Huazhu Group Ltd

HKEX:1179

Earnings Call Transcript 2022-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the H World Third Quarter 2022 Earnings Conference Call.

[Operator Instructions] Please be advised that today's conference is being recorded. And now I'd like to hand the conference over to Mr. Jason Chen, Investor Relations Director. Thank you. Please go ahead, sir.

[Jason Chen, executive]

Thank you. Good morning, and good evening, everyone. Thanks for joining us today. Welcome to H World Group Third Quarter 2022 Earnings Conference Call. Joining us today is our Chairman, Mr. Qi Ji; our CEO, Mr. Hui Jin, our President; Ms. Xinxin Liu, our CFO, Ms. Hui Chen, our Deputy CFO, Fei Ye and our CEO is of international business, Ms. He Jihong.

Following their prepared remarks, management will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements made under the safe harbor 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. H World Group does not undertake any obligations to update any forward-looking statements, except as required in applicable laws.

On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliation of measures to comparable GAAP information can be found in our earnings release that was distributed yesterday. As a reminder, this conference call is being recorded. The webcast of this conference call as well as supplementary slide presentation is available at ir.hworld.com.

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

[Qi Ji, executive]

Good morning, and good evening, everyone. Thank you for joining our call today. We are happy to report that our China unit RevPAR in the third quarter recovered up to 90% of 2019 levels, thanks to penting-up leisure travel demand as well as a gradual recovery of business travel. This recovery is closely associated with the relaxation of our COVID policy in the third quarter. However, with recent increase of COVID cases, we may face more uncertainties and the negative impact on our business recovery as consequence of tightening control measures.

In the third quarter, we report that we carried out organizational restructuring and established 6 regional headquarters to focus on economic and midscale segments. In the third quarter, with having further implementing [indiscernible] strategy and strengthening our regional organizations.

At the same time, we realigned the structure for upper-middle scale, upscale and luxury brands in China to provide a more efficiency of management and oversight. With our long-term sustainable quality growth strategy we have been either emphasizing on the improvement of products and service quality. We accelerated exit from low-quality soft brands in the economic segment. Moreover, we continuously upgraded our mature brands such as Hanting and JI Hotels to get a new version with better design and quality.

Looking back in the last 3 years, COVID have brought tremendous challenges to Chinese lodging market. However, branded chain hotels were showing high resilience than independent hotels. In fact, over the last 3 years, chain hotels were continuously gaining more market shares and leading the recovery of the industry.

We believe there's a shift from independent hotels to branded hotels where we further gained momentum and now we have branded hotel chains to further consolidate it as a market. We are confident that we will benefit from this chain with our strong brands and quality of products. With the recovery of mainly international travel market, our Deutsche Hospitality business achieved another good quarter with further RevPAR improvement. RevPAR in third quarter recovered to 102% compared to 2019 in this quarter with the cost management and the reorganization of business structure in place. We are in a good position to continuously improve our product facility.

Due to the further large sporadical resurgence of COVID in many provinces and cities in China, we see strict COVID measures continue to be carried out in order to cope with short-term turbulences and preserve our dry powder. We will further streamline operations, be prudent on CapEx spending and allocate resources in a disciplined way. We will also work closely with our franchisees and partners to help them cope with the challenges during this special period. Together with the friends and partners in our ecosystem, we will further [indiscernible] its foundation and build resilience of our company.

With this, I will turn the call to Hui Jin to discuss our [indiscernible] in detail.

[Hui Jin, executive]

[Interpreted] Thank you, Qi Ji. First, please turn to Page 3. Let me briefly review our key achievements in the third quarter: Number one, our China business RevPAR recovery continues despite COVID's impact; number two, continued network expansion with a focus on sustainable quality growth; number three, on track for development of upper mid-scale and upscale segment; number four, successful launch of new H World App with enhanced features; number five, Deutsche Hospitalities business is on its recovery path.

Now I will then discuss for each of above points in details in the following pages.

Please turn to Page 4. Although the continuous resurgence of COVID, we still achieved a relative good RevPAR recovery in the third quarter in China with the RevPAR recovered to 90% of 2019 level. This was mainly driven by pent-up leisure demand in July and August as well as gradual recovery of business traveling in the late September. However, we saw more sporadic resurgence of COVID in October with strict restrictions imposed again. Our RevPAR in October only recovered to 74% of 2019 level.

Please turn to Page 5. Our hotel network further expanded and the GMV also continuously increased in the quarter. At the end of the third quarter, our number of hotel rooms grew by 10% year-over-year to 797,000 with China hotel rooms grew 11% year-over-year to 772,000. Our total GMV in the third quarter increased by 24% year-over-year to RMB 15.2 billion, where China GMV grew 22% year-over-year to RMB 13.5 billion.

Our Lower Tier Cities penetration strategy is continuously progressing. Please turn to Page 6. As of the end of the third quarter, hotels from lower-tier cities contribution further increased to 41% and 59% of total hotels in operation and pipelines, respectively. Moreover, as you may notice that our number of new signings during the quarter was still lower than a year ago. That still shows that our franchisees' confidence level has not yet fully returned due to resurgence of COVID.

Please turn to Page 7. Looking back the last few years post COVID. Based on the China lodging industry data, we observed that branded chained hotel were showing better resilience than independent hotels. A lot of independent hotels with weaker anti-risk capabilities were actually closed with roughly 22% and 13% of independent hotel actually closed in 2020 and 2021, respectively. During the same period, our hotel networks were still expanding. We also showed our closure ratio in the figures. Our closure ratio was 10% and 7% in 2020 and 2021, which were much lower compared to independent hotels.

China lodging industry's Chain Hotel Ratio continuously improved from only 19% in 2018 to 35% in 2021. Therefore, we think the trend of the further industry consolidation post COVID remains unchanged. Moreover, as Mr. Ji mentioned in the beginning, more and more independent hotels started to prefer joining branded chain hotels, which could further bring more consolidation opportunities to us in the long run.

Please turn to Page 8. We still need to insist on our sustainable quality growth strategy for our long-term business development. For example, our Hanting brand, we continuously upgrade our Hanting products over the past few years. We found out that after upgrading to newer versions, the RevPAR would improve by roughly 20% than older version in average. At the end of the third quarter, Hanting 2.7 versions and above accounted to roughly 59% of total Hanting hotels in operation improved by 25 percentage points in 2020 -- compared to 2020. At the same time, Hanting's customer satisfaction score also improved along with product upgrading from 4.5% in 2020 improved to 4.67 in the third quarter.

Please turn to Page 9, not only Hanting brand, but also all our brands in our portfolio will keep to improve the overall hotel qualities. As you can see, Low Quality Soft Brand economics hotels and Hanting 1.0 version contribution were gradually declining over the years.

As of the third quarter, it only accounts for roughly 14.3% of our total hotels in operation. Hotel product quality improvements also led to continuously customer satisfaction score improvement. It improved from 4.54% in 2020 to 4.68% in this quarter.

Please turn to Page 10. Our Orange brand hotel achieved its 500 hotel milestone during the quarter, reaching 505 hotels by the end of the quarter. It becomes the third brand of Hanting and JI Hotel in our group to achieve over 500 hotels. Our upper mid scale segment is also steadily progressing.

Please turn to Page 11. We introduced a new version of InterCity brand during the quarter, InterCity will be mainly located in traffic hub or commercial centers location that brings in German simplicity and pragmatism to hotels in China to provide high efficient service to customers -- our 2 newly opened InterCity hotels are located in Shenzhen and Wuhan.

For our upscale segment, we saw our Blossom House brand is quickly tapping into leisure traveling market. Please turn to Page 12. Since our acquisition, we successfully transformed its business model from previously 90% of hotels are under lease model to roughly 67% of the hotels are under Asset-Light franchise-based model. Moreover, the brand also expands from a single Blossom House brand to Blossom Lifestyle Community and Blossom Collections, achieving a multi-brands developed model.

Please turn to Page 13. We further upgraded our H World app and successfully launched its 4.0 version. This upgrade focus on our 2 service and the full digitalization guest experiences and further strengthened the interactive service experiences with guests at different touch points on the basis of consistent, highly efficient services. For example, our Intelligent Laundry function, it allows customers to make reservation remotely and attract the laundry process and status in real time. Such function could strengthen the perception of members' privileges and benefits.

In the first 9 months of 2022, there were totaling 99 million customers have experienced our online service compared to only 27 million customers a year ago. Usage of online service also improved to 71% in October from 21% last year above, our key business development update third quarter. With that, I will now turn the call to our CEO of International Business, Ms. Jihong to discuss our DH business development during the quarter.

[Jihong He, executive]

Thank you, Hui Jin and Jason. My name is Jihong. I'm responsible for international business at H World Group. In our international business, we are very happy to report that we have continuous recovery in the third quarter. Our blended RevPAR increased to 102% compared to the same quarter in 2019, with this recovery trend continuing in October as well. The recovery is primarily brought by ADR, which was increased at 17% compared to the same quarter in 2019.

This demand continues to be driven a transient leisure travel and the pent-up corporate group businesses. In the third quarter, our team in Deutsche Hospitality continues to focus on cost management and margin improvement. As a result, we can report the third quarter EBITDA of RMB 94 million, a significant improvement compared to the loss of RMB 115 million in the third quarter 2021 and an achievement of 213% increase compared to second quarter 2022.

This margin improvement was driven by headquarter overhead reductions operational efficiency improvement alongside with the RevPAR growth. At the same time, we are carrying out several energy management initiatives in our hotels to cope with increasing energy costs in Europe, especially in Germany. In third quarter, we added 23% system size growth of hotel rooms compared to the third quarter 2019. We launched our new website with all brands and the new H Rewards program to focus on loyalty development and the direct booking channel. We rolled out several new digital products to improve technology deployment. We are currently focusing on Digital Zleep to further improve efficiency of our budget hotels through technology deployment.

With this, I'm handing over to Ms. Ye Fei for third quarter financial results.

[Fei Ye, executive]

Thank you, Jihong. Good morning or good evening to everyone. Let's move on to our operational and financial review for the third quarter of 2022. As shown on Slide 17, Legacy-Huazhu Blended RevPAR for Q3 actually performed well. Only 10% off from 2019, mainly dragged by the occupancy rate. The ADR of 2022 Q3 was up by 3% on a year-over-year basis and the RevPAR was up by 9%.

Turn to Page 18. Legacy-DH business recovery further accelerated in third quarter, as Jihong mentioned. Our Legacy-DH-Blended RevPAR for Q3 grew by to 57% to EUR 76 compared with Q3 2021 and also grew by 2% compared with the 2019 level. The occupancy improved by 17 percentage points compared with Q3 2021, but still 9.6 percentage points lower than 2019 level. The ADR improved by 15% year-over-year to EUR 114, which actually exceeded the 2019 level by 17% driven by the pent-up demand in Europe and also price increase to against cost inflation. Please see our financial results on Slide 19.

Total revenue grew by 16% year-over-year to RMB 4.1 billion in Q3, mainly driven by the 7.7% year-over-year revenue growth of Legacy Huazhu to RMB 3.2 billion and 58% year-over-year revenue growth of legacy DH to RMB 932 million. Revenue was in line with our previous guidance. Legacy-Huazhu revenue growth was mainly supported by the leisure demand in the summer holiday during July and August and the gradual recovery of the business traveling in late September as well as a low base from last year.

Breaking down of the revenue in Q3, Leased & Owned revenue grew 15% year-over-year to RMB 2.7 billion. Excluding DH, Leased & Owned revenue of Legacy-Huazhu grew by 0.5% year-over-year to RMB 1.8 billion because we shut down some loss-making hotels during this quarter. Revenue from manachised and franchised hotels declined by 16% to RMB 1.3 billion, mainly driven by 16% revenue growth of Legacy-Huazhu and 22% revenue growth of Legacy-DH. The 16% year-over-year growth of revenue from Manachised & Franchised hotel of Legacy-Huazhu also included roughly RMB 120 million impact from the management fee waiver provided to the franchisees during this quarter.

Due to the strong business recovery of Legacy-DH leased and owned hotels during this quarter, at the group level, the Manachised & Franchised revenue contribution was flattish 32% in Q3 compared to last year. But China only, although considering the management fee waiver provided to our franchisees, our Manachised & Franchised revenue contribution in the third quarter further expanded to 40% compared to 38% in Q3 last year, thanks to our continuous network expansion with Asset-light model.

Now let's move to the cost and profitability section on Slide 20. In Q3 2022, the reported operating income was RMB 500 million compared to only RMB 72 million last year and RMB 8 million a quarter before. The significant increase of the operating income year-over-year was mainly due to [ better ] China business performance and the recovery of DH business. Excluding DH, Legacy-Huazhu's operating income in Q3 was RMB 449 million, grew by 88% year-over-year and improved significantly from RMB 21 million a quarter ago. The hotel operating cost for Q3 was RMB 3 billion, increased by 6.6% year-over-year.

For Legacy-Huazhu, its recorded RMB 2.3 billion hotel operating costs is almost flattish from last year. The increase was mainly from variable costs such as utility, salaries, performance-based bonuses for hotel GM and more GM recruited as our hotel network expands, but we offset the cost by roughly RMB 130 million rental reduction, which doubled the amount we achieved in Q2.

For Legacy-DH, we recorded RMB 744 million hotel operating costs, indicating 18% year-over-year growth. The increase was mainly due to the increase of variable costs associated with business recovery such as labor, F&B, variable rents and et cetera, but we have less rental reduction compared to the same quarter last year as business recovered. Our preopening cost was RMB 25 million in Q3, mainly due to the limited service leased and owned hotels under construction during this quarter, including the flagship InterCity hotels. This number is expected to be small as we raised the hurdle for the leased hotels and very are much focused on the asset-light model.

Our SG&A in Q3 increased by 1.6% year-over-year and 15% Q-over-Q to RMB 586 million. Excluding DH, SG&A for Legacy-Huazhu was flattish on a year-over-year basis to RMB 435 million, in which the labor cost was roughly the same as last year, while the headcounts were already trimmed during this time. Further efficiency improvement is on the way.

The 31% Q-over-Q increase was due to the resumption of business in Shanghai headquarter vis-a-vis the lockdown in Q2. On DH side, overall, the selling expenses increased along with the business recovery and generated higher efficiency as the selling expenses as a percentage of revenue actually declined by 2% from quarter, weakest quarter. Although other operating income in Q3 2022 increased by 90% year-over-year to RMB 76 million, mainly due to more subsidies received from government for our China business side.

Turning to Page 21. Our adjusted EBITDA was RMB 491 million in Q3 2022 compared to RMB 385 million a year ago. DH achieved better profitability in Q3 with EBITDA at RMB 94 million compared with the loss of RMB 115 million last year. Excluding DH, Legacy-Huazhu recorded an adjusted EBITDA of RMB 397 million declined by 20% year-over-year, but significantly improved from RMB 23 million a quarter ago. The year-over-year decline was mainly due to the RMB 340 million ForEx loss brought by the depreciation of euro dollar versus our accounting currency, USD, which largely is a noncash loss. If we exclude the ForEx loss, the EBITDA would be over RMB 150 million higher than 2021.

In Q3 2020, we recorded adjusted net loss of RMB 375 million, in large from the loss of RMB 46 million a year ago and a loss of RMB 84 million a quarter ago.

Excluding DH, Legacy-Huazhu recorded an adjusted net loss of RMB 389 million in large from a loss of RMB 39 million a quarter ago. The net loss was mainly due to ForEx loss, as I mentioned previously and also the timing adjustment of effective tax to be paid in China between the quarters. Adjusted net profit of Legacy-DH turned positive for RMB 14 million for the first time in Q3 compared to the net loss of RMB 164 million a year ago.

Coming to the cash position. Our net debt increased slightly to RMB 6 billion in Q3 from RMB 5.7 billion in previous quarter, it was mainly due to some bank facilities withdrawn this quarter, our cash balance improved to RMB 5.2 billion in the quarter from the RMB 4.7 billion a quarter ago. The unutilized bank facility are RMB 2.9 billion. Given the COVID impact remain uncertain, we are very cautious on CapEx and OpEx spending to preserve cash.

In addition, we have successfully redeemed our convertible note with the amount of USD 475 million recently through both the combination of bank facilities and cash generated from operations.

Turning to Page 24 on guidance. Given lately, there are more resurgences of COVID happened in many provinces and cities, H World expects revenue to grow 7% to 11% in the fourth quarter of 2022 compared to the fourth quarter of 2021 or to decline 1% to 5%, if excluding DH. Again, above guidance only reflects our current view, which is subject to change. With that, let's open for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of Dan Xu from Morgan Stanley.

[Xianda Xu, analyst]

[Foreign Language]

Sorry, please allow me to repeat my question in English. This is Xianda Xu from Morgan Stanley. I have 2 questions. My first question is on Legacy-Huazhu China domestic business, I would like to ask about the recent RevPAR trends. For October, we saw that there was some decline in RevPAR due to more tightening measures. So October RevPAR was 74% of 2019. I would like to ask about the trend in November. And also for the fourth quarter revenue guidance, especially for Legacy-Huazhu, what the management factor in, in terms of RevPAR and also hotel opening expectation.

[Hui Jin, executive]

[Interpreted] Okay. So to answer your first question, given more sporadic resurgence of COVID happened in China in many cities and provinces and we are seeing more strict restrictions carried out by the local government, again, to maintain the 0 policy in China. So we are not expecting the fourth quarter our RevPAR recovery could be in the range of 70% to 75% for our China business.

In terms of the opening, in the fourth quarter, given the recent COVID impact, the opening will be somewhere affected as well. However, if you ask about the gross opening effects on the revenue, actually, the fourth quarter new opening has a very limited impact on the revenue for the fourth quarter, a majority of the impact will be from, again, the RevPAR recovery, which is largely impacted by the recent COVID resurgence.

[Xianda Xu, analyst]

[Foreign Language] My second question is about overseas DH business. So against the backdrop of surging inflation in Europe, can management share with us more about the energy efficiency measures implemented by DH. We saw DH operating expense actually declined 4% Q-on-Q in third quarter. What is the trend in fourth quarter? And should we expect further increase during the winter.

[Fei Ye, executive]

Thank you, Dan, for your question. I will address the issues of international businesses. Your question is quite complicated. So I try to dissect in different areas. Actually, we are focusing, first of all, on top line management. So we're focusing on revenue management really to generate top line results and increased ADR where possible, which is really in line with all the international hotel management group especially with inflationary results. At the same time, of course, we continue our operational improvement program as we already started this year, including operational cost management, especially in headquarters, efficiency improvement, which is at the hotel level as well as energy efficiency management as you mentioned.

At the same time, actually, we are also conducting our portfolio review as well about really the performance of assets. The energy efficiency management and hotel level are very granular and very operational. For example, you do not turn on the Air-Con when it's not necessary. We turn down the heat when it is too warm and you turn off the light when there's nobody in. So we really try to penetrate through all the operations, day-to-day operations to cut down our cost -- our energy costs.

At the same time, we are also negotiating with the energy supply company where we can fix the cost, and we will fix them. And where we see the possibility to work with the flexible pricing, we will do that. Basically, we are working in a short-term fixed price and in the mid- to long term, more flexible pricing. But just to assure you that we are already working very closely with the energy supply companies to manage our cost.

Some of these effects we reported this quarter, actually, you should be able to continue to observe them in the fourth quarter and next year as well especially in some of the efficiency improvement program and the overhead cost reduction, the full year result will only start to show after the onetime kind of write-off. I hope that addressed your question, Dan?

[Xianda Xu, analyst]

That's very clear. Thank you.

[Operator]

Our next question comes from the line of Ronald Leung from Bank of America.

[Ronald Leung, analyst]

[Foreign Language]

Please allow me to ask the question in English. So over the past few months, there were still COVID outbreak across various cities and provinces in China. Do you see that this would further negatively impact the franchisee sentiment? And if possible, could you share the monthly hotel sign-ups over the past few months?

[Hui Jin, executive]

[Interpreted]

Okay. So yes, to address your question. So basically, we agree that the current restrictions due to COVID has continued to affect our franchisee confidence sentiment. So in terms of the new signings, we are seeing the recent new signings in third quarter and fourth quarter are roughly at 80% compared to a normal period. However, we look at that thing in different ways because the China is big. So we are seeing that quite different development trends if you divided the country into Tier 1, Tier 2 cities and the lower-tier cities.

In fact, we are seeing that in the lower-tier cities, actually, the confidence sentiment impact and COVID impact are much smaller compared to the Tier 1 and Tier 2 cities because more resurgence of COVID happened in those Tier 1, Tier 2 cities. So that's why the confidence level in -- the confidence level for the franchisees in lower tier are relatively better compared to those in the Tier 1 and Tier 2 cities. And I think if you are talking about the full recovery, so we still need to wait until the further ease of the COVID restrictions and the improvement of the economic condition in the upcoming future.

However, for us, in terms of our strategy, we will not -- because of the weak market condition or low confidence level, we will insist on implementing our strategy in terms of the lower-tier cities' penetration as well as further penetrating or increasing our market share in the upper mid-scale segment.

[Ronald Leung, analyst]

[Foreign Language]

I ask my question in English. So the Southeast market in China is one of the regional markets that the company has put great emphasis on. So could you share the latest development in the Southeast market? And if possible, could you share the mid- to long-term development target in the Southeast market of China. Thank you very much.

[Hui Jin, executive]

[Interpreted]

Okay. Thank you for your questions. So in terms of the southern part of China, yes, it is one of the most important regions that we are going to further penetrate. In order to achieve this, so we have been making a lot of preparations over the last [indiscernible] year. So the most important things that we did a very significant organization restructuring, and we moved entire organizational down to the regions as well as moved a lot of the management -- middle management team from the Shanghai headquarters to the local markets.

At the same time, we are also building up a localized based talent pools and trying to make, for example, the localized marketing strategy, localized supply chain management to meet the customer demand in that particular market because those customers demand are somewhere different compared to what we have been seeing in Eastern part of China like Shanghai.

In terms of the long-term target, again, similar to other regions, we are targeting 20% of the market share in southern part of China as well. Actually, we are -- we have been opening several flagship stores in core cities in southern part of China, like Shenzhen, Guangzhou by using our Hanting and JI Hotel as well as Orange and Cristal Orange to provide some of the showcase in that market. So we are hoping that in the next 3 to 5 years, we will be achieving a very good development in that particular regions. Thank you.

[Operator]

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

[Simon Cheung, analyst]

[Foreign Language]

My first question is related to the [ price of ] ADR. We have observed that over the last couple of quarters, the ADR has been very resilient, in fact it is actually exceeding the 2019 level? Given the fact that there's a lot of independent hotels being closed over the last couple of quarters, given COVID, would management see the opportunity for them to raise price upon the -- after the COVID is over.

[Hui Jin, executive]

[Interpreted]

Okay. Thank you. Yes, for the ADR, it has benefited from both external and internal factors. For our internal factors, this is actually aligned with our regional management that we have been doing over the last few months. So internally, we have been using pricing synergy, brand synergy and regional synergy to create a better ADR to assure a longer-term healthier and sustainable growth, and it becomes a very important part of the long-term revenue management. This is one. And for the external factors, yes, this is due to several factors like higher inflation as well as the impact of the continuous closure of the independent hotels that also from the external side to provide some of the room for our further improving the ADRs in the longer term.

[Simon Cheung, analyst]

[Foreign Language]

The next question is in relation to the brand strategies observed and also shown in the presentation that now you have 3 brands where you have more than 500 stores, including Hanting, JI Hotel and Orange. Wondering whether the company would want to concentrate in those 3 brands or several key brands. Or just like other competitors, they're going to be diversified and expanded into a lot more different brands.

[Hui Jin, executive]

[Interpreted]

Yes, to answer your questions, in terms of our brand strategy, our key theme behind this is that in each of the segments, we were trying to build up the #1 or #2 brands in the market. So in terms of our economic segment, we have been successful in establishing a very strong brand, which is Hanting and we are also establishing now the Ni Hao brands for, specifically, for the lower tier cities penetration. And in terms of the middle scale segment, our JI Hotel has been very famous and popular in the market and leading top brands in the middle scale segment. And we are seeing a pretty good progress on the development of Orange Hotel, and we hope that it's going to be creating another one in that particular segment. So basically, for each of the segments, we want to have 1 or 2 brands, which is on the top list of the brands and which can create a very popular brands that our customers like and make -- help our franchisees to make money. Thank you.

[Operator]

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

[Hui Jin, executive]

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

[Operator]

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

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