Core view: Benefiting from the improvement in product strength brought about by the transformation of direct-run stores and the company's revenue management capabilities, Huazhu's performance in the first quarter slightly exceeded expectations. We believe that Huazhu has always been ahead of its competitors in terms of management and product iteration, which has also shown strong performance in channel development. The company's market share is expected to continue to rise, and the current valuation does not fully reflect the company's intrinsic value.
The profit forecast was raised and the “increase in holdings” rating was maintained. In the first quarter of 2024, Huazhu's Q1 core business indicators grew steadily against the backdrop of the industry generally facing growth pressure under a high base. Considering the improvement of the company's product competitiveness and revenue management capabilities, we expect the company to have a high probability of reaching or even exceeding the performance target. Therefore, we slightly raised the net profit forecast for Huazhu Group-S 2024-2025 to 42.3/5.05 billion yuan (the previous 24-25 forecast was 40.3/4.79 billion yuan) to maintain the “increase in wealth” rating.
Our Q1 results in '24 slightly exceeded our expectations. 1) The company's revenue in Q1 2024 was 5.28 billion yuan, up 17.8% year on year, and net profit to mother was 660 million yuan, down 33.4% from Q1 in 2023 (23Q1 net profit of 990 million yuan, including 510 million yuan in sales of Accor shares). The first quarter results slightly exceeded our previous expectations (we expected 630 million yuan). 2) In the first quarter, the domestic hotel division Legacy-Huazhu had revenue of 4.23 billion yuan, up 17.6% year on year, and net profit to mother was about 830 million yuan, down 30.6% year on year (also affected by the sale of Accor shares).
The overseas hotel division Legacy-DH had revenue of 1.03 billion yuan, up 16.6% year on year, and net profit to mother - 170 million yuan, a slight increase in year-on-year losses.
Growth bucked the trend under a high base, and management resilience was highlighted. 2024Q1, the domestic hotel market was affected by a high base and a weak recovery in the business travel market, and the overall performance of demand was relatively lackluster. However, thanks to the improvement in product strength brought about by the transformation of direct-run stores and the company's revenue management capabilities, Huazhu's core business indicators maintained a steady level of growth in Q1. Overall domestic RevPAR increased by 3.1% year-on-year in Q1. Among them, ADR increased 1.0% year over year and OCC increased 1.6% year over year. By business, direct-run store RevPAR increased 8.8% year over year, with ADR up 2.5% year on year and OCC up 4.7% year on year; franchise store RevPAR increased 3.0% year on year, of which ADR increased 1.3% year over year and OCC increased 4.7% year on year.
Store expansion is progressing steadily, and leading advantages have been further expanded. 2024Q1 opened 569 new stores in the country, closed 148 stores, and opened 421 net stores. Judging from the contract situation, 647 new stores were signed in Q1 in '23, and the number of hotels to be opened reached 3,138. Looking at competitors, Jinjiang Hotel and First Travel Hotel opened 222/205 new stores and 121/110 new contracted stores respectively in the first quarter. Thanks to excellent products and excellent management capabilities, the gap between Huazhu Group and other competitors is widening further.
Risk warning events: RevPAR's recovery pace falls short of expectations; store expansion falls short of expectations; service quality and brand risk; hotel group competition increases risk.