Tongcheng Travl Hldgs Ltd

Good day and thank you for standing by. Welcome to Tongcheng Travel 2025 second quarter and interim results announcement conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press dial 11 again. Please be advised that today's conference is being recorded. And I'd like to hand the conference over to Ms. Kylie Yeung, Investor Relations Director. Please go ahead, Ms. Yeung.

Thank you. Good morning and good evening, everyone. Welcome to Tongcheng Travel's 2025 Second Quarter and Interim Results Conference Call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are our Executive Director and CEO, Mr. Hock Ma, our CFO, Mr. Julian Fang, and our Chief Capital Officer, Ms. Joyce Lee. For today's call, our management team will provide a review of the company's performance in the second quarter. Hock will brief us on the company's strategies, Joyce will discuss our business and operational highlights, and then Julian will address the details of financial performance accordingly. We'll take your questions during the Q&A session that follows. As always, our presentation contains forward-looking statements. Such statements are based on management's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors which may cause the company's actual results, performance, or achievements to differ from those in the forward-looking statements. This presentation also contains some unordered non-IFRS financial measures. They should be considered in addition to, but not as a substitute for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of non-IFRS financial measures, please refer to our disclosure documents in the IR section of our website. Now, let me introduce our CEO, Ho. Hope will be presenting in Mandarin, and our colleague will provide the English translation afterwards. Hope, please go ahead.

Thank you, Connie. Good evening, everyone. I would like to welcome you to the second quarter of our phone conference in 2025. In the second quarter of 2025, the Chinese tourism industry continues to develop at a high level. Market demand continues to rise. We focus on the general market. Through rich product supply and sensitive user survey, we continue to consolidate market status. In international business, we are actively enriching the supply of advanced oil products and promoting the deep and detailed work of the key market, promoting the development of the second growth curve of the company. In terms of industry chain layout, we are deeply digging into the potential value of the tourism industry chain to capture more growth opportunities. and the long-term development of the company. In the past quarter, the company's income and net adjustment net profit have increased steadily, again verifying our precise demand-grabbing capabilities and efficient strategic execution. After entering the summer, consumers' demand for tourism continues to diversify, and they are increasingly focusing on experiential consumption. In this trend, we will not hesitate to seize new growth opportunities, continuously optimize products and services, and seek to meet the needs of different consumer groups. At the same time, we will also rely on deep experience, rich resources, and advanced technology to continue to promote product upgrades and technological innovation, thereby increasing user experience and promoting industry technology development. In the face of new opportunities and new patterns in the industry, as China's leading comprehensive travel platform, we will continue to remember the changes in the market, optimize operation strategies, use strong organizational ability to respond to challenges, embrace opportunities, and achieve long-term sustainable development of the company, and create greater value for the relevant people. Thank you and good evening, everyone.

Welcome to our 2025 Second Quarter Earnings Call. In the second quarter of 2025, China's travel industry maintained its trajectory of high-quality development, with robust market demand driving strong growth across the sector. During the May Day holiday, sustained consumer enthusiasm fueled due improvements in both the scale and quality of the industry. Aiming at changing market environments, we proactively seized market opportunities, actively propelled our domestic and international expansion strategies, and strategically deepened our industrial chain exploration. For our domestic business, we focused on the mass market, consolidating our position through diversified product offerings and acute user insights. For our outbound business, we actively expanded the supply of our outbound travel products while deepening our presence in key markets to accelerate our second growth engine. Regarding our industry chain deployment, we assertively explore the potential of the travel industry chain to capture more growth opportunities and drive the company's future development. Over the past quarter, the company delivered steady year-over-year growth in both revenue and adjusted net profit. reaffirming our ability to accurately capture market demand and execute strategies with operational excellence. With the summer travel season underway, consumer demand has continued to diversify with an increasing focus on experience-oriented consumption. Building on this trend, we spare no effort to seize new growth opportunities, enhance our products and services, and strive to address the diverse needs of our user segments. Leveraging our profound industry expertise, Extensive product offering and advanced technology will continue to drive product upgrades and technological innovation, enhancing user experience while propelling technological advancement across the industry, facing new opportunities and evolving landscape in the industry. As China's leading integrated travel platform, we will proactively respond to market dynamics and refine our operational strategies. With our robust organizational capabilities, we're positioned to navigate challenges and embrace opportunities, thereby achieving long-term sustainable development while generating greater value for our stakeholders. Next, I will hand over the call to Joyce. She will share with you our business and operational highlights of the second quarter of 2025. Joyce, please go ahead.

Thank you. Over the past quarter, China's travel market continued to show its vitality and was marked by a growing appetite for experiential travel, with younger consumers seeking unique and immersed experience, both domestically and internationally. Capitalizing on this tailwind, we advanced our growth strategy with discipline and focus, and delivered another quarter of strong results, underscoring the entrenched strengths of our platform and the unwavering dedication of our team in a dynamic marketing environment. As a key growth driver for the company, our accommodation business maintains robust growth momentum in the second quarter, and recording new heights in its daily room night sold. Growth was fueled by increasing diverse range of travel scenarios, such as weekend getaways, concerts, and sports events, in addition to traditional holidays and business trips. During the quarter, we intensified our efforts to expand our presence in lower tier cities by targeting high-value users, which would like to increase market share and further solidify our competitiveness in these regions. In the meantime, we reinforced our value for money proposition for targeting users through our membership program, enabling our users, especially high-tier members, to seamlessly redeem their points as cash on our platform, which is significant to increase purchase frequency. As for our international accommodation business, it has remained focused on deepening its cooperation with global suppliers and strengthening its presence in regions which are popular among Chinese travelers. Over the quarter, Hong Kong, Macau, Japan, and Southeast Asian countries remain the most popular destinations on our platform. After years of rapid expansion, our transportation business has solidified its position as a key player in the industry, achieving a prominent market share, especially in the southwestern region. Over the last quarter, our transportation sector continued to display its resilience and cause a steady growth. In the aviation business, we focused on spending our rich among younger users by launching a variety of interactive activities. so as to further strengthen our influence within this key demographic. In the meantime, our growth strategies for international etiquette segments have paid off, successfully increasing mindshare and strengthening user loyalty among our target audience. In addition, consistent efforts were made to improve the monetization capabilities for international operations, ensuring a balanced and sustainable growth trajectory between volume and revenue. During the second quarter, our international air ticketing volume reached a historical high, delivering nearly 30% year-over-year growth. In the trans-ticketing business, we remain steadfast in prioritizing user value by continuously enhancing and refining our intelligent hoisting system, designed to provide more accessible, efficient, and user-centric travel solutions tailored to meet diverse user needs. Throughout the quarter, monetization capabilities of the segment first improved, supported by our refined and targeted operational strategies. The hotel management business is one of the key initiatives where we have been investing to seek a segment growth driver for the company. During years of strategic expansion, we have built a wider range of portfolio of hotel brands, expanding the economy to upscale, supported by robust operational enablers such as TMS, centralized reservation systems, and a hotel supply platform. In the past quarter, our hotel management business has seen its healthy expansion trajectory, with the total number of hotels in operation exceeding 2,700 by the end of June, and nearly 1,500 in the pipeline. According to the 2024 list of the top hotel groups in China, released by the China Hospitality Association, we have ascended to number eight in terms of room count, underscoring our leadership and influencing the industry. In April, we announced the acquisition of a 100% stake in Wanda Hotel Management. While the deal is still in process, we're confident that the addition of Wanda Hotel Management will further diversify our brand metrics strengthen market presence, and accelerate the sustainable growth within the segment. We remain fully devoted to expanding our asset-light hotel management business through franchise-based partnerships with an aim to achieve leadership in China's hotel industry. Traffic growth has been the cornerstone for our success. Over the past decade, we have cultivated profound and enduring partnership with Tencent, Through WeChat ecosystem, we have reached a bold and diverse user base across China, and it remains a vital channel for our user engagement and interaction. During the last quarter, we continued to improve our operation efficiency within ecosystem while enhancing our engagement with users. At the same time, our standalone app continues to be a core pillar for acquiring new users. By targeting younger demographics, we launched a series of entertaining market campaigns centered on trending social events, further reinforcing our mindshare among target users. As a result, its DAU during the quarter continued to exhibit strong growth, reaching a record high before the May Day holiday. Additionally, we intensified our efforts to explore social media platforms for us to reach younger, experience-driven travelers. Through collaborations with influencers and the creation of high-quality, engaging content, we amplified our brand visibility and broadened our user reach. By delivering tangible value and exclusive benefit to our users, we are deepening user loyalty while simultaneously enhancing user value on our platform. In the second quarter, we made a significant upgrade to our service, particularly for high-value users. We set up an exclusive hotline and a dedicated customer service team to enhance response needs to user inquiries and ensure prompt and efficient resolution of their issues. In the meantime, we expanded user privileges and benefits, such as exclusive discounts and free cancellations. These efforts continued to be a marked improvement in user retention and royalty. Additionally, we capitalized on high-impact cultural events such as the Sioux Super League, an amateur football tournament within Jiangsu province that has drawn national wide attention and ignited widespread enthusiasm for sports, so as to deepen engagement with the younger cohorts, further enhancing our brand appeal to experience-driven travelers. Through effective and innovative user engagement, our 12 months annual paying users for the quarter maintains healthy growth momentum and climbed to a new high of more than 250 million by the end of June, representing a 10% year-over-year increase. Meanwhile, the cumulative number of passengers served on our platform reached 2 billion, suggesting a stable user push frequency of eight times per year. Furthermore, our MPUs for the second quarter also displayed solid growth of 9%, and it rose to 46.4 million. On top of that, our 12-month rolling up will further increase to 33 RMB in the quarter, 73 RMB in the quarter, representing a 40% year-over-year growth. We are now fully dedicated to transforming our business through the adoption of boundless technologies such as generative AI. Back in March, we launched our AI-powered itinerary planner, DeepTrip, which combines the supply chain capabilities on platforms with the reasoning capabilities of DeepSeq. Over the past quarter, we had advanced its application in some business scenarios to improve our operational efficiency. For tailor-made tours, we integrated DeepTrip into the workflow to streamline the consulting phase, which enabled users to access comprehensive destination information more easily, thus reducing consulting time and enhancing user experience. Meanwhile, we leverage DeepTrip to deliver marketing activities to users inquiring about travel itineraries that facilitate their decision-making process. Furthermore, we continue to iterate its functions based on deeper user insights. By allowing users to upload self-developed travel itineraries, DeepTrip provides instant access to relevant travel resources, significantly reducing search time and supporting quick reservations. In customer service, Generative AI now handling more than 60% of our online consultations related to accommodation reservation and more than 70% of internet phone consulting workload, with first enhanced accuracy and efficiency. Besides, we've also deployed several AI agents to assist our customer service staff, reducing the handling time by 10%. Looking ahead, we will continue to explore AI applications in our business process and accelerate the transformation of our operations. All these highlight of our commitment to leveraging technology to drive growth, improve user experience, and optimize operational efficiency. I will stop here and give the call to our CFO, Julian. He will share with you the detailed financials in the second quarter. Julian, please.

Thank you, Joyce. Good evening, everyone. Over the past quarter, consumer demand continued to diversify with a wide array of travel scenarios emerging to energize the Chinese travel market. Against this backdrop, we closely monitored industry dynamics, accurately captured user needs, and continuously enhanced our products and services to improve user experience and strengthen user engagement. This operational excellence translated into solid momentum for our core OTA business, which once again outpaced the industry. In the second quarter of 2025, we delivered outstanding results for both top line and bottom line. We reported a net revenue of RMB 4.7 billion, marking a 10.0% year-over-year increase from the same period of 2024. During this quarter, our adjusted net profit rose to RMB 775 million, reflecting a 18.0% year-over-year growth, with adjusted net margin expanding to 16.6% compared to 15.5% in the same period of last year. This uplift was principally fueled by efficient marketing initiatives and optimize the operations of our quality business. Despite extreme weather conditions in some regions that significantly impacted China's travel industry in June, our core OTA business maintained steady growth, achieving a 13.7% year-over-year increase to RMB 4.0 billion during the second quarter of 2025. Our accommodation reservation business achieved RMB 1.4 billion for the second quarter of 2025, representing a 15.2% increase from the same period in 2024. We actively tapped into emerging accommodation reservation scenarios to capture market opportunities, driving sustained year-over-year growth in hotel room nights sold during the second quarter. Amid vigorous outbound travel demand, we enhanced the marketing investment efficiency of our international accommodation business, achieving an effective balance between business expansion and profitability improvements. During the second quarter, our users demonstrated preferences for high-quality hotel products, which drove a year-over-year growth in our ADR as well, continuously outperforming the industry trend. Concurrently, the blended tick rate maintained its upward trajectory through more precise and disciplined marketing strategies. These combined factors collectively contributed to the outstanding growth of our accommodation revenue. Our transportation ticket revenue for the second quarter reached RMB 1.9 billion, marking a 7.9% year-over-year increase compared with the same period of last year. During the past quarter, we continue to refine our VAS offerings to improve monetization and remain committed to enhancing the efficiency of our user subsidy strategies. Additionally, our international air ticketing business maintains strong growth momentum, now accounting for more than 6% of our total transportation ticketing revenue. With a year-over-year increase of almost 2 percentage points, demonstrating the effectiveness of our global expansion strategy. Other business segments continue to expand, with revenue reaching RMB 755 million in the second quarter, marking a growth of 27.5% year-over-year. The performance was principally attributable to the exceptional development demonstrated by our hotel management and Black Whale membership visits. Our tourism business achieved a revenue of RMB 662 million, representing a 8.0% decrease from the same period in 2024. This decline was primarily attributable to our strategic reduction of pre-purchase business to mitigate operational risks. Furthermore, persistent safety concerns in Southeast Asia Asia regions continue to exert downward pressure on travel demand. In terms of the profitability, our gross profit increased by 10.6% year-over-year to RMB 3.0 billion, with gross margin rising slightly to 65.0% for the second quarter of 2025. Our operating profits for the core OTA business achieved RMB 1.1 billion with 26.7% margin in the second quarter of 2025, increasing from 24.3% year over year. This improvement demonstrates the market effectiveness of our initiatives to enhance the ROI of sales and marketing investments and the operational efficiency. The operating profit for the tourism business achieved RMB 4.4 million with 0.7% margin. Our adjusted EBITDA increased by 29.7% and reached RMB 1.2 billion with a 25.4% margin compared to a 21.5% margin in the same period last year. Adjusted net profit grew by 18.0% to RMB 775 million with a 16.6% margin compared to a 15.5% margin in the second quarter of last year. Service development and administrative expenses in the second quarter of 2025 increased by 2.1% from the same period of 2024. Excluding share-based compensation charges, Service development and administrative expenses in total accounted for 15.4% of revenue in the second quarter, compared with 15.9% of revenue in the same period of last year. Selling and marketing expenses in the second quarter of 2025 increased by 2.4% for the same period of 2024. Excluding share-based compensation charges, selling and marketing expenses accounted for 32.8% of revenue in the second quarter, compared with 35.1% of revenue in the same period of last year. As of June 30, 2025, the balance of cash, cash equivalents, restricted cash, and short-term investment was RMB $13.5 billion. The Chinese travel market saw robust growth in the first half of 2025, with innovative and diversified consumption scenarios infusing sustained fatality into the market. As we enter July, travel demands continue to heat up, and the market is poised to usher in the peak summer travel season. Notably, tourist preferences are shifting beyond traditional leisure-focused itineraries toward deeper experiential engagement and cultural immersion. Such changes catalyze emerging travel scenarios, unlocking new growth drivers for our business expansion. Looking ahead to the second half of the year, we are well positioned to deliver steady year-over-year growth in both top line and bottom line. Driven by our acute operational capabilities, and discipline strategic execution. We remain highly committed to growing our core OT visits by expanding its market share and enhancing its brand awareness. While solidifying our domestic market position, we will further expand outbound visits to seize global opportunities. In parallel with business expansion, we will rigorously monitor the ROI of our sales marketing investments. striking an optimal balance between revenue growth and profit margin expansion to fortify the foundation for long-term sustainable development. Furthermore, we will uphold our strategic focus across the industry chain, advancing our hotel management business to capture new opportunities, new growth opportunities. Finally, we remain dedicated to elevating our ESG performance striving to deliver greater value to society and all stakeholders. With that, operator, we're ready to take questions now. Thank you.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit to no more than two questions at a time. If you have further questions, please request to rejoin the queue again. Once again, that's star 114 questions. We will now take our first question from the line of Wei Xiong from UBS. Please ask your question, Wei.

Sure, thank you. Good evening, management. Thank you for taking my questions. I have two questions. First is regarding our accommodation business. Could management provide more color regarding the volume growth, ADR, and take rate and how these metrics are trending? And also considering the domestic hotel market still faces the oversupply issue and our ADR and take rate seems to be quite resilient, could management elaborate what are the drivers behind and how should we think about the industry outlook next year? And second, we can see the company keeps exploring new business opportunities beyond the core OTA business I wonder how do we balance the strategic resource allocation between core OTA and pursuing a diverse business portfolio? And in terms of future M&A plans, which areas are we paying close attention to and what are the key criteria to evaluate such opportunities? Thank you.

Thanks for the question, Shunwei. I will address the first question, and I think George will put more colors on the second one. As you mentioned, we have achieved a very successful execution for the accommodation in the first half year and achieved outstanding results as well. For the hotel industry, I think, as you know, of the industry information, the domestic ADR has largely stabilized year over year in the past quarter, the quarter two. Our domestic ADR already turned positive in the second quarter as well and expected to continue to grow in the coming quarters. This kind of improvement is driven by two factors. One is, of course, the recovery of ADR across the industry since quarter two. And the second one is more important, the shift in user behavior in our platform. As users increasingly prefer higher quality products, which has resulted in a shift from a two-star below hotels to three-star or above hotel bookings. For example, in quarter two, the proportion of our three-star hotel bookings on our platform increased by four percentage points year over year. Given the trend, we expect that the growth in ADR will be a positive factor contributing to accommodation segment revenue growth for the second quarter and also for the second half of this year. Meanwhile, we have adopted a more disciplined and targeted approach for user subsidies. We have already done this for at least one year. This approach has helped us to maintain our net tick rate at a decent level, ensuring a balanced focus on both expansion of top line and profitability. So our outstanding performance in accommodation business in the first half of 2025 demonstrated that the pricing pressures of industry had rather limited impact on our revenue, as ADR on our platform remained relatively resilient thanks to our extensive exposure in the mass market and also our ability to swiftly seize the market opportunities. And the second question, I think, Joyce, please.

Sure. Thank you, Sean, for the questions. You just said that as a company still in a growth phase, the capital allocation remains focused on both organic and inorganic expansion to strengthen our competitive position and long-term value creation. So I believe that investing in business expansion, product innovation, and platform development will deliver sustainable shareholder value over time. I would like to emphasize that our OTA business remains the foundation and strategic focus of our operations. while we continue to deepen our OT capabilities in the domestic market and expanding our outbound business. For domestically, we'll continue to invest in new technologies, introduce innovative product and services, expanding to new markets and enhancing the operational efficiencies. And we're also expanding into business that's complementary to our cooperation, such as outbound travel and hotel management. To achieve this, we must pursue organic growth opportunities, including strategic investments in other companies or machine solutions. In terms of our MA strategy, we will remain selective and focus on evaluating strategic investment and acquisition opportunities that enhance our core OTA traffic, user base, and overseas supply chains with valuable and synergy effects. And the offline tourist attractions are not our primary focus. They are small in scale and are made solely for the purpose of value transpiration. So in terms of the criteria, I would say that the first investments will be highly selective and based on our strategic logic, financial discipline, and the long-term shareholder value creation. Thank you.

Thank you. Thank you. Our next question comes from Brian Gong from Citi. Please ask your question, Brian.

Sex management particular questions. Very quick, two questions. First one is, I think you might notice that during the summer break, young girls on domestic airline ticket volume, which seems a little bit slow. And what reasons could result in this? low growth in management's view. And do you think the travel demand is missing? How should we think about the fourth quarter overall travel demand? And the second question is, can management share more details on our performance on outbound travel during the summer break and also the overall outbound travel demand? Thank you.

Okay, thank you. The question, Brian, Yeah, as you mentioned, the Chinese travel market continues to demonstrate its resilience in the past few months. For hotel industry, actually, the decline, as we mentioned, the decline in ADR has been narrowed down over the past few months, signifying a more stable demand and supply industry environment for accommodation. But for domestic air travel industry, air ticket price whereas the industry volume growth normalized from mid to high single-debit growth in April and May to drop to low single-debit in June. Especially in the summer vacation, after experiencing two exceptional strong summer holiday seasons in 2023 and 2024, driven by time of demand release after, I think, COVID-19 pandemic, the industry has already returned to normalize the growth trajectory in the summer for air tickets. Recently, the transportation industry has shown low single-digit growth at the same situation in June. However, we expect that our OTA business and both accommodation and transportation will once again outpace the overall market in several multiples growth. Because of the successful execution of our strategic priorities, which includes improvement in user value, or ARPU, expansion into outbound travel, as well as robust growth of our hotel management business. So our business continues to offer from the industry throughout the summer holiday period, like what I mentioned, with particularly strong growth in the accommodation segment, I think, While the hotel ADR has shown a continuous increase since quarter two, it has consistently outpaced the industry average ADR trend in quarter three for our platform, like what I mentioned in the past questions. This success can be attributed to our ability to adapt to shifting user demand as users increasingly prioritize higher quality accommodations when they travel. And we have effectively captured this trend. Our transportation ticketing visits also continue to outpace the industry growth with improving monetization during the summer holiday. Besides, our targeted and effective marketing initiatives allowed us to engage outdoor shoppers as well with improved efficiency. enable us to capture market opportunity and strengthen our competitive position in the outbound business segment. I think George will give you more color on the outbound, and I would like to address the domestic one first. We remain positive about the future China's travel industry as we look ahead to the second half of 2025. Traveler preferences are evolving, prioritizing unique and meaningful travel experience, overspending money on traditional physical goods products. At the same time, people are now seeking more unique experiences beyond just visiting popular destinations. They are keen on traveling for specialized activities like concerts, music festivals, and sporting events in the summer. This shift clearly positions travel as more than just a trip. It is becoming an integral part of modern lifestyle choices. Besides, the Chinese government continues to recognize tourism as a key driver for economic growth. actively rolling out policies that support its long-term sustainable development. Altogether, these changes underscore the tremendous opportunities available in China's travel market. Looking forward to the next few quarters or the second half of this year, we plan to firmly adhere to our strategy of capturing new business opportunities while focusing on steady growth with healthy profitability. One of our priorities will be still increasing the ARPU by improving cross-selling efforts, encouraging more frequent purchases, and providing more comprehensive value-added products and services to address long-tail needs. At the same time, we will adopt a more disciplined approach with our sales marketing spending, making sure it delivers optimal returns for every dollar. For outbound travel performance, I think Joyce may give you more information.

In terms of our outbound business, in the past few quarters, we have achieved significant growth in both international air ticketing and accommodation volumes, driven by the competitive pricing strategies and targeted marketing initiatives. Notably, as I mentioned, in the second quarter, our international air ticketing volume reached a record high, achieving nearly 30% year-over-year growth. Now, with a deeper understanding of our bond travelers' behavior, we have shifted our focus towards executing more precise and efficient promotional strategies. Building on this progress, we have implemented the Margin Improvement Program for our bond business, focusing on marketing and promotional effects with a stronger emphasis on ROI. As such, We expect the airborne business to break even and turn profitable this year. Currently, the revenue for our airborne air ticketing business has already accounted for over 6% of our total transportation ticketing revenue. We're also starting to explore the opportunity of cross-selling for our airborne air tickets to accommodations that drive both revenue and profit growth. And at the same time, we will continue to enhance our airborne travel offerings through strategic partnerships with the leading global OTAs, wholesalers, airlines, and buyers over CTSPs. Additionally, we will also plan to increase our investment in research and development to strengthen the service capabilities and ensure a seamless working experience for our album travelers. Anticipate the rapid growth in the album segment with its contribution to total revenue projected to continue to improve within this timeframe. We are confident that this segment will become a major growth driver for the company, offering higher margins than our domestic business in the long run. Thank you.

Thank you.

Thank you. Our next question comes from Jiwei Liu from Citix. Please ask your question, Jiwei. Thank you.

Hi, management. This is Jiwei from Bitfix. I have two questions. Firstly, how do you view J&J and Baobao's investments in the OTA market? Will these investments change the competitive landscape of the industry? Secondly, as we see, the company's profit margin has been steadily rising. How do you expect to get a short-term and long-term margins of OTA? Thanks.

Thank you, Julie. For the competitive landscape, as we have mentioned several times before, as the leading OTA, we have an extensive network of industrial resources and well-established ties with our TSP, which takes significant time for newcomers to replicate. Managing hotel supply efficiently requires comprehensive systems and seamless communication with hotels, particularly amidst price fluctuations and limited room availability. With over 20 years of experience in the industry, I established a hotel supply chain and a strong relationship with TSP to allow us to maintain the advantageous position against new entrants. The purchase of travel products and services tend to be low-frequency and involves longer, more complicated decision-making process. Therefore, converting users into paying customers can be particularly challenging, as it demands a deeper understanding of user preference and behaviors. That's why it's unclear whether the e-commerce platforms can effectively convert their users to buyers of OTA products. So, as the OTA was focused on delivering unparalleled service and exceptional user experience, The prioritized investments in our products and services continuously innovating value-added solutions tailored to involving market demand and user preference. Additionally, our dedicated customer service team is devoted to swiftly addressing user needs. We believe these are the areas where new entrants are difficult to replicate. With strongly believe that the Chinese travel market presents a notably bright future, so it's possible that some companies may want to enter this market. Still, we want to emphasize that OT market is highly complex and requires substantial time and resources to build the competitive advantages. As such, we expect the competition landscape to remain relatively stable in the near term. We are currently maintaining our original strategy of improving our sales and marketing efficiency, and our profit expectations for this year amount changed. Nevertheless, we'll also clearly monitor the market situation and make any necessary adjustments accordingly if needed. Then I think Julian will address the second question.

In terms of the margin, actually the margin of our OTA business is expected to show steady year-over-year improvement, both for short-term and long-term. That's very confident. There are mainly three drivers. One is the reduction in our sales and marketing expense ratio, along with the ARPU improvement, tends to enhance the ROI and more targeted marketing investments. And the second reason is the ratios for COCS and GMA standards are expected to decline as a result of increased operational efficiency and the benefits of scaling. And the third reason, the margin improvement from our new initiatives, such as outbound visits and hotel management visits, because we have already initiated the profit improvement institutions since the first half of this year. So these initiatives are expected to further drive overall market expansion for our OTA operations in the future. Thank you.

Thank you. We will now take our next question from Yang Liu from Morgan Stanley. Please ask your question, Yang.

Thanks for the opportunity. Management, please share the latest development plan of your hotel management business. What is the revenue contribution for the past quarter? What is your ultimate goal for this business? And as an investor, when should we expect this business to contribute profit to the company? Thank you.

Thank you, Leon, for the questions. By the end of June, as I mentioned, we have already upgraded to 2,700 hotels with more than 1,500 stores in the pipeline, already making us one of the top 10 hotel management groups in China. We have a brand portfolio of like 12 major hotel brands, ranging from economy hotels to middle to high-end hotels. And in 2025, in the end of this year, we'll continue to grow the hotel management business and target to over 3,000 hotels in operation. And I think we have addressed our competitive strengths before, so I would move to the revenue contribution. The revenue from the hotel chain management have increased by over 60% and have already accounted for over 25% of our other revenue in the second quarter. The revenue of the hotel chain business mainly consists of franchise, brand usage fee, management fee, renovation, consulting fee, et cetera. And also, these hotels and our management will use our PMI system, which will contribute to our revenue and strengthen our market position in the PMI industry. We are running the business mainly by franchise models, pursuing synergy and mutual benefit with hotels. At this early stage, our focus remains on enhancing quality, strengthen brand recognition, and expand our network. With increasing scale and improvement in operation efficiency, we believe the revenue of our hotel management business will continue to achieve strong growth in the following three years. And again, we would like to address the ultimate goal of our positioning of the hotel management business. So as a comprehensive travel platform, we are committed to enhancing our influence across industry chains to support our sustainable growth. Hotels represent a critical component of the travel industry in China, and we are confident that deepening our presence in this sector will further strengthen our positioning in the Chinese travel industry. We already see immersed opportunity in the hotel management industry, which we believe has helped potential to become a major growth driver for the company, playing a key role in our long-term development. Thank you.

Thank you.

Thank you. In the interest of time, we will take our last question from the line of Thomas Chong of Jefferies. Please go ahead, Thomas.

Hi, good evening. Thanks, management, for taking my question. My first question is about our standalone app. Can management comment on our target for this year in terms of the user base as well as the revenue contribution? And my second question is about AI. Can management comment about how the evolution of AI agents will pose opportunities and challenges on this front and whether AI agents is more like a cooperation or competition with us in the future. Thank you.

Okay, thanks for the question, Thomas. I would like to give you more information about our apps development and then for the AI, I think George may give you a detailed explanation. Over the past year, we have actively diversified our traffic sources, placing a strategic emphasis on expanding our standalone app. Due to the distinct user behaviors between the WeChat platform and app-based platforms, there is a minimal overlap between the two user bases. This ensures that our efforts to grow the app channel focus on attracting incremental users rather than simply shifting existing ones from a vision to an app. In the past quarter, we have strengthened partnerships with major handset vendors to pre-install our app to select new devices, and we have also ramped up efforts to acquire users through app store promotions and social sharing campaigns. further broadening our reach. In addition, we have also bolstered our brand promotion and marketing strategies to improve user engagement and loyalty. By launching creative campaigns and offering tailored services, we have successfully captured the interest of younger generations. These initiatives have led to a steady rise in activation rate and also a promising conversion of new users. As a result, our APD achieved a major milestone right before the May Day holiday, with VAU exceeding 4 million, marking a significant achievement in our growth journey. To support the growth of our standalone app, we have reallocated our sales marketing budget to acquire app users while maintaining relatively stable overall sales marketing expenses in the same level. While the user acquisition cost for app is higher than that for WeChat and the payback period is longer, we believe the higher up and stronger user loyalty for app users will yield substantial long-term returns. Our data shows that the app users expect higher purchase frequency and spending, with their spending being approximately 2.5 times that of the WeChat users. So the contribution of our app to revenue has been growing steadily. In quarter two, our app accounted for over 8% of our whole OTA revenue. We remain committed to this strategy and are confident that the revenue share from our standalone app will continue to rise in the future. In terms of the AI, I think, Joyce, please.

Sure. Thank you for the question. In terms of AI application in the China country, I believe we are the pioneer in terms of using new technologies. Take DeepTrip as a vivid example. It is a specialized virtual application within the travel domain, rather than a standalone product that users can actively use. So given the travel planning is related to low-frequency activity, we focused on integrating DeepTrip into the border-based environments, positioning it as an integration component of the seamless travel ecosystem. And we continued to refine the DeepTrip's features based on the deep user insights. By allowing users to upload their own travel itineraries, as I mentioned, it now offers instant access to relevant travel resources, and significantly reducing the search time and enabling quick reservations. As a deep-chip benefit from our extensive resources, including a comprehensive portfolio of online travel products, while the general-purpose large models can generate travel guides, and they often lack the ability to match recommendations with actual real-time travel resources and availability. So our department provides a more practical and actionable solution by directly integrating travel products into the planning and booking process. So our strong connections and a close relationship with the supply chain enables us to secure the competitive pricing and high-quality products to satisfy the diversified travel needs. And besides, we believe our advanced and extensive travel insights play a crucial role in delivering accurate and personalized recommendations to users. The DeepTrip's guides are grounded in real-world data and resources for our platform. This ensures the travel guides and recommendations have higher reliability and practical value, offering users accurate insights that can be implemented. And apart from the application in terms of the user level, I have mentioned the application of the AI has already improved our operational efficiency internally. Thank you.

Thank you. We have now reached the end of the question and answer session. I'll now turn the conference back to Ms. Kylie Yeung for closing comments.

Thank you. We're closing the call now. If you wish to check out our presentation and other financial information, please visit the IELTS section of our company website. Thank you and see you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect your lines.