Our US$36.5 target price for Atour is based on 14x 25E EV/EBITDA, set at 10% above China’s hotel sector average, which we think is justified by the company’s faster growth, product competitiveness (particularly in the upper midscale segment), and business resilience.

Our quant model rates the Atour stock High Risk for its volatility, but we believe it is unwarranted given the better visibility on recovery after China’s reopening, and the company's improving operating capability and earnings resilience.

Key downside risks that could impede the stock from reaching our target price include: 1) Travel-related impact from natural disasters or pandemic (eg, Covid-19); 2) a prolonged economic downturn; 3) intense competition with both domestic and international hotels; 4) failure to expand or delays in new openings; and 5) regulation risks.