H World (HTHT): Why This Undervalued Chinese Hotel Giant Outperforms Peers and Offers a High-ROIC Growth Play

The Chinese hotel industry is a battleground of fierce competition, where scale, operational efficiency, and capital discipline determine winners. Amid this landscape, H World Group (NASDAQ: HTHT) stands out as a compelling growth story. With a Return on Invested Capital (ROIC) of 6.49% (as of August 2025) and a P/E ratio of 21.42, the company is not only outperforming peers like Jinjiang International and BTG Homeinns but also trading at a significant discount to its intrinsic value. This article dissects why H World's asset-light strategy, superior capital efficiency, and valuation dislocation make it a high-conviction investment.

Competitive Landscape: H World's Edge in a Fragmented Market

China's hotel sector is highly fragmented, with no single player holding more than 5% market share. H World, however, has carved out a dominant position through its asset-light model, which prioritizes franchised and managed hotels over owned properties. As of June 2025, the company operated 12,137 hotels, including 12,016 under its Legacy-Huazhu segment. This expansion has driven 22.8% year-over-year revenue growth in its asset-light segment, far outpacing the 7.6% decline in leased and owned hotel revenue.

Key competitors like Jinjiang International and BTG Homeinns face headwinds. Jinjiang's 2024 revenue fell 4% year-over-year to RMB14.06 billion, while BTG Homeinns saw a 0.54% decline to RMB7.75 billion. Both companies struggle with profitability pressures, as rising supply and soft demand erode RevPAR (revenue per available room). In contrast, H World's blended RevPAR of RMB235 (Q2 2025) remains resilient, supported by its focus on midscale and economy segments.

ROIC: A Barometer of Capital Efficiency

H World's ROIC of 6.49% (TTM) exceeds its weighted average cost of capital (WACC) of 4.77%, signaling value creation. This outperformance is driven by disciplined capital allocation and a shift toward low-cost franchising. For context, Jinjiang's ROIC is likely below 5%, given its declining revenue and operational challenges. BTG Homeinns, while maintaining cost control, lacks the scale and brand strength to match H World's returns.

The company's ROIC trajectory is equally compelling. After a 5.78% ROIC in 2024, H World's Q2 2025 ROIC surged to 9.12%, reflecting improved NOPAT (net operating profit after tax) and optimized invested capital. This trend contrasts sharply with peers, where ROIC stagnation or decline is common.

Valuation Dislocation: H World's Undervalued Proposition

H World's P/E ratio of 21.42 is a stark discount to the 41x peer average and 23.9x industry average, suggesting a mispricing. Analysts project a 22.7% upside to $43.74, with a fair value of $33.96 (per Simply Wall Street). This undervaluation is amplified by its EV/EBITDA of 15.28 and EV/Sales of 4.27, metrics that historically correlate with growth potential in asset-light businesses.

In contrast, Jinjiang and BTG trade at premium valuations despite weaker fundamentals. Jinjiang's P/E ratio is not disclosed, but its revenue decline and profitability pressures imply a higher risk-adjusted cost. BTG's P/E of 20.2x (as of 2025) is marginally better, but its P/B ratio of 1.52 and negative free cash flow yield (-10.27%) highlight structural weaknesses.

Strategic Advantages: Why H World's Model Scales

1. Asset-Light Expansion: By franchising 98% of its hotels, H World avoids capital-intensive ownership risks while capturing margins from management fees. This model has enabled 595 new hotel openings in Q2 2025 alone.
2. Digital Transformation: The company's investment in AI-driven customer analytics and loyalty programs enhances retention and pricing power, a critical edge in a price-sensitive market.
3. Brand Portfolio Diversification: From budget HanTing to premium Orange Hotel, H World's multi-brand strategy caters to shifting consumer preferences, ensuring demand resilience.

Investment Thesis: A High-ROIC Growth Play

H World's combination of superior ROIC, undervalued metrics, and strategic agility positions it as a standout in the Chinese hotel sector. While macroeconomic headwinds (e.g., soft corporate travel) persist, the company's focus on operational efficiency and brand differentiation mitigates downside risk.

For investors, the key catalysts include:
- Continued franchising growth in lower-tier cities, where demand for standardized accommodations is rising.
- Margin expansion through supply chain optimization and digital engagement.
- Valuation re-rating as the market recognizes H World's capital-efficient model and earnings visibility.

Conclusion: A Buy for Long-Term Value Creation

H World Group is not just surviving in China's hyper-competitive hotel industry—it's thriving. With a ROIC exceeding WACC, a P/E ratio 60% below peers, and a strategic playbook that prioritizes scalability, the company offers a rare blend of growth and value. For investors seeking exposure to China's travel recovery and a high-ROIC business, H World's current valuation represents a compelling entry point.