H World Group Ltd

BMV:HTHTN

Earnings Call Analysis

Strong revenue growth and strategic expansions drive performance

In Q1 2024, the company saw an 18% year-over-year revenue growth to RMB 5.3 billion, surpassing guidance. Legacy-Huazhu led with an 18% increase due to higher-than-expected hotel openings, while DH rose 17%. Operating income soared by 51% to RMB 1 billion. Adjusted EBITDA grew 32% to RMB 1.5 billion for Legacy-Huazhu, though DH posted a loss. Despite flat or slightly negative RevPAR, full-year revenue is projected to grow 7-11%. The group maintains a solid cash position of RMB 8.9 billion and continues its asset-light, high-quality expansion strategy with a focus on flagship and high-quality hotels.

Strong Start in 2024

The H World Group began 2024 on a solid footing. The overall number of hotel rooms increased by 17% year-over-year to over 955,000 rooms. Hotel turnover rose by 21% to RMB 19.7 billion, and revenue grew by 18% to RMB 5.3 billion, surpassing their previous guidance of 12% to 16%【7:0†source】【7:2†source】.

Revenue and Profit Growth

Revenue for Legacy-Huazhu, one of the key segments, increased by 18% to RMB 4.2 billion, while its blended RevPAR reached RMB 216, growing by 3.1% compared to the previous year. For the DH segment, revenue increased by 17% to RMB 1 billion, attributed to market recovery and a favorable exchange rate【7:0†source】【7:2†source】.

Hotel Network Expansion

The company’s focus on expanding its hotel network saw the opening of 569 hotels in the first quarter, with the number of closures dropping to 148, down from the previous year's 209. Encouragingly, the hotel pipeline has grown to a record high of 3,138. The economic and middle-scale product segments remain the key drivers for this rapid network expansion【7:0†source】.

Strategic Adjustments and Organizational Upgrades

Strategic adjustments, such as corporate upgrades and the establishment of regional headquarters, are yielding positive outcomes. The company has introduced new, upgraded versions of major brands to keep up with changing customer preferences. This is critical in maintaining competitiveness and attracting franchisees【7:0†source】.

Profitability and Cash Flow

Income from operations saw a significant rise, achieving RMB 1.0 billion, a 51% year-over-year increase. The adjusted EBITDA for Legacy-Huazhu increased by 32% year-over-year to RMB 1.5 billion. Despite a loss, DH's adjusted EBITDA narrowed from RMB 98 million to RMB 66 million. The group’s net income saw a remarkable 101% year-over-year increase to RMB 771 million【7:2†source】.

Cost Management

Hotel operating costs increased to RMB 3.6 billion, but at a slower rate than revenue growth, demonstrating operating leverage. Conversely, SG&A expenses were RMB 769 million, accounting for 14.6% of total revenue, reflecting a return to normal levels after a relatively low base in 2023. The operating cash flow decreased year-over-year due to increased payables to franchisees and seasonal timing differences in payments【7:2†source】.

Geographic Expansion and International Growth

The company's strategic focus on international growth is evident. As of Q1 2024, 53% of operating hotels were located in Germany. However, the pipeline indicates future growth outside Germany with 41% of pipeline hotels in other European countries, 15% in the APAC region, and 6% in Africa【7:0†source】.

Technological and Service Enhancements

Investment in technology and service excellence strategies is ongoing. For instance, the H World app helps increase direct sales, and the B2B platform booked over 5 million room nights in the first quarter, marking a 34% increase year-over-year. The focus on direct sales channels is aimed at mitigating seasonal fluctuations and enhancing brand recognition【7:0†source】.

Guidance for Future Growth

Looking ahead, H World Group expects its revenue to grow between 7% and 11% in Q2 2024 compared to the same period last year. Despite challenges in the RevPAR due to a high base effect from last year's second quarter, the company remains confident about achieving revenue growth through hotel network expansion【7:7†source】.

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to H World Q1 2024 Earnings Conference Call. [Operator Instructions]I would now like to hand the conference over to your first speaker today, Jason Chen, Senior Investor Director. Please go ahead.

[Jason Chen, executive]

Thank you, Maggie. Good morning and good evening, everyone. Thanks for joining us today. Welcome to H World Group 2024 First Quarter Earnings Conference Call. Joining us today is our 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 the 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. Reconciliations of those measures to comparable GAAP information can be found in our earnings release that was distributed last Friday. 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 first quarter of 2024.Mr. Jin, please.

[Hui Jin, executive]

[Interpreted] We had a relatively good start for 2024. Let's firstly review our Legacy-Huazhu's operational performance during the quarter. Please turn to Page 3. In the first quarter of 2024, Legacy-Huazhu's blended RevPAR reached RMB 216, representing a growth of 3.1% on a year-over-year basis. ADR grew by 1% to RMB 280 and occupancy rate grew by 1.6 percentage points to 77.2%. The business performance was quite stable during the quarter and was within our expectation at the beginning of the year.In terms of hotel network expansion, we are happy to see that some important strategic adjustments and changes we made in the past few years, such as organizational upgrades, establishment of regional headquarters and a sustainable quality expansion strategy are rapidly achieving positive outcomes.Please turn to Page 4. On hotel opening front, Legacy-Huazhu opened 569 hotels in the first quarter. The number of hotel closures was 148 in the first quarter, a 61 hotels decline from the same period of last year. If excluding low-quality economic soft brand and Hanting 1.0, we closed only 72 hotels, 15 hotels less than the same period of last year. Our future hotel closures should gradually reach a more normalized level after rapid cleanup and upgrade process over the last few years and our sustainable quality growth strategy.More importantly, our pipeline further grew to a record high of 3,138 at the quarter-end, despite our 569 new openings during the quarter. It further demonstrated our strong brand power and increasing attractiveness to franchisees.Our limited-service segment, which serves the mass market remains our key strategic focuses. Our economic and middle-scale products [ continuously ] to be the key driver for our rapid network expansion. Breaking down our hotels in operation, hotels in pipeline and hotel openings in the first quarter of 2024, the proportion of economic and middle-scale hotels were 92%, 84% and 92% respectively.It is critical to constantly upgrade products in a timely manner in order to further meet and satisfy customers' needs as we are seeing our customers' consumption behavior, preference, and tastes are changing rapidly and frequently nowadays. It is also one of the most important building blocks to enhance the competitiveness of our brand and gain tractions from franchisees. In the past years, we constantly introduced new upgraded versions of our major brands using our Iron-Triangle brand in the limited-service segment as examples.Please turn to Page 6. The proportion of Hanting 3.5 and above steadily increased from 11.8% as of 2020 to 29.8% as of 2023 and further to 33.2% as of the first quarter of 2024. Please turn to Page 7. For our JI Hotels in operation, the proportion of JI Hotel 4.0 and above products increased from 30% as of 2020 to 65.7% as of 2023, and further rose to 69% in the first quarter of 2024.Please turn to Page 8. As of the first quarter of 2024, the latest LOHAS versions of Orange brand accounted for 75.7% in its pipeline, increased from 58.4% as of 2023. In conclusion, our Iron-Triangle brands, including Hanting, JI Hotel, and Orange, has been further strengthening their brand and product power through consistent product upgrades.As we continued penetrating into lower-tier cities and new markets, some new demand and a new group of customers emerged. Therefore, in addition to our Iron-Triangle brand, as we mentioned above, we are also constantly developing new products to better meet the needs of different customer groups and market conditions. In the first quarter of 2024, based on our very matured and successful experiences of Hanting, we launched a new version of NiHao Hotel. The new NiHao is positioned as the complementary brand for Hanting in the economic segment, especially in the lower-tier cities. And it is also positioned to cater to the accommodation needs of the younger generations.Please turn to Page 9. The brand new NiHao 2.0 integrates traditional Chinese color and [ texture symbols ] with contemporary aesthetic, showcasing the Chinese ethnic confidence and providing consumers with additional choice for different aesthetics. At the same time, through reinvention of new service scenarios, NiHao Hotel has integrated many value-added services such as health preservation concept, popular modern Chinese tea and snacks into the self-service [ modulars ] at the hotel lobby. This is in line with the current consumption philosophy of young customers who seek good value for money products but with good experiences. The new NiHao will strongly align with our flagship brand Hanting to further solidify our leading position in the economic hotel market.In terms of our geographic expansion, we keep penetrating to lower-tier cities in China. Please turn to Page 10. As of the first quarter of 2024, 40% of our hotels in operation were located in Tier 3 and below cities, representing a 1 percentage point increase year-over-year. At the same time, 54% of the hotel in pipeline were located in Tier 3 and below cities. The proportion of Tier 3 and below cities in pipeline was a bit lower compared to the same period of last year, while the proportion of the Tier 1 cities was a bit higher year-over-year. It was mainly due to a much faster new signings in upper-mid segment, as well as in the southern regions.In fact, the pipeline in Tier 3 and below cities was still growing in [ absolutely ] number term. As of the first quarter of 2024, the number of city coverage was 1,290 with 158 new cities added compared to the same period of last year.Please turn to Page 11. Our upper midscale segment development is continuously progressing. As of the first quarter of 2024, there were 686 upper-mid hotels in operation, representing a 28% year-over-year increase and a 6% quarter-over-quarter increase. And there were 430 upper-mid hotels in pipeline, representing an 81% year-over-year increase and an 11% quarter-over-quarter increase. The fast-growing pipeline further demonstrated that our upper-mid brands, especially our key brands, including Intercity and Crystal Orange, were increasingly gaining recognitions and popularity among customers and franchisees.Since last year, the business traveling has been recovering relatively slower due to weaker-than-expected macroeconomic. Nonetheless, our direct B2B business was growing quickly, which partially offset some recovery gaps from individual business travelers.Please turn to Page 12. In the first quarter of 2024, the number of room nights booked directly -- via our B2B platform was more than $5 million, representing a 34% year-over-year increase. The number of active corporate clients surpassed 2,700, representing a 57% year-over-year increase. We believe that by continued strengthening our direct B2B sales capability, we could better cope with the potential volatility of business traveling and achieve a more sustainable business development in the long run.Moving to our overseas business. Please turn to Page 13. DH blended RevPAR grew 4.5% year-over-year to EUR 58 in the first quarter of 2024, which was driven by 0.2% increase in ADR to EUR 104 and a 2.3 percentage points increase in occupancy rate to 55.8%. Last quarter, we mentioned that one of our DH's strategic focus in 2024 is to seek growth opportunities internationally. We are pleased to see that DH has made some initial progresses.Please turn to Page 14. As of the first quarter of 2024, 53% of hotels in operation were located in Germany. However, only 38% of pipeline hotels were located in Germany and the remaining hotels were located in other European countries, APAC regions, and Africa, which accounted for 41%, 15% and 6% respectively.All above conclude our first quarter 2024 business updates. Now, I will hand over the call to our CFO, Mr. Zou Jun to discuss our operational and financial performance during the quarter.

[Jun Zou, executive]

Thank you, Jin Hui. Good morning and good evening to everyone. Let's go through our operational and financial review for the first quarter of 2024. Please turn to Page 16. In the first quarter, we continued to expand our hotel network. Our overall number of rooms increased 17% year-over-year to over 955,000 rooms as of first quarter, compared to over 820,000 rooms as of first quarter last year. Our hotel turnover for the first quarter of 2024 was RMB 19.7 billion, representing a 21% increase compared to first quarter last year. Excluding DH, Legacy-Huazhu's hotel turnover grew 22% year-over-year to RMB 18.1 billion.Now please turn to Page 17. In first quarter 2024, our total revenue for the group increased 18% year-over-year to RMB 5.3 billion, exceeding our previous guidance of 12% to 16% year-over-year growth. Legacy-Huazhu achieved 18% year-over-year revenue growth to RMB 4.2 billion, and DH grew 17% year-over-year to RMB 1 billion. The revenue growth of Legacy-Huazhu surpassed the high end of our guidance, mainly driven by higher-than-expected hotel openings. For DH, its revenue growth was attributable to market recovery and a favorable exchange rate.Please turn to Page 18. Hotel operating costs were RMB 3.6 billion in the first quarter of 2024. The year-over-year increase was primarily attributable to increase of staff costs from our continued network expansion and reduced rental relief in China. The increase of hotel operating costs was slower than our revenue growth, reflecting operating leverage of our business. Pre-opening expenses remained at a low level as we continue to focus on our asset-light expansion strategy and become more selective on opening leased and owned hotels.SG&A expenses were RMB 769 million in the first quarter of 2024 and accounted for 14.6% of total revenue. The year-over-year increase in both absolute number and percentage of revenue of SG&A expenses were primarily due to continued business growth as well as return to a normal level of selling and marketing expenses, headcount number, and compensation from the relatively low base of the same period of 2023, especially our -- for our Legacy-Huazhu business. As a result, our income from operations in the quarter achieved RMB 1.0 billion, representing a 51% year-over-year growth -- increase.Now please turn to Page 19. In terms of our profitability and cash flow during the quarter, I'd like to firstly highlight that we have redefined our non-GAAP measure of adjusted EBITDA and adjusted net income in the quarter in order to better reflect the profitability from our core business operation. The new adjusted EBITDA and net income now excluded share-based compensation expenses, gain or loss from fair value exchange of equity securities, foreign exchange gain or loss, net and gain-loss on disposable of investments.Similarly, we also have restated our adjusted EBITDA and adjusted net income for the first and fourth quarter of 2023 to provide a comparable basis. Under the new definition, in the first quarter of 2024, Legacy-Huazhu adjusted EBITDA achieved a 32% year-over-year increase to RMB 1.5 billion. Thanks to continued business growth in our asset-light strategy. Our DH business reported a loss of adjusted EBITDA of RMB 66 million, which narrowed down from a loss of RMB 98 million in the first quarter of last year. Adjusted EBITDA margin for the group and Legacy-Huazhu achieved 27% and 35% level, representing 4% and a 3.5% year-over-year improvement, respectively.Our group adjusted net income were RMB 771 million in the first quarter of 2024, representing a 101% year-over-year increase. Our first quarter operating cash flow decreased year-over-year, mainly due to increase in payable to franchisees in first quarter of last year post-reopening. And the quarter-over-quarter decrease was due to timing difference of compensation and franchisee fee payments.Now please turn to Page 20 on liquidity position. As of first quarter 2024, the group had RMB 8.9 billion cash, cash equivalents or restricted cash and time deposits and was in a solid cash position with RMB 3.1 billion, including time deposits. Our cash balance and net cash decreased compared to the previous quarter, which was primarily driven by payments of dividends in the first quarter 2024. We also had RMB 2.4 billion unutilized bank facility as of first quarter 2024.Now let's turn to Page 21. During first quarter 2024, we paid roughly [ RMB 300 million ] cash dividend and repurchased roughly USD75 million worth of shares from the market. As we become more asset-light and cash-rich, we'll continue to reward our shareholders through dividend and buybacks.Finally, please turn to Page 22 on our guidance. For the second quarter of 2024, we expect our revenue to grow between 7% to 11% compared to second quarter of last year or 7% to 11% excluding DH.With that, we're ready to take your questions. Operator, please open the line for Q&A.

[Operator]

[Operator Instructions] Our first question comes from Roland Leung of Bank of America.

[Ronald Leung, analyst]

[Foreign Language] Let me translate my questions in English. I have 2 questions. My first question is about RevPAR. So what is management expectations for RevPAR growth for domestic China business in 2Q?My second question is on DH. For DH, management targets to adjust the business to asset-light business and targets to sell the asset-heavy business gradually. So how is the progress of the disposal? Does management have a timeline for the disposal?

[Hui Jin, executive]

[Interpreted] Okay. Let me answer your first question. As you may know that last year, the second quarter actually was a bit high base, especially during the May holiday. As you may know that the May holiday last year was the first long holidays post the recovery or post to the reopening from the COVID. So there's a lot of revenge traveling pent-up demand in the second quarter.And also on the supply side, the supply recovery was a bit slower at that time in the second quarter of last year. Therefore, given the high basis of last year's second quarter, we are facing a little bit challenges for the RevPAR in the first -- in the second quarter of this year. Therefore, we are expecting the RevPAR for this quarter will be flattish to slightly negative as of now. However, given the traveling activities, especially the number of travelers during the holiday, we are still quite confident because the population -- number of travelers are still growing quite healthily during the holiday and in the second quarter as well, which give us more confidence that the leisure traveling demand is actually sustainable in a longer-term perspective and becoming inelastic demand for the Chinese consumers. And even though the RevPAR might have -- slightly negative in the second quarter, but through the hotel network expansions, we still could achieve 7% to 11% year-over-year revenue growth.The asset-light strategy for our DH business, which we mentioned in last quarter, is our long-term target because DH we want -- we want that DH becomes a more international brand and -- hotel brand and management company. But as you may know that transforming from asset-heavy to asset-light takes a bit longer time and a lot of complicated and complex negotiation with the potential counterparties, but the long-term strategy won't change. So, so far, the progress is still within our expectation. So in terms of the closure time, so as long as there is a milestone then we will just release to the market on time.

[Operator]

Our next question comes from [ Dan Chee ] of Morgan Stanley.

[Unknown Analyst]

[Foreign Language] Now please allow me to do the translation. Thank you, management, for the opportunity and congratulations on first quarter's results. I have 2 questions. The first question is about lease and operated hotels. We saw the L&O hotels' operating performance outperformed the franchise business. L&O RevPAR growth rate year-on-year was faster than the group's RevPAR growth rate by 6 percentage points. The same is happening to same-store RevPAR growth, also outperformed franchise hotel and also the group overall performance. We're wondering what has management done to improve both occupancy and ADR, especially occupancy for lease and owned hotel and its sustainability? And is it replicable towards the franchise hotel management.My second question is about franchise hotel business. We saw that take rate for F&M increased by 7%, which is about 0.5 percentage point. We know that our take rate sometimes get impacted by seasonality. We're wondering is this take rate increase sustainable? Any other reasons, such as recurring [ franchise fees or CIS ]? That's all for my questions.

[Hui Jin, executive]

[Interpreted] Okay. In terms of the leased and owned hotels, their performance actually is better than the group franchisees. That was because, over the last 2 years, we have been investing quite a lot of management resources into the leased and owned hotels because running a leased and own in terms of the operation and the management is quite complicated. Therefore, from the initial investment period to the operational period for the entire life cycle of this hotel business, we have been investing a lot of management capability. For example, we have assigned a good staff, hotel manager, for example. This is basically, in conclusion, is the improvements of our management capability for running a hotel. And we believe that this kind of capability, which has been demonstrated from the leased and own can be replicated to other hotels, which is, as you mentioned, in a franchised or [indiscernible] hotel.Okay. In terms of the increase in take rate, there were mainly 3 reasons. Firstly, it's continuously increasing the CRS as we continuously focus on our direct sales capability through our H World app. That's -- this is one of the reasons. Secondly, it's because of the wage increase or the staff cost increase, especially at the hotel level for both our leased and own and franchise hotel, which is the hotel managers. And thirdly is we are doing a more deep-diving and going to more details in terms of the management for our management -- [ managized ] hotel, which we reduce the discount rate for our management fee, as well as a one-time franchise fee, which has also contributed a little bit to the improvement of the take rate. So the take rate increase is the result from manufacturers, but the staff cost increase is kind of not able to avoid because the salary increase is general trend in the market. Thank you.

[Operator]

Our next question comes from Simon Cheung of Goldman Sachs.

[Simon Cheung, analyst]

[Foreign Language] Let me translate into English. So my first question is in relation to the stronger-than-expected hotel addition, 569 hotel adds in the first quarter, already representing over 30% of the original guidance of 1,800 for the full year originally. On top of that, we have a RevPAR, according to management in the second quarter, it would be likely going to be softer. So wondering whether they would have any revised guidance for both the hotel adds as well as the 8% to 12% full year revenue guidance?And my second question is for the business travel, we've been hearing from other operators, sharing that business travel so far still been quite weak. What is the trend they expect looking into second half? And -- because they're obviously doing quite well on the B2B strategies with 2,700 clients, up 60% almost, how do they think about the long-term opportunity on the business travel or B2B segment in general?

[Hui Jin, executive]

[Interpreted] Okay. So in terms of the hotel openings, before answering these questions, we want to remind you guys that since 2 years ago, we started our sustainable high-quality expansion strategy. So our hotel network expansion will be only focusing on flagship hotels, as well as the high-quality expansions. And this year, as you remember, last quarter, we also introduced a service excellence strategy, further up-stepped from the quality -- high-quality expansion and to be more focused on both product quality and service quality improvements. So for H World, in terms of the network expansion, we -- again, we will focus more on the quality and better services instead of only focus on the scale. So therefore, even though we have pretty good hotel openings in the first quarter, we still maintain our full year gross opening target unchanged. Thank you.Okay. In terms of the B2B business. So firstly, if you're talking about [indiscernible] business traveling market, we have to say the business traveling market is a bit slower in terms of the recovery. This is mainly due to the impacts from the weaker-than-expected macroeconomic development since the reopening last year. However, over the last 2 years, we have been putting a lot of efforts on the B2B direct sale business and catching up some of the new demand, new scenarios, such as the MICE and conferences, which we were not very good at previously. We have been -- continuously improved our capability in this front and trying to grab as much as new customers through our continuously enhanced B2B sales capability.Secondly, it's hotel-centric on the ground, the sales capability enhancement. We will use the hotel itself as an offline channel to attract more and more local, small business clients, just to over -- as we mentioned, to cope the volatility of the [indiscernible] business traveling market. Thank you.

[Operator]

[Interpreted] Our next question comes from Lydia Ling of Citi.

[Wei Ling, analyst]

[Interpreted] My first question is on the store opening and we see actually accelerated expansion in the first quarter. So how actually the management look at the supply -- industry supply as a whole? And also what's actually like the background for the new franchisees? And what could be the mix of the new franchisees versus the existing franchisees? A little bit more color would be very helpful.And my second question is on expense. And we saw that actually the selling expense increased a lot in the first quarter and as CFO just explained during the presentation, so how do management look at the -- like, the full year expense trend? And also, what could be the margin trend for 2024?

[Hui Jin, executive]

[Interpreted] Okay. Let me answer your first question. Over the last several years, the churn ratio in China has been rapidly improving in China. At the end of last year, the churn ratio, firstly, exceeded 40% in China. And we believe that the churn ratio improvement would be even faster in the future because of the digitalization capability, the integration of the industrial capability in China was very outstanding. It has the potential to even higher than the very matured U.S. market in the near future.So a lot of China hotel groups has been gaining benefits from this trend for the continuously generational improvement. However, in different segments, we are seeing some of the differences. For example, the middle scale is much faster in terms of the churn ratio improvement compared to the entire market. But for the economics, it might be need for further efficiency -- operational efficiency improvements to further catch up the churn ratio improvements. So this is the first part.The second part in terms of the background of the franchisees, in conclusion, it is quite diversified at this moment. We focus on 2 aspects. One is for our old franchisees, we also focus on the repurchase rate for our older franchisees. We want our franchisees to be profitable. Whenever they open the old hotel they used to open a hotel and they are opening the new hotels. But at the same time, when we are penetrating into the lower-tier cities, some new markets and new segments, we are seeing a lot of new franchisees -- new type of franchisees. For example, the local government, for example, the property developers. So on both sides from the H World, from the Company's perspectives, we take care of both parts of the franchisees. Thank you.

[Jun Zou, executive]

[Interpreted] Okay. In terms of the increase in sales and marketing expenses in the quarter, so firstly, because we are penetrating into the new market and we are enhanced -- we are penetrating into the new segment and introduce a lot of new products, so especially when we open a new hotel in new markets, we -- at the very initial period, we need the resources and support from the OTA. However, that should be a temporary impact because on a longer-term perspective, we will continuously focus on our direct sales capabilities through our own channels. This is one.Secondly, is, we purposely added some of the budget on the marketing expenses, especially for some of the new brands and new segments that we want to further improve the brand awareness and the recognitions for these particular brands into the market in order to get more attraction from the customers and the franchisees as well. Thank you.

[Operator]

Thank you. Our last question comes from Sijie Lin from CICC.

[Sijie Lin, analyst]

[Interpreted] So thank you, management. I have 2 questions. The first is that we mentioned before, we aim to penetrate more into low-tier cities and regions with low density. So how is the progress? And is there any operating data in these markets you could share with us?And my second question is that we also mentioned before that one of our key strategy is to upgrade supply chain and to improve service quality. So how's the progress? And is there any indicator that can prove this progress, maybe such as per room CapEx or RevPAR?

[Hui Jin, executive]

[Interpreted] Okay. In terms of your first questions, I'm very happy to let you know that we have been progressing pretty good into those previously less penetrated area, as well as the weak segments previously. The entire improvements and the processes are satisfying, are meeting the management's expectations.Okay. In terms of the sales excellence we mentioned last quarter, so previously H World used a high efficiency, low cost, as well as scale to maintain the leading position. But in the future, if we want to further enhance or strength our leading positions in China or even in the world, definitely we need to focus on more service, more user experiences and management -- customer-centric management capability enhancement as well. So just give you several examples because of the time limits. For the service excellence, we are focusing on the customer satisfaction rate and whether it is improved or not. But more details we will be sharing in near future. Thank you.

[Operator]

Thank you. This concludes the Q&A session. I will now hand back to Jason for closing remarks.

[Jason Chen, executive]

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

[Operator]

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]