Q3 2024 H World Group Ltd Earnings Call

As of the end of March 2024, the ratio of Chinese-Chinese economic models, mid-range brands, hotel and tube hotels, and newly-opened hotels is 91%, 80%, and 90%.

We believe that the Chinese domestic hotel market is still the largest and most promising market, and it is the foundation and core of Huazhu's business.

In the future, we will continue to launch high-quality, cost-effective limited service products to expand our coverage of the Chinese market and further solidify our leading position in the limited service sector.

We continue to focus on the economy and small and medium-sized enterprises for the dissemination and development of the internet market.

Please turn to page five

We believe the mass market remains the largest and the most promising market in China. And it is also the foundation of our business.

Going forward, we will consistently roll out high quality and good value for money limited service hotels and products, expanding our coverage nationwide and solidify our leading position in the limited service segment.

Our penetration in first-tier cities is ongoing.

Please turn to page six. By the end of the third quarter of 2024, the proportion of the company's operating hotels in third-tier and lower cities is 42%, an increase of two percentage points year-on-year. The proportion of pipeline hotels in third-tier and lower cities has reached 53%.

The proportion of operating hotels increased by 11 percentage points. With the acceleration of signing under our southern strategy and the growth in signing of mid-to-high-end hotels, the proportion of pipeline hotels in first-tier cities increased by 2 percentage points year-on-year.

By the end of the quarter, the number of cities we covered in China reached 1,324, an increase of 117 cities compared to the same period last year.

We keep penetrating into the lower tier cities. Please turn to page 6.

In the rankings, three-star and low-grade hotels account for 53%, with an increase of more than 11 percentage points.

At the same time, the new visa in southern countries, combined with our local strategy and the growth of our Okmi blockchain, has increased the proportion of aligned hotels in a city by 2 percentage points each year.

By the end of the third quarter, the number of cities we covered reached 1,324, which is 117 more cities than a year ago.

Huazhou continues to make efforts in the mid-to-high-end hotel sector.

Our mid-to-high-end main brand has gained consumer recognition and has also attracted franchisees.

Please turn to page seven.

By the end of the third quarter of 2024

The number of mid-to-high-end hotels in operation by Huazhu exceeds 800.

Year-on-year growth of 33%, with the number of pipeline hotels at 487, a year-on-year growth of 36%. Among them, the number of Chengji Hotels operating and in the pipeline in China has reached 125.

Our high school development continues in the third quarter. Our key high school technology assets are gaining recognition and traction among customers and brands.

Please turn to page seven. On the afternoon of March 24, the number of transport crew members exceeded 800 people.

Increased the annual birth rate by 33%, while the health system's data reached 487%, increasing the annual birth rate by 36%.

In this category, our core brand InterCity operates 125 hotels in operation and transportation.

Recently, our other mid-to-high-end main brand, Crystal Hotel, officially launched version 2.5. Please turn to page 8.

Crystal 2.5 is a mid-to-high-end hotel specifically designed by the group for business travel operations.

The overall product achieves perfect design through light and color.

Guest room bedding configuration

Along with the unique aroma of the crystal brand, it provides a high-quality space for busy urban travelers to relax, unwind, and fall into a peaceful sleep from all aspects of visual, tactile, and taste senses.

At the same time, the hotel is equipped with an executive lounge featuring the brand's unique signature cocktails, creating a public space where you can either sit quietly and enjoy a drink alone or share a toast with companions.

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Recently, Crystal Orange, our upper-tier brand, launched version 2.5, please turn to page 8.

Crystal Orange 2.5 Version is our highest-grade product designed and manufactured, suitable for professional travelers.

Designed Fragrance Diffuser offers a comfortable, relaxing and high-quality space for the busy business travelers walking and living in the fast-paced metropolis

This hotel also features a special lounge, which is a public space suitable for tourists to enjoy private time or interact with friends.

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After several years of refinement, ASUS's mid-to-high-end business has begun to gradually show results this year.

However, we believe that our mid-to-high-end offerings still need meticulous refinement in many aspects, such as brand and product.

There is still much room for improvement in areas such as customer insights, customer experience, and services, especially in the context of the excellent service strategy proposed at the beginning of this year.

Therefore, we will continue to work hard to strive to become one of the top brands in the Chinese market in the near future.

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After several years of development

Speaker Change: Our upscale segment is starting to bear some fruit in this year

Speaker Change: However, we think there are still more polishing and improvements needed in areas such as branding, product, customer insights, customer experiences and services.

Please turn to page nine. Affected by the macroeconomic environment, the overall business market recovery remains relatively slow.

We continue to leverage business travel to compensate for the lack of some individual business travelers, achieving stability in occupancy rates during leisure travel standby periods.

In the third quarter of 2024, the number of rooms booked through direct corporate connections exceeded 7.5 million, representing a year-on-year increase of 11% and a quarter-on-quarter growth of 19%. The number of active corporate clients exceeded 4,500, showing a year-on-year growth of 45% and a quarter-on-quarter increase of 23%.

In order to mitigate the impact of the lack of demand from individual business travelers and to maintain stable occupancy rates during low travel seasons, we are further enhancing our DirectB2B capabilities.

On March 4, 2024, the number of people directly logging into the B2B platform for house dinners exceeded 750 million.

Huazhu has always emphasized the importance of the membership system and direct sales channels. Please turn to page 10. The membership size of Huazhu Club continues to grow, with the number of members approaching 260 million by the end of the third quarter.

In the process of rapidly expanding in scale, continuously covering new areas, and breaking through new levels, Huazhu needs some time to accumulate members and increase the direct sales proportion of these new stores. Therefore, in the short term, especially during the ramp-up process of new stores, some support from other channels is needed.

But in the long run, membership and direct sales remain the most important and sustainable channels.

In the third quarter, we carried out a targeted channel optimization initiative, promoting store managers to enhance their merchandise and customer acquisition as well as sales capabilities centered around the store. We further emphasized the importance of direct sales and membership for the company's long-term sustainable business development.

The contribution of the central budget increased in the third quarter, reaching 64.2%, with a year-on-year and quarter-on-quarter increase of 2.2 percentage points and 4.3 percentage points, respectively.

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Speaker Change: We have always been emphasizing the importance of membership and direct sales. Please turn to page 10. The membership base of our Edge Rewards continues increasing.

Since the end of the third quarter, H-Reward has nearly 2.6 million members.

Speaker Change: As we rapidly expand our hotel networks, entering into new regions and breaking through in some new segments, it will naturally take some time for us to accumulate new members and improve the direct sales contribution for those new hotels.

Speaker Change: As a result, in a short time, we do need traffic support from other channels during the ramping up pace of the new hotels.

In any case, members and direct childbirth remain the most important and sustainable path to reproduction for us.

Speaker Change: We urged our hotel managers to improve their hotel-level customer acquisition and sales capabilities. And we re-emphasized the importance of membership and direct sales capability for the company's long-term sustainable growth.

Speaker Change: In the third quarter, our CRS contribution improved by 2.2 percentage points year over year and 4.3 percentage points quarter over quarter to 64.2%.

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The above is the update on the business situation of Huazhu China in the third quarter of 2024. Next, please welcome JSO He Jihong to update us on the operations and business situation of DH for this quarter.

That concludes our third quarter business update for Lexi Hua Zhu. Now I will hand over the call to our CSO, He Ji Hong, to update us on the Lexi DH business.

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Speaker Change: Thank you, Jinhui. I'm happy to give everybody an overview on the overseas business of H World. Please turn to page 11.

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Speaker Change: We are very happy to report that the blended ADR from DH increased 2.5% from 114 EUR to 117 EUR in the 3rd quarter 2024.

Speaker Change: With 0.8 percentage point increase in occupancy, REF part increased 3.7% from 79 EUR to 82 EUR.

Please turn to page twelve

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Speaker Change: We restructured our economy brand Sleep business in this quarter as well. We acceded a joint venture with entrepreneur Peter Haber, and took over 100% ownership of the Sleep brand.

Speaker Change: As a part of the Asset Live strategy, we acceded 14 leased and owned hotels in Denmark.

This transaction has minimum impact on our financial statement.

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Please turn to page 13

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Speaker Change: In the third quarter, we also started a major restructuring effort in DH business.

First, we shortened the headquarters' routes and reduced 30% of the non-operational staff at the headquarters.

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We continued to scrutinize hotel performance and optimize hotel operations.

The above statements do not represent the position of this station.

Speaker Change: All these restructuring efforts incurred around the remaining $81 million one-off expense in this quarter.

Speaker Change: The negative impact on financial performance of Deutsche Hospital in this quarter is largely due to this restructuring cost, which you will see later.

YoYo Television Series Exclusive

Speaker Change: We will start to observe full year saving in 2025 and we are confident that our overseas business is on a successful trajectory

Speaker Change: Second brother, take the person away. Shadow, make any consequences public. Just exhaust our success. Master Huang, it's your line. I've finally laid flat. Ninth brother, stop messing around. Seventh brother, your pelica is blocked by you.

Speaker Change: With this, I conclude the overview of the international business and I hand over to our CFO Chen Hui for the financial performance review.

Chen Hui: Thank you, Jihong. Good morning and good evening, everyone. Let me talk you through our operational and financial review for the third quarter of 2024.

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Our hotel network continues to expand, with the total number of rooms increasing by 20% year-over-year to nearly 110 million people. This will conclude in Q3 this year.

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Chen Hui: Hotel turnover for the third quarter of 2024 was RMB 26 billion.

Representing a 11% YOY increase

Chen Hui: Lexi Huazhu Hotel turnover grew 11% year-over-year to RMB 24 billion. Lexi DH turnover grew 8% year-over-year to RMB 2.1 billion.

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Page sixteen

Chen Hui: In the third quarter of 2024, our hotel revenue for the group increased 2.4% year-over-year to RMB 6.4 billion.

In line with our guidance

Lexie Hua Zhu's revenue grew 1% year-over-year to RMB5.2 billion.

The rent in Washington state decreased by 10.4% because the rent decreased.

We met closely.

22 guest hotels in half a month, and the number of tourists and occupied hotels has decreased due to the pandemic.

38% or 6.3% are on a year-over-year basis

Hua Zhu's revenue, monetized and franchised

14.7% increase, mainly due to hotel openings but negatively impacted by last year's high-rise decline

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DH's profit increased by 9% to RMB 1.3 trillion. This is an honor for the business recovery and the extensive development of the hotel network.

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This is page 17 of the Central Television.

Speaker Change: We have been committed to grow as a line model, expanding our hotel network.

Using duty-free and distribution hotels resulted in our duty-free and distribution hotel revenue continuously increasing.

In the third half-month of the twenty-fourth day

The contribution of financial resources in Manchester and French hotels reached 50% of our Lexi Quadros's financial resources.

Speaker Change: We expect this trend to continue as we become more and more as a light.

Speaker Change: We believe this will drive a gradual and continuous margin expansion.

And help us become more stable in the economic cycle

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Please turn to page 18. The hotel's revenue will reach 380 million yuan on March 3, 2024, an increase of 5%.

Speaker Change: The increase was due to rising personnel costs from our continued hotel network expansion.

The three open-door cards are still at a low level, we continue to move towards the SLI model, and maintain selection in the open-door list and owned hotels.

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SGA Fest

The IMB 975 meeting will be held on March 4, 2024.

Up 18% year over year

9% year-over-year, and the next designated hitter rose 42% year-over-year.

The 8% increase in Lexi Huadu's SG&A is mainly due to high corporate fund compensation to attract and reward core employees.

Speaker Change: excluding share-based compensation, SG&A expense for Lexi Hua Zhu increased 2.5% year over year

Speaker Change: The 42% year-over-year increase in LexiDH's SG&A was due primarily to a RMB81 million one-off restructuring cost.

SG&A expense for Lexi DH increased by 7% over a period of time.

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Speaker Change: As a result, our income from operations in the quarter was RMB 1.7 billion, which is representing a 10% ROI decline but a 10% Q2 growth.

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for our profitability and the cash flow during the quarter.

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Speaker Change: In the third quarter of 2024, our adjusted EBITDA decreased 9.5% year-over-year to RMB.

TWO O' CLOCK ONE Fit in

Great

Due to last year's surge in high-grade pearl ore and the normalization of SGNA

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Our DH Business Group produced 2.1 billion products in Ibiza. These products are mainly produced to be oxygen-free.

MENTIONED PREVIOUSLY

Speaker Change: However, after this round of restructuring, we believe our DH business will be leaner, and its profitability should see some improvements.

Improvement next year

Our organization produced IMB's $140 million online tax and IMB's $170 million cash flow.

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Phase 20 for our liquidity position

As of end September 2024, the group had a

Speaker Change: IMB 9.3 Billion Cash, Cash Equivalent, Restricted Cash and Pumped Deposits

And was rejected at the RMV's lock exchange position

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Speaker Change: We also had RMB 3.6 billion unutilized bank facilities as of end September.

Please see the next page

as part of our total shareholder return plan.

We continue to buy and back shares

As of September year-to-date, we have brought back roughly

The $270 meeting

Gained the market's stock market stock market stock market stock market stock market stock market stock market

In the forty-ninth month

Speaker Change: We have returned around 470 million U.S. dollars to the shareholders through both dividend and share repurchase.

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Also, please don't forget to share with your friends, give us a like, and subscribe to our channel to receive the latest updates.

Speaker Change: accounted for more than 80% of our free cash flow generated in the same period.

On April 4, 2024, in addition to the ongoing pressure on housing prices, we will continue to close some hotels and residential hotels because they contribute to our production line strategy.

The closure of Moa.

These residential hotels will definitely bring some negative impacts.

Our funding is in April, therefore we expect our organization's funding to grow between 1% to 5% compared to Q4 2023.

Then within four weeks, force out 1%-5% of DNH

I have placed a bet

We are ready to take your questions.

Operator, please open the line for Q&A.

Speaker Change: Thank you. We will now begin the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.

If you have any questions, please press the 1 1 button again.

Speaker Change: We will now take Alphys' question from the line of Ronald Leung from Bank of America. Please ask your question.

Good morning management, thank you for giving me the opportunity to ask questions. I have two questions. The first question is about Rothbard's situation. I would like to ask how the company's performance of Rothbard was in October and November. What are your expectations for Rothbard in the fourth quarter?

The second question is about seeking advice on the management of this membership system.

Can you share what specific strategies the company will have to improve member loyalty and increase the proportion of direct sales?

My first question is about RAFPA. What is the trend of RAFPA in October and November? Do you expect RAFPA to grow in the 4th quarter?

My second question is about the management of the membership system. May I ask what the priority strategy for member trust is to increase the direct sales ratio? Thank you very much.

The above statements do not represent the position of this station.

I am Jinhui, I am here to answer these two questions.

Everyone can see from the trend that China's business market is currently experiencing relatively weak growth, so recovery is needed.

So the entire year has been affected by ADR, mainly due to the impact of ADR. Especially the decline in ADR of mid-to-high-end hotels in China has significantly impacted the ADR of the entire hotel industry.

We also see the positive side. The rental rate and the overall market demand are still maintaining a relatively steady growth trend. At this stage, Washington is still maintaining high-quality development.

Our fourth quarter

The estimated real PAR might fall within the range of a median year-on-year decline due to the drop in ADI, but this trend is narrowing, and the year-on-year trend is narrowing.

The above statements do not represent the position of this station.

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Let me answer your first question about the tourism industry. You can see clearly from the market that this year, the tourism industry is weaker than the tourism industry.

Okay, I will answer the second question, regarding the membership issue.

Due to Huazhu's entry into more mid-to-high-end markets and the emergence of a large number of new leisure and tourism markets within the overall market trend, the penetration and effectiveness of Huazhu's original membership network are rapidly improving and still have room for improvement.

Washington State is rapidly expanding our market coverage and product category coverage. Especially with the increase in our product categories in the tourism market, it will significantly impact us.

Will providing consumers with more product choices and more categories of choices be the first aspect?

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Speaker Change: Regarding your second question about membership, we are entering different regions and conducting seminars in new sections, so it takes some time to create new memberships, new areas, and members. From the information obtained from our membership program, there are also many new demands coming from the entertainment market. We are working hard to enhance the membership program to offer more diverse products to different customers in order to sustain the development of the membership program.

Secondly, we are planning a comprehensive upgrade of our membership benefits and service system.

Especially in terms of the lowest price guarantee, we further enhance the conversion and process of our offline scenario members through the capabilities of Huazhu Club's rights and services.

We are also working to increase member profits and ensure that member profits are the lowest through our direct sales program and member profit plan. Therefore, we can further improve member profit conversion and increase member profit return rate.

Thirdly, we are actively expanding and engaging in comprehensive cooperation with various vertical travel companies such as airlines, Juneyao Airlines, and Didi to further enhance the convenience of travel in our scenarios.

Speaker Change: We are also seeking some cooperation with cross, you know, different segments, such as, you know, working with the airline company, such as Junyao Airline, as well as, you know, the car hailing companies, which is Didi, to seeking more cooperation among different industries.

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The last one, we have a page of this in front.

This reflects that we are actually focusing on enterprise-level services at Huazhu, particularly for large corporate clients.

In the past three years, we have made substantial reserves and capacity building. I believe that enterprise-level membership services will also be a very important aspect in driving our membership growth in the future.

Thank you

Speaker Change: Thank you. Our next question comes from the line of Simon Zhou from Goldman Sachs. Please ask your question, Simon.

Speaker Change: Thank you to the administrators, and thank you to General Manager Jin, General Manager He, and General Manager Chen for their sharing. I have two questions. The first question is also about the issue of RAPPA. I know that from the second quarter of this year until now, there might be issues with a high base, and as you just mentioned, business travel has been affected, so RAPPA might not be performing very well. I would like to ask, for example, what are your views for next year, and looking a bit further ahead, what are your views on the RAPPA of the entire domestic market? This is the first question. The second question is also related.

I would like to ask because many investors are very concerned about the situation of the attack's magnitude. I'm not sure, but I think I asked about this in a few previous calls. Recently, I heard Xie Cheng say that their supply seems to be slowing down a bit. I wonder if from your perspective, you see any signs of growth on the supply side slowing down a little?

There are two questions. First, in this season's events, we watched several performances of the four seasons. For the next four seasons, we will look at the next event.

What are your expectations, perhaps over a longer period, what are your expectations for the internet industry? Secondly, related to this, many investors are asking about the investment situation or surprise situation in China. We heard that in the fourth quarter data released by T-COM, there was actually an inconspicuous slowdown. Therefore, I would like to know what brokers think about the surprise situation for next year.

Thank you

Let me answer this question. First, regarding the future predictions of REPA and the overall long-term forecast, let's first address the judgment for 2025, because 2024 is indeed influenced by the high technology of 2023.

Throughout 2023, especially during the summer and peak travel season, there was a strong rebound. This rebound was partly due to a short-term excess in supply and demand.

We believe that next year the entire heat wave will enter a relatively sustainable and stable cycle. Our assessment for Washington state is that it will at least be on par with this year, according to our forecast.

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In the future, we still firmly believe in China.

Very good, a market with potential because the Chinese central government is vigorously promoting domestic demand and internal circulation.

We believe that under the stimulation of domestic demand within the internal circulation, China's cultural and tourism industry is undoubtedly one of the most promising markets. Especially with the central government continuously opening up visa-free policies, I think on one hand, domestic demand, and on the other hand, the demand for attracting international visitors will continue to be maintained. Therefore, our basic judgment is that it will enter a sustainable, healthy, and stable cycle.

The second question about supply

We also see the hotel industry in China. We have repeatedly held the view that the supply in China's hotel industry has never lacked supply, but rather lacks effective high-quality supply.

So we see two trends, one is

It turns out that the supply of high-end and full-service hotels under real estate will rapidly shrink.

Some have even been eliminated. We have seen the closure of Beijing Changchun Hotel, the closure of Beijing Yuse, and Shanghai saying hello to Greenland. These hotels are exiting.

It shows that traditional real estate and full-service hotels are unable to adapt to changes in the new market. The second trend is

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The accelerated promotion of low-quality and independent hotels, especially the rapid penetration of leading brands represented by Huazhu. Originally, these low-quality and independent ones were rapidly promoted.

And then the supply, because hotels are also very market-oriented. In the long term, we still firmly believe that it is a market-regulating factor, a market with a very large weight.

It will enter a stage of relative supply and demand balance.

Huazhu continues to maintain high-quality market coverage at this stage, especially with the excellent service we proposed this year. We hope that Huazhu can provide higher quality products and services to achieve further market penetration.

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Let me first answer your first question about the popular performances for next Christmas. I think this year's Christmas popular performances are obviously based on last year's high standards, especially during the summer season, along with some extreme performances.

Speaker Change: The students of the tourism institute had many reasons last year, including the outbreak of the pandemic and the supply shortages caused by the pandemic, leading to the reopening of COVID-19. Overall, we believe that China's economy should gradually enter a more stable growth cycle starting next year. We believe that China's tourism market

next year for us should at least remain stable.

Speaker Change: In response to your second question, regarding the supply side, as we often mention, the service market in China has never lacked supply, but rather lacks high-quality supply. We have observed several obvious trends in the market. One of them is the trend historically exposed by property issues, where many traditional old five-star hotels are gradually losing market share. Examples include the Great Wall Hotel in Beijing and the Rosewood Hotel in Shanghai. These are good examples. Secondly, we believe that those low-quality small hotels and independent hotels are gradually losing market share.

In the future market

Speaker Change: And that's our views on the demand supply going forward, let me add something.

The entire market has become more rational due to the impact of the economic cycle, and investments have also become more rational.

Consumers are becoming increasingly sensitive to cost-effectiveness.

The overall consumption trend is becoming more rational, with increasing attention to cost-effectiveness.

I think the changes in these two markets are actually a good phenomenon for Huazhu's long-term strategy.

Make the market more executable to solve the past disorderly expansion

Under Huazhu's strategy of efficiency and cost leadership, consumers can enjoy higher cost-effectiveness. I believe that regardless of the past recovery or the current situation, Huazhu remains firmly committed to high-quality development in the Chinese market.

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In the economic cycle and the past few years, we have observed two trends. One is that investment has become more rational, and from the customer's perspective, they are seeking better value. I believe these two trends have helped us develop high efficiency in personal and leadership capabilities, maintain high-quality growth, provide better quality and products, and offer value to customers who are seeking value.

Thank you

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Thank you

Speaker Change: Our next question comes from the line of Leader Lin from Citi. Please ask your question, Leader.

In this property resource, are we seeing more competition?

Hello, I am the manager of the operations department at City. I have two questions. The first question is about quarterly openings. You have already opened in the third quarter. Could you share your latest goals for openings throughout the year, and during the prosperous period of the fourth quarter, could you share your plans for openings and closures in the next year? The second question is about the competitive environment for mid-range and high-end levels. We have observed that the supply in these two categories has increased, adding new emission pressures, and the new emission pressures have also increased.

The value in this meeting and the competition in land resource competition. Thank you.

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I am Jin Hui, and I am here to answer these two questions about the trends of opening and closing stores. Indeed, this year, both our signing and store openings have reached historical highs. Our signings this year, as mentioned earlier, have maintained a high number of over 800 in the third quarter. Our store openings this year will...

Around 2400, the final number will exceed our initial guidance.

The entire signing and opening of stores for the whole year of 2025

We feel that we will still maintain a relatively healthy range. We are still confident in this development because of ASUS's establishment of a leading brand and market penetration strategy, and we continue to maintain a very strong recognition from market franchisees at this stage.

Therefore, we believe that signing contracts and opening stores will continue to maintain a reasonable range of stable growth.

Regarding wall mats, everyone knows that Huazhu is in the stage of high-quality development and creating excellent services. We are targeting the entire...

The first mass-produced product was specifically cleaned and upgraded.

We will continue to implement this strategy steadily. Of course, we believe that due to the continuous efforts over the past few years, the pressure on B stores in this area will relatively decrease.

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The new hotel will open during the fourth quarter, so the new opening rate for 2024 should be around 2400 yuan for the whole year, which is higher than the 2200 yuan new opening rate we previously indicated.

By 2025, we believe that the overall new openings should remain within a relatively healthy range.

In terms of closure, against the backdrop of high-quality growth and a service-first strategy, we will continue to address some low-quality issues.

Speaker Change: unqualified hotels in our existing portfolio. However, over the last several years, we have been doing this already. So the total closures, pressures should last going forward.

Thank you

Regarding the previous question about the mid-range and mid-to-high-end markets, I will first address the mid-range market. In the mid-range market, Huazhou has already established two leading Chinese brands: one is All Seasons and the other is Orange. Under the leadership of these two brands in these markets, the continuous and strong growth of our mid-range market is very much to be expected.

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Regarding competition, first I want to talk about the technology aspect. In this area, we have established industry-leading brands G-HOTEL and ORANGE. These brands have strong brand recognition and health. We are very confident in competing in this area, especially in the mid-range market where we have achieved rapid growth in the southern regions and weaker markets where we were originally lagging.

Especially, we see rapid growth in regions we previously entered less frequently, such as the Global South and some other areas.

Regarding the Chinese market

The perspective of Washington State is like this: this market is also in the process of consolidation, as customers' demands for cost-effectiveness are getting higher and higher.

The overall performance led by Huazhu and products like Crystal, which are extremely cost-effective and of high quality, I believe are very competitive in the market.

Due to

The changes in consumers and such a trend in real estate have allowed a large number of traditional high-end and mid-to-high-end properties to be integrated and transformed. I believe in this aspect.

The property will have very secure supply, which I believe is a very good trend for Washington.

At the highest level of the internet, we believe this industry is stabilizing, especially with the popular trends, as customers are seeking more value-oriented products.

With the changes in the real estate market, some traditional luxury hotels and some five-star hotels belonging to real estate, as well as some real estate properties, have been released into the market. This will help us further develop this sector.

With the continuous strengthening of Huazhu in mid-to-high-end brands and management capabilities, everyone can see that the current growth rate of Huazhu in the mid-to-high-end market exceeds 30%. We firmly believe that such a Huazhu will further accelerate its coverage and development in the mid-to-high-end market.

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In the medium to long term, it helps the industry

And still expect to become a leader in the industry at the mid-to-high end

From a medium to long-term perspective, we also hope to become a leading brand within this opportunity range.

Thank you

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Speaker Change: Thank you. Our next question comes from the line of Dan Qi from Morgan Stanley. Please ask your question, Dan.

Good morning, management team. I am Dan, an analyst from Morgan Stanley.

Thank you very much to the management for giving me this opportunity to ask a question. My question is about the company's direct store business.

Speaker Change: In this quarter, we see that there are 25 directly-operated stores. I would like to ask how many of these are due to our proactive upgrades and renovations, and how many are due to contract expirations. Just now, General Manager Chen Hui also mentioned that our company might continue to carry out such rectifications in the directly-operated stores. If possible, I would like the management to share our current strategy for the directly-operated stores.

Is this rectification a one-time thing, or how many more hotels will we need to proactively rectify in the future?

Let me translate it

Speaker Change: Thank you, management. This is Dan from Morgan Stanley. My question is about legacy of Artoo's lease and operated businesses. We saw 25 hotel closures and selected closure of underperforming lease and owned hotels.

Can you help brokers share more professional economic strategies? Is this a positive conclusion or a long-term plan? If this is the last page, what impact will it have on our current investments in our broker-specialized hotels?

Thank you everyone

How are you?

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Because our company is currently implementing a light asset strategy, the number of direct-operated store closures in Q3 indeed exceeded that of the first half of the year.

In the third quarter, out of the 25 stores we closed, 8 were converted to franchises. The rest were basically due to contract expiration, and we did not renew them. A significant portion of these hotels were either not performing as expected or had some other issues that we considered problematic, so we did not renew the contracts upon expiration.

Next, in the fourth quarter and even next year, we may have some directly-operated stores that might be converted to franchises or not renewed upon expiration.

The quantity might be slightly faster than our first half of the year, but it will be slightly slower than our Q3 pace.

Go modify the contract. In the second half of the year, we will continue to close more inns and hotels, but in terms of quantity, it should be higher than the first half of the year but lower than the second half. Thank you.

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Thank you

Speaker Change: We have reached the end of the question and answer session. Thank you all very much for your questions. I will now turn the conference back to the management team for closing comments.

Thank you all for joining us for the interview today. We look forward to meeting again in the next four weeks. Thank you, goodbye.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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Lyrics and composition by Jonathan Lee, performed by Jonathan Lee

Speaker Change: Feng Feifei, the host, is the palm of his hand. The online is Danli. When a song is heard, it is heard in a low and cold voice. Smell it, read it with heart, listen with heart, sing with heart, listen with heart, listen with heart, read with heart, listen with heart, read with heart.

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Lyrics, composition, arrangement, singing, performance, mixing, recording, recording Zither Harp Zither Harp

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Speaker Change: Zither Harp He now has his own life He only has his own love He has his own life He has realized his own fra Mensam Every night he is writing an elongate but is unsure He unexpectedly lost himself A kind of tense mystery Zither Harp

Speaker Change: Arrangement by Jonathan Lee, performed by Jonathan Lee, performed by Jonathan Lee, performed by Jonathan Lee, performed by Jonathan Lee. Thank you for watching.

This song is part of the 'NetEase Hurricane Plan' with 1 billion in cash incentives and support with 100 billion in traffic!

This song is from [Cloud Studio] with 1 billion cash incentives and support with 100 billion traffic!

Lyrics and composition by Jonathan Lee, performed by Jonathan Lee

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Speaker Change: Good day and thank you for standing by. Welcome to H World 3rd Quarter 2024 Earnings Conference Call.

Speaker Change: At this time, all medicines are in the listen-only mode. After the speaker's presentation, there will be a question and answer session.

Speaker Change: To answer questions during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Speaker Change: It is now my pleasure to hand you over to the senior IR director of the company, Mr. Jason Chen. Please go ahead.

Jason Chen: Thank you, Amber. Good morning and good evening, everyone. Thanks for joining us today. Welcome to Edgeworld Group 2024 3rd Quarter Earnings Conference Call.

Today with us is the chairman who is a G7 member, our CEO Jin Hui, our CFO Chen Hui, and our CSO He Jihong.

Jason Chen: Following their prepared remarks, management will be available to answer your questions.

Before we continue, please be aware that today's discussion will include some forward-looking statements. Under the safe harbor provisions of the U.S. National Security Act of 1995, please take note.

The preceding statement involves uncertainty and unpredictable risks.

Therefore, our results may differ from the views expressed today. Our public report reveals a range of potential risks and potential crises.

In today's meeting, we will also mention the financial measures adjusted in our discussion of performance. The recovery of these measures, along with similar gap information, can be found in yesterday's earnings release.

Jason Chen: 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.hwall.com

Now I will hand over the phone to our President, Mr. Kim Hui, to discuss our business performance in the third quarter of 2024. Mr. Kim, please.

Hello to all investors and analysts. Thank you for joining the Huazhu Group 2024 Q3 earnings conference call.

Speaker Change: Hello everyone, thanks for joining Edgewater Group's third quarter 2024 earnings conference call.

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In the third quarter of 2020, the overall domestic travel demand continued to grow steadily.

Due to the impact of last year's high ADR stimulus, the hotel industry has seen a year-on-year adjustment in Red Hot.

Additionally, the extreme weather caused by typhoons around the Mid-Autumn Festival in September had a certain impact on travel in Shanghai and surrounding areas.

At the same time, in the third quarter, we also made some proactive business strategy adjustments, especially in the optimization of sales channels. I will elaborate on this later.

Although this adjustment has had some negative impact on this quarter's performance, it is of great strategic significance for ensuring the company's healthier and more sustainable long-term development. Please turn to page three, and let's review the operational performance of Asus China in the third quarter.

In Washington, the 3G Freedom Hot Pass for China is priced at 256 yuan, a year-on-year decrease of 8.1%. Among them, ADR, under the pressure of last year's high base, decreased by 7% year-on-year to 301 yuan.

The occupancy rate has remained at a healthy 84.9% even as our hotel network rapidly expands, with a slight year-on-year decrease of one percentage point.

In the third quarter of 2024, domestic travel demand continues to show stable growth.

The return on hotel business in the previous year is known from the advanced basic ADR of the previous year.

In addition, Shanghai and the surrounding areas were hit by two typhoons around the Mid-Autumn Festival, affecting travel demand in September.

In addition to this, within four weeks, we actively adjusted our operational strategy, especially optimizing our sales path, which I will explain in detail later.

Speaker Change: This proactive adjustment caused some negative impacts on the quarter's performance. However, it is strategically crucial to ensure the healthy, sustainable growth of the company in the long term.

Please turn to page three. In the third quarter, Lexy Huazhu's operational performance showed that Lexy Huazhu's Ref Power decreased by 8.1% annually to RMB 256.

ADR decreased by 7% to R&B301 from last year's high base.

Despite the rapid expansion of the hotel network, our occupancy rate remains at a healthy 84.9%, having decreased by only 1 percentage point.

Please move to page four

In the third quarter, our hotel network continued to expand, reaching a record high with 774 new openings.

While expanding in scale, we adhere to the growth philosophy of quality over scale, continuously setting higher standards for hotel quality.

The number of closures in the third quarter was 217. Excluding the impact of low-quality soft brands and Hanting 1.0, the number of closures was 123.

In the future, we will continue to sort through the raw materials, eliminate low-quality stores, and ensure further improvement in the overall quality of hotel products and services.

As of the end of the third quarter, the number of pipeline hotels was 2,899.

Due to the rapid opening of new stores in the third quarter and our efforts to raise effective pipeline standards in the context of high-quality development, clearing what we consider ineffective pipelines, the number of pipeline hotels decreased by the end of this quarter.

However, we see that the overall signing momentum remains positive. The actual signings in the third quarter are still strong, exceeding 800.

Speaker Change: Please turn to page 4. In the third quarter, we continued our accelerated network expansion in China.

Speaker Change: And the number of hotel openings reached a record high of 774 hotels in the quarter.

At the same time, we insist on high-quality development, prioritizing quality over mere quantitative growth, and continuously enhancing hotel standards.

In the third quarter, we closed 217 hotels. Apart from the low-quality Soft Economy brand and Hunting 1.0 version, we closed 123 hotels.

Speaker Change: Going forward, we will continue sorting out our existing hotels and phasing out low-quality ones to ensure further enhancement of the product and service quality of our overall hotel portfolio.

After the end of the third quarter, the hotel ranking number decreased by one quarter for a year, decreased by one quarter for a year, decreased by 2899 hotels.

Mainly because of the rapid opening in the third quarter and our continuous improvement, not only in new openings but also in raising our quality standards. During the opening in the third quarter, we cleared some circulation, we cleared some circulation, we cleared some circulation.

See you again

The profit levels and the momentum for new signings remain strong. In fact, this week's new signings still exceed 800 hotels.

We are committed to implementing a strategy focused on economy and mid-range hotels, deeply cultivating the mass market. Please turn to page five.

As of the end of the third quarter of 2024, the proportion of economy and mid-scale brand hotels operated by Huazhu in China, pipeline hotels, and newly opened hotels are 91%, 80%, and 90% respectively.

We believe that the Chinese national hotel market remains the largest and most promising market, and it is the foundation and core of Huazhu's business.

In the future, we will continue to launch high-quality and cost-effective cable service products, expand our coverage in the Chinese market, and further consolidate our leading position in the cable service field.

We continue to focus on the dissemination and development of the internet market in the economy and medium technology.

Please turn to page five

Speaker Change: We believe the mass market remains the largest and the most promising market in China. And it is also the foundation of our business.

Speaker Change: Going forward, we will consistently roll out high quality and good value for money limited service hotels and products, expanding our coverage nationwide and solidify our leading position in the limited service segment.

Our penetration in first-tier cities is ongoing.

Please turn to page six. By the end of the third quarter of 2024, the proportion of the company's operating hotels in third-tier and lower cities is 42%, an increase of two percentage points year-on-year. The proportion of pipeline hotels in third-tier and lower cities has reached 53%.

The proportion of operating hotels increased by 11 percentage points. With the acceleration of signing under our southern strategy and the growth in signing of mid-to-high-end hotels, the proportion of pipeline hotels in first-tier cities increased by 2 percentage points year-on-year.

By the end of the quarter, the number of cities we covered in China reached 1,324, an increase of 117 cities compared to the same period last year.

Speaker Change: We keep penetrating into the lower tier cities. Please turn to page 6.

Speaker Change: As the end of 3rd quarter 2024, around 42% of our hotels in operation were in tier 3 and below cities.

At the same time, the new visa in southern countries, combined with our original strategy and the growth of blockchain in the Afghanistan region, has led to an increase of 2 percentage points each year in the proportion of pop-up hotels in a city.

By the end of the third quarter, the number of cities we covered reached 1,324, which is 117 more cities than a year ago.

Huazhou continues to make efforts in the mid-to-high-end hotel sector.

Our mid-to-high-end main brand has gained consumer recognition and has also attracted franchisees.

Please turn to page seven.

By the end of the third quarter of 2024

The number of mid-to-high-end hotels in operation by Huazhu exceeds 800, with a year-on-year growth of 33%, while the number of pipeline hotels is 487, with a year-on-year growth of 36%. Among them, the number of Chengji Hotels in operation and in the pipeline in China has reached 125.

Our high school development continues in the third quarter. Our key high school technology brand is gaining recognition and traction among customers and brands.

Please turn to page seven. In late March, the number of the best operating hotels exceeded 800.

The annual fertility rate increased by 33%, while Bo Chao's new ranking reached 487%, increasing the annual fertility rate by 36%.

A core brand in the region operates and has 125 hotels in the pipeline.

Recently, our other mid-to-high-end main brand, Crystal Hotel, officially launched version 2.5. Please turn to page 8.

Crystal 2.5 is a mid-to-high-end hotel specifically designed by the group for business travel operations.

The overall product achieves perfect design through light and color.

Fusion of high quality

Guest room bedding configuration

Along with the unique aroma of the crystal brand, it provides a comfortable, relaxing, and peaceful sleeping space for busy urban travelers from all aspects such as visual, tactile, and taste. At the same time, the hotel is equipped with an executive lounge, offering the brand's unique cocktails, creating a public space where one can sit quietly and drink alone or enjoy a drink with companions.

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Recently, Crystal Orange, our main brand in the first half, launched version 2.5. Please turn to page 8.

Speaker Change: Crystal Orange 2.5 version is an upper-mid-scale product that we designed and tailored for elite business travelers.

The harmonious blend of lines and colors, the use of high-quality fishing facilities, and the specially designed glass environment provide a comfortable, relaxing, and high-quality space for busy travelers in the fast-paced city life.

This hotel also features special coconut seats, which are a public space suitable for travelers to enjoy private time or interact with friends.

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After several years of refinement, ASUS's mid-to-high-end business has begun to gradually show results this year.

However, we believe that our mid-to-high-end offerings still require meticulous refinement in many aspects, such as brand, product, customer insights, customer experience, and service, where there is still considerable room for improvement. This is especially true in the context of the excellent service strategy proposed at the beginning of this year.

Therefore, we will continue to work hard to strive to become one of the top brands in the Chinese market in the near future.

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Speaker Change: After several years of development, our upscale segment is starting to bear some fruit in this year. However, we think there are still more polishing and improvements needed in areas such as branding, product, customer insights, customer experiences and services.

Please turn to page nine. Affected by the macroeconomic environment, the overall business market recovery remains relatively slow.

We continue to focus on business travel to compensate for the lack of individual business travelers, achieving stable occupancy rates during leisure travel downtime.

In the third quarter of 2024, the number of bookings made through direct corporate connections exceeded 7.5 million, representing a year-on-year increase of 11% and a quarter-on-quarter growth of 19%. The number of active corporate clients exceeded 4,500, with a year-on-year growth of 45% and a quarter-on-quarter increase of 23%.

Please turn to page nine. Affected by trade economics, the overall demand for business travel in China remains relatively stable.

In order to mitigate the impact of the lack of demand from individual business travelers and maintain a relatively stable occupancy rate during the travel season, we are further enhancing our DirectB2B capabilities.

On March 3, 2024, the number of people directly registered for house dinners on the B2B platform exceeded 750 million.

An increase of 41% in one year, a decrease of 19% in a quarter. The number of active enterprises exceeds 4500. An increase of 45% in one year, a decrease of 23% in a quarter.

Hua Zhu has always emphasized the importance of the membership system and direct sales channels. Please turn to page 10. The membership scale of Hua Zhu is continuously growing. As of the end of the third quarter, the number of members is close to 260 million.

In the process of rapidly expanding its scale, continuously covering new areas, and breaking through new cultivation recognitions, Huazhu needs some time to accumulate members and increase the direct sales ratio of these new stores. Therefore, in the short term, especially during the ramp-up period of new stores, some traffic support from other channels is needed.

In the long run, membership and direct sales remain the most important and sustainable channels.

In the third quarter, we carried out a targeted channel optimization initiative, promoting store managers to enhance their merchandise and customer acquisition as well as sales capabilities centered around the store. We further emphasized the importance of direct sales and membership for the company's long-term sustainable business development.

The contribution of central planning increased in the third quarter, reaching 64.2%, with a year-on-year and quarter-on-quarter increase of 2.2 percentage points and 4.3 percentage points, respectively.

Speaker Change: We have always been emphasizing the importance of membership and direct sales. Please turn to page 10. The membership base of our Edge Rewards continues increasing.

Since the end of the third quarter, H-Reward has nearly 2.6 million members.

Speaker Change: As we rapidly expand our hotel networks, entering into new regions and breaking through in some new segments, it will naturally take some time for us to accumulate new members and improve the direct sales contribution for those new hotels.

Speaker Change: As a result, in a short time, we do need traffic support from other channels during the ramping up pace of the new hotels.

But in any case, members and direct sales remain our most important and sustainable sales channels.

Speaker Change: In the third quarter, we wrote out a round of targeted optimization of our sales channel. We urged our hotel managers to improve their hotel-level customer acquisition and sales capabilities.

Speaker Change: We re-emphasized the importance of membership and direct sales capability for the company's long-term sustainable growth.

Speaker Change: In the third quarter, our CRS contribution improved by 2.2 percentage points year over year and 4.3 percentage points quarter over quarter to 64.2%.

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The above is the update on the business situation of Huazhu China in the third quarter of 2024. Next, please welcome JSO He Jihong to update us on the operations and business situation of DH for this quarter.

That concludes our business update for Lexi Hua Zhu in the third quarter. Now I will hand over the call to our CSO, He Jihong, to update us on the business of Lexi DH.

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He Jihong: Thank you, Jinhui. I'm happy to give everybody an overview on the overseas business of H World. Please turn to page 11.

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He Jihong: We are very happy to report that the blended ADR from DH increased 2.5% from 114 EUR to 117 EUR in the third quarter 2024. With 0.8 percentage point increase in occupancy, REF part increased 3.7% from 79 EUR to 82 EUR.

Please turn to page twelve

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He Jihong: We restructured our economy brand's lead business in this quarter as well.

We participated in a joint venture with founder Peter Haber and acquired over 100% ownership of the Sleep brand.

He Jihong: As a part of the Asset Live strategy, we exited 14 leased and owned hotels in Denmark.

This transaction has minimum impact on our financial statement.

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Please turn to page 13

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Speaker Change: In the third quarter, we also started a major restructuring effort in DH business.

First, we shortened the headquarters' lines, reducing at least 30% of the non-operational staff at the headquarters.

We continued to scrutinize hotel performance and optimize hotel operations.

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Speaker Change: All these restructuring efforts incurred around the remaining $81 million one-off expense in this quarter.

The negative impact on the financial performance of the German medical center this week is mainly due to these cost restrictions, which you will see later.

Speaker Change: We will start to observe full year saving in 2025 and we are confident that our overseas business is on a successful trajectory

Speaker Change: With this, I conclude the overview of the international business and I hand over to our CFO Chen Hui for the financial performance review.

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Chen Hui: Thank you, Jihong. Good morning and good evening, everyone. Let me talk you through our operational and financial review for the third quarter of 2024.

Please turn to page 15.

Our hotel network continues to expand, with the total number of rooms increasing by 20% year-over-year to nearly 110 million by the end of Q3 this year.

Compared to 886,000 rooms a year ago

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Chen Hui: Hotel turnover for the third quarter of 2024 was RMB 26 billion.

Representing a 11% YOY increase

Chen Hui: Lexi Huazhu Hotel turnover grew 11% year-over-year to RMB 24 billion. Lexi DH turnover grew 8% year-over-year to RMB 2.1 billion.

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Page 16

Chen Hui: In the third quarter of 2024, our hotel revenue for the group increased 2.4% year-over-year to RMB 6.4 billion.

In line with our guidance

Chen Hui: Revenue from Lexi Hua Zhu grew 1% year-over-year to RMB 5.2 billion

The rent in Washington state decreased by 10.4% because the rent decreased.

We met closely.

The combined total of twenty-two units, and the thirty-one units' clients from other subway units, have been weakened by how much distribution.

38% or 6.3% are on a year-over-year basis

Hua Zhu's Revenue, Monetized and Franchised

14.7% increase, mainly due to hotel openings, but negatively impacted by last year's high-level decline.

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This is page 17 of the Central Television.

Chen Hui: We have been committed to grow an SLI model, expanding our hotel network using monetized and franchised hotels. As a result, revenue from our monetized and franchised hotels continues rising.

On March 4, 2024

The revenue contribution from Manitized and Franchise Hotels has reached 50% of our Lexi Huadu's income.

Chen Hui: We expect this trend to continue as we become more and more athlete.

Chen Hui: We believe this will drive a gradual and continuous margin expansion, as well as help us to become more resilient when navigating through economic cycles.

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Please turn to page 18. The hotel's revenue on March 3, 2024, will reach 380 million yuan, an increase of 5%.

Speaker Change: The increase was due to rising personnel costs from our continued hotel network expansion.

Speaker Change: Pre-opening cards remained at a low level as we continue moving towards the SLA model, and staying selective on opening lists and owned hotels.

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Fell in love with you

The 8% increase in Lexi Huadu's H&A is mainly due to the compensation from high corporate funds, attracting and rewarding core employees.

who are key to our sustainable long-term business growth.

Speaker Change: The 42% year-over-year increase in LexiDH's SG&A was due primarily to a RMB81 million one-off restructuring cost.

SG&A expense for Lexi DH increased by 7% over a period of time.

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Speaker Change: As a result, our income from operations in the quarter was RMB 1.7 billion.

Representing a 10% decline in world trade and a 10% growth in gross domestic product

Please turn to page 19.

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On March 4, 2024, our adjusted EBITDA decreased by 9.5% year-over-year to RMB.

Publication completed

bye bye

201,000,000 $7,000,000 STOP throughout a five-page section

Mentioned previously.

Improvement next year

Indonesian flower tea

Our organization generated RMB 140 million in dividend funds and RMB 170 million in cash flow.

Page 20 for our liquidity position

As of end September 2024, the group had a

And is prohibited under the locked exchange rate status of RMV

Including time deposits.

Speaker Change: We also had RMB 3.6 billion unutilized bank facilities as of end September.

Next page, please

as part of our total shareholder return plan.

We continue to buy back shares

As of September year-to-date, we have brought back roughly

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270 American visitors

Acquired stock market shares

In these forty-nine months

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Speaker Change: accounted for more than 80% of our free cash flow generated in the same period.

On April 4, 2024, in addition to the ongoing pressure on housing prices, we will continue to close some hotels and residential hotels because they contribute to our production line strategy.

Closing more residential and residential hotels will definitely have a negative impact on revenue within four weeks. Therefore, we expect our group's revenue to grow by 1% to 5% compared to Q4 2023.

And remove DH by 1% to 5% within the fourth half-month.

Out-of-province person

We are ready to take your questions.

Operator, please open the line for Q&A.

Thank you

Speaker Change: We will now begin the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.

If you have any questions, please press the 1 1 button again.

Speaker Change: We will now take Alphys' question from the line of Ronald Leung from Bank of America. Please ask your question.

Regarding growth reference, thank you for giving me an opportunity to ask questions. I have two questions. The first question is about the situation with Rothbard.

I would like to ask how the company's RAFPA performed in October and November? Was your RAFPA for Century Metropolis as expected or what?

Can you share what specific strategies the company will have to improve member loyalty and increase the proportion of direct sales?

My second question is about the management of the membership system. How does the strategy for member companies enhance their confidence to increase direct sales rates? Thank you very much.

Thank you

Okay, I am Jinhui, I will answer these two questions.

Everyone can see from the trend that China's business market is currently experiencing relatively weak growth. Therefore, the recovery this year has been mainly affected by ADR, especially the decline in ADR of China's entire mid-to-high-end hotels, which has significantly impacted the ADR of the entire hotel industry.

We also see the positive side. The rental rate and the overall market demand are still maintaining a relatively steady growth trend.

At this stage, Washington State is still maintaining high-quality development. Our forecast for the fourth quarter's REAP might fall within the median range of year-on-year decline due to the drop in ADR. However, this trend is narrowing, and the year-on-year trend is narrowing.

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Let me answer your first question. You can see from the market that corporate travel is weaker than leisure travel this year. This has a significant impact on the pressure throughout the year and on the upper management compared to last year. We also see a decline in high-level and senior-level travel. However, on the positive side, we still see a high global demand for travel.

Mainly due to the pressure of ADR, the return in the fourth quarter will be in the middle of each figure and will decrease every year. Thank you.

Okay, I will answer the second question, regarding the membership issue.

Due to Huazhu's entry into more mid-to-high-end markets and the emergence of a large number of new leisure and tourism markets within the overall market trend, the penetration and effectiveness of Huazhu's original membership network are rapidly improving and still have room for improvement.

Washington State is rapidly expanding our market coverage and product category coverage. Especially with the increase in our product categories in the tourism market, it will significantly impact us.

Will it provide consumers with more product choices and more category options? This is the first aspect.

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Speaker Change: Your second question is about membership. We are entering different areas and making some new classifications, so it will take some time to create an innovative atmosphere derived from our existing members. The new areas and classifications come from our membership program, and there are many new demands from the entertainment market. We are working hard to enhance the membership program to offer more products to different customers to ensure the development of the membership program.

Secondly, we are planning a comprehensive upgrade of our membership benefits and service system.

Especially in terms of the lowest price guarantee

We further enhance the conversion and process of our offline scenario members through the capabilities of Huazhu Club's rights and services.

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We are also working hard to increase member profits and ensure that member profits are at the lowest price through our direct sales channels and membership programs. This way, we can better improve member profit conversion and increase member profit return rates.

Thirdly, we are actively expanding, for example, in aviation with Juneyao Airlines, Didi, and many other travel companies, to carry out comprehensive cooperation to further enhance the convenience of our travel scenarios.

Speaker Change: We are also seeking some cooperation with different segments, such as working with the airline company, Junyao Airline, as well as car-hailing companies like PD, to seek more cooperation among different industries.

The last point is that we have a page earlier reflecting that we have actually done a lot of preparation and capacity building in the enterprise-level services of Huazhu, particularly for large corporate clients, over the past three years. I believe that enterprise-level membership services will also be a very important driver for our membership growth in the future.

one aspect

Speaker Change: We have been putting a lot of efforts over the last several years in terms of the B2B direct sales and corporate customers. And we believe, you know, a stronger capability on the B2B direct sales and corporate customers will further help us to improve the membership program.

Thank you

Speaker Change: Thank you. Our next question comes from the line of Simon Zherng from Goldman Sachs. Please ask your question, Simon.

Speaker Change: Thank you to the administrators, and thank you to General Manager Jin, General Manager He, and General Manager Chen for their sharing. I have two questions. The first question is also about the issue of REPAR. I know that from the second quarter of this year until now, there might be issues with a high base, and as you just mentioned, business travel has been affected, so REPAR might not be performing very well. I would like to ask what your views are for next year, and looking further ahead, what are your views on the REPAR of the entire domestic market? This is the first question. The second question is also related.

So I would like to ask, because many investors are very concerned about the situation of supply growth. I don't know, it seems like I asked about this in a few previous calls. Recently, I heard Xie Cheng say that the supply seems to be slowing down a bit. I wonder if from your perspective, you see any signs of growth on the supply side possibly slowing down?

Let me translate into English. There are two issues. First, due to the poor performance of the senior management of the Red Team this year, in the past few months and continuing into the fourth month, but let's look again next year.

What are your expectations, perhaps over a longer period, what are your expectations for the internet industry? Secondly, related to this, many investors are asking about the surprising situation in China. We have heard that T-COM discovered an incredible decline in the data released in the fourth quarter. So, regarding the surprising situation in the next year, what is your management's view on this aspect?

Thank you

Archie.

Let me answer this question. First, regarding the future predictions of REPA and the overall long-term forecast, let's address the judgment for 2025. Because 2024 is indeed influenced by the high technology of 2023, throughout 2023, especially during the summer and peak travel seasons, there was a strong rebound. This rebound was partly due to short-term supply and demand surpluses.

We believe that the entire state of Ohio will enter a relatively sustainable and stable period next year. Our judgment on Washington state is that it will at least be on par with this year's forecast.

In the future, we still firmly believe in China.

Very good, a market with potential because the Chinese central government is vigorously promoting domestic demand and internal circulation.

We believe that under the stimulation of domestic demand within the internal circulation, China's cultural and tourism industry is undoubtedly one of the most promising markets. Especially with the central government continuously opening up visa-free policies, I think on one hand, domestic demand, and on the other hand, the demand for attracting international visitors will continue to be maintained. Therefore, our basic judgment is that it will enter a sustainable, healthy, and stable cycle.

The second question about supply

We also see that in China's hotel industry, we have repeatedly held the view that there is never a shortage of supply in China's hotel industry; what is lacking is effective high-quality supply.

So we see two trends, one is

It turns out that the supply of high-end and full-service hotels under real estate will rapidly shrink.

Some have even been eliminated. We have seen the closure of Beijing Changchun Hotel, the closure of Beijing Entertainment, and the exit of Shanghai Xiang Green Marriott. These hotel closures clearly demonstrate that real estate and traditional full-service hotels cannot adapt to the changes in the new market. The second trend is...

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The acceleration of low-quality and independent hotels, especially the rapid penetration of leading brands represented by Huazhu. Originally, these low-quality and independent hotels were rapidly promoted, and the supply, because hotels are also highly market-oriented. In the long term, we still firmly believe that it is a market-regulated factor, a market with a very large weight.

It will enter a stage of relative supply and demand balance.

Huachu still maintains high quality at this stage.

The market coverage, especially the operational services we proposed this year, aims for Huazhu to provide higher quality products and services to achieve further market penetration.

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Speaker Change: Let me first answer your first question about expectations for the park next year. I think based on the park's performance this year, it is clear that the demand for the park was very high last year, especially during the summer season and the extremely leisure season. Last year, the demand for the park dropped significantly due to the restart of COVID-19. Overall, we believe the park should gradually enter a more stable growth cycle starting next year. We think...

China's overall tourism market has great potential. We can clearly see the government's strong support for the tourism industry to increase and stimulate domestic consumption. It's not just about domestic consumption, but recently many liberal policies have also been offered to many foreign countries. This not only impacts domestic consumption but also adds value to the growth of China's tourism market. Therefore, we believe that overall, China's tourism industry will start to have a stable and upward trend next year.

So we believe that next year should at least remain stable for us.

Speaker Change: In response to your second question, regarding the supply side, as we often mention, China's service market has never lacked supply, but rather lacks high-quality supply. We have observed several noticeable trends in the market. One is that historically, due to fluctuations in real estate, many traditional five-star hotels have gradually become a part of the existing market.

The Green Soup Hotel in Shanghai is a good example. Secondly, we believe that those low-quality small hotels and independent hotels will gradually exit the market in the coming year.

Speaker Change: And that's our views on the demand supply going forward, let me add something.

The entire market has become more rational due to the impact of the economic cycle, and investments have also become more rational.

Consumers are becoming increasingly sensitive to cost-effectiveness.

The overall consumption trend is becoming more rational, with increasing attention to cost-effectiveness.

I think the changes in these two markets are actually a good phenomenon for Huazhu's long-term strategy.

Make the market more executable, solve the past disorderly expansion, and allow consumers to enjoy higher cost-effectiveness under Huazhu's strategy of efficiency and cost leadership. I believe that Huazhu, whether in past recovery or in such a situation, still firmly maintains high-quality development in the Chinese market.

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Speaker Change: In the years following the economic cycle, we have observed two new trends. One is that investment has become more rational. From the customer's perspective, they are seeking better value. I believe these two trends have helped us maintain high-quality growth in personal capabilities and leadership abilities, provide better quality, and offer premium products to value-seeking customers.

Thank you

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Thank you

Speaker Change: Our next question comes from the line of Leader Lin from Citi. Please ask your question, Leader.

Do we see more competition on this property resource?

Hello, I am the manager of the operations department at City. I have two questions. The first question is about quarterly openings. You have already opened in the third quarter. Could you share your latest goals for openings throughout the year, as well as the driving forces for prosperity in the fourth quarter? Could you also share your plans for openings and closures next year? The second question is about the competitive environment for mid-range and high-end levels. We have observed that the supply in these two categories has also increased in terms of advantages, especially under the premise of advantages, which has also increased price pressure.

The competitiveness and advantages of property and resources in this meeting. Thank you.

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Okay, I am Jin Hui, and I am here to answer these two questions about the trends of opening and closing stores.

This year, indeed, both our signing and store openings have reached historical highs.

Our contracts this year have just reflected that in the third quarter, we still maintained a high number of contracts exceeding 800. Our store openings this year will...

Around 2400, the final number will exceed our initial guidance.

The entire signing and opening of stores for the whole year of 2025

We feel that it will remain in a relatively healthy range.

We are still very much in favor of this development because the leading brand established by ASUS and its market penetration strategy continue to maintain a very strong level of recognition among market franchisees at this stage.

Therefore, we believe that signing contracts and opening stores will still remain within a reasonable range.

Stable growth

Regarding wall mats, everyone knows that Huazhu is in the stage of high-quality development and creating operational services, we are targeting the entire...

Low-quality products have been selectively cleaned and upgraded. We will continue this strategy steadily. Of course, we believe that due to the continuous efforts over the past few years, the pressure on B stores in this regard will relatively decrease.

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Speaker Change: Let me answer your question about openings and closings. This year, you can see that new visas and new openings have reached new highs. I also mentioned earlier that in the third quarter, we signed over 800 new hotels. Therefore, the full-year openings for 2024 should be around 2,400, which is higher than our previous guidance of 2,200 new openings.

Speaker Change: Branding, as well as our strategy on the regional penetration, which is to further increase the record nations and awareness among the franchisees.

Thank you

Regarding the previous question about the mid-range and mid-to-high-end markets, I will first address the mid-range market. In the mid-range market, Huazhu has already established two leading Chinese brands, one is All Seasons and the other is Orange. Under the leadership of these two brands, the continuous high growth in our mid-range market is very much to be expected.

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Regarding competition, first I want to talk about the technical aspects of our competition. In this area, we have established industry-leading brands G-Hotel and Orange. The brand reputation and health of these two brands are very strong. We are very confident in participating in this competition, especially in the mid-range markets where we have achieved rapid growth in the southern regions and weaker markets of the Chinese ethnic group where we were originally lagging behind.

Especially in the regions we previously entered less, such as the Global South and some other areas, are growing rapidly.

Regarding the Chinese market

The perspective of Washington State is like this: this market is also in the entire process of the market.

Due to customers' increasing demand for value for money

The overall performance led by Huazhu and products like Crystal, which are extremely cost-effective and of high quality, I believe are very competitive in the market at the same time.

Due to changes in consumers and such a trend in real estate, a large number of traditional high-end and mid-to-high-end properties can be integrated and transformed. I believe that there will be a very secure supply of such properties. I think this is a very good trend for Washington State.

OK

At the highest level of the internet, we believe this industry is stabilizing, especially with the popular trends, as customers are seeking more value in products.

Our key brands, such as Crystal Orange and InterCity, actually offer very high-quality products that provide a lot of value to customers.

With the changes in the real estate market, some traditional luxury hotels and some five-star hotels belonging to real estate, as well as some real estate properties, have been released into the market. This will help us further develop this sector.

With the continuous strengthening of Huazhu in mid-to-high-end brands and management capabilities, everyone can see that the current market growth rate of Huazhu in the mid-to-high-end segment exceeds 30%. We firmly believe that such coverage and development of Huazhu in the mid-to-high-end market will further accelerate.

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In the medium to long term, Huazhu will still aspire to become a leader in the industry at the mid-to-high end.

From a medium to long-term perspective, we also hope to become a leading brand within this opportunity range.

Thank you

Speaker Change: Thank you. Our next question comes from the line of Dan Qi from Morgan Stanley. Please ask your question, Dan.

Good morning, management team. I am Dan, an analyst from Morgan Stanley.

Thank you very much to the management for giving me the opportunity to ask a question. My question is about the company's directly-operated stores business. We see that there are 25 B stores that are directly-operated this quarter. I would like to ask how many of these are actively upgraded and renovated by us, and how many are due to contract expiration. Also, Mr. Chen Hui mentioned earlier that our company might continue to make such adjustments. Regarding the directly-operated stores, if possible, I would like the management to share our current strategy for the directly-operated stores.

Is this rectification a one-time thing, or how many more hotels will we need to proactively rectify in the future?

Let me translate it

Dan: Thank you, management. This is Dan from Morgan Stanley. My question is about legacy of Artoo's lease and operated businesses. We saw 25 hotel closures and selected closure of underperforming lease and owned hotels.

Dan: Can management share more insights on the lease-and-own business strategy? Is this proactive closing one-off or is a longer-term plan strategy? If this is the latter, how many lease-and-own hotels in our current portfolio will get impacted?

Thank you

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Because our company is currently implementing a light asset strategy, the number of direct-operated store closures in Q3 indeed exceeded that of the first half of the year.

In the third quarter, out of the 25 stores we closed, 8 were converted to franchises. The rest were basically due to contract expiration, and we did not renew them. A significant portion of these hotels were either not performing as expected or had some other issues that we considered problematic, so we did not renew the contracts upon expiration.

Next, in the fourth quarter and even next year, we may have some directly-operated stores that might be converted to franchises or not renewed upon expiration.

The quantity might increase slightly compared to our pace in the first half of the year, but it will be slightly lower than our pace in Q3.

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Speaker Change: Let me answer your question. First of all, our company's transfer moved to a smoother property. You are right about this. During the third quarter, we closed 25 hotels belonging to our company, which is more than the first half of last year. After these 25 hotels belonging to our company were closed, about 8 hotels were transferred to free hotels. The remaining hotels belonging to our company were closed because the minimum contract was canceled. Some hotels belonging to our company were due to operational performance or other issues that we could not handle.

In the second half of the year, we will continue to close more inns and hotels, but in terms of quantity, it should be higher than the first half of the year but lower than the second half. Thank you.

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Speaker Change: We have reached the end of the question and answer session. Thank you all very much for your questions. I will now turn the conference back to the management team for closing comments.

Speaker Change: Thank you everyone for taking your time with us today. And we look forward to see you in upcoming quarters. Thank you and bye bye.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.