Earnings call transcript: Huazhu Group Q2 2025 beats EPS forecast, stock up

Huazhu Group Ltd reported its second-quarter earnings for 2025, surpassing earnings per share (EPS) expectations with a reported EPS of $3.88 compared to the forecasted $3.80. Revenue fell short at $6.15 billion against an expected $6.32 billion. The stock rose 2.58% in premarket trading, reaching $34.21, reflecting investor optimism following the earnings call. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations, with significant upside potential.

Want deeper insights? InvestingPro offers 10+ additional expert tips for Huazhu Group, including valuable insights about management’s share buyback strategy and the company’s market position.

Key Takeaways

• Huazhu Group exceeded EPS expectations for Q2 2025.
• Revenue fell short of forecasts, highlighting challenges in the current market.
• Stock rose 2.58% in premarket trading, indicating positive investor sentiment.
• The company announced significant growth in its hotel network and membership base.
• Future guidance suggests moderate revenue growth with some RevPAR challenges.

Company Performance

Huazhu Group demonstrated resilience in Q2 2025, reporting a 4.5% year-over-year increase in group revenue to RMB 6.4 billion. The company’s adjusted EBITDA rose by 11.3% year-over-year, reaching RMB 2.3 billion, and adjusted net income grew by 7.6% to RMB 1.3 billion. The company’s managers and franchise business revenue saw a significant 22.8% increase, although its lease and own business revenue decreased by 7.6%. InvestingPro data shows the company maintains a "GREAT" Financial Health Score of 3.13, with strong cash flows sufficient to cover interest payments.

Financial Highlights

• Revenue: RMB 6.4 billion, up 4.5% YoY
• Adjusted EBITDA: RMB 2.3 billion, up 11.3% YoY
• Adjusted Net Income: RMB 1.3 billion, up 7.6% YoY
• Managers and Franchise Business Revenue: RMB 2.9 billion, up 22.8% YoY

Earnings vs. Forecast

Huazhu Group’s EPS of $3.88 exceeded the forecasted $3.80, marking a 2.11% surprise. However, the company missed its revenue forecast of $6.32 billion by 2.69%, reporting actual revenue of $6.15 billion. This mixed performance highlights the company’s ability to manage costs effectively while facing revenue challenges.

Market Reaction

Following the earnings announcement, Huazhu’s stock gained 2.58% in premarket trading, reaching $34.21. This upward movement reflects investor confidence, despite the revenue miss. The stock remains below its 52-week high of $42.98 but above its 52-week low of $27.92. With a beta of 0.46, InvestingPro data indicates the stock trades with notably low volatility, offering stable returns and an attractive dividend yield of 5.7%.

Discover more valuable insights with InvestingPro’s comprehensive research report, part of our coverage of 1,400+ US equities.

Outlook & Guidance

Looking ahead, Huazhu Group projects a group revenue growth of 2-6% year-over-year, with monetized and franchised revenue expected to grow by 20-24%. However, the company anticipates a slight year-over-year decline in RevPAR for Q3 and expects full-year RevPAR to be slightly below previous guidance. The company continues to focus on expanding its hotel network and enhancing its supply chain capabilities.

Executive Commentary

CEO Jin Hui emphasized the company’s commitment to long-term business development, stating, "We remain committed to focus on long-term business development, emphasizing high-quality growth." He also highlighted the importance of supply chain strength, noting, "Supply chain strength is a critical pillar of high-quality development."

Risks and Challenges

• Increasing hotel supply in the market may pressure occupancy rates.
• Macroeconomic uncertainties could impact consumer spending.
• Potential cannibalization among hotel properties as the network expands.
• Older hotel properties may face operational challenges.
• The focus on economy and middle-scale segments may limit growth in premium segments.

Q&A

During the earnings call, analysts inquired about the company’s asset-light transformation strategy and supply chain optimization efforts. Concerns were raised about potential hotel cannibalization, but management assured that quality growth remains a priority over scale.

Full transcript - Huazhu Group Ltd (HTHT) Q2 2025:

Heidi, Conference Operator: Good day, and thank you for standing by. Welcome to the H World Q2 twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to your speaker today, Jason Chen. Please go ahead.

Jason Chen, Investor Relations, Edgeworth Group: Thank you, Heidi. Good morning, and good evening, everyone. Thanks for joining us today. Welcome to Edgewood Group twenty twenty five Second Quarter Earnings Conference Call. Joining us today is our Founder and Chairman, Mr.

Ji Qi our CEO, Mr. Jinhui 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 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 early today. As a reminder, this conference call is being recorded. Webcast of this conference call as well as supplementary slide presentation is available at ir.edgeworld.com. With that, now I will hand over the call to our CEO, Mr.

Jin Hui, to discuss our business performance in the 2025. Mr. Jin, please. Dear investors and analysts, good day. Thank you for joining our second quarter twenty twenty five earnings conference call.

First, I’d like to share some observations on the overall market. On the demand side, domestic number of travelers continues to grow steadily according to the data released from railways, airlines and tourism statistics. However, due to the rapid increase in hotel supply over the past two years, coupled with the negative impacts of various macro factors on business traveling and the consumer spending willingness, the hotel industry is still facing some challenges. Despite the current challenging market condition, we remain committed to focus on the long term business development, emphasizing on high quality growth, securing prime locations in the major cities, further deepening our presence in the lower tier cities and optimizing the location and the quality of our existing hotels. In the second quarter, by breaking through into more new cities and regions and further penetrating into the lower tier cities, we achieved another quarter of high quality network expansion, driven by an 18.3% year over year increase in the number of rooms in operation.

Our hotel our group hotel GMV grew by 15% year over year to billion. Meanwhile, along with our hotel network expansion and the continuous enhancements of our Edge Rewards membership program, Our member base also grew by 17.5% year over year to nearly two ninety million in the second quarter, while the number of room nights booked by members exceeded 60,000,000 nights, representing a 28.8% year over year growth. More importantly, our S and Lites, Manage and Franchise business delivered robust growth in hotel network revenue and profit. M and S revenue rose 22.8% year over year to 2,900,000,000.0 in the second quarter, while its gross operating profit increased by 23.2% year over year to RMB 1,900,000,000.0, contributing nearly two thirds of the group’s total gross operating profit. Macro uncertainties and weakened consumer spending wellness should have more pronounced impacts on the high end consumption.

Edgeworth remains steadfast in our strategic focus on economy and the middle scale segments to serve the mass market. Against the backdrop of consumers favoring value for money products and services, Edgeworth is well positioned to demonstrate even stronger competitive advantages. By enhancing our brands, optimizing and upgrading our products and improving our services, we will further solidify our core competitiveness, earn long term customers’ loyalty and achieve resilience while navigating through cycles. We are delighted that after twenty years of development, our Hanjin brand ranked it number one on the latest hotels magazines, World’s Top 50 Hotel Brands list, becoming the world’s largest hotel brand by room count. However, we believe this is just the beginning, and we continue to refine and upgrade our products to improve product quality and to better meet customers’ demand.

Recently, we officially launched Hanqing four point zero version. This is not just a simple product upgrade, but a revolutionary supply chain reform. Through systematic optimization across CapEx, construction, maintenance and operations, we have successfully developed a benchmark product with lower cost, higher quality and greater efficiency. Hanjin will serve as a key driver for our further penetration into the lower tier cities. Hanjin Hotel has undoubtedly become the leading hotel brands in the economy segment, while G Hotel has been leading the middle scale segment.

Nevertheless, we are more excited to see our Orange Hotel recently surpassing the 1,000 hotels milestone. With its industry leading products, cost competitiveness and operational capabilities, Orange Hotel is well positioned to become our second growth engine in the middle skill segment. Together, HanTing, GE and Orange form the Golden Triangle brands of our limited service segment, demonstrate formidable competitiveness and serve as the core driver to reach our 20,000 hotels in 2,000 cities strategic target in mid term. At the same time, S1 has made rapid breakthroughs in the upper midscale segment. As of the second quarter, the number of upper midscale hotels in operation and in pipeline exceeded 1,500, up 23.3% year over year.

In particular, our intra city hotel has been rapidly gaining tractions among both franchisees and consumers and achieving remarkable roses in the recent quarters, thanks to its clear brand positioning, exceptional product quality and a strong operational performance. In the second quarter, Intercity achieved a positive year over year growth in its same hotel RevPAR. Whether it’s the limited service or the upper mid scale segment, continuously product optimization and upgrades relies on strong supply chain capabilities. We firmly believe that supply chain strength is a critical pillar of high quality development. Therefore, we continue to innovate and optimize our supply chain through enlarging our supplier pool, strengthening module applications and optimizing product design to achieve higher product quality, lower OpEx and CapEx and a shorter construction period, which is, in turn, further strengthening our core competitiveness.

Lastly, we remain focusing on our direct sales capability through Edge Rewards membership program. Our membership and the direct sales are vital to our sustainable long term business growth. As we expand our hotel network and enter more new cities, our membership base continuously to grow. By the end of the second quarter, Edge Rewards membership reached nearly two ninety million members, with direct bookings through CRS rose 5.2 percentage points year over year to 65.1%. Recently, we introduced the price guarantee features in our Edge Rewards app, ensuring our members get the best room rate.

Going forward, we will further enhance membership benefits, expand the loyalty points usage scenarios and exploring cross industry partnership to improve member engagement and stickiness and further boost our direct sales capability. This concludes the business updates for Edgeworth’s second quarter twenty twenty five. Now I will hand over the call to our CFO, Ms. Chen Hui, to present the group’s financial performance for the quarter.

Chen Hui, CFO, Edgeworth Group: Thank you, Jin Hui. Good evening, and good morning, everyone. Let me walk you through our second quarter financial overview. During the quarter, our group revenue grew 4.5% year over year to 6,400,000,000.0, near the high end of our previous guidance, of which legacy Huazhu’s revenue increased 5.7% year over year. We are glad to report that as we continue carrying out asset light strategy and the cost optimization efforts, we saw year over year margin improvements from both Lexi Huazhu and Lexi DH.

As a result, our group adjusted EBITDA rose by 11.3% year over year to 2,300,000,000.0. Adjusted net income increased 7.6% year over year to RMB 1,300,000,000.0. More importantly, as we may notice that, we started providing revenue and gross operating profit breakdown for our monetized franchise and lease and own business in our presentation. We believe it could be better demonstrate our future business development strategy, especially on the profit growth driver during our asset light transformation period. Looking into the numbers.

In the second quarter, our Managers and Franchise business revenue reported a robust 22.8% year over year growth to RMB 2,900,000,000.0. And the gross operating profit rose by 23.2 year over year to RMB 1,900,000,000.0 in the second quarter, respectively. The robust growth in both revenue and profit was mainly driven by hotel network expansion. More importantly, given the nature of asset light business model, franchise and franchise margin profile is relatively stable and is less impacted by RevPAR movement compared to lease on own. On lease on own business front, we continue reducing the exposure.

In the second quarter, our lease on own revenue and lease on gross operating profit decreased 7.6% year over year and 13.4 respectively. Our asset light transformation resulted in a further enlarged profit contribution from the franchise and franchise business. In the second quarter, our managed and franchised business contributed to 64% of our total gross operating profit, up 7.5 percentage points year over year. Moving to the cash flow and liquidity position. In the second quarter, we generated RMB 2,700,000,000.0 operating cash flow.

And at quarter end, the group had RMB 13,700,000,000.0 cash and cash equivalent and RMB 6,200,000,000.0 net cash on the balance sheet. We are committed to pay out dividend consistently and stick to our shareholder return plan. For the 2025, we are glad to declare a USD $250,000,000 interim cash dividend, which represents 74% of our first half net profit and together with roughly US62 million dollars share buyback. Lastly, on our guidance for the 2025. We expect our group revenue to grow 2% to 6% compared to the same quarter last year and 4% to 8% if excluding DH.

The monetized and franchised revenue in the 2025 is expected to grow in a range of 20% to 24% compared to the third quarter last year. With that, we are ready to take your questions. Operator, please open the line for Q

Heidi, Conference Operator: Thank you. And We will take our first question. And the question comes from the line of Ronald Ng from Bank of America. Please go ahead. Your line is open.

Ronald Ng, Analyst, Bank of America: Hi, good evening management. Thank you for taking my question. So I have two questions. My first question is about rough part. So what is your expectation for the rough part in 3Q and also 2025?

And is there any change to the full year revenue guidance? This is my first question. My second question is about any potential impact on RevPAR from new hotel openings. So do you see any potential cannibalization when new hotels open and ramp up and that could affect the old hotels? If yes, are there any initiatives that management can take to address this conflict?

Thank you very much.

Jason Chen, Investor Relations, Edgeworth Group: Okay, let me translate. So I understand you guys are still very much looking at the rough arm movements, first of all. We hope you focus more on a long term edge rewards performance in terms of the market share gaining, our improvements in terms of the products and the brands, as well as a lot of improvements from different fronts to create our core competency. In terms of the RevPAR guidance for the third quarter and the full year, for the third quarter, especially during the summer holiday, we observed that a lot of local governments are promoting the tourism industry, for example, by providing deep discounts in terms of the tickets, even free tickets giving, just trying to boost the demand for the leisure traveling. However, in some regions and areas was affected by some extreme weather conditions, plus some of the macro uncertainties, some of the weakened consumer spending willingness.

The overall performance till now for the summer holiday are slightly below our previous expectation. Therefore, we’re the third quarter’s RevPAR will still have a very slight year over year decline. However, it’s going to be quite significantly narrowed on a sequential basis. In terms of the full year RevPAR, again, because of some of the macro uncertainties, especially as I mentioned previously, there was quite a lot of supply increased over the last two years, still creating some of the challenges currently. Combining the performance for the first half as well as the current summer holiday performance, We are currently expecting the RevPAR for the full year performance will be slightly below our previous guidance.

But however, as I mentioned, we have been putting a lot of efforts in terms of to improve our products, our sales capability, our supply chain capability, just to make sure that we can be much resilient even under this kind of challenging market conditions. Therefore, in terms of the revenue, we will strive to achieve our previous guidance. In terms of the impacts from the new hotels to the old hotels, we have to admit over the past twenty years of development, especially in those Tier one to Tier two, where we have higher market share, we have a much higher basis. There are a lot of old version of the products, which has been running for many, many years. Of course, in the current environment, this kind of products competitiveness is quite low.

So, as you may notice that we have been constantly introducing new products. For example, we upgraded, you know, G Hotels from previous three point zero to currently five point zero, the orange from one point zero to the current three point zero, and Hanqing from previous maybe two point zero to the latest four point zero, all the products itself, the quality has been improved massively. Of course, as we are adding some of the pressures to the older products. And also in addition to this, in the Tier one, Tier two cities, because of the real estate market weakness, there’s a lot of high quality properties are coming out to the market, which we can have much better property to open new hotels with much higher quality products. And that’s why, I mean, we have to admit that’s kind of creating some of the negative impacts to the existing older hotels.

But we do believe it is a short term pain, and that we have to go through this because our target is not only gaining market share, but we want gaining market share with high quality products. That’s totally has never been changed. But of course, we are looking for some of the solutions to solve this kind of problem. Firstly, we are actively looking for upgrades for the existing hotels. And secondly, we will be more rationally in terms of positioning for the new hotel openings.

Thank you.

Speaker 4: Thank you. We will take our next question. Your next question comes from the line of Dan Chi from Morgan Stanley.

Heidi, Conference Operator: Please go ahead. Your line is open.

Ronald Ng, Analyst, Bank of America: Thank you management for this opportunity. We saw the company breaks down the gross operating profit between between the asset heavy lease and own and asset light franchise and managed business segments. What’s the key message behind the new disclosure in terms of strategic focus between these two business segments? Is there any change we should expect in the future? Another follow-up question on this topic is asset light franchise and managed segment is now 64% of total GOP, with this segment revenue growing 23% this quarter.

So GOP margin increased slightly, but the GOP for as a heavy lease and own declined by 13%, legacy China Huazhu business lease and own GOP down by 20%. GOP margin also declined. So going forward, what’s the outlook for the margin of this segment? And is there any operational adjustment we can expect to support the margin of this lease and own business?

Jason Chen, Investor Relations, Edgeworth Group: Okay. Thanks, Dan, for the questions. As you may notice that over the past several years, we have been quite actively to doing the asset light transformation for the group. Over the last few quarters, our franchise and franchise business have been growing quite rapidly, driven by the high quality network expansion and also to drive the revenue growth as well. In terms of the leased and owned business, you have been seeing that the exposure for the leased and owned business has been gradually reducing.

Of course, the stable M and F, the asset light business has a much stable gross margin. And also it shows a real business development and strategy for the group going forward. So that’s why since starting from this quarter, we started to giving a breakdown between our SLI business and asset heavy business. So for the margin performance for our leased and owned business, as you said, the margin has declined on a year over year business. This was mainly because that we are gradually exceeding the exposure or reducing the exposure for the leased and owned.

Therefore, no matter from the volume or no matter from the margin or from the absolute dollar amount in terms of the profit, it’s in a decline trend. But however, in order to maintain a relatively healthy year and stable margin performance for the leased and owned business, we are doing several key measures. One is we are actively seeking for the rental reduction with the landlord. For example, in the first half of this year, we actually signed up around RMB $390,000,000 in total for the contract value for the rental reduction. And secondly, in terms of the revenue management as well as sales and marketing and cost optimization, we are doing a lot of works for our leased and owned business as well.

Well, even though that we are gradually reducing the exposure for our leased and owned business, but we are still putting a lot of efforts for the existing properties, trying to improve their performance, not only the top line but also the bottom line as well. Thank you.

Ronald Ng, Analyst, Bank of America: Thank you.

Speaker 4: We will take our next question. Next question comes from the

Heidi, Conference Operator: line of Lydia Ling from Citi. Please go ahead. Your line is open.

Lydia Ling, Analyst, Citi: Management, I have two questions. And the first one is on the store expansion. And so we saw some deceleration in the second quarter. So given current macro background, so how about the franchise sentiment over the openings? And any adjustment in your planning for the new openings for this year?

And if possible, could you share with us some color on the new signing momentum? And then my second question is on the margin side. And so at group level, do you have any further optimization in terms of the cost? And so could you actually give some items on the full year margin trend?

Jason Chen, Investor Relations, Edgeworth Group: Okay, so as you may notice that over the past several years, we have been implementing high quality, sustainable growth strategy. We are not only looking for a scale growth, mean, the quality is much important than the scale itself. So we’re going to continuously doing this, implementing this strategy. So, going forward, we will be even more strict on new signings in terms of the property, in terms of the location, as well as we have to make sure that our franchisees can make a profit and that the hotel product itself has a high quality. Under this kind of standards, we think we still can maintain a relatively healthier pace of the new openings in the near future.

Thank you. So in terms of the margin performance, so in the second quarter, benefiting from our asset line transformation, and we have more revenue and profit contributing from the asset line business as well as our cost optimization, leveraging our supply chain capability as well as our CRS contribution increase and also a little bit apart from the rental reduction. So putting them together help us to achieve 11.3% adjusted EBITDA growth for the group despite the RevPAR decline. In terms of the SG and A, if you’re excluding the SBC, actually, the SG and A declined by roughly 1%. For the second half, of course, could make some of the investments, but definitely, we cannot consider a rational ROI when we do some of the investment.

But in the longer term perspective, we believe along with more S and L contribution, we could achieve stable or gradual margin improvements in the future. Thank you.

Speaker 4: Thank you. We will take our next question. Your next question comes from the line of Simon Chang from Goldman Sachs. Please go ahead. Your line is open.

Simon Chang, Analyst, Goldman Sachs: Let me translate that into English. So I have two questions. The first question is in relation to the RevPAR same store RevPAR performance of the company that has been somewhat affected by some of the old store on the under the Hunting brand that management mentioned about. Wondering how long would it take them to kind of resolve the issue in such a way that we would start to see stabilization on the same store RevPAR? And then secondly, just on the meat upscale segment, particularly the upscale segment for the Crystal Orange as well as the Intercity brand has done very well in the last, I think, a couple of quarters.

Just wondering how management think about the long term growth potential as well as the market share expectation. Thank you.

Jason Chen, Investor Relations, Edgeworth Group: So, in terms of your question regarding to the Hunting brand, so currently, as we discussed previously, currently we launched Hunting four point zero version, And over the last several years, we have been consistently upgrading Hunting brand. And we believe the four point zero should be a relatively matured product. The product itself, not only probably not only in China, but also globally, in terms of its design, its hotel quality should be at the leading position. It’s definitely leveraging our strong capability from the supply chain because it’s creating a much lower CapEx, lower OpEx and a shorter construction and also a better performance. In regarding to the pressures from the new hotels to the older hotels, As I said previously, you know, we noticed that and especially, you know, our observation internally that, you know, those hunting two point zero, 2.5 version and below are facing the biggest pressure, you know, in terms of the, you know, RevPAR performance.

And, we it’s probably gonna take, you know, one or two years, to solve this problem, because it’s because of the large basis over the past twenty years. But however, we are very glad to see the new signings for the Hanqing brand actually in this year has been very, very strong. So there’s two major things that we are going to do is, one, is we keep signing new contracts and opening new hotels in different area, but also, we have to do some of the major substitutions by using the new products to replace the older products or continuously upgrading the existing hotel to improve the competitiveness. Thank you. Okay, in terms of our Orange brand and Intercity brands, I’m very happy to share something with you In terms of the Orange brand, after launching the three point zero version, we have been getting a lot of traction from the franchisee and customers.

And we want the Orange brand becomes a back to back brand for G Hotel. And we just achieved 1,000 milestone for the Orange brand recently. And in terms of the G hotel, currently, the hotel in operation and in pipeline, putting them together has been already exceeded around 4,000 hotels. So we definitely hope, the Orange Hotel could be the second growth driver in our middle skill segment. And together with G Hotel, to become a number one and a number two hotel brands in the middle scale segments for the overall market.

And in terms of the intercity hotel, because of the high quality and the very accurate brand and products positioning, we have been achieving a quite rapid development of this intra city hotel over the past several quarters. More importantly, intra city achieved a positive growth in terms of the like for like same hotel RevPAR in the second quarter, which is probably quite less other brands can achieve the positive RevPAR growth. Therefore, in the next probably three to five years, we definitely want our Intercity brand to become a leading brand in the upper mid scale segment. And because of we are also taking the benefits from the weakness of the real estate market, because we do see a lot of A grade office building has been out in the market, especially in the Tier one to Tier two cities in some of the prime locations, that definitely creating or give us a lot of opportunity to build a very nice and high quality hotel product. And it’s going to be a new standard or a new generation intercity is going to be a new standard and new generation or new definition of the upcoming up mid segment hotel in the near future.

Thank you.

Speaker 4: Thank you. We will take our next question. Your next question comes from the line

Heidi, Conference Operator: of Shi Lin from CICC. Please go ahead. Your line is open.

Lydia Ling, Analyst, Citi: So thank you management. I have two questions. So first is on the supply chain. So how do we strengthen our supply chain capability in detail? Could you explain more about this?

And to what extent will these contribute to future decrease of operating costs? And the second question is about DH. So what will be the pace of the future shift towards asset light model for DH? Thank you.

Jason Chen, Investor Relations, Edgeworth Group: In terms of our supply chain capability, obviously, as we always said, the supply chain capability becomes a very core competency for us to maintain or to achieve high quality, long term sustainable growth. Since 2024, we have been comprehensively upgrading our supply chain capability, mainly through enlarging and attracting a lot of top tier suppliers and corporations with them closely, as well as increasing more modularization application and optimizing some of the product design and increase the quality standard and the reviewing system as well, in order to achieve higher quality products and lower CapEx and OpEx, as well as shorter construction period. I can share with you some of the data. As of now, in terms of, for example, furnitures and the furnishing, the consumables, some basic material, we have achieved around 10 to 20% cost of decline on a year over year basis. And also in terms of the construction period, taking Hunting four point zero as an example, because we are applying more modularization, that actually helped the construction period for Hunting four point zero products by thirty days.

Therefore, you know, the strong and strengthening, you know, the supply chain capability could definitely help our help us to grow in a longer term with definitely a cost leadership, and as well as the high efficiency. Thank you.

Ji Hong, CSO, Edgeworth Group: This is Ji Hong. I can address the Th asset light business model and the development. In Europe, especially in Germany or Central Europe, the legal requirement is not as easy to dissolve any lease contracts. So we are working hard on discussing and negotiating with the landlord. Not everything would turn out exactly as we expected.

So we continue to try this out. We are continuously screening the profitability of our lease hotels, especially for low performing or non performing hotels. We are constantly engaged in a discussion. And we cannot disclose anything yet, but some of the lease negotiation and some of the change of the lease are in the works. We will report as soon as we have any information about that.

And in the future, we are also trying very hard to go asset light model. And we are very, very careful in signing any potential lease contracts. We really need to look at commitment and also the return in the longer term as well.

Heidi, Conference Operator: Thank you. This concludes today’s question and answer session. I will now hand back to Jason Chen for closing remarks.

Jason Chen, Investor Relations, Edgeworth Group: 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.

Heidi, Conference Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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