Ladies and gentlemen, thank you for standing by and welcome to Huazhu Group Limited 2020 Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded. I would like to hand the conference over to your speaker, Mr. Jason Chen [ph]. Thank you. Please go ahead.

Thank you. Good morning and good evening, everyone. Thanks for joining us today. Welcome to Huazhu Group 2020 fourth quarter and full year earnings conference call. Joining us today is our Founder and CEO, Mr. Ji Qi; our President, Mr. Jin Hui; our Chief Digital Officer, Ms. Liu Xinxin; and our CFO, Mr. Teo Nee Chuan. Following their prepared remarks, management will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements made under the safe harbor provisions of United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results might be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. Huazhu Group does not undertake any obligations 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 our earnings release that was distributed last Friday. As a reminder, this conference call is being recorded. The webcast of this conference call as well as supplementary slide presentation is available on Huazhu Group's website at ir.huazhu.com. With that, now I will turn the call over to Mr. Ji Qi. Please.

Good morning and good evening, everyone. Thanks for joining us today. 2020 was a challenging year. COVID-19 pandemic strongly affected both our China and European business. However, now we're happy to see our China business recover strongly throughout the year, especially in the second half of 2020. Thanks to Chinese government effective prevention measures and the cooperation from Chinese people. More importantly, our hotel networks and the pipeline continued expanding in 2020. Thanks to our dedicated employees, our powerful brand and a solid execution. For our European business, also is still being impacted by COVID-19 pandemic. Our utilization plan progress also we took the opportunity to make some organizational change and prepare for patient recovery. Moving to Slide 2, we believe that COVID-19 pandemic has not trended [ph] long time gross potential of China lodging. Following China, new circulations economic development model mentioned by President Xi, Huazhu has taken credit for our long term gross. We continue to emphasize our China focused strategy. We targeted to open 10,000 hotels in [indiscernible] city, our China by 2022. Our future turnkey will not only focus on speed but also on quality just like we've seen before. Secondly, we continue to focus on innovation. We build our business around the three more super composition model combined brand traffic and technology. We push with a full digitalization of hotel to provide a better service for customers to improve hotel efficiency and to make more profits for our franchises. Last, but not least, we've seen an upgrade in our organizational capability is key. Our hotel networks are keeping growth. We're penetrating into low tier cities. In the meantime, we are trending in Europe. We're also speeding up the development of our hotels, all this strategy moves require organizational transformation and the talent. With that, I'll turn the call to Jin Hui, for our 2020 review and 2021 strategy focus.

Thank you, Ji Qi. Before we talk about the strategic focus of 2021, I'd like to review our achievement in 2020. Please turn to page 5. First of all is accelerated quality hotel expansion, although affected by the pandemic, the gross opening of our hotel in 2020 still reached 1,649 and the pipeline has increased to 2,449 from the 2,262 by the end of 2019. From the beginning of 2020, we pay more attention to the quality expansion. We redefine our nonstandard hotels and use this as the of our development of standard brands. Meantime, we've been upgrading our product. We've been launching the new version of HanTing 3.5, Hi Inn 6.0 and the version 2.0 of Crystal Orange and Orange. We strengthened the direct filed capabilities through multi channels. At the plateau level, we launched the multitouch point to attract members, such as Wi-Fi, team projection etcetera and we equipped sales staff at the local sales level to push for the local sales and we keep on developing new corporate customers. The contribution corporate members increased to 10% by 2020 from 8% by 2019. Lastly, is the rolling out of global technology base to shared service platform. In China, we've been upgrading our infrastructure, for example, the rollout of PMS 2020 and meantime we're working on the digitalization of the DH. I'd like to briefly introduce the first quarter performance of 2021, please turn to page 6. Due to the impact of the COVID-19 several provinces and cities like Hebei, Shanghai and Beijing, our occupancy has been declining in January and also because of the stay local policy by the government for the spring holiday, the occupancy in Chinese [indiscernible] dropped to the lowest point, but actually rebounded pretty fast after Chinese holiday driven by the strong travel demand,…

Thanks, Jin Hui. Despite the COVID-19 pandemic impact, we still expanded our membership base from roughly 150 million by the end of 2019 to near 170 million by the end of 2020. Our strong direct sales capability was also one of the critical factors to drive our strong and better than industry recovery during 2020. Going forward, we would further emphasize on building even stronger multidimensional direct sales capabilities, majorly, from four aspects, including in-store sales, H-World app, corporate customers and cross-industry alliance as shown on Slide 15. I will discuss one by one. For the in-store sales, the left hand side of the slide displays our [indiscernible] for attracting new members in our hotels, with minimum acquisition cost. Customers could scan the QR code we provided to become our member for using various facilities, service and functions of our hotel. Such as room TV projection, laundry service and invoice service and so on. However only attracting new members are not enough. We also need to return them, and transfer them to be repeated customers. Therefore, we further empower our offline hotels by providing comprehensive technique tools and systems such as CRM systems and online hotel operation system for helping them to better understand customer needs and further improve service quality. By doing so, we believe our offline hotels will not only have capacity to attract new members, but also to transfer them into loyal customers, with high repurchasing rate. Moving to our H-World app. We will launch our H-World, the new version, we call it Version 3.0 app in upcoming few days. Comparing to the older versions, the new app will provide more membership privileges, more efficient services through embedding innovative functions, such as online check-ins and more value-added services, such as remote room facilities to come true and…

Thank you, Xinxin. Good morning or good evening to everyone wherever you are. Let's move on to our operational and financial review for 2020. As shown on slide 23 at the end of 2020, we had a total number of 6,789 hotels, with 652,162 of rooms in operations, an increase of 21% from the end of 2019. Excluding the room inventory from DH, which was consolidated into Huazhu from January 2nd, 2020, legacy Huazhu room inventory would have been 628,135 at the end of 2020, an increase of 18% from the end of 2019. Despite the prolonged lockdown due to COVID-19 pandemic, we accelerated our hotel openings at the second half of 2020. However, due to the impact of COVID-19 impacting both our China - Chinese and our European business, total hotel turnover at the hotel level declined by 6% to the RMB33 billion, excluding DH total turnover would have reduced by 12% to RMB30 billion from a year ago. Turn to Page 24, legacy Huazhu blended RevPAR for Q4 2020 have recovered through the 97% level of 2019 level. The ADR in Q4 2020 has almost recovered to 2019 level to RMB231, while occupancy in Q4 is 1 percentage point lower compared to 2019. For the full year of 2020, due to the lockdown and travel restrictions as a result of COVID-19 in China, particularly during the first half of 2020, our RevPAR declined by 25 percentage points - 25% to RMB149 compared to last year. This was attributable to a drop in ADR by 11% and a drop of occupancy by 13 percentage points compared to last year. Please turn to Page 25. Our legacy DH business has been severely impacted by COVID-19 pandemic in Europe since March 2020. Our European business recovered during the last summer and…

[Operator Instructions] And our first question comes from the line of Justin Kwok from Goldman Sachs. Justin, your line is now open.

hanks for taking my question and glad to hear about the strong recovery for - March to date, since the - - more like the further reopening of the country. I got two kind of top-down questions I want to check in. The first one, that's on the expansion plan and the other one is on the high-end segment. So on the first one is, with [indiscernible] mentioning about the progress, it seems like you guys are very well on track to achieve [indiscernible], the 1,000 cities and 10,000 hotels sometime in next year. So can I check in as to what do you think would be the next milestone for the company going beyond into the next like three, four, five years in terms of number of cities, in terms of the size of the portfolio? And with that in mind, what would be the split of the segment? And also the split of the cities by that as a check? Perhaps I'll throw on the other question as well, which is on the high-end side. I'm glad to see that you making progress with the transaction with Sunac. But can you also share a bit on what you're seeing on aggregate on your high-end sector expansion plan, because you still have some of your own brands now like Joya and also InterCity, which is not - which are not in the joint venture. What are you seeing on the growth and the trajectory for these brands as well? Thank you.

Okay. So we foresee there are promising growth potential in all segments, Justin, not just the upscale but also economy and midscale. And we think, as we penetrate into lower-tier cities, the majority of the development will be focused on midscale and economy and we will add more upscale hotel in the Tier 1 and Tier 2 cities. Our target is to reach one - sorry 10,000 - 15,000 hotels in the next five years and we believe majority will continue to be a midscale and economy hotels.

So Huazhu targets of all segments growth, not only economy mid-scale but also upscale and resort hotels. Therefore, I wanted to echo Chairman Ji's point on the organizational capability. We require all kinds of organization, transformation and also the talent pools. So in the upscale segment, we see more more diversified demand from various customers. Therefore, we deploy a multi-brand strategy in the upscale segment. For example, InterCity will follow the deployment of high-speed train network in China to facilitate the transportation. And Joya represents more about the confidence, the new style of Oriental culture. So in short, there'll be different kinds of hotels catering to different kinds of the customer need. Next question please.

Yes. All right, thank you.

[Operator Instructions] And our next question comes from the line of Billy Ng from Bank of America. Billy, your line is now open.

I also have two questions. So my first question related the revenue assumption, the revenue guidance for 2021. Can you tell us a little bit more in detail, I know you guys mentioned about excluding January, February the RevPAR growth assumption should be somewhere about like or RevPAR assumption is based on 95% to 100% of 2019 level. If we look at the revenue growth assumption of 50% to 54% growth in 2021, what will be the assumption for the same-store RevPAR growth compared to 2019 for the China portfolio and also for the DH portfolio. And that's my first question.

Okay. I'll say that for the Chinese portfolio. is that for the same for hotel RevPAR, I think that our RevPAR assumption will be in the range of 95% to 100%. And then for the Deutsche Hospitality, we have actually revised downwards, so in fact that, I will give you a specific one but because that, this is for the German operations because the timing and the completion of lockdown is still very uncertain, but we have put in appropriate range to cover any potential shortfall.

Okay, I see. And for the 95% to 100%, that's the same-store number, same-store RevPAR assumption right?

Right.

Okay and how is it like the recent trend, like as you just mentioned, the recovery was quite strong in March. If this recovery is somewhat different from the last one, meaning like what's that led by Tier 3, Tier 4 city and also in terms of specifically Shanghai recovery, are there anything that you notice that's worth sharing?

Okay. In March, I think our recovery has - well, our occupancy has reached approximately like 87% already. And this has already been considering the client, the ramp up, particularly that before the mid of - before the [indiscernible] the party conferences before the end of the January of - or the 10th of March, and subsequent to that, there was a big rebound. So, considering that, the things that we did for March, we estimate the occupancy to be around in the range of like 87%.

I see. And my second question actually related to the cost side and also I think if I misinterpret - correctly, the company has about RMB140 million write-down and so like, if we take that out, how should we think about the 4Q cost structure because it seems like that, there's still some increase compared to 3Q. And if we think about 2021 cost structure, is the fourth quarter the right place to start? And just based on that too, to kind of extrapolate for the 2021 number?

It's a good place to start, but on the other hand, is that, we will share more - or some of our programs. Because in 2021, is that we are not only in the full recovery - in the recovery stage, but we are also in the aggressive mode in expansion, in both our developments, and also our sales efforts. So we would be - we'd shed more during the Q1 conference.

Okay and quickly for the --

…it's a good guide. It's a good guide.

Sorry. Yeah, and for RMB140 million write-off, what's the split between Deutsche Hospitality and our China portfolio?

The RMB140 million, of that is the RMB120 million is related to Deutsche Hospitality, related to two hotels and RMB20 million is related with the China business.

And your next question comes from the line of Sijie Lin from CICC. Your line is now open.

I have two questions. The first is on upscale business. So for the JV with Sunac, we target to finance like 1,200 hotels in pipeline in five years. So how many could we expect to open in this year and next year? And how should we evaluate that impact on P&L? And also, could we see cooperation with other real estate companies in the near future or we may wait deals, cooperation with Sunac to achieve some progress and success. This is my first question. Thanks.

Okay. Our collaboration with Sunac is the first breakthrough of our upscale hotel segment. Up to today, we plan there will be 26 hotels signed up in this year and another 50 hotels to be signed up next year, because it's actually, it's a good leverage on [technical difficulty] vast majority, vast asset ownership in different kind of hotels and also it's a network in the real estate world. We expect this JV not only work of their current portfolio of Huazhu-Sunac there will also be more collaboration with other real estate developers. But having said that, the estimation of opening of luxury hotel, upscale hotel is a little bit hard to update right now because it takes a longer time to finish the construction and the RevPAR. So we'll provide more detailed and accurate estimation later on. And the collaboration of Sunac - between Sunac and Huazhu is just a first breakthrough and we expect to have more similar kind of a cooperation with different kinds of asset owners, not just a real estate developer, also government-related entities and also financial institutions, et cetera. I wanted to provide some background data to all of you about the development of upscale segment, by looking at our peers like Intercontinental, Marriott and Hilton, they've been in China for long time. Take Intercontinental for example, they're being entering into China more than 36 years. They have 256 hotels in operation, meaning they open seven hotels per year. Upscale per year the Marriott opens 11 upscale hotels per year. So I think we are going to accelerate our expansion in upscale hotel segment and use some more innovative structure and approach.

Thank you so much. So my second question is that in the longer future, so when the market share of top players in hotel industry grow a lot and the competition become increasingly intense, would we see a decrease in franchisee?

So actually we think the franchise resemble the value a top players can provide to the industry. Huazhu has been make significant effort to increasing our empowerment to industry through the innovation in business model and also organization power. Therefore, we think considering our enhanced capability to provide value to the industry and considering the still low penetration of the top players in the market, especially Huazhu in the upscale segment and also considering the further consolidation opportunities available there, we think there is still very healthy track for the take rate increase in the franchise business. So for example, if you look at the contribution all our central reservation system, we provide more and more bookings through our system compared to outside channel, which is going to generate more fee to us.

Thank you so much. There are no further questions at this time. Speakers you may continue.

Thank you, everyone for taking your time with us today and we look forward to connect with you again in the coming quarters. This concludes the call today. Thank you. Bye-bye.

This concludes the conference for today. Thank you for participating. You may all disconnect.