GreenTree Hospitality Group Ltd. (GHG) Q4 2022 Earnings Report, Transcript and Summary

Hello, ladies and gentlemen. Thank you for standing by for GreenTree's Second Half and Fiscal Year 2022 Earnings Conference Call. [Operator Instructions]. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Mr. Rene Vanguestaine of Christensen, GreenTree's Investor Relations firm. Please proceed, Rene.

Thank you, Andrea. Hello, everyone, and thank you for joining us. We have posted a PowerPoint presentation that accompanies our comments to our IR website at ir.998.com. On the call today from GreenTree are Mr. Alex Xu, Chairman and Chief Executive Officer; Ms. Selina Yang, Chief Financial Officer; and Ms. Megan Huang, Vice President of Sales and Marketing. Mr. Xu will present the company's performance overview of the second half and the full year of 2022, followed by Ms. Huang, who will discuss business operations and Ms. Yang will then discuss financials and guidance. They will be available to answer your questions during the Q&A session that will follow. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of section 21E of the Securities Litigation Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as may, will, expects, anticipates, aims, future, intends, plans, believes, estimates, continue, target, is or are likely to, going forward, confident, outlook and similar statements. Any statements that are not historical facts, including statements about the company and its industry are forward-looking statements. Such statements are based upon management's current expectation and current market and operating conditions and relate to events that involve known and unknown risk, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. You should not place undue reliance on these forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. All information provided, including the forward-looking statements made during this conference call are currently -- are current as of today's date. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Alex Xu. Mr. Xu, please go ahead.

Thanks, Rene. Hello, everyone, and thank you for joining us today. First, I do want to make apology to you because of the delays of the posting of the PPT, the meeting was delayed for the 15 minutes. We thank you for your understanding. So 2022 was a year of -- full of change and challenges. During the first half, COVID-19 outbreaks in many parts of the country resulted in lockdown in many cities especially in Shanghai. As we enter the third quarter, transportation restrictions were relaxed and RevPAR recovered. However, October and November brought a fresh wave of outbreaks, slowing down of our recovery once again. And to our relief, thanks to the lifting of the anti-pandemic measures early December, RevPAR recovered at the end of the year to more than 95% of its pre-pandemic levels. Regardless of these external environmental changes, we continued to execute our long-term strategic growth plan that strives to assist franchisees in maintaining quality operations, extending our hotel networks and delivering stable operating profitabilities and maintaining a healthy cash flow. Please turn to Slide 5. Compared with the second half of 2021, RevPAR decreased 4.2% to RMB 112. Total revenues decreased to 21.1% to RMB 487.8 million. The decrease was partially due to the deconsolidation of Argyle since June 2022 and the disposal of our interest in Urban on November 25, 2022. Excluding these impacts, organic revenues decreased 15.7% compared to 1 year ago. Income from operations increased to RMB 20 million, a margin of 4.1%. Excluding this, income from purely operating activities decreased 17.6% to RMB 85 million, with a margin of 17.4%. And the net income was negative RMB 48.3 million with a margin of negative 9.9%. Adjusted EBITDA as non-GAAP decreased to 21.2% to RMB 118.3 million with a margin of 24.3%. Cash provided by operating activities were RMB 151 million. Slide 6 shows detailed numbers for total revenues, operating income, net income and adjusted EBITDA. On Slide 7, operating performances was continuously impacted by COVID outbreaks during the second half of 2022. RevPAR was at 80.3% and 80.7% of the 2019 levels in the third and the fourth quarter, respectively, exceeding the industry average. Slide 8 shows the weekly RevPAR performance in 2022 and the first quarter of 2023 compared with 2019. In the second half of 2022, due to the resurgence of COVID-19, RevPAR fluctuated in the third quarter and was slowing down once again in October and November. RevPAR gradually recovered to more than 95% of its pre-pandemic levels in the last week of 2022. RevPAR recovery slowed again during the first half of January due to the rapid involvement of pandemic after pandemic control were lifted in China. However, it recovered to around 90% of its pre-pandemic levels over the Chinese New Year, thanks to family reunions. During this festival, according to the Ministry of Culture and Tourism, the number of tourists recovered to 88.6% and the domestic tours and revenues recovered to 73.1% of the levels in the same period of 2019. Such a recovery continued to increase in February, exceeding the levels of 2019. However, it pulled back a little bit in March due to outbreaks of Influenza A in certain cities. Now starting with Slide 10. Let's talk about the strategy and the execution with the further expansion in the mid-to-upscale segment under Tier 3 on the lower cities in South China as well as recent development in 2023 Q1 regarding the acquisition of Da Niang Dumplings and Bellagio, 2 leading restaurant chains in China from our controlling shareholder. Let's take a look at Slide 11. We have been continuously growing our mid-to-upscale segment over the past few years. For a like-to-like comparison, we have excluded the Argyle and Urban hotels in the past few years. By the end of the second half of 2022, we had 426 hotels. That's 10.5% of our total hotel portfolio in this segment, up from only 50 in 2017. I will plan to open more in this year. Please turn to Slide 12. Over the past 5 years, most of our newly -- new hotels have been in China's thriving Tier 3 in the lower cities. In addition, hotels in some lower-tier cities are performing well, and we continue to execute our strategic plan. 72.6% of the hotels in our current pipelines are in such locations and will further capitalize on the substantial opportunities in such locations. As a testament to the soundness of this strategy, over the past 3 years, our business in such cities was much more resilient under the impact of the COVID panned other cities. However, in the first quarter of 2023 with the resumption of trade shows and the government investment promotion and commissions, the recovery in Tiers 1 and Tier 2 cities outpaced the recovery in the lower Tier 3 cities. Since Q4 of 2020, we have been building flagship on all hotels in strategic locations, especially in Central China and the Southeast and Southwest market. During the first quarter of 2023, we opened 4 LO hotels in east high-speed Railstation, Chongqing Jiangbei International Airport and Fuzhou high-speed Railstation. Our expansion footprint covers Chongqing as well as Hubei, Yanxi, Shanghai and other premises, all well located around transportation hubs, central business districts or government centers. By showcasing our brand and operating standards, we believe these hotels will also help us to attract more high-quality franchisees, further accelerating our growth in these areas. On Slide 13, let me now say a few words about the acquisition of affiliated food and restaurant business. We completed the acquisition of Da Niang Dumplings and Bellagio during the first quarter of 2023. Da Niang Dumplings is a quick service restaurant chain in China with restaurant covering 236 locations in 35 cities as of December 31, 2022. The chain had 99 operated -- self-operated restaurants and 137 franchised restaurants. Bellagio is a casual dining restaurant chain with a restaurant covering 36 locations in more than 14 cities as of December 31, 2022, including in Mainland China, Macau and the Southeast Asia. At the end of the last year, the chain had 27 self-operated and 9 franchised restaurant. For the year of 2022, these 2 brands generated a combined unaudited revenue of about RMB 509 million. Since demand for such healthy and affordable fast food and casual dining services should be more stable and less dependent on discretionary spending compared with our existing hotel services, we expect this acquisition business to provide a more stable revenue stream that may offset cyclical aspects of our hotel businesses. The restaurant and hotel businesses are also complementary in nature as we witnessed increasing demand for food-related services in the local communities, and we expect cross-selling opportunities from the 2 businesses. We also expect the integration to leverage upon synergies between our respective team within our company's unique ecosystem, sharing common resources, achieving economy of scales and improving company's overall operating performance as demonstrated by our stable profit margin and the cash flow. With the recovery of the industry, we will focus on providing -- improving operating management efficiency, launching products with expedited recreation and higher cost, higher operating performance, widely and safely upgrade IT system and deploy robotic system and ultimately enhancing the profitability of our franchisees. The road to recovery is full of hope and also full of challenges. But with the support of our shareholders, franchisees and employees, we are confident we'll bring better products and services and create greater value for all. Now let me turn the phone call to Megan.

Thank you, Alex. Please turn to Slide 15, which highlights the growth in a number of hotels and the year-over-year rebound in our operating metrics from the impact of COVID-19. Blended ADR of the fourth quarter in 2022 decreased 2.9% to RMB 165. Occupancy rate decreased , and the RevPAR decreased 11.6% to RMB 104. Moving to Slide 16. For an apple-to-apple comparison, we have excluded the Argyle and Urban hotels and presented the number of the organic hotels only. At the end of the fourth quarter of 2022, we had 4,059 organic hotels in operation, 5.2% more than the year before. 61 of these hotels were leased and operated, or LO hotels and 3,998 were franchised and managed for FM hotels. While the mid-scale segment remains the core of our business with 72.8% of all our hotels, we continued our expansion into the higher-end segment. By the end of the fourth quarter, mid-to-upscale hotels accounted for 10.5% of our total portfolio, but the apartment segment remained stable at 15.8%. We solidified our already dominant position in Tier 3 and lower cities, where 68.2% of our hotels were located at the end of 2022. On Slide 17, you can see that we opened 136 organic hotels in China, less than planned due to COVID-19 compared to 265 in the second half of 2021. 15 were in the mid-to-upscale segment, 88 in the mid-scale segment and 32 in the apartment segment. 12.1% of these new hotels were in the mid-to-upscale segment of the market, 9 were in Tier 1 cities, 23 in Tier 2 cities and the remaining 104 in Tier 3 and lower cities. We closed 11 hotels, and we added a net 125 hotels to our portfolio. Slide 18 shows the trend of our quarterly operating performance. In the fourth quarter of 2022, RevPAR for our LO hotels increased to RMB 130. RevPAR for our FM hotels decreased to RMB 103. ADR for our LO hotels decreased to RMB 208 and ADR for our FM hotels decreased to RMB 163. Occupancy at our LO hotels decreased to 62.4% and occupancy at our FM hotels decreased to 63%. Entering the first quarter of 2023, RevPAR continued to recover for both LO hotels and FM hotels. Slide 19 highlights the growth in our membership programs, which accounted for most of our direct sales in the first half of the year. Individual membership grew to 78 million, up from 69 million a year ago and corporate members grew to 1.94 million, up from 1.85 million a year ago. We have one of the highest percentage of room nights booked by corporate and individual members in the industry. With that, I will pass the call over to our CFO, Selina.

Thank you, Megan. Please turn to Slide 20. In the second half of 2022, total revenues decreased 21.1% year-over-year to RMB 487.8 million. The decrease was primarily due to the consolidation of Argyle and the disposal of our interest in Urban, and the impact of COVID-19 which resulted in lower RevPAR at LO hotels and FM hotels. Excluding the impact of Argyle and Urban, the total revenues decreased by 15.8% and total revenues from FM hotels were RMB 315.2 million, down 16.8% year-over-year. While total revenues from LO hotels decreased 23.6% to RMB 167.2 million. Also excluding the impact of Argyle and Urban, total revenues from FM hotels decreased to 16.3% and total revenues from LO hotels decreased to 13.6% year-over-year. On Slide 21, you can see that total costs and expenses decreased 3.5% year-over-year to RMB 66.8 million. Excluding the impact from our newly opened lease operated hotels and other general expenses, the costs and expenses from ordinary cost of our operating business decreased 9.1% year-over-year. Total costs and expenses are composed of hotel operating costs and expenses, selling and marketing expenses, general and administrative expenses. Hotel operating costs were RMB 286.3 million, down 21.5% year-over-year. The decrease was mainly due to the deconsolidation of Argyle and the disposal of our interest in Urban as well as disposal of lease operating hotels. Selling and marketing expenses were RMB 19.7 million, a year-over-year decrease of 27.4%. The decrease was mainly attributable to lower advertising expenses and staff-related expenses due to less business travel caused by pandemic and deconsolidation of Argyle and disposal of our interest in Urban. General and administrative expenses were RMB 111.2 million in the second half of 2022, down 13.9% compared with second half of last year. The decrease was mainly attributable to the reduction in consulting fees and the consolidation of Argyle and disposal of our interest in Urban. Our general expenses were RMB 65 million in the second half of 2022, which included provisions for loan receivables related to franchisee loans and impairments for certain fixed assets. Turn to Slide 22. Income from operations was RMB 20 million with a margin of 4.1%. Excluding other general expenses mentioned above, income for operating activities were , with a margin of 17.4%. And net income was negative RMB 23.9 million with a margin of negative 2.5%. Adjusted EBITDA decreased 21.2% to RMB 118.3 million, and margin was same as last year. Core net income was RMB 67.7 million with a margin of 39%. The decrease was primarily due to the impact of newly opened hotels. Excluding the impact of newly opened and pipeline hotels, adjusted EBITDA, non-GAAP for the second half of 2022 was RMB 146 million with a margin of 34.6%. And core net income non-GAAP was RMB 422 million with a margin of 30%. Please turn to Slide 23. Net income per ADS was negative RMB 0.48, negative USD 0.07. And core net income per ADS basic and diluted non-GAAP was RMB 1.17. That is USD 0.25. Let's now take a look at Slide 24. As of December 31, 2022, the company had total cash and cash equivalents, restricted cash, short-term investments, investments in equity securities and term deposits of RMB 1,055.5 million compared to RMB 1,079.5 million as of June 30, 2022. The decrease was primarily attributable to the repayment of bank loans offset by cash from operating activities. On Slide 26. Taking into account the recovery in long-term trends and short-term industry fluctuations, we expect total revenues of total hotel business for the full year of 2023 to grow 30% to 35% over the 2022 levels and grow 5% to 9% over the year of 2019 levels. Furthermore, considering the merger of the restaurant business into the group and their revenue contribution from restaurant business, we expect total revenues of the whole company for the full year of 2023 to grow 90% to 95% over the 2022 levels. That is 50% to 55% over the 2019 levels. This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

[Operator Instructions]. Our first question will come from Jane Wang of UBS.

So my first -- I have two questions in total. The first is that we've seen the deconsolidation of Urban and in Argyle. So do we have further merchant acquisition plans in the future? And what would be the strategic difference? And the second question would be, we see that the current pipeline isn't quite high at the moment. And do we receive any pressures for new hotel expansions at the moment from hotel investors?

Okay, Jane. Thank you so much for reaching the question. Great questions. I will pick up those questions. Selina, okay. So with regard to the deconsolidation of Argyle and the disposal of the interest in Urban, that has not changed our strategy. I think we'll continue to explore new opportunities of merger and acquisitions. And the reason is now, we also have many other smaller investments in the local strong operating teams and local companies. And we have gained valuable experience and lessons during the last 4 years of growth plan. And so with this kind of valuable experience, I think that will help us to identify more accurately, more suitable partners that will further help both companies to grow our business together and to create value for both of the shareholders. So that is our merger and acquisition plan to supplement our main growth of organic growth. And -- but we'll not lose our focus on the organic growth, which is still the main driver of our business. And we have accumulated a great amount of experience during the challenging time, how to maintain a healthy operation, healthy margin. Just to give you a perspective of the -- our audience, the last 3 years, especially 2022 was the toughest year for the tourism and hotel industry. Just giving a perspective. The total tourism revenue for the 2019, that's a benchmark year, was RMB 6 trillion. And by 2020, because the first half of 2020 is a lockdown, so the full year of 2020, the tourism revenue is roughly RMB 3 trillion. So that's like a 60% drop, okay? And then 2021 recovered back to RMB 2.8 trillion, and 2022 brought back to roughly just a little bit over RMB 2 trillion for the tourism industry. So -- and with that amount of the tourism numbers and tourism revenue drop, we have been able to maintain a healthy, stable cash flow and operations with the organic growth. So we're focusing on that, leveraging of the healthy and quick recovery of the industries. But meanwhile, we will not forget about M&A market because we still have capitals to be deployed in a more disciplined way to enhance our growth rate and enhance our returns to our shareholders, okay? So, however, and we'll be more disciplined and more careful and selecting the right team with a truly complementary resources compared with organic growth and helping us to penetrate into those our wide space and lower coverage area, and the team also have more financial discipline and have the experience in managing the business in the professional or in a systematic way. So that's our M&A plan considering the deconsolidation and the disposal of the interest of Urban. With regard to the second question of the new pipeline and a growth rate for the new year. We have observed the 2023, the recovery in the first 3 months are very rapid, and we're really glad the industry resumed back to a very healthy level. But even with the quick recovery, we saw the culture and the tourism, ministry's forecast for this year, for the entire industry's revenues to be RMB 4.5 trillion. So that's about 75% of the 2019 levels, and the per capita expenditures is about RMB 900 per person compared with a little bit of close to RMB 1,000 per person in 2019 levels. So the budget for individual and business and the government traveling are still under a very tight control. So this year, our growth is going to be focusing on penetrating to areas where we're still having a slower -- we have a lower coverage and also moving into the first second-tier city seems to be mid-to-upscale segments and that we did observe due to the last 3 years of pandemic. And there's a lack of adequate capitals for the franchisees. And there are more -- a little bit more cautious than before the 2019 levels. So we will have to provide a demonstration of our business models, the resiliencies and the operating efficiency and our supporting capabilities to our franchisees to encourage them to open, to start upgrading their existing hotel portfolios. And we are confident, I think, this year, we'll resume back to close to levels 2019 and will be substantially higher than that of 2022. So thanks, Jane, for your questions.

The next question comes from Dan Xu of Morgan Stanley.

I have two questions. The first question is regarding your guidance for full year 2023. May I get some more guidance on the RevPAR that you are assuming for the total revenue of hotel business of 30% to 35% year-on-year growth, your RevPAR assumption? And secondly, on the assumption of hotel opening because after the deconsolidation and also the disposal of Urban, I think our hotel number dropped to around 4,000 hotels. So what are our plans for 2023, our hotel number as well? That's my first question.

All right. Thanks, Dan. We discussed thoroughly internally our RevPAR recovery of 2023 and also comparing the first quarter increase. And we believe we estimated -- we forecast this year our RevPAR we hope will be the same as of 2019. So we're back to normal levels. And for the several reasons, the total towards the industry's revenue as we just reported to you -- shared with you by the ministry is that 75% of the 2019 level. So in theory, the RevPAR should not be higher. They should be lower than that of 2019 level. However, I think the branded operator, especially the nationwide such as GreenTree have a much higher capital rate of the demand. And therefore, I think that our recovery has always been much better than that of the industry. So the first quarter, we observed the first or second-tier city, we recovered more than the pre-pandemic levels. We believe that's due to the many, many travel needs for -- accumulated for the past 3 years. For instance, family reunions, many people have not seen their family for 3 years. And then government have a great initiative for investment promotion, so many trade shows and the investment promotion programs are spread in the countries, especially going to Shanghai, Beijing, Guangzhou and Shenzhen area. And the recovery for the first, second-tier city is much quicker, and we believe that's the main driver. And that driver will gradually, I think, back to normal. And the third and fourth-tier cities because the evolvement of the pandemic was a slower -- was trailing to the first- and second-tier cities. So during the first quarter of 2023, we also see the impact by the third, fourth-tier city by the pandemic as well as the influenza and also the driving forces of the convention facilities in those third and fourth-tier city are not as many. So the third and fourth-tier cities recovery is not as quick as the first and second tier. But we believe that during the second quarter, third quarter, especially during the travel seasons, and many, many of those cities will recover much quicker. So overall, we do expect a stronger second, third quarter from accumulated demand from the past 3 years. So overall, the -- our projection of the recovery of the RevPAR is 100% at 2019 levels. And we hope the -- with this year's transition of the economy and the many, many businesses are starting to reposition themselves, so the 2024 would be a much stable for business travelers and for the leisure travelers. And with regard to the hotel openings, we have a conservative estimate depending on the second and the third and fourth quarters recovery. In the first quarter, the first one in January, February was still impacted by the rapid transition from the pre-COVID and from the -- sorry, from pandemic control period to the policy and the control policy being lifted during the third transition to be impacted a little bit. And our assigning speed right now is about 600 to 800 levels per year of the new hotel contracting speed. So we are also adding teams for the development, and we are able to travel a lot more. And comparing with the last year, many, many cities are locked down and prevented our business developers traveling, helping our franchisees, and that we think that we'll have -- recover the new hotel contracts and opening speed to close to pre-pandemic levels. And meanwhile, we are also going to enhance our existing portfolio's renovations. We have slowed down quite a bit in the last 3 years. We initially had a renovation plan for the 2019 and 2020, and 2021, but the reality is those 3 years are much tougher for front floor, the franchisees to renovate hotels. And for lack of the adequate confidence and the picture are not clear in terms of when the pandemic will be lifted. Secondly, that the lack of the travels and the quarantine -- period of quarantine made it difficult for the hotel to be upgraded. Thirdly, we also have many hotels periodically under the government demand for being used at quarantine hotels. So for those reasons, we really have not had very strict policies for our existing hotels to be upgraded, to be renovated. But with the lifting of the pandemic measures, we are right now aggressively, proactively working with our franchisees and of a wide spread, products, renovation and upgrade programs. With that in place, I think we will have many, many more new fresh hotels, both on the newly opened as well as the existing hotel upgrade. I think this and next year will give us a great boost in the growth and our planned revenue both from the new hotels and from the existing hotels. So thanks, Dan.

Just one last quick question for me. With the disposal of Urban and also the deconsolidation of Argyle, do we expect any disposal gain or loss or any impairment that might occur later in the future after the first half impairment already being impacted?

I will elaborate a little bit, then Selina will add. The disposal of the interest in Urban, that is completely [indiscernible], and there will be no more impairment on that end, but with Argyle because we're still the majority of the shareholders, so we have the numbers in the book. But because of the performance in 2022, we expected lower. So we had, I believe significant impairment in the second half of 2022 because of the Argyle portion and -- but I will leave that balance to Selina.

I think you're -- yes, Alex, this is correct. For Urban, because Urban has purchased the interest back totally, so there is no further impairment in the future for Urban. For Argyle, actually, we recorded in the long-term investment both in PL and balance sheet. So they're very, very little mature in the future.

From my understanding is the amount of the residual value in those long-term investments is insignificant. And with that, I think we have -- we'll be able to completely really focused on our core and again growth. That give us resources and instead of focusing on some of the problem-solving products so give our team time and energy. I'm just talking about new core organic growth plan.

The next question comes from [indiscernible].

I have one more question. What are the company's future plan for food and the beverage acquisitions?

Let me elaborate on that. As you just heard the numbers, our 2 distinguished brands in the restaurant side, many, many people sometimes think that legacy brand over 20-something years. But the history of the food and the restaurant services indicated that there are not too many brands in China that can survive and grow in the 20-year period. So this really demonstrated both brands' sustainability and their management capabilities. So we have the locations in the past of those 2 restaurants in high-speed train stations and in supermarket centers and in shopping malls. Those are primary locations of these restaurants. You disclosed the numbers, so the traffic to those areas gets reduced dramatically because of the pandemic. Also some of them because of the online shifting consumption trend. So, in the future, with the resumption of the travels, so both the traffic to the high-speed train stations to the local supermarket centers and the shopping malls, we resume, especially the high-speed train stations, we think those hubs will recover the quickest and the fullest. Supermarket centers and the local shopping malls still are under a lot of pressure because the more -- new -- many new malls opening and therefore, are cutting back on the traffic to the existing malls. And the supermarket centers, many demands are moving to online and the many alternative formats in the supermarket deliveries. So we -- as a result of that, I believe we still are managing to have a good and healthy operations for the past 3 years. And again, just showing to our people that the capabilities we have over there. So in light of that, so the new trend that our new focus of the growth plan is going to be focusing on opening more restaurants in the community centers, servicing the local communities and the retirement communities in a more efficient way. And also on the product side, we want to develop called affordable luxury and great products and great service at affordable cost, and we also will enhance our delivery capabilities and to increase presented the delivery revenues. And fourthly, we will also leveraging our hotel, facilities and hotel resources. One of the reasons, [indiscernible], we have a healthy hotel operating margin is because we are able to managing all aspects of the hotel segments, service segment well, including breakfast restaurant services, room revenues. And as a result, and the companies of these and we have a healthier margin than most of our competitors or than the industry average. And so we'll continue to leveraging that and to increase the food quality and services for both on the breakfast and in certain hotels, we started providing full day dining, we're talking about the mid-to-scale hotels, not mid- to high-end due to upscale. Upscale, most of the hotels, we have our plan to have the full dining service component because that's very much needed by the guests. So we believe we see that initiatives, and also we will continue to focus on franchised restaurants. And we have seen demand for our 2 brands by other restaurant operators and by our own hotel franchisees. So with the recovery of the economy and the lift of the pandemic measures and the increased traffic to those regions, we do expect our food and restaurant business will be benefited greatly from those as well as our growth plan. Thanks.

The next question comes from Peter Yang of Goldman Sachs.

So I have two questions. The first is on the EBITDA margin. Could you give us the guidance of what kind of EBITDA margin you were expecting in this year and maybe next year after the topline is fully normalized? And the second question is regarding the company's strategy -- strategic focus. So maybe the strategy the company is looking at in terms of expanding in mid-scale or in the upscale segments or after acquiring the restaurants. So what are the priorities for the company's strategies? And how are you going to focus or make progress on those areas?

Thanks, Peter. I will take the second question, just talk about the strategy, our focus and then Selina will talk to you about our projected 2023 or the margin discussion, okay, EBITDA margin, 2023 and 2024. So as we mentioned earlier, Peter, running the gaming experience in the past 3 years made our team, I think, stronger in operating in the tough environment. We do believe the 2023, 2024 recovery period, there are still going to be a lot of challenges meanwhile, with a lot of opportunities and with the rapid recovery. And we are still not back to the 2019 levels in terms of the entire tourism industry. So with that, and we are clearly focusing our core and organic growth on the hotel side. Each business unit has its existing management team, so our group's management focuses are going to be on the hotel core organic growth. So the organic growth consists of probably 3 parts. First is the existing hotel portfolios renovation and upgrade. That's our key area of focus because we have been behind for the last 3 years, and that we need to completely upgrade and renovate many, many hotel products, some of them being used as quarantine facilities, and the wear and tears are more than the other types of usage. So then the second focus is to develop and opening more new hotels with especially the mid-scale to upscale levels. And by showcasing these new hotels and we will further influence our lower . And the third focus is to improve, continue to improve our overall operating efficiencies and part of the overall efficiencies and are many, again, subarea we focus on, for instance, community outreach and local sales and marketing program and enhance our service to our guests and deliver -- deploy robotic technology to lower our labor cost. Because of the labor shortage, the labor costs are a challenge for the next many years, I think, to come. And to improve our information technology and mining the data and to increase our system efficiencies. And due to further also deploy some of the AI newly used, for instance, what even our teams are starting to experiment some of the AI tools for customer service, for sales and marketing and for new media. And so those are the folks to improve the overall hotels operating margin and efficiencies. So those are our core focus. And then on the other side, if there are local strong focused hotel management company's operators that we have a common -- share common value, common goal and financially disciplined. And then we may continue to explore this M&A. And then lastly, the food and restaurants. And for that, I just mentioned to you our management team in the food and services defined affordable luxury. In light of the new economy, and we want to use a lot more. If they want to use a lot more on local ingredients, create customer-preferred meals at affordable price and servicing the local communities and by diversifying from the supermarket centers and also shopping malls into the -- directly into local communities. And become part of the habitual and hardcore demand for the local communities, we believe that sector will grow very healthily and generating a healthy cash flow and return to our investors. So with overall focused approach and with the recovery of the economy, we think 2023, we really plan to generate margin and close to that of pre-pandemic level. So with that, I'm passing the rest of the questions to Selina.

Thank you, Alex. Also, before I answer the question, what's the EBITDA margin for the next 2 years? I would like to share what effects to actually impact our EBITDA margin. Actually before the COVID-19, our EBITDA margin was as high as about 50%. And for the past 3 years, our EBITDA margin ever reached the lowest point at about 25% for a series of quarters. So there are 3 material factors that reduced the lower margin. The first one is the consolidation of the joint ventures. And the second reason is due to the COVID-19, the lower revenues and the higher cost, stable cost and especially the rent cost and our human resource costs. And the third reason is that we opened more leased operating hotels, especially in the mid -- of the middle term scale segment in the Tier 1 and the Tier 2 cities. For the first reason, the consolidation of joint ventures affected about 10% of our EBITDA margin. And for the leased, operated hotels newly opened in the past 2, 3 years, another 10% EBITDA margin was reduced, and the remaining delivery amount of the margin decrease was about due to the COVID-19. So we'll be looking forward through the year of 2023 and the next year. First, we have to consolidate our joint venture, and we return to normal business when the COVID-19 passed their way. And also, for the newly opened hotels will be past the ramp-up period and gradually return back to the normal operation. So we expect the EBITDA margin to recover about 10% to 15% in the year of 2030. So that means from the 25% plus, another 10% to 15%. So for the year of 2024, it's a bit hard for us to go and to becoming the sector members right now. But we believe the operation and the industry will recover more -- better and better. So following this, we may gradually return to the normal level of EBITDA margin. That is above 50% in the next 2 or 3 years.

The next question comes from of Oriental Value.

Just two quick questions. So the first question is that can you share about current profitability of the restaurant business and the second question is that what's the current business outlook for the upcoming years?

We cannot hear you very clearly. Would you repeat your question again?

Is it better now?

Yes, it's better.

It's better.

Yes. So yes, sorry, I repeat my questions. So my first question is that can you share about the current profitability of your restaurant business? That's the first question. And the second question is that what's the current dividend outlook for the upcoming years?

So Don, we're trying to understand, your first question is that, what's the profitability level for the restaurants, am I correct?

Yes.

Okay. What's the second question?

The second question is the dividend outlook of the company, the dividend.

Got it. Thanks, Don. The -- we don't have the fully audited numbers of the restaurant for the 2022, but I do believe that we have maintained a healthy, I think, cash flow for the restaurants. So we will get to the -- we'll publish the number as soon as we have them, okay? So with regard to the dividend as soon as possible and our current focus is still growing the business and that with a little bit uncertain transition period that we are a little bit uncertain about impact. But as soon as I think the picture is clear and more stable that we'll plan to resume our previous dividend.

Okay. Understood. Yes. So for the restaurant margin, right, so I understand that the audited number for last year is not final last year. But then how about for this year for 2023, what's your projection?

So we have a -- when we have -- when we made the acquisition, and we have full valuation by the, I think, most reputable valuation firm and that there is a number of assumptions and projections for the restaurant business. Do you have the numbers? With you on the -- and I think that we projected them the 2023, I think that 20% to 30% gross profit margin. And we've -- not with too high of the revenue because at that time, we were not very clear with where the pandemic is going to be. And so we will, Don, report you the numbers, I think, separate fund cost once I have those on hand.

The next question is a follow-up from Dan Xu of Morgan Stanley.

Alex, regarding the F&B business, can I have one follow-up question? Can you elaborate a little bit more on the synergies between the F&B business and the hotel business? For example, are you -- because you -- I think you explained to us very clearly about organically, each business, how would they perform, grow organically? But is there any synergy between the business? For example, by having Da Niang Jiangsu and Bellagio, you can channel the customers to your hotel or by branding your Da Niang Jiangsu GreenTree brand. It will help to bring more clients to Da Niang Jiangsu -- or maybe you can have a Da Niang Jiangsu, a GreenTree hotel lobby, for example. So just trying to understand is there any synergy or maybe it's because of the membership sharing. For example, you can combine the members and you can have more target customers for your hotel or your SMB business. Just trying to understand if there's any, okay, Alex.

Okay. Dan, that's a great question. So let me share a little bit background at the original acquisition of these brands. The -- that's the intent of the original acquisition. The objective is to create synergies between the 2 segments of the businesses that in the past 3 or 4 years -- the past 3 years, I think each unit is really trying to do their best to weather the storm and to face the challenges, to counter the challenge. So the team have not synergized in a widespread way. We did perform many, many experiments -- a few experiments, not many experiments that we find there are great synergies between Bellagio and hotels. For instance, we -- in one of our hotels, we have adopted a new concept of branded restaurant inside the hotels, and the restaurant revenue increased 500%. And so the breakfast and the meals revenues, the restaurant revenues, foodservice revenues became roughly 70% of the room revenues. So in other words, the room revenue is in the last year, it was 69%. And then the food and beverage side, close to RMB 3 million. So we did have -- we do have some great success stories in that end. And that, however, I think the team needs to be trained and it's because the last 3 years, we have not added team members to drive that synergies. And now with the COVID measurement are lifted, and we have -- we are right now in the process of building a dedicated team to bridge the 2 resources together and to expand, to replicate the success in those hotels. And without substantial numbers, then the impact at this moment on the book is still not [indiscernible], but we do think in the near future, there's substantial release synergies over there. But we do not -- the question sometimes in the last 3 we have not done many of them. When the management team of each group are dedicated focusing to improve their own operations to face the challenge, then sometimes we do not have a lot more resources to experiment those new concepts and to create new business units. And right now, we are building that to offer not only the food services. We're also trying to see whether we can have other services by combining the food and the rooms and some of the facilities in the hotels really to create a better customer service experience, meanwhile, increase our revenue in that end then we report to you as we make the progress. I think this year, we'll see many more. As I said, we already have a few those prototypes. But this year, we'll have many more with the ability to travel, with ability to expand in some of the key locations. We hope to gain a lot more experience in that end and to further -- to help the 2 businesses to grow. In terms of memberships, we just integrated our systems. I think that will be in deployment to use in the first, I'm sorry, in the second half, in the second quarter of this year.

Thank you, Alex, we hope to see more prototypes and more synergies coming up in the future.

Yes. Great. We'd like to invite you to visit that place because we find it quite, I think, good for the guests and good for the restaurants and good for the local community. So basically, everybody benefited from that.

This concludes our question-and-answer session. I would like to turn the conference back over to Selina Yang for any closing remarks.

Thank you, operator. In closing, on behalf of the entire GreenTree management team, we thank you for your interest and participation in today's call. If you require any further information or have plans to read it to us, please feel free to contact us. Thank you all.

Thank you.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.