Haitong International released a research report initiating coverage on H World Group-S (01179) with an "Outperform" rating and a target price of HK$41. As a leader in China's chain hotel market, H World Group benefits from the increasing chain penetration rate in the hospitality industry, maintaining its top-tier position in room nights sold. The company's business model combines a multi-brand portfolio with a robust membership system, supported by efficient execution, which continues to drive market share growth.

Additionally, H World Group's strong presence in the mid-scale hotel segment, coupled with its resilience and growing proportion of mid-to-high-end hotels, further enhances its overall RevPAR. The diversified brand strategy enables targeted expansion into differentiated commercial zones and customer segments. The company is also transitioning toward a higher-margin, asset-light franchise model while closing underperforming properties, which is expected to sustain margin improvement.

**Key Highlights from Haitong International:**

1. **Continued Improvement in Supply-Demand Dynamics** According to InnHome data, newly opened hotels (with 15+ rooms) in October reached 396,500 rooms, up 7% YoY. On the demand side, cross-regional travel during domestic holidays showed steady growth, with approximately 2.142 billion trips recorded in the first seven days of the 2025 National Day holiday, a 7% YoY increase. Leisure travel remained resilient in Q4, though business travel stayed weak. Haitong forecasts Legacy-HZ's Q4 RevPAR to rise 0.5% YoY to RMB 223.

2. **Over 2,300 New Hotels Opened in 2025, Led by Mid-to-High-End Brands** In Q3, the company opened 750 new hotels, bringing its pipeline to 2,748. Mid-to-high-end hotels grew 25% YoY, outpacing the overall 7% growth rate. Management remains confident in exceeding 2,300 new openings for the full year and is upgrading its existing portfolio while enforcing stricter standards for new properties. Haitong projects a net addition of 234 hotels in Q4, raising the total to 12,814 by 2025. Long-term, the company aims for 20,000 hotels by 2030, targeting a 15% market share.

3. **Membership System and Ongoing Empowerment** H World operates one of the most influential membership programs globally, alongside the industry's largest and most resilient supply chain. Its membership base surpassed 301 million in Q3 2025, up 17.1% YoY, with member bookings accounting for 74% of total room nights sold (66+ million, +19.7% YoY). Haitong believes enhanced member engagement will further empower franchisees and support future monetization.

4. **Asset-Light Model and Cost Discipline Drive Margin Expansion** Q3 adj. EBITDA margin improved 3.3 ppts YoY to 36%, with Legacy-HZ's margin reaching 43%. Haitong expects this trend to continue, supported by the asset-light shift and RevPAR recovery. The firm forecasts 2025/2026 adj. EBITDA of RMB 7.94/9.13 billion, with margins rising 5 ppts and 3 ppts YoY, respectively.

**Risks:** Intensified competition and macroeconomic weakness.