Goldman Analysts Enjoy Stay For GreenTree Hospitality Group

China-based GreenTree Hospitality Group GHG is well-positioned to strengthen its franchise hotel business, a sector filled with structural positives and consolidation opportunities, according to analysts.

The Analyst

Goldman Sachs analyst Justin Kwok initiated GreenTree Hospitality with a Neutral rating and $15.50 price target.

The Thesis

Based on 2017 company data, GreenTree Hospitality is the fourth largest hotel chain in China, with over 200,000 rooms and over 2,000 hotels in operation, most of which operate as a franchised-and-managed model. According to Kwok, the company demonstrates key growth drivers, such as:

• Stable revenue stream with limited requirement capex, based on fees income and less economic cycle variability.
• More stability in RevPAR performance.
• A strong balance sheet for possible growth driving mergers and acquisitions.

Kwok anticipates quick near-term earnings amounting to a 21 percent revenue growth.

“Overall we look for 20% EBITDA CAGR between 2017 and 2020E, driven largely by portfolio growth, in addition to c.3% p.a. RevPAR growth," Kwok said in a note. “However, we believe many of these factors are already priced in and given our concerns over potential M&A, and our 12-month target price of US$15.50, based on 85% fundamental valuation (EV/EBITDA) and 15% M&A probability."

Price Action

GreenTree Hospitality shares were up 1.8 percent to $13.23 at time of publication Monday.

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