Incident: The company issued an announcement for the fourth quarter of 2023. The company achieved revenue of 5.585 billion yuan/year on year +50.7% in 2023Q4, of which domestic revenue was 4.384 billion yuan/year on year +59.0%, of which direct-run hotels achieved revenue of 2,288 billion yuan, accounting for 52.2%; management and franchise hotels achieved revenue of 1,992 billion yuan, accounting for 47.8%. German Hotels achieved revenue of 1.01 billion yuan/YoY +26.55%, of which directly-managed hotels achieved revenue of 1,165 billion yuan, accounting for 97.00%; managed and franchised hotels achieved revenue of RMB 24 million, accounting for 3.0%. Meanwhile, the company achieved net profit of 743 million yuan in 2023Q4 (loss of 124 million yuan in the same period last year). After the peak season in the third quarter, the revenue growth rate exceeded previous guidelines, and the quality of the company's operations continued to improve.
Domestic and overseas occupancy rates have recovered. Affected by seasonality, BI RevPAR declined in the fourth quarter compared to 2019, but is still far ahead of peers. 2023Q4 Huazhu domestic hotels BI RevPAR 229 yuan (+43.8%/+19.9% compared to 22Q4/19Q4 respectively), OCC 80.5% (+14.3pct/-1.7pct compared to 22Q4/19Q4, respectively), ADR 284 yuan (+18.3%/22.4% compared to 22Q4/19Q4 respectively). The RevPAR, OCC, and ADR of the same store that have been in business for 18 months or more were 230 yuan/ 81.2% /283 yuan, respectively, +40.8%/+13.9pct/ +16.7%, respectively. Among them, the economical same-store RevPar, OCC, and ADR were 173 yuan/81.7% /212 yuan respectively, +34.5%/+11.9pct/ +14.9%, respectively; the middle and high-end same store RevPar, OCC, and ADR were 283 yuan/ 80.8% /351 yuan respectively, respectively + 44.2% /+15.8pct/ +16.0% Deutsche Hotel Q4BI RevPar 73 Euro (+1.3%/+9.0% year on 22Q4/19Q4), OCC 63.8% (+4.5 pct/-5.3 pct year on 22Q4/19Q4, respectively), ADR115 Euro (-5.9%/+18.6% compared to 22Q4/19Q4, respectively). Overall, due to 2023Q4, the occupancy rate of the company's domestic and foreign hotels has recovered. Due to seasonal effects, BiRevPar's recovery rate declined in the fourth quarter compared to 2019, but it is still far ahead of its peers.
The showroom basically met expectations, exceeded the target for the whole year, and the pipeline continued to improve month-on-month. Showroom:
460 new domestic hotels (4 directly managed, 456 franchised), 225 closed (5 directly managed, 220 franchised), 235 net opened hotels (1 directly-managed, 236 joined), a year-on-year increase of 22Q4+100; by the end of the year, the company had opened 1,641 stores, closed 789 stores, and a net increase of 852 stores in 2023, exceeding the target set at the beginning of the year.
Among them, the net opening of economic/mid-range and above in 2023Q4 was 24 household/259, respectively, and 4968 households/4295 businesses as of 2023Q4, respectively. In terms of major brands, the economy brand Hanting/ Hello closed 98/22 stores respectively, and Elaijing closed 157 stores, soft brands continued to withdraw, and the number of store closures increased in a single quarter; mid-range brands opened 136/37 net stores respectively. A net number of 2 German hotels were opened. Pipeline: 2023Q4 Huazhu has 3061 pipelines, +126 month-on-month, including 1106 economical (+22 month-on-month) and 1,955 mid-range and above (+104); overall, 2023Q4 continues to exhibit stores, and the pipeline continues to improve month-on-month, demonstrating leading strength and determination of subsequent exhibitors.
The performance was basically in line with expectations, and the quality of operations continued to improve. 1) Revenue side: Benefiting from the company's continuous product upgrades, regional penetration and operation optimization, and brand optimization, the company achieved revenue of 5.585 billion yuan/year over year +50.7% (better than the previous 41-45% guideline) in 2023Q4, and its revenue in China increased by 59.0% year on year (better than the previous 48-52% guide). The performance was particularly impressive. On the one hand, it was also a demonstration of brand and product capabilities. 2) Expense side:
Domestically, the operating costs of the hotel were RMB 2,937 million, sales and marketing expenses of RMB 202 million, general and administrative expenses of RMB 484 million, and operating profit of RMB 821 million; overseas, the operating costs of the hotel were RMB 1,059 million, sales and marketing expenses of RMB 124 million, general and administrative expenses of RMB 160 million, and operating losses of RMB 64 million. During the reporting period, the company's hotel operating costs and expenses increased slightly, and the performance was basically in line with expectations. At the same time, the company gave 2024Q1 revenue guidance of 12%-16% year-on-year growth (that is, 11-15% not included in DH growth), and the 2024 revenue guide was an 8-12% year-on-year increase (that is, without DH 8-12%), and is expected to open 1,800 hotels and close 650 hotels in 2024; the company's continuous operating conditions in 2023 and the 2024 guidance reflect excellent business quality.
Investment suggestions: 2023Q4. Looking at the split month, in 10/11/12, the company BlendedRevPar recovered to 120%/117%/123% in 2019, respectively. It has excellent expansion and operation capabilities based on multiple advantages such as products, brands, and membership systems; the company gradually phased out economical hotels with poor quality and poor operating performance, and continued to expand high-end high-quality hotels, and continued to improve business quality.
The company's net profit for 2024-2026 is estimated to be 43.5/50.1/5.85 billion yuan, corresponding to PE of 21/18/15X, respectively, maintaining a “buy” rating.
Risk warning: 1) Macroeconomic downside risk; 2) Multi-brand strategy and store expansion results fall short of expectations; 3) Increased industry competition.