H World Group Limited Releases Q2 2024 Unaudited Financial Results
H World Group Limited: An In-Depth Review of Second Quarter and First Half 2024 Financial Performance
Introduction: A Snapshot of Growth
H World Group Limited, a prominent leader in the global hotel industry, recently announced its unaudited financial results for the second quarter and the first half of 2024. The company’s performance highlights its continued growth and expansion, particularly in its core markets, despite various global economic challenges. By June 30, 2024, H World operated a vast network of 10,286 hotels, comprising 1,001,865 rooms across 18 countries. This article provides a thorough examination of the company's financial and operational performance, exploring its strategic initiatives, revenue growth, and future outlook.
Network Expansion and Operational Metrics
Hotel Network and Room Inventory
Global Reach and Expansion: As of June 30, 2024, H World managed an expansive network of 10,286 hotels, making it one of the largest hotel operators worldwide. This network includes a diverse portfolio of properties ranging from economy to luxury segments, strategically spread across 18 countries. The total room inventory across these hotels reached a significant 1,001,865 rooms, indicating H World’s substantial market presence and capacity to accommodate a wide range of guests.
Legacy-DH Integration: The Legacy-DH segment, which includes Steigenberger Hotels GmbH and its subsidiaries, contributed 136 hotels and 27,552 rooms to H World’s overall portfolio. This integration underscores H World’s strategy to expand its presence in Europe and other international markets through strategic acquisitions. The inclusion of Steigenberger’s well-regarded brands into H World’s portfolio has allowed the company to enhance its offerings in the upscale and luxury hotel segments, particularly in key European cities.
Pipeline Growth and Future Development: H World continues to strengthen its position in the global hotel industry with a robust pipeline of 3,294 unopened hotels. This pipeline includes 3,266 hotels from the Legacy-Huazhu segment and 28 hotels from the Legacy-DH segment. The planned openings are expected to further enhance the company’s market share and revenue streams, particularly in high-growth markets like China and Europe. The expansion strategy focuses on both emerging and established markets, aiming to meet the growing demand for quality accommodations worldwide.
Second Quarter Openings and Closures
New Hotel Openings: During the second quarter of 2024, H World’s Legacy-Huazhu segment successfully opened 567 new hotels. This expansion included 4 leased and owned hotels, which are directly managed by H World, and 563 manachised and franchised hotels. The significant number of openings demonstrates H World’s capability to scale rapidly, leveraging its franchise and manachise models to expand its footprint with minimal capital investment. This strategy allows the company to enter new markets and strengthen its presence in existing ones while maintaining high standards of service and brand consistency.
Strategic Hotel Closures: Alongside its aggressive expansion, H World also strategically closed 101 hotels during the quarter. These closures included 10 leased and owned properties and 91 manachised and franchised hotels. The decision to close these hotels is part of the company’s ongoing portfolio optimization efforts, which involve the identification and shutdown of underperforming or non-strategic properties. This approach ensures that H World’s portfolio remains efficient and profitable, focusing on high-performing assets and markets with strong growth potential.
Legacy-Huazhu Operational Metrics
Hotel Count and Operational Models: By June 30, 2024, the Legacy-Huazhu segment operated a total of 10,150 hotels, which included 592 leased and owned hotels, directly managed by H World, and 9,558 manachised and franchised hotels. The diverse operational models employed by H World allow the company to maintain control over its brand standards while facilitating rapid expansion through partnerships with property owners. This hybrid approach provides flexibility and scalability, enabling the company to adapt to varying market conditions and demands.
Room Inventory Distribution: The Legacy-Huazhu segment’s room inventory was substantial, with 974,313 rooms in operation as of June 30, 2024. This inventory was divided between 84,814 rooms under the lease and ownership model and 889,499 rooms under the manachise and franchise models. The large proportion of rooms under the manachise and franchise models reflects H World’s successful implementation of its asset-light strategy. This approach minimizes the need for significant capital expenditure while maximizing the company’s market reach and profitability.
Pipeline and Future Growth: The Legacy-Huazhu segment has a strong pipeline, with 3,266 unopened hotels, including 8 leased and owned hotels and 3,258 manachised and franchised hotels. These upcoming openings represent a significant growth opportunity for the company, particularly in China, where the demand for quality hotel accommodations continues to rise. The planned expansion is expected to contribute significantly to H World’s revenue and market share in the coming years, reinforcing its position as a leading player in the global hotel industry.
Legacy-DH Operational Metrics
Hotel and Room Count: The Legacy-DH segment, which primarily serves the European market, operated 136 hotels with 27,552 rooms as of June 30, 2024. This segment includes 87 leased hotels, where H World directly manages operations, and 49 manachised and franchised hotels, operated under agreements with property owners. The Legacy-DH segment plays a crucial role in H World’s strategy to diversify its geographic footprint and capture market share in the high-end and luxury segments, particularly in key European destinations.
Pipeline and Future Development: The Legacy-DH segment’s pipeline includes 28 unopened hotels, comprising 13 leased hotels and 15 manachised and franchised hotels. These planned openings are strategically positioned to strengthen H World’s presence in Europe and expand into other high-growth regions such as the Middle East and Asia-Pacific. The expansion in these regions is expected to drive future revenue growth and enhance the company’s global brand recognition.
Financial Performance
Revenue Growth
Second Quarter Revenue: H World reported a robust revenue of RMB6.1 billion (US$846 million) in the second quarter of 2024, marking an 11.2% year-over-year increase. This impressive growth aligns with the high end of the company’s previously provided guidance, which forecasted a revenue increase of 7% to 11%. The revenue also reflected a 16.5% quarter-over-quarter increase, underscoring the company’s strong recovery and growth momentum as global travel demand rebounded.
Legacy-Huazhu Revenue Contribution: The Legacy-Huazhu segment was the primary driver of this revenue growth, contributing RMB4.8 billion, an 11.1% year-over-year increase. This growth was fueled by the continuous expansion of the hotel network, particularly in China, where H World has a dominant market position. The segment’s performance highlights the resilience of the Chinese market and the effectiveness of H World’s growth strategies in this region.
Legacy-DH Revenue Contribution: The Legacy-DH segment also performed strongly, contributing RMB1.3 billion to the total revenue, representing an 11.6% year-over-year increase. This growth was driven by both the recovery in travel demand in Europe and the expansion of the hotel network. The segment’s solid performance underscores the success of H World’s efforts to integrate and enhance its European operations following the acquisition of Steigenberger Hotels GmbH.
First Half Revenue: For the first half of 2024, H World achieved total revenue of RMB11.4 billion (US$1.6 billion), representing a 14.1% year-over-year increase. This significant growth reflects the company’s ability to capitalize on improving market conditions and its strategic focus on expansion.
Legacy-Huazhu First Half Contribution: The Legacy-Huazhu segment generated RMB9.1 billion in revenue during the first half of 2024, marking a 14.3% year-over-year increase. This strong performance was driven by the rapid expansion of the hotel network and an increase in RevPAR (Revenue per Available Room), particularly in key Chinese cities.
Legacy-DH First Half Contribution: The Legacy-DH segment contributed RMB2.4 billion in revenue for the first half, representing a 13.7% increase compared to the same period in 2023. The recovery in European travel demand, along with network expansion and improved operational efficiency, were key factors behind this growth.
Segment Revenue Analysis
Leased and Owned Hotels: Revenue from leased and owned hotels in the second quarter of 2024 was RMB3.7 billion, reflecting a 2.5% year-over-year increase. This segment also saw an 18.8% quarter-over-quarter increase, demonstrating the company’s ability to optimize its portfolio and improve performance in directly managed properties.
Legacy-Huazhu Segment: The Legacy-Huazhu segment’s leased and owned hotels generated RMB2.4 billion in revenue during the second quarter, a 2.9% decrease year-over-year. This slight decline was primarily due to the net closure of certain leased and owned hotels as part of H World’s ongoing portfolio optimization strategy, which aims to focus resources on high-performing properties and markets.
Legacy-DH Segment: The Legacy-DH segment saw a robust 14.2% year-over-year increase in revenue from leased hotels, amounting to RMB1.3 billion. This growth was driven by improved market conditions in Europe, particularly in key tourist destinations, and the company’s efforts to enhance the performance and profitability of its existing properties.
Manachised and Franchised Hotels: Revenue from manachised and franchised hotels in the second quarter of 2024 was RMB2.3 billion, representing a substantial 25.8% year-over-year increase
. This segment also experienced a 13.1% quarter-over-quarter increase, highlighting the success of H World’s asset-light expansion strategy.
Legacy-Huazhu Segment: The Legacy-Huazhu segment’s manachised and franchised hotels contributed RMB2.3 billion to the total revenue, marking a 26.0% year-over-year increase. This growth was driven by the rapid expansion of the hotel network and the successful execution of the company’s franchise model, which allows for quick scaling with minimal capital expenditure.
Legacy-DH Segment: The Legacy-DH segment’s manachised and franchised hotels generated RMB29 million in revenue during the second quarter, reflecting an 11.5% year-over-year increase. The segment’s performance was bolstered by network expansion and improved operational efficiencies in its European markets.
Other Revenue Streams: H World also generated revenue from other business activities, including IT products and services, as well as sales from Huazhu Mall™ and other Legacy-DH segment businesses. In the second quarter of 2024, these activities contributed RMB133 million (US$18 million) to the company’s total revenue, compared to RMB82 million in the same period of 2023. This diversification of revenue streams highlights H World’s ability to leverage its technological and operational expertise to generate additional income and support overall growth.
Financial Metrics and Profitability
Cost Management and Operating Expenses
Hotel Operating Costs: In the second quarter of 2024, H World’s hotel operating costs were RMB3.7 billion (US$512 million), compared to RMB3.5 billion in the same quarter of 2023. The year-over-year increase in operating costs was mainly driven by the continued expansion of the hotel network, particularly in the Legacy-Huazhu segment.
Legacy-Huazhu Segment: Operating costs for the Legacy-Huazhu segment were RMB2.7 billion in Q2 2024, representing 56.7% of the segment’s revenue. This was an improvement compared to 58.9% in Q2 2023, indicating better cost management and operational efficiency.
Legacy-DH Segment: Operating costs for the Legacy-DH segment amounted to RMB995 million in the second quarter, representing 75.4% of revenue, down from 78.0% in the same quarter of 2023. This reduction reflects the company’s efforts to improve cost efficiencies and operational performance in its European properties.
Selling and Marketing Expenses: Selling and marketing expenses in Q2 2024 were RMB317 million (US$44 million), up from RMB262 million in Q2 2023. The increase was primarily driven by continued business expansion and increased promotional activities to support the growing hotel network.
Legacy-Huazhu Segment: Selling and marketing expenses for the Legacy-Huazhu segment were RMB193 million, representing 4.0% of the segment’s revenue, up from 3.5% in Q2 2023. This increase reflects H World’s investment in marketing initiatives to drive occupancy and brand awareness in China’s highly competitive market.
Legacy-DH Segment: The Legacy-DH segment incurred selling and marketing expenses of RMB124 million in Q2 2024, representing 9.4% of revenue, slightly higher than 9.2% in Q2 2023. The increase was due to intensified marketing efforts in Europe to capture the rebound in travel demand and attract more guests to Legacy-DH properties.
General and Administrative Expenses: General and administrative expenses in the second quarter of 2024 were RMB602 million (US$83 million), up from RMB477 million in Q2 2023. This increase was primarily due to headcount normalization and a rise in share-based compensation to retain and reward key employees.
Legacy-Huazhu Segment: The Legacy-Huazhu segment’s general and administrative expenses were RMB483 million, representing 10.0% of revenue in Q2 2024, up from 8.1% in Q2 2023. The increase reflects the company’s investment in talent and resources to support its rapid expansion and long-term growth strategy.
Legacy-DH Segment: General and administrative expenses for the Legacy-DH segment were RMB119 million in Q2 2024, representing 9.0% of revenue, down from 10.6% in Q2 2023. The decrease is indicative of improved operational efficiencies and cost control measures implemented in the European operations.
Pre-Opening Expenses: Pre-opening expenses in Q2 2024 totaled RMB19 million (US$3 million), up from RMB12 million in Q2 2023. These expenses were primarily related to the Legacy-Huazhu segment, reflecting the costs associated with preparing new hotels for opening.
Legacy-Huazhu Segment: The segment’s pre-opening expenses were 0.3% of revenue in the first half of 2024, consistent with the previous year’s proportion. These expenses are expected to contribute to future revenue growth as new hotels begin operations.
Other Operating Income: Other operating income, net of expenses, in Q2 2024 was RMB99 million (US$13 million), up from RMB94 million in the same quarter of 2023. This income includes government subsidies, grants, and other financial benefits that support the company’s operations.
Profitability Metrics
Net Income: H World’s net income attributable to the company in Q2 2024 was RMB1.1 billion (US$147 million), up from RMB1.0 billion in Q2 2023. This increase in net income reflects the company’s strong operational performance and effective cost management.
Legacy-Huazhu Segment: The Legacy-Huazhu segment contributed RMB1.0 billion to the net income in Q2 2024, compared to RMB993 million in Q2 2023. This steady performance underscores the segment’s resilience and ability to generate consistent profits.
Legacy-DH Segment: The Legacy-DH segment contributed RMB34 million to the net income in Q2 2024, a significant improvement from RMB22 million in Q2 2023 and a net loss of RMB174 million in the previous quarter. This turnaround highlights the positive impact of operational improvements and market recovery in Europe.
EBITDA and Adjusted EBITDA:
EBITDA: H World reported an EBITDA of RMB1.9 billion (US$255 million) in Q2 2024, up from RMB1.7 billion in Q2 2023. This increase was driven by higher revenue and improved operational efficiencies.
Adjusted EBITDA: Adjusted EBITDA, which excludes non-operational gains and losses, was RMB2.0 billion (US$280 million) in Q2 2024, compared to RMB1.8 billion in Q2 2023. This metric provides a clearer view of the company’s core profitability, highlighting its strong financial performance, particularly in the Legacy-Huazhu segment, which contributed RMB1.9 billion.
Strategic Directions and Future Outlook
Hotel Opening Guidance
- Revised Hotel Opening Guidance: H World has revised its hotel opening guidance for the full year of 2024, now expecting to open over 2,200 hotels, up from the previous forecast of around 1,800 hotels. This upward revision reflects the company’s confidence in its growth strategy and its ability to meet the rising demand for hotel accommodations, particularly in China. The expansion plan includes a mix of leased, manachised, and franchised hotels, allowing H World to scale its operations efficiently while maintaining a strong brand presence.
Revenue Growth Forecast
- Third Quarter Revenue Growth Expectations: For the third quarter of 2024, H World projects revenue growth to be in the range of 2% to 5% year-over-year. Excluding the Legacy-DH segment, this growth is expected to be slightly lower, ranging from 1% to 4%. The forecast reflects the company’s cautious optimism, considering the ongoing recovery in global travel demand and potential macroeconomic uncertainties. H World’s continued focus on expanding its hotel network and enhancing its service offerings is expected to drive revenue growth in the coming quarters.
Shareholder Returns and Financial Position
Shareholder Return Plan
- Three-Year Shareholder Return Plan: On July 23, 2024, H World’s Board announced a comprehensive three-year shareholder return plan, with a total distribution of up to US$2 billion. This plan includes regular semi-annual dividends and the potential for special dividends and share repurchases, depending on the company’s financial performance and market conditions.
- Semi-Annual Dividend: The Board declared a cash dividend for the first half of 2024, amounting to approximately US$200 million, or US$0.063 per ordinary share and US$0.63 per ADS. This dividend reflects H World’s commitment to returning value to its shareholders and its strong financial position.
- Share Repurchase Program: The Board also approved a new five-year share repurchase program, with an aggregate amount of up to US$1 billion, effective from August 21, 2024. This program replaces the previous share repurchase program and provides the company with flexibility to buy back shares when it deems appropriate, enhancing shareholder value.
Cash Flow and Debt Management
- Operating Cash Flow: H World generated RMB2.2 billion (US$307 million) in operating cash flow in Q2 2024, demonstrating strong cash generation from its core operations. For the first half of 2024, operating cash flow was RMB3.1 billion (US$430 million), compared to RMB4.1 billion in the same period of 2023. The robust cash flow supports the company’s growth initiatives and shareholder return
plans.
Investing Cash Flow: The company reported a positive investing cash inflow of RMB346 million (US$47 million) in Q2 2024, driven by returns from investments and asset disposals. For the first half of 2024, investing cash inflow was RMB694 million (US$95 million), compared to RMB849 million in the first half of 2023. The inflow supports H World’s strategic investments in new hotel openings and technology enhancements.
Financing Activities: Financing cash outflows in Q2 2024 amounted to RMB1.1 billion (US$152 million), reflecting the company’s repayment of debt and other financial obligations. For the first half of 2024, financing cash outflows were RMB3.4 billion (US$463 million), up from RMB2.4 billion in the same period of 2023. This outflow includes dividend payments and share repurchases, demonstrating H World’s commitment to returning capital to shareholders.
Cash and Debt Position: As of June 30, 2024, H World held RMB7.8 billion (US$1.1 billion) in cash and cash equivalents, with an additional RMB364 million (US$50 million) in restricted cash. The company’s total debt stood at RMB5.5 billion (US$762 million), with a net cash balance of RMB2.6 billion (US$361 million). The unutilized credit facility available to H World was RMB3.1 billion, providing ample liquidity to support its growth initiatives and financial commitments.
Conclusion
H World Group Limited has delivered a strong performance in the second quarter and first half of 2024, marked by significant network expansion, steady revenue growth, and improved profitability. The company’s strategic focus on expanding its footprint, particularly in China and Europe, combined with disciplined cost management, positions it well to capitalize on future opportunities. The upward revision in hotel opening guidance and the comprehensive shareholder return plan underscore the company’s commitment to growth and value creation. As H World continues to navigate a dynamic global market, its robust financial health, and strategic initiatives are likely to drive sustained success in the coming quarters.
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