H World Group Limited

Good day and thank you for standing by. Welcome to the H World Q4 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask questions during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I will now like to hand the conference over to your speaker today, Jason Chen, Investor Relations Director. Please go ahead.

Thank you. Good morning and good evening, everyone. Thanks for joining us today. Welcome to Edgeworth Group 2022 Fourth Quarter and Full Year Earnings Conference Call. Joining us today is our chairman, Mr. Jiqi, our CEO, Mr. Jinghui, our CFO, Ms. He Jihong, our President, Ms. Liu Xingxing. Following their prepared remarks, management will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements made under the Safe Harbor Provision of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. Each board group does not undertake any obligations to update any forward-looking statements except as required under applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliation of those measures to comparable gap information can be found in our earnings release that was distributed yesterday. As a reminder, this conference call is being recorded. The webcast of this conference call, as well as supplementary slides presentation, is available at ir.edgeward.com. With that, now I will turn the call over to our chairman, Mr. Ji. Mr. Ji, please.

Good morning and good evening, everyone. Thank you for joining our call today. 2022 has been a very challenging year for our business in China. With strict COVID policies in place for quite a long period of time across the country, our business has been severely impacted, as many people expected. However, we have shown strong resilience throughout this difficult time and continued to expand new hotel network. I would like to use this opportunity to extend our sincere appreciation to our customers, franchisees, employees, and business partners for their support to go through this tough period together. No matter how difficult the business environment was, we did not stop developing our company future. Last year, we transformed our Chinese operations throughout through organizational restructuring and established a firm ground in key regional markets. With our six fully equipped regional companies in China, we are now well prepared for penetration in more regional markets. With China lifting the COVID restrictions and the few focus on economic development, we are embracing a strong recovery in the hotel market. We believe we are well positioned to capture the growth opportunity. This year, we will focus on three key areas. First, we will continue the high-quality extension of our hotel network. This will be largely driven by limited-service hotels, especially in low-tier cities and less-penetrated areas. Second, we will further develop and establish firm ground in mid-scale and upper-middle scale through multiple-brand strategy. Last but not least, we will continue to strengthen our organizational and operational capabilities to achieve high operational efficiency. and provide a better product and services to our customers as well as franchisees. In our international business, we are very glad to report that DH achieved an improvement in many operational areas over the last year. Four years adjusted EBITDA before impairment turned positive for the first time since our acquisition. In addition, we have achieved significant breakthrough in loyalty program, direct sales channel development, and digitalization of operational process. In 2023, we will focus on future margin improvement, digitalization, growth of direct sales, and expansion of hotel network. This world is full of uncertainties. as we cope with the consequences of international monetary policies and continued regional conflicts. We will further strengthen our core competence in operations and various platforms to build up our overall resilience. We are confident that with our continued innovation in business models and projects, we can drive through different challenges and generate sustainable quality growth for our investors as well as the entire ecosystem. With this, I would like to thank you. Thank you.

Although 2022 is full of difficulties and challenges, Huazhou, as an industry-leading company, has still made some progress in its business. Let's take a look at some of the major achievements of Huazhou China. Please turn to the third page. First of all, we insist on the unwavering strategy of economic growth. In 2022, we will open 1,244 hotels and continue to clean unsuitable stores and upgrade hardware products of various brands to ensure continuous improvement of user experience. Second, we have completed the organizational upgrade. and established six regional business companies. For future market penetration and high-quality operations, we set a solid foundation. Third, we conducted a good cost control. In 2022, we achieved about 300 million RMB discount and a 15% reduction of the total number of employees. Finally, at the fastest time in the industry, we still insist on making Jiangmen to be the most important partner of our business.

Although the year of 2022 was full of challenges and difficulties, Edgeworth Group, as one of the leading companies in the industry, still coped the difficulties and made several business progresses during the year. Let's firstly discuss our main achievements for Lexique Huatou for the year. Please turn to page three. First of all, we kept our sustainable quality growth strategy unchanged. During the year, we opened 1,234 hotels. Also, we continued to remove inferior hotels from our network and upgrade hotel products across all brands to improve customers' experiences. we completed our organizational restructuring and established six regional offices to build up a solid foundation for further market penetration and high-quality operations in the future. Thirdly, we have conducted good cost control and achieved a rental reduction of around RMB $300 million in 2022, as well as a 15% headcount reduction in our headquarters during the year. Lastly, we waived around RMB 300 million management fee for our franchisees during the tough period last year, as we always treat our franchisees as our important business partners.

We are very happy to see that Huazhou China's RERPA continues to perform well after the opening policy. Please turn to the fourth page. Since the announcement of the opening in November last year, Huazhou China's RERPA has shown an increasing trend compared to the recovery in 2019. In October of 2022 to January of 2023, the recovery rate was from 74%, 78%, 87%, 91% to 96%. In February of 2023, the recovery rate further increased to 104% in 2019. Of course, the recovery data in February was significantly affected by the wrong time of the week during the Spring Festival, but it also reflected the increase in the ratio of Chinese hotels in the high-end hotels and the continued optimization of the price-earning ability.

We are very glad to see our REFPAR in China continue to perform well after reopening. Please turn to page 4. Since the official announcement of reopening in late November last year, our China REFPAR recovery was uptrending month over month. REFPAR recovered to 74%, 87%, 91%, and 96% in last year October, November, December, and January this year, respectively. In February 2023, RevPAR further recovered to 140% of 2019 level. The recovery rate in February was mainly impacted by the timing mismatch of Chinese New Year holiday period between 2023 and 2019. However, it also shows the impacts from product mix changes over past years as contribution from Mid-Scale and Upper Mid-Scale increased. as well as our improving capabilities on ADR optimizations.

This turn to page five. Looking ahead in 2023, sustainable quality growth would still be our core strategy for legacy Huazhou business.

Under this strategy, we will focus on three key areas. Firstly, high-quality hotel network expansion through our membranes and flagship hotel strategy to achieve further in-depth penetration in China market. Secondly, to achieve new breakthrough development of mid-scale and upper mid-scale segment, especially for those brands that we incubated in the past few years, such as Orange, Crystal Orange, Intercity, and Blossom House. Thirdly, we will further strengthen our organizational and digitalized operation capability. We will discuss each of these three focuses in details in the following.

First of all, we will continue to expand the hotel network based on high-tech doorways, especially in low-line cities and relatively poor markets. Please turn to the sixth page. As of 2022, China's hotel numbers are 8,411, 705 in total. Compared to 2021, the number of hotels in the low-end cities has increased by 1% to 38%. The number of hotels in the pipeline is 2,544. The number of hotels in the low-end cities has also increased by 1% to 57% compared to 2021. The number of cities in the pipeline and pipeline hotels has also increased from 1,062 at the end of 2021

First of all, we will continue the high-quality expansion of our hotel networks, especially in lower tier cities and less penetrated areas. Please turn to page 6. At the end of 2022, we have total 8,411 hotels in operations in China, with net addition of 705 hotels during the year. Hotels in operation in lower tier cities contributed 38% as of 2022, increased by one percentage point compared to last year. We have 2,544 hotels in pipeline, with lower tier cities contributed roughly 57%, which was also increased by one percentage point compared to the last year. The number of cities coverage for both hotels in operations and pipeline increased to 1,126 cities compared to 1,062 cities last year. Despite the repeated impact of the epidemic last year, our high-quality hotel expansion is still ongoing.

Please turn to page 7. From the number of new contracts, due to the epidemic in 2022, the confidence of the business has dropped, There are 2,141 new contracts this year, which is significantly lower than 2,849 in 2021. However, we also need to note that we have withdrawn from the economic soft brand market in 2022. Therefore, if we remove the economic soft brand data, there will be 2,123 new contracts in 2022, and 2,477 in 2021. The decline is relatively limited. From the data of the new hotel business, it is the same as the new contract. If we exclude the impact of the economic soft brand, there are 1,236 new businesses throughout the year. Compared with 1,293 in 2021, there is also a slight decline. From the data of the closed store, there are 539 closed stores throughout the year in 2022. Under the strategy of economic growth, we have continued to close low-quality economic soft brands and Hanting 1.0 products. If we remove this part of the impact, the power supply in 2022 will be 237 units, slightly higher than the 175 units in 2021. At the same time, please note that we gave more than 600 power supplies last year, but due to the impact of the epidemic factors, some stores have not completed their sales process, so this part

Our hotel network expansion with high quality continued despite COVID impacts last year. Please turn to page 7. In terms of new hotel signings, we signed up 2,141 new hotels in the last year. Obviously, that was lower than 2,849 hotels we signed in year of 2021. That was because the COVID impact and the lower franchisees' confidence level. However, given that we are no longer doing the economic soft brand things last year, therefore, if we exclude the impact of the economic soft brand hotels, we actually signed up 2,123 new hotels in 2022 compared to 2,477 hotels in the last year. The gap was narrowed. Similar to the new hotel signings, for the new openings, if we exclude the economic soft brand hotel, we actually opened 1,236 new hotels in year of 2022, slightly lower than 1,293 hotels in 2021. On the hotel closure front, we totally closed around 539 hotels in 2022, In order to comply with our sustainable quality growth strategy, we continued to close more inferior economic soft brand hotels and hunting 1.0 version products. If we exclude this impact, our closure for the year of 2020 was 237 hotels compared to 175 hotels in year of 2021. At the same times, please note that Our number of hotel closures was lower than our 600 closures we previously guided in last year. As some hotel closure process were uncompleted in December last year due to the impact of initial reopening from COVID. Therefore, those hotels may affected our total number of hotel closures for this year. 正是由于我们持续不断提升集团整体的酒店质量,

The proportion of low-quality hotels in China continues to decline. Please turn to page 8. In 2020, the low-quality Jinyi soft brand and Hanyu 1.0 version were 25.9% compared to the company. In 2022, the proportion has dropped to 13.4%.

Along with our efforts for continuously improving our hotel quality, the proportion of low-quality hotels were declining consistently. Please turn to page 8. For example, number of economic soft brand and hunting 1.0 version hotels only contributed 13.4% by the end of 2022, significantly declined from 25.9% at the end of 2020. 在经济型和中档领域,我们分别形成了以汉婷权技为核心,你好举止为互补的主力品牌梯队,未来我们的主力品牌将会持续提升。 At the same time, we continuously strengthen the metrics of our membrane. Please turn to page 9. In the economic and mid-scale segment, we formed Hanqin and G Brand as our key core brands, and Nihao and Orange are complementary brands. we will further enhance our core brands power in the future.

Please turn to page 10. In terms of the development of Chinese high-end brands, we are still challenging the market with various brands. Through the arrangement and adjustment of new brands, there are already 8 brands such as Orange Crystal, Chengji, Meilun Meihuan, Manxing, Huange, Meilun, Meiju, and Novetel. Since the end of 2022, Chinese high-end brands have combined in China 523 Zainin Hotel and 287 Guandao Hotel.

Please turn to page 10. In terms of our upper-mid-scale segment development, we remain using our multi-brand strategy to further penetrate the market. Through adjusting and resorting our brand metrics, we now have eight brands in this segment, which include Crystal Orange, Intercity, Max, Manxin, Citigo, Madison, Mercure, and Novotel. At the end of 2022, we have a total of 523 hotels in operation and 287 hotels in pipeline for this segment.

Huazhou is also committed to continuing to upgrade its organization and management system, in terms of human resources, digitalization, customer service, marketing and membership, supply chain, sustainable development, and other aspects. Increase organizational operation efficiency, create value for customers and customers, please turn to page 10. In terms of customer service improvement, from the data of the customer screen, it shows a gradual improvement. It can be seen that the customer is continuously improving the satisfaction of our sub-hotels. From the customer rating, it shows a gradual decline. It can also be seen that we are continuously improving the customer experience in the hotel.

Edgeward is also committed to continuously upgrading and strengthening our organizational and operational system, comprehensively improving on the front of talent reserve, digitalization, franchisees and customer services, sales and loyalty programs, supply chain management, and sustainable development, further improving organizational operational efficiency and creating more value to our franchisees and customers. Please turn to page 11. In terms of our customer service improvement, we are seeing our customers' rating on our hotels continuously improving. It demonstrated that our customers are getting more satisfied with our hotel products and services. At the same time, customers' negative rating rate is consistently declining. indicating our continuous efforts on improving customers' experiences through providing better services and products.

Let's turn to the 12th question. We will strengthen the ability of the marketing and member system in three aspects. First, it is the optimization of price and revenue. After completing the organizational transformation of the three companies in the area, the hotels in each area can better localize and manage the more sensitive price system. Brands from different parties can also form a price ladder, creating a value system between multi-brands. The second is the upgrade of Huazhou. With the strong membership and traffic of Huazhou, we can further deepen its potential and continue to improve and upgrade its membership rights in various aspects. Finally, it is to improve the business capability of Huazhou merchants and continue to develop new top corporate customers. Please turn to page 12. We will focus on three areas to reinforce our sales and marketing and royalty programs. The first one is on the ADR optimization.

After completing our organizational restructuring and establishing six regional offices, hotels which located in each region can set up a more flexible pricing system based on the local market conditions. Also, the pricing synergy can be achieved among various brands in each region, and the pricing range for different segments can become more reasonable. The second one is continuously enhancement and upgrade of Edgeworth loyalty program. By leveraging on the large number of members and traffic, we will further dig the potentials through consistent upgrading and improving our loyalty program, such as the membership's privileges. Lastly, we will further improve our sales capabilities on corporate clients. We will continuously develop new top tier corporate customers and generating more revenue contributed from our corporate clients through group bookings, conference, banquet, and MICE activities by leveraging our digitalized direct connection capability and closer cooperation with them.

The operational efficiency improvements for our leased and owned hotels is also very important for the group. Please turn to page 13.

Firstly, we will constantly optimize the current leased and owned hotel portfolios. Those leased and owned hotels which are not meeting our requirements will probably be early terminated. Secondly, we will further improve the operational efficiency of the hotel to reduce the operating cost and improve the profitability for leased and owned hotels. Lastly, any new leased and owned hotels investment in the future will be mainly determined by the return and strategic considerations, such as the flagship hotels.

Please turn to page 14. We will further strengthen the construction of supply chain capabilities. We will provide full-chain supply chain services for deep operation on the domestic market, and continue to improve product delivery, achieve lower costs and higher efficiency, provide better products and more standardized services.

Please turn to page 14. We will further strengthen our supply chain capability. We will provide full supply chain services and conduct in-depth operations to franchisees, as well as continuously upgrading products to achieve better quality products and more standardized services with lower cost and higher efficiency.

最后,公司也将更重视ESG和可持续发展。 请大家翻到第15页。 In addition to the continuous efforts of Huazhou in social justice, employee care, and other aspects, ESG efforts will also be carried out in three areas this year. The first is to continue to complete and optimize the database of ESG companies. The second is to improve the efficiency of energy and water resources. The third is to include more green projects, including green suppliers, green housing, and other projects.

Last but not least, We will pay more attention on ESG and long-term sustainable development. Please turn to page 15. In addition to the continuous efforts on social welfare and employee care in the past, we will make more efforts on ESG this year with three key focuses. The first one is to continuously improve and optimize the company's ESG database. The second one is to improve the efficiency of energy and water usage. The third one is to launch more green projects, including green suppliers and green livings, and so on.

All above are our business reviews for last year and key strategic focuses for this year.

With that, now I will turn the call over to our CFO, Ms. He Jihong, to discuss our DH business and our 2022 full-year financial performance. Thank you.

Hello, everyone. Thank you, Jinghui, and thank you, Jason. Please turn to page 16. In our international front, we are very happy to report that DH business achieved robust recovery in 2022 and achieved RMB 134 million adjusted EBITDA before special write-off impairment and unrealized loss. While we are very lucky to be able to capture the market recovery after COVID, this result would not have been possible without disciplined cost reduction measures and corporate restructuring effort. In addition, We carried out a series of activities to bring the DH business to a new level. We rolled out our proprietary digital infrastructure in our hotels. We upgraded our loyalty program, Edge Rewards, internationally with enhanced benefits. We refreshed the brand positioning and the products for intercity and sleep hotels. And then last but not least, we implemented a new management system to attract the talent for our hotels and our headquarters. Please turn to page 17. In 2023, DH will focus on four strategic areas. Most importantly, we will continue our effort to improve margin. This includes both further improvement of our revenue as well as continued cost discipline. Number two, we will continue to invest in direct sales channels. With our H-reward program, our reservation system, as well as the mobile web booking platforms, we will continue to increase the ratio of direct bookings. Number three, we will continue to grow our hotel network by leveraging our strong brand And number four, we will continue to carry out digitization of our core processes. Now I will turn to the financial section of today's call. Please turn to page 19. We all know 2022 was a very difficult year in China due to strict COVID policy. Despite the tough operating environment, we managed to grow our hotel network. The number of rooms increased 7% year on year to 809,478 rooms in 2022. Our hotel turnover was 49.6 billion RMB, a 9% increase compared to 2021. Page 20. Due to restrictions of COVID policies, blended REFPA for our China business in 2022 was 157 RMB. This is a decrease of 8.8% compared to 2021 and a 20.5% decrease compared to 2019. This was mostly due to lower occupancy, which was 5.5% lower than 2021 and 17.7% lower compared to 2019. Page 21. In our international business, the market recovery started in Q2 2022. We achieved 96% RESPA increase compared to 2021, which was driven by 23% of ADR increase and a 21% occupancy increase. Please turn to page 22. In Q4 2022, our total revenue for the group increased by 11% compared to Q3 22. which is mainly due to 66% revenue improvement in our international business. For the whole year 2022, our revenue increased by 8.4% year on year, which is contributed by 108.5% revenue increase from DH. For the whole year 2022, revenue from our China business decreased by 5.3%. However, the recovery of our China business accelerated after Chinese government announced the reopening policy in mid-November. The overall 4Q 2022 revenue was at the high end of our guidance. Despite fee waiver of RMB 58 million, to support our franchisees. Please turn to page 23. Operating costs in 4Q 2022 was 3.4 billion renminbi and 12 billion for the full year 22. This includes renminbi 195 million impairment loss of our China business and renminbi 169 million for DH business. Income from operations, therefore, was minus 93 million renminbi in 4Q22 and minus 294 million for the full year 22. Please turn to page 24. Our adjusted EBITDA was renminbi 398 million in 4Q22 and 610 million for the full year 2022. Our China business reported a foreign exchange gain in 4Q22, but this was offset by impairment loss. For DH business, adjusted EBITDA in 4Q22 decreased by 68 million RMB compared to 2021 because of the absence of COVID-related government subsidies, which was received in 2022. For the whole group, adjusted net income was minus 255 million RMB for 4Q 2022 and minus 1.27 billion RMB for the full year 2022. Please turn to page 25. As we had a quite substantial amount of non-cash impairment, unrealized loss due to change in fair value of equity securities, as well as unrealized foreign exchange losses, we would like to show the normalized EBITDA and the net income here separately. As you can see, the adjusted EBITDA before impairment and the forex exchange was $1.7 billion for the full year 2022. We achieved this level of normalized adjusted EBITDA due to disciplined cost control measures, such as the rental reduction and the streamlining of our headquarter costs. Please turn to page 26. We would like to update everyone on the liquidity position as well. As of December 31, 2022, our net debt was RMB 4.8 billion, and our cash balance is RMB 5.1 billion. We have unutilized the bank facility of RMB 2.1 billion. We would like to mention here that our cash position was further improved as of today since we did a very successful follow-up public offering of US$300 million in January 2023 and we liquidated our core shares at EUR 300 million in February 2023. Please turn to page 27. As each year, we give a broad guidance for our business in the coming year. Since China is just starting the recovery trajectory and we need to further observe the business trend, we remain optimistic but stay cautious. We estimate our net revenue in Q1 2023 to grow at about 61% to 65% compared to Q1 2022. Excluding DH business, our China business is estimated to grow at 53 to 57%. For the year, revenue is estimated to grow at 42 to 46%, and the China business is estimated to grow at 46 to 50%. Gross hotel opening target is estimated at 1,400. And we plan to close about 600 to 650 hotels. Among the hotels to be closed in 2023, there are substantial numbers of them already not revenue generating, but are still going through legal closure procedures. due to delay because of the COVID. Many of these hotels are soft brand hotels and hunting 1.0. We will have some of these hotels to be officially taken out of our inventory this year. This concludes our presentation today. Now we can start with Q&A session.

Thank you. At this time, we will conduct the question and answer session. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

The first question comes from the line of Ronald Lung of Bank of America.

Please proceed with your question.

Hello, everyone. Thank you for giving me the opportunity to ask a question. I have two questions. I will first ask in Chinese, and then I will use English to translate. My first question is about income tax. In the first quarter, the income of the Chinese region rose from 53% to 57%. In the whole year, the Chinese region rose from 46% to 50%. In fact, what is the management's response to the recovery of RAPA? When calculating the value of the income, this is the first question. The second question is to understand about China living in this global Hi, good morning, management. I have two questions. The first question is about the revenue guidance. So based on the first quarter revenue guidance for domestic China growing 53 to 57% and the full year revenue growing 46 to 50%, what would be the rough path recovery assumptions that the management is putting in right now? The second question is about the global expansion strategy. So what would be the next step for the global expansion strategy in this year and next year? Would management still consider further mergers or acquisitions to complement the brand portfolios? Thank you very much.

Okay, I will answer these two questions first, and then Ji Hong can make some additions. First of all, regarding the guidance on revenue, based on the RERPA, we have noticed a significant improvement in ADR in China this year. But we also noticed some shortcomings in the operating rate of some mainstream business customers. Currently, there are still shortcomings. So we based it on the recovery rate of customers in different markets across China in a quarter. We probably did a real part estimate, which is about 110% in 2019. It is such a judgment based on market tests and analysis of different market segments.

Okay, to answer your first questions, so basically we are seeing the demand was getting quite strong in the beginning of this year, and we are seeing the rough recovery was mainly driven by the ADR. However, we are still seeing the business traveling, I mean, especially the business traveling still has some gap compared to the normal year. That's why the OCC was having some gap as well. So by considering all the factors in terms of the revenue guidance, so by considering all the factors which we mentioned before, so the revenue guidance actually implies the REFPA recovery compared to the same period of 2019 was around 110%. 第二个问题我想试图跟大家做一些目前业务中国的一些介绍。

On the one hand, due to the pressure of consumption in the past three years, after the entire epidemic has recovered, including the Spring Festival, China has shown very good internal demand growth. In the previous presentation, we have reflected the recovery of the entire Spring Festival to the Chinese consumer market. Of course, China, due to the development and firm strategy of economic growth after the two meetings, So first of all, we have a very strong confidence in the growth of China's internal circulation. So there is no doubt that China is the first strategy for China. The continuous high-end development in the Chinese market and the breakthrough of the medium and high-end markets are undoubtedly the core focus of China's work in 2023. Of course, we do not rule out the possibility of seeking some development internationally, especially in the field of German business. I will give you a little bit introduction in terms of our strategy focus for the 2023.

So basically, as you can see, after the reopening in the first quarter, we are seeing a quite strong demand in the China market, especially during the Chinese New Year. So we are still being very confident in terms of the demand in China and the growth potentials in the future. So definitely, so our key focus will be in China market. We are going to further penetrate into the China market by leveraging our key brands. and also further strengthening our mid-scale and upper mid-scale segment penetration as well. In terms of the global expansion, first the priority is definitely to further improve the DH operations by improving the profitability as well as the customers' experiences. But at the same time, we will be looking for some of the opportunity and the potentials in the global market if there is something suitable.

I can add a little bit of flavor to our international business. Since the acquisition of DH, this business, DH business has been our base for our international expansion. After the COVID difficult time, and we have seen really good turnaround of the business. So starting in 2023, we will continue to use DH as a base for our international expansion. So the basic, what Ms. Jinghui mentioned, was really to improve the operations of DH, but also further expand the DH brand in different markets. For example, we have good inroad into Middle East as well. For the international expansion in other areas, we remain opportunistic. for the further M&A opportunities. But I will say, DH is our first and the most priority at this moment.

Thank you, management.

One moment for our next question.

Our next question comes from the line of Simon Chung of Goldman Sachs. Please proceed with your question.

Thank you for sharing, Manager Chen. I have two questions. Just now, Ronald asked, what is the assumption of your revenue in 2023 for the REFPA? I can ask you again. What do you think of the 2023 revenue? Especially the REFPA assumption. And then if you look at it a little bit longer, in 2025, we often ask investors a question, that is, how fast can the long-term growth of Repa be? Because there are a lot of over-supply problems in China. I remember you said that you have a branch in the South China region. I want to know what you are doing in the South China region. So I will ask a follow-up with Ingrid in the questions. I think Ronald earlier asked also about the 2023 revenue guidance and the implied REFPA for the full year. I would like to see whether you can provide us the REFPA guidance for the full year and also that going forward in the longer run, What is your expectation of rapid growth in the next perhaps two, three years, given all these massive concerns about the oversupply situation in China? That's the first question. And the second question, notice that you have given out accelerations, a guidance of accelerations. in the hotel ads from $1,200 to $1,400. Wondering whether you have seen a bit more appetite by the hotel investors to come back into the market and also whether you have any updates on the Southern China regional office strategy. Thank you.

Regarding the growth of real estate and income, I think it mainly comes from two aspects. One aspect is the growth of our business. Actually, it is related to the second question you mentioned. The second is the growth of the whole business of real estate. As I mentioned before, due to the growth of the entire domestic demand, we clearly saw the trend of growth of ADR is relatively obvious. Especially after the whole policy epidemic was released, in the leisure, tourism, and holiday markets has been significantly improved and improved. Therefore, in 2023, we have given Zilpa about 110% to 115% in 2019. This is the first question I would like to talk about. Regarding the second question, it actually concerns the growth of the entire business. Indeed, as you said, in the first quarter, Due to the improvement of the entire business recovery, we have seen such a recovery of the entire investment. We are in the first quarter, especially after the Spring Festival, the growth of business in China, the number of contracts, and the number of channels have all achieved a very good performance. A very good performance should be slightly higher than our original stock price. Then, in the entire Chinese market, not only in the south, Huazhou was originally in Huazhong, In the whole of Huaxi, it was originally a relatively poor area of Huazhou. We should say that we have received a good supply and growth through the downfall of the organization of the entire company in the past year, the development of the organization, and the ability of the organization. We will soon see such penetration and development around us in these poor markets. We maintain a very optimistic attitude towards this.

To answer your first question, as I mentioned earlier, basically we're seeing a quite strong domestic demand starting from the beginning of the year post the government announced the reopening policy. The REFPA recovery was mainly driven by the ADR growth and especially from the leisure market. We are seeing a pretty good recovery from the leisure market. In terms of the blended REFPA recovery compared to the same period of 2019, the current full-year revenue guidance implies the blended REFPA will recover to 110% to 115% compared to the same period of 2019. To answer your second question in terms of the business growth, so yes, I think in the first quarter we are seeing a good business recovery and we are seeing the franchisees' confidence is coming back a bit and we are also seeing the investment appetite is improving as well, especially post the Chinese New Year. So from the number front, we are seeing good trends in terms of the new signings and pipeline increase. which is slightly better than our previous expectations. And in terms of the less penetrated market development, not only the southern part of China, like, for example, the central area and the western area were also previously quite weak places for H-word. So after we completed our organizational restructuring and regional offices establishment, we are seeing a pretty good progress as development in those particular regions, and we are still remain very confident in terms of the growth potentials over there, mainly leveraging our flagship stores strategy as well as our main brand development.

One moment for our next question.

Our next question comes from the line of C.G. Lin of CICC. Please proceed with your question.

Thank you, Manager Tang. I have a question about Ni Hao that we just mentioned. Will his position in the economy be similar to that of Juzi in the central bank? And Ni Hao, in the future, how big of a difference will there be in the deflation plan, including in terms of the demand for defense, and how big of a difference will there be in terms of REVPAT and Han Ting? So I have just one question about Nihao Hotel. Considering its positioning in economy hotels, is it quite similar with Orange Hotel's positioning in mid-scale hotels? And what is Nihao Hotel's opening target in the future? And also, what's the difference in the room numbers and reptile compared with hunting? Thank you.

Okay, I'll answer this question. In the process of further deepening China and the lower market, we found that there were a large number of lower-level, what we call small town youth, young customers, local leisure, travel, vacation, and such customers outside of Hanting. As you all know, Hanting has more than 3,000 stores in China. It has a very strong business and familiarity. So we quickly started to re-create Nihao's brand in 2020. We hope to fully occupy the national market in China. So Nihao carries a powerful supplement to Hanting. In the entire summer, the youth market, travel, vacation, leisure market, as our products are upgraded and delivered, will also make China's citizens have more choices. In the national market,

So to answer your questions, so actually along with our strategy with the lower tier cities penetration and further penetrating to the entire China market. we realized that actually, especially in the lower tier cities, we are seeing quite a lot of new demands, like a lot of young generations, a lot of local leisure traveling demand. And those customers are actually probably not the hunting brand's key customers or target customers. So as you know, hunting was positioned as a very unique business traveling product. And to fulfill those kind of new demand in the lower tier cities, we incubated our Nihao brand starting from 2020. And what we are targeting is to further penetrate the very mass market in China, and especially in the economic segment. We would like to use Hanqing and Nihao as our two key brands. to further penetrate the market and provide more choices to the customers for the entire mass market in China. Thank you.

Thank you. At this time, I would now like to turn back to Jason Chen for closing remarks.

Thank you, everyone, for taking your time with us today, and we look forward to see you in the upcoming quarter. Thank you. Bye-bye.

That concludes today's conference call.

Thank you for participating. You may now disconnect. Thank you. you Thank you.

Bye. Thank you. you

Good day and thank you for standing by.

Welcome to the H-World Q4 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask questions during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I will now like to hand the conference over to your speaker today, Jason Chen, Investor Relations Director. Please go ahead.

Thank you. Good morning and good evening, everyone. Thanks for joining us today. Welcome to Edgeworth Group 2022 Fourth Quarter and Full Year Earnings Conference Call. Joining us today is our Chairman, Mr. Jiqi, our CEO, Mr. Jinghui, our CFO, Ms. He Jihong, our President, Ms. Liu Xingxing. Following their prepared remarks, management will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements made under the safe harbor provision of the United States Private Security Mitigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. Each board group does not undertake any obligations to update any forward-looking statements except as required under applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliation of those measures to comparable GAAP information can be found in our earnings release that was distributed yesterday. As a reminder, this conference call is being recorded. The webcast of this conference call, as well as supplementary slides presentation, is available at ir.edgeward.com. With that, now I will turn the call over to our chairman, Mr. Ji Qi. Mr. Ji, please.

Good morning and good evening, everyone. Thank you for joining our call today. 2022 has been a very challenging year. our business in China. With strict COVID policies in place for quite a long period of time across the country, our business has been severely impacted, as many people expected. However, we have shown strong resilience throughout this difficult time and continued to expand new hotel networks. I would like to use this opportunity to extend our sincere appreciation to our customers, franchisees, employees, and business partners for their support to go through this tough period together. No matter how difficult the business environment was, we did not stop developing our company future. Last year, we transformed our Chinese operations throughout through organizational restructuring and established firm ground in key regional markets. With our six fully equipped regional companies in China, we are now well prepared for penetration in more regional markets. With China lifting the COVID restrictions and the few focus on economic development, we are embracing a strong recovery in the hotel market. we believe we are well-positioned to capture the growth opportunity. This year, we will focus on three key areas. First, we will continue the high-quality extension of our hotel network. This will be largely driven by limited-service hotels, especially in low-tier cities and less-penetrated areas. Second, we will further develop and establish firm ground in mid-scale and upper-middle scale through multiple-brand strategy. Last but not least, we will continue to strengthen our organizational and operational capabilities to achieve high operational efficiency and provide better products and services to our customers as well as franchisees. In our international business, we are very glad to report that dare to achieve the improvement in many operational areas over the last year. Four-year adjusted EBITDA before impairment turned positive for the first time since our acquisition. In addition, we have achieved significant breakthrough in loyalty program, direct sales, channel development, and digitalization of operational process. In 2023, we will focus on future margin improvement, digitalization, growth of direct sales, and expansion of hotel network. This war is full of uncertainties as we cope with the consequences of international monetary policies and continued regional conflicts. We will further strengthen our core competence in operations and various platforms to build up our overall resilience. We are confident that with our continued innovation in business model and projects, we can ride through different challenges and generate sustainable quality growth for our investors as well as the entire ecosystem. With this, I would like to thank

In 2020, although it was full of difficulties and challenges, Huazhou, as an industry leading company, still won and achieved some progress in business. Let's take a look at some of the major achievements of Huazhou China. Please turn to page 3. First, we insisted on the unwavering strategy of economic growth. In 2022, we opened 1,244 hotels, and continue to clean unqualified stores and upgrade hardware products of various brands to ensure continuous improvement of user experience. Second, we completed the organizational upgrade and established six regional business companies. In the future, the market will fully penetrate and high-quality operations will set a solid organizational basis. Third, we carried out a good cost control. In 2022, we achieved a discount of about 300 million yuan, Although the year of 2022 was full of challenges and difficulties, Edgeworth Group, as one of the leading companies in the industry, still coped the difficulties and made several business progresses during the year.

Let's firstly discuss our main achievements for Lexique Huatou for the year. Please turn to page three. First of all, we kept our sustainable quality growth strategy unchanged. During the year, we opened 1,234 hotels. Also, we continued to remove inferior hotels from our network and upgrade hotel products across all brands to improve customers' experiences. Secondly, we completed our organizational restructuring and established six regional offices to build up a solid foundation for further market penetration and high-quality operations in the future. Thirdly, we have conducted good cost control and achieved a rental reduction of around RMB $300 million in 2022, as well as a 15% headcount reduction in our headquarters during the year. Lastly, we waived around RMB 300 million management fee for our franchisees during the tough period last year, as we always treat our franchisees as our important business partners.

We are very happy to see that Huazhou China's RERPA continues to perform well after the opening policy. Please turn to the fourth page. Since the opening in November last year, Huazhou China's RERPA has shown an increasing trend compared to the recovery in 2019. In October of 2022 to January of 2023, the recovery rate was from 74%, 78%, 87%, 91% to 96%. In February of 2023, the recovery rate further increased to 104% in 2019. Of course, the recovery data in February was significantly affected by the wrong timing of the Spring Festival, but at the same time, it also reflected the increase in the ratio of Chinese hotels in high-end hotels and the continued optimization of the price-earning ability.

We are very glad to see our REFPAR in China continue to perform well after re-opening. Please turn to page 4. Since the official announcement of re-opening in late November last year, our China REFPAR recovery was uptrending month over month. REFPAR recovered to 74%, 87%, 91% and 96% in last year October, November, December and January this year respectively. In February 2023, RevPAR further recovered to 140% of 2019 level. The recovery rate in February was mainly impacted by the timing mismatch of Chinese New Year holiday period between 2023 and 2019. However, it also shows the impacts from product mix changes over past years as contribution from Mid-Scale and Upper Mid-Scale increased. as well as our improving capabilities on ADR optimizations.

This turn to page 5. Looking ahead in 2023, sustainable quality growth would still be our core strategy for Lexi Huazhou business.

Under this strategy, we will focus on three key areas. Firstly, high-quality hotel network expansion through our membranes and flagship hotel strategy to achieve further in-depth penetration in China market. Secondly, to achieve new breakthrough development of mid-scale and upper mid-scale segment, especially for those brands that we incubated in the past few years, such as Orange, Crystal Orange, Intercity, and Blossom House. Thirdly, we will further strengthen our organizational and digitalized operation capability. We will discuss each of these three focuses in details in the following.

First of all, we will continue to expand the hotel network based on high-tech door-to-door, especially in low-line cities and relatively poor markets. Please turn to the sixth page. As of 2022, the number of hotels in China is 8,411, and 7,055 in competition. Compared to 2021, the number of hotel resorts in low-end cities has increased by 1% to 38% in comparison to 2021. The number of pipeline hotels is 2,544, and the number of low-end cities has also increased by 1% to 57% in comparison to 2021. The number of cities covered by pipeline and pipeline hotels has also increased from 1,062 in 2021

First of all, we will continue the high-quality expansion of our hotel networks, especially in lower tier cities and less penetrated areas. Please turn to page 6. At the end of 2022, we have total 8,411 hotels in operations in China, with net addition of 705 hotels during the year. Hotels in operation in lower tier cities contributed 38% as of 2022, increased by one percentage point compared to last year. We have 2,544 hotels in pipeline, with lower tier cities contributed roughly 57%, which was also increased by one percentage point compared to the last year. The number of cities coverage for both hotels in operations and pipeline increased to 1,126 cities compared to 1,062 cities last year. Despite the repeated impact of the epidemic last year, our high-quality hotel expansion is still ongoing.

Please turn to page 7. From the number of new contracts, due to the epidemic in 2022, the number of new contracts There are 2,141 new contracts this year, which is significantly lower than 2,849 in 2021. However, we also need to note that we have withdrawn from the economic soft brand market in 2022. Therefore, if we remove the economic soft brand data, there will be 2,123 new contracts in 2022, and 2,477 in 2021. The decline is relatively limited. From the data of the new hotel business, it is the same as the new contract. If we exclude the impact of the economic soft brand, there are 1,236 new businesses throughout the year. Compared with 1,293 in 2021, there is also a slight decline. From the data of the power supply, there are 539 power supplies throughout the year in 2022. Under the strategy of economic growth, we have continued to close low-quality economic soft brands and Hanting 1.0 products. If we remove this part of the impact, the power supply in 2022 will be 237 units, slightly higher than the 175 units in 2021. At the same time, please note that we gave more than 600 power supplies last year, but due to the impact of the epidemic factors, some stores have not completed the blood flow process, so this part

Our hotel network expansion with high quality continued despite COVID impacts last year. Please turn to page 7. In terms of new hotel signings, we signed up 2,141 new hotels in the last year. Obviously, that was lower than 2,849 hotels we signed in year of 2021. That was because the COVID impact and the lower franchisees' confidence level. However, given that we are no longer doing the economic soft brand things last year, therefore, if we exclude the impact of the economic soft brand hotels, we actually signed up 2,123 new hotels in 2022 compared to 2,477 hotels in the last year. The gap was narrowed. Similar to the new hotel signings, for the new openings, if we exclude the economic soft brand hotel, we actually opened 1,236 new hotels in year of 2022, slightly lower than 1,293 hotels in 2021. On the hotel closure front, we totally closed around 539 hotels in 2022, In order to comply with our sustainable quality growth strategy, we continued to close more inferior economic soft brand hotels and hunting 1.0 version products. If we exclude this impact, our closure for the year of 2020 was 237 hotels compared to 175 hotels in year of 2021. At the same times, please note that Our number of hotel closures was lower than our 600 closures we previously guided in last year. As some hotel closure process were uncompleted in December last year due to the impact of initial reopening from COVID. Therefore, those hotels may affected our total number of hotel closures for this year. 正是由于我们持续不断提升集团整体的酒店质量,

along with our efforts from continuously improving our hotel quality, the proportion of low quality hotel

were declining consistently. Please turn to page 8. For example, number of economic soft brand and hunting 1.0 version hotels only contributed 13.4% by the end of 2022, significantly declined from 25.9% at the end of 2020. At the same time, our main brand, JuZhen, is also continuing to rise. Please turn to page 9. 在经济型和中档领域,我们分别形成了以汉婷权技为核心,你好举止为后补的主力品牌梯队,未来我们的主力品牌将会持续提升。 At the same time, we continuously strengthen the metrics of our membrane. Please turn to page 9. In the economic and the mid-scale segments, we formed Hanting and G Brand as our key core brands, and Nihao and Orange are complementary brands. we will further enhance our core brands power in the future.

Please turn to page 10. In terms of the development of Chinese high-end brands, we are still challenging the market with various brands. Through the arrangement and adjustment of new brands, there are already 8 brands such as Orange Crystal, Chengji, Meilun Meihuan, Manxing, Huange, Meilun, Meiju, and Novetel. Since the end of 2022, Chinese high-end brands have integrated in China 523 Zainin Hotel and 287 Guandao Hotel.

Please turn to page 10. In terms of our upper-mid-scale segment development, we remain using our multi-brand strategy to further penetrate the market. Through adjusting and resorting our brand metrics, we now have eight brands in this segment, which include Crystal Orange, Intercity, Max, Manxin, Citigo, Madison, Mercure, and Novotel. At the end of 2022, we have a total of 523 hotels in operation and 287 hotels in pipeline for this segment.

Huazhou is also committed to continuing to upgrade its organization and management system, in terms of talent storage, digitalization, customer service, marketing and membership, supply chain, sustainable development, and other aspects. Increase organizational operation efficiency, create value for customers and customers, please turn to page 10. In terms of customer service improvement, from the data of the customer screen, it shows a gradual improvement. It can be seen that the customer is continuously improving the satisfaction of our sub-hotels. From the customer rating, it shows a gradual decline. It can also be seen that we are continuously improving the customer experience in the hotel.

Edgeward is also committed to continuously upgrading and strengthening our organizational and operational system, comprehensively improving on the front of talent reserve, digitalization, franchisees and customer services, sales and loyalty programs, supply chain management, and sustainable development, further improving organizational operational efficiency and creating more value to our franchisees and customers. Please turn to page 11. In terms of our customer service improvement, we are seeing our customers' rating on our hotels continuously improving. It demonstrated that our customers are getting more satisfied with our hotel products and services. At the same time, customers' negative rating rate is consistently declining. Indicating our continuously efforts on improving customers' experiences through providing better services and products.

Let's turn to the 12th question. We will strengthen the ability of the marketing and member system through three aspects. First, it is the optimization of price and revenue. After completing the organizational transformation of the three companies in the area, the hotels in each area can better localize and manage the more sensitive price system. Brands from different parties can also form a price ladder and create a value system between multiple brands. The second is the upgrade of Huazhou. With the strong membership and traffic of Huazhou, we can further dig deeper and continue to improve and upgrade membership rights in various aspects. Finally, it is to improve the business capability of Huazhou merchants and continue to develop new top corporate customers. Please turn to page 12. We will focus on three areas to reinforce our sales and marketing and royalty programs. The first one is on the ADR optimization.

After completing our organizational restructuring and establishing six regional offices, hotels which located in each region can set up a more flexible pricing system based on the local market conditions. Also, the pricing synergy can be achieved among various brands in each region, and the pricing range for different segments can become more reasonable. The second one is continuously enhancement and upgrade of Edgeworth loyalty program. By leveraging on the large number of members and traffic, we will further dig the potentials through consistent upgrading and improving our loyalty program, such as the membership's privileges. Lastly, we will further improve our sales capabilities on corporate clients. We will continuously develop new top tier corporate customers and generating more revenue contributed from our corporate clients through group bookings, conference, banquet, and MICE activities by leveraging our digitalized direct connection capability and closer cooperation with them.

The operational efficiency improvement for our leased and owned hotels is also very important for the group. Please turn to page 13.

Firstly, we will constantly optimize the current leased and owned hotel portfolios. Those leased and owned hotels which are not meeting our requirements will probably be early terminated. Secondly, we will further improve the operational efficiency of the hotel to reduce the operating cost and improve the profitability for leased and owned hotels. Lastly, any new leased and owned hotels investment in the future will be mainly determined by the return and strategic considerations, such as the flagship hotels.

Please turn to page 14. We will further strengthen the construction of supply chain capabilities. We will provide all chain supply chain services for deep operation on the domestic market, and continue to improve product delivery, achieve lower cost and higher efficiency, provide better products and more standardized services.

Please turn to page 14. We will further strengthen our supply chain capability. We will provide full supply chain services and conduct in-depth operations to franchisees, as well as continuously upgrading products to achieve better quality products and more standardized services with lower cost and higher efficiency.

最后,公司也将更重视ESG和可持续发展。 请大家翻到第15页。 In addition to the continuous efforts of Huazhou in social justice, employee care, and other aspects, ESG efforts will be carried out in three areas this year. The first is to continue to complete and optimize the database of ESG companies. The second is to improve the efficiency of energy and water resources. The third is to include more green projects, including green suppliers, green housing, and other projects.

Last but not least, We will pay more attention on ESG and long-term sustainable development. Please turn to page 15. In addition to the continuous efforts on social welfare and employee care in the past, we will make more efforts on ESG this year with three key focuses. The first one is to continuously improve and optimize the company's ESG database. The second one is to improve the efficiency of energy and water usage. The third one is to launch more green projects, including green suppliers and green livings and so on.

All above are our business reviews for last year and key strategic focuses for this year.

With that, now I will turn the call over to our CFO, Ms. He Jihong, to discuss our DH business and our 2022 full-year financial performance. Thank you.

Hello, everyone. Thank you, Jinghui, and thank you, Jason. Please turn to page 16. In our international front, we are very happy to report that DH business achieved robust recovery in 2022 and achieved RMB 134 million adjusted EBITDA before special write-off impairment and unrealized loss. While we are very lucky to be able to capture the market recovery after COVID, this result would not have been possible without disciplined cost reduction measures and corporate restructuring effort. In addition, we carried out a series of activities to bring the DH business to a new level. We rolled out our proprietary digital infrastructure in our hotels. We upgraded our loyalty program, H Rewards, internationally with enhanced benefits. We refreshed the brand positioning and the products for intercity and sleep hotels. And then last but not least, we implemented a new management system to attract the talent for our hotels and our headquarters. Please turn to page 17. In 2023, DH will focus on four strategic areas. Most importantly, we will continue our effort to improve margin. This includes both further improvement of our revenue as well as continued cost discipline. Number two, we will continue to invest in direct sales channels. With our H-reward program, our reservation system, as well as the mobile web booking platforms, we will continue to increase the ratio of direct bookings. Number three, we will continue to grow our hotel network by leveraging our strong brand And number four, we will continue to carry out digitization of our core processes. Now I will turn to the financial section of today's call. Please turn to page 19. We all know 2022 was a very difficult year in China due to strict COVID policy. Despite the tough operating environment, we managed to grow our hotel network. The number of rooms increased 7% year on year to 809,478 rooms in 2022. Our hotel turnover was 49.6 billion RMB, a 9% increase compared to 2021. Page 20. Due to restrictions of COVID policies, blended REFPA for our China business in 2022 was 157 RMB. This is a decrease of 8.8% compared to 2021 and a 20.5% decrease compared to 2019. This was mostly due to lower occupancy, which was 5.5% lower than 2021 and 17.7% lower compared to 2019. Page 21. In our international business, the market recovery started in Q2 2022. We achieved 96% RESPA increase compared to 2021, which was driven by 23% of ADR increase and a 21% occupancy increase. Please turn to page 22. In Q4 2022, our total revenue for the group increased by 11% compared to Q3 22. which is mainly due to 66% revenue improvement in our international business. For the whole year 2022, our revenue increased by 8.4% year on year, which has contributed by 108.5% revenue increase from DH. For the whole year 2022, revenue from our China business decreased by 5.3%. However, the recovery of our China business accelerated after Chinese government announced the reopening policy in mid-November. The overall 4Q 2022 revenue was at the high end of our guidance. Despite fee waiver of RMB 58 million, to support our franchisees. Please turn to page 23. Operating costs in 4Q 2022 was 3.4 billion RMB and 12 billion for the full year 22. This includes RMB 195 million impairment loss of our China business and RMB 169 million for DH business. Income from operations, therefore, was minus 93 million renminbi in 4Q22 and minus 294 million for the full year 22. Please turn to page 24. Our adjusted EBITDA was renminbi 398 million in 4Q22 and 610 million for the full year 2022. Our China business reported a foreign exchange gain in 4Q22, but this was offset by impairment loss. For DH business, adjusted EBITDA in 4Q22 decreased by 68 million RMB compared to 2021 because of the absence of COVID-related government subsidies, which was received in 2022. For the whole group, adjusted net income was minus 255 million RMB for 4Q 2022 and minus 1.27 billion RMB for the full year 2022. Please turn to page 25. As we had a quite substantial amount of non-cash impairment, unrealized loss due to change in fair value of equity securities, as well as unrealized foreign exchange losses, we would like to show the normalized EBITDA and the net income here separately. As you can see, the adjusted EBITDA before impairment and the forex exchange was $1.7 billion for the full year 2022. We achieved this level of normalized adjusted EBITDA due to disciplined cost control measures, such as rental reduction and the streamlining of our headquarter costs. Please turn to page 26. We would like to update everyone on the liquidity position as well. As of December 31, 2022, our net debt was RMB 4.8 billion, and our cash balance is RMB 5.1 billion. We have unutilized the bank facility of RMB 2.1 billion. We would like to mention here that our cash position was further improved as of today, since we did a very successful follow-on public offering of US$300 million in January 2023, and we liquidated our core shares at EUR 300 million in February 2023. Please turn to page 27. As each year, We give a broad guidance for our business in the coming year. Since China is just starting the recovery trajectory and we need to further observe the business trend, we remain optimistic but stay cautious. We estimate our net revenue in Q1 2023 to grow at about 61 to 65% compared to Q1 2022. Excluding DH business, our China business is estimated to grow at 53 to 57%. For the year, revenue is estimated to grow at 42 to 46%, and the China business is estimated to grow at 46 to 50%. Gross hotel opening target is estimated at 1,400. And we plan to close about 600 to 650 hotels. Among the hotels to be closed in 2023, there are substantial numbers of them already not revenue generating, but are still going through legal closure procedures due to delay because of the COVID Many of these hotels are soft brand hotels and hunting 1.0. We will have some of these hotels to be officially taken out of our inventory this year. This concludes our presentation today. Now we can start with Q&A session.

Thank you. At this time, we will conduct the question and answer session. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

First question comes from the line of Ronald Loong of Bank of America.

Please proceed with your question.

Hello, everyone. Thank you for giving me the opportunity to ask a question. I have two questions. First, I will ask in Chinese, and then I will translate them into English. My first question is about the rising income. In the first quarter, the Chinese region's income rose from 53% to 57%. Last year, the Chinese region rose from 46% to 50%. In fact, what is the management team's response to the recovery of RAFPA to calculate the value of revenue? This is the first question. The second question is to understand the direction of China's development in the world. In fact, in this year and next year, what will be the global layout and next steps? Hi, good morning, management. I have two questions. The first question is about the revenue guidance. So based on the first quarter revenue guidance for domestic China growing 53% to 57% and the full year revenue growing 46% to 50%, What would be the rough path recovery assumptions that the management is putting in right now? The second question is about the global expansion strategy. So what would be the next step for the global expansion strategy in this year and next year? Would management still consider further mergers or acquisitions to complement the brand portfolios? Thank you very much.

Okay, I will answer these two questions first, then Ji Hong can make some additions. First of all, regarding the direction of income, based on the RERPA, we are in this year's relatively strong domestic demand promotion, we have paid attention to China's entire ADR improvement, which is relatively obvious. But we also noticed some shortcomings in the operating rate of some mainstream business customers. Currently, there are still shortcomings. So we based on a quarter of China's entire Okay, to answer your first questions, so basically we are seeing the demand is getting

quite strong in the beginning of this year. And we are seeing the rest of our recovery was mainly driven by the ADR. However, we are still seeing the business traveling. I mean, especially the business traveling still has some gap compared to the normal year. That's why the OCC was having some gap as well. So by considering all the factors in terms of the revenue guidance, so by considering all the factors which we mentioned before, so the revenue guidance actually implies the REFPA recovery compared to the same period of 2019 was around 110%. 第二个问题我想试图跟大家做一些目前业务中国的一些介绍。

On the one hand, due to the pressure of consumption in the past three years, after the entire epidemic has recovered, including the Spring Festival, China has shown very good internal demand growth. In the previous example, we have reflected the recovery of the entire Spring Festival to the Chinese consumer market. Of course, China, due to the development and firm strategy of economic growth after the two meetings, So first of all, we have a very strong confidence in the growth of China's internal circulation. So there is no doubt that China is the first strategy for China. The continuous high-end development in the Chinese market and the breakthrough of the medium and high-end markets are undoubtedly the core focus of China's work in 2023. Of course, we do not rule out the possibility of seeking some development internationally, especially in the field of German business. I will give you a little bit introduction in terms of our strategy focus for the 2023.

So basically, as you can see, after the reopening in the first quarter, we are seeing a quite strong demand in the China market, especially during the Chinese New Year. So we are still being very confident in terms of the demand in China and the growth potentials in the future. So definitely, so our key focus will be in China market. We are going to further penetrate into the China market by leveraging our key brands. and also further strengthening our mid-scale and upper mid-scale segment penetration as well. In terms of the global expansion, first, the priority is definitely to further improve the DH operations by improving the profitability as well as the customer's experiences. At the same time, we will be looking for some of the opportunity and the potentials in the global market if there is something suitable.

I can add a little bit of flavor to our international business. Since the acquisition of DH, this business, DH business has been our base for our international expansion. After the COVID difficult time, and we have seen really good turnaround of the business. So starting in 2023, we will continue to use DH as a base for our international expansion. So the basic, what Ms. Jinghui mentioned, was really to improve the operations of DH, but also further expand the DH brand in different markets. For example, we have good inroad into Middle East as well. For the international expansion in other areas, we remain opportunistic. for the further M&A opportunities. But I will say, DH is our first and the most priority at this moment.

Thank you, management.

One moment for our next question.

Our next question comes from the line of Simon Chung of Goldman Sachs. Please proceed with your question.

Thank you for sharing, Manager Chen. I have two questions. Just now, Ronald asked, what is the assumption of your revenue in 2023 for the REFPA? I can ask you again. What is your outlook for 2023? Especially the revenue of the REFPA. And then if you look at it a little bit longer, in 2025, we often ask investors a question, that is, how fast can the long-term growth of Repa be? Because there are many hotels in China, the problem of oversupply. I would like to know how the management team thinks about this. This is the first question. The second question is, I saw the number of your customers this year, from 1,200 to 1,400 this year. I would like to know how many investors you have seen in the past two months. I remember you said that you have a branch in the South China region. I would like to know what you are doing in the South China region. So I will ask a follow-up with Ingrid in the questions. I think Ronald earlier asked also about the 2023 revenue guidance and the implied REFPA for the full year. I would like to see whether you can provide us the REFPA guidance for the full year and also that going forward in the longer run, What is your expectation of red cloud growth in the next perhaps two, three years, given all these investor concerns about the oversupply situation in China? That's the first question. And then the second question, notice that you have default accelerations, a guidance of accelerations in the hotel ads from 1.2 thousand to 1.4 thousand. I'm wondering whether you have seen a bit more appetite by the hotel investors to come back into the market, and also whether you have any updates on the Southern China regional office strategy. Thank you.

Regarding the growth of RERPA and revenue, I think it mainly comes from two aspects. One aspect is the growth of our business, which is actually related to the second question you mentioned. The second is the growth of the entire RELPAD business. As I mentioned before, due to the growth of the entire internal demand, we have seen a significant increase in the trend of ADR growth, which is relatively obvious. Especially after the whole policy epidemic was lifted, such a payment capability in the leisure, tourism, and holiday market has been significantly restored and improved. So in 2023, we gave ZIN a range of about 110% to 115% in 2019. This is the first question I want to talk about. Regarding the second one, it actually involves the growth of the entire business. Indeed, as you said, in the first quarter, due to the improvement of the entire business recovery, we saw such a recovery of the entire investment. We are in the first quarter, especially after the Spring Festival, the growth of business in China, the number of contracts, the number of channels, have all achieved a very good performance. A very good performance. It should be slightly higher than our original budget. And then, in the entire Chinese bool market, not only in the south, Huazhou was originally in Huazhong, in the entire Huaxi, were originally relatively relatively bool areas. We should say that we have passed through the past year's The whole company's organization's downfall, the development of the potential, and the potential of the ability have been well supplemented and developed. We will soon see such penetration and development around our brand flagship, the main brand, in these global markets. We will continue to maintain such an optimistic attitude.

To answer your first question, as I mentioned earlier, basically we're seeing a quite strong domestic demand starting from the beginning of the year post the government announced the reopening policy. The REFPA recovery was mainly driven by the ADR growth and especially from the leisure market. We are seeing a pretty good recovery from the leisure market. In terms of the blended REFPA recovery compared to the same period of 2019, the current full-year revenue guidance implies the blended REFPA will recover to 110% to 115% compared to the same period of 2019. To answer your second question in terms of the business growth, so yes, I think in the first quarter we are seeing a good business recovery and we are seeing the franchisees' confidence is coming back a bit and we are also seeing the investment appetite is improving as well, especially post the Chinese New Year. So from the number front, we are seeing good trends in terms of the new signings and pipeline increase. which is slightly better than our previous expectations. And in terms of the less penetrated market development, not only the southern part of China, like, for example, the central area and the western area were also previously quite weak places for H-word. So after we completed our organizational restructuring and regional offices establishment, we are seeing a pretty good progress as development in those particular regions. And we are still remain very confident in terms of the growth potentials over there, mainly leveraging our flagship stores strategy as well as our main brand development.

One moment for our next question.

Our next question comes from the line of C.G. Lin of CICC. Please proceed with your question.

Thank you, Manager Tang. I have a question about Ni Hao that we just mentioned. Will his position in the economy be similar to that of Juzi in the central bank? And Ni Hao, in the future, how big of a difference will there be in the deflation plan, including in terms of the demand for defense, and how big of a difference will there be in terms of REVPAT and Han Ting? So I have just one question about Nihao Hotel. Considering its positioning in economy hotels, is it quite similar with Orange Hotel's positioning in mid-scale hotels? And what is Nihao Hotel's opening target in the future? And also, what's the difference in the room numbers and reptile compared with hunting? Thank you.

Okay, I'll answer this question. In the process of further deepening China and the lower market, we found that there were a large number of lower-level customers in the area of the original Han Ting market. We call it a small town youth, young customers, local leisure, travel, vacation, and these original customers outside of Han Ting. As you all know, Han Ting has a scale of more than 3,000 stores in China. It has a very strong business and familiarity.

So to answer your questions, so actually along with our strategy with the lower tier cities penetrations and further penetrating to the entire China market, we realized that actually especially in the lower tier cities, we are seeing quite a lot of new demands. like a lot of young generations, a lot of local leisure traveling demand. And those customers are actually probably not the hunting brand's key customers or target customers. So as you know, hunting was positioned as a very unique business traveling product. And to fulfill those kind of new demand in the lower tier cities, we incubated our Ni Hao brand starting from 2020. And what we are targeting is to further penetrate the very mass market in China, and especially in the economic segment. We would like to use Hanqing and Nihao as our two key brands to further penetrate the market and provide more choices to the customers for the entire mass market in China. Thank you.

Thank you. At this time, I would now like to turn back to Jason Chen for closing remarks.

Thank you, everyone, for taking your time with us today, and we look forward to see you in the upcoming quarter. Thank you. Bye-bye.

That concludes today's conference call. Thank you for participating. You may now