H World Group Limited

Thank you for standing by and welcome to the H-World Q3 2023 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Jason Chen, Senior IR Director. Please go ahead.

Thank you. Good morning and good evening, everyone. Thanks for joining us today. Welcome to Edgeworth Group 2023 Third 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 Xinxin. 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. Edgeworth Group does not undertake any obligations to update any forward-looking statements except as required and applicable laws. On the call 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 last Friday. 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 the opening speech. Ms. He, please.

Good morning and good evening, ladies and gentlemen. Thank you for joining H-World third quarter 2023 earning call today. We are delighted to report that H-World delivered another strong quarterly financial result, reflecting the continuous healthy recovery of the lodging market in China. In today's call, H-World Group CEO, Jing Hui, will first elaborate on the business performance and highlight our achievements. I will then go through the key financial numbers. As usual, we will have the Q&A session after management presentation. With this, I will hand over to Mr. Jing Hui.

Thank you, Ji Hong. Please turn to page 3. As usual, Let's look back at the recovery of Huazhou's recent RERPA. In the third quarter, Huazhou China continued to maintain its recovery from the beginning of the year. RERPA has recovered 129% since the same period in 2019. Huazhou China's RERPA growth is mainly driven by the growth of ADR caused by product structure changes. But the recovery of the entry rate has improved significantly in this quarter as well. In terms of division, This group of strong recovery data is due to the strong period of restructuring travel needs in July and August and the continuous recovery of business travel. At the same time, the performance of the company's repa also reflects the excellent product power and brand power of Huazhou Hotel. This has helped us to continue to lead the Chinese hotel industry in terms of business performance. Since this year, the demand for Chinese leisure tourism has been better than expected in the beginning of the year, but the company has always maintained a relatively cautious and optimistic attitude. You can see that some holidays this year, such as Spring Festival and May 1st, are undeniable, and there are some concentrated demands for tourism. But the changes in the consumption structure after the epidemic are also undeniable. Especially in the context of expanding the internal demand, we can clearly see the rapid growth of the experience-based consumption demand. After the pandemic, the 11th Golden Week, China's heat rate returned to 123% in the same period in 2019. The overall October heat rate returned to 120% in the same period in 2019. 我们认为宏观经济的恢复在短期内依然存在波动和不确定性,但华助依旧会坚定执行公司的长期战略不动摇,关注及不断提升公司支撑的品牌力,产品力,以及管理和执行力,并持续拓展华助中国的酒店网络,扩大市场份额,为公司未来长期可持续的业务发展而努力。 Thank you, Qi Hong. Please turn to page 3. As usual, let's go through Legacy Huazhou's REFPA recovery in the recent months. In the third quarter, we maintained our market leading performance since the year beginning. Our REFPA recovered to 129% of the 2019 level. The REFPA recovery continued to be supported by ADR growth, which was mainly driven by our product mix change. Meanwhile, Occupancy rate recovery also improved sequentially in this quarter. Breaking down into monthly numbers, our REF PAR in July, August, and September recovered to 132%, 128%, and 128% of the 2019 levels in the corresponding months respectively. This strong set of numbers was benefited from the strong leisure travel demand during the summer holiday season as well as the continuous business traveling recovery. In addition, our REFPA performance reflected our hotel's superior product quality and brand power, which should continue to support our industry-leading position in operational performance. This year, the rebound of China's leisure traveling demand was better than our previously expected in the year beginning. Nevertheless, we keep our cautiously optimistic view on the market outlook unchanged. We certainly saw some pent-up leisure travel demand during some of the peak seasons, such as the Chinese New Year, May holidays, and a summer holiday. But the structural changes in Chinese consumers' consumption structure post-COVID should not be ignored. especially the demand for experience-related activities were growing rapidly with government efforts on stimulating the domestic demand. After the strong summer holiday season, our REFPA recovered to 123% of the 2019 level during the Golden Week holiday. For the entire month of October, our REFPA still recovered to 120% of that in 2019. In the short term, although the macro condition could possibly remain volatile and uncertain, we will continue executing companies' long-term strategies with focus on building and enhancing our products, brands, management, and execution capabilities. We will continue to expand our hotel networks and further gain market share to achieve a long-term sustainable quality growth. 请大家翻到第四页。 In the current global environment, we once again emphasize the long-term, sustainable growth of RERPA in China. Its motivation comes from the following four points. The first point is that it is constantly penetrating in low-end cities that are extremely economically resilient, helping China to achieve a relatively stable performance in a fluctuating global environment. The second point. The adjustment and optimization of Huazhou's organizational structure and the establishment of regional branch companies have made Huazhou's localization operation more refined and efficient, and the ability to infiltrate the region has been further improved. Through the establishment and operation of regional branch companies in the past year, we have already achieved preliminary results. We believe that the regional branch companies in the future will continue to assist Huazhou in expanding the network and quickly open up the market in rural areas. Third, Continuous product upgrades and service improvements help Huazhou Hotel to gain a higher price. Whether in the economy or in the medium-sized hotel category, Huazhou has insisted on constantly upgrading its products through high-quality products to stabilize Huazhou's leading position in the limited service market. Fourth, the strength of high-end brands to optimize the hotel structure of the company. Please turn to page 4. With the current macro uncertainties, we want to re-emphasize the low-fall key points to drive our REFPA to achieve long-term sustainable growth. Firstly, further penetrating into lower-tier cities. it could help us to deliver relatively stable and solid performance with macro volatility and uncertainties, given lower tier cities markets are more resilient. Secondly, the organizational restructuring and optimization enable us to achieve more efficient localized operations. We have accomplished some initial success since the establishment of our regional headquarters. We believe those regional headquarters will continue to support the company's hotel networks expansions and to further penetration into regions that we were previously weak. Thirdly, the continuous upgrade and improvement of our products and services to achieve better REVPAR premium. No matter in economic segment or middle skill segment, we are committed to keep enhancing our products and services in order to further strengthen our dominant market position in the limited service hotel segment. Lastly, further breakthrough in the upper mid segment to increase our market share and optimize our overall hotel network portfolio. This year, our ultimate skill segment achieved encouraging progress in operational performance, mainly supported by our three key brands. Thank you. At the end of September, out of total 9,028 hotels in operation, there were 40% were located in the lower tier cities, and 55% of our 2,935 hotels in pipeline were in the lower tier cities. On a year-over-year basis, we see a small increase in the hotel proportion in the tier 1 and tier 2 cities, thanks to the economic recovery post-COVID in those top tier cities. Nonetheless, we continue to push forward our lower tier cities penetration strategy. In terms of absolute hotel number increase in the lower tier cities, Our number of hotels in operation increased by 6% year-over-year to reach close to 3,600 hotels, and the number of hotels in pipeline grew around 20% year-over-year to over 1,600 hotels. And the number of cities that we covered reached to 1,217. According to the high-quality door stores, the hotel network continues to expand. Under the strong support of the new contract numbers and the number of pipe hotels this year, the opening speed of the third quarter is the same as the continuous improvement of the third quarter. The number of new stores in the third quarter is 545, which is 28% higher than the growth. In terms of power supply, the second quarter has a total of 139 hotels, including 90 Hanting 1.0 versions and economic soft brand door stores. We continued implementing our sustainable quality growth strategies and to expand our hotel networks by opening high-quality hotels. Supported by strong new signings and hotels in pipeline, our hotel openings in the third quarter increased both year-over-year and quarter-over-quarter. In the third quarter, we opened 545 hotels, up 28% year-over-year, and we closed 139 hotels, which mainly included 94 hunting 1.0 version and soft economic hotels. Under our sustainable quality growth strategy, we have been continuously cleaning up those unqualified hotels, which can help improve the overall quality of our hotel portfolios. Please turn to page 7. The proportion of Hanting 1.0 version and soft economic hotels decreased from 26% at the end of 2020 to only 8% at the end of September this year. And over the same period, the proportion of Hanting 2.7 version and above increased from 14% to 27%. 37% of the company's pipe hotels are economic national hotels, and 48% are medium-sized hotels. The medium-sized hotels have increased by 5% in total. Of the newly opened hotels in the third quarter, 91% are made up of economic national and medium-sized hotels. We can see that while China is constantly improving the overall quality of hotels, it continues to focus on the limited service hotel field made up of economic and medium-sized hotels to meet the needs of the majority of national residents. As we strive to better serve Chinese mass consumer market, as of the end of September, 55% of our hotels in operation were economic hotels, and 37% were mis-gilled hotels. The proportion of mis-gilled hotels was up 3 percentage points on year-over-year basis. For hotels in pipeline, around 37% were economic hotels, and 48% were mis-gilled. Proportion of mis-gilled hotels were up 5 percentage points year-over-year. In the third quarter, 91% of the new hotel openings were economic and mid-scale hotels. As you can see, while we are optimizing and enhancing our overall hotel product quality, our limited service hotel segments, which compromise economic and mid-scale segments, are always our key focus to continue improving in order to better meet the travel and accommodation needs for Chinese mass markets. It is worth noting that within the limited service segment, we are seeing the proportion of misfuel is increasing, which perfectly matches with consumers' rising demand on better quality of accommodation products. Please turn to page 9. This year, we achieved encouraging breakthrough in the upper mid-segment. At the end of September, we had 605 hotels in operation, which represented a year-over-year and quarter-over-quarter increase of 18% and 8% respectively. And we had 357 hotels in pipeline, which grew 35% year-over-year and 13% quarter-over-quarter. The strong pipeline growth reflects the rising brand awareness of our upper-mid-scale hotels and provides solid support for the future development. 请大家翻到第十页。 在中高端酒店品牌里, 城际和橘子水晶在今年取得了不错的签约。 去年公司将DH旗下Intucity品牌引入中国,成为城际品牌。 and in Wuhan, Zhengzhou, Shenzhen, and Shanghai. In the past three seasons, the number of contracts for Chengji brands has risen rapidly. As of the end of September this year, the number of Chengji hotels in Guangdong has reached 41 stores. The number of orange crystals in Guangdong has reached 108 stores. The number of hotels in Guangdong that have been established has reflected the recognition of Jia Meng Shao's recognition of Chengji orange crystal brands and products. Please turn to page 10. Within the upper mid-scale segment, our two key brands, including InterCity and Crystal Orange, both have achieved remarkable new signings this year. Last year, we launched the InterCity brand in China and opened several new leased InterCity hotels in Wuhan, Zhengzhou, Shenzhen, Shanghai, and so on. Over the past three quarters, the new signings of InderCity grow meaningfully. At the end of September, we have 41 InderCity hotels in the pipeline, and the number of pipelines for Crystal Orange brands reached 108. The fast-growing pipeline demonstrates that our InderCity and Crystal Orange products and brands are getting more recognized and accepted by our franchisees. 以上就是華之中國第三季度業務情況的更新 Here concludes our business review and updates for the third quarter of 2023. With that, I will now turn the call over to our CFO, Ms. He Ji-hong, to discuss DH's operational updates and our group's financial performance. Ji-hong, please.

Thank you, Jinghui. I will now elaborate the DH's activity so far this year. Please turn to page 11. Despite Germany's slow economic recovery post-COVID, a rough part of the DH portfolio outperformed the overall German market using relevant RGI data. In third quarter 2023, year-over-year cost growth is in line with revenue growth despite inflationary pressure in Europe after excluding one-off adjustment and restructuring costs. Our priority remains to control and reduce costs through business restructuring as well as leveraging on technology. At the same time, we are repositioning the current hotel product design to reflect the demand of the modern travelers. We are also spending effort in strengthening our presence in Middle East and exploring new international markets such as Asia Pacific. I'm now going to highlight the financial performance in the next section. Please turn to page 13. Our hotel network continued to expand in the third quarter 2023. Total number of rooms in the operation increased 11% year-over-year, and it reached 885,756. Hotel turnover increased 55% year-over-year, and it reached 23.5 billion renminbi. Please turn to page 14. Legacy Huazhou blended RASPAR recovered to 129% of 2019 and achieved RMB 278. This was primarily driven by ADR increase, which was 33% over Q3 2019 and 27.7% of Q3 2022. Occupancy still lags Q3 2019 by 1.8 percentage point. Nevertheless, the occupancy of 86% is quite a high benchmark for the size of our total portfolio. Please turn to page 15. Legacy DH blended REF PAR increased 4.5% year over year and achieved Euro 79 ADR remained flat compared to third quarter 2022, but occupancy increased by 2.9 percentage point. Please turn to page 16. Total revenue of H-World increased 54% year over year, achieving 6.3 billion RMB. Legacy Huazhou revenue increased 62% year over year, achieving 5.1 billion RMB. This achievement was possible through first, strong domestic travel demand, especially during the summer holiday. Second, continued product upgrades and improvement of product mix. And third, market penetration and synergy through regional offices. Revenue from Legacy DH also improved 26% year-over-year, driven by higher REVPA and higher hotel turnover. Please turn to page 17. Legacy Huachu operating income achieved 1.9 billion Renminbi in third quarter 2023. Compared to third quarter 2022 and second quarter 2023, This is a significant improvement. This is achieved through revenue increase and, at the same time, cost management effort for both hotel costs and SG&A expenses. On legacy DH side, operating costs increase in line with the revenue increase. On SG&A side, there are some one-off effect and restructuring costs booked in Q3 2023. Taking these efforts out, the SG&A cost also increased proportionally with the revenue increase compared to Q3 2022. Please turn to page 18. Legacy Huazhou adjusted EBITDA achieved 2.1 billion RMB in Q3 2023, and adjusted net income achieved 1.4 billion RMB. Legacy DH adjusted EBITDA was 65 million RMB in Q3 2023. Adjusted net income fell into negative territory of minus 37 million RMB. On the group level, Operating cash flow was 1.2 billion RMB. The fluctuation compared to Q2 2023 is due to a short-term change of the timing of franchisee fee payment at the end of September. Please turn to page 19. The group is in a net cash position as of end of September. There's a net cash of 3.9 billion RMB and the unutilized bank facility of 2.7 billion RMB. Please turn to page 20. We estimate the revenue in Q4 2023 will be a growth of 41% to 45% compared to Q4 2022, excluding DH. Legacy Huazhou revenue is estimated to grow 48% to 52% compared to Q3 2022. This ends the management presentation. I hand over to Mr. Chen Yibo.

Hi, operator.

We can start the Q&A session, please.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the headset to ask your question. Your first question comes from Mr. Dan Chee from Morgan Stanley. Please go ahead.

This is a very good performance of the quarter. What I want to ask here is mainly about the financial management side. We saw that the board meeting will be held on Wednesday, which is about the company's share of shares. Good morning, management. First of all, congratulations on a very strong quarter result. I have a question regarding the recent announcement of board resolution on cash dividend. I'm wondering if the company can share a bit more details on this dividend payment. For example, timing, what to expect, size of the dividend that is proposed, and whether it is a regular or special dividend.

Thank you. I will answer first, and if there is a need, I will add it.

This month, we did just announce that the board of directors is considering the issue of cash and equity. I think the specific dividend policy and dividend ratio will be announced to the market immediately after the board of directors' meeting. At the same time, I would like to add that China is indeed expanding its strategy of marketing and management of new assets in the future. We are also considering the performance of cash and profits that will make the entire enterprise sustainable. Thank you. Let me ask you a question first. Yes, our board is considering a cash dividend, and once we get approval from the board resolution, we will immediately release to the market in terms of the exact policy and the payout ratio. And I want to add another point is as the H-word business is going to be more as a light We definitely want to be well-managed on the cash and net profit going forward.

Just a little bit to add to Mr. Jinghui's comment. Huazhou, especially Huazhou, China, has recovered very well. We are very confident that especially Chinese lodging market will continue to recover. So we expect a very stable cash flow in our future operations. And with this kind of stable cash flow and net earnings, we would like to return some of our earnings back to our investors. So we will resume our continuous stable base dividend policy as well as special dividend policy from time to time if our cash flow shows very strong performance. And please just be patient. We have a couple of days until the board resolution is decided, and we will announce it in time. As for the cash payment, we will expect it around early next year.

Your next question comes from Ronald Leon from Bank of America.

Please go ahead.

管理层,你们早上好。 其实我有两个问题。 第一个问题就是关于明年的一个预期了。 其实管理层对明年的RAFPA还有就是开店, 现在有没有一个初步的预期啊? Let me ask my questions in English. My first question is about the outlook for 2024. So would management have any preliminary forecast for the rough park growth and hotel openings for 2024? My second question is about balance sheet. So right now the company has a very strong balance sheet and cash flow. So what do you think is the optimal capital structure for the company? Thank you very much.

I will answer the first question first.

We will disclose our guidance next year after the quarter-finals. But overall, we have an optimistic trend towards the future for China. We see a market change and rise in the consumer market in the inner loop. The headband of Dian Shouhua Hongli, because there are many headbands in China, we are still enjoying Let me translate the first answer. So in terms of the expectation for next year in terms of the rough part and the new openings, we will be giving the guidance to the market when we release our fourth quarter earnings probably next year. But I just want to add, we are still keeping our conservatively optimistic view for the China business, given we think we are still having the best products, the market-leading position, and we are still getting benefits from the continuous trade ratio improvements and further consolidation of the market. So again, we keep our conservatively optimistic view unchanged. Thank you.

Okay, I will take over the question about the capital structure. As you can see, Rona, from our balance sheet for the third quarter, we have a very strong net cash position. And I'm very confident that with the business improving quarter by quarter, year by year, our cash position will remain very strong. So as a part of the effort to reward our investors, we already announced our dividend payout policy. And this policy will continue. And we also do not exclude the possibility to do some share buyback at appropriate time as well. From our debt and equity position, you can see that we still have 500 million US dollar convertible bonds at this moment. And this will still take some time to mature. We will continue to leverage some of the bank facilities for our short-term working capital because the Chinese interest rate is very low. So please be assured that the financial management team of H-World will look into our cash position very diligently, manage our cash, and manage our reward program to our investors, and at the same time also leverage the lower interest environment in China, and we will also continue to manage to overrule that position so that we do not fall into any potential issues.

Your next question comes from Simon Cheung from Goldman Sachs. Please go ahead.

This is the first one. And the second one is, I want to know a lot of investors who are interested in seeing, for example, in October, you just shared that the REFPA has dropped a little bit. I want to know the trend you see, for example, in November and December. I don't know what your thoughts are right now. And what do you think is the reason for the fall in October? For example, is it the leisure or the business? So I have two questions. The first question is in relation to the hotel opening. I've noticed that HUL has actually been able to achieve a much faster hotel opening than a lot of the peers. Wondering what are the reasons and whether management could share with us what's the latest update with the Southern China strategies? And then the second question is in relation to the fourth quarter, we have noticed quite a bit of a meaningful downward trend in October. Wondering whether it's cyclical or structural, what is the outlook going into November and December, and whether there's any reasons in relation to business versus leisure traveling. Thanks a lot. Thank you.

Let me answer the question about business. Indeed, after this year's epidemic, we have achieved a very good number of contracts and channels. I believe these are mainly due to a few factors. The first is that Huazhou has been in China for the past few years. On the construction of Western market investment brands, such as Hanting, Quanji, Whether it's the product upgrade or the market reputation, we have received very good feedback. So after the epidemic, we have received a very good continuous growth. This is actually also in the forecast. In addition, in the past few years, if you pay attention, we have been continuously cultivating the second growth of the second growth of the second growth of the second growth of the second growth of the second growth of the second growth of the second growth of the second growth of the second growth of the second growth Our latest 3.0 has achieved a very good growth performance after the release of the first quarter of this year. So the first factor I want to focus on is the continued high growth of some of the leading brands that China has built. The second advantage is that we have been in the lower market in the past few years, especially in the past. China's relatively weak south and west Chinese market Through our continuous organization adjustment, the construction of this development capability, we achieved a very good growth performance. In the past, Huazhou was not weak in the market. I just mentioned Huazhong, Huanan, Huaxi. Currently, Huazhou's overall signing volume is more than 40%. So this growth has greatly improved Huazhou's signing performance in the Chinese market. Thirdly, we have already shown the continued strength of Huazhou in the medium and high-end markets. With our performance, capital, water, gold, 2.0 products and brand perfection, I believe that in the future, we will continue to grow in the medium and high-end contracts and market coverage. So the first question is mainly on three aspects. The first is the continuous strength of the head brand, the rapid compensation of the lower and lower market, To answer your first questions, post-COVID, since this year, we achieved quite good progress in terms of the new signings and the pipeline increase. This was mainly attributed to several reasons. is for our market-leading brands, especially in the limited service segment, including Hunting and G Hotel. Over the last several years, we keep enhancing our product quality and doing a lot of product upgrades and further enhance our brand reputation and wellness. That definitely benefits us for increasing in the new signings. And also, especially in the middle scale segment, last year we tried to use the Orange to become our second main brand in this particular segment. And since the first quarter when we launched Orange 3.0 version, the product itself has been very much well accepted by the market and franchisees, hence achieved quite good new signings since then. Thirdly, it's because of the lower tier cities penetration as well as further enhance our presence in our previously weak markets, including the southern part of China, western part of China, and the middle part of China. This is the benefits from our organizational restructuring and further strengthening our business development capability on the ground. Currently, these three previously weak regions contributed more than 40% of our new signings year-to-date. And lastly, it is further breaking through into the upper mid-segment and mainly because of the InterCity brand as well as the Crystal Orange brand, as I mentioned previously in our previous remarks and also presentation. And we strongly confidence on the further breakthrough and increased market share for this particular segment. About the second, about the second part of this situation, I will simply repeat it because it is true that if you pay attention to October, it is also usually after the golden week, the usual this egg, the Chinese hotel will also have some eggs of this normal expression, a mechanical one, a normal situation. We are about this year's four seasons, the corresponding heat rate recovery, we roughly predict that it will be in percent. In terms of the second questions on the rough power trend, so for the October, this is pretty normal seasonality because normally post the Golden Week holiday, there was a low season following. So this is a normal seasonality impact. And for the entire first quarter, we are expecting the rough power recovery to be in the range of 115% to 120% compared to the same period of 2019. Thank you.

Thank you, Guaric.

The next question comes from C.G. Lin from CACC. Go ahead.

Thank you, management. You have been to some low-tier cities to do some field research. So could you please share with us your main observations which make you feel that there are lots of opportunities in low-tier cities? And in order to seize the low-tier market opportunity, we have established regional headquarters, and is there any other capability that we need to strengthen? Thank you.

Let me answer this question.

China's urbanization is still a topic in the past few years, although it has achieved 65% urbanization in the first half of the year. We can see that the lower market is actually a large part of the process of urbanization in the lower market. I think this is very obvious. Many people in the lower market are still accumulating and increasing. Second, due to China's developed high-tech industry, The network of high-speed roads makes the population circulation under the inner loop, especially in some large environments where the local culture is pushed, makes the inner loop of the entire culture such a circulation. We can also see that the initial population of China's high-speed rail continues to rise. So I think these two factors are very important. One is the continuous progress of Germany and China's urbanization. The second is the increase of the population circulation under the inner loop. The bottom-up market has shown a relatively strong momentum. We can see that the bottom-up market has shown a relatively strong momentum. We believe that China still has a great opportunity in terms of the bottom-up market. In particular, the bottom-up market has a population of about 11 billion people. It is a very, very huge population technology. OK. So, clearly, despite the urbanization rate have already achieved over 65 percent this year, we're still seeing that there's further urbanization progressing in the lower-tier cities, and we're also seeing the population actually is also increasing in the lower-tier cities. Addition to that, the high-speed railway trend further development as well as the high-speed the highway networks further expanding, and we were seeing, you know, the number of passengers transported by the high-speed railway trend this year achieved a historical high. This is mainly supported by a lot of, you know, government efforts on stimulating the domestic demand, which increased a lot of, you know, population mobility's demand. And for the lower tier cities, we also observed that it is really a high resilient market. And more importantly, the lower tier cities contains over 1 billion population. We think still there is a lot of huge opportunities to further discover. And as a leading company, H4 is striving to further providing good products and services to match the demand for better accommodations in the lower tier cities. In addition to our organization's ability to achieve regionalization and localization, I think it is more important to get closer to our users, our products, our services, our marketing, and how to build a localization of such an ability. This is very important for us in the next stage. There are a lot of investors who support the property market. A lot of them are local small and medium-sized real estate investors. A lot of them are entrepreneurs. They have very strong local strength. How to better meet their needs is also a very important issue in the next stage. So to sum up, how to further establish the product, service, and influence ability that is close to the user. Okay, so the organizational restructuring is definitely creating some of the benefits and in line with our lower tier cities penetration strategy. So basically we want to be more close to our customers and more close to our franchisees. and to be more localized because especially for the franchisee side, we are seeing a lot of new type of franchisees. Basically, some of them are self-owned properties. Some of them are local small and middle property developers as well as some of the business owners. We want to be close enough to them and understanding their demand as well as our customers.

Thank you. Your next question comes from Jiwei Liu from Citix. Please go ahead. Thank you, Mr. Guan.

We are really concerned about the business layout of the company at the mid-high end, especially the speed of the results. In fact, it is also more than 7. I am also a consumer of results. Regarding the results, I would like to ask two questions. One is about the current opening of these results stores. Is there any more business data that can be shared? For example, like ADR, RARPAR, etc. Let me translate my question in English. We notice in the city it's gaining traction among franchisees. So could you tell us more about the store's current business situation? such as ADR, RaoPa. Besides, can you share what cities are the distribution of IndyCity in the pipeline and what are the features of FlyChainZ? Thank you.

Okay, let me answer your question. Thank you for your attention on our Chengji brand. Indeed, after the introduction last year, we are continuing to build our product delivery and service capabilities and organization capabilities. I should say that now Chengji has not many stores to open. Although the stores that we have opened have exceeded our main products in real estate, but I think because we have too few samples, it is not enough to disclose more to you, but we have achieved very good revenue returns and very good brand influence at Dengzhong. I am very, very confident about this. I can share it with you. Then in the development of the results, I did see some changes in the number of business owners we contacted. There are two main categories. One is a very big business owner in the industry, because the investment of a result is very large. Basically, it needs to invest in 30 million to 50 million. So the entire industry's head, not just Huazhou's original head, there are also a lot of business head business owners who may invest in other brands. The second thing is that it is very obvious that there is a part of the developers and the asset holders, the participation of professional asset holders, has indeed achieved a parallel replacement for some of the original international brands in China. Because we are now in the performance of this business and the profit rate of GOP, it should be said that in terms of the current operating feedback, it is far less than the traditional international brand performance in China. Okay, thank you. Just to answer your questions, thanks for focusing on our intercity brands. Since we launched last year and opened several least intercity hotels in several cities, so for this already opened or given the scale is relatively small, we don't think it is suitable for now to compare or to release the ADR or REVPAR to the market at this moment because it is quite selective and we have only several indoor cities hotels in operation. But if you really want to talk about these hotels operational data, so all the ADRs and the REVPARs have been already doing better than our competitors. But we are very confident to see the brand is getting more accepted and aware by our franchisees and the market. And for the franchisees, we are seeing definitely a different type of franchisees compared to our limited service segment. There are two types of franchisees. One is definitely the industry-leading franchisee because the intercity hotel requires a relatively big amount of capex investment. So a single intercity hotel requires around 30 million to 50 million R.B. CapEx. only those very much leading position, leading franchises can afford that much car parts. And second, we also see a lot of, you know, property developers or local property developers and property owners which used to, you know, doing business with those international brands are now finding us as Intercity to be a substitute because we are definitely leading in terms of the operational capabilities.

There are no further questions at this time.

I will now hand back to Mr. 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 does conclude our conference for today. Thank you for participating. You may now disconnect.