Daiwa: Reiterates "Buy" rating for HWORLD-S (01179) and raises target price to HKD 47.

Daiwa released a research report reiterating its "Buy" rating on HWORLD-S (01179) and raised the 12-month target price from HK$46 to HK$47, based on a 12 times enterprise value multiple (EV/EBITDA) for 2026 that remains unchanged, calculated using the EBITDA from Q4 2026 to Q3 2027. H World Group Limited Sponsored ADR reported a 11% year-on-year increase in revenue for the second quarter to 7.1 billion RMB, with adjusted EBITDA rising 20% year-on-year to 772.5 million RMB, exceeding market expectations by 9%, primarily driven by an increase in the core EBITDA margin to 38.3%, compared to 35.3% in the same period last year. During this period, H World Group Limited Sponsored ADR's overall revenue per available room (RevPAR) increased 1.1% year-on-year, benefiting from the continuous upgrade of its hotel portfolio. Daiwa noted that the 1.1% growth in RevPAR for H World Group Limited Sponsored ADR surpassed the performance of the overall Chinese hotel industry and key competitor Atour Lifestyle Holdings Ltd. Sponsored ADR (ATAT.US), primarily due to structural improvements in its hotel portfolio. Management has maintained a forecast of "slight year-on-year growth" for RevPAR for the full year. The firm expects RevPAR to rise 0.6% year-on-year for the entire year, in line with management's guidance, but possibly surpassing market expectations. In the first half of the year, the group added a net 677 hotels in China, down from 991 in the same period last year, but it remains committed to its goal of adding a net 1,600 to 1,700 hotels for the full year, which implies an accelerated pace of openings in the second half. Daiwa predicts a compound annual growth rate of 12% for core EBITDA from 2025 to 2028, primarily driven by the continuous expansion of hotels, an increase in revenue share rates, stable RevPAR, and improvements in operational efficiency from the hotel portfolio. The group has returned $2 billion to shareholders from 2024 to 2026 and announced an updated shareholder return plan for 2026 to 2028 totaling $2.5 billion, equivalent to an annual return rate of over 6%.