H World Group Limited

Good day and thank you for standing by. Welcome to the H-World Q1 2025 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 that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jason Chen, head of IR. Please go ahead.

Thank you. Good morning and

good evening, everyone. Thanks for joining us today. Welcome 2025 first quarter earnings conference call. Joining us today is our chairman, Mr. Ji Qi, 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. S-WORD Group does not undertake any obligations to update any forward-looking statements except as required under applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. 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 .HWORD.com. With that, now I will hand over the call to our CEO, Mr. Jin Hui, to discuss our business performance in the first quarter of 2025. Mr. Jin, please.

Hello,

everyone. Thanks for joining H-WORD's first quarter of 2025 earnings conference call.

I would like to start by introducing our first quarter of 2025 earnings conference call. The first quarter of 2025 earnings conference call is a year-long, -nine-percent change. OCC has fallen slightly, mainly due to the large number of new stores still in the climb period. As we enter the second quarter, the tariff issue since April has brought more uncertainty. Although the tariff issue has been resolved in the recent period, there is still a lot of uncertainty about whether there will be any changes in the future. However, we are relatively optimistic about the tourism. We think that overall the tourism is still in demand and has a high demand. Several traditional holidays have been held this year, including the Spring Festival, Qiming and Wuyi. The cost of traveling in China has reached a similar growth of the highest number of seats. Especially during the Wuyi holiday, the third-party data shows that the industry is also afraid of achieving a similar growth. Therefore, we have developed more realistic strategies for the needs of leisure tourism in products, services, marketing and other aspects, especially for some new tourist groups, such as silver hair, and guest. It is better to meet the needs of different tourist groups in the future. Overall, although the market environment still has some challenges and uncertainties, the Chinese government will continue to stick to the long-term strategy of developing and developing. Next, I would like to elaborate on some specific business data

for the next First of all, I would like to share some of our observations on the industry during the quarter. In the first quarter, we saw the overall traveling demand was still resilient and growth steadily, according to the data released by railway and airline industries. However, ref power remained under some pressure, especially on ADR. We believe it was largely due to the overall supply surge last year. Therefore, our ref power declined by 3.9 percent -over-year, with ADR decreased by 2.6 percent -over-year, and occupancy rate declined slightly by one percentage point. The slight decline in occupancy rate was mainly because those hotels newly opened in the last several quarters were still ramping up. Entering into the second quarter, the tariff issues started from April brought some uncertainties to the market outlook. Also, we saw some temporary solutions on tariff issues recently. We remain cautious on potential future volatilities and uncertainties. However, on the leisure traveling front, we are still relatively optimistic, as we saw the overall leisure traveling demand and the well-being remain strong. For instance, we saw both number of travelers and the total spending grow -to-high single-digit -over-year for Chinese New Year holiday, Qingming Festival holiday, and the Labor Day holidays. More importantly, according to third-party data, the industry ref power recorded a positive -over-year growth during the Labor Day holiday. Therefore, we have been developing differentiated strategies on products and with targeted sales and marketing program to better capture the rising leisure demand, especially those emerging travelers such as silver-haired tourists and inbound tourists. Also, we are still facing some uncertainties and challenges. We will insist on implementing our core strategy with long-term focus. With that, I will share with you more data on our operational performance during the quarter. In the first quarter of 2025, we opened 695 hotels and closed 155 hotels respectively. Pipeline was 2,865 hotels by the end of the quarter. The slight -over-quarter decline is mainly due to fast new hotels opening and proactive pipeline clearance to improve quality. The new signings in the quarter remain stable and healthy.

In comparison, the ratio of the -over-quarter to the hotel in the quarter has changed significantly. The ratio of the -over-quarter to the hotel in the quarter has increased significantly. This is mainly due to the continuous breakthrough of the -over-quarter in the past year, the rapid signings and the different -over-quarter hotel opening and proactive pipeline clearance. Please turn

to page 5. The proportion of upper-mid scale and above hotels increased meaningfully our pipeline by the end of first quarter. It was mainly due to the fast new signings of our upper-mid hotels as well as the different lengths of construction period and timing of new hotel openings. However, in terms of the hotel in operation, limited service segment hotels remains our core market. As I mentioned earlier, we maintain a strong growth momentum in the upper-mid scale segment. Please turn to page 6. As of the first quarter, the number of upper-mid scale hotels in operation increased by 36% -over-year to 933, and the pipeline grew by 22% -over-year to 523.

The high quality services of high quality products have significantly changed. Therefore, we have made an upgrade and change to our core brands to meet the needs of Please turn to page 7. The proportion of the new brands of the elite three-point brand Hantung, Quanji, and Juzi in

the Chinese-Chinese border has gradually improved. Over the past several years, we have been seeing a clear trend that customers are seeking high quality products and services with good value for money. Therefore, we have been continuously upgrading products and our core brands to better meet the customers' involving demand. Please turn to page 7. The proportion of newer products and our core brands, including Hantung, G Hotel, and Orange, has been increasing constantly.

In terms of regional expansion, our penetration in the lower tier cities has been The penetration of the lower tier cities has been steadily increasing. Please turn to page 8. Since the end of the first quarter of 2025, the proportion of the Kuala Lumpur hotels in the lower tier cities in the three-point line has reached 54%. The proportion of the Zaiying hotels has reached 11%. We have covered 1,394 cities in China, and we have upgraded 104 cities.

In terms of regional expansion, our penetration in the lower tier cities continued progressing. Please turn to page 8. At the end of the first quarter of 2025, 54% of the companies' hotels in pipeline were located in tier 3 and below cities, 11 percentage points higher than the proportion in operating hotels. Additionally, by the first quarter, we are now covering 1,394 cities and counties, 104 more than a year ago.

The membership system and the ability to direct the company's business are of great importance for sustainable development. Please turn to page 9. The membership size of the Hualien Association continues to grow. At the end of the first quarter, the number of members is close to 2.81. In 2025, the Hualien Association's central reserve system has contributed .1% of its total business, and it has increased .4% in the same way.

Membership program and direct sales capability are the most critical aspects for our business to achieve long-term sustainable development. Please turn to page 9. At the end of the first quarter of 2025, our member base further increased to nearly 280 million. Room nights generated through the central reservation system accounted for 65.1%, representing an increase of 5.4 percentage points year over year.

All

above concludes the first quarter of 2025 operational updates for LexiHuaZhou. Now I will hand over the call to our CSO Ms. He Qiong to give an update on LexiDH. Thank you.

Thank you, Jinghui. Please turn to page 10. In first quarter 2025, REFPA of LexiDH improved .7% to 65 euro, with ADR improved .8% and occupancy increased 5.3 percentage points. This increase of REFPA is a mixture of different markets. We have seen particularly strong performance in North Africa and the Middle East. Please turn to page 11. In first quarter 2025, we did several transactions to change the lease hotel contracts to franchise contracts. Therefore, our managed and franchise hotel increased to 46%. This is a significant improvement compared to 38% in the first quarter 2024. The percentage of asset light hotels in our pipeline is 57% in first quarter 2025, which is also an improvement compared to the same period last year. With this, I conclude the discussion about LexiDH, and I will turn to CFO Ms. Chen Hui for financial performance.

Thank you, Qi Hong. Good evening and good morning, everyone. Let me walk you through our financial review for the first quarter of 2025. Please turn to page 13. We continued expanding our hotel network. Number of rooms increased 20% -over-year to over 1.1 million by the end of the quarter. Hotel turnover in the first quarter grew 14% -over-year. Revenue grew steadily in the quarter. Please turn to page 14. Our group revenue increased .2% -over-year to R&B 5.4 billion in line with our guidance. Revenue from LexiHuaZhu grew .5% -over-year, while DH revenue decreased .3% -over-year, mainly due to the transformation of 10-list hotels to franchise hotels during the quarter. However, our franchise and franchise business achieved a robust growth of .1% -over-year at the high end of our guidance. The strong franchise and franchise revenue growth was driven by our strong network expansion. As a result, our revenue contribution from our asset line model further enlarged to 46% for the group and 55% for the LexiHuaZhu, as shown on page 15. Moving to cost and expense side, both hotel operating costs and SGA expenses were well managed during the quarter. Please turn to page 16. In the first quarter, hotel operating costs only grew by .1% -over-year, slower than our revenue growth, thanks to our continued asset line transformation. Hotel SGA expenses decreased .8% -over-year or reduced by .6% -over-year, excluding SBC, mainly benefiting from .1% -over-year. SGA expenses decreased from LexiDH as a result of the structuring and the cost optimization started the second half last year. Our groups at adjusted EBITDA grew .3% -over-year to RMB 1.5 billion in the fourth quarter, of which LexiHuaZhu's adjusted EBITDA increased .8% -over-year to RMB 1.6 billion. Moving to our cash flow and liquidity position on page 17. In the first quarter, we generated RMB 580 million operating cash flow. As of the quarter end, the group had RMB 11.8 billion cash and cash equivalent and was in a solid net cash position of RMB 6.5 billion. Lastly, turn to page 18 on guidance. For the second quarter of 2025, we expect our group revenue to grow 1% to 5% compared to the same quarter last year, and 3% to 7% excluding DH. The Managed and Franchise revenue is expected to grow in the range of 18% to 22% compared to the same quarter last year. With that, we are ready to take your questions. Operator, please open the line for Q&A.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1

again. Our first question comes

from the line of Candice Shang from Bank of America. Please go ahead, your line is open.

Hello, I am Ronald Leung from Bank of

America. I have two questions. The first one is about the Roth-PAR. I would like to know what is your expectation of the second quarter and the Roth-PAR in 2025? This is the first question. The second question is about the business trip. We have seen that business trips have been under pressure since last year. Can you share with us the reason why business trips are weak? Let me translate my questions into English. I have two questions. My first question is about the Roth-PAR expectations. What is management's latest expectations on the Roth-PAR for Q25 and full year 2025? This is my first question. My second question is about the business travel. The business travel has been under pressure even though off an easy base last year. Could management share with us any specific reasons behind the weakness? Thank you very much.

I will answer first and then CF can add on. The Chinese and American tariffs this year and some objective circumstances have caused some difficulties for us to predict the full year's Roth-PAR. As you can see, China is still growing in terms of domestic market and consumer stimulation. Our total gross domestic population is still growing. But the two questions are the same. Our commercial market is still in a weak state. We are working hard to implement the rules and growth of the Roth-PAR. But we are under uncertain influence from the Chinese and American tariffs on small and medium-sized enterprises and export-based enterprises. We are also continuing to observe the influence of our business. At the same time, we are still optimistic about China's domestic consumer and tourism market. We have seen a lot of data. We think that the second quarter will have a low number of revenue-gain impact this year. But we still hope to maintain a sense of pursuit and growth of the market. This is the first question. The second question is about the commercial market. The first question is also about the market. It has increased our uncertainty. But I think that the first quarter has shown more problems of the increase of the same-wage supply. We have also observed this problem. Because in the past few years, the increase in the same-wage supply in the process of fast recovery, especially in the second quarter, is a problem. I think that this year's whole business trip should be a problem of the same-wage supply. It is not a challenge for more demand vehicles. I also pay attention to the Chinese government's support and recovery of many small and medium-sized enterprises and private enterprises. We also feel the influence of such a business trip. A more powerful influence. So there is pressure, but we are actively serving our Chinese business trip and large customers. We are making up for this gap.

Let me do the translation for you. In terms of the first question regarding the RFPAR, as we mentioned in our previous remarks, the tariff issue happened in April at some of the uncertainties and volatilities for the overall market outlook. But again, overall, -to-date, we still see the demand is growing steadily. But the business, of course, because of the tariff, we are under some kind of pressure, but we are trying very hard to navigate the difficulties and trying to increase our RFPAR to a more stabilized level. However, on the leisure traveling demand side, from various data, as we observed -to-date, we think the leisure traveling demand is still being very strong and is still growing very steadily, as people's willingness to do traveling is still very strong. So in terms of the number, in terms of the RFPAR for the second quarter, we think the RFPAR will decline at low single digits, but narrowed on a sequential basis. And for the full year, again, because of the uncertainties, there are some of the volatilities and uncertainties ahead. We will try our best to achieve our full year guidance. And in terms of the second question on the business traveling, we don't think it is the demand issue. It is more like the supply issues, as over the last two years, there was a lot of supply increase, which adds a lot of pressures to the RFPAR, especially on the ADR. However, we try to leverage more on our corporate customers and B2B business to overcome some of the uncertainties and shortage of the demand from the individual traveling. Thank you.

Thank you. We'll now move on to our next question.

Our next question comes from the line of Lydia Ling from Citi. Please go ahead. Your line is open.

So, in terms of the financial strategy of DH, do you have any specific plans to improve the overall revenue of DH? And I see that there are some leads and own franchises. Are there any plans to have more hotels as our capital in DH? This is my first question about DH. The second question is about the competition in the entire industry. As you mentioned, the industry is under pressure from the public sector. What do you think about the current competition in the entire market, including the public sector? We also see that the environment in the hotels in the canals is a bit unstable. I have two questions. The first one is on the DH side. We saw some progression on the SLI strategy in the first quarter. What's your further plan on the DH strategy to further improve the profitability? For example, how many leads and own hotels do you plan to transfer to franchise looking ahead? My second question is more on the industry supply. How do you evaluate the competition landscape currently in the limited services? We see some pipeline sequential decline in the first quarter. What's the reason and how is the franchise sentiment on the opening so far? Thank you.

Let me take the first question about the DH. To improve the profitability of the legacy DH business is, of course, our priority. There are different measures and different strategies. The SLI transaction is one of the parts that we can reduce the negative impact. We are very happy that we finished the transaction of 10 hotels in the first quarter. We will continue to look for opportunities. There are several discussions currently in the pipeline. We will disclose as when it comes through. Other than the asset light transaction, we are also looking further into reducing our overhead costs, restructuring our business, streaming line our processes. First quarter, you see still a negative EBITDA contribution. This is because we continued our restructuring effort. First quarter is traditionally a very weak first quarter as well. We are confident that with the time, especially with the second and third quarter coming, our profitability, especially adjusted EBITDA, will increase over the time.

We are concerned about the negative impact of the lower RERPA. It is also affected by the macroeconomic and industrial factors. But I would like to express my views at the same time. At this stage, everyone is concerned about the positive impact of the macroeconomic and industrial factors and the market after the competition. I think the cost of hotels comes from two main costs. One is fixed costs. We see that the cost of rent has continued to decline in the past few years. So the biggest fixed cost of our hotel is the rent. In fact, it has always been affected by the macroeconomic economy. This is the first one. In terms of operating costs, it involves the cost of human resources, the cost of marketing, and the cost of supply chain. In these aspects, the Chinese government has always been the industry that insists on our highest efficiency and lowest cost strategy. Whether it is through the transformation of our supply chain, the ability to build our hotel, or the technology to change the efficiency of our single-room operating, the Chinese hotel has always been in the top position in the industry in these key operating conditions. So I can give you a conclusion. We are still very healthy and positive in terms of the negative impact of the macroeconomic and industrial factors.

Okay. So to answer your second question in terms of demand-supply dynamic for the industry, so as you may notice, I know a lot of people are concerned about our ref power decline or the ref power pressure because of the oversupply or the supply surge over the past several years. But let me share with you, Edgeworld has been doing what we call the reform of the overall supply side, reform of the supply side of the China launching industry. We have been building several capabilities to ensure that our franchisees still achieve pretty good return in terms of the opening of hotels. First of all, from the franchisee sentiment's front, there are several key costs. One is the fixed cost. As you may see that over the past several years, the biggest fixed cost is the rental cost, which has been gradually declining over the past several years. And another key cost of running a hotel is the OPEC. So the OPEC is the combination of the label cost, sales and marketing cost, as well as the supply cost. However, Edgeworld has been putting a lot of efforts to improve the efficiency, operational efficiency and achieve the lowest cost and trying to be leading in the overall industry and by leveraging our very strong capability of supply chain management, our loyalty program or membership program, as well as the technology capability. So in conclusion, what I can share with you now is the overall sentiment has been quite stable and healthy for our existing franchisees. Thank you. Next question, please.

Thank you.

Our next question comes from the line of Dan Chi from Morgan Stanley. Please go ahead. Your line is open.

I have two questions. One is about DH and the other is about domestic business. I will ask about DH first. Then I will ask about the question that Lydia mentioned earlier. After the first phase of the last year's cost optimization project, how much cost optimization do we still have this year? Can you tell us if the sales management fee has fallen by 11% and is a relatively normal cost after no one-time fee? Another question is that after the cost reduction, including the contract mentioned earlier, 11 plus direct power and plus direct power, EBITDA's loss from the 66 million loss last year has actually increased to 77 million. In this, the hotel's operating costs seem to have increased. Can you tell us where the increase is? Thank you, management, for the opportunity. My first question is about DH. After the restructuring program in?2024, SG&A cost of DH declined 11% -on-year. Is there still any one-off restructuring cost embedded in this quarter? And going forward, can we assume this quarter's SG&A is clean and normalized? After the cost savings in SG&A, together with the 11 asset-heavy hotel changing to asset-light, adjusted EBITDA loss still widened a little bit by 11 million RMB. What's the main reason for such hotel operating costs increase? The first quarter, the total profit of the mixed refpar has dropped by 3.9%, while the refpar of the same hotel has dropped by 8.3%. There are four points of difference between the two. The same was seen in the fourth quarter last year, but the difference is that it has expanded compared to the previous quarter. I would like to ask what is the main reason for the difference in the middle? Let me translate my second question. It's about legacy. The blended refpar declined .9% -on-year in Q1, but life-life declined .3% -on-year. The gap was 4% point. In fourth quarter, 24, we also saw a 4% point gap, but this was wider than the previous quarter. What's the reason for the gap widening? Thank you.

Thank you, Dan. Let me take the first question about the edge. So the restructuring is still ongoing. Last year, we announced a 30% reduction of overhead costs in one go, and that kind of cost effect still needs to be reflected gradually in our cost this year, quarter by quarter, because some of the restructuring efforts are not completely done yet, even from the last year's restructuring measures. And this year, we continue some of the, not this kind of 30% one-off, but we still identify possibilities in different departments, in different processes, so that we can continue our effort in streaming line. So to your question about whether the numbers of SG&A are clean as of now, I would say not completely yet, and we will see still some of the effects coming through this year. But we are very sure that with this kind of measures, this will only improve our SG&A in the mid and long term. So please do not look at only really quarter to quarter results. We will reflect the whole year when we come to almost the end of our restructuring effort mid of this year. And to your second question about the first quarter loss, so this is actually a very special event in the first quarter that caused this higher loss on the paper. We gave up Davos as a hotel, as a lease hotel, and we turned it into a franchise hotel. And you know that Davos is a very, very seasonal event. Actually, the whole year of EBITDA focused on this one week of conference effort. So that's why the first quarter results is very much skewed by this one-time event every year. So this year, taking out the Davos event, actually our EBITDA is comparable to last year, even with the continued restructuring effort. What I wanted to say with this answer to you is that we are very conscious of our EBITDA commitment, and we are very conscious also in streaming line our unnecessary overhead costs. Please bear with us in the short term. We will still see some of the variation in the SG&A and some of the other costs as well. But we are very sure that in the mid and long term, we are on the better way.

The whole Rapport has a better performance than the same Rapport. This is also the reason why we are constantly replacing and upgrading our products, and eliminating the meaning of old stores. Of course, the increase in supply in some areas has indeed brought some pressure on our ADR and even OCC. Our group is currently studying and strengthening our marketing actions to make up for these gaps.

Okay, to answer your second question, regarding the gap between the blended Rapport and the -for-like Rapport. So you are right. So the -for-like Rapport was underperforming compared to the blended Rapport. There were two reasons behind. One is because of the product. Because we keep upgrading. As we mentioned earlier, we continuously upgraded our products and continuously do clearance of those older versions of our products in order to improve the overall product quality. So that's one of the reasons why there was a gap or enlarged the gap between the blended Rapport and the -for-like Rapport. And secondly, in certain areas, because of the surge of the supply over the several years, indeed, there was some of the pressure on the Rapport in both ADR and occupancy rates. But we have already noticed that and we are doing a lot of optimization in terms of our revenue management to set up a more rational ADR and occupancy rate in these particular regions. Thank you. Next question, please.

Thank you. Our next question comes from the line of Simon Chung from Goldman Sachs. Please go ahead. Your line is open.

Thank you for sharing. I have two questions. The first one is that I see that you have opened up about 700 stores this first quarter. Last year, it was about two-fold, but I remember that your whole year's sales were still at 2,300 stores. It's a little lower than last year. I want to know if there is any time or timing issue in the first quarter. And then, is there any sign that your data may be 2,300 stores too low? This is the first question. The second question is that the high-end express delivery has been doing very well in the past year or two. I see that you have about 1,000 stores now. I remember that Yadu shared with us that he has about 1,500 stores now and has about 2,000 cities to set up. He also doesn't want to open up new areas or new cities. I would like to ask you how many cities are there in 1,000 stores now? And what are your thoughts on future growth? Let me translate that into English. The first question is in relation to the hotel opening. We looked at your hotel opening were actually quite fast in the first quarter, almost 700. And that compared to full year 2,300, that was actually tracking ahead of the momentum loss here. Just checking to see whether there is any timing issue here and whether there are going to be some upside risk to the full year 2,300 hotel additional guidance. And then the second question is in relation to the meet up scale hotel whereby I think H2O has done a great job in terms of adding the hotel almost 1,000 by now. I think Artur did mention that out of the 1,500 hotels, they are only exposed to 200 cities and have no intention to go into other new cities. I was just wondering the strategy for H2O and where would they see growth going forward? Thank you.

I will answer this question. I am Jin Hui. First of all, I am very happy to see that we have recorded very good business numbers in the first quarter. The current H2O strategy is very clear, which is to go around the growth of high quality. We are very excited about the scale and at the same time we emphasize that every store we open is a good store for making money. So in terms of quality, it is more important than my desire to pursue scale in some aspects.

The quality of the hotel is much more important than purely scale growth. We are not only looking to achieve a leading position in terms of the market share, but also trying to achieve a leading position for each of the brands in different segments. So that is what we are looking for in the longer term to both achieve in terms of the scale, in terms of the number one or the leading in the market share, but also in each of the different segments we want to be top one or two at least for the brand.

Although our opening and signing are very good, we do not want to change our signing and opening

goals. Although we are seeing a pretty good in terms of new openings and new signings, but we want to stay at the conservative, not changing the full year opening target for now. I am

also very happy to feel that everyone's attention and recognition of the data change in China's high-end strategy has been very much appreciated since last year when China's high-end strategy was taking a full-fledged breakthrough.

We do

see a lot

of market opportunities, especially to reform those traditional -mid-scale segments.

Currently, we are more looking to focus on the key core positions of the first and second-tier cities to achieve the success

of these brands. At the current stage, we would like to focus only on tier one, tier two cities, especially those prime areas to establish stronger brands. The demand is very concentrated in the tier one, tier two cities, especially for those -mid-segment hotels. Therefore, in those particular areas and cities, we would like to take the most prime locations to establish a brand. In the longer-term perspective, we are very confident to chase the leading company right now or even surpass them. Thank you. Next question, please.

Thank

you. Our next question comes from the line of Cici Lin from CICC. Please go ahead. Your line is open.

Thank you, manager. I would like to ask about the -high-end problem. As mentioned earlier, the demand for commercial products is more concentrated than the demand for leisure goods. However, the -high-end demand for commercial products is better than the demand for leisure goods. The -high-end demand for leisure goods is better than the -high-end demand for food. We mentioned earlier that the -high-end demand for leisure goods is faster. The same goes for the -high-end demand for ref-pots. We talked about the -high-end demand for ref-pots earlier. What do we think about the situation in the -high-end market? How do we improve competitiveness? This year, we see a relatively high pressure on business demand compared with leisure demand. Meanwhile, why do you think that the upper mid-scale segment performs better on both ref-pot and pipeline? First, our upper mid-scale pipeline stays flat quarter over quarter. Second, the things through the ref-pot of mid-scale and above segment also perform a bit better than the economy segment. I don't know if this is correct and I'm trying to understand the reason behind this. What is our view towards the upper mid-scale market conditions and how we strengthen our competitiveness in this segment?

As I mentioned

earlier, we see plenty of opportunity to reform the existing very traditional upper mid-scale segment. Therefore, we have been putting a lot of efforts in terms of the products and services. Our

products are more stable with our research and supply chain. Our members of the -Chinese-Chinese

-Chinese-Chinese We have been keeping up with the -and-coming segment of products, therefore to increase the recognition and acceptance of the products by the customers.

We have been

keeping up with the -and-coming segment of products, therefore to increase the recognition and acceptance of the products by the customers. Thank you. Next question please.

Thank you.

Our next question comes from the line of Jue Liu from Citygex. Please

go ahead, your line is open.

Hi, management, the InverCity brand has received strong consumer reputation. Can management share some more insights regarding the franchise profile, single-store model, and store opening target plans for this year or the next five years? Thank you.

We are looking at the Chinese market from a Chinese perspective, and we are also taking the international perspective to learn about the traditional -Chinese-Chinese

So in terms of the intercity brands, you know, actually the growth momentum started from last year, and the intercity brand actually redefined the overall, you know, -mid-scale segment, and it's kind of a combination with Chinese as well as the Western design and, you know, service to provide more suitable products and service to the Chinese customers. And I'm happy to see that probably by the end of 2025, we can have around, you know, 100 intercity hotels in operation. And more importantly, we have been seeing that, you know, there's a lot of, you know, intercity hotel has been located in very, you know, important key areas and cities, which we call flagship hotels in very prime locations. That will bring a longer-term benefit for the brand establishment. For the entire -mid-scale segment, we actually used multi-brand strategy apart from the intercity, real-time, and the intercity. And we still have Crystal Hotel as well as Mercure and Novatel, for example. So the key strategy is definitely the multi-brand strategy, but with, you know, core brand focus. And I think for those, you know, foreign brands within our portfolio, such as Mercure and Novatel, are going to benefit from, you know, arising inbound tourists in the future. Thank you. Next question, please.

Thank you. There are no further questions at this time, so I'll hand the call back to Jason for closing remarks.

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

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.