H World Group Limited

Good day and thank you for standing by. Welcome to the Hworld Q4 full year 2024 earnings conference call. At this time all participants are in a 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 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question please press star 1 and 1 again. Please be advised today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Jason Chen, Head of IR. Please go ahead.

Thank you, Sarah. Good morning and good evening, everyone. Thanks for joining us today. Welcome to Edgeworth Group 2024 Fourth Quarter and Full Year Earnings Conference Call. Joining us today is our founder and chairman, Mr. Jiqi. our CEO, Mr. Jin Hui, our CFO, Ms. Chen Hui, and our CSO, Ms. He Ji Hong. 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. Edgeward Group does not undertake any obligations to update any forward-looking statements except as required and applicable laws. On the call today, We will also mention adjusted financial measures during the discussion of our performance. Reconciliation of those measures to comparable gap information can be found in our earnings release that was distributed early today. 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 fourth quarter and the full year of 2024.

Mr. Jin, please.

Thank you. Hello, everyone. Thank you for joining Edgeworth Group.

fourth quarter and full year of 2024 Earnings Conference Call. Compared to commercial travel, leisure tourism has maintained a stronger growth in 2024. According to the Ministry of Culture's data, the total number of domestic tourists in the country reached 5.615 billion in 2024, which is 14.8% of the total growth. The total consumption of domestic tourism reached 5.75 trillion yuan, which is 17.1% of the total growth.

Although there were some still macro uncertainties and challenges in 2024, the overall domestic travel demand continued achieving steady growth, as suggested by some industry data and our operational results. For example, the number of passengers transported by railway increased 11.9% year-over-year in 2024, and domestic air passenger traffic rose by 8.8% during the same period. Leisure travel continued its strong growth momentum and outperformance of business travel. According to the data from the Ministry of Culture and Tourism, the number of domestic tourists reached 5.6 billion, up 14.8% year-over-year, with the total domestic tourism spending up 17.1% year-over-year, hitting RMB 5.8 trillion. This reflects the people's strong willingness on traveling, as well as strong support from local governments to promote tourism activities.

从酒店行业来看,需求的增长,尤其是旅游需求的高度增长, led to a rapid increase in supply and demand in some stages and regions, which led to some unbalanced supply and demand in the short term, and thus created some pressure on ADR. But in the long term, we believe that the hotel industry is a highly market-oriented competitive industry. The supply and demand relationship will gradually return to a more balanced and reasonable state after a period of time. As a leading enterprise in the industry, Looking to the hotel industry in China specifically, steady growth in demand, particularly the fast growth in leisure demand,

has led to supply increase in some regions and areas, which resulted a temporary supply-demand imbalance, and hence brought some pressures on the ADR. However, in the long run, we believe that the hotel industry is a highly market-oriented and a fully competitive industry, and the supply and the demand dynamic will gradually return to a more balanced and a reasonable level after a certain period of time. As the market leader, we will continue pursuing our high-quality development strategy, leveraging better products and services, stronger brand positioning, and efficient operations as our core competitive edges to attract more customers and build up stronger capability to navigate through cycles. Now, let me walk you through our 2024 key achievements and operational highlights.

First of all, in May 2020, As Huazhou Xixia Hanting Hotel opened its last public road in China, the number of Chinese Zaiying stores has surpassed 10,000. This marks the completion of the 1.0 stage of Li Chengbei. At the same time, in 2020, the Group achieved the opening speed of 2,442 new stores in history. Of which, 2,430 stores came from China. thanks to our continuous promotion of the summer strategy to seize the opportunity and growth space of the Chinese market. Third, in terms of the medium-high end, Chenji Hotel and Orange Crystal also achieved good performance in 2024, helping us to build a stronger development capacity in the medium-high end. In 2020, China's medium-high end hotel network grew by 35% compared to the rapid growth in 2023, First of all, in May 2024,

Lexi Huazhou achieved a key milestone of 10,000 hotels in 1,000 cities and counties, after the Hanqing Hotel opened in Motuo County in Tibet, where it is the last county to gain highway access in China. Secondly, the group opened a record high of 2,442 new hotels during 2024, of which 2,430 new openings were contributed from Lexi Huazhou. It was supported by our acceleration of lower tier cities penetration to better capture more growth and development opportunity in China market. Thirdly, we are happy to see our upper mid-segment continued gaining momentum, with hotel network growth by 35% year-over-year in 2024, outpacing last year, thanks to the strong development of intra-city and crystal orange brands. Lastly, we continued pursuing our asset-light model strategy. In 2024, the asset-light revenue contribution exceeded 50% for our next-door business. At the same time, DH's asset-light transformation also achieved some breakthroughs, which we will elaborate later. We believe that the asset-light model will help us to achieve more stable and sustainable development in the long run, and generating stronger and healthier cash flow.

Please turn to the next slide. Looking back at the past 10 years, China's hotel network has achieved a recovery growth rate of 18.6%. From the scale of less than 2,000 hotels in 2014, it has grown to the current volume of 11,000 hotels. Our opening speed has also reached a new level in the past two years. In 2024, Mao opened more than 2,000 hotels, becoming the absolute leader of the industry. Please turn to your next page.

Over the past decade, Lexi Huazhou's network expansion achieved a CAGR of 18.6%, growing from less than 2,000 hotels in 2014 to our current level. And our expansion was getting even faster in the past two years, with over 2,000 new hotels opened in 2024. It helped us further solidify our leading position in the industry, 2025 marks the 20th anniversary of Edgewood Group. Over the past 20 years, we have evolved step by step from a single hunting branded hotel to the current multi-brand hotel management group with over 11,000 hotels in operation. Moreover, we are also transforming from an asset-heavy business model to an asset-line expansion model, which focuses more on product and service quality as well as brand positioning and management capability. Going forward, we will stick to our high-quality expansion strategy and aim to reach our next goal of 2,000 cities with 20,000 hotels in the near future.

Please turn to page 5. Let's review China's business performance in 2024. China's RERPA in 2024 is 235 yuan, which is a slight drop of 3%. In terms of export rate, in 2024, the opening year created a new high in history, and the volume grew by 20%, and a large number of new stores are still in the climbing period. The whole year's export rate still increased by 0.2%, reaching 81.2%. Now let's review our Lexi Huazhou's operational performance in 2024.

Please turn to page 5. In 2024, Lexi Huazhou's blended repart decreased slightly by 3% to RMB 235. In 2024, our occupancy rate improved by 0.2 percentage points year-over-year to 81.2%. Despite that, our room counts grew by 20% year-over-year in 2024, and a lot of newly opened hotels were still in their ramp-up periods. This further demonstrated our strong capability to attract and serve more customers and grab more market shares. However, ADR was down 3.2% to RMB 289, mainly due to a high base last year as well as supply increase.

请大家翻到第六页。 2024年,我们的酒店网络持续扩张。 开店数量创下历史新高。 There are 2,430 new businesses this year, and as we gradually clean up the low-quality soft brand stores, the number of closed stores in 2024 will decrease by two or three years. In 2020, there will be 668 closed stores this year. In the future, we will continue to raise the idea that quality is greater than scale, and we will continue to raise higher requirements for hotel quality, and we will continue to organize and eliminate low-quality stores, Please turn to page 6. In 2024, we achieved a record high hotel expansion of 2,430 new openings.

At the same time, the number of hotel closures in 2024 was skyrocketing. 668, lower than that in 2023. This was mainly due to fewer closures of Eland and Hunting 1.0. Moving forward, we will still privatize quality over quantity in terms of expansion and continuously phase out unqualified hotels from our portfolio and pipeline to ensure a constant product and service quality improvement. By the end of 2024, we have a total of 2,988 hotels in the pipeline, increased by 89 hotels sequentially.

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 Huazhou business. We continue focusing on the economy and mid-skill segment for mass market penetration and development.

Please turn to page 7. By the end of 2024, Lexi Huazhou's economy and mid-skill hotel accounted 91% 79% and 89% of the hotels in operation, the hotels in pipeline, and the new 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 constantly roll out high quality and good value for money limited service hotels, expand our coverage nationwide, and solidify our leading position in this limited service segment.

Continuous product upgrades bring product power to the company's leading industry, one of the key factors for achieving high-quality sustainable growth. In 2020, we have launched Nihao 2.0, Haiyou 6.0, and Orange Crystal 2.5, three new version of hotel products. Among them, Nihao 2.0 and Haiyou 6.0, as a supplement to the Chinese-made brand in the national market, meet the needs of new generation young consumers, to assist the company in the promotion of the market strategy of the lower level market, and to boost Huazhou's leading position in the national market. Orange Crystal 2.5 is a hotel built by the company in the high-end track for business management. It will help Huazhou in the high-end market to make further breakthroughs and improvements together with Chenqi Hotel.

Continuous product upgrades is one of the key factors to maintain market leading position and enhance competitive edge for achieving long-term sustainable growth. In 2024, we launched new versions under three brands, which included Nihao 2.0, Haiyin 6.0, and Crystal Orange 2.5. Nihao and Haiyin serves as 20 supplementary brands to fulfill the accommodation demand for younger generation and to support lower-tier cities' penetration, and to help strengthening our presence and leading position in the mass market. While Crystal Orange 2.5 was designed for the business travelers in higher-tier cities, and together with Intercity to be our key brand to further break through and catch up in the upper-mid segment in China.

公司有限服的核心经商教品品牌在过去几年持续迭代,请大家翻到第九页。 We can see that the price increase of Hanting's 3.5-level products is increasing year by year. At the end of 2024, the price increase reached 36%. Compared to the end of 2023, it increased by 15%. Please turn to page 9. In Hanting's 3.5-level products, the price increase of 4.0-level products from 30% in 2020 to 76% at the end of 2024. Page 10. We continue to improve product quality through upgrades for our Golden Triangle brands in service segments over the last several years.

Please turn to page A. hunting 3.5 and above version has been increasing every year. By the end of 2024, the proportion of hunting 3.5 and above expanded 15 percentage points year over year and accounted over 36% of hunting hotels in operation. Please turn to page nine. Among all G hotels in operation, the proportion of G 4.0 version and above up from 30% in 2020 to 76% in 2024. Then please turn to page 10. The proportion of orange 2.0 and above expanded from 14% in 2021 to 66% in 2024. Through consistent product upgrades, the brand and brand power for our golden triangle brands would see continuous enhancement and solidification.

In terms of expansion, the infiltration of our low-end cities is continuing. Please turn to the third page. As of the end of 2024, the company's Zaiying Hotel has increased by 12% in the three-line level below the city. The hotel in Guangzhou has increased by 54% in the three-line level below the city, which is 12% higher than Zaiying Hotel. In terms of regional expansion, our penetration in the lower tier cities continued progressing.

Please turn to page 12. At the end of 2024, around 42% of the company's hotels in operation were located in tier 3 and below cities. reflecting a 2 percentage points year-over-year increase. The proportion of pipeline hotels in this market reached 54%, a 12 percentage points higher than operating hotel ratio. Additionally, by the end of 2024, our cities and counties coverage expanded to 1,380, added 123 new cities and counties compared to a year ago.

Huazhou continues to grow in the mid- and high-end hotel industry. Growth is strong. Please move to the third page. As of the end of 2020, Huazhou's mid- and high-end hotel revenue and the number of hotels in the pipeline increased by 35%, each reaching 873 and 521. After a few years of hard work, Huazhou's mid- and high-end business Our upper-mid segment continued gaining strong growth momentum.

Please turn to page 13. At the end of 2024, the number of hotels in operation and hotels in pipelines in the upper-mid segment both increased by 35% year-over-year, reaching 873 and 521 hotels respectively. After a few years of development, our core brands in this segment have gained bad recognitions among customers and franchisees, which helped us to expand the network faster than before. We will continuously put more effort on developing in this segment,

and strive to become one of the top brands in the near future. Please turn to page 14.

In 2024, the rapid development of our corporate business effectively offset some impacts from the shortage of individual business traveling demand and helped us to achieve a stable occupancy rate. For the full year, direct corporate bookings exceeded 27.6 million room nights sold. reflecting a 39% year-over-year increase, with active corporate accounts surpassed by 5,300, up by 49% year-over-year.

In terms of sales, Huazhou has always emphasized the importance of member systems and sales channels for long-term sustainable development of corporate businesses. Please turn to page 15. Huazhou's member size is constantly growing. As of the end of 2024, We always emphasize that the membership program and direct sales capability are the most critical aspects for our business to achieve long-term sustainable development and growth.

Please turn to page 15. At the end of 2024, our member base further increased to nearly 270 million. During the fourth quarter of 2024, room nights generated through the central reservation system accounted for 66.4% of the total bookings, representing an increase by 4.1 percentage points year-over-year and 2.2 percentage points sequentially.

Looking back to the year 2020, let's look at China's key work in 2025. Please turn to page 16. In 2025, Huazhou will further promote high-end development, continue to strengthen the penetration of low-end cities and open markets in the limited service sector, and continuously improve the layout of our high-end brands in the selected service sector. At the same time, in terms of brand construction and service, We will also work more closely and continuously strengthen the service strategy around brand management and customers as the center. We will continue to enhance the consistency and customer satisfaction of brands and products through the upgrade and transformation of products. At the same time, through encouragement and authorization to stimulate employees to take active and good service, to bring the best service to our customers, and ultimately achieve low-cost, high-effectiveness, and leading service standards with the characteristics of Huazhou. In addition, Huazhou continues to steadily promote the strategy of self-sufficiency, helping Huazhou to achieve stable and sustainable long-term development. Finally, in terms of marketing, we will use Huazhou to be the core, improve the precision operation of Huazhou members, strengthen the membership annuality,

After reviewing our performance in the year of 2024, let's now look into our key focuses in 2025. Please turn to page 16. In 2025, we will continue focusing on high-quality growth. We will further penetrate into lower-tier cities as well as those wide spaces for our limited service segments. In addition, we will continuously enhance our development and presence for the upper-mid brand in the selected service segment. At the same time, we will focus more on brand building and brand positioning, as well as continue implementing our service excellence strategy with a customer-centric principle. On the product front, we will further improve product quality and launch new products to strengthen our brand and product consistency to improve customer satisfaction. Meanwhile, we will motivate and authorize our staff and employees to encourage them to proactively provide the proper services to the customers. By doing so, we can ultimately achieve a low cost, high efficiency, and outstanding service level with strong edge reward characteristics. Thirdly, we will continue to pursue our asset line strategy to achieve a more stable and sustainable longer-term development. Lastly, in terms of sales and marketing, our edge reward membership program is undoubtedly the core focus. We are aiming to improve member engagement level and improve user retention and repurchase. Additionally, we will also further optimize our sales capabilities to better serve and attract more diverse customer base under various consumption scenarios.

All above concludes the 2024 operational updates for Lexi Huazhou.

Now, I will hand over the call to our CSO, Ms. He Jihong, to give an update on LegacyDH. Thank you.

Thank you, Qinghui. I will highlight the key performance of LegacyDH business now. Please turn to page 17. For our LegacyDH business, we're happy to report that in the fourth quarter of 2024, REFPA improved over 10%. to 81 euro compared to last year. This improvement is mainly driven by 7 percentage points occupancy improvement. For the full year 2024, RAFPA increased 5.9% to 76 euro compared to 2023. This is contributed by 1.5% increase in ADR and 2.7 percentage point increase in occupancy. Please turn to page 18. In the second half of 2024, we carried out a series of cost-cutting and restructuring activities. We reduced admin staff at headquarters by 30%. We restructured our operations management team to improve hotel performance. At the same time, we accelerated the portfolio restructuring to become more asset light. In 2024, we exited 14 lease hotels. All these efforts started to pay off, although full-year benefits will only be realized in 2025. In 2024, our revenue increased 9.6% to revenue of $4.9 billion. More importantly, our core adjusted EBITDA, which excludes restructuring costs, rent value and goodwill impairment, and other adjustment of one-time nature is increased by 54% to RMB 356 million. Please turn to page 19. Looking forward, we will continue our effort to improve legacy DH business. We will focus on three key areas. First of all, optimization of hotel operations through a disciplined approach for revenue enhancement and cost management in each of our hotels. Secondly, we will start to see positive impact of overhead reduction from 2024. At the same time, we will not stop our overhead streamlining effort and will continue scrutinizing the admin costs. Third, we will continue to pursue asset life strategy and exit unprofitable at leases. As a matter of fact, we exited another 11 lease contracts in February 2025. With all these efforts, we strive to improve the profitability of our DH business. In 2025, due to access of lease hotels and a change of these leases to franchise contracts, our top line revenue will decrease at the first glance. However, This portfolio reshuffling effort will improve our sustainable profitability as we transform the leases to a fee-based franchise business. This concludes the DH review. I'm now handing over to CFO Ms. Chen Hui for financial review.

Thank you, Jihong. Good evening and good morning, everyone. walk you through our operational and financial review for the fourth quarter and the full year of 2024. Please turn to page 21. Our hotel network continues to expand. The overall number of rooms increased 19% in the year of 2021. Compared with 912,000 rooms a year ago, hotel turnover for the full year of 2024 was RMB 93 billion, a 15% year-over-year increase versus 2023. By segments, Lexi Huazhou's hotel turnover grew 16% year-over-year to 85% billing RMB, and the next DH hotel turnover increased 9% year-over-year to 8 billion RMB. Please turn to page 22 for our revenue. In the fourth quarter of 2024, total revenue for the group increased 7.8% year-over-year to 6 billion RMB. exceeding the high end of our guidance. For the full year of 2024, total revenue for the group increased 9.2% year-over-year to 23.9 billion. By segments, revenue from Lexi Huazhou increased 9.2% year-over-year to 4.8 billion RMB in the fourth quarter beating the high end of our guidance, thanks to the better-than-expected hotel openings and very high performance. And its four-year revenue grew 9.1% year-over-year to $19 billion. In 2024, we further closed 63 leased and owned hotels as we pursued a more asset-line model as a result Next, Hua Zhu's revenue from lease and owned hotels decreased 4.8% year-over-year in Q4 and decreased 3.9% year-over-year for the full year. On the other hand, its monetized and franchised revenue recorded a much stronger growth of 24% year-over-year in Q4 and 23.6% year-over-year for the full year, mainly attributable to our strong new hotel openings, despite a slight decline in RERPA. For LexDH, its revenue rose 2.9% year-over-year to 1.2 billion RMB in the fourth quarter, and was up 9.6% year-over-year to 4.9 billion RMB for the full year, driven by the power growth. Turn to page 23. As we have been continuously implementing our asset-line strategy, revenue contribution from our managed and franchise hotels further enlarged. For the full year of 2024, Revenue contribution from managed and franchise hotels reached 40% for the group, up from 35% a year ago. For Lexi Huazhou, revenue contribution from managed and franchise hotels reached 49% compared to 43% a year ago, exceeding the revenue contribution from this owned business. for the first time on a yearly basis. We expect this trend to continue, and we believe our SLR strategy will support a gradual and continuous margin expansion of the company and generating strong cash flow, as well as help us to become more resilient when navigating through economic cycles. Now moving to the cost and expense section. Please turn to page 24. Hotel operating costs for the group were 4.2 billion RMB in the fourth quarter and 15.3 billion RMB for the full year, up 4.9% year-over-year and 6.6% year-over-year respectively. Hotel operating costs of Lexie Hua Zhu decreased 5.3% year-over-year in Q4 and increased 3.8% year-over-year for the full year, slower than the revenue growth in the corresponding period thanks to the transformation to a more asset-light portfolio. Lexie DH's hotel operating costs amounted to 1.4 billion RMB in Q4 and 4.3 billion RMB in 2024, representing 33% and 14.4% increase, respectively, primarily due to roughly 420 million RMB impairment loss booked in Q4. SG&A expense for the group was 1 billion RMB in the fourth quarter and 3.7 billion RMB for the fourth year, up 5.3% year-over-year and 16.7% year-over-year, respectively. Next year, Huazhou's SG&A increased 13.4% year-over-year in Q4. and 19.7% year-over-year in 2024, mainly due to a higher share-based compensation to attract and return core employees who are key to our sustainable long-term business growth. If excluding share-based compensation, Lexi Huazhou's SG&A expense would have increased 8.8% year-over-year in Q4, and 12.5% for the full year. Next, DH SGA decreased 14.4% year-over-year in the fourth quarter, thanks to our restructuring and cost optimization effort. DH's full-year SGA increased 9.4% year-over-year. Our income from operations grew 19.2% year-over-year to 902 million RMB in the fourth quarter and increased 10.3% year-over-year to 5.2 billion RMB for the full year. By segment, Lexi Huaju reported a 47.7% year-over-year operating income growth in Q4, and 14.4% year-over-year growth for the full year of 2024. Next, the operating loss widened due primarily to the impairment loss, as mentioned previously, and around $100 million RMB one-off restructuring costs booked for the full year. Please turn to page 25 for our profitability and cash flow. Our group adjusted EBITDA grew 10.3% year-over-year to 1.2 billion RMB in the fourth quarter and increased 8.8% year-over-year to 6.8 billion RMB for the full year. To better reflect our co-operational performance, we further made adjustments on non-cash impairment loss, one of DH's structural costs, and previous year's COVID related government subsidies and rental reductions, which are non-operational or one-off items. Our group's core adjusted EBITDA increased 15.5% year-over-year to 1.7 billion RMB in the fourth quarter and grew 13.9% year-over-year to 7.5 billion RMB for the fourth year. By segments, Lexi Quadro's core adjusted EBITDA increased 14.5% year-over-year to 1.5 billion RMB in Q4 and grew 12.5% year-over-year to 7.1 billion RMB for the full year, driven by our high-quality network expansion and asset line strategy. DH's core adjusted EBITDA increased 24% year-over-year in the fourth quarter and 54.1% year-over-year for the full year, thanks to the river park rules and our cost optimization effort. Adjusted net income was 321 million RMB in the fourth quarter, which was directly primarily by a surge in withholding tax which was mainly related to our dividend distribution. For the fall year of 2024, our group adjusted net income increased 5.8% year-over-year to 3.7 billion RMB, of which Lexie Huaju's adjusted net income grew 11.2% year-over-year to 4.2 billion RMB. In 2024, the group generated an operational cash flow of 7.5 billion RMB. Please turn to page 26 for our liquidity position. As of end 2024, the group had 11.9 billion RMB cash, cash equivalent, restructured cash, and time deposits. And it was in solid net cash position of 6.5 billion RMB, including time deposits. We also had 3.3 billion RMB unutilized bank facilities as of end 2024. Now moving to our shareholder return. Please turn to page 27. We started to pay dividends to shareholders since 2017, except for 2020 and 2022, which were heavily impacted by COVID. In 2024, we revised of our dividend payout policy from up to 45% to no less than 60% of net profit, together with the announcement of up to $2 billion three-year shareholder return plan. Today, we are glad to announce that the board has approved a $300 million final cash dividend for the second half of 2024. As a result, the total shareholder return for 2024 reached to $770 million, which includes $500 million cash dividend and $270 million share buyback. This accounted for more than one-third of our three-year plan and over 80% of free cash flow generated in the year. As we are growing more asset-wise and expecting stronger and healthier cash flow in the future, we will be highly committed to our current shareholder return plan. and consistently pay dividend to our shareholders. Lastly, page 28 on guidance. For the first quarter of 2025, we expect our group revenue to grow 0% to 4% compared to Q1 2024, and 3% to 7% if excluding DH. As you may recall, we initiated the satellite transformation of DH in early 2024. In the beginning of this year, we have successfully completed the 11 DH hotels transformation from least model to franchise model. If excluding the impact of this satellite transformation on a comparable basis, the group revenue would grow 3% to 7% year-over-year in Q1 2025. For the full year of 2025, we expect our group revenue to grow 2% to 6% year-over-year and 5% to 9% if excluding DH. If excluding, the impact of DH's SLI transformation on a comparable basis. The group revenue would grow 4% to 8% year-over-year in 2025. As you may notice, in addition to the total revenue guidance, we are now providing revenue guidance for the monetized and franchised business. As we are pursuing a more asset-line model, we believe the monetize and franchise business better reflects the company's growth trajectory in the long run. We expect our monetize and franchise revenue to grow 18% to 22% compared to Q1 2024. And for the fall year of 2025, we expect our monetize and franchise revenue to grow 17% to 21% year-over-year. In terms of unit growth, we are expecting to open around 2,300 hotels in 2025 and close around 600 hotels for the same year. It represents roughly 15% year-over-year hotel network growth. With that, We are ready to take your questions. Operator, please open the line for Q&A.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 1 and 1 again. Thank you. Our first question is from the line of Ronald Leung from Bank of America. Please go ahead.

Good evening, everyone. I have two questions. My first question is to look at your views on this year's rough part. What is your view on the one-week and the year-round rough part? This is the first question. The second question is about DH. DH has been competing for several years. Let me translate my questions into English. I have two questions. My first question is about RAFPA outlook. May I ask what is your outlook for 1Q and also for full-year RAFPA growth? That's the first question. The second question is about DH. So for DH, would there be any strategy change ahead? And how should we think about the earnings recovery going forward? Thank you very much.

我先回答第一个问题关于REPA的这个趋势。 的确现在从一季度的表现来看, 中国这个季节的波动以及地区的分化还是非常明显的。 We have seen the continuous growth of the tourism and leisure markets. At the same time, we have also seen some signals of rebound in the business market. We are also concerned about the future growth expectations of the Chinese business market. So although there are fluctuations in the first quarter, we have experienced such a seasonal fluctuation in the first quarter. Especially after the Spring Festival, Thank you.

So let me answer your first question regarding to the rough part. As you may notice that in the first quarter, there are some of the as well as the different performance among different regions and areas. But we clearly see the demand from the leisure traveling is still very strong. However, for the business, there will be a trend of the recovery from the bottom. And we also saw some of the you know, third-party research that there has the expectation that business travel demand may start recovering this year. But however, in the first quarter, given the seasonality, given the, you know, underperformance or a bit weak performance in the first half of March, we now expect the first quarter rough part to be a bit low single-digit decline on a year-over-year basis. However, looking into a full year basis, we are still quite confident that the rough path for the full year is going to be stabilized compared to 2024 or even a little bit increase. Thank you.

This is Ji Hong. I will take the question about DH. So in 2024, as I explained in the presentation, that we started a quite heavy-handed restructuring. And all this effort was starting to pay off on a four-year basis in 2025. So in 2025, our main strategy is to still stop the bleeding and to stabilize the business and its performance. And with that turnaround accomplished, we will also We also look for growth opportunities at the same time as well, mostly through asset light and organic growth for the DH currently. So if you look at the net income for 2024, actually that's why we focus and also stress that the core EBITDA improvement, and that is really the results of a turnaround effort and our portfolio restructuring. And that kind of trend, you can expect it to continue. This time, we do have impairment and also restructuring costs recorded for 2024, especially in the last quarter. Impairment is the results of brand value and as well from the purchase. Under this kind of impairment, we evaluate every year based on our growth trajectory and growth plan. And next year, we will continue to observe the market, but we do not expect this kind of having impairment immediately. And the restructuring effort, we will continue case by case. In some cases, because of the overhead and because of the staff, we will probably still have to do some restructuring. And it probably will record some restructuring costs, but it will not be in the same magnitude as 2024.

Thank you very much, management.

Thank you. We'll now take our next question. This is from Dan Chi from Morgan Stanley.

Please go ahead. Please allow me to translate my question into English. For FY2024, total shareholder return was... close to $800 million, among which $500 million was dividend, exceeded 100% of payout ratio. So going forward, if there is no good buyback opportunity, should we expect even higher dividend payout to match the total shareholder return level seen in 2024? Thank you.

Thank you. Okay, let me help you translate.

So in 2024, we returned total around $770 million to our shareholders, which $500 million through cash dividends and $270 million through the share buyback. This is thanks to our asset line model and transformation, which helped us to generate much stronger and healthier cash flow. And looking forward, so we will stick to our current shareholder return plan, which is a three-year plan, to return up to 2 billion U.S. dollars, mainly through the cash dividends. So that's the current plan for now. Thank you.

Thank you.

Thank you. I would now like to hand the conference back to management for any 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 for participating and you may now disconnect.