Jupai Holdings Limited
Q1 2017 Earnings Call Transcript

Published: 8 May 2017

[Operator:]

Thank you for standing by for Jupai's First Quarter 2017 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.

[Harry He:]

Hello everyone and welcome to Jupai's earnings conference call for the first quarter ended March 31, 2017. Leading the call today is Mr. Jianda Ni, our Co-Chairman and CEO, who will review the highlights for the first 2017. 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'll now turn the call over to Mr. Jianda Ni, our Co-Chairman and CEO and I will interpret his remarks for you.

[Jianda Ni:]

[Interpreted] Thank you, Harry, and welcome everyone to today's conference call. We are pleased to announce Jupai delivered a set of solid results for the first quarter of 2017, with continued rapid growth on both our top and bottom lines. Our net revenues for the quarter reached another record high of RMB368.7 million, up 64.6% year-on-year, and our net income attributable to ordinary shareholders rose by an impressive 242.3% year-on-year to RMB90.7 million. Our in-depth industry knowledge and big data analytics capabilities through our relationships with E-House, a leading real estate service company, and CRIC, a top real estate information database, enable us to identify quality underlying assets and offer fixed-income products with attractive risk-return profiles, a crucial advantage as investors in China have become more conservative over the past quarters. In the first quarter of 2017, we increased the aggregate value of products distributed by us to RMB14.2 billion, a 31.1% increase year-on-year. Additionally, our total assets under management increased to RMB43.1 billion as of March 31, 2017, a 101.0% increase year-on-year. Looking forward, as we further strengthen our core competence within the fixed income product category, we will look to further expand our product range in order to better meet investors' asset allocation needs. Moreover, while we have adopted a prudent approach towards overseas expansion, we will continue to look for appropriate opportunities to build our business outside of China. I will now turn the call over to Mr. Harry He, our Investor Relations Director, who will go through the financials in more detail. Thank you.

[Harry He:]

Thank you. Jianda Ni. We continued to perform strongly in the first quarter of 2017, with our net revenues substantially surpassing management guidance. Our operating margin for the quarter rose to 34%, up from 14% in the same period last year, as we implemented effective cost control measures. We remain confident about the outlook for our bottom line, as we further enhance our operating efficiency, optimize revenue structure, and expand our business scale. Now let me walk you through our financial highlights for the first quarter of 2017. Net revenues for the first quarter of 2017 were RMB368.7 million, a 64.6% increase from the corresponding period in 2016, primarily due to increases in one-time commissions, recurring management fees and other service fees. Net revenues from one-time commissions for the first quarter of 2017 were RMB234.8 million, a 51.5% increase from the corresponding period in 2016, primarily as a result of an increase in the aggregate value of wealth management products distributed by the Company and changes in product mix. Net revenues from recurring management fees for the first quarter of 2017 were RMB67.6 million, an 84.6% increase from the corresponding period in 2016. The Company recognized RMB1.7 million and RMB3.5 million carried interest in the first quarter of 2017 and 2016, respectively. Net revenues from recurring service fees for the first quarter of 2017 were RMB26.2 million, a 19.1% decrease from the corresponding period in 2016, primarily because the Company provided ongoing services to fewer product suppliers. The Company recognized RMB1.4 million and RMB3.9 million variable performance fees in the first quarter of 2017 and 2016, respectively. Net revenues from other service fees for the first quarter of 2017 were RMB40.1 million, which mainly included sub-advisory fees collected from other companies. Operating costs and expenses for the first quarter of 2017 were RMB243.5 million, an increase of 26.4% from the corresponding period in 2016, largely due to higher compensation expenses, marketing expenses and as well as G&A costs. Operating margin for the first quarter of 2017 were 34% compared to 14% for the corresponding period in 2016. Net income attributable to ordinary shareholders for the first quarter of 2017 was RMB90.7 million, a 242.3% increase from the corresponding period in 2016. Net margin attributable to ordinary shareholders for the first quarter of 2017 was 24.6%, as compared to 11.8% for the corresponding period in 2016. Net income attributable to ordinary shareholders per basic and diluted ADS for the first quarter of 2017 was RMB2.81 and RMB2.69 respectively, as compared to RMB0.83 and RMB0.80 respectively for the corresponding period in 2016. Looking to our balance sheet and cash flow. As of March 31, 2017, the Company had RMB1.2 billion in cash and cash equivalents, compared to RMB1.1 billion as of December 31, 2016. Net cash provided by operating activities during the first quarter of 2017 was RMB220.3 million. Net cash used in investing activities during the first quarter of 2017 was RMB14.6 million. Net cash used in financing activities during the first quarter of 2017 was RMB120.0 million. Turning to our guidance. We expect Jupai's net revenues for the second quarter of 2017 will be in the range of RMB367 million to RMB392 million, an increase of 50% to 60% compared to the same period in 2016. This forecast reflects the Company's current and preliminary view, which is subject to change. That concludes our prepared remarks. I will now turn the call back to the operator to begin the Q&A session. Operator?

[Operator:]

Thank you. [Operator Instructions] We will take an opening question from Bolun Tang of CICC. Please go ahead, your line is open.

[Bolun Tang:]

Hi. Good evening, management, and congratulations on the great results. It's fantastic. I've got a couple of questions coming. The first one is regarding with results in Q1, which shows the revenue growth was higher than the high end of the guidance, you previously given. Please could you share with us your view in terms of what you try could achieve in the full year 2017? My second question is that, could you please comment a little bit more regarding two types overseas expansion strategy, for example, you previously mentioned that Jupai is going to setup new office at New York and San Francisco. Also when I saw the net profit margin, it's positive that we see it's an improvement trend in the last few quarters, can we expect Jupai to maintain the current net profit margin? And my last question is about the transaction volume in Q1, which was RMB14.2 billion. It's an improvement Y-o-Y that a little lower on sequential basis. What was the reason behind? Is there any seasonality reason such as the Chinese New Year? That's my questions. Thank you.

[Harry He:]

Thank you very much, Bolun. Let's address your question one by one. Let me do a translation for our Chairman first.

[Jianda Ni:]

[Interpreted] Okay, so let's address your first question. For the benefit of other investors, let me do the translation. If you compare our actual results against the guidance we gave in the past few quarters, we're realized our guidance is generating quite conservative. In terms of revenue, we are confident that Jupai will maintain a high double digit growth in the next couple of years. In terms of net profit margin, the cost control measure started to kick in already and we believe the net profit margin will be around 20% in the foreseeable future. The diversification of product structure will continue. For example, in 2017, we will focus on developing source products, merger and acquisition funds, overseas funds and products in supply chain finance, which we have done very detail in our current product portfolios. In terms of our sales network, we are planning setting up throughout new wealth management centers in new cities. And with industrial, we will have our own centers in New York and in San Francisco in U.S. Moreover, we will have a partnership incentive plan to motivate our top relationship managers. That's the first question. Let me do the translation for other investors. Jupai's, always the expansion strategy is doing well as we expected. We have the start our Hong Kong office last May and we are considering setting up more moving key cities in the world. On the other hand, in terms of overseas products, if China's economy is bottoming out, and exchange rate stabilizes, we may start to see more signs of deregulation on capital outflows from central banks, which will make outbound investments much easier. If this assumption comes through, then I believe all efforts we put into our overseas expansion strategy will start to bear fruit. However what I want to emphasize is to maintain the high growth rate of Jupai that we currently see. We actually don't need much contribution for overseas. The organic domestic growth in China is already strong enough to support such growth. The guidance we gave to investors start to consider any sudden search in contribution of our oversea business or any large performance piece. That's question two. We have actually initiated the cost control measures since the first half last year, notably the normalization of the incentives we paid to our wealth management advisors, which was high in the past and it became more reasonable and it's sustainable today. Therefore was operating expenses show the downward trend in recent quarters. In longer term, we are confident to keeping net profit margin around 20%, understandably some investors are concerned that adjustment in the incentive structure may demonetize of the wealth management advisors, which were proved to be not true if we were referred to our revenue figures and a transaction volume and so forth. So there's no need to worry about that. That's question three. And we do the translation for other investors. Due to Chinese New Year, there are few working days in Q1 compared to the number of working days in other quarters during the year, which may imposed a net impact on the transaction volume. However, the transaction volume is also influenced by other factors such as product lines, the market demand and a macro economy and so forth. In Q4, 2016, the RMB14.5 billion transaction volume included a very short term fixed income production of RMB2 billion, whereas in the first quarter of 2017, we don't have such super short term products. Overall the transaction volume in Q1 was slightly less than Q4 last year but the quality was much higher. Hi Bolun.

[Bolun Tang:]

Yeah, that's very comprehensive. Thank you very much.

[Jianda Ni:]

Okay, thank you Bolun.

[Bolun Tang:]

Thank you.

[Operator:]

We will take our next question from Steven Ju from Credit Suisse. Please go ahead, your line is open.

[Steven Ju:]

Yes. First, congratulations for very decent results in first quarter. So I have three main questions here. The first one is, could you please share with us as your view is respect to the supply chain finance products, for example, how does it compared to the real estate fixed income products in terms of risks? My second question is, why was the percentage of the fixed income products so high in the past few quarters? The last question here is, the sales network figures shows the number of cover cities increased to 44 in first quarter this year, then number of clients center declined to 72, so did you close down a few client centers in first quarter?

[Harry He:]

Thank you very much Steven. Let me to the translation. Okay, Steven, let's answer your first question first.

[Jianda Ni:]

[Interpreted] So the benefits of other investors online, let me do the translation. We have supplied a few supply chain finance product are less risky than where you stay fixed from fixed income product. I don't think - I don't think a simple conclusion can be drawn easily, so what is financed basically, the essence of finance is to price risk supported by our shareholders in-house and the information database for us [ph]. We believe we are able to identify the risks and turn them into opportunities better than most of our peers. It may appear risky for some of the companies as the risks whereas area are beyond while they could manage. In addition, the fact whereas accounts for a very significant part of underlying assets for fixed income product - for the fixed income products has been the case in the wealth management industry for a very long time is it is virtually impossible to replace it with another industry with such big size, whereas the industry could absorb relatively high financing costs and offer benefits of economy upscale in terms of management. Supply chain finance product covers many industries which tolerates financing costs dramatically different. Meanwhile, it also requires a wealth management companies to have a better understanding of the relevant upstream and downstream industry, which are totally different compared to relatively well analyzed whereas the industry. The recent collapse of [indiscernible] of relevant or supply chain finance products just demonstrating exactly our point here. The supply chain finance product has its own risks. Overall, it's not reasonable to just conclude that supply chain fixed income product are safer than whereas the fixed income products, because it requires different skill sets to identify relevant risks. Let me do the translation for your second question. The challenging macroeconomic environment has caused investors to become more risk adverse leading to higher demand for fixed income products. However, transitional fixed income products such as conventional risk management products listed by commercial banks and a cash management products as a financial institutes, how experience declining returns due to interest rates costs by China Central Bank. Leveraging our relationship with our major shareholder E-House, a top real estate service company in China and CRIC, the owner of advanced real estate information data base system in China, Jupai is able to identify high quality underlying real assets with attractive risk return profilers. This provides us a competitive advantage of our peer and have asked to increase the aggregate value of fixed income products distributed by Jupai in recent quarters. Recently from macro perspective there is evidence showing the excess capacity in upstream industry is pretty much cleaned up due to the supply chain reform from central government and a demand from downstream industry is also stabilizing along with recovery, which leased in GDP growth fixed asset investment, fiscal revenues, manufacturing industry profitabilities all of which indicates are showing strong support for the Chinese Renminbi. On other hand, since Donald Trump becomes the President of the United States, we have not seen any radical trading policies towards China as what Trump claimed before and also the U.S. monetary policies seems more dullish than most people expected. Those two factors somehow mitigate the pressure of depreciation of renminbi which people saw before. Overall as the Chinese economy is bottoming out as market stabilizing, we cannot rule out the possibilities that the market is again turning into risk on from risk off. Meaning the percentage of equity production may have already hit its trough in the first quarter of 2017, and may gradually recover in the rest of the year. We would like to see a more diversified product structure with equity products accounting for a much more important role as they tend to provide more stable management fees and the performance fees. Regarding your last question, our CFO, Min Liu will address your question.

[Min Liu:]

[Interpreted] Your question regarding why is the client center was decreased, the reason was because we consolidated a few small client center into big one with enough OpEx basis enhancing our operating efficiencies, related to personal was not much impacted.

[Harry He:]

So Steven, do you have more questions.

[Steven Ju:]

No, no, it's very helpful. Thank you.

[Harry He:]

Thank you very much, Steven.

[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 touch with us. Thank you.

[Operator:]

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