Summary of the report:

Deep ploughing industry for 16 years, the hotel leader through the wind and waves. Huazhu Group Limited is the second largest multi-brand hotel group in China and the seventh largest in the world, with global coverage and rapid development. The company was founded in 2005, successively with economical hotel horse racing enclosure, multi-brand layout in the field of middle and high-end hotels, accelerating the cultivation of high-end brands, and forming a full-brand matrix from the bottom up. Founder Ji Qi has a "start-up godfather"

The reputation, the management team hotel industry experience, the company to horse racing culture to create a wolf team, strong competitiveness. The company maintains high revenue growth, relatively stable expenses and leading profit level during the period.

Brand + technology + flow, trinity to help thousands of stores. The company forms a multi-brand matrix through internal incubation and extension mergers and acquisitions, which differentiates and covers all subdivided races; technological empowerment and digitization of the whole process to achieve cost reduction and efficiency; founders inject genes into the Internet, members & traffic awareness is ahead of their peers, build their own membership system, and create private domain traffic pools.

From the road to the top of Marriott to see the future growth of Huazhu, chain franchise, medium-to-high-end, sinking market penetration and internationalization open the growth space. In the course of the development of Marriott Hotel, its business model iteration, endogenesis and extension continue to enrich the brand matrix and globalization development strategy help the company through the economic cycle to achieve sustainable growth of store size and group performance. Its development experience can provide reference for Huazhu:

1) chain franchise: Marriott Hotel has realized the transformation from heavy asset model to light asset model through the iteration of business model. At present, the chain franchise of Chinese hotel industry has gradually become the mainstream, and Huazhu also uses the light asset model to accelerate store development. 2) medium-to-high-end: unlike Marriott's top-down, full-service penetration into market segments to form a full-category brand matrix, Huazhu bottom-up layout of the high-end market, cultivate high-end brands, and accelerate the process of mid-to-high-end. 3) sinking market penetration: different from the relatively concentrated hotel industry in the United States, China's hotel industry is relatively scattered, and there are a large number of small and medium-sized single hotels in the low-line market, so infiltration into the sinking market can open a broader space for store expansion. 4) internationalization: Marriott Hotel distributes the global hotel market through both endogenesis and extension. Internationalization is the only way for global hotel leaders. Huazhu goes out to sea with its own brand and acquires DH Hotel to strengthen its global layout.

Investment suggestion: Huazhu, as the leader of Chinese hotels, forms the core competitiveness with the trinity of brand, technology and flow, with leading operating efficiency and solid competition barriers. It is estimated that in 2022-2024, the company will achieve a net profit of-3.33 billion yuan and 0.69 PE, respectively, with a "buy" rating of HK $36.26, corresponding to the target price of HK $36.26, respectively.

Risk tips: repeated epidemic situation, store expansion and multi-brand strategy are not as effective as expected.