Q1 2023 H World Group Limited Earnings Call
Good day and thank you for standing by. Welcome to H World First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be question and answer sessions.
To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To redraw your question, please press star 11 again. Please be advised that today's conference is being recorded.
I'd now like to hand the conference over to the IR Director, Mr. Jason Chen. Please go ahead, sir.
Thank you. Good morning and good evening everyone. Thanks for joining us today. Welcome to Edgeworth Group 2023 first quarter earnings conference call.
Joining us today is our founder and chairman, Mr. Jiqi, our CEO , Mr. Jinghui, our CFO , Ms. He Jihong, and our president, Ms. Liu Xingxin.
Following their prepared remarks, management will be available to answer your questions.
Before we continue, please note that discussion today will include forward-looking statements made under the Safe Harbor Provision of the United States' Private Security Certification 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 findings with the SEC.
Each workgroup does not undertake any obligations to update any forward-looking statements except as required by applicable laws.
On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliations of those measures to comparable GAAP information can be found in our earnings release that was distributed yesterday. 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
With that, now I will hand over the call to our CFO , Ms. He Ji Hong, for opening speech. Ms. Hoa, please.
Good morning and good evening, ladies and gentlemen. Thank you for joining our first quarter 2023 earning call today.
With the reopening in China, we have experienced a very positive growth in the first quarter of 2023.
Our franchisees are rebuilding their confidence and accelerated investment in new hotels.
After COVID, we observed people in China are willing to spend more experience-related activities like travel, similar to what happened in the rest of the world.
In a nutshell, we had a very good start in this year and we are very happy to report a strong performance in the first quarter of 2023.
Mr. Jing Hui, CEO of H World Group, will highlight the key achievements in this quarter, followed by elaboration of financial performance.
As always, we will have a Q&A session after management presentation.
With this, I now hand over to Mr. Jin Hui.
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Let's firstly turn to page 3 to review our rough part recovery in the recent months.
Overall, Refpa has been trending up since the reopening in November last year. Our legacy Huaju splendid Refpa in January , February , March, and April recovered to 96%, 140%, 120%, and 127% of 2019 last year.
recovery, we believe it is more important for us to continue enhancing our core competencies in order to achieve sustainable long-term rev-park growth.
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Please turn to page 4. We believe our sustainable long-term REPA growth will be driven by three key aspects. Firstly, our organizational restructuring and optimization.
The establishment of our regional headquarters enables more localized and efficient operations, as well as achieving further market penetration and synergies in each region. Secondly, lower-tier cities in China still appear a plenty of growth opportunities, especially considering the local residents.
rising spending power supported by high economic resilience. Thirdly, we will continue our efforts on further product and service upgrades and improvements in order to achieve a higher price premium.
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As we discussed in our last quarter's earnings call, the Sustainable Quality Growth is our fourth strategic focus in 2023. Under this core strategy, we will focus on three key areas.
First is our high quality hotel network expansion. Please turn to page 5. In the first quarter, excluding the soft economic hotels, we signed up 672 new hotels during the quarter, up 26% year over year.
which reflects our franchisees' confidence level gradually improving in the first quarter. During the same period, we opened 262 new hotels, which was slightly down year over year mainly due to COVID impact.
On the hotel closure front, we closed a total of 209 hotels in the first quarter, including 122 inferior economic soft brands and hunting 1.0 version hotels to further improve the quality of our entire hotel portfolios.
In addition, as we mentioned in the last quarter, some hotel closure processes were uncompleted in the fourth quarter, 2022, due to COVID impact and therefore were delayed to this year.
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Please turn to page 6. We continue implementing our volunteer city's penetration strategy.
As of March 2023, we have a total of 8,464 hotels in operation, of which 39% were in the lower tier cities, up 2 percentage points year over year.
and we have 2,304 hotels in the pipeline, with lower-tier cities contributing around 56%, up 1% year-over-year. The number of city coverage for both hotels in operations and in pipeline increased to 1,132 cities.
compared to 1,089 cities a year ago.
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Our second strategy is to further breakthrough in the mid-skill and upper mid-skill segments.
Please turn to page 7 and page 8.
For our mid-skill segment, we launched Orange Hotel 3.0 version with the orange as the theme color, emphasizing the concept of low-hust, meaning lifestyle of health and sustainability.
The Orange 3.0 version brings together the healthy, vitality, and environmental sustainability. Every detail in the hotel conveys the idea of an environmentally friendly and sustainable lifestyle.
For example, every kind of material we used in hotel renovation and the consumable products we provided to our guests in the hotel room are all degradable and renewable.
In summary, our new Orange Hotel 3.0 version expresses a positive and happy lifestyle and pursuant to the concept of green and environmental friendly.
It provides a more energetic, sunny and fresh accommodation experience to our customers.
We believe our new Orange Hotel is well positioned to meet younger customers' demands on nice design, experiences and vitality.
and becomes a good complementary product to our G Hotel. And we believe the orange brand should further enhance H World's competitiveness in the middle-scale hotel segment.
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This is the end of the interview. Please like and subscribe. We hope you enjoyed the video. See you soon.
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Please continue page 910. For our upper-middle-date segments, we successfully introduced the BS's Intercity branch to China. We recently opened four new Intercity hotels in Wuhan, Zhenzhou, Shen Zhen, and Shanghai.
These grant openings are very important steps for inter-city futures scalable development in China. Inter-city hotels in Germany, Mellie, Target and a service business traveler who frequently travel between cities. The hotel development is closely aligned with the railway
development process in Europe covering major transportation hubs in Europe .
In tax development in China market, it's always our key focus and introducing intercity brands in China market well reflected. That's our chairman Mr. Gigi once said, we are not simply introduced at German brands to China.
Instead, we are interpreting the German brands in China. Therefore, Intercity brands in China not only integrate the European features, but also conduct the local brand evolutions and observation on consumer behavior to refine the Intercity brand DNA which is offering the ultimate business travel experiences.
from German features of efficiency, quality and safety. In China, inner city hotels will be mainly located in major commercial centers and transportation laptops.
The theme color of the hotel room is black and white and grey
The theme color of the hotel room is black and white and grey. The design is very simple but highly functional.
With the intercity brand, we aim to provide Chinese new generation business travelers a better experience with high quality stay, workspace, service and food.
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We will continue to work on the development of the OTA and design of the OTA. Our third strategy is to further upgrade and strengthen our organizational and digitalized operational capabilities.
Please turn to page 11.
We have always put great emphasis on membership program development and direct sales capabilities.
We are very pleased to see our Edge Word app and Edge Word mini programs daily active users in the first quarter of 2023 increased by 2 times and 3 times compared to the first quarter of 2019 respectively.
In addition, our direct booking through our CIS system reached a record high of 62%, up 15 percentage points compared to the first quarter of 2019.
It is worth noting that our CRF contribution includes booking through our own channels only and including contribution from OTAs and other third-party distribution platforms.
Thank you for watching.
Thank you for your attention.
Here concludes our business review and update for the first quarter of 2023. With that, I will now turn the call over to our CFO , Ms. He Ji-hong, to discuss our financial performance for the quarter. Thank you, Tung-Kui. I'm not going to elaborate a case financial achievement in this quarter.
please turn to page 13. Our hotel network continues to expand. In first quarter 2023, the number of rooms achieved 7% growth compared to the same period last year, and it stands at 820,099 rooms. Hotel turnover achieved 71% growth.
compared to first quarter 2022, and it stands at more than 16 billion.
Please turn to page 14. Legacy Huaqiu blended revenue recovered to maybe $210. This is an 18% increase compared to first quarter 2019 and 58% compared to first quarter 2022. The revenue growth, the rest part growth is largely driven by ADR increase.
which shows a 25% compared to the first quarter 2019 and 24% compared to the first quarter 2022. Our average occupancy rate stands at 76% in this quarter.
Please turn to page 15.
Legacy DH blended revenue recovered to Euro 55. This is an increase of 66% compared to first quarter 2022.
The recovery is driven by both ADR and occupancy.
As first quarter 2022, we still face quite heavy COVID impact in many countries where DH operates.
Please turn to page 16. H-word revenue grew to RMB 4.48 billion in first quarter 2023.
This is an increase of 67% compared to first quarter 2022, slightly above our guidance.
Legacy Huacho revenue grew 58% year on year to RMB 3.59 billion and the Legacy DH revenue grew 118% in the same period achieving RMB 886 million.
This reflects the RFPOT recovery trajectory thanks to the reopening of China and the rest of the world, continued product upgrade, as well as market penetration and synergy achieved at the regional offices in China.
Please turn to page 17.
Our operating income in the first quarter of 2023 grew to renminbi $664 million compared to a loss of renminbi $708 million in first quarter 2022.
Legacy Huaqiu achieved renminbi 822 million, turning into positive territory compared to a loss of renminbi 416 million in the first quarter 2022.
Legacy DH still made a loss in the first quarter of 2023, but it narrowed its loss by maybe 140 million compared to the same period last year.
As a group, we maintained total SG&A costs at 13.8% of our total revenue, with China at only about 12% in the first quarter.
We are very disciplined about our SG&A costs as a percentage of our revenue and it is under our close monitoring constantly.
In Germany and European countries, we need to cope with costs in an inflationary environment which has some impact on our profitability.
Please turn to page 18. In the first quarter 2023, our adjusted EBITDA recovered to renminbi 1.65 billion. This is a significant increase from negative renminbi 333 in the first quarter 2022.
This adjusted EBITDA includes around 500 million gains from sales and core shares in the first quarter.
Adjusted net income was renminbi one billion in this quarter compared to negative renminbi 662 million in the same period last year.
The strong EBITDA and net income performance are mainly contributed by recovery of Chinese business.
Operating cash flow stands at a mean of 1.84 billion, a strong increase compared to cash outflow in the same period last year.
Please turn to page 19.
Our liquidity position is quite strong.
As of 31st March 2023, we have a net cash of Lending B957 million.
Our cash balance stands at an MMB 10.4 billion and we have an unutilized bank facility at an MMB 2 billion.
balance stands at an MMB 10.4 billion and we have an unutilized bank facility at an MMB 2 billion. Please turn to the next page.
Our revenue guidance for second quarter 2023 is 51 to 55% growth compared to second quarter 2022.
Excluding the edge, the revenue of Legacy Hua Zhou is projected at a growth rate of 64-68%.
This implies our RFPOC guidance announced early this year remains unchanged.
We are confident about the market recovery and the performance for the rest of this year.
Thanks, Jihong. So now we can open for the Q&A session. Operator, please.
Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Once again, that's Star 1-1 for questions. Our first question comes from the line of Ronald Leung from Bank of America. Please go ahead, Ronald.
Hello, good morning, management. Thank you for taking my question. It himself was mentioned that you
Hi, good morning management. Let me ask my questions in English.
My first question is what is management expectation for Rafta recovery in the second quarter? The second question is about the supply outlook for the hotel industry. As the Rafta recovery has been solid, some franchisees or hotel owners are planning to continue to recover.
Thank you for your attention.
Thank you for your attention.
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Okay, so thank you. So firstly, I will answer the first question. So for the revenue guidance for the second quarter of this year, so it implies the RefPA has blended the RefPA recovery compared to the same period of 2019.
which is in the range of 110%, 215%, which is in line with our annual guidance in terms of the REF-PAI recovery. And for the second questions, yes, for the first quarter, we are observing some of the supply gradually increase but in a relatively slower pace.
But given the recent macro conditions as well as the property market cyclical issues, we are not seeing a large increase in the supply, at least in the short term. Secondly, even though we are seeing some of the supply is gradually coming back into the market.
But the clear trend is the branded, what's your penetration or the China ratio continuously improved. And this is actually in, you know, keep the demand pieces of the market and changed. And certainly in terms of the competition, we think the competition is always there.
organizational capability to increase our entire competitiveness in the market. Thank you.
Thank you very much.
Thank you very much. Thank you.
Our next question comes from the line of...
Si Jie Lin from CICC, please ask your questions. Yes, yes.
Thank you, Bonnie. We will now go to the follow-up question on rapid recovery. We will now go to the next question, and then we will take questions from the audience. We will now go to the OTC Q&A session, and then we will take questions from the audience.
technology to ensure that the technology is being used in the world. And we are looking at the opportunities that are available in the world. So I will translate my questions into English. So my first question is a follow-up question on rapid recovery. So do we think the current ADR driven recovery is healthy and sustainable? What ideas do AI providers need to learn after we develop this framework?
and will the gap in OTC recovery, especially for business demand, exist for long? And my second question is that what's the pace of hotel's new findings and the franchisees' sentiment in Q2 after this all-Q1 recovery? Thank you.
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Okay, now I will answer the first question in terms of the REFPA. So clearly REFPA is a combination of the ADR and OCC in terms of ADR undeniably. You know, in the first quarter, I think the REFPA recovery was mainly driven by the ADR and this is actually very much in line with the PENTAO.
global long-term market recovery post the COVID. And this is somewhere reflects the higher spending capability as well as the impact of the inflation. But I think, well, relatively, I think the ADR growth at this moment is still quite healthy.
But again, we observed especially in the leisure market, people are becoming more willing to pay a premium for good quality products and good services. And this will support the ADR growth. In terms of the business travelling, yes, the demand for the business travelling.
as a group we will be planning according to this trend.
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Okay, in terms of the franchise's confidence, so after the three years of COVID, we think our existing franchisees are becoming more stable and more mature, and they have better knowledge in terms of the volatility and uncertainty.
So we think they are very stable at this moment and the confidence is gradually improving as well. But we are also very happy to see especially in the lower tier cities markets we have a lot of new franchises joining us and those franchises might not be previously in the hotel industry. Some of them are the local...
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or don't translate to the red hot growth can go and inside the down the straight team on the normal things that you have high management and media are from city. So here I have 2 questions. The 1st, 1 is on your overseas business. So the edge business actually is doing some last making in 1st quarter. So 1, 2, check with management your view on the outlook for 4 year and also how.
First quarter you see a loss because of the seasonality. We all understand that, especially European countries, the seasonality is quite strong and volatile. So in the first quarter, the revenue was lower due to the seasonality and at the same time the cost because of the seasonality.
for the whole year our ABIDA will come back to the positive territory. And the second question regarding the RefPAR, you can observe from the history of Huazhou, we have been improving RefPAR year by year.
This is not only the same store, but also the product upgrade and the product mix as well. And typically, companies, Respa will grow with the economy, economic growth as well. So for the past several years, and we are confident that with the...
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Hi, Lina, can you translate yourself?
Yeah, I will translate my question myself. So first question is on the Red Pod drivers, especially on the pricing power for the ADR. So we have seen very strong ADR increase in first quarter, driven by inelastic demand. But going forward, we will see the supply demand gap too narrow and also the
funding power is not as strong as the economy has shown. So also management guided REPR in second quarter will be 110% and 115% of 2019 level. Does that imply management also see like a weakening trend in ADR?
or what kind of change in the mentality of the ADR trend going forward. The second question is on the impact of portfolio upgrade on Redpar. Management mentioned it's like a key driver for Redpar as well.
So can you quantify the impact, for example, like the percentage of hotels upgraded in our portfolio versus 2019 and what is the impact to the webinar growth versus 2019. The third question is, you commented the business travel hasn't recovered to 2019 level, but can you
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Thanks for your questions. We understand that quite a lot of you are concerned about the Refpar and the ADR, so that's why I would like to elaborate a bit more details and express and emphasize on our views again.
by taking these opportunities. So for us, since the year beginning, during our budgeting process and during our first, during our annual, last year earnings conference call, so our views keeps with the cautiously optimistic.
unchanged and I hope you can understand this. So our views has been no change since then.
In terms of the RAPAR and ADR, I think it is quite a complex combination, especially for us. Talking about the China market, we have the lower tier cities, we have the leisure market, we have the upper-scale, we have the upper-made and middle-scale. It's a very diversified market.
undeniably talking about the business travelling, given the impact of the economic cycle, and some of the business travelling demands are not fully coming back yet. But we do see a lot of local demand, especially from the leisure travelling demand side, it's quite...
strong since the year beginning to now and you can also realize that that's a lot of you know activities happening here and there such as the barbecue events in the city and the festival in Sichuan, Bana, which is also supported by the government on the on the leisure traveling activities.
And another front is if you're looking at the Intel recovery in April , we observed that that airline business actually is not fully recovered. But if you're looking at the railway, I think they are very much well recovered or even exceeded the 2019 level.
supporting quite strong probably demand as well. And for us, again, in terms of the long-term sustainable REF-PARC growth, we're still concentrating on building our core competencies through branding products and services. And we have different product mix. And we also not only the upper mid-scale.
in the future. So that's why, you know, given we are doing a lot of, you know, developments in China, not only the lower tier cities, but also the upper mid and upskill. So I think this quite be a very complicated and it's very difficult to us to predict, give a very accurate guidance at this moment. Thank you.
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So, because China experienced the 3 years of COVID, so obviously, you know, at the initial reopening, especially in the 1st quarter, definitely there are some a lot of, you know, kind of demand. People are keen to traveling and keen to go outside and the business man and the franchisees are keen to resume the business as quick as possible. So that's the key now even if they do not have a K-12\'85
quite a lot to Europe . If you see, you know, the Europe recovery currently, it's not as strong as before. And especially considering China experienced the three years of COVID, but I think Europe market experienced only one half years. So we think we should give the market a bit patient.
patients in terms of the sustainable recovery going forward. As Jinhui mentioned before, we observed actually the airline, the occupancy rates for the airline is not recovering to the pre-COVID level, but the railway station is performing very, railway business is recovering very well.
and we still seeing a lot of, you know, traveling demands here and there. And we didn't see any statistic on the self-driving traveling activities, but we strongly believe it should be quite strong. So, therefore, no matter during the COVID or post-COVID, we still seeing the people asking to, you know, travel.
So basically talking about the like for example the economic segment will be more resilient compared to the upskill and the recent consumption trend was very interesting taking the barbecue events in Sibo as an example. We observed that people are you know generally want to spend a little bit money and to to buy a big happiness.
and people who are willing to spend a big chunk of money at this condition under this condition are not very, very high. And therefore, we think the obscure segments will be...
will be taking even longer time to recover. For us, we are not only caring about ADR, we care more on building up core competencies and the entire ecosystem. We want to provide the benefits to all our partners, no matter our customer.
only striving to increase the ADR and because it is also very difficult to expect the ADR or predict the ADR trends in the future because there's a lot of factors gonna affect the ADR movement. Thank you.
All right, thank you. Our next question comes from the line of Xing Mei from Huatai. Please go ahead, Xing. Hello, everyone. I'm Xing Wei from Huatai. I'm a senior at the University of China at the University of China. I'm a senior at the University of China at the University of China at the University of China.
Thanks for the opportunity. Can you explain how the organization structure supports the development of the new brands such as Orange 3.0 or Orange Crystal Intercity? Are there any problems in the operation of this organizational structure?
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Thanks for your questions. I'm very glad you asked about our organizational restructuring. So firstly, I would like to clarify our – it is just one year since we conducted our organizational restructuring since last year.
So I would elaborate more on the purpose of building up to six original headquarters. So as you may know that one of our core strategy is to, you know, is to fully penetrate in China market in the limited service segment together with our sustainable quality growth strategy.
So by doing this, by setting up these six regional headquarters, we are very happy to see a very initial good outcomes over the last year. The regional headquarters are more close to our franchisees and customers and achieving a higher operational optimization as well as the synergy.
And in talking about the upper mid-segment, so basically the upper mid-segment or up at the brand, are still using the vertical organizational structure. But the regional headquarters will help or support the upper mid-segment in terms of the development. But the management will be remain within each of the brands. Thank you for watching.
and in the headquarters. If you're talking about some of the challenges, or you know, and talking about some challenges, currently we still think, I think in terms of the talent reserve is not still enough, but we think it's going to take some to further building it up. Thank you.
Thank you. I'm showing no further questions. I'll now turn the conference back to the management team for closing remarks. Thank you, everyone, for taking your time with us today. We look forward to seeing you in the upcoming quarter. Thank you. Bye-bye. This concludes today's conference call. Thank you for participating. You may now disconnect.
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Good day and thank you for standing by. Welcome to each World First Quarter 2023 Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be question and answer sessions.
To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.
Please be advised that today's conference is being recorded. I'd now like to hand the conference over to the IR Director, Mr. Jason Chen. Please go ahead, sir.
Thank you. Good morning and good evening everyone. Thanks for joining us today. Welcome to Edgeworth Group 2023 First Quarter Earnings Conference call. Joining us today is our founder and Chairman Mr. Jee Jee.
our CEO Mr. Jing Hui, our CFO Ms. He Ji-hong, and our President Ms. Liu Xingxin. Following their prepared remarks, management will be available to answer your questions.
Before we continue, please note that discussion today will include forward-looking statements made under the Safe Harbor Provision of the United States' Private Security Solidification 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 state as EC.
Each workgroup does not undertake any obligations to update any forward-looking statements except as required by applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performers. If you have any question about our discussion about interim audiences, please
Reconciliations of those measures to comparable gap information can be found in our earnings release that was distributed yesterday. 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
With the reopening in China, we have experienced a very positive growth in the first quarter of 2023.
Our franchisees are rebuilding their confidence and accelerated investment in new hotels. After COVID, we observed people in China are willing to spend more experience related activities like travel, similar to what happened in the rest of the world.
In a nutshell, we had a very good start in this year and we are very happy to report a strong performance in the first quarter of 2023. Mr. Jing Hui, CEO of H World Group, will highlight the key achievements in this quarter, followed by elaboration of financial performance. As always, we will have a Q&A session after management presentation.
With this, I now hand over to Mr. Jin Hui.
The Chinese CEO kept often though either considered a path to situated cloneEL See you then.
Thank you for your attention.
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Let's firstly turn to page 3 to review our RefPA recovery in the recent months. Overall, RefPA has been trending up since the reopening in November last year. Our legacy HUACs blended RefPA in January , February , March, and April recovered to 96%, 140%, 120%, and 127%
to continue enhancing our core competencies in order to achieve sustainable long-term REFPA growth.
Sorry to interrupt. Will everyone regain control on the forest so soon? Thank you for your attention.
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