Stock Commentary Date: 07/12/2016
Stock: Shanghai Jin Jiang International Hotels (Group) Co. Ltd.
Closing price: $2.23 (07/12/2016)
52 weeks range: $2.11 – $3.36
Shares outstanding: 1,391,500,000 (H shares)
Market Capitalisation (H Shares): HK$3,047,385 (17/12/2016)
Target Price (12 months): Neutral @ $ 2.30 (assume trading forward P/E approx. 15.6x - 16x, expect full year EPS to be in a range between 0.14-0.147)
Shanghai Jinjiang International Hotels (Group) Co.Ltd. (Jinjiang Hotel) Is one of the largest hotel operator in the world. With its largest operation basing in Beijing as well as Shanghai, the group owned or managed 6,425 hotels with a combined total of 620,000 guest rooms located in 63 countries around the world. It operates 5,167 hotels with over 510,000 guest rooms throughtout China. The group recently acquired Vienna Hotel group as well as Baisuichun restaurant to further expand its hotel and catering business, furthermore, the group began its Shanghai Disney Travel service and expected to be new area of growth for the Hotel group. Although the group recorded decrease in operating profit in the first half of 2016 due to stagnant economic condition in China, I expected that the business of the group might remain stable next year.
Overview – Half Yearly 2016 :
- The group operated 6,425 hotels throughout the globe. The largest operation is in China with which the group operated 5,167 hotels.The group operated variety of hotels and that can be divided into Full service and Select Service Hotels. Among the full service hotels, the group operated 128 hotels with 38,000 rooms. The full service hotels offered full service facilities as well as on-site full service resturants. Also, this type of hotel offered variety of on-site amenities such as swimming pools, a health club and ballrooms etc. Out of 128 full service hotels, the group operated 74 five star luxury hotels and 54 four star luxury hotels. As for Select Service hotels, the group operated 6,292 hotels under 3 brands: Jin Jiang Metropolo, GDL and Plateno Group. Altogther, the group offered approximately 620,000 rooms throughout the world.
- Although, the group's net profit dropped in comparison to last year amid the economic uncertanities permeated through the market, Jinjiang Hotel continued to expand its operation through acquisition in the first half of 2016:
- Acquired 80% equity interest in Vienna Hotels as well as Baisuicun Restaruants. Vienna Hotel Group Ltd operated Vienna Hotels chain in China and it was founded by Mr. Huang Deman and headquartered in Baoan district, Shenzhen. Mr. Huang also founded Baisuicun restaurants.
- Revenue generated by the group in the first half of 2016 was RMB 7,353,627,000 representing 34.8% increase in comparison to the same period of 2015. The company's operating profit on the other hand decreased by 9.6% to RMB 1,197,075,000 in 2016. Profit attributable to shareholders of the Company amounted to RMB 552,614,000, apprximately 12.1% increase in comparison to the same period last year.
- The group ranked 5th in the global hotel group ranking published by HOTELS Magazine, an official publication of the International Hotel & Restaurant Association in July 2016.
- Apart from running hotels, the group also invested in catering business. During the reporting period, the group managed 52 group catering restaurants, among them include, Shanghai Kentucky Fried Chicken, “New Asia Snacks” and “Shanghai Yoshinoya”. In the first half of 2016, the food and restaurant generated approximately RMB 168,344,000 in revenue, a decrease by 2.1% in comparison to 2015.
- Furthermore, during the reporting period, the Travel Agency segment generated approximately RMB 799,114,000 in revenue, a decrease of 11.1% in comparison to same period last year and accounted for approximately 10.9% of the Group's total turnover. The travel agency business of the group started Shanghai Disneyland travel service this year and expected to be one of business growth area for years to come. Also, the travel agency arm of the group participated Shanghai World Travel Fair in 2016 in order to expand its market share.
- One of the largest Hotel chain operators in China and worldwide
- Pro-active management in acquiring quality hotel groups around the world and form strategic alliance with other hotel groups in China and other parts of the world.
- Exceptional quality hotel around the globe.
- High gearing. The group's borrowing amounted to RMB 5.2 billion due to its acquistion of GDL group from Starwood Capital Group in 2013 and Keystone Lodging Holdings in 2015.
- Lacklusture economic environment worldwide.
- Shanghai Disney : The group owned and operated largest amount hotels in Shanghai, it is estimated that 35% of the group's revenue came from Shanghai operation
- Increasing demand for high quality hotel by the middle class of China. Also, the group's travelling arm has steady increase in its revenue due to rising demand in both outbound and domestic travels.
- Occupancy rate remained stable. While the the average room rate seen a slight increase.
- Economic downturn worldwide and in China may deter people from travelling.
- The popularity of Airbnb pose a challenge to the group.
” I, Ni Kwok Kuen Alex, am a licensed person under the Securities and Futures Commission. Until the date this commentary was published, neither I and/or my affiliates are the beneficiary of the securities mentioned herein or are entitled to any financial interests in relation thereto. “