Ladies and gentlemen, thank you for standing by, and welcome to the China Lodging Group's 2013 Q2 Earnings Conference Call. (Operator Instructions). I must advise you that this conference is being recorded today, the 16th of August, 2013. I would now like to hand the conference over to your speaker today, Ms. Ida Yu. Thank you. Please go ahead.

Thank you, [Krista]. Hello everyone and welcome to our second quarter of 2013 earnings conference call. Joining us today is Mr. Qi Ji, our Founder, Executive Chairman and CEO; Mr. Xie Yunhang, our COO; Jen Zhang, our CFO; and our Director of Strategy and Capital Markets, Bonnie Bao. Management will elaborate on our company’s development strategies and performance for the second quarter of 2013 during this call. Following their prepared remarks, they will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements made under the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. China Lodging Group does not undertake any obligation to update any forward looking statements, except as required under applicable laws. On the call today we will also mention adjusted financial measures during the discussion of our performance. Reconciliations of those measures to comparable GAAP information can be found in the earnings release that was distributed earlier today. As a reminder, this conference call is being recorded. The webcast of this conference call as well as supplementary presentation slides are available on the Investors section of China Lodging Group's website at ir.htinns.com. Now I would like to turn the call over to Mr. Ji who will be speaking in Chinese and his statements will be translated into English. Ji Qi, please.

(Interpreted). Good morning everyone. Thank you for joining our earnings conference call today. During the second quarter, we maintained our robust growth of high quality. Net revenues for Q2 increased by 30% year over year, exceeding the high end of our quarterly guidance by about 1%. Net income for Q2 increased by 37% year over year. At the end of second quarter 2013 we had more than 130,000 rooms in operation, an increase of 39% from a year ago. Our same-hotel RevPAR remained stable in spite of the soft macro environment. In the last earnings call we shared our strategy of fast expansion. Today I'd like to move one step further to talk about our focus on delivering better experience to our guests. Hua Zhu always places the most emphasis on each and every aspects of the details to make sure guest experience is our first and foremost priority. In addition to providing basic service [of first rate], we expand our service offerings to free WiFi coverage and [accessibility] of digital booking, especially on the backdrop that the mobile internet is changing our hotel industry dramatically. Page four presents Hua Zhu's continued efforts to respond to guests' rising demand. We aim to provide free WiFi in rooms and lobbies across all of our hotels. The whole project is expected to be fully implemented by the end of 2013. As of today, WiFi coverage is available at more than 70% of our hotel portfolio. This value-added service is free for all our hotel guests. Secondly, as shown on page five, to cope with our guests' ever-changing consumer behavior, we have expanded our digital booking channels from website bookings to smartphones and apps which we believe can better satisfy younger generations' needs. Providing more than just stay experience, we have expanded our services through the whole value chain. With that, I will turn the call over to Yunhang, our COO, who will walk you through the detailed measures we take in response to guests' evolving needs and future operational highlights. Yunhang, please.

(Interpreted). As mentioned by Qi Ji, we engage our guests in new ways, and they can make reservations through digital booking channels. Upon arrival, our guests can enjoy speedy and intelligent check-in service. On the day of departure, our guests can enjoy express check-out, a simplified process which is already well-accepted. Change in consumer behavior motivates us to innovate new ways in engaging them. As shown on page seven, we have set up an interactive LED screen at the airport terminals to [involve] travelers with popular mobile games. This is an innovative marketing approach to better attract our target guests through high technologies such as [wireless sensing] and GPRS positioning. The winners can collect our discount coupons in (inaudible) and eventually become our guests at hotels which is a process from offline to online to offline. Two months since its launch, we have more than 15,000 participants and about 10,000 coupons have been [bundled] with guest accounts. The conversion rate of coupon usage is estimated as high as 80%. In a similar way Hua Zhu led the way in creating more innovative methods to enhance that experience prior to and upon arrival. Online DIY room selection is a privilege and priority we offer to our guests who reserve rooms through our own channels. As shown on page eight, our integrated digital booking system presents our hotel floor map for guests to select their favorite room type and room location prior to arrival. In this way, guests will feel more engaged throughout the process. Now this (inaudible) is available for more than 95% of our hotels. What we feel most proud of speedy check-in, our proprietary check-in initiative. The check-in process can be completed within 40 seconds [as process], as shown on page nine. With online DIY room selection and online…

Thanks, Yunhang. Hello everyone. In Q2 2013 we were delighted to see a strong revenue growth and a significant improvement in profitability. Let me walk you through the details. As shown on page 15, our tier 2 net revenues increased 30% year over year, exceeding the high end of our quarterly guidance by 1%. Leased hotels revenue grew 28% and manachise and franchised hotels revenue grew 64% year over year. This quarter our manachise and franchised hotels revenue reached 12% of our total revenue compared with 10% in the same quarter last year. Page 16 shows the adjusted quarterly operating margin which increased by 2.2 percentage points in Q2 of 2013 when compared with the year ago. In the beginning of this year we have implemented measures to further control costs and hotel levels, leading to savings on personnel costs and consumable costs. Our staff productivity has been improved by the technology-based service initiative as Yunhang introduced earlier. And thus we are able to reduce the staff to room ratio further. Our revenue mix shift towards higher percentage of higher-margin manachise revenue also helped improve our margins. Pre-opening expenses as a percentage of net revenue showed a 1.6% decrease due to our enlarged revenue base. On top of that, we also have seen [a shorter] conversion period. Our SG&A expenses as a percentage of net revenue remained unchanged due to a decrease in selling and marketing expenses, but offset by slightly higher G&A expenses. For the first six months of 2013, adjusted G&A expense ratio decreased by 0.3% from the same period of 2012. Now moving on to cash position, as shown on page 17. Our cash balance closed at RMB312 million at the end of the second quarter. We have total credit facility of RMB699 million. For the second quarter we had a net cash inflow of RMB128 million, mainly due to expanded revenue base, improved profitability, and (inaudible) on investments. We believe that our cash balance or operating cash flow and our available credit facility will be sufficient to fund our expansion plan in the near future. Last but not the least, as shown on page 18, we expect to achieve net revenues in the range of RMB1.12 -- in the range of RMB1,110 million to RMB1,125 million in the third quarter of 2013, representing a 24% to 26% year-over-year growth. With that, let's open the floor to questions. Operator?

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). Your first question comes from Justin Kwok from Goldman Sachs. Please ask your question. Justin Kwok – Goldman Sachs: Hi, good morning. Thanks for taking my questions. I have a couple of questions on the revenue side and some of the cost side. I just want to get a sense on your feel of the quarter-to-date same-hotel RevPAR performance or demand, because one of your competitors is saying that they saw July performance seems to be moving better than what they have seen in the first half of the year. That's the first question. The second question is on your cost. I saw that you have a very good cost savings in the second quarter of performance. I just want to see how much of that is one-off because on the variables, that that's kind of performance-linked compensation. How much of that is evidence that you are already taking off from your cost structure? And the same thing also on G&A because there seems to be some jump on the G&A, how was that, kind of the background or the color on why would there be a jump on a sequential basis.

Sure. On your first question, on the revenue side, in July we also have seen a more favorable trend on their same-store RevPAR growth. So I think it has demonstrated strong seasonality in Q3 when leisure travel peaks. On cost side, our hotel operating costs decreased I think, you know, is largely due to our cost control measures. Starting from April of this year, we have formally reduced the staffing ratio at all hotel levels. So majority of that cost saving is sustainable. And on the G&A side, the comparison year over year [had some tweaks] because last year in Q2 we received some refund from the government. And the same kind of refund was seen in Q1 this year. So that has caused a small fluctuation in the year-over-year comparison. Overall speaking, I think our G&A expenses is well under control. Justin Kwok – Goldman Sachs: Okay. Just one additional question, maybe to Chairman Ji. I think in the last two quarters, in your prepared remarks and presentation, you have highlighted the longer-term three to five years outlook of how the company is to go ahead with the multi-brand strategy in terms of the size of the brand for each of the portfolio. I just want to see, in view of the soft macro that you have mentioned, would you be putting or kind of shifting any of these opening schedule at the current pace or will you be going ahead with the relatively high-end hotels like the Joya or the [JI] hotel at full speed at this point? Thanks.

(Chinese language spoken)

(Interpreted). (inaudible) question, in regard to JI hotel, our general view is, you know, the midscale hotels and economy hotels are not very sensitive to the macro environment. Therefore we don't expect any change to our plan relating to JI hotels. And in terms of Joya which is positioned as the limited service upscale hotel, I think we have also a lot of opportunities in that segment. As everyone is aware, the soft macro economy has caused a lot of luxury in upscale hotels into difficulties. How do we view the current difficulties this segment is [viewing] is what I want to explain to you guys. There is a famous story about selling shoes in India. There's one group of people who said, you know, Indians don't wear shoes, they like their [feet], so there's no room for selling shoes. But there are also people seeing shoes opportunities in India because nobody is wearing shoes at that moment, [so we could sell a lot]. Clearly, you know, I'm one of those taking the second view. In the past in China, the government and real estate developers have invested hugely to developing both luxury expensive hotels. And they didn't really figure out how to generate the good return on those huge investments. And as the economy get soft, they are facing the big question, you know, how to make their hotels more profitable and more sustainable. And the positioning of our Joya hotel is to demonstrate that by careful calculating and sophisticated design on services and products, we can generate a decent return on the upscale hotel. Therefore we are very determined that we are answering this segment of market with the unique proposition. We are going to take a careful and a cautious view (inaudible) investments into the segment, but it doesn't change our determination to, you know, become one of the leaders in the future in this segment. Justin Kwok – Goldman Sachs: Xie-xie, Qi, Jenny.

Thank you.

Your next question comes from Ella Ji from Oppenheimer. Please ask your question. Ella Ji – Oppenheimer: Thank you. Good morning everyone and congratulations on a strong quarter. First I want to ask about the occupancy performance in 2Q. Mature hotel occupancy was down 3.5%. Can you -- is it evenly distributed by geographic region? Do you see any region that's particularly weak? And also given the pickup in July, what's your expectation for the mature hotel occupancy in third quarter?

In light of the current economic situation, we have seen two different trends in the customer demand. We clearly see some softness in the business traveling. But at the same time, we also see very fast growth in leisure traveling. In the future [batch], you know, the hotels located in major cities with traffic of both are still doing fairly well, such as Beijing and Shanghai. But cities that has heavy reliance on business traveling are facing more difficulties in general. And when we're facing this environment, we have taken the standing that we will rather, to achieve the same RevPAR, it will be more profitable for us to have a slightly higher ADR and a slightly lower occupancy. So that (inaudible) to a more sophisticated management decision. And as you have seen, despite that, the RevPAR has increased at the same-store level, the margin has expanded. And back to July, I think the trend is consistent with what I have just described. For cities receiving major traveling traffic, you're seeing is performing stronger in general. Ella Ji – Oppenheimer: Thank you. So with regards to the mature hotel RevPAR expected for the third quarter, Jenny, could you also comment on what's management expectation.

Currently we are seeing low single-digit improvement. So it will be better than Q2, but I wouldn't (inaudible) too significantly as what we have achieved the last year. Ella Ji – Oppenheimer: Okay. And then second question is with regards to your new digital booking channel, those offerings are very interesting and customer oriented. I wonder how much of your booking right now are coming from those digital channels. And are you able to attract new customers that are offering these, you know, digital channels? Or is it still mostly within your own customer pool? I will forward this question to our COO, Yunhang. (Chinese language spoken)

(Interpreted). We have two objectives (inaudible) new technology to serve our customers. The first objective of course is to provide better experience for our existing customers. And the second part is to use the platform to acquire more new customers. Ella Ji – Oppenheimer: (Chinese language spoken)

(Chinese language spoken)

Let me translate. Onto the first part of the question, currently we have 40% of the booking are coming through the e-channels. And second, you know, as you can see, our membership base has been quickly growing. And by the end of the second quarter we have exceeded 11 million, and the acquisition of new members is completed through both offline and online channels. On the online channels, we also gave you examples how we are, through advertising of course, as well as the promotion in the -- through the various internet channels. And those have clearly attracted quite a significant number of new members into our pool. Ella Ji – Oppenheimer: Got it. Thank you. My last question is a follow-up. With regards to your staff ratio per room, I wonder if you can share with us what's your current rate versus let's say one year ago, and also what's your total headcount versus one year ago.

Currently our staff to room ratio is brand-specific. Average is around 0.2% compared with 0.22% to 0.23% a year ago.

Your next question comes from Jamie Zhou from Macquarie. Please ask your question. Jamie Zhou – Macquarie: Hi. Morning, management. Congratulations on a very good set of results in a tough quarter. My first question is a follow-up to the internet innovation that you guys have been putting to your customers. Have we seen a meaningful pickup in terms of leisure travel? That's the first part of my question. The second part is, what are the economics of leisure travel versus business travel on a like-to-like basis on both margins and seasonality? That's my first question.

Jamie, I'm sorry, but I cannot hear you very clearly. Could you repeat the question? Jamie Zhou – Macquarie: Okay, I'm sorry. So I see that you guys are putting through a lot of innovation in terms of internet mobile apps, you know, tracking new customers. Now my question is on whether that has seen a meaningful pickup in leisure travel, and can you share with us what percentage of your revenue is now coming from leisure travel, and whether there are any differences in operating profitability on a like-for-like basis in a strong leisure market versus business market as well as the seasonality implied in leisure travel? That's my first question.

Jamie, we have, you know, we don't have all the data to answer the whole question, but let me share what I have on hand. First of all, the [fast] growth of the leisure travel has made it more important for us to be able to connect to the customers on an individual level. Therefore, you know, the mobile application is playing a very, very important role in that connect process. So clearly this is helping us to adjust [the trend] of fast pickup on leisure travel. Currently nearly half of room nights are sold to non-business travel purpose trips. Therefore we believe we are having a very well-balanced customer base today. Jamie Zhou – Macquarie: Okay. Just a follow-up to that, what is -- what are you guys seeing in terms of customer loyalty in your leisure travel members versus your business travelers?

Actually people visit our hotels, the members visit our hotels sometimes for business purpose and sometimes for leisure purpose. It's actually very difficult for me to tag one customer and call them a business traveler and tag someone as a leisure, because they could visit our hotels at different occasions. Jamie Zhou – Macquarie: Okay, I see. Thanks. My second question is on the RevPAR performance for the same hotel, which was asked earlier but I want to further ask. I noticed that in the first two quarters of this year, despite the tough macro environment, you guys were able to push through a remarkable 2% to 3% organic ADR growth and achieved positive, slightly above positive RevPAR growth. Are we expecting the same magnitude of ADR growth into the second half of this year? Is this our strategy to maintain ADR growth at slight sacrifice of occupancy to achieve higher profitability?

You know, our general strategy is to maximize the RevPAR. And under today's circumstances, there are clearly some softness in the business traveling. And by achieving the same amount of RevPAR, then we would prefer slightly higher ADR, slightly lower occupancy. So that's our general principle in our new management [process]. So with that, in Q3, we continue to expect that we will have some improvement on the ADR side. Jamie Zhou – Macquarie: Okay, thanks. And my last question is on the overall margin for -- outlook for this year. I remember at the beginning of the year you told investors that you are not expecting a meaningful margin improvement. And now due to your strong first two quarters of results we have seen a meaningful increase in the EBITDA margin. Can we expect a slightly more positive outlook on the whole year's EBITDA margin outlook? That's my last question. Thanks.

At the beginning of the year, we have guided a stable EBIT margin. In the first half-year clearly we have done better than our original forecast. There were two things that I think we particularly did better. One is on the control on personnel costs and the other is on improving the conversion speed of our hotels. Most of them contributed to the improvement of the overall margin. And on top of that, the expansion of our manachise hotel also was faster than we have originally forecasted. That clearly also helped improve the overall margin. So with those factors, I think it stabilized and (inaudible) I think we are expecting the full-year margin improvement.

Your next question comes from Fawne Jiang from Brean Capital. Please ask your question. Fawne Jiang – Brean Capital: Thank you for taking my questions. Just want to follow up on your digital booking. Jenny mentioned that as of now it's around 40% of your total booking. Just wondered, what's the growth rate in the past quarters? And how fast should we expect the penetration on digital booking going forward? And related question to that is also like margin implication. Just wondering whether you have any data point or any analysis associated with digital booking and what's the potential I think cost saving or margin improvement it could provide over time.

The digital booking has been picked up very quickly. We have launched the APP booking just about a year ago. And before all the digital booking channel was internet. A year ago, the internet booking was slightly above 20%. And within a year we were able to increase the digital booking to around 40%. So the pickup has been very fast. And we expect this ratio continue to rise, although it may not be as dramatic as the first 12 months. On the cost side, I think the benefit of APP booking mainly comes from the more stickiness from the customer side. Cost saving is really [a side product]. The direct cost saving on us is mainly in the shrinkage of our call center. We have maintained a call center currently at a very stable size despite we have significantly increased the transaction amount at a hotel level. Fawne Jiang – Brean Capital: Got it. It's very helpful. Secondly, just regarding the overall operating performance of your different brands, I mean apparently the macro is fairly weak and hit I think the (inaudible) sector across the board from higher category to -- that extend to your value hotel. I just want to know, how are your -- how have your midscale hotels as well as your Joya performed so far?

The two hotels have been performing very solidly, especially in the tier 1 cities. And so we're on track to expanding and we have a very strong pipeline for our JI hotel. And on Joya, the fifth Joya hotel will be launched in second half of the year and is also on schedule for the opening. Fawne Jiang – Brean Capital: Got it. Thank you very much, Jenny.

You're welcome.

Your next question comes from Yaoxin Huang from China International Capital Corporation. Please ask your question. Yaoxin Huang – China International Capital Corporation: Thanks for taking my question. I have two questions that goes to Mr. Qi. (Chinese language spoken)

(Chinese language spoken)

Let me translate the question briefly, and then I will also translate the answers from Mr. Qi. The first question is, you know, in comparison with the last same-store RevPAR, we have seen a general blended RevPAR decrease. That means the RevPAR of the new hotel seems to be lower than mature ones. Why is that and what we can do about it? Mr. Qi explained, the RevPAR of course has some correlation with the soft economy. And in regard to the new hotels in particular, we have a heavy portion of them are in the third, fourth-tier cities. And naturally those hotels will have a lower RevPAR compared with the hotels in the first and second-tier cities. And also a lot of them are still in the ramping-up stage. As quoted in the (inaudible) you know, we have 19% of room nights available for sale in the second quarter are during the first six months RevPAR period compared with 15% a year ago. And on the -- the second question was about the customer experience, that there's some observation on the older hotels that the environment and the security seems a little bit [tight]. Mr. Qi responded that, first of all, our hotels all have been -- have very high occupancy and as a result they need constant maintenance and repair to keep them at a refreshed, you know, fresh. And we also noted that, especially in our, you know, most mature regions such as Suzhou, Shanghai and [the capital], we have hotels on average older than three years. And that means going forward we need to pay more attention and also invest more in upgrading those hotels. And the maintaining and upgrade have been commonly observed in (inaudible) for all economy hotel chains across the world. And we clearly have also (inaudible) issues, but we are fairly determined that we will do our due to maintain our positioning as the better economy hotel. Yaoxin Huang – China International Capital Corporation: Okay, thank you.

You're welcome.

Your next question comes from Jianning Lu from Flowering Tree. Please ask your question. Jianning Lu – Flowering Tree: Hi. Thanks for taking my questions. The first question is about the JI hotel. I think in Q1 the report announced the same-hotel RevPAR performance, but in Q2 I don’t find information. Can you talk a little bit about the JI hotel same-hotel RevPAR performance? That's the first question. And the second question is about preopening expense. Because when I compare the leased and operated hotel opening numbers in Q2 this year against Q2 last year, it's almost similar. And I think this year we have more JI hotel opening and also we are opening a Joya hotel. So I expect the preopening expense to be higher while actually it's almost flat. So I just want to know why the preopening expense can be kept at such a low level.

Sure. In terms of JI hotel, their same-store RevPAR growth in Q2 is slightly above 2%. And for preopening expenses, there are two factors coming into that result. One is that we have, you know, shortened the conversion period. That has helped lower the preopening expenses. And secondly, in terms of the absolute number of hotels within the pipeline, actually our number of hotels in the pipeline for leased hotel is slightly lower than what we have about a year ago. Jianning Lu – Flowering Tree: Okay. And a follow-up question is on the labor law contract, so in this year, have you had any increase with salary yet? If not, are you going to in the second half of this year?

Sorry I didn't hear you very clearly. Jianning Lu – Flowering Tree: It's about the salary, employee salary. In the first half 2013, did you raise any -- did you raise the salary? If not, are you planning to raise salary in the second half? And by how much?

Most of the cities already have raised their minimum wage, so most of our hotels also have already completed the salary increase process. Jianning Lu – Flowering Tree: In the past.

In the first half, yes. Jianning Lu – Flowering Tree: Okay, understood.

You're welcome.

Your next question comes from the line of [Shung Koo] from [Juanlos Capital]. Please ask your question.

Yes, hi. Congratulations on the good set of results and thanks for the call. I have two broad questions. Maybe three actually. One relate to the profile of the new hotel openings. Could you help us understand for 2013 what the split between hotel openings in tier 1, tier 2 cities versus tier 3 and 4? And the second question relates to the new hotel openings from perspective of greenfield hotels versus conversion of an existing hotel. That's the first set of questions. The second relates more to the cost side. Maybe could you just help us understand a little bit more on how you are able to reduce the staff ratio at the hotel level? And thirdly, maybe if you could kindly give us some insights into the implications of the rise of leisure travel for your business -- current business model. And what can you do to capitalize on the opportunity. Thank you.

Sure. On the question about new hotel opening, currently we have around 74% of our leased hotels are -- sorry, 84% are in tier 1. And on the -- we expect that ratio to decrease by 5% to 10% a year later given our pipeline situation. That means we are going to increase the number of third-tier city hotels. In terms of new hotels versus conversion, about half of our projects are from conversion. So that means not all of our hotels are new supplies to the market. On the cost side, as we explained a little bit earlier, we have applied new technology in managing the hotels. Therefore we were able to reduce the work and simplified the process within the hotel. That has led to a lower staff ratio. Jianning Lu – Flowering Tree: Thank you. And just on the cost side, maybe you could just give us some guidance on how we should think about marketing cost going forward. And also if you could comment on the implications that arise on leisure travel, the benefit and also the risk of that to your business model. Thanks.

We expect our marketing expenses as a percent of revenue to remain at a stable to more decrease trend given our expanding scale. And in terms of leisure travel, I think that has opened up a lot of new opportunities for our business, especially given our expanding portfolio of brands. We are seeing brands such as HanTing hotel as well as the Hi Inn particularly popular among leisure travelers. And we also are considering introducing a new brand to specifically adjust the leisure travel market. So I think the booming of the leisure travel will be a long-term trend, and we are ready to embrace it.

There are no further questions at this time. Please continue.

Thank you everyone for joining our call today. Before closing the call, I would like to [advise] a few upcoming China Lodging investor events. We will conduct a nine-day road show in the US during the week of September 1, 2013. Additionally, we will participate in CIBC China conference in London on September 10 to 11. Interested parties, please contact us at ir@huazhu.com. Once again, thanks to everyone for making time. And we look forward to talking to you in the next quarter earnings call. Goodbye.

Bye.

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