China's Largest Hotel Operator Currently Undervalued, Buy

Transcription

1 - Consumer Sector - Hotels Equity Research 股票研究 Company Report: 公司报告 : 锦江酒店 (02006 HK) Noah Hudson (86755) noah.hudson@gtjas.com China's Largest Hotel Operator Currently Undervalued, Buy 中国最大的酒店运营商被低估, 买入 公 司 报 告 证 券 研 究 报 告 消费行业 酒店 Equity Research Report Company Report Shanghai Jin Jiang International Hotels is the largest hotel company in China and the 5th largest hotel company worldwide in terms of number of rooms. As at 30 June 2017, the Company had 6,398 hotels in operation and another 2,336 hotels under development. We forecast total revenue of RMB 19.5 billion, RMB 21.1 billion and RMB 23.0 billion, representing growth of 14.7%, 8.1% and 8.9%, respectively. Select-service hotels in mainland China is the Company's largest business segment in terms of revenue, and contributed 40.5% of total revenue in In 2016 the Company acquired Keystone Lodging and Vienna Hotels. We forecast adjusted EBITDA of RMB 3.3 billion, RMB 3.4 billion and RMB 3.6 billion, reflecting growth of 8.6%, 3.7% and 5.2%, respectively. For , we forecast net profit of RMB 792 million, RMB 834 million and RMB 886 million, reflecting growth of 4.5%, 5.3% and 6.2%, respectively, and EPS of RMB , RMB and RMB , representing growth of 4.5%, 5.3% and 6.2%, respectively. We initiate coverage with "Buy" investment rating and target price of HK$3.20. The Company is currently trading at 10.7x 2017 EV/adjusted EBITDA, which is a 50.3% discount to Hong Kong listed peers and a 21.8% discount to U.S. listed peers. Our target price is equivalent to 11.4x 2017 EV/adjusted EBITDA and 19.1x 2017 PER. We also use DCF analysis to cross-check our target price, which is a 20.3% discount to our DCF derived NAV of HK$4.02. 上海锦江国际酒店集团按照酒店客房数计算, 是目前中国最大 世界第五大的酒店行业公 司 截至 2017 年 6 月 30 日, 公司拥有 6,398 家开业酒店以及 2,336 家在建酒店 我们预期 年总收入为人民币 195 亿 211 亿和 230 亿元, 分别增长 14.7% 8.1% 和 8.9% 中国大陆有限服务酒店业务是按收入计算该公司最大的业务板块, 贡献了 公司 2016 年总收入的 40.5% 在 2016 年, 公司收购了铂涛酒店和维也纳酒店集团 我们预期 年经调整 EBITDA 为人民币 33 亿 34 亿和 36 亿元, 分别增长 8.6% 3.7% 和 5.2% 年, 我们预期 : 净利润分别为人民币 7.92 亿 8.34 亿和 8.86 亿元, 同比增长 4.5% 5.3% 和 6.2%; 每股收益为 和 元人民币, 同比增长 4.5% 5.3% 和 6.2% 我们首次覆盖评级为 买入, 目标价 3.20 港元 公司目前股价相当于 10.7 倍 2017 年经 调整 EV/EBITDA, 相较于香港和美国上市公司同业估值水平分别有 50.3% 和 21.8% 的折 让 我们的目标价相当于 11.4 倍 2017 年经调整 EV/EBITDA 以及 19.1 倍 2017 年市盈率 出于交叉检验的目的, 我们还运用折现现金流法测算出公司每股净资产价值为 4.02 港元, 并得出我们的目标价相较此估值有 20.3% 的折让 Rating: Buy Initial 评级 : 买入 ( 首次覆盖 ) 6-18m TP 目标价 : HK$3.20 Share price 股价 : Stock performance 股价表现 (5) (10) (15) (20) [Table_PriceChange] Change in Share Price 股价变动 % change Abs. % 绝对变动 % Rel. % to HS Index 相对恒指变动 % Avg. share price(hk$) 平均股价 ( 港元 ) 1 M 1 个月 Source: Bloomberg, Guotai Junan International. 3 M 3 个月 HK$2.730 (25) Sep-16 Dec-16 Mar-17 Jun-17 Aug-17 HSI Shanghai Jin J-H 1 Y 1 年 (12.8) [Table_ Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) 锦江中酒外店运输 2015A 12, A 17, (12.4) F 19, F 21, F 22, [Table_BaseData] Shares in issue (m) 总股数 (m) 5,566.0 Major shareholder 大股东 Jin Jiang International 75. Market cap. (HK$ m) 市值 (HK$ m) 15,195.2 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 5,810.6 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) 4.0 See the last page for disclaimer Page 1 of 24

2 TABLE OF CONTENTS Hotel Sector in China... 3 Star Rated Hotels in China... 3 Non-Star Rated Branded Chain Hotels in China... 5 Company Business... 7 Company Background Business Segments Financial Analysis Revenue Gross Profit Adjusted Operating Income Non-Operating Items Adjusted EBITDA Effective Tax Rate Net Profit, EPS, Adjusted Net Profit& Adjusted EPS Net Gearing Dividend Valuation Financial Statements and Ratios See the last page for disclaimer Page 2 of 24

3 Hotel Sector in China Star Rated Hotels in China The total number of star-rated hotels in China has been decreasing in recent years, down 5.6% and 7.3% in 2015 and 2016, respectively. As of the end of 2016 (the most recent data available), the total number of star rated hotels in China was 10,157, down 7.3% YoY. The number of 1-star, 2-star, 3-star and 4-star hotels decreased by 21.7%, 16.9%, 6.6% and 1.3%, respectively. The number of 5-star hotels has been increasing in recent years, although the growth rate slowed to 3.1% in 2015 and then to just 0.2% in Figure-1: Star Hotel Market Share by Number of Hotels Figure-2: Star Hotel Market Share by Revenue 1-star 2-star 3-star 4-star 5-star 23.3% 21.9% 0.7% % 21.7% 48.2% 19.4% 7.4% 1-star 2-star 3-star 4-star 5-star 2016A 37.5% 0.1% 4.5% 0.1% 4.9% % 2015A 36.5% 33.2% 48.6% 33.9% Source: National Tourism Administration. Note: As at 2016 year end. Source: National Tourism Administration. Table-1: Number of Star Rated Hotels (as at year end) star star 3,155 2,922 2,683 2,373 1,972 3-star 5,545 5,735 5,585 5,286 4,937 4-star 2,201 2,370 2,431 2,398 2,367 5-star Total 11,706 11,895 11,600 10,956 10,157 Source: National Tourism Administration. Table-2: Number of Star Rated Hotels Growth star -29.4% -3.3% -19.2% % 2-star -12.1% -7.4% -8.2% -11.6% -16.9% 3-star -1.6% 3.4% -2.6% -5.4% -6.6% 4-star 1.3% 7.7% 2.6% -1.4% -1.3% 5-star 7.6% 10.4% 8.4% 3.1% 0.2% Total -4.2% 1.6% -2.5% -5.6% -7.3% Source: National Tourism Administration. Total revenue of star rated hotels (including catering revenue) decreased by 2.3% in 2016 to RMB billion. In 2016, revenue for 1-star, 2-star, 3-star and 4-star hotels decreased by 44.9%, 3.7%, 5.1% and 3., respectively. Five star hotels was the only segment with positive revenue growth, although it was very small at just 0.6%. For 1-star and 4-star hotels, the declines in total revenue were greater than the respective declines in number of hotels. See the last page for disclaimer Page 3 of 24

4 Table-3: Star Rated Hotel Revenue star star star star star Total Source: National Tourism Administration. Table-4: Star Rated Hotel Revenue Growth star -2.6% 2.7% -38.6% 26.9% -44.9% 2-star 1.5% % % 3-star % -13.5% -4.4% -5.1% 4-star 5.2% -6.4% -5.6% -1.8% star 5.4% -1.1% 0.5% 0.2% 0.6% Total % -6.2% -2.1% -2.3% Source: National Tourism Administration. In 2016, RevPAR declined for 1-star and 2-star hotels, while RevPAR growth turned positive for 3-star, 4-star and 5-star hotels after 3 years of decline. In 2016, RevPAR at 1-star and 2-star hotels decreased by 19.1% YoY and 0.1% YoY, respectively, as low-end hotels continued to decrease in popularity. In contrast, 2016 RevPAR for 3-star, 4-star and 5-star hotels increased at low rates of 3.8%, 3.1% and 1.7%, respectively. Figure-3: Star Rated Hotels RevPAR 1-star 2-star 3-star 4-star 5-star RMB Figure-4: Star Rated Hotels RevPAR Growth 1-star 2-star 3-star 4-star 5-star 25% 15% 5% -5% -15% % Source: National Tourism Administration, Guotai Junan International. Note: 2016 data is derived as the simple average of quarterly data. Source: National Tourism Administration, Guotai Junan International. Note: 2016 data is derived as the simple average of quarterly data. Occupancy rates decreased at 1-star, 2-star and 3-star hotels every year from 2013 to Occupancy rates were not much better at 4-star and 5-star hotels, which saw their occupancy rates increase by just 0.9 ppt and 2.6 ppt, respectively, in See the last page for disclaimer Page 4 of 24

5 Figure-5: Star Rated Hotels Occupancy Rates 7 65% 6 55% 5 45% 4 1-star 2-star 3-star 4-star 5-star Source: National Tourism Administration, Guotai Junan International. Note: 2016 data is derived as the simple average of quarterly data. Figure-6: Star Rated Hotels Occupancy Rates Growth ppt star 2-star 3-star 4-star 5-star Source: National Tourism Administration, Guotai Junan International. Note: 2016 data is derived as the simple average of quarterly data. In terms of average daily room rates ("ADR"), 3-star hotels performed the best among star rated hotels in In 2016, ADR at 1-star and 5-star hotels decreased by 11.3% and 2.8%, respectively; 2-star and 4-star hotel ADR were essentially flat, up just 0.4% and 1.5%, respectively; 3-star hotel ADR increased by a modest 4.1%. Figure-7: Star Rated Hotels ADR RMB star 2-star 3-star 4-star 5-star Source: National Tourism Administration. Figure-8: Star Rated Hotels ADR Growth 1-star 2-star 3-star 4-star 5-star Source: National Tourism Administration. Non-Star Rated Branded Chain Hotels in China The three largest hotel operators in China are 1) Shanghai Jin Jiang International Hotels, 2) BTG Hotels Group ( SH), and 3) China Lodging (HTHT US). Shanghai Jin Jiang International Hotels (02006 HK) ("Jing Jiang Hotels" or "the Company") is the largest hotel operator in China and is the fifth largest in the world in terms of number of rooms in operation. In 2016, including acquired hotels, the Company increased the number of hotels in operation and under development by 190.7% to a total of 7,759 hotels. In contrast to star rated hotels, the number of non-star rated branded chain hotels has been increasing in recent years, up by 28.7%, 31.2% and 12.4% in 2014, 2015 and 2016, respectively. In 2016, the total number of non-star rated branded chain hotels in operation in China increased by 12.4% to 24,150 hotels. As at June , the Company increased its number of hotels in operation by 23.4% YoY to 6,398 hotels, BTG Hotels Group increased its number of hotels in operation by 8.9% YoY to 3,472 hotels, and China Lodging increased its number of hotels in operation by 13.7% YoY to 3,541 hotels. Years ago, branded non-star rated hotel chains focused mostly on economy chain hotels; now the focus is on putting more effort into expanding into the midscale and upscale market, a trend we expect to continue. Midscale and upscale hotels generally have better operating results compared with economy hotels. In recent years, as disposable incomes of Chinese consumers has continued to grow, midscale and upscale hotels have comprised a growing proportion of total hotels for China's large hotel operators including Jin Jiang Hotels, BTG Hotels Group and China Lodging, and we expect that this trend will continue in the coming years. See the last page for disclaimer Page 5 of 24

6 Figure-9: Number of Limited Service Chain Hotels and Growth Figure-10: Limited Service Chain Hotels, Breakdown No. of Limited Service Chain Hotels Growth (RHS) (Thousand) % % 28.2% 28.7% 31.2% % Mid-scale Economy 94.9% 94.3% 91.9% 90.3% 5.1% 5.7% 8.1% 9.7% Source: Inntie. Source: Inntie. Figure-11: Number of Economy Chain Hotels and Growth Figure-12: Number of Midscale Chain Hotels and Growth (Thousand) 25 Economy 27.9% 27.8% Growth 3 (Thousand) 2,500 Mid-scale 87.4% Growth % % 2 15% 1 5% 2,000 1,500 1, % 33.9% ,749 2, Source: Inntie. Source: Inntie. Branded chain hotels have certain advantages compared to low-end star rated hotels and non-branded hotels. The declining number of 1-star through 4-star hotels as well as their poor to mediocre hotel operating metrics (occupancy, ADR and RevPAR) coincides with rapid growth for branded non-star rated chain hotels. Low barriers to entry in the low-end economy hotel segment has lead to high competition and oversupply in the industry. This, coupled with rising rent and labor costs, has extended the investment return period of economy hotels from originally 3-5 years to about 5 years, for the successful hotels, while putting many others out of business. Low-end to mid-end star rated hotels, non-branded budget hotels and even well as many small, regional branded hotel chains (often with less than 100 hotels) cannot compete with the large hotel chain operators who enjoy economies of scale and broader brand recognition among the target market customer base. We anticipate that going forward, branded non-star rated hotel chains will continue to grow and take market share. See the last page for disclaimer Page 6 of 24

7 Company Business Company Background Shanghai Jin Jiang International Hotels is the largest hotel company in China and the 5 th largest hotel company worldwide in terms of number of rooms. As at 30 June 2017, the Company owned or managed 6,398 hotels in operation with a total of approximately 640,000 hotel guest rooms in 68 countries, amongst which approximately 5,117 hotels with approximately 530,000 rooms were in the PRC, and had an additional 2,336 hotels with approximately 250,000 rooms under construction. In terms of the number of hotel guest rooms in operation, the Company ranked 5 th largest in the global hotel group ranking as published by HOTELS Magazine, the official publication of The International Hotel & Restaurant Association, in July The Company was established on 16 June 1995 and listed on the Hong Kong Stock Exchange on 15 Dec Its holding company is Jin Jiang International, which is a wholly state-owned company directly under the administration and control of the State-Owned Assets Supervision and Administration Commission of the Shanghai Municipal Government ("Shanghai SASAC"). The Company has seven business segments (listed below in order of most to least revenue contribution): 1) Select-Service Hotels - Mainland China: operation of self-owned select-service hotels and provision of management and franchising to other parties to operate select-service hotels, primarily in mainland China and under the three business units, namely, Jin Jiang Metropolo, Plateno Group, and Vienna Hotels; 2) Select-Service Hotels - Overseas: operation of self-owned select-service hotels and provision of management and franchising to other parties to operate select-service hotels, mostly in Europe and under the French brand Groupe du Louvre ("GDL"); 3) Passenger Transportation Vehicles & Logistics: vehicle operating, trading of automobiles, refrigerated logistics, freight forwarding and related services; 4) Full-Service Hotels: ownership, operation and management of full-service hotels; 5) Travel Agency: provision of travel agency and related services; 6) Food & Restaurants: operation of fast food or upscale restaurants, moon cake production and related investments, not including the food and beverage operations in full-service hotels and select-service hotels; 7) Other Operations: intra-group financial services, training and education and corporate functions. See the last page for disclaimer Page 7 of 24

8 Figure-13: Jin Jiang Hotels Corporate Structure & 7 Business Segments State-Owned Assets Supervision and Administration Commission of Shanghai Municipal Government ("Shanghai SASAC") Shanghai Municipal Government ("Shanghai SASAC") 10 Public Shareholders Jin Jiang International 25% 75% The Company Jin Jiang Metropolo 3. Passenger Transportation Vehicles & Logistics 4. Full-Service Hotels Jin Jiang Investment ( SH/ SH) 1. Select-Service Hotels Mainland China Plateno Group (Keystone Lodging) Vienna Hotels 5. Travel Agency Jin Jiang Travel ( SH) Select-Service Hotels and Food and Restaurants* 7. Other Operations Jin Jiang Hotels Development ( SH/ SH) Finance Company, etc. 2. Select-Service Hotels Overseas Groupe du Louvre ("GDL") Source: the Company. Note*: Food and Restaurants is the Company's 6th business segment. The Company has both self-managed as well as franchised hotels. The Company operates a franchising system through which it grants individual hotel owners/operators a licence to set up their hotels according to the models and standards adopted by the Company. In general, the term of a franchise is eight years, which is extendable upon mutual agreement by both parties. The franchised hotels are operated by the franchisee in accordance with the unified management standards set up by the Company, which does not participate in the daily management of the franchisee s hotel. However, the Company does provide training to the key employees of the franchisee and will assign personnel to the franchisee hotels to provide guidance for seven to ten days when the hotel begins operations. Further, the franchisee is entitled to use the network of the Company as a platform to market its hotel, receive a written management technique guide and obtains guidance from the Company. Franchisees pay the Company an initial joining fee as well as an ongoing franchise fee. The initial joining fee is a one-off payment paid by the franchisee to receive employee training, management software, advice and other support from the Company. The franchisee is not required to pay for initial joining fee again when the franchise agreement is extended. The Company also charges a continuing franchise fee, which is calculated as a specific percentage of the franchisee s revenue and, in consideration of which the franchisee will be allowed to use the brand name, trademark and intangible assets of the Company. Franchised hotels account for 83% of the Company's select-service hotels. As at 30 June 2017, of the Company's 6,297 select-service hotels in operation, 17% (1,077 hotels) were self-managed hotels, while the remaining 83% (5,220 hotels) were franchised hotels. See the last page for disclaimer Page 8 of 24

9 Table-5: Jin Jiang Hotels: Number of Hotel Rooms in Operation (as at period end) IN OPERATION Select-Service Hotel Rooms - Mainland China Jin Jiang Metropolo Self-managed Hotel Rooms 37,691 39,590 44,227 48,863 53,500 Jin Jiang Metropolo Franchised Hotel Rooms 89,198 95, , , ,273 Jin Jiang Metropolo 126, , , , ,772 Plateno Group Self-managed Hotel Rooms n.a. 49,138 54,893 60,648 66,402 Plateno Group Franchised Hotel Rooms n.a. 206, , , ,286 Plateno Group n.a. 255, , , ,688 Vienna Hotel Self-managed Hotel Rooms n.a. 12,011 13,418 14,824 16,231 Vienna Hotels Franchised Hotel Rooms n.a. 61,523 68,728 75,934 83,139 Vienna Hotels Hotel Rooms n.a. 73,534 82,146 90,758 99,370 Self-managed Hotel Rooms 37, , , , ,133 Franchised Hotel Rooms 89, , , , ,697 Sub-Total Hotel Rooms 126, , , , ,831 Select-Service Hotels - Overseas GDL Self-managed Hotel Rooms 19,700 21,480 23,996 26,511 29,027 GDL Franchised Hotel Rooms 78,077 83,103 92, , ,301 Sub-Total Hotel Rooms 97, , , , ,328 Full-Service Hotel Rooms 5-star Luxury Hotel Rooms 18,171 20,018 18,938 19,087 19,233 4-star Luxury Hotel Rooms 12,547 11,834 11,753 11,673 11,594 Commercial Hotel Rooms 816 1, Sub-Total Hotel Rooms 31,534 32,987 30,692 30,760 30,827 Total Number of Rooms in Operation 256, , , , ,986 YoY 74.7% 135.1% % 9.2% Table-6: Jin Jiang Hotels: Number of Hotel Rooms Under Development (as at period end) UNDER DEVELOPMENT Select-Service Hotel Rooms - Mainland China Jin Jiang Metropolo Self-managed Hotel Rooms 5,084 3,206 5,100 5,192 5,306 Jin Jiang Metropolo Franchised Hotel Rooms 21,434 22,472 12,324 12,546 12,822 Jin Jiang Metropolo 26,518 25,678 17,424 17,738 18,128 Plateno Group Self-managed Hotel Rooms n.a. 1,426 6,330 6,444 6,586 Plateno Group Franchised Hotel Rooms n.a. 76,306 27,773 28,272 28,894 Plateno Group n.a. 77,732 34,103 34,717 35,480 Vienna Hotel Self-managed Hotel Rooms n.a. 1,753 1,547 1,575 1,610 Vienna Hotels Franchised Hotel Rooms n.a. 68,992 7,926 8,068 8,246 Vienna Hotels Hotel Rooms n.a. 70,745 9,473 9,644 9,856 China Select-Service Self-managed Hotel Rooms 5,084 6,385 12,978 13,212 13,502 China Select-Service Franchised Hotel Rooms 21, ,770 48,022 48,887 49,962 Sub-Total Hotel Rooms 26, ,155 61,000 62,098 63,464 Select-Service Hotels - Overseas GDL Self-managed Hotel Rooms 1, ,767 2,817 2,879 GDL Franchised Hotel Rooms 8,149 7,680 10,706 10,899 11,138 Sub-Total Hotel Rooms 9,965 8,319 13,473 13,716 14,017 Full-Service Hotel Rooms 5-star Luxury Hotel Rooms 4,954 5,708 4,954 5,043 5,154 4-star Luxury Hotel Rooms 2,180 2,125 2,125 2,163 2,211 Commercial Hotel Rooms 321 1, Sub-Total Hotel Rooms 7,455 8,968 7,079 7,206 7,365 Total Number of Rooms under Development 43, ,442 81,552 83,020 84,847 See the last page for disclaimer Page 9 of 24

10 7 Business Segments 1. Select-Service Hotels - Mainland China The Company's select-service hotel subsidiaries in mainland China include Jin Jiang Metropolo, Plateno Group and Vienna Hotels. On 26 Feb. 2016, the Company acquired 81% equity interest Keystone Lodging ("Keystone"), which is the Company's Plateno Group subsidiary. Keystone and its subsidiaries are principally engaged in operating high-end, mid-class and select-service hotels in mainland China, including the popular economy chain hotel brand "7 days Inn". On 1 July 2016, the Company acquired 8 ownership in the equity interest in Vienna Hotels. As at 30 June 2017, the Company had a total of 5,021 select-service hotels in Mainland China in operation with 501,127 guest rooms. Jin Jiang Metropolo brands include: "Jin Jiang Metropolo", "Jin Jiang Inn", "Bestay Hotels Express" and "Jinguang Inn". As at 30 June 2017, the Company had 1,182 Jin Jiang Metropolo hotels with 139,366 guest rooms in operation. Plateno Group brands include: "Lavande", "James Joyce Coffetel", "IU", "7 Days Inn" and "Pai". As at 30 June 2017, the Company had 3,258 Plateno Group hotels with 270,101 guestrooms in operation. Vienna Hotels brands include: "Venus Royal", "Vienna International", "Vienna Classic", "Vienna Hotels" and "Vienna 3 Best". As at 30 June 2017, the Company had 581 Vienna Hotels with 91,660 guest rooms in operation. The Company was one of the first hospitality service providers to enter the budget hotel sector in mainland China. Since the Company opened its first budget hotel in 1997, it has built the brand name of Jin Jiang Inn into one of the leading budget hotel brands in mainland China. 2. Select-Service Hotels - Overseas The Company's overseas select-service hotels includes Groupe du Louvre ("GDL"). In February 2015, the Company acquired 10 equity interest in French hotel company Groupe du Louvre. Hotels operated by GDL included all operating chain hotels under the four brands of: "Premiere Classe", "Campanile", "Kyriad" and "Golden Tulip". As at 30 June 2017, GDL had a total of 1,276 hotels with a total of 107,960 rooms in operation. 3. Passenger Transportation Vehicles and Logistics The Company added its Passenger Transportation Vehicles and Logistics business segment in 2011 with the acquisition of Jin Jiang Investment. The Company holds less than half of the equity interest in Jin Jiang Investment and therefore has less than half of its voting rights. However, the Company has de facto control over Jin Jiang Investment as it is the majority shareholder of Jin Jiang Investment with a 38.54% equity interest, while all other shareholders individually own less than 2% of its equity shares. The Company has the ability to demonstrate effective control during Jin Jiang Investment's shareholders meetings and board meetings. The Company has established a comprehensive supply chain management business model combining food import, customs declaration and inspection, storage and delivery with the support of the logistics service line. In 2016, the Company acquired the remaining 49% equity interest in Jin Jiang Cold, making it a wholly-owned subsidiary of the Company. The acquisition helped the Company's efforts in further integrating its cold logistics resources, pursuing for total coverage of the industry chain of logistics. In 2016, the Company completed 1,109 assignments for the reception of national guests and over 540 assignments for receptions in major conferences, exhibitions and tournaments. In 2016, the Company's passenger transportation vehicles and logistics business included a number of major assignments for escort vehicles for guests to conferences including the G20 meeting for finance ministers and central bank governors, G20 trade ministers meeting, and G20 Youth Summit, as well as for the reception of national guests who visited Shanghai en route during the summit. The Company's subsidiary, Shanghai Jin Jiang Automobile Service, provided an additional 40 vehicles for the theme park in Shanghai Disneyland and 1,088 vehicles for incoming cruises in It also rendered reception service for 30 overseas cruises counting over 40,000 tourists served, claiming leadership in the cruise reception business in Shanghai in See the last page for disclaimer Page 10 of 24

11 4. Full-Service Hotels As at 30 June 2017, the Company owned and managed 99 full-service hotels in the PRC with approximately 30,000 guest rooms. Of these 99 full-service hotels, 78 are owned by third parties but is managed by the Company. The Company's full-service hotels in China are situated in prime locations near city centres. In Shanghai, most of the Company's star-rated hotels are located near city landmarks such as the Bund or Xintiandi, or at convenient locations close to business districts and shopping, or close to transportation infrastructure such as international airports, railway stations and coach terminals. The Company's portfolio of full-service hotels in mainland China comprises landmark hotels and luxury hotels. Landmark hotels are those hotels which were constructed in various western architectural styles and are categorised as historical buildings. The Company considers these hotels to possess high historical and cultural value. Due to their heritage and ambience, they have been used for accommodating foreign royalty and dignitaries and international business leaders. Most of the landmark hotels are located in prime sites in areas that used to be the commercial and cultural hubs of Shanghai. Luxury hotels include all of the hotels with 5-star or 4-star ratings, excluding the landmark hotels. These hotels are owned by third parties but are managed by the Company, having obtained or are expected to obtain 5-star or 4-star ratings. The luxury hotels provide a wide range of amenities, facilities and modern comforts for high-end business travellers and tourists. Most luxury hotels are located near commercial, leisure and transportation facilities. 5. Travel Agency On 15 Feb. 2011, the Company acquired its Travel Agency business, Shanghai Jin Jiang International Travel (900929SH; "Jin Jiang Travel"). Jin Jiang Travel is a cooperating partner with the tourism industry in the Shanghai Disneyland Resort and benefited from the opening of Shanghai Disneyland on 16 June The travel agencies under Jin Jiang Travel in 2016 also entered into a strategic cooperation agreement with Shanghai Proton and Heavy Ion Center in respect with the development of high-end medical tourism market in mainland China, inventing personalized medical tourism products jointly. The Company also participated in major conferences and meetings including 2016 Shanghai World Travel Fair, 2016 China International Travel Mart, the 9th Global Conference on Health Promotion and the Fourth UK-China High-Level People to People Dialogue. In 2016, the Company established Shanghai Jin Jiang Tours Co., Ltd ( 上海锦江旅游控股有限公司 ) to coordinate the management of all the brands whose operations are now united under "Jin Jiang Travel". The Company has unified its travel agency businesses in order to create synergies among them in online and offline business activities. Under Shanghai Jin Jiang Tours, the Company intends to leverage its travel agency business to promote other business segments, including hotels and passenger transportation. 6. Food and Restaurants As 30 June 2017, the Company managed 60 catering restaurant companies, up from 55 at the end of The Company's food and restaurants segment is separate from and does not include the food and beverage operations at its hotels. The Company has invested in a number of restaurants, including fast food chain restaurants and three upscale restaurants in mainland China through Jin Jiang Hotel Development. As at 30 June 2017, the Company's Food and Restaurant assets included Shanghai Kentucky Fried Chicken Company, Shanghai JinYa Catering Management Company,( 上海锦亚餐饮管理有限公司 ) and Shanghai Yoshinoya Company, which had a total of 304, 30 and 9 outlets, respectively. The Company's upscale restaurants include two "Chinoise Story" restaurants and one "Ting Mei Yuen" ( 鼎味源 ) restaurant. 7. Other Businesses The Company's Other Businesses includes inter-company financial services, financial services via Finance Company and the provision of training services by Shanghai Jin Jiang International Management College ( 上海錦江國際管理專業學院 ). Finance Company, a subsidiary of the Company, acts as a non-bank financial institution within the Company that centralises available cash resources of the Company's subsidiaries, joint ventures and associates. Funding and financing requirements of the Company's members are fulfilled through entrusted loans and self-operated loans, resulting in lower financing costs and greater efficiency in fund application. See the last page for disclaimer Page 11 of 24

12 Financial Analysis Revenue Select-service hotels in mainland China is the Company's largest business segment in terms of revenue, and contributed 40.5% of total revenue in Revenue from select-service hotels in mainland China accounted for 22. of total revenue in 2015, and increased to 40.5% in 2016 with the acquisitions of Keystone Lodging and Vienna Hotels in Overseas select-service hotels are the second largest revenue driver and accounted for 20.5% of revenue in Passenger transportation vehicles and logistics accounted for 13.8% of 2016 revenue, while full-service hotels and travel agency business each accounted for 11.2%. food and restaurants accounted for just 2.1% of 2016 revenue, and other operations is insignificant with revenue contribution of less than 1%. We forecast total revenue of RMB 19.5 billion, RMB 21.1 billion and RMB 23.0 billion, representing growth of 14.7%, 8.1% and 8.9%, respectively. The Company's total revenue increased by 13.8% in 2016 to RMB 17.0 billion and by 25.3% YoY in 1H17 to RMB9.2 billion. Our total revenue forecasts are the sums of the amounts of our forecasts for each of the Company's seven business segments. We anticipate that going forward, the Company will increase its total net number of hotels in operation by about 700 per year. This implies a total of 6,677 hotels, 7,377 hotels and 8,077 hotels in operation at the end of 2017, 2018 and 2019, respectively, with 668,444 rooms, 736,216 rooms and 803,986 rooms in operation, reflecting increases of 11., 10.1% and 9.2%. Figure-14: Jin Jiang Hotels Revenue by Business Segment Figure-15: Jin Jiang Hotels Revenue & Growth Select Service Hotels - P.R.C. Select Service Hotels - Overseas Vehicles & Logistics Full Service Hotels Travel Agency Food & Restaurants Other Operation % 11.4% 13.8% % 0.4% 11.2% 2.1% 0.4% 2016A 20.5% 19.8% 2017F 40.5% 47.4% Total Revenue RMB billion % % 14.8% % 8.9% 5 0 YoY 25.3% 9.2 1H17 35% 3 25% 2 15% 1 5% 1. Revenue Select-Service Hotels in Mainland China Revenue of select-service hotels in mainland China increased by 156.8% in 2016 to RMB 6,888 million, which was mainly due to the acquisitions of Plateno Group and Vienna Hotels. The Company began consolidating the results of Plateno Group and Vienna Hotels in March and July 2016, respectively. At the end of 2015, the Company's select-service hotels in mainland China segment had a total of 36,483 hotel rooms, all of which were Jin Jiang Metropolo brands. In 2016, on a net basis the Company actually decreased it's number of Jin Jiang Metropolo hotel rooms by 840 rooms. However, the acquisitions of Plateno Group and Vienna Hotels added 77,732 and 70,745 rooms, respectively, leading to a total increase in room supply of 46 YoY for the Company's select-service hotels in mainland China segment as at year end Revenue from select-service hotels in mainland China increased 72.5% YoY in 1H17 to RMB 4,369 million. This growth reflected mainly the inclusion of Plateno Group starting from March We forecast select-service hotels in mainland China revenue of RMB 9.3 billion, RMB 10.3 billion and RMB 11.5 billion, representing growth of 34.4%, 10.9% and 11.9%, respectively. The full-year contribution from Plateno Group and Vienna Hotels in 2017 compared to only partial year contribution in 2016 will fuel most of the revenue growth of See the last page for disclaimer Page 12 of 24

13 select-service hotels in mainland China in Going forward, we expect mild improvement in general industry wide occupancy rates and average daily room rates ("ADR"). As the Company has not announced any acquisitions or hotel expansion plans, we expect that going forward the increase in hotel rooms in operation will be in line with the number of hotels that the Company has under development. Table-7: Jin Jiang Hotels: Select-Service Hotels - Mainland China, Operating Metrics & Revenue Jin Jiang Metropolo Number of Rooms in Operation Self Managed Hotels 37,691 39,590 44,227 48,863 53,500 YoY % 2.8% % 10.5% 9.5% Franchised Hotels 89,198 95, , , ,273 YoY % 6.8% 7.2% 11.7% 10.5% 9.5% Operating Performance Occupancy Rate % 79.3% 80.8% YoY (ppt) (2.0) (1.0) ADR (RMB) YoY % -4.7% 1.1% -0.4% RevPAR (RMB) YoY % -7.5% 0.7% 0.8% 2.6% 2.9% Paleteno Group Number of Rooms in Operation Self Managed Hotels n.a. 49,138 54,893 60,648 66,402 YoY % n.a. n.a. 11.7% 10.5% 9.5% Franchised Hotels n.a. 206, , , ,286 YoY % n.a. n.a. 12.5% 10.8% 9.8% Operating Performance Occupancy Rate n.a % 80.2% 80.4% YoY (ppt) n.a. n.a. 0.2 (3.0) 0.2 ADR (RMB) n.a YoY % n.a. n.a. 1.5% 1.5% 1.5% RevPAR (RMB) n.a YoY % n.a. n.a. 1.9% -2.1% 1.8% Vienna Hotels Number of Rooms in Operation n.a. Self Managed Hotels n.a. 12,011 13,418 14,824 16,231 YoY % n.a. n.a. 11.7% 10.5% 9.5% Franchised Hotels n.a. 61,523 68,728 75,934 83,139 YoY % n.a. n.a. 11.7% 10.5% 9.5% Operating Performance Occupancy Rate n.a % 89.5% 89.7% YoY (ppt) n.a. n.a ADR (RMB) n.a YoY % n.a. n.a. 1.5% 1.5% 1.5% RevPAR (RMB) n.a YoY % n.a. n.a. 1.9% 1.8% 1.8% Select-Service Hotels - Mainland China (RMB million) Accommodation Revenue 1,973 4,381 5,926 6,575 7,358 Hotel Management & Franchise Revenue 342 1,332 1,739 1,925 2,154 Sales of Hotel Supplies Customer Royalty Program Revenue Food & Beverage Sales Ancillary Services Rental Revenue Select-Service Hotels in Mainland China Total Revenue 2,682 6,888 9,255 10,263 11,486 YoY 1.8% 156.8% 34.4% 10.9% 11.9% See the last page for disclaimer Page 13 of 24

14 Figure-16: Select-Service Hotels in Mainland China Revenue Breakdown Figure-17: Select-Service Hotels in Mainland China Revenue & Growth Accommodation Hotel Management & Franchise Hotel Supplies Customer Royalty Program Food & Beverage Ancillary Services Rental 3.8% 3.7% % 1.5% 3.8% % 3.7% 18.8% 19.3% 1.5% 2016A 2017F 63.6% 64. Select Service Hotels - Mainland China RMB billion % % % % 10.9% 11.9% 0 1H17 YoY Revenue Select-Service Hotels Overseas We forecast revenue from overseas select-service hotels to reach RMB 3.9 billion, RMB 4.4 billion and RMB 4.9 billion, representing growth of 10.6%, 13.4% and 12.4%, respectively. The select-service hotels business segment was added in 2015 and saw revenue increase by 33.8% in 2016 to RMB 3,494 million, which was mainly due to full-year contribution. With the acquisition and consolidation of GDL (French hotel company Groupe du Louvre) in March 2015, the Company created its select-service hotels overseas business segment. The number of GDL hotel rooms in operation increased by 7. in 2016 to 104,583. During 1H17, select-service hotels Overseas revenue increased by 4.7% YoY to RMB1,794 million, which mainly reflected 3.2% more hotel rooms in operation as at 30 June 2017 compared with year end We expect the growth rate in revenue to increase starting from 2H17 as the Company uses GDL as its primary platform for expanding its hotel portfolio internationally. Table-8: Jin Jiang Hotels: Select-Service Hotels - Overseas, Operating Metrics& Revenue GDL (Groupe du Louvre, France) Number of Rooms in Operation Self Managed Hotels 19,700 21,480 23,996 26,511 29,027 YoY % n.a % 10.5% 9.5% Franchised Hotels 78,077 83,103 92, , ,301 YoY % n.a. 6.4% 11.7% 10.5% 9.5% Operating Performance Occupancy Rate YoY (ppt) n.a. (2.0) ADR (EUR) YoY % n.a. -1.7% -1.7% RevPAR (EUR) YoY % n.a. -5.4% -0.7% 2.7% 2.6% Select-Service Hotels - Overseas (RMB million) Accommodation Revenue 1,421 1,940 2,199 2,494 2,802 Hotel Management and Franchise ,031 Catering and Sale Of Products ,078 Others Select-Service Hotels Overseas Total Revenue 2,612 3,494 3,863 4,381 4,923 YoY n.a. 33.8% 10.6% 13.4% 12.4% See the last page for disclaimer Page 14 of 24

15 Figure-18: Select-Service Hotels Overseas Revenue Breakdown Figure-19: Select-Service Hotels Overseas Revenue & Growth Accommodation Hotel Management & Franchise 21.9% 21.4% 0.2% 0.2% 2016A 2017F Select Service Hotels - Overseas RMB billion % YoY 4 35% 3 25% Catering & Products Others 22.9% 20.9% 55.5% 56.9% % 12.4% 10.6% % 1H % 1 5% 3. Revenue - Passenger Transportation Vehicles & Logistics We forecast Passenger Transportation Vehicles & Logistics revenue of RMB 2,451 million, RMB 2,544 million and RMB 2,648 million, representing growth of 4.1%, 3.8% and 4.1%, respectively. Revenue of Passenger Transportation Vehicles & Logistics increased YoY by 2.2%, 5.8% and 3.8% in 2015, 2016 and 1H17, respectively. The increase in 2016 was due to the increase in reported revenue from the trading of vehicles and the cold logistics businesses. In August 2016, 49% equity interest in Jin Jiang Cold and 3 equity interest in Xintiantian Company by Jin Jiang Investment were consolidated into the Company's financial statements. Table-9: Jin Jiang Hotels: Passenger Transportation Vehicles & Logistics Revenue Vehicle Operating 1,181 1,150 1,123 1,109 1,109 YoY -4.4% -2.6% -2.4% -1.2% 0. Trading of Automobile 902 1,045 1,128 1,185 1,232 YoY 13.4% 15.8% Refrigerated Logistics YoY % 31.2% 28.2% 25.1% Others YoY 9.4% 10.8% -9.9% -5.2% -2.3% Passenger Transportation Vehicles & Logistics Revenue 2,225 2,355 2,451 2,544 2,648 YoY 2.2% 5.8% 4.1% 3.8% 4.1% Figure-20: Passenger Transportation Vehicles & Logistics Revenue Breakdown Figure-21: Passenger Transportation Vehicles & Logistics Revenue & Growth Vehicle Operating 7.3% 0.9% 5.8% F RMB bllion Vehicles & Logistics 5.8% YoY 7% 6% Trading of Automobile Refrigerated Logistics Others % 2016A 45.8% 48.8% % 3.8% 4.1% 3.8% 2.2% H17 5% 4% 3% 2% 1% See the last page for disclaimer Page 15 of 24

16 4. Revenue Full-Service Hotels Full-service hotels revenue decreased by 0.7% in 2016 to RMB 1,947 million. The Company's full-service hotels benefited in 2016 from the increase of exhibitions in Shanghai and the opening of Shanghai Disneyland. The Company was able to increase room rates while achieving good hotel revenue management, resulting in increases in both the average room prices and occupancy rate. However, the effect of the implementation of change in government policy in 2016 whereby accommodation revenue business tax was replaced with VAT had a negative impact on the Company's reported hotel revenue. Full-service hotels revenue decreased by 5.1% YoY in 1H17 to RMB 910 million. Full-service hotels accommodation revenue in 1H17 decreased by 3.8% YoY, mainly due to the impact of the replacement of business tax with VAT with effect from May 2016 on accommodation revenue. Excluding this factor, accommodation revenue would have increased on the back of YoY growth in average daily room rates. Food and beverage sales of full-service hotels in 1H17 decreased by 7.9% YoY as the Company converted certain restaurant premises into leased operations. We forecast full-service hotels revenue of RMB 1,749 million, RMB 1,772 million and RMB 1,795 million, representing growth of -10.2%, 1.3% and 1.3%, respectively. As at the end of 2016, the Company had a total of five hotels designated as "commercial hotels" with a total of 1,135 rooms included in the full-service hotels segment; these hotels have obtained or are expected to obtain 3-star or 2-star ratings. We expect that by the end of 2017, the commercial hotels will be converted into branded chain hotels of the Company and will be reclassified under the Company's select-service hotels in mainland China and will not contribute to the full-service hotels segment. Table-10: Jin Jiang Hotels: Full-Service Hotels, Operating Metrics & Revenue 5-Star Hotels Number of 5-Star Hotel Rooms 18,171 20,018 18,938 19,087 19,233 5-Star Hotels Occupancy Rate % 73.8% 74.2% 5-Star Hotels ADR (RMB) Star Hotels RevPAR (RMB) Star Hotels Number of 4-Star Hotel Rooms 12,547 11,834 11,753 11,673 11,594 4-Star Hotels Occupancy Rate % 72.8% 73.2% 4-Star Hotels ADR (RMB) Star Hotels RevPAR (RMB) Commercial Hotels Number of Commercial Hotel Rooms 816 1, (RMB million) Accommodation Revenue Food and Beverage Sales Rental Revenue Star-Rated Hotel Management Rendering of Ancillary Services Sales of Hotel Supplies Full-Service Hotels Total Revenue 1,962 1,947 1,749 1,772 1,795 YoY 2.3% -0.7% -10.2% 1.3% 1.3% See the last page for disclaimer Page 16 of 24

17 Figure-22: Full-Service Hotels Revenue Breakdown Figure-23: Full-Service Hotels Revenue & Growth Accommodation Food & Beverage Rental Hotel Management Ancillary Services 7.9% 2.7%0.4% 7.9% 3.9% 0.4% 11.4% 10.7% 2016A 29.1% 29.3% 2017F 48.3% 48.1% Full Service Hotels RMB billion % -0.7% 1.3% 1.3% % 0.5 YoY -5.1% 0.9 4% 2% -2% -4% -6% -8% -1 Hotel Supplies 0.0 1H17-12% 5. Revenue - Travel Agency We forecast Travel Agency revenue of RMB 1,759 million, RMB 1,694 million and RMB 1,664 million, representing decline of 7.8%, 3.7% and 1.7%, respectively. Travel agency revenue represented 11.2% and 8. of the Company's total revenue in 2016 and 1H17, respectively, and decreased by 16.3% and 8.1% YoY in 2016 and 1H17, respectively. In 1H17, the Company launched a new version of its "Jin Jiang Trip" ( 锦江旅行 ) mobile application in an effort to further integrate membership and reservation systems. However, the Company's Travel Agency derives most of its revenue from its 62 retail locations in Shanghai. We expect the Company's travel agency revenue to continue to decline going forward as it loses market share to online competitors such as Ctrip. 6. Revenue - Food and Restaurants We forecast food and restaurants revenue of RMB 372 million, RMB 384 million and RMB 395 million, representing growth of 5.8%, 3. and 3., respectively. Revenue from the food and restaurants segment decreased by 3.9% in 2016 to RMB 352 million, accounting for 2.1% of the Company's total revenue. The decrease was attributable to the decline in operating revenue as a result of the outlet downsizing exercise of JinYa Catering (operating 31 chain restaurants in 2016 versus 42 in 2015). Meanwhile, in 2016, growth was sustained in the Company's catering business of Shanghai Jin Jiang International Food Catering Management Co., Ltd. (managing 55 catering restaurants during 2016 versus 49 in 2015). By 30 June 2017, the Company had further increased its number of catering restaurants that it was managing to 60, and revenue from Food and Restaurants in 1H17 increased by 5.8% YoY, accounting for 1.9% of total revenue. Figure-24: Travel Agency Revenue & Growth Figure-25: Food and Restaurants Revenue &Growth RMB billion Travel Agency YoY Food & Restaurants RMB million YoY % -3.7% -1.7% % % -8.1% 0.7 1H17 1 5% -5% -1-15% % % -3.9% % 178 1H17 8% 6% 4% 2% -2% -4% -6% See the last page for disclaimer Page 17 of 24

18 7. Revenue - Other Businesses We forecast revenue from other businesses of RMB 74 million, RMB 77 million and RMB 79 million, representing growth of 7.3%, 3.5% and 3., respectively. Revenue from other businesses accounted for less than 1% of total revenue and increased by -26., 0.6% and 7.3% in 2015, 2016 and 1H17, respectively. The Company's other business includes the provision of financial services from the Company's subsidiary Jin Jiang International Finance Company, and the provision of training services by Shanghai Jin Jiang International Management College ( 上海锦江国际管理专业学院 ). Gross Profit Cost of sales as a percentage of total revenue was relatively stable at 78.4%, 77.9% and 77.3% in 2015, 2016 and 1H17, respectively. The Company s cost of sales primarily consists of depreciation and amortization, staff costs for hotel operations and support personnel, change in inventory (including food and beverage) and utilities (including electricity, water, diesel oil and gas) costs. Of these, staff costs and change in inventory were the two largest items, accounting for 36.4% and 29.2%, respectively, of total cost of sales in We forecast gross profit of RMB 4,393 million, RMB 4,751 million and RMB 5,173 million, reflecting growth of 16.9%, 8.1% and 8.9%, respectively. The Company's gross profit increased by 56.9%, 42.4% and 30.4% in 2015, 2016 and 1H17, reflecting margins of 21.6%, 22.1% and 22.7%, respectively. In 2016, gross profit margin increased to 22.1%, which was the Company's highest annual gross profit margin since 2009, when it had reached 24.2%. The rise in gross profit margin was in large part due to the fall in inventory cost (the second largest component of cost of sales) as a percentage of revenue from 29.7% in 2015 to 22.8% in The largest component of cost of sales, staff costs, remained relatively constant as a percentage of revenue in 2015 and 2016 at 36.2% and 36.4%, respectively. Figure-26: Jin Jiang Hotels Cost of Sales as % of Revenue 10 95% Cost of Sales as % of Revenue Figure-27: Jin Jiang Hotels Gross Profit Gross Profit YoY Gross Profit Margin RMB billion % % % % 21.6% 22.1% 22.5% 22.5% 22.5% 22.7% % % 77.9% 77.5% 77.5% 77.5% 77.3% 1H % 8.1% 8.9% H Adjusted Operating Profit Selling and marketing expenses as a percentage of total revenue increased from 5.7% in 2015 to 6.2% in 2016, the highest level in over seven years, and increased further to 6.9% in 1H17. Selling and marketing expenses comprise primarily of labour costs, travel agent commissions and advertising fees. The increase in 2016 and 1H17 reflected mainly expenses from the newly acquired Plateno Group and Vienna Hotels and the expansion in scale of Jin Jiang Metropolo and GDL, and also an increase in cost as a result of stronger advertising and promotion efforts by Plateno Group and GDL. Administrative expenses as a percentage of total revenue decreased from 11. in 2015 to 9.6% in 2016, and then increased slightly in 1H17 to 9.8%. In 2016, the increase in administrative expenses resulting from newly added Plateno Group and Vienna Hotels and the expansion in scale of Jin Jiang Metropolo and GDL was less than the corresponding incremental revenue generated from these businesses. See the last page for disclaimer Page 18 of 24

19 We forecast adjusted operating profit of RMB 1,161 million, RMB 1,267 million and RMB 1,402 million, reflecting growth of 7.3%, 9.1% and 10.7%, respectively. We define adjusted operating profit as gross profit less selling and marketing expenses and administrative expenses. Our forecasts reflect adjusted operating profit margin 5.9%, 6. and 6.1% during , respectively compared with 6.4% in 2016 and 6. in 1H17. Figure-28: Jin Jiang Hotels Selling, Marketing and Administrative Expenses as % of Revenue Figure-29: Jin Jiang Hotels Adjusted Operating Profit 18% 16% 14% 12% 1 8% 6% 4% 2% 16.8% 15.7% 16.6% 16.5% 16.4% 16.7% % SM&A Expenses as % of Revenue S&M as % of Revenue Admin as % of Revenue 9.6% 9.8% 9.7% 9.6% 9.8% 6.2% 6.8% 6.8% 6.8% 6.9% 1H17 RMB million 1,600 1,400 1,200 1, Adj. Operating Profit YoY Margin % 6.4% 1,402 1,267 1,083 1, % 10.7% 7.3% 5.9% % 43.3% H Non-Operating Items The Company's total non-operating items amounted to RMB 1,297 million, RMB 706 million and RMB 465 million in 2015, 2016 and 1H17, equivalent to 10.6%, 4.1% and 5.1% of total revenue, respectively. The Company's non-operating items consist of 1) other income & gains, 2) share of results of J.V.'s & associates, 3) net finance costs, and 4) other expenses & losses. The largest of these in 2015, 2016 and 1H17 was other income & gains, which consists mostly of gains, and also dividend income, government grants and interest income. Table-11: Jin Jiang Hotels Non Operating Items Dividend income Government Grants Interest Income Gains 1 1, Other Income & Gains 1,583 1,208 1,422 1,535 1,559 Share of Results of J.V.'s & Associates Finance Costs (Net) (354) (568) (730) (600) (599) Other Expenses & Losses 2 (168) (120) (135) (144) (155) Total Non Operating Items 1, ,008 1,045 % of revenue 10.6% 4.1% 3.9% 4.8% 4.5% Note 1: Gains in 2015 and 2016 consisted of gains on disposal of available-for-sale financial assets; gain on partially disposal of investment in a joint venture (2016 only); gains on disposal of financial assets at fair value through profit or loss, gain on business combination (2016 only); gains on disposal of PP&E; gain on disposal of investments in a subsidiary (2015 only), and; gain on foreign exchange forward contract (2015 only). Note 2: The largest component of Other Expenses & Losses in 2015 and 2016 was bank charges, which amounted to RMB 55.4 million in 2015 and RMB 78.8 million in The remainder of Other Expenses & Losses in 2015 and 2016 consisted of loss on foreign exchanges forward contract (2016 only): loss on disposal of PP&E; impairment in investments in associates (2016 only); impairment of available for sale financial assets (2016 only);compensation charge on lease termination due to the disposal of Galaxy Hotel, and; others. See the last page for disclaimer Page 19 of 24