Brean Capital Remains Bullish Following Strong 1Q by China Lodging Group (HTHT)

Brean Capital maintains a Buy rating and $28.00 price target on China Lodging Group (NASDAQ: HTHT) following solid 1Q results, and 2Q guidance. HTHT reported 1Q net revenue of RMB 1,210.4mm and Adjusted EBITDA of RMB 157mm ( compared to consensus estimates of 1,130mm and 106mm respectively). HTHT guided net revenue for 2Q at RMB 1,409-1,446mm (vs. consensus of 1,347mm).

Brean Capital analyst, Fawne Jiang, commented on HTHT, saying, "HTHT reported solid 1Q results with above-expectation 2Q guidance. Despite the challenging macro environment, the company continues to execute its fast expansion with an increasing shift to manachised hotels and continues to strengthen its multi-brand strategy. We are particularly encouraged to see the company’s solid progress in penetrating and scaling up in the mid-scale segment, an underpenetrated/underserved segment in China. We remain positive on overall travel industry growth in China and believe HTHT is a strong industry player with its increasing market share gain and solid execution. We maintain our Buy rating on HTHT shares and our target price of $28."

Jiang also added, "HTHT opened 6 leased hotels, 19 franchised hotels and 157 manachised hotels in 1Q15, with a strong hotel pipeline of 22 leased hotels and 664 manachised and franchised hotels. As such, HTHT has a total of 2,177 hotels (617 leased, 1,533 manachised and 27 franchised) in 314 cities. For 2015, management maintained its store opening guidance of 680-730 hotels mainly in the manachised and franchised model, with 2-5 in upscale segment, 105-125 in midscale segment and 570-600 in economy segment. In particular, 35% of openings in the pipeline would each be located in tier-1 and tier-2 cities, respectively, and the rest, 30%, would be in lower-tier cities. With HTHT’s aggressive expansion in midscale hotels, this segment reached a CAGR of 52% in the past two years with a total 199 (70 leased, 129 manachised and franchised) Ji Hotel and Starway Hotel under operation, and HTHT was ranked as the largest player in terms of midscale hotel operator in 1Q15 by Inntie. In addition, HTHT’s alliance with Accor already received antitrust approval and the interim management period has started on Apr 1. We view the progress of such an alliance will start to benefit HTHT in the coming quarters with a higher penetration in the midscale and upscale segments."

For an analyst ratings summary and ratings history on China Lodging Group click here. For more ratings news on China Lodging Group click here.

Shares of China Lodging Group closed at $20.59 yesterday.

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