China Index Holdings Limited
Q2 2020 Earnings Call Transcript
Published:
- Operator:
- Ladies and gentlemen, thank you for standing by, and welcome to China Index Holdings Limited FY 2020 Second Fiscal Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded. I would now like to hand the conference over to your speaker today, Ms. Jessie Yang. Thank you. Please go ahead.
- Jessie Yang:
- Thank you, operator. Hello, everyone, and welcome to China Index Holdings’ second quarter 2020 earnings conference call. Joining us today to discuss CIH's results are our CEO, Ms. Yu Huang; and Financial Controller, Ms. Lili Chen. After the prepared remarks, our management will answer your questions. Before we get started, I would like to remind you that during the course of this conference call, we may make forward-looking statements, statements that are not historical facts, including statements about our beliefs and expectations. Forward-looking statements involve inherent risk and uncertainty. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. CIH assumes no obligation to update the forward-looking statements in this conference call and elsewhere. Potential risk and uncertainties include, but are not limited to those outlined in our public filings with the SEC, including our Form F1. Now I would like to walk you through our second quarter 2020 results, after which, Ms. Huang will answer your questions for the Q&A session. In the second quarter of 2020, total revenues were f RMB150.2 million, an increase of 12.1% from RMB134 million in the corresponding period of 2019. Operating income was RMB68.4 million, an increase of 12.5% from RMB6.8 million in the corresponding period of 2019. Net income was RMB52.3 million an increase of 21.1% from RMB51.4 million in the corresponding period of 3019. In the first half of 2020, total revenues were RMB283 million, an increase of 11.8% from RMB253.1 million in the corresponding period of 2019. Operating income was RMB137.9 million, an increase of 11.1% from RMB124.1 million in the corresponding period of 2019. Net income was RMB126.2 million, an increase of 20.5% from RMB104.7 million in the corresponding period of 2019. In the second quarter revenues from Information and Analytics Services were RMB67.6 million in the second quarter of 2020, an increase of 17.8% from RMB57.4 million in the corresponding period of 2019, primarily due to an increase in the number of customers. Revenues from marketplace services were RMB82.6 million in the second quarter of 2020, an increase of 7.9% from RMB76.6 million in the corresponding period of 2019. Cost to revenue was RMB23.4 million in the second quarter of 2020, a decrease of 4.8% from RMB24.6 million in the corresponding period of 2019, primarily due to a decrease in campaign costs. Operating expenses were RMB58.4 million in the second quarter of 2020, an increase of 20.2% from RMB48.6 million in tenderness corresponding of 2019. Selling and marketing expenses were RMB32.3 million in the second quarter of 2020 an increase of 35.1% from RMB23.9 million in the corresponding period of 2019, primarily due to an increase in personnel costs resulting from the growing number of selling and marketing personnel headcount. General and administrative expenses were RMB26.1 million in the second quarter of 2020, an increase of 5.7% from RMB24.7 million in the corresponding period of 2019, primarily due to the increase in personnel costs of research and development department. Operating income was RMB68.4 million in the second quarter of 2020, an increase of 12.5% from RMB60.8 million in the corresponding period of 2019. Income tax expenses were RMB9.6 million in the first quarter of 2020, an increase of 15.7% from RMB8.3 million in the corresponding period of 2019. Net income was RMB52.3 million in the first quarter of 2020, an increase of 21.1% from RMB51.4 million in the corresponding period of 2019. In the first half of 2020, CIH recorded total revenues of RMB283 million in the first half, an increase of 11.8% from RMB253.1 million in the corresponding period of 2019. Revenues from Information and Analytics Services were RMB128.9 million in the first half of 2020, an increase of 12.9% from RMB114.2 million in the corresponding period of 2019, primarily due to an increase in the number of customers. Revenues from marketplace services were RMB154.1 million in the first half of 2020, an increase of 10.9% from RMB138.9 million in the corresponding period of 2019. Cost of revenue was RMB42.9 million in the first half of 2020, a decrease of 9.5% from RMB47.4 million in the corresponding period of 2019, primarily due to a decrease in campaign costs. Operating expenses were RMB102.2 million in the first half of 2020, an increase of 25.1% from RMB81.7 million in the corresponding period of 2019. Selling and marketing expenses were RMB56.2 million in the first half of 2020, an increase of 24.3% from RMB45.2 million in the corresponding period of 2019, primarily due an increase in personnel costs resulting from the growing number of selling and marketing personnel headcount. General and administrative expenses were RMB46 million in the first half of 2020, an increase of 26.4% from RMB36.4 million in the corresponding period of 2019, primarily due to an increase in personnel costs of research and development department. Operating income was RMB137.9 million in the first half of 2020, an increase of 11.1% of RMB124.1 million in the corresponding period of 2019. Income tax expenses were RMB20.6 million in the first half of 2020, an increase of 12% from RMB18.4 million in the corresponding period of 2019. Net income was RMB126.2 million in the first half of 2020, an increase of 20.5% from RMB104.7 million in the corresponding period of 2019. Based on current operations and market conditions, management believes that the company will maintain a double-digit growth momentum on its annual revenue for 2020. These estimates represent management's current and preliminary view, which are subject to change. Thank you again for joining us today and we are now open for questions. Operator, please go ahead.
- Operator:
- Thank you, so much. [Operator Instructions] And your first question comes from the line of Joash Reid from Reid Green & Co. Your line is now open.
- Joash Reid:
- Okay, thank you for taking my question and congratulations on another solid quarter. I guess my first question is, during Q2 were there any changes in how clients were interacting with the company's products and services and were there any changes in clients or potential clients behavior?
- Jessie Yang:
- Thank you, Reid. I will now translate your question. So now I'll translate Ms. Huang's response. So in the second quarter after – in the first quarter we had the pandemic in China, many clients could not meet in person. So during this time we did develop the habit of using our online platforms more, especially our data products. So this is especially prevalent also for those who had signed up for trials of our products during this period for their ultimate decision making. For example, clients who need to effectively [ph] and cannot use domestic travel they will use our land database and SaaS tools to assess and evaluate land online and make relevant decisions and estimations. In the second quarter they were still some restrictions on travel and they had used our products more often and frequently. So in terms of habits of our clients, these were some of our observations.
- Joash Reid:
- Yes, okay thank you. And my next question is, so as a result of the coronavirus, what company, what changes is the company seeing that could help or hurt the growth over the next 12 to 18 months?
- Jessie Yang:
- Okay, I'll translate your question. Okay so I will now translate Ms. Huang's response. So in terms of helping growth, the pandemic as mentioned before has made our clients develop a habit of using our online tools, whether that is our databases or SaaS tools. So they are definitely more reliant on our online products and we have also put in place more training to help our clients be accustomed to using these online platforms. In terms of negative aspects, we used to have no bad debts in the past and now we see our bad debt have increased very slightly, and this is a result of an extension of the payment schedule by our clients. So, also in terms of global and Chinese economy, there are definitely uncertainties, including the potential of a second wave in the fall or winter. This will have an impact on the economy as a whole, but also impact us as well. Relatively speaking, the impact will be less since we have our online databases and SaaS tools compared to the rest of the economy. However, we will still experience an impact. Thank you.
- Joash Reid:
- Okay, thank you. My next question was, in May, the company announced that it had acquired China Index Credit Rating and [indiscernible] credit rating to create a foundation to enter into the global credit rating market. Could we get a background on those acquisitions?
- Jessie Yang:
- Okay, thank you for your question. [Foreign Language]
- Yu Huang:
- [Foreign Language]
- Jessie Yang:
- So these two companies are in the business of credit rating, making credit ratings in China. We made these acquisitions as preparations for future business development. We see restrictions being loosened in this area. This was also mentioned in the government meetings earlier this year to open up the market in this sector. For CIH we do have a strong database foundation and this is also our competitive advantage. Based on this and our real estate industry understanding and experience, credit ratings will help real estate appraisals and related financial industry services. And so we hope through these acquisitions to introduce new products and services to meet the requirements of risk assessment in the real estate sector, as well as the financial services sector. And for the future, we hope to bring in revenue based on these new products and services. Thank you.
- Joash Reid:
- Okay and what was paid for the acquisitions and who did you buy them from?
- Jessie Yang:
- [Foreign Language]
- Yu Huang:
- [Foreign Language]
- Jessie Yang:
- So, regarding the price, we are still making certain assessments, and it will be a fair value price. Thank you.
- Joash Reid:
- And also in May the U.S. Senate approved the Bill to require Chinese companies to know how to give PCAOB access to audits and if the audits are not complete three years in a row then the company could be bought from U.S. exchanges. How would this Bill affect China Index and how would the company respond?
- Jessie Yang:
- [Foreign Language]
- Yu Huang:
- [Foreign Language]
- Jessie Yang:
- So in terms of these requirements, we will definitely comply with these legal and other requirements from the U.S. Government. From an operational and business perspective we don't see this having any impact.
- Joash Reid:
- Okay, looks good and is the company, I guess considering obtaining dual listing in Hong Kong like some of the companies like NetEase and Alibaba?
- Jessie Yang:
- [Foreign Language]
- Yu Huang:
- [Foreign Language]
- Jessie Yang:
- So, this currently, this would not be something that we would discuss on the call. We would release, make press releases if this was in the plan and this would be discussed with our Board internally, et cetera. Thank you.
- Joash Reid:
- Thanks. And I guess my last question is, how will China's commercialization of 5G, which they did back in 2019 impact the development of the company in terms of collecting and providing data?
- Jessie Yang:
- [Foreign Language]
- Yu Huang:
- [Foreign Language]
- Jessie Yang:
- 5G development will be very beneficial for CIH, for example, in helping our clients using our land assessment tools, accessing aerial photos, captures as well as online reports. If 5G develops well it will greatly benefit our clients in using our products and online services. This will increase the speed with which they're delivered as well as increase our client’s efficiency. Thank you.
- Joash Reid:
- Okay. Thank you. That’s it from me.
- Jessie Yang:
- Thank you.
- Operator:
- Thank you so much. [Operator Instructions] And your next question comes from the line of Cecom Su [ph] from LH Capital. Your line is now open.
- Unidentified Analyst:
- [Foreign Language]
- Jessie Yang:
- [Foreign Language]
- Yu Huang:
- [Foreign Language]
- Jessie Yang:
- So I'll briefly translate the question. The question was regarding Marketplace Services having single digit growth, which is slightly slower than Information and Analytics Services. And the question was whether this was due to COVID or for example, the transactions with Fang. The response is there are certainly impacts from COVID, since promotions were slowed or postponed during the pandemic, especially in Q1 and to a certain extent in Q2. And I mentioned earlier, we did have some delays in payment by a few clients resulting in a slightly increase in bad debt. Secondly, we do terminate a related transactions contract with Fang, where there was a 15% revenue share from online ads related to commercial real estate. Since we have spun off, we will slowly separate these engagements. This was stated in our 20F. And last year there were approximately a RMB100 million in revenues and we stated that we will terminate this revenue share. Thank you.
- Unidentified Analyst:
- [Foreign Language]
- Yu Huang:
- [Foreign Language]
- Jessie Yang:
- So I'll translate briefly. We did see that receivables in advance where the increase was significant and was this a result of cash flow recovery. And the response is, during the pandemic, we did increase our promotions for our online products and tools. So this is from our efforts from the first quarter. Additionally, our clients as well may significant efforts to improving their side of the business and as a result, we see basically our receivables increasing. Thank you.
- Unidentified Analyst:
- [Foreign language]
- Yu Huang:
- [Foreign language]
- Unidentified Analyst:
- [Foreign language]
- Yu Huang:
- [Foreign language]
- Unidentified Analyst:
- [Foreign language]
- Jessie Yang:
- Great. So I'll briefly translate the question and response. The question was in terms of renewal rate, it was previously disclosed that it was around 70% to 80% and if management can provide further details. And the response is, in terms of our SaaS products, the renewal rate is higher than 70%. Specifically for database products, it's higher than 70% and for our land products, it's higher than 90%. And database and SaaS tools combined make up approximately 50% of our revenue. Thank you.
- Unidentified Analyst:
- [Foreign language]
- Yu Huang:
- [Foreign language]
- Jessie Yang:
- So I'll briefly translate. The follow-up question was regarding Fang's purchase of CIH stock from the secondary market and whether we believe the CIH stock is undervalued, et cetera. And the response is, it is definitely undervalued from a market perspective. The more we understand the business, the more that is clear. From an investment perspective, definitely everyone makes their own analysis based on valuation. However, from the company's perspective, we are undervalued in the secondary market. Thank you.
- Operator:
- Thank you so much. [Operator Instructions] There are no further questions at this time. Speakers, you may continue.
- Jessie Yang:
- Thank you operator, and thank you everyone again for joining China Index Holdings second quarter earnings call today. We look forward to speaking with you again for our third quarter 2020 earnings call. Thank you.
- Yu Huang:
- [Foreign language] Thank you.
- Operator:
- That does conclude our conference for today. Thank you for participating. You may all now disconnect