Investment Rating - Maintains an "Outperform" rating for Huazhu Group-S (1179 HK) [1][16] Core Views - Q3 2024 revenue increased slightly by 2 4% to RMB 6 44 billion, within the lower range of the guidance (2-5% growth) [1][7] - Adjusted net profit declined by 10 8% YoY to RMB 1 37 billion, and adjusted EBITDA decreased by 9 5% to RMB 2 11 billion, slightly below Bloomberg consensus estimates [1][7] - Domestic hotel RevPAR declined by 7 9% YoY to RMB 256, impacted by high base effects and weather disruptions [1][8] - Overseas hotel revenue grew by 8 9% YoY to RMB 1 28 billion, with a net loss of RMB 89 million due to restructuring costs [1][11] Domestic Hotel Operations - Domestic hotel RevPAR for mature stores decreased by 10 3% YoY to RMB 258, with ADR down 8 4% and occupancy rate down 1 8 percentage points [1][8] - 774 new hotels opened in Q3 2024, with a net increase of 557 hotels, bringing the total domestic hotel count to 10,707 by the end of Q3 2024 [1][8] - Domestic revenue grew by 1 0% YoY to RMB 5 162 billion, with franchised revenue up 14 7% and direct-operated revenue down 10 4% [1][8] Overseas Hotel Operations - Overseas DH RevPAR increased by 3 7% YoY, driven by a 2 5% increase in ADR and a 0 8 percentage point increase in occupancy rate [1][11] - The company exited 14 self-operated hotels in Denmark and fully took over the Zleep brand, with restructuring costs of RMB 81 million [1][11] Future Outlook - Q4 2024 revenue is expected to grow by 1-5%, with RevPAR expected to decline in the mid-single digits but with a narrowing YoY decline [1][12] - The company plans to accelerate its expansion in lower-tier cities, upgrade its mid-to-high-end hotel brands, and strengthen direct sales capabilities [1][12] - Overseas operations are expected to improve in 2025 due to ongoing asset-light optimization and operational enhancements [1][12] Financial Forecasts - Revenue for 2024E is projected at RMB 23 305 billion, with adjusted net profit of RMB 3 935 billion [4] - Adjusted EPS for 2024E is forecasted at RMB 1 23, with a PE ratio of 19 8x [4] - ROE is expected to be 25 2% in 2024E, with an EBIT margin of 16 9% [4]

Financial Data and Key Metrics Changes - Total turnover for Q3 2024 was RMB 26 billion, representing an 11% year-over-year increase, with Legacy-Huazhu's hotel turnover growing 11% year-over-year to RMB 24 billion [37] - Hotel revenue for the group increased 2.4% year-over-year to RMB 6.4 billion, while revenue from Legacy-Huazhu grew 1% year-over-year to RMB 5.2 billion [38] - Adjusted EBITDA decreased 9.5% year-over-year to RMB 2.1 billion, with Legacy-Huazhu's adjusted EBITDA down 7.5% year-over-year [44] Business Line Data and Key Metrics Changes - Legacy-Huazhu's RevPAR decreased 8.1% year-over-year to RMB 256, with ADR down 7% year-over-year to RMB 301 [10] - Revenue from Huazhu manachised and franchised hotels grew 14.7% year-over-year, driven by strong hotel openings [39] - Legacy-DH revenue rose 9% year-over-year to RMB 1.3 billion, attributed to business recovery and hotel network expansion [39] Market Data and Key Metrics Changes - The number of hotels in operation in Tier 3 and below cities accounted for 42%, up 2 percentage points year-over-year, while hotels in Tier 1 cities increased by 2 percentage points [17][18] - The number of active corporate clients exceeded 4,500, up 45% year-over-year [26] Company Strategy and Development Direction - The company continues to focus on high-quality growth, prioritizing quality over quantity in hotel openings [11] - The strategy includes cleaning up low-quality hotels and enhancing the overall service quality of the hotel portfolio [12] - The company aims to solidify its leading position in the limited service segment by expanding high-quality, value-for-money hotels [15] Management Comments on Operating Environment and Future Outlook - Management noted that the recovery of China's overall business travel demand remains stagnant, impacting RevPAR [25] - For Q4 2024, management expects RevPAR to decline in the mid-single digits year-over-year due to ADR pressure [53] - Looking ahead, management anticipates a stabilization and upward trend in RevPAR starting from next year, supported by government initiatives to boost domestic consumption [63] Other Important Information - The company closed 217 hotels in Q3 2024, with a focus on phasing out low-quality properties [12] - As of the end of Q3 2024, the company had RMB 9.3 billion in cash and cash equivalents, maintaining a solid net cash position of RMB 4 billion [46] - The company has bought back approximately USD 270 million worth of shares year-to-date [47] Q&A Session Summary Question: RevPAR trends in October and November and expectations for Q4 - Management indicated that business travel activity remains weak, impacting ADR and RevPAR, with expectations for a mid-single-digit decline in Q4 [51][53] Question: Strategy to enhance membership loyalty and increase direct sales ratio - Management is enhancing the membership program by improving benefits and seeking partnerships with airlines and car-hailing companies to boost membership growth [54][56][58] Question: Expectations for RevPAR next year and supply situation in China - Management expects RevPAR to stabilize and grow next year, with a focus on high-quality supply as low-quality hotels exit the market [62][64] Question: Full year opening targets and competition landscape - Management targets around 2,400 new openings for 2024, with a focus on maintaining quality and addressing competition in the midscale and upper-midscale segments [73][75] Question: Insights on leased and owned business strategy - Management confirmed ongoing closures of leased and owned hotels as part of a shift to a more asset-light model, with closures expected to continue but at a reduced pace compared to Q3 [83][84]

Investment Rating - Buy (Maintained) [1] Core Views - Huazhu Group's Q3 revenue was at the lower end of guidance, with operating profit down 10% YoY [2] - Domestic business net profit declined 1% YoY, while DH business narrowed its operating loss [2] - Domestic business accelerated store openings, with 774 new stores in Q3, reaching a total of 10,707 stores by Q3 2024 [3] - RevPAR declined 8% YoY due to a high base, but Q4 revenue growth guidance is 2-5%, indicating a narrowing decline [3] - Huazhu Group is a leader in the hotel industry, with competitive advantages in brand, traffic, and technology, and has expanded against the trend during the pandemic [4] Financial Performance - Q3 revenue was RMB 6.442 billion, up 2.4% YoY, at the lower end of the 2-5% guidance range [2] - Q3 net profit attributable to shareholders was RMB 1.273 billion, down 5% YoY, with adjusted net profit of RMB 1.372 billion, down 11% YoY [2] - Domestic business revenue was RMB 5.162 billion, up 1% YoY, contributing RMB 1.356 billion in net profit, down 1% YoY [2] - DH business revenue was RMB 1.28 billion, up 9% YoY, with a net loss of RMB 83 million, narrowing from the previous year [2] Store Expansion - Total stores reached 10,707 by Q3 2024, up 18.6% YoY, with 95% being franchised stores [3] - Q3 saw 774 new store openings, with a net increase of 556 stores, and a target of 2,200 new stores for the full year [3] - Domestic room count reached 1.03 million, up 20% YoY, with franchised rooms at 950,000, up 23% YoY [3] RevPAR and Occupancy - Overall RevPAR in Q3 was RMB 256, down 8.4% YoY, with occupancy at 84.9%, down 1.0 pct YoY [3] - Huazhu's RevPAR was RMB 244, down 2.4% YoY, with occupancy at 82.6%, up 0.8 pct YoY [3] - Q4 revenue growth guidance is 1-5%, implying a low single-digit decline in RevPAR, narrowing from Q3 [3] Financial Forecasts - Adjusted net profit forecasts for 2024-2026 are RMB 3.684 billion, RMB 4.065 billion, and RMB 4.481 billion, respectively [4] - PE ratios for 2024-2026 are 22x, 20x, and 18x, respectively [4] Market Data - Closing price: HKD 26.90 [7] - 52-week low/high: HKD 20.80/34.40 [7] - Price-to-book ratio: 6.86x [7] - Market capitalization: HKD 86.36 billion [7] Financial Ratios - ROE for 2023A: 33.66%, expected to decline to 18.39% by 2026E [12] - Gross margin for 2023A: 34.46%, expected to rise to 36.50% by 2026E [12] - Net profit margin for 2023A: 18.67%, expected to be 15.58% by 2026E [12]

Core Viewpoint - H World Group reported quarterly earnings of $0.61 per share, missing the Zacks Consensus Estimate of $0.69 per share, representing an earnings surprise of -11.59% [1][2] Financial Performance - The company posted revenues of $918 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 1.70%, compared to $861 million in the same quarter last year [2] - Over the last four quarters, H World Group has surpassed consensus EPS estimates only once [2] Stock Performance - H World Group shares have increased by approximately 5.2% since the beginning of the year, while the S&P 500 has gained 25.5% [3] - The current Zacks Rank for H World Group is 3 (Hold), indicating expected performance in line with the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.34 on revenues of $856.46 million, and for the current fiscal year, it is $1.83 on revenues of $3.37 billion [7] - The estimate revisions trend for H World Group is mixed, which may change following the recent earnings report [6] Industry Context - The Hotels and Motels industry, to which H World Group belongs, is currently in the bottom 18% of over 250 Zacks industries, indicating potential challenges ahead [8]

Hotel Operations - As of September 30, 2024, H World Group operated a total of 10,845 hotels and 1,062,546 hotel rooms[5] - H World operated 10,845 hotels with 1,062,546 rooms in 18 countries as of September 30, 2024[49] - The total number of hotels as of September 30, 2024, was 10,707, with 2,899 hotels in the pipeline[70] - The number of manachised and franchised hotels increased to 10,137 as of September 30, 2024, with a net addition of 579 hotels in Q3 2024[68] - There are 2,925 hotels in the pipeline, indicating significant future growth potential[77] - The economy hotel segment includes 5,461 operational hotels with 449,937 rooms and 1,091 in the pipeline[77] - The midscale hotel segment has 4,344 operational hotels with 465,743 rooms and 1,238 in the pipeline[77] - The upper midscale hotel segment consists of 866 operational hotels with 119,356 rooms and 493 in the pipeline[77] - The upscale hotel segment includes 147 operational hotels with 21,693 rooms and 95 in the pipeline[77] - The luxury hotel segment has 16 operational hotels with 2,368 rooms and 3 in the pipeline[77] - In China, there are 33 operational IntercityHotels and 92 in the pipeline as of September 30, 2024[78] - MAXX has 5 operational hotels and 5 in the pipeline in China as of September 30, 2024[78] - Steigenberger Hotels & Resorts has 12 operational hotels and 5 in the pipeline in China as of September 30, 2024[78] Financial Performance - Revenue for Q3 2024 was RMB6.4 billion (US$918 million), a 2.4% year-over-year increase, aligning with the guidance of 2% to 5%[3] - Hotel turnover increased 10.7% year-over-year to RMB26.0 billion in Q3 2024, with Legacy-Huazhu segment turnover up 11.0% and Legacy-DH segment turnover up 7.8%[3] - Total revenue for Q3 2024 was RMB 6,442 million (US$ 918 million), an increase from RMB 6,288 million in Q3 2023[60] - Net income attributable to H World Group Limited for Q3 2024 was RMB 1,273 million (US$ 181 million), compared to RMB 1,337 million in Q3 2023[60] - Net income attributable to H World was RMB1.3 billion (US$181 million) in Q3 2024, unchanged from Q3 2023[3] - Income from operations in Q3 2024 was RMB1.7 billion (US$245 million), a decrease from RMB1.9 billion in Q3 2023, with the Legacy-DH segment reporting a loss of RMB40 million due to one-off restructuring costs[23] - Operating margin in Q3 2024 was 26.7%, down from 30.4% in Q3 2023, attributed to a decline in hotel RevPAR and increased share-based compensation[24] - EBITDA (non-GAAP) in Q3 2024 was RMB2.0 billion (US$286 million), compared to RMB2.1 billion in Q3 2023[29] - Adjusted EBITDA for the Legacy-Huazhu segment was RMB2.1 billion in Q3 2024, down from RMB2.3 billion in Q3 2023[7] - Adjusted EBITDA (non-GAAP) in Q3 2024 was RMB2.1 billion (US$300 million), down from RMB2.3 billion in Q3 2023[31] - The company reported a net cash provided by operating activities of RMB 1,693 million (US$ 242 million) for Q3 2024[63] - H World incurred capital expenditures of RMB 209 million (US$ 30 million) in Q3 2024[63] Cash and Debt Management - As of September 30, 2024, the total balance of cash and cash equivalents was RMB7.2 billion (US$1.0 billion) with total debt of RMB5.4 billion (US$769 million)[34] - Cash and cash equivalents increased to RMB 7,247 million (US$ 1,033 million) as of September 30, 2024, from RMB 6,946 million at the end of 2023[56] - Total liabilities decreased to RMB 49,823 million (US$ 7,100 million) as of September 30, 2024, from RMB 51,283 million at the end of 2023[56] - H World’s total current liabilities decreased to RMB 12,408 million (US$ 1,768 million) as of September 30, 2024, from RMB 17,411 million at the end of 2023[56] - Operating cash inflow in Q3 2024 was RMB1.7 billion (US$242 million), while financing cash outflow was RMB2.1 billion (US$300 million), including RMB1.4 billion in dividends paid[33] Future Outlook - H World expects revenue growth for Q4 2024 to be in the range of 1%-5% compared to Q4 2023[7] - For Q4 2024, H World expects revenue growth of 1%-5% compared to Q4 2023, excluding the Legacy-DH segment[35] Key Metrics - The average daily rate (ADR) for Legacy-Huazhu hotels was RMB301 in Q3 2024, down from RMB324 in Q3 2023[8] - The occupancy rate for all Legacy-Huazhu hotels was 84.9% in Q3 2024, compared to 85.9% in Q3 2023[8] - The average daily room rate (ADR) for leased and owned hotels decreased by 6.0% year-over-year to RMB 406 in Q3 2023[71] - The occupancy rate for leased and owned hotels was 87.8% in Q3 2023, a slight decrease of 0.3 percentage points from the previous year[71] - The company’s basic earnings per share for Q3 2024 was RMB 0.41 (US$ 0.06), compared to RMB 0.42 in Q3 2023[60] - Adjusted earnings per share (diluted) for Q3 2023 was RMB 0.47, compared to RMB 0.43 in Q3 2024[65]

Core Insights - H World Group Limited reported a total of 10,845 hotels and 1,062,546 rooms in operation as of September 30, 2024, with a hotel turnover increase of 10.7% year-over-year to RMB26.0 billion in Q3 2024 [1][2][3] - The company achieved a revenue increase of 2.4% year-over-year to RMB6.4 billion (US$918 million) in Q3 2024, aligning with its previously announced guidance [1][2][9] - Net income attributable to H World Group Limited remained stable at RMB1.3 billion (US$181 million) in Q3 2024, with a notable net loss from the Legacy-DH segment due to restructuring costs [1][2][23] Financial Performance - Revenue from the Legacy-Huazhu segment increased by 1.0% year-over-year to RMB5.2 billion, while the Legacy-DH segment saw an 8.9% increase to RMB1.3 billion [1][10][11] - EBITDA (non-GAAP) for Q3 2024 was RMB2.0 billion (US$286 million), a decrease from RMB2.1 billion in Q3 2023 [1][24] - Adjusted EBITDA (non-GAAP) was RMB2.1 billion (US$300 million) in Q3 2024, down from RMB2.3 billion in Q3 2023 [1][25] Operational Highlights - The Legacy-Huazhu segment opened 774 hotels in Q3 2024, while closing 217 hotels, resulting in a total of 2,899 unopened hotels in the pipeline [3][4] - The average daily rate (ADR) for Legacy-Huazhu hotels was RMB301, down from RMB324 in Q3 2023, with an occupancy rate of 84.9% [5][6] - Legacy-DH hotels reported an ADR of EUR117, with an occupancy rate of 69.8% in Q3 2024 [8] Guidance and Future Outlook - For Q4 2024, H World expects revenue growth in the range of 1%-5% compared to Q4 2023, also excluding the Legacy-DH segment [1][29] - The company aims to continue expanding its presence in lower-tier cities in China and focus on sustainable high-quality growth [9]

Hotel Operations - As of September 30, 2024, the company operated 10,845 hotels with a total of 1,062,546 rooms[12] - The company opened 774 hotels in Q3 2024 and closed 217 hotels during the same period[12] - As of September 30, 2024, there were 2,925 hotels in the pipeline, including 2,899 from Legacy-Huazhu[12] - As of September 30, 2024, Legacy-DH operates 138 hotels with a total of 27,687 rooms, including 15,700 rooms under lease and 11,987 under management and franchising[17] - The company operates 4,057 Hanting hotels, with 355,690 rooms currently in operation[79] Financial Performance - In Q3 2024, hotel operating revenue increased by 10.7% year-over-year to RMB 26 billion, with Legacy-Huazhu revenue growing by 11.0% and Legacy-DH revenue increasing by 7.8%[5] - Revenue for Q3 2024 rose by 2.4% year-over-year to RMB 6.4 billion (approximately $918 million), aligning with previous guidance of 2% to 5% growth[5] - Net profit attributable to the company for Q3 2024 was RMB 1.3 billion (approximately $181 million), consistent with Q3 2023 results[6] - Adjusted EBITDA for Q3 2024 was RMB 2.1 billion (approximately $300 million), down from RMB 2.3 billion in Q3 2023[7] - Total revenue for Q3 2024 was RMB 6.442 billion (approximately $918 million), representing a year-over-year increase of 2.4% and a quarter-over-quarter increase of 4.8%[19] - Operating profit was RMB 1.7 billion (approximately USD 245 million), compared to RMB 1.9 billion in Q3 2023 and RMB 1.6 billion in the previous quarter[27] - The operating profit margin for Q3 2024 was 26.7%, down from 30.4% in Q3 2023 and 25.6% in the previous quarter[28] - Cash flow from operations in Q3 2024 was RMB 1.7 billion (approximately USD 242 million)[32] - The company reported a net loss of RMB 83 million from the Legacy-DH segment in Q3 2024, including one-time restructuring costs of RMB 81 million[29] Revenue Breakdown - Revenue from the Legacy-Huazhu segment in Q3 2024 was RMB 5.2 billion, a year-over-year increase of 1.0% and a quarter-over-quarter increase of 6.9%[19] - Revenue from management and franchised hotels in Q3 2024 was RMB 2.6 billion, a year-over-year increase of 14.7% and a quarter-over-quarter increase of 11.5%[20] - Legacy-DH's average revenue per available room (RevPAR) in Q3 2024 was €82, compared to €79 in Q3 2023 and €82 in the previous quarter[17] - The revenue from management franchise and licensed hotels for the quarter ended September 30, 2023, was RMB 2,238 million, compared to RMB 2,305 million in the same quarter of 2024, indicating a decrease of 2.9%[66] Cost and Expenses - Operating costs for hotels in Q3 2024 were RMB 3.8 billion, compared to RMB 3.6 billion in Q3 2023, primarily due to increased personnel costs from network expansion[23] - General and administrative expenses in Q3 2024 were RMB 672 million, up from RMB 539 million in Q3 2023, mainly due to an increase in employee numbers and stock incentives[25] Market Trends - Average daily rate for Legacy-Huazhu hotels in Q3 2024 was RMB 301, down from RMB 324 in Q3 2023[13] - Occupancy rate for all operating Legacy-Huazhu hotels in Q3 2024 was 84.9%, compared to 85.9% in Q3 2023[13] - The occupancy rate for all operating Legacy-DH hotels in Q3 2024 was 69.8%, up from 69.0% in Q3 2023 and 68.3% in the previous quarter[17] - The occupancy rate for managed and franchised hotels improved to 65.5%, an increase of 1.1 percentage points year-over-year[77] Cash and Debt - As of September 30, 2024, total cash and cash equivalents amounted to RMB 7.2 billion (approximately USD 1 billion)[32] - The company had total debt of RMB 5.4 billion (approximately USD 769 million) as of September 30, 2024[32] Non-GAAP Measures - EBITDA is emphasized as a key financial metric, reflecting operational performance before financing and tax impacts, and is widely used in the hospitality industry[40] - Adjusted EBITDA is used to assess the operating performance of hotels, excluding stock-based compensation and other non-operational gains or losses[40] - The company believes that non-GAAP financial measures, such as adjusted EBITDA, provide meaningful supplemental information for evaluating performance[42] - The company acknowledges the limitations of EBITDA and adjusted EBITDA, as they do not reflect depreciation, interest, and tax expenses[41] Future Outlook - The company expects Q4 2024 revenue to grow between 1% and 5% compared to Q4 2023, excluding Legacy-DH[11] - The company plans to temporarily close 12 hotels for brand upgrades or business model changes in the third quarter of 2024[69] - The company plans to open 1,091 new economy hotels, indicating a strong growth strategy in the budget segment[79]

Core Viewpoint - Wall Street anticipates a year-over-year increase in earnings for H World Group, driven by higher revenues, with a focus on how actual results will compare to estimates [1][2] Earnings Expectations - The earnings report is expected on November 26, 2024, with an anticipated EPS of $0.69, reflecting a 23.2% increase year-over-year [3][4] - Revenues are projected to reach $933.86 million, marking an 8.5% increase from the previous year [4] Estimate Revisions - The consensus EPS estimate has been revised 3.13% higher in the last 30 days, indicating a collective reassessment by analysts [5] - The Most Accurate Estimate aligns with the Zacks Consensus Estimate, resulting in an Earnings ESP of 0% [11][12] Earnings Surprise Prediction - The Zacks Earnings ESP model suggests that a positive or negative reading indicates the likelihood of actual earnings deviating from consensus estimates, with a strong predictor for positive readings [8][9] - H World Group currently holds a Zacks Rank of 3, complicating predictions of an earnings beat [13] Historical Performance - In the last reported quarter, H World Group's actual earnings of $0.46 per share fell short of the expected $0.52, resulting in a surprise of -11.54% [14] - Over the past four quarters, the company has exceeded consensus EPS estimates twice [15] Conclusion - While H World Group does not appear to be a strong candidate for an earnings beat, investors should consider other influencing factors before making decisions [18]

Core Viewpoint - H World Group Limited, a significant player in the global hotel industry, is set to release its unaudited financial results for Q3 2024 on November 26, 2024, after market hours in Hong Kong and before the U.S. market opens [1]. Company Overview - H World Group Limited operates 10,286 hotels with a total of 1,001,865 rooms across 18 countries as of June 30, 2024 [5]. - The company’s hotel brands include Hi Inn, Elan Hotel, HanTing Hotel, JI Hotel, Starway Hotel, Orange Hotel, Crystal Orange Hotel, Manxin Hotel, Madison Hotel, Joya Hotel, Blossom House, Ni Hao Hotel, CitiGO Hotel, Steigenberger Hotels & Resorts, MAXX, Jaz in the City, IntercityHotel, Zleep Hotels, Steigenberger Icon, and Song Hotels [5]. - H World holds master franchise rights for Mercure, Ibis, and Ibis Styles, along with co-development rights for Grand Mercure and Novotel in the pan-China region [5]. Business Model - H World employs a mixed business model that includes leased and owned, manachised, and franchised hotels [5]. - As of June 30, 2024, 10% of hotel rooms were operated under the lease and ownership model, while 90% were under the manachise and franchise model [5].

Group 1 - H World Group Limited (HTHT) is experiencing significant activity in the options market, particularly with the Jan 17, 2025 $15.00 Call option showing high implied volatility, indicating potential for a major price movement [1] - Implied volatility reflects market expectations for future stock movement, suggesting that investors anticipate a significant event that could lead to a substantial rally or sell-off [2] - Currently, H World Group holds a Zacks Rank 3 (Hold) in the Hotels and Motels industry, which is in the bottom 17% of the Zacks Industry Rank, with no analysts increasing their estimates for the current quarter and one analyst revising downward [3] Group 2 - The high implied volatility for H World Group may indicate a developing trading opportunity, as options traders often seek to sell premium on options with high implied volatility to capture decay [4]