2Q26 Results Beat Expectations; New Franchise Services Drive Revenue Guidance Upgrade

Overview

H World Group Ltd's 2Q26 financial performance exceeded expectations, mainly driven by higher-than-expected blended monetization in the franchise and management business and improved selling, general and administrative expenses. The company enhanced revenue monetization through value-added services for franchisees, including systems, GOP management and supply chain services, and accordingly raised its 2026 China revenue growth guidance.

Core views

The report believes that new services in the franchise and management business will support the sustainability of higher monetization and represent the main source of revenue forecast upgrades. However, margins from such revenue are lower than those of the traditional hotel franchise business, and the extent of profitability improvement will still depend on cost control and business mix.

Analysis framework

The analysis compares quarterly results with market consensus expectations, breaks down changes in RevPAR, franchise and management GMV, revenue growth and implied blended monetization, and applies a discounted cash flow valuation method.

Methodology notes

• Valuation FrameworkDiscounted Cash Flow Method

  Base-case Valuation

  The discounted cash flow method is applied, assuming a 10.5% weighted average cost of capital for U.S.-listed Chinese hotel companies, an 8% mid-term growth rate for 2029 to 2036, and a 2% terminal growth rate.

• Earnings Analysis FrameworkMorgan Stanley ModelWare

  Earnings and Forecast Comparison

  Unless otherwise stated, financial metrics are based on the Morgan Stanley ModelWare framework and are compared with market consensus expectations and analyst forecasts.

Asset mapping & comparison

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

• HTHT.US

  Core Covered Stock

  Strengths

  Improved monetization in the franchise and management business, raised revenue guidance, better-than-expected results and continued rapid expansion in franchise room count.

  Weaknesses

  Margins from new value-added services are lower than those of the traditional franchise business, and China franchise and management GOP margin declined 5% year over year in 2Q26.

  Comparison

  2Q26 RevPAR rose 1% year over year, below the industry's approximately 2% growth rate, but the gap narrowed versus previously.

  Risks

  Weaker industry RevPAR in the second half, increased supply and competition in lower-tier and midscale markets, and weaker-than-expected cost control.

Key data

• 2Q26 adjusted EBITDA growth rate, excluding share-based compensation20%Significantly above Morgan Stanley's and market expectations.
• 2Q26 core net profit growth rate27%Significantly above Morgan Stanley's and market expectations.
• 2Q26 RevPAR growth rate1%Below the industry's approximately 2% growth rate.
• 2Q26 franchise and management room count growth rate15%Reflects expansion of the franchise network.
• 2Q26 other China revenue growth rate90%Related to technology services, the procurement platform and H World Mall.
• 2Q26 China franchise and management revenue growth rate25%Franchise and management GMV grew by approximately 17% during the period, implying an approximately 7% year-over-year increase in blended monetization.
• 2026 China total revenue growth guidance9%Raised from 7%; the report estimates this corresponds to approximately Rmb400mn of incremental revenue.
• 2026 net hotel opening guidance1,500 to 1,700 hotelsUnchanged; net openings totaled 677 in the first half.

Impact & implications

The revenue upgrade supports the positive investment view, particularly as value-added services in the franchise and management business can broaden monetization sources. In the near term, investment in new services depresses GOP margins for this business. Therefore, valuation realization will still require monitoring the sustainability of service revenue, cost efficiency and RevPAR recovery.

Risks

• A larger decline in industry RevPAR in the second half.
• Increased supply and intensifying competition in the economy and midscale hotel markets.
• Ineffective cost control, resulting in failure to improve margins.
• Revenue growth or improved monetization from new franchise services may prove unsustainable.

What to watch

• The sustainability of blended monetization and new service revenue in the franchise and management business.
• The impact of new service costs on China franchise and management GOP margins.
• Progress toward achieving the 1% full-year RevPAR growth guidance and relative industry performance.
• Whether net hotel openings can reach the full-year guidance of 1,500 to 1,700 hotels.
• The 9% China total revenue growth guidance and subsequent earnings forecast revisions.