德意志银行–BTG Hotels:Catching up on hotel upgrade tailwind with more upside potential–Buy【公司研究】_研报(yanbao)

【研究报告内容摘要】

Speeding up on hotel upgrades – Buy

RevPAR and earnings growth should significantly improve in 2019E We reiterate Buy on BTG and raise our target price by 9% on a like-for-like basis to RMB32. In our view, BTG’s HomeInns lagged behind China Lodging (HTHT) on 1) upgrading its economy hotels and 2) opening more mid-scale hotels in 2017, which will likely result to slower RevPAR growth in 2018. This is reflected in its valuation discount to HTHT, in our view. However, a few factors have not been factored in: 1) HomeInns should speed up to upgrade 20-25% of its LO hotels in 2018; 2) HomeInns has the highest percentage of LO hotels – thus, we see high operating leverage in 2019 after the upgrade and 3) 50% of the newly opened hotels in 2018 are set to be mid-high-scale hotels.

RevPAR and earnings growth should significantly improve in 2019E

We increase our 2019 earnings forecast by 13%. We estimate that HomeInns’ upgraded economy hotels only accounted for 3-5% of its total hotels, and mid-high-scale hotels accounted for 17.4%. This is much lower than HTHT’s numbers (38% of economy hotels have been upgraded and mid-high scale hotels accounted for 32% of the total). BTG guided to upgrade 20-25% of its economy hotels (of which 200 hotels are to be leased and owned hotels). In addition, of the 450-500 new hotels set to open in 2018, HomeInns aim to open at least 50% for mid-high-scale hotels. Thus, we believe that RevPAR growth and operating leverage will lead to strong earnings growth in 2019E.

Valuation and risks

We raise our target price to RMB38 and adjust it down to RMB32 in order to reflect the recent 12-for-10 stock split. Our primary valuation method remains a DCF (8.2% WACC and 3% TGR, unchanged). BTG Hotels trades at only 9x EV/EBITDA, much lower than HTHT (20x 2019E EV/EBITDA). Our target price translates into a target EV/EBITDA of 12x. We believe that the valuation gap between the two companies is widening due to accelerating RevPAR growth for HTHT, based on its first-mover advantage in upgrading its hotels. Yet, through the tailwind of hotel upgrades, HomeInns should also see significant improvement in RevPAR growth – which should lead to a re-rating, in our view. Downside risks include: 1) lower tourism demand, 2) a stronger RMB leading to an increase in outbound travel and 3) government policy changes.