Earnings Transcript for 3690.HK - Q3 Fiscal Year 2024

Operator: Thank you for standing by, and welcome to the Meituan Third Quarter 2024 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to Scarlett Xu, VP and Head of Capital Markets. Please go ahead.

Scarlett Xu: Thank you, operator. Good evening, and good morning, everyone. Welcome to our third quarter of 2024 earnings conference call. Joining us today are Mr. Xing Wang, Chairman and CEO; and Shaohui Chen, Senior Vice President and CFO of Meituan. For today's call, management will first provide a review of our third quarter of 2024 results and then conduct a Q&A session. Before we start, we would like to remind you that our presentation contains forward-looking statements which include a number of risks and uncertainties and may differ from the actual results in the future. This presentation also contains, unaudited non-IFRS accounting standard financial measures that should be considered in addition to and are not as a substitute for measures of the company's financial performance prepared in accordance with IFRS accounting standards. For a detailed discussion of risk factors non-IFRS accounting standards measures, please refer to the disclosure documents in the IR section of our website. Now I will turn the call over to Mr. Xing Wang. Please go ahead Xing.

Xing Wang: Thank you, Scarlett. Hello, everyone. In the third quarter, we continued to achieve solid improvements. Total revenue increased by 22.4% year-over-year. reaching RMB93.6 billion. Adjusted net profit increased by 124% to RMB12.2 billion. Annual Active Merchants and Transacting users and their purchase been on healthy breaking record highs. And thanks to our industry insights and our continuous efforts in cultivating both supply and demand. We have become a remarkable partner for merchants across all operational scenarios and go-to destination for consumers to discover local services and on-demand retail. Before we believe that there is a big potential for digital transformation in China's local commerce industry, which will continue to gain both new challenges and opportunities. We want to bring transformation in [indiscernible] through innovation, intensified demand and drive industry growth. Moving forward, we will adhere to our retail technology strategy is technology and innovation to drive industry growth and get our population to help our EBITDA will be better. In this quarter, our own remarkable business and growth strategy, we drove RMB98 million divided on August 7. Reactively improves our outperformance for our -- into the suspension to help merchants enhance operational efficiency. Our innovative business model, Pin Hao Fan as it becomes a new trend for young consumers. We had over 100 million value users, majority of which 35 year or older. This quarter, [indiscernible] Pin Hao Fan. We continue doing group on efficiency in natural supply and demand across different types economics to reenter and incentivize demand in Pin Hao Fan. Now over 5,000 brands, major lines have participated in Pin Hao Fan. Additionally, our Shen Hui Yuan program has gradually become a sales channel for negative high frequency partners having over 10,000 deductible growth, we are selling items and stimulating onto demand. We are likely extending Branded Satellite Stores in [Foreign Language]. A new food delivery business formats customized for training restaurants. This new format can offer value for many quarters for consumers about ensuring profitability for merchants with over 100 stores opened in 12 weeks. Branded Satellite Store are forced to become a new growth pattern for trade merchant. By the end of November, we have collaborated with over 200 brands operating merchants’ full spectrum of online support, such as inflation reduction, losses reduction and transaction conversion. The demand of market size are fully relieved continue to expand. We were actively in packaging, in the advertising, explore diverse and efficient solutions upward margins more support and in the high-quality demand of food in the industry, together with our system -- ecosystem partners. In November, after upgrading our merchant support program known as Shen Hui Yuan. In September, we announced additional support initiatives. We will also offer September in to support merchants who focus on product environment and business relation. Disposal amount of RMB1 billion. With the ongoing evolvement in retail, Meituan Instashopping continues to lead a rapid growth of on-demand retail. In the third quarter, average daily order volumes surpassed 10 million both these spaces and [Foreign Language] post double-digit growth. [Foreign Language] take order volume of 15 million supply and consumption scenario of on-demand retail continue to expand and consumption and spend by regions also open. This shows that the popular demand not only is consumer intent and urgent needs but also becomes a new lifestyle. We have penetrated more deeply into the lives on the supply side. We have a consumer experience now become a habit. In small demand and in turn, promote further transformation of the prototypes. In addition, Meituan InstaMart and Xiaoxiang boost our continued progress on the supply side. During the third quarter, the number of Meituan InstaMart and Xiaoxiang continues to increase especially the lower tier cities and better net consumer demand for all the other products. More importantly in large retailers accelerating to embrace this new format. We rapidly announced our strategic partnership with Pickup Now on Meituan InstaMart. They now have over 500 Meituan InstaMart. Going forward, we want to empower more start-up branded merchants in location reduction, store ramp-up, inventory management and more on how we integrate higher growth through Meituan InstaMart. In addition, the sustainable development of our own demand business depends on the hard work of our couriers. In the third quarter, we introduced and improved sales initiatives to enhance courier production and support, for example, the only around the vicinity, [Foreign Language] solution, introduced the House of Couriers [Foreign Language] issues on the courier app. On the management mechanism in this new environment, flexible employment has become a very import in the form of employment. During the third quarter, the average monthly income for highly active courier nationwide raised from RMB5,120 to RMB10,865. In the third quarter, our in-store hotel and travel business recorded another standard growth. Order volume increased by over 50% year-over-year. Annual Transacting User increased by over 30% year-over-year. Annual Active Merchants also reached a new high. We continue to leverage the synergies from co-commerce to enhance our competitive advantage and job growth. Our in-store business has entered a new phase since this year. Our goal is to be a valuable partner for merchants, helping them operate in the different scenarios and improve business cycles to achieve high-quality growth and high marketing ROI. Our operational infrastructures and leverage Special Deals [Foreign Language] as well as the federalized marketing strategy to help merchants enhance brand position game and drive growth. We provided merchants with the value of solutions and goals such as broaden shelves, those insights, ranking to help them define business operations and actuate the digital assets. Meanwhile, we continue to explore different demand and models and enhance internal collaborations within the platform. Our Pickup announcements margin help restaurant merchants extend the consumers scope while meeting the much growth and for efficiency when they Branded Satellite Store. In [Foreign Language] has not been in retail experience and largely operational efficiency. Additionally, we expanded our membership program, Shen Hui Yuan. We have deceived the positive responsive and active participation on merchants with over 50% of our merchants during the program. We optimized our subsidiary strategy, which help merchants improve traffic conversion efficiency user traffic directed to our high-quality food retailers declined effecting with a number of new users of the new store business continuously growing and purchase frequency of existing users, including notably. Traffic and transaction volume from participating merchants also increased. In addition, we capitalized on the rising economic change and a growing assumption for blended users. We accelerated the penetration into the low-tier markets, providing local merchants with new traffic exposure and online operational tools and providing the users with a more high-quality value for selections. As a result, our in-store business achieved much positive growth in lower-tier business. In the third quarter, our domestic hotel room night maintained a steady growth. We have strengthened our collaboration with industry partners to provide a neutral selection, net new consumer demand across various and different priced bands. For high-star hotels, we launched a new marketing idea is that effectively drive demand in certain popular categories. We also strengthened collaborations with the hotel chains through membership programs, participating campaigns and Hotel + X packaged deals. On the lowest start side as demand rises in low local accommodations of service of this. We further solidified our marketing position, thanks to our existing advantages in the lower tier market, become our new growth driver in the high-star domain and more of high-star hotels brands have participated in Shen Hui Yuan. For low-star hotels, we leverage Shen Hui Yuan to cross-sell hotel room nights to our high-volume users, which effectively expanded our lender base for the hotel business. For new initiatives, we continue to improve the operational efficiency across our grocery, retail, hardware and some services and other initiatives. During the quarter, new initiatives maintained a healthy growth and continue to narrow losses sequentially. New initiatives help us enhance our ecosystem because they provide a more comprehensive range of products and services, leading to higher user stickiness, a merger engagement. We expect them to gradually unlock financial values in the future. And for international expansion, it remains an important strategy for us for this decade. On October 9, Keeta officially launched the Riyadh, Saudi Arabia and made marking a significant step in our journey from China to the global markets. In the long run we will be our high-quality services and products to more merchants and consumers around the world and have more people eat better, live better. We firmly believe that local commerce has huge potential in digital transformation as the industry's leading player that they will actively adapt to the emerging environment, continue to innovate and drive digital transformation of the whole industry. We will continue to satisfy consumer demand in power and support Meituan in their operations, provide more care for our colleagues with development and support and deepen collaboration with all partners in our ecosystem. We will also uphold our service mobility, navigate through cycles together with our ecosystem partners and create more value for the whole strategy. With that, I will turn on to Shaohui for an update to our -- on our detailed financial results.

Shaohui Chen: Thanks, Xing. Hello, everyone. I will now go through our third quarter financial results. During this quarter, our business sustained healthy growth with our total revenue increasing by 22.4% year-over-year to RMB93.6 billion. Cost of revenue rated 4 percentage points year-over-year to 60.7%, primarily due to improved gross margin of our goods retail business and lower delivery costs as a percentage of revenue in our on-demand delivery business. Selling and marketing expenses ratio decreased 2.9 percentage points year-over-year to 19.2%, thanks to our enhanced marketing efficiencies. R&D expenses show decreased year-over-year to 5.7%, primarily benefiting from improved operating leverage. SG&A expenses ratio was 3%, remaining stable on a year-over-year basis. Our focus on stimulating quality growth and improving operating efficiency drove substantial year-over-year growth in total segment operating profit and operating margin. Total segment operating profit from RMB5 billion to RMB13.6 billion, and total segment operating margin increased from 6.5% to 14.5%. On a consolidated basis, our adjusted net profit increased significantly year-over-year, reaching RMB12.8 billion this quarter. Turning to our hedge position. As of September, '24, we maintained our strong net cash position with our cash and cash equivalents and short-term investments totaling up RMB134.2 billion. Cash generated from operating activities increased meaningfully year-over-year to RMB15.2 billion. Now let's look at our segment results, starting with [Foreign Language]. Our order volume growth for on-demand delivery maintained mid-teens year-on-year this quarter. Our expanding supply, optimize strategy has effectively stimulate consumer demand during TV marketing campaigns in holidays. We also successfully converted large delivery users to Meituan Instashopping users and stimulate their purchase vacancy on more normal category. Our in-store hotel and travel business continued its rapid growth. Firstly, demand for local services remains strong, with themes of number of transitions certainly nearly 60% year-over-year this quarter. Categories such as sports, leisure entertainment, shopping, and et cetera, all experienced a rapid growth. Following the organizational restructuring, we have deeper collaboration and enhance cross-sell among different businesses. Shen Hui Yuan, our first monthly scheme for integrating our marketing efforts in core local commerce has demonstrated initial success, driving frequency increase of our core users for in-store hotel travel services. Meanwhile, as we refine our strategy for depending into lower-tier markets we have not only gained a better position, but also accelerate the number of transactions growth in our in-store business in the larger cities. Our core local commerce segment delivered strong year-over-year revenue growth of 20.3% and acceleration from the second quarter, reaching RMB69.4 billion. Evolving consumption trades continue to broad very wide degrees of impact on average order value but we saw the decline in average value of demand delivery continued to narrow this quarter. Delivery services was new, grew faster than the order volume of on-demand delivery on a year-over-year basis due to software reasons. On one hand, user incentive deducted from delivery service revenue decreased as a result of the national rollout of our investees. On the other hand, a growing number of merchants who previously fulfill their costs using their own belief for other channels switch to Meituan deliver service due to our higher cost efficiency. Additionally, the proportion of long defense, not time and large size orders continue to increase which further put the growth in delivery service revenue, given the higher delivery costs. Commission service revenue maintained healthy growth primarily driven by the relative order growth, partially offset by the decline of AOV across various categories and stock commission services revenue saw a much softer year-over-year growth there on demand. As a result of its stellar growth of transaction orders, the growth for hotel travel is lagging behind due to last year's high base as well as more balanced supply and demand. With respect to online marketing service revenue, we are pleased to see more delivery and in-store shopping merchants opting for our advertising services. This is due to our improved marketing solutions that meet their growing needs and enhance their market efficiency. However, online marketing service revenue growth for in-store hotel and travel continue to trail behind mainly due to change of subscription service charge. Color performance segments, operating profit and operating margins improved significantly on a year-over-year basis to RMB14.6 billion and 21%, respectively. We continue to benefit from the abundant supply of [indiscernible] and optimize delivery capacity structure. On top of that, as the scale of Pin Hao Fan increased, we also benefit from the efficient group delivery model of Pin Hao Fan. We can improve the marketing and operating efficiency across all on local commerce businesses. As a result, we further optimized cost and expenses this quarter. As the business scales up, we also realize greater operating leverage. The sequential decline in core co-commerce operating margin was due to seasonality. We provided more conceptive approach to working in hot season and acute weather conditions in given period. We also set more user incentive promotion and advertising business to steadily demand during summer season and enhance consumer awareness or new products, especially through Pin Hao Fan. Turning to our new digital segment. During this quarter, revenue in this segment increased by 28.9% year-over-year to RMB24.2 billion mainly due to the development of our goods retail businesses, particularly from quality and Xiaoxiang supermarket. In time, the severance operating loss and operating loss ratio was narrowed on quarter-over-quarter and year-over-year basis to RMB1 billion and 4.2%, respectively. By time that continue to narrow up on a sequential basis. For the other initiatives, excluding Meituan Select, we continue to realize efficiency improvements while maintaining healthy growth and continue to make profit on a collected basis quarter. With regards to our progress year-to-date, we have repurchased about 4.2% of the total shares of the company's total often shares have it decreased this year. To conclude, our core performance showed healthy growth alongside improvement profitability. At the same time, our focus on efficiency improvement in our new listers has resulted in ongoing reduction in losses. Moving forward, we will maintain our focus on quality growth strategy while consistently enhancing our operating issues. We also anticipate increased synergy among our all of our business in the future. Overall, we remain confident in the strength of our business fundamentals and our long-term growth prospects. In fact, we are now open for Q&A.

Operator: [Operator Instructions]. Your first question comes from Ya Jiang with Citic Securities.

Ya Jiang: Thank you, Operator. Good evening, management. Thanks for taking my questions. My question is about food delivery business and we noted that Meituan announced a series of initiatives at the catering conference held in September to support industry development and help merchants better withstand the current challenges. And can you please share more details on these initiatives and will the company increase investment going forward. And given the large scale for the delivery business currently, how should we project future growth? Thank you.

Xing Wang: I think I believe that the consumer demand evolves is very important for the whole food service industry to adapt to those changes in order to achieve sustainable growth. Under this new environment, we are committed to being a trusted partner for restaurant merchants to enable their growth. We want to support the merchants in growing their customer base and better managing their customers through the business cycles together with our ecosystem management, we aim to drive the healthy and sustainable growth for the industry -- food service industry and the food delivery industry. To achieve that, we upgraded our model program known as Shen Hui Yuan, we introduced initiatives to promote industry innovation, unlock market demand and with merchant competence to address merchant concerns on the industry's over competition. We streamlined our marketing tools to make sure that our traffic distribution mechanism remains reasonable as well during the marketing campaign. Regarding the strengthen their of the Board. We now offer six to 12 commission with these for branded satellite stores in [Foreign Language]. We already provide AI our location selection product iteration to over 500 brands, which operate -- which opened Branded Satellite Stores. And we also launched Must-Eat List on food safety, together with our merchants to enhance their facility management reliability and help them mitigate for different issues that may raise conduit concerned. As we recently announced, we will also offer a subsidiary to support the mergers, we focus on product development and business innovation with an initial total amount of RMB1 billion. We will provide cash and other type of subsidies to help merchants optimize the supply chain, enhance service quality and launch more valuable money products by improved efficiency. In addition, we will support mass merchants to explore new supply and innovative business formats and encourage high-quality brands to tap into the lower-tier markets. We will also provide time on the brands know how in the operating tools and services, assisting their online operations and marketing. With all these methods, we hope to help merchants seek market opportunities and become industry frontrunners. Additionally, for you -- awarded small and medium-sized merchants, we already extended our full strategy support period from 7 days to a maximum of 14 days, helping them to ramp up their business steadily. I will quickly introduce has reached a relatively mature stage of high quarterly growth. Nevertheless, we believe it's inevitable that food away from home offered by restaurant will address more household dining users, and we'll continue to expand and scale. As an essential component of food away from home, food delivery is becoming a lifestyle choice for an increasing number of people and has significant potential for future growth. We are the global platform for food in China with a large bases of high-frequency users. We are well-positioned to benefit from the inventory growth. With the youngest innovation and the record starting their careers a user base of our food delivery business is set to expand negatively. Additionally, we see good growth trends in both consumption frequency and ARPU above our mature cohorts. Notably, the initial frequency and their ARPU, our new cohorts are higher than those of the mature cohorts and their growth rates are also faster. This dynamic will drive the long-term sustainable growth of our food delivery business. Overall, we believe the food service industry can achieve long-lasting growth with significant potential. We are confident that our food delivery business can sustain that growth even at its current scale. During the current transformation phase of the industry, we will work closely with restaurant and merchants to turn challenges into opportunities, building a healthy and maturity financial ecosystem takes time and our recent initiatives is just the beginning. Moving forward, we will enhance our support with the industry, helping us better navigate cyclical challenges and achieve sustainable and healthy growth together. Thank you.

Operator: Your next question comes from Ronald Keung with Goldman Sachs.

Ronald Keung: So, I want to ask about co-local commerce with quite a few stimuluses that we've seen introduced recently, has Meituan seen any momentum pickup in your business? So, as you look into next year, how should we project the growth of co-local commerce next year and how we balance growth and profitability? Thank you.

Shaohui Chen: A question on co-local commerce. Yes, we noticed that from the end of September onwards, very monthly and big stimulus measures have been announced. Within these measures aim to restore consumer confidence and realize a huge potential of consumption in China on our own platform. We also noticed that consumption in hotel travel duration pickup in October, a year-over-year decrease in the average order value of our hotel business narrowed to the past few months. While it will take some time for the positive effect to fully materialize and to further platform to more contraction highly, we are confident that this policy will gradually provide more for a real economy and incentivized consumer spending, bringing more growth opportunity for our business. We have also actively adapted to the changing production trends to better meet consumer demand merchants since the beginning of this year. We penetrate deep into the industry supply chain and explore new supply formats such as Pin Hao Fan, Branded Satellite Stores, Xiaoxiang and Meituan InstaMart by leveraging our platform advantage and promotional campaigns we refined our content capability, improve marketing schemes for mega-hit products and effectively enhance our pricing competitive needs. Additionally, we capture the right or accounting economics, chain and younger consumers and accelerate the petition of our in-store business into a low tier market. As a result, merchandise, consumer base and transaction volume all increased significantly in the lower-tier markets as we continue to integrate and upgrade our Shen Hui Yuan program, we've achieved more cross-sell and co-local commerce and not enhance the patient frequency and consumption categories of our core consumers. These proactive measures enable us to grow resiliently in the first half of the year as well as the third quarter. About your question on growth next year. We will continue to estimate and accelerate new strategies and strengthen our brand initiatives. We are confident that our co-local commerce will maintain healthy growth. Shift in consumption trends, main external challenges, we believe our on-demand retail business will continue to grow steadily from the current, in particular, Meituan Instashopping, we will benefit from the online digital information and our continuous efforts on both supply side and demand side. This growth will continue to significantly outpace food delivery growth. We will facilitate more cross sell between food delivery and Meituan Instashopping and purchase frequency for existing users. For digital business, there is a large potential as consumption trends continue to evolve and considering the vast opportunities from accelerating online penetration and lower-tier markets. Therefore, we expect healthy growth to continue in the coming years. Meanwhile, we will further accelerate our Shen Hui Yuan membership program unlock more way to cross sell and penetrate more synergies among co-local commerce. About a question between growth and profitability. We continue to believe growth is our top priority. But at the same time, we will focus on profitable growth or high-quality growth. We will also petition to maintain a healthy ecosystem under the current environment, merchant or our platform needs more support. Therefore, we will continue to invest into our ecosystem. A health in content will also lead to stronger long-term competitive mode for us. During this process, we will focus on efficiency as well. Our goal is to generate high-quality growth, achieve strategic targets and ensure steady and sustainable profit growth year-over-year. Thank you.

Operator: Your next question comes from Gary Yu with Morgan Stanley.

Gary Yu: I have a question on Instashopping. How should we size the eventual penetration of quick commerce on online retail goods or sales? And how will -- is demand play a role in accelerating the Instashopping penetration? How are the potential new categories that we have not yet penetrated that have good growth potential? Thank you.

Shaohui Chen: I'm glad you raised the question on Instashopping because we do believe that this is a high potential area for the company. In the last few years, we have seen the on-demand retail has personally change people's lifestyle. It also transforms the whole retail industry. Now consumers believe that shipping could be delivered to your doorstep within 30 minutes. It has developed a highly efficient and dynamic flywheel. We will play a crucial role in the retail sector in the future. We believe in the long run and demand retail will account for and a need over 10% of the total e-commerce market. Over the past 3 years, we continue to grow the supply and demand, running more closely with consumer retail, demand retail. We will upgrade our technology and infrastructure and penetrate deeper into the supply chain. This effort has scaled up market demand, particularly see markets. Currently there are over 30,000 Meituan InstaMart across various categories, including over 10,000 on month decade convenience stores. More importantly, large retailers are now partnered -- partnering with us. [indiscernible], convenience stores is a standout example supporting our expectation in the InstaMart extension. With a strong product capability, 30% of its InstaMart products are now online exclusive InstaMart role with more product cut lines for on-demand retail. We anticipate more large retailers will join us in the future become Meituan InstaMart provides an efficient growth model for them. Their participation will enhance our product variety and quality and elevate this experience. Overall, we see growth opportunity for Meituan InstaMart in every city and town where our delivery services is available. It helps accelerate on-demand retail penetration. We also recently launched a supporting program known as Meituan InstaMart to provide comprehensive support and for them our Meituan InstaMart merchants and related parties. We are confident that Meituan InstaMart will reach a GTV scale of over RMB200 billion by 2027 with over 100,000 stores covering all categories in broader regions. There are new categories in on-demand retail with very low petition. Going forward, we plan to institute more brand and merchants and continue to allocate resources to drive growth. Beyond convenience stores, Meituan InstaMart covers a wide array of categories, partnering to every aspect of consumer life. We have Meituan InstaMart to electronics and the home appliance, mom and child product, daily necessities, apparel, beauty products, pet care, good cut flower, medical equipment and more. In the future, Meituan InstaMart will continue to expand and penetrate deeper into lower-tier markets, enhancing the supply of long-tail product categories.

Operator: Your next question comes from Thomas Chong with Jefferies.

Thomas Chong: Good evening. Thank you for taking my questions. My question is about in-store hotel and travel segment. So, for in-store hotel and travel, could you share some more about the recent progress in Shen Hui Yuan and in the lower tier cities? And how has the competitive landscape evolved? What is our expectation for the operating margin next year and in the launch as the landscape stabilize?

Shaohui Chen: In July, we extended the Shen Hui Yuan program to key categories of our core performance and roll up nationwide scale. Since then, we have made notable progress across product, merchant and consumer file. For hotels and travel, the number of participating merchants have surpassed 50% with an increasing portion of order using Shen Hui Yuan. Our integrated marketing team and services has enhanced consumer awareness in Shen Hui Yuan value for money offerings. We aim to gradually direct over 100 million Shen Hui Yuan members from delivery to enter hotel and travel services. Finally, Shen Hui Yuan has directly increasing traffic to hotel and travel with continuously improved, acquiring new users. We're engaging in active users and increase transaction fix. Looking forward, we will continue to expand in the category, coverage and accelerate our product offering. We will continuously enhance commercial rate through refine and customization which we also help merchants efficiently acquire traffic and increased transaction model as well as enhanced user at a merchant engagement with the platform. For in-store business, demand for potential of digital contention and lower-tier markets. This year, we act remerging of volume in these markets by leveraging our platform's traffic online operational tools with support mergers and their rapid expansion, especially for listed merchant leisure and entertainment merchants, trying to penetrate into the lower-tier markets. Our diverse by offering enable low corner to enjoy the discount and convenience brought by online penetration. Additionally, we cap on new opportunities and counting diverse to resi such as special group to travel holographic [Foreign Language]. As a result, our in-store business achieved high growth in low-tier markets. Regarding competition, our primary focus remains the long-term health of our business, the local commerce industry, we differentiate for our local competitors and leading models and operating strategy and we have different tech delivery mix, merchandise, merchant scale and marketing efficiency. We hold a still market share in our core categories. Recently, the industry has become more rational and efficiency-oriented. The merchants are increasingly focusing on the ROI of their daily operations and marketing spending due to the current competitive environment. Our EPS review and higher ROI marketing spending combined with our comprehensive services across our business cycle scenarios of prototypes will help us further solidify our supply side advantages. We will provide merchants with more crop business, traffic and comprehensive services through our integrated operations. We will continue to monitor the progress of our competitors closely but we will also focus on how to innovate our product formats, refine our operations and invest efficiently. We remain highly confident in our long-term competitive strength into hotel and travel business. As mentioned earlier, following our organizational structuring, our infrastructure business will order volume and user base expansion because they are key drivers for GTV growth. Regarding the question on profit, we focus on operating profit growth rather than operating margin since the range operating margin is impacted by very GTV condition across categories and city tiers and also seasonality. As you have seen in the last few quarters, we have been able to maintain a relative healthy and continue to improve. We are confident that the scale potential of the market and the sustained growth of our business. As the competition stabilize in the medium to long term and more synergy emerge from the integrated local commerce steadily improved operating issues of Interhotel Trust.

Operator: Your next question comes from Kenneth Fong with UBS.

Kenneth Fong: Good evening, management. Thanks for taking my questions. I have a question on the overseas expansion. How is Keeta expansion progress in Saudi Arabia? Will the expansion beyond Saudi take a gradual pace? Or will you expand it to the other Middle East city fairly quickly? How do we assess Meituan advantage and disadvantage in the Middle East market? And what's our plans for the overseas investment? Thank you.

Xing Wang: Thank you for taking attention to Keeta. Eventual is still so small and in so early stage. So, cost that comes to the fact on October 9, we basically launched the Keeta in Riyadh, the capital city of Saudi Arabia. And so yes, that's been 2 months of Riyadh and actually 1 month or in the beginning of September, we tested work in a small city in Riyadh. So, in total, we have been operating in Saudi Arabia for 2 months. So, I think it's still in a very early stage. So far, I would say, we have seen a very encouraging progress, very encouraging results because we have to get some support from both consumers and local merchants. So, when we do that with very positive feedback from those consumers and merchants and also the local every partners. And also, a general Saudi Arabian are nice people, and they are very positive on the future of the economy and about their country. So that was very encouraging. So, when we go there, we believe we can bring value to local customers and local ecosystems. We understand that it's not an empty market, it's not a greenfield market. There are already several local players. We believe Meituan and Kita can bring some new value propositions. So, I think that here, the clear. We want to convey that legacy down to customers. Keeta is faster because we don't put the food, we take the orders, we take on our orders and we deliver. So, our value proposition is very clear, faster I believe that work in a work when they would them. It's actually in Riyadh such a big story. So, this is very important. And because of our original cloud and our technology platform developed in China over the past 10 years, we know how to organize the work, we know how to deliver food positive I think that's what continues to want. So, because we're actually in very early stage. So, I think it hasn't made sense for us to talk about plans beyond the Sound Arabia. So, we are only operating in major cities. And let a big country with many other cities we would like to get to. So, for the time being, we focus on Saudi Arabia. And in Riyadh, I think because we have it growing quickly right now approaching 10 million population, I think there's a lot of new growth for us there. But in the longer term, of course, we want to become a global company or a company with the global presence we want to bring our product services to be the audience and the mission of our company will help people eat better and live better. It's not difficult to Chinese depo. So, we would like to go to other markets where we believe we can create value for both consumers and local merchants. And so -- and it is very clear global expansion with our long-term strategy. And we will have this very openminded to all kind of opportunities in all measures. But at the same time, we are not going to rush into any compotators. So, we have to be very patient, and we want to make sure we are -- every decision we make is well informed. And we don't want to rush into our markets. We now know in local culture with our local ecosystem or without the best support of local regulators. So here, I think it's very important for us to show respect to every party in the ecosystem. And we want to make full activity for more consumers. And I think it's very important to make food delivery become a daily habit rather than taking convenience for larger population. We have seen that become a reality in China. We believe there's a potential to make that a reality in many other countries, in other markets. But at the same time, we know it will take more time. So, we are not going to rush. So, stay tuned.

Operator: Your next question comes from Charlene Liu with HSBC.

Unidentified Analyst: Good evening, management. Thank you for taking my question. I'm speaking on Charlene. With the recent $2.5 billion CNO issuance and a strong free cash flow generation. What does management see as an optimal annual shareholder return as a percentage of free cash flow or profits going forward? And will the company be more opportunistic in buybacks going forward? thank you.

Thomas Chong: Thank you. From the end of September to the date before the blackout period, we have repurchased over $600 million worth of shares. And year-to-date, we have repurchased around 4.2% of total shares more than the combined of use ground from 2021 to 2023, not significantly reduced our total outstanding shares. As we mentioned before, we aim to enhance long-term shareholder returns through in growth opportunity and balanced capital allocation. In September, we issued $2.5 billion in senior notes after our credit ratings further upgraded by 3 rating agencies. The proceeds will be used primarily to retain our maturing vision loans and convertible bonds that are subject to early exercise of options in the coming years and for general corporate permits. After the issuance of the senior notes, we now have more onshore tax reserves to support our overseas expansion and future shareholder return initiatives. Going forward, we will divest our asset, our capital allocation strategy and shareholder return. Share buyback remains to be the primary approach at this stage. We will offset this dilution through share buybacks and same opportunity to further reduce total shares outstanding. At this stage, we cannot commit to a fixed proportion of cash to be used and shareholder returns each year, but we will remain tactful in the amount and execution and make our share of business development investment planned offshore cash reserves, debt repayments and the stock performance.

Operator: There are no further questions at this time. I'll now hand back to Scarlett Xu for closing remarks.

Scarlett Xu: Thank you for joining our call today. We look forward to speaking with you next time. Thank you for your support, as always.

Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.