EB SECURITIES has published a research report stating that the hotel industry's recovery trend is becoming increasingly clear. Optimized supply-demand dynamics, coupled with rising chain penetration, the renovation of existing properties, and an upgrade in accommodation demand, are highlighting the growth certainty for high-quality industry leaders. The firm recommends HWORLD-S (01179) and ATAT.US, citing their scale advantages, comprehensive brand portfolios, asset-light operating models, and strong digital and membership operation capabilities. The key points from EB SECURITIES are as follows:
Industry Recovery Gains Momentum with RevPAR on the Mend
The hotel sector has gradually entered a recovery phase since September 2025. According to STR data, China's overall hotel RevPAR turned positive year-on-year in September 2025 and maintained positive year-on-year growth from October to December 2025. On the supply side, expansion has moderated, with the total number of hotel rooms in China growing at a low rate of 2.1% to 2.3% year-on-year in the first nine weeks of 2026. On the demand side, business activity is recovering, with the proportion of business travelers on domestic flights gradually increasing from August to December 2025, while leisure travel remains robust. Against a backdrop of slowing supply, resilient demand, and enhanced pricing power for leaders due to rising chain penetration, the recovery trend for China's hotel industry has been gradually solidifying since September 2025.
Significant Room for Chain Growth with Quality and Upscale Trends Persisting
From 2018 to 2024, the chain penetration rate in China's hotel industry showed a steady growth trend, with the chain rate of rooms increasing from 18.56% to 40.09%. However, there remains significant room for improvement compared to the United States and the global average. The continued rise in chain penetration is expected to bolster the price control capabilities of industry leaders. In terms of room structure, the industry exhibits a trend of structural upgrade: the proportion of economy hotels is continuously declining, while the share of mid-to-upscale hotels is steadily rising. This is driven by expanding demand and optimized supply. On the demand side, the gradual upgrade in customer experience needs is broadening the target customer base for mid-to-upscale hotels. On the supply side, compared to luxury hotels, mid-to-upscale hotels have lower investment thresholds, shorter payback periods, higher standardization, and are more easily deployed in lower-tier markets. Furthermore, as of 2025, nearly 70% of hotels require renovation. With demand upgrading and supply optimization in sync, the structure of China's hotel industry continues to evolve towards higher quality and upscale offerings.
HWORLD-S Leverages Scale in Mass Market, Accelerates Mid-to-Upscale Expansion
The company has established a complete brand portfolio spanning economy, mid-scale, mid-to-upscale, upscale, and luxury segments. Hanting maintains its leading market share in the economy segment, while Ji Hotel leads the mid-scale track. The launch of Hanting Express in early 2026, together with Hanting 4.0, forms a "dual-engine" strategy to enhance penetration in the economy hotel market of lower-tier cities and consolidate the company's scale advantage in the mass market. The mid-to-upscale brand lineup, including Orange Crystal, Mercure, IntercityHotel, and Manxin, has taken shape, while the upscale and resort brands continue to be refined. The company's brand matrix covers business travel, lower-tier cities, transportation hubs, and resort scenarios, meeting diverse needs across city tiers, consumer levels, and investment returns, making it highly attractive to franchisees.
ATAT Leads Mid-to-Upscale Segment, Pioneering New Economies of Scope with Retail
The company firmly holds the top market share position in China's domestic mid-to-upscale chain hotel segment and has almost fully transitioned to a franchise model. Its main brands, Atour, Atour X, and Atour Landscape, form a powerful combination, creating significant scale barriers and first-mover advantages in property resources. Its hotel business builds differentiated barriers through cultural experiences and neighborhood-style service, with a service system that goes beyond standard SOPs, fostering strong brand recognition and high user loyalty. Its retail business, operating on a "see it, buy it" model, transforms the accommodation scene into a retail touchpoint, focusing on core sleep categories like deep-sleep pillows and duvets, with a streamlined SKU, standout bestsellers, and a high online sales rate. The retail business has become a high-margin, high-growth second growth curve for the company, enhancing its growth potential and resilience to economic cycles to a certain extent.
Key Risks to Consider
Potential risks include intensifying industry competition, demand recovery falling short of expectations, compliance and foreign exchange risks related to overseas operations, unpredictable risks from geopolitics and natural disasters, and negative public sentiment.
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