Good day, and thank you for standing by. Welcome to the H World Group Conference Call. I would now like to hand the conference over to your speaker today to Mr. Jason Chen, Investor Relations Director. Please go ahead.

Thank you. Good morning, and good evening, everyone. Thanks for joining us today. Welcome to H World Group's 2022 Second Quarter and First Half 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. 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 on H World Group's website at ir.hworld.com. With that, now I will turn the call over to Mr. Ji Qi. Mr. Ji, please.

Good morning, and good evening, ladies and gentlemen. Second quarter of 2022 has been both a turbulent and promising period for our business. In China, large scale outbreak of COVID, especially in major cities like Shanghai posted significant challenges to our hotel operations. We took all necessary measures to protect our customers and employees and collaborated with government in carrying of preventive procedures against the COVID break. We provided support to our franchisees to help them overcome difficulties as well. In order to maintain healthy cash position in this disruptive period, we further conducted cost reductions in a very disciplined way, including streamlining of our headquarters. On other hand, our European business has experienced a very healthy recovery. Pent-up demand for travel led to growth both in ADR and occupancy. Second quarter RevPAR almost recovered to similar levels for the same period in 2018 -- '19. The recovery trend continued in the third quarter. In the past several years, COVID wave and geopolitical conflicts has posed many disruptions and challenges to our business. Facing the uncertainties of external environment, we have been focusing on strengthening our core competency, a resilience recognition, which is able to ride us through different economic factors. We continue to focus on sustainable quality growth, ensuring quality, consistency and improvement for our existing hotels and upcoming new opening are essential for our needs. Therefore, we continue to remove inferior hotels, including soft brands on our hotel network. China, our core market, is a senior large-scale market and vastly potential. We will further increase our market penetration, especially in lower-tier cities. In order to be close to the local market, we become more agile in our decision making process. We established 6 regional headquarters. Each headquarter is equipped with very experienced development and originality, which will create a better understanding of the market as well as asset to our customers, franchisees and employees. We are confident that such a restructure of the operating management will allow us to accelerate our quality growth and provide more opportunities for our business partners in the local markets. With that, I will turn the call to Jin Hui to discuss our in details. Please?

Thank you, Ji Qi, As usual, let me firstly review our China business RevPAR recovery for the quarter. Please turn to Page 3. Due to the impact of COVID, our RevPAR recovery reached a bottom in April at only 53% of 2019 level. However, since then, our RevPAR recovery started to improve gradually in later months. RevPAR in July recovered to 90% of 2019 level. Putting the consideration of our RevPAR in Beijing and Shanghai, only recovered to the range of 50% to 60% of 2019 level in July. Other cities and provinces shows further RevPAR recovery with over 95% of 2019 level. As we mentioned in our first quarter earnings conference call, we started to reinforce cost control measures for our China operations. In fact, we had some achievements during the quarter. Please turn to Page 4. On the rental expenses front, we achieved over RMB 60 million rental reduction in the second quarter. For overhead cost optimization in our headquarter, we reduced roughly 10% of headcounts in second quarter compared to the year beginning. We also mentioned previously that we would continuously center on customers, franchisees and employees to build our capabilities to rise through the economic cycle. Therefore, in the second quarter, we provided totaling RMB 120 million fee waivers for our franchisees to help them to overcome the difficulties. At the same time, in order to insist on implementing our sustainable quality growth strategy, we also adjusted and upgraded our organizational structure and continued to remove necessary hotels from our existing networks. Hotel business is a very localized business. As we are further penetrating into more and more less penetrated market, we started to realize the importance of localized management capability as well as the essential to continue upgrading our organizational structure. Please turn to Page…

Thank you, Jin Hui. Good morning or good evening to everyone, wherever you are. Let's move on to our operational and financial review for the second quarter 2022. As shown on Page -- Slide 12, our hotel rooms expanded by 12% in the second quarter to 774,000 compared with the second quarter of 2021 of 692,000. Excluding DH, Legacy-Huazhu hotel rooms expanded by 12% year-over-year to roughly 749,000 in this quarter. For our hotel turnover in the second quarter, our total hotel turnover declined by 10% year-on-year to RMB 11.8 billion in this quarter. It was mainly due to the large-scale outbreak of Omicron variant since the late March in China, but partially offset by our continuous network expansion in China and strong business recovery of our European business. Excluding DH, hotel turnover of Legacy-Huazhu declined by 19% year-on-year to RMB 10.3 billion in this quarter. Turn to Page 13, Legacy-Huazhu blended RevPAR for Q2 declined by 31% compared to 2019 due to the impact of Omicron outbreak since mid-March. The ADR in Q2 2022 was down by 7.8% compared to 2019 at RMB 218 while occupancy in Q2 was 22 percentage points lower than 2019. If excluding the impact of hotel under requisition, RevPAR would have -- if including the impact, RevPAR would have recovered to 75% of 2019 level. Turn to Page 14. Legacy-DH business recovery further accelerated in the second quarter. Our Legacy-DH blended RevPAR for Q2 grew by 233 percentage to EUR66 compared with Q2 2021, although still behind the 2019 level. The occupancy improved by 35 percentage points compared with Q2 2021, and ADR improved by 35% to EUR110, which actually exceeded the 2019 level by 10%. Please see our financial results on Slide 15. Total revenue declined by 5.7 percentage year-on-year to RMB 3.4…

Thank you. [Operator Instructions]. I show our first question comes from the line of Billy Ng from Bank of America.

Basically, just want to know whether the recovery trend that we've seen in -- we have seen in July that continued in August and September. And what kind of blended RevPAR assumption that we were using when we provided the revenue guidance growth for this quarter.

Billy, this is Fei. To your question, we estimate roughly like 85% blended RevPAR recovery compared to 2019 for the third quarter.

And for the August and September, do you think that will be better than July in terms of recovery or worse?

Actually, I think the August is actually slightly better than 85% is like 88 percentage if we talk about the recovery compared to 2019.

[Foreign Language]

For the second quarter, we actually signed up roughly over 500 new hotels during the quarter, but some of them from the previous quarter's backlog. In fact, given the impacts of the COVID as well as the economic conditions, a lot of cities, especially for those major cities, we are seeing some slowdown. Undeniably, it will have some negative impacts on the new signings for the near future. But enter into the third quarter, given the provision policy has gradually lifted or improved, our new openings as well as construction for the hotels have less impacted from the COVID. But putting all those things together with the COVID and economic conditions, especially for those Tier 1, Tier 2 cities, definitely the impact going to last for a while. Next question please.

I show our next question comes from the line of Simon Cheung from Goldman Sachs.

So my first question is in relation to the accelerations of the exceeding of the soft brands hotel, having seen some of the other competitors are actually accelerating the positioning of these market segments. I'm wondering whether what is the strong rationale or reasoning behind accelerating that exist in the market? And what's the major challenge that they can foresee in the next 1 or 2 years?

Okay. So yes, we think there's a lot of investors are curious on these parts. We also notice that one of our peers, we are using very different thinking and developing strategies compared to our peers. As our management team as well as our Chairman emphasized several times in the previous few quarters that we're going to insist on implementing our sustainable quality growth strategy under these conditions. So, that makes the key decisions. So, there are 3 reasons behind. One in China, we -- our judgment on the future trends of the consumption that actually, especially in the lower-tier cities, we are seeing and observing that consumption upgrading are the major trends in the near future. People in those cities are requiring high quality and a better life, high-quality products and enjoying the better life as the major trends in the future as well. Secondly, we are also seeing that the governments are actually are putting more strict compliance requirements and regulation on those inferior products, not only hotels, but also other industry as well. We think our strategy change are aligned with the government being also on the quality growth in the future. And thirdly, it's our high confidence in terms of our high-quality economic hotel product development, including HanTing, ibis as well as other major brands as well. So that's why we make our decision that we're going to accelerate -- exit from the softer brand economic segment in the next 1 or 2 years.

So, my second question is in relation to the setup of the 6 regional headquarters. The company obviously were very successful in terms of controlling the cost in the last quarter. I'm wondering what would be the implications of this new regional office setup to both the cost as well as the revenue in the coming quarters?

Yes. As you may know that we actually making the economic and the middle scale limited service brands to the regional office and change in organizational structure from previous brand based to the regional based. It is very obviously that it will be much closer to our local customers, franchisees and it becomes higher efficiency in terms of the management and operation, especially in the lower-tier cities. And also it will enable us to build a more comprehensive localized supply chain, sales, creating some synergies in terms of the sales and marketing strategies as well. Definitely, we have our focus on the cost control. In fact, despite we are building 6 regional offices, but actually, we have assigned some of the people and talent from our previous headquarters to the regional offices because we are not only assigned people from the development front, but also the management front as well. And in terms of the overall cost control measures, so we can continuously control our total cost, especially under these conditions. Thank you.

Thank you. These two are very good questions. This is Ji Qi. So in regards to the soft brands, probably everyone knows that back a few years ago, there was another brand called OYO, very aggressively entered in China and becomes one of the largest hotel groups at that year. It makes our thinking about their strategy and we also need to react on their aggressiveness. That's why we also use a very definitive strategy to protect their competition. Okay. Over the last several years experience and practice, we actually realized that those very small scale hotels, they actually don't need the management, not the management, not the PMS, not the technology at all. So, we are also not willing to sacrifice our brand to helping them or to putting them in our networks. So in the future, we could have some alternatives such as we will empower them by using our technology capability, our supply chain capability to help them to operate in the industry. In the near future, probably in the next 1 or 2 years, in terms of the gross openings, our Group's new openings might not be that bright or outstanding or large scale. That as we mentioned several times that we emphasize on the quality growth. And by leveraging -- by using the opportunity of the COVID, so we actually need to clean up all those inferior hotels and make some necessary adjustments internally as well. In fact, the new openings are not only our key target in the long term, our key target in the long term should be our capability to overcome the risk and our capability to be sustainable growth. So, yes, other companies are still expanding the soft brand strategy as well as also doing very well in India because every…

[Operator Instructions]. I show our next question comes from the line of Sijie Lin from CICC.

So, I have a question regarding mid-to-upscale market. We mentioned before there's still potential for Chinese major upscale market. So, what operations have us made in recent years in order to accelerate expansions in this segment in the future? And generally, customers of mid-to-upscale hotels member benefits. So, how do we design our member benefits?

Okay. In terms of our mid-scale and upscale -- up-middle scale development, as I mentioned in our -- in my prepared remarks previously, we keep progressing steadily. In fact, we have been preparing for this segment for the last few years. Huazhu was very good at in terms of the operating for the limited service, especially in the economic and the middle-scale segment before, we are good at in terms of the cost control, high efficiency. But for the upper-middle scale it's going to change from those to the branding and customer experiences. That's why we spent a few years to experimenting and discussing internally and adjusting our strategy accordingly. In fact, for this particular segment, we have several points. Firstly, as in regarding to the products, continuously product and branding upgrades, we have totally 6 brands, including the Crystal Orange, Mercure, Intercity and Madison and Manxin and Novotel as well to have a very differentiated customer experiences. And also in terms of the operation and organization structures, we have 3 key BUs, business unit. The Crystal Orange and Manxin are the first business units and Intercity and Mercure are the second business unit. And Madison, the business units are using to catching the conversion opportunity in the existing market. For our membership program and also the member privileges, especially for the upper-middle scale segment, we do have some internal discussions. And first of all, we will have -- we will keep the core experiences unchanged, just like Amazon Prime members. There is a very, very strong key core customers experience for each of the membership programs, but also in terms of the upper-middle scale that we also leverage on each of the brands and the hotel to provide different privileges and customer experiences in addition to the core privileges. For example, the opportunity, it really depends on each of the brands and hotels itself. And in probably the next half year or 6 months, we will also have more adjustments and the discussion thinking on the membership programs together with the Deutsche Hospitality, yes.

Thank you. That concludes the Q&A session. At this time, I would like to turn the call back over to Mr. Jason Chen, Investor Relations Director for closing remarks. End of Q&A:

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

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