Hello, ladies and gentlemen, thank you for standing by for GreenTree's First Half 2023 Earnings Conference Call. At this time all participants are in listen-only mode. [Operator Instructions]. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Mr. Rene Vanguestaine of Christensen, GreenTree's Investor Relations firm. Please proceed, Rene.

Thank you, Ashley. Hello, everyone. And thank you for joining us. GreenTree’s earnings release was distributed earlier today and is available on our IR website at ir.998.com. As well as on PR Newswire services. As a reminder, we also posted a PowerPoint presentation that accompanies our comments to the same IR website. On the call from GreenTree are Mr. Alex Xu, Chairman and Chief Executive Officer; Ms. Selina Yang, Chief Financial Officer; Ms. Megan Huang, Vice President of Sales and Marketing. Mr. Bill Ju [ph], Financial Director of the Restaurant Business. Mr. Xu [ph] will present the company's performance overview of the first half of 2023, followed by Ms. Wang and Mr. Ju, who will discuss business operations. And Ms. Yang and Mr. Xu will then discuss financials and guidance. They will all be available to answer your questions during the Q&A session which follows. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934. As a mandate and as defined in the U.S Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as may, will, expect, anticipate, aims, future, intends, plans, believes, estimates, continue, target is or are likely to going forward, confident outlook and similar statements. Any statements that are not historical facts, including statements about the company and its industry are forward-looking statements. Such statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve known and unknown risks, uncertainties and other factors, all of which are difficult to predict, and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. You should not place undue reliance on these forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S Securities and Exchange Commission. All information provided, including the forward-looking statements made during this conference call are current as of today's date. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Alex Xu. Mr. Xu, please go ahead.

Thanks, Rene. Hello, everyone. And thank you for joining us today. 2023 marked a new start of the post COVID recovery in the economy across China. So far, compared to the same period of 2019, reached more than 120% at the beginning of February. Exceeding our expectations as demand for business travel rebounded after the Spring Festival. During the second quarter, especially during the National Labor Day holiday early in May, it's reached more than 115% and during the summer vacation, it was almost stable at 110% and the tourism further expanded. As we did throughout the pandemic, we continued to execute our long-term strategic growth plan that strides to assist the franchisees in maintaining quality operations, expand our hotel network, deliver stable operating profitability, and maintaining healthy cash flow. Please turn to Slide 5. Compared with the first half of 2022, hotel RevPAR was RMB 130 up 35.8% and the restaurant ADR that is average daily sales per store was RMB 6,213 up to 22.9%. Total revenues were RMB 794 .2 million up 12.1%. The increase was probably due to the recovery in RevPAR, the increase in the number of hotels and the increase in the restaurant average daily sales, partially offset by the closure of the 64 restaurants. Income from operations trend positive at RMB 150.9 million with a margin of 19%. Net income was RMB 177.3 million with a margin of 22.3%. Adjusted EBITDA, non-GAAP was RMB 226. 9 million, up 137.8%, with a margin of 28.6%. Core net income non-GAAP was RMB 136.1 million with a margin of 17.1%. Cash provided by operating activities was RMB 313.1million. Slide 6, shows detailed numbers for total revenues, income from operations, net income and adjusted EBIDTA. Slide 7. Operating performance greatly improved during the first half of 2023. RevPAR…

Thank you, Alex. Please turn to Slide 18, to start reviewing the operating and financial highlights. Slide 19 shows the change in our quarterly operating performance. In the second quarter of 2023 RevPAR for our LO hotels increased to RMB 190. RevPAR for our FM hotels increased to 139 RMB. ADR for our LO hotels increased to RMB 265, and ADR for our FM hotels increased to RMB 179. Occupancy at our LO hotels increased to 74.6% and occupancy at our FM hotels increased to 77.9%. Slide 20 highlight the growth in our membership programs, which accounted for the most of our direct sales. Individual memberships grew to 84 million, up from 74 million a year ago. And corporate memberships grew to 1.99 million up from 1.91 million a year ago.

Now, please turn to Slide 21. In the restaurant business, the number of individual members grew to 2.67 million, up 2.3% year-over-year, ADS increased 57.3% to RMB 6,371 in the second quarter of 2023, compared to one year before. With that, I’ll pass the call over to our CFO, Selina Yang.

Thank you [indiscernible]. First let's review our hotel business. Please turn to Slide 22. In the first half total hotel revenues increased to 23.1% year-over-year to RMB 563.2 million. The increase was primarily due to the recovery in RevPAR, and increasing the number of hotels. Total hotel revenues increased 23% to RMB 310.6 million RMB in the second quarter of 2023, compared with the first quarter. Total revenues for FM hotels were RMB 347.4 million, up 26.1% year-over-year. While total revenues for our LO hotels increased 24.7% to RMB 213.6 million. On Slide 23, total hotel operating costs and expenses decreased to 54.7% year-over-year to RMB 416.6 million. Excluding other general expenses, total hotel operating costs and expenses also decreased to 2.8% year-over-year. And total hotel operating costs and expenses increased 5% to RMB 213.3 million in the second quarter, compared with the first quarter. Total costs and expenses are composed of hotel operating costs, selling and marketing expenses, general and administrative expenses. Operating costs were RMB 284.4 million, down 7.6% year-over-year. The decrease was mainly due to the deconsolidation of Argyle and disposal of our interest in Urban and partially offset by higher consumers. Higher utilities due to recovery from COVID-19 and higher rents with lower extensions compared to last year. Operating costs increased 11.8% to RMB 158.1 million in the second quarter compared with the first quarter. Selling and marketing expenses were RMB 24.8 million, a year-over-year increase of 31.8%. The increase was mainly attributed to higher sales channel commissions, higher sales, staff salaries, and higher travel expenses. The selling and marketing expenses increased 24.3% to RMB 13.8 million in the second quarter of 2023 compare with first quarter. General and administrative expenses were RMB 90.5 million in the first half of 2023, down 9.2% compared with the first half of last year. The decrease was mainly due to the deconsolidation of Argyle and disposal of our interest in urban and partially offset by higher consultancies and highest stock related expenses. The G&A expenses decreased 3.6% to RMB 44.4 million in the second quarter of this year compared with the first quarter. Turning to Slide 24. Income from hotel operations was RMB 160.4 million. And income for hotel operations increased 108.7% to RMB 108.5 million in the second quarter of 2023 compare with the first quarter. Net income of hotels was RMB 191.8 million. Net income of hotels increased to 138.4% to RMB 135.1 million RMB in the second quarter of 2023 compared with the first quarter. Adjusted EBITDA increased 127.5% to RMB 212.2 million and core net income increased 42% to RMB 150.4 million. Now let me turn this call over to Bill, our Financial Director of Restaurant Business.

Now let's review our restaurant business. Please turn to Slide 25. In the first half of 2023 total restaurant revenue were RMB 127.2 million and RMB 104.9 million in the first and the second quarter of 2023 respectively. You can also see the revenue breakdown for FM restaurant and LO restaurants. On Slide 26, total operation operating costs and expenses decreased 9.9% year-over-year to RMB 242 million. And the total restaurants operating costs and expenses decreased 9.7% to RM 114.9 million. In the second quarter of 2023, compared with the first quarter, you can also observe the downtrend in material costs, personal cost and the rent. Turning to Slide 27. Income from restaurant operations was RMB negative 9 million in the first half of 2023. The income from restaurants operation was RMB 0.6 million and negative RMB 9.6 million in the first quarter and the second quarter of 2023 respectively. Net income was negative RMB 14.1 million in the first half of 2023. Net income decreased to negative RMB 11.9 million in the second quarter of 2023, compared with negative RMB 2.2 million of the first quarter. Adjusted EBITDA increased 473.1% to RMB 15.2 million. Core net income was negative RMB 13.9 million. Next, Selina, please introduced the probability of our group.

Please turn to Slide 28. Group net income per ADS basic and diluted was RMB 1.79. Group core net income per ADS basic and diluted non-GAAP was RMB1.33. Let's now take a look at Slide 29. As of June 30 2023, the company had total cash and cash equivalents, restricted cash, short term investments, investments in equity securities and term deposits of RMB 1440.1 million compared to RMb1119.4 million as of December 31 2022. The increase was primarily due to cash flow operating activities, repayment for our franchisees, proceed for disposal of staff salaries and partially offset by the repayment of bank loans and investment in properties. On Slide 30, taking into account the recovery long-term trends and short term industry fluctuations, we expect total revenues of organic hotels for the full year of 2023 to grow 30% to 35% of the 2022 levels, total revenues for our restaurant business and our organic hotel business. For the full year of 2023 I expect to grow 15% to 20% over the 2022 levels. This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

[Operator Instructions] Your first question comes from Zhao Ju with Shezan [ph] Capital. Please go ahead.

Hello management. I know you are not catering was incorporated into the listed company. Can you introduce the recovery of catering? Thank you.

Okay, thank you for question. Our Financial Director, Bill will answer these question?

Hello. The restaurant sales compared to 2019 sales recovery was 18% and compared to 2022 the sales recovery was 100.7%. Thank you.

[Operator Instructions] Thank you. Your next question comes from Bessie Zhu [ph] with UBS. Please go ahead.

Hi, hello Selina. Hello management. So could you give us some color and guidance on the RevPAR Q4, 2023 and 2024? Thank you.

Thank you. Thank you for question. So let me first answer your question. I guess Alex introduced just now, in summer vacation the RevPAR in July and August, kept stable about 110% of the 2019 levels. And we see that in September the RevPAR decreased due to the seasonality fluctuations. So for the fourth quarter, yes, we forecasted RevPAR and recovery also keeps at stable level of the 2019 levels that is about 10% increase that by the 2019 levels. Okay. So for the restaurant -- for the next year, I think yet it's very difficult for us to forecast for the long term. But for the long term trends, yes, we can see a good trend because of the recovery of the industry, and especially from some locations in the year of 2023. Thank you.

So let me add a couple more comments here. In the Q3 the performance is better than Q2, based on the first 2.5 months, that's July, August or September, a substantial improvement over the Q2. The trend in the Q4 were stabilize because our hotel portfolio focuses primarily on the -- have a lot more on the Tier 3, Tier 4 cities. I think the Tier 3 and Tier 4 cities performance are very stable, even though they are stable during the past three years of COVID control period. And so their performance we expect to be continuously, you know, improving and stable over the next few years, especially the China's policy has been focusing on we do an iteration of the countryside and also encouraging drop growth in those two Tier 3, Tier 4 cities. So, the even though the recovery after the post the COVID period, we see the performance much better in the first Tier cities, because there is new -- many, many new conventions. And people have been traveling to the first Tier cities for business and for exchange, but we think the trend for the future growth will continuously reach out to the Tier 3 and Tier 4 cities.

Thank you very much.

Thank you. Your next question comes from Adam Sue [ph] with China Ascendas [ph] Securities. Please go ahead. Adam Sue, your line is now live, please proceed with your question. [Operator Instructions]. Thank you. Your next question comes from Simon Cheung with Goldman Sachs. Please go ahead.

Hi, Alex and Selina. And thanks for the presentation. I got a couple questions. One, just on the hotel, I saw that you know, you did a decent 38% EBITDA margin for the business. And remember, before COVID, you were hovering at about 50%. Just wanted to get a sense, you know, the difference between the, I know there’s actually some mix exchange and closure, or deconsolidation of some of the business, but wanted to get a sense whether you feel that once your RevPAR, by the way your RevPAR is already over 100% anyway, do you feel that you can go back to what 50% on the hotel business? This is first question. And now the second question is on hotel. So you have been closing down call it 50 60 restaurants every six months. And that you finally get to breakeven level. Then I guess the question is, how many closure, or do you have any target as to how many restaurants you're going to be running? And you know, when are you -- what's our profit profitability level you feel comfortable maybe you know, one or two years’ time? Thank you.

Thank you, Sam, and thank you for a question. This is Selina. Let me introduce the background of the related to your first question about the EBITDA margin of the hotel business. Yes, you have been very correct. Previously, already the margin was as high as 50%. But in the first half of this year, will be the margin was about 38%, even though it recovered greatly from the COVID-19, however, still lower than before. There are two reasons, the first one is due to our newly opened list operated hotels in the COVID -- during the COVID-19, okay. So according to our calculations, the impact of our newly opened leased operated hotels was negative 10% of the EBITDA margin, that means if we excluding the impact for our unprofitable newly opened leased operated hotels our EBITDA margin was about 48.7%. Okay, that’s nearly higher than now.

Let me add a couple of more points to Selina’s answers. Compared to the pre COVID area, that we have a margin we see a dip, because our take rate is also being reduced from the pre pandemic levels for the following reasons, one, the competition is heating up, you're there to support the franchisees, we lower the overall our CRS fees, potentially. And so that's one. Secondly, that because the last three years, we have not really forced the standardization of the renovation of the older hotels. And so with the 2023 post COVID, we started actually 14 and starting the renovation of hotels and during the renovation, we typically gave six months to a year of free the waiving of certain fees, especially the upgrade to a different version. So those two factors also add to that a little more reduced off the top line, even though the RevPAR on the group that recovered more than the 2019 levels. So that's also added to the reduction of the margin. Okay. Regard to the restaurants, I leave [indiscernible] the opportunity to answer this question.

Okay, from this year, I think the adjustment of our restaurants strategy is almost done. So maybe next year, we will try and start to find a partner to open more restaurants for the -- something restaurants are now restaurant business.

Thanks. This is a good question that the consumer trend has been rapidly changing. For instance, in the past, a substantial number of our Da Niang Dumplings restaurants are located in supermarket more, the street shopping malls with the anchored by the supermarket. And we see the foot traffic to the supermarket more have substantially reduced. I think this leads to the closure of most of the 64 restaurants. And we are actually finding the new consumer patterns of consumption and finding the strategically located for instance, a street branded stores. And they're trying to reorganize our team, especially the developers. And that because the trend has been shifting, and then with that new format, and then we're able to open more and develop more restaurants in this new format. Thanks.

Sorry, can I quickly follow up just on the two respective? So on the two respective segment, hotel and restaurant, do you have a sense of okay, can you give us a target of you know, the addition of the stores for example, for the full year, how many hotels you're expecting to add, and equally for the restaurants, I saw, obviously, it has dropped a lot? Do you have an indication maybe in medium term, what sort of store count you’re expecting?

For the hotel side, we have actually moved to more focus on those high quality hotels, and that we think that will build a better foundation for future. So this year, I think the signing of the new contracts is going to be more of that 600. But because of the openings takes more time, and that we calculated in the pipelines from the number of new stores, new hotels can be around 420 for the year of 2023. And for the Bill, I’ll give you for the new restaurants.

For new restaurant, we have target like 20 to 30 restaurant for this year. Thank you.

And for the restaurant side, it's easy to add more I think that we focus on more high quality growth and making sure it doesn't burn a lot of cash and to make sure that we can catch the consumer trend and the inside of this day growing the number of locations. And so that's all strategy for the remaining of the next year. Simon.

Thanks a lot, Alex. Thanks.

[Operator Instructions] Your next question comes from Adam Sue with China Ascendas Securities. Please go ahead.

Hello management. Can you hear me?

Yes, very clearly Adam.

Okay. Sorry for the bad line. My first question is how do you like the competition and the market structure below our tiered [ph] city market. For the first reason is that as I understand the recovery of the lower Tier city market is not as good as Tier 1 city this year. The second reason is as I saw so many players coming into this lower Tier city market, and how do you like the competition in this market? And the second reason, -- and for my second question, is that, what is the attitude from our franchisees partners over the past segment of [indiscernible], is there any changes from their attitude? That's all. Thank you.

Okay. Thanks, Adam. The competition in the lower tier cities has grown this -- has been growing stronger in the past few years. But we do not see it become stronger this year. I think that some players went to the third Tier 4 cities. I think the performance due to the challenge of managing them closely and effectively, we see some changes of the brand that changes the closure, we see more closures and changes the brand in the Tier 3, Tier 4 cities. But we -- I think our strength has always been managing remotely, we're managing third, fourth Tier cities very effectively. So our hotels have been performing really well. And during the COVID, and after the COVID and they've been very stable, and generating a substantial cash flow to our franchisees. And we think that our strengths have been there a leading player in those diversified building lower Tier 3 in the lower Tier cities. In terms of attitude our franchisees, it takes a little more time for our franchisees to adapt to the new environment. Because the first few months, they have many, many issues, we have to solve that accumulated during the pre -- during the pandemic era. And secondly, that we also have experienced substantial boom in the number of travelers, especially in the first and second Tier cities. So, we've been busy in terms of our franchisees being busy in terms of forgetting everything, getting our people along with the GreenTree higher that we trend to meet the new demand. So the first few months has been very busy. And but I think but I will use the word, it will take a little bit more time for a franchisee attitude towards the expansion and growth compared with the pre-pandemic levels, but we see the more and more confidence come into the market, especially on the hotel side. I think the restaurant there will be because there's a trend that's been shifting very quickly, you know, the track footprint, especially the foot traffic has been changing. And so, we do see the franchisee a little more, you know, reserved conservative in the restaurant segment. And but in the long run, we have a -- we have been pretty confident that our franchisees we already see some of our existing franchisees and they started reaching out to you know, researching additional properties and working with us, so we have more lot more products in the pipeline, and especially high quality ones. Under that -- on the competition of the property side that is a little bit less so which is good for our franchisees because the rent pressure is somewhat reduced compared with 2019 level. So Adam those are the sentiment that we have experienced.

[Operator Instructions] There are no further questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Ms. Selina Yang, for any closing remarks.

Thank you, including on behalf of the entire GreenTree management team, we thank you for your interest in GreenTree and your participation in today's call. If you require any further information or have time to reach us, please feel free to contact us. Thank you all. Thank you, operator.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.