Huazhu's Q3 performance outperforms international peers 丨 Major banks' positive reviews and target price hikes highlight its investment value appeal
As November draws to a close and the earnings season nears its end, there are still several high-profile companies in the Hong Kong stock market announcing their results. Huazhu Group—S (1179), a major global player in the hotel industry, released its Q3 2024 earnings on the evening of November 26. After reaching the milestone of 10,000 hotels in Q2, the group continued its rapid expansion. As of September 30, 2024, Huazhu operated 10,845 hotels across 18 countries, with 1,062,546 operational rooms, both figures showing a year-on-year growth of approximately 20%. Despite the rapid expansion, the occupancy rate remained stable at 85%. Huazhu is the market leader in the Hong Kong hotel sector with a market cap exceeding HKD 85 billion, far surpassing the second-largest player, which has a market cap of less than HKD 20 billion. In the U.S. stock market, Huazhu is also a rare hotel stock with a market cap exceeding USD 10 billion, ranking among the top five by market cap. Thus, among globally listed hotel companies, Huazhu is undoubtedly a hot topic.
Outstanding Performance in Managed and Franchised Hotel Business
The Q3 2024 results showed revenue of approximately RMB 6.442 billion (same below) for the three months ending September 30, 2024, a year-on-year increase of 2.45%. Notably, the managed and franchised hotel business performed exceptionally well, with revenue of RMB 2.602 billion, up 14.73% year-on-year. As of September 30, 2024, 91% of Huazhu's hotel rooms were operated under managed and franchised models, and this strong performance is expected to remain a key growth driver. Shareholders' attributable profit dipped slightly by 4.79% year-on-year to RMB 1.273 billion in Q3, the second-highest on record. With the sustained strong growth in the managed and franchised hotel business, next year's Q3 results are expected to set a new record.
Huazhu Outperforms Other International Peers
In fact, Huazhu's performance surpassed its peers. Marriott International (MAR.US) and Hilton Worldwide Holdings (HLT.US), both with market caps exceeding USD 10 billion, saw declines of 22.34% and 8.75%, respectively. Hyatt Hotels (H.US) reported a net profit decline of 15.27% after adjusting for one-off factors, while Huazhu's operating profit fell by only 9.74%. InterContinental Hotels Group (IHG.US), which only reported interim results, declined by 24.40%, compared to Huazhu's 13.92% drop. Huazhu's Q3 profit decline of 4.79% further demonstrates ongoing performance optimization. These comparisons highlight Huazhu's strong Q3 results. Currently, the group's value has yet to be fully reflected in its stock price. Based on the November 25 closing price, Huazhu's P/E and P/B ratios were 21.76x and 6.34x, respectively, lower than Marriott, Hilton, and IHG's P/E ratios of 30.16x, 54.19x, and 32.30x. All three peers are in negative equity, with negative P/B ratios, making Huazhu's investment appeal self-evident.
From an industry perspective, the average P/E ratio exceeds 30x, while Huazhu's is below 22x, a discount of nearly 28%. Due to its solid fundamentals and undervalued stock price, major investment banks have frequently issued bullish reports since October. For example, Goldman Sachs maintained a "Buy" rating and raised the U.S. stock target price from USD 52 to USD 53. JPMorgan believes consumer confidence in China will improve post-stimulus policies and raised Huazhu's Q4 average room rate forecast, also maintaining a "Buy" rating and increasing the U.S. stock target price from USD 35 to USD 41. JPMorgan also covers the Hong Kong stock, upgrading its target price from HKD 28 to HKD 33 with an "Overweight" rating. Notably, Huazhu's current price is below HKD 27, with a P/E ratio of around 20x, compared to the industry average of over 30x—a gap of more than 50%. This suggests a fair value of at least HKD 40, indicating JPMorgan's HKD 33 target is conservative and highly referenceable.
Nie Zhenbang (Nie Sir)
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