H World Group Ltd

BMV:HTHTN

Earnings Call Transcript 2022-Q1

[Operator]

Good day, and thank you for standing by. Welcome to Huazhu Group Limited First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

And now I'd like to hand the conference over to Mr. Jason Chen, IR Director of Huazhu Group Limited. Thank you. Please go ahead, sir.

[Jason Chen;Investor Relations, executive]

Thank you, Amber. Good morning and good evening, everyone. Thanks for joining us today. Welcome to Huazhu Group First Quarter 2022 Earnings Conference Call. Joining us today is our Founder and Chairman, Mr. Qi Ji; our CEO, Mr. Jin Hui; our President, Mr. 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 safe harbor provisions 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. Huazhu 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 on Huazhu Group's website at ir.huazhu.com.

With that, now I will turn the call over to Mr. Qi Ji. Mr. Ji, please.

[Qi Ji, executive]

Good morning, and good evening, everyone. As you may notice that Omicron variant has been spreading widely in China in the past 2 to 3 months, the pandemic come suddenly and lasted a very long period this time. Its development trends and the impacts are far over people's expectations. The pandemic outbreak and the tactical control once again brought huge challenges and difficulties to our China business of operations. And the other thing, surviving in the phase of our lives.

Under the current situation, the first thing we should consider is how to overcome the current difficulties. On the premise of ensuring safety and health of our customers and their employees as well as the meetings and the cooperation with the government requirement, we are initializing cost optimization, rental waiving of negotiation and the marketing and a sales strategic adjustment to overcome the period. More importantly, our franchisees are facing more difficulties and pressure due to pandemic. As the franchisees are our important hotel partners, we needed to provide support to help them to go through this difficult period together.

Obviously, we are currently experiencing a long and cold winter. However, I always believe that a record winter will bring a golden harvest. Over the past decades, Huazhu had faced many crisis that we became stronger after each crisis. In addition, every coin has 2 sides. Although the winter is cold, it provides to us a good opportunity to review that what we have done and rethinking what we should do in the future. First, we needed to build our long-term core competency by focusing company's limited resources to core strategies. Moreover, we should also take this opportunity to improve our internal skill through culture building, organizational upgrade, training of talent, customer experience in improvement, technology upgrades and the product development. By doing so, we can be very well prepared, the warmer season after the current cold winter.

Impacts and uncertainties from pandemic, war and global macro factors are avoidable. We needed to insist on the faith that we should insist on and I believe they choose that we should believe. In the long term, we will continuously center on customers, franchisees and employees to implement our sustainable quality growth strategy and build our capability to ride through the economic circle in the long run.

With that, I will turn the call to Jin Hui, to discuss our recent business [ update ] in details. Jin Hui, please?

[Hui Jin, executive]

[Interpreted] Thank you, Qi Ji. As Qi Ji just mentioned, the COVID provision measures remains very strict in China. Since March, the Omicron variant has been spreading widely in China, which resulted cities like Shanghai and Jilin in post lockdown provision measures again. That has been significantly affecting our RevPAR recovery since then. Please turn to Page 3. Our RevPAR recovery was on track and in uptrend in January and February. However, it was seriously interrupted since March. The recovery declined to only 67% of 2019 level and further lowered to the bottom of 53% in April.

May saw a slight better RevPAR recovery than April with the month to date RevPAR recovered to roughly 58% of 2019 level. The RevPAR number that I just mentioned only reflects our hotels in normal operations. If we included those hotels under requisitions, our April and May RevPAR recovery would be roughly at 65% for both months, which indicates roughly 7 to 12 percentage points better than hotels in normal operations. Since May, we are seeing the normal hotel is gradually improving in terms of the performance and the impacts of the requisition is gradually decreasing.

Under the situation of the strict COVID provision control, we are implementing several mitigation measures to overcome the difficulties. Firstly, we had started our reinforcement of cost control for domestic operations. Please turn to Page 4. The cost control were mainly from 3 specific aspects. First, streamlining headcount and expenses. We are further optimizing our headquarter with a plan of headcounts reduction by roughly 15% to 20%.

Second, we are concentrating company's resources to our key strategies and reducing any unnecessary expenditures. Third, negotiating lease waivers or reductions due to the pandemic. We had formed a special team internally to conduct the lease waiver or reduction negotiation for both our leased and owned hotels and manachised and franchised hotel to reduce the operational cost.

As one of the leading companies in the industry, we are also undertaking the corporate social responsibilities during the pandemic by providing many requisitioned hotels. Please turn to Page 5. Since early March, our number of hotels under requisition increased massively from just over 200 to the highest of more than 1,800 hotels. Since the pandemic is gradually under control recently, our number of hotels under requisition start to decline from the peak in April.

In fact, from another perspective, it is actually a win-win choice for us to provide hotels for requisition purpose during the pandemic period. Given the normal business and leisure traveling demand declined sharply due to the traffic restriction during the pandemic period, the requisition actually helps hotels to achieve relatively better occupancy rate and support the hotel's operational performance.

Please turn to Page 6. Despite the pandemic impacts, we remain striving hard to grab any sales opportunities during the period to improve our performance. Firstly, we actively seek a COVID related accommodation needs such as requisition hotels, as I just mentioned before. We actively seek any accommodation needs of quarantine, medical teams, delivery riders, governmental officers and corporates for both leased and owned and manachised and franchised hotels.

Taking Shanghai as an example, whereas the most affected cities by the pandemic this time, our hotels served over 9,500 medical staffs and over 5,000 delivery riders during the lockdown period. In addition, we also initiated several creative product packages to meet the special needs during the pandemic such as online class hotel rooms, work from hotels and so on.

Secondly, we adjusted our sales strategy from previously brand-based to a new regional-based to unify sales and the marketing strategy. By doing so, we can be more precisely target and explore local demands for specific regions, especially for those areas where have less impacts from the pandemic. Lastly, we extended the expiration dates of our members' privileges and points and maintain their member status to further improve our members' loyalty. At the same times, we are also actively cooperating with external traffic platform and participating in various marketing campaigns organized by different OTA platforms to capture the recovery opportunities post COVID through presales activities.

The pandemic and the lockdown have resulted in a physical shutdown of our headquarter in Shanghai. However, we are still able to maintain high working and operational efficiency through remote work. Please turn to Page 7. H-Tone, an internal information platform provides a solid foundation and a connector to our hotel staffs, headquarter employees, franchisees and suppliers for efficient remote work. For example, for our headquarter employees in Shanghai, there are over 10,000 online meetings were hosted.

There are over 250,000 daily messages were sent and received and over 7,000 online documents were used per day on H-Tone platform. The pandemic and the lockdown demonstrated our digitalization capability. In the long run, we think the strong technology capability and cloud-based information platform will be critical foundation for our future broader regional and international business collaboration and synergy.

Please turn to Page 8. From cost control to requisition hotels through marketing and sales efforts during the pandemic and then to a highly efficient remote work. These are all measures that we had taken in the current pandemic period. From a longer-term perspective, despite the market conditions remains uncertain, we would continuously center on our customers, franchisees and employees to build capabilities to rise through the ups and downs of economic cycles.

Firstly, is by caring our customers. Please turn to Page 9. I would like to share 2 letters of thanks from our customers recently. First, the letter is from our customers from Tangyin county. He is stating Huazhu's hotels due to the quarantine needs. He feels that our hotel provides the warmth of home and would become our loyal customers in the future.

The second letter is from our customers in Shanghai, who was trapped in Shanghai due to city lockdown. He has chosen Huazhu's hotel to stay not only because that he is a loyal member but also his high trust in Huazhu. In conclusion, we will continuously upgrade and improve our products and service qualities to meet our customers' needs for better experiences and satisfaction.

Secondly, by caring franchisees. Please turn to Page 10. Franchisees are our critical and reliable partners. Given the recent difficulties, we have provided a series of supportive measures and policies to help our franchisees to tide over the tough period. Last year, Huazhu was the only company which constantly providing fee waivers or reductions to franchisees. This year, we again provided new fee waiver or deferral payment policies for hotels in medium and high-risk areas and also for the new signed hotels. Moreover, we also assist our franchisees to obtain relevant information and take advantage on any government's preferential and assistance policies released during the pandemic.

We help them to apply value-added tax refund reduction, provided legal support for franchisees on rental waiver negotiation and help the franchisees to apply financial supports from external financial institutions. In addition, despite the strict traffic restructuring due to the pandemic outbreak, our supply chain teams still strive very hard to provide sufficient food and supplies to our manachised and franchised hotels to ensure their hotels in normal operations as well as provided goods and supplies to hotels and constructions in pipeline.

Lastly, by caring employees. Please turn to Page 11. We always value our frontline staff as valuable assets for our company. Similar to what we had done in 2020, we retained our whole frontline staffs during the pandemic period to keep our hotels in operation. At the same time, we constantly focus on our employees' future career development. Even during the pandemic period, we have organized over 1,000 online training programs for our employees to further helping them improving their skillsets. In addition, we also established a special COVID fund to support or reward employees who are infected by COVID, who are working at requisition hotels and who have any outstanding contributions during the period.

Please turn to Page 12. Despite the uncertainties, our long-term sustainable quality growth strategy remains unchanged. We still insist on further lower tier cities' penetrations. Please turn to Page 13. By the end of the first quarter, lower tier cities contribution was still improving. It contributed 37% and 55% of hotels in operations and pipeline, respectively. For the new signings in the first quarter, nearly half of them were attributed from lower-tier cities. However, we have to be very honest to update you the most recent situation. Although our new signings still grow in the first quarter, the pandemic outbreak and lockdown seriously affected our new signings in April. The signing numbers in April declined significantly compared to last year.

Although the pandemic tremendously affected our domestic operation, our Deutsche Hospitality business performance achieved a very robust recovery recently. Please turn to Page 14. Our DH RevPAR recovery was constantly in uptrends from January to April, with April RevPAR recovered to 80% of 2019 level and the recovery trend is further improving in May.

Please turn to Page 15. Thanks to continuous easing of traveling restrictions in Germany and Europe. The German occupancy rate improved to 51% in April compared to only 30% in January. Leisure traveling was the main driver for the strong recovery in the first quarter. We expect that business traveling will also gradually recover in the next couple of months, mainly driven by the resumption of meetings, conference and exhibitions events. However, given the recovery is still at early stage, together with the current impacts of inflation in Europe, we would constantly implement our cost and revenue measures that we mentioned in previous few quarters. It mainly includes cost reduction, operational efficiency improvements, cash flow management and ADR recovery.

In terms of the strategic focus post COVID, we will mainly focus on cost reduction for sustained margin improvement, execution of digital strategy for process efficiency and analytics, evaluating the growth potential of limited-service hotel segment and building up the H-reward global loyalty program.

With that, I will turn the floor to Ms. Ye Fei to discuss our 2022 first quarter's operational and financial performance.

[Fei Ye, executive]

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 first quarter of 2022. As shown on Slide 17, our hotel network expanded by 15% in the first quarter of 2022 to 765,000 rooms compared to 663,000 rooms in Q1 2021. Excluding DH, Legacy-Huazhu's hotel network expanded by 16% year-on-year to roughly 740,000 rooms, in which mid-scale hotels contribute most of the growth.

For our hotel turnover in the first quarter of 2022, our total hotel revenue grew at 16% year-on-year to RMB 9.5 billion. This was mainly due to our continuous network expansion in China and strong business recovery of our European business. Legacy-Huazhu hotel turnover grew 11% year-on-year to RMB 8.8 billion in the quarter, and DH recorded a 170% growth to the turnover of RMB 683 million.

Turn to Page 18. The blended RevPAR of Legacy-Huazhu for Q1 declined 25% compared to 2019. The ADR in Q1 was up by 1.2% compared to 2019 level at RMB 224, mainly driven by the mix change from mid-scale and upper mid-scale hotels. But the occupancy in Q1 is 21 percentage points lower compared to 2019 due to the impact of Omicron variant outbreak since mid-March.

Turn to Page 19. Legacy-DH business is still impacted by Omicron variant in the beginning of this year. However, due to the opening up in the Germany since mid-February, its RevPAR recovery was accelerating since then. Therefore, DH blended RevPAR for Q1 2022 grew 158% to EUR 33 compared with Q1 2021. The occupancy improved by 19 percentage points compared with Q1 2021, and ADR improved by 28% to EUR 88.

Please see our financial results on Slide 20. Total revenue grew by 15% year-over-year to RMB 2.7 billion in Q1 2022, mainly driven by 165% revenue growth of Legacy-DH in Q1 2022. Excluding DH, Legacy-Huazhu recorded a 4.6% year-on-year revenue growth to RMB 2.3 billion. Revenue was in line with our previous guidance. Leased and owned revenue of Legacy-Huazhu was flattish at RMB 1.3 billion, caused by the large scale of Omicron variant outbreak since March. Net revenue from manachised and franchised hotels grew by 9% to RMB 974 million, mainly driven by the network growth of over 1,100 manachised hotels.

DH's revenue growth is mainly driven by leased hotel recovery. Therefore, overall, the group's manachised and franchised revenue contribution temporarily shrank to 37% in Q1 2022 compared with 38% in Q1 2021 at a group level. However, for Legacy-Huazhu due to further expansion with asset-light model, the manachised and franchised revenue contribution further expanded to 43% compared with 41% a year ago.

Now let's move to the cost and profitability section on Slide 21. In Q1 2022, the reported operating loss was RMB 708 million compared to a loss of RMB 575 million last year and a positive RMB 39 million a quarter ago, mainly due to the weaker China business performance. Excluding DH, Legacy-Huazhu's operating loss in Q1 2022 was RMB 416 million compared to RMB 172 million last year and positive income of RMB 60 million a quarter ago. The hotel operating cost for Q1 2022 was RMB 2.8 billion, increased by 14% year-on-year.

For Legacy-Huazhu, it recorded RMB 2.3 billion hotel operating costs, indicating a 11.7% year-on-year growth. The increase was mainly attributable to higher rental cost of the newly opened leased hotels, higher personnel costs as we keep growing hotel networks and higher D&A, depreciation and amortization costs, which we -- which were related to the upscale hotel opening and upgrading of existing hotels, as well as the consolidation impact of CitiGO acquisition. For Legacy-DH, it recorded RMB 558 million hotel operating cost, indicating a 25% year-over-year growth. The increase was mainly due to the variable cost increase along with business recovery.

Our pre-opening costs increased by 24% year-over-year to RMB 26 million in Q1 2022 from RMB 21 million last year. The absolute dollar amount of pre-opening costs remains low as our future expansions were mainly used as a life model, as mentioned in previous quarters as well. Our SG&A in Q1 2022 increased by 34% year-on-year to RMB 584 million, driven by the increase in both Legacy-Huazhu and Legacy-DH. SG&A for Legacy-Huazhu increased by 29% to RMB 424 million. The increase was mainly attributable to the increase of headcount for our BD team to support penetration into the lower-tier city, operation team in Southern and Western China, sales team for corporate customer expansion, enhanced IT team as well as the expansion of upscale hotel division.

However, given the significant impact of recent Omicron outbreak, we have started implementing strict cost control measures by streamlining overheads like headcounts and expenses. DH's SG&A increased 48% compared with last year, driven by the OTA commission increase alongside with business recovery and onetime restructuring costs of the organization.

Turning to Page 22. Our adjusted EBITDA loss was RMB 333 million in Q1 2022 compared to a loss of RMB 133 million a year ago. DH's EBITDA loss narrowed in Q1 to RMB 240 million compared to a loss of RMB 340 million last year, thanks to the reopening in Germany, which accelerates business recovery. Excluding DH, Legacy-Huazhu recorded an adjusted EBITDA loss of RMB 93 million compared to a positive EBITDA of RMB 207 million in Q1 2021 due to the impact of the large scale Omicron outbreak and also the higher cost. In Q1 2022, we recorded adjusted net loss of RMB 662 million, enlarged from a loss of RMB 451 million a year ago. Excluding DH, Legacy-Huazhu recorded an adjusted net loss of RMB 339 million compared to a loss of RMB 150 million in Q1 '21.

Coming to the cash position, our net debt increased to RMB 6 billion by the end of Q1 from RMB 4.7 billion last quarter. It was mainly due to the decline in cash from operations this quarter. Our cash balance was RMB 4.1 billion, and the unutilized bank facilities were RMB 3 billion. Given the COVID impact remains uncertain in the foreseeable future, we have reduced the CapEx and expense budget to reserve cash. In addition, we are also prepared to meet our upcoming CitiGO acquisition loan repayments and possible redemption of 2017 convertible bonds through various available funding sources.

Turning to Page 25 on guidance. Since March, this highly infectious Omicron variant has been spreading rapidly in China, which seriously affect our business performance now. Also, the current COVID prevention policy has rendered business performance more unpredictable in the foreseeable future. Under such circumstances, we will suspend providing or updating guidance in respect of annual revenue and hotel openings until the situation sustainably improve. Nevertheless, we'll continue to provide quarterly guidance based on our best understanding of the most recent situation.

In the second quarter of 2022, Huazhu Group expects revenue to decline 2% to 6% compared to the second quarter of 2021 or to decline 23% to 27%, excluding DH, mainly due to the large impact from the Omicron outbreak in China. DH sales expects a 3x revenue increase since its recovery is on a healthy track. Again, above guidance only reflects our current view, which is subject to further change.

With that, let's open up for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of Billy Ng from Bank of America.

[Billy Ng, analyst]

[Foreign Language] Actually, when we see from the presentation, we saw that there were about 700 new sign up year-to-date up to April, which actually on track for almost like 2,000 for this year. So my question is, have you seen very recently any slowdown from the new sign up? And also, if you can give some colors on the new opening as well. Like I remember in 1Q, you guys opened 300 hotels. Just wonder, have you seen slowdown on new opening in the last couple of weeks on -- the last couple of months? That's my first question.

[Hui Jin, executive]

[Interpreted] Thanks for your questions. Yes, I think you are right. In the first quarter, given we have been investing quite a lot of resource and expenses in terms of expanding our BD team last year. So we actually achieved a relatively great new signings for the first quarter. But since the Omicron outbreak, starting from the late March, this has very obvious impacted on our new signings due to the pandemic, due to the strict traffic control as well as the franchisees confidence level is declining as well. So definitely, we are seeing some of the slowdown of the new signing recently.

And in terms of the construction, again, the pandemic has huge impact on the construction as well, especially on the transportation limits and the supply chain management due to the traffic control. And especially for the months of April and May, the construction process has been slowed significantly, which is going to have some negative impact on our new openings for the year.

[Billy Ng, analyst]

And then my second question. [Foreign Language] My second question is regarding to the streamlining costs. And just wonder if you have a little bit more detail in terms of the numbers. In the next few quarters, what kind of run rate we can expect compared to the first quarter if we're comparing the SG&A number or the hotel operating cost number?

[Hui Jin, executive]

[Interpreted] Yes. So basically, the pandemic definitely give us a lot of challenges and difficulties. But we still insist on our China focus as well as long-term sustainable quality growth strategy is unchanged. In terms of the cost savings, what I can share to you is that we are going to focus on our headquarter in terms of the streamline of the headcounts. So we are planning to reduce the headcount by at least 20%, and we will further to see if we need to reduce any more according to the market conditions. But however, as I mentioned in my presentation, so the frontline and operational staffs are very valuable assets for us. So we will still retain those frontline staff and operational staffs. Our cost savings will be mainly focused on our headquarters.

[Operator]

Our next question comes from Lin Sijie from CICC.

[Sijie Lin, analyst]

[Foreign Language] So my first question is regarding the expansion to Southern China. How is it progressing? Is there anything above or below expectations?

[Hui Jin, executive]

[Interpreted] Yes. So as you may know that the southern part of China, Huazhu was pretty weak previously. However, this region is not only important for the entire China economic, but also it's very important market for Huazhu. Despite the impacts of the pandemic, the Omicron outbreak since the March. So I'm very glad to tell you that despite the new signings has been some negatively impacted by the Omicron. But our -- it is not yet achieved to our internal expectation. However, our new signings in the first quarter has already exceeded our -- compared to our peers. So Huazhu is the one who has the largest new signings in southern part of China in the first quarter.

[Sijie Lin, analyst]

[Foreign Language] So my second question is that, generally speaking, the reduced supply is a positive factor for the industry recovery. Meanwhile, the soft macro and consumption environment may be an active factor. So how should we expect the coming industry recovery?

[Hui Jin, executive]

[Interpreted] Yes. I think as you may know that the business recovery in China is very much tied up with the policy. In terms of the pandemic provision, China is continuously using the dynamic zero COVID policy, which is putting some of the uncertainties in the foreseeable futures. However, despite the uncertain market conditions, we are still insisting on our own strategies, which including our local sales capability to capture the local demand as well as during the pandemic, we have to capture some of the usual business traveling demand, which including those corporates which needs the hotels for the resumption of production and work. And also, as I just mentioned before, the cost of control as well as improved efficiency will remain a key focus in the near future.

[Operator]

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

[Xianda Xu, analyst]

[Foreign Language] Please allow me to translate my question. First, I would like to thank you very much the management for this opportunity to ask the question. It's Dan from Morgan Stanley. My question is about the debt management. So can you share with us the current plan and progress for the 700 -- for the USD 475 million convertible bond expiring in November this year and the remaining of that EUR 338 million credit facility expiring in December this year? What are the current plans and the progress, please?

[Fei Ye, executive]

Thank you for the question. Certainly, we have various approach to solve these issues. Number one, we have a offshore cash on our balance sheet. And second is we are preparing a new bank loan to repay the current upcoming due bank loan in the latter half of this year. And also regarding the potential redemption of the Citi, we also have a similar approach like bank loans and also other financing approach to software issues. Currently, everything is look good.

[Operator]

Our next question comes from Simon Cheung from Goldman Sachs.

[Simon Cheung, analyst]

[Foreign Language] So my first question is in relation to the new hotel sign up, the addition of the hotel completion as well as the RevPAR recovery. I wanted to get a sense how is the cycle this time around different from the last several shutdowns when there's also a viral resurgence. And if the management can provide us with some sort of guidance or expectations, how quick the recovery this time around going to be now that we have Shanghai gradually reopened as well. So that's my first question.

[Hui Jin, executive]

[Interpreted] Okay. Thanks for your questions. I have to be very honest to you. So this round of Omicron outbreak has been after 2 years since the initial outbreak back to 2020. So it has been 2 years that franchisees are quite suffering as well as the potential investors of the hotel industry. So basically, their confidence, their cash flow has significantly impacted over the last 2 to 3 years. As I mentioned in my prepared remarks, so we have been seeing the new signings, the market sentiment, the investors' confidence level has been declining in April. Although we are still striving very hard to penetrate into some of the regions, which has less impacts from the outbreak, such as the middle part of China, southern part of China.

However, the overall confidence level of the market sentiment is relatively weak at this moment as well as some of the negative impacts from the real estate industry. So we cannot deny those facts. In terms of the Shanghai, starting from tomorrow, everything should be gradually resumed to normal. I believe, along with the supply chain, transportation gradually resume, the construction work should be gradually resumed as well starting from next month. However, in terms of the new signings, I think it's going to take much longer because it's not directly related to the pandemic because it takes more time for rebuild investors' confidence level. So I think my best estimate for now, I believe it's going to take around 1 quarter to resume to normal. Thank you.

[Simon Cheung, analyst]

[Foreign Language] Sorry. And so my second question related to DH. If I -- based on the company guidance for the second quarter, I [ figured ] out supposedly, the DH guidance for revenue is going to grow at about 3x on a year-on-year basis. And that's RevPAR should exceeds about $70. And under these circumstances, if achieved, would you be able to achieve a EBITDA positive in the second quarter with -- for DH?

[Fei Ye, executive]

Yes, certainly, I think the DH is on the very healthy recovery trajectory. Quarter-by-quarter, I think we are budgeting like a growth line towards -- probably towards the Q4 of -- sorry, 2020, we're targeting like a 90% recovery compared to 2019. So I think there's a chance for us from a year -- the whole year perspective, we think there's a chance for us to go back to the EBITDA positive line. But certainly, that's our target.

[Simon Cheung, analyst]

So you're saying that not only would you see EBITDA positive in the second quarter, there might actually be a possibility that you get to positive EBITDA for the full year for DH?

[Fei Ye, executive]

Yes. We are -- I'm just talking about the full year target. But for the Q2, it's still a recovery mode. So it might be a little bit early to say that. Yes. We will disclose more details once ready.

[Operator]

Our next question comes from [ Liu Lowen ] from CSC.

[Unknown Analyst]

[Foreign Language] And my question is about our regional headquarters, especially like in Shenzhen and Chengdu. Can you draw some colors on -- of this regional headquarter?

[Hui Jin, executive]

[Interpreted] Thanks for your questions. As you may know that the hotel management is -- or actually hotel business is a very localized business, along with our strategy with China forecast, we are trying to penetrate in every market in China in not only the hotels, but also the brands. So we want to be as close as possible to our targeted market, our customers and our franchisees as well as the employees. So actually, last week, we have just established some new regional headquarters. And in the remaining of this year, especially during the pandemic period, we are adjusting -- we will be more using the regional-based management mode. And we are seeing that actually becomes more efficient, especially during the pandemic period.

[Operator]

We have reached the end of the question-and-answer session. I'll now turn the call back to the management team for closing remarks.

[Jason Chen;Investor Relations, executive]

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

[Operator]

That does conclude our conference for today. Thank you for participating.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]