Good day, and thank you for standing by. Welcome to H World Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to hand you over to H World Senior IR Director, Mr. Jason Chen. Please go ahead.

Thank you. Good morning, and good evening, everyone. Thanks for joining us today. Welcome to H World Group 2023 Fourth Quarter and Full Year Earnings Conference Call. Joining us today is our Chairman, Mr. Ji Qi, our CEO; Mr. Jin Hui; and our CFO, Mr. Zou Jun. 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 Security 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. H World Group does not undertake any obligations to update any forward-looking statements, except as required and applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliations of those measures to comparable GAAP information can be found in our earnings release that was distributed yesterday. As a reminder, this conference call is being recorded. The webcast of this conference call as well as supplementary slide presentation is available at ir.hworld.com. With that, now I will hand over the call to our CEO, Mr. Jin Hui, to discuss our business performance in 2023. Mr. Jin, please.

In 2023, the domestic traveling industry experienced strong momentum of recovery along with the robust rebound of the industry. H World continued implementing our sustainable, high-quality growth strategy and achieved great results. First of all, let's take a look at our achievements in 2023. Please turn to Page 3. Thanks to the strong leisure demand and the gradual recovery of business demand post-pandemic. In 2023, our China business achieved a robust recovery with RevPAR recovered to 122% of the 2019 level for the whole year. Entering into 2024, we still see our RevPAR performing steadily so far. Our hotel network continued to expand. Please turn to Page 4. Excluding the economic softer brand, we opened a total of 1,641 hotels in 2023, reached a record high in terms of annual opening number. At the same time, we closed 789 hotels in 2023. However, excluding the low-quality economic softer brand and HanTing 1.0 version, the closure were only 273 hotels, a slight increase from 237 in 2022. The high closure number in 2023 demonstrated our determination to remove or upgrade low-quality hotels in accelerative manner, which is in line with our sustainable quality growth strategy. In terms of our pipeline by the end of 2023, our hotels in pipeline reached 3,061, another record high. The limited-service segment remains our key strategic focus. Our economic and middle-scale products, which target the mass market are the key drivers of our network expansions, breaking down our hotels in operation, hotels in pipeline and hotel opening in 2023. The proportion of economic and middle-scale hotel were 92%, 85% and 90%, respectively. H World has set a specific brand strategy named Iron Triangle to develop the economic and the middle-scale segments. The Iron Triangle strategy consists of our 3 key brands, namely HanTing, JI Hotel, and…

Thank you, Jin Hui. Good morning and good evening to everyone. Let's go through our operational and financial review for the fourth quarter and full year of 2023. Please, now turn to Page 18. In 2023, we continue to expand our hotel network. Our overall number of rooms increased 13% year-over-year to over 912,000 rooms by the end of 2023 compared to over 809,000 rooms as of end of the last year. Our hotel turnover for the full year of 2023 was RMB 80.4 billion, representing a 62% increase compared to 2022. Excluding DH, Legacy-Huazhu Hotel turnover grew 66% year-over-year to RMB 73.3 billion. Now, let's turn to Page 19. Since China lifted a travel restriction in late 2022, we saw a strong rebound in leisure travel and a gradual recovery in business travel throughout 2023. Blended RevPAR for Legacy-Huazhu reached RMB 242 representing a recovery of 122% compared to the 2019 level and a year-over-year increase of 54%. The robust RevPAR growth was primarily driven by ADR, which raised 27% to RMB 299 in 2023, which was mainly due to our product mix change as well as continued product upgrade over the last few years. Occupancy rate also improved throughout the year to 81% for the full year of 2023. Now, Page 20. For DH business, full year 2023 blended RevPAR grew 14.5% year-over-year to EUR 71, which was driven by a 1% increase in ADR and a 7% increase in occupancy rate to 63% OTC. Now, please turn to Page 21. In 4Q 2023, our total revenue for the group increased 51% year-over-year to RMB 5.6 billion, exceeding our previous guidance of 41% to 45% year-over-year growth. For the full year of 2023, our group revenue increased 58% year-over-year to RMB 21.9 billion, of which Legacy-Huazhu achieved 64%…

[Operator Instructions] Our first question comes from the line of Dan Xu from Morgan Stanley.

We would like to understand the recent franchise signing progress. Do we have a target for this year on signing in particularly on products and city distribution? Do you see any significant differences when compared with last year? When it comes to hotel opening, congratulations again on the record-high opening last year. I remember CEO, Mr. Jin mentioned about one bottleneck of annual hotel opening is supply chain and also construction. I saw you increase your gross opening target to 1,800 hotels this year, another record high. So, does it mean that we now have made progress in this bottleneck issue? Should we expect gross opening to gradually increase every year going forward if signing keeps up?

Yes, let me answer your first question. So, over the last several years, we did do some of the right things in terms of to improve our capability in terms of the organizational operation. But we also get benefits from 3 major areas. One is the benefit from the continuous regeneration improvements in the market, especially going to be benefiting the top-tier companies like H World. By giving these benefits as well as our continuous efforts on building our brand awareness, in terms of getting into the leading position in different segments like economic and the middle scale that we have several brands are at the leading position. The second benefit is from the lower-tier cities' penetrations, we catched the opportunity several years back, and we started to build our organizational capability, our human resources to support the lower-tier cities penetration opportunities. Thirdly, as we also catch the opportunity, for example, the consumption upgrade and also the leisure traveling demand increase which help us to develop the upper-mid segment. Given our established capability, we are confident that we're going to be having another good new signings for this year as well as the new opening for the year, just like we just gave the guidance for the 1,800. In terms of the supply chain, you are right, last year just because of ride post-pandemic, there was a capacity bottleneck as well as given the industry recovery was very robust. But however, we don't think the supply chain is going to be the problem of the bottleneck going forward. In fact, there's going to be a very good supportive factors for us for future sustainable, high-quality growth.

Our next question comes from the line of Simon Cheung from Goldman Sachs.

The CEO, Jin Hui, just earlier mentioned that the company has greatly benefited from 3 macro or structural trends in the hotel industry over the last several years. Just wondering whether he has observed any new structural trend or opportunities as well? The second question related to the margin and the costs. Last year, they did quite well in terms of the EBITDA margins, particularly in the China business. I'm wondering the management whether they can share with us the cost as well as the margin guidance for 2025 this year?

Let me answer your first question. Apart from the 3 benefits that I just mentioned, going forward, we think the China laundry market definitely has the opportunity, especially on the service excellence front. No matter where there is an economic or middle scale, upper middle skill segment, we observed that the customers have been more looking for value for money, good products, good service products. So, for us, we're definitely going to be around their demands, the customer-centric to further build up our capability from different and many aspects, including the operational capability, sales capability as well as the marketing capability to fulfill their demand. And our management goal is to help the Chinese laundering company to be the world-class in the upcoming future and also including those mature markets, maybe, for example, some of the markets are getting very mature, but we think there's still a lot of opportunities to redo the market again through the product upgrades through providing good services to the customers. So, all in all, we think going forward, the opportunity is definitely from the service excellence together with the sustainable growth.

Simon, I will address your second question regarding cost and profitability. Now, while we continue to strive for healthy growth and service excellence, we will also focus on improving our management systems, streamline operation, and meticulously measure ROI of every dollar that we spend. So, our overall goal is still to strive for a operating leverage, and that's definitely our goal.

Our next question comes from the line of Ronald Leung from Bank of America.

My first question is about the RevPAR growth outlook. What is management expectations for the RevPAR growth in 1Q 2024 and also full-year 2024? My second question is about the enhancement of the service quality. Could management emphasize what could be the areas that the company didn't do well enough in terms of the service quality? And is it possible to provide any specific initiatives to enhance service quality into Q4 and beyond?

Let me answer your first question in terms of the RevPAR. So, again, last year, post-pandemic, for the entire year, we clearly see that the RevPAR recovery was mainly driven by a very strong leisure traveling demand. But, however, the business traveling demand was relatively slower compared to the leisure in terms of the recovery. Therefore, given the high base of 2023 RevPAR, now 2024, we're going to be a little bit conservative. So, that's why for the full year, we expect that the RevPAR going to be flattish to low single-digit growth on a year-over-year basis. For your second question in terms of the service quality, so definitely, the service excellence is not our short-term goal, but the long term. So, for us, we put this into our strategy because we think it's going to help us to grow into the next stage. Clearly, we are seeing that not only that we are rapidly growing our networks, but also the customers are involving rapidly as well. We are now facing a lot of diversified group of new customers, and we are trying to use both products and services to further improve their experiences and satisfactions. For example, just to give you an example for the new group of the customer, like there are a lot of marathon events host everywhere in China. So, how we can fulfill their demands, but their demand might not be the same as those general business travelers. So, again, what I want to emphasize is the service excellence strategy is not the short-term goal for the company, but it's a long-term goal for us. It's not just slogan. It's actually our management goal to bring the company grow into the next stage.

Our next question comes from the line of Sijie Lin from CICC.

So, what's the RevPAR guidance for Q1, would you might sharing with us? And we got a higher growth opening and net opening this year which we think is a very good thing and achieve a real high-quality growth. So, considering that we are opening hotels with higher RevPAR, meanwhile, closing hotels with bad performance. So, how much percentage of RevPAR growth will be contributed by this mix upgrade?

Thanks for your question, Sijie. In the first quarter, our RevPAR probably will grow around the low single digits. And, as you mentioned, we will maintain a healthy growth with service excellence. However, in the meantime, we also encourage you to look into drivers other than RevPAR. RevPAR is definitely one of our drivers, but we're rapidly shifting from a heavy model asset light model. And more and more franchise and manachised hotels will be open throughout the year. And, therefore, there will be different drivers that drive our growth in the future. And that's something we can discuss. And while we are opening more and more mid-upscale hotels, we are also thinking into low-tier cities. So, the impact of new hotels to our RevPAR will be blended.

Our next question comes from the line of Lydia Ling from Citi.

My first question is, I want to follow up on the store opening, actually, the pace of the store opening rate this year. So, I want to check how about like the franchise confidence currently in the market given the macro conditions and also, is the company going to actually provide more support to the franchisee? And my second question is on the overseas business, the DH business and so, it's already like to have like a positive EBITDA for last year. And so, how you actually further drive the profitability this year? Any target for this year?

Let me answer your first question in terms of the franchisee. So, definitely a healthier return or ROI for franchisees and very important thing that's what we are putting a lot of efforts on to helping them to get a good return to open every hotel that can help to make the money. So, we definitely will again provide a good service, just like what we discussed before, we're also going to provide a good service to the franchisees and also some of the supportive policy to help them to continuously open good hotels. For some of the existing franchisees, we're definitely helping them to open every hotels and with a good return. And from the new franchisees, especially for the new regions and the new segments, for example, the lower-tier cities and the upper-mid segment, we are dealing with a lot of new franchisees that was not existing before, for example, a lot of local property companies, governments as well as the SOEs. So, all in all, that for the franchises, definitely what we are trying to do as well as providing their good services and supportive policies just to ensure that every hotel stay open, we are going to have a good return on ROI.

Hi, Lydia. I'm going to answer your second question about DH profitability and cost structure. Now, firstly, we're determined that DH will move steadily to asset-light business model, and we are making progress in that area. And, secondly, DH is tried to best to achieve operational efficiency, and by creating a lean and lean organization. And, certainly, we are actually meticulously measuring ROI on all major capital and operational spending in DH business level. And with all of that efforts, we are determined to help DH gradually improve profitability and gradually turn cash flow positive. Thank you, Lydia, for your question.

We have reached the end of the question-and-answer session. Thank you very much for all your questions. I'll now turn the conference back to the management team for any additional closing comments.

Thank you, everyone, for taking your time with us today, and we look forward to seeing you in upcoming quarter. Thank you, and bye-bye.

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