单季开店再创新高，关店提高运营质量：3Q24 华住集团共新开790家门店，单季度开店速度再创新高。其中，境内净新开774 家，境外净新开16 家。至此，全年集团已新开1936 家门店，基本保障了全年新开店目标2200 家的达成。季度内，华住集团境内关闭了217 家，主要是由于公司选择性地关闭了数家表现不佳的门店。我们认为，公司在达成了万店目标后，对于酒店运营质量的重视程度提升，强调高质量可持续的增长。Under the influence of factors such as the high base of the industry and bad domestic weather, Huazhu Group recorded revenue of RMB 6.4 billion in 3Q24, an increase of 2.4% over the previous year. Among them, domestic business increased 1% year over year, and overseas business revenue increased 8.9% year over year, reaching the lower end of management guidance, but slightly lower than our expectations.
Meanwhile, due to one-time factors, net profit for 3Q24 was RMB 1.27 billion, down 4.8% year on year. We appropriately lowered our profit forecast for Huazhu 2024E-2026E, but due to the increase in the valuation center of the hotel industry, we raised our target price for Hong Kong stocks to HK$32.9 and the target price for US stocks to $41.1 based on 14x 2025E EV/EBITDA, maintaining a “buy” rating.
3Q24 revenue reached the lower bound, slightly below expectations: Faced with the industry's general high base and the impact of the closure of inefficient domestic businesses, Huazhu Group's overall 3Q24 and domestic business (Legacy-Huazhu) revenue increased 2.4% and 1%, respectively, reaching the lower revenue growth rate indicated by management (overall revenue increased 2%-5% year over year; domestic business revenue increased 1%-4% year over year). Management gave 4Q24 revenue guidelines: overall and domestic business revenue increased by 1%-5% year-on-year respectively, which suggests that the annual revenue growth rate is in the 7.4%-8.5% range. We believe that the company has reached the 4Q24 revenue guide with high certainty.
Opening stores in a single season reached a new high, and closing stores improved the quality of operation: 3Q24 Huazhu Group opened a total of 790 new stores, and the speed of opening stores in a single quarter reached a new high. Among them, 774 were newly opened domestically and 16 were newly opened overseas. So far, the Group has opened 1,936 new stores throughout the year, which has basically guaranteed the goal of opening 2,200 new stores throughout the year. During the quarter, Huazhu Group closed 217 stores, mainly due to the company selectively closing several underperforming stores. We believe that after reaching the goal of 10,000 stores, the company paid more attention to the quality of hotel operations and emphasized high-quality and sustainable growth.
Domestic business indicators have weakened, but are expected to gradually improve: Huazhu Group's 3Q24 domestic business (Legacy-Huazhu) RevPar was 256 yuan, down 8.1% year on year. Among them, ADR fell 7% year on year, mainly due to explosive summer travel boosting the base figure and the impact of bad weather in the 3rd quarter of this year, while OCC was relatively stable, falling 1ppt year on year. We believe that entering the fourth quarter, the impact of a high base on operating indicators will ease, driving the 4Q24 RevPAR decline to narrow sequentially. Looking ahead to 2025, we believe RevPAR will rise steadily over the same period next year as the supply and demand relationship in the hotel and lodging market becomes more balanced, the development of China's cultural tourism industry, and stimulated by China's visa-free policy.
Overseas business restructuring drives long-term high-quality development: during the period, the company began restructuring its overseas business: (1) asset-light transformation: wholly owned the Zleep brand, removing 14 rental directly-managed hotels (L&O) from the store matrix; (2) reducing headquarters administrative staff by more than 30%; and (3) continuing to reduce management costs. 3Q24 recorded a one-time restructuring cost of RMB 81 million, but we believe entering 2025 will have a long-term positive impact on the company's overseas business.
Maintaining the “buy” rating and raising the target price: We have appropriately lowered the profit forecast for Huazhu 2024E-2026E. Considering Huazhu Group's market-superior operating capability and the upward shift in the valuation center of the hotel industry, we valued Huazhu based on 14x 2025E EV/EBITDA (20% discount compared to the international hotel group 2025E EV/EBITDA average), and adjusted the target price for Hong Kong stocks to HK$32.9 and the target price for US stocks to $41.1.
Investment risks: 1) Demand in the sinking market is weaker than expected; 2) competition in the mid-range hotel market intensifies; 3) travel demand is slowing down.
