H World Group Limited Q3 FY2024 earnings call

• Network Expansion: Third quarter saw 774 hotel openings, closed 217 hotels (excluding low-quality) and 123 specific hotels. Pipeline hotels were 2,899, with new signings exceeding 800 hotels. - Segment Focus: Economy and middle scale segments account for 91% of operations, 80% of pipeline, and 90% of openings. Tier 3 and below cities had 42% of operations (up 2% year-over-year) and 53% of pipeline (11% higher than operations). Upper-mid segment had over 800 hotels in operation and 487 in pipeline, with Crystal Orange 2.5 version launched. - B2B and Membership: B2B room nights booked over 7.5 million (up 41% year-over-year), active corporate clients over 4,500 (up 45% year-over-year). H Rewards membership near 260 million. CRS contribution was 64.2% (up 2.2 percentage points year-over-year, 4.3 percentage points quarter-over-quarter). - Overseas: DH blended ADR up 2.5% to EUR 117, occupancy up 0.8 percentage points, RevPAR up 3.7% to EUR 82. Restructured economy brand and Zleep business, exited joint venture and 14 hotels in Denmark.

Legacy-Huazhu: In Q3 2024, RevPAR decreased 8.1% year-over-year to RMB 256, ADR down 7% year-over-year to RMB 301, occupancy rate 84.9% (down 1 percentage point). Hotel turnover grew 11% year-over-year to RMB 24 billion. Legacy-DH: Turnover grew 8% year-over-year to RMB 2.1 billion. Group total turnover for Q3 2024 was RMB 26 billion, a 11% year-over-year increase. Hotel revenue for the group increased 2.4% year-over-year to RMB 6.4 billion. Revenue from Legacy-Huazhu grew 1% year-over-year to RMB 5.2 billion, and Legacy-DH revenue rose 9% year-over-year to RMB 1.3 billion. Adjusted EBITDA for the group decreased 9.5% year-over-year to RMB 2.1 billion, with Legacy-Huazhu's adjusted EBITDA down 7.5% year-over-year and Legacy-DH generating RMB 21 million adjusted EBITDA (down year-over-year).

• Fourth quarter group revenue expected to grow 1%-5% year-over-year, excluding DH 1%-5% year-over-year. - RevPAR in Q4 expected to be middle single-digit year-over-year decline. - Full year 2024 new openings around 2,400 (higher than previous guide of 2,200).

• Macro economy impact on business travel demand. - RevPAR pressure from high base ADR and ADR trends in certain segments. - Restructuring costs impact on DH business in the short term.

Q: What are the RevPAR trends in October and November and what is the expectation for RevPAR growth in 4Q? Also, what is the company's strategy to enhance the membership's loyalty to increase the direct sales ratio?

A: Clearly, business traveling activity remained weak compared to leisure, causing ADR impact and pressures. RevPAR for 4Q expected to be middle single-digit year-over-year decline. To enhance membership loyalty, efforts are being made to enhance the membership program, provide more variety in products, improve membership benefits, ensure lowest pricing through direct sales channel, and seek cooperation with other industries.

Q: What is the expectation for RevPAR next year and the supply situation? Also, what is the management's view on competition in the midscale and upper-midscale segment?

A: RevPAR should gradually enter a more stabilized and growth cycle from next year. China's leisure market has good potential with government support. Regarding supply, China's hotel market lacks high-quality supply with traditional old hotels exiting and low-quality small hotels gradually going out. In midscale segment, strong brands like JI Hotel and Orange are confident. In upper-mid segment, key brands like Crystal Orange provide value-for-money products and benefit from property market changes.

Q: Can management share more insights on the leased and owned business strategy? Is the proactive closing a one-off or a longer-term plan strategy? If the latter, how many leased and owned hotels in the current portfolio will get impacted?

A: Company is moving to more asset-light model. Proactive closure is part of long-term strategy. Will continue closing more leased and owned hotels in future, quantity higher than first half but less than Q3.