Key points of investment
Incident: On the afternoon of March 20, 2024, Huazhu issued the 2023 annual announcement. In 2023, the company achieved revenue of 21.882 billion yuan, +57.9% year-on-year, and net profit to mother turned a loss of 4,085 billion yuan.
Q4 Revenue exceeded guidelines, and profitability surpassed pre-pandemic levels by a large margin. Q4 alone achieved revenue of 5.59 billion yuan, Yoy +51%, exceeding the guideline by 41-45%: of which Huazhu's revenue was 4.38 billion yuan, yoy +59%, +50% compared to 2019 Q4; DH's revenue was 1.20 billion yuan, yoy +27%. Single Q4 achieved net profit of 740 million yuan, a year-on-year loss of +20% compared to 2019 Q4. Among them, Huazhu partially achieved net profit of 830 million yuan, reversing year-on-year losses, +34% compared to 2019 Q4; the DH portion achieved net profit of -80 million yuan. Single Q4 achieved adjusted EBITDA of 1.3 billion yuan, +52% compared to 2019 Q4. The annual adjusted EBITDA was 6.9 billion yuan, +106% over the same period in 2019.
Expansion of business scale in mainland China and adjustment of middle to high-end structure. As of the end of Q4, the total number of Huazhu stores reached 9,263, yoy +10%, of which high-end brands accounted for 46% and franchise stores accounted for 93%; by the end of Q4, Huazhu had 3061 stores in reserve. Huazhu opened 460 new Q4 stores in a single season, a net of 235; 1,641 new stores were opened throughout the year, a net of 852. By the end of Q4, Huazhu had a total housing volume of 886,000 units, yoy +13%, including 799,000 franchised rooms, yoy +15%, and 87,000 directly-managed rooms, yoy -3%. The 2024Q4 Huazhu Economical/Middle and High-end same-store RevPar was 173/283 yuan respectively, compared to 155/253 yuan in the same period in 2019. As of the end of Q4, the number of overseas DH stores was 131.
Off-season business data has returned to normal, and net store opening will accelerate throughout the year. The 2024Q1 revenue guideline is 12-16% year-on-year, and the 2024 full-year revenue is expected to grow 8-12% year over year. The full year of 2024 is expected to open 1,800 stores, close 650 stores, and net open 1150 stores. Net store opening for the whole year is faster than in 2023. For the domestic Huazhu business, while continuing to implement a lean growth strategy and carry out high-quality network expansion, the company will focus on improving service quality and starting the first year of excellent service. For overseas business, the Legacy-DH business will be transformed into a more asset-light model, continuing to focus on reducing costs and increasing efficiency, strengthening direct sales through the Huazhukai Global Member Benefit System, and seeking growth opportunities in the Asia-Pacific region and the Middle East.
Profit forecast and investment rating: As a leader in the hotel industry, Huazhu Group's brand, traffic, and technology create competitive barriers, and the management culture empowers business development. It bucked the trend and expanded during the pandemic, and the market pattern improved markedly. Based on the latest financial data, Huazhu Group raised 2024/2025 and added the 2026 profit forecast. Net profit to mother for 2024-2026 was 42.2/45.5/4.90 billion yuan, respectively (the value before 2024/2025 was 40.4/46 billion yuan), and the corresponding PE valuation was 22/20/19 times, maintaining the “buy” rating.
Risk warning: industry competition intensifies, store growth falls short of expectations, etc.