Introduction to this report:
The expansion of 2024Q1 stores and franchises drove revenue and performance exceeding expectations, increasing domestic performance and reducing overseas losses. However, considering the higher base, the 24Q2 guidelines are conservative.
Summary:
Performance exceeded expectations and increased holdings. Taking into account industry sentiment and recovery progress, adjusted net profit for 2024/25/26 was reduced to 42.30/55.37/66.91 (-4.53/-1.39/ -1.67) billion yuan. Awarded 30xPE in 2024, maintaining the target price of HK$42.50.
Incident: Huazhu 24Q1 revenue: 5.278 billion/ +17.81%, adjusted net profit of 771 million/ +100.78%, adjusted EBITDA of 1,421 million/ +17%. Operating data:
24Q1 Group's overall RevPar +3.1% YoY, including ADR +1.0% and OCC+1.6pct; the store's overall RevPAR +0.9%, of which ADR -0.6% and OCC+1.1pct.
Driven by store expansion and franchise revenue, it is far ahead of the industry. ① Both revenue and profit in the 24Q1 financial report exceeded expectations (exceeding the revenue range of +12-16% of previous guidance), and operating data were in line with expectations (RevPAR guidance +3%). ② Reasons for exceeding expectations: Revenue side: 1) Opening the store was higher than expected; 2) The take-rate slightly increased by 0.14 pct, which contributed to franchisees' strong charging capacity, seasonal factors and CRS drainage; cost side: direct management adjustments and closure, and overall rent and energy consumption declined.
③ The growth rate of domestic business performance is in line with expectations: net profit of 833 million yuan in 24Q1, 1.2 billion yuan (including investment income of 514 million yuan), adjusted EBITDA of 1,487 million/ +31.7%; overseas loss reduction: adjusted EBITDA-66 million; 23Q1 was a loss of 98 million yuan, reducing losses.
The second quarter had a high base, and the guidelines were conservative. ① The company's 24Q2 revenue growth rate is 7-11%, and the estimated Q2RevPar is flat or slightly declining, which is in line with the industry's sentiment judgment: tourism is moving from centralized release to a stable period, and the business tourism boom is at the bottom; ② We expect that under the assumption that short-term prosperity is neutral, Huazhu's revenue growth rate will stabilize at 10% based on high-quality stores and efficient operation, and the driving force comes from developing stores (expected to exceed 1,800 stores for the whole year). The performance side is expected to benefit from improved efficiency, and the growth rate will continue to be faster than the revenue side. ③ More attention should be paid to changes in the competitive pattern of the industry: the chainization rate has increased, but CR3 concentration has declined, operations have picked up+property rents have declined, “defensive expansion” in the middle and lower back, and the pattern is scattered in stages. However, the scale effect of hotels and competition for efficiency will eventually be concentrated again.
Risk warning: Demand for business and domestic travel has fallen short of expectations due to repeated epidemics, and there is a risk of franchise stores closing due to the impact of the epidemic.