H World Group Ltd (HTHT) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the China Lodging Group 2013 Q4 earnings conference call. (Operator Instructions). I must advise you that this conference is being recorded today, Wednesday, March 12, 2014.

And I would now like to hand the conference over to your first speaker today, Ida Yu, IR Manager of China Lodging Group. Thank you and please go ahead.

Thank you, operator. Hello, everyone and welcome to our fourth quarter and full-year of 2013 earnings conference call. Joining us today is Mr. Qi Ji, our Founder, Executive Chairman and CEO, Mr. Yunhang Xie, our COO and Ms. Jenny Zhang, our CFO and CSO, who will elaborate on our Company's development strategy and performance for the fourth quarter and full year 2013. 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 provisions 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. China Lodging Group does not undertake any obligation to update any forward-looking statements, except as required under applicable law.

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 the press release that was distributed earlier today.

As a reminder, this conference call is being recorded. The webcast of this conference call, as well as supplementary slide presentation are available on the Investor section of China Lodging Group's website, at ir.huazhu.com.

Now I would like to turn the call over to Mr. Ji. Qi Ji, please.

Good morning, everyone. Thank you for joining our earnings conference for today. We are delighted to conclude 2013 with a strong set of results.

Net revenues increased by 29%. Net income increased by 60%. Our same hotel RevPAR grew by 1%. The same hotel ADR increased by 3%.

At the end of 2013, our number of hotel rooms in operation totaled 163,000, an increase of 35% from a year ago.

With our focus on hotel [product] innovation and guest experience enhancement, Hua Zhu is positioned for success in the coming years. As shown on page three, first we worked on continuous product innovation to meet the [upgrade] trends.

HanTing Hotels, our core brand in the economy hotel segment has a new upgraded model this year, which will provide the customers with a new product experience.

Ji Hotel is a leader of the mid-scale hotel segment in China. The limited service of mid-scale hotels is intended to meet upgrade presumption trends -- consumption trends, especially in tier one and tier two cities.

Other new brands, such as Joya, Manxin, Starway and Hi Inn will continue to be developed to satisfy our customers and diversify the needs for business and leisure travelers.

Second, on page four, we are a hotel group with online genes. This does not only mean that our customers can easily book a room by just one click, but it also means that we pay attention to the ways of reaching customers, the smooth process of check in and check out, and are interactive with the customers before and after their stay. Hua Zhu is using online tools to fully support the whole offline experience.

As shown on page five, we strive for active digital engagement with customers. Our loyalty program has more than 15m members, who contributed more than 80% of our room nights sold.

Our mobile [application] with integrated features of booking, payment, and room selection is one of the most undisputed leaders in the digital hotel technology space.

Digital bookings saw a solid and significant growth driven by the shift to mobile booking. In Q4, the room booking from our own digital channels increased by 33% year over year. In particular, the portion of our mobile booking more than doubled, compared with a year ago. Room bookings through social media is available to our customers as well, which extends opportunities from word-of-mouth marketing.

In addition to digital engagement, we also placed emphasis on CRM, as shown on page six. A new CRM platform has been implemented in our [whole] system, which includes first, to observe customers behavior through big data analysis and customer labeling. Second, to understand the customer through textual analysis and exploration on their preference. And third, to interact with customers with their experience involved more. This will enhance the customers' overall experience at Hua Zhu Hotels by means of technology.

With that, I will turn the call over to Yunhang, our COO, who will walk you through our Q4 and full-year operational highlights. Yunhang, please.

(Interpreted). Thank you, Qi Ji. Good morning, everyone.

Thanks to our product innovation and continuous efforts to enhance guest experience, our loyalty program continues to grow robustly. At the end of 2013, we had more than 15m members, with young generation as our main target customer. About two-thirds of our customers are under 34 years old. They are the generation born in '80s and '90s, who are the major force in the consumer sectors.

Now let me walk you through our operational highlights for Q4 and full-year 2013.

In Q4, as shown on page nine, we opened 27 net new leased hotels and 58 net new manachised hotels. At the end of 2013, we had 1,425 hotels in operation, among which 40% were leased hotels; 59% were manachised hotels and the remaining 1% were franchised Starway Hotels.

At the same time, we are pleased to see that we still have a very strong pipeline that can further fuel our growth in 2014, with 63 leased hotels and 350 manachised hotels contracted for development.

As shown on page 10, in Q4 2013, blended occupancy was 90%, a decrease of 2 percentage points year over year, mainly due to the soft and still recovering economy.

ADR was RMB178, an increase of 1% year over year, mainly attributable to an increase in same hotel ADR of 3%.

With our hotel network expansion, the weight of our hotels in tier one cities are decreasing. And thus, the growth in blended ADR was lower than the growth in same hotel ADR.

As a result, in Q4, RevPAR was RMB160, a decrease of 1% year over year.

As shown on page 11, in 2013, blended occupancy was 91%, a decrease of 12 percentage points year over year, mainly due to soft and still recovering macro-economy and the temporary decline in demand caused by avian flu in the second quarter of 2013.

ADR was RMB180, an increase of 1% year over year, mainly attributable to an increase in same hotel ADR of 3%.

With our hotel network expansion, the weight of our hotels in tier one cities are decreasing and the growth in blended ADR was slower than the growth in same hotel ADR.

As a result, in 2013, RevPAR was RMB163, a decrease of 3% year over year.

Page 12 provides a detailed view of the growth trend of our same hotel RevPAR for the hotels in operation, for at least 18 months.

In Q4 2013, our same hotel RevPAR increased by 1%, with 3% increase in ADR and a 2 percentage point decrease in occupancy, from 96% to 94%.

For full-year 2013, our same hotel RevPAR increased by 1%, with 3% increase in ADR and 2 percentage points decrease in occupancy from 98% to 96%. The increase in same hotel ADR was driven by price increase to enhance yield. The decrease in same hotel occupancy rate was mainly due to soft macro-economy

In 2013, our mid-scale hotels recorded a 3.5% increase in same hotel RevPAR. Driven by the upgrade consumption trend, our mid-scale hotels are well accepted by an increasing number of consumers.

With that, I will turn the call over to Jenny, our CFO and CSO, who will walk you through our Q4 and full-year financial results. Jenny, please.

Thanks, Yunhang. Hello, everyone. For Q4 and full-year 2013, we were delighted to see a strong growth of revenue and a significant improvement in profitability. Let me walk you through the details.

As shown on page 14, our Q4 net revenue increased 27% year over year. Leased hotels revenue grew 25%, and the manachised and franchised hotels revenue grew 44% year over year.

For the full year of 2013, our net revenues increased 29%, in line with the high end of our guidance. Our manachised and franchised hotels revenue reached 12% of our total revenue in 2013, compared with 10% in 2012.

Page 15 shows the adjusted quarterly operating margin, which increased by 4.3 percentage points in Q4 of 2013, when compared with a year ago. Our pre-opening expenses, as a percentage of net revenues, saw a 3.5% decrease, due to our enlarged revenue base and our shortened construction cycle.

Our SG&A expenses, as a percentage of net revenue, increased by 1%, due to increased marketing cost for new brands, increased reservations from third-party agencies, and increased expenses for technology innovation.

In addition, our other operating income as a percentage of net revenues increased by 1.4% in Q4 of 2013, compared with a year ago, which mainly includes government grants and a gain from government zoning.

On a full-year basis, as shown on page 16, the adjusted operating margin increased by 2.4 percentage points in 2013.

Our hotel costs, as a percentage of net revenues, increased by 0.2% as a result of cost inflation and increased investment in new mid-tier hotels, which have a high cost ratio during the ramp-up stage.

A big part of the operating margin pressure was eased by the fast growth of our high-margin manachised revenue. Our pre-opening expenses, as a percentage of net revenues, decreased by 2.1 percentage points, due to our enlarged revenue base and our shortened construction cycle.

Our SG&A expenses, as a percentage of net revenue, decreased by 0.2%, mainly due to the benefits from economies of scale. In addition, other operating income, as a percentage of net revenues, increased by 0.5% in 2013, compared with 2012, due to increases in government grants and gains from government zoning.

Last, but not the least, move on to cash position, as shown on page 17. Our cash balance closed at RMB401m at the end of 2013. We had a powerful credit facility of RMB898m. For the fourth quarter, we had a net cash inflow of RMB7m, mainly due to extended revenue base and improved profitability.

We believe that our cash balance, our operating cash flow and our available credit facility will be sufficient to fund our expansion plans in the near future.

Finally, as shown on page 18, we expect to add 420 to 450 new hotels in 2014, with 50 to 60 leased hotels and 370 to 390 manachised hotels. Among these new hotels, 80% will be economy hotels and 20% will be mid-scale hotels.

On the sales side, we expect to achieve net revenues in the range of RMB1.03b to RMB1.05b in the first quarter of 2014, representing a 19% to 21% year-over-year growth.

Our revenue growth for the full year is expected to be 20% to 23%. With that, let me open the floor for questions.

(Operator Instructions). Jamie Zhou, Macquarie.

Good morning, management. Congratulations on a strong set of results. I've got three questions here.

First one is a housekeeping question. How many hotels were closed during the year, excluding the Starway Hotels? And what is the average per-hotel rezoning grant you receive from the government, on average? That's my first question.

During 2013, we closed all together 29 franchised hotels of Starway. Beyond that, I think we have nine leased and manachised hotel closed due to government zoning. And there are other issues we have, with our franchisees.

And the -- as to the gain from the zoning, that's not a very significant number. The separate line of other operating income are mainly attributable to the government grants that we have received.

Right. It seems like there is a big increase from FY2012. And this is the first time you are separating this out of your G&A. What is the reason behind the jump in the government grants?

The government grants is actually in line with our business scaling up. And the only reason we have separated is because as the number becomes bigger, it becomes meaningful, you know to separate it. In the past, as it was small, we have made it part of the G&A expenses as a deduction.

I see. Thank you.

My second question is on your expansion plan for FY2014. You mentioned that 80% of the 400 -- up to 450 hotels will be in economy and the rest, 20%, in mid-scale. What is the breakdown within the leased operated expansion? Is that -- can we expect more or less a similar breakdown? Or are we seeing higher percentage of mid-scale being in the leased and operated expansion plan?

The breakdown would be different you know, among the two segments. In the mid-scale, out of the number of hotels we plan to open, about 20 to 25 are going to be leased hotels. And as for the economy hotels, the expectation is around 30 to 40 leased hotels.

These are number of hotels, 20 to 25 leased operated mid-scale hotels.

Yes.

Okay. And what is your CapEx plan for FY2014, breaking it down into new hotels, existing hotel renovation and on the technology CRM front?

Jamie, I'm not sure I get your question.

Can you provide us with your CapEx outlook for FY2014, breaking it down, if you can, into what's the amount of money that you'll spend on leased and operating hotel expansion, on renovation of existing hotels and on technology, as mentioned earlier on the call?

Oh, I see. On the CapEx side, in year 2013, about RMB1b to RMB1.1b was spent on new hotel expansion, plus the acquisitions. And close to RMB0.1b was spent on the renovation of existing hotels.

We expect the number to have some minor change in 2014. With the total spending, we are still expecting around RMB1.2b to RMB1.3b, and with both parts increased slightly.

RMB1.2b to RMB1.3b in total CapEx.

Yes.

Okay, thanks. My last question is on your cash position. Congratulations on a very strong year in cash management.

Do you expect we'll stay in net cash position throughout FY14? And do you have any acquisition plans in the pipeline? And would you be looking at raising any new equity capital within the next 12 months? Thank you.

Currently, without any consideration of major acquisitions, we expect cash flow to be more or less breakeven in 2014. So we have been looking at quite a few small-size acquisitions. So far we don't have any major ones in the pipeline. And with that, you know we don't have a near-term plan to raise equity at this moment.

Okay. Got you. Thank you very much, and congratulations again.

You're welcome, Jamie. Thank you.

Lin He, Morgan Stanley.

Hi. Good morning, management. Thank you for taking the question. A couple of questions from me.

Firstly is a question for Qi Ji. Hi, Qi Ji. I want to hear your thoughts, how the mobile popularity -- increased popularity of mobile booking has changed the competitive advantage of us and the bargaining power of economy versus the OTA channels. Has our bargaining power increased or decreased during this process?

And second question is can management talk about what is the recent trends you have seen, especially on the business travel front recently? Have we seen any meaningful pick-up in business travel?

And lastly, is the question on the purchase of long-term investments. I saw that in your cash flow statements. Can you please give us a little bit more color on that, what kind of long-term investments you have purchased? That is the [RMB54m] number. Thank you.

Sure, Lin. I will pass the first question to Mr. Ji and the second one to Mr. Xie. And I will address the last one. So I'll ask Mr. Ji to address the first one. Okay, let me translate.

(Interpreted). The mobile application has brought major change to consumer behavior. It's a fast-growing trend in China. And no matter for hotel groups or for the OTA, we must you know, embrace this big shift in the market. As we talked to you two or three quarters ago, we put a lot of emphasis on our Internet and mobile application.

As I mentioned earlier, we have achieved double growth you know, in the Q4 of 2013, in terms of mobile application booking volumes. And we expect to continue our investment in this area. I personally experienced the app of OTAs, airlines and of course our own. I have found that there are some [edge] to this, using this app of service providers. For example, when I use the Singapore Airlines app, I can -- my personal preference is stored in their system, so I can easily pick up the seat and also pick my favorite food selection. However, in the OTA platform, I wouldn't able to do that.

And the, you know, app will continue to be our major channel going forward. And to address our competitiveness in this channel, we are going to provide our best price there.

As to the relationship between our hotels and the OTAs, I think at the single hotel level, we continue to be partners and we cooperate. And as a Group, we have, you know, both the relationship of cooperation but also in terms of channel, there is also a certain level of competition. And as the old -- the app is a major shift in the market place. The OTAs are also investing into this channel.

So we feel need to continue our investment there, to make the battlefield even and that we maintain our edge. As we reported, you know, more than 90% of our bookings are through our own channel. We expect that trend to continue.

And then for Mr. Xie.

(Interpreted). We have seen a positive trend recently. It seems that the business travel is picking up.

That is the answer to the question about the recent trend. So let me address the [RMB50m] long-term investment item. This is a part of the cash that the Company has decided to invest to form a joint venture with Mr. Ji and another partner that the joint venture -- within the joint venture, Hua Zhu is going to take a little bit less than 20% of the share, and the other two parties will become the major shareholders.

And the intention of the joint venture is to you know, invest in real estate. So the Company will have a small stake in the real estate the joint venture are going to find, and if the real estate becomes hotels going forward, then Hua Zhu are going to have a management contract.

Okay, got it. Thanks [Ji-gong], thanks Jenny and [Xie-gong].

Thank you, Lin.

Justin Kwok, Goldman Sachs.

Good morning. Thanks for taking my question. Maybe I think I'll focus on two questions.

The first one is actually a follow-up on the recent trend that you are seeing in terms of the demand. At present, what is your sense on the mix of leisure versus the business travel in your room nights sold? And also, when you look at your first quarter kind of revenue guidance, what kind of same-hotel RevPAR assumption that you are looking? That is my first question.

We have continued to see you know, leisure traveling growing very robustly. And we have also seen some pick-up in the business travel.

So far, for the first two months of Q1, we have seen below 1% kind of same-hotel RevPAR growth which for a low season, we think is quite encouraging. So that's an assumption we have been built in into our Q1 revenue guidance.

Okay, thank you. And the second question is focusing on the mid-scale products. I think this is the first time we have more disclosure on the RevPAR related to the mid-scale products that you have. And when I look at the -- at the end of your disclosure, you show that the midscale hotels average RevPAR is about RMB284, which is something like 60% higher than your economy hotel's product.

So is this 60% premium something that you are expecting or do you expect some further improvement on that? And as you are going to open a lot more mid-scale product going forward, can you remind us on the CapEx on these products and the returns profile that you are looking at? Thank you.

Currently, the mid-scale hotels, you know, in operation more than six months, Hua Zhu has a major portion in tier one cities. And as we expand the hotel networks, I don't expect the 60% premium over our economy hotel always, you know, be maintained. But we are quite comfortable that the RevPAR premium will be above the 30% to 40% level.

And the CapEx returns profile?

Currently, we are seeing about 15% to 20% kind of return.

Okay, I see. Thank you. I think that's all my -- thank you.

Thank you.

Billy Ng, Bank of America Merrill Lynch.

Hi, good morning. Thanks for taking my questions. I have two questions.

Actually, the first one is regarding to the 2014 guidance, I think that it's a very solid guidance on the top line. But can you give us a little bit more color on the margin? How do you see the margin because like in 2013, we have quite significant margin improvement? Would that continue in 2014 and if that's the case, where is the upside coming from?

We feel, you know, 2014 is going to be an investment year for us. On one side, you know, we have put in a lot of resources into our mid-scale business, especially Ji Hotel. Investment is twofold. You know, we not only are going to invest in the new leased hotels into this brand, we are also going to invest into the marketing, and also, human resources to build the major platforms for its future growth. And those investments are going to be reflected in our hotel operating costs, especially during their revenue update and we will also be reflecting pre-opening and SG&A.

And we also are going to speed up the growth in a few smaller brands and that will also involve some marketing and human resources investment despite that we are not going to invest too heavily on the CapEx side.

So with those elements, you know, we don't expect the margin in 2014 are going to be higher than 2013. More likely, you know, depending on how high revenue we have achieved, and how strong the same hotel RevPAR growth could be, we actually expect you know, to be very stable or even slightly lower EBITDA margin.

The background of this guidance is that we had a very significant margin expansion in 2013, which were actually, you know, higher than myself had expected at the beginning.

So you know, even we don't expect further margin expansion in 2014, given those heavy investment into our future growth, I think the Company still has a very strong footprint in the margin management.

Thanks. And then the second question I had is just in general, like do you see -- I know you have a lot of brand new brands right now that you have to focus to grow. But on the other hand, do you see opportunities of M&A at this moment or in 2014?

As you know we mentioned, you know, in an earlier call, we have been actively looking around for various M&A opportunities. In 2013, we completed a deal to buy a few hotels in the Zhejiang province which were a small chain. We continue to look for those type of opportunities if the valuation and asset quality are satisfactory. As for now, you know, coming into conclusion to any new big deals, but we will continue to be open-minded to those opportunities.

Thanks. And sorry, just one last question. Just looking at the trend right now, and looking like when we see RevPAR basically about flat to 1% increase. But when we see the breakdown, the trend has been -- occupancy been dropping but room rates have been -- ADR have been increasing.

Is that a fair thing to say like the trend will continue to be like that? Which means that the occupancy probably will continue to be a bit lower but ADR you see room for improvement?

Just to put some context into the numbers trend, you know, even with the 3% occupancy drop, our hotels in operation more than 18 months had achieved a full year 96% occupancy rate which is still very high and above the 95% that we had expected for our mature hotels.

So going forward, we believe we are still trying to optimize the RevPAR which is our main objective. And depending on the market situation, you know, there may [be scope for] higher ADR growth and some decreasing occupancy, but it could also, you know, be the opposite. I cannot, you know, really predict that trend at this moment.

Okay, thanks. Thanks a lot. Congratulations again.

Thank you.

Shang Koo, One North Capital.

Hi, thanks for the call. Got a few questions.

The first question relates to the guidance. If you could just give me a kind of a split of your hotel -- new hotel openings by the tiers of cities, the tier one, tier two, tier three?

And maybe you could also comment on the impact of cannibalization on the occupancy?

In terms of the new hotel openings in the pipeline, around 35% of our pipeline is in tier one, about 36% in tier two and about 29% in tier three.

Sorry, can you run it by me again a bit slower? The line is not too clear for me here.

Sure. If we blend the leased and the franchised hotel pipeline, you are going to see around 35% of the pipeline in tier one cities; 36% in tier two cities and about 29% in tier three cities.

All right. Okay, got it.

And as for the CapEx, you know, most of our leased hotels are going to be tier one and tier two cities.

And can you talk about the impact or cannibalization because we are seeing your mature hotels having a decline in occupancies and is this a continuing trend? And if that's the case, is there a case for you to raise ADRs a little bit higher so that RevPARs can continue to grow? What is the key challenge for raising ADRs here?

Currently, the branded economy hotels still account for a small fraction of the total market. So I don't think cannibalization is any near-term issue.

We have seen some decrease in occupancy on the mature hotel last year. But I think the background of that is one of our -- [you mentioned] efforts, as I mentioned earlier, even with the decrease, that those hotels do achieve 96% year round occupancy.

And secondly, it was mainly due to the economy getting soft. And so I don't think cannibalization, as I mentioned earlier, is a major issue.

Okay, can you help me also understand why can't you lift the ADRs a little bit higher and much faster given that the rate of increase seems to be lagging inflation quite materially?

I'm not sure I get your question.

I want to understand what is hampering the ability to raise the ADRs a little bit faster than the rates that we've been seeing given that it's much, much lower than -- the rate of increase is much lower than the inflation in general.

You know, the pricing increase for same hotel last year was 3% and I think, you know, that is lower than -- a little bit lower than the government reported you know, CPI index.

And in terms of how to offset the cost pressure from the inflation, as we mentioned earlier, that's mainly driven by the RevPAR. You know, we need to get to a 2% same hotel RevPAR growth for -- to achieve the same kind of profit and the [3%] to maintain the margin.

Right, okay. Can you help me also understand the percentage of your room bookings via online channel in 2013 versus 2012?

Your line was not very clear. As we mentioned earlier, you know, we -- currently the digital booking is our main channel of receiving the customer booking.

Right. What is the percentage of room bookings via online in 2013?

Including Internet and mobile application, around 40% during the last quarter.

Okay. All right. Just a last question. Just want to understand in terms of capital management, how you think about it going forward. I know you mentioned that this year will be an investment year, but you know, we would expect the free cash flow to start building up from next year onwards. And what do you intend to do with the cash? Is there room for some dividends or share buybacks on the horizon?

I didn't get the last part of the question. I suppose you are asking about what we are going to do if we have free cash flow. Is that right?

Yes. When you would have free cash flow and what would you do with the cash that would build up from then on.

First of all, you know, we believe there are still a lot of opportunities in the market for expansion. You have seen the Company has been exploring opportunities, you know, of going into different segments. And there -- that's one. And secondly, we also find related businesses that we are kind of exploring to see if we can use our profit model to build those up.

And so in the near term, you know, we feel it's our responsibility to find profitable return opportunities to invest those cash. But in the longer run, you know, as we have a lot of excessive cash, then we will start to consider dividends.

Okay, all right. Thank you very much.

Thank you.

[Yaoxin Huang], CICC.

Thanks for taking my question and congratulations on the strong results. I have two questions that goes to Mr. Ji.

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Let me translate for the rest of the audience.

First of all, the question was what is the uniqueness of our CRM platform? So Mr. Ji answered that, you know, we use a textual analysis technique in our CRM platform through a partnership with the Tsinghua University. And to our knowledge, we are the first adopter of this technology. We have heard, you know, some of our competitors are also exploring how to utilize this.

And the second question was relating to rentals. Mr. Yao mentioned that we have observed some slowdown of the rental increase and asked Mr. Ji if that's what he has observed too.

Mr. Ji answered that his experience and also his expectation would be that rental will have some steady growth in the long run. In the near term, we have seen some rental decrease in shopping malls, mainly because of the retail business that is under pressure from the e-commerce. But that does not reflect the type of properties we are utilizing.

And Mr. Ji believes that RevPAR growth in the long run [can] offset the rental increase. So our leased model will continue to prosper in this environment. And you know, therefore I would like to add it to the current rental as a percent or revenue.

So far as you can see this year, the rental as a percentage of revenue actually increased from last year. And the part of the reason is that we had invested more in our mid-scale hotels which in nature, has higher rental percentage because we [lease] better property as well as you know, better location.

Okay, thank you, Jenny. Thank you, Qi Ji.

Welcome.

[Kenny Lu], STIM]

Hello. Thanks for taking my question.

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Let me translate the conversation. The first question was relating to the zero second check-out and also the newly rolled out 30-second check-in and how has that improved the hotel operation?

So Mr. Ji answered that we have been using the zero second check-out for a long time, so it's now fully covered in our hotel. And the newly rolled-out 30 second check-in are already in large-scale pilot by the beginning of this year. Our expectation as a core part of that is the customers are going to utilize our digital booking platform to pre-select the rooms they prefer, so that the check-in process can be a lot faster.

And our target is to achieve 8% of the check-ins are going to do that fast track process. We expect, you know, with those improvements, it will not enhance our customer experience, but it will also hugely increase the efficiency of our stock. That's going to lead to, you know, first of all the further decrease of [staff to room] ratio and then secondly, it will make the job at the reception desk easier and the staff easier to train and to recruit.

And certainly, it will reduce the amount of time our staff need to spend to communicate, you know, with the customers, which is going to increase the satisfaction level of our customers. Because a lot of them are on the very busy schedule, they need the process of check-in and check-out of hotels to be extremely efficient.

And the second question was relating to how we measure the loyalty of our customers. Mr. Ji answered that you know, with our loyalty plan, we look at, you know, major aspects. First of all, we regularly measure what's the average number of room nights the customer has spent with us. The second, we measure what's the total contribution from our members as a percentage of the total room nights that we sell. And thirdly, through the CRM system, we measure the satisfaction level of our customers and how they pay through the consumption process.

And Mr. Ji further addressed that the number of room nights a member you know, stays with us has been relatively stable in the past couple of years and in spite of, you know, our significantly increased volume of rooms which is very encouraging.

So with that, I think we need to conclude the conference call. Before closing the call, I would like you to be aware of a few upcoming China Lodging investor events. We will conduct a non-deal road show in Hong Kong in the week of March 24. In addition, we will participate in Credit Suisse Asia Investment Conference on March 26 to 27 and Standard Chartered Travel Panel in Shanghai on April 4.

Interested parties please contact us at ir@huazhu.com. Once again, thank you for making time from your busy schedule to join our call today. We look forward to talking to you in the next quarter earnings call. Goodbye, everyone.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all now disconnect.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.