Event: The company announced full-year 2023 and 2023Q4 results. For the full year of 2023, the company achieved revenue of 21,882 billion yuan, a year-on-year increase of 57.9%; achieved net profit of 4,085 billion yuan, and a net loss of 1,821 billion yuan in the same period last year. In Q4 alone, the company achieved revenue of 5.585 billion yuan, an increase of 50.7% over the previous year; achieved net profit of 743 million yuan, and a net loss of 124 million yuan for the same period last year.
Operational efficiency was highlighted, and gross margin improved significantly year over year. For the full year of 2023, Legacy-Huazhu achieved revenue of 17.4 billion yuan, a year-on-year increase of 63.7%, and realized net profit of 4.4 billion yuan, compared to -1.4 billion yuan in the same period last year. The Group's overall gross margin level was 34.3%, +23.2pct year on year; the gross margin of the Legacy-Huazhu Hotel Business segment was 39.6%, +25.7pct year on year. Looking at Q4 alone, the gross margin of the Legacy-Huazhu hotel business segment was 33%, +22pct year over year and -15pct month-on-month. The month-on-month decline in gross margin was mainly due to impairment losses of 362 million yuan in Q4 (2023Q3 was 0.05 billion yuan).
Super guidelines for opening new stores throughout the year, and store openings have continued to accelerate in 24 years. Huazhu opened 1,647 new stores throughout the year (1,400 compared to the beginning of the year), closed 782 stores, and opened a net of 851 stores. At the end of the period, the number of stores reached 9394, of which Legacy-Huazhu/Legacy-DH were 9263/131, respectively. Looking at Q4 alone, Legacy-Huazhu opened 460 new businesses, closed 225, and netted 235. By the end of 2023, the number of company pipelines was 3,098, compared to 2,580 in the same period last year. The company expects to open 1,800 new stores and close 650 stores in 2024. The accelerated expansion of stores is mainly due to preferential policies for franchisees granted by Huazhu at the beginning of the year in 2023, so that the number of new signatures in 2023 exceeds expectations, supporting the expansion of stores in 2024. At the same time, the company expects revenue growth of 8-12% year-on-year in 2024, which we believe will be mainly driven by new store openings.
Off-season management resilience remains, and RevPAR recovery in the fourth quarter was better than expected. Demand for business travel in the 2023Q4 industry is weakening, but the company's strong operating capacity is leading the way in recovering operating data. 2023Q4Legacy-Huazhu RevPar recovered to 120% in the same period of 2019, and the full year RevPar recovered to 122.4% in 2019, of which OCC recovery was 96.7% and ADR recovery was 127.4%.
Overseas, the 2023Q4 Legacy-DH RevPAR recovered to 101.3% in 2022, and the full year RevPAR recovered to 114.5% in 2022.
Investment advice: The company has outstanding advantages in terms of brand, operation, and membership, and its performance has grown beyond expectations. We believe that in 2024, the company's store opening expectations will accelerate and operating efficiency will be strong, and the annual results are expected to continue to be realized. We expect the company's net profit to be 42.24/47.72/5.434 billion yuan in 2024-2026, and the corresponding PE is 20.73/18.35/16.12 times, respectively, maintaining a “buy” rating.
Risk warning: demand recovery falls short of expectations; store expansion falls short of expectations; macroeconomics falls short of expectations