H World Group Ltd (HTHT) 2024 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to H World Q1 2024 Earnings Conference Call. (Operator Instructions)

美好的一天，感謝您的支持。歡迎參加 H World 2024 年第一季財報電話會議。 （操作員說明）

I would now like to hand the conference over to your first speaker today, Jason Chen, Senior Investor Director. Please go ahead.

現在我想將會議交給今天的第一位發言人，高級投資者總監 Jason Chen。請繼續。

Thank you, Maggie. Good morning and good evening, everyone. Thanks for joining us today. Welcome to H World Group 2024 First Quarter Earnings Conference Call. Joining us today is our Chairman, Mr. Ji Qi; our CEO, Mr. Jin Hui; and our CFO, Mr. Zou Jun. Following their prepared remarks, management will be available to answer your questions.

謝謝你，瑪吉。大家早安，晚上好。感謝您今天加入我們。歡迎參加H World集團2024年第一季財報電話會議。今天加入我們的是我們的主席季奇先生；我們的執行長金輝先生；以及我們的財務長鄒軍先生。

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. H World Group does not undertake any obligations to update any forward-looking statements, except as required under applicable laws.

在我們繼續之前，請注意，今天的討論將包括根據 1995 年美國私人證券訴訟改革法案的安全港條款做出的前瞻性陳述。因此，我們的結果可能與今天表達的觀點有重大差異。我們向美國證券交易委員會提交的公開文件中概述了許多潛在的風險和不確定性。 H World Group 不承擔任何更新任何前瞻性聲明的義務，除非適用法律要求。

On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliations of those measures to comparable GAAP information can be found in our earnings release that was distributed last Friday. 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.hworld.com.

在今天的電話會議上，我們還將在討論我們的業績時提及調整後的財務措施。這些指標與可比較公認會計準則資訊的調節可以在我們上週五發布的收益報告中找到。謹此提醒，本次電話會議正在錄音中。本次電話會議的網路廣播以及補充投影片簡報可在 ir.hworld.com 上觀看。

With that, now I will hand over the call to our CEO, Mr. Jin Hui, to discuss our business performance in the first quarter of 2024.

現在我將把電話交給我們的執行長金輝先生，討論我們 2024 年第一季的業務表現。

Mr. Jin, please.

金先生，請。

[Interpreted] We had a relatively good start for 2024. Let's firstly review our Legacy-Huazhu's operational performance during the quarter. Please turn to Page 3. In the first quarter of 2024, Legacy-Huazhu's blended RevPAR reached RMB 216, representing a growth of 3.1% on a year-over-year basis. ADR grew by 1% to RMB 280 and occupancy rate grew by 1.6 percentage points to 77.2%. The business performance was quite stable during the quarter and was within our expectation at the beginning of the year.

【解讀】2024年我們有一個比較好的開局，我們先回顧一下我們的力獅華住本季的營運表現。請翻第3頁。 ADR成長1%至人民幣280元，入住率成長1.6個百分點至77.2%。本季業務表現相當穩定，符合我們年初的預期。

In terms of hotel network expansion, we are happy to see that some important strategic adjustments and changes we made in the past few years, such as organizational upgrades, establishment of regional headquarters and a sustainable quality expansion strategy are rapidly achieving positive outcomes.

在飯店網路擴張方面，我們很高興地看到，過去幾年我們所做的一些重要的策略調整和變革，如組織升級、設立地區總部、可持續的優質擴張策略等正在迅速取得積極成果。

Please turn to Page 4. On hotel opening front, Legacy-Huazhu opened 569 hotels in the first quarter. The number of hotel closures was 148 in the first quarter, a 61 hotels decline from the same period of last year. If excluding low-quality economic soft brand and Hanting 1.0, we closed only 72 hotels, 15 hotels less than the same period of last year. Our future hotel closures should gradually reach a more normalized level after rapid cleanup and upgrade process over the last few years and our sustainable quality growth strategy.

請翻至第4頁。第一季關閉飯店數量為148家，較去年同期減少61家。如果剔除低品質的經濟軟品牌和漢庭1.0，我們只關閉了72家飯店，比去年同期減少了15家飯店。經過過去幾年的快速清理和升級過程以及我們可持續的高品質成長策略，我們未來的飯店關閉應該逐漸達到更正常的水平。

More importantly, our pipeline further grew to a record high of 3,138 at the quarter-end, despite our 569 new openings during the quarter. It further demonstrated our strong brand power and increasing attractiveness to franchisees.

更重要的是，儘管我們在本季度新增了 569 家新店，但季度末我們的新店開業數量進一步增長至 3,138 家，創下歷史新高。它進一步展示了我們強大的品牌力量和對加盟商日益增長的吸引力。

Our limited-service segment, which serves the mass market remains our key strategic focuses. Our economic and middle-scale products [continuously] to be the key driver for our rapid network expansion. Breaking down our hotels in operation, hotels in pipeline and hotel openings in the first quarter of 2024, the proportion of economic and middle-scale hotels were 92%, 84% and 92% respectively.

我們服務大眾市場的有限服務部門仍然是我們的主要策略重點。我們的經濟型和中型產品[持續]成為我們網路快速擴張的關鍵驅動力。以2024年第一季已營運飯店、籌建飯店和開幕飯店的情況來看，經濟型飯店和中型飯店的比例分別為92%、84%和92%。

It is critical to constantly upgrade products in a timely manner in order to further meet and satisfy customers' needs as we are seeing our customers' consumption behavior, preference, and tastes are changing rapidly and frequently nowadays. It is also one of the most important building blocks to enhance the competitiveness of our brand and gain tractions from franchisees. In the past years, we constantly introduced new upgraded versions of our major brands using our Iron-Triangle brand in the limited-service segment as examples.

如今，客戶的消費行為、偏好和品味正在快速且頻繁地變化，因此不斷及時升級產品以進一步滿足和滿足客戶的需求至關重要。它也是增強我們品牌競爭力並吸引加盟商的最重要的組成部分之一。過去幾年，我們不斷推出主要品牌的新升級版本，以有限服務領域的鐵三角品牌為例。

Please turn to Page 6. The proportion of Hanting 3.5 and above steadily increased from 11.8% as of 2020 to 29.8% as of 2023 and further to 33.2% as of the first quarter of 2024. Please turn to Page 7. For our JI Hotels in operation, the proportion of JI Hotel 4.0 and above products increased from 30% as of 2020 to 65.7% as of 2023, and further rose to 69% in the first quarter of 2024.

請翻至第6頁。關於全季飯店在營運中，全季飯店4.0以上產品佔比從2020年的30%上升至2023年的65.7%，並於2024年第一季進一步上升至69%。

Please turn to Page 8. As of the first quarter of 2024, the latest LOHAS versions of Orange brand accounted for 75.7% in its pipeline, increased from 58.4% as of 2023. In conclusion, our Iron-Triangle brands, including Hanting, JI Hotel, and Orange, has been further strengthening their brand and product power through consistent product upgrades.

請翻至第8頁。 、吉Hotel、Orange透過持續的產品升級，進一步強化品牌力與產品力。

As we continued penetrating into lower-tier cities and new markets, some new demand and a new group of customers emerged. Therefore, in addition to our Iron-Triangle brand, as we mentioned above, we are also constantly developing new products to better meet the needs of different customer groups and market conditions. In the first quarter of 2024, based on our very matured and successful experiences of Hanting, we launched a new version of NiHao Hotel. The new NiHao is positioned as the complementary brand for Hanting in the economic segment, especially in the lower-tier cities. And it is also positioned to cater to the accommodation needs of the younger generations.

隨著我們不斷滲透到低線城市和新市場，一些新的需求和新的客戶群出現了。因此，除了我們上面提到的鐵三角品牌之外，我們也在不斷開發新產品，以更好地滿足不同客戶群和市場狀況的需求。 2024年第一季度，基於漢庭非常成熟和成功的經驗，我們推出了新版的你好酒店。新的你好定位為漢庭在經濟區隔市場，尤其是低線城市的補充品牌。而且它的定位也是為了迎合年輕一代的住宿需求。

Please turn to Page 9. The brand new NiHao 2.0 integrates traditional Chinese color and [texture symbols] with contemporary aesthetic, showcasing the Chinese ethnic confidence and providing consumers with additional choice for different aesthetics. At the same time, through reinvention of new service scenarios, NiHao Hotel has integrated many value-added services such as health preservation concept, popular modern Chinese tea and snacks into the self-service [modulars] at the hotel lobby. This is in line with the current consumption philosophy of young customers who seek good value for money products but with good experiences. The new NiHao will strongly align with our flagship brand Hanting to further solidify our leading position in the economic hotel market.

請翻至第9頁。同時，你好飯店透過重塑新的服務場景，將養生概念、流行的現代中國茶飲、小吃等諸多加值服務融入飯店大廳的自助服務中。這符合當下年輕消費者追求高性價比、高體驗的消費理念。新的「你好」將與我們的旗艦品牌漢庭強強聯手，進一步鞏固我們在經濟型酒店市場的領先地位。

In terms of our geographic expansion, we keep penetrating to lower-tier cities in China. Please turn to Page 10. As of the first quarter of 2024, 40% of our hotels in operation were located in Tier 3 and below cities, representing a 1 percentage point increase year-over-year. At the same time, 54% of the hotel in pipeline were located in Tier 3 and below cities. The proportion of Tier 3 and below cities in pipeline was a bit lower compared to the same period of last year, while the proportion of the Tier 1 cities was a bit higher year-over-year. It was mainly due to a much faster new signings in upper-mid segment, as well as in the southern regions.

在地理擴張方面，我們不斷滲透到中國的低線城市。請翻至第10頁。同時，54%的在建飯店位於三線及以下城市。三線及以下城市在建工程比例較去年同期下降，一線城市比例較去年同期上升。這主要是由於中上段以及南部地區的新簽約速度要快得多。

In fact, the pipeline in Tier 3 and below cities was still growing in [absolutely] number term. As of the first quarter of 2024, the number of city coverage was 1,290 with 158 new cities added compared to the same period of last year.

事實上，從數量上看，三線及以下城市的管道仍在增長。截至2024年第一季度，覆蓋城市數量為1,290個，較去年同期新增158個城市。

Please turn to Page 11. Our upper midscale segment development is continuously progressing. As of the first quarter of 2024, there were 686 upper-mid hotels in operation, representing a 28% year-over-year increase and a 6% quarter-over-quarter increase. And there were 430 upper-mid hotels in pipeline, representing an 81% year-over-year increase and an 11% quarter-over-quarter increase. The fast-growing pipeline further demonstrated that our upper-mid brands, especially our key brands, including Intercity and Crystal Orange, were increasingly gaining recognitions and popularity among customers and franchisees.

請翻至第 11 頁。截至2024年第一季度，營運中的中高端飯店有686家，較去年同期成長28%，較上季成長6%。正在籌建的中高端飯店有430家，較去年成長81%，較上季成長11%。快速成長的產品線進一步表明，我們的中高端品牌，特別是我們的主要品牌，包括Intercity和Crystal Orange，越來越受到客戶和加盟商的認可和歡迎。

Since last year, the business traveling has been recovering relatively slower due to weaker-than-expected macroeconomic. Nonetheless, our direct B2B business was growing quickly, which partially offset some recovery gaps from individual business travelers.

去年以來，由於宏觀經濟弱於預期，商務旅行復甦相對緩慢。儘管如此，我們的直接 B2B 業務成長迅速，部分抵消了個人商務旅客的一些復甦缺口。

Please turn to Page 12. In the first quarter of 2024, the number of room nights booked directly -- via our B2B platform was more than $5 million, representing a 34% year-over-year increase. The number of active corporate clients surpassed 2,700, representing a 57% year-over-year increase. We believe that by continued strengthening our direct B2B sales capability, we could better cope with the potential volatility of business traveling and achieve a more sustainable business development in the long run.

請翻至第 12 頁。活躍企業客戶數量超過2,700家，較去年成長57%。我們相信，透過持續加強我們的B2B直銷能力，我們能夠更好地應對商務旅行的潛在波動，並從長遠來看實現更永續的業務發展。

Moving to our overseas business. Please turn to Page 13. DH blended RevPAR grew 4.5% year-over-year to EUR 58 in the first quarter of 2024, which was driven by 0.2% increase in ADR to EUR 104 and a 2.3 percentage points increase in occupancy rate to 55.8%. Last quarter, we mentioned that one of our DH's strategic focus in 2024 is to seek growth opportunities internationally. We are pleased to see that DH has made some initial progresses.

轉向我們的海外業務。請參閱第 13 頁。上個季度，我們提到我們 DH 2024 年的策略重點之一是尋求國際成長機會。我們很高興地看到衛生署已取得一些初步進展。

Please turn to Page 14. As of the first quarter of 2024, 53% of hotels in operation were located in Germany. However, only 38% of pipeline hotels were located in Germany and the remaining hotels were located in other European countries, APAC regions, and Africa, which accounted for 41%, 15% and 6% respectively.

請翻至第 14 頁。然而，僅有38%的籌建飯店位於德國，其餘飯店位於其他歐洲國家、亞太地區和非洲，分別佔41%、15%和6%。

All above conclude our first quarter 2024 business updates. Now, I will hand over the call to our CFO, Mr. Zou Jun to discuss our operational and financial performance during the quarter.

以上就是我們 2024 年第一季業務更新的總結。現在，我將把電話轉交給我們的財務長鄒軍先生，討論我們本季的營運和財務表現。

Thank you, Jin Hui. Good morning and good evening to everyone. Let's go through our operational and financial review for the first quarter of 2024. Please turn to Page 16. In the first quarter, we continued to expand our hotel network. Our overall number of rooms increased 17% year-over-year to over 955,000 rooms as of first quarter, compared to over 820,000 rooms as of first quarter last year. Our hotel turnover for the first quarter of 2024 was RMB 19.7 billion, representing a 21% increase compared to first quarter last year. Excluding DH, Legacy-Huazhu's hotel turnover grew 22% year-over-year to RMB 18.1 billion.

謝謝你，金輝。大家早安，晚上好。讓我們來回顧一下2024年第一季的營運和財務回顧。截至第一季度，我們的客房總數超過 955,000 間，年增 17%，而去年第一季的客房總數超過 820,000 間。 2024年第一季我們的飯店營業額為人民幣197億元，較去年第一季成長21%。剔除DH，力獅華住的飯店營業額年增22%至人民幣181億元。

Now please turn to Page 17. In first quarter 2024, our total revenue for the group increased 18% year-over-year to RMB 5.3 billion, exceeding our previous guidance of 12% to 16% year-over-year growth. Legacy-Huazhu achieved 18% year-over-year revenue growth to RMB 4.2 billion, and DH grew 17% year-over-year to RMB 1 billion. The revenue growth of Legacy-Huazhu surpassed the high end of our guidance, mainly driven by higher-than-expected hotel openings. For DH, its revenue growth was attributable to market recovery and a favorable exchange rate.

現在請翻到第17頁。力獅華住實現營收年增18%至人民幣42億元，DH年增17%至人民幣10億元。力獅華住的收入成長超過了我們指導的上限，主要是因為飯店開業率高於預期。對DH來說，其營收成長得益於市場復甦和有利的匯率。

Please turn to Page 18. Hotel operating costs were RMB 3.6 billion in the first quarter of 2024. The year-over-year increase was primarily attributable to increase of staff costs from our continued network expansion and reduced rental relief in China. The increase of hotel operating costs was slower than our revenue growth, reflecting operating leverage of our business. Pre-opening expenses remained at a low level as we continue to focus on our asset-light expansion strategy and become more selective on opening leased and owned hotels.

請翻至第18頁。酒店營運成本的成長慢於我們的收入成長，反映了我們業務的營運槓桿。由於我們繼續專注於輕資產擴張策略，並更有選擇性地開設租賃和自有酒店，開業前費用保持在較低水平。

SG&A expenses were RMB 769 million in the first quarter of 2024 and accounted for 14.6% of total revenue. The year-over-year increase in both absolute number and percentage of revenue of SG&A expenses were primarily due to continued business growth as well as return to a normal level of selling and marketing expenses, headcount number, and compensation from the relatively low base of the same period of 2023, especially our -- for our Legacy-Huazhu business. As a result, our income from operations in the quarter achieved RMB 1.0 billion, representing a 51% year-over-year growth -- increase.

2024年第一季SG&A費用為人民幣7.69億元，佔總營收的14.6%。 SG&A 費用的絕對數量和占收入的百分比均同比增長，主要是由於業務持續增長以及銷售和營銷費用、員工人數和薪酬從相對較低的基數恢復到正常水平。 -Huazhu 業務。因此，本季我們的營運收入實現了 10 億元人民幣，年增 51%。

Now please turn to Page 19. In terms of our profitability and cash flow during the quarter, I'd like to firstly highlight that we have redefined our non-GAAP measure of adjusted EBITDA and adjusted net income in the quarter in order to better reflect the profitability from our core business operation. The new adjusted EBITDA and net income now excluded share-based compensation expenses, gain or loss from fair value exchange of equity securities, foreign exchange gain or loss, net and gain-loss on disposable of investments.

現在請翻到第19頁。地反映我們核心業務運作的獲利能力。新調整後的 EBITDA 和淨利潤現在不包括股權補償費用、股本證券公允價值交換損益、外匯損益、可處置投資的淨額和損益。

Similarly, we also have restated our adjusted EBITDA and adjusted net income for the first and fourth quarter of 2023 to provide a comparable basis. Under the new definition, in the first quarter of 2024, Legacy-Huazhu adjusted EBITDA achieved a 32% year-over-year increase to RMB 1.5 billion. Thanks to continued business growth in our asset-light strategy. Our DH business reported a loss of adjusted EBITDA of RMB 66 million, which narrowed down from a loss of RMB 98 million in the first quarter of last year. Adjusted EBITDA margin for the group and Legacy-Huazhu achieved 27% and 35% level, representing 4% and a 3.5% year-over-year improvement, respectively.

同樣，我們也重申了 2023 年第一季和第四季的調整後 EBITDA 和調整後淨利潤，以提供可比較基礎。新定義下，2024年第一季，力獅華住調整後EBITDA年增32%，達15億元。得益於我們輕資產策略的持續業務成長。我們的DH業務調整後EBITDA虧損為人民幣6,600萬元，較去年第一季的虧損人民幣9,800萬元有所收窄。集團及力獅華住的調整後EBITDA利潤率分別達到27%和35%的水平，較去年同期分別提高4%和3.5%。

Our group adjusted net income were RMB 771 million in the first quarter of 2024, representing a 101% year-over-year increase. Our first quarter operating cash flow decreased year-over-year, mainly due to increase in payable to franchisees in first quarter of last year post-reopening. And the quarter-over-quarter decrease was due to timing difference of compensation and franchisee fee payments.

2024年第一季，集團調整後淨利為人民幣7.71億元，較去年同期成長101%。我們第一季的營運現金流年減，主要是因為去年第一季重新開業後應付給加盟商的費用增加。環比下降是由於報酬和加盟商費用支付的時間差異所致。

Now please turn to Page 20 on liquidity position. As of first quarter 2024, the group had RMB 8.9 billion cash, cash equivalents or restricted cash and time deposits and was in a solid cash position with RMB 3.1 billion, including time deposits. Our cash balance and net cash decreased compared to the previous quarter, which was primarily driven by payments of dividends in the first quarter 2024. We also had RMB 2.4 billion unutilized bank facility as of first quarter 2024.

現在請翻到第20頁關於流動性狀況的內容。截至2024年第一季，集團擁有人民幣89億元現金、現金等價物或受限現金及定期存款，現金狀況穩健，包括定期存款31億元人民幣。我們的現金餘額和淨現金較上一季度有所下降，這主要是由於 2024 年第一季的股息支付所致。

Now let's turn to Page 21. During first quarter 2024, we paid roughly [RMB 300 million] cash dividend and repurchased roughly USD75 million worth of shares from the market. As we become more asset-light and cash-rich, we'll continue to reward our shareholders through dividend and buybacks.

現在我們翻到第21頁。隨著我們變得更輕資產和現金豐富，我們將繼續透過股利和回購來回報股東。

Finally, please turn to Page 22 on our guidance. For the second quarter of 2024, we expect our revenue to grow between 7% to 11% compared to second quarter of last year or 7% to 11% excluding DH.

最後，請參閱我們的指南第 22 頁。對於 2024 年第二季度，我們預計營收將比去年第二季度成長 7% 至 11%，如果不包括 DH，營收將成長 7% 至 11%。

With that, we're ready to take your questions. Operator, please open the line for Q&A.

這樣，我們就準備好回答您的問題了。接線員，請開通問答線。

(Operator Instructions) Our first question comes from Roland Leung of Bank of America.

（操作員指示）我們的第一個問題來自美國銀行的Roland Leung。

(foreign language) Let me translate my questions in English. I have 2 questions. My first question is about RevPAR. So what is management expectations for RevPAR growth for domestic China business in 2Q?

（外語）讓我把我的問題翻譯成英文。我有 2 個問題。我的第一個問題是關於 RevPAR。那麼管理階層對第二季中國國內業務的RevPAR成長預期是多少？

My second question is on DH. For DH, management targets to adjust the business to asset-light business and targets to sell the asset-heavy business gradually. So how is the progress of the disposal? Does management have a timeline for the disposal?

我的第二個問題是關於DH。對於DH，管理階層的目標是將業務調整為輕資產業務，並逐步出售重資產業務。那麼處置進度如何？管理層是否有處置時間表？

[Interpreted] Okay. Let me answer your first question. As you may know that last year, the second quarter actually was a bit high base, especially during the May holiday. As you may know that the May holiday last year was the first long holidays post the recovery or post to the reopening from the COVID. So there's a lot of revenge traveling pent-up demand in the second quarter.

[解釋]好的。讓我回答你的第一個問題。大家可能知道，去年第二季的基數其實有點高，尤其是在五一假期。如你所知，去年的五一假期是新冠疫情恢復或重新開放後的第一個長假。因此，第二季度存在著大量被壓抑的復仇旅行需求。

And also on the supply side, the supply recovery was a bit slower at that time in the second quarter of last year. Therefore, given the high basis of last year's second quarter, we are facing a little bit challenges for the RevPAR in the first -- in the second quarter of this year. Therefore, we are expecting the RevPAR for this quarter will be flattish to slightly negative as of now. However, given the traveling activities, especially the number of travelers during the holiday, we are still quite confident because the population -- number of travelers are still growing quite healthily during the holiday and in the second quarter as well, which give us more confidence that the leisure traveling demand is actually sustainable in a longer-term perspective and becoming inelastic demand for the Chinese consumers. And even though the RevPAR might have -- slightly negative in the second quarter, but through the hotel network expansions, we still could achieve 7% to 11% year-over-year revenue growth.

同樣在供應方面，去年第二季供應恢復速度稍慢。因此，考慮到去年第二季的高基數，我們今年第一季（即第二季）的 RevPAR 面臨一些挑戰。因此，我們預計本季的 RevPAR 將持平至小幅負值。不過，考慮到旅遊活動，特別是假期期間的旅客人數，我們仍然很有信心，因為假期期間和第二季度的人口、旅客人數仍然在健康增長，這給了我們更多信心從長遠來看，休閒旅遊需求實際上是可持續的，並且成為中國消費者的非彈性需求。儘管第二季的 RevPAR 可能略有負值，但透過飯店網路的擴張，我們仍然可以實現 7% 至 11% 的年收入成長。

The asset-light strategy for our DH business, which we mentioned in last quarter, is our long-term target because DH we want -- we want that DH becomes a more international brand and -- hotel brand and management company. But as you may know that transforming from asset-heavy to asset-light takes a bit longer time and a lot of complicated and complex negotiation with the potential counterparties, but the long-term strategy won't change. So, so far, the progress is still within our expectation. So in terms of the closure time, so as long as there is a milestone then we will just release to the market on time.

我們在上個季度提到的DH業務的輕資產策略是我們的長期目標，因為我們希望DH成為一個更國際化的品牌和飯店品牌和管理公司。但大家可能知道，從重資產到輕資產的轉變需要更長的時間，並與潛在交易對手進行大量複雜的談判，但長期策略不會改變。所以，到目前為止，進展還是在我們預期之內的。所以就關閉時間而言，只要有一個里程碑，我們就會準時向市場發布。

Our next question comes from [Dan Chee] of Morgan Stanley.

我們的下一個問題來自摩根士丹利的[Dan Chee]。

(foreign language) Now please allow me to do the translation. Thank you, management, for the opportunity and congratulations on first quarter's results. I have 2 questions. The first question is about lease and operated hotels. We saw the L&O hotels' operating performance outperformed the franchise business. L&O RevPAR growth rate year-on-year was faster than the group's RevPAR growth rate by 6 percentage points. The same is happening to same-store RevPAR growth, also outperformed franchise hotel and also the group overall performance. We're wondering what has management done to improve both occupancy and ADR, especially occupancy for lease and owned hotel and its sustainability? And is it replicable towards the franchise hotel management.

（外語）現在請允許我進行翻譯。感謝管理層提供的機會並祝賀第一季的業績。我有 2 個問題。第一個問題是關於租賃和經營的酒店。我們看到L&O酒店的經營業績優於特許經營業務。 L&O RevPAR年增率比集團RevPAR成長率快6個百分點。同樣的情況也發生在同店 RevPAR 成長上，也超過了特許經營酒店以及集團的整體表現。我們想知道管理階層採取了哪些措施來提高入住率和平均房價，特別是租賃和自有飯店的入住率及其可持續性？對於特許經營酒店管理是否可以複製？

My second question is about franchise hotel business. We saw that take rate for F&M increased by 7%, which is about 0.5 percentage point. We know that our take rate sometimes get impacted by seasonality. We're wondering is this take rate increase sustainable? Any other reasons, such as recurring [franchise fees or CIS]? That's all for my questions.

我的第二個問題是關於特許經營酒店業務的。我們看到 F&M 的轉換率增加了 7%，大約提高了 0.5 個百分點。我們知道我們的轉換率有時會受到季節性的影響。我們想知道這種採取率的成長是否可持續？還有其他原因嗎，例如經常性的[特許經營費或 CIS]？這就是我的全部問題。

[Interpreted] Okay. In terms of the leased and owned hotels, their performance actually is better than the group franchisees. That was because, over the last 2 years, we have been investing quite a lot of management resources into the leased and owned hotels because running a leased and own in terms of the operation and the management is quite complicated. Therefore, from the initial investment period to the operational period for the entire life cycle of this hotel business, we have been investing a lot of management capability. For example, we have assigned a good staff, hotel manager, for example. This is basically, in conclusion, is the improvements of our management capability for running a hotel. And we believe that this kind of capability, which has been demonstrated from the leased and own can be replicated to other hotels, which is, as you mentioned, in a franchised or (inaudible) hotel.

[解釋]好的。就租賃和自有酒店而言，其業績實際上優於集團特許經營商。這是因為，在過去的兩年裡，我們在租賃和自有酒店方面投入了相當多的管理資源，因為經營租賃和自有酒店在營運和管理方面相當複雜。所以這個酒店業務從最初的投資期到營運期間整個生命週期，我們都投入了大量的管理能力。例如，我們分配了一個好的員工，例如飯店經理。歸根究底，這基本上就是我們旅館經營管理能力的提升。我們相信，這種從租賃和自有酒店中得到證明的能力可以複製到其他酒店，正如您所提到的，在特許經營或（聽不清楚）酒店中。

Okay. In terms of the increase in take rate, there were mainly 3 reasons. Firstly, it's continuously increasing the CRS as we continuously focus on our direct sales capability through our H World app. That's -- this is one of the reasons. Secondly, it's because of the wage increase or the staff cost increase, especially at the hotel level for both our leased and own and franchise hotel, which is the hotel managers. And thirdly is we are doing a more deep-diving and going to more details in terms of the management for our management -- [managized] hotel, which we reduce the discount rate for our management fee, as well as a one-time franchise fee, which has also contributed a little bit to the improvement of the take rate. So the take rate increase is the result from manufacturers, but the staff cost increase is kind of not able to avoid because the salary increase is general trend in the market. Thank you.

好的。從採納率上升來看，主要有3個原因。首先，隨著我們透過 H World 應用程式不斷關注我們的直銷能力，它不斷提高 CRS。這就是——這是原因之一。其次，這是因為薪資上漲或員工成本增加，特別是在飯店層面，無論是我們租賃的、自有的還是特許經營的飯店，也就是飯店經理。第三，我們正在對我們的管理酒店進行更深入的研究和管理方面的更多細節——[管理]酒店，我們降低了管理費的折扣率，以及一次性特許經營權費，這也為take率的提高貢獻了一點點。所以說，出貨率的提高是廠商的結果，但是人員成本的增加是無法避免的，因為加薪是市場的大趨勢。謝謝。

Our next question comes from Simon Cheung of Goldman Sachs.

我們的下一個問題來自高盛的 Simon Cheung。

(foreign language) Let me translate into English. So my first question is in relation to the stronger-than-expected hotel addition, 569 hotel adds in the first quarter, already representing over 30% of the original guidance of 1,800 for the full year originally. On top of that, we have a RevPAR, according to management in the second quarter, it would be likely going to be softer. So wondering whether they would have any revised guidance for both the hotel adds as well as the 8% to 12% full year revenue guidance?

（外語）讓我翻譯成英文。所以我的第一個問題是關於強於預期的酒店增加，第一季增加了 569 家酒店，已經佔原來全年指導值 1,800 家酒店的 30% 以上。最重要的是，根據管理層的說法，我們第二季的 RevPAR 可能會更加疲軟。那麼想知道他們是否會對酒店增加以及 8% 至 12% 的全年收入指導有任何修訂後的指導？

And my second question is for the business travel, we've been hearing from other operators, sharing that business travel so far still been quite weak. What is the trend they expect looking into second half? And -- because they're obviously doing quite well on the B2B strategies with 2,700 clients, up 60% almost, how do they think about the long-term opportunity on the business travel or B2B segment in general?

我的第二個問題是關於商務旅行，我們從其他業者那裡聽到，他們表示商務旅行到目前為止仍然相當薄弱。他們預計下半年的趨勢是什麼？而且，因為他們在擁有 2,700 名客戶的 B2B 策略上顯然做得相當好，幾乎成長了 60%，所以他們如何看待商務旅行或一般 B2B 領域的長期機會？

[Interpreted] Okay. So in terms of the hotel openings, before answering these questions, we want to remind you guys that since 2 years ago, we started our sustainable high-quality expansion strategy. So our hotel network expansion will be only focusing on flagship hotels, as well as the high-quality expansions. And this year, as you remember, last quarter, we also introduced a service excellence strategy, further up-stepped from the quality -- high-quality expansion and to be more focused on both product quality and service quality improvements. So for H World, in terms of the network expansion, we -- again, we will focus more on the quality and better services instead of only focus on the scale. So therefore, even though we have pretty good hotel openings in the first quarter, we still maintain our full year gross opening target unchanged. Thank you.

[解釋]好的。所以在飯店開業方面，在回答這些問題之前，我們想提醒大家，從兩年前開始，我們就開始了可持續的高品質擴張策略。所以我們的酒店網路擴張將只專注於旗艦酒店，以及高品質的擴張。今年，正如你所記得的，上個季度，我們也推出了卓越服務策略，從品質上進一步提升——高品質擴張，更加重視產品品質和服務品質的提升。所以對於H World來說，在網路擴張方面，我們將更加重視品質和更好的服務，而不是只專注於規模。因此，儘管我們第一季的飯店開幕情況相當不錯，但我們仍維持全年總開幕目標不變。謝謝。

Okay. In terms of the B2B business. So firstly, if you're talking about (inaudible) business traveling market, we have to say the business traveling market is a bit slower in terms of the recovery. This is mainly due to the impacts from the weaker-than-expected macroeconomic development since the reopening last year. However, over the last 2 years, we have been putting a lot of efforts on the B2B direct sale business and catching up some of the new demand, new scenarios, such as the MICE and conferences, which we were not very good at previously. We have been -- continuously improved our capability in this front and trying to grab as much as new customers through our continuously enhanced B2B sales capability.

好的。就B2B業務而言。首先，如果您談論的是（聽不清楚）商務旅行市場，我們不得不說商務旅行市場的復甦速度有點慢。這主要是受去年復工以來宏觀經濟發展弱於預期的影響。但這兩年，我們在B2B直銷業務上下了很大的功夫，抓住了一些新的需求、新的場景，像是MICE、會議，這些都是我們以前不太擅長的。我們一直在不斷提高我們在這方面的能力，並試圖透過不斷增強的 B2B 銷售能力來吸引盡可能多的新客戶。

Secondly, it's hotel-centric on the ground, the sales capability enhancement. We will use the hotel itself as an offline channel to attract more and more local, small business clients, just to over -- as we mentioned, to cope the volatility of the (inaudible) business traveling market. Thank you.

其次，地面上以飯店為中心，銷售能力提升。我們將利用飯店本身作為線下管道來吸引越來越多的本地小型企業客戶，正如我們所提到的，以應對（聽不清楚）商務旅行市場的波動。謝謝。

[Interpreted] Our next question comes from Lydia Ling of Citi.

[解讀]我們的下一個問題來自花旗銀行的 Lydia Ling。

[Interpreted] My first question is on the store opening and we see actually accelerated expansion in the first quarter. So how actually the management look at the supply -- industry supply as a whole? And also what's actually like the background for the new franchisees? And what could be the mix of the new franchisees versus the existing franchisees? A little bit more color would be very helpful.

[解讀]我的第一個問題是關於開店的問題，我們看到第一季實際上加速了擴張。那麼，管理階層實際上是如何看待供應——整個產業的供應的呢？新加盟商的實際背景又是怎麼樣的呢？新特許經營商與現有特許經營商的組合可能是什麼？多一點顏色會很有幫助。

And my second question is on expense. And we saw that actually the selling expense increased a lot in the first quarter and as CFO just explained during the presentation, so how do management look at the -- like, the full year expense trend? And also, what could be the margin trend for 2024?

我的第二個問題是關於費用。我們看到，實際上第一季的銷售費用增加了很多，正如財務長在演講中所解釋的那樣，管理層如何看待全年費用趨勢？另外，2024 年的利潤率趨勢可能是什麼？

[Interpreted] Okay. Let me answer your first question. Over the last several years, the churn ratio in China has been rapidly improving in China. At the end of last year, the churn ratio, firstly, exceeded 40% in China. And we believe that the churn ratio improvement would be even faster in the future because of the digitalization capability, the integration of the industrial capability in China was very outstanding. It has the potential to even higher than the very matured U.S. market in the near future.

[解釋]好的。讓我回答你的第一個問題。過去幾年，中國的客戶流失率一直在快速改善。去年年底，中國的客戶流失率首先超過了40%。而且我們相信未來客戶流失率的改善會更快，因為中國的數位化能力、產業能力的整合非常出色。在不久的將來，它的潛力甚至會超過非常成熟的美國市場。

So a lot of China hotel groups has been gaining benefits from this trend for the continuously generational improvement. However, in different segments, we are seeing some of the differences. For example, the middle scale is much faster in terms of the churn ratio improvement compared to the entire market. But for the economics, it might be need for further efficiency -- operational efficiency improvements to further catch up the churn ratio improvements. So this is the first part.

因此，許多中國酒店集團已經從這一趨勢中受益，不斷進行代際改進。然而，在不同的細分領域，我們看到了一些差異。例如，與整個市場相比，中型規模的客戶流失率改善要快得多。但從經濟角度來看，可能需要進一步提高效率——提高營運效率，以進一步趕上客戶流失率的提高。這是第一部分。

The second part in terms of the background of the franchisees, in conclusion, it is quite diversified at this moment. We focus on 2 aspects. One is for our old franchisees, we also focus on the repurchase rate for our older franchisees. We want our franchisees to be profitable. Whenever they open the old hotel they used to open a hotel and they are opening the new hotels. But at the same time, when we are penetrating into the lower-tier cities, some new markets and new segments, we are seeing a lot of new franchisees -- new type of franchisees. For example, the local government, for example, the property developers. So on both sides from the H World, from the Company's perspectives, we take care of both parts of the franchisees. Thank you.

第二部分從加盟主的背景來看，目前來說是比較多元化的。我們重點關注兩個方面。一是針對我們的老加盟商，我們也專注於老加盟商的複購率。我們希望我們的特許經營商能夠獲利。每當他們開舊酒店時，他們都會開一家酒店，現在他們正在開設新酒店。但同時，當我們滲透到二、三線城市、一些新市場、新細分市場時，我們看到了許多新的加盟商——新型的加盟商。例如地方政府，例如房地產開發商。所以H世界兩邊，從公司的角度來說，我們都照顧到了兩個部分的加盟商。謝謝。

[Interpreted] Okay. In terms of the increase in sales and marketing expenses in the quarter, so firstly, because we are penetrating into the new market and we are enhanced -- we are penetrating into the new segment and introduce a lot of new products, so especially when we open a new hotel in new markets, we -- at the very initial period, we need the resources and support from the OTA. However, that should be a temporary impact because on a longer-term perspective, we will continuously focus on our direct sales capabilities through our own channels. This is one.

[解釋]好的。就本季銷售和行銷費用的增加而言，首先，因為我們正在滲透到新市場，並且我們得到了增強——我們正在滲透到新細分市場並推出了很多新產品，所以特別是當我們在新市場開一家新飯店，我們－在最開始的階段，我們需要OTA的資源和支持。不過，這應該是暫時的影響，因為從長遠來看，我們將繼續關注透過自有管道的直銷能力。這是一。

Secondly, is, we purposely added some of the budget on the marketing expenses, especially for some of the new brands and new segments that we want to further improve the brand awareness and the recognitions for these particular brands into the market in order to get more attraction from the customers and the franchisees as well. Thank you.

其次就是，我們特意在行銷費用上增加了一些預算，特別是對於一些新品牌、新細分市場，我們希望進一步提高這些特定品牌進入市場的品牌知名度和認可度，以獲得更多的收益。客戶和加盟商的吸引力。謝謝。

Thank you. Our last question comes from Sijie Lin from CICC.

謝謝。我們的最後一個問題來自中金公司的林思傑。

[Interpreted] So thank you, management. I have 2 questions. The first is that we mentioned before, we aim to penetrate more into low-tier cities and regions with low density. So how is the progress? And is there any operating data in these markets you could share with us?

[解釋] 謝謝你，管理階層。我有 2 個問題。第一個是我們之前提到的，我們的目標是更多地滲透到低線城市和低密度地區。那麼進展如何呢？您可以與我們分享這些市場的營運數據嗎？

And my second question is that we also mentioned before that one of our key strategy is to upgrade supply chain and to improve service quality. So how's the progress? And is there any indicator that can prove this progress, maybe such as per room CapEx or RevPAR?

我的第二個問題是，我們之前也提到過，我們的關鍵策略之一是升級供應鏈，提高服務品質。那麼進展如何呢？是否有任何指標可以證明這項進展，例如每間客房的資本支出或可出租客房收入？

[Interpreted] Okay. In terms of your first questions, I'm very happy to let you know that we have been progressing pretty good into those previously less penetrated area, as well as the weak segments previously. The entire improvements and the processes are satisfying, are meeting the management's expectations.

[解釋]好的。關於你的第一個問題，我很高興地告訴你，我們在那些以前滲透率較低的領域以及以前的薄弱環節方面取得了很好的進展。整個改進和流程令人滿意，符合管理階層的期望。

Okay. In terms of the sales excellence we mentioned last quarter, so previously H World used a high efficiency, low cost, as well as scale to maintain the leading position. But in the future, if we want to further enhance or strength our leading positions in China or even in the world, definitely we need to focus on more service, more user experiences and management -- customer-centric management capability enhancement as well. So just give you several examples because of the time limits. For the service excellence, we are focusing on the customer satisfaction rate and whether it is improved or not. But more details we will be sharing in near future. Thank you.

好的。就我們上季度提到的銷售卓越而言，之前H World是透過高效率、低成本以及規模來保持領先地位的。但未來，如果我們想進一步提升或鞏固我們在中國和全球的領先地位，肯定需要更多的服務、更多的用戶體驗和管理——以及以客戶為中心的管理能力的提升。由於時間有限，只舉幾個例子。對於卓越的服務，我們關注的是客戶滿意度以及是否有所改善。但我們將在不久的將來分享更多細節。謝謝。

Thank you. This concludes the Q&A session. I will now hand back to Jason for closing remarks.

謝謝。問答環節到此結束。現在我將請傑森致閉幕詞。

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

謝謝大家今天抽出時間與我們在一起，我們期待在下個季度見到您。謝謝你，再見。

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

謝謝。今天的電話會議到此結束。感謝大家的參與。您現在可以斷開連線。

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

[本文字記錄中標記為[已翻譯]的部分是由現場通話中的口譯員朗讀的。