Earnings Call: Q1 2021

May 26, 2021

Good day and thank you for standing by. Welcome to the Huazhu Group Limited Q1 2021 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 Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Jason Chen. Thank you. Please go ahead. Thank you, Lin Tian. Good morning and good evening, everyone. Thanks Welcome to Huazhu Group's 2021 Q1 earnings conference call. Joining us today is our Founder and CEO, Mr. Ji Qi our President, Mr. Jin Hui Our Chief Digital Officer, Ms. Liu Xinxing our CFO, Ms. Cheng Hui our Deputy CFO, Mr. Li Dong and Ms. Yifei, 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 of 1995. For today's forward looking statements involve inherent risks and uncertainties. As such, our results may be materially Difference 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 atir.wazhu.com. With that, now I will turn the call over to Mr. Ji Qi. Mr. Ji, please. Good morning and good evening, everyone. Thank you for joining us today. As you all know, at the beginning of this year, The resurgence of COVID-nineteen in several cities posed the challenge to the lodging industry and later led to the state local guidance by the government before Chinese New Year holiday. After this small January February, we are very pleased to see a strong recovery in March, especially The National People's Congress meeting in Beijing. Huazhu's RevPAR recovered to 95% of 2019 level in March compared with only 56% in February and the good news news in April May. During Labor Day holiday, our RevPAR recorded 25% growth compared with the same period of 2019. In terms of the macroeconomy, despite the impact of COVID-nineteen We saw China's economic We are silent with GDP in the 1st quarter, Achieving 19.3% growth compared with 202010.3% growth Compared with 2019, as the vaccination process is taking place smoothly in China, We are confident that China's economy will further recover from the pandemic and drive the growth of business travel. Meantime, we also observed more diversified and deep demands for the travel experience, Especially regarding the leisure travel and upscale hotels, we are exploring different opportunities, of which Some details will be discussed by Jinhui later. With that, I will turn the call to Jinhui to update our recent business development. Thank you. Thanks, D. C. Moving to our business updates, I would like to take the opportunity to introduce again our new finance management team, Zheng Hui, CFO of Huazhu Group. She was the CFO of Shijia Group Limited, a Huazhu's affiliate company from March 2018 to February 2020. From 2014 to early 2016, she served as Huazhu's Executive Vice President of Finance, responsible for internal financial management and as Chief Financial Officer. Her previous work experiences also include CFO of Fo Ming's Group and Financial Director of trip.com. Next, Mr. Li Dong, WG CFO. He has served as Chief Accounting Officer of Huazhu since June 2020 and Chief Financial Officer of Huazhu China region since December 2020. Before joining Huazhu, he was the Financial Planning and Analysis Head of Asia Pacific, Middle East and North Africa Regions of PepsiCo Inc. Ms. Yifei, WG's CFO, she has served as Huazhu's Vice President of Strategic Investment and Capital Markets since March 2016 and is in charge of Huazhu's investment and portfolio management globally. Prior to joining Huazhu, she was the Director of Citi Capital's direct investment Now moving to our business updates. First of all, I would like to emphasize again our quality hotel expansion strategy. It is very important Last quarter, we actually announced a very detailed definition of our quality hotel. And actually, since the Q3 last year, We started to clean up those low quality hotels in our portfolio, especially those soft brands. This year, we would not only continuously improve standard of quality for the hotels in operation, but also gradually improve the quality requirements and Therefore, we will further improve quality stand out for our non franchised brand By requiring them to review the construction, we found some quality issues and actively reviewing our pipelines to detect and remove those unqualified hotels. I need to emphasize again that Huazhu's development is certainly around the customer centric principle. Therefore, we would not only Now, I will move to our current updates in terms of the recovery. Please turn to Page 3. As mentioned by Jixi earlier, Our RevPAR recovered strongly after traveling restructuring being removed since later March. RevPAR started to tend to positive growth in later Full months of April recovered to the same level of 2019. The trend continues in May. As of May 23, RevPAR grew by 7% compared to the same period of 2019. Both business and leisure traveling are recovering steadily. But I still need to remind There are still some residuals of COVID-nineteen in China, And therefore, we will keep our provision measures carefully and equip the situation happened for our healthy growth in the future. We observed that the recovery trend is different among different city tiers. Please turn to Slide 4. We observed that lower tier cities recovered better than higher tier cities. In March, RevPAR in Tier 3 and below cities had exceed 2019 level. And in April, RevPAR in Tier 2 cities also exceeded 2019 level, while Tier 1 cities are slightly lagging behind. That again shows the Our lower tier cities penetration For the penetration strategies further progressing, please turn to Page 5. At the end of March, 30 8% of our hotels in operation are located in the Tier 3 and below cities, and 54% of our pipelines are from lower tier cities, which could lead more contribution from the lower tier cities in the future. As of March 24, we have penetrated into 7 41 cities in Now please turn to Slide 6. Apart from the larger cities We are further exploring the new opportunities in the lifestyle hotel segment. Firstly, for our own brand, The Crystal Orange, its new flagship store will be soon opened in Shanghai. This is the new Crystal Orange 2.0 version. We would like to provide new products to the business travelers from the lifestyle perspective with better and warm services. The products will provide customers unique, elegant and exquisite lifestyle experiences during their Secondly, we are very pleased that you announced that we recently completed the acquisition of City Home Hotel. Such acquisition would further enrich our lifestyle brand portfolio. Please turn to Slide 7. Citigroup's brand positioning is a lifestyle hotel with fun, targeting younger generations, creating a new concept space with functions of accommodations, gatherings, Slide 8 shows some basic information of City Go Hotel. The brand was established in 2017 As of May 1, it has totaled 28 hotels in operation with over 4,800 hotel rooms covering 13 cities. From the latest operating data, in April 2021, Citigroup's RevPAR in Tier 1 city achieved RMB384 And RMB 217 in Tier 2 Cities. We believe that Huazhu's strong platform capability could Further enhance and accelerate Citigold's future development and in return the brand could help further enrich Huazhu's lifestyle brand And create more opportunity for Huazhu to explore in the lifestyle segment. Moving to our high end hotel development. In last quarter, we announced our joint venture with Sunak. We are very pleased to update you that there will be 2 hotels from the JV soon opened in May. One will be the 1st Steigenberger brand hotel in China and another one will be the Song Hotel. Those hotels are located in Jinan. Slide 9 and Slide 10 show some photos of these 2 hotels. We have continuous progress in our high end hotel Segment penetration, not only from the joint venture, but also for other brands. Thanks, Jing Hui. Good morning and good evening, everyone. As we all know that direct sales and Technology capabilities, a critical element of Huazhu's 3 in 1 supercomplement billing strategy. We continuously put a lot of efforts to grow our member base and strengthen our direct sales Together with full utilization to our hotel operation, please turn to Slide 12. Our hotels The key channels for us to acquire the new members. By the end of March in 2021, Our total number increased by 12.5 percent to 174,000,000 compared to last year. More importantly, our central reservation contribution achieved to historical High at 15.7 percentage after COVID, improved by 8 percentage points compared to the Q1 of 2020. We are very pleased to see our CRS contribution fully enlarged, which was migrated from the off Moving to Slide 13. During the Q1, we successfully launched Our Edge World app, the Version 3 on March 28. Post that we saw our MAU increased by 5 percentage in April comparing with the 1 month ago. Moreover, we are in a domain leading position Compared to our peers and our monthly active users are true times higher than all other 9 hotel groups Thank you, Ms. Leitiu, MAUs. With more membership privileges providing to our members The new version of app, we believe it would further improve our user experience and customer loyalty, hence to drive up Much more active members and includes the repurchasing rate. Moving to Slide 14, in issuance version 3, We also embedded accretive and advanced online checking functions for members. This online function is integrated with our 30 second check-in and 0 second check out the kiosk in the hotel. Such function With Korea's very convenient check-in and checkout service for customers, which help them to save a lot Waiting time enhanced improved their overall hotel stay experience. More importantly, With further usage penetration of this function, our hotel could further improve our operational efficiency as there will be less staff needed for front desk which used to help customers for check-in and out procedure. We could use this manpower saving For example, with the self checking kiosk, computer skills may not be a must for recruiting Front desk staff. Moving to Slide 15. As of May 23, there are over 4,000 had already installed self checking kiosk. Penetration of orders checking With 13 segments attuned to 15.5 percentage, we are targeting this service Moving to Slide 16, even considering the impact of the urgency of COVID-nineteen and the local policy, we still achieved a very good result of our 2B billings. The Zoom nine Contributed from the past customers reached over 3.5000000 with contribution rate of 9.7 percentage of Tutu Room 9 Suite. In the longer term, we believe that our corporate customers We're not only contributing additional room nights to us, but also bring us the opportunities For new user acquisition, we observed that a lot of customers will use their corporate account To book our hotels are not yet our member personally, therefore, we see there are still a lot of rooms Our new experiment of B2B2X Alliance, the 4th traffic strategy, Which launched last quarter, we will also achieve some initial outcomes. We have partners with 8 large traffic aggregator platforms in the Q1 such as China Mobile, Jingdong and Didi and so on. We are also very pleased to see this new experiment that contributing room nights to use with roughly 3,200 orders per day in average during the Q1. Going forward, we would seek more opportunities, more cooperation with the various target traffic Now moving to Slide 17, for our 1D installation project in the European, the DH, We are very pleased to see that we had completed our basic IT infrastructure and architecture and solutions. We have also ruled out the 1st hotel pilot project in the 1ZILIP comprehending setting to do test running. Once the testing is satisfied, we would gradually do out the full implementation globally at the middle of this year. With that, now I will turn the call to Yifeng to discuss our Q1 operational and financial review. Thank you. Thank you, Xixin. Good morning or good evening to everyone. Let's move on to our operational and financial review for the Q1 of 2021. As shown on Slide 19, Our hotel rooms expanded by 15% in Q1 2021 to 662,000 compared to 575,000 in Q1 2020, excluding DH, Lexi Huazhu's hotel room expanded by 18% year on year to roughly 638,000 in Q1 2021. While hotel turnover is in Q1 2021, despite COVID-nineteen's resurgence impacts in China and prolonged lockdown in Europe, Our total hotel turnover still grow at 66% year on year to RMB8.2 billion in Q1 'twenty one. This is mainly due to our continuous network expansion as well as the low base for China's business last year, but unfortunately offset by the high base of DH last year. Excluding DH, Lexi Huazhu's hotels turnover doubled year on year to RMB7.9 billion in Q1 2021 and recorded a 10% increase if compared to Q1 2019. Turn to Page 20. Lexihuazhu's blended RevPAR for Q1 is RMB138, which has recovered to 77% of 2019 level. The ADR in Q1 2021 has recovered to 95% of 2019 level to RMB209, While occupancy in Q1 is 15 percentage points lower compared to 2019, this was mainly due to the COVID-nineteen resurgence And the stay local policy in January February. However, our RevPAR is starting recovering strongly since late March. Turn to page 21. Our Lexi DH business has been negatively impacted by the second and third wave of in September 2020. German government imposed a lockdown from last November and it may extend to early June this year. Therefore, our Lexi DH blended RevPAR for Q1 2021 declined by more than 70% to €13 compared to 2021 Q1. The ADR dropped by 23% to €69 And the occupancy dropped by 33 percentage points compared to 2020 Q1. On Slide 22, The total net revenue grew by 16% year on year to RMB2.3 billion in Q1 2021. Excluding DH, Lexihuazhu recorded 69 percentage Year on year growth rate to RMB2.2 billion. The revenue growth was better than our previous guidance, thanks to the strong recovery in late March. Breaking down the revenue of Q1, leased and owned revenue decreased by 8% year to RMB1.4 billion mainly caused by the decrease of leased hotels in Europe. Excluding DH, leased and The revenue of Lexi Huazhu grew by 56% year on year to RMB1.3 billion. Net revenue from Managed and Franchise Hotel grew by 90 30 percent to RMB897 1,000,000, mainly driven by the year on year growth rate of Lexi Huazhu. Due to the significant drop Of leased and owned revenue of DH in Q1 2021, Managed and Franchise revenue contribution enlarged to 39% in Q1 2021 compared to 23% in Q1 last year at the group level. For Lexi Huazhu, as our hotel expansion was mainly through asset light model, the revenue contribution from Managed and Franchise model also Now let's move to the cost and profitability section on Slide 23. In Q1 2021, The reported operating loss was RMB575 1,000,000 narrowed from RMB RMB 857,000,000 in Q1 2020, but expanded from a quarter ago because mainly due to the COVID-nineteen And the state local guidance in China and also prolonged lockdown in Europe. Excluding DH, Lexin Huazhu's operating loss In Q1 was RMB172 1,000,000, narrowed by RMB560 1,000,000 compared to the loss of RMB731 1,000,000 in Q1 2020. The hotel operating costs and other operating costs for Q1 2021 was RMB2.5 billion, a slight increase compared with last year, in which Lexi Huazhu recorded RMB2 1,000,000,000 Hotel operating cost indicating a 21% year on year growth. The increase was mainly attributable To the higher rental cost of the new upscale hotels, higher personnel costs as we keep growing the hotel network And higher depreciation and amortization costs which were related to the upscale hotel openings and As we mentioned in previous quarters, our future expansion Of upscale hotel, we mainly use SLIs model. Therefore, our pre opening cost declined by 81% year on year and 40% Q on Q to only RMB21 1,000,000 in Q1 2021. Our SG and A in Q1 2021 increased by 9% year on year to RMB406 1,000,000, mainly driven by the by 31% year over year to RMB299 1,000,000. The increase was mainly attributable To the increase of selling and marketing expenses related to revenue recovery and also the increase of headcount For our BD team to support penetration into lower tier cities and also affected by less Government subsidy booked in the Q1 2021 compared to Q1 2020. Turn to Page 24. Our adjusted EBITDA loss narrowed to RMB133 1,000,000 Compared to RMB704 1,000,000 a year ago, DH was the main drag for this quarter. Excluding DH, Lexihuazhu would have recorded a positive adjusted EBITDA of RMB207 1,000,000 compared to a loss of RMB631 1,000,000 in Q1 2020. In this quarter in Q1 2021, We recorded adjusted net loss of RMB451 1,000,000 narrowed from RMB1.1 billion a year ago. Excluding DH, Lexihuazhu recorded an adjusted net loss of RMB150 1,000,000 compared with RMB981 million loss in Q1 2020. The non GAAP pro form a adjustment mentioned on this page excludes unrealized gains or losses from fair value change of equities related to some of our investments. For example, in Q1, we recorded RMB238 1,000,000 fair value increase of According to the cash position, we kept the net debt of RMB5.2 RMB5.2 billion by the end of Q1 and there's no risk of breaching the financial covenants of the US1 $1,000,000,000 syndication loan. Our cash balance was RMB5.7 billion and the unutilized bank facilities were RMB606.5 billion. This cash and bank facilities will allow for Huazhu to further pay down the existing As mentioned in previous presentations, the lockdown in Germany has greatly affected DH's business. Therefore, the average DHL in Q1 was 19%, and the rate further dropped to 15% in April May. Having said that, Daily newly diagnosed figures in Germany are decreasing steadily. As of May 22, About 40% of Germans had received at least one shot of vaccines. In several regions like Berlin, The travel restrictions are partially lifted and we expect to see more travel for the vaccinated people in June. To compensate the business loss, the German government has extended its scope and duration of government subsidy, including short time worker Compensation and extra government subsidy. As of April 2021, DH has received €12,700,000 short time worker compensation, which is expected to further increase as the lockdown Additionally, DH had applied for government subsidy to compensate the loss both in 2020 2021. The prolonged lockdown will certainly impose pressure on DH's revenue, but the impact will be partially offset by the government subsidy at the EBITDA level. We will only record net income upon the recipient of the formal confirmation of such cash. We also continue to negotiate for rental deduction compared with €5,400,000 waiver achieved in 2020. The year to date waiver of 2021 has amounted to €4,200,000 We'll continue to work on rental deductions through the years. The number quoted here are related to cash savings, but the P and L impact actually varies depending on the term of waivers. In addition, we have also put our staff on temporary furlough, frozen our headcounts and reduced discretionary spending and We are also in discussion with local banks in Germany for additional coronavirus age loans. The banks have been supportive to us. Turning to Page 28 for guidance. For the Q2 of 2021, we now expect the total revenue to grow by 80 7% to 89% compared to Q2 of 2020. Excluding DH, We expect the revenue to grow by 90% to 92%. To provide a more meaningful guidance, We expect the total revenue to grow by 27% to 29% if compared to the same period of 2019. Excluding BH, the 2021 revenue is expected to grow by 20% to 22%. For the full year of 2021, COVID-nineteen's resurgence in January February slowed down our Hotel open plan in the Q1. Also, echoing Jingwei's point previously, we put more emphasis On quality hotels expansion, we now plan to revise down our non standardized hotel brand openings for the full year. Considering the above two factors, we lowered our gross opening target of 2021 from 1800 To 2,000 hotels to 1600 to 1800 hotels. However, even with the slight Downward adjustment of our gross opening. Our revenue guidance for Lexi Huazhu remains unchanged at 50% to 54% growth compared to 2020 or 15% to 19% growth compared to 2019 due to the The prolonged lockdown period in Germany has caused the recovery much slower than previous expected. Therefore, we adjust down the full year group revenue growth guidance to be in the range of 44% to 48% compared to 2020 or 31% to 35% growth compared to 2019 from previous guidance of 50% to 54% growth compared to 2020 and 36% to 40% growth compared to 2019. With that, Let's open up for Q and A. Thank you. Your first question comes from Billy Ng from Bank of America. Your line is open. Hello, good morning. I have two questions. And first of all, I just want to ask about The current trend, in particular in May, I think from the presentation, you guys mentioned that the RevPAR already recovered to 100 and 7% of the 2019 level. I'm just wondering if we exclude the 5 days May 1, holidays period, do we still see positive growth compared to 2019 for the rest of May? And also, in particular, would like to know a bit more about the trend of the leased and operated hotel recently? And then my second question is about like the new opening target. We understand that The revised downward of the new opening target as a result of the company pursuing higher quality Openings and have the highest standard for the new joiner. I just have a question of like I think these adjustments have been going For a while, when do you expect the opening Page 10 reaccelerate again? And also in particular, in the new opening target of the 1600 to 1800 number, How many of them are still using the soft brand model and how many will be using our main Hello? Okay. So the overall restructuring in May, we saw it very As we mentioned in the presentation, our month to date RevPAR recovered to over growth by 7% Compared to 2019, even though excluding the 5 days holidays in the beginning of May, the remaining of the days, the RevPAR Okay, but we still have to be a little bit more cautious That there was still some of the COVID-nineteen resurgence happened in May such as Hanghui provinces and Shenyang. Normally from our observation, Every time there was a resurgence of COVID-nineteen, it will take like roughly 2 weeks to recover. But overall, for the recovery trend, we still maintain our A conservatively optimistic perspective for the overall recovery trend. For the second question, I just want to mention one number to you that for our YLAN brand, Actually, in 2019, we opened up roughly over 500 Eli during 2019. But this year, we are Just planning to open roughly 200 Eli, which meaning 300 decline. So our overall perspective For our lower tier cities penetration, so we actually are going to utilize more Nihao brand Thanks a lot. Thank you. Thanks, Sijong and Jason. Thanks. Appreciate it. Your next question comes from Siju Lin from CICC. Your line is open. Hi. Thank you, management. I have two short questions. And the first one is on sale on the hotel opening. I want to know that are we still confident With the 10,000 target at end of 2022. And the second question is on Citigroup. So why we decide to For the 10 1,000 hotels in 1,000 cities target. Actually, we are still progressing to achieve this target. Even though with COVID-nineteen impact, we are still seeing our new signings gradually being more better compared to last year. Therefore, we are still pretty We are confident that we could achieve this 10,000 hotels in 1,000 cities by the end of 2022 or later in the first So for our lower cities penetrating Actually, we're progressing pretty quickly. Now, we have signed up over 1,000 for Tiaos in lower tier cities. And in addition to that, for our upscale or high end hotel market over the last year for after a lot of Internal of the company, actually, we are also progressing pretty satisfactory in this area. Also, we also serve the new consumer, the Generation and the lifestyle hotel segment, the trend is booming up. That's why we are exploring into this segment By leveraging our own brands such as Crystal Orange, Manxin and also the currently acquired Citigroup brand to further penetrate in this area as well. Okay. I just wanted to provide a little bit more color on the Citigroup. The entire enterprise value for this acquisition is RMB 750,000,000 and Actually implying in terms of ramp up EBITDA level for the full year perspective, the valuation And also the prospect of future growth. And in terms of a cash source, actually if You noticed that we have more than RMB10 1,000,000,000 cash available, including also the unutilized bank facility. So there's no problem of financing for this acquisition. Thank you. Your next question comes from Lena Yan from HSBC. Your line is open. Hi. Thank you. Like management, I want to ask a question Regarding the new 2021 full year guidance for Huazhu brand, the total revenue growth versus 2019 remain unchanged in Like a 15% to 19%, even though the hotel openings lower than before. So I want to ask what is Current RevPAR assumptions for Huazhu brand versus 2019. Thank you. So we are positive about the RevPAR recovery of Huazhu side. In our forecast, actually we forecast like Q2, it will be like 97% of the recovery. And also in Q3 and Q4, it will be 104 percentage and 100% recovery compared to 2019 number. It's a same hotel level perspective, because if you talk about blended RevPAR, It's a little bit hard to compare it with 2019 on the same style level. So If you talk about that, it will be 4% to 5% increase in general. Okay, great. So may I clarify on same hotel RevPAR basis? It's 97% in 2Q, 104% in 3Q and 100% in 4Q, right? Yes. It's a general guidance, but I think, yes, certainly we will keep updating this number. Okay. And does this guidance for Your growth include the contribution from Citigo acquired in May? It is not. Okay. Thank you. Your next question comes from Tian Hou from PH Capital. Your line is open. Yes. Good morning, management. I have a couple of questions. One is, I look at the Tier City expansion plan. The lower tier cities is going to be a Majority part of the pipelines. So let's say by the end of the year or by the end of next year, What portion of the Fai Chu legacy hotels are going to come from lower tier cities And Tier 3 and below. So for the Tier 3 and below and also Tier 1, Tier 2, What are the difference between the ARPU and the potential occupancy rates? So that's the number one question. I'm going to finish all the questions. The second one is how many hotels Dan Ginburg is going to open in China this year and also some hotels. How many hotels does the company expect to open Under those two brands, then second. The third one, which is the last one, in terms of corporate customers, So I saw the corporate customer contribution increasing. So what is the company's outlook in terms of Corporate customer contribution in the total revenues. That's my 3 questions. Thank you. Okay. I will do the translation for the first question. For the lower tier cities, actually, on Slide number 5, we provide some of the numbers in Our breakdown in terms of our Hexion operation and pipelines. Given that we have been putting a lot of efforts last year for the Actually, our pipeline over 50% of our pipeline comes from Tier 3 and below cities, which is going to help us to further enlarge our hotel from the lower tier cities by the year of this year. And also in terms of the RevPAR differences compared to the lower tier cities and the higher tier cities, actually, we have been observing that The lower tier cities actually have a better RevPAR recovery compared to the higher tier cities. But I think for after the ramp up period, definitely, the lower tier cities would have slightly Lower compared to the higher tier cities, but for us, our take rate will be the same for all hotels, no matter they are in the higher tier cities or lower tier cities. And for the second question in terms of the JV, for the upcoming years, we have been further cooperating with the Suna and the joint venture And we are going to develop mainly on the Steigenberger and the Song Hotel brand. And currently, we have over 30 hotels in pipeline. As you may know that leisure traveling is recovering and growing pretty good in China and we believe in the longer term it's still kind of booming. Therefore, for our high end brands such as Steigenberger and Blossom Hills under the joint venture, we are very confident Actually, it is a very important source for our further growing our traffic, and we are still very optimistic in In terms of their corporate customers growth in the future, and more importantly, currently, the corporate customers contribute roughly 10% of the total room But out of the 10%, over 60% the room that's sold through online channel, which was very which is very good for us. And for the future development, we will still leverage our technology capability We were only not only focusing on the top 3,000 We are currently penetrating to even lower tier cities by leveraging our strong direct sales team To do a lot of local sales and we are planning to penetrate to every single Province is in China this year. Next year. Thank you. Your next question comes from Melody Chan from Jefferies. Your line is open. Hi management. Thank you for taking my question. I have 2 short questions. Can management share that if we have any other acquisition plan to That will align with our high quality hotel strategy? And also how is Sorry, what's your second question in terms of the market consolidation? Hello? Hi. So what is our view on the market consolidation and the Like the competitive landscape about the change hotel market share. Thank you. Okay. For the first question, We always keep our eyes open and we always have an open up attitude. We have been discussing with many potential partners. There is no clear target deals done yet. So we will be updating you as And in terms of the market consolidation and competitive landscape, Actually, for the economic segment, so we are doing the penetrating and we are better compared to our peers Because the lower tier cities has plenty of rooms for penetrating. And in terms of the middle scale leveraging on the consumer So we will leverage our various brands such as JI Hotel, Orange and the newly acquired city call. And the lifestyle brands to further growing our market share in this area. And in terms of Hi. In the upscale segment, we are actually competing with those international hotel groups. We would use our core competencies such as There are no further questions at this time. I would like to hand the Conference back to our speakers. Thank you, everyone, for taking time with us today, and we look forward to coming back with you again in upcoming quarters. Thank you, and bye bye. This concludes today's conference call. Thank you for participating. You may now disconnect.