China Lodging:3Q16beat on 3.2%RevPAR growth;business in line

3.2% YoY RevPAR growth driven by mid/up-scale hotels

    3Q16 net revenue grew 10.9% YoY, in line with mgmt guidance of 10-12.5%, with stable opex. RevPAR strongly increased 3.2% YoY, mainly driven by 3.6% YoY growth in ADR for increased contribution from mid/up-scale hotels (+4ppts to 28% of net revenue from 24% in FY15). Same-hotel RevPAR YoY growth also turned positive after continuous decline for 2 years. By categories, manachised/franchised hotels recorded 17% YoY growth in revenue on vigorous hotel expansion, while leased hotels’ revenue also increased 1% YoY.

    More closures than expected

    1) HTHT guided 9-11% YoY net revenue growth in 4Q16E, with full-year guidance at 12.7-13.3%, lower end of previous guidance. 2) RevPAR in 4Q16E continued positive YoY growth. 3) Mgmt expected to have 772 openings and 205 closures in FY16E. More closures than our expectation due to stricter quality control. 4) Mgmt guided the number of hotel closed will fall to normal level c.100 in FY17E.

    Valuation fair, maintain NEUTRAL

    HTHT’s expansion in both hotel network and margin through manachising model is succeeding. Its 9.2x FY17E EV/EBITDA is 1.8-SD above historical average, in line with global peers but at discount to Asian ones, while 22x FY17E P/E is around mid-cycle level. Besides, more-than-expected closure of hotels may put pressure on the revenue. We see limited upside potential, maintain NEUTRAL with new TP of US$43.60, based on 8x FY17E EV/EBITDA, 1-SD above its historical average level. Positive risk is more sustainable RevPAR pick-up than our expectation.