Huazhu Group (1Q25 Minutes): Q2 RevPAR will narrow quarter-on-quarter
$HWORLD-S(01179.HK) $H World(HTHT.US) Huazhu Group (1Q25 Minutes): Q2 RevPAR to Narrow Sequentially
Below is the earnings call minutes for Huazhu Group FY25 Q1. For earnings analysis, please refer to Price and Volume Both Fall! Can Huazhu Still Jump from a Deep Squat? - LongPort.
1. Key Earnings Highlights
1. Revenue Performance
（1）Group Total Revenue: Increased 2.2% YoY to RMB 5.4 billion, in line with guidance.
Legacy-Huazhu Business: Revenue increased 5.5% YoY.
Legacy-DH Business: Revenue decreased 11.3% YoY, mainly due to 10 leased hotels transitioning to franchised models during the quarter.
2. FY25 Q2 Guidance
（1）Group Revenue Growth: Expected to increase 1%-5% YoY (3%-7% excluding DH business).
（2）Managed and Franchised Revenue Growth: Expected to increase 18%-22% YoY.
2. Detailed Earnings Call Content
2.1 Key Points from Management
1. Market Trends and Operational Performance
RevPAR Under Pressure: Decreased 3.9% YoY, with ADR down 2.6% and occupancy down 1%, mainly due to industry supply surge in 2024.
2. Network Expansion and Pipeline
（1）Hotel Openings/Closures: 695 new hotels opened and 155 closed during the quarter.
（2）Pipeline Hotels: Reached 2,865 by quarter-end, with active optimization of pipeline quality.
（3）Structural Upgrade: Mid-to-high-end and above hotels: Operating count increased 36% YoY to 933, pipeline count increased 22% YoY to 523.
Lower-Tier Market Penetration: 54% of pipeline hotels are in Tier 3 and below cities (11 percentage points higher than operating hotels), covering 1,394 cities/counties (104 new YoY).
3. Product and User Strategy
（1）Membership and Direct Sales: Membership grew to 280 million; Central Reservation System (CRS) contributed 65.1% of room nights (up 5.4 percentage points YoY).
4. Legacy-DH Business Progress
（1）RevPAR Recovery: Increased 12.7% YoY to €65 (ADR up 2.8%, occupancy up 5.3 percentage points), with strong performance in North Africa and the Middle East.
（2）Asset-Light Transition: Managed and franchised hotels rose to 46% (38% in 2024Q1); asset-light share in pipeline increased to 57% (optimized YoY).
2.2 Q&A
Q: What is management's latest RevPAR expectation for Q2 and full-year 2025?
A: April tariff issue added uncertainty and volatility to the overall market outlook, but demand has been steadily growing year-to-date. Despite business pressure, the company is working to overcome challenges and stabilize RevPAR. Data shows strong and steady growth in leisure travel demand year-to-date. Q2 RevPAR will show a slight single-digit decline but with sequential narrowing.
Q: What are the specific reasons behind weak business travel performance?
A: Weak business travel is not a demand issue but a supply issue. The significant supply increase over the past two years has pressured RevPAR, especially ADR. The company is leveraging corporate clients and B2B to mitigate uncertainty from weak individual travel demand.
Q: For DH strategy, what are the plans to further improve profitability, and how many leased/owned hotels will transition to franchised?
A: The priority is improving traditional DH business. Measures include asset-light deals to reduce negative impact (10 hotels completed in Q1), further cost cuts, and process simplification. Q1 EBITDA remained negative due to restructuring, but adjusted EBITDA will improve in Q2 and Q3.
Q: How do you assess the current limited-service hotel competition? What are current opening prices?
A: Despite supply surge concerns, Huazhu focuses on supply-side reform to ensure franchisee returns. Key costs (rent, labor, etc.) are declining, and operational efficiency is improving through supply chain and tech capabilities. Franchisee health remains stable.
Q: After DH restructuring in H2 2024, are there still one-time SG&A costs? Is SG&A normalized? Why did adjusted EBITDA loss widen by RMB 11 million despite cost savings?
A: Restructuring is ongoing. SG&A savings will materialize quarterly. Full-year impact will be clearer by mid-year.
Q: Why is there a gap between blended and same-store RevPAR?
A: The gap stems from product upgrades and supply surge in certain regions. Revenue management optimizations are addressing this.
Q: Q1 openings (~700) are ahead of the 2,300 annual target. Is there room to raise the target?
A: Focus remains on quality growth. No change to the annual target.
Q: What is the strategy for mid-to-high-end hotel expansion (12 new hotels)? Where is future growth?
A: The company targets Tier 1-2 cities for brand building in mid-to-high-end segments.
Q: Why do mid-to-high-end hotels outperform in RevPAR and pipeline? How will you enhance?
A: Investments in product, service, and marketing are driving mid-to-high-end breakthroughs. Membership programs boost repeat customers.
Q: Can you share updates on the Intercity Hotel brand?
A: ~100 Intercity Hotels expected by 2025-end, with multi-brand strategy (Mercure, Novotel, etc.) for mid-to-high-end growth.
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