Atour Lifestyle Holdings Limited

Ladies and gentlemen, thank you for standing by. Welcome to the A-Tour Lifestyle Holdings' third quarter 2024 earnings conference call. At this time, all parties are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Liu Gu, Senior IR Manager. Thank you. Please go ahead, sir.

Thank you, operator. Good morning and good evening, everyone. Welcome to our third quarter 2024 earnings conference call. Today, you will hear from our founder, chairman, and CEO, Mr. Wang Haijun, and our co-CFO, Mr. Wu Jianfeng. Before we continue, please be aware that today's discussion will include forward-looking statements under federal securities laws. These statements are subject to various risks and uncertainties. and the actual results may differ significantly from what is stated or implied in our comments today. The company is not obligated to update any forward-looking statements except as required by applicable laws. Additionally, during this call, our management will discuss certain non-GAAP financial measures solely for comparison purposes. For a clear understanding of these measures and a reconciliation of GAAP to non-GAAP financial results, please refer to the earnings release issued earlier today. Furthermore, a webcast replay of this conference call will be accessible on our website at ir.yaduo.com, where a copy of the results presentation is also available. Now, I will turn the call over to Mr. Wang, our CEO,

Thank you, Luke. Hello, everyone, and thank you for joining Atour's third quarter 2024 earnings call today. Atour's third quarter 2024 earnings call today.

In the third quarter of 2024, domestic travel demand demonstrated steady growth. Leisure tourism remained highly active, highlighting the strong resilience of the service consumption market. Following last year's surge in pent-up travel demand, consumer behavior returned to a more rational pace this summer. with a more diverse array of tourism hotspots emerging.

In response to a fluctuating market environment,

and evolving consumer demands. As a leading lifestyle brand, we will continue to innovate and elevate our hotel offerings while strengthening our service advantages to deliver a superior customer experience. Additionally, we will drive high-quality growth in our retail business centered around our deep sleep products to reinforce a tour's distinctive competitive edge.

Now, I would like to provide more details on our performance for the third quarter of 2024. 首先是住宿业务,请大家翻到我们PPT的第四页。 三季度,我们集团大盘RollerPod达到380元,为二三年同期的89.5%。 Let's begin with our hotel business. Please turn to slide four of our 3Q24 results presentation.

Our rough par reached RMB 380 yuan in the third quarter of 2024, representing 89.5% of its level for the same period of 2023, with OCC and ADR achieving 97.5% and 92% of their levels for the same period in 2023, respectively. Due to the high comparison base effect, ADR faced a certain pressure this summer, while OCC also experienced a year-over-year decline amid the shift to outbound tourism.

Please turn to slide five. In the third quarter, our mature hotels in operation for more than 18 months continued to deliver solid operational performance.

Excluding structural impacts such as the ramp-up of new hotels, same hotel RevPar in the third quarter of 2024 reached 91.6% of 2023's level for the same period, outperforming the group's blended performance by 2.1 percentage points. Specifically, OCC and ADR stood at 98.3% and 93.4% of their levels for the same period in 2023, respectively. 请大家翻到第六页。 今年国庆假期期间,我们看到出行和住宿需求显著上升, 推动了OCC的稳健增长,为2023年中秋国庆假期的105%。

Please turn to slide six. Travel and accommodation demand surged during the National Day holidays this year, driving steady growth in OCC, which achieved 105% of its level during the 2023 Mid-Autumn Festival and the National Day holiday.

ADR was 92.1% of its level in the same period of 2023, while Revcar reached 96.1% of its level in the same period of 2023. Please turn to page 7.

As the company's brand continues to strengthen, our hotel network expansion will further accelerate. In the third quarter, the company's entire brand will have a new opening of 140 hotels, with a growth of 72.8%. Please turn to slide 7. Driven by our growing brand influence, our hotel network expansion continued to gain traction. In the third quarter, we accelerated our hotel network expansion with 140 new hotel openings.

up 72.8% year-over-year, once again setting a record quarterly pace in new openings. As of the end of the third quarter, we had a total of 1,533 hotels in operation, representing a 37.9% year-over-year increase.

Please turn to slide 8. Franchisees' confidence remained resolute in the third quarter, further affirming our strong competitive edge and brand recognition.

The number of hotels under development reached 732 as of the end of the third quarter, underpinned by a significant portfolio of high-quality projects, generating sustained momentum to support Ator's thriving brand vitality.

Next, I would like to share the latest developments for the Ator and Ator Light brands. Please turn to page 9. As our fully upgraded high-end products, Yaduo 4.0 is a good experience and excellent business model. It continues to gain the trust of consumers and partners. As of now, there are more than 60 projects in the Yaduo 4.0 pipeline, with six open-air hotels. Yaduo 4.0's product innovation continues to lead to the experience upgrade of high-end hotels.

Please turn to slide nine. As our elevated upper mid-scale offering, Atul 4.0 continues to gain favor among both consumers and franchisees. Driven by its exceptional experience and outstanding operational model, to date, Ator 4.0 has over 60 projects in pipeline with six hotels in operation. Product innovations embodied in Ator 4.0 continued to set the standard for experience upgrades in the upper mid-scale hotel market, driving rapid growth in occupancy rate for Ator 4.0 hotels in operation and highlighting the brand's robust competitive advantages. 请大家翻到第十页。

Please turn to slide 10.

Ator Lite 3.0 also continued to perform strongly this quarter, further solidifying its competitive edge in the mid-scale market. During the third quarter, Ator Lite 3.0 signed 38 new projects, continuing to account for more than 20% of our total new signings. By the end of September, the number of Ator Lite 3.0 hotels in operation reached 76, primarily located in key business districts of second-tier cities and above.

The success of QingJu 3.0 is due to our accurate control of the core business circle and the strategic opportunity to upgrade the property, as well as the continuous attention and rapid response to the consumer trend of commercial hotels. Since the launch of QingJu 3.0, we have continuously achieved innovative and breakthroughs in QingJu characteristics in management and user experience. In the future, QingJu 3.0 will continue to be a brand concept of free life, providing more diversified and high-quality travel experiences for the general public, including young business people.

A TourLight 3.0 success stems from our keen ability to capitalize on strategic property upgrade opportunities in core business districts, along with our continued focus on and swift response to to the evolving business travel market. Since the launch of AttourLight 3.0, we have consistently achieved brand signature innovations and breakthroughs across various dimensions, including operations management and customer experience. Moving forward, AttourLight 3.0 will continue to uphold our ethos of life at ease, delivering a more diverse, elevated travel experience for a wide range of customers, including younger business travelers.

Please turn to slide 11.

Now, I'd like to introduce our recently launched upscale lifestyle brand, Sa He Hotel. Sa He means brief in the Lisu language, symbolizing the power of life. Inspired by this concept, we have meticulously crafted a hotel product rooted in Eastern aesthetics.

Sa He Hotel's launch not only fully showcased to integrate the strong product model of high-end experience and high-quality school, and to create a new form of high-end hotels, and to transform the structural challenges of the industry into opportunities. In the future, we will continue to set up high-end markets with a long-term mindset, and to provide a more immersive emotional experience for the consumer of the new generation.

The launch of Sa He Hotel not only presents a powerful product model that seamlessly integrates Eastern aesthetics, high-end experiences, and a superior operational efficiency, but also pioneers a new form of upscale hospitality, transforming the industry's structural challenges into opportunities. Looking ahead, we will continue to employ a long-term approach to the upscale market providing the new generation of consumers with a tranquil retreat that prioritizes emotional connection and immersive experiences.

接下来是我们的零售业务。 请大家翻到第十二页。 三季度,亚洲零售业务继续保持强劲的增长。 GMV达到了5.66亿人民币,同比大幅增长107.7%。 其中线上渠道占比约为90%。 Moving now to our retail business. Please turn to slide 12. Our retail business sustained its strong momentum in the third quarter.

with robust GMV growth of 107.7% year-over-year, reaching RMB 566 million, and sales from online channels accounting for more than 90% of the total GMV. Notably, we delivered another remarkable performance during this year's Double Eleven Shopping Festival, as we topped the Pillow and Comforter sales chart across various third-party e-commerce platforms. This impressive performance clearly reflects AtorPlanet's continuously strengthening brand awareness.

Please turn to page 13. I am very proud to inform you that we have returned to Yunnan in October, and have held the first deep-dive conference on the theme of natural deep-dive. Please turn to slide 13. I am proud to share that we revisited Yunnan Province this fall in October and successfully held our first deep sleep conference centered around the concept of natural deep sleep. At the conference,

we addressed the widespread issue of sleep disorders in today's society and presented a detailed overview of a tour-planet effective and systematic deep sleep idea.

At this conference, we introduced a wide range of star-studded products. One of them is the new generation of the ADOE Deep Sleep Memory Pill Pro 2.0. Not only does it upgrade the ADOE deep sleep experience, it also reflects our mature and efficient new research and development mechanism. This pillow uses a three-layer sponge design with different hardness levels. Through the unique R-shaped division structure and the angle design that fits the human body engineering, its rebound and support have achieved a significant improvement, which can make the shoulder more relaxed and help users naturally enter a deep sleep state. The Agar Planet Deep Sleep Memory Pill Pro 2.0 has received widespread praise since its launch in July this year,

We spotlighted several blockbuster products at the conference, including the innovative Attor Planet Deep Sleep Memory Foam Pillow Pro 2.0. The launch of this product not only enhances the Attor's signature deep sleep experience, but also showcases our advanced and efficient new product development mechanisms. The updated pillow features a patented spring memory foam material and a three-layer design with foams of varying firmness and curvature. Its unique R-shaped partition structure and ergonomic angle design significantly enhance its rebound and support, promoting greater relaxation of the shoulders and the neck to help users naturally achieve deep sleep. As a result, the Attour Planet Deep Sleep Memory Foam Pillow Pro 2.0 has received widespread acclaim since its release in July this year, with total sales exceeding 800,000 units.

At the same time, we continue to make breakthroughs in quilt products by maintaining the exploration of natural deep sleep. Both the heat-shrink deep sleep cooling quilt and deep sleep temperature control quilt Pro 4G We follow the change of seasons and recently officially launched the deep sleep air-conditioned quilt pro winter This quilt not only continues the deep sleep air-conditioned quilt pro series of highly rated design elements like a double-layer air-conditioning system The design of the quilt is supported by water-washing and drying, etc. It also further improves the heat-shrink ability of the heat-shrink layer so that users can get a deep sleep effect in the cold winter to get ventilation and long-term heat retention

Meanwhile, in tune with the changing seasons and our ongoing exploration of natural deep sleep, we officially launched the Deep Sleep Thermal Regulating Comforter Pro winter season. Another breakthrough in our comforter product line following our best-selling deep sleep lightweight comforter, and the Deep Sleep Thermal Regulating Comforter Pro all season. The winter comforter adopts elements of the Deep Sleep Thermal Regulating Comforter Pro's highly-praised design, such as its dual-layer temperature control system, coverless design, and machine-washable, dryer-friendly materials, while offering an enhanced heat storage layer. providing improved breathability and extended heat preservation for a more comfortable and a cozier deep sleep experience during the cold winter. Notably, the Attour Planet Deep Sleep Thermal Regulating Comforter Pro Series has accumulated sales of 200,000 units since its launch. 本次深睡发布会不只是一场产品的展示会,更体现了我们对睡眠科学和用户需求的深刻理解。

Our Deep Sleep Conference transcended a mere product showcase, embodying our deep understanding of sleep science and customer needs. We are confident that through relentless innovation and groundbreaking advancements,

Latorre Planet will continue to set benchmarks in the deep sleep segment, providing a natural and comfortable deep sleep experience to everyone.

Please turn to page 14. Next, I would like to introduce you to the progress of members and groups. With the continuous improvement of the membership system and the continuous innovation of the experience, our membership size has grown rapidly. Until the end of the third quarter, Please turn to slide 14.

Moving to our membership business and channel development progress. Boasted by our ongoing enhancement of ATOR's membership program and overall member experience, our membership base has expanded rapidly. As of the end of the third quarter, our registered individual members exceeded 83 million, marking a 53.7% increase year-over-year. Despite the structural impact of holiday travel demand, our core CRS channel remained healthy and efficient, accounting for 61% of total room nights sold during the third quarter. The contribution of room nights sold to corporate members was 18.6% during the third quarter. Please turn to page 15.

We are very happy to share with you the stages of success we have achieved in the process of building the membership ecosystem of Yaduo A Card. We have recently successfully realized Yaduo Hotel and Yaduo Planet's multi-platform membership system and shareholder rights. At the same time, in order to better integrate the membership system, we have also changed the body of Yaduo's users and customers, hoping to provide a consistent experience for accommodation and retail members. Please turn to slide 15 next.

I'm pleased to share the progress we have made in developing our ACARD membership ecosystem. We recently unified the membership systems and the point benefits of our hotels and ATOR planet across various platforms for a seamless member experience. To enhance this integration, we also revamped the ATOR Mini program to deliver a consistent experience for both hotel and retail members. As we move forward, we will continue to promote the synergistic growth of our hotel and retail businesses, deepen the integration of our membership system and its operational pathways, and optimize membership benefits. Ultimately, we aim to create a smooth consumption experience across diverse scenarios, boosting member loyalty and reinforcing our brand's competitive advantage.

Last but not least, a brief overview of Ator's accomplishments across our ESG initiatives during the third quarter. Please turn to slide 16.

As a dynamic spiritual oasis and gateway to human connection within our hotels, the Bamboo Library has evolved beyond a traditional library to become a platform for cultural communication and connection. We aim to advance this evolution integrating additional local cultural elements to transform each Spanbook library into a cultural interaction space that uniquely reflects the character of its city.

We have recently officially launched a one-store plan. The first store is located at the 4.0 hotel in Nanmen, Xi'an, Asia. We have launched a series of theme activities such as changing books with books through well-known cultural brands, To that end,

We recently launched the BAM Book Library One City One Library initiative with the first opening at the Xi'an Nanmen Atour 4.0 Hotel. Through partnerships with renowned cultural brands, we've introduced a series of themed events such as book-for-book exchanges and cultural saloons using books as a medium to connect customers with the rich culture of Xi'an. To date, Ator has established over 1,500 Bambuc libraries in more than 200 cities across China. Moving forward, Ator plans to expand this initiative to more cities, fostering deeper connections among customers, local communities, and regional cultures, and contributing positively to cultural exchange and community engagement.

Next, let's have our joint CFO, Wu Jianfeng, introduce the company's financial situation.

Now I'll turn the call over to our co-CFO, Mr. Wu Jianfeng, to discuss our financial results.

Thank you, Haijun. Now I would like to present the company's financial performance for the third quarter of 2024. Please turn to slide 18 for the results presentation. Our net revenues for the third quarter of 2024 grew by 46.7% year-over-year and 5.7% quarter-over-quarter to RMB $1,899 million. The year-over-year increase was driven by robust growth in the monetized hotel and retail businesses. The quarter-over-quarter increase was mainly attributable to an increase in rent power, which reached RMB $380 million. for the third quarter of 2024, compared with RMB 359 for the previous quarter. Revenues from our monetized hotels for the third quarter of 2024 were RMB 1,179 million, up by 51.0% year-over-year and 14.8% quarter-over-quarter. The year-over-year increase was primarily fueled by our ongoing hotel network expansion and the rapid growth of our supply chain business. The total number of monetized hotels increased to 1,504 as of September 13, 2024, up by 39.3% year-over-year. The quarter-over-quarter increase was mainly due to an increase in repa. Repa of our monetized hotels was RMB 376 for the third quarter of 2024, compared with RMB 355 for the previous quarter. Revenues contributed by our leased hotels for the third quarter of 2024 were RMB 190 million, reflecting a 20.4% year-over-year decline, but a 5.1% quarter-over-quarter increase. The year-over-year decline was primarily due to a decrease in the number of leased hotels as a result of our product mix optimization, as well as a decrease in red power. The quarter-over-quarter increase was driven by an increase in red power. Our leased hotel's red power was RMB 527 for the third quarter of 2024, compared with RMB 503 for the previous quarter. Revenues from our retail business for the third quarter of 2024 were RMB of $408 million, reflecting a 104% year-over-year increase and a 10.6% quarter-over-quarter decline. The year-over-year increase was driven by widespread recognition of our retail brand and effective product innovation and development as we successfully broadened our range of product offerings. The quarter-over-quarter decline was primarily attributable to the seasonality of our retail business. Revenues from others for the third quarter of 2024 were RMB 50 million, up 26.4% year-over-year and down 5.4% quarter-over-quarter. The year-over-year increase was driven by our fast-growing membership business. Now let's move to cost and expenses. Please turn to slide 19. Operating costs and expenses for the third quarter of 2024 totaled RMB 1,442 million, including RMB 3 million shell-based compensation expenses, compared with RMB 959 million, including RMB 10 million shell-based compensation expenses for the same period of 2023. Hotel operating costs for the third quarter of 2024 increased by 42.1% year-over-year and 12.9% quarter-over-quarter to RMB 876 million. These increases were primarily due to an increase in variable costs, such as supply chain costs, associated with our ongoing hotel network expansion. The gross margin of our hotel business was 36.0% for the third quarter of 2024, compared with 39.5% for the same period of 2023, due to a decrease in RAPA attributable to the high base effect in the same period of 2023. as well as an increased share of revenue generated by the lower margin supply chain business. Retail costs for the third quarter of 2024 rose by 102.3% year-over-year and decreased by 14.3% quarter-over-quarter to RMB 227 million. The year-over-year increase was associated with rapid growth of our retail business. The gross margin of our retail business was 52.7% for the third quarter of 2024, compared with 52.3% for the same period of 2023. Now please turn to slide 20. Setting and marketing expenses for the third quarter of 2024 were RMB $218 million, compared with RMB $112 million for the same period of 2023. This increase was mainly due to our enhanced investment in brand recognition and the effective development of online channels, aligned with the goals of our retail business. Setting and marketing expenses accounted for 11.5% of net revenues for the third quarter of 2024, compared with 8.7% for the same period of 2023. General and administrative expenses for the third quarter of 2024 were RMB 82 million, including RMB 3 million shell-based compensation expenses, compared with RMB 79 million, including RMB 9 million shell-based compensation expenses for the same period of 2023. Excluding shell-based compensation expenses, the increase was primarily due to an increase in labor cost. General and administrative expenses, excluding shell-based compensation expenses, accounted for 4.2% of net revenue for the third quarter of 2024, compared with 5.4% for the same period of 2023. Technology and development expenses for the third quarter of 2024 were RMB 30 million, compared with RMB 20 million for the same period of 2023. This increase was mainly due to increased investment in technology systems and infrastructure to support our expanding hotel network and retail business and improve customer experience. Technology and development expenses accounted for 1.6% of net revenues for both third quarters of 2024 and the same period of 2023. Now, please turn to slide 21, Adjusted net income for the third quarter of 2024 was RMB 384 million, representing a 41.2% increase year-over-year. Adjusted net profit margin for the third quarter of 2024 was 20.2%, representing a decrease of 0.8 percentage points year-over-year. Adjusted EBITDA for the third quarter of 2024 was RMB 532 million, up by 40% year-over-year, with an adjusted EBITDA margin of 28.0%, which decreased 1.4 percentage points year-over-year. Decreases in both margins were primarily due to a decline in real power and an increased revenue contribution from lower-margin supply chain business along with organic growth in selling and marketing expenses amid our retail business expansion. Please turn to slide 22 and 23. Operating cash inflow for the third quarter of 2024 was RMB $333 million. Investing cash outflow for the third quarter of 2024 was RMB $572 million. Financing cash outflow for the third quarter of 2024 was RMB 421 million. We also maintained a healthy cash position with stable growth momentum. As of September 30, 2024, our cash and cash equivalents totaled RMB 2,741 million with net cash of approximately RMB 2,649 million. Now please turn to slide 24. For the full year of 2024, we currently expect the company's total net revenues to increase by 48% to 52% compared with full year 2023. That concludes our financial highlights for the third quarter of 2024. Now let's open for Q&A.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 11 and wait for a name to be announced. If you would like to cancel a request, please press star 11 again. For the benefit of all participants on today's call, if you raise your question in Chinese, please immediately repeat your question in English. Please limit your questions to one at a time. If you wish to have follow-up questions, please rejoin the queue. Our first question comes from the line of Ronald Leung of Bank of America. Please go ahead.

Good evening, Mr. Guan. Thank you for giving me the opportunity to ask a question. My question is about the performance of RAVPAR. Can the company guess the performance of RAVPAR in the third quarter and share the trend of RAVPAR since October? Also, does the company have guidance on the RAVPAR of the whole year in 2024? Will the income guidance of the whole year be changed? Let me translate my question in English. Thank you very much for taking my question, management. Could you provide more color on the third quarter 2024 and also October RAFPA performances? Also, could you advise on the RAFPA guidance for 2024? Would there be any change to the four-year revenue growth guidance as well? Thank you very much.

Okay, Ronald, let me answer your question. Let me answer your question, Ronald.

When we split the three QRF PAR into details, we can find that it was influenced by not just the high base from last summer, but also from multiple factors, including the two typhoons we faced in September, the multiple new hotels that got opened near the end of the month, and that the public holidays were rearranged. So those were the main reasons for September's REVPAR performance to be under pressure and impeding the overall 3-2 performance.

However, we can see that the effect of the high-end technology has been relieved since October. Especially during the 11th holiday period, the increase in traffic caused by leisurely driving led to an increase in the number of OCCs compared to last year. Although there is still some pressure in terms of price, REVPAR's decline shows a trend of narrowing.

However, we do see that the high base effect has eased since October, especially during the National Day holiday. We saw the traffic growth driven by leisure travel has led to an increase in OCC year over year. Although there is still some pressure on prices, but the decline in RAVPAR has shown a narrowing trend.

And as for the full-year RAF PAR forecast, well, due to the influence of multiple factors, we believe there are still uncertainties.

We will prioritize stabilizing our OCC and capture the core revenue opportunities ahead of us. The full year rev par is expected to decline by a mid to high single digit year on year.

For financial outlook, although our RevPAR faces some volatility, but thanks to our rapidly expanding hotel network and our strong retail growth,

We maintain our previous revenue guidance of growth for 48% to 52%. Thank you.

Thank you, Ronald. Next question, please.

Thank you. One moment for the next question. Next question comes from Sujie Lin from CICC. Please go ahead.

So congrats for another strong quarter. My question is since this year we have achieved rapid hotel opening, will we maintain the 400 hotel opening guidance or adjust again? And the new signings are also strong, but considering the RAFPA decline led by high bays and supply growth, will there be any changes in new signing momentum going forward? Thank you.

Thank you, Sijie. Our overall opening and signing progress and contractual rhythm this year have been good.

Thank you for your question, Sijie. Well, this year our overall rhythm of new openings and new signings had both maintained quite good momentum.

As for new openings, this year we have the positive trend which got continued in our third quarter with a total of 140 new openings and that once again broke our quarterly record. So far this year, we have opened 360 hotels

and we are confident enough to raise our four-year new openings guidance from the original 400 to 450.

In terms of the contract, although there are some fluctuations in RERPA, the demand for the entire joint market is still active. In terms of Yaduo, our joint investors have a relatively high desire to invest. In the third quarter, the return rate of our joint investors exceeded 50%.

In terms of new signings, although our rev par has fluctuated, but the franchising demand is still very active, with franchisees' investing will staying very strong. In the third quarter, the repurchase rate of our franchisees exceeded 50%. And this number reflected their sufficient confidence and the recognition of our Ator brand.

At the same time, we will continue to strengthen the control over the quality of the new signing projects. We will use more strict standards to select the property conditions for these signing projects. Even in such a strict situation, our pipeline project reserves are still very sufficient. I think it will also very steadily promote our strategy of 2,000 good stores next year.

Meanwhile, we will also strengthen our control over the quality of our new signings. We're going to be selecting the contracted property conditions with stricter standards. Despite our accelerated new openings this year, we still have a very sufficient reserve in our pipeline of hotels to steadily carry forward our strategy of 2,000 premier hotels by next year.

Okay, thank you. Thank you. Next question, please.

Next question comes from the line of Dan Chi from Morgan Stanley. Please go ahead.

Good evening, Mr. Guan. Thank you, Mr. Guan, for the opportunity to ask me a question. I'm Xu Jiandao, an analyst at Damo. My question is about the high-end brand, Shaha Hotel, which was officially launched in October. Mr. Wang just introduced us to it. Congratulations to the company for breaking through the high-end market again. Can you share more details on the unique economics of Sahi? such as Target ADR, RevPAR, KPEX, or typical payback, etc. Going forward, what's the management strategy on upscale segment, which is currently still small compared to the company's portfolio? Thank you.

Okay, thank you, Dan. Let me share our thoughts on the high-end market. We believe that in the current Chinese traditional high-end hotel market, there are many structural difficulties. In addition, hardware and facilities have become relatively outdated, because most of them have been open for more than 10 years. The entire service experience is priceless. Under the unprecedented financial pressure, not only did it not give investors confidence today, but many hotels also made many compromises in terms of service quality in order to control costs, which has further affected the experience of consumers in today's high-end market. We also believe that the significance of doing a high-end brand in Asia today is that we need to have a unique brand value and a deep understanding of user experience. Our Sa He Hotel is positioned as a high-end hotel with excellent service. We hope to be able to focus on these five-star brands that are internationally standard and be able to introduce new vitality to China's high-end hotel market through China's experience in the domestic market and the brand tone that we represent in the East.

Thank you, Dan. Let me address your question on the high-end market thinkings first. Nowadays, we see traditional upscale hotels are facing many structural challenges, such as their relatively aged facilities, outdated product design, and stagnant services. As many of those as we see in the market have a history of more than 10 years. And in order to control the cost They've got the increasingly prominent operational pressure, not only that undermines the confidence of investors, but also leads to many of those hotels compromising on service qualities, and that further affected their consumer experiences. We believe that the meaning of an upscale brand lies in its unique brand value and deep understanding of user experiences. So our Sa Hei, or Sa He Hotel, is positioned as a premium-end hotel with selected services. We expect it to benchmark international standardized five-star brands, and on top of that basis, with its inner core of Chinese experience and its Oriental serenity brand style, we believe it can inject new vitality into the upscale hotel market in China.

Of course, as you know, we also think that the entire high-end hotel industry is not a short-term investment area. It should need to accompany the growth and cultivation of the market with a long-term intention. Our first set of SaHe Hotel's layout strategy will accurately outline the core of the 11 big cities in China. We will also adhere to the principle of quality first to create a batch of standard high-end hotel projects. And as we all know, upscale hotel market is not a segment for some short or fast speculations, but a market which requires a long-term mentality from us to grow alongside it.

The layout strategy of our first batch of Sa He hotels will accurately anchor to the very central core business district in 11 major cities in China and create a number of benchmark projects with priorities on quality. Therefore, for us, the number of openings will not be our primary objective of developing the upscale hotel market, but the brand and the quality. Those are the things that really matter.

Let me add to the question about the single-storied model. We expect the target of a mature Sa He Hotel Repa is 550 to 650 RMB. At the same time, in the case of a breakthrough in the design style and the upgrade of software installation, we hope to control the price of the single-storied hotel at around 200,000 RMB. Then we will use a large proportion of this modular design and detailed supply chain management And let me try to add some on the single hotel financial model. In terms of its staffers single hotel financial model,

We expect a mature Sa He Hotel to have a rev part target in between 550 to 650 RMB. Meanwhile, with the breakthrough of design style and upgrade of soft and hard installations, the cost of a single room shall be controlled around 200,000 RMB by using a large proportion of modular design and a fine supply chain management. we could not only ensure the quality of the project delivery, but also to effectively control the cost and project progress. Overall, the return on investment period, including renovation period, for Sa Ke is expected to be 4.1 years, which is expected to lead the upscale hotel market. Thank you, Dan.

Next question, please.

Thank you. Next question comes from the lawyer Lydia Ling of Citi. Please go ahead.

Hello, Manager Chen. This is Lydia from Huaqi. I would like to follow up on the situation of the two products, Yaduo 4.0 and Qingzhu 3.0. Can you share with us about the current signing of the two products and the upcoming opening plan? Especially with the increase in the size of the 3.0 mid-range product, can you comment on the current structural pressure on the company, especially next year's blended red part? Hi, management. I'm Lydia from Citi. So I want to follow up the questions on the R2O 4.0 and also R2O Light 3.0. So could you share, like, the latest designing momentum and also your opening plan for these two products? And particularly, like, for the mid-end brand R2O Light 3.0, given the rising mix, so could we evaluate the pressure on your blended red power next year? Yeah, thank you.

Thank you, Lydia. The progress of ADO 4.0 has been good so far. Currently, there are six of them, and we expect to have more than ten in the year. So far, we have more than 60 ADO 4.0 in the pipeline. We think ADO 4.0 is a product with a lot of potential, and we hope to provide a more relaxed experience to the business community. Thanks, Lydia. Our progress of Ator 4.0 has been good all along, with six stores in operation now and expected to exceed 10 within this year.

As of now, we have more than 60 Attour 4.0 among our pipeline of hotels. Attour 4.0 is a very forward-looking product. We hope to provide business travelers with an experience of relaxation, and Attour 4.0 hotels in operation also achieved outstanding performance through experience upgrade and product innovation. Therefore, their overall performance aligns with our expectations, and we believe that that those Atura 4.0s concise and a natural style will have a longer product life cycle.

As for the 3.0, we signed 38 contracts in three seasons. The contract ratio is still over 20% of our total contract. By the end of September, 76 of the 3.0 hotels have been opened. Next, based on the product strength of the mid-range market and the deep insight of diversified users, we will continue to break through the 3.0. As for Ator Life 3.0 hotels, 38 were signed in the third quarter, continuing to account for more than 20% of total new signings.

As of September 30, the number of Ator Life 3.0 hotels in operation reached 76, Next, based on our differentiated product power and profound insight into multiple customer types in the mid-scale market, we will carry forward the breakthroughs of Atorlite 3.0. It is expected that by the end of this year, the number of Atorlite 3.0 in operation will exceed 100.

As for your concern, the rep part,

Although our group REVPAR will be affected by structural factors such as accelerated new openings, high proportion of new hotels, and the gradually increasing proportion of a tour light, we will continue to upgrade Hope products and hotel renovation program to continuously improve product competitiveness and drive healthy growth of REVPAR.

With 3.0 as an example, we launched in February last year. Based on the business situation and feedback from the users, we are continuing to improve the model of 3.0. At the same time, we can bring a better experience to the users, and we can also bring a more stable return to our partners, and we can maximize the competitiveness of our products in the mid-range market. We believe that when the trend of consumption continues to change, taking a tour life 3.0 as an example since its launch in february last year we have been continuously improving its model based upon our operating status and user feedback not just bringing better experience to users but also sustainable and stable returns to franchisees

With that, we consolidated the product competitiveness in the mid-scale market. We believe that it is necessary to normalize product update iterations at this time when consumer trends are constantly changing. So we will continue to focus on product innovation to meet users' constantly changing needs for accommodations. Thank you. Thank you, Lydia. Next question, please.

Thank you. Next question comes from the line of Chen Xing from UBS. Please go ahead.

Hello, Mr. Wang and Mr. Wu. Good evening, everyone. I have two small questions related to power supply. First of all, I want to ask, I saw that the number of power supplies this year is increasing. I want to ask the company's reasons for power supply. The first and second, what is the plan for next year's power supply? The second question is that we have seen an increase in hotel closures this year. Would you mind sharing your next year closure plan? The second question is that we noticed that the number of leased hotels also decreased. May we know the reason? Thanks.

Okay, thank you, Chen Xin. Thank you, Chen Xin. Regarding closed stores, we had a total of 37 closed stores in the first three seasons of this year. This year, we expect that the total number of closed stores will reach about 50. This decision is based on a comprehensive assessment of the quality of the property and operation performance of our group Zainin Hotel. Thank you, Chen Yuxing.

Regarding our closures, a total of 37 hotels were closed in the first three quarters of this year, and our full-year closures are expected to reach around 50. This decision is based on intensive evaluations of the property quality and operational performance of our group's hotels in operation. We are always committed to providing consistent, high-quality tour services. So for those hotels that still do not meet expectations even after rectification, we will terminate the contract according to agreed terms. We believe that through this screening mechanism, we can ensure the continuous improvement of the overall quality of our hotels. We will maintain a similar pace of closures next year, and this decision shall be helpful to achieve our strategic goal of 2,000 premier hotels by next year.

In terms of headquarters, in the second and third seasons of this year, there have been a reduction of two headquarters. One of them is because after the contract expires, we have a friendly negotiation with the owner and turned it into our joint store. In the future, the expansion of our hotel network will still focus on the green asset joint model. For the time being, we do not have a new opening plan for the headquarters. Before the contract expires, we will discuss with the owner to comprehensively consider the display of its brand core business circle and location factors to determine whether or not the contract is needed.

Termination of leased hotels. Well, in the second and the third quarter this year, the total number of leased hotels was reduced by two. For the one hotel among them, we had smooth communication with the owner after the expiration of previous leasing contracts and converted the hotel into a tour of franchise hotels. In the future, our hotel network expansion will still mainly be in the form of asset-light franchise model, with no plans to open leased hotels for the time being. We will negotiate with the owner of leased hotels before their contracts expire, taking into account their brand display, location within the core business districts, and other factors to decide whether to renew or to terminate our cooperation with them. Thank you. Thank you, Chen Xin. Next question, please.

Thank you. The next question comes from the line of Qiwei Liu from Citix. Please go ahead.

Hello, Mr. Chen. I would like to ask a question about retail. I translate my questions. Regarding retail, we observed the company recently conducted a tour deep sleep product launch conference, indicating the company's strategic support for the retail segment. I'd like to inquire how the management perceived the growth potential and the category planning of the retail business. What are the revenue projections for next year? Thanks.

Thank you, Jiwei. Let me answer. We believe that the huge sleeping economy market supported by people's need for health and sleep has a very wide room for growth. Our Asia Star is also accurately satisfying the needs of consumers' health and comfort through the deep sleep solution of the scientific system. Therefore, we see that the performance of our retail business this year is still very bright. Thank you, Jiwei. Let me address your questions. As for our prospects in retail business, we believe that people have critical demand for healthy sleep, and that braces for a massive sleep economy market. And this has great room for growth.

With the TourPlanet, we leverage our scientific and systematic deep sleep solutions, and that helps us to accurately meet consumers' needs for healthy and comfortable sleep. Therefore, we can see this year we have the highlighted retail performance. Apart from our deep sleep pillow being an absolute hot sale, our quilts also made significant breakthroughs this year. We efficiently launched the three new growths, continuing to elevate our brand influence in the sleep economy.

Regarding the consideration of quality, as we talked about in the deep sleep conference, in the future, we will continue to focus on deep sleep, and continue to expand the quality of sleep and half sleep. That will keep our advantageous quality deep and transparent, and cover a wider audience of consumers.

As we advocate our concept of natural deep sleep in the deep sleep conference, in the future we will focus on and deepen the field of sleep, continue to expand the sleep and the pan-sleep categories, and we will continue to deepen our advantage categories to cover a wider range of consumer groups.

we will still maintain the same sales revenue as last year. As for the expectation for next year's increase, we are currently working on the budget for the entire year, so we can't give a clear guidance yet. But overall, we believe that our retail business will contribute more than the housing business, and achieve a normal health growth.

And as for revenue forecast for this year, we maintain our previous guidance of doubling year on year. And as for next year's growth forecast, we are now still in progress of making our annual budget for next year. So generally speaking, our retail business will continue to contribute with a year-over-year growth faster than our hotel business in the near term to achieve normalized healthy growth. Thank you.

Thank you for joining us today. If you have any further questions, please feel free to contact our IR team. We look forward to speaking with you again next quarter. Thank you and goodbye.