H World's 1Q26 results were in line with expectations, with improving profitability and hotel expansion supporting the Buy rating

Overview

This report is Goldman Sachs' commentary on H World Group's 1Q26 results. The report says the company's performance was in line with expectations, profitability improved, hotel openings and RevPAR growth are on track, and the company is advancing incremental expansion into ASEAN countries. The conclusion is positive and the Buy rating is maintained.

Core views

The key views are: first, 1Q26 results delivered positive signals of improved profitability, hotel expansion proceeding as planned, and RevPAR recovery; second, valuation is attractive at about 11x FY26E EV/EBITDA and a 5.7% free cash flow yield; third, continued investment in the H Reward membership system should help capture growth in leisure and inbound travel; fourth, ASEAN expansion provides a new growth avenue, but China's macro backdrop, franchisee funding channels, and the recovery in consumption and travel demand remain key constraints.

Analysis framework

The report analyzes earnings results, conference call takeaways, valuation, membership system operating data, peer comparisons, and major risks. On valuation, it focuses on FY26E EV/EBITDA and free cash flow yield, and makes a side-by-side comparison with Atour, which is also rated Buy.

Methodology notes

• Valuation and fundamentalsFY26E EV/EBITDA and free cash flow yield

  Forward valuation and cash flow return

  The report notes that H World trades at about 11x FY26E EV/EBITDA and offers a 5.7% free cash flow yield, supporting the view that valuation is attractive.

• Factor analysisGS Factor Profile

  Growth, financial return, valuation multiples and composite percentile

  Goldman Sachs Factor Profile compares a stock's position versus the market and peers across growth, financial return, multiples and composite measures. Growth uses forward indicators such as sales, EBITDA and EPS; financial return uses metrics such as ROE, ROCE and CROCI; multiples use indicators such as P/E, P/B, EV/EBITDA and EV/FCF.

• M&A scenarioM&A Rank

  Acquisition probability ranking

  Goldman Sachs uses M&A Rank to assess the probability that a company becomes an acquisition target, where 1 indicates high probability, 2 medium probability and 3 low probability; if the rank is 1 or 2, an M&A component may be included in the target price.

• Research databaseQuantum

  Financial history, forecasts and ratio database

  Quantum is Goldman Sachs' proprietary database used to access detailed historical financial statements, forecasts and ratios for single-name deep dives and cross-industry, cross-market comparisons.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• H World Group (ADR) (HTHT.US)

  Primary covered name

  Strengths

  Improving profitability, hotel openings and RevPAR growth are proceeding as planned, with valuation at about 11x FY26E EV/EBITDA and a 5.7% free cash flow yield.

  Weaknesses

  Sensitive to China's macro backdrop, travel consumption recovery and franchisee funding channels.

  Comparison

  The report notes that Atour, also rated Buy, trades at about 10x EV/EBITDA, below H World.

  Risks

  Weak macro conditions, RevPAR growth below expectations, fewer-than-expected new franchisees, slower recovery in consumption and travel demand, dilutive M&A, and operational and cash drag from Deutsche Hospitality.

• H World Group (H) (1179.HK)

  Same company's Hong Kong-listed security

  Strengths

  Shares the same fundamental logic as the ADR, with Buy coverage on HTHT/1179.HK.

  Weaknesses

  Also affected by Chinese hotel demand and funding conditions.

  Comparison

  Represents the same company as the ADR counterpart, with a disclosed price of HK$35.48.

  Risks

  Same as HTHT.US, including RevPAR, new franchisee additions, recovery in consumption and travel, and M&A risk.

• Atour Lifestyle Holdings (ATAT)

  Peer comparable company

  Strengths

  Goldman Sachs also rates it Buy, and it trades at about 10x EV/EBITDA.

  Weaknesses

  Mentioned only as a peer valuation comparison, without a full fundamental analysis.

  Comparison

  Trading multiple is below H World's roughly 11x FY26E EV/EBITDA.

  Risks

  Peer hotel demand and macro consumer environment volatility could affect valuation and performance.

• Deutsche Hospitality

  Risk source within H World's business

  Strengths

  The report does not provide clear evidence of strengths.

  Weaknesses

  May create weaker-than-expected operating performance and cash drag.

  Comparison

  Listed separately as a risk item for H World.

  Risks

  Operating performance weaker than expected and cash drag.

Key data

• 1Q26 results viewIn line with expectationsBoth the report title and body point to 1Q26 results in line.
• FY26E EV/EBITDAAbout 11xThe report believes H World's current valuation is attractive.
• Free cash flow yield5.7%Used as a supporting indicator for valuation attractiveness.
• Member booked room nights60 million room nights, up 11% year over year1Q26 member booked room nights grew healthily, and the CRS contribution ratio was broadly stable.
• Peer Atour valuationAbout 10x EV/EBITDAGoldman Sachs also rates Atour Buy and believes its valuation is lower.
• Disclosure priceH World Group (ADR) $45.42; H World Group (H) HK$35.48From the company-specific regulatory disclosure section.

Impact & implications

If improving profitability, hotel openings, RevPAR growth and ASEAN expansion continue to play out, H World's valuation attractiveness and the support for the Buy rating should strengthen. Investment in the membership system may improve the company's ability to capture leisure and inbound travel demand. However, weak macro conditions, constrained franchisee financing, slower-than-expected recovery in consumption and travel, dilutive M&A, and the drag from Deutsche Hospitality's operations could all weaken the investment case.

Risks

• Weaker-than-expected macro conditions leading to slower-than-expected RevPAR growth.
• Weaker-than-expected financing channels in China leading to fewer new franchisees than expected.
• Slower-than-expected recovery in Chinese consumption and travel demand.
• Dilutive M&A could affect shareholder returns.
• Weaker-than-expected operating performance and cash drag from Deutsche Hospitality.

What to watch

• Whether RevPAR growth can continue to recover in subsequent quarters.
• Whether hotel openings and franchisee expansion continue to proceed as planned.
• The recovery in Chinese franchisee financing channels and consumption/travel demand.
• The conversion effectiveness of H Reward membership investment for leisure and inbound travel.
• The pace, investment and returns of ASEAN expansion.
• Whether dilutive M&A occurs and the cash flow impact from Deutsche Hospitality.