Following the 26 percent year-to-date outperformance by China Lodging Group, Ltd (ADR) HTHT vs. the Nasdaq index, Morgan Stanley’s Lin He believes the risk-reward now looks more balanced.
He downgraded the company from Overweight to Equal Weight, while raising the price target from $36.20 to $40.00.
“We continue to like HTHT for its strong brand positioning, innovation leadership and long-term outlook,” the analyst mentioned.
Strong Beat
China Lodging reported strong beat results for Q2:16, with the adjusted EBITDA and adjusted net income ahead of the estimates, driven by better-than-anticipated margins and other income.
“Margin expansion was helped by a lower cost ratio and as well as lower pre-opening expenses,” he stated, while adding the excluding Rmb107 million in other income, recurring profit rose 44 percent year-on-year.
Robust Outlook
China Lodging guided to 3Q16 net revenue growth in the range of 10.0–12.5 percent year-on-year, while maintaining its full-year 2016 net revenue growth guidance at 12–15 percent.
The trend of same hotel RevPAR continues to improve and management is confident the positive trend would persist as the company upgrades its product.
In addition, the midscale and upscale segment sustained its robust momentum, with 8.6 percent year-on-year growth in same hotel RevPAR, while accelerating product upgrade drove a meaningful RevPAR uplift.
“The balance sheet was further strengthened, with Rmb1.85 billion net cash as of 2Q,” the analyst added.
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