On May 15, H World Group released its unaudited financial results for the first quarter of 2026. Against a backdrop of more rational travel consumption and intensified industry competition, H World Group delivered a report card marked by accelerated scale expansion and steady revenue growth, but also a year-on-year decline in net profit attributable to shareholders. Data shows that H World's Q1 revenue reached 6 billion yuan, an increase of 11.1% year-on-year. Hotel turnover amounted to 26.4 billion yuan, up 17.4% from the same period last year. However, net profit attributable to the company was 817 million yuan, a decrease of approximately 8.6% compared to 894 million yuan in the prior-year period. This situation of increased revenue without corresponding profit growth reveals the structural challenges H World faces under the dual pressures of rapid expansion into lower-tier cities and the integration of its international operations. Specifically, H World's domestic business in China remains the cornerstone of its performance. In the first quarter, hotel turnover for H World China grew by 18.0% year-on-year, significantly outpacing the overall revenue growth rate. This is primarily attributed to its nearly aggressive store opening strategy. As of the end of March 2026, the total number of hotels in operation reached 13,215, with the total number of rooms surpassing 1.3 million. In the first quarter alone, the number of new store openings remained high. Guided by the goal of having a H World presence in every county, brands like Hanting 4.0 and Hanting Express, acting as "light cavalry," have penetrated third- and fourth-tier cities and even remote counties. From an operational metrics perspective, the average RevPAR for H World China in Q1 was 214 yuan, showing a slight year-on-year increase. Notably, while the growth in the Average Daily Rate (ADR) has slowed, and the occupancy rate saw a minor year-on-year dip, the RevPAR growth was primarily driven by ADR. This reflects that in the current environment, H World is maintaining high operational rates by controlling room rate increases, with a clear intent to compensate for price with volume. Why did net profit decline by 8.6% despite growth in revenue and EBITDA? First, there is rigid pressure on the cost side. The financial report shows that hotel operating costs in Q1 rose to 3.7 billion yuan. As H World China expands massively into lower-tier markets, the amortization of upfront construction, labor, and rental costs is beginning to show. Second, there is the drag from H World's international segment. Although H World International's Q1 revenue increased by 5.1% year-on-year, its adjusted EBITDA still recorded a loss of 56 million yuan. Constrained by macroeconomic volatility in Europe and brand integration costs, the overseas business has yet to contribute substantial net profit to the group. Despite the pressure on net profit, H World's business model is undergoing a deep-seated evolution. In the first quarter, revenue from managed franchised and franchised hotels grew by 20.3% year-on-year to 3 billion yuan, accounting for approximately 50% of total revenue. This marks that H World has largely completed its transition from a heavy-asset leasing model to a light-asset management model. Compared to directly operated hotels, franchise income offers higher gross margins and greater risk resilience. Under this model, H World increasingly resembles a hotel software and supply chain company. Currently, the challenge H World faces is how to avoid internal brand cannibalization and the marginal decline in franchisee profitability after surpassing 13,000 hotels. A key signal hidden in the financial report is that while accelerating store openings, H World is also accelerating store closures. It is understood that H World plans to close 600-700 underperforming hotels in 2026. This approach of "taking big strides while pruning branches" reflects management's vigilance regarding the quality of expansion. Overall, H World's Q1 2026 report is a typical example of prioritizing scale. The short-term fluctuation in net profit seems more like the price it must pay to seize territory in lower-tier markets and revitalize its international operations. For this hotel giant, the 1.3 million rooms are merely a base. The real challenge in the latter half of the stock-era market is how to transform these existing assets into service value that commands a higher premium.
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