
DB EPS (CNY) 0.49 0.37 0.23 0.45 0.83 0.95
Reported EPS (CNY) 0.61 0.63 0.79 0.86 0.85 0.97
DPS (CNY) 0.37 0.38 0.40 0.43 0.42 0.49
BVPS (CNY) 7.0 7.2 10.8 11.4 14.7 15.3
Weighted average shares (m) 603 603 620 805 905 955
Average market cap (CNYm) 8,950 8,107 11,073 26,903 26,903 26,903
Enterprise value (CNYm) 6,852 7,603 5,839 30,012 33,570 33,147
Valuation Metrics P/E (DB) (x) 30.4 36.1 78.2 74.6 40.5 35.1
P/E (Reported) (x) 24.2 21.5 22.7 38.8 39.5 34.3
P/BV (x) 1.91 2.17 2.32 2.94 2.27 2.18
FCF Yield (%) 2.3 nm 1.6 1.6 1.8 2.5
Dividend Yield (%) 2.5 2.8 2.2 1.3 1.3 1.5
EV/Sales (x) 3.1 3.0 2.1 5.0 3.7 3.2
EV/EBITDA (x) 11.6 12.3 9.3 19.2 15.2 12.5
EV/EBIT (x) 24.8 28.3 24.2 33.5 26.0 21.3
Income Statement (CNYm)
Sales revenue 2,207 2,542 2,763 5,945 9,151 10,506
Gross profit 1,932 2,241 2,455 5,382 8,416 9,692
EBITDA 592 619 631 1,567 2,212 2,657
Depreciation 142 173 208 448 469 513
Amortisation 174 176 181 222 450 588
EBIT 277 269 241 897 1,293 1,557
Net interest income(expense) -8 -46 -70 -333 -340 -389
Associates/affiliates 41 -9 -10 -12 -12 -12
Exceptionals/extraordinaries 102 202 455 378 25 25
Other pre-tax income/(expense) 57 80 48 51 51 51
Profit before tax 469 497 666 981 1,017 1,232
Income tax expense 97 114 175 281 243 294
Minorities 3 5 3 7 7 7
Other post-tax income/(expense) 0 0 0 0 0 0
Net profit 369 377 487 693 767 930
DB adjustments (including dilution) -75 -153 -345 -332 -19 -19
DB Net profit 294 224 142 361 748 911
Cash Flow (CNYm)
Cash flow from operations 556 639 559 1,171 1,596 2,001
Net Capex -349 -803 -379 -730 -1,049 -1,187
Free cash flow 207 -164 180 441 547 814
Equity raised/(bought back) 0 5 3,028 0 4,518 0
Dividends paid -214 -220 -232 -329 -354 -390
Net inc/(dec) in borrowings -5 655 -526 8,169 -518 0
Other investing/financing cash flows 169 -349 422 -6,184 -8,269 0
Net cash flow 158 -73 2,873 2,097 -4,076 423
Change in working capital 54 130 92 -200 -97 -37
Balance Sheet (CNYm)
Cash and other liquid assets 752 679 3,552 10,372 6,296 6,719
Tangible fixed assets 1,490 3,201 3,161 7,209 7,876 8,415
Goodwill/intangible assets 298 342 335 6,494 8,572 8,324
Associates/investments 1,386 1,193 2,521 1,253 1,253 1,253
Other assets 1,487 1,668 1,795 3,717 9,754 9,715
Total assets 5,412 7,083 11,363 29,045 33,751 34,426
Interest bearing debt 0 1,330 809 14,532 14,014 14,014
Other liabilities 1,126 1,372 1,825 5,171 5,456 5,585
Total liabilities 1,127 2,702 2,635 19,703 19,470 19,599
Shareholders' equity 4,246 4,344 8,699 9,140 14,079 14,626
Minorities 39 37 29 202 202 202
Total shareholders' equity 4,285 4,381 8,728 9,342 14,281 14,828
Net debt -751 652 -2,742 4,160 7,718 7,294
Key Company Metrics
Sales growth (%) 10.4 15.2 8.7 115.2 53.9 14.8
DB EPS growth (%) -3.8 -23.7 -38.6 96.2 84.3 15.4
EBITDA Margin (%) 26.8 24.3 22.8 26.4 24.2 25.3
EBIT Margin (%) 12.5 10.6 8.7 15.1 14.1 14.8
Payout ratio (%) 60.5 60.7 50.9 50.0 50.0 50.0
ROE (%) 9.0 8.8 7.5 7.8 6.6 6.5
Capex/sales (%) 16.7 31.8 14.2 12.3 11.5 11.3
Capex/depreciation (x) 1.2 2.3 1.0 1.1 1.1 1.1
Net debt/equity (%) -17.5 14.9 -31.4 44.5 54.0 49.2
Net interest cover (x) 35.9 5.9 3.5 2.7 3.8 4.0
Source: Company data, Deutsche Bank estimates
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Page 62 Deutsche Bank AG/Hong Kong
Investment thesis
Outlook
Jinjiang Hotels-A is among the top three economy hotel operators in mainland
China. As part of the going-out plan and domestic consolidation for most SOE
companies, Jinjiang Hotels-A acquired Groupe du Louvre in February 2015 and
announced its intention to acquire Keystone (economy Hotel brand of 7 Days)
in September 2015 (to be completed in 1H16).
In the overseas market, Jinjiang Hotels-A aims at the high-growth
outbound travel trend. Jinjiang Hotels-A acquired the second largest
hotel group in Europe, Groupe du Louvre, in February 2015, for a total
payment of EUR1.3bn, which implies a trailing EV/EBITDA of 12x.
Despite the short-term impact from the terrorist attack, which could
hurt Groupe du Louvre’s performance in 2016, we are positive on the
long-term outbound growth trend.
Domestically, Jinjiang Hotels-A is further leveraging its market share
through the acquisition of domestic competitor 7 Days. The deal,
which will be completed in 1H16, values 7 Days at RMB10.8bn, which
converts to an EV/EBITDA of 13x. Following the acquisition, Jinjiang
Hotels-A will become the No.1 economy hotel in China, with a 25%
market share.
In addition, Jinjiang Hotels-A’s ADR is approximately 5% higher than the
industry average, and its parent company is one of the top upper-scale hotel
operators in mainland China. We believe these two elements could help create
a high-quality image for Jinjiang Hotels-A, which would in turn benefit
Metropolo in tapping into the midscale hotel market.
Valuation
We value Jinjiang Hotels-A based on SOTP EV/EBITDA. We apply 18x to the
select service hotel segments. As for the food and restaurant segment, we use
the book value. Stripping out net debt and minorities, we arrive at our 12-
month target price of RMB36. The company is currently trading at 15x our
2016E EV/EBITDA, which we believe is a fair valuation, and thus, we initiate
coverage with a Hold rating.
Risks
Key downside risks include: (1) lower-than-expected revenue and earnings
contribution from Groupe du Louvre; (2) high interest expense burden from
borrowing for acquisition and expansion; and (3) delay of new hotel openings.
Key upside risks include revenue and earnings contribution from Shanghai
Disneyland.
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 63
Valuation
We value Jinjiang Hotels-A at RMB36 on EV/EBITDA
We initiate coverage of Jinjiang Hotels-A with a Hold rating and a target price
of RMB36. Our key valuation method is sum-of-the-parts EV/EBIDA.
EV/EBITDA makes more sense than P/E
We believe a relative valuation based on EV/EBITDA makes more sense at the
current stage, due to the doubling of net finance costs in the short term.
Jinjiang Hotels-A completed the acquisition of Groupe du Louvre in
2015 and will complete the acquisition of 7 Days at the beginning of
2016.
Upon completion of the 7 Days acquisition, we expect that net debt
will increase to RMB7.7bn in 2016 from RMB4.2bn in 2015.
We assign 18x EV/EBITDA as our target multiple
Our 18x EV/EBITDA is in line with its historical average and peers’ average. In
detail:
Jinjiang Hotels-A has traded at an average 18x EV/EBITDA for the past
two years, as shown in Figure 80.
We believe the company has already become a global brand, with
both Chinese and overseas footprints. In terms of domestic market
share, Jinjiang Hotels-A is also the largest economy hotel chain, with
25% market share (after consolidating 7 Days).
From a valuation perspective, we also assign 18x EV/EBITDA to derive
our valuation.
18x implies 0.9x our 2017 EBITDA growth forecast, which we believe
is reasonable.
We use P/B to value Jinjiang Hotels-A’s food and restaurant business,
which is still loss-making on the EBITDA line. However, this segment
accounts for only a tiny part of the total business. We assign a 1x
book value in our valuation.
The detailed EV/EBITDA valuation is illustrated in the calculation table below:
Figure 79: Our EV/EBITDA calculation
Rationale 2016E EBITDA (Rmb m)
Limited service hotels (China) - Jinjiang 18x 2016 EBITDA 741 13,341
Groupe du Louvre 18x 2016 EBITDA 886 15,954
7 Days 18x 2016 EBITDA 608 10,943
Food and Restaurant and others End-1H15 book value 11
Enterprise value 40,249
less net debt End-2016 7,718
less minorities End-2016 202
Equity value 32,330
Target price (RMB/shr) 36 Source: Deutsche Bank estimates
1 February 2016
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Page 64 Deutsche Bank AG/Hong Kong
Figure 80: 12-month forward EV/EBITDA, January 2014-January 2016
8.0x
13.0x
18.0x
23.0x
28.0x
33.0x
38.0x
03/0
1/2
014
03/0
2/2
014
03/0
3/2
014
03/0
4/2
014
03/0
5/2
014
03/0
6/2
014
03/0
7/2
014
03/0
8/2
014
03/0
9/2
014
03/1
0/2
014
03/1
1/2
014
03/1
2/2
014
03/0
1/2
015
03/0
2/2
015
03/0
3/2
015
03/0
4/2
015
03/0
5/2
015
03/0
6/2
015
03/0
7/2
015
03/0
8/2
015
03/0
9/2
015
03/1
0/2
015
03/1
1/2
015
03/1
2/2
015
03/0
1/2
016
12-M forward EV/EBITDA Avg +1stdev -1stdev
Average Max Min Stdev
18x 36x 10x 7.0
Source: Deutsche Bank, Bloomberg Finance LP
We are conservative in assuming no valuation premium for Jinjiang
We believe our assigned 18x EV/EBITDA multiple for Jinjiang Hotels-A is
conservative. We assume no valuation premium to Jinjiang Hotels-A’s peers,
although Jinjiang Hotels-A’s should also benefit partially from Disney, while
other tourism/hotel peers will not.
Ch
ina H
ote
ls
Ho
tels / L
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ing
1 F
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20
16
Deu
tsch
e B
an
k A
G/H
on
g K
on
g
Pag
e 6
5
Figure 81: Tourism and lodging sector valuation comp sheet
Ticker English name Current price Market cap (USD m)
P/B 2015E PER 2016E PER 2015E EV/EBITDA
2016E EV/EBITDA
EPS growth %
DB Recomm.
600754 CH Equity JINJIANG HOTELS-A 36.80 4,501 2.5x 41.5x 41.2x 15.3x 14.0x Hold
Tourism & Lodging
601888 CH Equity CHINA INTERNATIONAL TRAVEL-A 43.71 6,558 3.8x 26.8x 21.5x 14.5x 11.4x 25% Buy
300144 CH Equity SONGCHENG PERFORMANCE DEVE-A 21.80 4,858 5.9x 52.5x 36.5x 30.7x 21.7x 44% Buy
600138 CH Equity CHINA CYTS TOURS HLDG CO-A 18.78 2,108 2.9x 35.3x 26.5x 14.5x 11.9x 33% Buy
600054 CH Equity HUANGSHAN TOURISM DEVELOP-A 18.57 1,399 3.3x 30.7x 26.0x 14.0x 11.7x 18% Buy
603099 CH Equity CHANGBAI MOUNTAIN TOURISM -A 16.33 660 5.5x 45.4x 37.7x 30.7x 26.1x na NR
603199 CH Equity ANHUI JIUHUASHAN TOURISM-A 34.00 570 5.3x 42.5x 46.9x 25.4x 24.7x na NR
000978 CH Equity GUILIN TOURISM CO LTD-A 9.89 540 2.4x 43.4x 55.9x 21.6x 20.2x na NR
000430 CH Equity ZHANGJIAJIE TOURISM GROUP-A 10.09 490 5.2x 25.3x 27.5x 22.4x 20.0x na NR
600706 CH Equity XI'AN QUJIANG CULTURAL TO-A 16.15 439 3.5x 85.4x 56.7x 20.1x 19.6x 38% NR
002186 CH Equity CHINA QUANJUDE GROUP CO LT-A 17.20 804 3.9x 41.5x 32.0x 18.3x 17.1x 25% NR
601007 CH Equity JINLING HOTEL CORP LTD-A 10.45 475 2.3x 76.2x 25.2x 16.4x 14.9x na NR
Average 4.0x 45.9x 35.7x 20.8x 18.1x
Source: Deutsche Bank estimates, Bloomberg Finance LP
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Page 66 Deutsche Bank AG/Hong Kong
Two acquisitions
Consolidating on a global basis in the future
As part of the going-out plan and domestic consolidation for most SOE
companies, Jinjiang Hotels-A (owned by Shanghai SASAIC) acquired Groupe
du Louvre, the second largest European hotel group, in February 2015 (already
consolidated in the financial report from March 2015), and it announced its
intention to acquire Keystone, the economic hotel brand of 7 Days, in
September 2015 (deal to be consolidated in 1H16).
We believe these two deals are just the start of Jinjiang Hotels-A’s global
consolidation plan. Aiming at the high-growth outbound travel trend and
leveraging Jinjiang’s domestic market share, Jinjiang Group wants to become
the leading global hotel brand in the next five years though continuous
consolidations.
Valuations for the past two deals seem reasonable
A trailing 12x EV/EBITDA for Groupe Du Louvre
The final acquisition price announced by Jinjiang Hotels-A was EUR1.3bn,
converting to EV/EBITDA of 12x on Groupe Du Louvre’s 2014 EBITDA.
However, if we look forward, the total acquisition implied forward EV/EBITDA
of 11x, which is lower than the sector average of 12x.
Figure 82: Announced acquisition details of Groupe Du Louvre
Deal details Announced
(m Euro)
Purchasing price of 100% shares 475
Repayment of net receivables from previous shareholders 521
- Short term debt A
- Short term debt B
- Long term debt A
- Long term debt B(classified as equity)
Repayment of syndicated loans 281
Total payment (EV) 1,277
- 2014 EBITDA 108
- Acquisition EV/EBITDA 12x Source: Deutsche Bank, Company data
We are estimating Group du Louvre’s 2015 and 2016 EBITDA contribution to
be EUR739m (consolidated for 10 months in 2015) and EUR886m,
respectively. The valuation implies a 2016 EV/EBITDA of 10.7x, which we
believe is reasonable.
7 Days acquisition – 13x EV/EBITDA, slightly higher than industry average
Jinjiang Hotels-A acquired an 81% stake in 7 Days for RMB8.3bn. Keystone’s
major operation is 7 Days hotel. Keystone also controls a 22% stake in E-long.
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 67
The overall valuation of 7 Days is RMB10.8bn, converting to an EV/EBITDA of
13x (assuming Keystone’s 2015 adjusted EBITDA is RMB835m), as shown in
Figure 83.
Figure 83: 7 Days’ acquisition valuation of EV/EBITDA
RMBm
7 Days enterprise value 10,800
2015 EBITDA (est.) 820
Implied EV/EBITDA 13.2x
-Loss from equity investment (15)
-Xiangbala tourism investment (0)
-Mingyan Technology (0)
-eLong (15)
-Player Brother Technology (0)
Adjusted EBITDA 835
Adjusted implied EV/EBITDA 12.9x
Source: Deutsche Bank, Company data
The market obviously believed that Jinjiang overpaid for the acquisition. As a
result, the share price of Jinjiang Hotels-H (2006 HK), the parent company,
dropped by 19% in the four days following the acquisition announcement, as
shown in Figure 84.
Figure 84: Jinjiang Hotels-H (2006.HK) share price performance in September
2015
2.00
2.10
2.20
2.30
2.40
2.50
2.60
2.70
2.80
01/09/15 06/09/15 11/09/15 16/09/15 21/09/15 26/09/15
2006.HK price (HKD)
Share price dropped 19%
over 18-24 September
Source: Deutsche Bank, Bloomberg Finance LP
Beijing Tourism Group acquired Home Inns at EV/EBITDA of only 7x
Another consolidation deal was announced at the end of 2015. Beijing Tourism
Group (BTG) (600258.SS, NR), another SOE hotel group, announced its plan to
acquire Home Inns (HMIN.OQ, Buy) at USD35.80 per share. This is at an 11.4%
premium to the closing price of USD32.14 on 4 December 2015, and a 9.1%
premium to the original “going-private” price of USD32.81 proposed in June.
The acquisition is also expected to be completed in 1H16. The price at USD35.80
implies 7x on our 2015E EV/EBITDA. Although it seems cheaper on an absolute
1 February 2016
Hotels / Leisure / Gaming
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Page 68 Deutsche Bank AG/Hong Kong
comparison (i.e., 13x of 7 Days vs. only 7x of Home Inns), we argue that 7 Days
was private before the acquisition, while Home Inns was still publicly trading on the
US market with a discount to A-share valuation.
Figure 85: Announced acquisition details of Home Inns
Deal details Announced
Purchasing price (USD) 35.80
Implied EV (RMBm) 9,280
Our 2015 EBITDA (RMBm) 1,307
- Our 2015 EV/EBITDA 7x
Source: Deutsche Bank, Company data
1 February 2016
Hotels / Leisure / Gaming
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Deutsche Bank AG/Hong Kong Page 69
Aiming at outbound travel
Outbound travelers to France should grow in the long run
2016 may be tough for France’s Chinese visitors, but we view it as a one-off
We believe that, after the Paris terrorist attack on 13 November 2015, the
growth of Chinese outbound visitors to France or Europe is likely to remain flat
or slightly drop. If we look at the MERS impact on Korea, we observe that
tourism volume dropped significantly in 2H15 by 14% yoy to 2.98m from
3.46m. As a result, we expect Groupe du Louvre, which has the majority of its
hotel properties in France, to be negatively affected with a flat EBITDA in 2016.
Figure 86: Korea MERS impact
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
-
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Ja
n-1
4
Fe
b-1
4
Ma
r-1
4
Ap
r-1
4
Ma
y-1
4
Ju
n-1
4
Ju
l-1
4
Au
g-1
4
Se
p-1
4
Oct-
14
No
v-1
4
De
c-1
4
Ja
n-1
5
Fe
b-1
5
Ma
r-1
5
Ap
r-1
5
Ma
y-1
5
Ju
n-1
5
Ju
l-1
5
Au
g-1
5
Se
p-1
5
Oct-
15
No
v-1
5
De
c-1
5
Korea m visitor yoy %
Source: Deutsche Bank,CEIC
We are positive on outbound travelers to France.
Despite the short-term impact from the Paris terrorist attack, we believe the
long-term prospects of outbound tourism to France remain positive.
Over the past five years, the number of Chinese tourists to France has been
continuously growing at 20%+ yoy, as shown in Figure 87. France is also one
of the top European travel destinations for Chinese tourists – in 1H15, over
19% of China’s tourists traveling to Europe visited France.
1 February 2016
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Page 70 Deutsche Bank AG/Hong Kong
Figure 87: Chinese outbound to France, 2010-2014
0.9
1.1
1.4
1.7
2.2
2.7
15%
17%
19%
21%
23%
25%
27%
29%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2010 2011 2012 2013 2014 2015
France m visitor yoy%
Source: Deutsche Bank, Direction Generale des Enterprises
Acquisition of Groupe du Louvre to extend Jinjiang brand overseas
Jinjiang Hotels-A expanded at a slower pace than peers (c.130 new hotels
every year since 2012 vs. Home Inns and China Lodging’s c.400 new hotels).
Nevertheless, upon completion of acquiring Groupe du Louvre, the total
number of hotels immediately doubled to 2,100+ (2,165 as of 3Q15), with
geographical coverage of 56 countries and regions.
Jinjiang Hotels-A’s hotel portfolio previously consisted of 1) one well-known
nationwide economy hotel – Jinjiang Inn; 2) one popular regional brand –
Goldmet Express; 3) one youth-target super-budget hotel – Bestay; and 4) one
promising growing midscale brand – Jin Jiang Metropolo.
Acquisition brought four more brands into Jinjiang Hotels-A’s portfolio, namely
Premiere Classe, Campanile, Kyrid, and Golden Tulip.
Premiere Classe was founded in 1989. As of 2014, it had a total of 251
hotels, with 17,998 rooms.
Campanile was founded in 1976. As of 2014, it had a total of 398
hotels, with 27,354 rooms.
Kyrid, founded in 2000, had a total of 237 hotels with 14,476 rooms as
of 2014.
Golden Tulip was acquired by Starway Capital in 2009. Golden Tulip is
a mid-scale hotel brand, and it had 229 hotels and 31,326 rooms as of
2014.
As of 2014, Groupe du Louvre operated a total of 1,115 hotels, out of which
820 (74%) are located in France.
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 71
Figure 88: Groupe du Louvre hotel brands by geography, 2014
France Other Europe Other non-Europe Total
Premiere Classe 245 6 - 251
Campanile 325 58 15 398
Kyrid 237 - - 237
Golden Tulip 13 86 130 229
Total 820 150 145 1,115 Source: Deutsche Bank, Company data
Figure 89: Jinjiang + Groupe du Louvre hotels (owned vs. franchised), 3Q15
Owned Franchised Total
China
In operation 274 770 1,044
Under development 34 210 244
Total 308 980 1,288
Overseas
In operation 254 867 1,121
Under development 0 53 53
Total 254 920 1,174 Source: Deutsche Bank, Company data
Figure 90: Peer comparison – number of hotels Figure 91: Number of hotels by brand, 3Q15
690
1,035
1,772
828
1,425
2,180
968
1,995
2,609
2,165
2,588
2,787
-
500
1,000
1,500
2,000
2,500
3,000
Jinjiang China Lodging Home Inns
2012 2013 2014 3Q15
Acquisition of Groupe du
Louvre has doubled
Jinjiang's hotel capacity
JinJiang Inn
43%Bestay
Hotel
Express
3%
Goldmet
Express
3%
JinJiang
Metropolo
2%
Premiere
Classe
11%
Campanile
17%Kyrid
11%
Golden
Tulip
12%
Source: Deutsche Bank, Company data Source: Deutsche Bank, Company data
In FY2014 (June year-end), all four brands under Groupe du Louvre achieved
2% yoy growth in RevPAR – to EUR28 for Premiere Classe, EUR42 for
Campanile, and EUR46 for Kyrid and Golden Tulip.
Over the first seven months after consolidation, Groupe du Louvre achieved an
overall occupancy rate of 65%, with average ADR at EUR59. RevPAR came in
at EUR38, with details on each brand shown in Figure 92.
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Page 72 Deutsche Bank AG/Hong Kong
Figure 92: Groupe du Louvre performance, March-September 2015
No of hotels Occupancy ADR RevPAR
Groupe du Louvre % EUR EUR
Premiere Classe 259 70% 40 28
Campanile 377 69% 58 40
Kyrid 240 65% 63 41
Golden Tulip 250 57% 74 42
Overall Groupe du Louvre 1,126 65% 59 38 Source: Deutsche Bank, Company data
We expect EBITDA to remain flat in 2016 but to improve in the long term
We forecast Group du Louvre’s EBITDA to remain flat in 2016 due to the
negative impact from the terrorist attack. In the long term, we expect EBITDA
gradually to increase from 2017 and onwards, supported by the following
factors:
Chinese tourism traffic to France has been consistently growing at
20%+ over the past five years. Despite the short-term impact on
tourism volume, we believe outbound tourism to France should
recover in 2017. We expect Groupe du Louvre’s occupancy rate to
gradually pick up, benefiting from the high growth of China’s
outbound tourism.
Jinjiang Hotels-A has begun to integrate Groupe du Louvre into the
entire hotel portfolio, as we have noticed that hotel booking for
Groupe du Louvre is already available on Jinjiang Hotels-A’s official
website, as shown in Figure 96.
We expect Jinjiang Hotels-A to utilize more resources, possibly
including the travel agency business from its parent company, to
increase the recognition of the Groupe du Louvre brand in mainland
China, thus diverting more tourist volume to Groupe du Louvre.
Figure 93: Groupe du Louvre – our estimated EBITDA (RMBm), 2013-2017E
476
680
887 886 896
-
100
200
300
400
500
600
700
800
900
1,000
2013 2014 2015E 2016E 2017E
EBITDA (RMBm)
Source: Deutsche Bank estimates, Company data
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 73
Figure 94: Revenue breakdown by segment, 2015E Figure 95: EBITDA breakdown by segment, 2012-2017E
Groupe du Louvre47%Limited
service hotels (China)
48%
Food and Restaurant
5%
592 619 631
1,567
2,370
2,563
(100)
400
900
1,400
1,900
2,400
2,900
2012 2013 2014 2015E 2016E 2017E
RMB m
Groupe du Louvre Limited service hotels (China)
Food and Restaurant Others
Acquisition of
Groupe du Louvre
Acquisition of
7 Days
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank estimates, Company data
Figure 96: Groupe du Louvre room reservation available on Jinjiang’s official website
Source: Deutsche Bank, Jinjiang.com
1 February 2016
Hotels / Leisure / Gaming
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Page 74 Deutsche Bank AG/Hong Kong
A series of globalization steps into five countries in the past four years
The step-out strategy dates back to 2011, when Jinjiang Hotels-A broke into
the Philippines market with a master franchising agreement with Liwayway
Group. In early 2014, Jinjiang Hotels-A announced a partnership with
Indonesia's PT Marindo Investama to open at least 30 Jinjiang Inns in
Indonesia. The process continued in late 2014, when Jinjiang Hotels-A started
its first overseas hotel franchise in South Korea. Following the acquisition of
Groupe du Louvre in 2015, Jinjiang Hotels-A recently announced its brand
alliance with a Holland hotel – Postillion.
Figure 97: Jinjiang Hotels-A’s globalization timeline
Year Country Partner Form Detail
2011 Philippines Liwayway Group Brand licensing - 2 hotels
- Jin Jiang Inn Ortigas (95 rooms) opened in 2013
- Jin Jiang Inn Greenbelt (70 rooms) opened in 2014
2011 France Groupe du Louvre Brand alliance - launched a midscale hotel chain called "Campanile & JinJiang"
- Jinjiang and Louvre assigned 15 hotels in the most-visited cities on either side to become co-branded properties
2012 South Korea Sang Won Housing Franchise - Jin Jiang Inn Seoul East Myeongdong (174 rooms) – touristy sites in Seoul
2014 Indonesia PT Marindo Investama Franchise - opened 30+ Jin Jiang branded hotels
- obliged to open 100+ hotels during 15-year deal lifetime
- including 5+ with 500+ rooms in the first 3 years
2014 France Groupe du Louvre Acquisition - 1,167 hotels, 97,655 rooms, 4 brands
2015 Netherland Postillion Partnership - 5-year agreement commencing on July 1, 2015
- special service targeting Chinese guests in Holland hotels
- booking access through Jin Jiang's website
2015 North America Magnuson Hotels Worldwide
Partnership - to create the biggest European distribution platform in North America
- increase traffic to LVH (under Groupe du Louvre)
Source: Deutsche Bank, Company data
The global expansion not only strengthens the brand portfolio, geographic
footprint, and guest base for Jinjiang Hotels-H, but also enables the group to
capture the growing Chinese outbound travel market with its first-mover
advantage. Together with that, Jinjiang Hotels-H’s subsidiary Jinjiang
International Travel (900929.SS) is steadily growing its travel agency business;
the growth is mainly driven by rapidly growing demand for outbound travel
from China (which contributes 58% of Jinjiang International Travel’s total
revenue in 2014).
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 75
No. 1 economy hotel
Establishing midscale hotel brand
Midscale hotel becoming the promising virgin land for potential competition
In the current situation (high competition among economy hotels, deteriorating
RevPAR), midscale hotels are considered to be a new growth opportunity.
Midscale hotels are positioned in between luxury hotels and economy hotels.
They provide customers with the comfort that economy hotels lack, at a price
point that is lower than luxury hotels. Midscale hotels generally do not have
the facilities such as swimming pools that luxury hotels have; however,
midscale hotels effectively meet the comfort and cleanliness requirements of
business travelers.
The Chinese government’s anti-corruption and anti-extravagance policies,
which depress luxury-star hotel business, and increasing disposable income,
which encourages consumers to pursue a higher-standard travelling
experience, both led to the rise in demand for midscale hotels.
All of the four big China economy hotel companies are reallocating their
resources to the highly fragmented midscale hotel market. Among the four,
Jinjiang Hotels-A is the last big economy hotel group to expand into the
midscale market. As of 2014, Jinjiang Hotels-A lagged behind in the
development of midscale hotels, with only five midscale hotels in operation.
Figure 98: Midscale hotel brands under each company by end-2014
Company Brand Start Time No of Hotels Feature
HMIN Yitel 和颐酒店 Nov-10 41 in operation
20 under dev
mid-upper scale
Homeinn Plus 如家精选 Apr-15 2 in operation
25 under dev
mid-scale, younger target market
HTHT JI Hotel 全季酒店 2007 117 in operation
76 under dev
standard design
Starway Hotel 星程酒店 May-12 55 in operation
45 under dev
customized design
7 Days James Joyce Hotel 喆啡 Jul-13 15 in operation
42 under dev
coffee culture
ZMAX HotelZMAX 潮漫风尚 Jul-13 7 in operation
22 under dev
fashion-oriented
Lavande Hotel 麗枫 Jul-13 30 in operation
86 under dev
lavender aroma theme
Xana Hotelle 希岸 Jul-14 4 under dev target market – female guest
Jinjiang Metropolo 锦江都城 Nov-13 5 in operation
12 under dev
Shanghai 1930s vintage style
Source: Deutsche Bank, Company data
1 February 2016
Hotels / Leisure / Gaming
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Page 76 Deutsche Bank AG/Hong Kong
Figure 99: Number of midscale hotels operated by the big four econ hotels,
2014
172
5243
5
0
20
40
60
80
100
120
140
160
180
200
China Lodging 7 days Home Inns Jinjiang
Source: Deutsche Bank, Company data
Parent company supporting plan to enrich the midscale hotel portfolio
Jinjiang Hotels-A entered the midscale hotel operation with the Metropolo
brand in November 2013. By 3Q15, Metropolo had 32 hotels in operation and
25 hotels under development, 90% of which are owned/leased.
Jinjiang Hotels-A has obtained eight hotel assets in total from its parent
company in the process of developing Metropolo. Those assets are highly
valuable historical buildings located in golden business or tourism areas,
through which Metropolo has successfully differentiated its brand image.
Figure 100: Eight hotel assets transferred from parent company
Classic series
Dahua Hotel 上海达 酒店
YMCA Hotel 上海青年会大酒店
Shanghai Off Bund Hotel 上海南京 路外 酒店
Minhang Hotel 上海 行 店
Xincheng Hotel 上海新城 店
New Asia Hotel 上海新 大酒店
Jinshajiang Hotel 金沙江酒店
Huating Hotel 南 亭酒店
Source: Deutsche Bank, Company data
Higher-than-average pricing helps build the overall high-quality brand image
Thanks to the full-service hotel portfolio in the parent company, along with
Jinjiang Hotels-A’s higher-than-average room rate, it is easier for Metropolo to
establish a high-quality image among consumers.
As shown in Figure 101, Jinjiang Hotels-A’s ADR has been at a c.5% premium
to the average, indicating relatively higher pricing power.
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 77
Figure 101: ADR (RMB) comparison
150
155
160
165
170
175
180
185
190
195
Jinjiang China
Lodging
Home Inns Jinjiang China
Lodging
Home Inns
Owned/leased Managed/franchised
2012 2013 2014
Jinjiang's ADR is higher than peers
for both owned/leased and
managed/franchised hotels
Source: Deutsche Bank, Company data
Market share increased to 25% in China
After the acquisition of 7 Days, Jinjiang Hotels’ capacity in mainland China will
surpass that of Home Inns, and Jinjiang Hotels will become the No.1 China
economy hotel, with 25% market share in terms of the number of rooms.
Figure 102: Hotel market share, by number of rooms
Jinjiang Hotel, 25%
Home Inns, 22%
China Lodging, 16%
Green Tree, 7%
Jinling Hotels, 3%
Others, 27%
Source: Deutsche Bank, China Hotel Association, Company data
Becoming No. 1 after the acquisition of 7 Days
7 Days has 2,291 hotels around the world, with 2,288 of them located in China.
With the consolidation of 7 Days, Jinjiang’s hotel capacity in mainland China
will jump from 1,044 hotels by 3Q15 to over 3,300 hotels, surpassing Home
Inns (2,787 hotels by 3Q15) to become the No.1 in China economy hotel
sector.
1 February 2016
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Page 78 Deutsche Bank AG/Hong Kong
Figure 103: 7 Days hotel overview (owned/managed/franchised), 1H15
Hotels % Rooms %
Owned 495 22% 51,785 24%
Managed 1,614 70% 146,121 69%
Franchised 182 8% 14,800 7%
Total 2,291 100% 212,706 100%
Source: Deutsche Bank, Company data
Figure 104: 7 Days hotels by geography, 1H15
Economy Midscale Total
Owned hotels
Mainland China
South 199 - 199
East 107 - 107
North 88 - 88
Central 74 - 74
West 26 - 26
Overseas - 1 1
Total owned hotels 494 1 495
Managed/franchised hotels
Mainland China
South 553 26 579
East 497 16 513
North 377 11 388
Central 219 7 226
West 84 4 88
Overseas 2 - 2
Total managed/franchised hotels 1,732 64 1,796
Total 2,226 65 2,291 Source: Deutsche Bank, Company data
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 79
Figure 105: 7 Days hotel brands, 1H15
Brand No of hotels in operation
No of hotels under dev
No of rooms in operation
No of rooms under dev
Location
High-end
铂涛菲诺 Portofino 17-Jul-13 1 9 196 1391 China
安珀 Maison Albar 15-Oct-14 0 0 0 0 France
H12 9-Apr-15 1 0 12 0 Austria
希尔顿欢朋 Hampton 30-Oct-14 0 4 0 528 China
Middle-scale
麗枫酒店 Lavande 17-Jul-13 37 105 3,478 9,914 China
喆啡酒店 James Joyce
Coffetel
17-Jul-13 17 51 1,461 4,811 China
ZMAX 潮漫酒店 17-Jul-13 8 20 791 1,855 China
希岸 Xana Hotelle 22-Jul-14 1 1 38 85 China
Economy Hotel
7 Days
- 7 天酒店 7 Days Inn 2005 1,989 323 186,423 23,543 China
- 7 天阳光 7 Days, Choice for
Youth
16-Apr-14 163 55 12,994 3,254 China
- 7 天优品, 7 Days Premium 16-Apr-14 42 63 3,100 4,323 China
稻家连锁酒店 15-Oct-14 12 0 316 0 China
IU 酒店 IU Hotel 10-Feb-15 19 95 1,806 6,681 China
派酒店 π Hotel 14-Mar-15 1 41 46 2,569 China
窝趣 WowQu end-2015/early-2016
0 2 0 253 China
Total 2,291 769 212,706 59,207
Source: Deutsche Bank, company data
Acquisition likely to enhance leading position and improve efficiency
With the business integration with 7 Days, we believe Jinjiang Hotels-A will
further improve its operational efficiency from economies of scale.
As shown in Figure 106, 7 Days has the highest percentage of
managed/franchised hotels among China economy hotels (78%). The
combined entity (Jinjiang + 7 Days) will have a higher weight in
managed/franchised hotels, which could help improve Jinjiang’s overall
operating margin.
The combination of two groups should also generate a syndicate effect by
increasing bargaining power for purchasing, sharing membership information,
and optimizing new hotel allocation.
1 February 2016
Hotels / Leisure / Gaming
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Page 80 Deutsche Bank AG/Hong Kong
Figure 106: Hotel mix % comparison (2Q15) Figure 107: EBITDA margin comparison
17%
20% 20%
16%
20%
24%
32%
29% 29%
23%
26%
0%
5%
10%
15%
20%
25%
30%
35%
2012 2013 2014
China Lodging Home Inns Jinjiang 7 Days
Jinjiang and Plateno's EBITDA margins
are higher than peers
Source: Deutsche Bank, Company data Note: 7 Days data is from Jinjiang’s acquisition filing. Only available up to 2Q15.
Source: Deutsche Bank, Company data Note: 1. EBITDA margin as % of net revenue (gross revenue – revenue tax) 2. 7 Days 2012 data from company filing; 2014 data from Jinjiang’s acquisition filing.
Figure 108: Performance of high-end and midscale hotels under 7 Days, 1H15
No of hotels Occupancy ADR RevPAR
7 Days % RMB RMB
Portofino 1 50% 250 125
Lavande 37 82% 260 213
James Joyce Coffetel 17 49% 200 97
ZMAX 8 48% 196 94
Xana Hotelle 1 104% 414 428
Source: Deutsche Bank, Company data
Figure 109: Performance of Jinjiang select service hotels, 1H15
No of hotels Occupancy ADR RevPAR
Jinjiang select service hotels % RMB RMB
JinJiang Metropolo 31 67% 306 205
JinJiang Inn 863 78% 178 139
Goldmet Express 62 55% 163 90
Bestay Hotel Express 66 62% 110 69 Source: Deutsche Bank, Company data
China Lodging
Home Inns
Jinjiang 7 Days
By type of operation
- Leased and operated hotels 26% 33% 24% 22%
- Managed/franchised 74% 67% 76% 78%
By brand
- Midscale/Upscale 10% 2% 1% 4%
- Economy 90% 98% 99% 96%
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 81
Figure 110: Economy hotel comp table
7 DaysChina
Lodging
Home
Inns
SH Jin
Jiang
China
Lodging
Home
Inns
SH Jin
Jiang
China
Lodging
Home
Inns
SH Jin
Jiang
Operation stat
Group RevPAR
Occupancy (%) 81% 94% 86% 84% 91% 86% 83% 89% 86% 81%
ADR (room rates, RMB) 162 178 168 181 180 165 180 179 165 182
RevPAR (RMB) 132 168 144 153 163 142 150 159 142 147
yoy
Occ yoy (ppts) (3.3) 2.4 (2.7) (2.3) (3.7) 0.0 (1.3) (1.8) 0.0 (2.6)
ADR yoy 0% -1% -2% 2% 1% -2% -1% -1% 0% 1%
RevPAR yoy -3% 2% -5% -1% -3% -1% -2% -2% 0% -2%
Capacity
# of hotel rooms (y.e) 133,497 113,650 214,070 83,860 152,879 256,555 100,566 209,955 296,075 116,010
- L/O hotels 51,725 54,694 105,505 26,748 65,836 112,369 33,553 72,335 115,348 36,833
- M/F hotels 81,772 58,956 108,565 57,112 87,043 144,186 67,013 137,620 180,727 79,177
Avg # of hotel rooms 114,091 91,813 193,811 76,388 132,719 233,629 92,213 180,617 274,925 108,288
- L/O hotels 47,373 46,150 98,435 25,761 60,184 108,709 30,151 69,604 114,280 35,193
- M/F hotels 66,718 45,663 95,376 50,627 72,535 124,920 62,063 111,013 160,645 73,095
# of hotels (y.e) 1,345 1,035 1,772 690 1,425 2,180 828 1,995 2,609 968
- L/O hotels 492 465 803 192 565 872 239 611 914 267
- M/F hotels 853 570 969 498 860 1,308 589 1,384 1,695 701
Avg # of hotels 1,145 828 1,585 622 1,223 1,960 759 1,690 2,376 898
- L/O hotels 452 390 739 182 513 835 216 589 894 253
- M/F hotels 693 438 846 441 710 1,124 544 1,100 1,482 645
yoy
# of hotel rooms yoy 41% 58% 21% 22% 35% 20% 20% 37% 15% 15%
Avg # of hotel rooms yoy 51% 53% 71% 24% 45% 21% 21% 36% 18% 17%
- O/L hotels 25% 34% 63% 11% 30% 10% 17% 16% 5% 17%
- M/F hotels 77% 79% 79% 32% 59% 31% 23% 53% 29% 18%
# of hotels yoy 42% 62% 24% 25% 38% 23% 20% 40% 20% 17%
20132012 2014
Source: Deutsche Bank, Company data
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Page 82 Deutsche Bank AG/Hong Kong
Financials
Consolidated income statement
Summary We expect core EPS to increase 84% yoy in 2016 to RMB0.83, due
mainly to the consolidation of 7 Days (nine-months contribution) and
full-year contribution from Groupe du Louvre.
Management guided for consolidation of 7 Days in the beginning
of 2016. For conservative purposes, we factored in 7 Days from
2Q16.
Private placement – Jinjiang Hotels-A is expected to complete its
private placement of 151m shares for RMB4.5bn by the end of
April 2016. As a result, we expect the weighted number of shares
to increase to 905m in 2016 from 805m in 2015.
We forecast 15% yoy core EPS growth in 2017 to RMB0.95, due to
full-year consolidation of 7 Days, as well as a 6% yoy RevPAR increase
thanks to the opening of Shanghai Disney.
We estimate strong 53% yoy revenue growth in 2016 to RMB9.5bn,
due partially to the nine-month consolidation of 7 Days, which
contributed to RMB2.6bn of additional revenue. We expect 15% yoy
revenue growth in 2017E to RMB10.9bn.
We expect gross margin to improve slightly by 2ppts in 2016E, since
historical 7 Days performance suggests a lower COGS as a percentage
of sales at 4% compared to 6% for Jinjiang economy hotels.
We believe the EBITDA margin will contract slightly by 2ppts, due to
higher selling and marketing expenditure on 7 Days.
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 83
Figure 111: Income statement summary, 2012-2017E
Source: Deutsche Bank estimates, Company data
Year end Dec (RMB m) 2012 2013 2014 2015E 2016E 2017E
Revenue 2,336 2,684 2,913 6,174 9,467 10,894 Net revenue 2,207 2,542 2,763 5,945 9,151 10,506 Gross profit 1,932 2,241 2,455 5,382 8,416 9,692 SG&A (1,655) (1,973) (2,213) (4,485) (7,123) (8,136) EBITDA 592 619 631 1,567 2,212 2,657 EBIT 277 269 241 897 1,293 1,557 Pre-tax profit 469 497 666 981 1,017 1,232 Net profit 369 377 487 693 767 930 Core net profit 294 224 142 361 748 911 EPS (RMB) 0.49 0.37 0.23 0.45 0.83 0.95 Margin %
Gross margin 83% 84% 84% 87% 89% 89% SG&A as % of revenue -71% -73% -76% -73% -75% -75% EBITDA margin 25% 23% 22% 25% 23% 24%
EBIT margin 12% 10% 8% 15% 14% 14% Tax rate 21% 23% 26% 29% 24% 24% Net profit 16% 14% 17% 11% 8% 9% Core net margin 13% 8% 5% 6% 8% 8% yoy%
Revenue 10% 15% 9% 112% 53% 15% Gross profit 11% 16% 10% 119% 56% 15%
SG&A 10% 19% 12% 103% 59% 14% EBITDA 11% 4% 2% 149% 41% 20% EBIT 21% -3% -10% 272% 44% 20% Pre-tax profit 22% 6% 34% 47% 4% 21%
Net profit 15% 2% 29% 42% 11% 21% Core net profit -4% -24% -37% 155% 107% 22% EPS -4% -24% -39% 96% 84% 15%
No. of shares (year end) 603 603 805 805 955 955 No. of shares (weighted-average.) 603 603 620 805 905 955
1 February 2016
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Page 84 Deutsche Bank AG/Hong Kong
Revenue
We expect overall gross revenue to increase 53% yoy in 2016 to RMB9.5bn
and to grow 15% yoy in 2017to RMB10.9bn.
We forecast organic growth of Jinjiang Hotels-A’s limited service
hotels in China at 11% yoy in 2016 to RMB3.2bn, driven by a 7% yoy
increase in RevPAR.
We forecast 7 Days to contribute an additional of RMB2.6bn revenue
to Jinjiang Hotels-A in 2016 (nine-month contribution), and we expect
7 Days to generate revenue of RMB3.6bn in 2017.
We expect the food and restaurant business to growth steadily at 5%
yoy in 2016, along with the hotel business.
Figure 112: Segment summary, 2012-2017E
Year end Dec (RMB m) 2012 2013 2014 2015E 2016E 2017E
Revenue
Groupe du Louvre (consolidated in Mar-15) - - - 2,770 3,419 3,480
Limited service hotels (China) 2,103 2,410 2,636 2,865 5,759 7,104
- Jinjiang 2,103 2,410 2,636 2,865 3,193 3,465
- 7 Days (expect to be consolidated in Apr-16) - - - - 2,565 3,639
Food and Restaurant 233 274 277 277 290 310
Others 0 0 0 263 - -
Revenue breakdown
Groupe du Louvre (consolidated in Mar-15) 0% 0% 0% 45% 36% 32%
Limited service hotels (China) 90% 90% 90% 46% 61% 65%
- Jinjiang 90% 90% 90% 46% 34% 32%
- 7 Days (expect to be consolidated in Apr-16) 0% 0% 0% 0% 27% 33%
Food and Restaurant 10% 10% 9% 4% 3% 3%
Others 0% 0% 0% 4% 0% 0%
yoy%
Groupe du Louvre (consolidated in Mar-15) na na na na 23% 2%
Limited service hotels (China) 11% 15% 9% 9% 101% 23%
- Jinjiang 11% 15% 9% 9% 11% 8%
- 7 Days (expect to be consolidated in Apr-16) na na na na na 42%
Food and Restaurant 3% 18% 1% 0% 5% 7%
Gross profit
Groupe du Louvre (consolidated in Mar-15) - - - 2,535 3,111 3,167
Limited service hotels (China) 1,830 2,112 2,332 2,524 5,171 6,383
- Jinjiang 1,830 2,112 2,332 2,524 2,837 3,072
- 7 Days (expect to be consolidated in Apr-16) - - - - 2,334 3,311
Food and Restaurant 101 129 123 128 133 143
Others 0 0 0 195 - -
Gross profit breakdown
Groupe du Louvre (consolidated in Mar-15) 0% 0% 0% 47% 37% 33%
Limited service hotels (China) 95% 94% 95% 47% 61% 66%
- Jinjiang 95% 94% 95% 47% 34% 32%
- 7 Days (expect to be consolidated in Apr-16) 0% 0% 0% 0% 28% 34%
Food and Restaurant 5% 6% 5% 2% 2% 1%
Others 0% 0% 0% 4% 0% 0%
GPM %
Groupe du Louvre (consolidated in Mar-15) na na na 92% 91% 91%
Limited service hotels (China) 87% 88% 88% 88% 90% 90%
- Jinjiang 87% 88% 88% 88% 89% 89%
- 7 Days (expect to be consolidated in Apr-16) na na na na 91% 91%
Food and Restaurant 43% 47% 44% 46% 46% 46%
Others 70% 68% 70% 74% na na Source: Deutsche Bank estimates, Company data
1 February 2016
Hotels / Leisure / Gaming
China Hotels
Deutsche Bank AG/Hong Kong Page 85
Balance sheet and cash flow
Net debt to surge in 2016
We expect Jinjiang Hotels-A’s net debt to increase by RMB6.9bn in 2015 to
RMB4.2bn and further increase by RMB3.3bn in 2016 to RMB7.7bn, with a
gearing ratio of 45% and 54%, respectively. We expect financial cost to surge
to RMB333m in 2015 (4x 2014 net financial cost) and to RMB340m in 2016.
Jinjiang Hotels-A has announced a plan to complete the private
placement by the end of April 2016 to raise RMB4.5bn, which will be
used for the repayment of debt.
Nonetheless, we do not expect Jinjiang Hotels-A’s financial position to
improve in the short term. As shown in Figure 5, Jinjiang Hotels-A has
two major cash outflows for acquisitions. We believe additional
funding may be needed to support the company’s acquisition moves.
Figure 113: Significant cash outflows for acquisitions in 2015 and 2016
RMBm
Major cash inflow in 2015&16
Operating cash in 2015 1,171
Operating cash flow in 2016 1,596
Net proceed from borrowing in 2015 8,169
Private placement (announced to complete by April 2016) 4,518
Total cash inflow 15,454
Major cash inflow in 2015&16
Capex in 2015 (731)
Capex in 2016 (1,049)
Acquisition of Groupe du Louvre (completed ) (2,957)
Acquisition of 7 Days (to be completed in beginning 2016) (8,269)
Repayment of debt (as guided by company) (4,518)
Restricted bank deposits pledged for borrowings (4,724)
Total cash outflow (22,248)
Source: Deutsche Bank estimates
Private placement
We expect share capital to increase to RMB9.8bn in 2016 from RMB5.3bn in
2015, as Jinjiang Hotels-A completes its RMB4.5bn private placement by the
end of April 2016. Management guides to use most of the funds raised to pay
down debt.
As a result of the private placement, we expect the number of shares to
increase to 955m by year-end 2016 from 805m in 2015. If the private
placement is completed on April 30, 2016, the weighted number of shares will
be 905m in 2016, up from 805m in 2015.
1 February 2016
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Page 86 Deutsche Bank AG/Hong Kong
Figure 114: Private placement summary
issued shares (million) RMBm
Jinjiang International Hotel Group (parent co. 50.32% shr holder)
76 2,273
Hony SH Capital Fund (12.43% shr holder) 20 599
Guo Sheng Fund 15 449
Great Wall Fund 15 449
Hua An Fund (related co.) 15 449
Shanghai International Fund 10 299
Total 151 4,518
Source: Deutsche Bank, Company data
Dividend
We expect Jinjiang Hotels-A to maintain a dividend payout ratio of 50% over
the next few years, as guided by management.
Figure 115: Balance sheet, 2012-2017E
Year end Dec (RMB m) 2012 2013 2014 2015E 2016E 2017E
Issued share capital 603 603 805 805 955 955
Additional paid-in capital 2,282 1,659 4,482 4,482 8,849 8,849
Retained earnings 878 1,033 1,244 1,615 2,035 2,582
Other comprehensive income - 566 1,639 1,710 1,710 1,710
Other reserves 482 482 529 529 529 529
Share capital 4,246 4,344 8,699 9,140 14,079 14,626
Minorities 39 37 29 202 202 202
Long term loans - - 5 9,312 9,312 9,312
Long term payables 7 6 6 134 134 134
Deferred income tax liabilities 210 302 655 1,830 1,830 1,830
Other LT liabilities 3 21 27 327 327 327
Capital employed 4,505 4,709 9,420 20,946 25,885 26,431
Fixed assets 1,490 3,201 3,161 7,209 7,876 8,415
Intangibles 258 250 239 2,383 4,461 4,213
Long-term prepayment 1,235 1,319 1,419 1,707 2,668 2,463
Available-for-sale financial asset 1,150 1,049 2,389 1,046 1,046 1,046
Investments, JVs & associates 235 144 131 207 207 207
Goodwill 40 92 96 4,111 4,111 4,111
Other LT assets 69 150 153 597 5,290 5,290
Long term assets 4,477 6,206 7,589 17,261 25,659 25,745
Cash 752 679 3,552 10,372 6,296 6,719
Trade receivables 50 69 88 687 1,054 1,213
Inventory 30 33 29 53 69 76
Other ST assets 102 96 105 672 672 672
Current assets 935 877 3,774 11,784 8,091 8,681
Trade payables 401 463 512 935 1,221 1,349
Short term loans 0 1,330 805 5,220 4,702 4,702
Other ST liabilities 506 580 626 1,944 1,944 1,944
Current liabilities 907 2,374 1,943 8,099 7,866 7,995
Total assets less current liabilities 4,505 4,709 9,420 20,946 25,885 26,431 Source: Deutsche Bank estimates, Company data
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Figure 116: Cash flow, 2012-2017E
Year end Dec (RMB m) 2012 2013 2014 2015E 2016E 2017E
Profit before interest & tax 277 269 241 897 1,293 1,557
Depreciation 142 173 208 448 469 513
Amortisation of intangible 14 16 17 37 143 268
Amortisation of long-term prepayment 159 161 163 184 307 320
Working capital changes 54 130 92 (200) (97) (37)
Inventory decrease (3) 5 4 (24) (16) (7)
Trade reveivable decrease (19) (1) (23) (599) (367) (159)
Trade payable increase 76 126 110 423 285 129
Other adjustments 166 194 229 418 64 64
Operating cash flow 812 943 951 1,785 2,179 2,684
Net interest paid (8) (46) (70) (333) (340) (389)
Taxation (249) (258) (322) (281) (243) (294)
Cash earnings 556 639 559 1,171 1,596 2,001
Capex (369) (809) (392) (731) (1,049) (1,187)
Proceeds from disposals of PPE&intangible 20 7 13 1
Acquisitions of equity - (654) (68) (2,957) (8,269)
Other investments 178 368 560 1,472
Investing cash flow (171) (1,089) 113 (2,215) (9,318) (1,187)
Proceeds from issue of shares - 5 3,028 4,518
Net proceeds(repayment) of borrowings (5) 655 (526) 8,169 (518) -
Dividends(including minority interest) paid (214) (220) (232) (329) (354) (390)
Other financing cashflows (8) (63) (70) (4,769)
Financing cash flow (226) 377 2,201 3,071 3,646 (390)
Foreign exchange impact - - - 70
Change in cash 158 (73) 2,873 2,097 (4,076) 423
Source: Deutsche Bank estimates, Company data
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Risks
Downside risks
Lower-than-expected revenue and earnings contribution from
Groupe du Louvre. Jinjiang Hotels-A acquired Groupe du Louvre in
February 2015, which is expected to boost Jinjiang Hotels-A’s revenue
and earnings. Given the uncertainty in the future performance of
Groupe du Louvre, a lower-than-expected revenue and earnings
contribution could hurt Jinjiang Hotels-A’s overall performance.
Potential inability to locate new sites. For the economy hotel sector, as
Jinjiang Hotels-A’s competitors are growing at a faster pace (China
Lodging to add 680+ economy hotels, Home Inns to add 400 economy
hotels, and Jinjiang Hotels-A to add 200-250 economy hotels in 2015),
Jinjiang Hotels-A may have difficulties in locating ideal sites for its
growth.
Domestic tourism market downturn. A decline in domestic business
travelers/tourists in China presents a downside risk. Due to the anti-
graft campaign, there has been a decrease in the number of domestic
tourists travelling locally, which has affected the RevPAR of hotels in
China. Also, with the depreciation of the currency of other countries
and the relaxation of their visa policies for Chinese citizens, Chinese
citizens are more willing to spend their money abroad.
Terrorist attacks and natural disasters. Terrorist attacks, such as the
one in Paris, France, have a significant impact on outbound tourism
and the hotel business in that region. As Jinjiang Hotels-A expands
overseas to capture China’s outbound tourism growth, terrorist
attacks in the region in which Jinjiang Hotels-A expanded would hurt
hotel performance.
Upside risks
Shanghai Disney. Shanghai Disney is expected to be a key catalyst to
Jinjiang Hotels. Jinjiang Hotels-A could beat the market’s expectations
if Shanghai Disney attracts higher-than-expected traffic volume and/or
Jinjiang Hotels-A receives a greater percentage of commission fee
received per ticket.
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Company profile
Businesses
Jinjiang International Hotel Development (Jinjiang Hotels-A) is the leading
Chinese hotel operator in the select service hotel industry. Its parent company
Shanghai Jinjiang International Hotels Group (2006.HK), which is the listed
company of Jinjiang International Group, holds a 50% stake in Jinjiang Hotels-
A.
The company has two main business segments: the operation of select service
hotels, and the food and restaurant business. In 2014, revenue from hotel
operations and management accounted for 90% of the total revenue. As of
2015, the company held or managed 1,073 select service hotels in mainland
China (with 128,336 rooms) and 1,150 hotels overseas (with 96,330 rooms).
In 2015, the company acquired a 100% stake of the second-largest European
hotel group, Groupe du Louvre. The company also expects to complete its
acquisition of 7 Days in 1H16.
Figure 117: Revenue breakdown, 1H15 Figure 118: Gross profit breakdown, 1H15
Limited service hotels (China)
90%
Food and Restaurant
10%
Others0%
Limited service hotels (China)
95%
Food and Restaurant
5%
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank estimates, Company data
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Management profile
Figure 119: Management profile
Name Title Age
Mr. Yu Minliang ( 俞敏亮)
Chairman and Executive Director 56
Ms. Guo Lijuan ( 郭丽娟)
Vice Chairman and Executive Director 52
Mr. Xu Zurong ( 徐祖荣)
Vice Chairman and Executive Director 60
Mr. Chen Liming ( 陈礼明)
Executive Director 55
Mr. Zhang Xiaoqiang ( 张小 )
Executive Director na
Mr. Lu Zhenggang ( 卢正刚)
Executive Director, CEO, and Finance Director 57
Mr. Yu Meng ( 俞萌)
Deputy CEO 56
Ms. Hu Min ( 胡暋)
Company Secretary 43
Source: Deutsche Bank, Company Data
Shareholding structures
Figure 120: Ownership Organization
50%
100%
75%
State-owned Assets Supervision and Administration Commission
资产监 员
Jinjiang International (Group) Co.锦 际( 团)
Limited service hoteloperations & managementFood and Restaurant
Jinjiang International Hotel Development Co.(600754 CH A share; 900934 CH B share)
锦 际 发
Jinjiang International Hotels (Group) Co.锦 际 团 (2006 HK)
Star-rated hotel operation and management
Free Float
37%39%
Travel Agency
Jinjiang International Travel Co.锦 际
(900929 CH)
Passenger TransportationLogistics
Jinjiang Industrial Investment Co.锦 际实业 资
(600650 CH)
50%
Hony Capital资
13%
100% Jinjiang Financial Ltd. Co.锦 财务 责
Source: Deutsche Bank, Company data
1 February 2016
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Appendix 1
Important Disclosures
Additional information available upon request
Disclosure checklist
Company Ticker Recent price* Disclosure
Jinjiang International Hotels-H 2006.HK 2.77 (HKD) 1 Feb 16 NA
Jinjiang Hotels Development-A 600754.SS 33.44 (CNY) 1 Feb 16 NA
Songcheng Performance 300144.SZ 24.48 (CNY) 1 Feb 16 NA
China CYTS Tours 600138.SS 19.47 (CNY) 1 Feb 16 NA *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Tallan Zhou
1 February 2016
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Historical recommendations and target price: Jinjiang International Hotels-H (2006.HK) (as of 2/1/2016)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Feb 14 May 14 Aug 14 Nov 14 Feb 15 May 15 Aug 15 Nov 15
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
Historical recommendations and target price: Jinjiang Hotels Development-A (600754.SS) (as of 2/1/2016)
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Feb 14 May 14 Aug 14 Nov 14 Feb 15 May 15 Aug 15 Nov 15
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
Historical recommendations and target price: Songcheng Performance (300144.SZ) (as of 2/1/2016)
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1
2
3
4
0.00
20.00
40.00
60.00
80.00
100.00
120.00
Feb 14 May 14 Aug 14 Nov 14 Feb 15 May 15 Aug 15 Nov 15
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
1. 17/04/2015: Upgrade to Buy, Target Price Change CNY73.00 3. 03/09/2015: Buy, Target Price Change CNY34.00
2. 24/07/2015: Buy, Target Price Change CNY79.00 4. 02/12/2015: Buy, Target Price Change CNY38.00
Historical recommendations and target price: China CYTS Tours (600138.SS) (as of 2/1/2016)
1
2
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Feb 14 May 14 Aug 14 Nov 14 Feb 15 May 15 Aug 15 Nov 15
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
1. 04/05/2015: Upgrade to Buy, Target Price Change CNY35.00 2. 15/09/2015: Buy, Target Price Change CNY28.00
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Equity rating key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes:
1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were:
Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12-month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period
53 %
36 %
11 %21 %17 % 20 %
050
100150200250300350400450500
Buy Hold Sell
Asia-Pacific Universe
Companies Covered Cos. w/ Banking Relationship
Regulatory Disclosures
1.Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
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