Stabilization of RevPAR in 2025E; Long-Term Thesis is Intact

Summary of H World Group Limited (HTHT) Conference Call Company Overview - Company: H World Group Limited (HTHT / 1179 HK) - Industry: Hotel Operations and Franchising - Date of Report: November 27, 2024 Key Points and Arguments Financial Performance - 3Q24 Results: Total revenue increased by 2.4% YoY, which was 2% behind consensus but in line with estimates [8][9] - Revenue Segmentation: - Legacy Huazhu revenue grew by 1% YoY, while Legacy-DH grew by 8.9% YoY [9] - RevPAR for Legacy Huazhu declined by 8.1% YoY to RMB256, with ADR down by about 7% YoY to RMB301 [9] - Non-GAAP Adjusted EBITDA: Approximately RMB2.1 billion, below consensus estimates of RMB2.3 billion [9] - 4Q24 Revenue Guidance: Expected to increase by 1%-5% YoY, which is below market consensus of 6.6% [9] Market Outlook - RevPAR Expectations: - Anticipated to decline by mid-single digits YoY in 4Q24 due to soft business travel compared to leisure travel [9] - Expected to stabilize in 2025, with market share gains amid rising hotel chain penetration [9] - Hotel Openings: More than 2,400 hotels expected to open in 2025, exceeding prior expectations [9] Strategic Initiatives - Membership Expansion: Plans to expand into more regions and enhance partnerships with airlines and ride-hailing services [9] - Quality of Hotel Supply: Focus on high-quality hotels, with a reduction in low-quality hotel supply [9] - Asset-Light Model: Continued pursuit of an asset-light model, with closures expected to exceed the first half of the year but remain below third-quarter levels [9] Valuation and Price Target - Current Price Target: DCF-based price target lowered to USD 45 / HKD 36 from USD 50 / HKD 39, reflecting a +36% upside potential [9][21] - Risks: Key risks include slower-than-expected RevPAR recovery, slower EBITDA margin recovery, and changes in the macro environment [9][60] Sustainability and ESG Considerations - Top Material Issues: - Ecological impacts due to tourism and waste generation [24] - Labor practices, emphasizing the need for a healthy working environment [24] - Company Targets: Focus on reducing environmental footprint and contributing to a low-carbon society [24] Catalysts for Growth - RevPAR Growth: Stronger-than-expected RevPAR growth could act as a catalyst [25] - Hotel Development Pipeline: A robust hotel development pipeline is anticipated to support growth [25] Additional Important Information - Market Capitalization: Approximately USD 10.5 billion [9] - Stock Performance: 52-week high-low range of USD 42.98 - USD 27.03 [9] - Analyst Ratings: Maintained a "Buy" rating based on the company's growth potential and market positioning [9][21] This summary encapsulates the essential insights from the conference call regarding H World Group Limited, highlighting its financial performance, market outlook, strategic initiatives, valuation, sustainability efforts, and potential growth catalysts.