H World Group Limited

Good day and thank you for standing by. Welcome to the H-World Q2 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 this session, you will need to press star 1, 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1, 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jason Chen.

Please go ahead.

Thank you, Heidi. Good morning and good evening, everyone. Thanks for joining us today. Welcome to Edgeworth Group 2025 Second Quarter Earnings Conference Call. Joining us today is our founder and chairman, Mr. Jiqi, our CEO, Mr. Jinghui, our CFO, Ms. Chenghui, and our CSO, Ms. He Jihong. Following their prepared remarks, management will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements. made under the safe harbor provision of the United States Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. Edgeworth Group does not undertake any obligations to update any forward-looking statements except as required and applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliations 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. Cost of this conference call, as well as supplementary slide presentation, is available at ir.edgeworld.com. With that, now I will hand over the call to our CEO, Mr. Jin Hui, to discuss our business performance in the second quarter of 2025. Mr. Jin, please.

谢谢。 各位投资人分析师,大家好。 感谢大家参加华族集团2025年第二季度业绩电话会。 First of all, I would like to share my observations on the overall market. In terms of market demand, we can see from data from China's railways, airlines, and travel agencies that China's overall travel demand has remained relatively stable. But at the same time, due to the increase in overall supply of hotel markets in the past two years, and the negative impact of various macro factors on business travel and consumer payment hospitals, there are still some challenges in the overall industry.

Dear investors and analysts, good day. Thank you for joining our second quarter 2025 earnings conference call. First, I'd like to share some observations on the overall market. On the demand side, domestic number of travelers continues to grow steadily according to the data released from railways, airlines, and the tourism statistics. However, due to the rapid increase in hotel supply over the past two years, Coped with the negative impacts of various macro factors on business traveling and consumer spending willingness, the hotel industry is still facing some challenges.

但是即便在当前的市场情况下,华硕始终坚持长期主义强化高质量发展,快速抢占核心城市核心位置,持续深耕下层市场,优化存量门店质量和布点。 二季度, Huazhou has achieved a high-quality network expansion in the next quarter through continuous breakthroughs in various areas and continuous infiltration of low-end cities. With the increase of 18.3% in net profit and the increase of 15% in group hotel GMV, the net profit has increased by 26.9 billion yuan. At the same time, with the gradual improvement of the network layout and the further resumption of Huazhou's ability, the number of members and the number of members who are scheduled to work will continue to increase.

Despite the current challenging market condition, we remain committed to focus on the long-term business development, emphasizing on high-quality growth, securing prime locations in the major cities, further deepening our presence in the lower-tier cities, and optimizing the location and quality of our existing hotels. In the second quarter, by breaking through into more new cities and regions and further penetrating into the lower tier cities, we achieved another quarter of high quality network expansion. Driven by an 18.3% year-over-year increase in the number of rooms in operation, our group hotel GMB grew by 15% year-over-year to RMB 26.9 billion. Meanwhile, along with our hotel network expansion and continuous enhancement of our Edge Rewards membership program, our member base also grew by 17.5% year-over-year to nearly 290 million in the second quarter. While the number of room nights booked by members exceeded 60 million nights representing a 28.8% year-over-year growth.

更为重要的是,集团轻资产的加盟业务, 无论在规模、收入还是利润上,均实现了强劲的增长。 二季度,加盟收入同比提升22.8%至29亿元, 经营毛利同比增长23.2%至19亿元, 贡献了近三分之二集团整体经营毛利。

More importantly, our S&Lite monetized and franchised business delivered robust growth in hotel network, revenue, and profit. M&F revenue rose 22.8% year-over-year to RMB 2.9 billion in the second quarter, while its gross operating profit increased by 23.2% year-over-year to RMB 1.9 billion, contributing nearly two-thirds of the group's total gross operating profit.

The uncertainty of the red line, the decline of consumer will, and the decline of payment will have a greater impact on high-end consumption. Huazhou has always maintained the strategy of the economy and medium-sized hotels as the core service to the general market, and has not changed. In the context of consumers pursuing extreme cost-effectiveness, Huazhou should show a stronger competitive advantage. Through the construction of brands, the optimization and upgrade of products, and the improvement of service,

Macro uncertainties and weakened consumer spending wellness should have more pronounced impacts on high-end consumption. Edgeward remains steadfast in our strategic focus on the economy and middle-scale segments to serve the mass market. Against the backdrop of consumers favoring value-for-money products and services, Edgeworld is well positioned to demonstrate even stronger competitive advantages. By enhancing our brand, optimizing and upgrading our products, and improving our services, we will further solidify our core competitiveness, earn long-term customers' loyalty, and achieve resilience while navigating through cycles.

我们很高兴地看到在经历20年的发展, Our HanTing brand has become the world's top 50 hotel brand in the top 50 hotels in the latest Hotels magazine, becoming the world's largest hotel brand. But we think this is far from enough. We are still constantly upgrading and optimizing products to improve product quality and meet consumers' needs. Recently, we officially released the HanTing 4.0 version. The 4.0 version of HanTing is not just a simple product upgrade. We are delighted that after 20 years of development,

Our Hanqin brand ranked number one on the latest hotels magazine's world's top 50 hotel brands list, becoming the world's largest hotel brand by room count. However, we believe this is just the beginning, and we continue to refine and upgrade our product to improve product quality and to better meet customers' demand. Recently, we officially launched Hanqin 4.0 version, This is not just a simple product upgrade, but a revolutionary supply chain reform. Through systematic optimization across CapEx, construction, maintenance, and operations, we have successfully developed a benchmark product with lower cost, higher quality, and greater efficiency. Hanting will serve as a key driver for our further penetration into the lower tier cities.

Hanting has no doubt become the flagship of Kuomintang hotels. Quanji is also in the top position in Zhongdang Hotel. But we are more happy to see that the orange brand has also achieved a milestone of 1,000 stores in recent years. With the leading product power in the industry, price competitiveness, and operation capability, orange will gradually become Huazhou's second growth curve in the Zhongdang Hotel market. Therefore, with the limited number of green triangle brands formed by Hanting Quanji Orange,

Hanting Hotel has undoubtedly become the leading hotel brand in the economy segment, while G-Hotel has been leading the middle-scale segment. Nevertheless, we are more excited to see our Orange Hotel recently surpassing the 1,000 hotels milestone. With its industry-leading products, cost competitiveness, and operational capabilities. Orange Hotel is well positioned to become our second growth engine in the middle skill segment. Together, Hanting, GE, and Orange form the Golden Triangle brand of our limited service segment, demonstrate formidable competitiveness, and serve as the core driver to reach our 20,000 hotels in 2,000 cities strategic target in mid-term.

At the same time, Huazhou also made a quick breakthrough in the high-end circuit. By the end of the second quarter, Huazhou's high-end door-to-door capacity in the cloud and pipe has surpassed 1,500, which is 23.3% of the growth rate. In particular, thanks to the clear brand positioning, outstanding product quality, and excellent business performance, we are able to quickly gain the double trust of homemakers and consumers. At the same time, Edgewood has made rapid breakthroughs in the upper-mid scale segment.

As of the second quarter, the number of upper-mid scale hotels in operation and in pipeline exceeded 1,500, up 23.3% year-over-year. In particular, our Intercity Hotel has been rapidly gaining traction among both franchisees and consumers and achieving remarkable growth in the recent quarters. Thanks to its clear brand positioning, exceptional product quality, and strong operational performance. In the second quarter, Intercity achieved a positive year-over-year growth in its same hotel repart.

Whether it's a limited-time hotel or a mid-term hotel, The continuous optimization of the product and the upgrade of the stack are inseparable from the support of the strong supply chain ability. We always think that the supply chain ability is one of the key core capabilities to ensure high-quality development. Therefore, Huazhou continues to optimize and innovate the supply chain. By expanding supply partners, increasing modular applications, and optimizing product design, we can achieve higher quality products, lower hardware and operating costs, and shorter hardware supply period.

Whether it's the limited service or the upper-mid-scale segment, continuously product optimization and upgrades relies on strong supply chain capabilities. We firmly believe that supply chain strength is a critical pillar of high-quality development. Therefore, we continue to innovate and optimize our supply chain through enlarging our supplier pool, strengthening modular applications, and optimizing product design to achieve higher product quality, lower OPEX and CAPEX, and a shorter construction period, which is in turn further strengthening our core competitiveness.

Finally, in terms of marketing, we always insist on Huazhou Hui as the core, The membership level and performance ability are the central core capabilities that support the long-term sustainable development of the company's business. With the expansion of our store and the entry of more cities, our number of members is also growing steadily. As of the end of the second quarter, Huazhou will steadily increase the number of members to 2.9 billion. At the same time, Huazhou's central pre-set system contribution is up to 65.1% and has increased by 5.2%. Lastly, we remain focusing on our direct sales capability through Edge Rewards Membership Program.

our membership and direct sales are vital to our sustainable long-term business growth. As we expand our hotel network and enter more new cities, our membership space continues to grow. By the end of the second quarter, Edge Rewards membership reached nearly 290 million members, with direct booking through CRS rose 5.2 percentage points year-over-year to 65.1%. Recently, we introduced the price guarantee features in our Edge Rewards app, ensuring our members get the best room rate. Going forward, we will further enhance membership benefits, expand the loyalty points usage scenarios, and exploring cross-industry partnership to improve member engagement and stickness, and further boost our direct sales capability.

That's all for the update on the business status of Huazhou in 2025. This concludes the business update for Edgeworth's second quarter 2025.

Now I will hand over the call to our CFO, Ms. Cheng Hui, to present the group's financial performance for the quarter.

Thank you, Jinghui. Good evening and good morning, everyone. Let me walk you through our second quarter financial overview. During the quarter, our group revenue grew 4.5% year-over-year to RMB 6.4 billion, near the high end of our previous guidance, of which Lexi Huazhou's revenue increased 5.7% year-over-year. We are glad to report that as we continue carrying out SLI strategies, and cost optimization efforts, we saw year-over-year margin improvements from both Lexie Huazhou and Lexie DH. As a result, our growth adjusted EBITDA rose by 11.3% year-over-year to RMB 2.3 billion. Adjusted net income increased 7.6% year-over-year to RMB 1.3 billion. More importantly, as we may notice that, we started providing revenue and growth operating profit breakdown for our managed franchise and Nissan owned business in our presentation. We believe it would be better demonstrate our future business development strategy, especially on the profit growth driver. during our asset line transformation period. Looking into the numbers in the second quarter, our managed and franchise business revenue reported a robust 22.8% year-over-year growth to RMB 2.9 billion and a gross operating profit growth by 23.2% year-over-year to 1.9 billion in the second quarter, respectively. The robust growth in both revenue and profit was mainly driven by hotel network expansion. More importantly, given the nature of asset life business model, franchise margin profile relatively stable and is less impacted by the river park movement compared to lease-and-owns. On lease-and-own business front, we continue reducing the exposure. In the second quarter, our lease-and-own revenue and lease-and-own gross operating profit decreased 7.6% year-over-year. and 13.4% year-over-year, respectively. Our asset-light transformation resulted in a further enlarged profit contribution in the Managed and Franchised business. In the second quarter, our Managed and Franchised business contributed to 64% of our total growth operating profit. up 7.5 percentage point year over year. Moving to the cash flow and the liquidity position, in the second quarter, we generated RMB 2.7 billion operating cash flow. And as a quarter end, the group had RMB 13.7 billion cash and cash equivalent. and RMB 6.2 billion net cash on the balance sheet. We are committed to pay out dividend consistently and stick to our shareholder return plan. For the first half of 2025, we are glad to declare a US dollar 250 million interim cash dividend, which represents 74% of our first half net profit, and together with roughly US dollar 62 million share buyback. Lastly, our guidance for the third quarter of 2025, we expect our group revenue to grow 2% to 6% compared to the same quarter last year, and the 4% to 8% excluding DH. The monetized and franchised revenue in the third quarter of 2025 is expected to grow in a range of 20% to 24% compared to the third 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 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Please stand by while we compile the Q&A roster. We will take our first question.

And the question comes from the line of Ronald Leung from Bank of America. Please go ahead. Your line is open.

管理层,晚上好。谢谢你给我一个提问的机会。 我有两个问题。 第一个问题是关于RAFPA的预期的。 请问管理层对三季度还有全年RAFPA的预期是什么? And is there any change in annual revenue guidance? This is the first question. The second question is about the impact of new electricity on the overall rough part. Does the management see that when new electricity is turned on and there is a climb, it may have a bad impact on the old electricity rough part? Good evening, management. Thank you for taking my question. So I have two questions. My first question is about RAFPA. So what is your expectation for the RAFPA in 3Q and also 2025? And is there any change to the full year revenue guidance? This is my first question. My second question is about any potential impact on rough path from new hotel openings. So do you see any potential cannibalization when new hotels open and ramp up and that could affect the old hotels? If yes, are there any initiatives that management can take to address this conflict? Thank you very much.

Thank you, Randall. Thank you for your question. First of all, we are concerned about the real part. I would like to share with you that you can pay more attention to Huazhou's long-term increase in market share in the Chinese market, as well as our high-end brands and our improvement in core capabilities. Regarding RealPath, I would like to combine the recent three-season market and China's situation. I will give you a unified answer. This year, we have seen a lot of services to increase sales in various places, and also released a lot of ticket discounts, half-price discounts, and real-time opening. It does bring about such progress in the Chinese market. However, due to some extreme weather and uncertainties, Some factors are that we are currently in the third quarter. We predict that the third quarter's ROYALPAC will still fall slightly. But the same rate of decline will further shrink the second quarter. As for our ROYALPAC and revenue guidance for the whole year, we are indeed facing some uncertainties in the red line. Especially in the past two years, the rapid increase in Chinese hotel supply, It does cause some financial challenges. It does have some impact on our entire business. We expect that the whole year's RERPA will be slightly lower than our forecast for the beginning of the year. At the same time, it will fall below the first position. A fall below the first position. But no matter what the external challenges are, I think we are still... This effort to achieve what I mentioned at the beginning, we are in the brand, we are in the supply chain, we are in the technology, in the members, in the marketing aspect, etc. The core ability to buy and sell makes us Huazhou, in the financial pressure, show a very strong financial resilience. Combined with our entire high-end door-to-door expansion and such a strategy of mass production, our annual income forecast this year, we will work hard to achieve the market guidance recommended by us at the beginning of the year. Okay, let me translate.

So I understand you guys are still very much looking at the REFMA movements first of all. We hope you can, you know, focus more on a long-term, you know, edgeward performance in terms of the market share gaining, you know, improvements in terms of the products and the brands as well as, you know, a lot of improvements from different fronts. to create our core competency. In terms of the RAFPA guidance for the third quarter and the full year, for the third quarter, especially during the summer holiday, we observed that a lot of local governments are promoting the tourism industry, for example, by providing deep discounts in terms of the tickets, even free tickets, just trying to boost the demands for the leisure traveling. However, in some regions and areas was affected by some extreme weather conditions, plus some of the macro uncertainties, you know, some of the weakened consumer spending well in this. You know, the overall performance till now for the summer holiday are slightly below our previous expectation. Therefore, we think the third quarter's REVPAR while still have a very slight year-over-year decline. However, it's going to be quite significantly narrowed on a sequential basis. In terms of the full-year REFPA, again, because of some of the macro uncertainties, Especially, as I mentioned previously, there was quite a lot of supply increased over the last two years. It's still creating some of the challenges currently. Combining the performance for the first half as well as the current summer holiday performance, we are currently expecting the rough path for the full year performance will be slightly below our previous guidance. But however, as I mentioned, we have been putting a lot of efforts in terms of to improve our, you know, products, our sales capability, you know, our supply chain capability, just to make sure that we can be much resilient even under this kind of challenging, you know, market conditions. Therefore, in terms of the revenue, we will strive to achieve our previous guidance.

Indeed, after 20 years of development, in some 1st and 2nd line cities with relatively high market share, there are indeed a lot of old and new products. It is undeniable that these old and new products are under pressure under the current economic environment. Due to the fact that Huazhou in the past few years, for example, our whole season from 3.0, 4.0 to the current 5.0, Juzi experienced 2.0 to 3.0, Hanting from the earliest 3.0, 3.5 to the current 4.0, the productivity of our products has been greatly improved. The quality has been improved fundamentally. At the same time, in these core cities, due to the period of real estate, there are a lot of high-quality properties, even more high-quality properties. In this situation, Huazhou has set up some, I should say, better properties, better quality new products. For our old copper stores, It has indeed caused a certain impact on RERPA. In this case, I think it is a period of shock. It is also a threshold that we must overcome. Because we hope to achieve our future market share with a higher quality. Not just our scale, I think the quality of our market share rate is also a core element that we are very concerned about. Of course, how do we solve the problem of stock market share? Without a doubt, the first one is to upgrade and improve the storage door. This is a very important method for us. At the same time, it is also our job to develop a high-quality layout in the future. So, this is probably the case. This question is indeed one of the key problems that we have encountered in the core city of Tongdian. Thank you for your question.

In terms of the impacts from the new hotels to the old hotels, we have to admit over the past 20 years of development, especially in those Tier 1 to Tier 2, where we have higher market share, we have a much higher basis, there are a lot of old versions of the products which have been running for many, many years. Of course, in the current environment, this kind of product's competitiveness is quite low. As you may notice, we have been constantly introducing new products. For example, we upgraded G-Hotels from previous 3.0 to currently 5.0, the Orange from 1.0 to the current 3.0, and Hunting from previous maybe 2.0 to the latest 4.0. All the products itself, the quality has been improved massively. Of course, we are adding some of the pressures to the older products. And also, in addition to this, in the Tier 1, Tier 2 cities, because of the real estate market weakness, there's a lot of high-quality properties are coming out to the market, which we can have much better property to open new hotels with much higher-quality products. And that's why, I mean, we have to admit that's going to create some of the negative impacts to the existing old hotels. But we do believe it is a short-term plan, and we have to go through this because our target is not only gaining market share, but we want to gain market share with high-quality products. You know, that target has never been changed. But of course, we are looking for some of the solutions to solve this kind of problem. Firstly, we are actively looking for upgrades for the existing hotels. And secondly, we will be more rational in terms of positioning for the new hotel openings. Thank you.

Thank you. We will take our next question.

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

各位管理层,晚上好。 我们看到这一次这个财报首次公司就分拆披露了整个指引还有加盟管理的两个业务各自的直接经营的毛利。 Then I would like to ask the company what is the whole consideration behind this split? And is there any change in the management strategy in the future? That is, between these two businesses. Further, I would like to ask the company about this split. I would like to ask the joint management business. Now, Chen Huizhong mentioned that the net profit is 64%. The income increase is 23%. We can see that the profit rate is increasing, which is the part of the green assets. However, for the direct business of heavy assets, the net profit is 13%. The net profit in China is 20%. The profit rate is decreasing. So I would like to ask, for the entire profit rate of the direct business in China, Thank you, management, for this opportunity. We saw the company break down the gross operating profit between the asset-heavy lease and own and asset-light franchise and managed business segments. What's the key message behind the new disclosure in terms of strategic focus between these two business segments? Is there any change we should expect in the future? Another follow-up question on this topic is asset-light franchise and managed segment is now 64% of total GOP, with this segment revenue growing 23% this quarter. So GOP margin increased slightly. But the GOP for asset heavy lease and own declined by 13%. Legacy China Huazhou business lease and own GOP down by 20%. GOP margin also declined. So going forward, what's the outlook for the margin of this segment? And is there any operation adjustment we can expect to support the margin of this lease and own business? Thank you.

Hello everyone.

Let me answer your question. In the past few years, Huazhou has been actively promoting the green assetization of group business. You can also see that in the past few seasons, Huazhou's family business has been growing rapidly in terms of high-quality scale expansion, and revenue has been maintaining a strong growth. As our branch stores gradually withdraw, revenue is gradually decreasing. Obviously, the relatively stable family business has become the core of our company's future development. Thanks Dan for the questions.

As you may notice that over the past several years, we have been quite actively doing the asset line transformation for the group. Over the last few quarters, our management franchise business has been growing quite rapidly, driven by high-quality network expansion and also to drive the revenue growth as well. In terms of the leased and owned business, you have been seeing that, you know, the exposure for the leased and owned business has been gradually reducing. Of course, the stable, you know, the MNF, the S&L business has a much stable gross margin, and also it shows a real, you know, business development and strategy for the group going forward. So that's why since starting from this quarter, we started to giving a breakdown between our asset-line business and asset-heavy business.

另外,但前面问到就是我们直营店的利润率相比我们的加盟利润率目前是有下降。 这个的确是因为我们现在直营店在逐步退出,所以利润的绝对值以及它的利润率都会受到影响。 But in the future, in order to stabilize the current situation, we are working on several aspects. One is to talk to our owners about the reduction of rents. And we have achieved quite a good result in the first half of the year, which should be hundreds of millions of rents. So for the margin performance for our leased and owned business, as you said,

the margin has declined on a year-over-year business. This was mainly because we are gradually exceeding the exposure or reducing the exposure for the lease-and-own. Therefore, no matter from the volume or no matter from the margin or from the absolute dollar amount in terms of the profits, it's in a decline trend. However, in order to maintain a relatively healthier and stable margin performance for the lease-and-own business, We are doing several key measures. One is we are actively seeking for the rental reduction with the landlord. For example, in the first half of this year, we actually signed up around 390 million RMB in total for the contract value. for the rental reduction. And secondly, in terms of the revenue management as well as sales and marketing and cost optimization, we are doing a lot of works for our leased and owned business as well. Well, even though that we are gradually reducing the exposure for our leased and owned business, but we are still putting a lot of efforts for the existing properties, trying to improve their performance, not only the top line but also the bottom line as well. Thank you. Yeah, thank you.

Thank you. We will take our next question.

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

Hello, I'm Lydia from Huazi. I have two questions. First of all, it's about the opening. We also saw that the opening of the second quarter began to slow down. So I'd like to know, under the current situation, On the other hand, what is the current state of home appliances? Will we be able to adjust the next opening rhythm? If possible, can you share with us some of the latest developments? The second question is about the cost and profitability. In terms of the group, we can see that the overall cost control of the second quarter is good. I would like to know if there is room for improvement in terms of the cost at the group level, and if we can look at the year-round profitability. Thank you. Hi, management. I have two questions. And the first one is on the store extension. And so we saw some deceleration in the second quarter. So given current macro background, so how about the franchise sentiment over the openings and any adjustment in your planning for the new openings for this year? And if possible, could you share with us some color on the new signing momentum? And then my second question is on the modern side. And so at group level and the do you have any further optimization in terms of the cost? And so could you actually give some items on the full year margin trend? Thank you.

关于开店节奏,我来回答一下。 其实华柱在过去几年, 我们一直在始终坚持华柱不仅是大规模的发展, 更是强调一个高质量的可持续发展, 我们所谓叫经济增长的战略。 It is indeed a plan to guide Huazhou from last year to this year and the entire development of the future. In fact, our future will be stricter to grasp the success rate of the opening and the quality of the contract. I want this seven-year strategy to fully monitor the location of the hotel and the quality of the property to ensure our high-quality successful opening. OK.

So, as you may notice that over the past several years, we have been implementing high-quality sustainable growth strategy. We are not only looking for a scale growth. I mean, the quality is much important than the scale itself. So, we're going to continuously doing this, implementing this strategy. So going forward, we will be even more strict on new signings in terms of the property, in terms of the location, as well as we have to make sure that our franchisees can make a profit and that the hotel product itself has high quality. So under these kinds of standards, we think we still can maintain a relatively healthier pace of the new openings in the near future. Thank you.

Hello, I would like to answer your second question. China's green asset strategy and our capital control and optimization in terms of cost mainly show a rise in our CIS ratio, which leads to a decline in our sales costs. and the strengthening of our supply chain capacity led to a decrease in our operating costs and the impact of the reduction of the rent of the land owners. So we are very happy to see that the EBITDA adjusted by the Group II has achieved 11.3% of the same growth in the case of China's RERPA. At the cost end, the Group II removed the SBC and the Group SG&A with a decrease of 1% In the second half of the year, we will consider ROI. We still need to invest in marketing and sales. But we believe that with the continuous promotion of the green asset strategy, China can achieve a steady increase in profitability in the long term.

So in terms of the margin performance, so in the second quarter, benefiting from our asset line transformation, and we have more revenue and profit contributing from the asset line business, as well as our cost optimization, leveraging our supply chain capability, as well as our CRS contribution increase. and also a little bit apart from the rental reduction. So putting them together help us to achieve 11.3%, you know, adjust the EBITDA growth for the group despite the rev part decline. In terms of the SG&A, if you're excluding the SBC, actually the SG&A declined by roughly 1%. For the second half, Of course, we could make some of the investment, but definitely we cannot consider a rational ROI when we do some of the investment. But in the longer-term perspective, we believe, along with more S&L contribution, we could achieve a stable or gradual margin improvements in the future. Thank you.

Thank you. We will take our next question.

Your next question comes from the line of Simon Chang from Goldman Sachs. Please go ahead. Your line is open.

Thank you, President Jin, for sharing with President Chen. I have two questions. The first question, President Jin just said that there are some older stores in Hanting that may have been affected by the high-end cities. And you see that the same store, Rappah, fell about eight points, just like last week. 我想問一下大概這個問題你覺得要多長時間才可以解決到呢? 這個是第一個問題 然後第二個問題也是我記得上一個季度我也問過一次了 就是 Especially from the beginning of the last year, I feel that your market development in the medium and high-end areas is more optimistic than before. Especially, maybe G.G.水晶 and Chen Ji, these two brands, especially Chen Ji, did very well. I would like to ask you about the space of development in the long term, and what do you think about the market share? Let me translate that into English. So I have two questions. The first question is in relation to the same-store REF PAR performance of the company that has been somewhat affected by some of the old store under the hunting brand that management mentioned about, wondering how long would it take them to kind of resolve the issue in such a way that we were starting to see stabilization on the same-store REF PAR. And then secondly, just on the mid-upscale segments, particularly the upscale segments for the Crystal Orange as well as the Intercity brand has done very well in the last, I think, a couple quarters. Just wondering, you know, how management think about the long-term growth potential as well as the market share expectation. Thank you.

Okay. I'm talking about a situation like this in Hanting. Indeed, our Hanting has evolved to the current 4.0 product. I think it is a relatively mature state in which products have been continuously replaced in the past few years. Hanting's product design, I think, is not only in China, but also in the world, it can lead to the most advanced design of economic hotels. Especially with the whole capacity of our Chinese main supply chain, The cost is lower, the price is lower, the supply is shorter, and the quality is more stable. It should be said that it is a very strong core brand for the development of the entire Chinese national market. As I mentioned just now, new products indeed have a gap in product power between the old Korean products, especially the early products under 2.5 billion, which we saw in the list. This is the core work of Hanting in the next one or two years. We want to quickly achieve the upgrade, transformation and return of old products. This time will be the core work of the entire Hanting business department in the next one or two years. Of course, Hanting's contract and development speed in the country is still very strong. Especially this year, Hanting's contract So in terms of your question regarding to the Hanting brand, so currently, as we discussed previously, currently we launched Hanting 4.0 version.

And, you know, over the last several years, we have been consistently upgrading hunting brands, and we believe, you know, the 4.0 should be a relatively matured product The product itself, not only in China, but also globally, in terms of its design, its hotel quality should be at the leading position. It's definitely leveraging our strong capability from the supply chain because it's creating much lower CAPEX, lower OPEX, and a shorter construction, and also a better performance. In regarding to, you know, the pressures, you know, from the new hotels to the older hotels, as I said previously, you know, we noticed that and especially, you know, our observation internally that, you know, those hunting 2.0, 2.5 version and below are facing the biggest pressure, you know, in terms of the, you know, ref power performance. And it's probably going to take, you know, one or two years to solve this problem because of the large basis over the past 20 years. But however, we are very glad to see, you know, the new signings, you know, for the hunting brand actually in this year has been very, very strong. So there are two major things that we are going to do. One is we keep signing new contracts and opening new hotels in different areas, but also we have to do some of the major substitutions by using the new products to replace the old products or continuously upgrading the existing hotel to improve the competitiveness.

Thank you. the choice of the hotel industry. Currently, Juzi has just broken through 1,000 stores. We are very happy to see that in terms of all-season brands, we have more than 10,000 stores in China. I think the meaning behind Juzi is that we hope to become the second all-season brand, and become the second choice of the whole market without controversy. So Juzi is working hard in this direction. Regarding performance, I would like to share with you the current development of performance. Performance has indeed improved over the past two years through product research and operating capacity improvement. In the first half of this year, Tongdian RealPath, which has achieved performance, is the only growth brand in China. We have achieved growth not only in terms of scale, but also in terms of contract growth and opening growth. Without a doubt, we hope to become China's leading brand in high-end hotels in the next three to five years. This is our goal. Therefore, we are working hard, especially in some key cities. We hope to quickly establish a new generation of high-end flagship products through our achievements. Because China's real estate also gives us this opportunity. The market supplies a lot of high-quality original fake business buildings and high-quality original four or five-star hotels. This kind of asset gives us a brand like Chengji to achieve new development. Because I think Chengji represents the product line of high-end Chinese products. It leads the future of high-end Chinese products in China. So we are also full of confidence in Chengji's development.

Okay, in terms of our Orange brand and Intercity brands, I'm very happy to share something with you. In terms of the Orange brand, after launching the 3.0 version, we have been getting a lot of attractions from the franchisees and customers. And we want the Orange brand to become a back-to-back brand for G-Hotel. And we just achieved a thousand milestone for the Orange brand recently. And in terms of the G hotel, currently the hotel in operation and in pipeline, putting them together, has been already exceeded around 4,000 hotels. So we definitely hope the Orange hotel could be the second growth driver in our middle-scale segment. and together with G Hotel to become a number one and a number two hotel brands in the middle scale segment for the overall market. And in terms of the intercity hotel, because of the high quality and the very accurate brand and product positioning, we have been achieving a quite rapid development of this intercity hotel over the past several quarters. More importantly, you know, Intercity achieved a positive growth, you know, in terms of the like-for-like or same hotel RevPar in the second quarter, which is probably quite less other brands can achieve the positive RevPar growth. Therefore, in the next probably three to five years, we definitely want our Intercity brand to become a leading brand in the upper mid-scale segment and because We are also taking the benefits from the weakness of the real estate market because we do see a lot of A-grade office building has been out in the market, especially in the tier one, tier two cities in some of the prime locations that definitely creating or give us a lot of opportunity to build a very nice and high quality hotel product. it's going to be a new standard or a new generation intercity going to be a new standard and new generation you know our new definition of the upcoming you know up mid-segment hotel in the near future thank you thank you we will take our next question your next question comes from the line of ceiling from a

CICC, please go ahead. Your line is open.

Thank you, Ms. Guan. I have two questions. One is our supply chain capacity, because this is where we are leading the industry. Can you tell us more about what improvements have been made in this area and how much help will it bring to future operating costs? The second is about DH. DH has been doing the green assetization. What is the structure of the future green assetization? So thank you, management. I have two questions. So first is on the supply chain. So how do we strengthen our supply chain capability in detail? Could you explain more about this? And to what extent will this contribute to future decrease of operating costs? And the second question is about DH. So what will be the pace of the future shift towards satellite model for DH? Thank you.

Hello, I am Jin Hui. I will answer some questions about the supply chain. I am very happy that everyone is paying attention to the Huazhou supply chain. The Huazhou supply chain has become one of the core capabilities of Huazhou to achieve sustainable high-end development. In fact, since the beginning of 2020, Huazhou has been planning the overall upgrade of the whole Huazhou supply chain. We have expanded the cooperation of the leading manufacturing companies in China, and deepened the cooperation of the leading companies in China. We have improved the product design, upgraded the quality standard, reviewed the system, etc. to achieve higher quality products, lower operating costs, and shorter operating time. I will give you some specific data. Currently, in terms of furniture, software, operating materials, basic building materials, and other purchasing costs, we have achieved a decrease of 10% to 20% between the two. In terms of the operating cycle, the module production of Hanting 4.0 can help the operating cycle to be shortened by 30 days. Obviously, the entire powerful supply chain makes it possible for Huazhou to help Huazhou in the entire hotel industry in the future in terms of overall cost and efficiency.

In terms of our supply chain capability, obviously, as we always said, the supply chain capability becomes a very core competency for us to maintain or to achieve high-quality long-term sustainable growth. Since 2024, we have been comprehensively upgrading our supply chain capability, mainly through and attracting a lot of, you know, top-tier suppliers and corporations with them closely, as well as, you know, increasing more modularization application and optimizing some of the product design and increase the quality standard and the reviewing system as well in order to achieve higher quality products and the lower CAPEX and OPEX as well as shorter construction periods. I can share with you some of the data. As of now, in terms of, for example, furniture and furnishing, the consumables, some basic material, we have achieved around 10% to 20% cost of decline on a year-over-year basis. And also, in terms of the construction periods, taking Hunting 4.0 as an example, because we are applying more modularization that actually helped the construction period for hunting 4.0 products by 30 days. Therefore, you know, the strong and strengthening, you know, the supply chain capability could definitely help our, you know, help us to grow in a longer term with definitely a cost of leadership and as well as the high efficiency. Thank you.

This is Ji Hong. I can address the DH asset line business model and development. In Europe, especially in Germany or Central Europe, the legal requirement is not as easy to dissolve any lease contract. So we are working hard on discussing and negotiating with the landlord. Not everything would turn out exactly as we expected. So we continue to try this out. We are continuously screening the profitability of our lease hotels, especially for low-performing or non-performing hotels. We are constantly engaged in a discussion. And we cannot disclose anything yet, but some of the lease negotiations and some of the changes of the lease are in the works. We will report as soon as we have any information about that. And in the future, we are also trying very hard to go on asset-light model. And we are very, very careful in signing any potential lease contracts. We really need to look at the commitment and also the return in the longer term as well.

Thank you.

This concludes today's question and answer session. I will now hand back to Jason Chen for closing remarks.

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.