H World Group Limited Q2 FY2025 earnings call

Market Observation: Domestic traveler number grows steadily, but hotel industry faces challenges due to rapid supply increase and macro factors. ### Hotel Network Expansion: Achieved high-quality network expansion with 18.3% year-over-year increase in rooms in operation. ### Member Growth: Member base grew 17.5% year-over-year to nearly 290 million, room nights booked by members up 28.8% year-over-year. ### Asset-Light Business: M&F revenue and gross operating profit grew robustly, contributing nearly 2/3 of total gross operating profit. ### Brand Achievement: HanTing brand ranked #1 on World's Top 50 hotel brands list, launched HanTing 4.0 version as a revolutionary supply chain reform. ### Strategic Focus: Focus on economy and middle-scale segment, enhance brands, optimize products and services to solidify competitiveness.

In the second quarter, group hotel GMV grew by 15% year-over-year to RMB 26.9 billion. The manachised and franchised (M&F) business revenue rose 22.8% year-over-year to RMB 2.9 billion, and its gross operating profit increased by 23.2% year-over-year to RMB 1.9 billion, contributing nearly 2/3 of the group's total gross operating profit. The leased and owned business revenue and gross operating profit decreased 7.6% and 13.4% year-over-year respectively. The member base grew by 17.5% year-over-year to nearly 290 million in the second quarter, with room nights booked by members exceeding 60 million nights, a 28.8% year-over-year growth.

Third Quarter 2025: Group revenue expected to grow 2% to 6% year-over-year, 4% to 8% excluding DH. Manachised and franchised revenue expected to grow 20% to 24% year-over-year. ### Full Year: RevPAR expected to be slightly below previous guidance due to macro uncertainties and supply increase, but strive to achieve previous revenue guidance.

Macro Uncertainties: Weaker consumer spending willingness has more pronounced impact on high-end consumption. ### Supply Impact: Rapid increase in hotel supply over past 2 years creates challenges for the hotel industry.

Q: About RevPAR expectation for 3Q and 2025, and change to full year revenue guidance; and potential impact on RevPAR from new hotel openings and cannibalization.

A: For 3Q, summer holiday performance slightly below expectation leads to slight year-over-year RevPAR decline, sequential basis narrowing. Full year RevPAR expected slightly below previous guidance. Regarding new hotel openings, new products put pressure on older ones, but actively seeking upgrades for existing hotels and rationally positioning new openings.

Q: Key message behind new disclosure of gross operating profit breakdown between asset-heavy and asset-light segments, outlook for margin of leased and owned business.

A: Asset-light business has stable margin and drives revenue growth, leased and owned exposure reducing. Margin of leased and owned declined due to exposure reduction, but actively seeking rental reduction with landlords and working on revenue management, sales and marketing, cost optimization for existing properties.

Q: Store expansion deceleration, franchise sentiment and new openings planning; margin optimization.

A: Will be strict on new signings for quality, maintain healthy new openings pace. Margin benefited from asset-light transformation, cost optimization, SG&A excluding SBC declined 1% in 2Q, expect stable or gradual margin improvement with more asset-light contribution in future.

Q: Time to resolve same-store RevPAR issue for HanTing brand and long-term growth potential of upscale segments.

A: HanTing 4.0 is mature product, solving pressure on older versions may take 1-2 years with new signings and upgrading existing hotels. Orange and Intercity brands have good growth, Intercity expected to be leading in upper midscale segment in 3-5 years due to real estate market weakness and brand positioning.

Q: Strengthening supply chain capability and pace of shift to asset-light model for DH.

A: Strengthen supply chain by enlarging top-tier suppliers, modularization, etc., achieving cost decline and shorter construction period. For DH, working hard on negotiating with landlords for asset-light transformation, continuously screening profitability of leased hotels and being careful in signing new leased contracts.