Guoxin Securities: Maintaining the Huazhu Group-S (01179) “superior to the market” rating, the value restructuring of local hotel leaders in progress

The Zhitong Finance App learned that Guoxin Securities released a research report saying that maintaining the Huazhu Group-S (01179) “superior to the market” rating, the hotel industry continues to grow based on the flywheel effect of supply and demand, and the bottom of the current cycle adjustment is expected to usher in a rebalance between supply and demand. Taking Huazhu as an example, it built a growth flywheel through a “product-traffic-return-scale” model, driving scale expansion with a multi-brand matrix, strong traffic of over 300 million members, and leading return rates. In the future, market share and profit center will increase simultaneously through store sinking, mid-range and high-end brand upgrades, and asset-light models, and long-term growth space can be expected.

Guoxin Securities's main views are as follows:

The hotel industry has a flywheel effect between supply and demand, and has created a market capitalization leader of 100 billion dollars at home and abroad

The hotel industry has a flywheel effect of supply and demand (front-end network effect, back-end scale effect). The US leader relies on full-service international brands to lead in premium market value, and the Chinese limited service leader relies on China's economy and innovation model to rapidly rise.

Supply and demand are expected to rebalance at the bottom of the cycle adjustment, and supply structural reforms are the main theme of growth

The hotel industry is at the bottom of two years of adjustment, and the supply-demand relationship is expected to be rebalanced in the future: leisure tourism is growing steadily, the demand base for business travel is declining; leading reserve stores are falling to a higher level, and the business strategy is shifting from OCC priorities to optimal RevPAR to drive price stability. Looking at the long term, 46% of China's service consumption is still on the path of improvement, in line with the continued increase in the share of US accommodation spending in the 1980s. Supply-side structural opportunities are highlighted: as rent dividends weaken, franchisees have returned to investment attributes, and the estimated chain rate has increased from 40% (US 72%) to 60-70% corresponding to 30-109% housing space; among them, leading companies have the potential to double their market share in overseas TOP5.

Through a 20-year cycle, the “product-traffic-return-scale” model redefines the limited service hotel industry

In the 15 years since Huazhu was listed, the store and performance CAGR exceeded 20%. Backed by the founder and management's strategic vision and efficient digital organization, the company pioneered a flywheel of growth in the limited-service hotel industry with Chinese characteristics: 1) Strong products: efficient iteration of multiple brands, Hanting bucked the trend, leading the mid-range throughout the season, and misplaced orange development to meet the needs of differentiated customer groups; 2) Strong traffic: 300 million members ranked first in the industry, and central reservations accounted for more than 60% of the combined data to strengthen systematic revenue management; 3) Strong returns: same leading store 30-80% of peers, The occupancy ratio was 0.17, and the supply chain cost was reduced by more than 20%, driving franchisees' willingness to invest; 4) Strong scale expansion: the growth rate of franchise stores remained 15-20%.

A three-part narrative of revaluation

1) Store expansion: Taking the lead in implementing territorial organizational reforms, six regions are empowering the mature model of popular hotels to sink, predicting 18,000 economic+mid-tier stores in 2030, leading the market share; 2) Brand upgrade: the middle and high-end are standing on the “management-product-membership” flywheel accumulation period. The CEO of the division has managed the transformation of the orange system from 100 to 1,000, with both efficiency and brand acuity; the multi-brand strategy Orange Crystal and intercity are beginning to show results, and we are looking forward to it throughout the season; direct external connections and external partners on the traffic side Diversion, equity stratification, more design space; estimate annual fees for mid-range and high-end single stores 140-2.1 million (1.5-3 times the middle and low end). If it breaks through, it is expected to boost the profit and valuation center. It is estimated that in 2030 there will be nearly 3,000 middle and high-end companies, and the Group's profit margin will be close to 8 billion yuan at that time. 3) Advanced model: Benchmarking the asset-light model of overseas hotels, stable cash flow supports 5% + shareholder returns over a long period of time, and is expected to enjoy a valuation premium.

Risk Alerts

Demand recovery fell short of expectations; industry competition worsened; middle and high-end cultivation fell short of expectations, etc.