HTHT

Day. Thank you for standing by. Welcome to H World Q1 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I'll hand the conference over to your first speaker today, Miss Ivy Luo, Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning and good evening, everyone. Thanks for joining us today. Welcome to H World's Q1 2026 earnings conference call. Joining us today is our founder and Executive Chairman, Mr. Ji Qi, our CEO, Mr. Jin Hui, our CFO, Mr. Arthur Yu, our COO, Ms. Chen Hui, and our CSO, Ms. Jihong He. Following our prepared remarks, management will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements made under the safe harbor provision of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC.

H World Group does not undertake any obligation to update any forward-looking statements except as required under applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliation of those measures to comparable GAAP information can be found in our earnings release that was distributed early today. As a reminder, this conference call is being recorded. The webcast of this conference call, as well as supplementary slide presentation, is available at ir.hworld.com. With that, now I will hand over the call to our CEO, Mr. Jin Hui, to discuss our business performance in the Q1 of 2026. Mr. Jin, please.

[Non-English content]

Dear investors and analysts, good day. Thank you for joining H World Q1 of 2026 earnings call.

[Non-English content]

In 2026, China's domestic travel demand gained a solid momentum. The overall railway and aviation cross-region traffic, number of trips, as well as tourism spending, rose steadily. We also saw several regions rolling out spring breaks this year. Those spring breaks right before or after Qingming Festival and May Day holidays enabled Chinese consumers to enjoy five to eight days of vacation, which effectively help balancing out passenger flows in between peak and off-peak periods. Meanwhile, a further step up in the implementation of visa-free policy has fueled the continuous growth of inbound tourism, which serve as an additional growth engine of China's hospitality industry.

[Non-English content]

We think structurally there is still a mismatch between the hotel supply and the consumer demand in China. Therefore, pushing forward supply-side reform and hotel network optimization will remain a key strategic for H World. This closely aligns with the 15th Five-Year Plan guideline on deepening supply-side structural reform and revitalizing existing resources. Meanwhile, backed by our strong brand reputation, proven operational expertise, and digitalization advantages, we aim to further expand our market share, deliver sustainable high-quality growth, and fulfill our mission of redo China's hotel industry.

[Non-English content]

As we enter 2026, H World remain committed to brand-led high quality development, we achieve solid business results across network expansion, brand building, membership ecosystem development and profitability. By breaking through into new cities and regions and deepening penetration in the lower tier cities, we delivered another quarter of strong network expansion. Driven by a 14.1% year-over-year increase in the number of rooms operation, our group hotel GMV grew 17.4% year-over-year to RMB 26.4 billion. Nights booked by members increased 10.7% year-over-year to 60 million. Our asset light managed and franchised business registered another quarter of solid growth in its hotel network, revenue as well as profit. Our Q1 2026 group M&F revenue rose 20.3% year-over-year to RMB 3.0 billion. Group M&F gross operating profit increased by 20.7% year-over-year to RMB 1.9 billion.

[Non-English content]

As market competition became more rational and healthier, H World China achieved 4.5% year-over-year increase in ADR, which was also supported by our continuous product upgrades and revenue management optimization. The ADR expansion drove a 3.0% year-over-year growth in the blended RevPAR, which represents a sequential improvement from the Q4 2025.

[Non-English content]

We remain focused on serving the mass market using our economy and mid-scale hotels and solidifying the competencies of our core brands. The continuous upgrades of HanTing and JI Hotel, together with the launch of Hi Inn, have further strengthened our competitiveness in economy and mid-scale hotel markets, reinforcing H World's absolute leadership in China's mass market hospitality segment. We are steadily expand hotel network and enhancing geographic coverage. By the end of Q1, HWC Hotel in operation totaled 13,095, and we have another 2,865 hotels in the pipeline. Our city coverage increased to 1,461 cities across China. We are moving steadily towards our strategic goal of 2,000 cities, 20,000 hotels.

While expanding into lower-tier cities, we are also optimizing and refining our hotel portfolio in the Tier 1 and two cities, especially in those core business districts in the top-tier cities. We believe our premium product quality and a strong brand power will enable us to recapture opportunities in the mature Tier 1 and two cities markets.

[Non-English content]

Aside from strengthening our core mass market brands and optimizing hotel coverage, we are also making steady headway in the upper mid scale segment. We're adopting a multi-brand strategy with clear brand positioning and value propositions. We are steadily pushing forward the development of our four key upper mid scale brands, namely Intercity, JI, Crystal and Mercure. At the end of Q1, the number of our upper mid scale hotels in operation and in pipeline reached 1,658, up 14.4% year-over-year.

[Non-English content]

We always insist on strengthening our direct sales capabilities through H Rewards membership program, which we believe is vital to our sustainable long-term development. As our hotel network covers more cities, our membership base and room night booked by members also achieve robust growth. Going forward, we'll further strengthen brand building, diversify customer acquisition scenarios, and enhance member benefit and member stickiness.

[Non-English content]

To better and more accurately reflect our future development prospects, we have adopted the new HWC and HWI disclosure framework and terminology beginning this quarter, where the acronym HWC refers to our operations inside China, and HWI includes all overseas hotel business covering Legacy DH as well as our APAC business.

[Non-English content]

Let's go over the operational performance of our HWI business. In the Q1 2026, HWI achieved a 5.0% year-over-year increase in RevPAR, driven by a 1.6% increase in ADR and a 2.1 percentage improvement in occupancy rate.

[Non-English content]

As you may have noticed, aside from our DH business, H World International has also made initial progress and breakthroughs in the Asia-Pacific market. Leveraging the development opportunities under the Belt and Road initiatives, we are accelerating our strategic layout across APAC. With Singapore as its operational hub, HWI is expanding its footprint into key Southeast Asian markets, including Vietnam, Laos, and Cambodia. To date, we have opened six hotels across Southeast Asia. By rolling out brands ranging from HanTing, JI Hotel to Intercity, and MAXX, we have built a covering economy, mid-scale, and upper mid-scale segments, catering to diverse guest travel needs.

[Non-English content]

We opened our 1st overseas HanTing Hotel in late 2025, featuring our latest HanTing 4.0 version, the hotel sits in the very prime center business district of Ho Chi Minh City, Vietnam. The hotel posted strong operational results with a nearly RMB 500 RevPAR in the Q1. It's also worth mentioning that this property was invested by one of our large domestic franchisees, which shows our franchisee acknowledgement and confidence in our brand power and operational capabilities. This quarter, our first overseas JI 5.0 officially opened in Vientiane, the capital of Laos. Located in a prime area of the city, the hotel continues JI's signature design language rooted in Eastern culture, representing the overseas expansion of one of H World's Eastern cultural brands.

[Non-English content]

We believe our standardized branded hotel products, systematic and digitalized operation capabilities, and supply chain advantages will enable us to empower our overseas hotels. Moving forward, we aim to build solid brand influence in Asia Pacific region while accumulating local operational expertise in the Southeast Asian market.

[Non-English content]

This concludes the business update for the Q1 of 2026. I will now hand over the call to our CFO, Mr. Arthur Yu, financial performance for the quarter.

Thank you, Jin Hui. Good evening and good morning to everyone. Before we get into the details of our quarterly financial performance, I'd like to quickly highlight one accounting update first. Starting this quarter, we have renamed our operating segments to HWC and HWI, replacing the previous Legacy-Huazhu and Legacy DH segments. Additionally, we made a minor business realignment between HWC and HWI effective 2026. For consistency and comparability, we have restated prior period figures to align with our current segment presentation.

Now let's walk through our Q1 financial highlights. Group revenue grew 11.1% year-over-year to CNY 6.0 billion. Within this, HWC revenue increased 12.4% year-over-year to CNY 5.0 billion, primarily driven by steady hotel network expansion and continued RevPAR recovery. HWI revenue rose 5.1% year-over-year in Q1 2026, partially benefited by favorable foreign exchange rates. On profitability, Group Adjusted EBITDA was up 24.2% year-over-year to CNY 1.9 billion, with the margin expanding 3.3 percentage points year-over-year to 31.0%. The strong EBITDA growth and margin improvement were mainly attributable to a growing profit contribution from our asset-light business. Adjusted net income grew 38.6% year-over-year to CNY 1.1 billion, with the adjusted net income margin improving 3.5 percentage points to 17.9%. Next, on our asset-light M&F business.

Supported by ongoing high-quality asset-light network expansion and improved RevPAR performance, our M&F business revenue grew a solid 20.3% year-over-year. Increase 20.7% year-over-year to CNY 1.9 billion, with a gross operating margin of 63.6% for the quarter. Let's now turn to our cash flow and liquidity position. We generated CNY 233 million in operating cash flow during Q1. As of quarter end, the group hold CNY 15.8 billion in cash and cash equivalents, with a net cash position of CNY 9.6 billion on our balance sheet. Our healthy operating cash flow and strong balance sheet provides solid support for future shareholder return arrangements. This concludes our financial review for the Q1 of 2026.

We are ready to take your questions. Operator, please open the line for Q&A.

As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. One moment for our first question. We will now take our first question from the line of Dan Chee of Morgan Stanley. Please ask your question. Dan, your line is open.

[Non-English content] Thank you management, this is Dan from Morgan Stanley. Congratulations on another quarter of strong profit growth. My question is around recent demand and RevPAR trend. Q1 RevPAR saw sequential improvement, and Mr. Jin mentioned about the demand balance during the Qingming and also May Spring holiday. Several holidays in Q2. Can management share more colors, especially on business demand, and any impact from energy cost increase? Lastly, any comments on the occupancy stabilization? Thank you. [Non-English content]

[Non-English content]

After reopening, we actually see that for the leisure travel demand, it still has been growing steadily. Couple reasons behind. I think one is that after reopening, the leisure travel and experiential experience behavior is becoming a necessity to Chinese consumers. Secondly, we are also seeing government pushing out supportive policies, such as the one that I mentioned during my prepared remarks, the spring breaks, that would roll out in multiple regions and cities this year. Thirdly, we're also seeing a rising demand or an increase in overall inbound tourism, which was an additional growth driver to the overall leisure travel market. Overall, we are seeing that in terms of the number of trips, it is growing steadily after reopening. Probably because of the consumption power, we still see some fluctuations in the overall spending. To conclude, we do believe that overall leisure travel is still growing steadily.

[Non-English content]

The rising energy cost, for now, we haven't been observing any impact on the overall travel demand because of the rising energy cost. We think partially this is also because the popular new energy vehicle in China. That is also why for the full-year 2026, we still maintain our full-year RevPAR guidance of a slight increase.

[Non-English content]。

For each role, we will continue to focus on building our own core competencies, including our hotel brands, including our operational management capability, as well as membership. Given that the overall industry supply increase has been slowing down and the rationalizing, we maintain cautiously optimistic on overall occupancy rate outlook.

[Non-English content]

Thank you.

Thank you. We will now take our next question from the line of Ronald Leung of Bank of America. Please ask your question, Ronald, your line is open.

[Non-English content] Let me translate my question into English. So my question is about the opening and closures outlook for the full-year. What is the latest outlook for the full-year opening and closures? Could management also comment about the city coverage in terms of the overall openings? Thank you.

[Non-English content]

I will answer the opening and the city coverage question separately. On the HWC, we grossly opened 537 hotels, which is at a relatively high level compared to historical performance. Of course, in the Q1, our net opening is highly impacted by the late Spring Festival holiday this year. Overall, the number of gross openings and net openings this quarter was in line with our overall expectation.

[Non-English content]

Our hotel opening strategies, we insist on the high quality development of our hotel network. Since two years ago, we already shifted from purely focusing on quantity to focusing a high quality growth of the hotel network. Under our brand-led high quality growth strategy, we have high standards and high requirement on the new signings and new openings. With that strategy, I'm happy to report that in the Q1 of overall new signings is still at a healthy and high level.

[Non-English content]

With our healthy signing pace, we maintain our opening guidance for the full-year of 2026 unchanged.

[Non-English content]

On the city coverage strategy, we have two lines of strategy which we are implementing at the same time. Firstly is still the penetration into lower tier cities. Secondly, given the current real estate market, the current supply cycle of the real estate market, we are also returning to the Tier 1 and Tier 2 cities. We are grabbing those emerging opportunities of those high quality properties in those core and premium district and premium locations. We will be developing our premium hotel products in those Tier 1 and Tier 2 cities.

[Non-English content]

We are fully confident that each role will be delivering high quality growth in both the lower tier cities as well as the Tier 1 and two cities.

[Non-English content]

Thank you.

Thank you. We will now take our next question from the line of Sijie Lin of CICC. Please ask your question Sijie Lin.

[Non-English content] So thank you management. My question is about the upper mid scale business development for the last several quarters, upper mid scale, especially InterCity, achieved quite impressive expansion speed. We see that JI Hotel opened first hotel and has 12 new signings. I want to know how the RevPAR performance of upper mid scale compare with economy and mid scale. Additionally, could you please share the expansion targets and operational focus of the upper mid scale segments, especially the InterCity and JI Hotel, in the coming period. Thank you.

[Non-English content]

The upper mid-scale segment is a core strategic part of our overall H World strategy. We are actually very happy to see that in the Q1, the overall rapid recovery in the upper mid-scale segment is actually slightly better than our economy and mid-scale. This showcases our growing brand power and product quality in the upper mid-scale segment.

[Non-English content]

We adopt a multi-brand strategy in the upper mid scale segment. Namely is the Intercity, Grand Mercure, and Crystal Orange Hotel. Overall, the total network growth in the upper mid scale is quite solid. When we're breaking down into single brand, we do see that some of the brand still need further improvement in its overall brand power. We are returning to and refocusing back to the Tier 1 and Tier 2 cities to opening flagship stores in those core districts.

[Non-English content]

At the initial stage of development, each one has been spending a lot of time, setting the overall brand strategy as well as the design. We have very clear value proposition for each of our upper mid-scale product. Of course, at the initial stage is we, you are always going to face off the challenges. We are very confident that in the longer term, our H World upper mid-scale brands will be leading in the upper mid-scale segment.

[Non-English content]

Thank you.

Thank you. We will now take our next question from Jiwei Liu of CITICS. Please ask your question Jiwei, your line is open.

[Non-English content] Uh, I'll translate my question to English. Hi management, I'm Liu Jiwei from CITICS. Against the backdrop of fluctuating business and the narrow gas mix and increasing regulation across OTA industry, can you share the current breakdown of our customer source channels and your outlook going forward, as well as the company's plans and strategies for membership marketing? Thank you.

[Non-English content]

Overall, our CRS as well as some of the other key metrics, of our memberships have been performing quite stable. Even under the case that we've been expanding our overall network rapidly last year and opened over 500 new hotels this year. The overall CRS contribution, to, and the membership booking has been quite stable.

[Non-English content]

At the same time, we are also observing some emerging trend, including the leisure travel as well as the overall increase in the inbound tourism. How to capture those emerging traffic and the new type of consumers is one of the very important topic for H World and for our H World membership.

[Non-English content]

You may have noticed that H World we have been bringing in some new talents into the company, and we are also working with some leading AI companies to develop new selling marketing strategies as well as to solve the new strategy and initiatives in member conversion.

[Non-English content]

Improving our capability in the corporate B2B channel. We are using our membership to leading corporate business travelers. We do believe that this is also showcases the improving membership on capability of H World.

[Non-English content]

Thank you.

Thank you. We will now take our next question from the line of Leah Pan of Goldman Sachs. Please ask your question, Leah, your line is open.

[Non-English content] Thanks for taking my question, this is Leah from Goldman Sachs. I have a question on the company's international strategy. I think you mentioned on the business stepping up in the Southeast Asia market, including the signing of Zleep Hotels in Malaysia and the entry into Cambodia with the brands Zleep Hotels and the Steigenberger. Could you please share with us more potentially in your in the Southeast Asia market and the growing targets over the next few years? Also, given company's business exposure in the Middle East market, how do you see the impact from the ongoing Middle East crisis to your current business and as well as the global expansion strategy? Thank you.

[Non-English content]

You do see that as a first step, we successfully opened hotels in Vietnam, in Laos and in Cambodia. This gives us a very strong confidence that H World's products, management, supply chain as well as members can actually empower the hotel operation in the overseas market. Going forward, we are gonna step up in the overall investment in the Southeast Asia market in terms of the network expansion, the size as well as the pace of expansion. We do think that overall the Southeast Asia is a brand new market that provides new opportunities to H World.

[Non-English content] This is Arthur as said the second part related to Middle East [inaudible]. Based on our Q1 results, we've seen very limited impact, from the Middle East to our H World International. In the Middle East of our HWI only have 10 manage height [inaudible] hotel and it has manageable non-material contribution to the [audio distortion]. On the overall increase in the energy cost, we are taking effort in controlling the increase and managing the increase in overall energy. So far we've seen the impact of the high energy cost [inaudible] HWI still manageable. But, of course there still uncertainties in how the overall situation in the Middle East it's gonna [inaudible] are on the development here. Thank you.

Thank you. We will now take our next question from the line of Lydia Ling of Citi. Please ask your question Lydia your line is open.

[Non-English content] Hi management, Lydia from Citi, and thanks for taking my questions. So my question will be on the profitability. So in Q1, we continue to see the margin improvement and a further optimization in the cost ratios. So what would be your outlook for the full-year margin trend? If by region in China as asset light strategy continues to push forward, what will be the upside from current high level? We see the international part, the loss actually narrowed on year basis in Q1. What would be your target for the overseas profitability on full-year basis? Thank you.

[Non-English content]

On Q1 EBITDA, there are several things that we are doing to improve the overall EBITDA performance. Firstly is our asset light strategy. As we continue pushing forward asset light strategy, we are confident that for our H World hotel business, the adjusted EBITDA margin will continue to improve steadily. Secondly, also on the overall lease and own business, we are also improving the performance of this segment by revenue management as well as cost control, including the negotiation of rental reduction.

[Non-English content]

On overseas business HWI, especially for DH. We continue to push forward the cost reduction initiatives. We are actually looking into each item in the overall cost structure to improve the overall efficiency. In the Q1 this year, and we will continue to pushing forward the cost reduction initiatives in DH.

[Non-English content]

I would like to add that aside from the cost control and cost reduction, H World is also making some investment in key areas such as digitalization, technology and AI development, as well as our overall H World membership building, the promotion and marketing of our core brand. For example, in the Q1, we launched our Hanting Inn product. Based on the overall budget and overall planning, we do need to make necessary investment. Of course, we will be looking at the overall ROI of those investment. On the full-year basis, we will have control on the cost, we also make necessary investment for our long-term sustainable growth.

Thank you.

We'll take the last question.

Certainly. Our last question today comes from the line of Xin Chen of UBS. Please ask your question. Xing, your line is open.

[Non-English content] Let me translate to English. This is Xin Chen from UBS. My question is on dividends. Could the management please share the 2026 shareholder return plan with us? Thank you.

[Non-English content]

Thank you, Xin. As you can see from our presentations, H World have very strong and solid balance sheet as well as stable cash flow. Going forward, as we continue pushing forward the asset-light strategy, and those cost reduction initiatives, we will maintain our shareholder return plan in place. Going forward, if there's anything new, we will update with the market in time. Overall, for the overall direction, is that we will be using our own cash flow to return to the shareholders. Thank you.

Thank you. That's the end of the question and answer session. I'd now like to turn the conference back to Ms. Ivy Luo for closing comments.

Thank you, everyone for taking your time with us today. This will conclude today's call, and we look forward to seeing you in the upcoming quarters. Bye-bye.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your line.