Sector financial performance:

This company, who is primarily an economy& midscale hotels franchisor, the revenue of which comes from initial fee, percentage-of-revenue royalty fee, and marketing/reservation fee, has been grouped into franchised hotel – economy &midscale sector.

It seems that companies in this sector have benefited more from the increase in domestic royalty fees due to the good performance of their franchised hotels in the past three years. Data indicates that increase in royalty revenue has been primarily attributable to increase in rooms (3-5% annually) and room rate (increased by 2-3 annually) and, to lesser extent, occupancy rate (-1-1%).

Our data indicate, from a typical company, that there was an increase in company’ operating margins (currently 24%, including marketing and reservation system fees and expenses) in the past several years. The typical gross margin is about 42% with a SG&A as percentage of sales of average 18%.  Due to increasing revenue the cash flow of companies increased straight in the past three years.

According to our analysis, the current companies’ enterprise price/EBI ratio is 20 with an interest/EBITDA ratio of 13%.

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Company performance:

It seems that domestic franchised hotels of this company have gained increase in revenue in the past three years as indicated by continuing increased daily rate and occupancy rate (most time) and rooms. It also seems that growth is accelerating in 2018.

The first six months of fiscal 2018 compared with the same period of 2017

Domestic RevPAR increased 7% (9% for 2Q) and global number of room increased 4% (6% for 2Q) (estimated).

The fiscal 2017 compared with 2016

Domestic RevPAR increased 3.2% (2.4% daily rate and 0.8% occupancy rate) and global number of room increased 4.4%.

Revenue of exchange network increased 1.6%.

Gross VOI sales increased 4%.

The first nine months of fiscal 2017 compared with the same period of 2016

Domestic RevPAR increased 2.9% (1.9% daily rate and 1.1% occupancy rate) and global number of room increased 2.7%.

Revenue of exchange network increased 4.2%.

Gross VOI sales increased 9.5%.

Fiscal 2016 compared with 2015

Domestic RevPAR increased 1.6% (2.9% daily rate and -1.2% occupancy rate) and global number of room increased 2.9%.

Revenue of exchange network increased 2.1%.

Gross VOI sales increased 2.4%.

Fiscal 2015 compared with 2014

Domestic RevPAR increased 4.1% (3% daily rate and 1% occupancy rate) and global number of room increased 2.6%.

Revenue of exchange network decreased 4.1%.

Gross VOI sales increased 5%.

Its operating margin is about 24% in 2018 and was improved from 2014 primarily due to the improved SG&A as percentage of sales as a result of leverage of SG&A expense as revenue increased. As a result of increased revenue and margin, this company’s cash flow increased in the past three years in a row.

Stock price

This stock had an enterprise price/EBI ratio of 20 right before spinning off. We think that its stock was being relatively slightly undervalued with its peers.