H World Group Limited

Good day and thank you for standing by. Welcome to the Hworld 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 to Edgeworth Group 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. Ashworth 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 ir.edgewater.com. With that, now I will hand over the call to our CEO, Mr. Jing Hui, to discuss our business performance in the first quarter of 2025. Mr. Jing, please.

Hello, investors and analysts. Good evening. Thank you for attending the first quarter of the Chinese company's performance call in 2025. Hello, everyone.

Thanks for joining Edgeworth's first quarter of 2025 Earnings Conference Call.

First of all, I would like to share some observations on the overall market. In the first quarter, from railway and aviation data, the overall travel demand remains relatively stable. But it is undeniable that the rapid increase in hotel supply in the entire market last year still brought some pressure to the hotel's RERPA, especially in terms of ADR. From the performance of EC2, ADR dropped by 2.6%, OCC dropped by 1%, and RERPA dropped by 3.9%. OCC dropped slightly due to a large number of newly opened stores still in the climbing period. In the second quarter, the problem of tariffs in April brought more uncertainty to the future development of the market. Although the recent tariffs problem has been solved in stages, will there be changes in the future? There is still a lot of uncertainty. But in terms of leisure tourism, we are relatively optimistic. We think that the overall desire and demand for leisure tourism is relatively high. In the past few years, several traditional holidays, including Spring Festival, New Year's Eve, and May 1st, the number of visitors and expenses in China has achieved the same growth, especially during the May 1st holiday period. The third-party data shows that the industry has achieved the same growth. Therefore, for the needs of leisure tourism, we have devised a more realistic strategy in terms of products, services, and marketing, especially for some new tourism groups. First of all, I'd 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 grow steadily according to the data released by railway and airline industries. However, REVPAR remained under some pressure, especially on ADR. We believe it was largely due to the overall supply surge last year. Therefore, our REVPAR declined by 3.9% year-over-year, with ADR decreased by 2.6% year-over-year, and occupancy rate declined slightly by 1 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 solution 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 willingness remain strong. For instance, we saw both number of travelers and the total spending grow mid to high single-digit year-over-year for Chinese New Year holiday, Qingming Festival holiday, and the Labor Day holidays. More importantly, according to third-party data, the industry record a positive year-over-year growth during the Labor Day holiday. Therefore, we have been developing differentiated strategies on product and service offering with targeted sales and marketing programs 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. Please turn to page 4.

In the first quarter of 2025, we opened 694 stores and closed 155 of them. The number of hotels closed was 2,865, which is less than 6. This is mainly due to the rapid opening of new stores and the active cleaning of the corridors under the strategic background of high growth. The number of new contracts in the first quarter remains relatively stable and healthy.

Please turn to page 4. In the first quarter of 2025, we opened 695 hotels and closed 155 of hotels, respectively. Pipeline was 2,865 hotels by the quarter end. The slight quarter-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.

Please turn to page 5. We see that at the end of the first quarter of this year, compared to last year, the ratio of mid-level hotels to high-level hotels has changed significantly. The ratio of high-level hotels to mid-level hotels has increased significantly. This is mainly due to the continuous breakthrough of our high-level hotels in the past year. The rapid renewal and different levels of hotel construction cycle and opening rhythm. But from Please turn to page 5.

The proportion of upper-mid scale and above hotels increased meaningfully in 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 length of construction period and timing of new hotel openings. However, in terms of the hotel in operation, limited service segment hotels remain our core market.

In the high-end market, as I mentioned before, we have maintained a strong growth trend. Please turn to the sixth page. At the end of the first quarter of 2025, China's high-end hotel revenue increased by 36% to 933%,

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% year-over-year to 933, and the pipeline grew by 22% year-over-year to 523.

In the past few years, we have found that the trend of Chinese consumers pursuing high-quality products and high-quality services has changed significantly. Therefore, we have also upgraded and remodeled our core brands to meet the needs of consumers in a better way. Please turn to page 7. Huazhou's limited-service Golden Triangle Brands, Hanping, Quanji, Juzi, and other new brands have 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 Hanting, G Hotel, and Orange, has been increasing constantly. 从城市分布来看,

China's city coverage has reached 1,394, compared with 104 new cities.

In terms of regional expansion, our penetration in the lower tier cities continued progressing. Please turn to page 8. At the end of first quarter of 2025, 54% of the company's 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 long-term sustainable development of the membership system and the right-of-way ability of the company is extremely important. Please turn to page 9. The membership size of Huazhou is constantly growing. Since the end of the first quarter, the number of members has been close to 2.8 billion. In the first quarter of 2025, Huazhou Central Preliminary System contributed up to 65.1%, which increased by 5.4%.

Membership program and direct sales capability are the most critical aspects for our business to achieve long-term sustainable development. Please turn to page nine. At the end of 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 LEXI Huazhou. Now I will hand over the call to our CSO, Ms. He Jihong, to give an update on LEXI DH. Thank you. Thank you, Jinghui. Please turn to page 10.

In first quarter 2025, REFPA of Legacy DH improved 12.7% to 65 euro, with ADR improved 2.8%, and occupancy increased 5.3 percentage point. 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 franchised 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 LegacyDH, and I will turn to CFO, Ms. Chen Hui, for financial performance.

Thank you, Jihong. 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% year over year to over 1.1 million by the end of the quarter. Hotel turnover in the first quarter grew 14% year over year. Revenue grew steadily in the quarter. Please turn to page 14. Our group revenue increased 2.2% year-over-year to RMB 5.4 billion, in line with our guidance. Revenue from Lexi Huazhou grew 5.5% year-over-year, while DH revenue decreased 11.3% year-over-year, mainly due to the transformation of 10 leased hotels to franchise hotels during the quarter. However, our monetize and franchise business achieved a robust growth of 21.1% year-over-year at the high end of our guidance. The strong monetize 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 legacy huazhou, as shown on page 15. Moving to cost and expense side, both hotel operating costs and SG&A expenses were well managed during the quarter. Please turn to page 16. In the first quarter, hotel operating costs only grew by 1.1% year-over-year, slower than our revenue growth, thanks to our continued asset life transformation. Total SG&A expenses decreased 1.8% year-over-year, or reduced by 4.6% year-over-year, excluding SBC. mainly benefiting from 11.1% year-over-year, achieving an expensive decrease from Lexi DH as a result of restructuring and the cost optimization started the second half last year. Our group's adjusted EBITDA grew 5.3% year-over-year to 1.5 billion in the fourth quarter, of which Lexi Huazhou's adjusted EBITDA increased 5.8% year-over-year to RMB 1.6 billion. Moving to our cash flow and the 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% if excluding DH. The monetized and franchised 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 Zhang from Bank of America. Please go ahead, your line is open.

Good evening, Manager Chen.

I am Ronald Leung from Bank of America. I have two questions. The first question is about RAFPA. I would like to ask what is the forecast for the second quarter and the entire year of 2025 for RAFPA? This is the first question. The second question I would like to ask is about business travel. Let me translate my questions into English. I have two questions. My first question is about RAFPA expectations. So what is management's latest expectations on rough path for 2Q25 and also full year 2025? This is my first question. My second question is about the business travel. So 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.

Okay, let me answer first and then ask our CFO to add. Indeed, this year's tariffs on China and the United States, including some objective situations, have caused some problems for us to predict the global hot spot. As you can see, China is actually based on domestic market and consumer stimulus. Our entire initial population is still growing, but Actually, there are two problems. One is that our business market is still in a relatively weak state. We are working hard to achieve the regularity and growth of our real part, but it is indeed affected by the impact of Chinese and American tariffs on small and medium-sized enterprises and export enterprises. There is uncertainty, so we are also continuing to observe such an impact on our business. At the same time, we are also The consumer and tourism markets are still very optimistic and positive. We have seen a lot of relevant data. We think that this year, the whole year, we may be in a low number of people in the second quarter. But for the whole year, we still hope to achieve a continuous one. Keep a sense of guilt or growth. This is the first question. The second question is about the business market. Regarding the business market, indeed, my first question is about this key information. It does increase our uncertainty. But I think the first quarter shows more of the increase of co-operative supply. We also observed this problem. Because in the past few years, especially in the two or three years, such a rapid recovery process, to increase the supply and demand. I think this year, business travel should be a problem of supply and demand. It is not a more challenging trend. I also noticed that the Chinese government's stimulus and recovery to many small and medium-sized enterprises and the private sector economy. We also felt such an impact on business travel in the industry. So let me do the translation for you. So in terms of the first question being regarding to the rough part,

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

Hello, Director. I'm Lydia from Huazi. Thank you for the opportunity to ask me a question. I have two questions to ask. One is about DH. We also see that there are some So I would like to ask, in the next few seasons, including this year, are there any more specific and more specific plans on DH's real estate strategy to improve DH's overall profitability? I also see that there are some lease-and-own franchises. Are there any more plans to turn more hotels into real estate in DH? This is my first question about DH. The second question is about the competition pattern of the entire industry. As I mentioned earlier, there is some pressure on Repa from the supply side of the industry. What do you think about the current competitive pattern of the entire market in some service hotels, including the supply side of the industry? We also see that some hotels in the pipeline are down, what is the main reason? And what is the current opening mood on the doorstep? Hi, management. I have two questions. The first one is on the DH side. And so we saw some progression on SLI strategy in the first quarter. So what's your further plan on the DH strategy to further improve the profitability? And for example, how many like the lease and old hotels you plan to transfer to franchise looking ahead? And my second question is more on the industry supply. And so how you evaluate the competition landscape currently in the limited service. 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 questions about the DH. To improve the profitability of a legacy DH business is, of course, our priority. There are different measures and different strategies. Asset-light transaction is one of the part that we can reduce negative impact. So we will continue to – we're very happy that we finished the transaction of 10 hotels in the first quarter. and we will continue to look for opportunities. There are several discussions currently in the pipeline and we will disclose as when it comes through. Other than the asset light transaction, we are also further looking into reducing our overhead cost, restructuring our business, streaming line our processes, So first quarter, you see still a negative EBITDA contribution. This is because we continued our restructuring effort. And first quarter is traditionally a very weak first quarter as well. So 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.

Let me answer the second question about public transport. Huazhou has actually been doing the reform of public transport in the Chinese hotel industry through our own ability to rebuild the public transport in the Chinese hotel industry. At this stage, it has indeed been affected by the synchronization of supply and some of the market, which has caused us to pay attention to it. Many people are very concerned about our RERPA's The negative objective factors have indeed been affected by the macroeconomic and industry factors. But at the same time, I would like to express a few points. In the current stage, everyone is very concerned about this. After the co-op competition, our co-op enthusiasm and such an impact on the entire market. I think the cost of the hotel industry comes from two major costs. One is called fixed cost. We can see that the cost of rent has been declining in the past few years. So the biggest fixed cost of our joiners is rent. In fact, it has always been influenced by the macroeconomic situation. This is the first one. In terms of operating costs, it involves manpower costs, marketing costs and supply costs. In these aspects, Huazhou has always insisted on our most efficient and cost-effective strategy. Whether it is through the transformation of our supply chain, the ability of Huazhou to build, or our technology to change the operating efficiency of our single-storey, Huazhou has always been at the top of the industry in terms of these key operating costs. So I can give you a conclusion directly. Currently, in terms of the model of Jiameng, OK.

So to answer your second question in terms of demand-supply dynamic for the industry. So as you may notice that, you know, 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. And we have been building several capabilities to ensure that our franchisees do achieve a pretty good return in terms of opening the hotels. First of all, from the franchisee sentiment 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. Another key cost of running a hotel is the OPEX. The OPEX is the combination of the label cost, sales and marketing cost, as well as the supplies cost. However, you know, S4 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, you know, our, you know, loyalty program or membership program as well as the, sorry, 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 Chee from Morgan Stanley. Please go ahead. Your line is open.

Thank you, Mr. Guan, for giving me this opportunity to ask a question. I have two questions here. One is about DH, and the other is about domestic business. I'll ask DH first. Then, after what Lydia just mentioned, I would like to ask a little more detailed question. After the first phase of the cost optimization project last year, how many times have we had such cost optimization this year? Can we say that this time our sales management fee fell by 11%, which is a relatively regular cost situation without a one-time cost? Another question I would like to ask is that after the cost savings, Thank you management for the opportunity. My first question is about DH. After restructuring program in second half 2024, SG&A cost of DH declined 11% year-on-year. Is there still any one of 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? 我下一个问题我接着问, 就是国内这边想请教管理层, 就是大盘混合的REF PAR, 一季度我们看到下跌了3.9%, 但是同店的REF PAR下跌了8.3%, Let me translate my second question. It's about legacy. So blended REFPA. declined 3.9% year-on-year in Q1, but likewise declined 8.3% year-on-year. The gap was 4 percentage point. In fourth quarter, 24 was also 4 percentage point gap, but these were wider than the previous quarters. 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 30% reduction of overhead costs in one go. And that kind of cost effect, it still needs to be reflected gradually in our cost in 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 in 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, you know, this will only improve our HGNA in the mid and long term. So, you know, please do not look at only really quarter-to-quarter results. We will reflect the whole year. you know, when we come to almost the end of our restructuring effort, you know, mid of this year. And to your second question about the first quarter loss, so there's 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've 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 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.

Hello, I would like to answer your second question, which is why our same-electric RERPAR is weaker than our general RERPAR. This is because of the improvement of the product structure in Huazhou and the continuous delay of the product, which helps our group's overall RERPAR to have a better performance than the same-electric RERPAR. This is exactly the meaning of our continuous delay of upgrading our products, eliminating and cleaning old and old doors and doors. Okay, to answer your second question, regarding to the gap between the blended REF part and the like-for-like REF part,

So you are right. So like RevPAR was underperforming compared to the blended RevPAR, 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 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 ref and the like-for-like ref path. and secondly you know in certain area because of the search of the supply over the several years indeed there were some of the you know pressure on the rough power you know in both ADR and occupancy rates but you know 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.

Hey, thank you for sharing. I have two questions. The first question is, I want to ask, I saw you in the first quarter of this year, the opening speed is quite fast, almost 700 stores. Last year, it was about two-thirds of what it was last year. But I remember that your annual revenue was still 2,300 points. It was a little bit lower than last year. I want to know if there is a problem with the time in the first quarter or the timing in it. And then, is there any chance that your annual revenue will be 2,300 points? It may be too low. This is the first question. And then, The second question, the market wants to ask, these high-end goods, you have done very well in the past year or two. I see that you have almost 1,000 stores now. I remember that Ado has shared with us that he has about 1,500 stores in about 2,000 cities, and he doesn't want to go into 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. So the first question is in relation to the hotel opening. We noticed that your hotel opening were actually quite fast in the first quarter, almost 700. And that compared to full year of 2300, that was actually tracking ahead of the momentum last year. just checking to see whether there is any timing issue here and whether there is going to be some upside risk to the full year 2300 hotel additional guidance. And then the second question is in relation to the mid upscale hotel whereby I think ICTRO has done a great job in terms of adding the hotel almost a thousand 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. Just wondering the strategy for HUL and where would they see growth going forward? Thank you.

To answer this question, I am Jinghui. I am very happy to see that we have recorded very good opening numbers in the first quarter. The current strategy of Huazhou is very clear, which is to grow at a high-quality scale. We are very excited about the scale. At the same time, we emphasize that every store we open is a good store to make money. So in terms of quality, at some level, the current strategy is more important than my pursuit of scale.

So I'm very happy to see we achieved a quite good number of hotel new openings in the first quarter. As one of the key strategies, we are looking for a high-quality scale growth. And we hope every newly opened hotel can be profitable. And therefore, in terms of the new opening, the quality of the hotel is much more important than purely scale growth.

Everyone has heard about our future ideals. Huazhou hopes that Not only does it have a very good head position in the market, but it can also shape our own brand. So from this year on, we have paid more attention to the brand, whether it's in every market or the whole of China. We hope that as the scale grows, we can also shape the brands of the Chinese market.

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's 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 market share, but also in each of different segments we want to be top one or two at least for the brands. Although we are seeing a pretty good in terms of the new opening and the new signings, but we want to stay at the conservative, not changing the full year opening target for now. We have been putting a lot of efforts since last year to break through the upper-mid segment, and I'm very happy to see that you are looking in detail in terms of our upper-mid segment development over the last several quarters.

We have seen a lot of market changes in China's traditional high-end hotel market.

We do see a lot of market opportunity, especially to reform those traditional upper-mid-scale segments.

At the current stage, we would like to focus only on Tier 1, Tier 2 cities, especially those prime areas to establish stronger brands. The demand actually is very concentrated in the Tier 1, Tier 2 cities, especially for those upper-mid segment.

Therefore, in those particular areas and cities, we want to take the most prime location to establish a brand. In a 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 Cijie Lin from CICC. Please go ahead. Your line is open.

Thank you, Manager Ceng. I just want to ask about the issue of mid-high end. As mentioned earlier, the demand for business is a little bit lower than the demand for retail. But why is it that the mid-high end, which has a higher demand for business, performs better regardless of whether it is a rough part or a pipeline? This year, we see relative bigger pressure on business demand compared with this year demand. But meanwhile, why it seems that upper mid-scale segment performs better on both rough part and pipeline. Because first our upscale, upper mid-scale pipeline stay flat quarter over quarter. Second, the central rough part of mid-scale and above segment also perform a bit better than economy segment. Don't know if this is correct and trying to understand reason behind this. And what is our view towards the upper mid-scale market conditions and how we strengthen our competitiveness in this segment? Thank you.

Let me answer this question again. This also confirms the topic I mentioned earlier. In fact, China's high-end high-end supply chain reform has a lot of opportunities. Huazhou, through the construction of high-end product capabilities and service capabilities in the past few years, As I mentioned earlier, we see plenty of opportunity to reform the existing very traditional upper-based scale segment.

Therefore, we have been putting a lot of efforts in terms of the products and the service offering as well as, you know, the target sales and marketing, especially for those upper-mid segment to establish our overall capability to do the breakthrough in this particular segment.

Our products, with the stability of our research and supply chain, are higher than our products. Our Huazhou members As we continue to invest in China, China's awareness of China's high-end products is getting stronger and stronger. These factors will make China's ability to invest in China stronger and stronger.

Leveraging our good product design to improve our product power as well as leveraging our very strong membership program and to accumulate a lot of repeated customers for our upper segment products Therefore, to increase the recognitions and the acceptance of the products by the customers.

We are looking forward to more investors to satisfy the demand of the Chinese high-end store members and the Chinese high-end store market. We have more expectations and attention. We actually experience continuous progress on the Chinese high-end store. These are very important driving forces for the growth of our Chinese high-end store industry.

We have been keep upgrading and optimizing the membership, especially for the upper mid-segment and we hope you can have a look going forward and you will see the progress. Thank you. Next question, please.

Thank you. Our next question comes from the line of Jiwei Liu from CiticX. Please go ahead, your line is open.

Hello, Manager Teng.

I also want to ask a question about the mid-to-high end. From this feeling, the consumers' taste in our Chengji Hotel brand is actually quite good. So I want to ask Manager Teng if he can share more details about the current family business image of Chengji, including the single-storey model, including the plan to open the store from this year or from the perspective of the five-year. Let me translate my question. high management, the Indecity 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.

Thank you. I will answer Chen Ji's question. Thank you for your attention. Chen Ji's real development started last year. We use higher standards to define the demand of China's high-end market for product service. On the one hand, we use the perspective of China to see that China is better satisfied with Chinese customers. At the same time, we also use international career to learn the demand and satisfaction of traditional high-end stores for customers. Therefore, after the withdrawal, the reputation of Chengji is still good. Because we have just experienced two years, At the end of this year, in 2025, we may be able to achieve more than 100 new markets. But I am very happy to tell you that Chengji has opened a large number of flagship flagship stores in many key medical cities. This will be a very strong development in the future development of brand energy supply and future development of energy supply.

So in terms of the InterCity brand, actually the growth momentum started from last year and the InterCity brand actually redefined the overall upper-mid-scale segment and it's kind of a combination with Chinese as well as the Western design and service to provide a more suitable product and service to the Chinese customers. And I'm happy to say see that probably by the end of 2025, we can have around 100 intercity hotels in operation. And more importantly, we have been seeing that there is a lot of intercity hotel has been located in very important key areas and the cities, which we call flagship hotels, in very prime locations. That will bring a longer-term benefit for the brand establishment.

Huazhou uses a multi-brand strategy at the mid-high end. Besides the results, we have also hatched crystal, and we also have brands such as Meiji and Neft, which are very popular in the world. Therefore, the development at the mid-high end, Huazhou's first strategy is to use a mainstream but multi-brand strategy, because we believe that the more customers choose to go to the mid-high end, the more diverse they are. This is a basic concept. For the entire upper-mid-scale segment, we actually used a multi-brand strategy. Apart from the intercity, we still have Crystal Hotel, as well as Mercure and Novotel, for example.

So the key strategy is definitely the multi-brand strategy, but with core brand focus. And I think for those foreign brands within our portfolio, such as Mercure and Novotel, are going to benefit from a rising inbound tourist 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 quarter. Thank you, and bye-bye.

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