Incident: The company announced its 2024 quarterly report, achieving revenue of 3.26 billion yuan, with a year-on-year recovery of 96.1%; realized net profit of 190 million yuan, +34.6% year-on-year, with a recovery rate of 64.3% compared to 19Q1; net profit without return to mother 62 million yuan, -31.2% year-on-year, and 88.0% from 19Q1.
Overseas interest expenses dragged down net income not attributable to mother, and the management expense ratio declined year-on-year. 24Q1 saw a high increase in net profit due to the Louvre Group's disposal of hotel properties, which boosted non-recurring profit and loss to 128 million yuan.
Net profit without return to mother fell 31.2% year on year, mainly due to the year-on-year increase in the Euro interbank offering interest rate, which led to an increase in the company's interest expenses on overseas loans. 24Q1 interest expenses reached 162 million yuan, +64.3% year on year.
In 24Q1, the company's gross margin was 35.4%, -1.2pcts year-on-year. The cost rate for the period was 33.1%, +0.4pcts year on year. Among them, the sales/management/finance expense ratio was 7.5%/18.7%/6.7%, respectively, and +0.1/-1.5/+1.7 pcts year over year.
The company began reforms at the end of '23, and the management expense ratio declined year-on-year due to improved operating efficiency and revenue growth. The increase in the financial expense ratio was mainly due to a sharp increase in interest expenses.
Domestic RevPAR is under pressure, and overseas overall performance is stable. 1) In 24Q1, the RevPAR for domestic full-service/limited-service hotels was -5.4%/-1.6%; ADR was +5.9%/+1.3%, respectively; and Occ was -10.6/-2.8pcts, respectively. Domestic RevPAR declined year-on-year in 24Q1. We think the main reason is the increase in industry supply. According to the “2024 China Hotel Industry Development Report”, the number of hotel chains in China as of the end of 2023 was +28% year-on-year. In 24Q1, the RevPAR for mid-range and budget hotels in the company was -4.1%/-1.2%, respectively. 2) In 24Q1, the RevPAR for overseas hotels was 35.65 EUR, YoY - 0.1%. ADR was €63.37, +1.6% YoY. Occ was 56.3%, -0.9pcts year over year.
The completion rate of opening a store was 18.5%, and the pace of asset revitalization accelerated. 24Q1 opened 222 new hotels, and the total number of hotels increased by a net of 147 to 12,595; of these, midrange/economic/high-end hotels increased by 141/5/1 respectively.
Based on the target of opening 1,200 new stores in 24 years announced in the 23 annual report, the completion rate of opening stores in 24Q1 was 18.5%.
As of 24Q1, the number of hotels/guest rooms that the company had contracted was 16,701 house/ 157,8843, respectively. On April 13, 2024, the company announced the transfer of 100% of the shares in Fashion Travel Hotel, with a transaction price of 1,655 billion yuan. The company accelerates the pace of asset revitalization, further optimizes resource allocation, reduces financial leverage, and improves asset profitability.
Profit forecast, valuation and rating: As the company's performance recovery exceeded our previous expectations, we raised our 24-25 net profit forecast to RMB 1,527/17.72 billion (up 23.7%/8.2% from the previous forecast, respectively), and added the 2026 net profit forecast to RMB 1,977 billion. The current stock price is 1.43/1.66/1.85 yuan for 24-26 EPS, respectively, and the corresponding PE is 20/17/16 times, respectively. Optimistic about the long-term value of brand hotels after increasing concentration, and maintain a “gain” rating.
Risk warning: The country's improvement falls short of expectations; franchise expansion falls short of expectations.