The company released its Q2 quarterly report, and the results showed resilience. 24Q2 achieved revenue of 6.15 billion yuan, up 11.2% year on year, at the upper limit of previously announced guidelines; of these, realized net profit to mother was 1.067 billion yuan, an increase of 5% year over year. An EBITDA of 1.9 billion yuan was achieved, and the adjusted EBITDA was 2 billion yuan, +11% compared with the same period last year. Among them, Huazhu's 24Q2 revenue was +11.1% year-on-year, contributing 1.033 billion yuan to net profit, up from 0.993 billion yuan in 23Q2; DH segment revenue was +11.6% year-on-year, contributing 0.034 billion yuan to net profit, which was a significant increase from 0.022 billion yuan in 23Q2.
It has surpassed 10,000 stores and continued to increase its market share. By the end of 2024Q2, the number of Huazhu stores worldwide reached 10,286, of which the number of Huazhu stores reached 10,150, including 9558 franchise stores; 3,258 reserve stores. Q2 Huazhu opened 567 new stores, with a net opening of 466. The store opening performance continued to be strong, reaching the milestone of 10,000 stores during the quarter. It was revealed that the company's target for opening new stores for the whole year was raised from 1,800 to 2,200. It shows that Huazhu's product strength has been fully recognized by investors, and brand potential has increased. In an environment where the overall demand side is under pressure, the company's comprehensive capabilities such as operation/brand/membership systems have improved the certainty of the investment side, and I am optimistic that the subsequent share logic will be further strengthened.
RevPAR's revenue growth rate in Q3 was 2-5% due to a year-on-year decline in the high base. The 2024Q2 Huazhu RevPAR was 244 yuan, -2.0% year over year, of which OCC was 82.6%, +0.7 pct year on year, ADR 296 yuan, or -2.9% year on year. DH ADR, OCC, and RevPAR all grew year over year. RevPar was 82 euros, up 4.5% year over year; ADR was 120 euros, up 2.7% year over year; and OCC was 68.3%, +1.2% year over year. The company indicates that the 2024Q3 revenue growth rate is 2 to 5%, and the year-on-year growth rate is declining compared to the actual growth rate in Q2. We expect it to be mainly affected by the year-on-year pressure of RevPAR this year under the high base of last year's Q3 summer travel season.
Initiate a dividend/share repurchase program to enhance shareholder returns. On July 23, 2024, the company announced a three-year shareholder return plan effective from that day, which can distribute up to 2 billion US dollars in total dividends to the company's shareholders; according to the plan, the company will declare dividends every six months, and the total dividends for each fiscal year are not less than 60% of the net profit for that fiscal year. At the same time, it will declare special dividends and repurchases from time to time according to the actual situation of the company. In terms of repurchases, the company approved a 5-year share repurchase plan of up to 1 billion US dollars, which will take effect on August 21, '24.
Investment advice: As a leader in the hotel industry, Huazhu Group's brand, traffic, and technology create competitive barriers, and its management culture empowers business development. Facing the current relatively pressured business environment, it has maintained a relatively rapid pace of expansion, which fully reflects its competitive advantage. Considering the year-on-year downward trend in operating data under pressure from business demand, we lowered the profit forecast for Huazhu Group. We expect net profit to be 4.165/4.438/4.711 billion yuan for 2024-2026, respectively. The corresponding PE valuation is 16/15/14 times, maintaining the “buy” rating.
Risk warning: industry competition risk, policy risk, risk of macroeconomic recovery falling short of expectations.