This HTHT stock forecast article was written by Viktoriya Voronchuk – Financial Analyst intern I Know First.

Highlights: 

• Despite the COVID-19, hotel network expansion has risen by 26% on Q3 2020 in comparison with Q3 2019
• DCF estimates a $63 HTHT stock forecast for 2021
• Since the end of March 2020, HTHT has risen by more than 106%

Overview

Huazhu Group Limited, together with its subsidiaries, develops leased and owned, manachised, and franchised hotels primarily in the People’s Republic of China. It operates hotels under its own brands, such as Hi Inn, Elan Hotel, HanTing Hotel, JI Hotel, Starway Hotel, Orange Hotel, Crystal Orange Hotel, Manxin Hotel, Madison Hotel, Joya Hotel, and Blossom Hill Hotels & Resorts. The company also operates hotels under brand franchise agreements that include Ibis, Ibis Styles, Mercure, Novotel, and Grand Mercure. As of March 31, 2020, it operated 5,953 hotels with 575,488 rooms in 15 countries. The company was formerly known as China Lodging Group, Limited and changed its name to Huazhu Group Limited in June 2018. Huazhu Group Limited was founded in 2005 and is headquartered in Shanghai, the People’s Republic of China.

Since the end of March 2020, the company’s share has risen by more than 106%. Figure 1 shows that currently, the short-term moving average crosses above the long-term moving average from July 2020, indicating a buy signal.

Despite COVID-19 Hotel Q3’20 Net Revenues Increased By 3%

When the COVID-19 pandemic broke out globally, and governments in all countries imposed a series of travel restrictions to prevent transmission of the virus, Huazhu had two options: close all hotels, lay off staff, or continue work. The company decided to keep the hotels open. As of March 26, 2020, 93.5% of hotels were open. Moreover, the occupancy rate of operating hotels reached 62%. The figure below is a figure of a SWOT analysis for HTHT. Let us consider the SWOT analysis results the company has achieved due to such a risky strategy.

So, what kinds of goals has the management set out for the company? The answer for Huazhu is exactly yes. The company has an efficient management team and trained staff. Huazhu established a crisis task force, which included a command center and 18 regional subordinate centers. Due to H-Tone, its internal information platform, the company communicates with employees and franchisees. A 26-step cleaning process was developed to prevent viruses, and then all personnel was trained to do so.

More than 500 hotels were used for quarantine purposes. In China, according to government regulations, anyone traveling from one part of China to another part of China must go through a 14-day quarantine before returning to their regular jobs. Most of the quarantine hotels are for workers who travel from one part of the country and return to work in another part of the country. Thus, many companies are forced to use hotel rooms for this purpose. 80% of rooms sold were for the Hsinchu package, and 50% of the demand came from employees returning to work.

Investments in technology have also significantly contributed to Huazhu Group Limited’s ability to stay open during the COVID-19 outbreak in China. Before the pandemic, Huazhu invested heavily in its app for online booking, check-in and check-out services, and robot delivery. Customer-centric technology, Huazhu Hotels’ self-service machine handled over 1 million customers from January 1 to March 24, 2020, and its robots delivered food and supplies to guests approximately 240,000 times! Besides, it had 6 million online payments and 1.7 million online room selections.

The partnership with Accor is an effective business development tool for Huazhu Group Limited. Taking a look at the company’s recent strategic deals, the Accor deal has opened 200 economy and mid-range hotels in China, with a further 250 planned for the next three years.

HTHT Stock Forecast: Huazhu Plans To Grow To 10,000 Over The Next Five Years

Last year, the company took another significant step with the acquisition of Deutsche Hospitality. With Huazhu’s strong position in the mid-range and economic segments, the company uses the Deutsche Hospitality acquisition as a development opportunity in the luxury and high-end segments. It will take a long time to create a new luxury and high-end brand from scratch. Therefore, the company decided to enrich its portfolio of luxury and high-end brands through acquisitions.

The deal helps Huazhu establish a geographic presence in Europe, the Middle East, and Africa, where it has little presence. With its help, the group aims to become a global hotel group with a vital home country presence.

What are the future plans? Huazhu has a big expansion program over the next five years, and its vision includes expanding its portfolio of mid-range and luxury brands. The company recently achieved over 5,000 hotels and plans to grow to 10,000 over the next five years. The company mainly uses the manachise and franchise models to expand its network in a less capital-intensive manner. Aside from the property that the company acquired through its strategic alliance with Accor in 2016 and the Blossom Hill acquisition, the company usually does not acquire real estate, as the ownership of real estate usually requires a large capital investment. The company strives to establish managed and franchised hotels near famous commercial and office districts that tend to demand hotel accommodation.

Despite the COVID-19, the hotel network continues to expand. Hotel network expansion has risen by 26% in Q3 2020 in comparison with Q3 2019. Q3’20 net revenues increased by 3%. Q3’20 Revenue from mid and upscale Hotels increased by 9%. Despite extending the lockdown period in Germany to February 2021, Deutsche Hospitality’s Q4 2020 net revenue remains in line with the forecast.

HTHT’s Debt To Equity Ratio Has Increased By 118% Over The Past Five Years

What is it about the company’s weaknesses? HTHT’s short-term assets do not cover its short-term and long-term liabilities by CN¥2B and CN¥28.2B and the company is loss-making now. HTHT’s debt to equity ratio has increased from 16.9% to 134.6% over the past five years. This weakness of the company can be viewed from the plus side. Lack of liabilities can signify that either the company is holding too much money or is ineffectively financing its debt and using financial share capital to do so. In the case of too much cash, this may mean that the company is too conservative, which cannot be said about it. In the short term, the balance sheet will look good, but in general, a large amount of cash will be seen as a problem. Also, we should take into account that the hospitality sector was hit in the first place by the pandemic. And despite that, HTHT exceeded the US Hospitality industry’s return by 45% over the past year.

DCF Supports $63 HTHT Stock Forecast For 2021

The DCF analysis results show that HTHT’s stock target price should be around $63. This projected share price makes a roughly 10% positive difference from the current level. The forecast is based on average data from previous years, the direction of the company’s policy, and the specifics of the development of this sector of the economy for the coming years. I accept the discount rate and perpetual growth rate as reasonable for the time horizon 2021-2025 years from the finbox.com source.

The Company will continue to increase its capital expenditures. It plans to expand its operations and expects its cash balances from operating activities and credit lines to cover its capital expenditure needs in the foreseeable future. The change in EBITDA is expected to be primarily due to the hotel chain expansion and an increase in managed and franchised hotels in 2019-2020.

DH operating performance was affected since late September due to a second wave of COVID-19 outbreak in European countries. To mitigate the effects of this situation, the company is taking further cost and cash flow measures, such as deferring rental payments, reducing or eliminating discretionary corporate spending and capital expenditures, etc. As of November 30, 2020, 89% or 107 of DH hotels were in operation.

Conclusion

Since the end of March 2020, HTHT has risen by more than 106%. Currently, the short-term moving average crosses above the long-term moving average from July 2020, indicating a buy signal. The SWOT analysis shows that despite HTHT is loss-making now, Q3’20 net revenues increased by 3%, and HTHT’s is expected to become profitable in the next 3 years. The company has an efficient management team and trained staff, significant investment in technology, effective strategic partnerships, and big expansion plans over the next five years. According to the DCF analysis results, HTHT’s stock target price will be around $63. Therefore, I consider it the right choice at these current levels for long-term investments, and I take the buy-side on HTHT’s stock.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the HTHT stock prediction. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success With HTHT Stock Forecast

I Know First has been bullish on HTHT stock forecasts in the past. On January 20, 2021, and February 7, 2021, the I Know First algorithm predicted bullish forecasts for Huazhu Group Limited stock price. The forecast on 3 months and 1-year time horizons provided investors with returns of 22.82% and 71.38%. See the charts below.

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Please note-for trading decisions use the most recent forecast.