H World Group Limited Price & Performance (HTHT)

Good morning and good evening, everyone. Thanks for joining us today. Welcome to Edgewood Group twenty twenty four Fourth Quarter and Full Year Earnings Conference Call. Joining us today is our Founder and Chairman, Mr. Ji Qi. Our CEO, Mr. Jinhue our CFO, Ms. Cheng Hui and our CSO, Ms. He Ji Hong. 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. Edgeworth Group does not undertake any obligation 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 those measures to comparable GAAP information can be found in our earnings release that was distributed earlier today. As a reminder, this conference call is being recorded. The webcast of this conference call as well as supplementary slides presentation is available at ir.edgeworld.com.

With that, now I will hand over the call to our CEO, Mr. Jinhua, to discuss our business performance in the fourth quarter and the full year of 2024. Mr. Jing, please. Thank you. Hello, everyone. Thank you for joining Edgeworth Group fourth quarter and full year of twenty twenty four earnings conference call. Although there were some still macro uncertainties, and challenges in 2024, the overall domestic travel demand continued achieving steady growth. As suggested by some industry data, and our operational results. For example, the number of passengers transported by railway increased 11.9% year over year, in 2024. And domestic air passenger traffic rose by 8.8% during the same period. Leisure travel continued its strong growth momentum and outperformance of Business Travel. According to the data from the Ministry of Culture and Tourism, the number of domestic tourists reached 5,600,000,000, up 14.8% year over year. With the total domestic tourism spending up 17.1% year over year. Hitting RMB5.8 trillion. This reflects the people's strong willingness on traveling, as well as strong support from local governments to promote tourism activities. Looking to the hotel industry in China specifically, steady growth in demand, particularly the faster growth in leisure demand, has led to supply increase in some regions and areas.

Which resulted a temporary supply demand imbalance. And hence, brought some pressures on the ADR. However, in the long run, we believe that the hotel industry is a highly market oriented a fully competitive industry. And the supply and the demand dynamic will gradually return to a more balanced and a reasonable level after a certain period of time. As the market leader we will continue pursuing our high quality development strategy. Leveraging better products and services stronger brands positioning, and efficient operations as our core competitive edges. To attract more customers and build up stronger capability to navigate through cycles. Now, let me walk you through our 2024 key achievements and operational highlights. First of all, in May 2024, Lexi Huazhu achieved a key milestone of 10,000 hotels in 1,000 cities and counties. [indiscernible] Where is the last county to gain highway access in China. Secondly, the group opened a record high of 44,442 new hotels during 2024. Of which 2,430 new openings was contributed from Lexi Hua2. It was supported by our acceleration of lower tier cities penetration to better capture more growth and development opportunity in China market. Thirdly, we are happy to see our upper mid segment continued gaining momentum.

With hotel network growth by 35% year over year in 2024. Outpacing last year. Thanks to the strong development of Intercity and Crystal Orange brand. Lastly, we continued pursuing our asset light model strategy. In 2024, the asset light revenue contribution exceeded 50% for Netloose business. At the same time, DH satellite transformation also achieved some breakthroughs which we will elaborate later. We believe that the asset light model will help us to achieve more stable and sustainable development in long run and generating stronger and healthier cash flow. Please turn to next page. Over the past decade, Lexi Huazhu's network expansion achieved a CAGR of 18.6%. Growing from less than 2,000 hotels in 2014 to our current level. And our expansion was getting even faster in the past two years, with over 2,000 new growth new hotels opened in 2024. It helped us further solidifying our leading position in the 2025 marks the twentieth anniversary of Edgeworth Group. Over the past twenty years, we have involved a step by step from a single hunting branded hotel to the current multi brand hotel management group. With over 11,000 hotels in operations. Moreover, we are also transforming from an asset heavy business model to an asset light expansion model, which focus more on product and service quality as well as brand positioning and management capability.

Going forward, we will stick to our high quality expansion strategy and aim to reach our next goal of 2,000 cities with 20,000 hotels in the near future. Now let's review our legacy H2s. Operational performance in 2024. Please turn to Page five. In 2024, Lexi Huazhu's blended RevPAR decreased slightly by 3% to RMB $2.35, In 2024, our occupancy rate improved by 0.2 percentage points year over year to 81.2% despite that our room counts grew by 20% year over year in 2024, and a lot of newly opened hotel was due in their ramp up period. This further demonstrated our strong capability to attract and serve more customers and grab more market shares. However, ADR was down 3.2% to RMB $2.89 mainly due to a high base last year as well as supply increase. Please turn to Page six. In 2024, we achieved a record high hotel expansion of 2,430 new openings. At the same time, the number of motel closures in 2024 was six zero six six sixty eight lower than that in 2023. This was mainly due to fewer closures of Elan and Hunting one point zero. Moving forward, we will still privatize quality over quantity in terms of expansion.

And continuously phase out unqualified hotels from our portfolio and pipeline. To ensure a constant product and service quality improvements. By the end of twenty twenty four, we have a total of 2,988 hotels in the pipeline. Increased by 89 hotels sequentially. We continue focusing on the economy and the mid scale segment for market penetration and development. Please turn to Page seven. By the end of twenty twenty four, Lexi Huazhu's economy and the middle scale hotel accounted 917989% of the hotels in operation the hotels in pipeline and the new openings respectively. We believe the mass market remains the largest and the most promising market in China. And it is also the foundation of our business. Going forward, we will constantly roll out high quality and good value for money limited service hotels expand our coverage nationwide and solidify our leading position in this limited service segment. Continuous product upgrades is one of the key factors to maintain market leading position and enhance competitive edge for achieving long term sustainable growth. In 2024, we launched new versions and the three brands, which included Nihao two point zero, Haiyin six point zero and 2.5. Nihao and Haiyin serves as Hanqing's supplementary brand to fulfill the accommodation demand for younger generation and to support lower tier cities penetration, and to help strengthening our presence and the leading position in the mass market.

While Crystal Orange 2.5 was designed for the business travelers in higher cities. And together with Intercity, to be our key brands, to further breakthrough and catch up in the upper mid segment in China. We continue to improve product quality through upgrades for our Golden Triangle [indiscernible] service segments over the last several years. Please turn to page A. Hunting 3.5 and above version has been increasing every year. By the end of twenty twenty four, the proportion of HANJIN 3.5 and above expanded 15 percentage points year over year. And accounted over 36% of Hanqing hotels in operation. Please turn to Page nine. Among all G hotels in operation, the proportion of GE four point zero version and above up from 30% in 2020 to 7076% in 2024. Then please turn to page 10. The proportion of Orange two point zero and above expanded from 14% in 2021 to 66% in 2024. Through consistent product upgrades, the brand and the brand power for our Golden Triangle brands what see continuous enhancement and solidification. In terms of regional expansion, our penetration in the lower tier cities continued progressing. Please turn to Page 12. As the end of twenty twenty four, around 42% of the company's hotels in operation were located in Tier three and below cities.

Reflecting a two percentage points year over year increase. The proportion of pipeline hotels in this market reached 54% a 12 percentage points higher than operating hotel ratio. Additionally, by the end of twenty twenty four, [indiscernible] cities and counties coverage expanded to ten thirteen eighty added 123 new cities and counties compared to a year ago. Our Optimize segment continued gaining strong growth momentum. Please turn to Page 13. As the end of twenty twenty four, the number of hotels in operation and hotels in pipelines in the upper mid segment both increased by 35% year over year. Reaching eight seventy three and five twenty one hotels, respectively. After few years of development, our core brands in this segment have gained better recognitions among customers and franchisees. Which helped us to expand network faster than before. We will continuously put more efforts on developing in this segment and strive to become one of the top brands in the near future. Please turn to Page 14. In 2024, the rapid development of our corporate business effectively offset some impacts from the shortage of individual business traveling demand. And helped us to achieve a stable occupancy rate. For the full year, direct corporate bookings exceeded 27,600,000 room nights sold.

Reflecting a 39% year over year increase. With active corporate accounts surpassed by 5,300 up by 49% year over year. We always emphasize that membership program and direct sales capability are the most critical aspect for our business, to achieve long term sustainable development and growth. Please turn to Page 15. As the end of twenty twenty four, our member base further increased to nearly two seventy million during the fourth quarter of twenty twenty four room nights generated through the central reservation system accounted for 66.4% of the total bookings. Representing an increase by 4.1 percentage points year over year and 2.2 percentage points sequentially. After reviewing our performance in the year of '24, let's now look into our key focuses in 2025. Please turn to Page 16. In 2025, we will continue focusing on high quality growth, We will further penetrate into lower tier cities as well as those wide spaces for our limited service segment. In addition, we will continuously enhance our development and the presence for the upper mid brand in the selected service segment. At the same time, we will focus more on brand building and brand positioning. As well as continue implementing our service excellence strategy with a customer centric principle.

On the product front, we will further improve product quality and launch new products to strengthen our brand and product consistency. To improve customer satisfaction. Meanwhile, we will motivate and authorize our staff and employees to encourage them to proactively provide the proper services to the customers. By doing so, we can ultimately achieve a low cost high efficiency, and outstanding service level with strong Edgeworth characteristics. Thirdly, will continue to pursue our asset light strategy to achieve a more stable and sustainable longer term development. Lastly, in terms of sales and marketing, our Edge Reward membership program is undoubtedly the core focus. We are aiming to improve member engagement level and improve user retention and repurchase. Additionally, we will also further optimize our sales capabilities to better serve and attract more diverse customer base under various consumption scenarios. Or above concludes the twenty twenty four operational updates for Lexi Huazhu. Now I will hand over the call to our CSO, Ms. He Ji Hong, to give an update on Lexi DH. Thank you.

Thank you, Ching Cle. I will highlight the key performance of legacy DH business now. Please turn to page 17.

For our legacy DH business, we're happy to report that in the fourth quarter of twenty twenty four, RevPAR improved over 10% to €81 compared to last year. This improvement is mainly driven by seven percentage points occupancy improvement. For the full year 2024, RevPAR increased 5.9% to €76 compared to 2023. This is contributed by 1.5% increase in ADR and 2.7 percentage point increase in occupancy. Please turn to page 18. In the second half of twenty twenty four, we carried out a series of cost cutting and restructuring activities. We reduced admin staff at headquarters by 30%. Restructured our operations management team to improve hotel performance. At the same time, we accelerated the portfolio restructuring to become more asset light. 2024, we exited 14 leased hotels. All these efforts started to pay off although full year benefits will only be realized in 2025. In 2024, our revenue increased 9.6% to RMB4.9 billion, More importantly, our core adjusted EBITDA which excludes restructuring costs brand value and goodwill impairment, and other adjustment of onetime nature, it increased by 64% to RMB356 million. Please turn to Page 19. Looking forward, we will continue our effort to improve legacy DH business. We will focus on three key areas.

First of all, optimization of hotel operations, through a disciplined approach for revenue enhancement and cost management in each of our hotels. Secondly, we will start to see positive impact of overhead reduction from 2024. At the same time, we will not stop our overhead streamlining effort and we'll continue scrutinizing the admin costs.

Third, we will continue to pursue asset life strategy and exit unprofitable at leases. As a matter of fact, we exited another 11 lease contracts in February 2025. With all these efforts, we strive to improve of our DH business. In 2025, due to exit of leased hotels, and a change of these leases to franchise contracts, our top line revenue will decrease [indiscernible] However, this portfolio reshuffling effort will improve our sustainable profitability as we transform the leases to fee based franchise business. This concludes the DH review. I'm now handing over to CFO, Ms. Chen Hui, for financial review. Thank you, Ji Hong. Good evening, and good morning, everyone. Let me walk you through our operational and financial review for the fourth quarter and the full year of 2024. Please turn to Page 21. Our hotel network [indiscernible] The overall number of rooms increased 19% year over year, so Compared with 912 silence rooms a year ago. Hotel turnover for the full year of 2024 was RMB 93,000,000,000, a 15% year over year increase versus 2023. By segment, Lexi Huazhu's hotel turnover grew 16% year over year to 85,000,000,000. And the next DH hotel turnover increased 9% year over year to 8,000,000,000.

Please turn to Page 22.

For our revenue, in the fourth quarter of twenty twenty four, total revenue for the group increased 7.8% year over year to RMB 6,000,000,000. Exceeding the high end of our guidance. For the full year of 2024, total revenue for the group increased 9.2% year over year. To $23,900,000,000 By segments, revenue from Lexi Huazhu increased 9.2% year over year to RMB 4,800,000,000.0. In the fourth quarter beating the high end of our guidance. Thanks to the better than expected hotel openings, and RevPAR performance. And its full year revenue grew 9.1% year over year. To 19,000,000,000 In 2024, we further closed 63 leased and owned hotels.

As we pursue a more asset light model. As a result, Nexi Huatu's revenue from leased and owned hotels decreased 4.8% year over year. In Q4, and decreased 3.9% year over year for the full year. On the other hand, its monetized and franchised revenue recorded a much stronger growth of 24% year over year in Q4.

And 23.6% year over year for the full year. Mainly attributed attributable to our strong new hotel openings despite a slight decline in RevPAR. [indiscernible] its revenue rose 2.9% year over year, to RMB 1,200,000,000.0. In the fourth quarter and was up 9.6% year over year to 4,900,000,000.0 for the full year. Driven by RevPAR growth Turn to Page 23. As we have been continuously our asset light strategy, revenue contribution from our monetized and franchised hotels, further enlarged For the full year of 2024, revenue contribution from monetized and franchised hotels reached 40% for the group. Up from 35% a year ago. [indiscernible] revenue contribution from monetized and franchised hotel reached 49% compared to 43% a year ago.

Exceeding the revenue contribution from [indiscernible] for the first time on a yearly basis. We expect this trend to continue and we believe our SLI strategy will support a gradual and continuous margin expansion of the company and generating strong cash flow. As well as help us to become more resilient when navigating through economic cycles. Now moving to the cost and expansion expense section. Please turn to page 24. Hotel operating costs for the group [indiscernible] 4,200,000,000.0 in the fourth quarter and RMB15.3 billion for the full year. Up 4.9% year over year. And 6.6% year over year, respectively, Hotel operating costs of Lexi Huazhu decreased 5.3% year over year in Q4 and the increased 3.8% year over year for the full year. Slower than the revenue growth in the in the corresponding period thanks to the transformation to a more asset light portfolio. Next, the aged hotel operating costs amounted to RMB 1,400,000,000.0 in Q4 and RMB 4,300,000,000.0 in 2024. Representing 3314.4% increase. Respectively. Primarily due to roughly $420,000,000 impairment loss booked in Q4. SG and A expense for the group [indiscernible] 1,000,000,000 in the fourth quarter and RMB3.7 billion for the full year. Up 5.3% year over year and 16.7% year over year, Lexia Huazhu's SG and A increased 13.4% year over year in Q4 and 19.7% year over year in 2024.

Mainly due to a highly higher share based compensation to attract and return core employees who are key to our sustainable long term business growth. If excluding share based compensation, Lexi Huazhu's SG and A expense would have increased 8.8% year over year in Q4 and 12.5% for the full year. Next, 14.4% year over year in the fourth quarter thanks to our restructuring and the cost of optimization effort. DH's four year SG and A increased 9.4% year over year. Our income from operations grew 19.2% year over year to $902,000,009.00 2,000,000 RMB. In the fourth quarter and increased 10.3% year over year. To $55,200,000,000.0 for the full year. [indiscernible] Legacy Quadrux reported a 47.7% year over year operating income growth in Q4. And fourteen point four percent year over year growth for the full year of 2024. [indiscernible] loss widened due primarily to the impairment loss. As mentioned previously, and around 100,000,000 RMB one off one off restructuring costs booked for the full year. Please turn to page 25 for the for our profitability and cash flow. Our group's adjusted EBITDA grew 10.3% year over year to RMB 1,200,000,000.0. In the fourth quarter and increased 8.8% year over year to up to 6,800,000,000.0 for the full year.

To better reflect our core operational performance, we further made adjustments on noncash impairment loss one off DH restructuring costs, and the previous EAS COVID related government subsidies. And the rental reductions. Which are non operational or one off items. Our group's core adjusted EBITDA increased 15.5% year over year to RMB 1,700,000,000.0 in the fourth quarter and grew 13.9% year over year. To JPY 7,500,000,000.0 for the full year.

By segment, Lexi Quadro's core adjusted EBITDA increased 14.5% year over year to RMB 1,500,000,000.0 in Q4. And grew 12.5% year over year. To RMB 7,100,000,000.0 for the full year. Driven by our high quarterly network expansion and asset light strategy.

DHS core adjusted EBITDA increased 24% year over year in the fourth quarter and 54.1% year over year for the full year, thanks to the RevPAR growth and our cost optimization effort. Adjusted net income more $321,000,000 in the fourth quarter which was dragged primarily by a surge in withholding tax which was mainly related to our dividend distribution.

For the full year 2024, our group adjusted net income increased 5.8% year over year to RMB 3,700,000,000.0. Of which Nexi Huazhu's adjusted net income grew 11.2% year over year to RMB 4,200,000,000.0. In 2024, the group generated operational cash flow cash inflow of RMB 7,500,000,000.0. Please turn to page 26. For our liquidity position. As of end 2024, the group had 11,900,000,000.0 cash cash equivalents restricted cash, and time deposits. And was in solid net cash position of RMB 6,500,000,000.0. Including time deposits We also had 3,300,000,000.0 and utilized bank facilities as of end twenty twenty four. Now moving to our shareholder return. Please turn to Page 27. We started to pay dividends to shareholders since 2017. Except for twenty twenty twenty twenty and 2022, which were heavily impacted by COVID. In 2024, we revised up our dividend payout policy from up to 45% to no less than 60% of net profit. Together with the announcement of up to two billion three year shareholder return plan. Today, we are glad to announce that the Board has approved a US300 million dollars final cash dividend for the second half of twenty twenty four. As a result, the total shareholder return for 2024 reached to $770,000,000 which include $500,000,000 cash dividend and $270,000,000 share [indiscernible] This accounted for more than one third of our three year plan.

And over 80% of free cash flow generated in the year. As we are growing more asset light, and expecting stronger and healthier healthier cash flow in the future we will be highly committed to our current shareholder return plan. [indiscernible] consistently pay dividend to our shareholders.

Lastly, Page 28 on guidance. For the fourth quarter of twenty twenty five, we expect our group revenue to grow 0% to 4% compared to Q4. Q1 twenty twenty four. And 3% to 7% if excluding DH. As you may recall, we initiated the asset light transformation of DHB in early twenty twenty four. In the beginning of this year, we have successfully completed the 11 DH hotels [indiscernible] from leased model to franchise model. If excluding the impact of this SLI transformation, on a comparable basis. The group revenue would grow 3% to 7% year over year in Q1 twenty twenty five. For the full year of 2025, we expect our group revenue to grow 2% to 6% year over year. And 5% to 9% if excluding DH. If excluding the impact of DH's SLI transformation, on a comparable basis the group revenue would grow 4% to 8% year over year in 2025. As you may notice, in addition to the to total revenue guidance, we are now providing revenue guidance for the Manageized and Franchise business. As we are pursuing a more asset light model we believe the managed and franchised business better reflects the company's growth trajectory in the long run.

We expect our monetized and franchise revenue to grow 18% to 22% compared to Q1 twenty twenty four. And for the full year of 2025, [indiscernible] expect our monetized and franchised revenue to grow 17% to 21% year over year. In terms of unit growth, we are expecting to open around 2,300 hotels in 2025. And closed around 600 hotels for the same year. It represents roughly 15% year over year hotel network growth. With that, we are ready to take your questions. Operator, please open the line for q and a.

And Thank you. Our first question is from the line of Ronald Leung from Bank of America. Please go ahead.

Let me translate my questions into English. I have two questions. My first question is about RAFTA outlook. May I ask what is your outlook for 1Q and also for full year RevPAR growth? That's the first question. The second question is about DH. So for DH, would there be any strategy change ahead? And how should we think about the earnings recovery going forward? Thank you very much. So let me answer your first question regarding to the rough part. As you may notice that in the first quarter, there are some of the seasonality as as well as the different performance among different regions and areas. But we clearly see the demand from the leisure travel still very strong. However, for the business, we a trend of the recovery from the bottom, and we also saw some of the third party research that they have the expectation that business travel demand may start recovering this year. But however, in the first quarter, given the seasonality given the underperformance or a bit weak performance in the March. We now expect that the first quarter RevPAR to be a bit low single digit decline on a year over year basis.

However, looking into a full year basis, are still quite confident that the RevPAR for the full year are going to be stabilized compared to 2024 or even a little bit increase Thank you.

This is Ji Hong. I will take the question about DH. So in 2024, as I explained in the presentation, that we started a quite heavy handed restructuring and all this effort was started to pay off. On a full year basis in 2025. So in 2025, our main strategy is to still stop the bleeding and to stabilize the business and its performance.

And with that turnaround, accomplished, we will also look for growth opportunities. At the same time as well. Mostly through asset light and organic growth. For the DH currently. So if you look at the the net income, for 2024, actually that's why we focus and also stress that the core EBITDA improvement. And that is really the results of a turnaround effort and our portfolio restructuring. And that's kind of trend you can expect it to continue. This time, we do have impairment. And also restructuring costs recorded. For 2024, especially in the last quarter. This impairment is the result [indiscernible] brand value and goodwill as well from the purchase. And this kind of impairment we evaluate every year based on our growth trajectory and growth plan. And next year, we will continue to observe the market, but we do not expect this kind of having impairment immediately. And the restructuring asset, we will case by case. In some cases, because of the overhead and because of admin staff, we will probably still have to do some restructuring and the property will record some of some restructuring costs, but it will not be in the same magnitude. As 2024.

Thank you very much management. Yeah. Thank you.

We'll now take our next question. This is from Dan Chi from Morgan Stanley. Please go ahead.

Please allow me to translate my question into English. For FY 2024, total shareholder return was close to 800,000,000, among which USD 500,000,000 was dividend exceeded 100% of payout ratio. So going forward, if there is no good buyback opportunity, should we expect even higher dividend payout to match the total shareholder return level seen in 2024? Thank you.

Cixia?

Let me help you translate. So in 2024, we returned total US770 million dollars to our shareholders which US500 million dollars through cash dividend and $270,000,000 through the share buyback. This is thanks to our asset light model and transformation, which help us to generate much stronger and healthier cash flow. And looking forward, so we will stick to our current shareholder return plan, which which is a three years plan to return up to 2,000,000,000 So and mainly through the cash dividend. So that's the current plan for now. Thank you. Thank you.

Thank you. I would now like to hand the conference back to management for any closing remarks.

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

Thank you.

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