Morgan Stanley: H World Group (HTHT.US) 1Q26 Slight Beat on Costs; Earning Power Established
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Morgan Stanley observes that H World Group delivered a commendable performance in the first quarter of 2026, slightly exceeding expectations primarily through effective cost containment. Revenue grew 8% year-over-year, falling marginally below consensus, yet rigorous management of operational expenses successfully expanded the EBITDA margin to 25%. This cost efficiency was largely driven by optimizations in property-level labor and energy consumption, alongside a 5% reduction in general administrative expenses.
Operationally, hotel occupancy increased by 2 percentage points to 82%, while average daily rates remained stable, resulting in a 3% uptick in same-store RevPAR. The company expanded its footprint by adding 150 net new hotels, with franchised properties comprising 90% of the new openings. Quarterly operating cash flow improved to 1.2 billion RMB, supporting a robust balance sheet characterized by a net debt-to-EBITDA ratio of 1.5x. Despite these achievements, management expressed caution regarding the second-half consumer environment. Morgan Stanley maintains an Overweight rating with a target price of $45, based on its discounted cash flow model, asserting that the company's foundational earning power is now well established.
Key exhibits
Exhibit 1
