China Hospitality: RevPAR Headwinds, Franchise-Led Growth

Major Chinese hotel chains were broadly under pressure in 2Q26: The four major hotel chains reported mixed revenue growth.  Atour and H World achieved modest YoY RevPAR gains, driven by an ongoing shift in sales mix toward mid-to-high-end brands and product-iteration-led Average Daily Rate (ADR) uplift, respectively.  In contrast, Jinjiang reported revenue drop, primarily due to steep ADR decreases in the mid-tier hotels while BTG saw a rising proportion of low-priced light-managed rooms. 

Overall occupancy rates (OCC) were under pressure across the board. Moreover, same-store RevPAR at mature hotels (hotels that have been open for at least 18 months) continued to experience price decline. The underlying cause is believed to be a widening supply-demand gap.  According to the STR data, for the 12 months ending June 2026, China’s room supply grew 4.6% YoY while demand rose only 2.7% YoY.

Together with more cautious traveler spending, as reflected in a roughly 3% YoY decline in per-trip spending, this is putting pressure on industry RevPAR and OCC from both volume and price perspectives. Franchise-Dominant Model with Over 90% Franchised: Atour and H World slowed net additions during the period, mainly by proactively controlling expansion amid pressure on existing operations to avoid cannibalization between new and existing hotels.  Jinjiang and BTG, with higher proportions of economy and light-managed hotels and greater store-optimization space, are accelerating structural replacement by closing old premises and expanding light-managed hotels. Nevertheless, all four companies are still maintaining substantial pipelines.

Although leading companies have temporarily slowed openings, the industry’s chain penetration trend is still expected to advance steadily as single-unit hotels are significantly less efficient during a weak market. It is reported that over 3,600 mid-scale and above hotels closed in 2025 and 80% of them non-chain single-unit hotels. In 2025, total room inventory expanded by approximately 1.1mn, of which about 70% was contributed by chain-affiliated rooms. The chain penetration rate among newly opened hotels reached 57.2%, up 2 ppts from 2024. In line with this trend, H World raised full-year guidance, expecting group revenue growth of 4%-8% and franchise revenue growth of 16%-20%, confirming confidence in the franchise-driven model.  Atour also expects full-year net revenue growth of 30%, though its high growth is more retail-driven. Overall, leading chains remain positive on the growth outlook.

Uneven profit growth: Atour is the only major chain to sustain organic profit growth.  H World’s manchised and franchise revenue grew strongly and exceeded half of total revenue for the first time.  However, these gains were eroded by higher income tax expenses and overseas business losses, resulting in only 2% YoY increase in profit. 

Jinjiang and BTG faced revenue pressure due to the active downsizing of their direct-operated hotels portfolios.  Despite growth in franchising revenue, this was still insufficient to offset the slow decline in OPEX.  BTG’s profit growth was mostly due to lower financial expenses and reduced overseas losses.

Our View: Latest data for the summer validates the volume growth with pricing pressure reality. Although overall visitors flow hit a five-year high, RevPAR declined and with larger drops at higher tiers (economy -1.3%, mid-scale -2.2%, upper-midscale -4.4%, luxury -6.4%), reflecting growing consumer resistance to premium pricing amid increasingly cautious spending behavior. Meanwhile, travel demand continued shifting toward tier-3 and below cities. High-star hotel bookings in county-level markets accounted for 23%, with average room rates in some counties even surpassing those in tier-1 cities, underscoring a widening divergence in consumption patterns. However, the rising chain penetration in lower-tier markets may structurally dilute industry-wide RevPAR.

We prefer H World (1179 HK, HK$33.52, HK$103bn) and Atour (ATAT.US, US$32.46, US$4.4bn), as both have strong brand equity and highly standardized product models, which will be core beneficiaries of continued chain penetration. Moreover, their strategies of existing property renovation and multi-brand matrix expansion into lower-tier markets will become important growth engines. As competition shifts from scale to quality, their brand equity and scalable product models should continue to drive market share gains. These two counters are trading at 16x and 14x FY26E P/E, respectively. (Research Department)