Good day, and thank you for joining us. Welcome to H World’s Quarter 3, 2025 Earnings Conference Call. Please note that this conference is being recorded. I will now turn the call over to your first speaker today, Mr. Jason Chen. Thank you. Please proceed.

Thank you. Good morning, and good evening, everyone. Thanks for joining us today. Welcome to H World Group 2025 Third Quarter Earnings Conference Call. Joining us today is our Founder and Chairman, Mr. Ji Qi; our CEO, Mr. Jin Hui; our CFO, Ms. Chen Hui; and our CSO, 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 provision of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. H World Group does not undertake any obligations to update any forward-looking statements, except as required under applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliations of those measures to comparable GAAP information can be found in our earnings release that was distributed earlier today. As a reminder, this conference call is being recorded. The webcast of this conference call as well as supplementary slide presentation is available at ir.hworld.com. With that, now I will hand over the call to our CEO, Mr. Jin Hui, to discuss our business performance in the third quarter of 2025. Mr. Jin, please.

I believe many of you have noticed that two weeks ago, during H World's 20th anniversary, we successfully held a partner conference celebrating our two decades of progress. Before we delve into our third quarter performance review, I want to share some insights on the long-term outlook of China's hotel industry and our company. We believe H World has significant long-term growth potential, deeply rooted in the Chinese market. Currently, while industry supply is ample, there is a noticeable scarcity of high-quality options. Compared to the mature U.S. market, China still has a low hotel trend penetration, and the industry remains fragmented. As a cohesive market similar to the U.S., but with a larger population base, we will see an increase in churn ratio and the phase-out of low-quality supply as a long-term trend. More importantly, the demand for travel is increasingly becoming a necessity for Chinese consumers. China boasts the best infrastructure globally with an extensive high-speed rail and highway network, making travel easier and more convenient, thus enhancing accommodation needs from major cities to rural areas. Additionally, Chinese consumers are starting to redefine consumption concepts and embrace oriental aesthetics. We have observed a significant rise in the desire for experiential consumption, including tourism, exhibitions, concerts, and sports events. Clearly, the current supply quality in China's hotel industry fails to meet the growing and diversified demands of consumers. Hence, supply-side reform will be crucial for future industry development and will undoubtedly create immense growth opportunities for domestic branded hotels like ours. As leaders in China's hotel industry, we will continue to strengthen our commitment to the Chinese market, pursue high-quality growth, and provide excellent service with a brand-led approach focused on quality and efficiency. We are optimistic about the future of China's hotel industry. After discussing our long-term perspectives, let's now address our third quarter performance. We are pleased to report early signs of improvement in the overall market conditions. On the demand front, data from railways, aviation, and the number of tourists show that domestic travel demand continues to grow steadily, especially during the National Day and mid-autumn festival holiday periods. On the supply side, third-party data indicates that sequential supply growth has stabilized, and year-over-year growth rates have moderated. However, we still require more time to determine the sustainability of this trend. We are pleased to announce that H World achieved robust results across several key metrics this quarter. In the third quarter, we experienced a year-over-year increase in ADR while maintaining a relatively stable occupancy rate, driven by refined revenue management initiatives including optimized pricing strategies across different hotel categories, refined promotional strategies, and enhanced incentive programs. Consequently, our RevPAR remained largely stable compared to the previous year. We saw another quarter of high-quality network expansion with a 17.3% year-over-year increase in operational room numbers. Our group hotel GMV rose by 17.5% year-over-year to RMB 30.6 billion. Additionally, with our network expansion and ongoing improvements to the H Rewards membership program, our member base surpassed 300 million by the end of the third quarter, marking a 17.3% year-over-year increase and securing the top rank globally. Room nights sold to members increased by 19.7% year-over-year, exceeding RMB 66 million and accounting for 74% of total room nights sold, placing us in a leading position worldwide. Importantly, our monetized and franchised business segments exhibited robust growth in hotel network revenue and profit. Our third quarter group M&F revenue rose 27.2% year-over-year to RMB 3.3 billion, with gross operating profit up 28.6% year-over-year to RMB 2.2 billion, which contributed over 70% of the group's total gross operating profit. Regarding hotel network expansion, we remain focused on the economy and mid-scale segments to cater to the mass market. This strategy aligns with current consumer behavior that favors value-for-money offerings, further showcasing our competitive advantages. By consistently upgrading our core products and enhancing our service with a customer-centric approach, we are improving our hotel portfolio quality and reinforcing our brand positioning for sustainable long-term growth. The new version of HanTing, along with our middle-scale brands, Ji Hotel and Orange Hotel, will act as key drivers for our expansion in lower-tier cities and underpin our strategic target of 20,000 hotels in 2,000 cities. Concurrently, H World has achieved rapid advancements in the upper-midscale segment. By the end of the third quarter, our upper-midscale hotels in operation and in the pipeline numbered over 1,600, up 25.3% year-over-year. To address increasing consumer demand for quality living, oriental aesthetics, and unique experiences, we launched a new upper mid-scale brand, Ji Icons, during our 20th anniversary. Ji Icons enriches our upper-midscale portfolio, providing comprehensive coverage that spans oriental to western brands and various service types. Ji Icons combines subtle elegance drawn from oriental aesthetics, transforming accommodation from mere functionality to a holistic lifestyle experience. The success of Ji Hotels illustrates the appeal of oriental aesthetics and culture among Chinese consumers. We believe Ji Icons, building on Ji Hotels' foundation, will further emphasize oriental aesthetics and cultural elements. Furthermore, our strong supply chain and modular construction capabilities, along with our unparalleled membership and direct sales strengths, will help Ji Icons maintain low construction costs, high operational efficiency, and superior product quality. We are confident that Ji Icons will become a significant driver for our penetration into the upper-midscale segment and has the potential to emerge as another world-class brand alongside HanTing, Ji Hotel, and Orange. We remain dedicated to enhancing our direct sales capabilities through the H Rewards membership program, which is vital for our long-term sustainable growth. Our membership base has been expanding as we grow our hotel network and enter new cities. By the end of the third quarter, H Rewards membership surpassed 300 million, with room nights sold to members increasing by 19.7% year-over-year, further escalating its contribution to our total room nights sold. Moving forward, we aim to enhance our membership benefits, broaden loyalty points usage scenarios, and pursue cross-industry partnerships to strengthen member engagement and improve our direct sales capabilities. This completes the business update for H World's third quarter of 2025. Now, I will hand over the call to our CFO, Ms. Chen Hui, to discuss the group's financial performance for the quarter.

Thank you, Jin Hui. Good evening, and good morning, everyone. Let me walk you through our third quarter financial overview. During the quarter, our group revenue grew 8.1% year-over-year to RMB 7 billion, and Legacy-Huazhu revenue grew 10.8% year-over-year to RMB 5.7 billion, both surpassing the high end of our previous guidance. This growth was mainly driven by better-than-expected RevPAR performance as well as hotel network expansion. Group adjusted EBITDA rose by 18.9% year-over-year to RMB 2.5 billion, with margin improving by 3.3 percentage points year-over-year to 36.1%. The faster adjusted EBITDA growth and margin expansion were primarily due to further enlarging profit contributions from our asset-light business, cost savings from Legacy-DH, and the absence of RMB 81 million restructuring costs incurred in the third quarter last year, as well as cost optimization efforts from Legacy-Huazhu. Looking into our asset-light managed and franchised franchise business, powered by our high-quality asset-light network expansion and better-than-expected RevPAR performance, our franchise business revenue recorded a robust 27.2% year-over-year growth to RMB 3.3 billion. More importantly, managed and franchised business gross operating profit rose by 28.6% year-over-year to RMB 2.2 billion with a margin of 68% in the third quarter. As a result, gross operating profit contribution from our managed and franchised business further enlarged to 70% in the third quarter, up 11.1 percentage points year-over-year. Moving to our cash flow and liquidity position, we generated RMB 1.7 billion operating cash flow in the third quarter. At the quarter's end, the group had RMB 13.3 billion in cash and cash equivalents and RMB 6.6 billion net cash on the balance sheet. Lastly, on our guidance for the fourth quarter of 2025, we expect our group revenue to grow 2% to 6% compared to the same quarter last year, and 3% to 7% if excluding DH. The managed and franchised revenue in the fourth quarter of 2025 is expected to grow in the range of 17% to 21% compared to the fourth quarter last year. With that, we are ready to take your questions. Operator, please open the line for Q&A.

The first question comes from the line of Dan Chee of Morgan Stanley.

My question is about RevPAR and demand trends. Firstly, on the company's fourth quarter China revenue guidance of 3% to 4% year-on-year growth, what's the implied RevPAR assumption? Can the management share any 2026 outlook for us, especially after seeing third quarter RevPAR decline turn almost flat, especially due to the new experiential demand Mr. Jin mentioned versus the original business demand weakness. So which one is driving the RevPAR stabilization?

As many of you may have noticed, in the third quarter, our RevPAR has stabilized. On a year-over-year basis, it is relatively flat and has not declined further compared to the last two quarters. We observed several trends during the quarter. The demand was mainly driven by leisure travel, particularly from tourism activities during the summer holiday to September and also at the start of the October National Day and the mid-autumn festival. On the supply side, as I mentioned before, the year-over-year supply growth has moderated, meaning it has not been growing as quickly as before. This moderation has contributed to the stabilization of RevPAR. Importantly, over the past six months, we have focused on enhancing our revenue management, including establishing a new pricing strategy for different tiers of hotels, such as flagship properties and mature hotels. Looking ahead to the fourth quarter, as we enter the low season, there are still some uncertainties. Based on our revenue guidance, we expect our fourth quarter RevPAR to be stable or slightly positive. In terms of business and leisure demand, there are still macro uncertainties. To be frank, business demand is not particularly strong yet. However, leisure demand continues to grow. For Chinese consumers today, leisure travel has become more of a necessity rather than discretionary. This is particularly true for emerging new demands like concerts, marathons, sports events, and inbound travelers, so leisure demand remains strong. Regarding the outlook for next year, it is a bit early to make predictions. It will take time to determine if the stabilization of RevPAR and the supply-demand balance is sustainable. We will provide more details in our fourth quarter earnings report.

Our next question comes from the line of Sijie Lin of CICC.

My question is about RevPAR breakdown. If we look at ADR and OCC, we see that ADR performed better recently. I'm trying to understand the reason behind this and its sustainability. Also, if we look at the gap between blended RevPAR and same-hotel RevPAR, the gap has remained at a similar level as in the last few quarters. So is there any chance that the gap narrows in the future? What measures need to be taken?

Improving RevPAR has been a key focus for our top management team in 2025, and they have been putting in significant effort toward this goal. The increase in ADR during the third quarter reflects our ongoing initiatives in product upgrades, quality enhancements, and service excellence over many years, alongside improved revenue management skills. We also provide various incentives to our sales team to encourage their efforts. In some areas, our products and services are clearly in a leading position, granting us some pricing power and contributing to a better ADR for the third quarter. For like-for-like or mature hotels, we are pleased to see that the year-over-year decline has been significantly reduced in the third quarter. Over the past 1.5 years, we have implemented various pricing layers for different products and opened numerous high-quality hotels, which has somewhat cannibalized existing hotels. However, through diverse pricing strategies, we have observed improvements in our mature hotels. We remain committed to upgrading existing hotels to enhance their quality and, in turn, boost the overall RevPAR.

The next question will come from the line of Lydia Ling of Citi.

Lydia from Citi. So I have a question regarding the brand, especially for the newly launched upper-midscale brand, Ji Icons. Could you share your plans for this brand, including your store opening plans and store economics like the CapEx and payback period? How do you see your advantage compared to the current leading upper-midscale brands in the market? Also, how has the feedback from franchisees been so far?

The launch of Ji Icons clearly showcases H World's commitment to advancing in the upper-midscale segment through a multi-brand strategy. This trend is quite evident. Furthermore, the existing confidence in Chinese culture and a preference for our oriental culture, service, and lifestyle provide strong support for the Ji Icons brand. We anticipate that Ji Icons will become a core brand in our upper-midscale segment and strive to make it the top hotel choice for Chinese customers. Regarding the capital expenditures, we plan to provide more details following the opening of the first hotels. Thank you.

Our next question comes from Simon Cheung of Goldman Sachs.

The question is related to hotel openings. In the third quarter, they successfully opened over 700 hotels, and I think in the first nine months, they have opened more than 2,000 hotels, exceeding the 2,300 hotel target they have set for the full year. Is there any update on that, particularly regarding new signings? Given the strong momentum we have seen in the upper-midscale segment—where they have achieved 1,600 hotels secured—and with HanTing opening around 5,000 hotels and Ji Hotel around 4,000 hotels, what targets do they have for the upper-midscale segment in the long run?

Benefiting from faster new signings in 2023 and 2024 after COVID, along with enhancements in our supply chain capabilities, we are experiencing improved conversion ratios from our pipeline to new openings. We have surpassed 2,000 new openings in the first nine months and may exceed our previous guidance of 2,300 hotels for the full year. Nonetheless, we are prioritizing quality expansion over simply increasing scale when it comes to new signings and openings. This approach aimed at achieving high-quality sustainable growth will continue. In the upper-mid segment, we have reached 1,600 hotels in both pipeline and operations, showing rapid growth. However, we will maintain our focus on the economy and middle scale segments in the long run, which will constitute the majority. Yet, we aspire for our upper mid-segment to experience the fastest growth in the industry and become a leading player in the Chinese market by 2030.

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

Let me translate my questions into English. I have two questions. Firstly, regarding costs and margins outlook. The company has achieved decent margin expansion in the past two quarters. Could management share the latest outlook on cost control and margins? Secondly, regarding the membership program, the overall membership has grown to over 300 million by the end of Q3 '25. Could management provide an update on strategies to further enhance membership loyalty as well as marketing strategies to improve conversion rates?

Regarding our members, direct sales and membership continue to be central to our strategy. We are pleased to see consistent growth in our membership base and the number of room nights sold to our members. However, we believe this growth is not sufficient. As a result, we have been implementing several initiatives in recent months. First, we launched a price guarantee program to ensure our members enjoy the best prices, services, and unique experiences at our hotels. Second, we are working to address a more diverse range of demands from leisure travelers, including emerging needs such as sports events and inbound travelers. Our H Rewards membership program is gradually evolving to serve a broader client base beyond just business travelers. Third, we are enhancing our ability to engage more business and corporate clients to expand our reach. Finally, we are exploring cross-industry partnerships with several leading companies to enhance member experiences and engagement.

Overall, the improvement in the adjusted EBITDA margin was primarily due to our asset-light strategy. The managed and franchised segment yields a higher margin compared to leased and owned hotels. We are continuously reducing hotel operating costs by lowering the cost per room night sold through our strong supply chain capabilities. For our leased and owned hotels, we are actively seeking rental reductions to enhance profitability. On the SG&A front, we are optimizing our mid and back offices as well as headquarters to manage costs effectively. Regarding sales and marketing, we will focus our efforts on return on investment and make necessary investments in hotel brand memberships and acquiring new users. As mentioned by Jin Hui, we are systematically improving our revenue management skills while implementing cost control measures. Thank you.

Thank you. We have reached the end of the question-and-answer session. This concludes the conference call for today. Thank you for your participation. You may now disconnect your lines.