I. Finance: 24Q2 revenue performance slightly exceeded guidelines, operating profit margin 25.6% /+0.6pct

24Q2 The company's revenue was 6.15 billion yuan/yoy +11.2%; net profit to mother was 1.1 billion yuan/yoy +5.1%.

Among them, Huazhu's domestic hotel revenue was 4.8 billion yuan/yoy +11.1%; German hotel revenue was 1.3 billion yuan/yoy +11.6%. Among them, the Group's direct revenue was 3.7 billion yuan/yoy +2.5%, and franchise revenue was 2.3 billion yuan/yoy +25.8%.

24Q2 Huazhu Group's operating profit margin was 25.6% /yoy+0.6pct (24Q1:19.0%), of which domestic operating margin was 31.0% /yoy-0.1pct (24Q1:26.6%). The company's domestic operating cost ratio is 56.7% /yoy-2.2pct (24Q1:61.6%); sales expenses rate 4.0% /yoy+0.5pct; management expense ratio 10.0% /yoy+1.9pct.

2. Operation: In 24Q2, Huazhu's domestic RevPAR declined slightly year-on-year, recovery fell to 118%, and overseas RevPAR recovery rose to 115%

The 24Q2 RevPAR in Huazhu was 244 yuan/yoy -2.0%, down 2.9 pct from the overall recovery rate of 118.4% in 19Q2 and the 121% recovery in 24Q1. 1) ADR 296 yuan/yoy -3.0%, 125% in '19, OCC 82.6% /yoy+0.7pct, or 95.1% in '19.

The 24Q2 German RevPar was €82/yoy +4.5%, an increase of 17.2pct compared to 98.3% recovery in 24Q1, with ADR 120€/yoy +2.7% and OCC 68.30% /yoy+1.2pct.

3. Store opening: 24Q2 Group opened 572 new stores and 567 new domestic stores, achieving 64% of the original store opening target in the first half of the year

24Q2 Group opened 572 new stores, 24H1 achieved 64% of the original annual target of 1,800 stores, closed 103 stores in 24Q2, and opened 469 net stores. In 24Q2, 567 domestic stores were opened, and the number of domestic stores in the company reached 10,150; 5 overseas stores were opened, and 136 overseas stores were in operation.

4. Guidelines: Q3 revenue is expected to increase by 2% to 5%, and the annual store opening guidelines will be raised to 2,200 stores

Guidance: In the third quarter of 2024, expected revenue growth of 2% to 5%, or 1% to 4% increase is not included in DH. The guidelines for opening stores throughout 2024 were raised, and it is expected that 2,200 hotels will be opened, which is higher than the previous guideline of about 1,800 hotels.

Profit forecast and investment advice: Optimistic about increasing concentration of leading hotel companies, Huazhu has the advantage of leading scale and excellent operation and management efficiency. We expect Huazhu's net profit for 2024-2026 to be 4/4.6/4.9 billion yuan (considering operating performance, the previous 24/25 forecast was raised by 3.2/4 billion yuan). The current stock price corresponding PE is 24/21/20x, respectively, to maintain a “buy” rating.

Risk warning: macroeconomic environment fluctuations; industry competition intensifies; demand falls short of expectations, etc.