Ladies and gentlemen, thank you for standing by. And welcome to the Huazhu Group 2021 Q4 and Full Year Earnings Conference Call. Please be advised that today's conference is being recorded. At this time all participants are in a listen-only mode. It is now my pleasure to introduce IR director, Jason Chen.

Thank you, Andrew. Good morning and good evening everyone. Thanks for joining us today. Welcome to Huazhu Group's 2021 fourth quarter and full year earnings conference call. Joining us today is our Founder and Chairman, Mr. Ji Qi; our CEO, Mr. Jin Hui; our President, Ms. Liu Xinxin; our CFO, Ms. Chen Hui; our Deputy CFO, Ms. Ye Fei; and our CEO of international business Ms. He Jihong. 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. 2021 was another challenging year, cost and the variation and resurgence of COVID-19 and of course, many uncertainties to the lodging industry. At the same time, global macro conditions are also becoming increasingly complex. Since China's economic development strategy is changing from high-speed growth to high-quality development. We also adjusted our strategy from previous upscale growth for sustainable quality goals, focusing on high-quality hotel development. With the new strategy, we should be able to achieve a sustainable and the quality growth created greater value to our customers, employees and franchisees and make the industry [equal] [ph] by leveraging on our unique three-in-one unique model, which include brand, traffic and the technology. Under the sustainable quality growth strategy, the growth is still the main thing. However, the growth relies on two critical conditions. One, it is called precision or accuracy, by leveraging on Huazhu Hotel technology and innovative capability as well as a people-oriented organization from [indiscernible]. We can see more precise and accurate operations to achieve high efficiency and quality. Moreover, the precision also requires us to benchmark world-class companies on talent cultivation, reservation, in order to maximize the staff efficiency in the company. In addition, both products and service should also be changed not good enough and more for previously, for simplicity, concentration, perfection focused on core strategy. Success or failure is often determined by tiny details in hotel business. Hence precision becomes more and more important. Another condition is called value or benefit. It means value creation, long-term focus and social benefit. Also, we're continuously focused on creating greater values to our stakeholders along the value chain of lodging. Also, we would insist on doing difficult other things and the long-term focus. Last but not least, we will also focus on ESG development, environmental protection, carbon emission reduction, social welfare and corporate social responsibility to bring long-term benefits to our customers, employees, franchisees, owners, shareholders, communities and countries. With that I will turn the call to Jin Hui to discuss our development and focus.

[Foreign Language] Thank you, Ji Qi. As mentioned by Ji Qi earlier, 2021 was again a challenging year. However, we continuously insist on implementing our strategies and achieve to several great achievements for the year. Please turn to Slide Four. On the Quality Hotel expansion front, we defined again our standard of Comfort 360 program and Quality Hotel. We achieved 7830 hotels in operation by the end of this year, with net openings of 1041 hotels. We further penetrated into lower tier cities, with roughly 200 new cities of coverage added during the year. Also, we successfully introduced the Intercity and Maxx brand into China market. Moreover, through the joint venture with Sunac, we had opened 14 Steigenberger brand hotels in China in 2021. Lastly, Blossom House to further tap into the booming domestic like leisure traveling market. In regards to our multi-dimensional direct sales we had achieved another year of solid member growth of 14% to 193 million members by the end of 2021. We also officially launched our H-world app 3.0 version to integrate customer services from online to offline. Also, our room nights contributed from corporate customers further improved to 11% in the fourth quarter 2021 and CRS contribution further improved to 63% in the same quarter. Lastly, in terms of our global technology platform, we had started gradually roll out of our One Global Digital Platform for DH hotels. [Foreign Language] Of course, lately, the resurgence of COVID consistently affected our RevPAR recovery. Please turn to Slide Five. Since China remains implementing zero COVID policy, every researchers of COVID in relative large scale would result in stricter traveling restriction, and hence significantly affected our RevPAR recovery. In February, post the Chinese New Year, we saw our RevPAR recovered steadily on a week-over-week basis. However, since March,…

Thank you. I jumped the guard a little bit. Good morning and good evening to everyone. Let's move on to our operational and financial review for the fourth quarter and full year of 2021. As shown on Slide 22, our combined hotel networks expanded by 15% in 2021 to 753k rooms of 7830 hotels, compared with 652k rooms of 6789 hotels in 2020. Excluding DH Legacy Huazhu Hotel network expanded by 16% year-over-year to roughly 728k rooms of 7706 six hotels in 2021. For our hotel turnover in 2021, our total hotel turnover grew at 36% year-over-year to RMB 45 billion in 2021. This was mainly due to our continuous network expansion in China and the low base of 2020. Excluding the DH, Legacy Huazhu hotel turnover grew 38% year-over-year to RMB 42.7 billion in 2021. Turn to Page 23. Legacy Huazhu blended RevPAR for Q4 '21 was RMB 163, 14% lower than 2019 level. The ADR in Q4 was up by 3% compared to 2019 level at RMB 239, while the occupancy in Q4 is 14 percentage points lower compared to 2019. This was mainly due to COVID-19 resurgence in November. For the full year 2021, Legacy Huazhu blended RevPAR was RMB 172 a decline by 13% from 2019. But an increase of 16% from 2021. The ADR was RMB 239 up by 2% compared to 2019. Well occupancy is 12 percentage points lower compared to 2019. It was mainly due to the several outbreaks of COVID through the years of 2021, especially in the later half. Turn to Page 24. Despite the recovery in the fourth quarter was interrupted by Omicron variant since November, our Legacy DH business saw strong recovery in Q4 2021 on a yearly basis. DH is blended RevPAR for Q4 21 rebounded by 153%…

Thank you. [Operator Instructions] Our first question comes from the line of Billy Ng with Bank of America.

[Foreign Language] I just wonder like in terms of the product upgrade, I think in the PPT, you guys mentioned that as one of the growth driver. So I -- we understand that in the past, like product upgrade actually can significantly enhance [indiscernible]. But is that still the case going forward and if that's the case? And also in terms of the plan for doing product upgrade, are we helping the existing franchisees to do a large scale upgrade?

[Foreign Language] So the product upgrading is our key strategy to cater into the consumption upgrade trend in China. It's happening not only to HanTing, JI Hotel, but also like Orange and Hi Inn. I think the RevPAR improvement of HanTing existing hotels upgrade has been bring -- has brought very good return to the franchisees at least comparable level as the new hotels to the franchisees. [Foreign Language] Arguably, Huazhu is the only one pushing the economy product upgrade in China, which is also well received by the customers of us. [Foreign Language]

[Foreign Language] So like I think my second question is like, basically we noticed right now Omicron outbreak was -- is pretty severe in China. So I just wonder whether this outbreak has impact the incentive of the franchisees and whether they decide to open for this year has changed?

[Foreign Language] Okay. Certainly, you're right. The current COVID situation and also the China's zero-COVID policy has the negative impact of our performance and also the franchisees, the interest especially reflected in the March number, but having said that, I would also mention two factors as a mitigation. First of all, China is very big and large market. Actually our hotels in the lower tier city has been running good, and this further stimulating the signing of the new hotels in those markets. That's number one. Two is the further requisition of the -- of our hotels by the current government bureau. Currently, more than 1,850 hotels are under requisition, it's roughly 12% of our hotel portfolio. This is very important to help our franchisees to go through current tough time, especially for the franchisees in the Tier 1 or Tier 2 cities.

[Foreign Language]

Thank you. And our next question comes from the line of Sijie Lin with CICC.

[Foreign Language] So my first question is that for the full-year revenue guidance, what's the implying RevPAR recovery rates? And my second question is that we know that ADR recover faster than what we see in 2021, what's the trend of ADR in the future when we recover from COVID-19? Because some people say ADR may continue to increase because people pursue for better quality and strong brands, but some may not think so considering the soft consumption environment? So that's my two questions. Thank you.

[Foreign Language] Okay. So to answer your question in terms of revenue guidance we -- for the Legacy China side budget -- we budgeted 81% to 84% of RevPAR recovery compared to 2019 level, it is based on our internal assessment and also the evaluation of the impact of COVID. And regarding to your second question of consumer markets and also the corporate markets reaction, yes, we admit there is a challenge of further sensitivity of the customers' price sensitivity, especially regarding the corporate customers. From our latest number, especially in January and February Chinese festival, actually the recovery is pretty decent both for the leisure travel and also business travel. I would say from Huazhu Group, we have full spectrum of a product, actually, this creates a very good opportunity for us to capture all kinds of customers, especially those who become more price sensitive, because we are -- we have our own competitive edge in terms, a high-efficient and low cost business model creating both value for our franchisees and also our customers. Let's wait for the next question.

Thank you. And our next question comes from the line of [Indiscernible] with Goldman Sachs.

[Foreign Language] So the question was related to your cost and also the margin price because we saw a bit of margin dilutions last year for the China operations, wondering whether you would have any guidance on the cost as well as the margins? And secondly, in relation to your 7,000 hotel in 1,000 cities and expanding into another 1,000 cities, geographically, we know that you have a huge exposure in Northern and Eastern part of China, wondering whether you have any concentrations, guidance or expectation in the first tier, second or even third tier cities? Thank you.

[Foreign Language] Okay. Let me translate the second question first. So, first of all, certainly the lower tier cities is much less penetrated compared to the up-tier cities. The 1,000 incremental cities were mainly coming from third tier city, fourth and fifth even like county. And secondly, we are -- relatively, we have lower market share in the Southern China and Western China. So there is a lot of further growth area for Huazhu as well. So to summary, in our further -- in our portfolio, it will be 55% coming from lower tier city and below and 45% were coming from Tier 1, Tier 2 cities. And our strategy is full penetration through all tier of cities in China through all -- full spectrum of brands. For example, we're going to enhance our penetration in Tier 1 and Tier 2 by more upscale and mid upscale products like Steigenberger, Blossom House and et cetera. And same time, we will increase our market share by economy and mid-scale brands in lower tier city, and for example, HanTing and JI Hotel. Yeah, that's the question -- answer to the second question. For the first question, certainly, we admit there is mounting pressure in terms of EBITDA because the revenue is under pressure due -- for this sudden change of COVID situation. That's number one. Two, also we -- internally, we have analyzed there is a further improvement areas of course to management even along our key strategy, further penetration, upscale and upper midscale and also digitalization. Under the sustainable and quality growth overarching strategy, we'll focus on the key areas and further improve the cost efficiency. We're going to develop more detailed measures in the next period of time.

[Foreign Language]

Thank you, Simon.

Thank you. And our next question comes from the line of Lina Yan with HSBC.

Hello?

[Foreign Language]

Okay, okay. I just have one question. Do you have an estimate for the breakeven revenue, like the level of breakeven revenue for Huazhu Legacy and DH? And also do you have like a breakeven RevPAR level for that?

Sorry. You're asking a breakeven RevPAR for Huazhu and DH separately?

Yes, yes. Yes, yes.

Historically, we have a ballpark estimate for China that is around RMB130 and for the DH side is roughly around like EUR60 and -- to EUR65.

Okay, okay. And do you have a breakeven like revenue for this thing?

The number I'm talking about is relatively is about the EBITDA breakeven level as we gave to the market before, and certainly it will be subject to the COVID recovery, it's going to be moving very quickly, I think.

Okay, okay. Thank you very much.

Maybe --

Thank you. And our next question comes from the line of Bruce Lee with UBS.

[Foreign Language] Hi, management. My first -- I have two questions. And the first question is on the revenue performance for the first two months in Q1 this year, despite the COVID resurgence disruption in March, we saw that the RevPAR recovery in the January and February is relatively better. So may I ask about the revenue performance in January and February this year?

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] My second question is on the cost front. So I saw that the gross margin in Q4 declined compared with the previous quarters. So I'm -- and I saw that the main reason is the due to the increase in rental, personnel and other cost. So may I double check that, is the increase in rental and personnel cost is mainly due to the increase in number of leased and owned hotels? And also the main contributor in the other cost and how much is the impact on cost increase from the acquisition of CitiGO? Thank you.

Actually, you're right. The impact of the cost increase mainly come from the upscale and upper mid hotel -- hotels in the leased hotels. And certainly, as we mentioned later, the continued growth model will be asset light, so we're going to control the further investment in this area. CitiGO has a very relatively -- the acquisition size is small. So the contribution to the cost side is relatively limited. It's just more than like RMB10 million level. It's a limited contribution.

[Foreign Language]

[Foreign Language]

Thank you. I'll now turn the call back over to IR Director, Jason Chen for any closing remarks.

Thank you, everyone, for taking your time with us today. And we look forward to contact with you again in the upcoming quarter. Thank you again. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. And you may now disconnect.