Good day and thank you for standing by. Welcome to H World Second Quarter 2024 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. It is now my pleasure to hand you over to the Senior IR Director of the Company, Mr. Jason Chen. Please go ahead.

Thank you, Amber [ph]. Good morning and good evening, everyone. Thanks for joining us today. Welcome to H World Group 2024 second quarter earnings conference call. Joining us today is our Founder and 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 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 SEC. H World Group does not undertake any obligations to update any forward-looking statements, except as required under 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 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 the second quarter of 2024. Mr. Jin, please.

Hello, everyone. Before presenting our second quarter operating performance, please allow me to share a good news with you all. In May, we opened our 10,000th hotel in China. As you can see, this HanTing Hotel is located in Motuo County, Linzhi, Tibet which is the last county in China to have access to highways. After more than 4 years of hard work, since we proposed the goal of 10,000 hotels in 1,000 cities in the end of 2019, we have finally achieved this milestone. More importantly, as our lower-tier cities' penetration strategy continuously progresses, we not only recognize that there are still huge opportunities and growth potentials in the Chinese market but also accumulated a large amount of practical expertise and organizational capabilities. Therefore, we will continue to focus on our service excellence-centric, sustainable quality growth strategy and move towards the next goal of 20,000 hotels in 2,000 cities. Next, let's go through our second quarter operating performance. Please turn to Page 4. Legacy-Huazhu's RevPAR in the second quarter was RMB244, down 2% year-over-year. ADR was RMB296, down 2.9% year-over-year, while occupancy rate was 82.6%, up 0.7 percentage points year-over-year. Despite the relatively weak macro and consumption, the overall travel demand in China remained resilient in the first half of 2024. Data released from airlines, high-speed railways and the Ministry of Culture and Tourism all confirmed this trend. For example, the domestic airline transported 320 million passengers in the first half of this year, up 16.4% year-over-year and 12.4% compared to the same period in 2019. The high-speed railways transported 2.1 billion passengers in the first half which was a record high and represented 18.4% year-over-year increase. In addition, based on the data from the Ministry of Cultural and Tourism, the number of domestic tourists was 2.7 billion in…

Thank you, Jin Hui. Good morning and good evening to everyone. Let's go through our operational and financial review for the second quarter of 2024. Now please turn to Page 18. As Mr. Jin Hui mentioned, we reached a remarkable milestone during the second quarter of 2024. The number of hotels in operation for both the group and Legacy-Huazhu stood at 10,000 and the overall number of rooms increased 19% year-over-year to over 1 million as of the second quarter this year compared with over 840,000 a year ago. Hotel turnover for the second quarter of 2024 was RMB23.4 billion, representing a 15% year-over-year increase, of which Legacy-Huazhu's hotel turnover grew 16% year-over-year to RMB21.3 billion. Now please turn to Page 19. In the second quarter of 2024, our total revenue for the group increased 11% year-over-year to RMB6.1 billion, at the high end of our previously announced guidance of 7% to 11% year-over-year growth. Revenue from Legacy-Huazhu grew 11% year-over-year to RMB4.8 billion, also reaching a high end of our guidance for the segment. And the growth was driven primarily by our strong new hotel openings. Legacy-DH revenue rose 12% year-over-year to RMB1.3 billion, attributable to both business recovery and hotel network expansion. Next page, please. We are committed to grow under the asset line model, expanding our hotel network using manachised and franchised hotels. As a result, revenue from our manachised and franchised hotels continued rising. In the second quarter of 2024, manachised and franchised hotels contributed to 48%, or nearly half of our Legacy-Huazhu revenue, up from 42% a year ago. We expect this trend to continue as we become more and more asset light. This should lead to a gradual margin expansion for the business as well as to help us to become more resilient with…

[Operator Instructions] Our first question comes from the line of Ronald Leung from Bank of America.

Ronald from Bank of America. I have 2 questions. So my first question is about the RevPAR expectations. Could you comment about your RevPAR expectations for 3Q 2024 and also for full year 2024? Yes. Okay. This is my first question. My second question is about the investment appetite for franchisees. Could management comment on the current investment appetite for the franchisees? Do you see any signs that the franchisee sentiment may slow down because of the RevPAR decline? So let me translate my questions.

Okay. Let me answer your questions, firstly, in regards to the RevPAR. So as you may see from the industry number released from the STR, I think July and the several weeks of August, actually, on a year-over-year basis, the RevPAR was around 10% decline on a year-over-year basis. Clearly, that -- we also observed that the macro condition and the hotel consumption, especially the end consumption was relatively weak. But also, last year, the third quarter was a very high base because that was a peak season right after the reopening post the COVID. But as you may know, from the data itself, you can see that our RevPAR performance is always outpaced the industry number. So for the third quarter, we expect that could may decline around mid-single digit year-over-year. But I think this year, the RevPAR should gradually return to a more healthier and sustainable development trend, as we mentioned previously. And also another factor is the supply was increased year-over-year for this year, especially for certain regions, for example, the eastern part of China. But some of the performance -- we also see a different performance in different regions. Like for example, the West part, the central part of China was still quite performing well. We still see a very strong traveling demand in particular regions. But in Eastern part of China, maybe some of the over-temporary oversupply or some of the weak business traveling demand which could be a bit underperforming. But for us, in a longer-term perspective, we remain focused on the mass market. And we think through our strategy and high-quality growth, we remain confident in the longer-term perspective. And for the second question, in terms of the franchisees, as you can see, our pipeline continuously grow despite our high-speed new hotel opening because we insist our key strategy on lower-tier cities penetrations and also the upper mid-segment penetration as well. For next year, we will remain focused on these 2 areas and also through the better product, the better branding that we are confident that the hotel franchisees confidence should remain at the healthier and sustainable level. I want to add one more point. Since 2022, we started our high-quality growth. And this year, we started the service excellence. So for both parts, we want to further strengthening our core competitiveness and to maintain a strong competitive advantage in the industry. So hopefully, that our shareholders or analysts could understand our strategy and our planning. Thank you.

Our next question comes from the line of Dan Xu from Morgan Stanley.

Please allow me to translate my question. This is Dan from Morgan Stanley. My question is regarding hotel opening and pipeline and also supply chain building. The management continues to mention about the pipeline increase on top of the rapid network expansion. So my question is about the company's opening capacity, can the management update us on the progress you have made regarding hotel opening, especially we increased the growth opening target from 1,800 hotels to 2,200 hotels? I assume we are signing more than that number in a year and the pipeline right now is over 3,200 hotels. So with more progress made on the supply chain, can we assume this annual opening number to continue to go up? And is there a limit to the number per year?

Okay. Let me translate in terms of the supply chain. So supply chain is very important factor for us to maintain our high-quality growth and achieve the 10,000 hotels in 1,000 cities. There are 3 key areas that the supply chain needs to look at. One is the cost leadership, two is the high quality, third is the efficiency. In the second half, we will continuously to improve our supply chain capability by replacing higher-quality suppliers and further improve our efficiency and lower the cost. So that won't be -- supply chain could help us to further accelerate the hotel network expansion and with relatively lower cost and high efficiency. We are very happy to see that we can open more than 2,200 hotels in this year. This has supported our localized strategy in our regional offices and the further improvements on the supply chain capability. However, I want to emphasize one more time that we -- in the future in terms of the hotel network expansion, we will remain insisting on that higher quality is more important than the scale. Okay, that we will further develop the flagship hotels and continuously implementing our high-quality, sustainable growth strategy, especially in the lower-tier cities. As you may see that given that we are doing a lot of flagship hotels, that's a number of rooms per hotel actually increased and in other words, the total number of hotels, the growth is higher than the -- total number of hotel rooms growth is higher number of hotel growth itself. So all in all, that we will remain focused on more quality than scale and implement our high-quality system growth strategy. Thank you.

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

Let me translate the questions. I think there are a lot of concern about hotel supply in the industry, particularly; we have seen the hotel supply has fully recovered to 2019, therefore actually exceeded year-to-date. Wondering how you're seeing the hotel supply in the medium term and how that will impact the industry RevPAR? And correspondingly, how H1 will think about your RevPAR performance? And then the second question I have [indiscernible]. So the second question is related to the impact of the RevPAR now that the guidance seemingly is a bit softer in the second half of the year, how would that impact the margins? So my third question is related to DH. We have seen quite a healthy performance in the second quarter and have seen the hotel additions actually accelerated a bit. Wondering what is some sort of -- whether you have some sort of a long-term target, in particular -- particularly in Asia where you have been -- you have done quite well.

Let me translate the first answer. So in terms of the market supply, so basically, the hotel market in China is quite relatively mature and there's also a market-driven business. So basically, we believe the supply and demand will always come back to equivalent and also the supply will also affected by the demand movements. Historically, the entire industry benefited from the generational improvements, the economic development and the demand -- rapid demand increasing. Therefore, there is a lot of new suppliers coming into the market. But again, for us, our observation is very clear that there is no lack of the supply but there is a lack of high-quality supply. So that's the reason why we continuously emphasize on the high-quality sustainable growth together with the service excellence. So by doing so, we want to maintain our core competitiveness and provides good supplies and high-quality supplies to the market to gain competitive edge. So this is our views on the demand/supply dynamic for the hotel lodging market in China. And in terms of the long-term RevPAR development trends, we refer to what has been developing in the U.S. market for the last 40 years. It shows a clear trend that the RevPAR in the U.S. is very positively correlated to the GDP growth and inflation but is very positively correlated. So it's affected by the macro indications and the macro performance; so for [indiscernible] perspective. And given we have been established a very strong brand, we have been established a very good product and organizational capability as well as our traffic sources membership programs. Basically, we believe we could be very competitive in the market in a longer-term perspective. Okay. In terms of our DH strategy, there are 3 aspects. Firstly, it's very clear that it's the asset-light transformation. As you may know that historically, we had a lot of leased and owned hotels, now we are doing the asset-light transformation. And secondly, it's continuously on the cost control and efficiency improvement to maintain a healthier and sustainable profitability and cash flow. And thirdly is we want to leverage on DH's good brand and product to develop in Middle East and Asia Pacific.

So about margin, I think, firstly, of course, you see that there are some short-term RevPAR fluctuation in the market and in business as well but in the long term, we're confident that we'll have a very good RevPAR growth trend and through, let's say, product upgrade, service excellence and membership program upgrade, as Jin Hui mentioned in his presentation and we will continue to outperform the market. And secondly, with our business continuously transferred to an asset-light model, the revenue structure, as I mentioned in my presentation has changed and that will bring a natural, let's see, margin improvement in the long term. And certainly, we started to implement flexible budget and rolling forecast and which will allow us to nimbly respond to market condition change and adjust our spending levels. And fourthly, we are also meticulously measuring our ROI for each big spending. And with all those efforts, we believe, in the long term, we will have a better margin profile. Thank you.

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

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

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.