1H19 in line with our expectation

Jinjiang’s 1H19 revenue and attributable net profit rose 2.9% and12.8% to Rmb7.14bn and Rmb568mn. The firm booked Rmb210mnnon-recurring income in 1H19 （mainly fair value change forinvestment in Tongcheng-Elong） vs. Rmb190mn in 1H18 （mainly sharesales in Changjiang Securities and tax change in France）。 Recurringnet profit rose 13.5% YoY, largely in line with expectation.

1H19 hotel revenue rose 2.9% YoY to Rmb7.03bn and operatingprofit increased 10% thanks to rising exposure to franchise business,and falling labor cost ratio at self-operated hotels and G&A expensesratio led by cost savings. Domestic hotels’ 2Q19 blended RevPAR rose0.3% YoY vs. +1.2% in 1Q19, and same-hotel RevPAR fell 3.5% （ADR+0.9%, OCC -3.7ppt, economy -7.2% and mid-range -0.2%） vs. -4.2%in 1Q19 and +2.6% in 2018. Overseas hotels’ 2Q19 blended RevPARrose 4.5% YoY. The firm net added 218 hotels in 2Q19 （opening 347and closing 129）。 As of end-2Q19, operating hotels had totaled 7,849（37% being mid-range） and contracted hotels had totaled 11,884.

1H19 food & restaurant revenue rose 2.8% YoY to Rmb120mn andattributable net profit climbed 4.1% to Rmb140mn thanks to risinginvestment income from KFC in Hangzhou, Suzhou and Wuxi.

Trends to watch

Wait for demand recovery in hotel sector.

Keep an eye on long-term effect of improving front-end incentiveand back-end integration.

Financials and valuation

Maintain earnings forecast unchanged. Jinjiang A/B-share is tradingat 16.6/8.9x 2020e P/E. Maintain NEUTRAL for A-share and TP atRmb27.56 （19x 2020e P/E with 15% upside）。 Given RMB depreciation,we cut B-share TP 3% to US$2.14 （10x 2020e P/E with 15% upside）。

Risks

Disappointing economy or boost from tax and fee cut.