BDA-老虎基金亚朵酒店深度研究报告EN-2016 04 20

BDAFinalReportonAtour

Greatmarketpotential;Strongcompetitivenesstoattractfranchisees;Possibletobecometopplayersinthemarket

However,wedon’thaveenoughinsightsonconsumers’viewduetoinsufficientmanagementsupportApr13,2016ForTigerGlobalOnly©BDA20162TableofContentsExecutiveSummaryOutlookofChinaHotelMarketOutlookofMidscaleHotelChainMarketCompetitiveLandscapeofMidscaleHotelChainMarketOutlookofAtourHotelAppendixChina’sDomesticHotelMarket(2008-2023F)Source:BDAinterviewandanalysis29020106252021F5772020F2017F4162016F3832015E5322019F4912018F4522012CAGR:2.4%CAGR:10.0%327284200924620082472011352201433620133332023F2022F676CAGR:8.5%Unit:RMBBNChina’shotelmarketisexpectedtoreachavalueofRMB676BNby2023,mainlydrivenbytheincreaseofroomnightssoldvolume3China’sDomesticHotelRoomNightsSold(2008-2023F)CAGR:4.8%2023F2.282022F2.192021F2.092020F2.002019F1.912018F1.832017F1.752016F1.672015E1.5920141.5220131.4420121.3920111.2920101.2720091.1920081.15CAGR:4.6%CAGR:4.7%Unit:BNroomnightsFurther,weexpectthatthenumberofmidscalehotelchainswillriseto~8,200in2023(CAGR:24%),mainlydrivenbytheincreasedcontributionofmidscalehotelsandtheproportionofchainedhotels4ContributionofMidscaleHotelsofTotalRoomNightsSold(2015E-2023F)27%2019F26%2018F25%2017F24%2016F22%201521%CAGR:5.1%2023F31%2022F30%2021F29%2020FSource:BDAinterviewandanalysis2019F50%2023F2017F45%27%2016F33%38%201520%50%50%2022F50%2021FCAGR:12.2%2020F2018FContributionofMidscaleHotelChainsofTotalRoomNightsSoldbyMidscaleHotels(2015E-2023F)No.ofMidscaleHotelChains(2015-2023F)2022F8.142023FCAGR:24.2%7.482021F6.852020F6.272019F5.152018F3.982017F3.112016F2.3320151.44Unit:000’CurrentleadingplayersinthemidscalechainsareVienna,JIHotel,Yitel,OrangeandAtour;Atouronlypocketedaminorshareof3%in2015,andisexpectedtofurtherexpandto~5%in20165MarketShareofMidscaleChainedHotelsbyNumberofHotels,2013to2016FUnit:

#ViennaHotelJIHotelAtourHotelYitelOrangeOthers2016F2,10053%20151,44156%20149281%59%201364962%Source:Companyinfo,BDAinterviewLocationisthemostcrucialfactorinhotelindustry,whilethecompetitionforlocationsrequireheavyCAPEX;soinordertoachievefastexpansion,thehotelbrandsneedtoleveragetheF/Mmodel6…HavingsufficientCAPEXiscrucialforlocationseizing,whilefranchiseescanprovidefunding…Midscalehotelisaasset-heavybusiness:ItusuallytakesRMB18~20MNtorenovateanewly-constructedpropertyintoamidscalehotel,and4-5yearsforinvestmentpayback.Therefore,itwouldbehardforahotelchaincorp.toexpandwithonlyL/OmodelFranchiseescanprovidethenecessaryCAPEXneededforexpansion…SoF/MmodeliscrucialtotheexpansionofmidscalehotelsItisexpectedthattheF/Mhotelswillmakeupover80%ofthemajormidscalebrandsinthefutureSource:BDAInterview“Aslongasthere’sagoodhotelproject,moneyisnotanissueforme.”——FranchiseeAtourVienna9%JiHotelF/ML/OOrangeFastseizingthepremiumlocationsisthetopmostpivotalfactorforhotelindustry…“Opening20L/OhotelsinayearishardevenforgiantslikeJiHotel,whichiswhywehavetorelyontheF/Mmodelforexpansion.”——IndustryExpertFromthepastthrivepathoftheeconomychainhotels,welearntthatthelocationofahoteliskeytoitsoperationalandfinancialperformance;itcanalsobeinducedthatlocationiscrucialtomidscalehotels“Aslongasthehotelissitedatagoodlocation,itwouldbeeasytohaveagoodpaybackperformance,giventhehotelhasamoderatemanagementability.”——IndustryExpertBreakdownofLeadingMidscaleChains’Pipeline“LookingbackatthecompetitionbetweenHomeInnandHanting,youcanfindoutthatHantingbeatHomeInnbecauseHantingwasgoodatseizingthegoodlocationsinthemarket.”——IndustryExpertComparedtotheothermajormidscalebrands,Atourcanprovidesolidreturnsandsatisfactoryservicetothefranchisees,whichcreatestrongcompetitiveness;yetitsbrandawarenessislower7CompetitivenessofMidscaleHotelBrandsAtourOverallJiHotelViennaOrangeYitelSource:BDAInterviewsandAnalysisProjectPaybackServiceOfferedtoFranchiseesformostweighted/competitiveandforleastweighted/competitiveBrandAwarenessWeightofKSFInordertostudythepaybacksofthemajorhotelchains,BDAhasstudied20Atour

Hotels,coveringalmostalltheramped-uphotels;theROIofAtourhasexceededmostofthecompetitors,thoughAtour’slocationshavenodistinctivesuperiorityoveritspeers8AtourJiHotelOrangeHotelPaybackPeriodSource:CompanyInfo,BDAInterviewsandAnalysisLocationRatingYitel#ofHotelsSampledViennaHotelHomeInnPlusIndependentSummaryofTheCaseStudyUnit:YearUnit:#Regardingbrandawareness,AtourisinferiortoJiHotelduetoitslateentryintothemidscalehotelbusiness,yetitsbrandimageasamidscalehotelissolidthankstoitsclearbrandpositioning9BrandAwarenessAtourJiHotelViennaHotelOrangeYitelAnalysisformostcompetitiveandforleastcompetitiveCurrent#ofHotelsFranchisees’CommentsEntryTime201342Atour,beingalatecomer,haslessestablishedcasesandasmallermembershipvolume;however,ithasagoodbrandimage2006200JiHotelhasthestrongestbrandawarenesssinceithasmoreestablishedcases,andalargemembershipbasefromChinaLodge,itsparentcompany1993447ViennaHotelhadbeenthefirsttoenterthemidscalechainhotelmarketwiththemostnumberofhotels,andhasastrongbrandawarenessinthesouth200686Duetoslowexpansion,thenumberofOrangeHotelsareverylimited,sothefranchiseesshowlittleinterestininvestinginOrangeHotels200865YitelisabletoleveragethemembershipbaseofHomeInn,yetYitel’sbrandawarenessislowduetoslowexpansionandlittlepromotion“IhaveheardofAtour,yettherearenoAtour

HotelsinShenzhen,soit’skindofriskytoinvestinAtour.”“JiHotelbelongstoChinaLodge;afamousandbigcompany,andtherearemanyJiHotels,sotheyshouldbemoretrustworthy.”“TherearemanyViennaHotelsinGuangdong,andmyfriendsarealsoinvestinginVienna,soIhaven’tconsideredotherbrands.”“IhavecomeacrossOrange,butIhavenotconsideredinvestinginitsinceIwanttospendmymoneyonamorematurebrand.”“IthinkthatitwillbedifficultforYiteltoridofitsHomeInnbrandimageaseconomyhotels.”Source:BDAInterviewsandAnalysisIntermsofservicesofferedtofranchisees,thankstotherichexperienceinthehotelindustryandanenterprisingcultureinAtour’steam,itsfranchiseesfeelsatisfiedwiththeserviceprovidedbyAtour10ServiceAtourJiHotelViennaOrangeYitelAnalysisformostcompetitiveandforleastcompetitiveFranchisees’CommentsLong-standingrelationshipwithfranchiseesasAtour’sfoundershaveworkedforJiHotel,theyhaverichexperienceintheindustryFranchisees’demandsarebettercateredasAtour’sbusinessscaleissmaller,andthecompanyismoremotivatedandflexibleLong-standingrelationshipwithfranchisees:JiHotelhascultivatedbusinessrelationshipwithfranchiseesforacomparativelylongertimeBig-corp.issue:somefranchiseesfeelthattheyarenotservedwell,andthemanagementstyleofJiHotelistoorigidThemanagementstyleofViennaisconsideredtobelooseandshortsighted,whichhascauseddissatisfactioninafewofthefranchiseesTheexpansionprocessisveryconservative,sothefranchiseesarenotsatisfiedwiththeirefficiencyThemanagementofHomeInndoesnothaveaclearvision

of

thebrand,sothefranchiseesdonotbelievetheycanbewellserved“Atour,beingarelativelysmallerplayer,willbemorefocusedonourneedsandprovidemoreresourcesandbetterservices.”“IamnothappywithJiHotel;itsmanagementstyleistoorigid,andourwishesaresometimesneglected.”“WewereunhappywhenViennatriedtoraiseitsoccupationratebyloweringtheADRinordertofulfillitsKPI.”“OrangeHotelismicromanagingitsfranchiseapprovalandconstructionprocess,whichisnotefficient;e.g.ittakesaslongas10monthstodecorate--muchtooslow.”“Yitelhaspoorbrandingandmanagement,somanyfranchiseeshavealreadyswitchedtootherbrandsinShanghai.”Source:BDAInterviewsandAnalysisInlightofthesolidcompetitivenessofAtour,weexpectAtour’smarketsharewillachieveamarketshareof11%thankstotherapidexpansionwithagrowingF/Mpenetration11Source:BDAInterviewandAnalysis18%2023F11%2017F6%2016F5%2015A3%Atour’sMarketShare,2015-2023F24%2023F2017F2016F2015AUnit:#NumberOfMidscaleChains,2015-2023FBreakdownofAtour’sHotel,2015-2023F2023F11%2017FF/ML/O2016F2015A2023F2017F2016F50%2015ANumberOfAtourHotels,2015-2023FUnit:#NumberOfAtourL/OHotels,2015-2023FNumberOfAtourF/MHotels,2015-2023F2016F2015A+35%2023F2017F+53%2023F2016F2015A2017FUnit:#Unit:#12NetProfitAndNetMargin,2015A-2023FUnit:RMBMN2023F2022F2021F2020F2019F2018F2017F2016F-4%2015AWeforecastthatthenetprofitofAtourwillreachRMB333MN,andthenetmarginwillclimbupto14%in2023NetProfitNetMarginSource:CompanyInfo,BDAInterviewsandAnalysisAtour’sToplineProjection,2015A-2023F39%F/MHotelsL/OHotels2023F2,3862017F5292016F338792015A175Unit:RMBMNAtour’snetprofitisexpectedtobenegativein2016consideringthatitwillbeinrapidexpansionandmostofthenewstoreswillbeinramp-upperiodHowever,risksrelatedtotheoverallmarket,franchiseeexpansionandalsotalentpipelineandarepossibletoaffectAtour’sperformancenegatively13OverallMarketMajorRisksDetailsTalentPipelineThegrowthofmidscalehotelmarketmaybemoresluggishthanexpectedduetotheslowdownofChinaeconomy,whichmayalsoaffecttheexpansionofAtourWehavenoticedaslowdowninthegrowthrateofChinaeconomy,whichmayhaveanadverseeffectonthespendingwillingnessoftheconsumers,sotheconsumptionupgradeinChinamayalsoslowdown,includingthetrendofshiftingfromlow-endhotelstomidscaleandupscalehotelsFranchiseeAtour’sbrandawarenessiscurrentlylowerthansomeofitsmajorcompetitors,whichmaybecomeanissueduringF/MbusinessexpansionAccordingtoourcurrentinterview,wehavefoundmostofthefranchiseesarerationalandregardthepaybackperiodasthemostkeyfactorHowever,afewfranchiseesweinterviewedhaveshownastronginclinationtowardsbetter-knownbrands(e.g.JiHotelandVienna).Wesensethosefranchiseeswilltakeaminorproportionofthewholemarket,butwefindithardtoestimatetheproportionaswedon’thaveaccesstomorefranchiseesinthemarkettounderstandhowtheymaketheirinvestmentdecisionsShortageoftalentsmaybecomeanobstacleduringAtour’sexpansion.ThisriskcanbecontrolledbystrengtheningtheHRstrategyTalentshortagemayhappentoboththebusinessdevelopmentfunctionandthehotelmanagementfunctionAsAtour’smanagementhasrichexperienceinhotelbusiness,theyhavedevisedplanstoaddressthisrisk“WeplantorecruittenmoreBDstaffthisyear;intermsofthehotelGMs,we’rerecruitingexperiencedprofessionalsaswellascultivatingandpromotingourownstaffs.”——AtourManagementSource:BDAInterviewsandAnalysis14TableofContentsExecutiveSummaryOutlookofChinaHotelMarketOutlookofMidscaleHotelChainMarketCompetitiveLandscapeofMidscaleHotelChainMarketOutlookofAtourHotelAppendixChina’sDomesticHotelMarket(2008-2023F)Source:STR,BDAanalysis29020106252021F5772020F2017F4162016F3832015E5322019F4912018F4522012CAGR:2.4%CAGR:10.0%327284200924620082472011352201433620133332023F2022F676CAGR:8.5%Unit:RMBBNThegrowthratesloweddownfrom2012to2015mainlyduetotheimpactofthegovernment’santi-corruptioncampaignandtighterregulatoryenforcementon”thethreepublicconsumptions”China’shotelmarketisexpectedtoreachavalueofRMB676BNby202315China’sDomesticHotelRoomNightsSold(2008-2023F)Source:STR,BDAanalysisCAGR:4.8%2023F2.282022F2.192021F2.092020F2.002019F1.912018F1.832017F1.752016F1.672015E1.5920141.5220131.4420121.3920111.2920101.2720091.1920081.15CAGR:4.6%CAGR:4.7%Unit:BNroomnightsThiswilllargelybedrivenbyanoverallincreaseinvolume16SpainGermanyUSItalyFranceUKSouthKoreaUrbanChinaJapan

TaiwanRoomNightsperCapitaGlobalBenchmarks(2014)Source:ChinaNationalTourismAdministration,Euromonitor,Eurostat,WorldBank,BDAanalysisUnit:roomnightspercapitaOvertheyears,theroomnightspercapitaforurbanChinahasgraduallygrown;webelievethistrendwillcontinueFortheselectedbenchmarkmarkets,webelievethatEUcountriesarenotsocomparableduetotheirlargeinflowofforeigntouristsinthehotelmarket.TheUS,howeverismorecomparablebutthenumberisstillmuchhigher.WealsochosesomemoredevelopedAsiancountriestobenchmark,andtheirroomnightspercapitaarelowerthanthatofChinaRoomNightsperCapitaforUrbanChina(2008-2023F)Unit:roomnightspercapita2023F2015E20142008201120102009CAGR:1.9%CAGR:1.8%201320122008isaspecialyearduetotheOlympicGamesRoomnightspercapitainurbanChinahasgrownslowlyandisabout2.0in2014;ourbenchmarkingshowsthatthisindicatorvariesgreatlyacrossdifferentcountries17Source:STR,BDAanalysisUnit:USDChinaFranceItalySouthKoreaJapanUSGermanySpainUKTaiwanoTheADRhasincreasedalmostonparwithCPIoverpastfewyearTheADRinChinaisstillsignificantlylowerthanthatinothermajormarketsWhilethisgapmaycontinuetonarrow,webelieveitisunlikelythattheADRwillincreasedramatically,andinsteaditwillgrowgraduallyintheyearsleadingto2023,followingtheformerpatternofADRincreasesoverthepastfewyearsADRfortheChineseHotelMarket(2008-2023F)Unit:RMB201120092008CAGR:3.7%-CAGR:2.2%CAGR:4.4%2023F2015E2014201320122010Impactoftheanti-corruptioncampaignADRBenchmarks(2014)TheADRinChinaissignificantlylowerthanpriceselsewhere;despitethenear-termsuppressiveimpactoftheanti-corruptioncampaign,weexpectittoreturntoitsformergrowthpattern18y=0.4912x–1.0048R²=0.9874Regression1betweenourForecastedGrowthofADRandGDPperCapita,2014-2023FSource:Euromonitor,WorldBank,BDAresearchandanalysisNote:1.WeconductedregressionbetweenthelogarithmofADRandGDPpercapitainordertofindouttherelationshipbetweentheirgrowthrates.OurforecastedADRgrowthrateisaround49%oftheGDPpercapitagrowthrate,whichisrelativelylowerthantheglobalaverage,indicatingthatourforecastofADRgrowth(3.7%p.a.)isconservativeConsiderthattheorganicgrowthofADRissluggish,webelievethehigh-end/low-endhotelmixisthemajordriverofADRgrowth.Assuch,webelieveourestimateofhigh-endhotelmarketgrowthisrealisticLNofGDPpercapita20232014LNofADRChinaWebenchmarkedourforecastedADRgrowthrateaspercentageofGDPpercapitagrowthwithothercountries,andwebelieveourestimateofChina’shigh-endhotelmarketgrowthisrealisticLNofGDPpercapitaLNofADRGermanyTaiwanUSACanadaChinaSouthKoreaItalyFranceJapany=0.6414x-1.1192R²=0.7466Regression1betweentheHistoricalGrowthofADRandGDPperCapita,2008-2014Intheglobalmarket,thegrowthrateofADRisaround64%ofthegrowthrateofGDPpercapitaonaverage19GlobalBenchmarksforHotelMarketSizeasaPercentageofNominalGDP(2014)0.90%UK0.81%US0.65%Japan0.54%China0.53%Taiwan0.40%SouthKorea0.15%Spain2.50%France2.33%Italy2.24%GermanyThepercentageofthehotelmarketrelativetothenominalGDPwasespeciallyhighin2008to2010,whenseveralmajortourism-generatingeventstookplaceinChinasuchasthe2008Olympicsandthe2010WorldExpo;thispercentagehasfallensignificantlyintheyearsthatfollowedThisindicatoriscloselytiedtothespecificeconomies:whereasEuropeaneconomiesleanmoretowardtourismandserviceindustries,AsianonesrelymoreonotherindustriesWebelievethatthispercentagewillremainrelativelystableHotelMarketSizeasaPercentageofNominalGDP(2008-2023F)2023F0.54%2015E0.51%20140.53%20130.57%20120.61%20110.60%20100.70%20090.71%20080.78%Source:ChinaNationalTourismAdministration,EuromonitorEurostat,WorldBank,BDAanalysisThehotelmarketsizeasapercentageofnominalGDPpeakedin2008-2010,mainlyduetotourism-favoringevents,butlaterfelltoacomparablelevelwiththatintheUS,JapanandTaiwan20LNRetailValueRSPLNNominalGDP20232014y=1.0594x–6.4049R²=0.9974ChinaRegression1betweenourForecastedGrowthofHotelRetailValueRSPandNominalGDP,2014-2023FSource:Euromonitor,WorldBank,BDAresearchandanalysisNote:1.WeconductedregressionbetweenthelogarithmofHotelRetailValueRSPandNominalGDPinordertofindouttherelationshipbetweentheirgrowthrates.OurforecastedRetailValueRSPgrowthrateisaround106%oftheGDPpercapitagrowthrate,relativelylowerthantheglobalaverage,indicatingthatourestimationofhotelmarket’sgrowthismoderateandrealisticRegressionsonhotelretailvaluegrowthrate,asopposedtonominalGDPgrowth,alsoshowthatourestimationofChina’shotelmarketgrowthismoderateandrealisticLNRetailValueRSPLNNominalGDPCanadaItalyUSASouthKoreaJapanChinaTaiwanGermanyFrancey=

1.2139x-8.4203R²=0.8013Regression1betweentheHistoricalGrowthofHotelRetailValueRSPandNominalGDP,2008-2014Intheglobalmarket,thegrowthrateofRetailValueRSPisaround121%ofthegrowthrateofNominalGDPonaverage2122TableofContentsExecutiveSummaryOutlookofChinaHotelMarketOutlookofMidscaleHotelChainMarketCompetitiveLandscapeofMidscaleHotelChainMarketOutlookofAtourHotelAppendixWeexpectthatthemidscalehotelmarketwillgrowrapidlyinlightoftheconsumptionupgradeinChina;inthemidscalesector,hotelchainswillfurthertakesharefromindependenthotels23MidscalehotelswillgrowrapidlyinthenexteightyearsduetotheconsumptionupgradeinChinaandthelowbaseimpactedbytheanti-corruptioncampaigninthepastyearMidscalechainwilltakesharefrommidscaleindependentfortheiroverallcompetitiveness-2%+8%+7%+10%2023F2015201420132012201120102009200886%14%201390%2015IndependentChains2023F50%50%80%20%201410%201295%5%201197%3%201098%2%200998%2%200899%1%+23%+60%2023F20152014201320122011201020092008Source:BDAAnalysisUnit:MNUnit:MNRoomNightsSoldforMidscaleHotels,2008-2023FRoomNightsSoldBreakdownbyChainvs.Independent,2008-2023FRoomNightsSoldforMidscaleChainHotels,2008-2023F24TableofContentsExecutiveSummaryOutlookofChinaHotelMarketOutlookofMidscaleHotelChainMarketMidscaleSegmentistheFutureGrowthDriverHotelChainsWillSpringUpintheMidscaleSegmentCompetitiveLandscapeofMidscaleHotelChainMarketOutlookofAtourHotelAppendixChina’shotelmarketcanbedividedintofoursectors;ofthose,midscalehotelsmadeup20-26%ofthemarketinthepastyears25Low-endIndependentEconomyMidscaleLuxuryandUpscale20151,59434%34%21%25%14%201012%20081,15053%8%26%14%11%20141,51938%31%20%11%20131,44141%25%22%12%10%1,38842%21%23%14%20111,29345%17%26%52%1,187200914%26%12%47%1,274+4.8%2012RoomNightsSoldBreakdownbyScaleinChina,2008-2015Unit:MNLuxuryandupscalehotels:refertohotelswithtop30%ADRMidscalehotels:refertohotelswithmiddle30%ADREconomyhotels:refertohotelswithnext20%ADRLow-endindependenthotels:refertohotelswithlowest20%ADRDefinitionSource:BDAAnalysisIntermsofguestroomrevenuebreakdown,midscalehotelstake~30%oftheoverallmarketshare2628%31%2014336+5.2%Low-endIndependentEconomy10%42%200924633317%19%28%36%32%MidscaleLuxuryandUpscale201535215%24719%7%201232714%15%29%17%24%41%33%201330%41%201028416%201129032%15%13%19%8%34%39%200826%43%27%GuestRoomRevenueBreakdownbyScaleinChina,2008-2015Unit:RMBBNSource:BDAAnalysisADRbyHotelScales,2015642289172Low-endIndependentEconomyLuxuryandUpscaleMidscaleUnit:RMB/RoomNightNewIn2015,economyhotelssloweddownthepaceofexpansionaftersevenyearsofrapidgrowth,whilemidscalehotelsbegantorampupthankstotheupgradeinconsumption27+25%-10%-2%+5%-2%+8%+7%31%15%201020132012201120082009-1%20142015LuxuryandupscalehotelMidscalehotelEconomyhotelLow-endindependenthotelEconomyhotelssqueezedoutothersegmentsincludingmidscaleandlow-endindependenthotelsIn2015,thegrowthrateofeconomyhotelsslowedascustomersstartedtoswitchtobetterhotelsasaresultofconsumptionupgradeLuxuryandupscalehotels’outstandinggrowthin2010ismainlyduetothelowbasein2009because

2008OlympicGamesheldinChinaoverdraftupscaledemandTheanti-corruptioncampaignlimitedthegrowthofluxuryandupscalehotelsfrom2010Midscaleshowedadescendingtrendduring2010-2014duetoseverecompetitionfromeconomyhotelsandtheanti-corruptioncampaignIn2015,midscalehotelsreboundedwith8%YoYbecauseofconsumptionupgradeinChinaLow-endindependenthotelsweredraggeddownbytheirrelativelypoorroomconditionandservicecomparedtoeconomyhotelsCommentsRoomNightsSold,2008-2015Unit:MNSource:BDAAnalysisMidscalechainhotelsenjoyedthehighestoccupancyrateinrecentyearscomparedwithotherhotelsectors,whichalsoproofedtherobustdemandofmidscalehotels28LuxuryandupscalehotelMidscalechainhotelEconomyhotelLow-endindependenthotel201420152013OccupancyRateofSameHotel,2013-2015Source:CNTA,BDAInterviewandanalysisMarketShareofEachHotelClassinChinavs.theUSInChina,midscaleandupscalehotelsonlyenjoy32%marketsharecomparedto60-70%intheUS,whichindicatesthatChina’smidscaleaswellasupscalehotelshavelargegrowthpotential292015China2010USLuxuryandUpscaleLow-endIndependentEconomyMidscale2012USNote:1.ShareofeachmarketclassintheUSremainedstableinthepastterms,andChina’shotelindustrylagsmorethanfiveyearsbehindUS’s.Source:STR,BDAAnalysisMeanwhile,fromthesupplyside,wewitnessedthatthegrowthofthetotalroomcapacityofeconomyhotelsexperiencedsignificantdecelerationin2015,whilemidscalehotelstartedtopickingup…30LuxuryandupscalehotelMidscalehotelEconomyhotelLow-endindependenthotel+1%819802824859786805761752+1.8%20151,56120141,51020131,48420121,43720111,40820101,50220091,43020081,355+3.4%+33%2,0091,7171,276982747544413313+17%-1%20154,87420145,13520135,19520125,15520115,12420105,18120095,21120085,175HotelRoomCapacity,2008-2015Source:BDAAnalysisUnit:‘000…OfwhichwebelieveisbecausecurrentlytheROIofmidscalehotelshasexceededbothupscaleandeconomyhotels31IRR2Unit:yearsSource:BDAinterviewandanalysisNote:1.ItreflectstheUEoftypicalchainhotelintier-2citiesineachcategory.EconomyMidscaleUpscalePaybackPeriod(Static)1MidscaleUpscaleEconomyNote:2.IRRofmidscaleandeconomyhotelsare10-yearIRR,astheleasetermsare~10years;forupscalehotels,thepropertiesareusuallyprivatelyowned,soweuse40-yearIRR.ItisbecausemidscalehotelscanachievebetterprofitabilitythaneconomyhotelsduetotheirhigherADRandoccupationrate,whichcanjustifyitshigherinitialCAPEX32InitialCAPEXEBITDAUpscale1500.0Midscale18.0EconomyUnit:RMBMNUpscale1.453.8Midscale6.7EconomyUnit:RMBMNSource:BDAinterviewandanalysisTypicalHotelUpscaleMidscaleEconomyShangri-la,FuzhouAtour,Xi’anNanmenIbis,SuzhouNo.ofRooms400150110BusinessModelSelf-ownedpropertyLeasedpropertyLeasedpropertyCAPEXperRoomRMB~1.2MNRMB120KRMB60KADRRMB850RMB360RMB180OccupationRate55%85%80%GOPRate50%69%64%EBITDAMargin50%36%24%Rentalas%

ofRevenueN.A.33%40%Note:1.Thetotalandunitcapexofupscalehotelsarehigherthanothercategories,becauseupscalehotelsmustalsoincludelandandbuildingconstructioncosts;moreover,upscalehotelsprovideawidervarietyservicesthatrequireadditionalexpendituresforsupplementaryfacilities

suchasagym,meetingrooms,etc.33Soitisprojectedthatroomnightssoldbymidscalehotelswilltakeup31%ofthetotalmarket(~712MNroomnights)by2023;thislevelisthesameasthecorrespondingcontributionofmidscalesectorseenintheUSSource:BDAinterviewandanalysisTotalRoomNightsSold(2015E-2023F)CAGR:4.6%2023F2.282017F2.192.092.001.912018F1.832019F1.752016F1.6720151.592022F2021F2020FContributionofMidscaleHotels(2015E-2023F)Unit:BNRoomNightsRoomNightsSoldbyMidscaleHotels(2015E-2023F)Unit:MNRoomNights27%2019F26%2018F25%2017F24%2016F22%201521%CAGR:5.1%2023F31%2022F30%2021F29%2020FCAGR:9.9%2023F2022F2021F2020F2019F2018F2017F2016F2015×34TableofContentsExecutiveSummaryOutlookofChinaHotelMarketOutlookofMidscaleHotelChainMarketMidscaleSegmentistheFutureGrowthDriverHotelChainsWillSpringUpintheMidscaleSegmentCompetitiveLandscapeofMidscaleHotelChainMarketOutlookofAtourHotelAppendixInthepastyears,thecompositionofthemidscalehotelsectorhasgraduallyshiftedfromindependenthotelstohotelchains…35No.ofMidscaleHotelsUnit:#RoomNightsSoldbyMidscaleHotels3%201110,48598%2%201010,91899%11,006200910,36799%1%20089,962100%0%201511,33687%13%201492%8%20131%10,98594%6%2012