Good day, and thank you for standing by. Welcome to the Huazhu Group Limited Q1 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Jason Chen. Thank you. Please go ahead.

Thank you, Linda. Good morning, and good evening, everyone. Thanks for joining us today. Welcome to Huazhu Group's 2021 First Quarter Earnings Conference Call. Joining us today is our Founder and CEO, Mr. Qi Ji; our President, Mr. Jin Hui; our Chief Digital Officer, Ms. Liu Xinxin; our CFO, Ms. Chen Hui; our Deputy CFO, Mr. Li Dong and Mr. Ye Fei. 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 provision 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. Huazhu Group does not undertake any obligations to update any forward-looking statements, except as under required applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliation of those measures to comparable GAAP information can be found in our earnings release that was distributed yesterday. As a reminder, this conference call is being recorded. The webcast of this conference call as well as supplementary slide presentation is available on Huazhu Group's website at ir.huazhu.com. With that, now I will turn the call over to Mr. Ji Qi. Mr. Ji, please.

Good morning, and good evening, everyone. Thank you for joining us today. As you all know, at the beginning of this year, the resurgence of COVID-19 in several cities posted challenges to the lodging industry and the latter related to the state and local guidance by the government before Chinese New Year holiday. After these months, January and February, we are very pleased to see a strong recovery in March especially after National People's Congress meeting in Beijing. Huazhu's RevPAR recovered to 95% of 2019 level in March compared with only 56% in February and the good news continues in April and May. During Labor Day holiday, our RevPAR recorded 25% growth compared with the same period of 2019. In terms of the macro economy, despite the impact of COVID-19 resurgency, we saw China's economy remain resilient with GDP in the first quarter, achieving 19.3% growth compared with 2020 and 10.3% growth compared with 2019. As the vaccination process is taking place smoothly in China, we are confident that China's economy will further recover from the pandemic and drive growth of business travel. Meantime, we also observed more diversified demands for the travel experience, especially regarding the leisure travel and upscale hotels. We are exploring different opportunities, of which some details will be discussed by Jin Hui later. With that, I will turn the call to Jin Hui to update our recent business development. Thank you.

Thanks, Ji Qi. Moving to our business updates. I would like to take the opportunity to introduce again our new finance management team. Chen Hui, CFO of Huazhu Group. She was the CFO of Cjia Group Limited, Huazhu's affiliated company, from March 2018 to February 2020. From 2014 to early 2016, she served as Huazhu's Executive Vice President of Finance, responsible for internal financial management and Chief Financial Officer. Her previous work experiences also include the CFO of Home Inns Group and Financial Director of Ctrip.com. She has deep financial management expertise in travel and hotel industries in China. Next, Mr. Li Dong, Deputy CFO. He has served as Chief Accounting Officer of Huazhu since June 2020, and as Chief Financial Officer of Huazhu China region since December 2020. Before joining Huazhu, he was the financial planning and analysis head of Asia Pacific, Middle East and the North Africa regions of PepsiCo, Inc. Ms. Ye Fei, Deputy CFO. She has served as Huazhu's Vice President of Strategic Investment and Capital Markets since March 2016 and is in charge of Huazhu's investment and portfolio management globally. Prior to joining Huazhu, she was the Director of CITIC Capital's direct investment team. Now moving to our business update. First of all, I would like to emphasize again our quality hotel expansion strategy. It is very important for Huazhu to have a super large scale growth capability based on quality hotel expansion strategy. It is the backbone to support Huazhu's long-term sustainable growth. Last quarter, we actually announced a very detailed definition of our quality hotel. And actually, since the third quarter last year, we started to clean up those low-quality hotels in our portfolio, especially those softer brands. This year, we would not only continuously improve standard of quality for the hotels in…

Thanks, Jin Hui. Good morning, and good evening, everyone. As we also know that direct sales and technology capabilities are critical element of Huazhu's 3-in-1 super component business strategy. We continuously put a lot of efforts to grow our member base and strengthen our direct sales capability together with full digitalization to our hotel operation. Please turn to Slide 12. Our hotels remain the key channels for us to acquire the new members. By the end of March in 2021, our total member increased by 12.5% to 174 million compared to last year. More importantly, our central reservation contribution achieved historical high at [ 57 ] percentage after COVID, improved by 8 percentage points compared with the first quarter of 2020. We are very pleased to see our CRS contribution further enlarge, which was migrated from the offline traffic such as working customer. Moving to Slide 13. During the first quarter, we successfully launched our H-World app version 3 on March 28. After that, we saw our MAU increased by 5 percentage in April, comparing with the 1 month ago. Moreover, we are in a domain-leading position compared to our peers, and our monthly active users are 2x higher than all other 9 hotel groups' accumulated MAUs. With more membership privileges providing to our members in the new version of app, we believe it would further improve our user experience and customer loyalty, hence, to draw up much more active members and includes the repurchasing rate. Moving to Slide 14. In H-World version 3, we also embedded a creative and advanced online checking function for members. This online function is integrated with our 30-second check-in and 0 second checkout, the kiosk in the hotel. Such function would create a very convenient check-in and checkout service for customers, which helps them…

Thank you, Xinxin. Good morning or good evening to everyone. Let's move on to our operational and financial review for the first quarter of 2021. As shown on Slide 19, our hotel rooms expanded by 15% in Q1 2021 to 662,000 compared to 575,000 in Q1 2020. Excluding DH, legacy Huazhu hotels room expanded by 18% year-over-year to roughly 638,000 in Q1 2021. While hotel turnover in Q1 2021, despite COVID-19's resurgence impacts in China and prolonged lockdown in Europe, our total hotel turnover still grow at a 66% year-on-year to RMB 8.2 billion in Q1 '21. This is mainly due to our continuous network expansion as well as the low base for Chinese business last year, but unfortunately offset by the high base of DH last year. Excluding DH, legacy Huazhu hotels turnover doubled year-on-year to RMB 7.9 billion in Q1 2021 and recorded a 10% increase if compared to Q1 2019. Turning to Page 20. Legacy Huazhu's blended RevPAR for Q1 is RMB 138, which has recovered to 77% of 2019 level. The ADR in Q1 2021 has recovered to 95% of 2019 level to RMB 209, while occupancy in Q1 is 15 percentage points lower compared to 2019. This was mainly due to the COVID-19's resurgence and the stay-local policy in January and February. However, our RevPAR started recovering strongly since late March. Turning to Page 21. Our legacy DH business has been negatively impacted by the second and third wave of pandemic since September 2020. German government imposed a lockdown from last November, and it may extend to early June this year. Therefore, our legacy DH-blended RevPAR for Q1 2021 declined by more than 70% to EUR 13 compared to 2021 Q1. The ADR dropped by 23% to EUR 69, and the occupancy dropped by 33…

[Operator Instructions] Your first question comes from Billy Ng from Bank of America.

I have 2 questions. First of all, I just want to ask about the current trend in particular in May. I think from the presentation, you guys mentioned that the RevPAR already recovered to 107% of the 2019 level. I'm just wondering if we exclude the 5 days, May 1 holidays period, do we still see positive growth compared to 2019 for the rest of May? And also, in particular, I would like to know a bit more about the trend of the lease and operator hotel recently. And then my second question is about like the new opening target. We understand that the revised downward of the new opening target as a result of the company pursuing higher quality openings and have the highest standard for the new joiner. I just have a question of like -- I think this adjustment has been going for a while. When do you expect the opening pace to reaccelerate again? And also, in particular and the new opening target of the 1,600 to 1,800 number, how many of them are still using the soft brand model?

[Foreign Language]

[Foreign Language]

Okay. So the overall RevPAR trends in May, we saw it is very satisfactory. As we mentioned in presentation, our month-to-date RevPAR recovered to over -- growth by 7% compared to 2019. Even though excluding the 5 days holidays, in the beginning of May, the remaining of the days, the RevPAR still achieved a positive growth compared to 2019. Okay. But we still have to be a little bit more cautious that there were still some of the COVID-19 resurgence happened in May, such as Anhui province and Shenyang. Normally from our observations, every time there was a resurgence of COVID-19, it will take like roughly 2 weeks to recover for that city. But overall, for the recovery trend, we still maintain our -- conservatively optimistic perspective for the overall recovery trend. For the second question, I just want to mention one number to you that for our Elan brand, actually, in 2019, we opened up roughly over 500 Elan during 2019. But this year, we are just planning to open roughly 200 Elan, which mean 300 decline. So our overall perspective and strategy is due concentrating on the quality hotel expansions. For our lower-tier cities penetration, so we actually are going to utilize more Ni Hao brand as a standardized brand to complement our HanTing brands for the lower-tier cities penetration. Thank you.

Your next question comes from Sijie Lin from CICC.

I have two short questions. And the first one is still on the hotel opening. I want to know that -- are we still confident with the 10,000 targets at the end of 2022? And the second question is on CitiGo. So why did you decide to acquire CitiG

[Foreign Language]

For the 10,000 hotels in 1,000 cities target, actually, we are still progressing to achieve this target. Currently, even though with the COVID-19 impact, we are still seeing our new signings are gradually being more -- better compared to last year. Therefore, we are still pretty confident that we could achieve this 10,000 hotels in 1,000 cities by the end of 2022 or later in the first quarter 2023.

[Foreign Language]

So for our lower cities penetrating -- penetration is -- actually, we're progressing pretty quickly. Now we have signed up over 1,000 hotels in lower-tier cities. And in addition to that, for our upscale or high-end hotel market, over the last year for -- after a lot of preparation, internal, of the company, actually, we are also progressing pretty satisfactory in this area.

[Foreign Language]

Also, we observed that the new consumer, the younger generation and the lifestyle hotel segment, the trend is booming up. That's why we are exploring into this segment by leveraging our own brands such as Crystal Orange, Manxin and also the currently acquired CitiGo brand to further penetrate in this area as well.

Okay. I just wanted to provide a little bit more color on the CitiGo. The entire enterprise value for this acquisition is RMB 750 million and actually implying in terms of ramp-up, EBITDA level for the full year perspective, the valuation multiple -- EBITDA multiple is actually in the range of 8 to 9x, which is a pretty fair and attractive valuation, considering this brand has unique position and also the prospect of future growth. And in terms of the cash source, it's actually -- you noticed that we have more than RMB 10 billion cash available, including also the unutilized bank facilities. So there's no problem of financing for this acquisition.

Our next question comes from Lina Yan from HSBC.

Like management, I want to ask a question regarding the new 2021 full year guidance for Huazhu brand. The total revenue growth versus 2019 remain unchanged in like 15% to 19% even though the hotel opening is lower than before. So I want to ask what is the current RevPAR assumptions for H

So we are positive about the RevPAR recovery of Huazhu side. In our forecast, actually, we forecast -- like Q2, it will be like 97% of recovery. And also in Q3 and Q4, it will be 104 percentage and 100% recovery compared to 2019 number. So it's a same hotel level perspective because if you talk about blended RevPAR, there's -- it's a little bit hard to compare it with 2019 on the same hotel level. So if you talk about blended, it will be 4 to 5 percentage increase in general.

Okay. Great. So may I clarify, our same hotel RevPAR basis, it's 97% in 2Q, 104% in 3Q and 100% in 4Q,

Yes. It's a general guidance, but I think, yes, certainly, we will keep updating this number.

Okay. And does this guidance for revenue growth include the contribution from CitiGo acquired in M

It is not.

Our next question comes from Tian Hou from TH Capital.

I have a couple of questions. One is, I look at the tier city expansion plan. The lower-tier cities is going to be a majority part of the pipelines. So let's say by the end of the year or by the end of next year, what portion of the Huazhu legacy hotels are going to come from lower-tier cities and Tier 3 and below? So for the Tier 3 and below and also Tier 1, Tier 2, what are the difference between the ARPU and the potential occupancy rates? So that's the number one question. I'm going to finish all the questions. The second one is, how many hotels Steigenberger is going to open in China this year? And also Song Hotels, how many hotels does the company expect to open under those 2 brands? That's second. The third one, which is the last one. In terms of corporate customers, so I saw the corporate customer contribution increasing. So what is the company's outlook in terms of corporate customer contribution in the total revenues? That's my 3 questions.

[Foreign Language]

[Foreign Language]

[Foreign Language]

Okay. I will do the translation for the first question. For the lower tier city, it's actually on Slide #5. We provide some of the numbers in terms of our breakdown in terms of our hotel and operation pipelines. Given that we have been putting a lot of efforts last year for the lower tier cities' penetration, actually, our pipeline -- over 50% of our pipeline comes from Tier 3 and below cities, which is going to help us to further enlarge our hotel from the lower-tier cities by the year of this year. And also, in terms of the RevPAR differences compared to the lower-tier cities and the higher tier cities, actually, we have been observing that the lower-tier cities actually have a better RevPAR recovery compared to the higher tier cities. But I think for -- after the ramp-up period, definitely, the lower-tier cities would have slightly lower RevPAR compared to the higher tier cities. But for us, our take rate will be the same for all hotels no matter they are in higher-tier cities or lower-tier cities. And for the second question in terms of the JV, for the upcoming years, we have been further cooperating with Sunac under the joint venture, and we are going to develop mainly on the Steigenberger and the Song Hotel brand. And currently, we have over 30 hotels in pipeline.

[Foreign Language]

As you may know, the leisure traveling is recovering and growing pretty good in China, and we believe in the longer term, it's still kind of booming. Therefore, for our high-end brands such as Steigenberger and Blossom Hills under the joint venture, we are very confident that they are develop -- the future will be good.

[Foreign Language]

For the corporate customers, actually, it is a very important sources for our further growing our traffic, and we are still very optimistic in terms of their corporate customers growth in the future. And more importantly, currently, the corporate customers contribute roughly 10% of the total room nights. But out of the 10%, over 60% of the room nights are sold through online channel, which was very -- which is very good for us. And for the future development, we will still leverage our technology capability to further using the tech connection to further develop this area.

[Foreign Language]

No. We were only not only focusing on the top 3,000 public listed companies in China. We are currently penetrating to even lower-tier cities by leveraging our strong direct sales team to do a lot of local sales, and we are planning to penetrate to every single provinces in China this year.

Your next question comes from Melody Chan from Jefferies.

I have 2 short questions. Can management share that if we have any other acquisition plan to align with our high-quality hotel strategy? And also, how is our view on the market consolidation post-COVID

[Foreign Language]

Sorry,

[Foreign Language]

Okay. For the first question in terms of M&A plan, we always keep our eyes open and we always have an open attitude. We have been discussing with many potential partners, but there is no clear target of deals done yet. So we will be updating you as long as there is something confirmed. Okay. And in terms of the market consolidation and competitive landscape, actually, for the economic segment, so we are doing the penetrating, and we are better compared to our peers because the lower-tier cities have plenty of rooms for penetrating. And in terms of the middle scale, leveraging on the consumer consumption upgrade, so we will leverage our various brands such as JI Hotel, Orange and the newly acquired CitiGo and the lifestyle brand to further grow in our market share in this area. And in terms of the high end and upscale segment, we are actually competing with those international hotel groups. We would use our core competencies such as technology and operational capability to create a diversified competition and trying to grab some market share from there. Thank you.

There are no further questions at this time. I would like to hand the conference back to our speakers.

Thank you, everyone, for taking time with us today, and we look forward to connecting with you again in upcoming quarters. Thank you, and bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.