H World Group: Strong Execution and Robust Demand Drive Growth
In my previous analysis, I expressed my optimism towards H World Group (HWG) and maintained a buy rating. The company’s latest 4Q24 results not only reaffirmed my belief but also provided compelling evidence for the bullish outlook.
4Q24 Performance
HWG reported a 7.8% year-over-year (y/y) increase in revenue for the quarter, surpassing expectations. This growth was primarily driven by the Manachised & Franchised segment, which accounted for 83% of the total revenue. The segment’s robust performance was underpinned by the addition of 1,119 new hotels.
Gross Margin Expansion
Another noteworthy development was the expansion of gross margin by 230 basis points (bps) y/y. This improvement was largely attributed to the Manachised & Franchised segment, where the average daily rate (ADR) and occupancy rate both experienced growth. The ADR grew by 4% y/y, while occupancy rate increased by 1.9% y/y.
Continued Growth Drivers
Management’s strong execution was evident in the 2,445 hotel openings in FY24. This significant expansion not only bolstered the company’s presence but also contributed to the revenue growth. Moreover, the demand environment remains robust, with the travel and tourism industry showing signs of a strong rebound. These factors suggest that HWG’s growth trajectory is likely to continue.
Personal Impact
As an investor, the positive 4Q24 results and the continuation of favorable demand/supply dynamics bode well for HWG’s stock. Assuming a conservative growth rate of 5% y/y, the company’s revenue could reach $14.8 billion by 2026. Given the current market capitalization of $10.5 billion, the potential upside appears attractive.
Global Implications
The recovery of the travel and tourism industry is not just a positive sign for HWG but also for the global economy. The sector contributes significantly to Gross Domestic Product (GDP) and employment in many countries. For instance, according to the World Travel & Tourism Council, the industry accounted for 10.4% of global GDP and 320 million jobs in 2019. A robust recovery could lead to a substantial boost in economic activity and job creation.
Conclusion
In conclusion, H World Group’s solid 4Q24 results, expanding gross margin, and robust demand environment provide a compelling case for the bullish outlook. As an investor, the potential upside from the stock appears attractive. Furthermore, the recovery of the travel and tourism industry could have significant positive implications for the global economy.
- H World Group reported a 7.8% y/y increase in revenue for 4Q24
- The Manachised & Franchised segment drove the growth, with 1,119 new hotels added
- Gross margin expanded by 230 bps y/y
- Management’s strong execution resulted in 2,445 hotel openings in FY24
- The demand environment remains robust, supporting continued growth
- The recovery of the travel and tourism industry could have significant global economic implications
