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Jason Chen, Head of IR, translated the response, affirming the company's commitment to a high-quality growth strategy with stricter standards for new signings to ensure franchisee profitability and product quality, which will maintain a healthy opening pace. Regarding margins, Q2's 11.3% adjusted EBITDA growth was attributed to the asset-light shift, supply chain cost optimizations, increased CRS contribution, and rental reductions. While some investments are planned for H2, the long-term outlook is for stable to gradual margin improvement driven by the growing asset-light business.

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CSO Jihong He explained that improving DH profitability is a top priority, driven by ongoing asset-light transactions and overhead cost reductions, with full effects expected over time. CEO Jin Hui addressed the industry supply, stating that while pressure exists, H World's operational efficiency, supply chain management, and loyalty program ensure franchisee sentiment remains stable and healthy, mitigating competitive pressures.

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CSO Jihong He confirmed that improving DH profitability is a priority through continued asset-light transactions and overhead cost reductions, noting Q1 results were impacted by ongoing restructuring. CEO Hui Jin addressed the pipeline, stating that franchisee sentiment remains stable due to declining rental costs and H World's operational efficiencies, which help maintain franchisee returns despite industry supply pressures.

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Founder, Chairman and CEO Haijun Wang announced the flagship upscale hotel in Shenzhen will officially open on May 28th. For the upper mid-scale segment, he stated the Atour Series 3 and Series 4 products will coexist to broaden franchisee and consumer choice. In the mid-scale segment, he detailed the upgrade of Atour Light 3.0 to version 3.3, which features comprehensive enhancements and modular designs to accelerate the brand's expansion towards its 1,000-hotel goal.

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CEO Haijun Wang explained that the 2024 adjusted net profit margin was approximately 18%. For 2025, he anticipates the consolidated adjusted net profit margin will remain 'relatively stable' as cost optimizations are expected to offset the structural impact of the growing retail business. The retail business's operating profit margin, which was in the low double-digits in 2024, is expected to remain at a similar level in 2025 due to sustained marketing investments.

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CEO Haijun Wang reported strong progress, with over 60 Atour 4.0 hotels in the pipeline and Atour Life 3.0 expected to exceed 100 operating hotels by year-end. While acknowledging the structural impact on group RevPAR, he stated that the company will mitigate this through continuous product upgrades and renovations to drive healthy growth and enhance competitiveness.

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Founder, Chairman and CEO Haijun Wang attributed the success to a focus on 'Deep Sleep' scenarios and iterative product development, such as the new Deep Sleep thermal regulating comforter. He stated that full-year 2024 retail revenue is now expected to double year-over-year. He also confirmed that the retail operating margin is expected to be maintained in the double-digits, supported by a gross margin of 51% in Q2.

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Chao Lu, Chief Financial Officer, explained that RLX is taking a prudent approach to new market expansion, pausing plans for 1-2 quarters to evaluate ongoing regulatory shifts. He noted that stricter rules in Asia are clarifying the market, while disposable bans in Europe and Oceania are driving innovation. Mr. Lu emphasized that RLX's in-house product development capabilities position it to adapt quickly and ensure long-term, compliant growth.

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Sam Tsang, Head of Capital Markets, stated that RLX plans to expand into more countries in Asia Pacific and Europe in the second half of 2025, pending market stability. He noted the industry's innovation cycle is shifting from disposable products to high-power, high-volume formats, a trend expected to stabilize by late 2025. On regulation, Tsang acknowledged increasing stringency in Southeast Asia and disposable bans in Europe. He emphasized RLX's proactive approach to adapt its product portfolio, manage inventory, and collaborate with partners to maintain compliance and strengthen its competitive position.

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Sam Tsang, Head of Capital Markets, explained that RLX is considering entering countries in the EMEA region and Central America in 2025, contingent on regulatory stability. For existing markets, he stated that organic growth will be driven by developing optimal product portfolios, such as large-volume cartridge products to counter disposable bans, and executing targeted route-to-market strategies to capture share as the category expands.

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Sam Tsang, Head of Capital Markets, identified regulatory uncertainty, such as potential disposable product bans, and the challenge of adapting to local consumer preferences as the main hurdles. He stated that the company will continue focusing on Asia before expanding to other continents. For existing markets, the strategy is to increase product availability and point-of-sale penetration through modern trade channels like convenience stores and specialty vape shops.

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