The four hotel groups are the core assets of China's hotel industry: Jinjiang and Home Inns are listed on A shares, Huazhu and Green are listed on the US stock market, and Huazhu is listed on the Hong Kong stock market in September 2020. According to the data of Yingdi Consulting, in 2019, the share of TOP4 hotel groups in the national chain hotel market in terms of room volume was 19.50%, 11.99%, 9.27% and 9.00% respectively, accounting for 49.76% and 12.78% of the overall hotel market share. It accounted for 11.90% of the overall market share of the accommodation industry. Eight of the top 10 hotel brands by market share are part of the TOP4 hotel Group. Other hotel groups are significantly behind Jinjiang, Huazhu, Beijing Travel and Green in terms of overall market share and market size of their top hotel brands, and their TOP4 leading market position is stable.

TOP4 Hotel Group has achieved a multi-brand, full-category hotel brand layout. TOP4 Hotel Group started as an economical hotel chain, and gradually through independent development or mergers and acquisitions, to achieve the horizontal and vertical diversification of hotel brands, and gradually form a multi-brand, full-category hotel brand business model. At present, Jinjiang, Green and Home Inn have achieved the coverage of four categories: luxury/high-end/mid-end/economy, and contain at least two sub-brands in each category. Current TOP4 hotel group is still in the process of brand expansion, in 2019, China bought DH wine shop, get its Zleep Maxx/Jaz in thecity/Intercity Steigenberger five brand; Green Hotels Group completed the acquisition of Accord Hotels Group and MetroHotels Group, acquiring the Argyle/Argyle Boutique/ Aust hotel brands under Accord and Metro118 / My Place Hotel brands under Metro118, respectively.

One is based on the original brand direct upgrade iteration, the upgraded version under this path will replace the old version, and encourage the old version franchisees to upgrade to the new version. Among them, Hanting, Huazhu's flagship economic brand, has maintained the fastest product iteration, successively launched version 2.0/2.7/3.0/3.5, continuously optimized store decoration design, and gradually applied intelligent facilities such as robots/Internet of things in the front desk/room service and other fields. The current version before 2.7 is no longer used. Several versions after 2.7 can be matched according to the property conditions and franchisee needs.

The second is to launch an upgraded version of the original brand derivative brand, essentially to create a new brand, not to replace the original brand model, but to retain the connection with the original brand in brand positioning and concept, in order to use the influence of the original brand. At present, Jinjiang Star, 7 days/Home Inns/Hanting respectively launched the upgraded brand Magnolia &7 Days Premium/Home Inns Select & Home Inns Business Travel/Hanting Premium. Magnolia /7 Days quality is positioned between the economy and the middle end, Home selection & Home Business Travel is positioned as the middle end brand. Urban Hotels Group, the target of Green Hotels' acquisition in 2019, launched an upgraded version of its entry-level budget brand Urban 118, Urban 118 Select, positioning itself as an economy brand.

Mid-end shortage, economy & luxury oversupply. To estimate the growth space of mid-end hotels in China, it is assumed that the groups with wealth of "less than 10,000 US dollars"/" 10,000 to 100,000 US dollars "/" 100,000 to 1 million US dollars "/" more than 1 million US dollars "are the customer groups corresponding to economy, mid-range, high-end and luxury hotels, respectively. According to the proportion of different wealth groups in China/the United States and the number of different grades of hotels in China/the United States, the number of rooms per 10,000 people in the corresponding consumer groups of each grade of hotels is calculated. The results show that China's mid-range hotel customer base only has 30 rooms per 10,000 people, compared with 166 in the United States, and the supply of mid-range hotels in China is significantly short. In contrast, China's economy hotel, luxury hotel supply is relatively oversupply.

Before the epidemic, most of our favorite travel routes were cross-provincial, and many people were more inclined to travel far to experience the culture of different regions, which led to a complete shortage of hotels in popular spots outside the province. However, there is no great demand for hotels in some niche attractions.

However, today, when the epidemic has not completely disappeared, people are more inclined to travel to the local area during the holiday. Despite the impact on long-term travel, leisure spending will not disappear. Meituan data show that local consumption accounted for 77.4% during the "National Day" period, and the average daily consumption increased by 34% compared with the "May Day" holiday and 52% compared with the National Day in 2019. In the suburbs of first - and second-tier cities, resort hotels, high-quality rural guest houses, theme park hotels and other hotels are in short supply, and such local surrounding hotels account for 65% of the orders.

In the same star-rated hotels, it can be obviously found that before the epidemic, due to everyone's fanatical pursuit of tourism, coupled with China's large population, most hotels are in short supply, whether it is a popular scenic spot or a niche scenic spot. But that all changed when the pandemic hit, it had a huge impact on the tourism and hospitality industry. After the epidemic, almost all hotels have been quiet and faced with losses. In order to change this situation and further stimulate consumption, the service competition in the hotel industry is becoming more and more fierce. In order to attract more customers, hotels of different stars are committed to doing excellent service, so that some hotels provide better service and lower prices.

For consumers, we really hope that the situation of low price and high service of hotels after the epidemic can continue.

From the perspective of post-epidemic situation, according to the full-caliber data, the recovery level of Homeinns ADR is lower than the other three, resulting in the gap between Homeinns 20Q3 RevPAR and Jinjiang, which is close to Green; In the same store data, Home 20Q3RevPAR is slightly higher than Jinjiang, reflecting that the overall business data recovery of Home 20Q3 is lagging behind, mainly dragged down by newly opened stores.

Domestic Hotels:

1) New stores: We expect the company to open about 1,200 new stores per year from 2023 to 2025. With the industry gradually coming out of the trough after the epidemic, we expect the number of closed stores will gradually decrease, and the net number of open stores from 2023 to 2025 will be 800, 850 and 900 respectively; From the perspective of shop structure, the annual net shop is mainly in the middle and high-end, and the middle and high-end net shop accounts for 90%.

2) Revpar: 2023 will be the first year of the epidemic, and revpar is expected to increase significantly year-on-year. From 2024 to 2025, revpar is expected to be mainly driven by product upgrading. From 2023 to 2025, the revpar of directly sold stores will be 145, 149 and 152 yuan respectively. Franchise revpar for 168, 171, 175 yuan.

3) Franchise rate: We expect the initial management fee and ongoing management fee level to remain stable, CRS flat rate standard brings a substantial increase in room booking channel fees, with reference to 3.2 analysis, we expect 2023-

In 2025, the channel fees for booking rooms will be 600, 1063 and 1375 million yuan respectively.

Overseas Hotel:

1) New stores: We expect the number of overseas directly operated stores and franchised stores to remain stable.

2) Revpar: According to the semi-annual report, 2023H1 overseas revpar recovered to 110.62% of 2019. We expect to maintain this level throughout 2023, and the revpar will maintain a small growth in 2024 and 2025 driven by the upgrading of stock stores. The revpar for overseas hotels from 2023 to 2025 is 327, 326 and 329 yuan respectively (assuming the exchange rate of euro against RMB from 2023 to 2025 is 7.6, 7.5 and 7.5 respectively).

Gross margin and expense ratio:

1) Gross profit margin: We estimate that the company's gross profit margin in 2023-2025 will be 45%, 50% and 52% respectively, and the improvement of gross profit margin will mainly come from: 1. Upgrading of the stock stores of direct stores and reducing costs and increasing efficiency of overseas business; 2. A large proportion of revenue increment of CRS is converted into profit; 3. The proportion of franchise business income with higher gross profit margin has increased year by year.

2) Expense rate: We expect that with the continuous increase in the proportion of direct sales to members, the continuous integration of middle and back office functional departments, and the gradual implementation of overseas debt replacement plans, the sales expense rate, management expense rate and financial expense rate will be effectively optimized.

The earnings forecast of the company's major businesses under the above core assumptions is as follows:

1) Directly operated stores: We expect the domestic directly operated stores to achieve operating income of 38.24, 3.734 and 3.806 billion yuan respectively from 2023 to 2025; From 2023 to 2025, the overseas directly operated stores will have an operating income of 35.35 billion yuan, 34.92 billion yuan and 3.490 billion yuan respectively.

2) Franchise business: We expect domestic franchise business to achieve operating income of 65.15, 75.65 and 8.469 billion yuan from 2023 to 2025, respectively, +57%, +16% and +12% year-on-year; Overseas franchise business 2023-2025 to achieve operating income of 832, 825, 833 million yuan. The proportion of franchise business revenue in 2023-2025 will reach 49%, 53% and 55% respectively.

3) Catering: We expect the catering business to maintain steady growth, 2023-2025 to achieve operating income of 250 million, 260 million and 260 million yuan.

To sum up, we expect the company to achieve operating income of 150.07/159.22/16904 billion yuan in 2023-2025, respectively +36%\+6%\+6% year-on-year, and achieve net profit of 13.1/21.9/2.58 billion yuan, respectively 1057%/67%/18% year-on-year. The corresponding EPS is 1.23, 2.04 and 2.41 yuan respectively, and according to the closing price of 36.76 yuan on September 25, 2023, the PE from 2023 to 2025 is 30, 18 and 15 times, respectively.