Initiation of Coverage. Deutsche Bank Markets Research. Industry China Hotels. Date 1 February Asia China. Consumer Hotels / Leisure / Gaming

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Initiation of Coverage. Deutsche Bank Markets Research. Industry China Hotels. Date 1 February Asia China. Consumer Hotels / Leisure / Gaming"

Transcription

1 Deutsche Bank Markets Research Asia China Consumer Hotels / Leisure / Gaming Industry Date 1 February 2016 Initiation of Coverage Disney magic in Shanghai; initiating on Jinjiang Hotels - A&H How many visitors can Disney attract in 2016 and 2017? We expect Disney Shanghai, which is set to open on 16 June 2016, to attract 6.9m visitors in 2016 and 16.5m in We derive our estimates by assigning a discount to Tokyo Disney s 31m annual visitors. If we conservatively assume 50% of the visitors will stay one night in Shanghai, with a stable supply of hotel rooms in Shanghai between 2016 and 2017, Shanghai s hotel occupancy rate should increase 2.4ppts to 79.4% in 2016 and 5.9ppts to 83.0% in Hotel occupancy strongly correlated to international exhibitions Hotel RevPAR increased 60% yoy during the Shanghai World Expo (May- October 2010), and Tokyo achieved 21% yoy RevPAR growth when Tokyo Disney opened two new major facilities in We believe it is clear that the hosting of large international exhibitions and the opening of new world-class resorts benefit the local hotel industry. Shanghai government aims to attract more people outside of Shanghai Our channel check in Shanghai confirmed our view that the Shanghai government intends to attract visitors outside of Shanghai rather than local ones. This is very different from Disney Tokyo s visitors, with 65% being local residents. The Shanghai government aims to attract more visitors to stay at least one or two nights, thus driving up the growth of local 1) dining; 2) hotels; 3) transportation; and 4) other local leisure resorts. Jinjiang chain of hotels in Shanghai will be a direct beneficiary Jinjiang Hotels, as a well recognized hotel brand in Shanghai, should enjoy a premium occupancy rate above the industry average. We expect Jinjiang s full service hotel occupancy rate to increase to 78%/82% in 2016/17 from 73% in 2015 and its econ hotel occupancy rate to grow to 83%/84% from 80%. Meanwhile, given its convenient locations (many of its hotels are located alongside MTR lines, which easily connect to Line No.11, the Disney line), we expect its full service/econ hotel rates to moderately increase by 3%/4% yoy in 2016 and 2%/4% yoy in Therefore, we expect full service/econ hotel RevPAR to increase 10%/7% yoy and 7%/6% yoy, pushing up EBITDA in 2016/17. Songcheng ( SZ) and CYTS ( SS) should also benefit We believe Songcheng, which is constructing its Shanghai project at Shanghai Grand Stage (30km away from Shanghai Disney), and CYTS s Wuzhen (located 130km from Shanghai) should also benefit from the traffic outflow from Shanghai Disney. We expect tourist volumes in Wuzhen to grow 18% yoy in 2016 and 16% yoy in 2017, supported partially by the Disney visitor outflow. Valuation and risks We initiate on Jinjiang Hotels-H (2006.HK) with a Buy and Jinjiang Hotels-A ( SS) with a Hold rating. We use SOTP EV/EBITDA in our main valuations of both companies. We believe Jinjiang Hotels-H is undervalued as we also used NAV to cross-check Jinjiang Hotels-H valuation level. Its NAV of self-owned hotels is at a 50% discount to our price target (meaning all other segments are free to investors). However, Jinjiang Hotels-A s valuation seems fair and has priced in all positives (18x EV/EBITDA). Risks: margin tightening due to competition, domestic tourism market downturn, uncertainty over Disney visitor volumes. Deutsche Bank AG/Hong Kong Tallan Zhou Karen Tang Research Analyst Research Analyst (+852) (+852) Key Changes Company Target Price Rating 2006.HK to 3.70(HKD) NR to Buy SS to 36.00(CNY) NR to Hold Source: Deutsche Bank Top picks Jinjiang International Hote (2006.HK),HKD2.77 Source: Deutsche Bank Companies Featured Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. Buy Jinjiang International Hote Buy (2006.HK),HKD A 2015E 2016E P/E (x) 20.7 EV/EBITDA (x) Price/book (x) Jinjiang Hotels Development Hold ( SS),CNY A 2015E 2016E P/E (x) EV/EBITDA (x) Price/book (x) Songcheng Performance Buy ( SZ),CNY A 2015E 2016E P/E (x) EV/EBITDA (x) Price/book (x) China CYTS Tours ( SS),CNY19.47 Buy 2014A 2015E 2016E P/E (x) EV/EBITDA (x) Price/book (x) Source: Deutsche Bank

2 Table Of Contents Executive summary... 3 The potential Disney impact... 9 Tickets and shuttle bus Indirect beneficiaries tourism and hotels Hotel peer comps Appendix A Company section Jinjiang International Jinjiang Hotels Develop Page 2 Deutsche Bank AG/Hong Kong

3 Executive summary We expect 6.5/16.5 million visitors to Disney in 2016/2017 Our methodology is to take Disney Tokyo as a benchmark and apply a discount We believe the key metric to gauge the benefits of the opening of Shanghai Disney for hotels in Shanghai is incremental traffic. We think international events/exhibitions clearly boost a region s hotel rates and occupancy rates. In this report, we cross-reference Shanghai Disney to Tokyo Disney when projecting the number of visitors at the initial stage and at the mature stage. Given that Shanghai Disney will have a similar playground area to that of Tokyo Disney, at approximately 289 acres, we think the number of visitors will track closely but as the novelty premium is reduced given this is the third Disneyland in APAC region we apply a discount of 20% to Tokyo Disney. We believe Shanghai Disney will be able to attract 25m visitors per annum at the maturity stage (cf. 31.4m of Tokyo Disney in 2014), and forecast 6.5m and 16.5m annual visitors in 2016 and 2017, respectively. Hotel occupancy rate to increase 2.4/5.9ppt in 2016/17 According to WIND, Shanghai s hotel supply will remain largely unchanged increasing slightly from 177,595 in 2015 to 184,776 in 2106 and 191,798 in Therefore, we expect occupancy rates across Shanghai hotels to increase as visitor volume picks up with the opening of Shanghai Disney. We assume an average 50% of visitors attracted by Shanghai Disney will stay overnight in the first two years. The RevPAR data for the Shanghai World Expo and Tokyo Disney supports our argument: During the 2010 Shanghai World Expo, when visitor volume significantly increased thanks to big events, the regional hotel industry enjoyed improving occupancy rates and increasing ADR. In 2010, Shanghai visitor volume rose 35% yoy, driven primarily by the World Expo held between May and October. The average occupancy rate during the six months increased 25ppts yoy and average ADR rose 29% yoy. Average RevPAR increased 60% yoy to RMB380 in The opening of two new major facilities at Tokyo Disney helped boost Tokyo s RevPAR by 21% yoy in Shanghai government aims to bring more visitors from outside Shanghai rather than locals Our channel check in Shanghai confirmed our view that the Shanghai government intends to attract visitors from outside of Shanghai rather than locals. This is very different from Disney Tokyo s visitors, with 65% being local residents. The Shanghai government aims to attract more visitors to stay at least one or two nights, thus driving up the growth of local 1) dining; 2) hotels; 3) transportation; and 4) other local leisure resorts. Hotel occupancy up by 4.7ppts and 5.9ppts in 2H16 and 2017, respectively We believe the opening of Shanghai Disney, which will attract more visitors to Shanghai, should boost the overall performance of Shanghai hotels. In our base case, we expect hotels average occupancy rate to increase 2.4ppts in 2016 (mainly in 2H16) and 5.9ppts in 2017, compared to the current level of 77%. Deutsche Bank AG/Hong Kong Page 3

4 We illustrate our methodology in the figure below. Figure 1: Our methodology at a glance Shanghai Disney to open on 16 June 2016 Tokyo Disney m in days 365 days Assume 25m visitor in the long run 20% discount 17.5k visitors /day 22.7k visitors /day 50% discount 35% discount Assume: 2 people per room 6.9m visitors in m visitors in 2017 To occupy 8.7k rooms To occupy 11.3k rooms Assume: 50% visitors stay one night in Shanghai SH room capacity: 185k rooms SH room capacity: 192k rooms 3.5m overnight visitors 8.3m overnight visitors Incremental occupancy rate: 4.7ppts Incremental occupancy rate: 5.9ppts Source: Deutsche Bank Figure 2: Occupancy rate calculation in 2H16 scenario analysis 2H16 Bull Base Bear Number of visitors to Disney (a) 7,590,499 6,900,454 5,520,363 % overnight (b) 65% 50% 35% Number of overnight visitors (c=a*b) 4,933,825 3,450,227 1,932,127 Number of hotel rooms needed (d=c/2) 2,466,912 1,725, ,064 Total rooms in Shanghai (e) 184, , ,776 Econ hotels 121, , ,856 Star hotels 62,920 62,920 62,920 Number of Disney openning days in 2016 (f) Hotel rooms * nights (g=e*f) 36,585,698 36,585,698 36,585,698 Incremental occupancy % (d/g) 6.7% 4.7% 2.6% Current occupany rate 77.1% 77.1% 77.1% Econ hotels 82.9% 82.9% 82.9% Star hotels 65.7% 65.7% 65.7% Occupany rate in 2H16 (est.) 83.8% 81.8% 79.7% Occupany rate in 2016 (est.) 80.4% 79.4% 78.4% Source: Deutsche Bank estimate, WIND, Company data Page 4 Deutsche Bank AG/Hong Kong

5 Figure 3: Occupancy rate calculation in 2017 scenario analysis 2017 Bull Base Bear Number of visitors to Disney (a) 18,190,363 16,536,694 13,229,355 % overnight (b) 65% 50% 35% Number of overnight visitors (c=a*b) 11,823,736 8,268,347 4,630,274 Number of hotel rooms needed (d=c/2) 5,911,868 4,134,174 2,315,137 Total rooms in Shanghai (e) 191, , ,798 Econ hotels 128, , ,878 Star hotels 62,920 62,920 62,920 Number of Disney openning days in 2017 (f) Hotel rooms * nights (g=e*f) 70,006,375 70,006,375 70,006,375 Incremental occupancy % (d/g) 8.4% 5.9% 3.3% Current occupany rate 77.1% 77.1% 77.1% Econ hotels 82.9% 82.9% 82.9% Star hotels 65.7% 65.7% 65.7% Occupany rate in 2017 (est.) 85.5% 83.0% 80.4% Source: Deutsche Bank estimate, WIND, Company data Two new businesses: ticket distribution and shuttle bus As one of the key shareholder of Disney Shanghai, Jinjiang International Group (parent company of Jinjiang Hotels, the HK listco) is in charge of Disney s supporting facilities such as its ticket distribution and transportation. We have confirmed with the management that Jinjiang Hotels two subsidiaries will be responsible for the above two businesses. Ticket distribution. In addition to Disney s own ticket distribution channel, Jinjiang International Travel ( SS) will be one of the key tier-one wholesale distributors. We expect ticketing to contribute RMB52m additional revenue and RMB47m incremental operating profit. Shuttle bus. Jinjiang Industrial Investment ( SS) will be responsible for the shuttle bus service between Disney and the MTR (Line 11). We expect the new service to bring in RMB86m revenue and RMB65m incremental operating profit. Deutsche Bank AG/Hong Kong Page 5

6 Figure 4: Shuttle bus from Disney station to Disney resort Shanghai Disneyland Resort (under construction) Total distance: 4.3km Taxi fare: RMB20-30 Line 11 Disney Station Source: Deutsche Bank, Gaode map Initiating on Jinjiang Hotels-H Buy, Jinjiang Hotels-A Hold We use SOTP EV/EBITDA to derive our valuations of both Jinjiang Hotels and Jinjiang Hotels-A. We believe EV/EBITDA makes more sense than PER-based valuation as earnings of the Jinjiang Hotels -A&H is likely to be distorted by short-term financial cost surge. We expect net finance cost to double in the short term due to increase in debt for acquisitions Jinjiang Hotels -A completed the acquisition of Groupe du Louvre in 2015 and will complete the acquisition of 7 Days in Figure 5: Jinjiang Hotels-A s cash outflows for acquisitions in 2015 and 2016 RMBm Major cash inflow in 2015&16 Operating cash in ,171 Operating cash flow in ,596 Net proceed from borrowing in ,169 Private placement (announced to complete by April 2016) 4,518 Total cash inflow 15,454 Major cash inflow in 2015&16 Capex in 2015 (731) Capex in 2016 (1,049) Acquisition of Groupe du Louvre (completed ) (2,957) Acquisition of 7 Days (to be completed in beginning 2016) (8,269) Repayment of debt (as guided by company) (4,518) Restricted bank deposits pledged for borrowings (4,724) Total cash outflow (22,248) Source: Deutsche Bank estimates Page 6 Deutsche Bank AG/Hong Kong

7 We initiate on Jinjiang Hotels-H (2006.HK) with a Buy rating and target price of HKD3.7. The stock is trading at 10x EV/EBITDA, below the industry average of 12x. We cross check our target price with NAV its NAV is currently trading at a 50% discount to our price target, which we believe is undervalued as it implied that all other segments are free to investors We initiate on Jinjiang Hotels-A ( SS) with a Hold rating and target price of RMB36. We believe Jinjiang Hotels-A current valuation, trading at 15x 2016E EV/EBITDA, is fair and has priced in all the upside potential. We believe the Jinjiang brand should enjoy a premium Jinjiang is the largest and most established hotel brand in Shanghai. While Shanghai hotels in general should benefit from Disney s opening, we believe Jinjiang will see a more significant RevPAR increase given its large exposure to Shanghai: Full service hotels. Note that Jinjiang s full service hotels on average have an occupancy rate of 66%, lower than the 83% of econ hotels, and they generally enjoy much stronger occupancy rate growth when tourist volumes increase. As a result, we expect the occupancy rate of Jinjiang s full service hotels, the majority of which are located in prime locations in Shanghai, to increase to 78%/82% in 2016/17. We estimate RevPAR growth of 10% yoy in 2016 and 7% yoy in Economy hotels. We expect the occupancy rate of Jinjiang Hotels-A, a subsidiary of Jinjiang Hotels-H, to increase slightly to 83%/84% in 2016/17, supported by both organic growth and growth from its hotels in Shanghai. Figure 6: Hotel performance, 2016/17E Full Service Occupancy rate (%) 78% 82% ADR (RMB) RevPAR (RMB) Select Service Occupancy rate (%) 83% 84% ADR (RMB) RevPAR (RMB) Source: Deutsche Bank estimates Overall EBITDA increase for Jinjiang Hotels (2006.HK) Breaking down Jinjiang Hotels incremental EBITDA in 2016, we believe Shanghai Disney should lead to RMB192m additional EBITDA for Jinjiang Hotels-H, with other factors such as the acquisition of 7 Days and the growth of Louvre contributing to the other RMB975m. We forecast RMB114m additional revenue from Jinjiang s full service hotels in With a 20% operating margin, which is at the low-end of the industry average of 20%-30%, we expect RMB23m additional EBITDA. We expect Jinjiang select service hotels to contribute RMB232m additional revenue in With a 25% operating margin, this business should provide Jinjiang with RMB58m incremental EBITDA. Commission from tier-one Disney ticketing contributes the majority of Jinjiang International Travel s additional earnings. Given that ticketing involves little cost, we assign a 90% profit margin to the service for incremental earnings of RMB47m. The shuttle bus service, which runs on electricity, should also enjoy a relatively high margin. We assign a 75% profit margin and thus arrive at incremental EBITDA of RMB65m. Deutsche Bank AG/Hong Kong Page 7

8 Figure 7: EBITDA increase, 2016E Revenue (RMBm) Margin (est) EBITDA (RMBm) Disney Impact Full service hotel % 23 Selective (econ) service hotel % 58 Ticketing 52 90% 47 Shuttle bus 86 75% 65 Acquisition 7 Days 2,565 25% 641 Louvre % 162 Others 171 Total incremental EBITDA (RMBm) 1,167 Source: Deutsche Bank estimate Our estimates vs. consensus, however consensus number varies For Jinjiang Hotels-A, our 2016 revenue estimate is 17% higher than Bloomberg consensus and EBITDA is 18% higher. For Jinjiang Hotels-H, our 2016 revenue estimate is 14% higher than Bloomberg consensus and our EBITDA is 12% higher. We believe consensus may not have fully factored in the revenue contribution from 7 Days in Figure 8: Our estimates vs. consensus, Jinjiang Hotels-A, 2016 RMBm Our estimate BBG consensus Difference Revenue 9,467 8,071 17% Revenue excl. 7 Days 6,902 8,071-14% EBITDA 2,212 1,868 18% Net profit % Source: Deutsche Bank, Bloomberg Finance LP Figure 9: Our estimates vs. consensus, Jinjiang Hotels-H, 2016 RMBm Our estimate BBG consensus Difference Revenue 16,515 14,542 14% Revenue excl. 7 Days 13,949 14,542-4% EBITDA 2,951 3,121-5% Net profit % Source: Deutsche Bank, Bloomberg Finance LP We would like to remind investors that Bloomberg consensus only has 4 brokers estimates. In addition, their estimate is very diversified. We have listed broker s detailed estimates. As a result, although we compare our numbers to consensus for a basic benchmark, we do not think the sample of consensus number is big enough to be trustworthy. Figure 10: Brokers estimates on Jinjiang Hotels-H, 2016 Brokers Revenue (RMBm) EBITDA (RMBm) Net profit (RMBm) Broker A 13,554 3, Broker B 16,296 3, Broker C 14,418 3,322 1,136 Broker D 13,898 2, Average 14,542 3, Std Dev 1, Source: Deutsche Bank, Bloomberg Finance LP Page 8 Deutsche Bank AG/Hong Kong

9 The potential Disney impact What level of traffic could Disney attract? One of the most exciting (and talked about) market events in 2016 is the opening of Disney Shanghai. Disney recently announced the official opening date: 16 June In this report, we attempt to quantify the potential numbers of visitor volume and provide base-, bull- and bear-case scenarios. Shanghai Disney will be the first Disney resort in mainland China and the third in Asia. Shanghai Disney s total area will be 963 acres, much larger than its Hong Kong resort. The park is majority owned by Shanghai Shendi Group, a state-owned company consortium; Disney owns only 43%. However, Disney share ownership of the resort management company is 70%. With the local government having a majority stake in the park, we believe the interests of both parties are aligned. The opening of Disneyland in Shanghai will have significant spillover effect on the whole tourism industry, including: 1) hotels; 2) transportation; 3) travel agencies; and 4) tourist attractions in the vicinity of Disney park. We quantified the potential number of visitors by benchmarking Shanghai Disneyland to Tokyo Disneyland. In 2014, Tokyo Disneyland and Disney Sea attracted 31.4m visitors. We believe Shanghai Disney, which is a similar size to Tokyo, could attract 25m visitors annually once the resort matures. Shanghai vs. Tokyo. Similar to Tokyo, Shanghai is a highly populated area with around 30m population at end According to Disney s estimates, 330m people (with sufficient income levels) live within three hours of Shanghai and will become its target guests thanks to convenient highways and high-speed railways. Park area. The total gross area of the Disney project in Shanghai will be 1,730 acres (seven square km), with 767 acres to be developed in phases II and III. Phase I will have 963 acres in total, of which 289 acres will be the actual playground area, similar to in Japan (292 acres). As the novelty premium is reduced, given this is the third Disneyland in the APAC region, we apply a 20% discount to Tokyo Disney s traffic volume and arrive at 25m visitors annually for Shanghai Disney. We expect Shanghai Disney s visitor volumes to show a relatively high growth rate in the initial years as the resort gains popularity and efficiency improves. We forecast 6.5m visitors from 16 June to 31 December We expect 16.5m traffic volume in 2017 and 20.4m in Deutsche Bank AG/Hong Kong Page 9

10 Figure 11: Disney branded resorts by number of visitors, 2014 Top Disney branded resorts in 2014 Location Resort Theme Parks / Water Parks Launch Year Area (acres) Visitors (m)gdp/capita (USD Florida, USA Walt Disney World Resort 27, ,899 Magic Kingdom Park Epcot Disney's Animal Kingdom Disney's Hollywood Studios Disney's Typhoon Lagoon Water Park Disney's Blizzard Beach Water Park Tokyo, Japan Tokyo Disney Resort ,664 Tokyo Disneyland Tokyo Disney Sea California, USA Disneyland Resort ,940 Disneyland Park, California Disney California Adventure Park Marne-La-Vallee, PaDisneyland Resort Paris 4, ,241 Disneyland Park, Paris Walt Disney Studios Park Hong Kong Hong Kong Disneyland Resort ,244 Hong Kong Disneyland Park Shanghai, China Shanghai Disneyland Resort 16-Jun ,065 Source: Deutsche Bank, company data, Brookings Figure 12: Area of Disneyland parks (playground) Park space (acres) Annual visitor volume (m) Magic Kingdom Park Tokyo Disneyland Tokyo Disney Sea Disneyland Park, California Disney California Adventure Park Disneyland Park, Paris Hong Kong Disneyland Park Source: Deutsche Bank We expect visitor volumes to likely be below 25m in the first three years as a new resort generally takes a few years to fully ramp up. To estimate the visitor volumes in the initial three years, we apply discount rates of 20-50%. We apply a 50% discount to the theoretical volume and arrive at 12.7m for 2016 (annualized). As Shanghai Disney is scheduled to open on 16 June 2016 and will operate for only 198 days in 2016, we prorate our full year 2016 estimate to arrive at 6.5m for 16 June to 31 December We apply 35% and 20% discounts to the potential full visitor volume in 2017 and 2018, respectively. Our visitor volume estimates come in at 16.5m for 2017 and 20.4m for Page 10 Deutsche Bank AG/Hong Kong

11 Figure 13: Our Disney visitor expectations, E Our theoretical visitor volume (million) Discount (%) 50% 35% 20% Annualized visitors (million) yoy% 30% 23% Opening days Our Disney visitor expectation (million) Source: Deutsche Bank estimate Disney s magical touch to Asia tourism HK and Tokyo Both Hong Kong Disney and Tokyo Disney have reached a mature stage, in our view, with visitor volume per annum stabilizing at around 7.5m for Hong Kong Disney and 31.4m for Tokyo Disney, as shown in Figure 15 and Figure 16. Figure 14: Comparison of three Disney resorts Shanghai Disney HK Disney Tokyo Disneyland / Tokyo Disney Sea Open Year 16-June Area (acre) 963 (1st phase) Playgound area (acre) 289 (1st phase)s No of theme parks No of themed areas No of hotels 2 2 existing 1 open in 2017 No of hotel rooms 1,220 1,000 existing Source: Deutsche Bank, Company data 750 to open in Disney branded 6 non-disney branded 1,711 Figure 15: Hong Kong Disney visitor volume, Figure 16: Tokyo Disney visitor volume, Hong Kong Disneyland (million) Tokyo Disneyland (million) Japan earthquake in Source: Deutsche Bank, AECOM Source: Deutsche Bank, AECOM Addition of two new facilities at Tokyo Disney drove up RevPAR by 21% Tokyo Disneyland opened in Due to a lack of data back then, we look at 2013, when Tokyo Disney celebrated its 30 th anniversary and introduced two major facilities (Tokyo Story Mania! and Goofy s House). As a result of the opening of the two new facilities, total visitors to Tokyo Disney increased 14% yoy to 31.3m in 2013, and overall Tokyo tourist arrivals jumped 11% yoy. Tokyo s hotel industry benefited and reported a 21% yoy increase in RevPAR. Deutsche Bank AG/Hong Kong Page 11

12 Figure 17: New launches at Tokyo Disney drove tourism in Tokyo Tourist Arrival Tourist Arrival Growth (YoY) In FY3/14, Tokyo tourists arrival jumped +11% yoy upon Disneyland 30th anniversary. (m) 1,200 1, % 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Note: FY3/14 = Mar2013 Mar2014 Source: Company data, Bureau of Industrial and Labor Affairs Opening of Hong Kong Disney drove RevPAR up by 17-19% Visitors to Hong Kong increased 9% yoy to 16.6m in September 2005 to April The surge in the number of visitors was partly due to the introduction of Hong Kong Disneyland on 12 September For Hong Kong s hotel industry, average RevPAR of Hong Kong s 5-star hotels increased 19% yoy in the first year after Disney opened, while that of all hotels increased 17% yoy during the same period. Figure 18: Hong Kong visitor arrivals and RevPAR before and after Disneyland opening Visitor Arrival RevPAR 5-star hotels all hotels (m) (HKD) (HKD) 09/ / , / / % 1,521 19% % Source: Hong Kong Tourism Board Let us recap the record of Shanghai World Expo in 2010 In recent years, the largest event held in Shanghai was the World Expo in 2010, we recap the impact of this event on local tourism industry. We remind investors that the World Expo in Shanghai was a one-time event, while the Disney projects are permanent tourists attraction. Nonetheless, we believe Shanghai Expo s visitor growth and its impact on the hotel and tourism industry around Shanghai can be used as a good reference for Disney Shanghai. Page 12 Deutsche Bank AG/Hong Kong

13 In 2010, Shanghai World Expo attracted 12m visitors per month Shanghai visitor volume up 35% yoy in Expo 2010 in Shanghai attracted 73.1m visitors during its six months, helping to boost visitor volume to Shanghai by 35% yoy in 2010, up from a 2.5% CAGR over Annualizing this number would give a total visitor count of 146m. This is 4x larger than the top Asian theme park in Tokyo, Tokyo Disney (Disneyland + DisneySea), which attracted 31.4m visitors in Significant impact on hotel sector three key charts The significant growth of visitor volume has benefited the most of the hotel sector in Shanghai. The following three key charts demonstrate growth in occupancy rate, hotel rate and RePAR. (Figure 19, Figure 20, and Figure 21.) Occupancy rate The average occupancy rate during the six months (May-October 2010) jumped more than 25ppts yoy. The whole range of hotels benefited, from luxury 5-star to selective service 1-star. ADR Average ADR across all hotel categories increased 29% yoy during the six months, with 3-star, 4-star and 5-star hotels raising their room rates by 37% yoy, 33% yoy and 29% yoy, respectively. RevPAR As a result, RevPAR was boosted 60% yoy to RMB380 in 2010 (from RMB237 in 2009), reversing the previously declining trend. Figure 19: Average occupancy rate (%) of hotels in Shanghai, star 4 star 5 star Average World Expo period Source: Deutsche Bank, Shanghai Municipal Tourism Administration Deutsche Bank AG/Hong Kong Page 13

14 Figure 20: Average ADR growth (%) of hotels in Shanghai, star 4 star 5 star Average World Expo period (10.0) (20.0) (30.0) Source: Deutsche Bank, Shanghai Municipal Tourism Administration Figure 21: RevPAR of all hotels in Shanghai, E RevPAR for Shanghai Hotels (RMB) RevPAR growth (YoY) RMB World Expo held in Shanghai from May to Oct % yoy in E 2017E 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Source: Deutsche Bank, Shanghai Municipal Tourism Administration Supply and demand of Shanghai hotels in Additional demand We believe Shanghai Disney will bring additional overnight visitors to Shanghai, which should benefit Shanghai hotels in terms of both occupancy rate and ADR. In our view, a higher percentage of visitors will likely come from outside Shanghai in the initial years. To be conservative, we assume a 50% conversion rate (i.e., 50% of the visitors will stay at hotels) for an average of one night. As a result, we expect an additional 3.5m overnight tourists in 2H16 (50% of 6.9m), and an additional 8.3m overnight tourists in 2017 (50% of 16.5m). Page 14 Deutsche Bank AG/Hong Kong

15 Current supply On the supply side, we believe the number of hotel rooms in Shanghai is unlikely to increase significantly in the initial years. Shanghai Disney plans to open two hotels at the resort: 1) Shanghai Disneyland Hotel with 420 rooms; and 2) Toy Story Hotel with 800 rooms. This will add a total of 1,220 full service hotel rooms to Shanghai s overall supply in 2H16. Despite news that several luxury hotel brands are planning to enter Shanghai to benefit from the opening of Shanghai Disney, we believe these additional luxury hotels are likely to come into the market in late-2017 or We expect 184,776 hotels rooms by the end of 2016 and 191,798 rooms by the end of 2017, as shown in Figure 22. The number of star hotels has been declining over the past few years. We expect the number of star hotel rooms to stabilize over the next few years at 62,920 (including the 1,220 additional rooms at Disney). Econ hotels should continue to grow at single digits: we forecast 121,856 rooms by the end of 2016 and 128,878 rooms by the end of Figure 22: Shanghai hotel supply estimates Econ hotel rooms Econ hotel rooms yoy% Star hotel rooms Star hotel rooms yoy% 140, , , , ,000 90,000 80,000 70,000 60,000 50,000 40, , , E 2016E 2017E 25% 20% 15% 10% 5% 62,920 0% -5% -10% Source: Deutsche Bank estimates, WIND, Shanghai Statistics Deutsche Bank AG/Hong Kong Page 15

16 Figure 23: Shanghai hotel performance, M M15 Occupancy rate (%) Overall star star star star star ADR (RMB) Overall star 1,233 1,010 1,151 1, star star star star RevPAR (RMB) Overall star star star star star Yoy growth Occupancy rate (ppts) Overall (6.0) (5.3) 15.5 (10.4) star (8.3) (6.4) 14.6 (8.2) (0.9) star (8.2) (5.0) 16.6 (11.0) star (4.9) (4.5) 15.9 (14.1) star (1.8) (6.0) 12.7 (6.5) (0.7) 1-star (5.4) (15.6) (5.8) (16.4) 14.3 ADR (RMB) Overall -1% -15% 21% -8% 0% 0% 3% 5% 5-star -8% -18% 14% -10% -8% -1% 0% 2% 4-star -5% -18% 20% -14% 1% -6% -2% 4% 3-star 0% -8% 25% -13% -1% -2% 2% 4% 2-star 0% -1% 25% -16% 0% -2% 13% 1% 1-star -32% 20% 26% -25% -7% 19% 5% 3% RevPAR (RMB) Overall -11% -23% 59% -23% 3% 4% 11% 8% 5-star -19% -27% 45% -21% -9% 0% 5% 6% 4-star -17% -25% 60% -28% 8% -3% 7% 5% 3-star -9% -16% 67% -32% 0% 4% 12% 7% 2-star -3% -12% 57% -25% 8% 3% 22% 0% 1-star -37% -11% 45% -19% -4% 7% -28% 45% Source: Deutsche Bank, WIND Shanghai hotels occupancy rate to improve We expect the hotel occupancy rate in Shanghai to improve by 4.7ppts in 2H16 and 5.9ppts in 2017, compared to the current level of 77.1% (including both econ hotels and star hotels). Currently, Shanghai s star hotels have an occupancy rate of 66% on average. As we lack exact data for econ hotels, we use the weighted average occupancy rate of China s top four econ hotel groups as a proxy (Figure 24). We estimate an average occupancy rate of 83%. Figure 24: Econ hotels current occupancy rate, 9M2015 Number of rooms 1Q15 2Q15 3Q15 Average Home Inns 311,608 79% 83% 87% 83% China Lodging 264,076 82% 86% 89% 86% Jinjiang Hotels-A 125,115 72% 79% 81% 78% 7 Days 212,706 na na na 83% Overall 913,505 83% Source: Deutsche Bank Page 16 Deutsche Bank AG/Hong Kong

17 Impact in 2H16 We believe the occupancy rate of Shanghai hotels will increase by ppts on average in 2H16, compared to the current level. Our base-case scenario suggests 4.6ppts growth in the occupancy rate of Shanghai hotels to 81.8% in 2H16. This should help boost the hotels full-year performance to a 79.4% occupancy rate. We apply our 6.9m visitor volume estimate for 16 June to 31 December in our base-case scenario, with 10% upside in the bull case and 10% downside for the bear case. In the base case, we assume 50% of the visitors to Disney will stay in Shanghai, implying 3.5m overnight visitors stemming from Disney. Assuming 2 people per room night, 3.5m overnight visitors should bring additional 1.7m hotel rooms demand. To be conservative, we assume each hotel room on average accommodates two people. With a total number of 184,776 hotel rooms, Shanghai should be able to provide 36.6m hotels rooms during the period that Disney is open in 2016 (184,776 rooms x 198 nights). An additional 1.7m additional hotel rooms demand implies 4.7ppts growth in occupancy rate purely from visitors to Shanghai Disney. Figure 25: Occupancy rate calculation in 2H16 scenario analysis 2H16 Bull Base Bear Number of visitors to Disney (a) 7,590,499 6,900,454 5,520,363 % overnight (b) 65% 50% 35% Number of overnight visitors (c=a*b) 4,933,825 3,450,227 1,932,127 Number of hotel rooms needed (d=c/2) 2,466,912 1,725, ,064 Total rooms in Shanghai (e) 184, , ,776 Econ hotels 121, , ,856 Star hotels 62,920 62,920 62,920 Number of Disney openning days in 2016 (f) Hotel rooms * nights (g=e*f) 36,585,698 36,585,698 36,585,698 Incremental occupancy % (d/g) 6.7% 4.7% 2.6% Current occupany rate 77.1% 77.1% 77.1% Econ hotels 82.9% 82.9% 82.9% Star hotels 65.7% 65.7% 65.7% Occupany rate in 2H16 (est.) 83.8% 81.8% 79.7% Occupany rate in 2016 (est.) 80.4% 79.4% 78.4% Source: Deutsche Bank estimate, WIND, Company data Impact in 2017 We believe the occupancy rate of Shanghai hotels will increase by ppts on average in 2017, compared to the current level. Our base-case scenario suggests 5.9ppts growth in Shanghai hotels occupancy rate to 83.0%. We apply our 16.5m visitor volume estimate in 2017 in our base-case scenario, with 10% upside in the bull case and 10% downside in the bear case. In the base case, we assume 50% of the visitors to Disney stay in Shanghai, which gives us 8.3m overnight visitors. Deutsche Bank AG/Hong Kong Page 17

18 Assuming 2 people per room night, 4.1m overnight visitors should bring additional 1.7m hotel rooms demand. To be conservative, we assume each hotel room on average accommodates two people. With a total number of 191,798 hotel rooms, Shanghai should be able to provide 70m hotels rooms in full year 2017 (191,798 rooms x 365 nights). An additional 4.1m additional hotel rooms demand implies 5.9ppts growth in occupancy rate compared to the current occupancy level. Figure 26: Occupancy rate calculation in 2017 scenario analysis 2017 Bull Base Bear Number of visitors to Disney (a) 18,190,363 16,536,694 13,229,355 % overnight (b) 65% 50% 35% Number of overnight visitors (c=a*b) 11,823,736 8,268,347 4,630,274 Number of hotel rooms needed (d=c/2) 5,911,868 4,134,174 2,315,137 Total rooms in Shanghai (e) 191, , ,798 Econ hotels 128, , ,878 Star hotels 62,920 62,920 62,920 Number of Disney openning days in 2017 (f) Hotel rooms * nights (g=e*f) 70,006,375 70,006,375 70,006,375 Incremental occupancy % (d/g) 8.4% 5.9% 3.3% Current occupany rate 77.1% 77.1% 77.1% Econ hotels 82.9% 82.9% 82.9% Star hotels 65.7% 65.7% 65.7% Occupany rate in 2017 (est.) 85.5% 83.0% 80.4% Source: Deutsche Bank estimate, WIND, Company data What about Jinjiang? We believe Jinjiang Hotels is likely to benefit the most from Shanghai Disney, thanks to: 1) its strong brand name as the largest hotel group in China; 2) its relatively high exposure to Shanghai; and 3) its prime location in central Shanghai with convenient metro access. As shown in Figure 27, Jinjiang s full service hotels enjoy a premium occupancy rate over the average Shanghai star hotels. Page 18 Deutsche Bank AG/Hong Kong

19 Figure 27: Jinjiang hotels have a higher occupancy rate than peers 75.0 Jinjiang Hotels occupancy % Shanghai star hotel average occupancy % Source: Deutsche Bank, Company data, WIND The largest hotel group after two recent acquisitions After the acquisition of Keystone (formerly known as 7 Days), Jinjiang Hotels capacity in mainland China will surpass Home Inns to became the No.1 in China s economy hotel sector, with a 25% market share. Jinjiang Hotels-A also has around 22% exposure in Shanghai, compared to the low-teens to high-teens exposure of the other econ hotel groups. Meanwhile, 71% of Jinjiang-owned full service hotels are located in Shanghai. Given the company s leading position in China s hotel market, and its advantageous position in the Shanghai market, we believe Jinjiang is likely to benefit more than other players from the Disney tourism flow into Shanghai. Figure 28: Hotel market share, by number of rooms,2014 Figure 29: Shanghai exposure, % 70% 60% Others, 27% Jinjiang Hotel, 25% 50% 40% Jinling Hotels, 3% Green Tree, 7% China Lodging, 16% Home Inns, 22% 30% 20% 10% 0% Jinjiang full service Jinjiang econ service 7 Days Home Inns China Lodging Source: Deutsche Bank,, China Hotel Association, Company data Source: Deutsche Bank estimate, Company data Deutsche Bank AG/Hong Kong Page 19

20 Located around Metro Line 2 The extension of the metro s Line 11 to Shanghai Disney Resort has been confirmed, and this line could potentially be extended to Shanghai Pudong International airport. Passengers will be able to transfer to Line 11 from almost all other metro lines, as shown by the red dots in Figure 30. The majority of Jinjiang s hotels are located in central Shanghai 13 out of Jinjiang s 15 owned hotels in Shanghai are located near commercial centers and popular tourism sites. In addition, nine of those hotels are located right next to one of Shanghai s major metro lines Line 2 (as shown in Figure 31). In our view, Jinjiang s hotels could benefit from their prime locations and attract more Disney visitors than other remote hotels. Jian Guo Hotel is located near Xujiahui station, through which Line 11 passes. Peace Hotel and Sofitel Hotel are located near the Nanjing E Rd station of Line 2 and Line 10. Shanghai Hotel and Shanghai Jing An Hotel are located right next to Jing an Temple station on Line 2. Jin Jiang Tomson Hotel is located next to Century Avenue station, where Lines 2, 4, 6 and 9 pass. Figure 30: Line 11 Metro to Shanghai Disney Source: Deutsche Bank, Baidu Map Page 20 Deutsche Bank AG/Hong Kong

21 Figure 31: Location of Jinjiang Hotel-H s full service hotels in Shanghai No. 2 Metro Line Shanghai Disney (1) Shanghai Yangtze Hotel 上海扬子江万丽大酒店, Jin Jiang Rainbow Hotel 锦江虹桥宾馆 (2) Jinjiang Hotel 锦江饭店, Jinjiang Tower 新锦江大酒店, Jinjiang Shanghai Hotel 锦江上海宾馆, Jinjiang Jing'an Hotel 锦江静安宾馆 (3) Jinjiang Park Hotel 锦江国际饭店, Jinjiang Pacific Hotel 锦江金门大酒店 (4) Shanghai Jinjiang Tomson Hotel 上海锦江汤臣洲际大酒店 Source: Shanghai Municipal Tourism Administration, Deutsche Bank Disney s impact on Jinjiang Hotels-A In our base case we expect Jinjiang Hotels-A to generate RMB232m additional revenue for the group in This is based on our assumption of a 2.6ppts yoy occupancy rate improvement and 3.5% yoy increase in ADR. In our bull case, we assume the occupancy rate will improve 6.5ppts yoy coupled with a 6.1% yoy increase in ADR. Under this scenario, we expect econ hotels to generate RMB413m additional revenue in Our bear case assumes a 1.5ppts yoy occupancy rate improvement and 1% yoy ADR growth. This would provide the group with RMB141m additional revenue. We expect Jinjiang Hotels-A, which has close to a quarter of its hotels in Shanghai, to see an overall 2.6ppts yoy increase in occupancy rate to 82.5% in This is supported by 3ppts yoy organic growth in 1H16E given the low base in 1H15 and 2.2ppts upside in 2H16E. We expect the occupancy rate to further improve by 1.5ppts yoy to 84% in 2017, supported by the full-year Disney impact. As occupancy rates reach above 80%, hotels especially econ hotels, which have relatively low ADRs generally raise their room rates to capture further revenue growth. We expect Jinjiang Hotels-A s ADR to increase 3.5% yoy in 2016 and 4% yoy in As a result, we forecast 7% yoy growth in Jinjiang Hotels-A s 2016 RevPAR to RMB165, and a 6% yoy increase in its 2017E RevPAR to RMB175. Deutsche Bank AG/Hong Kong Page 21

22 Figure 32: Disney impact on Jinjiang-owned/leased econ hotels, 2016 Bull Case Base Case Bear Case Occupancy rate (%) 86.5% 82.5% 81.4% ADR (RMB) RevPAR (RMB) Incremental revenue (RMBm) Assumptions Incremental occupancy rate (ppt) 6.5% 2.6% 1.5% Incremental ADR (%) 6.1% 3.5% 1.0% Incremental RevPAR (%) 14.7% 6.9% 2.8% Source: Deutsche Bank estimate Disney impact on Jinjiang full service hotels In 2016, we expect the opening of Shanghai Disney to boost the revenue of Jinjiang s full service hotels by RMB114m. This is based on our assumption of a 5.2ppts yoy occupancy rate improvement and 3% yoy increase in ADR. In our bull case, we assume an occupancy rate improvement of 12ppts yoy coupled with a 10% yoy increase in ADR. Under this scenario, we would expect full service hotels to generate RMB289m additional revenue in Our bear case assumes 0.5ppts yoy occupancy rate improvement and 1% yoy ADR growth, which would provide the group with RMB29m additional revenue. Note that star hotels, which have relatively low occupancy rates, generally experience higher occupancy rate growth than econ hotels. For Jinjiang full service hotels, we expect occupancy rate to increase 5.2ppts yoy to 78% in 2016, and 3.7ppts yoy to 82% in An increase in occupancy rate generally comes with an increase in ADR, as hotels tend to increase room rates when demand rises. For full service hotels, which have relatively high room rates, we remain conservative on the percentage of ADR growth. We forecast Jinjiang full service hotels to increase room rates by 3% yoy in 2016 and 2% yoy in As a result, we forecast 10% yoy growth in Jinjiang full service hotel RevPAR to RMB518 in 2016 and a 7% yoy increase to RMB553 in Figure 33: Disney impact on Jinjiang-owned/leased full service hotels, 2016 Bull Case Base Case Bear Case Occupancy rate (%) 85.0% 78.2% 74% ADR (RMB) RevPAR (RMB) Incremental revenue (RMBm) Assumptions Incremental occupancy rate (ppt) 12.0% 5.2% 0.5% Incremental ADR (%) 10.0% 3.0% 1.0% Incremental RevPAR (%) 28.1% 10.3% 1.7% Source: Deutsche Bank estimate Page 22 Deutsche Bank AG/Hong Kong

23 Below we perform a sensitivity analysis looking at the impact of changes in occupancy rate and ADR on EBITDA growth. A 5.2ppts increase in occupancy rate coupled with a 3% rise in full service hotels average ADR leads to an 11.2ppts EBITDA growth rate increase in full service hotels EBITDA growth rate, as shown in Figure 34. Due to the limited contribution from full service hotel segment, we expect this to translate into a 1.5ppts increase in EBITDA growth rate for Jinjiang Hotels-H, as shown in Figure 35. Figure 34: Analysis on full service hotels 2016E EBITDA growth of increase in ADR and occupancy rate Increase in ADR Increse in occupancy rate 0.0% 2.0% 4.0% 5.2% 7.0% 10.0% 15.0% 0.0% % % % % % % Source: Deutsche Bank estimate Figure 35: Analysis on Jinjiang Hotels-H (2006.HK) s 2016E EBITDA growth of increase in ADR and occupancy rate Increase in ADR Increse in occupancy rate 0.0% 2.0% 4.0% 5.2% 7.0% 10.0% 15.0% 0.0% % % % % % % Source: Deutsche Bank estimate Deutsche Bank AG/Hong Kong Page 23

24 Tickets and shuttle bus Ticketing and transportation services We believe two subsidiaries of Jinjiang Hotels-H will benefit directly from the opening of Shanghai Disney: Jinjiang International Travel Co. ( SS) and Jinjiang Industrial Investment Co. ( SS). Jinjiang International Travel will be one of the tier-one agents for Shanghai Disney s ticketing, and will receive a percentage of the ticketing revenue as agency service fee. Jinjiang Industrial Investment, which offers passenger transportation and logistics services, will be the only operator of the Disney employee shuttle bus and Disney park shuttle bus from the Disney station to the main gate. The benefits of being a shareholder in Shanghai Disney We believe one of the reasons Jinjiang International Travel and Jinjiang Industrial Investment have become the sole ticket agency and transportation service provider for Shanghai Disney is their background as subsidiaries of Jinjiang International Group, the second largest shareholder of Shanghai Shendi Group, which owns a 57% stake in Shanghai International Theme Park. Please see the Shanghai Disney ownership organization chart in Appendix A for the detailed ownership structure of Shanghai Disney. The project is operated by Shanghai International Theme Park Company, a joint venture between Walt Disney (DIS.N) (43% stake) and Shanghai Shendi Group (57% stake). Shanghai Shendi Group is controlled by four state-owned companies operating in the retail, hospitality, media and travel industries. Jinjiang International Group, Jinjiang Hotel-H s parent company, holds a 25% stake in Shanghai Shendi, which implies 14.25% ownership of the Shanghai Disney project. Company impact Jinjiang Hotels-H We believe Jinjiang Hotels-H (2006.HK) will benefit directly from the opening of Shanghai Disney as two of its subsidiaries control the ticketing and transportation. Our analysis to quantify the potential revenue and earnings contribution is based on our visitor volume assumptions provided in a previous section of this report ( What level of traffic could Disney attract in theory? ). As explained previously, we benchmark Shanghai Disney with Tokyo Disney to arrive at tourist volumes of 6.9m in 2016, 16.5m in 2017, and 20.4m in Page 24 Deutsche Bank AG/Hong Kong

25 Ticketing In our view, the Disneyland ticketing agent business, which has an extremely high margin, is likely to become one of the key revenue and earnings contributors to Jinjiang International Travel. We expect the ticketing agent service for Shanghai Disney to bring in additional revenue of RMB52m in 2016, RMB124m in 2017, and RMB153m in 2018 for Jinjiang International Travel, as shown in Figure 36. Our calculation is based on our overall visitor estimates and the following two assumptions: Jinjiang has been confirmed as one of the tier-one ticket agents for Shanghai Disney. We assume that 25% of tickets will be sold through Jinjiang International Travel. We expect Shanghai Disney s ticket price to fall in the range of RMB We assume Jinjiang to receive a RMB30 handling fee per ticket sold, which is about 6-10% of the ticketing revenue as a commission. Figure 36: Revenue from Disney ticketing 2016E 2017E 2018E Number of visitors (million) % tickets sold through Jinjiang 25% 25% 25% Ticket commission (RMB) Revenue (RMBm) Source: Deutsche Bank estimate Figure 37 shows our sensitivity analysis for the revenue contribution from Disney ticketing based on different visitor volumes and agent fees per ticket. Figure 37: Sensitivity of ticketing revenue to visitor volume and agent fee Agent fee per ticket (RMB) Annual visitor volume (million) Source: Deutsche Bank estimate In addition to the direct agent fee on tickets, we believe Jinjiang International Travel could also leverage its Disney ticket resource to introduce domestic travel packages (cross-sell) and encourage tourists to book through Jinjiang s travel agencies. Transportation: shuttle bus service Jinjiang Industrial Investment is currently in discussions with Disney management regarding a shuttle bus service. According to management, the current arrangement is for Jinjiang Industrial Investment to operate 40 shuttle buses at Shanghai Disney. Deutsche Bank AG/Hong Kong Page 25

26 We believe the service will enjoy a high margin as the 40 buses running between Disney station and the Disney park main gate will use electricity instead of fuel. As shown in the map below, the distance between the Disney station and the main gate is approximately 4.3km. If travelling by taxi, this should cost RMB20-30 per trip. As a result, we assume RMB25 per ticket charged by Jinjiang Industrial Investment. As a result, we estimate RMB86m revenue generated from the shuttle bus service in 2016, RMB207m in 2017 and RMB255m in 2018, as shown in Figure 38. Figure 38: Revenue from Disney shuttle bus service 2016E 2017E 2018E Number of visitors (million) % of visitors taking shuttle bus 50% 50% 50% Ticket price (RMB) Revenue (RMBm) Source: Deutsche Bank estimate Figure 39: Shuttle bus from Disney station to Disney resort Shanghai Disneyland Resort (under construction) Total distance: 4.3km Taxi fare: RMB20-30 Line 11 Disney Station Source: Deutsche Bank, Gaode map Page 26 Deutsche Bank AG/Hong Kong

27 Indirect beneficiaries tourism and hotels Jinjiang Hotels ( SS and 2006.HK) hotels in Shanghai With a recovery in the occupancy rate of the entire hotel sector in Shanghai to 66%, we think Shanghai Disney can play a vital role in Shanghai s hotel segment. Disney will open two hotels right next to the theme park, although these will add only 1,220 hotel rooms. We believe Jinjiang Hotels-H will benefit from the huge influx of visitors to the theme park. We forecast 10% yoy growth in RevPAR in 2016 to RMB518, and a 7% yoy increase in 2017 to RMB553, for Jinjiang Hotels full service hotels. We expect Jinjiang Hotels-A to achieve 7% yoy growth in 2016 RevPAR to RMB165, and a 6% yoy increase in 2017 to RMB175. Figure 40: Full service hotel RevPAR, E Figure 41: Selective service hotel RevPAR, E Average RevPAR (RMB) overall average yoy% RevPAR yoy % E 2016E 2017E 2018E 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% E 2016E 2017E 2018E 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% Source: Deutsche Bank estimate, company data Source: Deutsche Bank estimate, company data CYTS ( SS) Wuzhen CYTS is one of our top growth stories for this year. (Please refer to our The year of the Monkey for our three top growth stock picks.) We believe Wuzhen, which is located 130km from Shanghai, will benefit from the visitor volume overflow from Shanghai Disneyland. We expect Wuzhen to see continuous volume and revenue growth over the next three to five years. We forecast a 19% revenue CAGR over , supported by a 16% CAGR in visitor volume over the same period. Deutsche Bank AG/Hong Kong Page 27

28 Figure 42: Wuzhen to Disney Source: Deutsche Bank, Google map Songcheng ( SZ) Hangzhou and Shanghai parks In November 2015 Songcheng Performance announced that it would establish a subsidiary, Shanghai Songcheng Expo Performance, to develop the Songcheng Performance Expo Grand Stage project located in the Expo Park. The Shanghai Expo Center is only 30km away from Shanghai Disney, as shown in Figure 43. As the project is due to be launched in 2017/18, it should benefit from the tourist volume growth. Hangzhou Songcheng, Songcheng Performance s main park, is also likely to benefit from the spillover effect of Shanghai Disney. Figure 43: Expo Grand Stage to Disney Source: Deutsche Bank, Google map Page 28 Deutsche Bank AG/Hong Kong

29 Hotel peer comps Figure 44: Peer comparisons DB Global Hotel operators Valuation Price TP Mkt Cap EV/EBITDA (x) PE (x) Div Yield (%) PB (x) EBITDA margin (%) D/E (%) EPS Cagr Ticker Rec Local Local US$m 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E E HK/China luxury hotel companies HK & Shanghai Hotels 0045.HK NR 7.7 NA 1, NA NA NA NA -6.8 Mandarin Oriental MOIL.SI NR 1.3 NA 1, NA NA NA NA 6.0 Shangri-La Asia 0069.HK Hold , HK/China luxury hotels average China economy hotel companies China Lodging HTHT.OQ Hold , Home Inns HMIN.OQ Buy , Shanghai Jin Jiang Int'l Hotel Dev SH Hold , China economy hotels average Asia hotel companies Ambassador Hotel 2704.TW NR 26.5 NA NA NA NA Banyan Tree Hldgs BANY.SI NR 0.4 NA 197 NA NA NA NA NA NA NA NA NA NA NA NA NA BTG Hotel Group SH NR 22.5 NA 791 NA NA NA NA NA 14.3 Central Plaza Hotel Plc CENTEL.BKHold , Dorsett Hospitality Int'l 2266.HK NR 1.5 NA 415 NA NA NA NA NA NA NA NA NA NA NA Eih Ltd EIHO.NS NR NA 1,011 NA NA 40.1 NA 0.9 NA 2.4 NA 22.8 NA NA NA NA Formosa Int'l 2707.TW NR NA Indian Hotels Co IHTL.NS NR NA 1, NA NA NA Jin Jiang Int'l Hotels Group 2006.HK Buy , Jinling Hotel Corp SH NR 11.1 NA 506 NA NA NA NA NA NA NA NA Langham Hospitality Inv 1270.HK No Re Minor International Inc MINT.BK Hold , Asia hotels average Global major hotel companies Belmond Ltd BEL.N Buy , NA NA NA NA NA Hilton Worldwide HLT.N Buy , NA Hyatt Hotels H.N Hold , NA InterContinental Hotels Group IHG.L Hold 2,323 2,770 9, NA NA 10.4 Melia Hotels Int'l MEL.MC Buy , NA Millennium & Copthorne Hotels MLC.N NR NA 1, NH Hoteles NHH.MC NR 3.9 NA 1,472 NA NA NA NA NA NA NA Rezidor Hotel Group REZT.SK NR 28.7 NA Global major hotels average Global major economy hotel companies Choice Hotels CHH.N Hold , NM NM NA Extended Stay America STAY.N Buy , Whitbread WTB.L Buy 3,984 6,000 9, Wyndham Worldwide WYN.N Hold , NA Global major economy hotels average China online travel company average China internet company average Large cap China property company average Small cap China property company average Source: Deutsche Bank estimates, company data Deutsche Bank AG/Hong Kong Page 29

30 Appendix A Shanghai Disney at a glance A quick overview of Shanghai Disney The Shanghai Disney project was approved by the Shanghai Municipal Government in It started construction in April 2010 and is expected to open in June The project is operated by Shanghai International Theme Park Company, a joint venture between Walt Disney (DIS.N) (43% stake) and Shanghai Shendi Group (57% stake). Shanghai Shendi Group is controlled by four state-owned companies operating in the retail, hospitality, media and travel industries. Jinjiang International Group, Jinjiang Hotel-H s parent company, is the second largest shareholder of Shanghai Shendi Group. It owns a 14.25% share of the Shanghai Disney project. Shanghai Disney will be the first Disney resort in mainland China and the third in Asia. Shanghai Disney s total area will be 963 acres, which is approximately three times the size of Hong Kong Disney. Figure 45: Ownership/management structure of Shanghai Disney Ownership structure Walt Disney Company 43% Shanghai Shendi 57% - Lujiazui Group 26% - Jinjiang International Group 14% - Shanghai Media Group 11% - Bailian Group 6% Management structure Walt Disney Company 70% Shanghai Shendi 30% Source: Deutsche Bank, company data On 28 April 2015, Walt Disney and Shanghai Shendi announced an additional investment of RMB5.4bn (equivalent to USD0.8bn), aimed at further expanding Shanghai Disney s capacity. This decision was based on the results of market assessments during the construction period, which indicate a substantial potential attendance. Figure 46: Shanghai Disney facts Location Components Shanghai Disneyland Park Shanghai Disneyland Hotel Toy Story Hotel Disney Town Walt Disney Theatre Central lake Cost Estimation Government support Southeast of Shanghai central city, Pudong district 21km to People s Square; 18km to Lujiazui Financial Center 12km to Pudong International Airport; 30km to Hongqiao Transportation Hub Six theme areas The biggest Enchanted Storybook Castle in the world The first theme area based on Pirates of Caribbean - War of the Treasures A Chinese culture enlightened theme area 12 Friends Park 420 rooms 800 rooms 46,000 square meter dining, shopping centers etc. Broadway style 1,200 audiences capacity The first mandarin version of The Lion King musical 40 hector USD5.4bn (Disneyland Park: USD4.7bn; Associated facilities: USD0.7bn) A subway extension from the airport to the resort site Source: Deutsche Bank, Company data Page 30 Deutsche Bank AG/Hong Kong

31 Figure 47: Shanghai Disney resort planned location Shanghai Disney Shanghai Source: Deutsche Bank, Company data Shanghai Disney Shanghai Pudong Airport Figure 48: Shanghai Disneyland hotel Figure 49: Toy Story hotel Source: Company data Source: Company data Flagship Disney store opened in May 2015 The Shanghai Disney flagship store opened on 20 May On the first day of opening, it attracted hundreds of customers who queued for more than three hours to get inside and the store had to be closed only one hour after opening due to overcrowding. The popularity of the Shanghai Disney store is a positive indicator of Chinese tourists attitude towards the upcoming Shanghai Disney. Deutsche Bank AG/Hong Kong Page 31

32 Figure 50: Shanghai Disney ownership organization State-owned Assets Supervision and Administration Commission 100% 100% 100% 100% Shanghai Media & Entertainment Group Shanghai Lujiazui (Group) Bailian Group JinjiangInternational (Group) 100% Retail Hotel operation and management Travel Transportation & Logistics Shanghai Radio, Film and Television Development Co. Ltd. Travel & Entertainment Media Cultural estate 20% 45% 10% 25% The Walt Disney Company Shanghai Shendi Group 100% 100% WD Holdings (Shanghai) LLC. Shendi Travel Shendi Construction Shendi Development Shanghai International Theme Park Co. Ltd. Developing and operating the theme park. WD Holding(47%) Shendi (53%) Shanghai International Theme Park Associated Facilities Co. Ltd. Developing and operating the associated facilities, i.e. hotels, shopping center. WD Holding(47%) Shendi (53%) Shanghai International Theme Park and Resort Management Co. Ltd. Managing and maintaining the them park and associated facilities. WD Holding(70%) Shendi (30%) Shanghai DisneyResort Source: Deutsche Bank, Company data Page 32 Deutsche Bank AG/Hong Kong

33 Company section Deutsche Bank AG/Hong Kong Page 33

34 Rating Buy Asia China Consumer Hotels / Leisure / Gaming Forecasts And Ratios Reuters 2006.HK Bloomberg 2006 HK Undervalued company with huge upside when Disney opens We initiate on Shanghai Jinjiang International Hotels-H (Jinjiang Hotels-H) with a Buy rating and price target of HKD3.7, and 34% upside potential. Jinjiang Hotels-H is the HK-listed parent company, trading at 10x our 2016 EV/EBITDA vs. industry average of 12x and its A-share subsidiary Jinjiang Hotels-A (15x our EV/EBITDA). In addition, our cross-check reveals the PT is at a 50% discount to its NAV (its self-owned hotels), implying all other segments are free for investors. Operationally, we believe all of Jinjiang s segments will benefit from the traffic attracted by Disney. We expect 16% and 24% of the company's incremental EBITDA in 2016 and 2017 to be driven by Disney alone. Full service hotels occupancy rate to increase by 5.2/3.7ppts yoy in 2016/17 We expect Disney to ultimately boost occupancy of full service hotels by 5.2ppts yoy to 78% in 2016 and by a further 3.7ppts to 82% in We expect the improving occupancy rate, coupled with a slight room rate increase, to lead to RevPAR growth of 10% yoy in 2016 and 7% yoy in Additional revenue from travel agency service and transportation business We expect Jinjiang International Travel, one of Shanghai Disney s tier-one ticketing agents, to make an incremental RMB52m ticketing revenue and RMB47m EBITDA contribution to Jinjiang Hotels-H in We estimate Jinjiang Industrial Investment, which will provide the Disney shuttle bus service, will contribute an additional RMB86m revenue and RMB65m EBITDA in Initiating with Buy rating for 34% upside potential We derive our HKD3.7 PT using SOTP, based on 2016 EV/EBITDA of each segment. We value Jinjiang Hotels-A using our derived fair valuation, the full service hotel business on 10x EV/EBITDA, and transportation and logistics and travel agency on 8x EV/EBITDA. Risks: 1) margin tightening due to increasing competition; 2) potential inability to locate new sites due to the aggressive pace of expansion by its competitors; 3) domestic tourism market downturn. Year End Dec A 2014A 2015E 2016E 2017E Sales (CNYm) 9, , , , ,390.4 EBITDA (CNYm) 1, , , ,494.6 Reported NPAT (CNYm) Reported EPS FD(CNY) DB EPS FD(CNY) DB EPS growth (%) PER (x) EV/EBITDA (x) DPS (net) (CNY) Yield (net) (%) Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close Company Jinjiang International Well-diversified hotel operator initiating with Buy Price at 1 Feb 2016 (HKD) 2.77 Price target - 12mth (HKD) week range (HKD) HANG SENG INDEX 19,683 Tallan Zhou Research Analyst (+852) Price/price relative Karen Tang Research Analyst (+852) /14 8/14 2/15 8/15 Jinjiang Internation HANG SENG INDEX (Rebased) Performance (%) 1m 3m 12m Absolute HANG SENG INDEX Source: Deutsche Bank Page 34 Deutsche Bank AG/Hong Kong

35 Model updated:01 February 2016 Running the numbers Asia China Jinjiang International Hote Reuters: 2006.HK Buy Bloomberg: 2006 HK Price (1 Feb 16) HKD 2.77 Target Price HKD Week range HKD Market Cap (m) HKDm 15,418 Company Profile USDm 1,980 Jin Jiang Hotels is one of the leading hotels operators and managers in China. It engages in 2-5 star-rated hotel operation and management, budget hotel operation and franchising, and restaurant operation. Over the years, the group has invested in a diverse portfolio of hotel assets comprising landmark hotels, 4-5 star luxury hotels, 2-3 star commercial hotels and Jin Jiang Inn budget hotels. Price Performance Feb 14May 14Aug 14Nov 14Feb 15May 15Aug 15Nov 15 Margin Trends Jinjiang International Hote HANG SENG INDEX (Rebased) E 16E 17E EBITDA Margin Growth & Profitability Solvency EBIT Margin E 16E 17E Sales growth (LHS) ROE (RHS) E 16E 17E Fiscal year end 31-Dec E 2016E 2017E Financial Summary DB EPS (CNY) Reported EPS (CNY) DPS (CNY) BVPS (CNY) Weighted average shares (m) 5,566 5,566 5,566 5,566 5,566 5,566 Average market cap (CNYm) 5,059 6,759 10,592 13,018 13,018 13,018 Enterprise value (CNYm) 5,243 6,489 9,248 22,979 31,130 31,062 Valuation Metrics P/E (DB) (x) nm nm nm P/E (Reported) (x) P/BV (x) FCF Yield (%) nm Dividend Yield (%) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) nm Income Statement (CNYm) Sales revenue 9,004 9,288 9,364 12,792 16,515 18,390 Gross profit 2,522 2,577 2,619 3,912 5,741 6,601 EBITDA 1,234 1, ,403 2,951 3,495 Depreciation Amortisation EBIT ,746 2,292 Net interest income(expense) Associates/affiliates Exceptionals/extraordinaries Other pre-tax income/(expense) ,841 1, Profit before tax 870 1,276 1,551 1,485 1,518 2,008 Income tax expense Minorities Other post-tax income/(expense) Net profit DB adjustments (including dilution) DB Net profit Cash Flow (CNYm) Cash flow from operations 898 2, ,864 1,477 1,457 Net Capex ,081-1,110 Free cash flow 243 1,367-1, Equity raised/(bought back) ,245 0 Dividends paid Net inc/(dec) in borrowings 368 1, , Other investing/financing cash flows ,749-11,910-8,269 0 Net cash flow 396 1,939 1,402 1,313-6, Change in working capital Balance Sheet (CNYm) Cash and other liquid assets 2,536 4,475 5,877 7, Tangible fixed assets 7,212 7,302 7,154 10,953 11,255 11,367 Goodwill/intangible assets 2,254 2,462 2,391 8,482 11,632 11,428 Associates/investments 4,098 4,041 5,807 5,883 5,883 5,883 Other assets 2,029 3,556 2,934 6,800 12,636 13,522 Total assets 18,129 21,836 24,163 39,307 42,170 43,032 Interest bearing debt 1,995 3,861 3,583 16,103 15,585 15,585 Other liabilities 3,999 6,025 5,205 7,399 8,294 8,745 Total liabilities 5,994 9,886 8,787 23,502 23,879 24,330 Shareholders' equity 7,312 7,566 8,619 8,874 9,117 9,527 Minorities 4,823 4,384 6,757 6,930 9,175 9,175 Total shareholders' equity 12,135 11,950 15,376 15,804 18,292 18,702 Net debt ,294 8,914 14,820 14,752 Key Company Metrics Sales growth (%) nm DB EPS growth (%) na na na 28.7 EBITDA Margin (%) EBIT Margin (%) Payout ratio (%) ROE (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x) nm Source: Company data, Deutsche Bank estimates Net debt/equity (LHS) Net interest cover (RHS) Tallan Zhou Deutsche Bank AG/Hong Kong Page 35

36 Investment thesis Outlook We initiate coverage on Jinjiang Hotels-H with a Buy rating and target price of HKD3.7, implying upside potential of 34%. We expect Jinjiang Hotels-H to capitalise on the opportunity stemming from Shanghai Disney Resort s opening in June We believe the company has a significant first-mover advantage in both Shanghai and overseas, which should allow it to gain a critical occupancy rate and develop its footprint. Shanghai Disneyland beneficiary Jinjiang Hotels-H is poised to benefit from the opening of Shanghai Disney. Phase 1 of the USD5.4bn construction is scheduled to open in June Full service hotels. We expect Jinjiang Hotels-H s full service hotels (71% of owned/leased hotel properties located in Shanghai) to benefit from the large influx of visitors thanks to its market position and prime locations in Shanghai. We expect Jinjiang Hotels-H s full service hotels to enjoy 10%/7% yoy RevPAR growth in 2016/2017. Ticketing and shuttle bus. We expect Jinjiang Hotels-H s two subsidiaries Jinjiang International Travel and Jinjiang Industrial Investment to benefit from being the tier-one ticketing agent and shuttle bus provider for Shanghai Disney. We expect a RMB47m profit from ticketing and RMB65m from shuttle bus in Valuation We value Jinjiang Hotels-H using SOTP, based on 2016E EV/EBITDA. We arrive at a target price of HKD3.7 and initiate with a Buy rating. We value Jinjiang Hotels-A (i.e. select service hotel business and food & restaurant) using our derived fair valuation, while we value the full service hotel business on 10x EV/EBITDA, and Jinjiang Industrial Investment (passenger transportation and logistics) and Jinjiang International Travel (travel agency) on 8x EV/EBITDA. The stock is currently trading at 10x our 2016E EV/EBITDA. We believe Jinjiang Hotels-H is attractive in valuation terms. We cross-check with a NAV valuation: our target price implies a 50% discount to our estimated NAV of HKD7.3 share. Risks Key risks to our call: 1) margin tightening due to increasing competition in the economy hotel sector and online travel agency business; 2) potential inability to locate new sites due to competitors more aggressive pace of expansion; and 3) a domestic tourism market downturn. Broad risk factors for the hotel industry include unforeseen events (natural disasters, epidemics, etc), geopolitical risks (terrorist attacks, wars) and environmental degradation, all of which could have a significant impact on tourism and demand for hotel rooms, putting our earnings call at risk. Page 36 Deutsche Bank AG/Hong Kong

37 Valuation We value Jinjiang Hotels-H at HKD3.7, on EV/EBITDA We value Jinjiang Hotels-H using a SOTP based on 2016E EV/EBITDA. We arrive at a target price of HKD3.7. The stock is currently trading at 10x our 2016E EBITDA compared to an industry average of 12x, which we believe is attractive. We assign 10x 2016E EV/EBITDA to the full service hotel business, which is at a 20% discount to the industry average of 12x. We value Jinjiang Hotels-A ( SS) using our derived fair valuation of HKD39bn, based on our target price of RMB36. We value Jinjiang Industrial Investment ( SS), which provides passenger transportation and logistics services, at 8x EV/EITDA, compared to the 9x of CAR Inc (0699.HK) and an average of 14x of US car rental companies. We assign 8x 2016E EV/EBITDA to Jinjiang International Travel ( SS), at a 30% discount to CITS s 12x ( SS, Buy, TP RMB65, CP RMB46). We deduct net debt of HKD8.6bn carried by Jinjiang Hotels-H by the end of 2016E (excluding HKD9.3bn from Jinjiang Hotels-A). Figure 51: SOTP valuation Market value (HKD m) Stake Valuation (HKDm) Value per share Full service hotel EV/EBITDA=10x 7, % 7, Jinjiang Hotels ( CH) Valuation on our TP 39,119 50% 19, Jinjiang Industrial Investment ( CH) EV/EBITDA=8x 3,955 39% 1, Jinjiang International Travel ( CH) EV/EBITDA=8x % Sub-total 29, Total group net debt (17,633) add back net debt from Jinjiang Hotels 9,338 Net debt (8,594) Equity value 20, Source: Deutsche Bank estimate EV/EBITDA makes more sense than PER We believe a relative valuation based on EV/EBITDA makes more sense at the current stage, due to the doubling of net finance costs in the short term. We expect net finance cost to surge in the short term due to increase in debt for acquisitions Jinjiang Hotels -A completed the acquisition of Groupe du Louvre in 2015 and will complete the acquisition of 7 Days in Jinjiang Hotels-A completed the acquisition of Groupe du Louvre in 2015 and will complete the acquisition of 7 Days at the beginning of Deutsche Bank AG/Hong Kong Page 37

38 Upon completion of the 7 Days acquisition, we expect net debt to increase to RMB14.8bn in 2016 from RMB8.9bn in We believe the current financial situation is not representative of Jinjiang Hotels-H s long-term financial position. Figure 52: Peer comparison DB Global Hotel operators Valuation Price TP Mkt Cap EV/EBITDA (x) PE (x) Div Yield (%) PB (x) EBITDA margin (%) D/E (%) EPS Cagr Ticker Rec Local Local US$m 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E E HK/China luxury hotel companies HK & Shanghai Hotels 0045.HK NR 7.7 NA 1, NA NA NA NA -6.8 Mandarin Oriental MOIL.SI NR 1.3 NA 1, NA NA NA NA 6.0 Shangri-La Asia 0069.HK Hold , HK/China luxury hotels average China economy hotel companies China Lodging HTHT.OQ Hold , Home Inns HMIN.OQ Buy , Shanghai Jin Jiang Int'l Hotel Dev SH Hold , China economy hotels average Asia hotel companies Ambassador Hotel 2704.TW NR 26.5 NA NA NA NA Banyan Tree Hldgs BANY.SI NR 0.4 NA 197 NA NA NA NA NA NA NA NA NA NA NA NA NA BTG Hotel Group SH NR 22.5 NA 791 NA NA NA NA NA 14.3 Central Plaza Hotel Plc CENTEL.BKHold , Dorsett Hospitality Int'l 2266.HK NR 1.5 NA 415 NA NA NA NA NA NA NA NA NA NA NA Eih Ltd EIHO.NS NR NA 1,011 NA NA 40.1 NA 0.9 NA 2.4 NA 22.8 NA NA NA NA Formosa Int'l 2707.TW NR NA Indian Hotels Co IHTL.NS NR NA 1, NA NA NA Jin Jiang Int'l Hotels Group 2006.HK Buy , Jinling Hotel Corp SH NR 11.1 NA 506 NA NA NA NA NA NA NA NA Langham Hospitality Inv 1270.HK No Re Minor International Inc MINT.BK Hold , Asia hotels average Global major hotel companies Belmond Ltd BEL.N Buy , NA NA NA NA NA Hilton Worldwide HLT.N Buy , NA Hyatt Hotels H.N Hold , NA InterContinental Hotels Group IHG.L Hold 2,323 2,770 9, NA NA 10.4 Melia Hotels Int'l MEL.MC Buy , NA Millennium & Copthorne Hotels MLC.N NR NA 1, NH Hoteles NHH.MC NR 3.9 NA 1,472 NA NA NA NA NA NA NA Rezidor Hotel Group REZT.SK NR 28.7 NA Global major hotels average Global major economy hotel companies Choice Hotels CHH.N Hold , NM NM NA Extended Stay America STAY.N Buy , Whitbread WTB.L Buy 3,984 6,000 9, Wyndham Worldwide WYN.N Hold , NA Global major economy hotels average China online travel company average China internet company average Large cap China property company average Small cap China property company average Source: Deutsche Bank estimates, company data, closing as of 27 Jan 2016 Page 38 Deutsche Bank AG/Hong Kong

39 Cross-check with NAV Our target price of HKD3.7 implies a 50% discount to Jinjiang Hotels-H s NAV of HKD7.3. Some investors may argue that the NAV for Jinjiang Hotels-H is not meaningful as SOEs tend not to sell their assets in the market. However, Jinjiang Hotels-H has disposed two hotel assets in recent years. In 2013, the company disposed 45% stake of Shanghai Huating Hotel & Tower for a total consideration of RMB901m. In 2014, the company disposed 80% stake in Shanghai Galaxy Hotel for a total consideration of RMB1.7bn. We believe the company may continue to dispose underperforming assets in the future. When estimating the assets value, we refer to other luxury hotels in Shanghai owned by listed property companies in Hong Kong and derive RMB8.4m per room for full service hotels in Shanghai, as shown in the figure below. Given the global brand name of the three hotel groups, we assign a 10% discount to the average RMB8.4m asset value per room, and estimate that Jinjiang Hotels-H s five-star full service rooms have an asset value of RMB7.6m per room. Jinjiang Hotels-H s four-star hotel rooms have a RevPAR that is 40% less on average than five-star hotel rooms. As a result, we assign an additional 40% discount to the RMB7.6m per room asset value, and arrive at RMB4.5m per room for four-star hotel rooms. Deducting RMB14.8bn net debt in 2016, our estimated net asset value for Jinjiang Hotels-H is HKD7.3. Figure 53: Value per room for luxury hotels in Shanghai Hotel(s) City Market Value (RMBm) No. of rooms Est. Value Per Room (RMBm) Company Stock Code % Stake Grand Hyatt Shanghai 3, Franshion 0817.HK 67% Ritz-Carlton Hotel Shanghai 4, SHKP 0016.HK 100% The Peninsula Shanghai Shanghai 2, HK&SH Hotel 0045.HK 50% Average 8.4 Source: Deutsche Bank, Company data Deutsche Bank AG/Hong Kong Page 39

40 Figure 54: Jinjiang Hotels-H Estimated NAV NAV breakdown # of rooms Stake # of rooms 2016 Asset value (att) % of NAV Year end Dec 2016 total attr RMBm/rm RMBm HK$/shr 2016 A) Hotel property assets a) Shanghai 4-5 star owned hotels 5,424 85% 4, , % 1 Jin Jiang Hotel 5 star % , % 2 Peace Hotel 5 star % , % 3 Jin Jiang Tower 5 star % , % 4 Jin Jiang Tomson Hotel 5 star % , % 5 Yangtze Renaissance Hotel 5 star % , % 6 Park Hotel 4 star % , % 7 Jian Guo Hotel 4 star % , % 8 Shanghai Galaxy Hotel 4 star - 100% % 9 Rainbow Hotel 4 star % , % 10 Cypress Hotel 4 star % % 11 Shanghai Hotel 4 star % , % 12 Shanghai Jing An Hotel 4 star % , % 13 Sofitel Hotel 4 star % , % 14 Holiday Inn Downtown Shanghai 4 star % , % b) Beijing 4-5 star owned hotels % , % 1 Beijing Kunlun Hotel 5 star % , % c) Owned hotels elsewhere in China 1,605 72% 1, , % 1 Wuhan Jin Jiang Int'l Hotel 5 star % % 2 Wuxi Jin Jiang Grand Hotel 4 star % % 3 Kunming Jin Jiang Hotel 4 star % % 4 West Capital International Hotel 4 star % % 5 Jiangsu Nanjing Hotel 4 star % % d) Owned hotels elsewhere in China % % 1 Shanghai Pacific Hotel % % * Beijing Jin Jiang Club - 100% % Sub-total: Hotel property assets - Full Service 7,864 80% 6, , % e) Owned selected service hotels Jinjiang Econ Hotels - economy hotel (China) 37,340 50% 18, , % Jinjiang Econ Hotels - economy hotel (Overseas) 19,085 50% 9, , % Jinjiang Econ Hotels - F&B 50% % Sub-total: Hotel property assets - Selected Service 56,425 50% 28, , % B) Associates & JVs Jinjiang Industrial ( CH) - car rental & share price Rmb % 6, % Jinjiang Travel ( CH) - travel share price Rmb % 1, % Sub-total: Associates & JVs at market prices 8, % Gross asset value 48, % less consolidated net debt (end-2016) (14,820) (3.2) -44% Net asset value 33, % Source: Deutsche Bank estimates, Company data Page 40 Deutsche Bank AG/Hong Kong

41 Full service hotels Bound to benefit from the opening of Shanghai Disney We expect that Jinjiang Hotels-H will be the key hotel-business beneficiary of Shanghai Disney, given 1) its established position in the Shanghai area, 2) its hotels prime locations, and 3) its well-recognised brand name. Shanghai-focused hotel assets For full service hotels, Jinjiang Hotels-H owns and manages 101 hotels, of which 50 are five-star luxury hotels, 47 are four-star, and the remaining four are commercial hotels. Of the 101 hotels, 21 are owned by Jinjiang Hotels-H, as shown in the figure below. 71% of Jinjiang s self-owned full service hotels are located in Shanghai. Based on our estimate, over 60% of Jinjiang Hotels-H s revenue is generated from business in the Shanghai region. Figure 55: Jinjiang Hotels-H overview (China), 1H15 Full service hotels Select service hotels In Shanghai In other cities Owned/Leased In Shanghai In other cities Franchised/Management Total 101 1,022 owned/leased hotels in Shanghai as % of total owned/leased hotels owned/leased hotels in other cities as % of total owned/leased hotels 71% 22% 29% 78% Owned/Leased as % of total 21% 27% franchised/managed hotels in Shanghai as % of total franchised/managed hotels 14% 8% franchised/managed hotels in other cities as % of total franchised/managed hotels 86% 92% Franchised/Management as % of total 79% 73% Total 100% 100% Source: Deutsche Bank, Company data Deutsche Bank AG/Hong Kong Page 41

42 Figure 56: Jinjiang Hotels-H s own full service hotels by area, 1H15 Figure 57: Revenue from Shanghai as % of total, 1H15 Kunming 5% Nanjing 5% Wuxi 5% Wuhan 5% Beijing 4% Xian 5% Shanghai 71% Total: 21 hotels Other locations <40% Shanghai >60% Source: Deutsche Bank estimates, Company data Source: Deutsche Bank estimates, Company data Occupying golden locations The extension of the metro s Line 11 to Shanghai Disney Resort has been confirmed, and this line could potentially be extended to Shanghai Pudong International airport. Passengers will be able to transfer to Line 11 from almost all other metro lines. 13 of Jinjiang Hotels-H s 15 owned hotels in Shanghai are located near commercial centres (Hongqiao District, Jingan District, Lujiazui) and popular tourist sites (People s Square, Oriental Pearl, Wai Tan, Nanjing Road Shopping Mall). Moreover, the main transportation line the No.2 Metro line, which connects the main tourist and commercial sites also passes by nine hotels owned by Jinjiang Hotels-H. We expect that Jinjiang Hotels-H will benefit from its geographical advantage in capturing an externality effect from Shanghai Disney s visitors. Figure 58: Jinjiang Hotels-H s full service hotel locations in Shanghai 3 No. 2 Metro Line Shanghai Disney (1) Shanghai Yangtze Hotel 上海扬子江万丽大酒店, Jin Jiang Rainbow Hotel 锦江虹桥宾馆 (2) Jinjiang Hotel 锦江饭店, Jinjiang Tower 新锦江大酒店, Jinjiang Shanghai Hotel 锦江上海宾馆, Jinjiang Jing'an Hotel 锦江静安宾馆 (3) Jinjiang Park Hotel 锦江国际饭店, Jinjiang Pacific Hotel 锦江金门大酒店 (4) Shanghai Jinjiang Tomson Hotel 上海锦江汤臣洲际大酒店 Source: Shanghai Municipal Tourism Administration, Deutsche Bank Page 42 Deutsche Bank AG/Hong Kong

43 Highly recognised brand name Jinjiang Hotels-H is a Shanghai-founded and developed hotel brand, of which the establishment of several of its hotel assets dates back to the 1920s and 1930s such as Shanghai Jinjiang Hotel and Shanghai Pacific Hotel. The longterm local presence has led to very solid consumer recognition of the brand. Furthermore, Jinjiang Hotels-H s brand name has recently become even better recognised. According to the Meadin Brand Index (a hotel brand index provided by Meadin, a Chinese hotel database), Jinjiang Hotels-H moved up to the no. 1 place in early 2015 from its previous rankings of between six and nine in 2014, indicating an improvement in brand image and recognition. Figure 59: Full service hotels owned by Jinjiang Hotels-H, 2015 Full service hotels 5-star luxury hotels Stake No. of rooms Shanghai Jin Jiang Hotel 上海锦江饭店 100.0% 442 Shanghai Peace Hotel 上海和平饭店 100.0% 270 Shanghai Jin Jiang Tower 上海新锦江大酒店 100.0% 582 Shanghai Jin Jiang Tomson Hotel 上海锦江汤臣洲际大酒店 50.0% 398 Shanghai Yangtze Hotel 上海扬子江万丽大酒店 40.0% 540 Beijing Kunlun Hotel 北京昆仑饭店 47.5% 646 Wuhan Jin Jiang International Hotel 武汉锦江大酒店 100.0% star luxury hotels Shanghai Park Hotel 上海国际饭店 100.0% 261 Shanghai Jian Guo Hotel 上海建国宾馆 65.0% 455 Shanghai Galaxy Hotel 100.0% Shanghai Rainbow Hotel 上海虹桥宾馆 100.0% 640 Shanghai Cypress Hotel 上海龙柏饭店 100.0% 149 Shanghai Hotel 上海宾馆 100.0% 527 Shanghai Jing An Hotel 上海静安宾馆 100.0% 228 Shanghai Sofitel Hotel 上海海仑宾馆 66.7% 401 Holiday Inn Downtown Shanghai 上海广场长城假日大酒店 100.0% 531 Wuxi Jin Jiang Grand Hotel 无锡锦江大酒店 25.0% 353 Kunming Jin Jiang Hotel 昆明锦江大酒店 100.0% 320 West Capital International Hotel 西安西京国际饭店 100.0% 216 Jiangsu Nanjing Hotel 江苏南京饭店 40.0% 309 Commercial hotels Shanghai Pacific Hotel 锦江金门大酒店 100.0% 189 Source: Deutsche Bank, Company data Full service hotels occupancy rate to increase to 78%/82% in 2016/17 As we mentioned in our sector piece, we forecast that there will be 6.9 million visitors to Shanghai Disney in June-December 2016 and 16.5 million in In 2016, we expect that the opening of Shanghai Disney will bring additional revenue of RMB114m to Jinjiang Hotels-H s full service hotels. This is based on our assumption of a 5.2ppts yoy improvement in the occupancy rate and a 3% yoy increase in ADR. Deutsche Bank AG/Hong Kong Page 43

44 We note that star hotels, which have a relatively low occupancy rate, generally experience higher occupancy rate growth than select service hotels. For Jinjiang Hotels-H full service hotels, we expect that the occupancy rate will increase by 5.2ppts yoy to 78% in 2016 and by 3.7ppts yoy to 82% in An increase in the occupancy rate is generally accompanied by an increase in ADR, as hotels tend to increase their room rates when demand rises. For full service hotels which have relatively high room rates, we remain conservative on ADR growth and forecast Jinjiang Hotels-H s full service hotels to increase their ADR by 3% yoy in 2016 and by 2% yoy in As a result, we expect RevPAR of full service hotels to increase 10% yoy to RMB518 in 2016, and to further grow by 7% yoy to RMB553 in Figure 60: Disney impact on Jinjiang Hotels-H s full service hotels, 2016E Bull Case Base Case Bear Case Occupancy rate (%) 85.0% 78.2% 74% ADR (RMB) RevPAR (RMB) Incremental revenue (RMBm) Assumptions Incremental occupancy rate (ppt) 12.0% 5.2% 0.5% Incremental ADR (%) 10.0% 3.0% 1.0% Incremental RevPAR (%) 28.1% 10.3% 1.7% Source: Deutsche Bank estimate Overall, we expect revenue from full service hotels to increase by 8% yoy to RMB2.1bn in 2016, driven by a 10% yoy increase in RevPAR. We estimate that revenue will increase by a further 6% yoy in 2017 to RMB2.2bn, supported by 7% yoy RevPAR growth. Page 44 Deutsche Bank AG/Hong Kong

45 Figure 61: Full service hotels revenue, E Year end Dec (RMB m) E 2016E 2017E Room revenue 1,118 1, ,087 1,160 Food and beverage sales Rendering of ancillary services Rental revenue Sales of hotel supplies Hotel management Total revenue 2,420 2,225 1,919 1,948 2,101 2,219 Breakdown Room revenue 46% 46% 47% 50% 52% 52% Food and beverage sales 37% 37% 32% 31% 29% 28% Rendering of ancillary services 4% 5% 5% 5% 6% 6% Rental revenue 8% 9% 10% 10% 9% 8% Sales of hotel supplies 2% 1% 2% 1% 0% 0% Hotel management 3% 4% 4% 4% 4% 5% yoy% Room revenue -17% -9% -12% 9% 12% 7% Food and beverage sales -14% -9% -23% -4% 2% 4% Rendering of ancillary services -17% -2% -8% 9% 12% 7% Rental revenue 3% 5% -2% -5% 0% 0% Sales of hotel supplies -86% -62% 109% -68% 0% 0% Hotel management -97% 5% -1% -1% 18% 14% Total revenue -55% -8% -14% 2% 8% 6% Source: Deutsche Bank estimate, Company data Select service hotels & food and restaurants (i.e. Jinjiang Hotels-A, SS) This segment is run entirely under the group s subsidiary, Jinjiang Hotels Development ( SS). Please refer to our company initiation report on Jinjiang Hotels-A ( SS) for details. Deutsche Bank AG/Hong Kong Page 45

46 Travel agency & logistics Travel agency Jinjiang International Travel ( SS) The travel agency business is operated under Jinjiang International Travel ( SS). As one of China's leading travel service enterprises, Jinjiang International Travel provides a comprehensive service, which includes hotel reservations, flight bookings, package tours, a corporate travel management service, cruises, and booking tickets for theme parks and events. We expect the business contributed 18% of Jinjiang Hotels-H s revenue in In our view, the Disneyland ticketing agent business, which has an extremely high margin, is likely to become one of the key revenue and earnings contributors to Jinjiang International Travel. We expect that the ticketing agent service for Shanghai Disney will bring in additional revenue of RMB52m in 2016, RMB124m in 2017 and RMB153m in 2018 for Jinjiang International Travel, as shown in Figure 62. Our calculation is based on our overall visitor estimates and the following two assumptions: Jinjiang has been confirmed as one of the tier-one ticket agents for Shanghai Disney. We assume that 25% of tickets will be sold through Jinjiang International Travel. We forecast that the ticket price for Shanghai Disney will be in the range of RMB300 to RMB500. We expect Jinjiang to receive RMB30 per ticket sold, which is a commission of about 6-10% of the ticket price. Figure 62: Revenue from Disney ticketing 2016E 2017E 2018E Number of visitors (million) % tickets sold through Jinjiang 25% 25% 25% Ticket commission (RMB) Revenue (RMBm) Source: Deutsche Bank estimate Below, we perform a sensitivity analysis on the revenue contribution from Disney ticketing and visitor volume and agent fee per ticket. Figure 63: Sensitivity analysis of visitor volume and agent fee Agent fee per ticket (RMB) Annual visitor volume (million) Source: Deutsche Bank estimate Page 46 Deutsche Bank AG/Hong Kong

47 In addition to the agent s direct fee from tickets, we believe Jinjiang International Travel could also leverage its Disney ticket resources to introduce domestic travel packages and encourage tourists to book through their Jinjiang travel agencies. Overall, we expect revenue from the group s transportation and logistics business to grow 6% yoy in 2016 and Figure 64: Travel agency revenue, E Year end Dec (RMB m) E 2016E 2017E Outbound travel 1,052 1,217 1,262 1,342 1,409 1,480 Inbound travel Domestic travel Ticketing MICE Other related business Real estate Disney Total revenue 2,086 2,116 2,164 2,241 2,367 2,518 Breakdown Outbound travel 50% 57% 58% 60% 60% 59% Inbound travel 7% 6% 7% 6% 6% 5% Domestic travel 11% 10% 8% 8% 8% 7% Ticketing 18% 16% 16% 16% 15% 14% MICE 12% 9% 10% 9% 9% 8% Other related business 1% 1% 1% 0% 0% 0% Real estate 1% 1% 1% 1% 1% 1% Disney 0% 0% 0% 0% 2% 5% yoy% Outbound travel 19% 16% 4% 6% 5% 5% Inbound travel -14% -17% 21% -10% 2% 2% Domestic travel -6% -14% -20% 8% 3% 3% Ticketing 4% -8% 2% 0% 0% 0% MICE 8% -19% 7% 0% 0% 0% Other related business -38% 7% -10% -12% 0% 0% Real estate -1% -1% 0% 0% 0% 0% Disney na na na na na 140% Total revenue 8% 1% 2% 4% 6% 6% Source: Deutsche Bank estimate, Company data Logistics Jinjiang Industrial Investment ( SS) Headquartered in Shanghai, Jinjiang Industrial Investment ( SS) is one of the largest logistics company in China. It provides a full range of services including international air/sea freight, supply chain management and third party logistics. As of December 2014, the company had a presence in China via 21 branches and 64 service stations in the major cities in China. We expect the business contributed 18% of Jinjiang Hotels-H s revenue in Deutsche Bank AG/Hong Kong Page 47

48 Figure 65: Market share of car rental services in China in 2014 U-Lin 友邻 Reocar 3% 瑞卡便利租车 3% Shouqi 首汽 3% Dazhong 大众 5% Avis 安飞士 8% ehi 一嗨 11% Yestock 赢时通 12% Jinjiang 锦江 2% Topone 至尊 2% Car Inc 神州租车 51% Figure 66: Revenue contribution from Jinjiang Hotels-H s passenger transportation and logistics segment in 2015 Other Hotel revenue, business 1% and related, 0% Trading or automobile, 37% Vehicle operating, 56% Refrigerate d logistics, 6% Source: Deutsche Bank, Company data Source: Deutsche Bank, Company data Jinjiang Industrial Investment is also currently in discussions with Disney management regarding a shuttle bus service. According to management, the current arrangement is that Jinjiang Industrial Investment will operate 40 shuttle buses at Shanghai Disney, operating between the Shanghai Disney metro station and the main gate. We believe that the service will enjoy a high margin, as the 40 buses running between Disney station and the Disney park main gate will be powered by electricity rather than by fuel. As shown in the map below, the distance between the Disney station and the main gate is approximately 4.3km. If travelling by taxi, this should cost RMB20-30 per trip. As a result, we assume RMB25 per ticket charged by Jinjiang Industrial Investment. Page 48 Deutsche Bank AG/Hong Kong

49 Figure 67: Shuttle bus from Disney station to Disney resort Shanghai Disneyland Resort (under construction) Total distance: 4.3km Taxi fare: RMB20-30 Line 11 Disney Station Source: Deutsche Bank, Gaode map As a result, we estimate that the revenue generated from the shuttle bus service will be RMB86m in 2016, RMB207m in 2017 and RMB255m in 2018, as shown in Figure 68. Figure 68: Revenue from Disney shuttle bus service 2016E 2017E 2018E Number of visitors (million) % of visitors taking shuttle bus 50% 50% 50% Ticket price (RMB) Revenue (RMBm) Source: Deutsche Bank estimate Overall, we expect revenue from the group s transportation and logistics business to grow 6% yoy and 7% yoy in 2016 and 2017, respectively. Deutsche Bank AG/Hong Kong Page 49

50 Figure 69: Transportation and logistics revenue, E Year end Dec (RMB m) E 2016E 2017E Vehicle operating 1,173 1,216 1,236 1,256 1,276 1,297 Trading or automobile Hotel business and related Refrigerated logistics Other revenue Disney Total revenue 2,026 2,089 2,182 2,257 2,403 2,576 Breakdown Vehicle operating 58% 58% 57% 56% 53% 50% Trading or automobile 35% 35% 36% 37% 36% 35% Hotel business and related 0% 0% 0% 0% 0% 0% Refrigerated logistics 6% 6% 6% 6% 6% 6% Other revenue 1% 1% 1% 1% 1% 1% Disney 0% 0% 0% 0% 4% 8% yoy% Vehicle operating -2% 4% 2% 2% 2% 2% Trading or automobile 19% 3% 9% 6% 4% 3% Hotel business and related na na na na na na Refrigerated logistics 12% -2% 7% 5% 4% 3% Other revenue na 1% 3% 3% 3% 3% Disney na na na na na 140% Total revenue 6% 3% 4% 3% 6% 7% Source: Deutsche Bank estimate, Company data Others Jinjiang Group also conducts other business activities, which contributed 1% of Jinjiang Hotels-H s revenue and 25% of operating profit in Jinjiang Hotels-H has a subsidiary, Jinjiang International Finance, which handles all other financial-related businesses. Its major role is as a non-bank financial institution within the group. Jinjiang International Finance provides deposits and short-term financing within subsidiaries, JVs and associates, which reduces the group s interest expenses incurred from bank loans. Page 50 Deutsche Bank AG/Hong Kong

51 Financials Consolidated income statement We forecasted a net loss of RMB162m in 2015, due mainly to high administrative cost on employee benefit, and a doubled finance cost as the company took RMB10.5bn LT borrowing. We expect that core net profit will turn positive in 2016 to RMB628m, and forecast 29% yoy growth to RMB808m in We are positive about Jinjiang Hotels-H s ability to turn around in 2016, as the company expand through acquisition Groupe du Louvre in February 2015 and 7 Days in 1Q16. Revenue breakdown We forecast that revenue will increase 29% yoy to RMB16.5bn in 2016 due to the consolidation of 7 Days (9 months, as we factored in 7 Days contribution from April 2016), a contribution from new business (including Disney ticketing and shuttle bus services), and an improvement in RevPAR driven by visitor volume at Shanghai Disney. We expect revenue from full service hotels to increase 8% yoy to RMB2.1bn in 2016, driven by 10% yoy growth in RevPAR of the company s owned/leased hotels. We forecast a 56% yoy revenue increase to RMB9.2bn in select service hotels, due mainly to the consolidation of 7 Days for 9 months. The transportation and logistics business will provide the shuttle bus service between the Disney metro station and the main gate. We expect this additional contribution to support a 6% yoy revenue increase to RMB2.4bn in 2016E. Organically, we forecast 3% yoy growth in The travel agency business should benefit from being a tier-one Disney ticket agent, which should drive revenue by 6% yoy in 2016E to RMB2.4bn. We forecast 3% yoy organic growth in Deutsche Bank AG/Hong Kong Page 51

52 Figure 70: Segment summary, E Year end Dec (RMB m) E 2016E 2017E Revenue Full service hotels 2,420 2,225 1,919 1,948 2,101 2,219 Select service hotels 2,102 2,407 2,635 5,897 9,178 10,584 Jinjiang 2,103 2,410 2,636 3,128 3,193 3,465 7 Days ,565 3,639 Lourvre ,770 3,419 3,480 Food and restaurants Passenger transportation vehicles and logistics 2,020 2,082 2,178 2,257 2,403 2,576 Travel agency 2,078 2,116 2,164 2,241 2,367 2,518 Others Breakdown Full service hotels 27% 24% 20% 15% 13% 12% Select service hotels 23% 26% 28% 46% 56% 58% Jinjiang 23% 26% 28% 24% 19% 19% 7 Days 0% 0% 0% 0% 16% 20% Lourvre 0% 0% 0% 22% 21% 19% Food and restaurants 3% 4% 4% 3% 2% 2% Passenger transportation vehicles and logistics 22% 22% 23% 18% 15% 14% Travel agency 23% 23% 23% 18% 14% 14% Others 1% 1% 1% 1% 0% 0% yoy% Full service hotels -55% -8% -14% 2% 8% 6% Select service hotels 11% 15% 9% 124% 56% 15% Jinjiang 11% 15% 9% 19% 2% 8% 7 Days na na na na na 42% Lourvre na na na na 23% 2% Food and restaurants 16% 14% 5% 0% 5% 7% Passenger transportation vehicles and logistics -37% 3% 5% 4% 6% 7% Travel agency 8% 2% 2% 4% 6% 6% Others 73% 41% -7% -22% 0% 0% Source: Deutsche Bank estimate, Company data Page 52 Deutsche Bank AG/Hong Kong

53 Figure 71: Income statement summary, E Year end Dec (RMB m) E 2016E 2017E Revenue 9,004 9,288 9,364 12,792 16,515 18,390 Net revenue 8,643 8,911 8,997 12,338 15,929 17,738 Gross profit 1,573 1,633 1,682 2,821 4,535 5,398 SG&A (1,288) (1,319) (2,034) (2,510) (2,789) (3,106) Adj. EBITDA (*) 1,234 1,258 1,291 1,784 2,951 3,495 EBIT (352) 311 1,746 2,292 Adj. EBIT (*) ,746 2,292 Pre-tax profit 870 1,276 1,551 1,485 1,518 2,008 Net profit Core net profit (**) 48 (273) (283) (162) EPS (RMB) 0.01 (0.05) (0.05) (0.03) Margin % Gross margin 17% 18% 18% 22% 27% 29% SG&A as % of revenue -14% -14% -22% -20% -17% -17% Adj. EBITDA margin 14% 14% 14% 14% 18% 19% EBIT margin 3% 3% -4% 2% 11% 12% Adj. EBIT margin 3% 3% 4% 5% 11% 12% Tax rate 19% 34% 31% 27% 27% 27% Net profit 4% 5% 7% 4% 3% 4% Core net margin 1% -3% -3% -1% 4% 4% yoy% Revenue na 3% 1% 37% 29% 11% Gross profit na 4% 3% 68% 61% 19% SG&A na 2% 54% 23% 11% 11% Adj. EBITDA (*) na 2% 3% 38% 65% 18% EBIT 6% 10% na na 461% 31% Adj. EBIT (*) 6% 10% 12% 96% 152% 31% Pre-tax profit na 47% 21% na 2% 32% Net profit na 40% 40% na na 32% Core net profit (**) na na na na na 29% EPS na na na na na 29% No. of shares (year-end) 5,566 5,566 5,566 5,566 5,566 5,566 No. of shares (weighted-average) 5,566 5,566 5,566 5,566 5,566 5,566 Source: Deutsche Bank estimate, Company data *Note: Adjusted EBITDA, Adjusted EBIT excluded loss on financial assets, compensation charges on early termination, and employee benefit expenses ** Note: Core net profit adjusted for gain on disposals Deutsche Bank AG/Hong Kong Page 53

54 Balance sheet and cash flow Dividend We expect a constant dividend per share of RMB0.05 from Jinjiang Hotels-H, as guided by the company. Net debt We expect Jinjiang Hotels-H s net debt to increase to RMB14.8bn in 2016 from RMB8.9bn in 2015, due to the cash payment of RMB8.3bn for the acquisition of 7 Days (to be completed in beginning 2016). As a result, we forecast a net gearing ratio of 81% in Nonetheless, we believe this gearing ratio is not representative of the company s long-term financial position. Financial expense As a result of long-term loans increasing to RMB10.9bn and the drop in cash balance to less than RMB1bn, we expect net financial expenses to be RMB535m in 2016, 6x of the financial expense in 2014 (RMB80m). Figure 72: Balance sheet, E Year end Dec (RMB m) E 2016E 2017E Fixed assets 7,026 7,074 6,932 10,738 11,045 11,163 Investment properties Land use rights 1,867 2,030 1,962 1,903 1,844 1,785 Intangibles ,579 9,788 9,594 Investments in JVs & associates 2,071 1,950 1,947 2,023 2,023 2,023 Available -for-sale financial assets 1,964 1,888 3,644 3,644 3,644 3,644 Other LT assets ,956 8,649 8,649 Non-current assets 13,772 14,306 15,564 29,058 37,203 37,062 Cash 2,536 4,475 5,877 7, Short term investments Trade & other receivables 1,063 1,306 1,198 1,636 2,112 2,352 Inventory Other ST assets 544 1,370 1, ,612 2,236 Current assets 4,357 7,530 8,600 10,249 4,968 5,970 Issued share capital 5,566 5,566 5,566 5,566 5,566 5,566 Retained earnings 1,524 1,730 2,020 2,275 2,517 2,928 Other reserves ,033 1,033 1,033 1,033 Share capital 7,312 7,566 8,619 8,874 9,117 9,527 Non-controlling interests 4,823 4,384 6,757 6,930 9,175 9,175 Total equity 12,135 11,950 15,376 15,804 18,292 18,702 LT loans 1,394 1,712 1,862 10,912 10,912 10,912 Deferred income tax liabilities ,114 2,114 2,114 LT Trade and other payables Capital employed 14,282 14,373 18,784 29,438 31,925 32,335 ST loans (incl. current portion of LT loans) 601 2,150 1,721 5,191 4,673 4,673 Trade & other payables 3,143 4,767 3,421 4,440 5,334 5,785 Other current liabilites Current liabilities 3,847 7,463 5,379 9,869 10,245 10,696 Total assets less current liabilities 14,282 14,373 18,784 29,438 31,925 32,335 Source: Deutsche Bank estimates, Company data Page 54 Deutsche Bank AG/Hong Kong

55 Figure 73: Cash flow, E Year end Dec (RMB m) E 2016E 2017E Profit before income tax 870 1,276 1,551 1,485 1,518 2,008 Depreciation & amortisation ,091 1,205 1,251 Working capital changes (78) (257) Other adjustments (521) (883) (1,781) (558) (595) (787) Cash generated from operations 1,219 1,080 1,349 2,549 2,503 2,662 Interest paid (96) (125) (157) (394) (623) (623) Taxation (225) (203) (570) (394) (403) (533) Others - 1,292 (1,419) 102 Net cash generated from operation 898 2,044 (796) 1,864 1,477 1,506 Capex (736) (784) (851) (903) (1,081) (1,110) Proceeds from disposals of PPE/Intangibles Acquisitions of equity - (654) (71) (2,957) (8,269) Repayments of borrowings from acquisition - (636) - (5,554) - Proceeds from disposals(capital increase) of sub (113) 768 1, Other investments 410 (497) Net cashflow from investment activities (358) (1,695) 1,505 (8,149) (9,350) (1,110) Dividends paid (478) (411) (501) (278) (278) (278) Proceeds from issue of shares ,245 Net proceeds(repayment) from borrowings 368 1,882 (278) 12,521 (518) - Other financing inflows(outflows) (33) 125 1,471 (4,715) Net cashflow from financing activites (143) 1, ,527 1,448 (278) Exchange differences (0) (5) 1 71 Change in net cash 396 1,939 1,402 1,313 (6,425) 117 Source: Deutsche Bank estimates, Company data Deutsche Bank AG/Hong Kong Page 55

56 Risks Downside risks Margin tightening: Due to increasing competition in the economy hotel sector and online travel agency business, aggressive price cuts and an increasing number of promotions will be introduced. There may be a risk of declining margins and challenging market conditions. Potential inability to locate new sites: In the economy hotel sector, as Jinjiang Hotels-A s competitors are growing at a faster pace (China Lodging to add 680+ economy hotels and Home Inns to add 400 economy hotels, while the group is to add economy hotels in 2015), there may be difficulties in locating ideal sites for growth. Domestic tourism market downturn decline in domestic business travellers/tourists in China: Due to an anti-graft campaign, there has been a decrease in domestic tourists travelling locally, which has affected the RevPAR of hotels in China. Furthermore, with the depreciation of other countries currencies and the relaxation of their visa policies for Chinese citizens, Chinese tourists are more willing to spend their money abroad. Terrorist attacks and natural disasters: Terrorist attacks, such as the one in Paris, France, have had a significant impact on outbound tourism and the hotel business in that region. As Jinjiang Hotels-A expands overseas to capture China s outbound tourism growth, terrorist attacks in a region in which Jinjiang expands would hurt hotel performance. Page 56 Deutsche Bank AG/Hong Kong

57 Company profile Overview Shanghai Jinjiang International Hotels (Group) Company Limited (Jinjiang Hotels-H) is one of the leading comprehensive tourism-centric conglomerates in China that provides one-stop tourism-related services in hotel, dining, transportation and logistics. The group is the listed entity of Jinjiang International, an SOE in Shanghai. It is also recognised as one of the leading hotel operators and managers with a focus on China. Over the years, the group has engaged primarily in operating and managing star-rated hotels, operating and franchising budget hotels, operating restaurants, and other businesses. Businesses Jinjiang Hotels-H operates four major businesses: 1) full service hotels; 2) select service hotels with food and restaurant chains; 3) passenger transportation logistics; and 4) travel agency. Together with its inter-segment financial service (Others), the group generated RMB9.4bn revenue in Figure 74: Jinjiang Hotels-H s revenue breakdown for 2014 Others 1% Travel agency 23% Passenger transportati on vehicles and logistics 23% Full service hotels 21% Select service hotels and F&B 32% Figure 75: Jinjiang Hotels-H s EBIT breakdown for 2014 Travel agency 5% Passenger transportati on vehicles and logistics 11% Others 25% Select service hotels and F&B 22% Full service hotels 37% Source: Deutsche Bank, company data Source: Deutsche Bank, company data Figure 76: Segment revenue and EBIT breakdown 2014 RMBm Full Service Hotels Select Service and F&B Transportation & Logistics Travel Agency Others Total Revenue 1,929 3,011 2,178 2, ,364 20% 32% 23% 23% 1% 100% EBIT ,568 24% 23% 24% 6% 23% 100% Source: Deutsche Bank, Company data Deutsche Bank AG/Hong Kong Page 57

58 Management profile Mr Yu Minliang ( 俞 ), chairman and executive director of the group, is the key person at Jinjiang Group. Mr Yu, aged 56, graduated from Fudan University with a Master s degree in economics. He is well-recognised as an economist. Mr Yu has extensive experience in hotel management. He joined Jinjiang International in Prior to that, he was the senior executive of a number of hotel management firms such as Shanghai Yangtze Hotel Co. Ltd., Jinjiang Hotels Development and New Asia (Group) Company Limited. Mr Yu currently also holds the position of chairman of Jinjiang Hotels Development and Shanghai Yantze Hotel Co. Ltd. Figure 77: Management profile Name Title Age Mr. Yu Minliang ( 俞敏亮 ) Chairman and Executive Director 56 Mr. Yang Weimin ( 楊衛民 ) Vice Chairman and Executive Director 59 Ms. Chen Wenjun ( 陳文君 ) Executive Director 58 Mr. Yang Yuanping ( 楊原平 ) Executive Director 58 Mr. Shao Xiaoming ( 邵曉明 ) Executive Director 55 Mr. Han Min ( 韓敏 ) Executive Director and Chief Investment Officer 56 Mr. Kang Ming ( 康鳴 ) Executive Director, Company Secretary 42 Source: Deutsche Bank, Company Data Page 58 Deutsche Bank AG/Hong Kong

59 Shareholding structures Figure 78: Ownership organisation State-owned Assets Supervision and Administration Commission 资产监员 100% Jinjiang International (Group) Co. 锦际 ( 团 ) 75% 100% Jinjiang Financial Ltd. Co. 锦财务责 Jinjiang International Travel Co. 锦际 ( CH) Free Float 37% Hony Capital 资 13% Jinjiang International Hotels (Group) Co. 锦际团 (2006 HK) Star-rated hotel operation and management 50% Jinjiang International Hotel Development Co. ( CH A share; CH B share) 锦际发 50% 39% Travel Agency Jinjiang Industrial Investment Co. 锦际实业资 ( CH) Passenger Transportation Logistics Limited service hoteloperations & management Food and Restaurant Source: Deutsche Bank, Company data Strategic Investors Jinjiang International, the parent group, holds all of the domestic shares in Jinjiang Hotels-H (75.0% of total shares). The remaining 25.0% H-shares are free-floating shares. As of May 2015, Harvest Fund Management (5.1% outstanding shares), Citigroup (5.0%), Deutsche Bank AG (5.0%) and Dimensional Fund Advisors (2.1%) were the major investors in the group. In December 2014, its subsidiary Jinjiang Hotels Development added the strategic investor Hony Capital. Hony Capital acquired around 201m A shares with a lock-up of three years. Deutsche Bank AG/Hong Kong Page 59

60 Rating Hold Asia China Consumer Hotels / Leisure / Gaming Company Jinjiang Hotels Develop Reuters SS Bloomberg CH Premium hotel franchise initiating with Hold Expanding through acquisitions We initiate coverage of Jinjiang Hotels Development-A (Jinjiang Hotels-A) with a Hold rating and a target price of RMB36. As a part of the going-out plan, Jinjiang Hotels-A acquired Groupe du Louvre in February Domestically, Jinjiang Hotels-A announced to acquire Keystone (economy hotel brand of 7 Days) in September 2015 (to be completed in 1H16). We believe the overseas acquisition should help Jinjiang capture outbound tourism growth, while domestic consolidation could help it further leverage its market position. Expanding overseas to capture long-term outbound tourism growth Jinjiang Hotels-A aims at the high-growth outbound travel trend. Jinjiang Hotels-A acquired the second largest hotel group in Europe, Groupe du Louvre, in February 2015, for a total payment of EUR1.3bn, which implies a trailing EV/EBITDA of 12x. Despite the short-term impact from the terrorist attack (which we forecast to result in flat 2016 EBITDA), we are positive on long-term outbound growth trend and expect EBITDA gradually to increase from To enhance domestic leading position by completing acquisition of 7 Days The acquisition of 7 Days, which will be complete in 1H16, should help Jinjiang Hotels-A to further enhance its leading position in the domestic market. After consolidating 7 Days in 1H16, Jinjiang Hotels-A will become the largest econ hotel group in China, with 25% market share. Targeting the growing midscale hotel market The midscale hotel market in China is growing, driven by the anti-corruption moves and increasing disposable income. We believe Jinjiang Hotels-A has a high-quality image among consumers, with higher-than-average ADR and the spillover effect of the parent company s luxury hotel brand name. Valuation and risks We derive our target price using SOTP EV/EBITDA. Our 12-month target price of RMB36 implies 18x our 2016 EBITDA estimate. We think the stock, trading at 15x EV/EBITDA is fairly valued. Downside risks include operation integration risk, acquisition deal failure, and terrorist attacks. Upside risks include fasterthan expected RevPAR recovery. Price at 1 Feb 2016 (CNY) Price target - 12mth (CNY) week range (CNY) Shanghai Composite 2,738 Tallan Zhou Research Analyst (+852) Price/price relative Karen Tang Research Analyst (+852) /14 8/14 2/15 8/15 Jinjiang Hotels Deve Shanghai Composite (Rebased) Performance (%) 1m 3m 12m Absolute Shanghai Composite Source: Deutsche Bank Forecasts And Ratios Year End Dec A 2014A 2015E 2016E 2017E Sales (CNYm) 2, , , , ,505.5 EBITDA (CNYm) , , ,657.1 Reported EPS FD(CNY) DB EPS FD(CNY) DB EPS growth (%) PER (x) EV/EBITDA (x) DPS (net) (CNY) Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close Page 60 Deutsche Bank AG/Hong Kong

61 Model updated:29 January 2016 Running the numbers Asia China Jinjiang Hotels Development Reuters: SS Hold Bloomberg: CH Price (1 Feb 16) CNY Target Price CNY Week range CNY Market Cap (m) CNYm 26,903 Company Profile USDm 4,091 Jinjiang Economy Hotels is a state-owned-hotel company, primarily operating in the economy hotel segment. Its two key businesses are: (i) limited-service hotels; and (ii) F&B. Price Performance Feb 14May 14Aug 14Nov 14Feb 15May 15Aug 15Nov 15 Margin Trends Jinjiang Hotels Development Shanghai Composite (Rebased) E 16E 17E EBITDA Margin Growth & Profitability Solvency EBIT Margin E 16E 17E Sales growth (LHS) ROE (RHS) E 16E 17E Fiscal year end 31-Dec E 2016E 2017E Financial Summary DB EPS (CNY) Reported EPS (CNY) DPS (CNY) BVPS (CNY) Weighted average shares (m) Average market cap (CNYm) 8,950 8,107 11,073 26,903 26,903 26,903 Enterprise value (CNYm) 6,852 7,603 5,839 30,012 33,570 33,147 Valuation Metrics P/E (DB) (x) P/E (Reported) (x) P/BV (x) FCF Yield (%) 2.3 nm Dividend Yield (%) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) Income Statement (CNYm) Sales revenue 2,207 2,542 2,763 5,945 9,151 10,506 Gross profit 1,932 2,241 2,455 5,382 8,416 9,692 EBITDA ,567 2,212 2,657 Depreciation Amortisation EBIT ,293 1,557 Net interest income(expense) Associates/affiliates Exceptionals/extraordinaries Other pre-tax income/(expense) Profit before tax ,017 1,232 Income tax expense Minorities Other post-tax income/(expense) Net profit DB adjustments (including dilution) DB Net profit Cash Flow (CNYm) Cash flow from operations ,171 1,596 2,001 Net Capex ,049-1,187 Free cash flow Equity raised/(bought back) 0 5 3, ,518 0 Dividends paid Net inc/(dec) in borrowings , Other investing/financing cash flows ,184-8,269 0 Net cash flow ,873 2,097-4, Change in working capital Balance Sheet (CNYm) Cash and other liquid assets ,552 10,372 6,296 6,719 Tangible fixed assets 1,490 3,201 3,161 7,209 7,876 8,415 Goodwill/intangible assets ,494 8,572 8,324 Associates/investments 1,386 1,193 2,521 1,253 1,253 1,253 Other assets 1,487 1,668 1,795 3,717 9,754 9,715 Total assets 5,412 7,083 11,363 29,045 33,751 34,426 Interest bearing debt 0 1, ,532 14,014 14,014 Other liabilities 1,126 1,372 1,825 5,171 5,456 5,585 Total liabilities 1,127 2,702 2,635 19,703 19,470 19,599 Shareholders' equity 4,246 4,344 8,699 9,140 14,079 14,626 Minorities Total shareholders' equity 4,285 4,381 8,728 9,342 14,281 14,828 Net debt ,742 4,160 7,718 7,294 Key Company Metrics Sales growth (%) DB EPS growth (%) EBITDA Margin (%) EBIT Margin (%) Payout ratio (%) ROE (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x) Source: Company data, Deutsche Bank estimates Net debt/equity (LHS) Net interest cover (RHS) Tallan Zhou Deutsche Bank AG/Hong Kong Page 61

62 Investment thesis Outlook Jinjiang Hotels-A is among the top three economy hotel operators in mainland China. As part of the going-out plan and domestic consolidation for most SOE companies, Jinjiang Hotels-A acquired Groupe du Louvre in February 2015 and announced its intention to acquire Keystone (economy Hotel brand of 7 Days) in September 2015 (to be completed in 1H16). In the overseas market, Jinjiang Hotels-A aims at the high-growth outbound travel trend. Jinjiang Hotels-A acquired the second largest hotel group in Europe, Groupe du Louvre, in February 2015, for a total payment of EUR1.3bn, which implies a trailing EV/EBITDA of 12x. Despite the short-term impact from the terrorist attack, which could hurt Groupe du Louvre s performance in 2016, we are positive on the long-term outbound growth trend. Domestically, Jinjiang Hotels-A is further leveraging its market share through the acquisition of domestic competitor 7 Days. The deal, which will be completed in 1H16, values 7 Days at RMB10.8bn, which converts to an EV/EBITDA of 13x. Following the acquisition, Jinjiang Hotels-A will become the No.1 economy hotel in China, with a 25% market share. In addition, Jinjiang Hotels-A s ADR is approximately 5% higher than the industry average, and its parent company is one of the top upper-scale hotel operators in mainland China. We believe these two elements could help create a high-quality image for Jinjiang Hotels-A, which would in turn benefit Metropolo in tapping into the midscale hotel market. Valuation We value Jinjiang Hotels-A based on SOTP EV/EBITDA. We apply 18x to the select service hotel segments. As for the food and restaurant segment, we use the book value. Stripping out net debt and minorities, we arrive at our 12- month target price of RMB36. The company is currently trading at 15x our 2016E EV/EBITDA, which we believe is a fair valuation, and thus, we initiate coverage with a Hold rating. Risks Key downside risks include: (1) lower-than-expected revenue and earnings contribution from Groupe du Louvre; (2) high interest expense burden from borrowing for acquisition and expansion; and (3) delay of new hotel openings. Key upside risks include revenue and earnings contribution from Shanghai Disneyland. Page 62 Deutsche Bank AG/Hong Kong

63 Valuation We value Jinjiang Hotels-A at RMB36 on EV/EBITDA We initiate coverage of Jinjiang Hotels-A with a Hold rating and a target price of RMB36. Our key valuation method is sum-of-the-parts EV/EBIDA. EV/EBITDA makes more sense than P/E We believe a relative valuation based on EV/EBITDA makes more sense at the current stage, due to the doubling of net finance costs in the short term. Jinjiang Hotels-A completed the acquisition of Groupe du Louvre in 2015 and will complete the acquisition of 7 Days at the beginning of Upon completion of the 7 Days acquisition, we expect that net debt will increase to RMB7.7bn in 2016 from RMB4.2bn in We assign 18x EV/EBITDA as our target multiple Our 18x EV/EBITDA is in line with its historical average and peers average. In detail: Jinjiang Hotels-A has traded at an average 18x EV/EBITDA for the past two years, as shown in Figure 80. We believe the company has already become a global brand, with both Chinese and overseas footprints. In terms of domestic market share, Jinjiang Hotels-A is also the largest economy hotel chain, with 25% market share (after consolidating 7 Days). From a valuation perspective, we also assign 18x EV/EBITDA to derive our valuation. 18x implies 0.9x our 2017 EBITDA growth forecast, which we believe is reasonable. We use P/B to value Jinjiang Hotels-A s food and restaurant business, which is still loss-making on the EBITDA line. However, this segment accounts for only a tiny part of the total business. We assign a 1x book value in our valuation. The detailed EV/EBITDA valuation is illustrated in the calculation table below: Figure 79: Our EV/EBITDA calculation Rationale 2016E EBITDA (Rmb m) Limited service hotels (China) - Jinjiang 18x 2016 EBITDA ,341 Groupe du Louvre 18x 2016 EBITDA ,954 7 Days 18x 2016 EBITDA ,943 Food and Restaurant and others End-1H15 book value 11 Enterprise value 40,249 less net debt End ,718 less minorities End Equity value 32,330 Target price (RMB/shr) 36 Source: Deutsche Bank estimates Deutsche Bank AG/Hong Kong Page 63

64 03/01/ /02/ /03/ /04/ /05/ /06/ /07/ /08/ /09/ /10/ /11/ /12/ /01/ /02/ /03/ /04/ /05/ /06/ /07/ /08/ /09/ /10/ /11/ /12/ /01/ February 2016 Figure 80: 12-month forward EV/EBITDA, January 2014-January x 33.0x Average Max Min Stdev 18x 36x 10x x 23.0x 18.0x 13.0x 8.0x 12-M forward EV/EBITDA Avg +1stdev -1stdev Source: Deutsche Bank, Bloomberg Finance LP We are conservative in assuming no valuation premium for Jinjiang We believe our assigned 18x EV/EBITDA multiple for Jinjiang Hotels-A is conservative. We assume no valuation premium to Jinjiang Hotels-A s peers, although Jinjiang Hotels-A s should also benefit partially from Disney, while other tourism/hotel peers will not. Page 64 Deutsche Bank AG/Hong Kong

65 Deutsche Bank AG/Hong Kong Page 65 Figure 81: Tourism and lodging sector valuation comp sheet Ticker English name Current price Market cap (USD m) P/B 2015E PER 2016E PER 2015E EV/EBITDA 2016E EV/EBITDA EPS DB Recomm. growth % CH Equity JINJIANG HOTELS-A , x 41.5x 41.2x 15.3x 14.0x Hold Tourism & Lodging CH Equity CHINA INTERNATIONAL TRAVEL-A , x 26.8x 21.5x 14.5x 11.4x 25% Buy CH Equity SONGCHENG PERFORMANCE DEVE-A , x 52.5x 36.5x 30.7x 21.7x 44% Buy CH Equity CHINA CYTS TOURS HLDG CO-A , x 35.3x 26.5x 14.5x 11.9x 33% Buy CH Equity HUANGSHAN TOURISM DEVELOP-A , x 30.7x 26.0x 14.0x 11.7x 18% Buy CH Equity CHANGBAI MOUNTAIN TOURISM -A x 45.4x 37.7x 30.7x 26.1x na NR CH Equity ANHUI JIUHUASHAN TOURISM-A x 42.5x 46.9x 25.4x 24.7x na NR CH Equity GUILIN TOURISM CO LTD-A x 43.4x 55.9x 21.6x 20.2x na NR CH Equity ZHANGJIAJIE TOURISM GROUP-A x 25.3x 27.5x 22.4x 20.0x na NR CH Equity XI'AN QUJIANG CULTURAL TO-A x 85.4x 56.7x 20.1x 19.6x 38% NR CH Equity CHINA QUANJUDE GROUP CO LT-A x 41.5x 32.0x 18.3x 17.1x 25% NR CH Equity JINLING HOTEL CORP LTD-A x 76.2x 25.2x 16.4x 14.9x na NR Average 4.0x 45.9x 35.7x 20.8x 18.1x Source: Deutsche Bank estimates, Bloomberg Finance LP 1 February 2016

66 Two acquisitions Consolidating on a global basis in the future As part of the going-out plan and domestic consolidation for most SOE companies, Jinjiang Hotels-A (owned by Shanghai SASAIC) acquired Groupe du Louvre, the second largest European hotel group, in February 2015 (already consolidated in the financial report from March 2015), and it announced its intention to acquire Keystone, the economic hotel brand of 7 Days, in September 2015 (deal to be consolidated in 1H16). We believe these two deals are just the start of Jinjiang Hotels-A s global consolidation plan. Aiming at the high-growth outbound travel trend and leveraging Jinjiang s domestic market share, Jinjiang Group wants to become the leading global hotel brand in the next five years though continuous consolidations. Valuations for the past two deals seem reasonable A trailing 12x EV/EBITDA for Groupe Du Louvre The final acquisition price announced by Jinjiang Hotels-A was EUR1.3bn, converting to EV/EBITDA of 12x on Groupe Du Louvre s 2014 EBITDA. However, if we look forward, the total acquisition implied forward EV/EBITDA of 11x, which is lower than the sector average of 12x. Figure 82: Announced acquisition details of Groupe Du Louvre Deal details Announced (m Euro) Purchasing price of 100% shares 475 Repayment of net receivables from previous shareholders Short term debt A - Short term debt B - Long term debt A - Long term debt B(classified as equity) Repayment of syndicated loans 281 Total payment (EV) 1, EBITDA Acquisition EV/EBITDA 12x Source: Deutsche Bank, Company data We are estimating Group du Louvre s 2015 and 2016 EBITDA contribution to be EUR739m (consolidated for 10 months in 2015) and EUR886m, respectively. The valuation implies a 2016 EV/EBITDA of 10.7x, which we believe is reasonable. 7 Days acquisition 13x EV/EBITDA, slightly higher than industry average Jinjiang Hotels-A acquired an 81% stake in 7 Days for RMB8.3bn. Keystone s major operation is 7 Days hotel. Keystone also controls a 22% stake in E-long. Page 66 Deutsche Bank AG/Hong Kong

67 The overall valuation of 7 Days is RMB10.8bn, converting to an EV/EBITDA of 13x (assuming Keystone s 2015 adjusted EBITDA is RMB835m), as shown in Figure 83. Figure 83: 7 Days acquisition valuation of EV/EBITDA RMBm 7 Days enterprise value 10, EBITDA (est.) 820 Implied EV/EBITDA 13.2x -Loss from equity investment (15) -Xiangbala tourism investment (0) -Mingyan Technology (0) -elong (15) -Player Brother Technology (0) Adjusted EBITDA 835 Adjusted implied EV/EBITDA 12.9x Source: Deutsche Bank, Company data The market obviously believed that Jinjiang overpaid for the acquisition. As a result, the share price of Jinjiang Hotels-H (2006 HK), the parent company, dropped by 19% in the four days following the acquisition announcement, as shown in Figure 84. Figure 84: Jinjiang Hotels-H (2006.HK) share price performance in September HK price (HKD) Share price dropped 19% over September /09/15 06/09/15 11/09/15 16/09/15 21/09/15 26/09/15 Source: Deutsche Bank, Bloomberg Finance LP Beijing Tourism Group acquired Home Inns at EV/EBITDA of only 7x Another consolidation deal was announced at the end of Beijing Tourism Group (BTG) ( SS, NR), another SOE hotel group, announced its plan to acquire Home Inns (HMIN.OQ, Buy) at USD35.80 per share. This is at an 11.4% premium to the closing price of USD32.14 on 4 December 2015, and a 9.1% premium to the original going-private price of USD32.81 proposed in June. The acquisition is also expected to be completed in 1H16. The price at USD35.80 implies 7x on our 2015E EV/EBITDA. Although it seems cheaper on an absolute Deutsche Bank AG/Hong Kong Page 67

68 comparison (i.e., 13x of 7 Days vs. only 7x of Home Inns), we argue that 7 Days was private before the acquisition, while Home Inns was still publicly trading on the US market with a discount to A-share valuation. Figure 85: Announced acquisition details of Home Inns Deal details Announced Purchasing price (USD) Implied EV (RMBm) 9,280 Our 2015 EBITDA (RMBm) 1,307 - Our 2015 EV/EBITDA 7x Source: Deutsche Bank, Company data Page 68 Deutsche Bank AG/Hong Kong

69 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 1 February 2016 Aiming at outbound travel Outbound travelers to France should grow in the long run 2016 may be tough for France s Chinese visitors, but we view it as a one-off We believe that, after the Paris terrorist attack on 13 November 2015, the growth of Chinese outbound visitors to France or Europe is likely to remain flat or slightly drop. If we look at the MERS impact on Korea, we observe that tourism volume dropped significantly in 2H15 by 14% yoy to 2.98m from 3.46m. As a result, we expect Groupe du Louvre, which has the majority of its hotel properties in France, to be negatively affected with a flat EBITDA in Figure 86: Korea MERS impact Korea m visitor yoy % % 80% 60% 40% 20% 0% -20% -40% -60% -80% Source: Deutsche Bank,CEIC We are positive on outbound travelers to France. Despite the short-term impact from the Paris terrorist attack, we believe the long-term prospects of outbound tourism to France remain positive. Over the past five years, the number of Chinese tourists to France has been continuously growing at 20%+ yoy, as shown in Figure 87. France is also one of the top European travel destinations for Chinese tourists in 1H15, over 19% of China s tourists traveling to Europe visited France. Deutsche Bank AG/Hong Kong Page 69

70 Figure 87: Chinese outbound to France, France m visitor yoy% % % 25% 23% 21% 19% % % Source: Deutsche Bank, Direction Generale des Enterprises Acquisition of Groupe du Louvre to extend Jinjiang brand overseas Jinjiang Hotels-A expanded at a slower pace than peers (c.130 new hotels every year since 2012 vs. Home Inns and China Lodging s c.400 new hotels). Nevertheless, upon completion of acquiring Groupe du Louvre, the total number of hotels immediately doubled to 2,100+ (2,165 as of 3Q15), with geographical coverage of 56 countries and regions. Jinjiang Hotels-A s hotel portfolio previously consisted of 1) one well-known nationwide economy hotel Jinjiang Inn; 2) one popular regional brand Goldmet Express; 3) one youth-target super-budget hotel Bestay; and 4) one promising growing midscale brand Jin Jiang Metropolo. Acquisition brought four more brands into Jinjiang Hotels-A s portfolio, namely Premiere Classe, Campanile, Kyrid, and Golden Tulip. Premiere Classe was founded in As of 2014, it had a total of 251 hotels, with 17,998 rooms. Campanile was founded in As of 2014, it had a total of 398 hotels, with 27,354 rooms. Kyrid, founded in 2000, had a total of 237 hotels with 14,476 rooms as of Golden Tulip was acquired by Starway Capital in Golden Tulip is a mid-scale hotel brand, and it had 229 hotels and 31,326 rooms as of As of 2014, Groupe du Louvre operated a total of 1,115 hotels, out of which 820 (74%) are located in France. Page 70 Deutsche Bank AG/Hong Kong

71 Figure 88: Groupe du Louvre hotel brands by geography, 2014 France Other Europe Other non-europe Total Premiere Classe Campanile Kyrid Golden Tulip Total ,115 Source: Deutsche Bank, Company data Figure 89: Jinjiang + Groupe du Louvre hotels (owned vs. franchised), 3Q15 Owned Franchised Total China In operation ,044 Under development Total ,288 Overseas In operation ,121 Under development Total ,174 Source: Deutsche Bank, Company data Figure 90: Peer comparison number of hotels 3,000 2,500 2,000 1,500 1, ,787 Acquisition of Groupe du Louvre has doubled 2,588 2,609 Jinjiang's hotel capacity 2,165 2,180 1,995 1, Source: Deutsche Bank, Company data 1,035 1,425 Jinjiang China Lodging Home Inns Q15 Figure 91: Number of hotels by brand, 3Q15 JinJiang Metropolo 2% Goldmet Express 3% Bestay Hotel Express 3% Premiere Classe 11% Source: Deutsche Bank, Company data Campanile 17% JinJiang Inn 43% Kyrid 11% Golden Tulip 12% In FY2014 (June year-end), all four brands under Groupe du Louvre achieved 2% yoy growth in RevPAR to EUR28 for Premiere Classe, EUR42 for Campanile, and EUR46 for Kyrid and Golden Tulip. Over the first seven months after consolidation, Groupe du Louvre achieved an overall occupancy rate of 65%, with average ADR at EUR59. RevPAR came in at EUR38, with details on each brand shown in Figure 92. Deutsche Bank AG/Hong Kong Page 71

72 Figure 92: Groupe du Louvre performance, March-September 2015 No of hotels Occupancy ADR RevPAR Groupe du Louvre % EUR EUR Premiere Classe % Campanile % Kyrid % Golden Tulip % Overall Groupe du Louvre 1,126 65% Source: Deutsche Bank, Company data We expect EBITDA to remain flat in 2016 but to improve in the long term We forecast Group du Louvre s EBITDA to remain flat in 2016 due to the negative impact from the terrorist attack. In the long term, we expect EBITDA gradually to increase from 2017 and onwards, supported by the following factors: Chinese tourism traffic to France has been consistently growing at 20%+ over the past five years. Despite the short-term impact on tourism volume, we believe outbound tourism to France should recover in We expect Groupe du Louvre s occupancy rate to gradually pick up, benefiting from the high growth of China s outbound tourism. Jinjiang Hotels-A has begun to integrate Groupe du Louvre into the entire hotel portfolio, as we have noticed that hotel booking for Groupe du Louvre is already available on Jinjiang Hotels-A s official website, as shown in Figure 96. We expect Jinjiang Hotels-A to utilize more resources, possibly including the travel agency business from its parent company, to increase the recognition of the Groupe du Louvre brand in mainland China, thus diverting more tourist volume to Groupe du Louvre. Figure 93: Groupe du Louvre our estimated EBITDA (RMBm), E EBITDA (RMBm) 1, E 2016E 2017E Source: Deutsche Bank estimates, Company data Page 72 Deutsche Bank AG/Hong Kong

73 Figure 94: Revenue breakdown by segment, 2015E Figure 95: EBITDA breakdown by segment, E Food and Restaurant 5% RMB m 2,900 2,400 Acquisition of 7 Days 2,370 2,563 Limited service hotels (China) 48% Groupe du Louvre 47% 1,900 1, Acquisition of Groupe du Louvre ,567 (100) E 2016E 2017E Groupe du Louvre Limited service hotels (China) Food and Restaurant Others Source: Deutsche Bank estimates, Company data Source: Deutsche Bank estimates, Company data Figure 96: Groupe du Louvre room reservation available on Jinjiang s official website Source: Deutsche Bank, Jinjiang.com Deutsche Bank AG/Hong Kong Page 73