Huazhu (01179): Revenue and income continue to grow, resilient development grasps the long-term value of the hotel industry

According to the financial news app Zhitong Finance, on August 20, 2024, Huazhu Group (01179, HTHT.US) released its financial results for the second quarter of 2024. The financial report shows that in the second quarter of 2024, Huazhu achieved revenue of 6.1 billion yuan, an increase of 11.2% compared to the same period last year; hotel revenue reached 23.4 billion yuan, a year-on-year increase of 15.5%.

At a critical time when the Chinese hotel industry is transitioning from scale expansion to quality improvement, Huazhu Group adheres to the "lean growth" strategy and strategically promotes the high-quality expansion of its stores. During the reporting period, Legacy-Huazhu welcomed its ten thousandth store.

Huazhu Group CEO Jin Hui stated: "We believe that there are still huge opportunities and growth space in the Chinese market. We are ready to climb new heights, transitioning from '1.0 with thousands of cities and stores' to '2.0 with thousands of cities and stores'. In the second quarter of 2024, we continued to achieve rapid and high-quality network expansion by opening 567 new hotels in China. Despite recent macroeconomic and consumption fluctuations, China's overall tourism demand remains strong. As for Huazhu China, we will continue to focus on product upgrades, excellent service, and membership programs to enhance our competitive advantage and drive long-term sustainable growth in average room revenue."

"Lean Growth" to Smooth Industry Fluctuations

Due to the concentrated release of compensatory travel demand in 2023, under the high base of last year, coupled with factors such as consumer budget reductions and adverse weather this year, the Chinese hotel industry is temporarily facing certain operational pressures. Especially in the second quarter, both the average daily rate (ADR) and occupancy rate (OCC) of the hotel industry are under pressure on a year-on-year basis.

Despite market fluctuations, Huazhu China remains steadfast in its "lean growth" strategy centered around qualified stores, seeking high-quality development through product upgrades, excellent service, and strengthening the construction of the membership system.

The financial report shows that in the second quarter, Huazhu China's ADR was 296 yuan, a year-on-year decrease of 2.9%. Despite the slight decline in the average room rate, with a solid brand advantage, product advantage, and service advantage, Huazhu China has continued to increase the occupancy rate of its hotels while maintaining high-quality expansion of its hotel network. In the second quarter, Huazhu China's OCC increased against the trend to 82.6%, an increase of 0.7 percentage points year-on-year.

Driven by the steady increase in OCC data, Huazhu China's revenue per available room (RevPAR) continued to outperform the industry, reaching 244 yuan in the second quarter, only a slight decrease compared to the high base of the same period last year. With its precise insight into the Chinese hotel industry and excellent execution, Huazhu China has successfully faced the challenges in the market pressure test and achieved resilient development.

Turning to overseas markets, Huazhu International is also advancing into a new stage of development with an enterprising attitude. In the second quarter, Huazhu International's RevPAR was 82 euros, a year-on-year increase of 4.5%. Among them, ADR was 120 euros, a year-on-year increase of 2.7%; OCC was 68.3%, an increase of 1.2 percentage points year-on-year

Grasping the Long-term Value of the Hotel Industry with High-Quality Development

As an industry leader, H World China foresaw the strategic goals of "Thousands of Lights" and "Thousands of Stores" as early as 2019. After years of effort, H World China finally welcomed its first 10,000 stores in the second quarter of this year. The achievement of this new milestone also signifies that H World China is embarking on a new journey.

Looking back at the second quarter, H World China opened 567 new hotels. In response to the accommodation needs that have not been fully met in lower-tier cities, H World collaborates with business partners across the country to continuously provide high-quality supply to the market, allowing more people on their journeys to enjoy hotels with the same quality and standards as developed regions.

Image: Hanting Hotel in Motuo County, Linzhi

Taking the 2000-kilometer-long Sichuan-Tibet Highway 318 as an example, H World China has opened nearly 10 hotels along this route in the first half of this year alone. It is the continuous and firm investment of hotel groups represented by H World that has transformed the 318 National Highway from an initial blank market to a landscape now filled with quality chain hotels such as Hanting, Ji Hotel, Orange Hotel, Starway, Hi Inn, and ibis.

As of the end of the second quarter, H World Group has a total of 10,286 operating hotels globally, with 1,001,865 hotel rooms and 3,294 hotels in the pipeline. Among them, H World China's operating hotels have increased to 10,150, with 974,313 rooms.

H World China's increased investment in the scale development of the hotel network reflects the group's firm commitment to deepening its presence in China and its optimism about the long-term value of the hotel industry. Under this premise, H World China continues to focus on economy and mid-range hotels, driving the iteration and upgrade of its structure and products.

In the second quarter, H World China continued to upgrade the Hanting, Ji Hotel, and Orange Hotel brands. In this process, consumers' impressions of economy and mid-range hotels are quietly changing. Taking Ji Hotel as an example, Ji Hotel 5.0 not only showcases oriental aesthetics to the fullest in its design language but also incorporates a large number of intelligent technological functions in the hotel's hardware and software facilities. It is no wonder that this "upgraded experience" has amazed many foreign tourists visiting China, to the extent that a "China Hotel" trend emerged on overseas social media platforms some time ago.

At the current point in time, H World still has many blank markets in the domestic market waiting to be covered; at the same time, the process of iteration and upgrade of various types of products under the group, including economy and mid-range hotels, is far from over. Anchored in the "lean growth" strategy, H World, steadily moving in the right direction day by day, has indeed grasped the essence of high-quality development, a prospect that is likely welcomed by all sectors of society Finally, shifting the focus to the capital market perspective, hotels are indeed a long-term business from a business model perspective, which determines that investment returns need to be realized after a long period of accumulation. Currently, the demand for the hotel industry is showing an unbalanced recovery, while the overall market supply is uneven, making hotel operations more challenging. In the new normal of the industry, top hotel groups represented by H World are expected to still strive for a larger premium space through structural and product upgrades, with the company's growth certainty and space being superior to peers. Therefore, the industry adjustment period may be an excellent time window for investors to counter-cyclically position themselves, and the investment prospects of H World are worth looking forward to