H World Group Ltd (HTHT) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the China Lodging Group Q1 2015 earnings conference call. (Operator Instructions). I must advise you that this conference is being recorded today, Friday, May 15, 2015.

I would now like to hand the conference over to your first speaker today, Ms. Ida Yu, Senior Manager of Investor Relations. Thank you. Please go ahead.

Thank you, Eric. Good morning, everyone. Thanks to all of you for dialing in today and welcome to our first quarter of 2015 earnings conference call. Joining us today is Mr. Qi Ji, our Founder, Executive Chairman and CEO and Ms. Jenny Zhang, our President and CFO. 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 earnings 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, is available on the Investor Relations 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 us today.

In the first quarter, we continued our hotel network expansion, mainly driven by the growth of asset-light business models across our brand portfolio. Economy and midscale segments remained our chief focus, as shown on page 3, which have seen strong growth.

On March 31, we had 2,177 hotels in total. About 90% are economy hotels and [9%] midscale hotels. Economy hotels and midscale hotels will grow by more than 30% and 60%, respectively in 2015.

In addition to our flagship brand. HanTing Hotel, the new brands include Hi Inn, Elan, C Hotel and Starway Hotel are helping to drive our further growth. Today I would like to take several minutes to elaborate on the rationale of this new brand.

Hi Inn, an economic -- economy hotel brand, is positioned as simple and good value for money, as shown on page 4. Hi Inn with its fast expansion and is expected to reach 200 -- 300 hotels, by end of 2015, representing a CAGR of 131%, since 2009. Through manachised and franchised models, Hi Inn brand converts existing lower priced economy hotels. We have a pipeline of 132 Hi Inns by end of Q1.

To better consolidate the market, we launched the Elan Hotel brand last August. By end of Q1, we had 46 Elan Hotels, as shown on page 5. Elan is a non-standardized economy hotel brand, to enable existing economy hotels to join Huazhu's premier platform at a lower [working cost], mainly through manachised models.

Moving to -- let's move on to midscale hotels, on page 6. We are glad about our undisputed leading position. As of the end of Q1, we had 199 C and Starway Hotels, ranking number one in the midscale segment in China. Our franchisees showed particular favor to our midscale hotels brand.

About 65% of mid-scale hotels in operation and more than 90% of the mid-scale pipeline are contributed by manachised and franchised hotels.

To sum up, we are confident in the long-term growth of the travel and the lodging market in China. The leading operators, like us, who have already a differentiated brand position and a large and loyal customer base will further consolidate this market. We have [prepared] a growth plan, with a multi-brand strategy and asset-light model focus.

With that, I will turn the call over to Jenny, who will walk you through our Q1 operating and financial results. Jenny, please.

Thank you, Qi Ji. Hello, everyone. I'm pleased to report our operational and financial results for Q1.

As shown on page 8, we opened six less new leased hotels, 157 less new manachised hotels, and 19 new franchised hotels. At the end of Q1, we had 2,177 hotels in operation, among which 28% were leased hotels, 70% were manachised hotels, and the remaining were franchised hotels.

We have a pipeline of 686 hotels, with 22 leased hotels and 664 manachised and franchised hotels.

As shown on page 8 -- page 9, in Q1, our Group's blended occupancy was 82%, a decrease of 4% -- 4 percentage points, year over year. The decrease was mainly due to soft macro economy and a dilutive impact from newly-opened hotels in lower tier cities.

The blended ADR was RMB168, a decrease of 1.6%, year over year, as a result of soft macro economy and the seasonal promotions.

In summary, in Q1, the blended RevPAR was RMB137, a decrease of 6.2%, year over year.

Page 10 provides a detailed view of the growth trend of our same-hotel RevPAR, for hotels in operation for at least 18 months. In Q1, our same-hotel RevPAR decreased by 4.6%, with 0.7% decrease in ADR and a 3.5 percentage points decrease in occupancy. The decreases in same-hotel ADR and same-hotel occupancy were driven by the soft Chinese macro economy and the seasonal promotions.

The midscale hotels recorded a 5% same-hotel RevPAR improvement, thanks to the successful brand positioning.

I'm also glad to update the progress on the proposed transaction between Accor and Huazhu. In March, as shown on page 11, we received antitrust approval for the proposed transaction. The interim management period has started since April 1st.

Now let's move to the financial results.

In Q1, as shown on page 12, our net revenues increased 17.1% year over year, exceeding the high end of quarterly guidance.

Leased hotel revenue grew 10%, and the manachised and franchised hotels revenue grew 63% year over year.

Our manachised and franchised hotels revenue reached 17.7% of our total revenues in Q1 of 2015, compared with 12.6% in Q1 of 2014. Our strategy of building Huazhu into a branded management company has been the underlying driver of this substantial growth in manachised and franchised business.

Thanks to the growth of manachised and franchised business, and our strategic move from expansion by lease to expansion by manachise, this quarter we achieved operational margin improvement in a soft market situation.

As shown on page 13, the adjusted quarterly operating margin came in at 0.1%, an increase of 1.4 percentage points from Q1 last year.

The adjusted hotel operating cost, as a percentage of net revenues, decreased by 1.2 percentage points year over year, mainly attributable to the increased proportion of revenues from manachised and franchised hotels, and our cost control efforts.

Our pre-opening expenses, as a percentage of net revenues, saw a 1.7 percentage point decrease, due to our enlarged revenue base, and fewer leased hotels in the pipeline.

The adjusted SG&A expenses and other operating income, as a percentage of net revenues, increased by 1.5 percentage points. There are two primary drivers.

First, 0.8 percentage point increase in selling and marketing ratio, due to the increased online marketing expenses to attract more new customers. The increase also reflects a structural change, led by increase of manachised and franchised business, under which the revenue generated in each hotel is significantly less than revenue recognized under a leased hotel.

Second, 0.6 percentage point decrease in other operating income ratio, mainly due the decrease in government grants this year.

Last, but not least, let's move on to cash position, as shown on page 14. Our cash balance holds at RMB663m at March 31, 2015. We have a total credit facility of RMB898m, and no debt.

For the first quarter of 2015, our operating cash flow reached RMB185m, a 42% increase from a year ago. The significant growth was mainly due to our fast network expansion, with manachised model.

Our investing cash flow totaled RMB331m, a 9% decrease from a year ago, mainly due to our reduced and more selected investments in leased hotels. We remain confident that we will generate significant positive free cash flow this year.

With the strong cash flow status and our confidence in our Company value, in April, we announced a share repurchase program, of up to $40m. We believe that the share repurchase program is consistent with the goal of increasing shareholder value.

Finally, as shown on page 15, for revenue guidance, we expect that net revenues for Q2 will grow 13% to 16%, year over year.

With that, let's open the floor for questions.

(Operator Instructions). Billy Ng, Bank of America Merrill Lynch.

Hi. Good morning. I have a couple questions.

The first one is I just want to get a update on what's the current macro climate, and how is your RevPAR doing in the current quarter? Do you see a pick-up, compared to 1Q? And if so, what's your latest view on the full-year or second half? Of course, I understand that the results may not be that high, but what kind of environment you are anticipating for the rest of the year?

Thank you, Billy, for the question.

Actually, we started to see a clear improvement, starting from March. So the same-hotel RevPAR trend actually performed better in March, compared with January and February. And that trend continued into April. April performance was also further improved from March.

So currently, we have seen some improvement, despite that we haven't recovered to the positive growth of same-hotel RevPAR yet. But clearly, when the seasonality bounced back, the situation is improved from our original estimation.

I see. Thanks. And another question to follow up is at what point do we need to concern -- or do we need to adjust our long-term strategy, meaning maybe to accelerate, to migrate to the mid-end hotel or even consider we need to slow down the expansion? If, let's say, the situation does not improve further, at what point we need to adjust our strategy?

Currently, we don't see the need of adjusting our strategy. If you break down our growth by brand, you are going to see the growth is mainly driven by the multi-brand strategy. We are growing significantly faster than our competitors, with quality today because we are penetrating into a much wider range of customers. And also, we are able to utilize a wider range of properties.

As you can see from our financial reports for Q1, we are achieving a substantial revenue growth in this very soft economy situation. We also achieved improvement in margin. That has [deduced] that we are a stronger performer in this market.

Thanks. One last question is, is there any updated timeline for the strategic alliance deal with Accor?

As we just discussed, we received the antitrust approval in March. So the deal is moving forward smoothly. We entered into the interim management period, starting from April 1 this year.

Thank you.

Thank you, Billy.

Justin Kwok, Goldman Sachs.

Good morning. Thanks for taking my question. Perhaps I also have questions on three things.

The first one is on the guidance, where you have exceeded your original guidance range, the revenue achieved. So I just want to check. When you look back for the first quarter, what was the driver between these better than expected revenue? Is it coming in from slightly better RevPAR achieved, or is it coming in from more say, leased and operated stores, or more franchised hotels being added to the portfolio? That's my first question.

It was mainly driven by better performance in March.

Okay. I see. And then my second question is on -- a bit on the cost side. You have achieved some good G&A run rate into the first quarter, when compared to the previous one. So we just want to check. And how sustainable is this, or do you think it's a lot driven by seasonality? Or how should we look at the full-year run rate for the G&A side, because I guess last year, you mentioned there was an increased IT spending, and what's the trend into 2015?

We remain investing significantly into our IT platform. Thanks to our revenue growth so far, we currently aim to control the G&A ratio, flattish from last year.

Okay. I see. Perhaps my last question is for Mr. Ji. I think -- well, I guess the investor looks positively on the start to use some of the free cash flow to do share repurchase. But in the -- more like the medium term, looking at the Company, I think you're still going to achieve positive free cash flow for this year, and perhaps also the years to come.

So how would the management think of the use of these cash? Is it -- will you think that it's a more sustainable way to return cash to the shareholders, like establishing a dividend policy? Or do you think you more like to do the ad hoc share repurchase? Or do you think you will still want to retain cash flow for the investment option, like M&A or other investment? I just want to hear your top-down view on how you're going to utilize these cash. Thanks.

We have analyzed the different impacts on our investors, between dividend policy and share repurchase. And we have chosen share repurchase. We believe that offers our shareholders more flexibility and also less tax attrition, when we return cash to our investors.

So it's possible that we will continue to do so, when we see we are generating cash, more than that we can immediately deploy to our growth. The free cash flow growth this year is expected to be significant. That's why we started to introduce the share repurchase program this year.

(Spoken in Chinese).

Let me translate for Mr. Ji. Mr. Ji added that as the management of a public company, we view it as our duty to make the right investments to generate more shareholder value. Therefore, when we are having cash, we definitely will need to find ways to deploy it, to right opportunities, so as to increase our shareholders' value.

And we will balance the needs of different shareholders. For those who prefer to stay with Huazhu and enjoy the long-term growth, we clearly will continue to deploy the cash into attractive investment opportunities. And for those who would rather see some more cash payback, then I think the share repurchase program also offers them the opportunity to realize their value.

Okay. Thank you.

Yaoxin Huang, CICC.

Hi. Good morning. Thank you for taking my question.

My first question has to do about margin. We see a very healthy margin improvement in the first quarter. Do we expect we can also enjoy margin expansion in the full year of 2015?

And my second question goes to Mr. Ji. (Spoken in Chinese).

Let me address the first question. Then I will translate for the second one.

So for the margin expectation for the full year, currently with the positive sales trend, we're expecting the margin this year to show some slight improvement from last year. That will mainly be driven by our significant growth in the franchised and the manachised business, and also due to our cost control efforts to rationalize our investments.

And the second question was to Mr. Ji is -- there is news about our conflict with OTA a while ago. We would like to know, what's the follow-up afterwards?

(Spoken in Chinese).

Okay. Let me translate for Mr. Ji. Actually, this interaction with OTA was during our normal course of business. But what has happened attracted excessive attention from the media and the -- our peer hoteliers, which is actually not within our expectation.

Our original intention was purely to firm up our position that we will offer the best prices on our official channels, and that the OTAs are not allowed to offer discounts that may jeopardize our commitment to our customers of this best price in the official channel.

Actually, it was really just a warning to them. And there, however, the media and the other hotel operators reacted very strongly and it caused extensive buzz, among the whole industry. That reflects the tension between the media and the other hoteliers, and the OTAs.

In reality, we have always been -- remained a very positive relationship with all the OTAs. Even when we had the warning notice, we remained in good communication with them. And as quick as the OTAs adjusted their practice on their websites and the apps, we brought them back with our inventory.

Actually, both eLong and Ctrip responded very fast. And if I remember right, we actually resumed offering them inventory within the same day. Qunar, because it's a platform business, it took them longer to make the necessary adjustments. We haven't opened the inventory to Qunar yet, but we remain committed. If they can be consistent with our policy, we will resume the supply.

Actually, Home Inns had a similar accident with the OTAs last year. Going forward, we will be very firm in implementing the policy of best price in official channels. Today, our members contribute more than 85% of our room nights sales, and our direct sales contributed more than 90% of the revenue generated. It's essential for us to remain strong in our direct sales channels.

Lin He, Morgan Stanley.

Good morning, Ji-zong, Jenny and Ida. Congratulations on the very good result. A couple of questions from me.

Firstly is on the Accor alliance. You mentioned that you started -- you entered into a management period from April 1. Jenny, can you talk about what are the goals that you want to achieve in this period of time?

And my next two questions are for Ji-zong. (Spoken in Chinese).

So let me address the first question and ask Mr. Ji to address the next two.

In regard to the interim management, the arrangement is basically having the Huazhu team start to get involved in the management of the MEB business. And this has twofold of meanings.

One is that, from the operational perspective, the earlier that [scheme] will enable the Huazhu team to familiarize themselves to the new business that we're going to manage going forward. And there is a lot of knowledge handover and a relationship handover in this process. This will ensure a smooth transition and accelerate our development of those brands.

And on the financial [fold], starting from April 1, the financial outcome of the MEB business will be captured by Huazhu through adjustments in the price we pay for this business. So we are going to start to enjoy the financial benefits of this business starting from April 1.

Let me translate the second and third question before Mr. Ji starts to answer them.

The first question is about -- a follow-up question about the direct sales channel. Lin has observed that in some of foreign upscale brand -- hotel brand groups, they have offered some special benefits to customers who have booked at their own channels. For example, they offer free Internet. And is Huazhu going to do something similar?

And the third question is about H World. Could Mr. Ji give us an update on how this has progressed and is he satisfied with the progress so far?

(Spoken in Chinese).

Okay. Now let me translate for Qi Ji.

If some of the foreign upscale hotels are offering their direct customers free Internet, I think they are acting too slowly. Huazhu has been the leader in the market in innovation. We're offering all customers free Wi-Fi, starting from the beginning. Clearly, we have had a lot of innovation in our loyalty program. For example, our members can not only accumulate points, but also receive discounts in their future visits. And this has never been done by the foreign players before.

And I think a lot of those innovations we have done in China has led the trend among the peers. It explains partially why the mainstream hotel chains in China, especially the three leading ones in China, have been enjoying a high percentage of direct sales.

We will introduce more benefits and convenience to our members through the direct sales channel. We have had an extensive discussion on that topic last quarter. So I'm not going to repeat those again here. We believe our members will find booking through us directly is a lot more convenient and a lot more beneficial than booking through OTAs.

And an interesting thing is we have been the leader in the innovation despite that not always that everyone else agreed with us at the beginning when we introduced a new concept. I remember years ago, when we started to work on multi-brand strategy, some of our peer players laughed at us and they claimed that they can win the market through one single brand. But look at what has been changing over the years. All those, who did not agree with us, are acting as followers to us.

The similar situation happened when we introduced the concept of H World. In substance, H World is a hotel alliance through big data. It's not under the brand concept or the management concept. We believe this offers extensive opportunity to the whole industry.

We are using -- actually, we are using the collaboration with Accor as a meaningful example to this strategy. A lot of the work we are doing with Accor is to connect the membership program and [accepting] the booking channels. That's a true reflection of benefitting each other through the big data.

Our plan is to make sure we have a successful collaboration with Accor and with that meaningful and sizeable successful example, we will roll it out to more smaller players, such as small-scale chains and individual hotels, in the future.

Thank you, Jenny, and thanks, Ji-zong.

Thank you, Lin.

[Chia Li], Brean Capital.

Hey. Good morning, Ji- ong, Jenny and Ida. And this is Chia from Brean Capital and I would like to ask a question on behalf of Fawne.

And we recently noticed that Huazhu will form a partnership with eLong in early March to offer 20% to 30% discount based on the working price for over 1,000 stores in 60 cities. And according to eLong, such promotion will last throughout the whole year. And my question is did Huazhu's own platform provide the same discount? And if you did, will such promotion continue to impact the room rate and RevPAR going forward? Thanks.

Let me make sure I captured your question correctly. You mentioned a promotional program eLong has announced. And you view it in conflict with our policy of best price in our official channel. And you are wondering what we are going to do with this. Do I get you right?

Yes, right.

Actually, I think you have already seen our reaction. As a view of the analysts just asked, we have sent out serious warnings to all the OTAs that they have to stop offering those extra discounts to our hotels. Otherwise we will stop offering them any inventory.

Okay. Got it.

David Lee, Lazard Investors.

Yes. Thanks, guys. Let me know if you guys can hear me okay.

I just want to ask you about, if you take the leased and operated hotel profits, pre-opening expense, pre-G&A, pre-sales and marketing, and if you look at that margin, that margin had compressed quite a bit over time. I understand there's a bit of the mix shift, there's a bit of a RevPAR. I just want to understand a little bit about what really -- can you guys break it down for me? What contributes to that kind of margin compression over the last few years? And I have a follow-up.

So your question is about margin changes of leased hotels in the past few years. Is that correct?

That's right.

The margin change has been reflecting a few things. One is the cost increase. We have been experiencing rental increase when we sign up new hotels. And we have also been seeing a significant labor cost increase year over year, driven by the minimum wage increase dictated by the government. So that has an impact on our margin.

And for leased hotels, the second impact will come in from the RevPAR trend. When the economy has been performing normally, we typically will have some same-hotel RevPAR improvement to compensate for the cost increase. Very recently, in the past two years, especially for 2014 and this year, we have been seeing a quite fast Chinese economy situation. The softer RevPAR trend had an impact on our margin. Those are mainly for the leased hotels, if we put it that way.

If you look at the Company's blended margin, then there are -- other factors are also playing in there. One significant factor would be, we have been moving our growth strategy from leased model to the manachised model. So you will have seen over the past few years a significant growth in the manachised business. Since that's a fee-based business, it generates a significantly higher margin in our P&L. So the increase of weight of the manachised revenue has a significant positive impact on our margin.

(multiple speakers) on the line, you will also see the cost on SG&A and pre-opening.

If you take -- if you look at the leased and operated -- leased hotels margin, let's say, on a like-for-like basis, they have -- how much have they declined? Let's say if they were 25% four, five, six years ago. Where are they now?

Last year the mature leased hotels are running at a operating margin of 21%.

What is this -- how does that compare to three years ago or four years ago?

Let me correct the number. We had a mature hotel gross profit margin in 2012 of 22%. And for 2014 it decreased to 16%.

Okay, Okay. Okay. Great. So it went from 22% in 2012 to 16%?

Correct.

Okay. And I just wanted to understand a little bit about -- understand just on maintenance CapEx or sustaining CapEx, I understand as the hotel gets -- as the hotels get older, you're going to have to spend more money on refurbishment and maintaining. How should we think about that as a percentage of your initial CapEx or as a percentage of your revenue, given the average age of your hotel right now? When should we see that peak and how should we think about that for the next few years?

We are actually making investments into the maintenance on an ongoing basis. So typically every year we would invest 3% to 4% of our revenue into the existing hotels. Some are expensed as a daily repair and maintenance, some are bigger expenditure which will be capitalized as maintenance CapEx. But it has been quite stable as a percentage of revenue.

Okay. Okay. And also just one more question I had on why haven't you guys been more aggressive on acquisition. I understand -- maybe I -- correct me if I'm wrong on this. I was just looking at the numbers historically. You guys have not been very acquisitive. Well, mostly small [tuck-ins], right? I just want to understand a little bit about how you guys look at acquisitions in general and what kind of drives you guys to be mostly organic.

For acquisition we have always been very open-minded, but we are also very disciplined. There are basically three criteria for us to enter into a meaningful acquisition.

Number one is that it has to be the right strategic fit. Number two, it needs to be at the right valuation. And thirdly, we need to make sure we have the right capacity to conduct a successful integration. Despite that we haven't done any sizeable acquisitions in the past, you can see the deals we have done are always of good quality.

Okay, great. And sorry, I don't mean to hold up the line. But I just wanted to have another question about -- just talk a little bit about your strategic [way], you guys versus your competitors. It seems like you guys, on a high level, are all doing the same thing.

Could you just talk a little bit about your strategic differences maybe in a little bit more detail versus your competitors. And not only just from a historical perspective, also going forward in terms of how you guys think about locations, how you guys think about the size of the hotel. I understand the upmarket into the mid-scale hotel. Could you just talk a little bit about some of the nuances and the differences, so we can understand how you guys differentiate from each other over time?

You have asked a very long question. Can you just let me know what's the essence?

(multiple speakers) how do you guys really differentiate from your competitors over the next three, four, five years?

I think you are going to -- I think we have already demonstrated a few things in the market and I think you are going to see the difference become more obvious going forward.

First of all, we are a aggressive growth company. That has been reflected in our [total] multi-brand strategy and our early investment into different segments. And that's the underlying driver why we are showing a much better growth ratio compared to our peers today. And you are going to see that difference become bigger going forward.

And secondly, (technical difficulty) have been very disciplined and quite solid in our operation. That has been reflected in our RevPAR performance compared to our peers. And, as you just mentioned, how we view acquisitions and how constructive we have been in shareholder value creation. I think those are probably the differences between ourselves and our competitors fundamentally.

Great, thank you. I'll jump back into the queue and let other people ask questions. Thanks.

Thank you.

Shang Koo, One North Capital.

Hi. Good morning and thanks for the call. I've got two questions.

One relates to a better understanding of your customer -- your membership base. You've said that 85% of your room-nights come from your members. Can you help me understand how many members you have today? How much of that you would -- do you consider active with your definition of what -- of an active member? And how has been the dollar spend trend on a year-on-year basis for your active members? Thank you.

Currently, by the end of the first quarter, (technical difficulty) [35m] members. And those are all considered active members, because our policy dictates that for any member who do not have stayed with us within two years, the membership will expire. So all the data we have been showing are active members.

Okay. So what has been the dollar spend trend per active member over the year in the past three, four years? I just want to get a sense of how much -- how you are growing the dollar value of each member.

The overall trend of our loyalty program has been growing significantly over the years. We know the membership program grow with our network expansion. So when we open new hotels, we would have new members joining through the new hotel's recruitment effort and our -- also all kinds of customer development programs we'll be recruiting more new members, attract them and also the marketing effort to attract new members into the program. And we have found our per customer who stay with us by different membership category has been reasonably stable in the past couple of years.

So, Jenny, I guess the essence of my question was that if I was a member of your program, loyalty program, and if you tracked me, my spend with you, my actual spend, dollar revenue you earn from me, three years ago versus today, how much would it have grown?

I don't have the data right now with me. You could reach out to Ida and she can follow up on that question.

Okay, sure. And just a second question. Can you just help me understand again, as you look out -- this is more of a strategic question and maybe Mr. Ji could also chip in if necessary. I just want to understand --

Excuse me.

-- you guys are doing a lot of unconventional things within a traditional business [that's really] through the way you've developed your online strategy and how you have built (inaudible) [H World]. I just want to understand you mentioned in the last call that you intend to make some investments this year into companies that are adjacent to the hotel business. I just want to understand, going forward, how should I think about the strategy. How you intend to develop the Company, not just as a hotel player, but in a broader sense. How you intend to change the complexion of this Company.

I'm not sure I fully understand your question. Could you explain it a little bit?

Sure. I want to understand how you're evolving beyond -- you did mention that, in the last call, you were looking to do some investments, acquisition of companies that are associated to the hotel business, not necessarily in hotels itself. And I'm just trying to understand how you intend to change the shape of China Lodging going forward.

I think -- if you look at our business from the (technical difficulty) you will -- when we forward this by ten years, I believe you will see, first of all, the core of the business remains as a hotel company. We are going to become much larger, multi-brand (technical difficulty) hotel group.

And at the same time, around this core of hotel business, possibly, if we are successful, you are going to see a lot of satellite business, which has some connection or utilizing our capability and the experience or platform developed by this core of a hotel company.

For example, we have set up -- we have invested into a joint venture with a couple of renowned venture capitalists to explore the opportunities in the apartment business. That could be one of those satellite businesses.

Right. Can you give me the underlying concept of these satellite businesses? You do mention investment in the apartment business. I just want to understand a little bit more of your concept behind the satellite business wrapping around the core.

The business we may get into will have synergy with our existing core hotel business. For example, the reason -- part of the reason we get into the apartment business is that it has a clear synergy with the hotel business when we acquire new sites. And of course, the market itself is also extremely attractive in China today.

When you talk about apartment, this is time share or this is rent -- you are renting apartments for the long term, for example. I want to get the sense of what you mean by apartment business.

This is mid- to long-term apartments. The typical resident will stay for 12 months.

Okay, okay. All right. Great. Thank you so much, Mr. Ji, Jenny and Ida. All the best for the next quarter.

Thank you. With that, let me close the call. Thank you, everyone, for making the time from your busy schedule to join the call today. We look forward to talking to you in the next quarter earnings call. Good bye, everyone.

Good bye.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. Thank you for your participation. You may now disconnect. Have a nice day.