Citi: BTG Hotels’ third-quarter margin beats expectations, but same-store operations and hotel openings face pressure

Why did profit rise despite falling revenue?

In the third quarter of 2026, BTG Hotels’ revenue fell 6% year on year to approximately 2 billion yuan, below Citi’s forecast; core net profit rose 11% year on year to 378 million yuan, beating the bank’s forecast.
Citi attributed the profit improvement to the closure of some leased-and-operated hotels, asset-light initiatives and a higher take rate resulting from a greater share of buyout-model bookings in the central reservation system. The bank expects these factors to support margins through the fourth quarter and beyond.
The third-quarter net margin rose by approximately 3 percentage points year on year, but the revenue decline also widened from 4.9% in the second quarter to 6%, showing that profit improvement and revenue pressure coexisted.

Excluding soft brands, revenue per available room (RevPAR) fell 2.4% year on year in the third quarter, a wider decline than the 1.2% recorded in the second quarter; average room rates fell 1.2% and occupancy fell 0.9 percentage points.
On the same basis, same-store RevPAR fell 7.8% year on year, also a steeper decline than the 6.1% in the second quarter. Better performance at newly opened hotels and an improved hotel mix made the overall measure stronger than the same-store measure.
Management said that the RevPAR trend in October through the time of the report was similar to September and had improved from the summer, which was more affected by extreme weather and the dilutive effects of the World Cup and spring break. Traditional business travel remained under pressure, meeting and exhibition demand improved slightly, and leisure demand was generally stable.

The number of hotels increased by a net 156 in the third quarter, up from 143 in the second quarter, but new openings were slower than expected and closures exceeded expectations; the hotel pipeline fell by 46 from the previous quarter.
Citi said stricter regulation lengthened approval times and some franchisees faced tighter cash flow. Management therefore lowered its full-year 2026 target for new hotel openings from 1600–1700 to 1500–1600.
Management expects closures of leased-and-operated hotels to slow and uses the average number of closures in 2025–2026 as a reference for annual closures in the future. Citi believes hotel expansion could become a new focus for the industry.

In light of slower openings, Citi cut its revenue forecasts for 2026–2028 by 1.7%, 3.1% and 5.1%, respectively; at the same time, it raised its adjusted EBITDA forecasts for those years by 2.8%, 2.6% and 2.3% because of an improved margin outlook.
Citi raised its target price from 14.6 yuan to 14.8 yuan and maintained its Buy rating. Its target price is based on 9 times forecast 2026 EV/EBITDA for the hotel business, with group net debt then deducted from total asset value.
Citi’s base case assumes a net increase of 510 hotels and an adjusted EBITDA margin of 25.2% in 2026; hotel RevPAR recovery, the pace of expansion and margins are the main differences between its bull and bear cases.