Huazhu Group achieved revenue of 6.442 billion yuan/yoy +2.4% in 3Q24; recorded an adjusted EBITDA of 2.113 billion/yoy -9.5% (domestic 2.092 billion, DH21 million), and an adjusted EBITDA rate of 33% /yoy-4.3pct, of which domestic 40.5% /yoy-3.7pct. 3Q net profit to mother was 1.273 billion/ YoY -4.8%, and net profit margin to mother 19.76%. The lackluster business performance in 3Q24 was mainly hampered by a high base and weak domestic business travel demand. The 3Q24 Huazhu Domestic Hybrid RevPAR (RP) -8.1% YoY. As of 3Q24, Huazhu's global stores were 10,845 home/yoy +18%. Looking ahead to 4Q and beyond, along with the digestion of the base, the supply and demand pattern of the hotel industry is expected to open up an optimization channel. With its own advantages in membership traffic/operation efficiency, Huazhu is expected to continue leading the industry in terms of recovering performance at the management level. In the long run, the Matthew effect, the leading player in the stock game, is expected to strengthen, and market share is expected to increase, making the strong stronger. Maintain “buy-in.”

The domestic occupancy rate in 3Q is resilient enough, and the pressure is high on the housing price base

3Q Huazhu achieved revenue of 5.162 billion/yoy +1.0% in China, which is at the lower limit of the guideline. Under the high base, housing prices are under pressure, and the occupancy rate is still above 85%, which is more resilient. 3Q24 domestic mixed RP/ADR/occyoy -8.1%/-7%/-1.0pct, same-store RP/ADR/OCC was 258 yuan/301 yuan/ 85.6%, yoy -10.3%/-8.4%/-1.8pct. Mid-high-end is slightly better than economical, economical RP/ADR/OCC -11%/-8.8%/-2.1pct, mid-high-end RP/ADR/OCC -9.9%/-8.3%/-1.5pct. The volume and price of DH (overseas division) rose sharply, 3Q24 RP/ADR/OCC was +3.7%/+2.5% /+0.8pct, achieving 1.28 billion/yoy +8.9%, adjusted EBITDA 0.021 billion, and net profit to mother - -0.083 billion (including one-time restructuring costs - -0.081 billion). As the base figure is digested in 4Q, we expect the RP decline to narrow.

3Q Keep opening stores fast, reserve stores and eliminate them, or start an inventory digestion cycle

As of 3Q24, the number of domestic hotels reached 10,707, 774/557 newly opened/net opened in 3Q (172/385 economic/high-end), and 1-9M newly opened/1,444 newly opened/net-opened. We think there is a high probability that the company will complete the annual store opening guidelines (opening 2,200 new stores). DH has 138 active hotels, and 3Q opened 16 new homes/2 new hotels. By the end of 3Q, there were 2,899 stores to be opened in China, 367 compared to the previous month, with 695 Hanting homes, 827 homes in the season, 276 homes in Orange, 80 in Huajiantang, and 26 overseas. By structure, the share of economic/midrange/mid/high-end and above in reserve stores reached 37.0/44.5/15.6/ 2.6%, +0.3/-2.2/+1.2/+0.5pct compared to the previous month. We believe that the month-on-month decline in reserve stores reflects, to a certain extent, that supply has cooled down due to previous overheating. Next year, hotels are expected to gradually improve the pattern, which is beneficial to the increase in the share of leading markets.

Maintain a “Buy” rating; give a target price of HK$37.71

Referring to the company's 4Q expected revenue increase of 1%-5%, we estimate that the corresponding 4Q domestic RP is a medium to high single-digit decline over the same period last year. Demand for business travel may pick up slightly after 25 years. The company will benefit from an improvement in the supply and demand pattern, and RP is expected to take the lead in recovering. As a result, we slightly reduced the 24-year EPS to 1.18 yuan and the 25/26 EPS to 1.43/1.66 yuan (previous value: 1.20/1.39/1.62 yuan). Based on 24X 25E PE, a target price of HK$37.71 was given. Compared to Bloomberg in '25, the average PE value was 24X (considering that the company's brand matured, the profit growth rate declined and became affordable. The previous value was HK$30.33, corresponding to PE 23X in '24).

Risk warning: Demand falls short of expectations, industry competition intensifies, macroeconomic fluctuations.