CICC: The hotel supply and demand relationship is expected to tend towards rebalancing, with product innovation and leading companies expanding into lower-tier cities showing promise.

CICC released a research report stating that the Chinese hotel industry will face weak performance realization and an imbalance in supply and demand in 2024. Looking ahead, the bank estimates that the supply-demand relationship is expected to trend towards rebalancing, while also recommending to pay attention to: 1) Changes in competition in the South China market and the expansion of "latecomers"; 2) the demand for hotel product renewal may bring new opportunities for brand patterns; 3) there is still potential for leading companies in the sinking market, with a need to select cities and models carefully. Key points from CICC are as follows: How will the competition landscape unfold in the South China market Some latecomers are marginally gaining market share, and with the strong breakthrough potential of core brands in the South China region, it is recommended to continue to monitor penetration progress and market share improvement processes. 24 vs. 23, how has the demand for hotel product renewal changed 1) under the influence of the industry supply cycle, by the end of 2024, the proportion of hotels with operational/renovation periods of 6-10 years for major groups had increased compared to the end of 23, but there are differences between groups. In line with this trend, the bank judges that the number of existing hotels needing renovation in the next 1-2 years may increase rapidly, and franchisees have four options after the product aging (upgrade to original brand, major investment renovation for top quality brands, minor investment renovation for soft brands, maintain current status), and the competition pattern between brands may also change. 2) Economic hotels and light-managed products may face greater pressure from aging in terms of splitting regions, grades, and brands. Revisiting the "methods and techniques" of penetrating the sinking market 1) Focusing on the competition landscape in the sinking market, leading brands of all grades are leading the growth in the sinking market, and leveraging high-quality brands that have been validated to penetrate the sinking market could be a common path. 2) Looking ahead, most brands within top groups still have room for improvement in terms of coverage and average number of hotels in their commercial districts. The bank sees that the more feasible sinking model at present may be selecting sinking cities that can generate more demand from other regions, finding suitable properties and replicating proven mature models; in the long term, each hotel group may need to develop a lighter model with a smaller number of rooms more suitable for the sinking market's existing properties. Risks Weak spending power or increased supply leading to RevPAR recovery below expectations; slower than expected expansion scale.