China Hotels Entering a New Upcycle; Deutsche Bank Initiates Buy on H World and Atour

Overview

This report covers the China hotel industry and two core listed companies, H World Group Ltd and Atour Lifestyle Holdings Ltd. Deutsche Bank believes that after the post-pandemic multiyear downcycle and supply glut, China hotel industry RevPAR has bottomed in 4Q25 and entered a structural upcycle in 2026. Industry demand is supported by stable business travel, resilient leisure tourism, improved holiday policy, and inbound travel recovery; on the supply side, new hotel additions have slowed, allowing leading companies to more easily gain pricing and profitability flexibility amid industry consolidation.

Core views

The core views include: first, the industry supply-demand structure is improving, and industry RevPAR is expected to return to positive growth in 2026, with Deutsche Bank expecting full-year industry RevPAR growth of about 2%. Second, leading hotel groups are expected to outperform the industry because they have stronger brand portfolios, loyalty systems, direct sales traffic and operating efficiency. Third, H World’s asset-light transition, product upgrades, and H Rewards loyalty program support 2026-2028 profit compound growth. Fourth, Atour, beyond expansion in mid-to-high-end hotels, is opening incremental growth through retail and sleep products such as pillows and duvets, but also faces low-price competition from traditional home textile brands.

Analysis framework

The report combines STR industry supply-demand, ADR, occupancy, and RevPAR data; company operating assumptions; 1Q26 earnings preview; DCF valuation; trailing forward P/E comparison; membership and channel structure; and e-commerce retail tracking data to assess industry cycle, company growth quality, and valuation attractiveness.

Methodology notes

• Valuation methodsDCF valuation

  Discounted cash flow valuation

  H World’s target price is based on DCF, assuming WACC of 8% and a terminal growth rate of 0%, corresponding to about 21x one-year forward P/E; Atour’s target price is based on DCF, assuming WACC of 9.5% and a terminal growth rate of 0%, corresponding to about 17x one-year forward P/E.

• industry_cycleRevPAR cycle analysis

  Room revenue per available room cycle analysis

  The report uses ADR, occupancy, and RevPAR to judge hotel industry conditions, arguing that 4Q25 is the industry RevPAR trough and that 2026 will move into an upcycle as supply-demand conditions improve.

• market_dataSTR hotel data

  Hotel industry supply-demand data tracking

  The report cites STR data to track Chinese hotel supply, demand, occupancy, ADR, and RevPAR trends, supporting the view that supply growth is slowing while demand is recovering.

• channel_analysismembership and direct channel analysis

  Membership and direct-channel analysis

  The report highlights the H Rewards and Atour Planet membership systems, as well as the share of H World direct channels, as material to reducing OTA dependence and improving customer stickiness and operating efficiency.

Asset mapping & comparison

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

• H World Group Ltd (HTHT.OQ)

  Core coverage company, Buy rating

  Strengths

  Asset-light M&F model, strong membership system, high share of direct-sales channels, multi-brand matrix, and product upgrades plus cost control support profit growth.

  Weaknesses

  European Deutsche Hospitality business growth is relatively weak, and some growth relies on franchisee quality and expansion execution.

  Comparison

  Relative to other discretionary consumer sectors, the report believes H World’s long-term growth path is clearer and the current approximately 18x one-year forward P/E is not expensive.

  Risks

  China macro slowdown and weak demand, intensified competition, insufficient franchisee management, and geopolitical and macro pressures in Europe.

• Atour Lifestyle Holdings Ltd (ATAT.OQ)

  Core coverage company, Buy rating

  Strengths

  Clear mid-to-high-end hotel positioning, asset-light franchising model, differentiated member experience, and extra growth from retail and sleep economy businesses.

  Weaknesses

  Concentration is relatively high in mid-to-upper hotels, and sustained retail growth requires repeat success of the pillow category.

  Comparison

  It has more retail upside and higher growth characteristics than H World, but retail execution and competitive pressure are also higher; the target price corresponds to about 17x one-year forward P/E.

  Risks

  Execution risk in retail and e-commerce, low-price competition from traditional home textile brands, intensified competition in mid-to-high-end hotels, and franchise network expansion risk.

• China hotel sector

  Sector allocation direction

  Strengths

  Slowing supply growth, demand recovery, inbound travel improvement, and leisure spending shifting from goods toward experiences.

  Weaknesses

  Occupancy remains volatile, and continued validation is needed for business-travel recovery.

  Comparison

  Leading companies are expected to outperform the industry, benefiting from consolidation, branding, and operating efficiency.

  Risks

  Rising jet fuel costs pushing airfares higher, weaker macro demand, and a renewed repricing-war dynamic.

Key data

• Industry supply growth1Q26 +2.3% YoYSTR data shows supply growth is below same-period demand growth, helping to ease pricing-war pressure.
• Industry demand growth1Q26 +3.6% YoYDemand recovery is jointly supported by business, leisure, meetings and entertainment, and inbound travel.
• 2026 industry RevPAR forecast+2%The report says year-to-date trend is around +4.3%, but the full-year forecast is more conservative.
• 2025 inbound tourist arrivals82 million arrivalsVisa-waiver policy and social-media reputation are supporting inbound travel recovery.
• H World 2026-2028 revenue CAGRabout 7%Driven by China business growth, asset-light transition, and product upgrades.
• H World 2026-2028 adjusted net income CAGRabout 17%Profit growth is faster than revenue growth, reflecting better operating efficiency and margin improvement.
• H World target priceUS$56/HK$43.8DCF valuation, WACC 8%, terminal growth rate 0%.
• Atour target priceUS$45DCF valuation, WACC 9.5%, terminal growth rate 0%.
• Atour 1Q26 revenue forecastabout +41% YoYBoth M&F and retail are expected to grow about 45%.
• Atour 2025 retail salesover RMB 3 billionPillows are the core category, with comfortable duvets, mattresses and other sleep products making up subsequent growth.

Impact & implications

If the report’s thesis is correct, the China hotel industry will move from post-pandemic recovery and the price-war phase into a more stable profitability expansion phase. H World is more a high-certainty large-cap compound-growth and industry-consolidation beneficiary; Atour has both mid-to-high-end hotel network expansion and a rising retail business on the upside, but its retail business has higher competitive and execution uncertainty. Short-term oil, airfare, and holiday data volatility may affect sentiment, but the report believes it does not change the full-year industry bottom-up recovery logic.

Risks

• Weak China macro conditions causing slower-than-expected recovery in business travel demand.
• Leisure travel spending downgrading or weakening, pressuring RevPAR and ADR.
• Industry competition intensifying and potentially reigniting a price war.
• Weak franchisee management and poor execution in new store rollouts affecting brand perception, service consistency, and expansion speed.
• Atour retail and e-commerce face low-price competition from traditional home textile brands and a supply-chain cost disadvantage.
• Geopolitical and macro factors in Europe may affect H World’s Deutsche Hospitality business.
• Rising fuel costs increasing airfares and weakening travel intent in the short term.

What to watch

• Impact of 2Q26 travel demand and airline fuel surcharges on travel willingness.
• Whether industry ADR, occupancy, and RevPAR continue to improve through 2026.
• H World 1Q26 earnings call guidance on near-term demand trend and margin trajectory.
• Whether Atour retail maintains strong growth and leads to upward revisions in full-year guidance.
• Whether inbound tourism, Hong Kong/Macau/Taiwan, and business travel recovery persist.
• Progress in new hotel rollouts by leading groups, franchisee quality, and product upgrades.
• Potential impact of OTA antitrust measures on hotel direct-sales channels and commission structures.