J.P. Morgan: First initiated Huazhu Group (HTHT.US) with an "overweight" rating, target price of $40.

J.P. Morgan released a research report stating that it initiated coverage on Huazhu Group (HTHT.US) with a "overweight" rating and a target price of $40. The firm believes that the company's industry-leading efficiency provides short-term resilience and long-term growth potential. The report pointed out that the company is the second largest hotel operator in China (ranking first among private hotel operators) based on the number of hotels, with a 15% market share in the chain hotel industry in 2022. Due to its industry-leading efficiency, the company has the highest revenue profit ratio after the pandemic. Although recent macroeconomic challenges may limit growth in revenue per available room in the hotel industry, the firm expects that the company will deliver the most resilient financial performance among its listed peers by penetrating into more cities, with a compound annual growth rate of operating profit of 17% from 2023 to 2025. The firm stated that the company has the best visibility in revenue growth through expanding brand awareness. The company plans to reduce the gap in South/Central China and second-tier and below cities, focusing on expanding from the current 1,100 cities to 2,000 cities. The firm expects that its strong brand awareness and execution capabilities will result in a net increase of over 900 hotels per year. Additionally, as the revenue structure shifts towards upscale hotels (from 30%+ in 2019 to 50%+ in 2023), the firm anticipates that this will drive the company's revenue compound annual growth rate to outperform its main listed peers from 2023 to 2025. The firm believes that macroeconomic challenges will drive more hotel property investors towards brands with higher consumer recognition. The firm believes that due to its excellent operating efficiency, the company's profit growth will make it more resilient against macro headwinds compared to its peers. The firm also stated that the company's performance in average room selling price/per available room revenue, hotel additions, and profit margin improvement is significantly better than its peers. The firm indicated that the company will be the best beneficiary of the long-term upside brought by industry consolidation. According to Frost & Sullivan's data, the firm expects that leading hotel groups will occupy more market share, with chain hotels projected to account for 48% of China's total hotels in 2026, up from 39% in 2022, and the company will have the largest market share through its industry-leading brand awareness and efficiency.