H World Group Limited (HTHT) Q2 2021 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Huazhu Group Limited Q2 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would like to hand the conference over to your first speaker today. Jason, please go ahead.

Thank you, Karenna. Good morning, and good evening, everyone. Thanks for joining us today. Welcome to Huazhu Group's 2021 second quarter and interim 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, Ms. Ye Fei and Mr. Li Dong. 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 required by 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. Qi Ji. Mr. Ji, please.

Good morning, and good evening, everyone. Thank you for joining us today. I would like to give you an overview of our business. In the second quarter, our China RevPAR recovered to 102% of the same period of 2019, supported by strong leisure traveling demand in May, but offset by relatively weak RevPAR recovery in June due to COVID-19 resurgence in Guangdong Province and traffic control in Beijing. However, unfortunately, the Delta variant of COVID-19 was again detected in Nanjing since late July, with further spreading into many other provinces and cities. The Delta variant prompted the Chinese government posed another round of strict traveling restrictions, which seriously affected our performance in August. Our European business saw some positive trend with RevPAR recovering to 50% to 60% of 2019 level during the summer holiday is mainly due to the continued progress of vaccination and restriction easing. However, we remain cautious on the future recovery as European governments, especially the German government are still carefully monitoring the situation regarding the Delta variant and a potential impact from it. Looking ahead, uncertainties brought by the pandemic may exist for a longer-than-expected time, and we expect to be well prepared to overcome any business turbulences in the near-term. Nevertheless, in the long-term, we have high confidence in China’s future economic growth and think the upward trend of the China lodging industry remains intact. Therefore, we will be implementing our strategies, such as further penetration of lower-tier cities, speeding up of upper-midscale and upscale segments, organizational upgrades and talent acquisition as well as concentrating on high quality hotel expansions to support our sustainable growth. With that, I will turn the call to Jin Hui to update our recent business development. Thank you.

Thank you, Ji Qi. As usual, I'll discuss our recent business recovery trend in detail. Please turn to Page 2. For the second quarter, our RevPAR recovery shows upward trends with RevPAR in April and May recovered to 100% and 106%, respectively. However, as mentioned by Ji Qi earlier, due to the COVID-19 resurgence in Guangdong and traffic control in Beijing since late May, our RevPAR recovery in June slowed down. If we exclude the impacts from the Guangdong and Beijing, our RevPAR recovery for the remaining areas was on track in June. Unfortunately, since late July, a new wave of Delta variants of COVID-19 was detected again in Nanjing and spreading into many other cities in China. Post that the government impose another round of strict traveling restrictions, which negatively affected traveling demand and significantly affected our business as August was normally a peak season for traveling, therefore, due to the impacts from the Delta variant as the historical high base as of August 23, our RevPAR only recovered to 46% of 2019 level. However, we saw the recent wave of Delta variants has been largely contained given the good prevention measures posed by the government, the newly confirmed case declined significantly from the peak. Please turn to Page 3. For the hotel development, we achieved a record high number of new signings at 1,502 for the first half of this year increased by nearly 50% year-over-year. At the same time, our lower tier cities penetration is further accelerating. Lower tier cities proportion accounted over 50% for both our current hotel pipelines and new signings. Moreover, we have already penetrated into over 1,000 cities as of June, including both hotels in operation and the pipeline added 200 cities compared to the same period of last year. However, please note that, given the travel restrictions due to the Delta variants of COVID-19 as we mentioned above, our recent new signings and construction progress were also negatively affected. Please turn to Page 4. For our upper-middle hotel segment, we will use multi-brand strategy to further exploring the market opportunities. Our up-middle hotel brand portfolio includes Crystal Orange, Intercity, Mercure, Madison and Novotel. As of June, 2021, we have total of 404 upper-middle hotels in operation and 248 in pipeline. We are targeting to achieve over 1,000 upper-middle hotels in operation and in pipeline by the end of 2023. On July 9, we announced a license agreement between Steigenberger and Porsche Design Group to establish a joint hotel brand. This is another breakthrough into the upscale and a luxury hotel segment globally. Please turn to Page 5. We are planning to open at least eight hotels in next year 10 years. Those hotels will be allocated in prime area of international metropolises. Similar to other international hotel brands cooperation with luxury brand, our cooperation with Porsche Design brand will further enhance our Steigenberger’s brand positioning and awareness globally. It would help us to catch more opportunities in upscale and luxury segment in the future. Now please turn to Page 6. Along with our lower tier cities penetration, our membership program synergies to lower tier cities and ability on traffic generation to hotels are the most concerned part that you may have. We are very happy to see that our CRS contribution in lower tier cities achieved to 56% very close to the higher tier cities and demonstrated our ability to further penetrating to lower tier market. Please turn to Page 7. We constantly emphasize on the data security matters and it is the bottom line and highest priority for Huazhu. First of all, we have established the information securities committee and set up the information security standard. Secondly, our data are all set to locally. And lastly, we had received various certificates on data security. As shown in our slide, in year of 2019, Huazhu became the first domestic hotel group, which received ISO27001 certificate and in 2020, Huazhu became one of the global hotel groups, which received ISO27701 certificate. Additionally, Huazhu has also opt-in to the PCI-DSS, Payment Card Industry-Data Security Standard certificate. Please turn to Page 8. As we are part of Deutsche Hospitality, we launched 500 days digitalization plan for it, and so second quarter all functions and the system setup is completed and are ready to use. We are now in the stage of massive rollout. We are targeting to rollout to 70% of DH hotels by the end of this year and 100% completion next year. With that, now I will turn the call to Ms. Ye Fei to discuss our second quarter operational and financial performance.

Thank you, Jin Hui. Good morning and good evening to everyone wherever you are. Let's move on to our operational and financial review for the second quarter of 2021. As shown on Slide 10, our hotel network expanded by 15% in the second quarter to 692,000 rooms compared to the second quarter – last year of 599,000 rooms. Excluding DH, Legacy-Huazhu hotel network expanded by 16% year-on-year to roughly 668,000 rooms in the second quarter. For our hotel turnover in the second quarter, our total turnover grew by 98% year-on-year to RMB13 billion in the second quarter. It was mainly due to our continuous network expansion in China and then the initial recovery of Deutsche Hospitality's operation as well as the low base for both China and the European business last year. Excluding DH, Legacy-Huazhu’s hotel turnover grew 95% year-on-year to RMB12.7 billion in the second quarter and recorded 45% increase if compared with the second quarter 2019. The growth is mainly driven by the hotel network expansion under the asset-light model. Turn to Page 11. Legacy-Huazhu’s blended RevPAR for the second quarter grew 2% from 2019 to RMB210. The ADR in the second quarter grew by 8% to RMB255 compared to 2019, while the occupancy in the second quarter is due 5 percentage lower compared to 2019, which was mainly caused by the COVID-19 situation, especially the resurgence in Guangdong Province and also the traffic control in Beijing in June. Turn to Page 12. Our legacy DH business saw initial recovery in the second quarter since German government imposed a lockdown from last November. Thanks to the continued progress of vaccination and the restriction ease. Our legacy DH blended RevPAR for the second quarter grew 26 percentage to €20 compared to the second quarter of 2020. The occupancy improved by six percentage points compared to the second quarter last year, while the ADR dropped by 6% to €82. Please see our financial results on Slide 13. Total net revenues grew by 84% year-on-year to RMB3.6 billion in the second quarter 2021. Excluding DH, Legacy-Huazhu’s recorded an 85 percentage year-on-year growth rate to RMB3.4 billion. The revenue was slightly below our previous guidance. It was mainly due to the COVID-19 resurgence in Guangdong Province and traffic control in Beijing as mentioned before. Excluding the impact from the above mentioned areas, the revenue growth was actually in line with our previous guidance. Breaking down the revenue of the second quarter, leased and owned revenue increased by 85% year-on-year to RMB2.3 billion. Excluding DH, the leased and owned revenue of Legacy-Huazhu grew by 84% year-on-year to RMB2.1 billion. Net revenue from manachised and franchised hotels grew by 89% to RMB1.2 billion mainly driven by the 89% year-on-year growth of Legacy-Huazhu. Due to the further expanding hotel networks with asset-light model, manachised and franchised revenue contribution enlarged to 36 percentage in the second quarter compared with the 35 percentage in the second quarter 2020 at the group level. For Legacy-Huazhu, the manachised and franchised model also expanded to 38 percentage in the second quarter of 2021 compared with 37 percentage a year-ago. Now let's move on to the cost and profitability section on Slide 14. In the second quarter 2021, the reported operating income turned positive to RMB629 million compared to a loss of RMB494 million last year and a loss of RMB575 million a quarter ago mainly due to the business recovery in both China and Europe. Excluding DH, the Legacy-Huazhu’s operation income in the second quarter of 2021 was RMB763 million compared to a loss of RMB207 million last year and a loss of RMB172 million a quarter ago. The hotel operating costs and other operating costs for the second quarter 2021 was RMB2.8 billion increased by 28% year-on-year. The [indiscernible] was mainly driven by the Legacy-Huazhu, which recorded RMB2.2 billion hotel operating costs, indicating a 29% year-on-year growth. The increase was mainly attributable to the higher rental cost of the new upscale hotel, higher hotel level personnel costs as we expand growing our hotel networks rapidly and the higher D&A, depreciation and amortization costs, which were related to the upscale hotel openings and upgrading of existing hotels. As we mentioned in the previous quarters, our future expansion of upscale hotel will mainly use asset-light model, therefore, our pre-opening costs declined by 84% year-on-year and 20% Q-on-Q to only RMB16 million in the second quarter of 2021. Our SG&A in the second quarter of 2021 increased by 49% year-on-year to RMB553 million, mainly driven by the increase of Legacy-Huazhu. Excluding DH, the SG&A for Huazhu increased by 71% year-on-year to RMB423 million. The increase was mainly attributable to the increase of selling and marketing expenses due to the revenue recovery, the increase of headcounts for our [BD team] to support penetration into lower-tier cities, the increase of personnel cost for upscale business unit and the increase of the IT investment as well. Other operating income in the second quarter of 2021 increased by 121 percentage to RMB362 million, mainly due to the €38 million subsidies received from the German government. This is related to the 2020 lockdown period. Turning to Page 15. Our adjusted EBITDA income turned positive to RMB1 billion compared to a loss of RMB97 million a year-ago. DH’s EBITDA loss in the second quarter was RMB73 million narrowed from RMB235 million last year mainly due to the government subsidies. Excluding DH, Legacy-Huazhu recorded adjusted EBITDA income of RMB1.1 billion grow by 709 percentage in the second quarter of 2020. In the second quarter of 2021, we recorded adjusted net income of RMB464 million compared to a loss of RMB476 million a year-ago. Excluding DH, Legacy-Huazhu recorded an adjusted net income of RMB579 million compared with RMB253 million loss in the second quarter of 2020. The non-GAAP pro forma adjustment mentioned on this page excluded unrealized gain or losses from fair value change of equities related to some of our investments. Coming to the cash position. We further lowered our net debt of RMB4.4 billion by the end of second quarter compared with RMB5.2 billion by the end of the first quarter, and there is no risk of breaching the financial covenants of the US$1 billion syndication loan. Our cash balance was RMB6.2 billion and the unutilized bank facilities was RMB6.8 billion. This cash and bank facilities would allow us to further pay down Huazhu’s bank debt in 2021 and also 2022 CD and also will be used to weather any unforeseen circumstances. Coming to DH’s update on Page 18. The recovery is coming to the right direction although the path is bumpy. Vaccination commenced since December 2020 has been speeding up in the second quarter of 2021. Restriction would ease especially toward people who recovered from COVID-19 infection and people with either complete injection or negative test results. As of August 23, about 64% of German population has received at least one shot and 59% of the whole population was fully vaccinated. DH’s occupancy rate is continuously from about 19% in Q1, 24% in Q2, and now it's about 50% in the August summertime. The recovery ratio compared to 2019 it's about 54% in July and 67% in August month-to-date. Meantime, DH is taking further actions to reduce costs and preserve cash, including negotiating for lease waivers, streamline overhead at both hotel and headquarter level. The impact of the extension of the lockdown would be also partially offset by the short-term worker allowance and also the special government subsidy of which €38 million subsidy have been successfully received and recorded in Q2 relating to the 2020 lockdown. The company is still working towards more government subsidies, which would be related to the 2021 lockdown. The company's cash position is sufficient and still have another €12 million credit line available. Turning to Page 19 on guidance. Considering the impact of COVID-19 resurgence in Guangdong and traffic control in Beijing since late May, and the impact of Delta variant spreading from Nanjing to several cities in China recently, we lowered our Q3 and full-year revenue guidance. For the third quarter of 2021, Huazhu expects net revenue growth to be in the range of 8% to 12% compared to the third quarter of 2020 and 4% to 8% if excluding DH. To provide more meaningful guidance excluding the impact of COVID-19, Huazhu expects net revenue growth will be in the range of 12% to 16% compared to pre-COVID-19 results in the third quarter of 2019 and a net revenue reduction will be in the range of 3% to 7% if excluding DH. For the full-year of 2021, we now expect the net revenue growth to range from 29% to 33%, or to the range from 34% to 38% if excluding DH. To provide more meaningful guidance excluding the impact of COVID-19, Huazhu expects net revenue growth will be in the range of 17% to 21% compared with pre-COVID-19 results of 2019, or to the range from 2% to 6% if excluding DH. Please note that our current revenue guidance is based on the expectation that the recent Delta variant of COVID-19 resurgence can be well contained by the beginning of September. However, given the future situation of Huazhu [indiscernible] uncertain and unpredictable when we need to adjust our guidance accordingly. We also keep the gross opening targets of 1,600 and 1,800 hotels unchanged, but the signing speed of the new pipeline and the construction of the new hotels in the next few months will be affected as well. With that, let's open up for Q&A.

[Operator Instructions] Your first question comes from the line of Tian Hou from T.H. Capital. Please ask your question.

Yes. Good morning, management. I have two questions. Will you please give us some color on the member saturation? So in 2Q, how many new members newly added and what is your channel for member acquisition? So that is number one question. Number two, in your Q3 guidance and – what do you see – Q3 guidance, what do you see in China in terms of traveling, hotel with demands as well as COVID? It seems like the COVID here and there always pop up. So I just wonder how – in this guidance, how much do you already see in your guidance? What's the base for your Q3 guidance – domestic guidance? Thank you.

[Foreign Language] Okay. Let me translate to the English. I think I can answer the first question. And then can choose Mr. Jin Hui for the second question. In Q2 from the membership recruitment, the number was 6 million increased, okay. Anyway, I think that we continue the best practice to develop the member recruitment such as something like the hotel-based from the – also with [indiscernible] choose the member and had to make sure something like the frequency, okay. But I think from the second wave this is that – we encouraged our team and just to develop the B2B and B2C from the local sales team and corporate sales team. And number three, this is mostly important, but something with innovation. We do a lot of partnership with the B2B2C or B2B2B, such as just Alipay and WeChat, even like DT. We do this kind of partnership with many useful ways to do the external, I mean the membership recruitment. That's for my question for number one. Thank you.

For our Q3 revenue guidance, we have to admit that the Chinese government has imposed a very strict traveling restriction and prevention and control measurement, that’s really affected our business performance recently. For the Q3 guidance and full-year guidance, our current estimate and expectation for the RevPAR recovery for the third quarter on a same hotel level, we are expecting the RevPAR in the third quarter will be recovered to 70% to 75% of 2019 level and 90% to 95% in the fourth quarter of 2019 level. Again, as I mentioned previously in my prepared remarks, our current focus on the revenue guidance are very much based on – there will be no massive COVID-19 resurgence happen again in the remaining of this year. Thank you.

Thank you. That’s all my questions.

Your next question comes from the line of Praveen Choudhary from Morgan Stanley. Please ask your question.

Hi. Thanks so much for taking my call. I have two questions. The first one is about lower-tier cities. I just wanted to understand what are the challenges that you're facing in lower-tier cities? It seems like it's going very well based on the pipeline, but if you can talk about any challenges that you're facing in future? And the second one relates to the other strategy, which is upscale strategy. I wanted to understand what portion of upscale hotel opening would be in lease and operating versus a franchised and managed. The reason for asking this question is to understand how long will it take before you can have a good size of these hotels and during that time, what kind of costs do you have to incur? I remember previously you used to have very big pre-opening expenses. Should we worry about similar expenses going forward? Thank you.

Okay. So for the lower-tier cities, actually the lower-tier cities penetration is progressing pretty well. But we have to say that we are still facing some of the challenges, especially for the local sales and also matching and meeting the local customers demand. For these areas, we are continuously adjusting our strategies and especially on the sales team to improve this area and for helping us to further penetrate. In addition, we also trying to building up localized employment and a staff team and also supporting our lower-tier cities penetration as well. We will be doing quite a lot of organizational restructuring especially for those lower-tier cities in different district and areas. Okay. So for Huazhu, we divided the hotel segment into four segments, which including economic, middle scale, upper-middle scale as well as the upscale. Within this four segments, we always think the most interested part as well as the attractive area is those upscale – upper-middle scale and below include those economic, middle and upper-middle scale. And for the upscale segment for China market, it’s more like a consolidation story. As you may know that the upscale hotel segments in China was kind of a supplementary for the property developers as well as for the governments. It's not a real markets-driven investment. Many years ago, there is a lot of existing hotels in the market. For Huazhu, we have been cooperating with Sunac under the joint venture, and we will do some incremental hotels in this area. But in the longer term, we're also trying to consolidate the market by leveraging our capabilities. And for the developing model, we will no longer use the leased and owned business model. We rather choose a franchised or hotel management contract, which is asset-light. In the current stage, we’re still exploring and learning and doing the researching of the upscale hotel segment rather than the timing that we are going to get some returns from those investments. Thank you.

Your next question comes from the line of Yulin Zhong from Haitong International. Please ask your question.

Hello. Good morning, management. Thank you for taking my question. My question is regarding the DH hotel. I was wondering to what extent you can increase the profile of DH hotel side by digitalization as you just mentioned and [indiscernible] would be helpful. Thank you.

For the DH program, okay. I think that up to today, we just fulfilled the one global digital platform ready. And now this is – we already launched a massive rollout in the DH for all the hotels. As we shared before, the one-digital platform not only focused on the business operation efficiency, but also just to do something like the loyalty and even the CRS contribution. So we hope that we can improve the CRS contribution from the – before I think the [indiscernible] now around the 1% or 2%, we hope that we can achieve in the coming new year to around 20%, this is the business target. On the other hand, we're not only just to focus for the CRS contribution, but also to pay the serious attention to the global loyalty platform such as the membership recruitment. And according to the current plan, we would officially launch the new global loyalty program, we call it, H Rewards. We have released officially at the beginning of October. So it's a system program not only focused for the one part, we hope that we can very quickly just to deplore the one-digital platform for all hotels in DH. And then we can achieve the business value in the coming years by finishing the digital program by the operation efficiency improvement program, by the CRS contribution and global loyalty. That’s all. Thank you.

Hi. This is Fei Ye. I just wanted to build on Ji Qi’s point. I think you asked a very good question, and right now, I think it's still too early to tell you the margin improvement of digitalization because we are still in the first phase of setting up the infrastructure and preparing for the rollout. Right now the company's focus is still sharpening the brand and the reducing the loss of operations and then bringing the brand back to Asia. But your question is very important and it's also our midterm target as well. I think putting into more digital equipments and also solutions can help strongly support the company to streamline its organization. Right now, we have a rough target that we probably need to reduce, I mean, optimize like 20% to 30% of the staff both in the headquarter and also the operation level through the several years program. And I believe this will contribute at least several percentage point regarding the margin improvement.

Thank you. That’s very helpful.

Your next question comes from the line of Simon Cheung from Goldman Sachs. Please ask your question.

Hi. Thanks for the presentation. I got two questions. I remember in the first quarter, you mentioned something related to the cleanup of the hotel in particular on Elan, some of the lower branded hotel. I wanted to get a sense about the update, and it’s grateful to see that you maintained your growth guidance full-year at 1.6 to 1.8. I wanted to get a sense how is the trend looking like, perhaps quarter-to-date in the third quarter and your confidence in there for achieving that target. What sort of assumptions you abate in to achieve that guidance? That’s the first question. The second one, if I choose your forward guidance, the development guidance excluding or not excluding DH, it seemingly like that you are expecting the revenue for DH will jump to the round, call it RMB600 million in the fourth quarter compared to I think, second quarter you're running at about RMB254 million, so [doubling]. So I think that's basically all driven by RevPAR supposedly. So at that level, would you expect your EBITDA to be breaking even for your DH operation individually? Thank you.

For [Elan brand], as you may know, it was our softer brand. They used to penetrating into the economic segment. But you may also know that we have many other brands in this segment, including Ni Hao, Hi Inn and we are using different products to further penetrate and enlarge our market share in this segment. And for Elan, for sure that we are continuously going to do a quality control and eliminating those unqualified Elan from our operations as well as pipeline.

So, Simon I wanted to clarify your question regarding the DH. I think your first one is asking about the guidance for the first quarter of DH revenue. Is that correct? And also the second one is that you wanted to understand the development of DH in Europe?

Yes, you are correct. I'm just using your full-year guidance versus your third quarter guidance. Seemingly, you're baking in quite a bit of a step up in terms of the fourth quarter revenue expectations. So if that were to be achieved and would you be able to turn EBITDA breakeven by fourth quarter this year? That’s really the questions.

First of all, I think, the fourth quarter probably we are generally positive about DH improvement of occupancy, but we still be cautious about the recovery given there might be a fourth wave of Delta variant on the way. So I think – yes, based on all the guidance, the revenue for the fourth quarter certainly will be the highest among all the quarters. But however, I think it's – still not to reach the breakeven point yet. But having said that the company is still working hard to – on strivings for another government subsidy, which is related to the 2021 lockdown.

Understood.

That’s regarding DH. And on the development of a DH brand. First of all, as we mentioned before, we’re bringing DH as major brand back to China, particular Steigenberger and also Porsche Design et cetera, and also Intercity, and also the MAXX brand as an upscale brand as well. That's number one. And in Europe, we are positive about the market consolidation in the lower tier segments, especially the economy and midscale segments. And DH brand is actually enjoying a pretty good market reputation, especially in terms of Intercity in Germany and Zleep in the Northern part of the Europe. So we are going to continue to grow these two brands combining both these model and also management franchise model in Europe. And meantime would also sharpen the top brands like the Steigenberger and MAXX by further improving the product design and also infrastructure facilities as well in order to establish the Steigenberger as a truly upscale brand in the European markets, and also trying to find the right expansion model across the globe.

Understood. Thanks a lot. That’s very helpful. Thank you.

Your next question comes from the line of [Bruce Mi] from UBS. Please ask your question.

Hi, management. Thanks for taking my question. So I have two small questions. The first one is, as you previously mentioned, one of the challenges as you – when penetrating into lower tier cities is to meet different franchisees demand on brand. So may I ask, currently, for the hotels in pipeline and new signing in lower tier cities, how much are from the core brands such as HanTing and JI Hotel and how much is soft brand? And my second question is that if we look at the same brand, so how is the take rate in lower tier cities compared with tier 1 and tier 2 cities? Thank you.

For our current lower tier cities penetration currently are from our new signings, JI Hotel and HanTing brand are still the key brands for the penetration and it accounts roughly 70% to 75% of the new signings, and some other brands such as Starway, Orange as well as Ni Hao are also progressing pretty well. Sorry, can you please repeat your second question?

Sure. So my second question is if we look at the same brands, for example, take [HanTing] as example. So how is the take rate, for example, the franchise fees compared between lower tier cities and tier 1 and tier 2 cities? So I just want to understand the margin comparison between the lower tier cities and tier 1 cities?

Our take rate for HanTing and JI Hotel brands in the lower tier cities are very close to the higher tier cities or at similar level. As you may see that our CRS contribution in the lower tier city are very close to the higher tier city, therefore, at the percentage perspectives the charge rate or the take rates are very similar to each other. Thank you.

Thank you. That's all my questions.

I would like to hand the conference back to the presenters’ for any closing remarks. Please continue.

Thank you, everyone for taking your time with us today, and we look forward to connect with you again in upcoming quarter. Thank you and goodbye.

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