Annual business recovery is impressive, and is expected to continue to grow steadily in '24, Huazhu recorded revenue of 21,882 million/yoy +57.9%, net profit of 4.085 billion yuan, including other net profit of 573 million; 4Q23 revenue of 5.585 million/yoy +50.7%, and net profit of 743 million yuan to mother. The operating profit margin for 2023/4Q23 reached 21.5%/13.6%, respectively, and the net profit margin to mother reached 18.7%/13.3%. Without taking into account other net profit from the sale of Accor shares for the whole year, the calculated net profit margin was 16.7%. 4q23 Huazhu's domestic RevPAR (RP) recovered to 120% (3Q: 129%) in the same period in '19, and DH RP recovered to 106% (3Q: 107%) in the same period in '19. By 4Q23, Huazhu had 9394 stores worldwide.
Huazhu focuses on limited-service hotels. It has outstanding brand/operational efficiency/traffic advantages, has plenty of stores, is expected to accelerate expansion in 24 years, and the product structure continues to be upgraded. We expect the 24-26 EPS to be 1.29/1.47/1.70. Based on 25X 24E PE, the target price is HK$35.44. Comparatively, Wind and Bloomberg agree that the average PE value is 23X in 24. Maintain “buy-in.”
Domestic revenue in 4Q23 exceeded previous guidelines, and the continued recovery in overseas operations benefited from the release of tourism demand. Domestic revenue of 174/44 billion, yoy+63.7/+59.0% (vs guideline: 46-50%/48-52%), net profit to mother of 44/827 million yuan, and net interest rate to mother of 25.3%/18.8%, respectively. Off-season operations were resilient. 4Q23RP recovered to 120% in the same period in '19, and in 10/11/12 it was 120/117/ 123% in the same period in '19. 4QADR/OCC was 122%/98% in the same period in '19, compared with a recovery of 3q-10pp/+0pp compared to '19. DH operations continued the steady recovery trend. In 2023/4Q23, revenue of 4.4/12 billion was recorded, yoy+38.6/ +26.6%, and net profit of -3/100 million yuan was recorded, corresponding RP recovered to 106% in the same period in '19, and RP/ADR/OCC was +15%/+1.4% /+7pp. The company expects 1Q24 and FY24 revenue to grow 12-16%/8-12% year over year.
Abundant reserve stores to accelerate product iteration and structural upgrades
Accelerate expansion and continue to clean up low-quality stores. As of 4Q23, the number of domestic hotels reached 9263, 460/235 newly opened/net-opened in the 4Q, compared to -85/-171, including 259 economic/mid-to-high-end net open -24/+259, and 131 DH hotels, or -3 month-on-month. 1,641 new stores were opened in 23, successfully completing the annual target of opening 1,400 new stores. As of 4Q23, there were 3061 domestic stores to be opened, +126 compared to the previous month (Hanting 731/936 homes in the full season, 315 Orange homes, 56 Huajiantang), and 37 overseas stores. Looking at the structure, the share of economic/midrange/mid/high-end and above in reserve stores reached 36.2/48.5/12.8/ 2.2%, -0.8/+0.4/+0.1pct month-on-month, and the structure was upgraded. The company aims to open 1,800/close 650 stores in 24 years.
Maintain a “buy” rating; give a target price of HK$35.44
The company's brand strength is outstanding, and demand is resilient. We expect EPS to be 1.29/1.47/1.70 yuan in 24/25/26 (value before 24/25:1.27/1.46 yuan), based on 25X 24E PE, with a target price of HK$35.44. Comparable to Wind and Bloomberg in 24 years, the average PE value is 23X (considering the company's solid brand/traffic/operation base and continuous leadership in business repair, and the premium rate is reduced slightly). Maintain “buy-in.”
Risk warning: Demand falls short of expectations, industry competition intensifies, macroeconomic fluctuations.