Introduction to this report:
The 2023Q4 results and guidance for 2024 are in line with expectations. Huazhu's own competitive advantage is obvious. It will continue to gain share, and the valuation repair process will continue.
Summary:
The performance was in line with expectations, and the holdings were increased. Considering industry sentiment and recovery progress, the adjusted net profit for 2024/25 was raised to 46.83/56.76 billion yuan (+2.04/+1.76) billion yuan (CNY, same below), and the adjusted net profit for 2026 was increased to 6.858 billion yuan. For 2024, 27xPE will be granted, with a target market value of RMB 126.8 billion, and the target price will be maintained at HK$42.50.
Incident: Huazhu achieved revenue of 5.585 billion yuan/ +50.70% (expected +41-45%), adjusted net profit of 657 million yuan (loss in 19Q4, 411 million), adjusted net profit margin of 11.76%, adjusted EBITDA of 1.270 billion yuan, adjusted EBI T D Amargin 22.74%.
Results and guidelines are in line with expectations. ① The operating data has previously been released, and the actual revenue forecast has been adjusted based on the operating data. RevPAR's recovery to 191% was better than the company's previous forecast. ② Profit margin performance: There was a slight change in the cost structure, and the decline in rent was clearly reflected, but the labor cost increase optimization brought about by DH and its own structural adjustments was not obvious; marketing investment increased, and the overall profit margin in Q4 was basically the same as 19Q4. ③ The market expects Huazhu's annual revenue growth rate to be in the 10% range. The current guideline is in line with this range of 8-12% for the whole year; however, the 24Q1 guideline slightly exceeded expectations by 12-16%. ③ It is expected to open 1,800 stores and close 650 stores. Referring to contracts signed in 2023 and now, there is a high probability that the above goals will be achieved;? Tourism expectations are better than business travel, Huazhu is superior to the industry, and its share is increasing. ① The market is pessimistic about business travel demand, but it is optimistic about travel demand; ② Huazhu has a clear competitive advantage. While leading in operating data, its share is still growing. South China, Southwest China and other places are gradually gaining advantages, and signing and opening stores are as strong as ever. ③ Huazhu's strong performance in ADR proved the quality and operational capability of its stores. It can support maintaining year-on-year price growth in a situation where business travel is weak and the base is high. In fact, it already shows a certain degree of pricing power. ④ Huazhu's previous rise was a repair to the market's pessimistic expectations for business travel since 23Q3. Currently, valuations are still at a low level. If the subsequent holiday window is catalyzed, the valuation repair process will continue.
Risk warning: Demand for business and domestic travel has fallen short of expectations due to repeated epidemics, and there is a risk of franchise stores closing due to the impact of the epidemic.