H World Group Limited Q1 FY2025 earnings call

• Industry Observations: Overall traveling demand resilient but RevPAR under pressure due to supply surge last year. Leisure traveling demand strong, with mid-to-high single-digit growth in traveler numbers and spending during holidays. - Operational Updates: Opened 695 hotels and closed 155 hotels in Q1 2025; pipeline was 2,865 hotels by quarter end. Proportion of upper midscale and above hotels in pipeline increased. Upper midscale hotels in operation grew 36% year-over-year to 933, and pipeline grew 22% year-over-year to 523. Focus on differentiated strategies for leisure demand, targeting emerging travelers like silver-haired tourists and inbound tourists. - Financials: Number of rooms increased 20% year-over-year to over 1.1 million by quarter end. Hotel turnover grew 14% year-over-year. Hotel operating costs grew 1.1% year-over-year, slower than revenue growth. SG&A expenses decreased 1.8% year-over-year. Adjusted EBITDA of Group grew 5.3% year-over-year to RMB1.5 billion, with Legacy-Huazhu's adjusted EBITDA up 5.8% year-over-year to RMB1.6 billion.

Legacy-Huazhu: Revenue grew 5.5% year-over-year to RMB5.4 billion. Number of upper midscale hotels in operation increased 36% year-over-year to 933, and pipeline grew 22% year-over-year to 523. Legacy-DH: RevPAR improved 12.7% to EUR65, ADR increased 2.8%, and occupancy rate increased 5.3 percentage points. Group revenue was RMB5.4 billion, up 2.2% year-over-year. Manachised and Franchised business achieved a robust growth of 21.1% year-over-year. Asset-light revenue contribution was 46% for the Group and 55% for Legacy-Huazhu.

• 2Q 2025 Group revenue expected to grow 1% to 5% compared to same quarter last year and 3% to 7% if excluding DH. - Manachised and Franchised revenue expected to grow in the range of 18% to 22% compared to same quarter last year.

• Tariff issues starting from April brought uncertainties to the market outlook. - Supply surge in previous years putting pressure on RevPAR, especially ADR. - Restructuring efforts still ongoing for Legacy-DH, which may impact short-term profitability.

Q: What is management latest expectations on RevPAR for 2Q '25 and also full year 2025? And about the business travel weakness.

A: RevPAR will decline at low-single-digit in 2Q '25, narrowed sequentially. For full year, uncertainties exist but efforts will be made to achieve guidance. Business travel weakness is due to supply issues from past supply increase; leverage corporate customers and B2B business to overcome.

Q: On the DH side, progression on asset-light strategy and plan to transfer leased/owned hotels to franchised; and on industry supply competition in limited service.

A: Continue asset-light transactions, look for opportunities. Further reduce overhead costs and restructure. Franchisee sentiment stable due to declining fixed costs and H World's supply chain, loyalty, and technology capabilities.

Q: On DH SG&A costs, one-off restructuring costs and hotel operating cost increase; on Legacy-Huazhu blended RevPAR vs like-for-like.

A: Restructuring ongoing, effects to be reflected gradually. First quarter loss skewed by Davos event. Blended RevPAR gap due to product upgrading and supply surge in certain areas, with revenue management optimization.

Q: On hotel openings and mid-upscale strategy.

A: Focus on quality over scale for new openings, stay conservative on full year opening target. Upper-mid segment focus on Tier 1, Tier 2 cities' prime areas to establish brand.

Q: On upper mid-scale segment performance and competitiveness.

A: Plenty of opportunity to reform upper mid-scale segment. Leverage product design, membership program to strengthen competitiveness.

Q: On intercity brand franchise profile, single-store model, and opening targets.

A: Intercity brand growth momentum, aim for around 100 hotels in operation by end of 2025. Use multi-brand strategy with core brand focus, benefiting from inbound tourists.