H World Group Limited

Good day and thank you for standing by. Welcome to HWorld Q1 2024 earnings conference call. At this time, all participants in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during a session, you need to press star on one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jason Chin, Senior Investor Director.

Please go ahead.

Thank you, Maggie. Good morning and good evening, everyone.

Thanks for joining us today. Welcome to Edgeworth Group 2024 First Quarter Earnings Conference Call. Joining us today is our Chairman, Mr. Ji Qi, our CEO, Mr. Jin Hui, and our CFO, Mr. Zou Jun. 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 findings with the SEC. Edgeworth Group does not undertake any obligations to update any forward-looking statements except as required under applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliations of those measures to comparable GAAP 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.edgeworld.com. With that, now I will hand over the call to our CEO, Mr. Jin Hui, to discuss our business performance in the first quarter of 2024. Mr. Jin, please.

Thank you. Hello, investors and analysts. In 2024, we achieved a good start. First of all, let's look back at China's business performance. Please turn to the third page. China's GDP per capita is 216 yuan, which is 3.1% compared to China's GDP per capita. ADR is 280 yuan, which is 1% compared to China's GDP per capita. Export rate is 77.2 yuan, which is 6.6% compared to China's GDP per capita. The overall business performance is relatively stable, which also meets our annual expectations.

We had a relatively good start for 2024. Let's firstly review our Lexi Huazhou's operational performance during the quarter. Please turn to page 3. In the first quarter of 2024, Lexi Huazhou's blended rough power reached RMB 216, representing a growth of 3.1% on a year-over-year basis. ADR grew by 1% to RMB 280, and occupancy rate grew by 1.6 percentage points to 77.2%. The business performance was quite stable during the quarter and was within our expectation at the beginning of the year.

In terms of newly opened stores, if we exclude soft brands, China's opening stores in the first quarter reached 569 stores, and the number of closed stores in the first quarter was 148 stores, which decreased by 61 stores compared to the same period last year. If we exclude low-quality soft brands and the impact of the COVID-19 pandemic, the number of closed stores was only 72 stores, which decreased by 15 stores compared to the same period last year. As you can see, after a few years of rapid growth, strategic acceleration, elimination, and upgrading of low-end hotels, our key numbers are gradually regaining normal. From the perspective of pipe hotels, although we opened 569 hotels in the first quarter, the number of pipe hotels in the last seven months has reached 3,138, which is a new high. This shows the strength of Huazhou's strong brand power and the attraction to the family business.

In terms of hotel network expansion, we are happy to see that some important strategic adjustments and changes we made in the past few years, such as organizational upgrades, establishment of regional headquarters, and a sustainable quality expansion strategy are rapidly achieving positive outcomes. Please turn to page 4. On hotel opening front, Lexi Huazhou opened 569 hotels in the first quarter. The number of hotel closures was 148 in the first quarter, a 61 hotels decline from the same period of last year. If excluding low quality economic soft brand and hunting 1.0, we closed only 72 hotels, 15 hotels less than the same period of last year. Our future hotel closures should gradually reach a more normalized level after rapid cleanup and upgrade process over the last few years in our sustainable quality growth strategy. More importantly, our pipeline further grew to a record high of 3,138 at the quarter end, despite our 569 new openings during the quarter. It further demonstrated our strong brand power and increasing attractiveness to franchisees.

The rapid expansion of the company's hotel network is inseparable from our strategic deployment of economic and medium-sized hotels as the core of deepening the general market. Please turn to page 5. As of the first quarter of 2024, the ratio of Chinese economic and medium-sized brands, Zain Hotel, Guandao Hotel and Xinkai Hotel is 92%, 84% and 92%.

Our limited service segment, which serves the mass market, remains our key strategic focus. Our economic and middle-skill products continuously to be the key driver for our rapid network expansion. Breaking down our hotels in operation, hotels in pipeline, and hotel openings in the first quarter of 2024, the proportion of economic and middle-skill hotels were 92% 84% and 92% respectively.

In the context of current consumer habits, preferences, and quick changes in taste, timely product upgrades to better satisfy and approach consumer needs are very important. This is also one of the key factors that continue to strengthen brand competitiveness and attract business owners. In the past few years, Huazhou has continued to upgrade its products to all major brands, using the company's limited iron triangle brand as an example. It is critical to constantly upgrade products in a timely manner in order to better meet and satisfy customers' needs.

as we are seeing our customers' consumption behavior, preference, and tastes are changing rapidly and frequently nowadays. It is also one of the most important building blocks to enhance the competitiveness of our brand and gain attractions from franchisees. In the past years, we constantly introduced new upgraded versions of our major brands, using our Iron Triangle brand in the limited service segment as examples. Please turn to page 6. The proportion of hunting 3.5 and above steadily increased from 11.8% as of 2020 to 29.8% as of 2023 and further to 33.2% as of the first quarter of 2024.

Please turn to page 7. For our G-hotels in operation, the proportion of G-hotel 4.0 and above products increased from 30% as of 2020

to 65.7% as of 2023, and further rose to 69% in the first quarter of 2024. Please turn to page 8. The latest luxury products of Juzi increased from 58.4% at the end of 2023 to 75.7% at the end of 2020.

In short, the iron triangle brand formed by Hanting, Quanji and Juzi Please turn to page 8. As of the first quarter of 2024, the latest LOHA versions of Orange Brand accounted for 75.7% in its pipeline, increased from 58.4% as of 2023.

In conclusion, Our Iron Triangle brands, including Hunting, G-Hotel, and Orange, has been further strengthening their brand and product power through consistent product upgrades.

Of course, as we continue to go down and open up the market, we also have some new needs and consumer needs. Therefore, in addition to Iron Triangle, we are also constantly creating new products to meet the needs of different customers and markets. In the first quarter of this year, based on the mature experience of Hanting, we launched a new version of Ni Hao Hotel. Ni Hao Hotel will be a strong supplement in the national market as a Hanting brand, especially in the lower market, to meet the needs of the new generation of young consumers. Please look back to the ninth page. The new Ni Hao 2.0 uses contemporary aesthetics to incorporate many Chinese traditional colors and text symbols to show the current era of democratic confidence. to provide consumers with more choices in terms of aesthetics. At the same time, Nihao has integrated some clean and healthy food, such as Chinese snacks, tea and drinks, into the service module of the hotel's public area. This is more in line with the consumption concept of young consumers pursuing cost-effectiveness and experience. The new Nihao will strongly collaborate with Hanting to further advance its status in the national hotel market.

As we continued penetrating into lower tier cities and the new markets, some new demands and a new group of customers emerged. Therefore, in addition to our Iron Triangle brand, as we mentioned above, we are also constantly developing new products to better meet the needs of different customer groups and market conditions. In the first quarter of 2024, based on our very matured and successful experiences of hunting, we launched a new version of Ni Hao Hotel. The new Ni Hao is positioned as a complementary brand for Hanting in the economic segment, especially in the lower tier cities. And it is also positioned to cater to the accommodation needs of the younger generations. Please turn to page 9. The brand new Ni Hao 2.0 integrates traditional Chinese color and texture symbols with contemporary aesthetic showcasing the Chinese ethnic confidence and providing consumers with additional choice for different aesthetics. At the same time, through reinvention of new service scenarios, Nihao Hotel has integrated many value-added services such as health preservation concept, popular modern Chinese tea and snacks into the self-service modulus at the hotel lobby. This is in line with the current consumption philosophy of young customers who seek good value for many products but with good experiences. The new Nihao will strongly align with our flagship brand hunting to further solidify our leading position in the economic hotel market. 去拓展方面,我们地铁城市的渗透在持续进行,请大家翻到第十页。

As of the first quarter of 2020, the company's debt has increased by 40% in the three sub- and sub-cities and increased by 1% in the same ratio. The hotel's debt has reached 54% in the three sub-cities and sub-cities. Although the debt has dropped compared to the same period in 2023, the absolute amount is still higher than in 2023. The main reason for the increase in the one-way debt in the hotel In terms of our geographic expansion, we keep penetrating to lower tier cities in China. Please turn to page 10. As of the first quarter of 2024,

40% of our hotels in operation were located in Tier 3 and below cities, representing a 1 percentage point increase year-over-year. At the same time, 54% of the hotels in pipeline were located in Tier 3 and below cities. The proportion of Tier 3 and below cities in pipeline was a bit lower compared to the same period of last year, while the proportion of the Tier 1 cities was a bit higher year-over-year. It was mainly due to a much faster new signings in upper mid-segment as well as in the southern regions. In fact, the pipeline in Tier 3 and below cities was still growing in absolutely number terms. As of the first quarter of 2024, the number of city coverage was 1,290, with 158 new cities added compared to the same period of last year.

Please turn to page 11. The development of our Chinese high-end brand is ongoing. By the end of the first quarter of 2020, the number of Chinese high-end retail hotels has reached 686, which is 28% more than before, and 6% more than before. And the number of pipe hotels is 430, which is 81% more than before, and 11% more than before. The rapid increase in the number of pipes has confirmed that our Chinese high-end products are increasingly being recognized and admired by consumers.

Please turn to page 11. Our upper-mid scale segment development is continuously progressing. As of the first quarter of 2024, there were 686 upper-mid hotels in operation, representing a 28% year-over-year increase and a 6% quarter-over-quarter increase. and there were 430 upper-mid hotels in pipeline, representing an 81% year-over-year increase and an 11% quarter-over-quarter increase. The fast-growing pipeline further demonstrated that our upper-mid brands, especially our key brands, including InterCity and Crystal Orange, were increasingly gaining recognition and popularity among customers and franchisees. 去年以来受到整体宏观经济的影响,

we see that the overall business market has recovered relatively slowly. However, the rapid development of Huazhou's retail business has well replenished some of the shortcomings of commercial retail customers. Please turn to page 12. In the first quarter of 2024, the number of part-time jobs set by enterprises exceeded 5 million, which increased by 34 percent. The number of active enterprise customers exceeded 2,700, which increased by 57 percent.

Since last year, the business traveling has been recovering relatively slower due to weaker than expected macroeconomic. Nonetheless, our direct B2B business was growing quickly, which partially offset some recovery gaps from individual business travelers. Please turn to page 12. In the first quarter of 2024, the number of room nights booked directly via our B2B platform was more than 5 million, representing a 34% year-over-year increase. The number of active corporate clients surpassed 2,700, representing a 57% year-over-year increase. We believe that by continuing strengthening our direct B2B sales capability, we could better cope with the potential volatility of business traveling and achieve a more sustainable business development in the long run. 接下来是海外业务的部分,请大家翻到第三页。 DH一季度热帕为58元欧元,同比增长4.5%,其中ADI为104元,同比增长0.2%,

Moving to our oversea business, please turn to page 13. DH's blended REVPAR grew 4.5% year-over-year to 58 euro in the first quarter of 2024,

which was driven by 0.2% increase in ADR to 104 euro, and a 2.3 percentage point increase in occupancy rate to 55.8%.

Last quarter, we mentioned that DH's strategic focus in 2020 is to explore international opportunities. We are very pleased to see that DH has made some initial progress. Please turn to the 14th page. As of the first quarter of 2024, Last quarter, we mentioned that one of our DH's strategic focus in 2024 is to seek growth opportunities internationally.

We are pleased to see that DH has made some initial progress. Please turn to page 14. As of the first quarter of 2024, 53% of hotels in operation were located in Germany. However, only 38% of pipeline hotels were located in Germany, and the remaining hotels were located in other European countries, APAC regions, and Africa, which accounted for 41%, 15%, and 6% respectively. 以上就是华族2020年一季度业务的情况更新。 下面有请我们CFO周星为大家展示华族2020年一季度经营和财务方面的内容。 All above concludes our first quarter 2024 business updates. Now I will hand over the call to our CFO, Mr. Zhou Jun, to discuss our operational and financial performance during the quarter.

Thank you, Jinghui. Good morning and good evening to everyone. Let's go through our operational and financial review for the first quarter of 2024. Please turn to page 16. In the first quarter, we continue to expand our hotel network. Our overall number of rooms increased 17% year-over-year to over 955,000 rooms as of first quarter, compared to over 820,000 rooms as of first quarter last year. Our hotel turnover for the first quarter of 2024 was RMB 19.7 billion, representing a 21% increase compared to first quarter last year, including DH. Legacy Huazhou's hotel turnover grew 22% year-over-year to RMB 18.1 billion. Now please turn to page 17. In first quarter 2024, our total revenue for the group increased 18% year-over-year to RMB 5.3 billion, exceeding our previous guidance of 12% to 16% year-over-year growth. Legacy Huazhou achieved 18% year-over-year revenue growth to RMB 4.2 billion, and DH grew 17% year-over-year to RMB $1 billion. The revenue growth of Legacy Hua drew surpass the high end of our guidance, mainly driven by high unexpected hotel openings. For DH, its revenue growth was attributed to market recovery and favorable exchange rate. Please turn to page 18. Hotel operating costs were RMB $3.6 billion in the first quarter of 2024. The year-over-year increase was primarily attributable to the increase of staff costs from our continued network expansion and reduced the rental reliefs in China. The increase of hotel operating costs was slower than our revenue growth, reflecting operating leverage of our business. Pre-opening expenses remained at a low level as we continued to focus on our asset-light expansion strategy and become more selective on opening lease and own hotels. SG&A expenses were RMB $769 million in the first quarter of 2024 and accounted for 14.6% of total revenue. The year-over-year increase in both absolute number and percentage of revenue of SG&A expenses were primarily due to continued business growth, as well as return to a normal level of selling and marketing expenses, headcount number, and compensation from the relatively low base of the same period of 2023, especially for our legacy Huazhou business. As a result, our income from operations in the quarter achieved RMB 1.0 billion, representing a 51% year-over-year growth increase. Now please turn to page 19. In terms of our profitability and cash flow during the quarter, I'd like to firstly highlight that we have redefined our non-GAAP measure of adjusted EBITDA and adjusted net income in the quarter in order to better reflect the profitability from our core business operation. The new adjusted EBITDA and net income now excluded share-based compensation expenses, gain or loss from fair value exchange of equity securities, foreign exchange gain or loss, net and gain loss disposable of investments. We also have restated our adjusted EBITDA and adjusted net income for the first and fourth quarter of 2023 to provide a comparable basis. Under the new definition, in the first quarter of 2024, Legacy Huatru adjusted EBITDA achieved a 32% year-over-year increase to RMB $1.5 billion. Thanks to continued business growth and our asset line strategy, Our DH business reported a loss of adjusted EBITDA of RMB 66 million, which narrowed down from a loss of RMB 98 million in the first quarter of last year. Adjusted EBITDA margin for the group and legacy Huazhou achieved 27% and 35% level, representing 4% and a 3.5% year-over-year improvement, respectively. Our group adjusted net income were IMB 771 million in the first quarter of 2024, representing a 101% year-over-year increase. Our first quarter operating cash flow decreased year-over-year, mainly due to increasing payable to franchisees in first quarter of last year post reopening. And the quarter-over-quarter decrease was due to timing difference of compensation and franchisee fee payment. Now please turn to page 20 on liquidity position. As of first quarter 2024, the group had RIMB 8.9 billion cash, cash equivalent or restricted cash, and time deposits, and was in a solid cash position with RIMB 3.1 billion, including time deposits. Our cash balance and net cash decreased compared to the previous quarter, which was primarily driven by payments of dividends in the first quarter 2024. We also had RMB 2.4 billion in utilized bank facility as of first quarter 2024. Now, let's turn to page 21. During first quarter 2024, we paid roughly RMB 300 million cash dividend and repurchased roughly US dollar 75 million worth of shares from the market. As we become more asset light and cash rich, we'll continue to reward our shareholders through dividend and buybacks. Finally, please send to page 22 on our guidance. For the second quarter of 2024, we expect our revenue to grow between 7% to 11% compared to second quarter of last year, or 7% to 11% excluding the age. With that, we're ready to take your questions. Operator, please open the line for Q&A.

Thank you. We will now conduct the Q&A session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by as we compile the Q&A roster. Our first question comes from Roland Leong of Bank of America. Please go ahead.

Good morning, Director. Thank you for giving us this opportunity to ask questions. I have two questions. The first question is, what is the forecast for RAFPA in the second quarter? This is the first question. The second question I would like to ask is about DH overseas. Let me translate my questions in English. I have two questions. My first question is about RAFPA So what is management expectations for RAFPA growth for domestic China business in 2Q? My second question is on DH. For DH, management targets to adjust the business to asset light business and target to sell the asset heavy business gradually. So how's the progress of the disposal? Does management have a timeline for the disposal? Thank you very much.

I am Jinghui. Let me answer these two questions. Indeed, everyone is concerned because the second quarter of last year is a very high-tech hotbed. Because last year's May 1st was the first centralized release of the repair tourism market after the epidemic recovery. And supply recovery, is also relatively low, resulting in a very high rate of recovery. This has led us to face some challenges this year in terms of Wuyi and some tourism seasons. Of course, we are still very confident, because through this data this year, we are more convinced that China's tourism and leisure markets are sustainable. There is a large number of such new population, Let me answer your first question.

As you may know that last year, the second quarter actually was a bit high base, especially during the May holiday. As you may know that the May holiday last year was the first long holidays post the recovery, opposed to the reopening from the COVID. So there's a lot of, you know, revenge, traveling, kind of demands. in the second quarter, and also on the supply side, the supply recovery was a bit slower at that time in the second quarter of last year. Therefore, given the high basis of last year's second quarter, we are facing a little bit of challenges for the REFPA in the second quarter of this year. Therefore, we are expecting the REFPA for this quarter will be flat as to slightly negative as of now. However, given the traveling activities, especially the number of travelers during the holiday, we are still quite confident because the population number of travelers are still growing quite healthily during the holiday and in the second quarter as well, which gives us more confidence that the leisure traveling demand is actually sustainable in a longer-term perspective and becoming an inelastic demand for the Chinese consumers. And even though the REFPA might have a slightly negative in the second quarter, but through the hotel network expansions, we still could achieve a 7% to 11% year-over-year revenue growth.

The second question is about the DH. The strategic transformation of green real estate is the strategic direction of DH that we all proposed together. We hope that DH can become a very strong hotel management company with international development in brand and management. In addition, the green real estate of Germany is a long-term strategic transformation for us. As you all know, the negotiation involved in the process of green real estate is still quite complicated. The asset line strategy for our DH business, which we mentioned in last quarter, is our long-term target.

Because we want DH to become a more international brand, a hotel brand and a management company. But as you may know, transforming from asset-heavy to asset-line takes a bit longer time and a lot of complicated and complex negotiation with the potential counterparties. But the long-term strategy won't change. So far, the progress is still within our expectation. So in terms of the closure time, as long as there is a milestone, then we will just release to the market on time. Thank you.

Thank you. Our next question comes from Dan Chee of Morgan Stanley. Please go ahead.

The first question is about direct electricity hotels. We see that the management performance of direct electricity hotels is excellent. The growth rate of REVPAR is also faster than that of Jiameng and Jituan. At the same time, REVPAR can also achieve such an excellent performance. I would like to ask the management to talk about this. What kind of work have we done in direct electricity hotels? There is also a sustainability here. Is there any way to be able to copy this joint management? This is my first question. The second question is relatively I want to ask about the situation on the side of joint management, which is the income of joint management. I see that the income rate of joint management is about 7%. I want to know this. We have some significant improvements. Please allow me to do the translation. Thank you, management, for the opportunity and congratulations on first quarter's results. I have two questions. First question is about lease and operated hotels. We saw the L&O hotels operating performance outperformed franchise business. L&O RevPass growth rate year-on-year was faster than the group's RevPar growth rate by six percentage points. The same is happening to same-store RevPar growth, also outperformed Franchise Hotel and also the group's overall performance. We're wondering what has management done to improve both occupancy and ADR, especially occupancy. for lease and own hotel and its sustainability and is it replicable towards the franchise hotel management. My second question is about franchise hotel business. We saw that take rate for F&M increased by 7%, which is about 0.5 percentage point. We know that take rate sometimes get impacted by seasonality. We're wondering is this techway increase sustainable? Any other reasons such as recurring franchise fees or CIS? That's all for my questions. Thank you.

Thank you. Let me answer this question. First, regarding the performance of Zingdian, indeed, in the past two years, we have invested in management resources from the company's point of view. As Zingdian, as a more complex management, from the front end of the investment period to the operation period, we have increased the attention and professionalism of the management, which is also due to the encouragement of the first-tier managers and the arrangement of key personnel. This result is indeed from the improvement of our management capabilities, and the positive results brought by the comprehensive improvement. Here, we have accumulated a comprehensive financial strategy that is more in-depth to the door chain. I think that in the future, Okay, in terms of the leased and owned hotels, their performance actually is better than the group franchisees.

That was because over the last two years we have been investing quite a lot of management resources into the leased and owned hotels because running a leased and owned in terms of the operation and the management is quite complicated. Therefore, from the initial investment period to the operational period for the entire life cycle of this hotel business, we have been investing a lot of management capability. For example, we have assigned a good staff hotel manager, for example. This is basically in conclusion is the improvements of our management capability for running a hotel operation. And we believe that this kind of capability, which has been demonstrated from the lease and own, can be replicated to other hotels, which is, as you mentioned, in the franchised or miniaturized hotel.

From long-term growth, we have continued to increase the number of members on the core of Huazhou. This is an improvement factor. The second is that part of TickRate is the collection of staff wages. In fact, it is the collection of two parts. So the increase in staff wages is also an objective factor. In addition, we are actively expanding the management fee for management stores. Part of it involves the refined management of the discount discount. Through this refined management, we have reduced the discount to a certain extent, similar to the discount and discount of management fees. Increased accuracy reduces such a discount rate. I think it is an impact of multidirectional factors. In terms of the increase in take rate,

There were mainly three reasons. Firstly, it's continuously increasing the CRS as we continuously focus on our direct sales capability through our EdgeWord app. This is one of the reasons. Secondly, it's because of the wage increase or the staff cost increase, especially at the hotel level for both our leased and owned and the franchise hotel, which is the hotel managers. we are doing a more deep diving and going into more details in terms of the management for our management, managed hotel, which we reduce the discount rate for our management fee, as well as one-time franchise fee, which is also contribute a little bit to the improvements of the take rate. So the take rate increase is a result from many factors, but the staff cost increase is kind of not able to avoid because the salary increases the general trend in the market. Thank you.

Thank you, Mr. Ting and Jason.

Thank you. Our next question comes from Simon Chu of Goldman Sachs. Please go ahead.

Thank you for your sharing, Manager Chen. I have two questions. The first question is, I saw that your opening speed in the first quarter was better than expected. I remember you said that you had about 1,800 stores in the whole year. Now, in the first quarter, you have about 600 stores, which is more than 30%. So, I would like to ask Manager Chen, what is your plan for opening the whole year? And because you just mentioned that the second quarter of the red part may be a little weak. So if you add it up, will the annual income index change? I remember last time you said it was 8 to 12%. This is the first question. And then the second question is to ask the merchant's question. 我们过去几个月常常听到人说Zulisha这块回来还是挺不错的,只是商旅这块比较慢。 刚才也听到你们做B2B这块做得挺不错的。 I would like to ask you how you see the progress of the second half of the year and B2B. You just shared that there are 2700 customers, which is about 60%. I don't know where the opportunity is in the long term. Let me translate into English. So my first question is in relation to the Stronger Than Expected Hotel Addition 569 Hotel Addition. The first quarter already representing over 30% of the original guidance of 1,844 years originally. On top of that, we have a RAPA according to management in the second quarter, it would be likely going to be softer. So wondering whether they would have any revised guidance for both the hotel ads as well as the 8% to 12% full-year revenue guidance. And my second question is for the business travel. We've been hearing from other operators sharing that business travel so far has still been quite weak. What is the trend they expect looking into the second half? And because they're obviously doing quite well on the B2B strategies with 2,700 clients, up 60% almost, how do they think about the long-term opportunity on the business travel or B2B segment in general? Thank you.

Thank you. Let me answer this question. Before answering the first question, I would like to explain the strategic transformation of Huazhou to the investors and analysts. Two years ago, Huazhou proposed a strategic transformation of economic development. We want high-quality to reach a faster speed. We hope that our development will focus on our flagship stores, focus on the development of higher-quality stores. We no longer hope for blind opening. So in the whole development strategy, this year is even more in this technology proposed China-China面向卓越服务的战略的转型。都是希望华洲在中国有更高质量,更好体验的这样的用户体验的这样的战略的转型。所以对于规模上,我们依然保持一个对经济发展,高质量发展,企业链发展的这样的一个关注。我们更希望我们而不是盲目的数量的 So in terms of the hotel openings, before answering these questions, we want to remind you guys that

Since two years ago, we started our sustainable high quality expansion strategy. So our hotel network expansion will be only focusing on flagship hotels as well as the high-quality expansions. And this year, as you remember, last quarter, we also introduced a service excellence strategy for the upstep from the high-quality expansion and to be more focused on both product quality and service quality improvements. So for Edgeworth, in terms of the network expansion, again, we will focus more on the quality and better services instead of only focus on the scale. So therefore, even though we have a pretty good hotel openings in the first quarter, we still maintain our full-year growth opening target unchanged. Thank you.

Guan Yu, Sanli. I think there are two levels to the problem of business. The first one is that from a big business structure, it is indeed affected by the macroeconomic economy. In fact, we can't do much. China's macroeconomic economy, the entire recovery rhythm and economic growth are indeed affected by many factors at the national level. But Huazhou, in the past two years, has surrounded the business needs of Huazhou business, especially some new scenarios. I think we're in the right direction. I think in the next few years, Huazhou will continue to increase investment and customer satisfaction in the context of Huazhou business and enterprise. OK.

In terms of the B2B business, so firstly, if you're talking about an entire business traveling market, we have to say the business traveling market is a bit slower. In terms of the recovery, this is mainly due to the impacts from the weaker than expected macroeconomic development since the reopening last year. However, over the last two years, we have been putting a lot of efforts on the B2B direct sale business and catching up some of the new demands. New scenarios such as the mice and conferences, which we were not very good at previously, we have been continuously improving our capability in this front and trying to grab as much as new customers through our continuously enhanced B2B sales capability. Secondly, it's hotel-centric on the ground, the sales capability enhancement. We will use the hotel itself as an offline channel to attract more and more local small business clients just to over, as we mentioned, to curb the volatility of the entire business traveling market. Thank you.

Thank you. Our next question comes from Lydia Ling.

of cicg please go ahead lydia please go ahead oh

It's also about the opening. We also saw that the first quarter was also a good growth. So how do we look at the current situation of the entire industry? So from the current situation, for example, since the opening of the first quarter, what is the background of our new store? Can you share with us the proportion of our new and old store? My second question is that we have seen that the sales cost of the first quarter has increased a lot. The main reason is that the CFO mentioned that we are looking at a year-on-year cost trend and a year-on-year margin. Let me translate it. My first question is on the door opening and we see actually an extension in the first quarter. So how actually does the management look at the industry supply as a whole? and also what's actually like a background for the new franchisees, and what could be the mix of the new franchisees versus the existing franchisees. A little bit more color would be very helpful. And my second question is on expense, and we saw that actually the selling expense increased a lot in the first quarter, and as like CFO just said, during the presentation. So how do management look at the full year expense trend and also what could be the margin trend for 2024? Thank you.

So China's chain rate will probably exceed the US market. So our entire industry is still in the process of rapid chain rate. So all companies are enjoying the momentum of chain rate. Of course, in different areas of Xifeng, it may show a different one. In Zhongdao, the chain rate has significantly increased in the past two years. In the national market, the demand for operating efficiency may be higher. Customer demand for quality is higher. So the growth of the chain rate in the normal market is different. So, of course, the second thing you mentioned is about the composition of the furniture shop. We have also shown a very diversified situation. On the one hand, we are very concerned about the retrofit rate of old furniture shops. As a furniture shop satisfaction indicator, we are very concerned. We hope that we can have better performance in the future with both investment and selection of furniture shops. At the same time, in many new downstream markets, OK.

Let me answer your first questions. Over the last several years, the China ratio in China has been rapidly improving in China. At the end of last year, the China ratio firstly exceeded 40% in China, and we believe that the China ratio improvement would be even faster in the future because of the digitalization's capability. The integration of the industrial capability in China was very outstanding. it has the potential to be even higher than the very mature U.S. market in the near future. So a lot of China hotel groups have been gaining benefits from this trend for the continuously trend ratio improvement. However, in different segments, we are seeing some of the differences. For example, the middle scale is much faster in terms of the trend ratio improvement compared to the entire market. But for the economics, it might be need for further efficiency, operational efficiency improvements to further catch up the generational improvements. So this is the first part. The second part in terms of the background of the franchisees, in conclusion, it is quite diversified at this moment. We focus on two aspects. One is for our old franchisees. we also focus on the repurchase rate for our older franchises. We want our franchises to be profitable whenever they open the old hotel. They used to open hotel and they are opening the new hotels. But at the same times, when we are penetrating into the lower tier cities, some new market and new segmenters, we are seeing a lot of new franchises, new type of franchises, for example, the local government, for example, the property developers. So on both sides, From the company's perspective, we take care of both parts of the franchisees. Thank you.

关于第二个问题,关于我们市场交费用的提升, 确实也是来源于两部分,我认为。 第一部分是我们由于开拓新市场,新品牌, 特别是一些文旅的市场,中高端的占比, 我们动用了更多的OTA的营销资源, So in this stage, when we break through the new market and new categories, our third-party sales potential will be high. Of course, we will continue to use Huazhou's sales capability as a long-term construction capability to carry out continuous conversion and continuous repurchase work. At the same time, we also intentionally increased some brand investment in market and brand marketing costs to improve our brand's long-term market visibility and

In terms of the increase in sales and marketing expenses in the quarter, so firstly it is because we are penetrating to the new market and we are penetrating to the new segment and introduce a lot of new products. So especially when we open a new hotel in new markets, At the very initial period, we need the resources and support from the OTA. However, that should be a temporary impact because on a longer-term perspective, we will continuously focus on our direct sales capabilities through our own channels. This is one. Secondly, we purposely added some of the budget on the marketing expenses, especially for some of the new brands and new segments. that we want to further improve the brand awareness and the recognitions for these particular brands into the market in order to get more attraction from the customers and the franchisees as well. Thank you.

Thank you. Our last question comes from C.G. Lin from CICC. Please go ahead.

Thank you, Director Wang. I have two questions. The first one is, we just mentioned that the first quarter is opening up very quickly.

How is the progress of the low-intensity market and the low-intensity market to increase the penetration rate? Are there any business performance of these markets that can be shared? The second one is, we mentioned that we have long-term service and supply chain upgrades, which may be one of our important strategies in the future. How is the progress in this area? Have we seen any improvement in some indicators, such as the price of single rooms or Repa? So thank you, management. I have two questions. The first is that we mentioned before we aim to penetrate more into low tier cities and regions with low density. So how's the progress and is there any operating data in this market you could share with us? And my second question is that we also mentioned before that one of our key strategy is to upgrade supply chain. and to improve service quality. So how's the progress, and is there any indicator that can prove this progress, maybe such as Per Room KTEX or RepPath? Thank you.

Okay, I'll answer this question. First of all, I'm also very happy to share with you that in the past, we've had continuous improvements and improvements in the South China Sea, Huaxi, and also in Huazhou.

In terms of your first questions, I'm very happy to let you know that we have been progressing pretty good into those previously less penetrated areas as well as the weak segments previously. The entire improvements and the process are satisfying, are meeting the management's expectation.

Regarding the job service, I would like to communicate with the investors. In the first stage, Huazhou used Huazhou's efficiency, cost priority, and scale to realize such a leader in China, Lianchuhua Hotel. We think these are not enough. Huazhou's future, how it can be used in the Chinese market and even in the world market, We have to use service and experience to establish this kind of management capability in the customer center to become an important opportunity for us to improve and sell to a new level in the next stage. So, the job service is a strategic transformation and a long-term goal for Huazhou. Because we have launched a large number of projects this year, of course, we have very detailed indicators for the number of customers. We have limited time today. In terms of the sales excellence, we mentioned last quarter.

So previously, Edgeworth used high efficiency, low cost, as well as scale to maintain the leading position. But in the future, if we want to further enhance or strength our leading positions in China or even in the world, definitely we need to focus on more service, more user experiences, and customer-centric management capability enhancement as well. So I'll just give you several examples because of the time limits. For the service excellence, we are focusing on the customer satisfaction rate and whether it is improved or not. But more details we will be sharing in the near future. Thank you.

Thank you. This concludes the Q&A session. I will now hand back to Jason for closing remarks.

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

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect. you Thank you. Good day and thank you for standing by. Welcome to HWorld Q1 2024 earnings conference call. At this time, all participants in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during a session, you need to press star on one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jason Chin, Senior Investor Director.

Please go ahead.

Thank you, Maggie. Good morning and good evening, everyone.

Thanks for joining us today. Welcome to Edgeworth Group 2024 First Quarter Earnings Conference Call. Joining us today is our Chairman, Mr. Ji Qi, our CEO, Mr. Jin Hui, and our CFO, Mr. Zhou Jun. 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 findings with the SEC. Edgeworth Group does not undertake any obligations to update any forward-looking statements except as required under applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliations of those measures to comparable GAAP 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 CEO, Mr. Jin Hui, to discuss our business performance in the first quarter of 2024. Mr. Jin, please.

First of all, let's look at China's business performance. Please turn to the third page. China's GDP per capita is 216 yuan, which is 3.1% of the total growth. Among them, ADR is 280 yuan, which is 1% of the total growth. The output rate is 77.2%, which is 6%. The overall business performance is relatively even, which is also in line with our year-end expectations.

We had a relatively good start for 2024. Let's firstly review our Lexi Huazhou's operational performance during the quarter. Please turn to page three. In the first quarter of 2024, Lexi Huazhou's blended rough part reached RMB 216, representing a growth of 3.1% on a year-over-year basis. ADR grew by 1% to RMB 280, and occupancy rate grew by 1.6 percentage points to 77.2%. The business performance was quite stable during the quarter and was within our expectation at the beginning of the year.

In terms of newly opened stores, if software brands are excluded, China's opening stores in the first quarter reached 569 stores, and the number of closed stores in the first quarter was 148 stores, which decreased by 61 stores compared to the same period last year. If the impact of low-quality software brands and Handing 1.0 is excluded, the number of closed stores will only be 72 stores, which decreased by 15 stores compared to the same period last year. As you can see, after a few years of rapid growth, strategic acceleration, elimination, and upgrading of low-end hotels, our power supply has gradually returned to normal. From the perspective of pipe hotels, although we have opened 569 hotels in the first quarter, the number of pipe hotels in the last seven months has still reached 3,138, which is a new high. This shows the strength of Huazhou's strong brand power and the attraction to the family business.

In terms of hotel network expansion, we are happy to see that some important strategic adjustments and changes we made in the past few years, such as organizational upgrades, establishment of regional headquarters, and a sustainable quality expansion strategy are rapidly achieving positive outcomes. Please turn to page 4. On hotel opening front, Lexi Huazhou opened 569 hotels in the first quarter. The number of hotel closures was 148 in the first quarter, a 61 hotels decline from the same period of last year. If excluding low quality economic soft brand and hunting 1.0, we closed only 72 hotels, 15 hotels less than the same period of last year. Our future hotel closures should gradually reach a more normalized level after rapid cleanup and upgrade process over the last few years and our sustainable quality growth strategy. More importantly, our pipeline further grew to a record high of 3,138 at the quarter end, despite our 569 new openings during the quarter. It further demonstrated our strong brand power and increasing attractiveness to franchisees.

The rapid expansion of the company's hotel network is inseparable from our strategic deployment of economic and medium-sized hotels as the core of deepening the general market. Please turn to page 5. As of the first quarter of 2024, the ratio of Chinese economic and medium-sized brands, Zain Hotel, Guandao Hotel and Xinkai Hotel is 92%, 84% and 92%.

Our limited service segment, which serves the mass market, remains our key strategic focus. Our economic and middle-skill products continuously to be the key driver for our rapid network expansion. Breaking down our hotels in operation, hotels in pipeline, and hotel openings in the first quarter of 2024, the proportion of economic and middle-skill hotels were 92% 84% and 92% respectively.

In the context of current consumer habits, preferences, and quick changes in taste, timely product upgrades to better meet and meet consumer needs are very important. This is also one of the key factors that continue to strengthen the brand's competitiveness and attract new customers. In the past few years, Huazhou has continued to upgrade its products to all major brands, using the company's limited-service iron triangle brand as an example. It is critical to constantly upgrade products in a timely manner in order to better meet and satisfy customers' needs.

as we are seeing our customers' consumption behavior, preference, and tastes are changing rapidly and frequently nowadays. It is also one of the most important building blocks to enhance the competitiveness of our brand and gain attractions from franchisees. In the past years, we constantly introduced new upgraded versions of our major brands, using our Iron Triangle brand in the limited service segments as examples. Please turn to page 6. The proportion of hunting 3.5 and above steadily increased from 11.8% as of 2020 to 29.8% as of 2023 and further to 33.2% as of the first quarter of 2024.

Please turn to page 7. For our G-hotels in operation, the proportion of G-hotel 4.0 and above products increased from 30% as of 2020

to 65.7% as of 2023, and further rose to 69% in the first quarter of 2024. Please turn to page 8.

The latest luxury products of Juzi have increased from 58.4% at the end of 2023 to 75.7% at the end of 2020. In short, the iron triangle brand formed by Juzi, Please turn to page 8. As of the first quarter of 2024, the latest Aloha versions of Orange brand accounted for 75.7% in its pipeline, increased from 58.4% as of 2023.

In conclusion, Our iron triangle brands, including Hunting, G-Hotel, and Orange, has been further strengthening their brand and product power through consistent product upgrades.

In the first quarter of this year, based on the mature experience of Hanting, we launched a new version of Ni Hao Hotel. Ni Hao Hotel will be a strong supplement to the national market as a Hanting brand, especially in the lower market, to meet the needs of the new generation of young consumers. Please return to page 9. The new Ni Hao 2.0 uses contemporary aesthetics to incorporate many Chinese traditional colors and text symbols to show the current era of democratic confidence. to provide consumers with more choices in terms of aesthetics. At the same time, Ni Hao, through the remodeling of the service scene, has integrated some clean and healthy food, Chinese snacks, tea and drinks, and other formal services into the service module of the hotel's public area. This is more in line with the consumption concept of pursuing cost-effectiveness and pursuing experience for young consumers at the moment. The new Ni Hao will strongly collaborate with Hanting to further expand its position in the national hotel market.

As we continued penetrating into lower-tier cities and the new markets, some new demands and a new group of customers emerged. Therefore, in addition to our Iron Triangle brand, as we mentioned above, we are also constantly developing new products to better meet the needs of different customer groups and market conditions. In the first quarter of 2024, based on our very matured and successful experiences of hunting, we launched a new version of Ni Hao Hotel. The new Ni Hao is positioned as a complimentary brand for hunting in the economic segment, especially in the lower tier cities. And it is also positioned to cater to the accommodation needs of the younger generations. Please turn to page 9. The brand new Ni Hao 2.0 integrates traditional Chinese color and texture symbols with contemporary aesthetic showcasing the Chinese ethnic confidence and providing consumers with additional choice for different aesthetics. At the same time, through reinvention of new service scenarios, Nihao Hotel has integrated many value-added services such as health preservation concept, popular modern Chinese tea and snacks into the self-service modulus at the hotel lobby. This is in line with the current consumption philosophy of young customers who seek good value for many products but with good experiences. The new Nihao will strongly align with our flagship brand hunting to further solidify our leading position in the economic hotel market. 去拓展方面,我们地铁城市的渗透在持续进行,请大家翻到第十页。

Since the first quarter of 2020, the company's debt has increased by 40% in the three sub- and sub-cities and increased by 1% in the same ratio. The hotel's debt has reached 54% in the three sub-cities and sub-cities. Although the debt has dropped compared to the same period in 2023, the absolute amount is still higher than in 2023. The main reason for the increase in the one-way debt in the hotel In terms of our geographic expansion, we keep penetrating to lower tier cities in China. Please turn to page 10. As of the first quarter of 2024,

40% of our hotels in operation were located in Tier 3 and below cities, representing a 1 percentage point increase year-over-year. At the same time, 54% of the hotels in pipeline were located in Tier 3 and below cities. The proportion of Tier 3 and below cities in pipeline was a bit lower compared to the same period of last year, while the proportion of the Tier 1 cities was a bit higher year-over-year. It was mainly due to a much faster new signings in upper mid-segment as well as in the southern regions. In fact, the pipeline in Tier 3 and below cities was still growing in absolutely number term. As of the first quarter of 2024, the number of city coverage was 1,290, with 158 new cities added compared to the same period of last year. 请大家翻到第十页。

The development of our Chinese high-end brand is ongoing. By the end of the first quarter of 2020, the number of Chinese high-end retail hotels reached 686, which increased by 28% and decreased by 6%, and the number of pipe hotels increased by 430, which increased by 81%, and decreased by 11%. The rapid increase in the number of pipes has proven that our Chinese high-end products are increasingly recognized and admired by consumers.

Please turn to page 11. Our upper-mid scale segment development is continuously progressing. As of the first quarter of 2024, there were 686 upper-mid hotels in operation, representing a 28% year-over-year increase and a 6% quarter-over-quarter increase. and there were 430 upper-mid hotels in pipeline, representing an 81% year-over-year increase and an 11% quarter-over-quarter increase. The fast-growing pipeline further demonstrated that our upper-mid brands, especially our key brands, including InterCity and Crystal Orange, were increasingly gaining recognition and popularity among customers and franchisees. 去年以来受到整体宏观经济的影响,

We see that the overall business market has recovered relatively slowly, but the rapid development of Huazhou's business is a good way to add to some of the shortcomings of commercial retail. Please turn to page 12. In the first quarter of 2024, the number of part-time jobs set by enterprises exceeded 5 million, which increased by 34%. The number of active enterprise customers exceeded 2,700, which increased by 57%.

Since last year, the business traveling has been recovering relatively slower due to weaker than expected macroeconomic. Nonetheless, our direct B2B business was growing quickly, which partially offset some recovery gaps from individual business travelers. Please turn to page 12. In the first quarter of 2024, the number of room nights booked directly via our B2B platform was more than 5 million, representing a 34% year-over-year increase. The number of active corporate clients surpassed 2,700, representing a 57% year-over-year increase. We believe that by continuing strengthening our direct B2B sales capability, we could better cope with the potential volatility of business traveling and achieve a more sustainable business development in the long run. 接下来是海外业务的部分,请大家翻到第三页。 DH一季度热耗为58元欧元,同比增长4.5%,其中ADI为104元,同比增长0.2%,

Moving to our oversea business, please turn to page 13. DH's blended REVPAR grew 4.5% year-over-year to 58 euro in the first quarter of 2024,

which was driven by 0.2% increase in ADR to 104 euro and a 2.3 percentage point increase in occupancy rate to 55.8%. 上一季度我们提到了2020年DH的战略重点之一是探索国际化的发展机会。 我们很高兴地看到DH取得了一些初步的进展。 请大家翻到第14页。

As of the end of 2024, 53% of DH will be in Germany, while 38% of DH will be in Germany. The rest of DH will be distributed to other European countries, such as Asia, Thailand and Africa, with 41%, 15% and 6% respectively.

Last quarter, we mentioned that one of our DH's strategic focus in 2024 is to seek growth opportunities internationally. We are pleased to see that DH has made some initial progress. Please turn to page 14. As of the first quarter of 2024, 53% of hotels in operation were located in Germany. However, only 38% of pipeline hotels were located in Germany, and the remaining hotels were located in other European countries, APAC regions, and Africa, which accounted for 41%, 15%, and 6% respectively. 以上就是华族2020年一季度业务的情况更新。 下面有请我们CF出行为大家展示华族2020年一季度经营和财务方面的内容。 All above concludes our first quarter 2024 business updates. Now I will hand over the call to our CFO, Mr. Zhou Jun, to discuss our operational and financial performance during the quarter.

Thank you, Jinghui. Good morning and good evening to everyone. Let's go through our operational and financial review for the first quarter of 2024. Please turn to page 16. In the first quarter, we continue to expand our hotel network. Our overall number of rooms increased 17% year-over-year to over 955,000 rooms as of first quarter, compared to over 820,000 rooms as of first quarter last year. Our hotel turnover for the first quarter of 2024 was RMB 19.7 billion, representing a 21% increase compared to first quarter last year, including DH. Legacy Huazhou's hotel turnover grew 22% year-over-year to RMB 18.1 billion. Now please turn to page 17. In first quarter 2024, our total revenue for the group increased 18% year-over-year to RMB 5.3 billion, exceeding our previous guidance of 12% to 16% year-over-year growth. Legacy Huazhou achieved 18% year-over-year revenue growth to RMB 4.2 billion, and DH grew 17% year-over-year to RMB $1 billion. The revenue growth of Legacy Hua drew surpass the high end of our guidance, mainly driven by high unexpected hotel openings. For DH, its revenue growth was attributed to market recovery and favorable exchange rate. Please turn to page 18. Hotel operating costs were RMB $3.6 billion in the first quarter of 2024. The year-over-year increase was primarily attributable to the increase of staff costs from our continued network expansion and reduced the rental reliefs in China. The increase of hotel operating costs was slower than our revenue growth, reflecting operating leverage of our business. Pre-opening expenses remained at a low level as we continued to focus on our asset-light expansion strategy and become more selective on opening leased and owned hotels. SG&A expenses were RMB $769 million in the first quarter of 2024 and accounted for 14.6% of total revenue. The year-over-year increase in both absolute number and percentage of revenue of SG&A expenses were primarily due to continued business growth, as well as return to a normal level of selling and marketing expenses, headcount number, and compensation from the relatively low base of the same period of 2023, especially for our legacy Huazhou business. As a result, our income from operations in the quarter achieved RMB 1.0 billion, representing a 51% year-over-year growth increase. Now please turn to page 19. In terms of our profitability and cash flow during the quarter, I'd like to firstly highlight that we have redefined our non-GAAP measure of adjusted EBITDA and adjusted net income in the quarter in order to better reflect the profitability from our core business operation. The new adjusted EBITDA and net income now excluded share-based compensation expenses, gain or loss from fair value exchange of equity securities, foreign exchange gain or loss, net and gain loss disposable of investments. We also have restated our adjusted EBITDA and adjusted net income for the first and fourth quarter of 2023 to provide a comparable basis. Under the new definition, in the first quarter of 2024, Legacy Huatru adjusted EBITDA achieved a 32% year-over-year increase to RMB $1.5 billion. Thanks to continued business growth and our asset line strategy, Our DH business reported a loss of adjusted EBITDA of RMB 66 million, which narrowed down from a loss of RMB 98 million in the first quarter of last year. Adjusted EBITDA margin for the group and legacy Huazhou achieved 27% and 35% level, representing 4% and a 3.5% year-over-year improvement, respectively. Our group adjusted net income were RMB 771 million in the first quarter of 2024, representing a 101% year-over-year increase. Our first quarter operating cash flow decreased year-over-year mainly due to increasing payable to franchisees in first quarter of last year post reopening. And the quarter-over-quarter decrease was due to timing difference of compensation and franchisee fee payment. Now please turn to page 20 on liquidity position. As of first quarter 2024, the group had RIMB 8.9 billion cash, cash equivalent or restricted cash, and time deposits, and was in a solid cash position with RIMB 3.1 billion, including time deposits. Our cash balance and net cash decreased compared to the previous quarter, which was primarily driven by payments of dividends in the first quarter 2024. We also had RMB 2.4 billion in utilized bank facility as of first quarter 2024. Now, let's turn to page 21. During first quarter 2024, we paid roughly RMB 300 million cash dividend and repurchased roughly US dollar 75 million worth of shares from the market. As we become more asset light and cash rich, we'll continue to reward our shareholders through dividend and buybacks. Finally, please send to page 22 on our guidance. For the second quarter of 2024, we expect our revenue to grow between 7% to 11% compared to second quarter of last year, or 7% to 11% excluding the age. With that, we're ready to take your questions. Operator, please open the line for Q&A.

Thank you. We will now conduct the Q&A session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by as we compile the Q&A roster. Our first question comes from Roland Leong of Bank of America. Please go ahead.

Good morning, Director. Thank you for giving us this opportunity to ask questions. I have two questions. The first question is, what is the forecast for the rough part in the second quarter? This is the first question. The second question I would like to ask is about DH overseas. I have two questions. My first question is about RAFPA. So what is management expectations for RAFPA growth for domestic China business in 2Q? My second question is on DH. For DH, management targets to adjust the business to asset-light business and target to sell the asset-heavy business gradually. So how's the progress of the disposal? Does management have a timeline for the disposal? Thank you very much.

I'm Jinghui. Let me answer these two questions. Indeed, everyone is concerned because the second quarter of last year is a very high-tech hotbed. Because last year's May 1st was the first centralized release of repair tourism after the epidemic recovery. And supply recovery is also relatively low, resulting in a very high recovery of high technology, which led us to face some challenges this year in terms of Wuyi and some tourism seasons. Of course, we are still very confident, because through this data this year, we are more convinced that China's tourism and leisure markets are sustainable. There is a large number of such population growth and output rate performance, Let me answer your first question.

As you may know that last year, the second quarter actually was a bit high base, especially during the May holiday. As you may know that the May holiday last year was the first long holidays post to the recovery, opposed to the reopening from the COVID. So there's a lot of, you know, revenge, traveling, pent up demands. in the second quarter, and also on the supply side, the supply recovery was a bit slower at that time in the second quarter of last year. Therefore, given the high basis of last year's second quarter, we are facing a little bit of challenges for the REFPA in the second quarter of this year. Therefore, we are expecting the REFPA for this quarter will be flat as to slightly negative as of now. However, given the traveling activities, especially the number of travelers during the holiday, we are still quite confident because the population, number of travelers are still growing quite healthily during the holiday and in the second quarter as well, which gives us more confidence that the leisure traveling demand is actually sustainable in a longer-term perspective and becoming an inelastic demand for the Chinese consumers. And even though the rough part might have slightly negative in the second quarter, But through the hotel network expansions, we still could achieve a 7% to 11% year-over-year revenue growth.

第二个问题关于DH亲资产化的战略转型是我们一起都提出的对DH的战略方向。 我们希望从长远来看,DH能成为一家具有国际化发展, 在品牌和管理上具有非常强的这样的一个酒店管理公司。 The asset line strategy for our DH business, which we mentioned in last quarter, is our long-term target.

because we want DH to become a more international hotel brand and a management company. But as you may know, transforming from asset-heavy to asset-line takes a bit longer time and a lot of complicated and complex negotiation with the potential counterparties, but the long-term strategy won't change. So far, the progress is still within our expectation, So in terms of the closure time, so as long as there is a milestone that we will just release to the market on time. Thank you.

Thank you. Our next question comes from Dan Chi of Morgan Stanley. Please go ahead.

Thank you, Manager Chen. Good morning, everyone. First of all, congratulations to Manager Chen for achieving an excellent result in hotel network expansion. I have two questions here. The first question is about Zhiyin Hotel. We see that the management performance of Zhiyin Hotel is excellent. The speed of growth of RevPod is also faster than that of Jiameng, and the group has six points. At the same time, the same store can actually achieve such an excellent performance. I would like to ask, please, Manager Chen, can you talk about this aspect? In fact, what kind of work have we done in the branch store? And here is a continuity. Is there any way to be able to copy the management of this joint? This is my first question. The second question is relatively, I want to ask about the situation of the joint. The income of the joint management, I want to know if the rate of income management has increased by nearly 7%. I want to know if the rate of management has increased by nearly 7%. I want to know if the rate of management has increased by nearly 7%. I want to know if the rate of management has increased by nearly 7%. Please allow me to do the translation. Thank you, management, for the opportunity and congratulations on first quarter's results. I have two questions. First question is about leased and operated hotels. We saw the L&O hotels operating performance outperformed franchise business. L&O Rev Pass, both right year and year, was faster than the group's RevPar growth rate by six percentage points. The same is happening to same-store RevPar growth, also outperformed Franchise Hotel and also the group's overall performance. We're wondering what has management done to improve both occupancy and ADR, especially occupancy. for lease and own hotel and its sustainability and is it replicable towards the franchise hotel management? My second question is about franchise hotel business. We saw that take rate for F&M increased by 7%, which is about 0.5 percentage point. We know that take rate sometimes get impacted by seasonality. We're wondering Is this takeaway increase sustainable? Any other reasons, such as recurring franchise fees or CIS? That's all for my questions. Thank you.

Thank you. Let me answer this question. First, regarding the performance of Zingdian, indeed, in the past two years, we have invested in management resources from the company's point of view. As Zingdian, as a more complex management, from the front-end investment period to the operation period, we have increased the attention and professionalism of the management, as well as the encouragement of the first-line managers and the arrangement of the key personnel. This result is indeed a positive result from the improvement of our management capabilities and the overall improvement. Here, we have accumulated Okay, in terms of the leased and owned hotels, their performance actually is better than the group franchisees.

That was because over the last two years, we have been investing quite a lot of management resources into the leased and owned hotels because running a leased and owned in terms of the operation and the management is quite complicated. Therefore, from the initial investment period to the operational period for the entire life cycle of this hotel business, we have been investing a lot of management capability. For example, we have assigned a good staff hotel manager, for example. This is basically in conclusion is the improvements of our management capability for running a hotel operation. And we believe that this kind of capability, which has been demonstrated from the lease and own, can be replicated to other hotels, which is, as you mentioned, in the franchised or miniaturized hotel.

关于第二个问题,关于 tick rate提升的问题,我想有几个如下的原因。 From long-term growth, we have continued to increase the number of members on the core sales of Huazhou. There are some improvement factors in this part. The second is that part of our tick rate is the collection of staff wages. In fact, it is the collection of two parts, so the increase in staff wages is also an objective factor. In addition, we are actively expanding the management fee for management stores. Part of it involves the refined management of the discount discount. Through this refined management, we have reduced the discount to a certain extent, similar to the discount and discount of management fees. The increased accuracy reduces the discount rate. I think it is an impact of multidirectional factors. In terms of the increase in take rate,

there were mainly three reasons. Firstly, it's continuously increasing the CRS as we continuously focus on our direct sales capability through our Edgeward app. This is one of the reasons. Secondly, it's because of the wage increase or the staff cost increase, especially at the hotel level for both our leased and owned and the franchise hotel, which is the hotel managers. And thirdly, it's we are doing a more deep diving and going into more details in terms of the management for our management, managed hotel, which we reduce the discount rate for our management fee as well as one-time franchise fee, which is also contribute a little bit to the improvement of the take rate. So the take rate increase is a result from many factors, but the staff cost increase is kind of not able to avoid because the salary increases the general trend in the market. Thank you.

Thank you, Mr. Ting and Jason.

Thank you. Our next question comes from Simon Chu of Goldman Sachs. Please go ahead.

Thank you for your sharing, Manager Chen. I have two questions. The first question is, I see that your opening speed in the first quarter is better than expected. I remember that you said that you have about 1,800 stores in the whole year. In the first quarter, you have about 600 stores, which is more than 30%. So I would like to ask you, Manager Chen, what is your plan for opening the whole year? And because you just mentioned that the REFPA may be a little weak in the second quarter. So if you add it up, will the annual income index change? I remember last time you said it was 8% to 12%. This is the first question. And then the second question is to ask the merchant. 我们过去几个月常常听到人说Zulisha这块回来还是挺不错的,只是商旅这块比较慢。 刚才也听到你们做B2B这块做得挺不错的。 I would like to know how you see the next half of the year business development and B2B. You just shared that there are about 2,700 customers, which is about six times the number. I don't know where the opportunity is in the long term. Let me translate into English. So my first question is in relation to the Stronger Than Expected Hotel Addition 569 hotel ads in the first quarter already representing over 30% of the original guidance of 1,844 years originally. On top of that, we have a RAPA according to management in the second quarter, it would be likely going to be softer. So wondering whether they would have any revised guidance for both the hotel ads as well as the 8% to 12% full-year revenue guidance. And my second question is for the business travel, we have been hearing from other operators sharing that business travel so far has still been quite weak. What is the trend they expect looking in the second half? And because they're obviously doing quite well on the B2B strategies with 2,700 clients, up 60% almost, how do they think about the long-term opportunity on the business travel or B2B segment in general? Thank you.

Thank you. Let me answer this question. Before I answer the first question, I would like to explain the strategic transformation of Huazhou to the investors. Two years ago, Huazhou proposed a strategic transformation of economic development. We want high-quality to reach a faster speed. We hope that our development will focus on 7,000 stores and higher-quality stores. We don't want to open stores blindly. So, in the whole development strategy, this year, we also proposed a strategic transformation of the service to China in the face of China. We all hope that China will have a higher quality, better experience, such a strategic transformation of user experience. So, on a scale, we still maintain a focus on economic development, high-quality development, and long-term development. We hope that we will not be blind to the number of So in terms of the hotel openings, before answering these questions, we want to remind you guys that as

Since two years ago, we started our sustainable high quality expansion strategy. So our hotel network expansion will be only focusing on flagship hotels as well as the high-quality expansions. And this year, as you remember, last quarter, we also introduced a service excellence strategy for the upstep from the high-quality expansion and to be more focused on both product quality and service quality improvements. So for Edgeworth, in terms of the network expansion, again, we will focus more on the quality and better services instead of only focus on the scale. So therefore, even though we have a pretty good hotel openings in the first quarter, we still maintain our full-year growth opening target unchanged.

Thank you. Guan Yu, Zhang Li. I think there are two levels to the business problem. The first one is that from a big business structure, it is indeed affected by the macroeconomic situation. In fact, we can't do much. China's macroeconomic situation, the whole recovery rhythm and economic growth are indeed affected by many factors at the national level. But Huazhou, in the past two years, has surrounded the business needs of Huazhou business people, especially some new scenarios. Another one is on the ground. OK.

In terms of the B2B business, so firstly, if you are talking about the entire business traveling market, we have to say the business traveling market is a bit slower in terms of the recovery. This is mainly due to the impacts from the weaker than expected macroeconomic development since the reopening last year. However, over the last two years, we have been putting a lot of efforts on the B2B direct sale business and catching up some of the new demands, new scenarios, such as the mice and conferences, which we were not very good at. previously we have been continuously improve our capability in this front and trying to grab as much as new customers through our you know continuously enhanced b2b sales capability secondly is it's hotel centric on the ground the sales capability enhancement we will use the hotel itself as an offline channel to attract more and more local small business clients just to over, as we mentioned, to curb the volatility of the entire business travelling market. Thank you.

Thank you. Our next question comes from Lydia Ling of CICT.

Please go ahead. Lydia, please go ahead.

Hello, I'm Lydia. I have two questions. One is about the opening. We saw a good growth in the first quarter. How do we see the current situation of the industry? From the current situation, for example, since the opening of the first quarter, what is the background of our new stores? Can you share the proportion of our new stores? My second question is that we have seen that the sales cost of the first quarter has increased a lot. The main reason is that the CFO mentioned that we are looking at a year-round cost trend and a year-round margin. Let me answer your question. My first question is on the door opening and we see actually exterior extension in the first quarter. So how actually the management look at the industry supply as a whole? and also what's actually like a background for the new franchisees, and what could be the mix of the new franchisees versus the existing franchisees. A little bit more color would be very helpful. And my second question is on expense, and we saw that actually the setting expense increased a lot in the first quarter, and as like CFO just said, during the presentation. So how do management look at the full year expense trend and also what could be the margin trend for 2024? Thank you.

We see that China's hotel chain rate has increased by more than 40% since the end of last year. I think this trend will continue to advance relatively quickly in the future. It will refer to the United States, even higher than the United States, because of the integration of China's industry. Due to digitalization and other capabilities, China's industrial planning capacity will be stronger. So China's chain rate will probably exceed that of the American market. So our entire industry is still in the process of rapid chain rate. So all companies are enjoying the popularity of chain rate. Of course, it may be different in different fields. In the middle, the chain rate has significantly increased in the past two years. In the national market, the demand for operating efficiency may be higher. Customer demand for quality is higher. So the growth of the chain rate in the normal market is different. So, of course, the second thing you mentioned is about the composition of Jiameng stores. We have also shown a very diversified situation. On the one hand, we are very concerned about the recovery rate of old Jiameng stores. As a Jiameng store satisfaction indicator, we are very concerned. We hope that we can have a better performance of Jiameng stores, whether it is by investment or by choice, to bring us a new recovery in the future. At the same time, we are in many new downward markets. OK.

Let me answer your first questions. Over the last several years, the China ratio in China has been rapidly improving in China. At the end of last year, the China ratio firstly exceeded 40% in China, and we believe that the China ratio improvement would be even faster in the future because of the digitalization's capability. The integration of the industrial capability in China was very outstanding. it has the potential to be even higher than the very mature U.S. market in the near future. So a lot of China hotel groups have been gaining benefits from this trend for the continuously generational improvement. However, in different segments, we are seeing some of the differences. For example, the middle scale is much faster in terms of the generational improvement compared to the entire market. But for the economics, it might be need for further efficiency, operational efficiency improvements to further catch up the generational improvements. So this is the first part. The second part in terms of the background of the franchisees, in conclusion, it is quite diversified at this moment. We focus on two aspects. One is for our old franchisees. we also focus on the repurchase rate for all the franchises. We want our franchises to be profitable whenever they open the old hotel. They used to open hotel and they are opening the new hotels. But at the same times, when we are penetrating into the lower tier cities, some new market and new segmenters, we are seeing a lot of new franchises, new type of franchises, for example, the local government, for example, the property developers. So on both sides, From the company's perspective, we take care of both parts of the franchisees. Thank you.

关于第二个问题,关于我们市场交费用的提升, 确实也是来源于两部分,我认为。 第一部分是我们由于开拓新市场,新品牌, 特别是一些文旅的市场,中高端的占比, 我们动用了更多的OTA的营销资源。 So at this stage, when we break through the new market and new categories, our third-party sales will be high. Of course, we will continue to use Huazhou's direct sales capability as a long-term construction capability to carry out continuous conversion and continuous repurchase work. At the same time, we also intentionally increased the investment of some brands in market and brand marketing costs to improve our brand's long-term market visibility

In terms of the increase in sales and marketing expenses in the quarter, so firstly, because we are penetrating into the new market and we are penetrating into the new segment and introduce a lot of new products, so especially when we open a new hotel in new markets, At the very initial period, we need the resources and support from the OTA. However, that should be a temporary impact because on a longer-term perspective, we will continuously focus on our direct sales capabilities through our own channels. This is one. Secondly, we purposely added some of the budget on the marketing expenses, especially for some of the new brands and new segments. that we want to further improve the brand awareness and the recognitions for these particular brands into the market in order to get more attraction from the customers and the franchisees as well. Thank you.

Thank you. Our last question comes from C.G. Lin from CICC. Please go ahead.

Thank you, Director Wang. I have two questions. The first one is, as mentioned earlier, e-commerce is opening up very fast.

How is the progress of the low-intensity market and the low-intensity area to improve the penetration rate? Are there any business performance of these markets that can be shared? The second one is, as we mentioned before, the improvement of the supply chain and the improvement of the turnover, which may be one of our important strategies in the future. How is the progress of this area? Have we seen any improvement in some indicators, such as the price of single-storey houses or REFPA? So thank you, management. I have two questions. The first is that we mentioned before we aim to penetrate more into low tier cities and regions with low density. So how's the progress and is there any operating data in this market you could share with us? And my second question is that we also mentioned before that one of our key strategy is to upgrade supply chain. and to improve service quality. So how's the progress, and is there any indicator that can improve this progress, maybe such as Per Room KPEX or RevPath? Thank you.

Okay, let me answer this question. First of all, I'm also very happy to share with you that in the past, we have received continuous improvements and improvements in the South China Sea, Huaxi, and even in China.

Okay, in terms of your first questions, I'm very happy to let you know that we have been progressing pretty good into those previously less penetrated area as well as the weak segments previously. The entire improvements and the process are satisfying, are meeting the management's expectations.

Regarding the job service, I would like to communicate with the investors. In the first stage, Huazhou used Huazhou's efficiency, cost priority, and scale to achieve such a leader in China, Lianchuhua Hotel. We think these are not enough. Huazhou's future, how can it be used in the Chinese market and even in the world market, We have to use service and experience to establish this kind of management capability with the customer as the center, and become an important opportunity for us to improve and sell to a new level in the next stage. So, the work service is a strategic transformation and long-term goal for Huazhou. Because we have launched a large number of projects this year, of course, we have a very fine-grained indicator for the number of customers. Today's time is limited. Okay, in terms of the sales excellence, we mentioned last quarter.

So previously, Edgeworth used high efficiency, low cost, as well as scale to maintain the leading position. But in the future, if we want to further enhance our strengths, our leading positions in China or even in the world, definitely we need to focus on more service, more user experiences, and customer-centric management capability enhancement as well. So I'll just give you several examples because of the time limits. For the service excellence, we are focusing on the customer satisfaction rate and whether it is improved or not. But more details we will be sharing in the near future. Thank you.

Thank you. This concludes the Q&A session. I will now hand back to Jason for closing remarks.

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

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