H World Group (HTHT) Q2 2026 earnings call transcript

Thank you, operator. Good evening and good morning, everyone. Thanks for joining us today. Welcome to H World Group 2026 second quarter and first half earnings conference call. Joining us today is our founder and executive chairman, Mr. Jiqi, our CEO, Mr. Jinghui, our CFO, Mr. Arthur Yu. Following our prepared remarks, management will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements made under the safe harbor provision of the United States Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with SEC.

H World Group does not undertake any obligation to update any forward-looking statements except as required under applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliation of those measures to comparable gap information can be found in our earnings release that was distributed earlier today. As a reminder, this conference call is being recorded. The webcast of this conference call, as well as supplementary slide presentation, is available at ir. hworld. com.

With that, now I will hand over the call to our CEO, Mr. Jing Hui, to discuss our business performance in the second quarter of 2026. Mr. Jing, please.

各位投资人分析师,大家好。感谢大家参加华术集团2026年第二季度业绩电话会。 Dear investors and analysts, good day. Thanks for joining us today. Welcome to H World Group's second quarter 2026 earnings conference call. Thank you. During the first half of 2026, domestic culture and tourism travel in China maintained steady growth. According to the Ministry of Culture and Tourism, On the consumption structure front, the growth of total domestic travel spending moderated, up 2% year-over-year, To RMB 3.2 trillion in the first half. This reflects new consumption characteristics among travelers, which are more frequent trips with more prudent standing decisions.

We will now turn the call over to management for the HWorld Group Ltd. Recently, the government issued a plan to build China into a nation strong in tourism during the 15th five-year plan period, which laid out 2030 targets, including annual domestic resident trips exceeding 8.3 billion, with total consumption reaching R&B 7.7 trillion, and inbound tourist arrivals reaching 190 million, with total spending exceeding 8.7 trillion. The plan also outlined adjustments to the tourism regional layout and the greater supply of high quality culture and tourism related products. We believe the travel related industry supply chain has great long term growth potential. Moving forward, H World Group will keep leveraging our multi-brand portfolio, hotel operation expertise, and digital capabilities to steadily expand our brand network and capture accommodation demand brought by travelers.

The HWord Grip Lt is a very important part of the HWord Grip Lt. Thank you. H World remains committed to do the right thing for the long term. We focus on the mass market lodging segment and emphasize high quality development. On hotel network, we continue expanding into lower tier cities while at the same time securing those prime locations in the core cities, continuously optimizing our existing hotel footprint. In the second quarter, we achieved high High quality network expansion through regional breakthroughs and lower tier city penetration. Backed by a 12.7% year-over-year increase in the number of rooms in operation, the group's hotel GMV grew 13.2% year-over-year to R&B $30.5 billion. Room nights booked by members also achieved steady growth.

More importantly, the group assets like managed and franchise business deliver robust growth across scale, revenue, and profit. In the second quarter, managed and franchise revenue increased 25.2% year-over-year to RMB 3.6 billion, and gross operating profit grew 18.5% year-over-year to RMB 2.2 billion. Thank you. In competition rationalizing, HWorld China achieved a 2.6% year-over-year increase in ADR in the second quarter, which was backed by our continuous product and service upgrades, revenue management, and integrated marketing capabilities.

This marked our fourth consecutive quarters of positive ADR growth. The ADR improvement viewed a 1.1% year-over-year increase in RavPAR in the same period. Thank you. Thank you. We continue to steadily expand our high-quality hotel network and enhance our nationwide network presence. As of end June, we had 13,417 hotels in operation in China. Our hotel brands and products continue to gain strong favor and recognition from franchisees, and we maintain a solid signing momentum. As of end June, hotels in pipeline increased both year-over-year and quarter-over-quarter, reached 3,054. Our hotels in operation and in pipeline cover 1,468 cities in China, and we are matching towards our goal of 20,000 hotels in 2,000 cities. While expanding the lower tier market, we also continue optimizing hotel footprint in core cities and prime commercial districts.

We believe that with H World's strength and product competencies and brand influence, we can achieve further breakthrough in China's core existing market.

Thank you for joining us. We have to sign back, please resume. Okay, let's continue. Sorry. Okay, so Hantin & Trenji became the first hotel hotel's hotel's guest. The H World Group Lt is a production of the HWorld Group Lt. We focus on the economy and mid-scale segments, deeply cultivating the mass market and continuously strengthening the core competitiveness of our flagship brand. With the upgrades of Hanqin and G, we are pleased to see that the new version of hotels delivered meaningful improvements in Vapar and gained broader recognition from guests and franchisees.

With the rollout of Hanqin Ying, we are further solidifying our leading position in the economy and mid-scale lodging markets. In the recently released Hotels 2025 global rankings for single brand review counts, G Hotel leaped from the number four place globally to the top spot, with Hanqing closely following in the second place. This marks the first time Chinese hotel brands have claimed the top two positions on this list and underscores the effectiveness of our brand strategy. In addition, our core mid-scale brand, Orange Hotel, climbed to 26th place globally, representing another notable milestone in our brand-led expansion. We view this scale leadership as a milestone to date, and we will continue to adhere to high-quality development, focusing on product refinements and continuous iteration to improve product quality and services to better serve guests, diversify lodging demands.

Looking ahead our limited service Golden Triangle brands namely Hantin G and Orange will continue to unleash strong market competitiveness and serve as a key growth engine for the Group 20 hotel in 2 city strategy 以及管道内酒店已达到1738家,同比增长13.40%。 G, Crystal, and Mercure. As of N-June, HWorld China's upper mid-scale brands and 1,738 hotels in operation and in pipeline, up 13.4% year-over-year. In the marketing sector, we are always holding the key to the market. We believe the company and the business of the company and the business of the company and the business of the company and the business of the company and the business of the company and the business of the company and the business of the company. 隨着我们酒店网络覆盖更多的城市,华住会的会员体量及会员监业都实现了稳步增长。除此以外,为升级会员权益、升级用户体验,集团持续精进会员精细化运营体系,深化多业态跨界联动,拓展会员积分多元消费场景。 On the marketing front, we have always centered our strategy on our H Rewards Membership Program.

We firmly believe that our membership program and the direct sales capability are the core competitive advantages underpinning the group's long-term sustainable growth. As our hotel network expands to more cities, each reward's membership base and a room night booked by members have both achieved steady growth. In addition, to upgrade membership benefit and enhance our guest experiences, we are refining our membership-centric operation, deepening trust industry partnership, and expanding diversified loyalty points consumption scenarios for our members. At the same time, we are accelerating our H World international presence, optimizing our H World app to capture more inbound travel demand and empower global membership services.

Going forward, we will further strengthen brand building, broaden customer acquisition channels, and continuously optimizing membership benefits to enhance member conversion and strengthen member loyalty. Thank you. We will also turn the call over to management for the HWO. In addition to focusing on our internal operational management and driving steady business expansion across the group, We are also committed to proactively fulfilling our social responsibilities. I would like to share three key areas. Firstly, H World boosts local employment and creates job opportunities. The continuous expansion of our hotel network enables us to recruit more employees on an ongoing basis. As of end June, the total number of employees of the group exceeded 260,000. In addition, we continue to refine our internal talent development program, providing employees with clear career paths.

Secondly, we pursue energy-saving management of our hotels and have rolled out multiple initiatives. We share proven energy-saving management solutions with our franchisees to help them cut water and electricity costs and secure better operating return. Thirdly, our social welfare initiative, supported by the group's charity foundation, We have launched a wide range of public welfare programs to give back to the society through educational assistance, post-disaster support, and other initiatives. Going forward, H World will continue to push forward the social responsibility initiatives, balancing business growth with social commitment, and upholding our corporate mission to get franchisees, employees, and the wider community. Thank you.

Good morning, and welcome to the HWorld Group Ltd. Next, let's go over our operational performance in the international market. In the second quarter, HWI's blended repart was affected by the Middle East conflict, as well as our Southeast Asia expansion, which were still in the ramp-up period. In the second quarter, HWI's red part decreased 3.8% year-over-year, with ADR up 0.9%, and occupancy rate down 3.5 percentage points.

Nevertheless, our Bureau of Business delivered a solid performance. The European segment's red part grew 1.1% year-over-year in the second quarter, driven by improvements in both ADR and occupancy. Going forward, we will continue to optimize HWI's operational efficiency in Europe and push forward our strategic layout in the Asia-Pacific market.

This concludes the business update for the second quarter of 2026. I will now hand over the call to our CFO, Mr. Ather Yu, for financial performance for the quarter.

Thank you, Jinghui. Good evening and good morning to everyone. Now let's walk through our Q2 financial highlights. In the second quarter, our group revenue grew 10.8% year-over-year to RMB 7.1 billion. This was primarily driven by our China business. In the quarter, our China revenue increased 14.9% year-over-year to RMB 5.9 billion, supported by a steady and high-quality network expansion as well as continued red-par recovery. Our international business revenue decreasing 5.8% year-over-year to RMB 1.3 billion, which was due to the closure of leased hotel and therefore a decline in leased revenue. We are happy to report that our group recorded another quarter of strong profit growth. Adjusted EBITDA increased 20% year-over-year to RME 2.7 billion, with adjusted EBITDA margin expanding 3% point year-over-year to 38.3%.

The margin improvement was attributable to a growing profit contribution from our asset light business coupled with well-controlled GNA expenses. In the second quarter, hotel operating costs increased 7.4% year-over-year, slower than our revenue growth as we became more asset-light. But SG&A expenses in the quarter rose 6.1% year-over-year, which was also slower than our revenue growth, reflecting our cost management capabilities. Adjusted net income grew 26.9% year-over-year to RMB 1.7 billion, with the adjusted net income margin improved 3.0% to 24%.

Supported by ongoing high-quality ISAT Lite network expansion and improved RESTPAR performance, Our M&S business revenue grew a solid 24.2% year-over-year to RMB 3.6 billion.

M&S growth operating profits increased 18.5% year-over-year to RMB 2.2 billion. Lastly, on shareholder returns, we are very pleased to announce that we completed our 2024 shareholder return one year ahead of our club.

We are committed to returning to our shareholders, which will continue to be supported by our healthy operating cash flow and strong balance sheet. We therefore announce that the board has approved another three-year shareholder return plan with an aggregated amount of U. S. dollar 2.5 billion, effective from today. As the first distribution under this new shareholder return plan, the board has also approved an ordinary cash dividend of approximately U. S. dollar 275 million.

With that, we conclude our financial review for the second quarter of 2026. With that, we are ready to take your questions. Operator, please open the line for Q&A.

Thank you. I'm Jin Hui. I'll answer this question. Thank you. The third thing is that we have seen a lot of new things in the U and the I will translate first So thank you for your question This is Jinghui I will answer this question So currently, China's leisure travel demand is still steadily growing. We firmly believe that in China, Consumer has treated leisure travel as one of the necessities. This has been very clear after the COVID reopening. Secondly, the government is very supportive of the culture and tourism travel. In the first half this year, we do see multiple regional governments introducing spring holidays. And in early August, we also saw government encouraging public servants to take holidays.

And certainly, around this round of leisure travel trend, we do see new scenarios and new customers emerging. For example, family trips, travel by silver hairs, travel by self-driving. Those both have been performing very strong. Of course, inbound travel has also brought us increasing demand, especially in those core cities in the Tier 1 and Tier 2 cities.

So yes, as you mentioned, in July, we do see several regions being negatively affected by the H World Group Lt. The first half of the summer holiday, the performance was below expectation. Also, on the other hand, I do think that this is also partially affected by the spring holiday. In August, so far, we do see the overall trend recovering. Considering all the uncertainties in the macro environment, we maintain a cautiously optimistic view for the overall demand. For the full year of 2026, we maintain our view for the overall report unchanged. Okay. Thank you.

Thank you. The HWorld Group Ltd is a great idea to promote the market. Thank you Dan for your question. So on the overall new hotel network expansion, in the second quarter, we opened 498 hotels. The number of openings actually in line with our plan and our expectations. And more importantly, if you look at the new signings, we also achieved solid new signings in the second quarter. At the end of June, the number of hotels in our pipeline actually increased, both quarter-over-quarter and year-over-year.

And we always emphasize that for H World, what we want to achieve is not just very simple quantity growth, but quality improvement. So we do have higher requirements for our new signings and new openings. In the next few years, we will continue our sustainable, high-quality growth strategy unchanged. And for the full year of 2026, we maintain our full-year opening guidance.

Yes, in the first half, the opening number was impacted by the base as well as by the supply chain. But I do think it's a just normal volatility, and there's no change in our overall opening plan. Thank you.

The development of the HWorld Group Lt is a good idea. Our second question, I'm very happy to share with you that our Hanqin 4.0 version have achieved both market and franchisees' recognition. The new version of Hanqin, the Vapar performance is meaningfully better than the older version. And after we rolled out Hanqin Ying, the number of hotels of Hanqin Ying in operation and in pipeline actually quickly exceeded 200.

The overall development is actually better than our expectation. The operational performance of those Hanqinying that's in operation is also very strong. I think both the two points that I mentioned above actually shows you that Hua Zhu has very strong capability in high-quality development in the economy hotel segment, and we are very strong in executing. Going forward, we will continue to upgrade our Han Qing's older version of hotel to go through the overall Han Qing hotel's portfolio to improve the overall hotel portfolio quality. Meanwhile, we will also, with the Hanqin product, we also provide the product that's available for those smaller properties for them to open under our Hanqin brand. To conclude, I think under the overall economy segment, H World has a very big growth potential to capture the market.

Thank you. Thank you.

Okay, I will now turn the call over to the HWorld Group Ltd. Because one of the things that we have to do, it is a part of the market. We will now turn the call over to management for a long time. We are now in the HWO. Let me answer your questions related to the upper mid segment Yes upper mid segment is one of H World core strategic area and we continue to put effort into the brand building as well as the overall development in this segment For the upper mid-scale market in China, we do see good development opportunities. We actually see opportunities from two fronts. One is that the upper mid-scale segment actually has opportunities from consumption upgrade.

Well, at the same time, it also takes some of the demand from those traditional upscale hotels. And for H World, we will continue to insist on our multi-brand strategy. We will be building on our Grand G, on Crystal, on Intercity, as well as Mercure. We will be using this four core flagship brand to achieve fast development and market share gain in the upper mid-scale segment.

Currently, for the intercity hotel, it has been growing very strongly, and we are very confident on the future growth for this brand. And you mentioned a grantee. For the grantee, we have been gradually signing and opening some hotels. As of now, the number of Grand G in Taipei have already exceeded 20 hotels. At this moment, we'll be really focusing on building Grand G at those very prime locations. We are still refining the overall business model, so we'll be relatively cautious developing the quantity of it. But we are very positive on what Grand G has already achieved in terms of the customer reputation, the brand reputation, and the product model.

In the future, we believe Grand G has very big growth potential, and we are very optimistic on it. We are very confident that Grand G will become a flagship in China's upper mid-scale segment, and we're really working hard on that. Thank you.

Thank you.

Thank you. The HWii will now turn the call over to the HWii. The key to the HWorld Group Ltd is about the HWorld Group Ltd. I will now turn the call over to management for the company's development. So the first thing is about the H World Group Ltd. Sorry, thanks. Let me answer the question related to our members. Yes, members is one of our core strategy for H World's operation, and it's also one of our core competitive advantages. Right now, the overall member, the increase of the members as well as the member contribution in the booking is in line with our expectations.

Of course, as we are entering into more markets, for example, leisure market, the inbound market, as well as those lower tier cities markets, HWorld members do need some time to grab those traffic from those new markets for us. But meanwhile, the OTA contribution is actually quite stable at around 20 to 25 percent. We do believe that when we enter those new markets, we do need OTA support, especially for inbound and lower tier cities. And related to the overall strategy and the future strategic operations for H Reward members, I will conclude that in three areas. Firstly, for the H Reward members, we do emphasize the best benefit for our members. This one is one of the key strategies for us.

This includes the best price, includes breakfast, and etc. And going forward, we are also doing more work on innovation. For example, recently, we actually launched a family card under our H World membership, and it actually received quite good feedback from the market. I think the second one is to open the whole world's climate and the future. Thank you for joining us. So, secondly is the cross-industry partnership. You may have already noted that last year we actually partnered with DB, and this year we're partnering with multiple airline companies, as well as new energy vehicle companies, to really work with those multiple business sectors. This will, the cross-industry partnership will also be one of our important strategies.

Lastly is our international or overseas member development. In the second quarter, we deepened our cooperation with Accor on the membership partnership. On the one hand, it's really to It's a way to capture more inbound demand. And also, it allows Chinese travelers to be able to stay in a course hotel when they go aboard. So we're really working on that. So to conclude, on the 3.1 is on the membership operation. Secondly, it's on the cross-industry partnership. And thirdly, it's on the international development for H World. Thank you.

Thank you.

Thank you, Simon. This is also our answer your question. So on the overall margin front, as the group continues to push forward our asset life strategy, in the mid to long term, we do expect companies adjust the EBITDA margin to continue to expand. On the SG&A front, we have been making really good delivery in the quarter. This is supported by our very mature and developed cost control system.

We also know that the future will continue to develop. The HWorld Group Ltd needs to be a necessary strategy. For example, the development of the people's lives, the technology and AI, the management of the HWorld Group Ltd, and the company's management of the HWorld Group Lt. We will do some effective effective efforts. But at the same time, we are also very clear that in order for H World to achieve long-term sustainable growth, we have to make necessary strategic investments. For example, in the talent development, in technology and AI, in our H World membership building, in brand building, et cetera. So in those areas, we'll be making reasonable and long-term and effective investments.

So for the outlook of our second half, profitability and cost will maintain very stable. On our international business, yes, our international business was in some way impacted by the Middle East. For our HWI, in the Middle East and in Egypt, we have more than 20 hotels, but they are all monetized and franchise hotels. So they have limited impact actually on our HWI's revenue and profit.

We are actually doing more cost control for the H WI. So by doing that, the overall impact of the Middle East is actually controllable. From the whole year's perspective, we will keep the international international interest rate of revenue. This goal is not a good thing.