Incident: The company released its 2024Q1 quarterly report. 2024Q1 achieved operating income of 3.26 billion yuan/year on year +6.77%, net profit to mother of 190 million yuan/year on year +34.56%, and net profit after deducting net profit of 62 million yuan/year on year.

Domestic and overseas hotel business operations are relatively stable, and the catering business is basically in line with expectations. 1) Exhibits and contracts: 2024Q1, the company opened 222 new hotels (including 1 full-service hotel), opened and withdrawn 75, with a net increase of 147 hotels, including 7 fewer direct-run stores and 153 more franchised stores; the expansion of stores is still mainly mid-range, and budget hotels are still being adjusted. As of 2024Q1, the company has opened a total of 12,595 hotels, and the number of hotels in the pipeline is 4106, which has remained stable. 2) RevPAR and revenue: 2024Q1 domestic limited service hotel comprehensive RevPAR recovered to 101.0% in 2019, -1.55% year on year, overseas hotels recovered to 109.6% in 2019, -0.06% year on year, and OCC/ADR were basically stable year over year; 2024Q1 company's domestic limited service hotels achieved consolidated revenue of 2,215 million yuan/year over year +5.97%, of which upfront service fee revenue was 123 million yuan/year over year +121.58%, continuous franchise and labor dispatch service revenue 963 million yuan/year on year +7.58%; domestic full-service hotels achieved consolidated revenue of 45 million yuan/year over year +112.76%; overseas limited service hotels achieved revenue of 115 million euros/year on year +1.43%. 3) 2024Q1's food and catering business achieved consolidated revenue of 62 million yuan/+6.42% year-on-year. On the profit side, sales/management/financial expenses increased slightly, but overall operations were relatively stable; during the reporting period, it achieved a total net profit of 190 million yuan to mother and net profit of 62 million yuan after deducting non-return net profit of 62 million yuan, which is in line with expectations.

In 2024, we will develop steadily, improve quality and efficiency, and continuously activate new engines. 1) The company plans to have 1,200 exhibition stores in 2024, with 2,500 new contracts. Compared with 2023, the target is basically steady, with estimated revenue of 154-16 billion yuan (+5-9% year-on-year), with domestic/overseas revenue expected to increase 6-10%/1-5% year-on-year respectively; 2) Strengthen the brand matrix, consolidate the main track brands, promote brand renewal, optimize the brand matrix, and establish a global brand management system. Among them, limited service hotel brands optimize property portfolios, promote seven-day brand transformation, and promote collaboration between LHG and RHG Improve, stimulate efficiency in terms of marketing and promotion, revenue management, team building, etc., and consolidate integrated development capabilities for full-service hotels; 3) Promote digital transformation and university management, continue to promote business integration in overseas European regions, and continue to promote “three platforms” around the main hotel business, actively integrate into the Group's industrial chain, further strengthen efficient collaboration between the platform and various business sectors, and improve the performance-driven performance incentive system (limited services). 4) Establish a full-service hotel Chinese membership system, accelerate the monetization of limited-service membership points in China, collaborate with Jinjiang conference members, and enhance the hotel membership system. 5) The company plans to use its own capital to increase maritime investment by an additional 100 million euros, for a total capital increase of 300 million euros, in an effort to optimize the capital structure of maritime investment and reduce the balance ratio.

Investment advice: The company is a leading hotel company. It has bucked the trend and achieved steady growth in performance in the past few years; since 2023, domestic and foreign leisure travel and business travel consumption demand has clearly been released, and the company's domestic and overseas operations have recovered markedly. In 2024, the company will develop steadily, improve quality and efficiency, and continuously activate new engines; we expect the company's revenue for 2024-2026 to be 151.3/163.3/17.61 billion yuan, net profit to mother of 12.21/15.1/1.75 billion yuan, and EPS of 1.14/1.41/1.64 yuan/share, respectively. The current stock price corresponds to PE's valuation of 25.8X/20.9X/18.0X, maintaining a “buy” rating.

Risk warning: 1) Consumer demand and business recovery seriously fell short of expectations; 2) Market competition seriously intensified; 3) Company expansion and quality improvement fell short of expectations.