Incident: The company issued a 2024Q1 financial announcement. 2024Q1 Huazhu's domestic hotel BI RevPar is 216 yuan (+2.9%/+21.3% compared with 2023Q1/2019Q1), 569 new domestic hotels were opened, 148 stores were closed, and 421 net businesses were opened. Deutsche Hotel BI RevPar €58 (+4.5%/-1.7% compared to 2023Q1/2019Q1, respectively), opened 5 new hotels, closed 3 stores, and opened 2 net businesses.
The 2024Q1 domestic and overseas RevPAR indicators are largely in line with expectations. 2024Q1 Huazhu domestic hotels had a BiRevPAR of 216 yuan (+2.9%/+21.3% compared to 2023Q1/2019Q1 respectively), OCC 77.2% (+1.6pct/-3.4pct compared to 2023Q1/2019Q1, respectively), ADR 280 yuan (+2.9%/+26.7% compared to 2023Q1/2019Q1 respectively). The RevPAR, OCC, and ADR of the same store that has been in business for 18 months or more were 218 yuan/ 78.2% /279 yuan, respectively, +0.9% /+1.1pct/ -0.6%; among them, the economical same-store RevPar, OCC, and ADR were 167 yuan/79.6% /210 yuan respectively, +0.7% /+1.0pct/ -0.6% year over year, respectively, and the middle and high-end same store RevPar, OCC, and ADR were 264 yuan/76.9% /343 yuan, respectively, +1.0% /+ 1.3pct/ -0.7% Deutsche Hotel 2024Q1 BI RevPar €58 (+4.5%/-1.7% year on 2023Q1/2019Q1 respectively), OCC 55.8% (+2.3 pct/-6.1 pct year on 2023Q1/2019Q1, respectively), ADR 104 (+0.2%/+9.5% compared to 2023Q1/2019Q1 respectively). Overall, the 2024Q1 domestic and overseas RevPAR indicators are basically in line with expectations and superior to peers.
The showroom exceeded expectations, the signing progressed steadily, and the pipeline continued to improve month-on-month. Showrooms: 569 newly opened hotels in China (2 directly managed, 567 franchised), 148 closed (11 directly managed, 137 franchised), 421 net opened hotels (9 directly-managed, 430 franchised), compared with 2023Q1+368, compared to 2023Q4+186. Among them, 134/287 economic/middle and high-end businesses were opened, respectively, and as of 2024Q1, the number was 5102 and 4,582, respectively. In terms of major brands, Economy Hanting/ Hello closed 146 or 41 stores respectively, Elan Clean closed 65 stores, and soft brands continued to withdraw; the mid-range brand Full Season/Orange Select opened 194 or 33 stores respectively. A net number of 2 German hotels were opened.
Pipeline: 2024Q1 Huazhu has 3138 pipelines (+77 month-on-month), which continues to grow, including 1,171 economical pipelines (+65 month-on-month) and 1967 mid-range and above (+12); overall, 2024Q1, company showroom contracts are progressing steadily, and Pipeline continues to increase month-on-month.
The revenue growth rate exceeded previous guidance, and profits were basically in line with expectations. 1) Revenue side: Benefiting from the company's continuous product upgrades, regional penetration and operation optimization, and brand optimization, the company achieved operating revenue of 5.278 billion yuan/year over year in 2024Q1 (better than the previous 12-16% guideline), its domestic revenue of 4.245 billion yuan/ +18.1% (better than the previous 11-15% guideline), and overseas revenue of 1,033 million yuan/ +16.6%. 2) Expense side: Domestically, hotel operating costs are 2,615 million yuan, SG&A expenses are 554 million yuan, and operating profit is 1,131 million yuan; overseas, hotel operating costs are 950 million yuan, SG&A expenses are 215 million yuan, and operating profit is 128 million yuan. During the reporting period, operating costs and expenses increased year-on-year due to business growth, salary return, cancellation of rent relief and normal sales demand, but overall operating costs and expenses remained stable, and performance was in line with expectations. Meanwhile, the company gave 2024Q2 revenue guidance of 7% to 11% (or 7%-11% without DH growth).
Investment advice: 2024Q1. The company's domestic and overseas RevPAR indicators are basically in line with expectations. Among them, domestic and overseas OCC is -3.4pct/-6.1pct compared to 2019, respectively, and RevPAR is +21.3%/-1.7% compared to 2019. On the basis of multiple advantages such as products, brands, and membership systems, the company has excellent expansion and operation capabilities, gradually phasing out economical hotels with low quality and poor operating performance, and continuously promotes the expansion of high-end high-quality hotels, and continues to improve the quality of operation. The company's net profit for 2024-2026 is estimated to be 43.2/50.1/5.90 billion yuan, corresponding to PE 22/19/16X, 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.