Jupai Holdings Limited
Q1 2020 Earnings Call Transcript

Published: 28 May 2020

[Operator:]

Thank you for standing by for Jupai Holdings Limited First Quarter 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. After managements’ prepared remarks, there will be a question-and-answer session. Please note today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today’s conference Mr. Harry He, Jupai's Investor Relations Director. Please go ahead.

[Harry He:]

Thank you, operator. Hello, everyone, and welcome to Jupai's earnings conference call for the first quarter ended March 31, 2020. Leading the call today is Mr. Jianda Ni, our Chairman and CEO, who will review the highlights for the first quarter of 2020. I will then discuss our financial results. We will then open the call to questions, at which time, our CFO, Ms. Min Liu, will also be available. Before we continue, I refer you to our safe harbor statement in earnings press release, which applies to this call as we will make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in renminbi. I will now turn the call over to Mr. Jianda Ni, our Chairman and CEO, and I will interpret his remarks for you.

[Jianda Ni:]

[Foreign Language] Thank you, Harry, and welcome, everyone, to today's conference call. [Foreign Language] Our cost control measures helped to drive improved bottom line results compared to the first quarter of 2019, even as our top-line performance remained under pressure due to the COVID-19 outbreak. [Foreign Language] We remain confident for the future prospects for Jupai and China's wealth management industry, which has been reflected in the US$10 million share repurchase program we announced in late February 2020. [Foreign Language] We will continue to focus on our core strategies

[Harry He:]

Thank you, Ni. Reflecting our continuous efforts to streamline costs, Jupai achieved another sequential reduction in operating expenses in the first quarter of 2020. Our total operating cost and expenses declined by 35% and cost of revenues were down by 32%. We expect to continue improving our bottom-line in the quarters ahead as we further enhance operating efficiencies. Now I will walk you through our financial highlights for the first quarter of 2020. Net revenues for the first quarter of 2020 were RMB96.6 million, a 65.6% decrease from the corresponding period in 2019, primarily due to decreases in one-time commissions, recurring management fees and other service fees. Net revenues from one-time commissions for the first quarter of 2020 were RMB39.5 million, a 32.6% decrease from the corresponding period in 2019, primarily as a result of a decrease in the aggregate value of wealth management products distributed by the Company. Net revenues from recurring management fees for the first quarter of 2020 were RMB25.3 million, an 86.8% decrease from the corresponding period in 2019, primarily due to the decrease in carried interest and the value of assets under management. RMB31.9 thousand and RMB127.4 million carried interest was recognized as part of Jupai's recurring management fees in the first quarter of 2020 and 2019, respectively. Net revenues from recurring service fees for the first quarter of 2020 were RMB31.8 million, a 95.2% increase from the corresponding period in 2019, primarily because the Company provided ongoing services to more product suppliers. The Company recognized RMB0.4 million and nil variable performance fees in the first quarter of 2020 and 2019, respectively. Net revenues from other service fees for the first quarter of 2020 were zero, as compared to RMB13.9 million from the corresponding period in 2019, primarily due to a decrease in sub-advisory fees collected from other companies. Operating costs and expenses for the first quarter of 2020 were RMB108.7 million, a decrease of 62.9% from the corresponding period in 2019. In particular, we saw decreases in cost of revenues and selling expenses, thanks to the cost control measures we undertook. Operating margin for the first quarter of 2020 was minus 12.6% as compared to minus 0.2% for the corresponding period in 2019. Net loss attributable to ordinary shareholders for the first quarter of 2020 was RMB19.9 million, a 22.3% decrease from the corresponding period in 2019. Net margin attributable to ordinary shareholders for the first quarter of 2020 was minus 20.6%, as compared to minus 9.1% from the corresponding period in 2019. Net loss attributable to ordinary shareholders per basic and diluted ADS for the first quarter of 2020 was RMB0.59 and RMB0.59, respectively, as compared to RMB0.76 and RMB0.76, respectively, from the corresponding period in 2019. Non-GAAP net loss attributable to ordinary shareholders for the first quarter of 2020 RMB17.2 million, a decrease of 24% from the corresponding period in 2019. Non-GAAP net margin attributable to ordinary shareholders for the first quarter of 2020 was minus 17.8%, as compared to minus 8.1% from the corresponding period in 2019. Non-GAAP net loss attributable to ordinary shareholders per diluted ADS for the first quarter of 2020 was RMB0.51, as compared to RMB0.67 from the corresponding period in 2019. As we announced earlier today, as of May 22, 2020, we had repurchased 292,112 ADSs as part of the share repurchase program of up to US$10 million announced in February 2020, at a total cost of US$316,453, inclusive of transaction charges. And looking to our balance sheet and cash flow, as of March 31, 2020, the Company had RMB682 million in cash, cash equivalents and restricted cash, as compared to RMB712.3 million as of December 31, 2019. Net cash used in operating activities during the first quarter of 2020 was RMB21.2 million. Net cash used in investing activities during the first quarter of 2020 was RMB2 million. Net cash used in financing activities during the first quarter of 2020 was RMB7.1 million. That concludes our prepared remarks. I will now turn the call back to operator to begin the Q&A session. Operator?

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Haifeng Cao of UBS. Please go ahead.

[Haifeng Cao:]

Thanks Ni and Harry for the opportunity. I have one question. Despite the negative impact on the economy and the society from the coronavirus outbreak, Jupai achieved quarter-over-quarter loss reduction in the first quarter. Can management share your view on that trend and what measures has Jupai taken in response to the virus? And what's your take on the prospects of Jupai and overall wealth management industry going forward? That’s it. Thanks.

[Harry He:]

Thank you very much for the question, Haifeng. For the benefits of other audience, let me do the translation for the Chairman, and we will address your questions shortly.

[Jianda Ni:]

[Foreign Language] The COVID-19 outbreak undoubtedly impacted daily life in China over the first quarter of 2020, which we can see from the metrics, including GDP growth rate, export indicators and the consumption data. As COVID-19 outbreak continues overseas, we are seeing turbulence in global markets and uncertainties around the growth of major economy. All these factors affected the demand for wealth management products in the quarter and posed challenges to the wealth management industry and for Jupai as well. As a result, Jupai's aggregate value of wealth management product distributed totaled RMB1.4 billion in the first quarter, which is quarter-over-quarter decrease. But however, it is better than our preliminary expectation. [Foreign Language] Despite the headwinds, we saw Jupai's profitability continue to improve in the quarter, achieving a quarter-over-quarter decrease in net loss attributable to ordinary shareholders for the third -- for the third consecutive quarter. This reflects the positive impact that our cost control measures have had on our bottom line as well as our ongoing efforts to enhance corporate management. Thanks to our efforts to streamline costs, Jupai has been able to stay resilient during this challenging time. Taking the first quarter as an example, we shrunk our quarter-over-quarter net loss, even as our net revenues are under pressure. Specifically, we achieved another sequential reduction in operating expenses in the first quarter. Our cost of revenue declined by 32% quarter-over-quarter and our total operating costs and expenses were down by 35% quarter-over-quarter. This resulted in net loss attributable to ordinary shareholders in the first quarter declined quarter-over-quarter by 34% to RMB19.9 million. We believe that Jupai is now well positioned to seize the opportunities and improve its revenue and profits once the market demand bounces back and industry recovery accelerates. [Foreign Language] Alongside the incentive policies were out by the government, we saw the economy gradually regain its momentum and daily life return to normal as pandemic prevention and control measures took effect in China. As the economy gradually recovers, we believe that there will be many opportunities for business development across China industry and cities. In the long-term, we remain confident in the future prospects for Jupai and China's wealth management industry, which has been reflected in the US$10 million share repurchase program we announced in late February, 2020, under which we have already bought 292,112 ADSs as of May 22. [Foreign Language] Looking at the external environment, the government has successfully rolled out numerous incentive policies over the past months, including providing value-added tax exemptions and reductions and as well as financial support to various enterprises to help improve the overall business environment. China Central Bank PBOC has taken various measures to support enterprises and ensure the liquidity in the market, such as reducing interest rates and deposit reservation rates as well as activating reverse purchase agreement. We also saw the capital market regulators taking action to mitigate market prevalence while deepening market reforms. In the first quarter, real estate control policies largely remained in effect, and dozens of cities have rollout tailored measures to support the real estate market. We also saw government reforms of both rural land system and household registration system increased available – increased available land supply and further stimulate demand. As of the end of first quarter, the real estate market has begun to show some positive signs of rebound. And according to national statistics bureau, the decline in real estate investment slowed during the period from January to April, with several major metrics showing positive market momentum. We expect that the investment demand, which has been restrained by the pandemic, will gradually be unleashed and the financing demand from those real estate enterprises will also rebound. [Foreign Language] Putting employees' health and safety as our first priority during this outbreak, Jupai quickly responded and implemented effective work arrangements for our staff. We also leveraged our online assets such as Jupai official app, corporate websites and WeChat account to provide timely product information to clients during this pandemic. In addition, Jupai held client live streaming events with wealth management experts to share their forecast for the overall economy as well as industries such as biopharma, which are crucial in the fight against COVID-19. [Foreign Language] Looking ahead, Jupai is dedicated to executing our core strategies, namely improving cost controls and increasing operating efficiencies, enhancing our product portfolio, optimizing our risk control system, improving project transparency and seeking potential overseas growth opportunities. [Foreign Language] Firstly, we will continue to strengthen cost control measures, including optimizing sales incentive schemes and streamlining personnel and sales network. Our progress in implementing cost control measures have significantly benefited our bottom line over the past years and also help the company to stay resilient during the time when the global economy is uncertain compared to the beginning of 2018. As of the end of the first quarter, the total staff count at Jupai was reduced to around 760 from 2,500. And we also reduced the scale of our sales network to 44 offices covering 39 cities from 72 office covering 46 cities. [Foreign Language] Regarding operating efficiencies in 2019, we implemented and updated IT system, allowing us to become a paperless enterprise through all transaction stages. The new IT system has helped optimize the work efficiencies of our client managers and enabled them to gain a better understanding about clients' preference and demands for the wealth management products, which leads to better product selection and overall client service. Combining technology and services, we were able to launch online contract signing service during this pandemic to meet the needs of our clients. [Foreign Language] In terms of product, we will continue to leverage our abandoned resources and rich experience in the real estate industry to provide high-quality differentiated products. As we mentioned earlier, while the pandemic brought uncertainties to various industries, real estate remains an asset class with relatively low investment risks. Therefore, in addition to further developing real estate fixed income products, in which Jupai has significant competitive advantages, we will continue to aggressively promote our real estate equity products. For example, real estate equity fund products backed by the residential projects, the target groups with strong demand, like the first-time homebuyers and the newly married couples. We will also enhance our active investment capacity and management capabilities in the secondary market equity fund products and private equity product as well. In addition, we will closely monitor challenges in investment environment as pandemic continues to evolve and identify appropriate investment opportunities for our clients. [Foreign Language] In terms of risk control, Jupai will continue to strengthen our risk control capabilities and improve information transparency. Especially during this challenging times, it is important for professional institutions to build trust and win our clients by providing information regarding potential risks. In 2019, we rolled out initiatives to enhance our risk control system, partner selection methodologies and professional capabilities of our client managers and further increased transparency of assets and also post-investment management. In addition, on January, we launched our online asset information transparency system, which provides information to clients through the entire product cycle from fund rising investment, post-investment management and exit. [Foreign Language] In terms of our overseas business, Jupai will continue to closely monitor market opportunities and take a prudent approach to developing overseas products to meet client demands. We will explore new business opportunities that have potential to deliver increased growth. [Foreign Language] In conclusion, Jupai is devoted to providing clients with safe, high quality and innovative wealth management products. In the first quarter, we were proud to celebrate the 10 years anniversary of our founding of our company. Maintaining the commitment that we have had to our clients since day one, we will continue to work hard to build Jupai into a top wealth management and asset management brand, serving the high net worth individuals in China. Haifeng?

[Haifeng Cao:]

It’s pretty clear. Thank you, Jianda. Thank you, Harry.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

Thank you, Haifeng.

[Operator:]

There are no further questions at this time. I'll now hand the call back to Harry He for closing remarks.

[Harry He:]

This concludes today's call. If you have any follow-up questions, please contact us. Thank you.

[Operator:]

That does conclude our conference for today. Thank you for participating, and you may now disconnect.