Guosen Securities reiterated its "Outperform" rating on H World Group-S (01179), citing the company's solid industry leadership and accelerated Q3 earnings growth, with both revenue and net profit exceeding expectations. Strong performance in China drove results, as the company achieved positive year-on-year growth in average daily room rates (ADR) through enhanced membership systems and revenue management.

Rapid network expansion continued, with asset-light franchising as the primary growth engine, boosting profitability. Improved cyclical expectations could unlock further earnings potential, while high dividend payouts offer additional appeal. Key highlights from Guosen Securities include:

**Q3 Revenue Exceeds Guidance, Growth Accelerates Sequentially** H World's hotel revenue reached approximately RMB30.6 billion (+17.5% YoY), with China operations growing 18.4% (sequential improvement). Group revenue hit RMB6.96 billion (+8.1% YoY, above guidance of 2-6%), while net profit attributable to shareholders rose 15.4% to RMB1.47 billion. Adjusted net profit grew 10.8% to RMB1.52 billion. China revenue climbed 10.8% (exceeding 4-8% guidance) to RMB5.72 billion, with adjusted EBITDA up 16.9%. DH segment revenue stood at RMB1.25 billion, with adjusted EBITDA surging 219% YoY.

**Membership Growth and Revenue Management Drive Flat RevPAR, ADR Turns Positive** Q3 blended RevPAR for H World China was RMB256. The company optimized revenue management and direct channels, achieving positive ADR growth (+0.9% YoY). Membership surpassed 300 million (+17.3% YoY), with member bookings rising 19.7% to over 66 million room nights (74% share). DH blended RevPAR grew 6.4% YoY.

**Franchise Expansion Fuels Growth; Asset-Light Transition and Cost Control Boost Margins** In 9M, the company opened 2,038 hotels (closed 483, net +1,555). Management expects full-year openings to slightly exceed the initial 2,300 target, supported by accelerated 2023-2024 signings and supply chain improvements. China's operational portfolio reached 12,600 hotels (1.22 million rooms), with estimated market share at 11% (+1ppt). Pipeline hotels totaled 2,727, progressing steadily toward 2030 goals. Franchise income/GOP grew 27.4%/28.6% YoY in Q3, demonstrating resilient market share gains.

**Q4 Outlook: Stable Domestic RevPAR, Cyclical Improvement and Share Expansion in Focus** Management guides Q4 revenue growth of 2-6% (China: 3-7%), with franchise income up 17-21% YoY (moderating QoQ due to base effects and CRS comparisons). China RevPAR is expected to be flat or slightly positive, maintaining healthy core metrics. Leisure demand should remain steady, while corporate travel and supply growth show mixed signals. Industry stabilization since Q4 suggests corporate travel hasn't weakened further. Rationalized industry investments may support marginal supply improvement, potentially enhancing pricing power and sustained share gains.

**Risks:** Macro systemic risks, intensified competition, new brand/overseas expansion challenges.