H World Group Limited

Good day and thank you for standing by. Welcome to H-World Third 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 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 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 Chin. Please go ahead.

Thank you, Amber. Good morning and good evening, everyone. Thanks for joining us today. Welcome to Edgeworth Group 2024 Third Quarter Earnings Conference Call. Joining us today is our Chairman, Mr. Jiqi, our CEO, Mr. Jinghui, our CFO, Ms. Chenghui, and our CSO, Ms. He Jihong. Following their prepared remarks, management will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements made under the safe harbor provision of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. Edgeworth Group does not undertake any obligations to update any forward-looking statements except as required and applicable laws. On the court today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliations of those measures to comparable GAAP information can be found in our earnings release that was distributed yesterday. As a reminder, this conference call is being recorded. The webcast of this conference call, as well as supplementary 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 third quarter of 2024. Mr. Jin, please. Hello, everyone. Thanks for joining Edgewater Group Third Quarter's 2024 Earnings Conference Call.

In the third quarter of 2020, the overall travel demand in China continues to grow steadily. Due to the impact of high ADR in the hotel industry last year, RERPAR was also affected. In addition, the extreme typhoon weather before and after the Mid-Autumn Festival caused a certain impact on travel in Shanghai and surrounding areas. At the same time, in the third quarter, we have made some proactive business strategy adjustments, especially the optimization of sales channels. I will explain in detail later. Although this adjustment has had a negative impact on the performance of this quarter, it has a very important strategic meaning for the long-term sustainable sustainable development of the company. Please turn to page 3. Let us review the business performance of Huazhou China in the third quarter. Huazhou China's third quarter RERPA is In the third quarter of 2024,

the domestic travel demand continued to demonstrate steady growth. The hotel industry saw some year-over-year pullback in Revta from a high base ADR last year. In addition, Shanghai and its surrounding regions experienced two typhoons right before and after the mid-autumn holidays, which affected travel demand in September. On top of this, in the quarter, We proactively adjusted our operational strategies, especially on optimization of our sales channels, which I will elaborate later. This proactive adjustment caused some negative impacts on the quarter's performance. However, it is strategically crucial to ensure the healthy, sustainable growth of the company in the long term. Please turn to page 3 on Lexi Huazhou's operational performance in the third quarter. In the third quarter, Lexi Huazhou's RAF PAR decreased 8.1% year-over-year to RMB 256, of which ADR was down 7% year-over-year to RMB 301 from high base last year. Despite our rapid hotel network expansion, our occupancy rate still maintained at a healthy 84.9%, declined only marginally by 1 percentage point.

Please turn to the fourth page. In the third quarter, our hotel network continues to expand. The number of newly opened hotels has reached 774. At the same time, we maintain the normal concept of quality over size. We are constantly making higher requirements for hotel quality. The number of closed hotels in the third quarter is 217. For example, the removal of low-quality soft brands and the influence of Hanting 1.0. with 123 power outlets. In the future, we will continue to process and eliminate low-quality power outlets to ensure further improvement in overall hotel products and service quality. As of the end of the third quarter, there will be 2,899 power outlets. Due to the rapid opening of the third quarter and the improvement of effective pipe standards in the context of high-quality development, we will clean up the ineffective pipes Please turn to page 4. In the third quarter, we continued our accelerated network expansion in China, and the number of hotel openings reached a record high of 774 hotels in the quarter.

At the same time, we uphold our philosophy of high-quality growth, putting quality ahead of pure quantity increase, and continuously raise the standard of our hotel. In the third quarter, we closed 217 hotels. If excluding the low-quality Soft Economy brand and Hunting 1.0 version, we closed 123 hotels. Going forward, we will continue sorting out our existing hotel and phasing out low quality ones to ensure further enhancements of the product and service quality of our overall hotel portfolio. As of the end of third quarter, the number of hotels in the pipeline decreased slightly year over year and quarter over quarter to 2,899, mainly due to the rapid opening pace in the third quarter as well as to clean up some of the pipelines given we continuously raise our quality standards for not only new open so pipelines our friends interest level and the new signings momentum remains strong in fact new signings in this quarter still exceeded 800 hotels

We believe that China's national hotel market is still the largest and most potential market, and it is also the foundation and basic plate of Chinese business. We continue focusing on economy and the middle skill segment for mass market penetration and development. Please turn to page five. As of the end of third quarter 2024,

economy and middle-skilled hotels accounted for 91%, 80%, and 90% of our hotels in operation, hotels in pipeline, and hotel openings, respectively. We believe the mass market remains the largest and the most promising market in China, and it is also the foundation of our business. Going forward, we will consistently roll out high-quality and good value for money limited service hotels. and products, expanding our coverage nationwide, and solidify our leading position in the limited service segment.

The percentage of hotel revenue has increased by 11%. With the increase in the number of contracts under the southern strategy and the growth in the number of high-end hotels, the percentage of one-way hotels has increased by 2%. Since the end of this year, we have added 117 new cities to the total number of Chinese cities.

we keep penetrating into the lower tier cities. Please turn to page six. As the end of third quarter 2024, around 42% of our hotels in operation were in tier three and below cities, up two percentage points year over year. In the pipeline, hotels in tier three and below cities accounted for 53%, 11 percentage points higher than that in operation. At the same time, as the new signings picked up in southern China, along with our regional strategy, and as our upper mid-segment segment grew, the proportion of pipeline hotels in tier one cities increased two percentage points year over year. As of the end of third quarter, the number of cities we covered reached 1,324, around 117 more cities than a year ago.

Huazhou continues to flourish in the mid-high-end hotel industry. Our mid-high-end main brand has been recognized by consumers and has also gained the trust of the business owners. Please turn to page 7. By the end of the third quarter of 2024, Huazhou's mid-high-end hotel revenue has exceeded 800, which is 33% of the total growth, while the hotel's total revenue is 487, which is 36%. Our upper-mid segment development continued in the third quarter.

Our key upper-middle skills brands have been gaining recognition and attractions among customers and franchisees. Please turn to page 7. As of the end of third quarter 2024, the number of up-mid segment hotels in operation exceeded 800, up 33% year-over-year, and the number of hotels in pipeline reached 487, up 36% year-over-year. One of our core brands in that segment, Intercity, had 125 hotels in operation and in the pipeline. 近期,我們的另外一個中高端主力品牌,

Shui Jing Hotel officially launched the 2.5 version. Please turn to page 8. Shui Jing 2.5 is a high-end hotel built exclusively for business owners. The overall product combines the perfect design of the lighting and color, high-quality guest rooms and bedding, and the unique fragrance of Shui Jing brand. From the visual, touch, taste, and other aspects, it provides the busy city people with a comfortable, relaxing, and relaxing quality space. Recently, Crystal Orange, the co-brand for our Upper Mid segment, launched its 2.5 version. Please turn to page 8.

Orange 2.5 version is an upper-mid-scale product that we designed and tailored for elite business travelers. The harmonious integration of lines and colors, the usage of high-quality bedding facilities, and the special crystal-designed fragrance diffuser offers a comfortable, relaxing, and high-quality space for the busy business travelers working and living in the fast-paced metropolis. The hotel also has lounge space with special cocktail offerings, which is a public area that is suitable for guests either to enjoy their private time or to hang out with their friends.

After a few years of cleaning up the Chinese high-end business in Huazhou, the performance has gradually improved this year. However, we believe that our Chinese high-end business still needs to be refined in many aspects, such as brand, product, After several years of development, our upscale segment is starting to bear some fruit in this year.

However, we think there are still more polishing and improvements needed in areas such as branding, product, customer insights, customers' experiences and services, and so on, especially under the background of our service excellence strategy stated since the beginning of the year. Therefore, we will continue working and improving, and we aim to become one of the leading brands in the upper mid-scale segment in the near future. Please turn to page 9.

Due to the influence of the macroeconomic economy, the overall recovery of the business market is still relatively slow. We continue to make up for the loss of some business travelers through the increase in the number of business travelers, and the stability of the exit rate when traveling leisurely. In the third quarter of 2024, more than 7.5 million businesses were set up by corporate branches, which increased by 11% and increased by 19%. Please turn to page 9.

Affected by the macroeconomy, the recovery of China's overall business travel demand is still relatively stagnant. To offset the impacts from some missing demand from individual business travelers, and to maintain a relatively stable occupancy rate during the low season of leisure travel, we have been improving our direct B2B capabilities. In the third quarter of 2024, the number of room nights booked directly via our B2B platform exceeded 7.5 million, up 41% year-over-year, and 19% quarter-over-quarter. The number of active corporate clients exceeded 4,500, up 45% year-over-year and 23% quarter-over-quarter.

Huazhou is expanding rapidly and constantly covering new areas. In the process of breaking through the new level, we need some time to gather members and improve the sales of these new stores. Therefore, in the short term, especially in the process of climbing new stores, we need some traffic support from other channels. But in the long term, members and sales are still the most important and the most sustainable channels. In the third quarter, we did a targeted round to improve the work of the channels, to promote door-to-door shop owners, to improve the customer and sales capability of the door-to-door center, and to further emphasize the importance of direct sales and membership for long-term sustainable development of the company's business. The contribution of the central reserve to the industry has been increased in the third quarter to 64.2%, and the same ratio and return ratio have been increased by 2.2% and 4.3%.

we have always been emphasizing the importance of membership and direct sales. Please turn to page 10. The membership base of our Edge Rewards continued increasing. As of the end of third quarter, Edge Rewards had close to 260 million members. As we rapidly expand our hotel networks, entering into new regions and breaking through in some new segments, it will naturally take some time for us to accumulate new members and improve the direct sales contribution for those new hotels. As a result, in the short term, we do need traffic support from other channels during the ramping up pace of the new hotels. Nevertheless, members and direct sales remain the most important and the most sustainable sales channel for us. In the third quarter, we rolled out a round of targeted optimization of our sales channel. We urged our hotel managers to improve their hotel-level customer acquisition and sales capabilities. And we re-emphasized the importance of membership and direct sales capability for the company's long-term sustainable growth. In the third quarter, our CRS contribution improved by 2.2 percentage points year-over-year and 4.3 percentage points quarter-over-quarter to 64.2%.

以上就是2024年第三季度华驻中国业务情况的更新。 下面有请BSO何继鸿为大家更新DH本季度的经营和业务情况更新。 All above conclude our third quarter 2024 business updates for Laxley, Huazhou.

Now I will hand over the call to our CSO, Ms. He Jihong, to give an update on Lexie DH's business.

Thank you, Jinghui. I'm happy to give everybody an overview on the overseas business of H-World. Please turn to page 11. We are very happy to report that the blended ADR from DH increased 2.5% from 114 euro to 117 euro in the third quarter 2024. With 0.8 percentage point increase in occupancy, REFPA increased 3.7% from 79 euro to 82 euro. Please turn to page 12. We restructured our economy brand Zleep business in this quarter as well. We exited a joint venture with entrepreneur Peter Haber and took over 100% ownership of the Zleep brand. As a part of the asset-live strategy, we exited 14 lease and owned hotels in Denmark. This transaction has a minimum impact on our financial statement. Please turn to page 13. In the third quarter, we also started a major restructuring effort in DH business. First of all, we streamlined the headquarters and reduced at least 30% of the headquarters' non-operational staff. We stepped up our effort to reduce G&A non-personnel costs. we continued to scrutinize hotel performance and optimize hotel operations. All this restructuring effort incurred around remaining the $81 million one-off expense in this quarter. The negative impact on financial performance of Deutsche Hospital in this quarter is largely due to this restructuring cost, which you will see later. We will start to observe full year savings in 2025, and we are confident that our overseas business is on a successful trajectory. With this, I conclude the overview of the international business and hand over to our CFO, Chen Hui, for the financial performance review.

Thank you, Ji Hong. Good morning and good evening everyone. Let me talk you through our operational and financial review for the third quarter of 2024. Please turn to page 15. Our hotel network continues to expand. The overall number of rooms increased 20% YOY to close to 1.1 million as of end Q3 this year. Compared with 886,000 rooms a year ago. Hotel turnover for the third quarter of 2024 was RMB 26 billion, representing an 11% YOY increase, of which Lexi Huazhou's hotel turnover grew 11% YOY to RMB 24 billion and the Lexi DH turnover grew 8% YOY to RMB 2.1 billion. Page 16. In the third quarter of 2024, our hotel revenue for the group increased 2.4% YOY to RMB 6.4 billion in line with our guidance. Revenue from Lexi Huazhou grew 1% YOY to RMB 5.2 billion, of which revenue from Huazhou leased and owned hotels decreased 10.4% due to the closure of leased hotels. We net closed 22 leased hotels in the quarter, and the number of leased and owned hotels decreased by 38, or 6.3%, on a year-over-year basis. Revenue from Huazhou, monetized and franchised, grew 14.7% YOY, driven primarily by our strong hotel opening, but was negatively affected by the decline in River Path from the high base last year. Next DH's revenue rose 9% YOY to RMB 1.3 billion, which was a tribute to both business recovery and hotel network expansion. Please turn to page 17. We have been committed to grow and as a line model, expanding our hotel network using monetized and franchise hotels. As a result, revenue from our franchise and franchise hotels continues rising. In the third quarter of 2024, revenue contribution from franchise and franchise hotels reached 50% of our Lexi Huazhou's revenue, up from 44% a year ago. We expect this trend to continue as we become more and more as a light. We believe this will drive a gradual and continuous margin expansion, as well as help us to become more resilient when navigating through economic cycles. Please turn to page 18. Hotel operating costs will unbeat $3.8 billion in the third quarter of 2024, up 5% YOY. The increase was due to rising personnel cards from our continued hotel network expansion. Pre-opening cards remained at a low level as we continue moving towards the SLI model and staying selective on opening lists and owned hotels. SG&A expands or RMB 975 million in the third quarter of 2024, up 18% YOY, of which Lexi Huajus increased 9% YOY and the Lex DH rose 42% YOY. The 8% YOY increase in Lexi Huajus SG&A was mainly due to a high share-based compensation to attract and return core employees who are key to our sustainable long-term business growth. Excluding share-based compensation, SG&A expense for Lexie Huazhou increased 2.5% YOY. The 42% YOY increase in Lexie DH's SG&A was due primarily to a RMB 81 million one-off restructuring costs excluding the non-recurring restructuring costs, SG&A expense for LexisDH increased 7% YOY. As a result, our income from operations in the quarter was RMB $1.7 billion, which is representing a 10% YOY decline, but a 10% Q2 growth. Please turn to page 19 for our profitability and the cash flow during the quarter. In the third quarter of 2024, our adjusted EBITDA decreased 9.5% YOY to RMB 2.1 billion. By segments, Lexi Huazhou's adjusted EBITDA was down 5.4%. 7.5% YOY to RMB 2.1 billion due to the rare part decline from the high base last year and SG&A normalization. Our DH business generated RMB 21 million adjusted EBITDA, which was down YOY due primarily to the non-recurring destruction costs mentioned previously. However, After this round of restructuring, we believe our DH business will be leaner and its profitability should see some improvement next year. In the quarter, our group generated RMB 1.4 billion adjusted net income and RMB 1.7 billion operating cash flow. Page 20 for our liquidity position. As of end of September 2024, the group had RMB 9.3 billion cash, cash equivalent, restricted cash, and time deposits, and was in a solid net cash position of RMB 4 billion, including time deposits. We also had RMB 3.6 billion in utilized bank facilities as of end September. Next page, please. As part of our total shareholder return plan, we continued buying back shares. As of September year-to-date, we have bought back roughly 270 US dollar million worth of shares from the market. In the first nine months, we have returned around 470 million US dollars to the shareholders through both dividend and share approaches, which accounted for more than 80% of our free cash flow generated in the same period. Lastly, page 22 on guidance. For the fourth quarter of 2024, apart from the ongoing rare power pressure, we will continue closing some leased and owned hotels as we are committed to our asset-light strategy. The closure of more leased and owned hotels will definitely bring some negative impact on our revenue in the quarter. Therefore, we expect our group revenue to grow between 1% to 5% compared to Q4 2023, and also 1% to 5% if excluding DH in the fourth quarter. With that, we are ready to take your questions. Operator, please open the line for Q&A.

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. We will now take our first question from the line of Ronald Leung from Bank of America. Please ask your question.

Good morning, Director Chang. Thank you for giving me a chance to ask a question. I have two questions. The first question is about the situation of RAFPA. I would like to ask, what is the performance of RAFPA of the company in October and November? What are your expectations for the RAFPA of the city? The second question is about the management of the membership system. Let me translate the questions in English. My first question is about RAFPA. May I ask what are the RAFPA trends in October and November? And what is your expectation for the RAFPA growth in 4Q? My second question is about the management of the membership system. May I ask, what is the company's strategy to enhance the membership's loyalty so as to increase the direct sales ratio? Thank you very much.

I'm Jin Hui. Let me answer these two questions. From the trend, we can see that China's business market is still growing weakly, so it is recovering. So the entire year has been affected by ADR, mainly by ADR, especially the decline in ADR in Chinese high-end hotels, which has had a greater impact on the entire hotel industry. We also see a positive aspect. The exit rate, our entire market demand, is still in a relatively stable state of growth. China is still maintaining high-quality development at this stage. Our fourth quarter, OK. Let me answer your first question regarding to the rough part. So clearly as you may see from the market, so this year, business traveling activity remain a bit weak compared to the leases.

And that caused a major ADR impact and the pressures for this year on a year-over-year basis, as well as the high base from the last year. And also, we are seeing the up mid and up skill segment was underperforming. And the ADR has even higher pressures, which also are going to have some of the pressures to our segment in terms of the ADR. However, on the positive side, we still see a pretty good demand for the overall traveling. And therefore, we still can maintain a relatively healthy and high occupancy rate despite our fast pace of hotel network expansion. Therefore, we remain committed to ensure our high quality growth strategy. And for the first quarter, according to our estimate, mainly due to the ADR pressure, the REF PAR for the first quarter will be around middle single-digit year-over-year decline. Thank you.

Okay, I will answer the second question about membership. Since Huazhou has entered more high-end markets and there are a lot of new leisure and tourism markets in the market trend, Huazhou's original membership network penetration and effectiveness So, in regard to your second question about membership,

So as we are penetrating into different regions as well as, you know, break through some of the new segments, so it takes some of the time to creating some of the synergy from our existing membership and the new regions and segment coverage from our membership program. And also there's, you know, a lot of new demands from the leisure market as well. So we are putting a lot of efforts to enhance our membership program. to provide more variety in terms of the products to different groups of customers and to ensure the membership program for the growth.

On the second hand, we are planning to fully upgrade our membership and service system, especially on the lowest price. We will further improve our membership and service capacity through Huazhou's membership and service. We will further improve our membership and service capacity

Okay, we are also working on, you know, improving the membership's benefits and ensure the lowest pricing through our direct sales channel and the membership program. And therefore, we can further improve the, you know, the offline membership conversion as well as, you know, improve the retention rate. 第三,我们正在积极地拓展,例如航空,机箱航空,滴滴,很多锤类的 We are also seeking some of cooperation with cross, you know, different segments, such as, you know, working with the airline company, such as Junyao Airline, as well as, you know, the car-hailing companies, which is DD, to seeking more cooperation among different industries.

We have been putting a lot of efforts over the last several years in terms of the B2B direct sales and corporate customers.

And we believe, you know, a stronger capability on the B2B direct sales and corporate customers will further help us to improve the membership program. Thank you.

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

Thank you, Director Guan. Thank you, Director Jin, Director He and Director Chen for sharing. 我有两个问题 第一个问题也是回忆到那个REPAR的问题 我知道今年从第二季度到现在 可能那个高技术的问题 以及你刚才说business travel受到影响 所以那个REPAR可能表现不是太好 想请教一下 比如说下一年你有什么看法 以及说再看长远一点点的话 你对国内整个市场的REPAR 有什么看法 这个是第一个问题 然后第二个问题 也是相关的问题吧 想请教一下 因为很多投资者很关注 这个供给的服务的情况 我不知道 我好像上几个call也有问过一些 最近可能听到写成说 他那个supply 好像有一点点的慢下来 我不知道从你们这边去看的话呢 So let me translate into English. So two questions. One, given the high base on the red part this year, we have seen quite a weak performance in the last several quarters. Continuing into fourth quarter, but looking into next year, What is your expectation? And maybe in the longer run, what is your rapid expectations for the industry? And then secondly, just related to that, there's a lot of investors asking about investments or the surprise situation in China. And we have here from TECOM that their listing numbers in the third quarter has actually seen a quite noticeable deceleration. So wondering what management are thinking in terms of this surprise situation going into next year. Thank you.

Thank you, Emma. Let me answer this question. First of all, about the future prediction of RERPA and the entire long-term prediction. Let's first answer about this judgment in 2025. Because in 2024, it was indeed affected by the high-tech in 2023. In the whole of 2023, it should be said, especially in the summer and the rainy season, it showed a strong rebound. China still believes that China This is a very good market with potential because the Chinese central government is working hard to promote internal demand and internal circulation. We believe that under the stimulus of internal circulation and internal demand, China's cultural industry is undoubtedly the most potential market, especially The central government is also continuing to open up the policy of exemptions. I think that on the one hand, the demand for domestic demand and on the other hand, the demand for international guests will continue to be guaranteed. So our basic judgment is that we will enter a period of sustainable, healthy and stable. The second question is about supply. We also see that China's hotel industry, we have repeated a point of view. China's hotel industry supply has never been without supply, but it lacks effective high-quality supply. So there are two trends we see. One is that the supply of such a high-end and full-fledged hotel under real estate will shrink quickly, and some will even be eliminated. We saw the closing of Beijing Changchun Hotel, the closing of Beijing Yuse, and the exit of these hotels in Shanghai, It shows that real estate and traditional full-fledged hotels are not able to adapt to the changes in the new market. The second trend is the acceleration of low-quality and individual hotels, especially the rapid penetration of the leading brands represented by Huazhou. Originally, these low-quality and individual hotels were rapidly emerging. Then supply, because hotels are also very marketable, for a long time, I still believe that it is a market-based regulation factor that occupies a very large market. It will enter a relatively balanced stage of supply and demand. Huazhou still maintains a high-quality market coverage at this stage. In particular, the job service we have proposed this year is to hope that Huazhou can provide higher-quality products and services to achieve our further penetration of the market.

Let me answer your first questions in regard to the next year's REFPA expectation. I think looking through this year's REFPA performance, clearly there was a high base from last year, especially during the summer holiday season as well as some of the peak leisure seasons. There was a mix of the reasons for the last year, either from the pent-up demand and a temporary shortage of the supply due to the reopening from the COVID-19. And overall, we think the rough patch should gradually enter in a more stabilized and, you know, growth cycle starting from next year. And we think China, overall, the leisure market is going to have very good potentials going forward. And we are clearly seeing a very strong government support on the leisure traveling to boost and stimulus the domestic consumption. not only the domestically, but also, you know, I recently, you know, give a lot of, you know, these are free policies to a lot of, you know, foreign countries, which both not only drive the domestic demand, but also the inbound, which is an incremental value or volume for us to further develop the leisure marketing in China. So therefore, overall, we think the rest part should going to be stabilized and upward. trends starting from next year. So we think the rough path for next year for us should at least remain stable. And to answer your second questions in terms of the supply, and clearly, as we always mentioned, China, long-term market, never lack of supply. It lacks of high-quality supply. And we observed several clear trends happening in the market. One is those historically driven by the property booming. A lot of traditional old five-star hotels has been gradually existed in the market. For example, the Great Wall hotels in Beijing and the Marriott Green. ringtone hotels in Shanghai, which is showing good examples. And secondly, we think those low-quality small-scale and independent hotels are gradually going out of the market in the near future. But overall, the hotel market is a very market-driven, very mature market, and always adjusted by demand and supply dynamics. And we think in the near future, the demand supply will reach some of the equivalent. And that's our views on the demand supplies going forward.

I think the change in these two markets, in fact, for Huazhou's long-term strategy, I think it is a good phenomenon. Let the market be more flexible and solve the endless expansion of the past. Let consumers enjoy higher cost performance in Huazhou's efficiency and cost leading strategy. I think Huazhou, whether in the past or in such a situation, Huazhou is still Let me add one more point.

Through the economic cycle and over the last several years, clearly we are seeing another two trends. One is for the investments becoming more rational, and from the customer side, they are seeking for better value for many products. I think these two changes actually helped us to leverage our cost very high efficiency in terms of the operational capability as well as the cost leadership capability to remain a high quality growth and further providing some of the good quality products but for value for money seeking customers. Thank you.

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

Hello, I'm Lydia from Citi. I have two questions I would like to ask. First of all, it's about opening. We also saw that the opening of the three-season company is very strong. So I would like to ask if you can share with us the opening goal of the new year and the current contract of the fourth season. I also want to know about our opening and closing plans for next year. The second question is about the competition pattern of the mid- and high-end markets. Indeed, this year, many of the market returns are focused on the mid- and high-end markets. Are you worried that the supply will continue to suppress the price? Also, do you see more competition on the lost property resources? Hi, management. This is Lydia from Citi. So I have two questions. And so first one is on the store opening. And like you actually accelerated the store opening in the third quarter. So could you share your latest target for your full year opening for this year? And how about the signing momentum in the fourth quarter to date? And could you also share your plan for the opening and the store closure for the next year? And my second question is on the competition landscape in the mid-scale and also the upper mid-scale segment. As we see, why the supply in this segment also increased due to expatism by the pricing pressure looking ahead, and also do you face actually more competition on the quality of property resources for this segment? Thank you.

Hi, I'm Jinghui. I'm here to answer these two questions about the trend of opening and closing stores. This year, indeed, our entire contract and opening stores are at a historical high. Our contract this year also reflected that we still have more than 800 such high contracts in the third quarter. Our opening stores this year will be around 2,400. The final number will exceed our earliest guidance. The contract and opening of the whole of 2025, we feel that it will still maintain a relatively healthy range. We are still developing this, because of the head brand and market penetration strategy that Huazhou has established, it is still very strong in this stage, the recognition of the market partners. So we believe that signing and opening up will still maintain a reasonable interval and stable growth. As for Bidian, as everyone knows, Huazhou is in the stage of high-quality development and creation of desktop services. Our low-quality products have been cleaned and upgraded in a targeted way. We will continue this strategy steadily. Let me answer your questions regarding to the opening and closures.

For this year, as you may see, the new signings as well as the new openings have both reached record high year. And also, as I mentioned previously in my prepared remarks, in the third quarter, we also signed up over 800, you know, new hotels during the quarter. Therefore, you know, for the full year, the new opening for the 2024 should be somewhere around 2,400. which is slightly higher than our previous guided 2,200 new openings. And going into 2025, we think that the overall new opening should remain within a relatively healthy range. And that was benefited from our branding branding as well as our strategy on the regional penetration, which is to further increase the brand recognitions and awareness among the franchisees. And in terms of the closures, under the background of high quality growth as well as the service excellence So now we're going to continue to clean up some of the low-quality, unqualified hotels in our existing portfolio. However, over the last several years, we have been doing this already. So the total closures, pressures should last going forward.

Thank you. 关于刚才提问是中档和中高站两个市场。 In regard to the competition, firstly, I would like to discuss in the middle skill segment. In this particular segment, we have been established our very industry leading brand.

which is G Hotel and Orange, which have been getting a very strong brand recognition as well as the wellness, which we are very confident to compete in this segment. 尤其中档在我们华族原来落后的南方和华族薄弱市场都实现了快速的增长。 Especially we are seeing that we are previously less penetrated areas such as southern China as well as some of other regions have been growing very rapidly. 对于中档市场,

uh uh In terms of the upper May segment, we are thinking this industry is also doing a consolidation.

and especially under the trend that the customers are seeking more value for money products. And our key brands like Crystal Orange and Intercity actually are providing a very high quality product which is offering a very good value for money products to the customers. And together with the property market changes, and some of the traditional, you know, upscale and some of the property-driven, you know, five-star hotels. Some of the property has been released to the market, which is going to help us to, which is going to be benefiting us for further developing this segment. 我们坚信这样的一个华族在中高端市场的覆盖和发展会进步的提出。 Leveraging our improvements on the branding as well as the management capability, we have been achieving over 30% growth in that particular segment, and we believe we are very confident that we can further develop this market in a relatively rapid speed. 从中长期来看,华族... From a mid to long-term perspective, we are also hoping to be one of the leading brands in this opportunity segment. Thank you.

Thank you. Our next question comes from the line of Dan Chee from Morgan Stanley. Please ask your question, Dan.

Good morning, everyone. I am Dan, an analyst at Damo. Thank you very much for giving me the opportunity to ask this question. My question is about the company's direct electricity business. We see that there are 25 direct electricity companies in this quarter. I would like to ask how many of them are actively upgrading, or how many are contract expiring? And then just now, Chairman Chen also mentioned that our company may continue to make such a revision in the executive branch. If possible, I would like to ask Mr. Guan to share with us the current strategy of our entire executive branch. And this revision is a one-time thing, or how many hotels do we need to actively revise in the future? Let me translate it. Thank you, management. This is Dan from Morgan Stanley. My question is about Legacy Huatru's lease and operated businesses. We saw 25 hotel closures and a selected closure of underperforming lease and owned hotels. Can management share more insights on the lease and owned business strategy? Is this proactive closing one-off or is a longer-term plan strategy? If this is the latter, how many lease and own hotels in our current portfolio will get impacted. Thank you so much.

Thank you, Dan. Because our company is now implementing a green asset strategy, in Q3, the number of closed stores has indeed exceeded the first half of the year. In the third quarter, we closed 25 stores, and 8 of them turned into joint stores. The rest is basically contract expiry. We didn't make any money. Most of these hotels are closed or we think there are some other problems, so there are no vacancies. Next, in the future, in the fourth quarter, or even next year, there will be some branch stores that may transfer or not vacate. This number may be higher than the number we had in the first half of the year. Okay, let me answer your questions.

First of all, our company is in the transformation from a two-year asset more as a light model. And also, you are right, in the third quarter, we closed the 25 leased and owned hotels, which is more than the first half. of this year. Out of these 25 leased and owned hotels closures, around eight of them are transferred to a leased – transferred to a managed hotel, and the remaining are basically closed due to the lease contract expired. Some of them are not meeting us in terms of the operational performance or some other issues that we are not able to renew the contract. In the fourth quarter and the next year, we're going to continuously to close, you know, more leased and owned hotels. But in terms of the quantity, it should be higher than first half, but less than the third quarter. Thank you.

Thank you. We have 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.

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

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.