Jupai Holdings Limited
Q2 2019 Earnings Call Transcript

Published:

  • Operator:
    Thank you for standing by for Jupai’s Second 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 second quarter ended June 30, 2019. Leading the call today is Mr. Jianda Ni, our Chairman and CEO, who will review the highlights for the second 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:
    [Foreign Language] Thank you and welcome everyone to today’s conference call.[Foreign Language] Although the second quarter of 2019 remained challenging for Jupai, we saw initial signs of stabilization in our core business.[Foreign Language] Despite sustained weakness in investor confidence, our cost control efforts began to pay off, adding to our bottom line performance in the second quarter. If the performance fee income from the disposal of Focus Media shares was excluded from our first quarter results, our net loss attributable to ordinary shareholders in the second quarter would represent a substantial recovery from the first quarter.[Foreign Language] Jupai will continue to execute our three strategies to optimize our business and enhance profitability.[Foreign Language] Firstly, we will continue to develop our real estate equity products, as we believe that real estate remains an asset class with relatively low investment risk, especially compared with asset categories such as consumer credit and supply chain management products.[Foreign Language] Secondly, we will enhance our risk control system to further build investor confidence.[Foreign Language] Thirdly, we target to achieve incremental growth in our overseas business. We believe that these strategies will help Jupai capture market opportunities as investor sentiment and the wealth management industry recover.[Foreign Language] I will now turn the call over to Mr. Harry He, our Investor Relations Director, to go through the financials in more detail. Thank you.
  • Harry He:
    Thank you, Jianda. The various cost control measures that Jupai began implementing several quarters ago have begun to bear fruit. We are encouraged to see overall operating expenses, especially our cost of revenue, decline on a year-over-year basis for the first time this quarter. We expect to realize additional cost reductions in the coming quarters as we further downsize our workforce, amend our incentive schemes, optimize our coverage network and streamline our business operating procedures.Now, let me walk you through our financial results for the second quarter and the first half of 2019. Net revenues for the second quarter of 2019 were RMB185.9 million, a 58.1% decrease from the corresponding period in 2018, primarily due to decreases in both one-time commissions and recurring management fees. Net revenues were RMB466.9 million for the first half of 2019, a decrease of 46.7% from the same period in 2018.Net revenues from one-time commissions for the second quarter of 2019 were RMB86.5 million, a 69.3% decrease from the corresponding period in 2018, primarily as a result of a decrease in the aggregate value of wealth management products distributed by the Company. For the first half of 2019, net revenues from one-time commissions were RMB145.1 million, a decrease of 74% from the same period in 2018.Net revenues from recurring management fees for the second quarter of 2019 were RMB67.8 million, a 44.3% decrease from the corresponding period in 2018, primarily due to the decrease in the value of assets under management. RMB11.1 million and RMB23.3 million carried interest were recognized as part of Jupai's recurring management fees in the second quarter of 2019 and 2018, respectively.For the first half of 2019, net revenues from recurring management fees were RMB260 million, a 6.3% increase from the same period in 2018. RMB138.5 million and RMB44 million carried interest was recognized as part of Jupai's recurring management fees for the first half of 2019 and the same period of 2018, respectively.Net revenues from recurring service fees for the second quarter of 2019 were RMB31.6 million, a 176.5% increase from the corresponding period in 2018, primarily because the Company provided ongoing services to more product suppliers. The Company recognized zero and RMB0.3 million variable performance fees in the second quarter of 2019 and 2018 respectively.For the first half of 2019, net revenues from recurring service fees were RMB47.9 million, an 80.8% increase from the same period in 2018. The Company recognized zero and RMB0.3 million variable performance fees for the first half of 2019 and the same period in 2018 respectively.Net revenues from other service fees for the second quarter of 2019 were zero, a 100% decrease from the corresponding period in 2018, primarily due to no sub-advisory service provided to other companies. For the first half of 2019, net revenues from other service fees were RMB13.9 million, a decrease of 70.4% from the same period in 2018.Operating costs and expenses for the second quarter of 2019 were RMB241 million, a 14.9% decrease from the corresponding period in 2018, while we saw decreases in cost of revenue and selling expenses, thanks to our cost control measures, there was a increase in G&A expenses, largely due to provision for doubtful accounts of RMB31.7 million and service fee for client relation maintenance. For the first half of 2019, operating costs and expenses were RMB533.9 million, a decrease of 5.3% from the same period in 2018.Operating margin for the second quarter of 2019 was minus 29.7%, compared to 36.1% for the corresponding period in 2018. For the first half of 2019, operating margin was minus 14.3%, compared to 35.7% for the same period in 2018.Net loss attributable to ordinary shareholders for the second quarter of 2019 was RMB61 million, compared to net income attributable to ordinary shareholders of RMB87.8 million from the corresponding period in 2018. For the first half of 2019, net loss attributable to ordinary shareholders was RMB86.6 million, compared to net income attributable to ordinary shareholders of RMB203.7 million from the same period in 2018.Net margin attributable to ordinary shareholders for the second quarter of 2019 was minus 32.8%, compared to 19.8% for the corresponding period in 2018. For the first half of 2019, net margin attributable to ordinary shareholders was minus 18.6%, compared to 23.2% for the same period in 2018.Net loss attributable to ordinary shareholders per basic and diluted American depositary shares for the second quarter of 2019 were RMB1.82 and RMB1.82 respectively, as compared to net income attributable to ordinary shareholders per basic and diluted ADS of RMB2.63 and RMB2.49, respectively, for the corresponding period in 2018.For the first half of 2019, net loss attributable to ordinary shareholders per basic and diluted ADS was RMB2.58 and RMB2.58 respectively, as compared to net income attributable to ordinary shareholders per basic and diluted ADS of RMB6.12 and RMB5.79 respectively, for the same period in 2018.Non-GAAP net loss attributable to ordinary shareholders for the second quarter of 2019 was RMB58.6 million, compared to non-GAAP net income attributable to ordinary shareholders of RMB115.5 million from the corresponding period in 2018. For the first half of 2019, non-GAAP net loss attributable to ordinary shareholders was RMB81.3 million, compared to non-GAAP net income attributable to ordinary shareholders of RMB241.6 million from the same period in 2018.Non-GAAP net margin attributable to ordinary shareholders for the second quarter of 2019 was minus 31.5%, as compared to 26% for the corresponding period in 2018. For the first half of 2019, non-GAAP net margin attributable to ordinary shareholders was minus 17.4%, as compared to 27.6% for the same period in 2018.Non-GAAP net loss attributable to ordinary shareholders per diluted ADS for the second quarter of 2019 was RMB1.74, as compared to net income attributable to ordinary shareholders per diluted ADS of RMB3.28 for the corresponding period in 2018. For the first half of 2019, non-GAAP net loss attributable to ordinary shareholders per diluted ADS was RMB2.42, as compared to non-GAAP net income attributable to ordinary shareholders per diluted ADS of RMB6.87 for the same period in 2018.Looking to our balance sheet and cash flow. As of June 30, 2019, the Company had RMB1,119.3 million in cash and cash equivalents and restricted cash, compared to RMB1,302.6 million as of December 31, 2018.Net cash used in operating activities during the second quarter of 2019 was RMB127.9 million. For the first half of 2019, net cash used in operating activities was RMB124.5 million.Net cash provided by investing activities during the second quarter of 2019 was RMB180.7 million. For the first half of 2019, net cash used in investing activities was RMB58.8 million.Net cash provided by financing activities during the second quarter of 2019 was zero. For the first half of 2019, net cash provided by financing activities was RMB29.6 thousand. Given the high uncertainty in current macroenvironment, management believes that it will be more prudent for us to cease providing specific guidance on our financial outlook. However, we do plan to offer investor official guidance again when industry and market outlook becomes clear.That concludes our prepared remarks. I will now turn the call back to operator to begin the Q&A session. Operator?
  • Operator:
    [Operator Instructions] Your first question comes from the line of Haifeng Cao from UBS.
  • Haifeng Cao:
    I have one question, if I may. And I'm actually happy to know that Jupai’s business performance has started to show some initial signs of stabilization in the second quarter. I'm just wondering what are the measures taken and what has the management’s expectations with outlook for Jupai and the overall industry in the third quarter? And can you give us some color on your strategy going forward? This is my question.
  • Harry He:
    Sure, Haifeng. Let me do the translation for the Chairman. Just hold on for a second.
  • Haifeng Cao:
    Yeah. Thank you.
  • Jianda Ni:
    [Foreign Language]
  • Harry He:
    For the benefits of other audience, let me do the translation. The overall environment remained tough in the second quarter of 2019 for the entire wealth management industry. From a macroeconomic point of view, as we mentioned in our previous earning calls, since early 2018, the government has accelerated the de-leveraging of the overall economy and significantly tightened the regulatory requirement and supervision on the financial institutions. This changes have led to extremely tight cash cycles for many enterprises, some of which fail to adjust their business model in a timely manner and will even push towards the edge of bankruptcy.This has caused a ripple effect to negatively impact the counter parties, which are financial institutions such as private equity fund and the wealth management companies and led to much negative news coverage on the wealth management industry over the past quarters. In our view, these short term pains are unavoidable and the path to healthy long term economic growth. However, we cannot deny that such short term pains have negatively influenced investors’ confidence in the near term. Additionally, international political and economic instability has also made investors more conservative.
  • Jianda Ni:
    [Foreign Language]
  • Harry He:
    In this conservative [Technical Difficulty] Jupai remained under pressure in the second quarter of 2019. From a bottom line perspective, we started to reduce our net loss in the second quarter. The various cost control measures we have undertaken over the past quarters began to pay off. If we exclude the exclude impact from the disposal of Focus Media shares from our results in the first quarter, we reduced our loss from operations from approximately RMB120 in the first quarter of 2019 to about RMB55 million in the second quarter.
  • Jianda Ni:
    [Foreign Language]
  • Harry He:
    Jupai began implementing various cost control measures since the middle of 2018 and this was the first quarter in which our operating expenses declined year-over-year. In particular, our cost of revenues declined about 37.6% year-over-year in the quarter, as we optimized our compensation and incentive schemes and streamlined our headcount and a coverage network.In terms of headcount reduction, Jupai reduced our number of staff from around 2,500 at the beginning of 2018 to approximately 1300 as of June 30, 2019. We also condensed our coverage network from 72 offices, covering 46 cities at the beginning of 2018 to 61 offices, covering 45 cities as of June 30, 2019.
  • Jianda Ni:
    [Foreign Language]
  • Harry He:
    Looking forward, we believe that investor confidence will be slow to recover, as we expect concerns over the slowdown in domestic economic growth and the instability in international market will still continue. As a result, market environment will likely remain challenging for both the wealth management industry and Jupai in the coming quarter.
  • Jianda Ni:
    [Foreign Language]
  • Harry He:
    In light of the bearish market sentiment, we will continue to make efforts to enhance Jupai’s operating efficiency. We believe that there will be room for further reduction in our operating expenses in the third quarter. We will remain dedicated to executing our three core strategies to meet this industry uncertainty. Firstly, we will enhance our overwhelming product and improve our product structure through further diversification of product lines. Secondly, we will strengthen our risk control system across the entire lifecycle of our products. Thirdly, we will continue to expand our overseas business to achieve incremental growth in our business.
  • Jianda Ni:
    [Foreign Language]
  • Harry He:
    In terms of our product, in addition to real estate fixed income product, in which Jupai has significant competitive advantages, we will continue to promote our real estate equity products. We believe that real estate remains an asset class with relatively low investment risk, especially compared with asset categories such as consumer credit and supply chain management products. Moreover, as real estate companies continue to face rising cost of capital and increasing volatility in a real estate market, we feel it is now a great time for investor to get into the equity investments in leading real estate enterprises.
  • Jianda Ni:
    [Foreign Language]
  • Harry He:
    In addition, we will continue to strengthen our risk control schemes and also enhance the transparency of the management of the underlying assets and projects of our products, which could allow investor to get involved in the process such as project selection, product research and development. Additionally, Jupai is focusing on upgrading our risk management with a holistic approach, including raising the quality threshold of counterparties of the underlying assets and the project of our products and raising the risk management awareness of our customers.
  • Jianda Ni:
    [Foreign Language]
  • Harry He:
    In terms of overseas business, as we mentioned earlier in this call, Jupai has made a progress in overseas business over the past year. We will continue to expand our overseas product offering to better fulfill investors’ needs for global asset allocation.
  • Jianda Ni:
    [Foreign Language]
  • Harry He:
    In summary, amid the current industry downtown, we remain dedicated to providing superior quality and innovative wealth management products to our customers and improving our operating efficiencies. With the three strategies in place, we are confident that Jupai will beWell-positioned to capture market opportunities when the market recovers and create values for our customers and shareholders.
  • Operator:
    We are now approaching the end of the conference. I will now turn the call over to Jupai’s Investor Relations Director, Harry He, for closing remarks.
  • Harry He:
    Right. 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.

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