$H World(HTHT.US) 3Q24 urgent interpretation: At first glance, the performance and operational trends presented in Huazhu's financial report are relatively poor. Overall, both revenue and profit fell short of expectations.

1) On the revenue side, Huazhu's total income this quarter only grew by 2.4% year-on-year, landing at the lower end of the previous guidance of 2% to 5%, with a clear slowdown in trend. Although this was dragged down by the closure of self-operated hotels (a net closure of 22), the accelerated expansion of franchise stores has a narrower income margin, which relatively magnified the impact of self-operated business. Nevertheless, this is significantly underperforming the expected growth of 4.6%.

2) On the profit side, with the increasing proportion of income from franchise business, the gross profit margin should have a rising trend. The market expected that this quarter's gross profit margin would increase by about 2 percentage points compared to the same period last year, but it actually declined by 1.6 percentage points. This led to a gross profit amount that was significantly below expectations by about 10%. Cost control did not stand out compared to expectations, resulting in profits also falling short of expectations and showing a year-on-year negative growth.

This quarter's performance has fallen short on both lines, and the company's revenue guidance for the next quarter is set at 1% to 5%, also lower than the current consensus expectation of about 6% growth from sell-side analysts. If the poor performance in 3Q can be attributed to the high base from last summer and the unfavorable macro environment this year, for 4Q, the market mainly believes that demand during the National Day holiday has somewhat recovered, hence hoping for an improvement in growth. However, the company has guided for further decline in growth, which is clearly bad news.