On Friday, HSBC (LON:HSBA) issued an update on H World Group Ltd. (NASDAQ:HTHT), adjusting the company's price target to $51.50 from the previous $54.40. Despite the reduction, the firm upheld a Buy rating on the stock.
The reevaluation comes after H World Group's fourth-quarter results for 2023 showcased revenue growth that surpassed expectations. Yet, earnings fell short due to asset impairment charges. The analyst from HSBC pointed out that the revenue per available room (RevPAR) growth in 2024 is likely to be constrained by a slower recovery in business travel.
The revised price target represents a 5.3% decrease which primarily reflects modest adjustments, in the range of 2-3%, to the company's earnings projections. The analyst noted that the weighted average cost of capital (WACC) remains at 7.3% and the terminal growth rate is steady at 3.0%.
Moreover, the new target factors in a currency exchange rate adjustment. The Renminbi (RMB) to U.S. dollar exchange rate expectation has been lowered by 2.7%, now set at 7.10 compared to the previous rate of 7.30. This change in currency valuation has been incorporated into the new price target.
HSBC's decision to maintain a Buy rating despite the target reduction suggests confidence in H World Group's asset-light business model, which is anticipated to support margin expansion moving forward.
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