Introduction to this report:
The performance was in line with expectations. Macro fluctuations dragged down the growth rate, but the company's increase in store opening guidelines indicates that its share is still expanding.
Key points of investment:
The performance was in line with expectations, and the holdings were increased. Taking into account the company's own accelerated store development, adjusted net profit to mother was raised to RMB 4.488 billion (+2.58) billion in 2024. However, considering the impact of macroeconomic fluctuations on sentiment, adjusted net profit to mother was lowered to 49.78/59.43 billion yuan (-5.59/-7.48) billion yuan in 25/26. The 2025 industry average was 25 x PE, and the target price was maintained at HK$42.50.
Performance summary: 2024Q2 Huazhu RevPar -2.0% YoY, including ADR+ -2.9% and OCC+0.7pct; the store's overall RevPAR -3.6%, including ADR -4.1% and OCC+0.4pct.
Operating income: 6.148 billion/ +11.18%, adjusted net profit 1.254 billion/ +17.42%, adjusted EBITDA 2.04 billion/ +15.5%.
Operating data leads the market and the same industry. ① Both revenue and performance in the 24Q2 financial report were in line with expectations (revenue in line with guidelines of 7-11%, expected adjusted net profit of 1.2 billion yuan), and operating data were in line with expectations (RP guidelines remained flat or declined slightly). ② On the revenue side, under a high base, RevPar had slightly negative growth and a better decline than the industry (around -10%), and the take-rate increased compared to 23Q2 (10.39% vs. 10.14%). It shows that Huazhu has maintained a leading edge in store quality, store operation, and franchisee bargaining power. ③ There has been a marked decrease in rent on the cost side. We think it is related to closing the store. However, sales and management expenses increased during the peak season, reflecting a phased increase in the company's marketing and channel launch during the downturn in the industry.
Store opening guidelines have been raised, and share and efficiency advantages are expanding. ① The company's guidelines for expanding stores were raised from 1,800 to more than 2,200. Companies at the bottom of the industry are still able to open stores faster, reflecting Huazhu's advantages in terms of brand, operation, and franchisee return, and the industry share is concentrated in Huazhu. Currently, the hotel industry is in a stage where the chain rate is increasing, but CR3 concentration is declining, but eventually it will be concentrated again. ② The domestic business growth rate is expected to be 1-4% in 24Q3, the overall growth rate is 2-5%, and the growth rate will slow sharply. The above guidelines are in line with current industry trends: when 23Q2-Q3 has a high base and business travel is sluggish, the growth rate is under pressure. The market has already anticipated it and is reflected in the valuation. ③ The prosperity of the hotel industry is currently the core reason affecting valuation, and Huazhu actively invests in brand building, product upgrades, and improving supply chain efficiency, and is working hard to practice internal skills. This will give the company a more obvious competitive advantage in the next boom cycle.
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.