Jupai Holdings Limited
Q2 2017 Earnings Call Transcript

Published: 16 Aug 2017

[Operator:]

Thank you for standing by for Jupai's Second 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 any time. I'd now like to turn the meeting over to your host for today's call 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 second quarter ended June 30, 2017. Leading the call today is Mr. Jianda Ni, our Chairman and CEO, who will review the highlights for the second 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 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]

[Harry He:]

[Interpretation] Thank you, Harry, and welcome everyone to today's conference call.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

[Interpretation] We concluded the first half of 2017 with impressive growth on both our top and bottom lines. Jupai's net revenues for the first half of 2017 totaled RMB805.4 million, up 71.8% year-on-year, and our net income attributable to ordinary shareholders rose significantly by 205.7% year-on-year to RMB203.2 million, reaching almost the same level as our net income attributable to ordinary shareholders for the full year of 2016.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

[Interpretation] As investors' appetite for risk remained conservative in the first half of 2017, we further enhanced Jupai's competitive advantages within the fixed-income product category. Jupai continues to provide our customers with superior fixed-income products with underlying assets in real estate, leveraging our core competence in products related to the real estate industry. We have also steadily expanded our offerings into non-real-estate fixed-income products to fulfill a wider range of client needs. In the first half of 2017, the aggregate value of products distributed by Jupai grew to RMB26.5 billion, a 39.6% increase year-on-year, and total assets under management increased to RMB48 billion as of June 30, 2017, an 85.6% increase year-on-year.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

[Interpretation] Looking forward, Jupai expects to continue to develop new products and services, expand and strengthen our sales network, and increase our operating efficiency. While we believe the size of the market in China is large enough to support Jupai's growth, we will carefully evaluate potential overseas expansion opportunities. As we build Jupai into the leading wealth and asset management brand in China, the management will continue to explore ways to further enhance long-term value for our shareholders.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

[Interpretation] 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:]

Jupai continued to deliver strong results in the second quarter of 2017, with our net revenues substantially surpassing management guidance to achieve another record high. Our operating margin for the quarter rose substantially to 38%, up from 22.3% in the same period last year, thanks to the cost control measures, which we initiated in the beginning of 2016 and the optimization of our product mix. As we further expand our business scale and enhance our operating efficiency, we remain confident in our ability to grow the bottom-line while maintaining healthy margins in the long-term. Now let me walk you through our financial highlights for the second quarter of 2017. Net revenues for the second quarter of 2017 were RMB436.6 million, a 78.4% increase from RMB244.7 million for the corresponding period in 2016, primarily due to increases in one-time commissions, recurring management fees and other service fees. Net revenues were RMB805.4 million for the first half of 2017, an increase of 71.8% from RMB468.7 million for the same period in 2016. Net revenues from one-time commissions for the second quarter of 2017 were RMB230.0 million, a 54.5% increase from RMB148.9 million for the corresponding period in 2016, primarily as a result of an increase in the aggregate value of wealth management products distributed by the Company. For the first half of 2017, net revenues from one-time commissions were RMB464.8 million, an increase of 53% from RMB303.9 million for the same period in 2016. Net revenues from recurring management fees for the second quarter of 2017 were RMB93.9 million, a 51.4% increase from RMB62 million for the corresponding period in 2016, primarily attributable to an increase in the value of assets under management. The Company recognized RMB21.8 million and RMB1.6 million carried interest in the second quarter of 2017 and 2016, respectively. For the first half of 2017, net revenues from recurring management fees were RMB161.5 million, a 63.7% increase from RMB98.7 million for the same period in 2016. RMB23.5 million and RMB5.1 million carried interest was recognized as part of Jupai's recurring management fees for the first half of 2017 and the same period in 2016, respectively. Net revenues from recurring service fees for the second quarter of 2017 were RMB33.3 million, a 1.4% decrease from RMB33.8 million for the corresponding period in 2016. The Company recognized RMB11.4 million and RMB3.8 million variable performance fees in the second quarter of 2017 and 2016, respectively. For the first half of 2017, net revenues from recurring service fees were RMB59.5 million, a 10.1% decrease from RMB66.2 million for the same period in 2016, primarily because the Company provided ongoing services to fewer product suppliers. The Company recognized RMB12.8 million and RMB7.7 million variable performance fees for the first half of 2017 and the same period in 2016, respectively. Net revenues from other service fees were RMB79.4 million for the second quarter of 2017 and RMB119.5 million for the first half of 2017, which mainly included sub-advisory fees collected from other companies. Operating costs and expenses for the second quarter of 2017 were RMB270.5 million, an increase of 42.1% from RMB190.4 million for the corresponding period in 2016. For the first half of 2017, operating costs and expenses were RMB514 million, an increase of 34.2% from RMB383.1 million for the same period in 2016. Operating margin for the second quarter of 2017 was 38%, compared to 22.3% for the corresponding period in 2016. For the first half of 2017, operating margin was 36.2%, compared to 18.3% for the same period in 2016. Net income attributable to ordinary shareholders for the second quarter of 2017 was RMB112.5 million, a 181.4% increase from RMB40 million for the corresponding period in 2016. For the first half of 2017, net income attributable to ordinary shareholders was RMB203.2 million, an increase of 205.7% from RMB66.5 million for the same period in 2016. Net margin attributable to ordinary shareholders for the second quarter of 2017 was 25.8%, as compared to 16.4% for the corresponding period in 2016. For the first half of 2017, net margin attributable to ordinary shareholders was 25.2%, compared to 14.2% for the same period in 2016. Net income attributable to ordinary shareholders per basic and diluted American depositary share for the second quarter of 2017 was RMB3.47 and RMB3.33, respectively, as compared to RMB1.25 and RMB1.19 respectively, for the corresponding period in 2016. For the first half of 2017, net income attributable to ordinary shareholders per basic and diluted ADS was RMB6.28 and RMB6.02, respectively, as compared to RMB2.08 and RMB1.99, respectively, for the same period in 2016. Looking to our balance sheet and cash flow. As of June 30, 2017, the Company had RMB1,169.1 million in cash and cash equivalents, compared to RMB1,123.2 million as of December 31, 2016. Net cash provided by operating activities during the second quarter of 2017 was RMB61 million. For the first half of 2017, net cash provided by operating activities was RMB281.4 million. Net cash used in investing activities during the second quarter of 2017 was RMB95.8 million. For the first half of 2017, net cash used in investing activities was RMB110.4 million. Net cash used in financing activities during the second quarter of 2017 was RMB5.1 million. For the first half of 2017, net cash used in financing activities was RMB125.1 million. Turning to our guidance. We expect the Jupai's net revenues for the third quarter of 2017 will be in the range of RMB420 million to RMB440 million, an increase of 31.1% to 37.3% 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. The question-and-answer session of this conference call will start in a moment. [Operator Instructions] We will now take our first question from Yaxuan Zhu of CICC. Please go ahead.

[Yaxuan Zhu:]

[Foreign Language]

[Jianda Ni:]

[Foreign Language]

[Operator:]

[Operator Instructions] We will now take our next question from Bolun Tang of CICC. Please go ahead.

[Bolun Tang:]

Good evening, management.

[Harry He:]

Hi, Bolun.

[Bolun Tang:]

Hi, Harry. Good evening, congratulations on the great results. Two questions from me. The first question is about the announcement you posted just before the results, which is the resignation from the Ex-Chairman and CEO of Mr. Hu. So I just want to get some color on the ground, do you have any comments on the resignation. And my second question is in terms of your recurring service fee I saw that item actually has kept falling for a few quarters, so just want to understand the story behind and also if possible could you give us an outlook of the future recurring service fee income and when do you expect that kind of revenue to start to turnaround? Thank you very much.

[Harry He:]

Thank you, Bolun. Let's address your question one by one.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

[Interpretation] For the benefits of other investors and now let me do a translation. Jupai has become a leading third-party wealth management service provider in China and then Mr. Hu contributed so much to the Company’s establishment and development in the past few years. The Board thanks Mr. Hu sincerely for his ex-service and contributions and wishes him the best in his future endeavors in the internet of finance period. Going forward, Mr. Hu will remain an important shareholder of Jupai. The interest of shareholders are always in our mind we are confident that Jupai will maintain a very good high growth rate in future. Regarding your second question, our CFO, Min Liu will address your question.

[Min Liu:]

[Foreign Language]

[Bolun Tang:]

Thank you very much.

[Harry He:]

[Interpretation] For the benefits of other investors, now let me do a translation. We did a record recurring service fees from products managed by third-party and the decline of recurring service fees was mainly because Jupai gradually enhanced its capability in asset management and provided a more in-house product. That is why recurring management fee increased much faster. For the first half of 2017, net revenues from recurring management fees increased 64% year-on-year. Bolun, can you hear me?

[Bolun Tang:]

Yes. Thank you, yes, yes. That’s very clear. Thank you very much.

[Harry He:]

Okay, let’s wait for other investors.

[Operator:]

We have no further telephone questions at this time. [Operator Instructions] We will now take our next question from Steven Ju of Credit Suisse. Please go ahead.

[Steven Ju:]

Good morning. First of all, congratulation on very strong and decent first half results. So I have three questions here. One is for the earnings trend, so in the first half this year net income to ordinary shareholders reached almost the same level as that of 2016. So why that’s drop, is that sustainable in the second half this year? The second question is for the product mix, so we see very high contribution from fixed income products in the past few quarters why the mix is so concentrated in the fixed income products. My last question is why did the transaction volume declined in the second quarter compared to the first half of this year? Thank you.

[Harry He:]

Okay, thank you, Steven. Let’s address your question one by one. Let’s do the translation first. Let me do a translation for the Chairman first. Jianda will address your first question first.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

[Interpretation] For the benefit of other investors, let me do the translation. We concluded the first half of 2017 with impressive growth on both our top and bottom lines. Net income attributable to ordinary shareholders for the first half of 2017 was RMB203 million, reaching almost the same level of 2016. We benefited from rapid growth in both transaction volume and assets under management, consequently one-time commissions and recurring management fees both rose by roughly 50% to 60% year-over-year. Meanwhile, the cost control strategy was also effective. The growth rate of operating expenses was far below the gross rate of revenue for the first half of 2017. Generally speaking we are confident that Jupai will maintain a high double-digit growth in terms of net profit in 2017, with diversified product structure Jupai will enjoy a more sustained and strong growth going forward. Okay, that’s for the first question and our Chairman will address your second question.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

[Interpretation] Okay, for the benefit of other investors, let me do the translation. The question was basically why was the percentage of fixed income product so high in the past few quarters. In the second half of 2016, the macroeconomic environment in China was uncertain, and the expectation of Renminbi depreciation was very high. The high-net-worth individuals showed lethal interests in allocating their assets into PE and VC products which is relatively long durations. Instead the fixed income products with short durations were in high-demand. 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 database and the analysis system in China, Jupai is able to provide competitive fixed income products by identifying high quality underlying real estate assets with attractive risk returns profiles, which provides us a competitive advantage of our peers and have asked to increase the aggregate value of fixed income products distributed by Jupai in recent quarters. So how about the product mix in near future. Recently besides healthy macro data coming out, this increasing evidence showing that the excess capacity in upstream industry is pretty much picking up due to the supply side reform from central government and a demand from downstream industries is also stabilizing of which are indicating strong support for the Chinese Renminbi. On other side the weak U.S. macro numbers and inflation figures led through a lower expectation of rate hikes. Therefore more and more capital had been allocated to other assets denominated in currencies other than U.S. dollar which further weakens the value of U.S. dollar and accordingly strengthens other currencies including Chinese Renminbi. Overall as the Chinese economy is bottoming out and essentially stabilizing, we cannot rule out of the possibilities and the market is pertaining, turning into risk on from risk off meaning the percentage of equity product we have already – and then we 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 at that time to provide more stable management fees and performance fees. Regarding your last question, our Chairman will address in a few second.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

[Interpretation] For the benefit of other investors, let me do the translation. The question basically was why did the international volume declined in Q2 compared to Q1. The answer is a few months ago our government tried to close down the property market. The number (4p) regulation was initiated with clear instructions that no P production for our fundings, in the form of debt to residential properties, projects within 16 cities with – due to the property prices including cities such as Beijing, Shanghai and Hangzhou. This sudden change in regulation disrupted our prior and affected the ability of our registry for fixed income products temporarily in Q2 to minimize this impact within a very short time frame which increases a supply of fixed income product outside of those 16 cities along with non-residential, real estate fixed income products within those 16 cities. It was a real success for Jupai and showing Jupai’s ability to respond to policy change quickly. We are confident, we are very confident that Jupai will maintain a very healthy double-digit growth in transaction volume this year. Hi, Steven, was that helpful?

[Steven Ju:]

Yes, thank you very much. Thank you.

[Harry He:]

Thank you, Steven.

[Operator:]

We are now approaching the end of the conference call and we will now turn over the call 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.

[Operator:]

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