Jupai Holdings Limited
Q4 2016 Earnings Call Transcript

Published: 28 Feb 2017

[Operator:]

Thank you for standing by for Jupai's Fourth Quarter and Full-Year 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's 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’d 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:]

Hello everyone and welcome to Jupai's earnings conference call for the fourth quarter and full-year ended December 31, 2016. Leading the call today is Mr. Tianxiang Hu, our Co-Chairman and CEO, who will review the highlights for the fourth quarter and the full-year of 2016. I will then discuss our financial results. We will then open the call to questions, at which time our Co-Chairman and CFO, Mr. Tianxiang Hu; and 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'll now turn the call over to Mr. Tianxiang Hu, our Co-Chairman and CEO and I will interpret his remarks for you.

[Tianxiang Hu:]

Thank you, Harry, and welcome everyone to today’s conference call. We are pleased to announce that Jupai continued to see rapid growth within our core wealth management and asset management businesses, with net revenues rising almost 90% year-on-year to RMB1.1 billion for the full-year 2016. Leveraging our extensive industry resources and outstanding professional teams, we grew the aggregate value of total products distributed by Jupai to a record high of RMB45.3 billion in 2016, up approximately 60% year-on-year from RMB28.4 billion in 2015. Additionally, Jupai's total assets under management increased significantly from RMB12.5 billion as of December 31, 2015, to RMB36.1 billion as of December 31, 2016. We were pleased to open Jupai's Hong Kong office in 2016, which represents the first step in our international expansion and positions us to capture overseas market opportunities. To achieve a better balance between our growth and increasing return on equity, Jupai's [technical difficulty]

[Operator:]

Please go ahead.

[Harry He:]

Sorry investors, we just had some technical issues. Let’s resume the conference call. Net revenue from one-time commissions for the fourth quarter of 2016 were RMB185.3 million, a 73% increase from the corresponding period in 2015, primarily as a result of our increase in aggregate value of wealth management products distributed by the Company and changes in product mix. For the full-year of 2016, net revenues from one-time commissions were RMB633.2 million, a increase of 88.2% from 2015. Net revenues from recurring management fees for the fourth quarter of 2016 were RMB73.1 million, a 1.2% increase from the corresponding period in 2015. The Company recognized RMB3.7 million and RMB39.3 million carried interest in the fourth quarter of 2016 and '15, respectively. For the full-year of 2016, net revenues from recurring management fees were RMB260.6 million, an 83% increase from 2015. RMB15.3 million and RMB55.5 million carried interest was recognized as part of Jupai's recurring management fees for the full-year of 2016 and '15, respectively. Net revenues from recurring service fees for the fourth quarter of 2016 were RMB25.8 million, a 19.9% decrease from the corresponding period in 2015, primarily due to a decline in variable performance fees. The Company recognized RMB4.1 million in variable performance fees in the fourth quarter of 2015, compared to RMB1.2 million in the fourth quarter of 2016. For the full-year of 2016, net revenues from recurring service fees were RMB123.2 million, a 6% increase from 2015. The Company recognized RMB14.6 million and RMB61.6 million of variable performance fees for the full-year of 2016 and '15, respectively. Net revenues from other service fees for the fourth quarter of 2016 were RMB54.3 million, which mainly include sub-advisory fees collected from other companies. For the full-year of 2016, net revenues from other service fees were RMB110.7 million, a increase of 100% from 2015. The Company recognized these revenues for the first time in the third quarter of 2016. Operating costs and expenses for the fourth quarter of 2016 were RMB244.4 million, an increase of 53.1% from the corresponding period in 2015, largely due to higher compensation expenses, particularly the commission fees paid to wealth management advisors and client managers, as well as marketing, advertising, brand promotion, and G&A costs. For the full-year of 2016, operating costs and expenses were RMB832.9 million, an increase of 112.9% from 2015. Operating margin for the fourth quarter of 2016 was 27.8%, compared to 24.3% for the corresponding period in 2015. For the full-year of 2016, operating margin was 26.1%, compared to 34.3% in 2015. Net income attributable to ordinary shareholders for the fourth quarter of 2016 was RMB62.3 million, a 62% increase from the corresponding period in 2015. For the full-year of 2016, net income attributable to ordinary shareholders was RMB207.6 million, an increase of 35% from 2015. Net margin attributable to ordinary shareholders for the fourth quarter of 2016 was 18.4%, as compared to 18% for the corresponding period in 2015. For the full-year of 2016, net margin attributable to ordinary shareholders was 18.4%, compared to 25.8% in 2015. Net income attributable to ordinary shareholders per basic and diluted ADS for the fourth quarter of 2016 was RMB1.93 and RMB1.85, respectively, as compared to RMB1.29 and RMB1.24, respectively, for the corresponding period in 2015. For the full-year of 2016, net income attributable to ordinary shareholders per basic and diluted ADS was RMB6.46 and RMB6.20, respectively, as compared to RMB6.36 and RMB6.06, respectively, in 2015. Looking to our balance sheet and cash flow, as of December 31, 2016, the Company had RMB1,123 million in cash and cash equivalents, compared to RMB795.9 million as of December 31, 2015. Net cash provided by operating activities during the fourth quarter of 2016 was RMB169.3 million. For the full-year of 2016, net cash provided by operating activities was RMB211.4 million. Net cash provided by investing activities during the fourth quarter of 2016 was RMB28.2 million. For the full-year of 2016, net cash provided by investing activities was RMB1.9 million. Net cash used in financing activities during the fourth quarter of 2016 was RMB26.6 million. For the full-year of 2016, net cash provided by financing activities was RMB114.4 million. Moreover, the Company announced today that its Board of Directors has approved and declared a cash dividend of US$0.083 per ordinary share. Holders of Jupai's ADSs, each representing six ordinary shares of Jupai, are accordingly entitled to the cash dividend of US$0.5 per ADS. The cash dividend will be paid on the 3rd of April 2017 to the shareholders of record as of the close of business on the 20th of March 2017. The aggregate amount of cash dividends to be paid is approximately US$16 million, which will be funded by surplus cash on the Company's balance sheet. Turning to our guidance, we expect Jupai's net revenue for the first quarter of 2017 will be in the range of RMB314 million to RMB336 million, an increase of 40% to 50% compared to the same period in 2016. This forecast reflects our current and preliminary view, which is subject to change. 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] We will now take our first question from Jun Zhu from CICC.

[Harry He:]

Hello.

[Operator:]

Please go ahead. Your …

[Jun Zhu:]

Hello?

[Harry He:]

Yes. Hello.

[Jun Zhu:]

Thank you. Thank you. My question is, can you talk about dividend plan?

[Harry He:]

Okay. Let me do the translation. To achieve a better balance between our growth and increasing return on equity, Jupai's Board of Directors has approved and declared a cash dividend of US$0.50 per ADS for the first time. The determination to make dividend distribution and amount of such distribution in any particular year will be made at the discretion of the Board of Directors will be based upon the Company's operation and earnings cash flow, financial conditions and other relevant factors. Any more question from you?

[Jun Zhu:]

Yes, one more question. What’s the reason of management's change, for example, why did Mr. Ni, become the Executive Chairman?

[Harry He:]

The change in senior management was fully endorsed and supported by the Board of Directors, who believe firmly that this adjustment will have a very positive impact on the Company's daily operation and long-term strategic development. The Co-Chairman and Executive Chairman Mr. Jianda Ni, will be fully responsible for Jupai's strategy planning and relationship maintenance with government and related regulatory authorities and supervisory agencies, as well as shareholders. As the founder of the Company, the Co-Chairman and CEO, Tianxiang Hu will be responsible for the Company's daily operation and a more continued focus on the development of our business by streamlining relevant work in processes and to improving the efficiencies.

[Jun Zhu:]

Okay, thank you. Can I have another question?

[Harry He:]

Yes, please.

[Jun Zhu:]

Okay. Thank you. Thank you. Can you share with us your view with respect to the guidance of Q1 2017, which indicates revenue will increase 50% YoY, much higher than the guidance given in the previous few quarters?

[Harry He:]

For the benefit of other investor online, let me do the translation. If you compare our actual results against the guidance we gave in the past few quarters, you will realize our guidance was generally quite conservative. The diversification of our product structure will continue. For example in 2017, we will focus on developing more FOS funds and MRA [ph] funds, overseas and products in supply chain finance, which we’ve already detailed in our customer product portfolios. In terms of our service network, we’re planning to have new [indiscernible] management centers in new cities in China and also within this year we will have our centers in New York and San Francisco in U.S. Moreover, we will have a partnership incentive plan to motivate our top relationship manager. In terms of revenue, we’re confident that Jupai will remain a high double-digit growth in the next couple of years with net profit margin around 20%. In conclusion, we believe the potential of wealth management industry in China is huge and that we’re just at the beginning. Any more question from you?

[Jun Zhu:]

No, thank you.

[Harry He:]

Thank you.

[Operator:]

We will now take our next question from Steven Ju from Credit Suisse.

[Harry He:]

Hi, Steven.

[Steven Ju:]

Hello. Hi, yes. [Indiscernible], I have two questions here. I like to go with them one by one. So my first question is …

[Harry He:]

Yes.

[Steven Ju:]

… can you please share your thoughts regarding the latest number for PE [ph] regulation?

[Harry He:]

Okay. Let's address your first question.

[Steven Ju:]

Yes.

[Harry He:]

Let me do the translation. For the benefit of other investors online, let me do the translation. There has been party [ph] based discussion regarding this new regulation, I would like to share my view from different angles, so it may not be 100% correct. The latest number for PE regulation stipulates clearly that no PE product shall provide funding in the form of debt to residential property projects within 16 cities with overrated property price, which means as the cities outside of those 16 cities are not affected. On the other hand, even within those 16 cities, commercial property projects and other property projects including social housing, industrial property are not impacted at all. In addition, the funding in the form of equity is still allowed, which is the same as before. When it comes to the [indiscernible] property company, as a legal entity at parent level, property companies are now subject to many new restrictions. However, many property companies are indeed conglomerate in this space with business covering across many industry outside of property. The investors catch [ph] their access to a wide range of products with high quality legitimately. In my view, these new regulation likely impose higher comprise cost on the industry, which may drives more third-party res management company out of the market as they don’t have such economy of scale to share costs. For the bigger players, it may seems like complying costs go up a little bit in short-term, but in return they could grab the market share upon those smaller players. Thus in longer term the impact is positive.

[Steven Ju:]

Okay. Thank you. My second question is how does the low interest rate environment affect the industry and Jupai? So if the interest rate cycle turns, what will be the impact?

[Harry He:]

Okay. Let me do a translation.

[Steven Ju:]

Okay.

[Harry He:]

Let me do the translation for other investors. The challenging macro economy -- economic environment has got investors to become more risk averse leading to higher demand for fixed income products. However, transition of fixed income products, such as conventional less management products issued by commercial banks and a cash management product from online financial institutions have experienced declining return due to interest rate COGS by China's Central Bank. For example, we could easily find a one-year fixed income product that provides 12% return in 2014, while currently we could only see 5% or 6% returns on those products that you can find in the market. What we’re good at is by leveraging our relationship with our major shareholder E-House, a top real estate service company in China and CRIC, the owner of an advanced real estate information database and analysis system in China, we’re able to identify high-quality underlying real estate assets with attractive risk-return profiles. Many of our fixed income products [indiscernible] provide 7% to 8% returns, which provides us a competitive advantage over our peers.

[Steven Ju:]

Recently from macro perspective, this evidence showing that excess capacity in option industry is pretty much cleaned up due to supply side reform from central government and as demand from downstream industry is also improving, which all of a sudden raised the inflation expectation. In addition, there is also speculations that the Central Government is considering measures to offset the weakness of renminbi caused by the rate hikes from the U.S. Therefore suddenly people have started to talk about the turning of interest rate cycle and actually how it will impact the risk management industry, excluding a handful of company which could raise capital from equity or debt market. In terms of the packing auto funding source, company generally considered funding from banks as a top choice due to its low cost capital and is entrust and lastly, risk management products. Our cost of capital is generally higher than banks, therefore in a downward cycle of interest rate, the capital from banks is more attractive, whereas in upward cycle, the competitive advantage is less obvious. Moreover, the economy recovery is purely behind the rate hikes. The increasing risk appetite from enterprises will make themselves less sensitive to the higher cost of capital. Overall, we believe if the interest rate cycle turns the impact will likely be positive. More question from you, Steven?

[Steven Ju:]

Yes. My next question is why did the recurring management fee increased too slowly [ph] in the fourth quarter 2016?

[Harry He:]

Okay. Our CFO, Min Liu, will address your question.

[Steven Ju:]

Okay.

[Harry He:]

Let me do the translation for other investors online. Please be aware that the recurring management fee in Q4 2016 includes a performance fee of US$6.2 million, which is roughly RMB40 million. Second into consideration, the recurring management fees excluding performance fee should be only US$5 million in Q4 2015, which is approximately RMB32 million compared to RMB70 million recurring management fee in Q4 2016, also excluding performance fee. Therefore from apple to apple perspective, our recurring management fee actually increased more than 1% year-over-year in Q4 2016.

[Steven Ju:]

Okay. My last question …

[Harry He:]

Anymore questions, Steven?

[Steven Ju:]

Yes, yes. My last question here is, can you please tell me about the number of active clients in 2016?

[Harry He:]

The benefits of other investors, let me do the translation. The number of active clients in 2016 was 10,218, increasing approximately 20% year-over-year. The average transaction value per client also increased from RMB3.3 million in 2015 to [indiscernible]. In longer term, as our product lines become more diversified, we expect the number of active clients and average transaction value per client will rise steadily.

[Steven Ju:]

Okay. Thank you. Thank you.

[Harry He:]

Okay. Thank you very much.

[Operator:]

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 call. You may now disconnect. Good day.