H World Group Limited

Good day and thank you for standing by. Welcome to HVO quarter two 2023 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 a question during the session, you need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the call over to your host today, Mr. Jason Chen. Please go ahead.

Thank you. Good morning and good evening, everyone. Thanks for joining us today. Welcome to Edgeworth Group 2023 Second Quarter Earnings Conference Call. Joining us today is our Chairman, Mr. Ji Qi, our CEO, Mr. Jin Hui, our CFO, Ms. He Ji Hong, and our President, Ms. Liu Xingxin. Following their prepared remarks, Management will be available to answer your questions. Before we continue, please note that 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. Edgeworth Group does not undertake any obligations to update any forward-looking statements except as required by applicable laws. On the court today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliations 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 slide presentation, is available at ir.edgeward.com. With that, now I will hand over the call to our CFO, Ms. He Jihong, for opening speech. Ms. He, please.

Thank you, Jason. Good morning and good evening, ladies and gentlemen. Welcome to H-World Group's second quarter 2023 earning call. We are very happy to report that with a strong recovery of domestic China travel activities and continuous global travel improvement, our overall financial performance in this quarter and the first half year 2023 exceeded the guidance we announced earlier this year. In today's presentation, Group CEO, Mr. Jin Hui, will first highlight our business performance and the key initiatives you undertook to further improve our operations. I will then discuss the financial performance in more detail. Now I will hand over to Mr. Jin Hui.

Thank you, Ji Hong. As usual, we will first review the situation of the recent recovery of China and Europe. Please turn to page 3. Due to the continued strong travel demand, China and Europe have maintained a good recovery status since the opening of China last year. Europe has recovered to 121 in the same period in 2019. According to the monthly reading, China and Europe have recovered to 121 in the same period 127%, 115%, and 123%. With the opening of the epidemic in the beginning of the year, the economy is gradually recovering, and local governments are continuously stimulating and organizing cultural activities. We see that the overall travel demand is very strong. At the same time, we also found that the consumer's desire to travel has also continued to improve with the change in consumption habits after the opening of the epidemic. Therefore, we can see that in some special periods, such as major exhibitions and holidays, there is a relatively concentrated demand for travel. In July, we see that Rafa has further recovered to 132% in the same period of 19 years. Although the overall recovery is better than expected at the beginning of the year, we have not changed our relatively cautious and optimistic attitude towards the future. We need to clearly understand that China has not been satisfied with the opening of the epidemic fund for a year. The overall macroeconomic situation is in the process of gradual recovery. There have been some fluctuations and changes during this period, which have brought uncertainty to the development of the industry in the future. But Huazhou's long-term development of the Chinese economy is still full of confidence. Therefore, Huazhou needs to continue its core efforts, Thank you, Ji Hong. As usual, let's quickly review our RevPo recovery in Q2 2023. Please turn to page 3. Let's look at the reasons.

Thanks to robust travel demands in 2023 Q2, Hworld maintained sound business rebound since the economic reopening of last year and the REVPAR for Q2 recorded 121% of that of Q2 2019. In April, May, June, respectively, H-World's blended REVPAR has reached to 127% of April, 115% of May, and 123% of June in 2019. With the reopening of the Chinese economy, rebound of our economy, coupled with the stimulus policies and travel activities resumption from everywhere, we have seen very strong rebound of the overall travel activities and willingness. We have also found that the consumers' travel willingness increased after the reopening. Therefore, in Q2, we have seen explosive and concentrated travels around major exhibitions and holidays. Entering the peak season in the beginning of this year, We have seen the REVPAR resumed to 132% of Q2 of 2019. It is a recovery much better than our forecast in the beginning of this year, yet still we have to be consciously optimistic about the outlook. We must realize that it has been less than one year of opening. The macroeconomy is still in gradual recovery during which period we will see turbulences and changes. This means uncertainties for our hospitality industry. However, each world is still confident in the prospect of the Chinese economy in the longer term, and that's exactly why we are and will continue to enhance our core competitiveness and seek for certainties out of the uncertainties in order to sustain our business development. Thank you.

Please turn to the fourth page. We would like to emphasize once again China's long-term sustainable thermal growth power source. First, through continuous product upgrades and service improvements to obtain higher customer value. Second, the continuous improvement of the perfect transportation infrastructure accompanied by the National Tourism Council. China's low-end cities are extremely economically resilient. Third, through organizational structure adjustment and optimization, to establish regional branch companies to make operations more precise and efficient. page four please um i must stress here the driving forces of our sustainable rev power firstly

higher premium through conscious product and services upgrade. Secondly, uncovering opportunities in lower tier cities with high resilience as the travel infrastructure and travel willingness both improve. Thirdly, operate our business more intensively and effectively by setting up the regional offices and headquarters, increasing the regional penetration and organizational restructuring. Fourthly, improve our market share in the upper mid-scale market, and further optimize our product mix.

We'll be right back. The speed of the second quarter's opening has gradually increased. The second quarter's new stores have 374 stores, which has increased by 41%. In terms of power supply, the second quarter has 216 hotels closed. Due to the outbreak last year, some of the hotel's closing procedures have been extended to this year, and we continue to clean up low-quality economic soft brand and HanTian 1.0 products to improve hotel

We will further execute the lean development strategy set upon by the management. Page 5, please. The H-World Group will continue to expand our hotel's network based on the quality development strategy. In Q2 this year, we have a total of 1,054 new signings That is a 88% increase year on year, making it a historic high. Naturally, this is a high growth contributed by the low baseline in Q2 last year, as well as the backlog signings from the COVID period. Undeniably, we see the confidence of the franchises boosted by the strong rebound in the hospitality sector after the reopening. In terms of the number of hotel opening, it increased much faster than Q1 with a total of 374 hotels openings, up by 41% year on year. In terms of the store closure, there are 216 hotels closed, mostly the deferred and backlog COVID related closure from last year. The closure aims to streamline the economic soft brands of lower quality and Hanting 1.0 and further optimize our network quality. There are a total of 130 Hanting 1.0 and economic soft branded hotels closure.

Page 6, please.

As we continue to streamline the lower quality hotels to enhance our overall performance and quality, the percentage of Hanting 1.0 and Economic Soft Brands account now for less than 10% out of our overall hotels, down from the 26% at the end of 2020. Meanwhile, the percentage of the Hanting 2.7 and above accounts for 26% at the end of June this year,

up from the 14% at the end of 2020.

The percentage of medium-sized hotels increased by 3%. The number of company-run hotels increased by 2,808. Of these, 38% are economic national hotels, and 48% are medium-sized hotels. The percentage of medium-sized hotels increased by 5%. Of the new hotels in the second quarter of this year, 90% are economic national hotels and medium-sized hotels. We can see that while Huazhou is constantly increasing the quality of medium-sized hotels, So the H-World Group will continue to focus on the economy and the mid-scale hotels to serve the mass market. Page 7, please. At the end of June, we have a total of 8,622 hotels in operation, among which 56% economy hotels

36% mid-scale hotels, and the percentage of mid-scale increased by 3% year on year. There are a total of 2,808 hotels in pipeline, among which 38 are economy, 48% are mid-scale, and the percentage of mid-scale up by 5% year on year. Of all the hotel openings in Q2 this year, among which 90% are economy and mid-scale hotels. This is a proof that as we optimize our overall hotels quality, we continue to focus on economy and mid-scale segment to serve the mass market consumers.

The age world continued to increase

Our penetration in the lower tier cities and weaker regions, page 8 please, out of the hotels in operation, 39% is located in the lower tier cities, up by 2% year on year. Out of the hotels in pipeline, 55% is located in lower tier cities. And our city coverage now increased to 1,196.

Please turn to page 9. The development of Chinese high-end hotels in Huazhou continues to advance steadily. By the end of June this year, the number of Chinese high-end hotels in the company's revenue reached 562, which increased by 18%. The number of Chinese high-end hotels in the pipeline is 317, which increased by 29%. The rapid growth of the number of hotels in the pipeline will help Huazhou's future Chinese high-end hotels

page nine please we continue to grow our upper mid-scale hotels segment by the end of june this year we have a total of 562 upper mid-scale hotels in operation up by 18 year on year we have a total of 317 upper mid-scale hotels in the pipeline up by 29% year-on-year. The fast growth of mid-scale hotels in our pipeline will support our future opening and market development in this segment.

We have added more holiday elements to the app. We have launched a holiday channel, tour content, channel 2.0 and other modules to provide more rich holiday leisure scenes and member-specific areas for members. Huazhouhui is no longer just a hotel reservation platform for business trips. It has achieved a transformation from a single business scene reservation to a multi-purpose business scene service.

Please turn to page 10.

We value membership development. We have upgraded our Hworld brand image and market position. In terms of the Hworld Members app, we have added more vocation-related elements. We have increased our member offerings such as vocation channel, content channel 2.0, and member exclusive services. We hope that the Hworld Group membership is more than just a hotel reservation platform. without transitioning it from a single business scenario only reservation platform to a diverse business and travel activities scenario service platform. That's all for Q2 earnings overview. Now I will hand over to our CFO, Madam He Jihong, to walk you through our operational and financial results. Thank you.

Thank you, Jinghui. I will now highlight the key financial metrics in this quarter. Please turn to page 12. Our hotel network continues to expand in this quarter. Our number of rooms in operations increased 9% to 844,417. According to the research published by Hotels Magazine, we rank number six worldwide in terms of rooms in operation. Our hotel turnover increased 72% compared to the second quarter of 2022, totalling to more than RMB 20 billion. Please turn to page Legacy Huazhou blended REF PAR in the second quarter stands at Renminbi 250, improved 21.4% compared to the same period in 2019 and 77% over 2022. This recovery is largely driven by ADR improvement. The average ADR of Renminbi 305 is 28.9% over second quarter 2019 and a 39.8% over 2022. Occupancy of 82% in second quarter is slightly lower than second quarter 2019 of 87%, but it is a 17.2% percentage point improvement over 2022. Please turn to page 14. REVPAR of our international business, Deutsche Hospitality, also improved by 18.5% over the same period in 2022. Blended REVPAR stands at a Euro 78 this quarter. This is driven both by ADR improvement, which is a 5.6% over 2022, as well as occupancy improvement. which is 7.3% percentage point over 2022. Please turn to page 15. Our total group revenue in this quarter was RMB 5.53 billion, including RMB 4.35 billion from Legacy Huazhou and RMB 1.18 billion from DH. This is an improvement of 64% compared to 2022, higher than our guidance set up earlier this year. Our China business delivered a 76.6% revenue improvement. This strong performance is due to, first, strong recovery of travel demand, especially domestic Chinese market. Secondly, continued product upgrade and product mix change. And thirdly, market penetration and synergies achieved through our regional offices. In first half year 2023, we opened 638 hotels group wide. We expected the hotel opening to accelerate in the second half of this year due to a faster pickup of construction activities and supply chain recovery. We stay with our guidance of 1,400 hotel opening this year. European market further recovered this year as well, and our DH business delivered 28.4% revenue improvement over 2022. Please turn to page 16. Hotel operating cost was 17.2% higher than the same quarter 2022, driven by business recovery. We continue to spend serious effort to improve operational efficiencies and manage costs on the hotel level. SG&A cost was 45% higher than 2022 due to higher marketing and sales expense to drive the business. I would like to highlight that legacy Huazhou SG&A cost was 11.6% of revenue in this quarter. Operating income of Legacy Huazhou in second quarter stands at RMB 1.35 billion, which represents a 31% operating profit margin. This is a significant improvement over 2022 when China was under serious COVID control. Income from operations at DH also turned positive in this quarter, compared to the last situation both in second quarter last year and the previous quarter. Please turn to page 17. Adjusted EBITDA in second quarter stands at RMB 1.77 billion. Legacy Huazhou delivered RMB 1.66 billion adjusted EBITDA, which represents a 38% EBITDA margin. This quarter, we did not have special effect like our core shares divestment gains as in the last quarter. Adjusted net income stands at RMB 1.07 billion. Legacy Huazhou delivered RMB 1.05 billion adjusted net income, which represents 24% net income profit margin. This improved EBITDA and net income margin is a result of business recovery as well as cost management. As we continue to move towards asset-light business model and add hotels through our franchisees and partners, we expect our profit margin to continue to improve. DH business turned positive in this quarter with RMB $112 million adjusted EBITDA, and RMB 21 million adjusted net income. This is a result of conscious improvement of the sales effort and the continued cost management of our European team. Our operating cash flow at group level remains strong at RMB 2.2 billion in this quarter. Please turn to page 18. Our net cash at the second quarter 2023 is Renminbi 2 billion. Our cash balance is Renminbi 7.8 billion and we have Renminbi 2.8 billion unutilized bank facility. Please turn to page 19. We expect our group revenue in the third quarter 2023 to grow 43 to 47% over third quarter 2022. Excluding DH, Legacy Huazhou is expected to grow 49 to 53%. Based on a good recovery of travel demand and a better than expected performance compared to the estimation made at the beginning of this year, we raised our guidance for the full year 2023. We estimate the revenue in full year 2023 to grow 48 to 52% over 2022. Excluding PH, we estimate legacy Huazhou revenue in 2023 to grow 54% to 58% over 2022. This concludes our management presentation. We can now start with Q&A session.

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and wait for our name to be announced. To cancel your request, please press star 11 again. Please stand by while we compile the Q&A roster. The first question comes from the line of Ronald Leung from Bank of America. Your line is open.

First of all, congratulations, you have a very good performance in the second quarter. Actually, I have two questions. The first question is about the forecast for the rough part. So the management level has increased the annual income forecast and also provided the third quarter income forecast. 我可以問就是管理長對第三季度 還有全年現在RAFPA的這個預期是什麼 這個是第一個問題 第二個問題是想問關於這個簽約的預期 就是我們看見第一季度跟第二季度的簽約都很長 第一季度有600 第二季度有1000 往後的這個預期 這個簽約的預期還會是怎麼樣 I will ask my questions in English as well. My first question is about the rough part expectations. Management has raised the full year revenue guidance and also provide the third quarter revenue guidance. May I ask what is the implied rough part expectations in 3Q and for full year? My second question is about the expectations for hotel signings. So we have seen very strong hotel signings in both the first quarter and the second quarter. May I ask what are the management expectations for the hotel signings for the rest of the year? Thank you very much.

Hello, I'm Jin Kui. Let me answer these two questions. Indeed, RERPA has suffered a lot from the resumption of internal circulation, We have achieved a good growth. Our heat rate recovery for three seasons is approximately 123% to 128%. The heat rate recovery for the whole year is 116% to 121%.

Thank you for your question. My name is Jinghui. I will take over your question. Yes, as you said, given the overall economic development momentum, especially during the domestic circulation, consumption rebound, and the recovery of the tourism and activities, we have seen very good growth, especially in Q3. We believe that the REVPA will be growing to 130% to 128%. And all year round, the growth will reach 116% point to 121% point.

I would like to express a few points. First, due to the economic recovery and especially the recovery of the hotel industry, it brought about the recovery of the entire family business. The signing of our second quarter has indeed reached a historical record. Of course, part of it is due to the fact that I think it is a factor that has suppressed the entire development in the past three years. Of course, I hope that everyone can understand the development we have achieved today. is from the past few years of Huazhou's persistence in two areas. The first one is the deployment and development of our entire infrastructure in the lower-level market. The second one is based on the continuous investment and development of the entire business in the middle of Huazhou in the past few years. So, in the future of Huazhou's entire contract, we will still maintain a So a little bit add on your first question, we're talking about the RAPFA recovery. So I gave you a number of 130% to 128% for Q3 and all year round 160% to 121% recovery.

Now, speaking of the new signings, yes, in Q2, we are very happy to see we have achieved such great accomplishment. I have a few points to make. Firstly, because of economic recovery and the overall hospitality recovery, we have seen strengthened confidence from the franchisers. Partly, of course, that achievement this quarter is because of the backlog delayed signings from the previous period. So I hope you to understand that for each world group, we have achieved such accomplishment because of several reasons. Firstly, because in the last few years, we continue to develop the lower tier cities. And secondly, we continue to move towards the mid-scale and premium market.

好,谢谢管理层。Thank you, management.

For the questions, one moment for the next question. Next question comes from the line of Simon Cheung from Goldman Sachs. Your line is now open.

谢谢金总跟何总的分享。 我有两个问题。 第一个就是你刚才说的全联那个REFPA It's around 120. If I'm not mistaken, the first quarter was 118, the second quarter was 121, and now the third quarter is 125. Basically, it implies that the fourth quarter may be a little slower. I would like to know if you think the fourth quarter has a high-speed reason or if there are other reasons why you think it may be slower. This is the first question. I would just ask the question again in English. I've observed that the guidance having been revised up quite aggressively with I think first quarter 118%, second quarter 121%, and third quarter 125% of 2019 level. But based on your four-year guidance that would imply the deceleration into fourth quarter, are you seeing any sign of weaknesses or any reason why you are expecting there's going to be a slowdown? And then the second one is in relation to potential use of the cash or cash flows, because, you know, your company already in a 2 billion net cash positions. How are you thinking about, you know, capital reallocation and whether you would consider paying dividends like one of your competitors does? Thank you.

Thank you, Simon, for the question. I will answer your question. For your first question about the rest part, Yes, we're very happy and very grateful to see the very good recovery of Chinese domestic travel. The first quarter was really a revenge after COVID. And the second quarter, we observed very high leisure travel demand in the summer holiday. And in the third quarter, we believe because of October Golden Week, we will also have some good effect from that. And in the fourth quarter, because of the lack of the summer holidays and those prolonged golden week effect, we expect the demand to come back to normal. We are still optimistic about the full year results. That's why we still have 116 to 121% RESPA improvement over 2019 for the full year. The second question as to your cash capital allocation, yes, we are also very, very happy to see that with the business recovery, our cash position improved significantly over 2022. So we will continue to monitor the business recovery speed and also the cash accumulation. In the appropriate time, we will also decide on a dividend policy, as you mentioned.

好的,谢谢管理层,谢谢。 Thank you for the questions. One moment for the next question. Next question comes from the line of Dan Chi from Morgan Stanley. Your line is now open.

各位管理层,大家早上好。 我是大摩的分析师Dan。 正如刚才金总还有何总所说,这个暑假感觉 I also see that the travel needs are very high. I would like to ask about the recovery of travel needs for businessmen. Thank you management for the opportunity to ask my question. This is Dan from Morgan Stanley. My question is related to business travel demand and the pace of its recovery. In the last earning call, management mentioned about occupancy not yet fully recovered in terms of business travel demand. So I'm wondering if the management can share some recent colors on business travel demand recovery, such as weekday and exhibition demand in Q2 and possibly Q3. Please. Thank you.

As I mentioned before, China hasn't been satisfied with the opening of the epidemic. From the perspective of global business recovery, it also needs a longer period of time. So we can see that in this year's RERPA in Huazhou, it has benefited from the local leisure market and the good performance growth of traditional vacationing.

yes as I said in the previous statements if you look at China's economic reopening since then to now it is less than one year's time and usually if you talk about the recovery of the global business travels it takes a longer term so I I can say that the recovery of our RAPA this year is really mostly attributable to the leisure travel market and the traditional summer holidays demands. And the business and business-related travel activities are still in gradual recovery.

Thank you, Director. Thank you, Jingdong. Thank you, management, for your answers. Thank you.

Thank you for the questions. Next question comes from the line of Sujie Lin from CICC. Please go ahead.

Thank you, Director. I have two questions. The first one is that we actually see that many of the return on investment is in this large-scale environment. In fact, the passion of hotel partnerships is relatively high. Will this lead to a rapid growth of brand hotels, causing the competition to deteriorate? Then, will there be a greater division in the passion of partnerships between different brands? This is the first one. Then the second one is about the Huanan region. I want to ask again. How many of our new contracts this year are in the Huanan region? And when do we expect the penetration rate in the Huanan region to increase more significantly? So I have two questions. The first one is that we observe strong interest in becoming a hotel franchisee. And will the supply of branded hotels grow fast, which leads to intensifying competition? And do we see the interest differentiate from different brands? So my second question is about the Southern China part. Among our new findings this year, how many of them are in Southern China? And when we expect our penetration rates in Southern China to see a significant increase? Thank you.

Okay, let me answer these two questions. The first one is about hotel investment and revenue. Indeed, the hotel has been affected by the whole cycle to a certain extent. Currently, one is that the real estate has been restored well. The second is that the rent of real estate is at a low level. It is indeed a very good investment cycle. But we can see more clearly that due to the trend of the head of this round, the trend of the head of this round, the trend of the head of this round, I will take the two questions. Yes, first on the ROI in the hospitality sector. Yes, because of the macroeconomic impact, we can see that in the hospitality, the rapid recovery is now very good.

Secondly, we can see that the real estate rental expenses are now in a very low position. So right now, it makes it a very good window to invest in the hospitality sector. But I must say that for us to have such very good signing, it is because the franchisers have seen the value of the H-World brand has bring to them. which also, of course, underscores the brand premium, as well as our very strong market coverage.

The second question is about the south. Everyone is very concerned because Dawan is one of the largest areas of China's economy and future population. Huazhou pays great attention to the south. It should be said that through two years of organization optimization Thank you.

Second question, South China. I know that many of you are interested in our further penetration in South China region because this part of the region applies with very large population base and strong economic power. So yes, each world group attaches great importance to South China. And in the last two years with our organizational optimization, With our lower tier city strategy, I'm very happy to report that our penetration in South China is more than doubled than the level of 2019. So that means we are very, very confident in the development of South China market, and we will further to improve our penetration in this region. Thank you.

Thank you. I also would love to add that not only do we see very good development for our own business,

We also receive increasing recognition from the local consumers for our brand, and that has been shown by our operational results in this region. Our operational results in this region is leading.

Thank you. Thank you for the questions.

One moment for the next question. Next, from the line of Lydia Ling from Citi. Please ask your question.

管理层好,金总和总你们好,我是花旗的Lydia. 我这边有两个问题想请教一下。 那我第一个问题呢,就是想问一下,就是说首先非常感谢跟我们分享了一个全年的一个REPA的一个指引。 那么我们也想了解一下就是管理层现在目前对于明年的一个REPA走向是如何看的。 Especially due to a relatively high technology this year. Especially in terms of housing prices, we have seen a very strong performance this year. So is this part of the housing price ADI to be able to continue next year? This is the first question. The second question is to ask about the concept of opening up. Because of the second quarter, there are relatively more concepts. Because of the previous epidemic. Can you share about the current situation in July and August? What is the situation? So sex management, this is Lydia from Citi. And so I have two questions. The first one is, Thanks for sharing your full-year rapid guidance. So could you give us some color on your outlook for the next year rapid trend, and especially given a very high phase this year? And so ADR has showed a very strong performance this year. So do you think it's going to stay next year? And so my second question is on expansion. So stock closure looks small in the second quarter. so because of the COVID impact previously. So could you share with the updates on your July and also August net opening trend? And so it's like the closure almost done in the first half. Thank you.

Let me answer first, and then if Ji Hong needs to add something, he can do so. I think one thing that Huazhou has always insisted on is that In China, China has to build its core competitiveness and maintain a long-term competitive market in an uncertain environment. So, in the face of uncertainty in the future, I think the overall improvement in sales, whether it's ADR or export rate, is the most important focus of China's management team for the long term. In the future, in the localization of marketing, Huazhou will face the cover of many scenes of business. And our technology's continuous use is Huazhou in the entire marketing and improvement of our performance. I think it's a long-term effort. So this is probably the first question to reply to the question of whether it is sustainable.

Let me first respond to your question regarding whether we are going to sustain such good performance for ADR and RevPath. And then I think CFO can make some additions if necessary. I believe that each world always stays true to one point, that is, we must always shape our own core competitive edge in the China market. And given the uncertainties, we need to keep long-term, sustainable, competitive market position. So facing the future uncertainties as the backdrop, I think for the overall improvement and sustainable development of ADR and OCC, the management attach great importance to these issues. In the future, we are going to have more localized marketing covering multi-scenarios. We will continue to leverage technologies to improve our overall conversion and our performance. This definitely is going to be something we stay true to in the long term. That's for your first question regarding whether it is sustainable development in the future.

Regarding the second question, I don't have the exact number of July and August, but I can continue to increase the number of high-quality pipes in Huazhou. In the second half of this year and next year, Huazhou will definitely have a relatively opening period, because everyone knows that our opening time is about half a year or more. So as the number of pipes increases, it will definitely increase the number of our institutions to open. At the same time, for the cleaning of low-quality electricity, Huazhou in the past few years, even in the most difficult times under the epidemic, we are steadfast. Because providing such high-quality products and services is a very important aspect of Huazhou's strategic transformation. So we will definitely upgrade the transformation of low-quality and 1.0 products.

Now on your second question, I don't have any specific net opening numbers for July and August, but I must say if you pay attention to our hotels in the pipeline, you see that the improvement of the signings for the higher quality premium hotels in the pipeline which definitely will take place of more openings in the second half this year and next year. Because usually, you know, it takes us about half a year's time to prepare the pipeline hotels into official opening. So as we have more hotels in our pipeline with the specific high quality segment, it will definitely increase our next quarter openings. Speaking of the closure of the lower quality hotels over the last few years, even if we were stricken the hardest during the pandemic, we stay true to this operation strategy that is to improve our quality and to improve our products and services. This is a very important part of H-World's strategic transformation, so we will continue to either transform or upgrade or repackage the lower quality 1.0 version and some other lower brands. This will continue to be our strategy. Thank you.

Thank you. I just wanted to summarize here. We stay with our forecast this year or our guidance this year. We will open 1,400 hotels. And it closed, planned to close 650 hotels.

Thank you for the questions. Our next question comes from Li Na Yin from HSBC. Please go ahead.

Guanita, thank you for introducing my question. I have two questions. The first question I would like to ask is a question from RevPath. This time, in the material of the recording, I would like to thank you for sharing a lot of information about the promotion of the hotel portfolio. Then can we reconsider our stable REVPAR? In fact, even though our REVPAR in the industry will gradually normalize this expectation, but because of the power of our upgrade, for example, we feel that the industry is stable REVPAR, that is, after the epidemic, it is about 110 before the epidemic. In fact, Huazhu, because of the power of the upgrade, should be far higher than this, for example, 120 or 120 or more. So I will translate my first question. So first question is to ask like management to help us to reconsider the steady state for Huazhou. We got lots of new information on the upgrade of Huazhou hotel portfolio over the COVID period. So if we think the overall hotel industry, the RevPAR probably will stabilize at 110% above 2019 level. Does that mean Huazhou Hotel RevPAR will stabilize a much higher level versus 2019, say 120 or even above? Thank you for your question. I will take your question about RevPAR.

Yes, we are very happy to see that Huazhou's REFPAR recovery was higher than the average industry because really our continued product upgrade, product mix change, and our effective sales effort. For the full year, we gave our guidance of 116 to 121%, and we remain confident that we can deliver this number. For the further, how RevPlan will develop in the near future, beyond this year, RevPlan is always a result of the economic activity. I can only give you the confidence that Huazhou's hotel is really very well positioned, independent of economic cycle in the short term, because our very large portfolio of our hotels are really affordable hotels. And we have observed that a lot of guests coming from different segments really enjoy our hotels as well.

他其实在REPA的这个恢复趋势 还有扩张趋势都比较强劲 当然基数也比较低一点 那同时我们也有评论到 就是商务出行这块 其实是恢复是比较缓慢的 但竞争对手其实是以上务出行 这个为主的嘛 所以就是为什么我们会有这样这个 不同的结果呀 这个可以帮助理解一下吗 My second question is on the peer comparison. So we see some like peers who focus on upper end limited service hotel delivered a very strong red part growth and expansion growth, likely from a low base. But meanwhile, we have commented that business related travel has a more moderate and gradual recovery. So can management help me reconcile the discrepancy and the comments and the results from the from the two perspectives. Thank you.

I will try to understand this question and answer this question. In fact, the business and the whole business community we mentioned is a different definition. I think you can see the sharing of Xiecheng and other industries. We are all concerned about this. This year's second quarter and summer holidays are all traditional Chinese tourism and leisure. I don't think anyone can avoid this big event. So I think in tourism and traditional leisure to bring better performance is definitely a bigger reason is from our whole tourism local leisure market such an inspiration can pay special attention to the Chinese government in continuing to stimulate domestic demand For example, in the service industry, there is the opening of cultural tourism, right? Including the barbecue of the live broadcast, the competition of the village supermarket, etc. The continued investment of the Chinese government in the tourism industry will definitely show the growth of our industry in the leisure and tourism market in a large environment. In the pure commercial market, it is affected by China's economic prosperity and the recovery period is short. Because now the whole epidemic has been open for almost eight months. The whole economic recovery is called the scar effect. It still needs some time to recover. I think it is also an objective fact. So I don't think our entire industry will have too much difference. In fact, the whole industry Well, for your question,

For your question, I think that we have different definitions on business-related travels with some of our competitors. But if you look at the statistics issued by Ctrip and other industrial players, you notice such a common trend that is usually Q2 and summer holiday vacation are the peak seasons for China's travel and leisure market. And that's always true. And speaking of the good performance in this period, a larger reason comes from the stimulus package the government has taken to stimulate the overall leisure and tourism travel market, the overall macro economy. culture and tourism market, right? For example, the barbecue festival in Zibo, in the Guizhou Village basketball activities. The Chinese government has constantly been investing on promoting the culture and tourism sector. So overall in the mega trend, we definitely sense that on basis of such a peak season growth, we have seen very good performance with the demand. But in the pure commercial and travel related trips and travels, I think partly it is impacted by Chinese macroeconomic prospect. And partly it is because it usually delivers a longer term recovery. Because if you look at the reopening since now, it is just eight months. Eight months time is not long enough for the full recovery of this market Yes in the last several years We have experienced some setbacks and it takes time to cure these and heal these setbacks I think it's very easy to understand so I don't think there will be too much of a discrepancy for all the players in the industry if you look at each world group and We are a top player in the hospitality market. We have very wide covering market coverage. We are much favored by the mass market. Yes, in some regional markets, there are some overpriced issues, and we will continue to provide more products and services to cover these markets. So all in all, I don't think there will be too much of a discrepancy among all players. Thank you.

Thank you for the questions. With that, I would like to hand the call back to management for closing remarks.

Thanks 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 your participation. You may now disconnect.