H World Group Limited

Good day and thank you for standing by. Welcome to HRO first quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be question and answer session. To ask a question during the session, you will need to press star 1 1 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. It is now my pleasure to hand you over to HRO Senior IR Director, Mr. Jason Chen. Please go ahead.

Thank you. Good morning and good evening, everyone. Thanks for joining us today. Welcome to Edgeworth Group 2023 Fourth Quarter and Full Year Earnings Conference Call. Joining us today is our Chairman, Mr. Jiqi, our CEO, Mr. Jinghui, and our CFO, Mr. Zoujun. 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 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 findings with the SEC. Edgeward 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 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.edgeworld.com. With that, now I will hand over the call to our CEO, Mr. Jin Hui, to discuss our business performance in 2023. Mr. Jin, please.

Huazhou is moving towards high-quality growth and has achieved good results. Let's first look back at the specific achievements of Huazhou in 2023. Please turn to page 3. After the epidemic, the people had abundant travel needs and gradual recovery of business travel needs. In 2023, Huazhou China RERPA showed a strong recovery. In the whole year, RERPA recovered 122% by 2019.

In 2023, the domestic traveling industry experienced strong momentum of recovery. Along with the robust rebound of the industry, Ashworth continued implementing our sustainable high-quality growth strategy and achieved great results. First of all, let's take a look at our achievements in 2023. Please turn to page three. Thanks to the strong leisure demand and the gradual recovery of business demand post-pandemic, in 2023, our China business achieved a robust recovery with REFPA recovered to 122% of the 2019 level for the whole year. Entering into 2024, We still see our REVPAR performing steadily so far.

Our hotel network is also constantly expanding. Please turn to the fourth page. From the point of view of the new store, if we remove the soft brand, in 2023, China will open 1641 stores, creating a new history. From the point of view of the new store, although the new store will open 789 stores this year, if we remove the soft brand with low quality, and Hanting 1.0, there were 273 power outages. Compared to the 237 power outages in 2022, there has been some growth. In terms of the number of power outages, it shows that in 2023, under the strategy of economic growth, we have accelerated the upgrade and elimination of low-quality stores. From the perspective of pipe hotels, as of 2023, the number of pipe hotels has reached 3,061. It has also created a historical record.

Our hotel network continued to expand. Please turn to page 4. Excluding the economic soft brand, we opened a total of 1,641 hotels in 2023, reached a record high in terms of annual opening number. At the same time, we closed 789 hotels in 2023. However, Excluding the low-quality economic software brand and hunting 1.0 version, the closure were only 273 hotels, a slight increase from 237 in 2022. The high closure number in 2023 demonstrated our determination to remove or upgrade low-quality hotels in an accelerative manner, which is in line with our sustainable quality growth strategy. In terms of our pipeline, by the end of 2023, our hotels in pipeline reached 3,061, another record high. The limited service segment remains our key strategic focus. Our economic and middle-scale products, which target the mass market, are the key drivers of our network expansions. Breaking down our hotels in operation hotels in pipeline, and hotel opening in 2023, the proportion of economic and middle-skill hotels were 92%, 85%, and 90% respectively.

In the development of economic and middle-skill hotels, the company adopted the Iron Triangle brand strategy, which is the Hanting, Quanji, and Juzi brands. In 2023, our Iron Triangle brand continued to upgrade and replace products, Please turn to page 6. First, HanTing products continue to change. We see that HanTing 1.0 products continue to decline in HanTing hotel products, from 28.5% in 2020 to 4.4% in 2023, while HanTing 2.7 and above products continue to increase, from 30.4% in 2020 to 71.2% in 2023. As the oldest brand in the history of Huazhou Group, Hanting has maintained its market competitiveness through continuous product upgrade and design, as well as the credibility of its customers.

Edgeworth has set a specific brand strategy, named Iron Triangle, to develop the economic and the middle steel segments. The Iron Triangle strategy consists of our three key brands, namely Hanting, eHotel, and Orange. In 2023, we have upgraded products for all these rebrands. Please turn to page six. Firstly, our hunting products were being constantly upgraded. The proportion of hunting 1.0 version were significantly declined from 28.5% as of 2020 to only 4.4% as of 2023. While the proportion of hunting 2.7 and above version steadily increased from only 34.4% as of 2020 to 71.2% as of 2023. As the first flagship brand with the longest history within the group, Hunting has maintained its market competitiveness and attractiveness to customers and franchisees through continuous product innovation and upgrades.

to further demonstrate the lifestyle of Eastern aesthetics, showing the confidence of Chinese service. Quanji 5.0 began to develop sustainable development concepts from the origin of design, such as equipped design, smart lighting, environmental building material system, and so on, to reduce environmental pollution and energy consumption. Quanji 5.0 also has new breakthroughs and exploration in hotel space and business mode, and launched a new tea room, further strengthening the scene-oriented retail of Quanji living rooms.

Please turn to page 7. We launched the newest version 5.0 for G-Hotel at the end of last year. The new version further elaborates lifestyle of oriental aesthetic and shows confidence in distinctive Chinese style service. Starting from the stage of design, G-Hotel 5.0 version implements the concept of sustainable development, such as adopting prefabricated design intelligent lighting system and environmentally friendly construction system. These implementations could largely help reducing environmental pollution and energy consumption. Additionally, we also explored some new business models in the public area or lobby area of G-Hotel 5.0 version. We introduced an innovative tea space or tea house in G-Hotels public area, and also further strengthening the Keqing products, which is the scenario-based retail business.

铁三角的第三个品牌橘子在2023年推出了全新的乐货产品。 请大家翻到第八页。 仅短短一年的时间,橘子乐货产品在橘子管道酒店中占比已达到58%, 深受市场的广泛欢迎。 Lastly, our orange brand.

we launched Loha's version in 2023. Please turn to page 8. After only one year post its official launch, Orange Loha's version has already gained tremendous popularity in the market. As of 2023, the Loha's products accounted for 58% of the total pipeline of Orange brand.

In terms of regional expansion, our hotel network is also continuing to increase coverage. Please turn to page 9. First, it is the penetration of the low-end market. Since 2023, the company Zain Hotel has increased by 40% in the three-line and lower-city ratio compared to 2022. The pipe hotel has reached 55% in the three-line and lower-city ratio. Although the ratio has dropped compared to 2022, the absolute number is still higher than 2021. H-World continued to expand geographic coverage of our hotel network.

Please turn to page nine. We kept on penetrating in lower tier cities in China. As of 2023, around 40% of hotels in operation were located in tier three and four and below cities. representing a two percentage points increase compared to 2022. At the same times, 55% of hotels in pipeline were located in lower tier cities. Also, the percentage number were lower compared to 2022. Its absolute number were higher. As of 2023, the number of city coverage was 1,257 added 131 new cities penetration compared to 2022.

In the past relatively empty areas, Huazhou China has adjusted the organizational structure, established regional branches, enhanced the development and operation capabilities of these areas, and achieved step-by-step results. Please turn to page 10. In the Huanan, Huaxi, and Huazhong markets, the new contract hotel in 2023 compared to 2022, In addition, our capabilities of localized development and operation in the previously less penetrated or weak areas in China has been improving significantly.

and we achieved initial results post our organizational restructuring by establishing regional headquarters. Please turn to page 10. In the South, West, and Central China, the total new signings in 2023 increased more than 100%, 80%, and 40% year-over-year, respectively, and increased more than 200%, 130%, and 110% compared to the pre-COVID year of 2019 respectively. Please move to the 11th page.

The development of our Zhonggaozhen brand is also continuing to advance. As of the fourth quarter of 2023, the number of Zhonggaozhen Zaiying hotels reached 645, which is 23% of the total growth rate, which is 7% of the total growth rate. The number of pipe hotels reached 386, which is 34% of the total growth rate, which is 8% of the total growth rate. The number of hardware pipe hotels reached Please turn to page 11. Our upper mid-scale segment development is continuously progressing.

As of the fourth quarter of 2023, there were 645 upper-mid-scale hotels in operation, representing a 23% year-over-year increase and a 7% quarter-over-quarter increase. And there were 386 of upper-mid-scale hotels in pipeline, representing a 34% year-over-year increase and an 8% increase on a sequential basis. Combining the hotels in operations and hotels in pipelines together, the total number of our upper-mid hotels reached 1,031 in 2023. We are very glad that we had achieved our target, which was set in the second quarter of 2021. However, it is still far from enough. We will continue to strengthen our footprint in the upper-mid scale segment mainly through our co-brands and strive to become a leading brand in the market in the foreseeable future.

Please turn to page 12. Being one of our core brands in the upper mid-scale segment, Intracity Brand launched its new products in 2022,

and the number of its pipeline hotels has quickly increased to 53 at the year end, demonstrating the high market recognition and acceptance of the brand and the products. Turning to page 13, at the same time, the Crystal Orange gained a good momentum of new signings as well. By the end of 2023, the number of hotels in pipeline reached 119, which doubled from the beginning of 2023. So let's review the status of membership and central reserve.

Please move to the fourth page. The number of members of the company is still growing. As of 2023, the number of members reached 2.28 billion. Currently, it is the world's number one. In 2023, China's central reserve balance reached 62.6%, which increased by 9%. In short, the membership system of the company is constantly strengthening.

Finally, let's review our performance in regards to the membership and the central reservation system. Please turn to page 14. The total number of members continued to increase to 228 million in 2023 and has ranked number one worldwide. Direct bookings through our central reservation systems was 62.6% in 2023, representing a 9 percentage point increase on a year-over-year basis. All in all, we continue to reinforce our membership program and the central reservation system.

After looking back at the year 2023, let's move on to the year 2020. Please move to page 15. The economic growth strategy around the monthly service is China's strategic focus in 2024. Under this strategic focus, we have divided into three strategic directions. The first is the expansion of high-quality stores. In the limited service sector, the iron triangle brand is the core. We will further enhance the penetration of low-end cities and the retail market. In the mid- and high-end selection service sector, we will promote development through multi-brand strategies. The second is the superior quality of the user-centered. At the product hardware end, we will continue to upgrade and modify old products. At the same time, Each brand will also continue to launch new products to meet the needs of consumers who are constantly changing. In terms of software, which is the service sector, the original year of the opening of Huazhou desktop service in 2020, we will surround the customer with improved accommodation experience, and provide better service around the family business. Finally, it is the basis of digitalization. The continuous upgrade of hardware and software also leads to the upgrade of our powerful organizational capabilities and the support of digitalization capabilities. We will further fully digitize After discussing our achievements in 2023, let's now go through our key strategic focus in 2024. Please turn to page 15.

Service excellence centric, sustainable growth, quality growth will be the strategic focus of Lexi Huazhou in 2024. This strategic focus is divided into three major areas. Firstly, high quality hotel network expansion. In the limited service segment, we will continuously expand our footprint nationwide by executing our iron triangle strategy. with focus on less penetrated areas and the lower tier cities. In the upper middle segment or selected service segment, we will consistently implement our multi-brand strategy to further strengthen our presence. Secondly, customer-centric product upgrades and service excellence. In terms of product quality, we will continue to upgrade old hotels and introduce new products for each brand to meet our customers' diversified needs. In terms of service quality, 2024 marks the beginning of an year of service excellence for Edgeworth. It means that we are going to put more emphasis on service which is provided to both our customers and franchisees to continuously enhance their experiences and satisfaction. Lastly, the digitalized-based organizational capability enhancement. Continued improvements on both products and service quality would be difficult in the absence of a strong support from a strong organizational and digitalization capability. We are going to further enhance our management capability and operational efficiency in the areas such as supply chain optimization integrated marketing program, talent reserve, organizational capability, and so on, through a comprehensive digitalization process. By doing so, it could help us to establish a solid foundation to support our business development in a rapid and a sustainable manner.

Please turn to page 16. In terms of our overseas business, there are four major strategic focus. Firstly, transforming to asset-like model,

Secondly, continuously focusing on cost reduction and profitability improvement. Thirdly, further strengthening direct sales via edge rewards global loyalty program. And lastly, looking for the APAC and the Middle East growth opportunity.

以上就是华洲2023年的业绩回顾和2020年的战略展望。 下面有请CFO周军为大家展示。

All above are our 2023 review and the 2024 strategic focus discussions. Now, I will hand over the call to our CFO, Mr. Zhou Jun, to discuss our 2023 fourth quarter and full year operational and financial reviews. Mr. Zhou, please.

Thank you, Jinfei. Good morning and good evening to everyone. Let's go through our operational financial review for the fourth quarter and the full year of 2023. Please now turn to page 18. In 2023, we'll continue to expand our hotel network. Our overall number of rooms increased 13% year over year to over 912,000 rooms by the end of 2023, compared to over 809,000 rooms as of end of the last year. Our hotel turnover for the full year of 2023 was RMB 80.4 billion, representing a 62% increase compared to 2022. Excluding the age, Lexi Hua Zhu's hotel turnover grew 66% year-over-year to RMB 73.3 billion. Now let's turn to page 19. Since China lifted the travel restriction in late 2022, We saw a strong rebound in leisure travel and a gradual recovery in business travel throughout 2033. The landed red power for Lake Sihua to reach RMB 242, representing a recovery of 122% compared to the 2019 level, and a year-over-year increase of 54%. The robust red power growth was primarily driven by ADR, which raised 27% to RMB 299 in 2023. which was mainly due to our product exchange, as well as continued product upgrade over the last few years. Occupancy rate also improved throughout the year to 81% for the full year of 2023. Now, page 20. For the age business, full year 2023 blended repa grew 14.5% year over year to Euro 71, which was driven by 1% increase in ADR and a 7% increase in occupancy rate to 63% OCC. Now please turn to page 21. In 4Q2033, our total revenue for the group increased 51% year-over-year to RMB 5.6 billion, exceeding our previous guidance of 41% to 45% year-over-year growth. For the full year of 2023, our group revenue increased 58% year-over-year to RMB 21.9 billion, of which Lexi Huazhou achieved 64% year-over-year revenue growth to RMB 17.4 billion, and the DH grew 39% year-over-year to RMB 4.4 billion. The revenue growth of Lexi Huazhou was driven by the strong travel demand in China. as well as our continued product grade and market penetration throughout regional offices. For DH, its revenue growth was attributable to the market recovery on network expansion as well as favorable exchange rate. Now please turn to page 22. Hotel operating costs for RMB $4 billion in the fourth quarter of 2023. and RMB 14.3 billion for the full year of 2023. The year-over-year increase was primarily due to our business recovery, and the QOQ increase in the fourth quarter was mainly due to RMB 200 million impairment loss on the legacy Huazhou level, as well as RMB 162 million impairment from legacy DH. The increase of our hotel operating costs was slower than our revenue growth, reflecting operating leverage of the business. Now, pre-opening expenses reduced meaningfully as we continued to execute our asset life strategy and become more selective on opening leased and owned hotels. SG&E expenses were RMB $970 million in the fourth quarter of 2033 and RMB $3.2 billion for the full year of 2033. The year-over-year increase in SG&A were mainly due to increased personnel costs, OTA commissions, and promotional expenses along with business recovery. Overall, we achieved operating leverage and delivered income from operation of RMB $757 million in the first quarter of 2023 and RMB $4.7 billion for the full year of 2023 compared to operating loss. in the fourth quarter and the full year of 2032. Turning to page 23, Legacy Huazhou reported adjusted EBITDA of RMB 1.3 billion in fourth quarter 2033 and RMB 6.8 billion for the full year of 2033. Please take note that the reported adjusted EBITDA consistent of several one-off items, including around RMB 519 million gains from selling core shares and other investments, and around 213 million RMB COVID-related tax subsidy and the rental reduction for the full year of 2023, and also an unrealized foreign exchange gain of RMB 71 during the year of 2033. Now for the full year of 2033, our DH business reported a positive adjusted EBITDA of RMB 87 million. Our group adjusted net income for RMB 657 million in fourth quarter of 2033 and RMB 4.1 million for the full year of 2033. Compared to net loss in the fourth quarter and the full year of 2032, operating cash flow improved significantly, reached RMB 2.4 billion in the fourth quarter of 2023 and RMB 7.7 billion for two years. Now please turn to page 24. As of December 2033, The group had RMB 10.5 billion cash, cash equivalent, restricted cash, and time deposits on hand, and was in a solid net cash position with RMB 5.2 billion net cash, including time deposits. We also had RMB 2.8 billion unutilized bank facilities at the end of last year. Let's turn to page 25. In November 2023, we declared a approximately US dollar $300 million cash dividend, which include a US dollar $200 million regular dividend and a US dollar $100 million special dividend. We also repurchased about US dollar $122 million worth of shares from the market during the fourth quarter of 2023. Fourth quarter. As we become more asset light and cash rich, we'll continue to reward our shareholders with dividends. Now, please turn to page 26 on guidance. For the first quarter of 2034, we expect revenue to grow 12% to 16% compared to first quarter last year. or 11% to 15% excluding DH. For the full year of 2024, we expect revenue to grow 8% to 12% year over year, or 8% to 12% excluding DH. We'll further accelerate our high quality network expansion, setting our growth hotel opening target of around 1,800 hotels in 2024. And we expect to close about 650 hotels. With that, We're ready to take your questions. Operator, please open the line for Q&A.

Thank you. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Once again, it's star 1 1 for questions. Our first question comes from the line of Dan Chi from Morgan Stanley. Please ask your question, Dan.

We want to understand the situation of the contract this year, especially in the last few months, three or four months. In terms of the rhythm of the contract and last year, because we know that last year there may have been some amount of contracts that were prepared before. And this year, does our management have a goal that can give us a specific concept? Then, the distribution of products and cities. For example, last year, our three major districts achieved very good results, and the second-tier cities also performed very well. So, is there any obvious difference between this year's goal and last year's? Then, in terms of opening stores, in addition to signing, before opening stores, General Manager Jin Wei mentioned that Please allow me to translate my question. We would like to understand the recent franchise signing progress. Do we have a target for this year on signing, particularly on products and city distribution? Do you see any significant differences when compared with last year? When it comes to hotel opening, congratulations again on the record high opening last year. I remember CEO Mr. Jing mentioned about one bottleneck of annual hotel opening is supply chain and also construction. I saw you increase your growth opening target to 1,800 hotels this year, another record high. So does it mean that we now have made progress in this bottleneck issue? Should we expect growth opening to gradually increase every year going forward if signing keeps up? Thank you. That's all.

Let me answer this question. I am Jin Hui. Indeed, in the past few years, Huazhou has done some work This is the construction of some structural capabilities. In the past few years, we have been following the three major trends. One is actually the chain of the head brand. As Huazhou continues to strengthen its brand construction and capabilities, we have indeed become the head brand in many different fields. So the chain of the head brand should say that Huazhou does a very good job. The other is to explore the opportunities of the downstream market. Huazhou is also leading in the industry. A few years ago, we started to build the organization, the manpower, and the entire team. At the same time, we are also capturing the structural aspects of consumption, such as tourism and consumer development. We also acquired the feedback of the stage market in the layout of China and Australia. Based on these three structural opportunities, Yeah, let me answer your first questions.

So over the last several years, we did do some of the right things in terms of to improve our capability in terms of organizational operation. But we also get benefits from three major areas. One is the benefits from the continuously generational improvements in the market, especially going to be benefiting the top-tier companies like Edgeworth. By giving these benefits, as well as our continuous efforts on building our brand awareness, we getting a good position in terms of getting to the leading position in different segments such as like economic and the middle skill that we have several brands are at the leading position. The second benefit is from the lower tier cities penetrations. We catch the opportunity several years back and we started to build our organizational capability, our human resources to support the lower tier cities penetration opportunities. Certainly, as we also catch the opportunity for the, for example, the consumption upgrade and also the leisure traveling demand increase, which help us to develop the upper mid-segment.

So based on these structural trends and structural ability construction, Huazhou will maintain a very good contract status this year. We have also disclosed the number of businesses that will re-establish Huazhou history this year, which is around 1,800. So we have maintained a very optimistic trend for this development.

Given our established capability, we are confident that we're going to be having another good new signings for this year as well as the new opening for the year, just like we just give the guidance for the 1,800.

In terms of the supply chain, you are right. Last year, just because of right post-pandemic, there was a capacity bottleneck as well as given the industry recovery was very robust.

However, we don't think the supply chain is going to be the problem or the bottleneck going forward. In fact, there are going to be very good supportive factors for us for future sustainable high-quality growth. Thank you.

Thank you, Dan. Our next question comes from the line of Simon Zheng from Goldman Sachs. Please ask your question, Simon.

Okay, thank you for your sharing. I have two questions. The first one is, as Mr. Kim said, in the past few years, you have benefited from the three benefits. I would like to ask, in the current situation, do you see any other opportunities in the domestic hotel industry? That's the first question, so let me do the translation. The CEO, Ding Zhong, just earlier mentioned that the company has greatly benefited from three macro or structural trends in the hotel industry over the last several years. Just wondering whether he has observed any new structural trend opportunities as well. The second question related to the the margin and the cost. Last year, they did quite well in terms of the EBITDA margins, particularly in the China business. And wondering if management can, whether they can share with us the cost as well as the margins guidance for 2025. Thank you. Thank you.

I will answer the second question first. Regarding the future development of the hotel industry in China, In Huazhou's perspective, this is an important transformation proposed this year, called the transformation of active service. Because we believe that no matter in the economic, in the middle and in the high-end, in addition to the three structural trends I just talked about, we can see more of the versatility of consumers' pursuit of quality. We hope that through the entire company's management culture, organizational capabilities, technology methods, marketing capabilities, etc., China's hotel industry is a world-class industry, and it is also the common goal of China's Huazhou China team. So I think the high-quality development of the hotel industry in the future is an opportunity for China's hotel industry as a whole. Okay, let me answer your first questions.

Apart from the three benefits that I just mentioned, going forward, we think the China laundry market definitely has the opportunity, especially on the service excellence front. No matter there is an economic or middle skill, upper middle skill segment, we observed that the customers have been more looking for a value for money, good products, good service products. So for us, we're definitely going to be around their demands, the customer-centric, to further build up our capability from different and many aspects, including the operational capability, sales capability, as well as the marketing capability, to fulfill their demands. And our management goal is to help the Chinese laundry company to be the world class in the upcoming future. And also including those matured markets. Maybe, for example, some of the markets are getting very matured, but we think there's still a lot of opportunities to redo the market again through the product upgrades through providing good services to the customers. So all in all, we think going forward, the opportunity is going to definitely from the service excellence together with the sustainable growth.

Simon, I will address your second question regarding cost and profitability. Now while we continue to strive for healthy growth and service excellence, we will continue also focus on improving management systems, streamline operation, and meticulously measure ROI of every dollar that we spend. So our overall goal is still to strive for operating leverage, and that's definitely our goal.

Thank you, Simon. Thank you.

Thank you, Simon.

Our next question comes from the line of Ronald Leung from Bank of America. Please ask your question, Ronald.

Hello, everyone. Good morning. Thank you for giving me a chance to ask a question. My first question is about this year's management. What are the expectations of RAFPA? Can you tell us what is the forecast for the first quarter of 2024 and the whole year of 2024? This is my first question. My second question is to ask more about the improvement of service quality. Mr. Guan just said that this year will be more focused on the improvement of service quality. Can you tell us more about the specific measures? Let me translate the two questions that I have. My first question is about the RAFPA growth outlook. What is management expectations for the RAFPA growth in 1Q 2024 and also full year 2024? My second question is about the enhancement of the service quality. Could management advise what could be the areas that the company didn't do well enough in terms of the service quality? And is it possible to provide any specific initiatives to enhance service quality in 2024 and beyond? Thank you very much.

Thank you for your question. Indeed, we have been concerned about the growth of real estate in China since last year, which has benefited from the growth of domestic tourism and training guests. However, the recovery of business is still in a relatively slow stage. Indeed, in 2020, the real estate estimate caused some difficulties for us in terms of high-tech. In the first quarter, tourism and the leisure market still showed a very strong growth, especially during the Spring Festival and the whole leisure holiday period. Therefore, we are relatively cautious about the 2020 RERPA. We maintain a stable or slight growth judgment for the whole year. Regarding the problem of monthly service and service quality, I think this is not a short-term goal. In fact, it is a new thought for Huazhou facing the future. We hope to bring Huazhou's core competitive ability in service and management to a new stage and goal. Huazhou is maintaining a rapid and large-scale development stage in the future. How can we let our customers experience further improve our stability, reliability, and security? How do we deal with the diversification of Japanese customers? For example, we have a lot of new travel customers, including new customers in many vertical areas. For example, now there are a lot of marathon enthusiasts running marathons every weekend. How do we serve these customers? How do we do a marathon? How do we have the experience of entering the competition? We have a lot of new needs, a lot of diversification needs. to accurately and efficiently meet the needs of these new customers. This is one aspect of our employment service. So employment service is not a one-year goal, nor is it a slogan. We are an ideal team that drives the company to the next stage. We hope that Huazhou's core competitiveness will have a comprehensive improvement in the future. Thank you.

Okay, let me answer your first question in terms of the REFPA. So again, last year, post the pandemic, and for the entire year, we clearly see that the REFPA recovery was mainly driven by a very strong leisure traveling demand. But however, the business traveling demand was relatively slower compared to the leisure in terms of the recovery. Therefore, given the high base of 2023 REFPA, Now, 2024, we're going to be a little bit conservative, so that's why for the full year, we expect that the REFPA are going to be fledged to a low single-digit growth on a year-over-year basis. For your second question, in terms of the service quality, so definitely the service excellence is not our short-term goal, but the long-term. So for us, we put this into our strategy because we think it can help us to grow into the next stage. Clearly, we are seeing that not only that we are rapidly growing our networks, but also the customers are evolving rapidly as well. we are now facing a lot of, you know, diversified group of new customers, and we are trying to use both products and services to further improve their experiences and satisfactions. For example, just give you an example for the new group of customers, like there are a lot of, you know, marathon events host everywhere in China. So how we can fulfill their demands But their demands might not be the same as those general business travelers. So, again, what I want to emphasize is the service excellence strategy is not the short-term goal for the company, but it's a long-term goal for us. It's not a slogan. It's actually it's our management goal to bring the company growing to the next stage. Thank you.

Thank you, Ronald. Our next question comes from the line of Sijie Lin from CICC. Please ask your question, Sijie.

Thank you, Manager Ceng. I want to ask, I don't know if it's convenient to share, about the growth of the rough patch in the first quarter. I'll translate my questions into English. So what's the REFPA guidance for Q1, which you might share with us? And we got a higher growth opening and net opening this year, which we think is a very good thing and achieve a real high-quality growth. So considering that we are opening hotels with higher REFPA, meanwhile closing hotels with bad performance, so how much percentage of REFPA growth will be contributed by this mixed upgrade? Thank you.

Thanks for your question, Sijie. In the first quarter, our RARPAR probably will grow around the low single digits. And as you mentioned, we will maintain a healthy growth with service excellence. However, in the meantime, we also encourage you to look at and select drivers other than RARPAR. RARPAR is definitely one of our drivers, but we're rapidly shifting from a heavy model to SLI model. And more and more, franchise and franchise hotels will be open throughout the year. And therefore, there will be different drivers that drive our growth in the future. And that's something we can discuss. And while we are opening more and more mid-upscale hotels, we are also sinking into low-tier cities. So the impact of new hotels to our rare part will be blended. Thank you, Sujie, for your question.

Thank you, Sujie. Thank you. Our next question comes from the line of Lydia Lin from Citi. Please ask your question, Lydia.

我们今年其实就是说有比较一定的提速 那么也想问一下在当下环境下 咱们的家门商的目前那个开店的信心是怎样子的 我们今年是否会增加一些给就是家门商的一些支持 另外一个问题呢也想再跟进一下就是我们的海外业务DH那边的 那去年呢就是EBITDA就是恢复了一个阵的 那么我也想了解一下公司今年对于 Thank you. Lydia, do you want to translate? Oh, sorry. Let me translate the question first. And so my first question is, like, what to follow up on the store opening. Actually, the pace of the store opening accelerated this year. So I want to check how about, like, the franchise confidence currently in the market given the macro conditions. And also, is the company going to actually provide more support to the franchisees? And my second question is on the overseas business, the DH business. And so it's already like to have the like a positive EBITDA for last year. And so how to actually like to further drive the profitability this year and a target for this year? Thank you.

It's a good way to pay back. It's a very important strategic work in our work. This year, we are really focusing on the job service of the contractors, so that the contractors can enjoy better service in such a convenient way. We are planning some specific measures and policies. On the one hand, we can allow more old contractors to continue to open stores, and repurchase to get a better profit. At the same time, we also guarantee the speed of their opening. As for new areas, we are also capturing a lot of new projects. We have new projects, especially in the lower market and the middle and high-end sectors. We have some new types of projects that we have never touched before, especially local developers, including some governments and state-owned enterprises. Thank you.

Let me answer your first question in terms of the franchisee. So definitely a healthier return or ROI for franchisees is very important. That's what we are putting a lot of efforts on to helping them to get a good return to open every hotel that can help them to make the money. So we definitely will again provide a good service just like what we discussed before. We also going to provide a good service to the franchisees and also some of the supportive policy to help them to continuously open a good hotels. For some of the existing franchisees, we definitely can help them to open every hotels and with a good return. And for the new franchisees, especially for the new regions and new segments, for example, the lower tier cities and upper mid segment, we are dealing with a lot of new franchisees that was not existing before. For example, a lot of local property companies, governments, as well as the SOEs. All in all, for the franchisees, definitely what we are trying to do is providing their good services and supportive policies just to ensure that every hotel they open, we are going to have a good return and ROI.

Hey, Lydia. I'm going to answer your second question about DH's probability and cost structure. Now, firstly, we're determined that DH will move steadily to asset-light business model, and we are making progress in that area. And secondly, DH is trying their best to achieve operational efficiency by creating a lean and mean organization. And thirdly, we are actually meticulously measuring our eye on all major capital and operational spending in DH business level. And with all that effort, we are determined to help DH gradually improve their profitability and gradually turn cash flow positive. Thank you, Lydia, for your question.

Thank you. We have reached the end of the question and answer session. Thank you very much for all your questions. I'll now turn the conference back to the management team for any additional closing comments.

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

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