Core views
2023Q4 achieved revenue of 5.585 billion yuan, +50.7% year-on-year, higher than the previous 41-45% growth guide; adjusted net profit was 657 million yuan, and the adjusted net profit margin was 11.8%.
As of Q4, there were 3061 Legacy-Huazhu companies and 37 DH companies (2,935/35 in 23Q2), increasing for 3 consecutive quarters. In 2024, the company plans to open 1,800 stores and close 650 stores. Overall opening and net opening are clearly accelerated. In the current environment, franchisees are more cautious about the return on investment period of the brand, and the company's leading operating capabilities will be more advantageous. Legacy-Huazhu's net profit for the full year of 2023 was 4.349 billion yuan. Excluding earnings from the sale of Accor, it still more than doubled compared to 2019. The high increase in the company's profit is not just short-term cycle flexibility; the continuous increase in profit due to structural and growth cannot be ignored.
occurrences
The company announced results for the fourth quarter of 2023:2023Q4 achieved revenue of 5.585 billion yuan, +50.7% year on year, total hotel turnover of 20.4 billion yuan, +55.0% year on year; net profit to mother was 743 million yuan, and adjusted net profit was 657 million yuan. 2023Q4 had a net operating cash inflow of 2.4 billion yuan, or 6.9 billion yuan in cash and equivalents at the end of the year.
Brief review
Domestic revenue continued to exceed the guideline throughout the year. The single store contribution and membership system led 23Q4's overall revenue of 5.585 billion yuan, +50.7% year over year, of which Legacy-Huazhu was 4.384 billion yuan, +59% year over year. Previously, overall revenue was expected to increase by 41% to 45%, and Legacy-Huazhu increased by 48-52%, all higher than previous guidance. For the full year of 2023, the company achieved revenue of 21,882 billion yuan, of which Legacy-Huazhu was 17.438 billion yuan, +63.7% year-on-year, and +55.5% compared to 2019, DH achieved revenue of 4.444 billion yuan, +38.5% year-on-year. We estimate that the company's overall commission rate for the annual franchise business is about 11.6%, up 0.66pct from 2022. On the one hand, the company had a certain reduction in hotel commissions last year, while the company's CRS share is expected to continue to increase, leading the membership system industry.
Domestic profit levels remained high, and overseas losses were reduced throughout the year
23Q4 Company's adjusted net profit margin was 11.8% (22.1% during the Q3 peak season). The adjusted accounts were mainly fair value income and equity incentive expenses resulting from the Ubox listing of the investment.
The adjusted EBITDA was 1.27 billion yuan, of which DH was basically flat, and the domestic adjusted EBITDA% was 29%. The company's adjusted net profit for the full year of 2023 was 4.119 billion yuan, of which Legacy-Huazhu was 4.38 billion yuan, up 181% from 1.562 billion yuan in 2019. Even after excluding the 500 million revenue from the sale of Accor in Q1, the increase was significant. The company had outstanding performance in store growth and cost reduction and efficiency over the past 4 years. Combined with the increase in ADR in 2023, profit increased dramatically. DH lost 265 million yuan in 2023, a significant loss reduction compared with a loss of 401 million yuan in 2022. After DH was excluded, the company's 23Q4 operating cost rate and general administrative expenses rate rose to a certain extent. In the early stages of liberalization, the company's fee control was strict, and the second half of the year gradually became normalized, and it is expected to stabilize in the future. The overall sales and marketing expenses rate for Legacy-Huazhu in 2023 was 3.72%, and general administrative expenses were 8.97%, down from 4.90% and 9.53% in 2019.
The operating indicators for the fourth quarter were still significantly superior to the industry. The high-quality store structure further drove the overall RevPAR increase of 23Q4Legacy-Huazhu's overall OCC/ADR/RevPar to 80.5% /284 yuan/229 yuan respectively, compared with the same period in 2019 (same below) -1.7 pct/ 22.5%/20.0%, and 23Q3 was -1.8 pct/ 32.1%/29.4% respectively. The October-December RevPAR recovered to 120%/117%/123% in 2019, respectively, and the December performance remained strong. Looking at the whole year, the 2023 occupancy rate/ADR/RevPAR was -3.3pct/ +27.4%/22.4%, respectively. Q4 same-store OCC/ADR/RevPAR -6.5 pct/ 9.9%/1.4% (Q3 was -5.2 pct/ 17.5%/10.6%): Among them, the same store Occ economic/mid-to-high-end -9.1pct/-3.7pct, ADR economic/mid-high end 10.2%/6.8%, RevPar economic/mid-high end -1.5%/1.8%. OCC/ADR/RevPAR year-on-year -7.4pct/ 13.4%/3.4% year-on-year. The difference with the head office data fully reflects the contribution of the company's new store operations and structure.
The number of contracted hotels remains strong, and the layout continues to be mid-range and high-end
In 23Q4, excluding DH, a total of 460 stores were opened, 225 stores were closed, and 235 stores were opened. As of 2023Q4, the total number of hotels in the company reached 9394 (including 131 DH hotels), the proportion of direct management dropped to 7.36%, and the proportion of mid-range and above hotels increased to 46.94%. The net increase of 136 in the whole season has reached 2,116, and Hanting's size is 3,598. In the pipeline, there were 3061 Legacy-Huazhu companies and 37 DH companies (2,935/35 in 23Q3, respectively), maintaining an upward trend domestically.
In 2023, the total number of companies opened 1,647 (including DH6), with a net increase of 852 (including DH-1). The original plan was to open 1,400 stores and close 600-650 stores. The net number slightly exceeded expectations. The company plans to open 1,800 stores and close 650 stores in 2024. The total opening and net sales are both higher than in 2023.
Profit forecast and investment advice: We expect the company to achieve adjusted net profit of 47.34/56.33/6.67 billion yuan in 2024-2026, corresponding PE of 20/16/14 times, respectively, maintaining an increase rating.