H World Group Limited (HTHT) Q1 2021 Earnings Report, Transcript and Summary

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 operation, but also gradually improve the quality requirements and standards for pipeline and new signings specifically for our non-standardized brands due to the low standardization rate. We observed some inconsistencies in terms of the quality standards for both construction and new signings. Therefore, we will further improve quality standard for our nonfranchised brand by requiring them to review the construction as we found some quality issues and actively reviewing our pipelines to detect and remove those unqualified hotels. I need to emphasize again that Huazhu's development is certainly around the customer-centric principle. Therefore, we would not only chase for the hotel expansion speed by sacrificing the quality. Now, I will move to our current updates in terms of the recovery. Please turn to Page 3. As mentioned by Ji Qi earlier, our RevPAR recovered strongly after traveling restriction being removed since later March. RevPAR started to turn to positive growth in late April. Full month of April recovered to the same level of 2019. The trend continues in May. As of May 23, RevPAR grew by 7% compared to the same period of 2019. Both business and leisure traveling are recovering steadily. But I still need to remind you that there are still some resurgence of COVID-19 in China. And therefore, we will keep our provision measures carefully and hope the situation happened for our healthy growth in the future. We observed this as the recovery trends is different among different city tiers. Please turn to Slide 4. We observed that lower-tier cities recovered better than higher-tier cities. In March, RevPAR in Tier 3 and below cities had exceeded 2000 level -- 2019 level. And in April, RevPAR in Tier 2 cities also exceeded 2019 level, while Tier 1 cities are slightly lagging behind. That again shows the resilience of economic conditions in lower-tier cities. Our lower-tier cities penetration is further -- our penetration strategy is further progressing. Please turn to Page 5. At the end of March, 38% of our hotels in operation are located in the Tier 3 and below cities, and 54% of our pipelines are from lower-tier cities, which could lead more contribution from the lower-tier cities in the future. As of March 24, we have penetrated into 741 cities in China. Now please turn to Slide 6. Apart from lower-tier cities penetration, we are further exploring the new opportunities in the lifestyle hotel segment. Firstly, for our own brand, the Crystal Orange, its new flagship store will be soon opened in Shanghai. This is the new Crystal Orange 2.0 version. We would like to provide new products to the business travelers from the lifestyle perspective with better and warm services. The product will provide customers unique, elegant and exquisite lifestyle experiences during their journey. Certainly, we are very pleased to announce that we recently completed the negotiation of CitiGo Hotel. Such acquisition will further enrich our lifestyle brand portfolio. Please turn to Slide 7. CitiGo's brand positioning is a lifestyle hotel with fun, targeting younger generations, creating a new concept space with functions of accommodations, catering, leisure, shared office and social networking in the central of the city. Slide 8 shows some basic information of CitiGo Hotel. The brand was established in 2017. As of May 1, it has totaled 28 hotels in operation with over 4,800 hotel rooms, covering 13 cities. From the latest operating data in April 2021, CitiGo's RevPAR in Tier 1 city achieved RMB 384 and RMB 217 in Tier 2 cities. We believe that Huazhu's strong platform capability could further enhance and accelerate CitiGo's future development. And in return, the brand could help further enrich Huazhu's lifestyle brand and create more opportunity for Huazhu to explore in the lifestyle segment. Moving to our high-end hotel development. In last quarter, we announced our joint venture with Sunac. We are very pleased to update you that there will be 2 hotels from the JV soon open in May. One will be the first Steigenberger brand hotel in China, and another one will be the Song Hotel. Both hotels are located in Jinan. Slide 9 and Slide 10 shows some photos of these 2 hotels. We have continuous progressing in our high-end hotel segment penetration not only from the joint venture but also for other brands. With that, I will now turn the call to Liu Xinxin to discuss our recent development of direct sales and technology.

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 to save a lot of waiting time and hence, improve their overall hotel stay experience. More importantly, with further usage penetration of this function, our hotel could further improve our operational efficiency, and we are -- there will be less staff needed for front desk, which used to help customers for check-in and out procedure. We could use this manpower saving to further improve our hotel services. Last but not least, technology application could also lower the stress load of staff recruitment. For example, with the self-check-in kiosk, computer skills may not be marked for recruiting front desk staff. Moving to Slide 15. As of May 23, we are -- over 4,500 hotels had already installed self-check-in kiosk. Percentage of orders check-in with 30 seconds attributed to 55 percentage. We are targeting this service department in all hotels within 2021. Moving to Slide 16. When considering the impact of resurgency of COVID-19 and the state and local policy, we still achieved a very good run of our 2B billing. Room nights contributed from the corporate customers reached over 3.5 million with contribution rate of 9.7 percentage of total room nights sold. In the longer term, we believe that our corporate customers were not only contributing additional room night to us but also bringing us opportunities for new user acquisition. We also got a lot of customers who use their corporate account to book our hotels and not yet our member personally. Therefore, we see we have still a lot of rooms to convince such customers to become our individual members. On the right-hand side of this slide, our new experiment of B2B2X Alliance, the fourth traffic strategy, which launched last quarter. We will also achieve some initial outcomes. We have partners with 8 large traffic aggregator platform in the first quarter, such as China Mobile, Jingdong and Didi and [ Suam ]. We are also very pleased to see this new experiment start contributing room nights to use with roughly 3,200 orders per day in average during the first quarter. Going forward, we would seek more opportunities, more cooperation with various target traffic platform to further attract the new members as well as more room nights to the contribution. Now moving to Slide 17. For our One digitization project in Europe, the DH, we are very pleased to see that we had completed our basic IT infrastructure and architecture and solutions. We have also rolled out the first hotel pilot project in the One Zleep Copenhagen City to do test running. Once testing that is satisfied, we would gradually roll out the full implementation globally at the middle of this year. With that, now I will turn the call to Ye Fei to discuss our Q1 operational and financial review. Thank you.

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 percentage points compared to 2020 Q1. On Slide 22, the total net revenue grew by 16% year-on-year to RMB 2.3 billion in Q1 2021. Excluding DH, legacy Huazhu recorded a 69 percentage year-on-year growth rate to RMB 2.2 billion. The revenue growth was better than our previous guidance, thanks to the strong recovery in late March. Breaking down the revenue of Q1, leased and owned revenue decreased by 8% year-on-year to RMB 1.4 billion mainly caused by the decrease of leased hotels in Europe. Excluding DH, leased and owned revenue of legacy Huazhu grew by 56% year-on-year to RMB 1.3 billion. Net revenue from manachised and franchised hotels grew by 93% to RMB 897 million, mainly driven by year-on-year growth rate of legacy Huazhu. Due to the significant drop of leased and owned revenue of DH in Q1 2021, manachised and franchise revenue contribution enlarged to 39% in Q1 2021 compared to 23% in Q1 last year at a group level. For legacy Huazhu, as our hotel expansion was mainly through asset-light model, the revenue contribution from manachised and franchised model also expanded to 41% compared with 35% a year ago. Now let's move to the cost and profitability session on Slide 23. In Q1 2021, the reported operating loss was RMB 575 million, narrowed from RMB 857 million in Q1 2020, but expanded from a quarter ago because mainly due to the COVID-19 resurgence and the state and local guidance in China and also prolonged lockdown in Europe. Excluding DH, legacy Huazhu's operating loss in Q1 was RMB 172 million, narrowed by RMB 560 million compared to the loss of RMB 731 million in Q1 2020. The hotel operating costs and other operating costs for Q1 2021 was RMB 2.5 billion, a slight increase compared with last year in which legacy Huazhu recorded RMB 2 billion hotel operating costs, indicating a 21% year-on-year growth. The increase was mainly attributable to the higher rental cost of the new upscale hotels, higher personnel costs as we keep growing the hotel network rapidly and higher depreciation and amortization costs, which were related to the upscale hotel openings and upgrading of existing hotels. As we mentioned in previous quarters, our future expansion of upscale hotel will mainly use asset-light model. Therefore, opening costs declined by 81% year-on-year and 40% Q-on-Q to only RMB 21 million in Q1 2021. Our SG&A in Q1 2021 increased by 9% year-on-year to RMB 406 million, mainly driven by the increase of legacy Huazhu but offset by cost savings of DH. Excluding DH, SG&A for legacy Huazhu increased by 31% year-over-year to RMB 299 million. The increase was mainly attributable to the increase of selling and marketing expenses related to revenue recovery and also the increase of head count for our BD team to support penetration into lower-tier cities and also affected by less government subsidies booked in the Q1 2021 compared to Q1 2020. Turn to Page 24. Our adjusted EBITDA loss narrowed to RMB 133 million compared to RMB 704 million a year ago. DH was the main drag for this quarter. Excluding DH, legacy Huazhu would have recorded a positive adjusted EBITDA of RMB 207 million compared to a loss of RMB 631 million in Q1 2020. In this quarter -- in Q1 2021, we recorded adjusted net loss of RMB 451 million narrowed from RMB 1.1 billion a year ago. Excluding DH, legacy Huazhu recorded an adjusted net loss of RMB 150 million compared with RMB 981 million loss in Q1 2020. The non-GAAP pro forma adjustment mentioned on this page exclude unrealized gains or losses from fair value change of equity related to some of our investments. For example, in Q1, we recorded RMB 238 million fair value increase of Accor shares we hold. Coming to the cash position. We kept the net debt of RMB 5.2 billion by the end of Q1, and there's no risk of breaching the financial covenants of the USD 1 billion syndication loan. Our cash balance was RMB 5.7 billion, and the unutilized bank facilities were 6.5 billion. These cash and bank facilities will allow for Huazhu to further pay down the existing bank debt in 2021 and also to be used for any unforeseen circumstances. As mentioned in previous presentations, the lockdown in Germany has greatly affected DH business. Therefore, the average occupancy of DH in Q1 was 19%, and the rate further dropped to 15% in April and May. Having said that, daily newly diagnosed figures in Germany are decreasing steadily. As of May 22, about 40% of Germans had received at least one shot of vaccine. In several regions like Berlin, the travel restrictions are partially lifted, and we expect to see more travel for the vaccinated people in June. To compensate the business loss, the German government has extended the scope and duration of government subsidies, including short-time worker compensation and extra government subsidies. As of April 2021, DH has received EUR 12.7 million short-time worker compensation, which is expected to further increase as the lockdown extend. Additionally, DH has applied for government subsidy to compensate the loss both in 2020 and 2021. The prolonged lockdown will certainly impose pressure on DH's revenue, but the impact will be partially offset by the government subsidies at EBITDA level. We will only record that income upon the recipient of the formal confirmation of such cash. We also continue to negotiate for rental deduction. Compared with EUR 5.4 million waiver achieved in 2020, the year-to-date waiver of 2021 has amounted to EUR 4.2 million. We continue to work on rental reduction through the years. The number quoted here are related to cash savings, but the P&L impact actually varies depending on the term of waiver. In addition, we have also put our staff on temporary furlough, frozen our head count and reduced discretionary spending and also CapEx. We are also in discussion with local banks in Germany for additional coronavirus age loans. The banks have been supportive to us. Turning to Page 28 for guidance. For the second quarter of 2021, we now expect the total revenue to grow by 87% to 89% compared to second quarter of 2020. Excluding DH, we expect the revenue to grow by 90% to 92%. To provide a more meaningful guidance, we expect the total revenue to grow by 27% to 29% if compared to the same period of 2019. Excluding DH, the 2021 revenue is expected to grow by 20% to 22%. For the full year of 2021, COVID-19's resurgence in January and February slowed down our hotel open plan in the first quarter. Also, echoing Jin Hui's point previously, we put more emphasis on quality hotels expansion. We now plan to revise down our nonstandardized hotel brand opening for the full year. Considering the above 2 factors, we lowered our gross opening target of 2021 from 1,800 to 2,000 hotels to 1,600 to 1,800 hotels. However, even with the slight downward adjustment of gross opening, our revenue guidance for legacy Huazhu remains unchanged at 50% to 54% growth compared to 2020 or 15% to 19% growth compared to 2019 due to the better-than-expected RevPAR recovery and the limited time impact of the hotel openings in the later part of the year. The prolonged lockdown period in Germany has caused the recovery much slower than previously expected. Therefore, we adjust down the full year group revenue growth guidance to be in the range of 44% to 48% compared to 2020 or 31% to 35% growth compared to 2019 from previous guidance of 50% to 54% growth compared to 2020 and 36% to 40% growth compared to 2019. With that, let's open up for Q&A. Thank you.

[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.