Huazhu's operational key indicators are outstanding, and the prospects for its membership direct sales system are promising.

Data from the Ministry of Culture and Tourism shows that in the first three quarters of this year, domestic tourism reached 4.29 billion trips with tourism spending totaling 4.32 trillion yuan (RMB, same below), approaching the peak levels of 2019. During the seven-day National Day holiday, domestic tourism trips surged to 765 million, a year-on-year increase of 5.9%, with total spending by domestic tourists exceeding 700 billion yuan, up 6.3% year-on-year. Travel consumption remains a strong pillar of domestic spending. Investors have focused on OTAs (online travel agencies) but overlooked the investment value of hotel stocks.

Huazhu Group (1179) released its latest Q3 results, reporting revenue of 6.4 billion yuan, up 2.4% year-on-year and 4.8% quarter-on-quarter, roughly in line with guidance. Revenue growth was partially impacted by the strategic closure of several underperforming leased and owned hotels.

Net profit and EBITDA performed well, reaching 1.3 billion yuan and 2 billion yuan, respectively. During the period, the hotel RevPAR was 256 yuan, OCC was 84.9%, and ADR was 301 yuan.

Optimizing Direct Sales Strategy and Expanding Corporate Clients

Given that membership numbers and direct sales are the most important and sustainable channels, since August this year, the group has strategically optimized its channels, empowering hotel managers to enhance customer acquisition and sales capabilities centered around their properties. This further emphasizes the importance of direct sales and membership for the company's long-term sustainable growth. The policy adjustment has clearly paid off, as evident in the Q3 report, where centrally booked room nights increased to 64.2%, up 2.2 percentage points year-on-year and 4.3 percentage points quarter-on-quarter. This demonstrates Huazhu's solid progress in its direct sales membership system, reinforcing confidence in the company's ability to achieve stable and sustainable growth. Notably, Huazhu's membership base continues to expand, reaching nearly 257 million by Q3, a significant increase from 228 million at the end of 2023.

Additionally, Huazhu has focused on its business travel segment to offset the decline in leisure travel during off-peak seasons, ensuring stable occupancy rates. During the reporting period, corporate direct bookings exceeded 7.5 million room nights, up 41% year-on-year and 19% quarter-on-quarter. The number of active corporate clients surpassed 4,500, a 45% year-on-year and 23% quarter-on-quarter increase.

Strategy Aligns with Trends, Highlighting Investment Appeal

In terms of RevPAR, Huazhu stands out in the industry. However, due to the high base effect from last year, RevPAR declined by 8% year-on-year, though it still outperformed other international brands in Greater China, such as InterContinental Hotels Group and Wyndham, which saw declines of 10.3% and 10%, respectively. Huazhu China's OCC remains stable, and despite ADR pressures in October and November, OCC maintained healthy levels, ranking among the industry's best.

This is attributed to Huazhu's development strategy, which aligns well with industry trends and consumer preferences, making the stock highly attractive for investment. While the group continues to focus on economy and mid-scale hotels serving the mass market, it is actively expanding its upscale brands. Currently, economy and mid-scale brands account for 91%, 80%, and 90% of Huazhu China's operating hotels, pipeline hotels, and new openings, respectively. In Q3, Huazhu's upscale operating hotels exceeded 800, up 33% year-on-year, while pipeline hotels reached 487, up 36% year-on-year. Among these, the IntercityHotel brand has 125 operating and pipeline hotels in China, with the recent launch of "Orange Crystal 2.5," a mid-to-upscale hotel tailored for business elites. Given the current economic cycle, Chinese consumers are prioritizing value for money. Huazhu's economy hotels are penetrating lower-tier markets to meet broader demand, while its upscale hotels cater to consumers seeking higher service quality and amenities. By covering all segments of China's vast and promising market, Huazhu is poised for sustainable, high-quality growth, with fundamentals expected to strengthen further.

Huazhu leads in efficiency and cost management, offering consumers better value under this strategy. The group is well-positioned for high-quality growth in China, underpinned by its diversified brand portfolio. As a leader in the hotel industry with clear positioning and robust direct sales capabilities through Huazhu Rewards, the stock is a compelling choice for medium-to-long-term investment.