China Lodging To Increase Quality Controls, Brean Raises Price Target

Brean Capital raised the price target on China Lodging Group, Ltd (ADR) HTHT by $4 to $48 after the company reported solid Q2 results with improving RevPAR trend year-over-year for a second consecutive quarter.

"While store opening is on the softer side due to the quality control and existing store upgrades, we view the move as critical and positive for the longer term as it helps to improve customer experiences, strengthen brand values, and potentially lead to higher monetization/margin," analyst Fawne Jiang wrote in a note.

Jiang, who maintained a Buy rating on the stock, said the company's focus on mid/upscale hotels should further boost RevPAR growth. The analyst expects continued positive trend of RevPAR in the coming quarters amid potential upside from Shanghai Disney.

Second quarter adjusted EBITDA margin came in at 34.5 percent versus 25.6 percent in the same quarter last year, largely driven by lower pre-opening costs, better operating leverage and improved RevPAR. China Lodging suggests similar level margin trend in the second half of 2016.

Jiang's target price of $48 represents 10x 2017 EBITDA estimate of $306 million with net cash of $340 million.

At time of writing, ADRs of China Lodging rose 2.62 percent to $43.01.