20150508-高盛-HK_RevPAR_headwinds_to_persist,_while_Beijing_Shanghai_RevPAR_continue_to_pick_up_15页_542kb

Summary of China: Lodging Report

Core Content

This report provides an analysis of the performance and outlook for hotels in China and Hong Kong (HK) for the first quarter of 2015 (1Q15) and the year 2015 (2015E). It highlights the challenges faced by the high-end hotel sector in HK, the potential for improvement in Tier-1 Chinese cities, and the continued softness in economy hotel RevPAR. The report also includes valuation insights and identifies Homeinns as the top pick among China/HK hotels.

Main Points

Hong Kong High-End Hotel Market

• RevPAR decline: HK high-end hotel RevPAR fell by -8% yoy in 1Q15, compared to -4% yoy in 4Q14 and +3% yoy in 2014.
• Drivers of decline: The decline was attributed to slower China overnight visitor traffic (-3% yoy), negative impact from South/SE Asia and Europe (-14% yoy), and currency appreciation (HKD against other Asian currencies).
• Expected trend: The weak demand trend is expected to persist in 2015 due to the lagged effect of protests, softer Chinese economic growth, and currency headwinds.
• Occupancy and pricing: High-end hotels in HK have seen occupancy at cyclically high levels, but room rate hikes are unlikely in the short term due to weak demand.

Tier-1 Chinese Cities

• RevPAR improvement: Beijing and Shanghai international branded hotels showed RevPAR growth of +3% and +10% yoy respectively in 1Q15, driven by occupancy rate improvements and rising domestic travel demand.
• Occupancy levels: Despite improvements, China's high-end hotels overall still have relatively low occupancies compared to historical averages, and room rate increases are expected to occur only after occupancies improve further.

Economy Hotels

• Soft performance: China economy hotels experienced -5% yoy RevPAR in 1Q15, which was expected given the soft macroeconomic environment and slow seasonality.
• Earnings outlook: Homeinns and China Lodging are expected to report -2% and +14% revenue growth in 1Q15 respectively, with EBITDA margin compression of -0.2pp and -1.1pp.
• Valuation: Homeinns is highlighted as a top pick with a Buy rating, steady margins, positive FCF, and an attractive valuation at 5.5X 2015E EV/EBITDA (vs. 5-year average of 9.2X) and 14X 2015E PER (vs. 5-year average of 38X).

Key Insights

• Demand factors:

  • Overnight visitors in HK declined -3% yoy in 1Q15, while total visitors increased +5% yoy.
  • The decline in overnight visitor traffic is attributed to anti-tourist protests and slow business activity.
  • Government easing measures are expected to support activity growth in April, which could improve economy hotel demand.

• Segment Performance:

  • Mid-end hotels were more affected than high-end ones, with greater exposure to short-haul and Mainland Chinese travelers.
  • RevPAR for mid-end hotels dropped more significantly in 1Q15 due to price competition and economic slowdown.

• Valuation and Investment Outlook:

  • Homeinns is recommended as a Buy due to its solid financials, positive FCF, and attractive valuation.
  • Mandarin Oriental and Jinmao Investments are rated Neutral, with moderate growth expectations and valuation concerns.
  • HK & Shanghai Hotels is rated Sell, reflecting weak performance and high valuation risks.

• EBITDA Sensitivity:

  • The report outlines EBITDA sensitivity to RevPAR changes for different hotel segments.
  • HK high-end hotels are expected to see -5% yoy EBITDA growth under the base case, while China economy hotels are expected to see -3% yoy.

Key Tables

Hotel Valuation Snapshot

Company	GS Rating	Price CRY	Price 5-May-	Target Price	Implied +/- %	EV/EBITDA (x)	EV/EBITDA (x)
Home Inns	Buy	USD	27.60	34.00	23	5.5	4.8
Mandarin Oriental	Neutral	USD	1.59	1.82	14	7.7	7.0
Jinmao Investments	Neutral	HKD	5.40	5.80	7	16.6	14.2
China Lodging	Neutral	USD	22.50	22.80	1	6.9	5.9
Shangri-La Asia	Neutral	HKD	12.08	12.15	1	12.5	11.9
HK & Shanghai Hotels	Sell	HKD	11.52	10.70	(7)	13.2	12.2

1Q15E EBITDA Sensitivity

RevPAR Change	HK EBITDA	China EBITDA
-10%	-13%	-10%
-5%	-9%	-5%
Base case	0%	-8%
+5%	+4%	-5%
+10%	+8%	-3%

Conclusion

The report indicates that HK high-end hotels face ongoing demand headwinds, with RevPAR expected to remain weak. In contrast, Tier-1 Chinese cities show potential for improvement in occupancy rates. Economy hotels are expected to remain soft in 1Q15, but government easing measures may support demand recovery in April. Homeinns is highlighted as the top pick due to its financial strength and attractive valuation.