Jupai Holdings Limited
Q1 2019 Earnings Call Transcript

Published: 10 Jun 2019

[Operator:]

Thank you for standing by for Jupai’s First Quarter 2019 Earning Conference Call. [Operator Instructions] Please note today's conference call is being recorded. If you have any objections you may disconnect at this time.I'd now like to turn the meeting over to your host for today's conference, Mr. Harry He, Jupai's Investor Relations Director.

[Harry He:]

Hello, everyone and welcome to Jupai's earnings conference call for the first quarter ended March 31, 2019.Leading the call today is Mr. Jianda Ni, our Chairman and CEO, who will review the highlights for the first quarter of 2019. 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 the 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:]

Thank you, Harry, and welcome, everyone to today's conference call. Jupai’s first quarter 2019 operating results remained under pressure, in addition to fewer working days resulting from the Chinese New Year holiday, weaker than expected investor confidence amid the unsettled U.S-China trade conflict contributed to the headwinds we faced in the quarter. As a result, our total net revenue for the first quarter of 2019 declined by 35.1% year-over-year to RMB281 million. Our total assets under management as of March 31, 2019 was RMB53 billion, a 2.8% decrease from one year ago.Given the macro-economic uncertainties, we believe investor confidence will return gradually in the late 2019. Amid the prolonged market downturn, Jupai will remain dedicated to executing our three strategies to optimize our business.Firstly, we will look to grow our real estate equity products more proactively. We believe that real estate is an asset class with relatively lower investment risk compared to other categories such as consumer credit or supply chain management products. The rising funding costs and the current volatility in the real estate industry should continue to provide an excellent entry point for investors to gain exposure to equity from leading real estate companies. Given Jupai's abundant real estate industry experience, we are well positioned to identify the highest quality real estate projects for our investors.Secondly, we will continue enhancing our risk control system. We believe risk management capability is one of the most critical aspects of wealth management products and the key to enhancing investor confidence. Over the past several years, we have improved our risk control systems across our entire product life cycle, and in the months ahead we will further strengthen our quality standards for project counterparties.Thirdly, we target to achieve incremental growth from our overseas business, including development of overseas insurance products and the collaboration with leading international financial institutions to meet the rising demand for global asset allocation from our customers. With these strategies in place, we are confident that Jupai will be well-positioned to seize opportunities as the market recovers.I will now turn the call over to Mr. Harry He, our Investor Relations Director to go through the financial in more details. Thank you.

[Harry He:]

Thank you, Jianda. In light of the challenging environment, Jupai has implemented various cost control measures, including downsizing our workforce, adjusting our incentive systems, optimizing our coverage network and streamlining our business SOP to improve our operating efficiency and profitability. As we foresee an increase in operating expenses over the near-term related to personnel optimization, we expect to realize more positive effects from our cost control measures towards the end of this year.Now maybe walk you through our financial highlights for the first quarter of 2019. Net revenue for the first quarter of 2019 were RMB281 million, a 35.1% decrease from the corresponding period in 2018, primarily due to decreases in both one-time commissions and other service fees.Net revenues from one-time commissions for the first quarter of 2019 was RMB58.6 million, a 78.8% decrease from the corresponding period in 2018, primarily as a result of the decrease in aggregate value of wealth management products distributed by the company.Net revenues from recurring management fees for the first quarter of 2019 were RMB192.2 million, a 56.4% increase from the corresponding period in 2018, primarily due to an increase of carried interest recognized in this period. RMB127.4 million and RMB20.7 million carried interest were recognized as part of Jupai's recurring management fees in the first quarter of 2019 and 2018, respectively.Net revenues from recurring service fees for the first quarter of 2019 were RMB16.3 million, an 8.2% increase from the corresponding period in 2018, primarily because the company provided ongoing services to more product suppliers. The company recognized no variable performance fees in the first quarter of both 2019 and ‘18.Net revenues from other service fees for the first quarter of 2019 were RMB13.9 million, a 26.1% decrease from the corresponding period in 2018, primarily due to a decrease in sub-advisory fees collected from other companies.Operating costs and expenses for the first quarter of 2019 were RMB292.9 million, a 4.3% increase from the corresponding period in 2018. While we saw decreases in selling expenses, G&A expenses for the first quarter, there was an increase in our cost of revenue, largely due to increased compensation to wealth management advisors and client managers.Operating margin for the first quarter of 2019 was minus 4.2%, compared to 35.2% for the corresponding period in 2018.Net loss attributable to ordinary shareholders for the first quarter of 2019 was RMB25.6 million compared to a net income attributable to ordinary shareholders of RMB115.9 million from the corresponding period in 2018.Net margin attributable to ordinary shareholders for the first quarter of 2019 was minus 9.1%, compared to 26.7% for the corresponding period in 2018.Net loss attributable to ordinary shareholders per basic and diluted ADS for the first quarter of 2019 were RMB0.76 and RMB0.76, respectively, as compared to net income attributable to ordinary shareholders per basic and diluted ADS of RMB3.5 and RMB3.3, respectively, for the corresponding period in 2018.Non-GAAP net loss attributable to ordinary shareholders for the first quarter of 2019 was RMB22.6 million compared to non-GAAP net income attributable to ordinary shareholders of RMB126.1 million from the corresponding period in 2018.Non-GAAP net margin attributable to ordinary shareholders for the first quarter of 2019 was minus 8.1% as compared to 29.1% for the corresponding period in 2018.Non-GAAP net loss attributable to ordinary shareholders per diluted ADS for the first quarter of 2019 was RMB0.67, as compared to net income attributable to ordinary shareholders per diluted ADS of RMB3.59 for the corresponding period in 2018.Looking to our balance sheet and the cash flow. As of March 31, 2019, the company had RMB1,066.4 million in cash and cash equivalents and restricted cash, compared to RMB1,302.6 million as of December 31, 2018.Net cash provided by operating activities during the first quarter of 2019 was RMB3.4 million. Net cash used in investing activities during the first quarter of 2019 was RMB239.6 million. Net cash provided by financing activities during the first quarter of 2019 was RMB29,600.That concludes our prepared remarks. I will now turn the call back to operator to begin the Q&A session. Operator?

[Operator:]

Thank you. [Operator Instructions] First question comes from the line Haifong Kao of UBS. Please go ahead.

[Harry He:]

Hi, Haifong.

[Haifong Kao:]

Hi. Good evening. Thanks for the opportunity. I have one question. So Jupai’s operating results have been facing a lot of challenges over the past few quarters. Can you share with us your view on the company’s outlook for the second quarter and the rest of the year? And where have you been to adapt Jupai to the trends and challenges in such a market environment? Thanks.

[Harry He:]

Thank you. Thank you, Haifong. Let me do the translation for the Chairman. Over the past few quarters, Jupai together with the wealth management industry has been facing various challenges and unexpected changes. In terms of the macroeconomy back in 2018, the government continued to encourage deleveraging within the overall economy and return from simply pursuing GDP growth to pursuing better quality and structure of GDP growth which had led to concerns over the float on in the overall economy.With respect to the wealth management industry, the government started to impose more strict policies on the wealth management industry, forcing wealth management company to adjust their basic model and product strategy to adopt to the tightened regulatory requirements. Regarding the real estate market to reach most of Jupai’s products are related and exposed, the real estate market in the Tier 1 and Tier 2 cities has been weak over the past few quarters, making the investors lacking of confidence in the real estate related investments.Additionally, the intensified trade conflict within U.S and China has led to raising uncertainties in the outlook of global economy. All above -- all the above factors had resulted in weak investor confidence and sentiment as well as highly challenging environment for Jupai to operate in. Looking forward we expect our macroeconomic outlook to remain uncertain and market environment to remain challenging in the medium term.Given the macroeconomic uncertainties, we believe investor confidence will return gradually in late 2019. And specifically on our operating performance in the second quarter of 2019, we expect our bottom line to show some sort of quarter-over-quarter recovery if we exclude the effect from the RMB120 million performance fee income we recognized from our disposal of Focus Media shares in the first quarter. From a long-term perspective, amid the prolonged market downturn, Jupai will continue to work on two fronts. Firstly, enhancing our product to drive our self; and secondly, improving our operating efficiency to lower our operating costs.On the product side, as we mentioned in our prepared remarks, we will look to grow our real estate equity product more proactively and develop overseas products such as overseas insurance. We believe that real estate remains an asset class with relatively lower investment risks compared to asset categories such as consumer credit products or supply chain products, the rising funding costs and the current volatility in the real estate industry creates such excellent entry point for investor to gain exposure to equity from leading real estate companies. For example, we’ve launched the Rising Star [indiscernible], our real estate equity flagship product.Jupai collaborates with top 100 real estate developers in this fund that have strong brand and scale, quality, land reserve portfolio and solid operating efficiencies. Jupai also selects projects located in wealthier regions, including Yangtze River Delta, Pearl River Delta and the Beijing-Tianjin-Hebei regions to ensure the quality of our products. Given Jupai's abundant experience within the real estate industry, we are strongly positioned to identify the best quality real estate projects for our investors.Regarding our overseas business, Jupai look to promote our overseas insurance product and global PE products to meet the rising demand of global asset location from our clients. We will continue to strengthen our collaborations with leading financial -- global financial institutions, such as Blackstone, Brookfield, Carlyle, and Oaktree to provide quality global PE product to our clients. On the cost savings side, since the second half of 2018, we have increasingly motivated our staff mainly through optimizing our incentive program and raising the performance requirement bar.In addition, we’ve effectively streamlined our talent resources. We look to reduce the number of client managers as well as the number of cities covered and client centers. Based on our current plan, we target to reduce the number of our overall headcount to below 1,500 staff by the end of 2019. Moreover, we’ve also adapt to -- adapted other cost control measures, including consolidating our office location. This cost control measure will take time to materialize and we expect a positive effect from this measure to more meaningfully contribute to our earnings in the next two quarters. For example, towards the end of 2019. In short, during this period of industry transition, Jupai will continue to focus on developing quality and innovative wealth management products and greatly enhancing operating efficiency, which will allow the company to seize market opportunities when the overall industry recovers.

[Haifong Kao:]

All right. Thank you for taking my questions. Thank you.

[Harry He:]

Thank you, Haifong for your questions.

[Operator:]

Thank you. We are now approaching the end of the conference call. I will now turn the call over to Jupai's Investor Relations Director, Harry He for closing remarks.

[Harry He:]

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

[Operator:]

Thank you for your participation in today's conference. You may now disconnect. Good day.