Dunxin Financial Holdings Limited
Q1 2013 Earnings Call Transcript

Published: 20 May 2013

[Operator:]

Welcome everyone to China Xiniya Fashion Limited 2013 Q1 Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session. Please follow the instructions given at that time if you would like to ask a question. For your information, a webcast replay will be available within an hour after the conference is finished. Please visit www.xiniya.com under the Investor Relations sections. Now, I would now like to introduce Mr. Ng Chee Jiong, the Chief Financial Officer. You may begin.

[Chee Jiong Ng:]

Thank you. Good morning and good evening to all participants. Welcome to Xiniya’s first quarter 2013 earnings call. You may find a copy of our earning press release that we issued today in the IR section of our website or through PRNewswire. Joining me on the call is our Chairman and CEO, Mr. Qiming Xu. Please note that we will be making a number of forward-looking statements today and all such statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today, due to a variety of factors that affect the company, including the risk specified in the most recently filed Form 20-F. Let me turn the call over to Qiming Xu, who will like to make some introductory comments.

[Qiming Xu:]

[Foreign Language] Good morning and good evening everyone and thank you all for joining us today. I am pleased to report that revenue growth continue with 4.2% increase during the first quarter of 2013 in the midst of the economic softening taking place in China, especially with regards to the consumer demand for apparel. Having implemented a strategy to focus on expansion and the recognition of our trade units I am confident that we will be able to successfully mitigate this tenuous time. [Foreign Language] The entire industry from distributors to authorized retailers and many sectors continues to face uncertainties, many of our in sale competitors have adopted aggressive discounting strategies, which has affected very much the situation in the near-term and reduced the probability of our authorized retailers. While we believe these challenges are problems in the near-term, they have begun to affect the confidence of our distributor and authorized retailers and they caused orders volume to replace these significant decline. While this quarters approach has entered a retail enthusiasm as a big – by our partner in our new retail outlets which has diminished somewhat. [Foreign Language] While this sentiment echoed across the menswear industry, it has impacted our bottom line. I do believe this will be temporary and that we will eventually benefit from our strategy. I’m proud of the possibility and initiatives they have shown over quarters in order to adapt to the evolving challenges in sales. While we are not immune to market fluctuations, our strength remains in the quality and acceptance of our product. Last month, we successfully held our Fall and Winter Collections Sales Fair in Xiamen, where we exhibited over 2000 new products, which includes exciting new apparel designs, shoes, bags, sale of other accessories. Our 2013 Falls and Winter collections are expected to be delivered during the second half of 2013. I’m excited about the future potential of our products we will hit once the market recovers. [Foreign Language] We continue to implement our [top grade] strategies, initiatives to help maintain and retain our existing retailers, also our prospective retailers. This will improve our competitiveness and provide our retail network with the support they need to weather the current economic climate. This was further supported by initiatives put in place to expand the store size of our existing authorized retail outlets, as well as increasing sales rebates and extending the credit period. These initiatives demonstrated the degree to which we are working with our retail networks to overcome market fluctuations and facilitate our overall certainty to unify the unit of our retailer outlet to enhance sales. [Foreign Language] We are confident that we will be able to overcome this short-term challenges and that this initiative will provide the necessary support that our distributors and authorized retailer needs as we continue to pursue long-term sustainable growth. It will provide us with additional avenue of growth, as we prepare for eventual recovery of the industry in China. I look forward to updating you all in a few months. [Foreign Language] I would like to turn the call back to our CFO, Mr. Jiong, who will review our operating and financial results. We appreciate your continuous support and belief in Xiniya’s future.

[Chee Jiong Ng:]

Thank you, Mr. Xu. We are pleased to report another quarter of revenue growth. During the first quarter of 2013, Xiniya reported revenue of RMB221million, an increase of 4.2% year-over-year. This is still at the upper end of our guidance range of 1% to 5%. The company delivered 1.18 million units during first quarter of 2013, compared with 1.2 million units during the first quarter of 2012. Xiniya network authorized retailer had a net reduction of 34 retail outlets in the first quarter of 2013 consist of 37 new retail outlet opened and 71 retail outlet closed, so total numbers of authorized retail outlet were 1676 as of March 31, 2013. Gross profit increased to RMB67.8 million during the first quarter of 2013, a decrease from RMB72.3 million during the first quarter of 2012. Gross margin during the first quarter was 30.7% compared with 34.1% during the same period last year. The decrease in gross margin was primarily due to reduced prices, offered by the Company on its 2013 spring and summer collections and the rebates offered by Xiniya to further support its distributors and retailers ability to compete in a challenging retail environment. Selling and distribution expenses increased to RMB16.9 million compared with RMB11.2 million during the first quarter of 2012. The large increase in sales and distribution expenses were currently due to increase in rack expenses for authorized retail outlets of RMB4.6 million, brand consulting expenses of RMB0.8 million and freight expenses of RMB0.3 million. As part of company overall strategy to redefine the image of its authorized retail outlets, the company has been paying for shop rack, signage and various outlet-related accessories for authorized retail outlets opened or refurbished on or after July 2011. During the first quarter of 2013, the company paid for shop rack, signage and various outlet-related accessories for 37 new retail outlets and refurbished 28 retail outlets, which includes expanding floor spaces for seven existing retail outlets. The refurbishment of existing retailer outlets is expected to upgrade the older retail store image to help attract new consumers and improve the presentation of Xiniya’s products all in an effort to enhance retail outlet sales in the future. These expenses were approximately RMB11.5 million or 5.2% of revenue, in the first quarter of 2013, compared with RMB6.9 million, or 3.3% of revenue during the first quarter of 2012. During the quarter, administrative expenses were RMB8.8 million, an increase from RMB8.3 million in the first quarter of 2012, it’s primarily due to an increase in staff salaries. Income tax expenses were RMB13.1 million, compared with RMB14.7 million in the first quarter of 2012. Net profit was RMB33.2 million in the first quarter of 2013 compared with RMB43.2 million in the first quarter of 2012. This translates into earning per ADS of $0.09 in the first quarter of 2013, compared with $0.12 per ADS in the first quarter of 2012. Now moving onto the financial position, as of March 31, 2013, the company had cash and cash equivalents of RMB1 billion, and time deposits held at bank with maturity over three months of RMB220 million. Now, let’s turn to guidance; we expect to realize revenue growth of approximately minus 4% to plus 1% in the second quarter of 2013, while earnings per ADS were expected to be in the range of minus $0.03 to positive $0.01. This concludes our prepared remark. We are now ready to take your questions. Operator?

[Operator:]

We will now begin our question-and-answer session. (Operator Instructions) The first question is from [Jamie] from Delaware Street Capital. Please go ahead.

[Unidentified Analyst:]

Good evening, gentlemen. Question for you. So, this conference call started a little early, so I’m guessing that’s probably keeping few people from asking questions. But in relation to the stock buyback which is authorized, which we discussed on the last call, are you pursuing repurchasing any stock at this time?

[Chee Jiong Ng:]

The process has been completed in December 2012 and when we have the new stock buyback plan, we will announce in the market.

[Unidentified Analyst:]

Okay. Are you considering putting a new stock buyback plan in place?

[Chee Jiong Ng:]

When we have decided, we will announce to the market.

[Unidentified Analyst:]

Okay, okay. All right, okay. As an investor, let me just say this. This company has a lot of share, a lot of cash on the balance sheet. There are pretty much no acquisitions that I can imagine that would enhance shareholder value as much as buying back stock. But it’s just a statement to make at this point. I hope that you guys announce another share buyback. It would show investors great deal of confidence in your company and then in a challenging environment, there aren’t too many acquisitions that you can make that would more than offset what you can actually achieve by buying back stock. I thank you gentlemen for your time. As a shareholder, I hope you strongly consider putting in place new stock buyback program. Thank you.

[Chee Jiong Ng:]

Thank you.

[Operator:]

(Operator Instructions) Your next question is (inaudible). Please go ahead.

[Unidentified Analyst:]

Yeah, I’d like to ask the cash question in a different manner. It’s clear, right now that you have a huge amount of cash on our balance sheet and you’re generating free cash flow. So the cash just keeps building up, even in a period that’s not such a great quarter. So, I wonder if you could share with us what some of the alternatives over the long-term would be in terms of making acquisitions, buying up your distributors or your franchisees, buying back stock or branching out into completely new areas. What is some of the thoughts that you have about what you might do over an extended period of time with the cash?

[Chee Jiong Ng:]

Let me translate that to the Chairman and I will let Chairman address your questions.

[Unidentified Analyst:]

Well, I’d appreciate it.

[Chee Jiong Ng:]

[Foreign Language]

[Qiming Xu:]

[Foreign Language]

[Chee Jiong Ng:]

Well, I assume that the coming spring, and currently at this state there remains a lot of challenges in the industry, low sales, that’s weighed on the distributors, our authorized retailer which we need to support them. And although this – all this– given this situation in the industry, which presents a greater opportunity to do some acquisitions and we can acquire for a better price with that and be able to give us a long-term benefit in the long run, and so for the growth of the company. Then another note is that, we are working for the government to approve the land to us. Once that approval has been given and as there are lots of usage on cash in logistics and our new location and our new manufacturing plant.

[Unidentified Analyst:]

Okay. So you’re going to spend money on the logistic center. You probably make an acquisition or a number of acquisitions at good prices and in response to the previous call you might or might not buyback stock, those would be the major uses of the huge amount of cash?

[Chee Jiong Ng:]

Yeah that’s correct.

[Unidentified Analyst:]

Okay, thank you.

[Chee Jiong Ng:]

Thank you.

[Operator:]

(Operator Instructions) The next question is (inaudible). Please go ahead.

[Unidentified Analyst:]

I have one more question. Can you talk about what the competitive environment? What’s first, in your line is, either particular things selling well or selling badly? And secondly, given the added competition and the slowdown in the economy, do you see competition getting stronger or weaker?

[Chee Jiong Ng:]

Okay, I’ll just translate that. [Foreign Language]

[Qiming Xu:]

[Foreign Language]

[Chee Jiong Ng:]

The industrial environment have been very competitive recently and to us not just what’s selling – we’re not selling back, why this is really important is the distributors and our authorized retailers will be taking a lot of challenges, getting a lot of pressure from the competitors and especially our competitors has been going out on doing lots of discounting and just merchandize. And so that’s also puts a lot of pressure and then also we will say today, our initiatives to suit the – to tackle the current environment, the current competitive pressure. And we are confident that our product is of quality and price competitive, this will help them to weather through this situation.

[Unidentified Analyst:]

Then would you say – when you talk about your competitors, are your competitors for the most part, bigger, smaller or is the same size?

[Chee Jiong Ng:]

[Foreign Language]

[Qiming Xu:]

[Foreign Language]

[Chee Jiong Ng:]

The competitors were referring to those with bigger size – small competitors. They are weaker in the sense, during this competitive environment, they are not – conservative than our competitors. So we consider the usual bigger competitors like Lilang that will thereby the given – allow all the initiatives to support their retail channel that will support the distributors, to (inaudible) confidence to overcome this competitive environment. So we also have (inaudible) in the sense.

[Unidentified Analyst:]

So just as last question, so you over the next few years, you see spending more money to support your retail partners. That’s – the business model is going to emerge, so that the big companies like you are becoming more partners with your distributors than your franchisees. Is that correct?

[Chee Jiong Ng:]

Okay, let me translate that. [Foreign Language]

[Qiming Xu:]

[Foreign Language]

[Chee Jiong Ng:]

So we will grow together with our distributors and our retail networks. So our method or our strategy is to make sure that our distributors and retailers are healthy, and we will be healthy. So we are spending money to closely corporate with our distributors, providing training to them, providing support to present a positive kind of initiative to listen, to become more healthy – become healthy.

[Qiming Xu:]

[Foreign Language]

[Operator:]

(Operator Instructions) There are currently no more questions. Thank you for participating in Xiniya’s conference. There will be a webcast replay within an hour. Please visit www.xiniya.com under the Investor Relations section. You may now disconnect. Good bye.