Guosen Securities has reiterated its "Outperform" rating on H World Group-S (01179), emphasizing the hotel industry's sustained growth driven by supply-demand flywheel effects. The current cyclical adjustment is expected to reach a bottom, paving the way for a rebalancing of supply and demand.

As exemplified by H World, the company has established a growth flywheel through its "product-traffic-return-scale" model, leveraging its multi-brand portfolio, over 300 million loyal members, and industry-leading returns to drive expansion. Future strategies include penetrating lower-tier markets, upgrading mid-to-high-end brands, and advancing its asset-light model to simultaneously enhance market share and profitability, with promising long-term growth prospects.

Key insights from Guosen Securities include: 1. **Supply-Demand Flywheel Effect**: The hotel industry benefits from front-end network effects and back-end economies of scale. While U.S. leaders capitalize on full-service international brand premiums, China’s limited-service leaders are rapidly ascending through economic growth and innovative models. 2. **Cyclical Rebalancing**: The industry is at a two-year adjustment bottom, with leisure travel showing steady growth and business travel demand stabilizing. Leading players are shifting focus from occupancy (OCC) to optimal RevPAR to stabilize pricing. Long-term, China’s service consumption (46% of total) is poised to rise, mirroring the U.S. lodging expenditure growth in the 1980s. 3. **Structural Opportunities**: Franchisees are returning to investment fundamentals amid weakening rental advantages. Chain penetration could rise from 40% (vs. 72% in the U.S.) to 60-70%, unlocking 30-109% room supply potential. Industry leaders may double their market share, aligning with global top-five benchmarks.

**H World’s Two-Decade Cyclical Resilience**: Over 15 years as a public company, H World has achieved a 20%+ CAGR in both store count and performance, attributed to founder-led strategic vision and digital efficiency. Its flywheel includes: - **Product Strength**: Efficient iteration from budget to mid-to-high-end brands (e.g., HanTing’s resilience, Ji Hotel’s mid-range dominance, Orange’s niche appeal). - **Traffic Dominance**: 300 million members (industry-leading), 60%+ central booking share, and data-driven revenue management. - **Superior Returns**: RevPAR 30-80% above peers, 0.17 staff-to-room ratio, and 20%+ supply chain cost savings, boosting franchisee ROI. - **Scalable Growth**: 15-20% annual加盟店 expansion.

**Three-Pillar Value Reassessment**: 1. **Store Expansion**: Regional reforms aim to下沉成熟 models, targeting 18,000 budget/mid-range stores by 2030 for market leadership. 2. **Brand Upgrade**: Mid-to-high-end brands (e.g., Orange Crystal, Intercity) are gaining traction, with Ji Grand View showing promise. Enhanced corporate partnerships and tiered会员权益 could lift annual fees per store to RMB1.4-2.1 million (1.5-3x budget/mid-range), potentially elevating profitability and valuation. By 2030, ~3,000 mid-to-high-end stores could generate ~RMB8 billion in group profit. 3. **Model Evolution**: Asset-light strategies akin to global peers may sustain 5%+ shareholder returns, warranting valuation premiums.

**Risks**: Slower-than-expected demand recovery, intensified competition, or mid-to-high-end brand setbacks.