Description of the event
In the first quarter of 2024, the company achieved revenue of 3.06 billion yuan, up 6.77% year on year; net profit to mother was 190 million yuan, up 34.56% year on year; net profit after deducting non-return to mother was 62 million yuan, down 31.19% year on year.
Incident comments
It has blossomed a lot, and all business lines have achieved positive growth. By business, in the first quarter of 2024, the company's domestic full-service hotel business achieved revenue of 45.6 million yuan, an increase of 112.76%; the domestic limited service hotel chain business achieved consolidated revenue of 2,215 billion yuan, an increase of 5.97% over the previous year, which was the main source of the company's revenue growth. Among them, upfront service fee revenue was 123 million yuan, an increase of 121.58% year on year, and continuous franchise and labor dispatch service revenue of 963 million yuan, an increase of 7.58% year on year; the overseas limited service hotel chain business achieved revenue of 1.15 billion yuan 100 million euros, up 1.43% year on year; the food and catering business achieved consolidated revenue of 61.95 million yuan, an increase of 6.42% year on year.
The upgrading of the hotel structure contributed to overall RevPAR growth. At the business level, domestic: The upgrading of the hotel structure in the first quarter of 2024 contributed significantly to RevPAR growth. RevPAR for economic/midrange/overall limited service hotels in China recovered to 86.18%/86.70%/101.02% in the same period in 2019. When both economy and mid-tier hotels recovered lower than in the same period in 2019, the overall RevPAR achieved growth. In terms of breakdown, ADR is the main source of growth. Overall OCC and ADR respectively recovered to 84.97% in the same period of 2019/ 118.89% Overseas: In 2023, China's overseas economy/midrange/overall limited-service hotel RevPAR recovered to 105.34%/123.42%/109.56% in the same period in 2019, respectively.
The share of the middle and high-end continues to grow. In terms of opening stores, 222 new hotels were opened in the first quarter of 2024, 75 hotels were opened and withdrawn, with a net increase of 147 hotels. Among the limited-service hotels, the number of directly-managed hotels decreased by 7, and the number of franchised hotels increased by 153. As of March 31, the total number of hotels the company had opened reached 12,595. The share of mid-tier hotels increased further, increasing 2.58/23.68pct to 58.63% compared to the same period in 2023 and 2019, respectively.
Disposal of hotel properties contributes to one-time profits, and borrowing costs affect net interest rate performance. In terms of profitability, the company Louvre Group disposed of a number of hotel properties in the first quarter and obtained disposal proceeds as a one-time contribution to the net profit of the mother. Looking at the ratio, the company's gross margin and deducted non-net interest rate both declined. The company's gross margin and deducted non-net profit margin reached 35.38%/1.94% year-on-year in the first quarter, respectively. The decline in deducted non-net interest rates was mainly due to the increase in Eurobank interest rates compared to the same period last year, and the increase in loan interest expenses of overseas companies. The cost ratio increased by 0.75pct to 33.10% year-on-year during the period, with sales/management/finance/R&D expenses +0.65/-1.42/+1.47/+0.04pct, respectively.
Investment advice and profit forecast: Looking ahead to 2024, the company plans to open 1,200 new hotels and 2,500 new contracted hotels, and subsequent hotel openings are expected to accelerate. I am optimistic that the company will continue to promote organizational transformation in China, improve the brand matrix, optimize development strategies, strengthen the collaborative construction of the “three platforms” (i.e. global hotel Internet, global procurement, and global finance) to improve quality and efficiency in management; overseas business, implement business integration in a pragmatic style to reduce performance pressure. It is estimated that in 2024-2026, the company's net profit to mother will be 16.98, 18.25, and 1.952 billion yuan, respectively. The PE corresponding to the current stock price is 18, 17, and 16X, respectively, maintaining a “buy” rating.
Risk warning
1. The macroeconomic environment is complex, and demand recovery falls short of the expected risk; 2. Supply-side new store openings have increased, and industry competition has increased the risk;
3. The pace at which internal reforms are progressing falls short of expectations.