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

[email protected]

Karen Tang

Research Analyst

(+852) 2203 6141

[email protected]

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


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


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


China Hotels


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


China Hotels


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%.

1 February 2016


China Hotels


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


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

1 February 2016


China Hotels


Figure 3: Occupancy rate calculation in 2017 – scenario analysis

2017 Bull Base Bear


% overnight (b) 65% 50% 35%


Number of hotel rooms needed (d=c/2) 5,911,868 4,134,174 2,315,137


Econ hotels 128,878 128,878 128,878

Star hotels 62,920 62,920 62,920





Econ hotels 82.9% 82.9% 82.9%

Star hotels 65.7% 65.7% 65.7%


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


China Hotels


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


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

1 February 2016


China Hotels


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


1 February 2016


China Hotels


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%


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


China Hotels


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


China Hotels


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


China Hotels


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


China Hotels


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


China Hotels


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

1 February 2016


China Hotels


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


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


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).

1 February 2016


China Hotels


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

1 February 2016


China Hotels


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

1 February 2016


China Hotels


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


% overnight (b) 65% 50% 35%


Number of hotel rooms needed (d=c/2) 2,466,912 1,725,114 966,064


Econ hotels 121,856 121,856 121,856

Star hotels 62,920 62,920 62,920





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%


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.

1 February 2016


China Hotels


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


% overnight (b) 65% 50% 35%


Number of hotel rooms needed (d=c/2) 5,911,868 4,134,174 2,315,137


Econ hotels 128,878 128,878 128,878

Star hotels 62,920 62,920 62,920





Econ hotels 82.9% 82.9% 82.9%

Star hotels 65.7% 65.7% 65.7%


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.

1 February 2016


China Hotels


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

1 February 2016


China Hotels


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

1 February 2016


China Hotels


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.

1 February 2016


China Hotels


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


Occupancy rate (%) 85.0% 78.2% 74%

ADR (RMB) 708 663 650

RevPAR (RMB) 602 518 478


Assumptions




1 February 2016


China Hotels


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


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


1 February 2016


China Hotels


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.

1 February 2016


China Hotels


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


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)


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.

1 February 2016


China Hotels


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


% of visitors taking shuttle bus 50% 50% 50%

Ticket price (RMB) 25 25 25








1 February 2016


China Hotels


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


China Hotels


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


China Hotels


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


China Hotels


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


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


China Hotels


Figure 47: Shanghai Disney resort planned location


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


China Hotels


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%


1 February 2016


China Hotels


Company section

1 February 2016


China Hotels


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


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

[email protected]

Karen Tang

Research Analyst

(+852) 2203 6141

[email protected]

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


1 February 2016


China Hotels


Model updated:01 February 2016

Running the numbers

Asia

China


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


China Hotels


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


China Hotels


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


China Hotels


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


China Hotels


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


China Hotels


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


China Hotels


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


China Hotels


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%



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


China Hotels


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


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


China Hotels


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


Occupancy rate (%) 85.0% 78.2% 74%

ADR (RMB) 708 663 650

RevPAR (RMB) 602 518 478


Assumptions




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


China Hotels


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


China Hotels


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


% 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)


1 February 2016


China Hotels


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


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.

1 February 2016


China Hotels


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%



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.

1 February 2016


China Hotels







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


% of visitors taking shuttle bus 50% 50% 50%

Ticket price (RMB) 25 25 25



Overall, we expect revenue from the group’s transportation and logistics

business to grow 6% yoy and 7% yoy in 2016 and 2017, respectively.

1 February 2016


China Hotels


Figure 69: Transportation and logistics revenue, 2012-17E


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.

1 February 2016


China Hotels


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.

1 February 2016


China Hotels


Figure 70: Segment summary, 2012-17E


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

1 February 2016


China Hotels


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


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

1 February 2016


China Hotels


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


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

1 February 2016


China Hotels


Figure 73: Cash flow, 2012-17E


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


1 February 2016


China Hotels


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.

1 February 2016


China Hotels


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%



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%


1 February 2016


China Hotels


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


China Hotels


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


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.

1 February 2016


China Hotels


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


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

[email protected]

Karen Tang

Research Analyst

(+852) 2203 6141

[email protected]

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


1 February 2016


China Hotels


Model updated:29 January 2016

Running the numbers

Asia

China


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


China Hotels


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


China Hotels


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


China Hotels


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


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

eisu

re / G

am

ing

1 F

eb

ruary

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


China Hotels


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


China Hotels


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


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


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


China Hotels


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


1 February 2016


China Hotels


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


China Hotels


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


China Hotels


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


China Hotels


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)


1 February 2016


China Hotels


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



Figure 96: Groupe du Louvre room reservation available on Jinjiang’s official website

Source: Deutsche Bank, Jinjiang.com

1 February 2016


China Hotels


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)


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


China Hotels


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


1 February 2016


China Hotels


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


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


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


China Hotels


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


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


China Hotels


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%


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


China Hotels


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


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


China Hotels


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


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


Figure 109: Performance of Jinjiang select service hotels, 1H15


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


China Hotels


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


1 February 2016


China Hotels


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


China Hotels


Figure 111: Income statement summary, 2012-2017E



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


China Hotels


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


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%


- Jinjiang 11% 15% 9% 9% 11% 8%

- 7 Days (expect to be consolidated in Apr-16) na na na na na 42%


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%


- Jinjiang 95% 94% 95% 47% 34% 32%

- 7 Days (expect to be consolidated in Apr-16) 0% 0% 0% 0% 28% 34%


Others 0% 0% 0% 4% 0% 0%

GPM %

Groupe du Louvre (consolidated in Mar-15) na na na 92% 91% 91%


- Jinjiang 87% 88% 88% 88% 89% 89%

- 7 Days (expect to be consolidated in Apr-16) na na na na 91% 91%


Others 70% 68% 70% 74% na na Source: Deutsche Bank estimates, Company data

1 February 2016


China Hotels


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


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


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)


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


China Hotels


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


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


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

1 February 2016


China Hotels


Figure 116: Cash flow, 2012-2017E


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


1 February 2016


China Hotels


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.

1 February 2016


China Hotels


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%



1 February 2016


China Hotels


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


1 February 2016


China Hotels


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


China Hotels


Historical recommendations and target price: Jinjiang International Hotels-H (2006.HK) (as of 2/1/2016)

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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)

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Historical recommendations and target price: Songcheng Performance (300144.SZ) (as of 2/1/2016)

1 February 2016


China Hotels


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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)

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1. 04/05/2015: Upgrade to Buy, Target Price Change CNY35.00 2. 15/09/2015: Buy, Target Price Change CNY28.00

1 February 2016


China Hotels


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

"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

2.Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are

consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the

SOLAR link at http://gm.db.com.

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1 February 2016


China Hotels


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Copyright © 2016 Deutsche Bank AG

GRCM2016PROD035186

David Folkerts-Landau Chief Economist and Global Head of Research

Raj Hindocha Global Chief Operating Officer

Research

Marcel Cassard Global Head

FICC Research & Global Macro Economics

Steve Pollard Global Head

Equity Research

Michael Spencer Regional Head

Asia Pacific Research

Ralf Hoffmann Regional Head

Deutsche Bank Research, Germany

Andreas Neubauer Regional Head

Equity Research, Germany

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