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spk00: Good day and thank you for standing by. Welcome to H-World Second Quarter 2024 Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to hand you over to the Senior IR Director of the company, Mr. Jason Chen. Please go ahead.
spk03: Thank you, Amber. Good morning and good evening, everyone. Thanks for joining us today. Welcome to Edgeworth Group 2024 Second Quarter Earnings Conference Call. Joining us today is our founder and chairman, Mr. Jiqi. 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 SEC. SWOT 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. Reconciliation of those measures to comparable gap information can be found in our earnings release that was distributed yesterday. As a reminder, this conference call is being recorded. The webcast of this conference call, as well as supplementary 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 second quarter of 2024. Mr. Jin, please. Thank you. Hello, investors and analysts.
spk04: Before I report to you about the second quarter of our business performance, please allow me to announce good news to you. In May this year, Huazhou Group opened the 10,000th Chinese store in China. As you can see, this Hanting is located on the Mote Line of Xizang Linzhi. It is China's last route on the road. This means that since the end of 2019, Huazhou Group has set a goal of 10 million points. After four years of hard work, we have finally achieved 10 million points, a 1.0 stage milestone. More importantly, as we further advance our strategy, we see that there are still huge opportunities and room for growth in the Chinese market. At the same time, we have accumulated a lot of practical experience and organizational ability. Hello, everyone. Before presenting our second quarter operating performance, please allow me to share a good news with you all. In May, we opened our 10,000 hotels in China. As you can see, this Hanting Hotel is located in Motou County,
spk03: ,, which is the last county in China to have access to highways. After more than four years of hard work since we proposed the goal of 10,000 hotels in 1,000 cities in the end of 2019, we have finally achieved this milestone. More importantly, as our lower tier cities penetration strategy continuously progresses, we not only recognize that there are still huge opportunities and growth potentials in the Chinese market, but also accumulated a large amount of practical expertise and organizational capabilities. Therefore, we will continue to focus on our service excellence-centric sustainable quality growth strategy and move towards the next goal of 20,000 hotels in 2,000 cities. 接下来回到我们二季度的经营表现,请大家翻到第四页。 华洲中国二季度REAPA 244元,同比下降2%,
spk04: Among them, ADR was 296 yuan, which dropped by 2.9%. OCC was 82.6%, which increased by 0.7%. Although the overall red line and consumption were slightly weak, we saw that China's overall travel demand remained stable in the first half of the year. Both the data from the aviation, high-speed rail, and the Ministry of Culture and Tourism approved this trend. For example, in the first half of the year, the number of passengers is 3.2 billion, which is a 16.4% increase. In 2019, it was a 12.4% increase in the same period. At the same time, in the first half of the year, the number of passengers sent by high-speed rail reached 20.96 billion passengers, which is a 18.4% increase in the same period, which is a historical high. According to the data of the Ministry of Culture and Tourism, the number of domestic passengers in the first half of the year was 27.25 billion, which is a 14.3% increase in the same period. The overall travel demand is relatively high. From our own business results, in the second quarter, China's sales and business growth is about 21%. While the store is expanding rapidly, the exit rate is still 0.7% higher than before. This is in line with the company's goal of increasing the exit rate at the beginning of the year. At the same time, it also reflects the stability of the overall travel demand. In terms of ADR, it is clear that after the outbreak of the epidemic last year, especially in the second and third seasons, the concentration of travel broke out and the short-term supply and supply shortage led to Next, let's go through our second quarter operating performance. Please turn to page 4. Lexi Huazhou's REF power in the second quarter was RMB 244, down 2% year-over-year.
spk03: ADR was RMB 296, down 2.9% year-over-year, while occupancy rate was 82.6%, up 0.7 percentage points year-over-year. Despite the relatively weak macro and consumption, the overall travel demand in China remained resilient in the first half of 2024. Data released from airlines, high-speed railways, and the Ministry of Cultural and Tourism all confirmed this trend. For example, the domestic airline transported 320 million passengers in the first half of this year, up 16.4% year-over-year, and 12.4% compared to the same period in 2019. The high-speed railways transported 2.1 billion passengers in the first half, which was a record high and represented 18.4% year-over-year increase. In addition, based on the data from the Ministry of Cultural and Tourism, the number of domestic tourists was 2.7 billion in the first half, up 14.3% year-over-year, showing a relatively strong leisure traveling demand. As for our own operating result in the quarter, the total number of room nights sold in China increased by approximately 21% year over year during the quarter. While our hotel network expanded rapidly, our occupancy rate still increased by 0.7 percentage points year over year. This was in line with the occupancy rate improvement target set by the company at the beginning of the year, and it also reflected the stability of the overall traveling demand. In terms of the ADR, The pent-up demand and the temporary supply shortage right after the reopening last year definitely led to a very high base of ADR, especially in the second and third quarter. We believe that both occupancy rate and ADR should gradually return to a relatively healthy and sustainable growth trend this year and onwards.
spk04: 当然,公司也在 积极主动采取不同措施提升REPA的水平。 to ensure that Huazhou can achieve the performance of RERPA, which continues to lead the industry, and bring the potential for long-term growth. Please turn to page 5. Huazhou mainly takes the initiative to improve RERPA through three aspects. The first is product upgrade. Huazhou continues to upgrade products for its main brands, satisfying the needs of consumers who are constantly changing. At the same time, it continues to upgrade and reform old stores and old products, In addition, Zhuo Yuefu uses customers as the center, providing better accommodation experience for guests, creating higher value for family members, and achieving a win-win ecosystem. Finally, it is the construction of the member system. We increase membership density and resale through Huazhu Hui, and through Huazhu Business Trip, add business guests, and strengthen the source of free flow. Under the three controls, we continue to strengthen the core competitive advantage of the company, and thus promote the company's
spk03: Of course, we are also proactively taking various measures to improve our ADR and to ensure that we can continuously outperform the industry, as well as bringing long-term RevPi growth potential. Please turn to page 5. We focus on three key areas to achieve RevPi improvement. Firstly, product upgrades. We continuously upgrade our main brand with introduction of new versions to meet customers' changing demands. At the same time, upgrading and renovating old hotels and old products to improve hotel quality. Secondly, the service excellence. With the principle of customer-centric, we intend to provide bad accommodation experiences for our guests and create bad value and return for our franchisees. which could lead to a win-win ecosystem. And lastly, our membership program. We continuously focus on improvements of our members' thickness and repurchase through constant updating of our edge reward app. At the same time, we further strengthen our capabilities on direct B2B booking and corporate client customers to capture more business traveling demand. We believe that these three aspects could continuously strengthen our core competitive advantages and drive our long-term sustainable process.
spk04: with 58 power outlets and 28 less than the same period last year. In the future, we will continue to maintain the concept of high-quality growth and continue to repair and eliminate low-quality power outlets to ensure further improvement in the overall revenue of hotel products and service quality. At the same time, in the case of high-quality growth in the number of power outlets, the number of hotel pipes will break through the new high again. In the second quarter, we continued to expand our network. During the quarter, we maintained the strong hotel opening momentum since last quarter and opened 567 new hotels.
spk03: The number of hotel closures in the second quarter was 101. If excluding low-quality economic software brands and hunting 1.0 versions, we closed only 58 hotels, 28 fewer than the same period last year. Going forward, we will stick to our high-quality growth strategy and continuously remove low-quality hotels from our network to ensure a better quality of our Intel Hotel portfolio. While we maintain a high speed of new hotel openings, The number of hotels in the pipeline at the end of second quarter reached a record high of 3,266, continuously demonstrating our strong brand power and attractiveness to our franchisees.
spk04: Our strategic focus on economy and middle-skill hotels for serving the mass market continuously to be the key driver of our hotel network expansion.
spk03: Please turn to page 7. As of the second quarter, 2024, economy and middle-skilled hotels accounted for 92%, 82%, and 89% of our hotels in operation, hotels in pipeline, and hotel openings, respectively.
spk04: As we mentioned earlier, sustainable product development is one of the key driving factors for the company's future protection of real estate performance and sustainability in the industry. It is also one of the key factors for the company's leading industry to achieve high-quality growth. As we mentioned earlier,
spk03: Consistent product upgrades is one of the important drivers of our continued outperformance compared to the industry. And it is also the key factors for us to achieve industry-leading high quality growth. Taking our core brands in limited service segments as an example, please turn to page 8. The proportion of hunting 3.5 and above version in operation continued increasing, reached 36.3% in the second quarter of 2024, representing an increase of 6.5 percentage points compared to the end of last year. Please turn to page 9. For our G hotels in operation, the proportion of G hotel 4.0 and above increased from 30% in 2020 to 65.7% in the end of 2023, and further increased to 71.2% in the second quarter of this year. 請大家翻到第十頁。
spk04: Please turn to page 10.
spk03: The proportion of our latest LOHA version rapidly increased from 58.4% of the orange hotel in pipeline in 2023 to more than 90% in the second quarter of this year. In conclusion, the products and brand power of each of our key brands have been further strengthening through the continuously product upgrade. 區域拓展方面,我們低限城市的滲透在持續進行。
spk04: Please turn to page 11. Since the second quarter of 2020, Zaiying Hotel has increased by 41% in the lower three-storied cities, and increased by 2% in the same ratio. Guandao Hotel has increased by 54% in the lower three-storied cities. Although the ratio dropped slightly in the same period in 2023, the absolute number is still growing by 2%. In Guandao Hotel, the increase in the lower three-storied cities In terms of our regional expansion, we keep penetrating into lower tier cities. Please turn to page 11. At the end of second quarter 2024,
spk03: 41% of the hotels in operation were located in Tier 3 and below cities, up 2 percentage points year over year. The proportion of pipeline hotels in third tier and below cities reached 54%. Although the proportion was slightly lower than the same period in 2023, the absolute number still recorded double-digit growth year over year. The increase in the proportion of pipeline in first tier cities is mainly due to acceleration of new signings of our upper middle segment, as well as faster penetration in southern China. The number of cities coverage reached to 1,328 cities at the end of this quarter, about 132 cities added compared to the same period last year. 随着公司在下证市场的不断渗透,
spk04: And in the consumer pursuit of cost-effective consumption trend We further upgrade the national hotel market Please turn to the fourth page In the second quarter, we carry out brand re-positioning and product redesign for Hayao Hotel The new Hayao 6.0 positioning extreme cost-effectiveness To sleep well and spend less as the end of the brand Focus on customer sleep well and sleep well The core housing needs Through the creation of a simple hotel guest room and high-efficiency convenience service, and provide international standard accommodation experience for the public. In order to achieve the high-efficiency operation of the hotel, we have also innovated the digital front desk of the guest facility, the digital operating system of the three-person moving employees, to achieve the brand positioning of the ultimate cost-effectiveness. In other words, as an important supplement to Hanting and Nihao,
spk03: With companies' continuous penetration into the lower tier cities and the consumption trend of the customers continuously seeking for more value for money products, we further explore and develop the economy and budget hotel market. Please turn to page 12. In the second quarter, we repositioned our Haiyin brand and redesigned its product. The new high-end 6.0 version is positioned as ultimate value for money, with brand core value of sleep well and spend less. It focuses on customers' core accommodation needs of good sleeping and showering. It offers customers a global standard of accommodation experiences by providing standardized hotel rooms and a convenient and high-efficient self-service with automatically good value for money pricing. In order to achieve high operational efficiency in a hotel and achieve its brand positioning of ultimate value for money, Hi-In innovately created a three-in-one digital operational system, which combines guest self-service, digital front desk, and mobile staff. All in all, a high-end will become a strong supplement to our Hanting and Nihao brand to further help our lower tier cities penetration strategy and strengthen and solidify our leading position in the economy and budget hotel market.
spk04: The same growth rate is 31% and the same growth rate is 8%. And the number of pipe hotels is 509. The same growth rate is 61% and the same growth rate is 18%. In the second quarter, whether it is the number of new hotels or the number of pipe hotels, the number of new hotels and the number of new hotels have increased significantly in the first quarter of this year. It shows that China's high-end brands are becoming more and more recognized by consumers and customers.
spk03: Additionally, our upper-mid segment development continued progressing in the second quarter. Please turn to page 13. At the end of second quarter 2024, the number of upper-mid hotels in operation reached 738 hotels, up 31% year-over-year and 8% quarter-over-quarter. And the number of hotels in pipeline reached 509 hotels. up 61% year-over-year and 18% quarter-over-quarter. In the second quarter, the sequential growth rate of both the number of hotels in operation and hotels in pipeline accelerated compared to the previous quarter, demonstrating that our upper-mid brands are increasingly gaining recognition among customers and franchisees.
spk04: But through the rapid growth of Huazhou's merchants, we have successfully supplemented some of the shortcomings of commercial retail customers. This is also the key to Huazhou's ability to achieve a steady increase in sales. Please turn to the 14th page. In the second quarter of 2024, the number of businesses with more than 6 million businesses was set by the company. The same growth was 31%, while the growth was 26%. The number of active businesses was more than 3,600.
spk03: Affected by the macroeconomy, the overall business travel market is still recovering relatively slowly. Nevertheless, we managed to offset some shortages from the individual business traveling demand by rapidly growing our direct B2B business. It is also the key factors for us to achieve resilient occupancy rate. Please turn to page 14. In the second quarter of 2024, the number of room nights booked directly via our B2B platform exceeded 6 million, up 31% year-over-year and 26% quarter-over-quarter. The number of active corporate clients exceeded 3,600, up 47% year-over-year and 36% quarter-over-quarter. 接下来是海外业务的部分,请大家翻到第15页。
spk04: Now, we are moving to our oversea business. Please turn to page 15.
spk03: DH's REF PAR in the second quarter was 82 euro, up 4.5% year-over-year, driven by 2.7% increase in ADR to 120 euro and 1.2 percentage points increase in occupancy rate to 68.3%. In June, our DH's hotel in Germany performed well, benefited from the Euro Cup.
spk04: In terms of strategy, as of the second quarter of 2024, there are 53% of DH hotel stores located in Germany, and only 39% of pipe hotels are located in Germany. The local stores are divided into Europe, other countries, Asia, and Africa. The ratio is 36%, 18%, and 7%. Compared to DH hotels in Asia, Please turn to page 16 for our globalization strategy.
spk03: As of the second quarter, 2024, about 53% of the hotels in operation were located in Germany. In terms of the hotels in pipeline, only 39% of the hotels are in Germany, and the remaining are in other European countries, Asia and Africa. Each accounted for 36%, 18%, and 7% respectively. Among them, the proportion of pipeline hotels in Asia has increased meaningfully compared to the proportion of hotels in operation. Achieved some periodic results and was in line with our strategy that was set at the year beginning. 以上就是华作2020年二季度业务情况的更新。 下面有请CFO周军为大家介绍。 All above concludes our second quarter 2024 business update. Now I will hand over the call to our CFO, Mr. Zhou Jun, to discuss our operational and financial performance during the quarter.
spk02: Thank you, Jinghui. Good morning and good evening to everyone. Let's go through our operational and financial review for the second quarter of 2024. Now, please turn to page 18. As Mr. Jinghui mentioned, we reached a remarkable milestone during the second quarter of 2024. The number of hotels in operation for both the group and the legacy Hua Chu surpassed 10,000. And the overall number of rooms increased 19% year-over-year to over 1 million as of the end of second quarter this year, compared with over 840,000 a year ago. Hotel turnover for the second quarter of 2024 was RMB 23.4 billion, representing a 15% year-over-year increase, of which Lexi Huazhou's hotel turnover grew 16% year-over-year to RMB 21.3 billion. Now please turn to page 19. In the second quarter of 2024, our total revenue for the group increased 11%, year-over-year to RMB 6.1 billion, at the high end of our previously announced guidance of 7% to 11% year-over-year growth. Revenue from Lexie Hua to 11% year-over-year to RMB 4.8 billion, also reaching a high end of our guidance for the segment. And the growth was driven primarily by our strong new hotel openings. Lexie DH's revenue rose 1% year-over-year to RMB 1.3 billion. attributable to both business recovery and hotel network expansion. Next page, please. We are committed to grow under the SLI model, expanding our hotel network using managed and franchise hotels. As a result, revenue from our managed and franchise hotels continued rising. In the second quarter of 2024, managed and franchise hotels contributed to 48% one year and a half of our legacy Huachu revenue, up from 42% a year ago. We expect this trend to continue as we become more and more asset light. This should lead to a gradual margin expansion for the business, as well as to help us to become more resilient when facing economy and industry headwinds. Now, please turn to page 21. Hotel operating costs was RMB 3.7 billion in the second quarter of 2024, up 7% year-over-year. The increase was primarily driven by rising staff costs from our continued network expansion. The year-over-year increase in hotel operating costs was meaningfully lower than our revenue growth, thanks to our asset-light strategy. Pre-opening costs maintain at a low level as we continue moving toward SLI model and stay selective on opening lease and own hotels. SG&E expenses were RMB 919 million in the second quarter of 2024, up 24% year-over-year. The year-over-year increase was attributable to headcount normalization as well as a rise in share-based compensation to secure and reward our core employees for sustainable long-term business growth. Income from operation in the quarter reached RMB 1.6 billion, representing a 14% year-over-year increase, driven primarily by the strong network expansion of our managed and franchise hotels, as well as further business recovery of the age. Now please turn to page 22 for our profitability and cash flow during the quarter. In the second quarter of 2024, our adjusted EBITDA increased 15% year-over-year to RMB 2 billion. And by segment, Lexi Huazhou's adjusted EBITDA grew 14% year-over-year to RMB 1.9 billion, with the adjusted EBITDA margin expanded 1% to 39.5% thanks to our continued business growth SLI strategy as well as our cost-saving initiatives on non-personnel related expenses. Our DH business generated RMB $131 million adjusted EBITDA, turning profitable from a lost position in the previous quarter and representing a year-over-year growth of 35%. Our group's adjusted net income was RMB 1.3 billion in the second quarter of 2024, up 17% year-over-year. Operating cash flow for the quarter was flat-ish year-over-year at RMB 2.2 billion. Now turn to page 23 for our liquidity position. As of end of June 2024, The group had RMB 9.9 billion cash, cash equivalent, restricted cash, and time deposits. And it was in a solid net cash position of RMB 4.3 billion, including time deposits. We also had RMB 3.1 billion unutilized bank facility as of end of our second quarter. Listen to page 24 now for shareholder return. As we become more asset-light and cash-rich, we are committed to reward our shareholders through dividend and buybacks. Last month, we announced a three-year shareholder return plan with an aggregate amount of up to $2 billion. This includes semi-annual ordinary dividends of no less than 60% of the net income each year, as well as special dividend and share buybacks. Concurrently, the board approved a five-year share repurchase program with an aggregate amount of up to US dollar $1 billion effective from August 21st, which is today. Next page, please. Under the new shareholder term plan, the board declared a US dollar $200 million interim cash dividend for the first half of 2024. We also continued buyback shares and have bought back roughly US dollar 143 million worth of shares from the market as of July year to date. Lastly, page 26 on guidance. For the third quarter of 2024, we expect our revenue to grow between 2% to 5% compared to third quarter of last year, or 1% to 4% excluding DH. To reflect our strong hotel opening momentum, we revised up our full year growth hotel opening target to over 2,200 hotels, up from the previous guidance of around 1,800 hotels. With that, we're ready to take your questions. Operator, please open the line for Q&A.
spk00: Thank you. We will now begin the question and answer 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. Our first question comes from the line of Ronald Leung from Bank of America. Please go ahead, Ronald.
spk05: Hello, everyone. My name is Ronald Leung from Bank of America. I have two questions. So my first question is about the rough part expectations. Could you comment about your rough part expectations for 3Q2024 and also for full year 2024? Okay, this is my first question. My second question is about the investment appetite for franchisees. Could management comment on the current investment appetite for the franchisees? Do you see any signs that the franchisee sentiment may slow down because of the rough part decline? So let me translate my questions. 管理層早上好,我有兩個問題。 第一個問題是關於管理層的 rough part 的預期是什麼樣? Thank you, Manager Cheng.
spk04: Hello, I'm Jinghui. Let me answer this question. Maybe you investors and analysts have seen the hotel data of XIAHUA in China. It is mainly affected by the poor consumption of Hongguan, especially the crisis of high-end consumption. We are also concerned about this trend. On the other hand, it is indeed China's high-tech in the third quarter last year. As you all know, last year was the first This year, the supply of goods in some areas has increased. We also saw the deterioration of business data this year. Some areas have still performed very strongly. For example, in the Central and Western regions of China, the growth of tourism has been very strong. In the East China Sea, it may be affected by the increase in the supply of goods. There may be some deterioration. So we are still keeping China, especially the people, the long-term growth of the market, whether it is the business or the leisure market, we still maintain very strong confidence. This is the first question. Regarding the second question, Jiameng Shao, Jiameng Shao, we are currently, China's entire pipeline is still maintaining a very healthy growth. Because Huazhou has developed a very comprehensive market expansion preparation, we are in the lower market, we are in the high-end market, We are constantly promoting our development strategy in the medium term, especially in the full-scale market. Of course, we will also further adopt such a development strategy for high-quality development. We will further promote the development of our products and flagship stores. So we are still in a relatively healthy state. Next year, we will also take further steps Let me answer your questions.
spk03: Firstly, in regards to the REFPA. So as you may see from the industry number released from this year, that in the July and several weeks of August, actually on a year-over-year basis, the REFPA was around 10% decline on a year-over-year basis. Clearly, we also observed that the macro condition and the entire consumption, especially the high-end consumption, was relatively weak. But also, last year, the third quarter was a very high base because that was a peak season right after the reopening, post-COVID. But as you may know from the data itself, you can see that our REFPA performance is always at the outpaced industry number. So for the third quarter, we expect that the REVPAR may decline around a single digit year over year. But I think this year, the REVPAR should gradually return to a more healthier and sustainable development trend, as we mentioned previously. And also another factor is the supply. was increased year over year for this year, especially for certain regions, for example, the eastern part of China. But some of the performance, we also see a different performance in different regions, like, for example, the west part, the central part of China were still quite performing well. We still see a very strong issue of traveling demand in the particular regions. But in eastern part of China, maybe some of the temporary oversupply or some of the weak business traveling demand, which could be a bit underperforming. But for us, in a longer-term perspective, we remain focused on the mass market. And we think through our strategy, high-quality growth, we remain confident in the longer-term perspectives. And for the second question, in terms of the franchisees, as you can see, our pipeline continuously grow despite our high-speed new hotel opening because we insist our key strategy on lower tier cities penetrations and also the upper mid-segment penetration as well. For next year, we will remain focused on these two areas, and also through the better product and the better branding, we are confident that the Intel franchisees' confidence should remain at the healthier and sustainable level. Thank you.
spk04: I want to add one more point. Since 2022, we started our high-quality growth, and this year we started the service excellence.
spk03: So for both parts, we want to further strengthen our core competitiveness and to maintain a strong competitive advantage in the industry. So hopefully that our shareholders or analysts could understand our strategy and our planning. Thank you.
spk00: Thank you. Our next question comes from the line of Dan Chee from Morgan Stanley. Please ask your question, Dan.
spk05: 感谢管理层给我这个提问的机会。 我是Morgan Stanley的分析师Dan Chee先答。 首先恭喜公司达到第一个万店的李成蕾。 我的问题是围绕供应链服务还有产地属地化的整个的提升。 因为刚才金总也多次提到了 It means that the company continues to expand the number of hotels, and the number of corridors continues to increase. So I would like to ask the management to help us update the progress in the supply chain and the opening of the store. For example, the opening of the store this year, we see that it can reach 2200 stores. In the past 12 months, the number of contracts should have exceeded such a number. If the supply chain's ecological development continues to improve, in fact, Please allow me to translate my question. This is Dan from Morgan Stanley. My question is regarding hotel opening and pipeline and also supply chain building. The management continues to... about the pipeline increase on top of the rapid network expansion. So my question is about the company's air opening capacity. Can the management update us on the progress you have made regarding hotel opening, especially we increased the growth opening target from 1,800 hotels to 2,200 hotels. I assume we are signing more than that number in a year. And the pipeline right now is over 3,200 hotels. So with more progress made on the supply chain, can we assume this annual opening number to continue to go up? And is there a limit to the number per year? Thank you.
spk04: Let me answer this question. Everyone is concerned about the construction of supply chains. has restarted the supply chain's entire upgrade and base construction. The supply chain is very important for Huazhou to achieve China's high-quality development and thousands of stores. The construction of the supply chain is surrounded by three core concepts, namely cost, quality, and efficiency. The supply chain of Huazhou is surrounded by cost, quality, and efficiency. We have made a lot of new replacement and upgrade of suppliers. In the second half of this year, in terms of cost performance and efficiency, I believe there will be a huge improvement. Because China's original manufacturing industry supply capacity is very strong. So I think through our overall improvement and transformation, it will not only not be an impact on our opening, but it will also be an important support for our next stage of high-end development.
spk03: This is the first point. Let me translate in terms of the supply chain. Supply chain is a very important factor for us to maintain our high-quality growth and achieve the 10,000 hotels in 1,000 cities. There are three key areas that the supply chain needs to look at. One is the cost leadership. Two is the high quality. Third is the efficiency. In the second half, we will continuously improve our supply chain capability by replacing higher quality suppliers and further improve our efficiency and lower the cost. Supply chain could help us to further accelerate the hotel network expansion and with relatively lower cost and high efficiency.
spk04: We are very happy to see that our opening numbers will exceed more than 2,200 this year. We are also very happy to see such a growth. But Huazhou will still insist on the idea of large-scale development. So from last year, we have surrounded the high-performance development of Qijian, which has become a very important core strategy for Huazhou. So we are very happy to see that we can open more than 2,200 hotels in this year.
spk03: This is to support our, you know, localized strategy in our regional offices and the further improvements on the supply chain capability. However, I want to emphasize one more time that we, in the future, in terms of the hotel network expansion, we will remain insisting on that the higher quality is more important than the scale. Okay, that we will further develop. the flagship hotels and continuously implement our high-quality sustainable growth strategy, especially in the lower tier cities. As you may see, given that we are doing a lot of flagship hotels, the number of rooms per hotel actually increased. In other words, the total number of hotel rooms growth is higher than the number of hotel growth itself. So all in all, that we will remain focused on more quality than scale and implement our high quality system of growth strategy.
spk05: Thank you.
spk00: Thank you. Our next question comes from the line of Simon Jurong from Goldman Sachs. Please ask your question, Simon.
spk01: Thank you for your sharing, Chairman Zhou and Chairman Jin. 我有三个问题,第一个问题是还是围绕着这个供给的问题,因为我们可能看到整个市场过去一年左右,那个供给已经回到2019年的水平,已经超过2019年的水平了,这个industry,我想请教一下你们在你们看来的话呢,长期来讲的话,在整个 Let me translate the questions. I think there's a lot of concern about hotel supply. in the industry? Particularly, we have seen the hotel supply has fully recovered to 2019, therefore actually exceeded year-to-date. Wondering how you are seeing the hotel supply in the medium term and how that will impact the industry wrap-up? And correspondingly, how HOL will think about your wrap-up performance? And then the second question I have, the second question is, So the second question is related to the impact of the REFPA. Now that the guidance seemingly is a bit softer in the second half of the year, how would that impact the margins? So my third question is related to DH. We have seen quite a healthy performance in the second quarter. I have seen the hotel additions actually accelerated a bit. I'm wondering whether you have some sort of a long-term target, particularly in Asia, where you have done quite well. Thank you, Guan Yichen.
spk04: Simon, let me answer the first and third questions. The hotel industry in China is already a very market-oriented industry. to the market. So from a long-term perspective, we believe that the supply will be adjusted to the demand of the market. Of course, we have seen some red interest rates in the past, as well as the increase in customer growth. The supply will increase, but I think it will be fully adjusted to the market. But I think high-quality supply is always a market shortage. So why does Huazhou insist on using high-quality and superior services as our guide? We hope to maintain unique competitiveness in this fully competitive market environment. The hotel industry has never been a shortage, nor is it a high-tech industry. So I think our views on supply are always the same. The long-term effect of RERPA is actually the same as the previous point. We have studied the trend of RERPA in the past 40 years in the United States. RERPA is actually highly related to the GDP and inflation rate of an economy. Of course, it will be more sensitive, but from a long-term perspective, it is highly related to the GDP growth and inflation of a country. So we still Let me translate the first answer. So in terms of the market supply,
spk03: So basically, the hotel market in China is quite relatively matured, and it is also a market-driven business. So basically, we believe that the supply and demand will always come back to an equilibrium, and also the supply will also be affected by the demand movement. Historically, the hotel industry has benefited from the generation improvements, the economic development, and the rapid demand increasing. Therefore, there's a lot of new supplies coming into the market. But again, for us, our observation is very clear that there's no lack of the supply, but there's a lack of the high-quality supply. So that's the reason why we continuously emphasize on high-quality sustainable growth together with the service excellence. So by doing so, we want to maintain our core competitiveness and provide good supplies and high-quality supplies to the market to gain a competitive edge. So this is our views on the demand-supply dynamic for the Intel Long-Term Marketing China. And in terms of the long-term rough part of development trends, we refer to what has been developing in the U.S. market for the last 40 years. It shows a clear trend that the rough part in the U.S. is very positively correlated to the GDP growth and inflation. It's very positively correlated, so it's affected by the macro indications and macro performance. We are long-term perspective and given we have been established a very strong brand, we have been established a very good product and organizational capability as well as our, you know, traffic sources, membership programs. Basically, we believe so we could be very competitive in the market in a longer-term perspective.
spk04: Regarding DH, we have a few key words. The transformation of DH, on the one hand, surrounds the transformation of our self-development. We are strengthening to promote self-proclaimed production. As you all know, DH has a lot of leasehold properties. We are in the process of a strategic transformation of self-proclaimed production. Secondly, through cost control and efficiency improvement, we are able to achieve continuous stable cash flow and profits. Thirdly, we rely on DH's very good brands and products. We hope that in the international
spk03: In terms of our DS strategy, there are three aspects. Firstly, it's very clear that there's the asset line transformation. As you may know that historically we had a lot of leased and owned hotels. Now we are doing the asset line transformation. Secondly, it's continuously on the cost of control and efficiency improvements to maintain a healthier and sustainable profitability and cash flow. And thirdly is we want to leverage on DH's good brand and products to develop in Middle East and the Asia Pacific.
spk02: So, you know, about margin, you know, I think firstly, of course, you know, you see that there are some short-term, you know, red power fluctuation in the market and in our business as well. But in the long term, we're confident that we'll have a very good red-pot growth trend. And through, let's say, product upgrade, service excellence, and membership program upgrade, as Jinghui mentioned in his presentation. And we will continue to outperform the market. And secondly, with our business continuously transferred to a SLI model, the revenue structure, as I mentioned in my presentation, has changed. And that will bring a natural, let's say, margin improvement in the long term. And thirdly, we started to implement flexible budget and rolling forecast, which will allow us to nimbly respond to market condition change and adjust our spending levels. And fourthly, we are also meticulously measuring our ROI for each big spending. And with all those efforts, we believe in a long time we will have a better margin profile. Thank you.
spk00: Thank you. Thank you. We have now reached the end of the question and answer session. Thank you all very much for your questions. I'll now turn the conference back to the management team for closing comments.
spk03: 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.
spk00: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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