Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Smartkarma

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Greentree Hospitality / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/26773" target="_blank" data-smartkarma-citation="entities:26773:1">Greentree Hospitality Group (GHG UA)</a> plans to raise up to US$200m in its IPO primarily to fund its expansion. The company is one of the largest franchised hotel operators in China.GHG had ample cash on its books till late last year when it paid out a dividend worth more than half the amount being raised in the IPO. Even after that it still has another US$100m+ in short-term investments and US$40m+ in A-shares. Given its franchising model, it doesn't really need any cash to expand, neither did it have external investors or an ESOP scheme till late 2017. The only real reason that we could find for listing was related to the Yibon acquisition but even the sums involved there seem too small to justify a listing.In this insight, we will look at the above issues along with falling franchising fees, impact on earnings from its trading book and past related party transactions. We will also compare its performance with its main US-listed peer <a href="https://www.smartkarma.com/entities/17527" target="_blank" data-smartkarma-citation="entities:17527:1">China Lodging Group, Ltd (Adr) (HTHT US)</a>.

Greentree Hospitality Group (GHG UA) plans to raise up to US$200m in its IPO primarily to fund its expansion. The company is one of the largest franchised hotel operators in China.GHG had ample cash on its books till late last year when it paid out a dividend worth more than half the amount being raised in the IPO. Even after that it still has another US$100m+ in short-term investments and US$40m+ in A-shares. Given its franchising model, it doesn't really need any cash to expand, neither did it have external investors or an ESOP scheme till late 2017. The only real reason that we could find for listing was related to the Yibon acquisition but even the sums involved there seem too small to justify a listing.In this insight, we will look at the above issues along with falling franchising fees, impact on earnings from its trading book and past related party transactions. We will also compare its performance with its main US-listed peer China Lodging Group, Ltd (Adr) (HTHT US).

GreenTree Hospitality Pre-IPO Review - Large Dividend Payout Makes the Need for an IPO Questionable

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/26773" target="_blank" data-smartkarma-citation="entities:26773:1">Greentree Hospitality Group (GHG UA)</a> filed for an NYSE IPO to raise $200 million on 27 February. It is the leading pure-play franchised hotel operator in China.Among its listed peers, GreenTree stands out on its execution capability regarding profitability and cash generation. Overall, we are bullish on the GreenTree IPO due to the following:<ol><li>GreenTree is taking steps to close the RevPAR gap with peers. We expect GreenTree’s RevPAR growth to accelerate as two factors will increase the mix of mid-to-upscale hotels. First, GreenTree started three new mid-to-upscale hotel brands (Gme, Gya and VX) in 2017. Second, mid-to-upscale hotels as a percentage of gross hotel openings are set to increase from 2% in 2016 to 11% in 2018.</li><li>GreenTree has the best-in-class profitability due to a high mix of franchised-and-managed hotels. GreenTree’s EBITDA margin remained stable at 52% from 2016 to 2017. This margin was a remarkable 21 percentage points ahead of <a href="https://www.smartkarma.com/entities/17527" target="_blank" data-smartkarma-citation="entities:17527:1">China Lodging Group, Ltd (Adr) (HTHT US)</a>, which has the best EBITDA margin among the listed peers.</li><li>GreenTree has strong cash flows due to high margins and low capex. GreenTree’s FCF as a percentage of revenue was 59% in 2017 vs the average peer group percentage of 14%. While GreenTree does not have a stated dividend policy, we see room for GreenTree to pay special dividends going forward in light of its strong FCF generation and debt-free balance sheet.</li></ol>We will provide a view of valuation once the IPO price range is announced.

Greentree Hospitality Group (GHG UA) filed for an NYSE IPO to raise $200 million on 27 February. It is the leading pure-play franchised hotel operator in China.Among its listed peers, GreenTree stands out on its execution capability regarding profitability and cash generation. Overall, we are bullish on the GreenTree IPO due to the following:GreenTree is taking steps to close the RevPAR gap with peers. We expect GreenTree’s RevPAR growth to accelerate as two factors will increase the mix of mid-to-upscale hotels. First, GreenTree started three new mid-to-upscale hotel brands (Gme, Gya and VX) in 2017. Second, mid-to-upscale hotels as a percentage of gross hotel openings are set to increase from 2% in 2016 to 11% in 2018.GreenTree has the best-in-class profitability due to a high mix of franchised-and-managed hotels. GreenTree’s EBITDA margin remained stable at 52% from 2016 to 2017. This margin was a remarkable 21 percentage points ahead of China Lodging Group, Ltd (Adr) (HTHT US), which has the best EBITDA margin among the listed peers.GreenTree has strong cash flows due to high margins and low capex. GreenTree’s FCF as a percentage of revenue was 59% in 2017 vs the average peer group percentage of 14%. While GreenTree does not have a stated dividend policy, we see room for GreenTree to pay special dividends going forward in light of its strong FCF generation and debt-free balance sheet.We will provide a view of valuation once the IPO price range is announced.

United States

GreenTree Hospitality Group Ltd. operates as a franchised hotel operator. The Company offers hotels, guests houses, board rooms, banquet hall, wedding venues, serviced apartments, and shell inns. GreenTree Hospitality Group serves hospitality industry worldwide.

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Greentree Hospitality (GHG US)

GreenTree Hospitality Pre-IPO Review - Large Dividend Payout Makes the Need for an IPO Questionable

Greentree Hospitality Group (GHG UA) plans to raise up to US$200m in its IPO primarily to fund its expansion. The company is one of the largest...

Sumeet Singh

GreenTree IPO Preview: Stay with Me

Greentree Hospitality Group (GHG UA) filed for an NYSE IPO to raise $200 million on 27 February. It is the leading pure-play franchised hotel...

Arun George

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