Industry Overview - The hotel industry exhibits a supply-demand flywheel effect, with leading companies in both domestic and international markets achieving valuations in the hundreds of billions [1] - The industry is currently at a two-year adjustment bottom, with expectations for supply-demand relationships to rebalance, driven by structural reforms in supply [1] - The long-term outlook indicates that China's service consumption, currently at 46%, is still on an upward trajectory, similar to the trend observed in the U.S. in the 1980s [1] Company Insights - Huazhu's model has redefined the limited-service hotel sector over the past 20 years, achieving a CAGR of over 20% in both store count and performance [2] - The company has developed a growth flywheel characterized by strong products, robust traffic, high returns, and aggressive expansion [2] - Huazhu's membership base has surpassed 300 million, leading the industry, with over 60% of bookings coming from central reservations [2] Growth Outlook - The company is expected to expand its store count significantly, with projections of reaching 18,000 economic and mid-range hotels by 2030 [3] - Brand upgrades are underway, with a focus on enhancing management, products, and membership, which could elevate profitability and valuation [3] - The company aims to adopt a light-asset model similar to overseas hotels, supporting stable cash flows and shareholder returns of over 5% [3] Investment Recommendations - The adjusted net profit forecasts for 2025-2026 are set at 4.44 billion and 5.17 billion yuan, respectively, with a slight upward revision for 2027 to 5.86 billion yuan [4] - The estimated reasonable stock price for the next year is projected to be between 43-45 HKD, indicating a potential upside of 15-20% from the current price [4] - The company maintains an "outperform the market" rating, with expected performance in 2026 ranging from 5 to 5.4 billion yuan [4]

Core Viewpoint - The hotel industry is expected to continue growing due to a supply-demand flywheel effect, with a potential rebalancing of supply and demand at the current cycle's adjustment bottom. Huazhu Group is positioned to leverage its multi-brand matrix and over 300 million members to drive scale expansion and profitability [1][2]. Group 1: Industry Overview - The hotel industry is experiencing a two-year adjustment bottom, with a forecasted rebalancing of supply and demand. The leisure travel sector is showing steady growth, while business travel demand is declining. Leading companies are shifting their strategies from prioritizing occupancy to optimizing RevPAR to stabilize prices [2]. - The structural opportunities on the supply side are becoming more apparent, with the chain rate expected to increase from 40% (in the U.S. at 72%) to 60-70%, corresponding to a potential room supply increase of 30-109% [2]. Group 2: Huazhu Group's Growth Model - Huazhu has achieved a compound annual growth rate (CAGR) of over 20% in both store count and performance over the past 15 years, driven by strategic foresight and a highly efficient digital organization. The company has established a growth flywheel in the limited-service hotel sector through strong product offerings, significant member traffic, high returns, and aggressive scale expansion [3]. - The company has a diverse product range from economy to mid-range hotels, with brands like Hanting and Qianxi catering to different customer needs. Its membership base of over 300 million is the largest in the industry, with over 60% of bookings coming from central reservations [3]. Group 3: Value Reassessment - Huazhu is expected to expand its store count significantly, with projections of reaching 18,000 economy and mid-range hotels by 2030, leading the market share [4]. - The company is in a phase of brand upgrading, with mid-range brands poised for growth. The estimated annual fees for mid-range hotels are projected to be 1.5-3 times higher than those for lower-end hotels, which could enhance profitability and valuation [4]. - The company is also transitioning towards a light-asset model, which is expected to support stable cash flows and provide a shareholder return of over 5%, potentially leading to valuation premiums [4].

Group 1 - The core viewpoint of the report is that the hotel industry is experiencing a supply-demand flywheel effect, which is expected to lead to growth and a rebalancing of supply and demand in the current adjustment cycle [1][2] - Huazhu Group is leveraging a "product-traffic-return-scale" model to drive growth, supported by a multi-brand matrix and over 300 million members, which enhances its scale expansion [1][3] - The hotel industry is currently at a two-year adjustment bottom, with expectations for a rebalancing of supply-demand relationships, driven by steady growth in leisure travel and a decline in business travel demand [2][4] Group 2 - Huazhu has achieved a compound annual growth rate (CAGR) of over 20% in both store count and performance over the past 15 years, thanks to strategic foresight and a digitalized organization [3] - The company is expected to expand its store count to 18,000 by 2030, leading in market share, while also focusing on brand upgrades and enhancing its mid-to-high-end offerings [4] - The shift towards a light-asset model, comparable to overseas hotel models, is anticipated to support stable cash flows and shareholder returns of over 5%, potentially leading to valuation premiums [4]

Investment Rating - The report maintains an "Outperform" rating for the company [6] Core Insights - The hotel industry is experiencing a supply-demand flywheel effect, with leading companies in both domestic and international markets achieving significant market capitalizations. The industry is currently at a cyclical adjustment bottom, with expectations for supply-demand rebalancing and structural reforms driving growth [1][21] - The company's growth model, which has been effective for over 20 years, emphasizes a "product-traffic-return-scale" cycle, showcasing strong product offerings, substantial membership growth, and efficient cost management [2][3] - The long-term outlook includes a three-phase value reassessment narrative focusing on store expansion, brand upgrades, and model evolution, with projections for significant increases in mid-to-high-end hotel numbers by 2030 [3][4] Summary by Sections Industry Trends - The hotel industry is currently at a cyclical adjustment bottom, with a focus on supply-demand dynamics and leading companies' pricing strategies. The supply side is expected to undergo structural reforms, enhancing growth opportunities [21][24] - The demand side is projected to grow steadily, with leisure travel maintaining resilience and business travel gradually recovering. The overall hotel demand is expected to stabilize as supply expands [24][39] Growth Outlook - The company is expected to expand its store count significantly, with projections of reaching 18,000 economy and mid-range hotels by 2030. Brand upgrades are anticipated to enhance profitability and valuation [3][4] - The company's model is evolving towards a light-asset approach, which is expected to support stable cash flows and shareholder returns exceeding 5% [3][4] Financial Projections - The report forecasts adjusted net profits of 44.4 billion CNY for 2025, increasing to 58.6 billion CNY by 2027, with a corresponding rise in earnings per share [5][4] - The estimated reasonable stock price for the company is projected to be between 43 and 45 HKD, indicating a potential upside of 15-20% from the current price [4][6]

Core Viewpoint - The company reported Q3 2025 earnings with revenue of 6.961 billion yuan, a year-on-year increase of 8.1%, and a net profit attributable to shareholders of 1.469 billion yuan, up 15.4% year-on-year, indicating better-than-expected revenue growth and improved profitability in domestic and DH segments [1][2] Financial Performance - Q3 2025 overall GMV reached 30.6 billion yuan, reflecting a year-on-year increase of 17.5% and a sequential improvement in growth rate [2] - Adjusted EBITDA for Q3 2025 was 2.513 billion yuan, up 18.9% compared to the previous quarter's 11.4% growth, with Legacy-Huazhu contributing 2.446 billion yuan, a 16.9% increase [2] - The company’s adjusted net profit for Q3 2025 was 1.520 billion yuan, representing a 10.8% increase [2] Operational Metrics - Q3 2025 showed significant recovery in operational metrics, with overall occupancy, ADR, and RevPAR showing minor declines compared to the previous year, indicating stabilization in the industry [3] - The company opened 750 new stores and closed 185, resulting in a net increase of 565 stores, with a notable acceleration in the mid-range segment [3] - The company aims to become a leader in the mid-to-high-end market by 2030, with a pipeline of 2,748 stores as of Q3 2025 [3] Strategic Initiatives - The company is focusing on optimizing pricing strategies, enhancing membership and supply chain capabilities, and expanding its mid-to-high-end brand matrix, as well as exploring high-end, lower-tier, and overseas markets for long-term growth [3]