H World’s 2024 Profit Hit By International Business

The hotel operator’s overseas revenue grew last year, but its widening losses sharply dragged down the company’s overall profit

Key Takeaways:

• H World reported its profit dropped nearly 27% in 2024, including a 93% plunge in the fourth-quarter
• The hotel company’s overseas business recorded an operating loss of more than 400 million yuan last year

After 20 years of labor and tirelessly rolling out the welcome mat, H World Group Ltd. (1179.HK; HTHT.US) founder Ji Qi finally realized his long-held ambition of operating “10,000 hotels in 1,000 cities” last year. By the end of 2024, his company presided over a portfolio of 11,147 hotels, with just over 1 million rooms.

“In 2024, H World achieved the 10,000-hotel milestone and continued our fast network expansion in China,” said CEO Jin Hui. “By 2024, Legacy-H World has opened over 2,400 new hotels, far exceeding our initial target of 1,800 hotels,” he added, referring to the company’s original China business, which includes the budget HanTing hotel brand.

Climbing revenue, plunging profits

Despite hitting those milestones, H World’s bottom line didn’t fare quite so well last year. Its top line revenue posted a respectable 9.2% rise to 23.9 billion yuan ($3.28 billion) for the year, but its profit went the other way, falling 26.8% to 3 billion yuan from 4.1 billion yuan in 2023. The fourth-quarter was particularly weak, with revenue up by a slower 7.8% year-on-year to 6 billion yuan. And its profit nearly evaporated to just 49 million yuan, plunging 93.4% from 743 million yuan in the year-ago period.

Founded in 2005, H World, like many of its major Western peers, operates a multi-tiered portfolio of hotel brands catering to different market segments. Its economy brands in China include HanTing, Ibis and Hi Inn, while its midscale hotels include Ibis Styles, Starway, JI and Orange. It also operates upper midscale hotel brands Crystal Orange, Manxin and Novotel, and the Steigenberger Icon and Song Hotels luxury brands.

The company’s hotels are divided into two main segments: domestic, which it calls Legacy-H World in its reports; and Legacy-DH, which are part of a previous overseas acquisition in Europe. Like many major operators, the company’s portfolio includes both directly leased and managed hotels, and hotels that it manages under contract for other property owners. The directly leased and managed part of its business is the far smaller of the two, accounting for 9% of its total rooms.

The managed property model, sometimes called “manachised,” is divided into two parts. Under one, H World collects fees from property owners for providing both management and franchising services. Under the other, it simply provides training, reservation and support services and collects related franchising fees but does not provide day-to-day management services.

International business impairment

H World pointed out that the significant profit decline was mainly attributable to one-off restructuring costs related to its overseas business. Those included an impairment loss of 417 million yuan recognized in the fourth quarter, as well as foreign exchange losses and higher withholding taxes related to dividend distributions.

The company’s domestic business also came under pressure, as Chinese consumers and businesses reined in their spending with the country’s economic slowdown. The company’s average daily room rate stood at 277 yuan in the fourth quarter, down 2.5% year-over-year and off by 8% sequentially. Its average occupancy rate for the quarter was 80%, also down 0.5 percentage points year-over-year and 4.9 percentage sequentially. Revenue per available room (revpar), which combines occupancy and room prices, dropped to 222 yuan from 229 yuan in the same period of 2023 and 256 yuan in the previous quarter.

While the domestic market was hardly stellar, the company’s overseas business was the main culprit behind H World’s poor full-year performance. That business posted an operating loss of 311 million yuan in last year’s fourth quarter, ballooning from a loss of 64 million yuan a year earlier, and 40 million yuan in the third quarter.

Continued revenue growth

Excluding the overseas business, H World said it expects its China business to record year-on-year revenue growth of between 3% and 7% in this year’s first quarter, and between 5% and 9% for the full year. Revenue from its managed and franchised hotels is forecast to rise by a stronger 18% to 22% in the first quarter, and by 17% to 21% for the year. During the full-year the company expects to open 2,300 new hotels and close about 600.

Those forecasts show H World expects its China business to continue growing in terms of revenue, but only in the low- to mid-single digits. Its lack of similar forecasts for the international business suggests that segment will continue to be volatile and lose money, further weighing on the company’s overall performance.

Improving the international business will become key to H World’s future growth, especially as the China business slows.

H Group’s Hong Kong-listed shares rose 4.2% to close at HK$29.70 the day after the latest announcement. The stock currently trades at a respectable trailing price-to-earnings (P/E) ratio of 27 times, similar to that for global giant Marriott International (MAR.US) and slightly higher than the 23 times for domestic rival Atour (ATAT.US). That valuation shows H World can play in the big leagues, though it will need to fix its international business to move to the next level.