Jupai Holdings Limited
Q3 2017 Earnings Call Transcript

Published: 13 Nov 2017

[Operator:]

Thank you for standing by for Jupai's Third 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 would 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 third quarter ended September 30, 2017. Leading the call today is Mr. Jianda Ni, our Chairman and CEO, who will review the highlights for the third quarter 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] Thank you, Harry, and welcome everyone to today’s conference call. [Foreign Language] For the first nine months of 2017, Jupai's business continues to see rapid growth with significant profit margin expansion Jupai's net revenues for the first nine months of 2017 reached RMB1.25 billion, up 57.9% year-on-year, and our net income attributable to ordinary shareholders rose by 119.4% year-on-year to RMB318.8 million. We are confident that the momentum in our profit growth will be sustained into the fourth quarter of 2017. [Foreign Language] In the third quarter of 2017, our fixed-income products continued to gain traction with investors. Amid tightening regulatory requirements in China's financial industry and more conservative market sentiment, Jupai's competitive advantages in the fixed-income product categories are increasingly evident, allowing us to identify quality underlying assets and provide investment products with attractive risk and return profiles.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

As we rapidly expand our real estate fixed-income product line, we have also steadily expanded our offerings for non-real-estate fixed-income products, and enhanced the revenue mix of our fixed-income product category. In the first nine months of 2017, the aggregate value of products distributed by Jupai rose to RMB38.5 billion, a 25.1% increase year-on-year, as total assets under management increased to RMB50.1 billion as of September 30, 2017, a 70.7% increase year-on-year.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

Looking forward, Jupai expects to continue to expand our business scale, increasing our operating efficiency, and prudently expand overseas and into new business areas such as insurance. As we focus on our mission of fulfilling customers' investment needs, we are confident that we will build Jupai into the leading wealth and asset management brand in China.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

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. This Harry here. Jupai continued to grow rapidly over the first nine months of 2017. As our net revenue reached another record high level, our income attributable to ordinary shareholders for the first nine months of 2017 has already surpassed the full year figures for 2016 by a significant margin. We remain confident in the outlook for bottom line growth and margins going forward. Now let me walk you through our financial highlights for the third quarter of 2017. Net revenues for the third quarter of 2017 were RMB440.8 million, a 37.5% increase from RMB320.5 million for the corresponding period in 2016, primarily due to increases in one-time commissions. Net revenues were RMB1,246.1 million for the first nine months of 2017, an increase of 57.9% from RMB789.2 million for the same period in 2016. Net revenues from one-time commissions for the third quarter of 2017 were RMB265.0 million, an 84.0% increase from RMB144.0 million for the corresponding period in 2016, primarily as a result of an increase in fee rate compared to corresponding period in 2016. For the first nine months of 2017, net revenues from one-time commissions were RMB729.8 million, an increase of 62.9% from RMB447.9 million for the same period in 2016. Net revenues from recurring management fees for the third quarter of 2017 were RMB90.7 million, a 2.1% increase from RMB88.9 million for the corresponding period in 2016. The slowing growth rate was primarily attributable to lower management fees charged on fixed income products. The Company recognized RMB18.1 million and RMB6.6 million carried interest in the third quarter of 2017 and 2016, respectively. For the first nine months of 2017, net revenues from recurring management fees were RMB252.2 million, a 34.5% increase from RMB187.5 million for the same period in 2016. RMB41.6 million and RMB11.6 million carried interest was recognized as part of Jupai's recurring management fees for the first nine months of 2017 and the same period in 2016, respectively. Net revenues from recurring service fees for the third quarter of 2017 were RMB21.7 million, a 30.2% decrease from RMB31.1 million for the corresponding period in 2016, primarily because the Company provided ongoing services to fewer product suppliers. We expect the net revenues from recurring service fees will continue to decline going forward. The Company recognized RMB0.9 million and RMB5.7 million variable performance fees in the third quarter of 2017 and 2016, respectively. For the first nine months of 2017, net revenues from recurring service fees were RMB81.3 million, a 16.5% decrease from RMB97.3 million for the same period in 2016. The Company recognized RMB13.7 million and RMB13.4 million variable performance fees for the first nine months of 2017 and the same period in 2016, respectively. Net revenues from other service fees for the third quarter of 2017 were RMB63.4 million a 12.2% increase from RMB56.5 million for the corresponding period in 2016, which primarily due to increases of sub-advisory fees collected from other asset management companies. For the first nine months of 2017, net revenues from other service fees were RMB182.9 million, an increase of 223.9% from RMB56.5 million for the same period in 2016. Operating costs and expenses for the third quarter of 2017 were RMB272.4 million, an increase of 32.6% from RMB205.4 million for the corresponding period in 2016, largely due to a higher compensation expenses, particularly the commission fees paid to wealth management advisors and client managers, as well as marketing, advertising and brand promotion expenses as well as G&A costs. For the first nine months of 2017, operating costs and expenses were RMB786.4 million, an increase of 33.6% from RMB588.5 million for the same period in 2016. Operating margin for the third quarter of 2017 was 38.2%, compared to 35.9% for the corresponding period in 2016. For the first nine months of 2017, operating margin was 36.9%, compared to 25.4% for the same period in 2016. Net income attributable to ordinary shareholders for the third quarter of 2017 was RMB115.7 million, a 46.7% increase from RMB78.8 million for the corresponding period in 2016. For the first nine months of 2017, net income attributable to ordinary shareholders was RMB318.8 million, an increase of 119.4% from RMB145.3 million for the same period in 2016. Net margin attributable to ordinary shareholders for the third quarter of 2017 was 26.2%, as compared to 24.6% for the corresponding period in 2016. For the first nine months of 2017, net margin attributable to ordinary shareholders was 25.6%, compared to 18.4% for the same period in 2016. Net income attributable to ordinary shareholders per basic and diluted American depositary share for the third quarter of 2017 was RMB3.54 and RMB3.39, respectively, as compared to RMB2.45 and RMB2.36, respectively, for the corresponding period in 2016. For the first nine months of 2017, net income attributable to ordinary shareholders per basic and diluted ADS was RMB9.83 and RMB9.43, respectively, as compared to RMB4.53 and RMB4.35, respectively, for the same period in 2016. Looking to our balance sheet and cash flow. As of September 30, 2017, the Company had RMB1,220.6 million in cash and cash equivalents, as compared to RMB1,123.2 million as of December 31, 2016. Net cash provided by operating activities during the third quarter of 2017 was RMB157.3 million. For the first nine months of 2017, net cash provided by operating activities was RMB438.7 million. Net cash used in investing activities during the third quarter of 2017 was RMB108.5 million. For the first nine months of 2017, net cash used in investing activities was RMB218.9 million. Net cash provided by financing activities during the third quarter of 2017 was RMB2.6 million. For the first nine months of 2017, net cash used in financing activities was RMB122.4 million. Turning to our guidance. We expect the Jupai's net revenues for the fourth quarter of 2017 will be in the range of RMB460 million to RMB480 million, an increase of 35.9% to 41.8% as 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 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] Our first question today comes from Yaxuan Zhu of CICC. Please go ahead.

[Yaxuan Zhu:]

[Foreign Language]

[Jianda Ni:]

Hello? [Foreign Language]

[Yaxuan Zhu:]

[Foreign Language]

[Jianda Ni:]

[Foreign Language]

[Harry He:]

For the benefit of other inventors let me do the translation. And [indiscernible] was asking the stock has done quite well recently, how that management thinks over the share price, let me do the translation for the management.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

Let me do the translation. Jupai has benefited from the robust growth rate of the wealth management industry in China last curve share price previously was not a true reflection the Jupai’s intrinsic value. We are glad to see Jupai’s potential has gradually being recognized by investors and the stock price it just beginning to reflect that, even though the stock price of Jupai rose from around $8 to roughly $22 upgraded. However, the trailing 12-month fee ratio is here only about 15 times. When it comes to the Company’s growth rate for first nine months of 2017 net income attributable to ordinary shareholders was RMB320 million, an increase of more than 100% from the same period in 2016. We’re confident that the momentum in our profit growth will be suspended into the first quarter of 2017. Therefore our net income attributable to ordinary shareholders for the full year of 2017 is expected to maintain high gross rate as well. Then the 2017 key original will be even lower. So I think the Jupai’s potential is yet to be fully discovered.

[Yaxuan Zhu:]

[Foreign Language]

[Jianda Ni:]

[Foreign Language]

[Harry He:]

Let me do the translation as I mentioned.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

And let me translate the first part. You asked – you’re actually asking two questions. The first part is why there was no much increase in transaction volume in Q3 and then the other one is why one-time commission grew through the last given the benign volume growth.

[Harry He:]

I’ll answer the second question first. We know that while the company began to tighten regulation in the real-estate industry, since then I have received many investors enquiry, some investors are quite pessimistic worrying about that there will be a catastrophic impact on Jupai, actually the last six year may be completed in opposite. Last year was a great year for real estate industry and Jupai has showed many high quality real estate fixed-income products. However, Jupai even doing any incremental marketing power towards developers as cash flow generated from pre-sale was robust for those developers. However, in the recent full quarters also the tightening regulation slowed down the cash flow cycle of those developers to some extent. And as a result, developers have to be more – have to be much more dependent on Jupai. Thus the increasing marketing power may enable Jupai to charge a higher one-time commission. That is why the fee rate of one-time commission in Q3 increased compared to previous periods based on current market situation fee rates of one-time commission may remain high. We were closely monitoring the market trend and keep investors posted. [Foreign Language] Regarding the first question, while there was a little increase in transaction volume in Q3, it was largely due to our strategy of making a good balance between risk management and returns. There’s no need to worry. Earlier this year, government rollout new policies no PE products show provides funding in the form of debt to residential property projects within 16 cities with overheated property price. This sudden change in regulation disrupted our plan. Asset portfolio adjustments in the past two quarters, we have increased the supply of real estate fixed-income products outside of those 16 cities. In the third quarter, the propensity of real-estate fixed-income products in total transaction volume has risen from 48% in Q2 to 64% in Q3. However, we always put risk management as our top priority and [indiscernible] why are we fix out the product with solid asset quality and high fee rates. But based on current market situation, it seems that the real estate will remain strong in Q4. We’re confident that Jupai will provide high-quality real estate fixed-income product going forward and we’ll maintain a healthy double-digit growth in transaction volume this year. [Foreign Language]

[Yaxuan Zhu:]

[Foreign Language]

[Jianda Ni:]

[Foreign Language]

[Harry He:]

Let me do the translation. The demand for the secondary market product has been weak for sometime. Our Q3 result shows that the secondary market products are accounted for only a small percentage in both total value transaction and total transaction volume and AUM. Since the volatile market movement in 2015 the secondary market product has seen a decline in popularity, although we have introduced some private placement products when the SSE Composite Index was around 3,000. And those feedbacks from clients and the product performance were great. The private placement product, a lot favor with clients later especially asked an initiation of a new policy from CSRC, which meaningfully increased the lookout period for the foreseeable future the growth driver in transaction volume will likely come from fixed-income products, insurance instead of secondary market products.

[Yaxuan Zhu:]

[Foreign Language]

[Jianda Ni:]

[Foreign Language]

[Harry He:]

For the benefit of – what we missed in meaning to the translation, basically the board have not discussed its 2018 dividend plan yet. You are the one of the public, looking our next board meeting, which were we review operating results, cash flow, financial condition and other relevant matters before making a final decision.

[Yaxuan Zhu:]

[Foreign Language]

[Jianda Ni:]

[Foreign Language]

[Harry He:]

Sure.

[Yaxuan Zhu:]

[Foreign Language]

[Harry He:]

Operator, can we have a next one.

[Operator:]

We will now take a question from Stephen Ju [Credit Suisse]. Please go ahead.

[Stephen Ju:]

Good morning, congratulations on earnings growth in quarter. So I have three main questions here. First is your after readouts, first nine months, it was net income growth would higher than 100%, there is strong growth momentum. So could you please share with us. Your view on the earnings growth in FBA and then forward, that’s the first question. The second question is you have AUM as of third quarter increased a very strong significantly, while the revenue from recurring management fees grow at much lower rate. So what’s the reason here? My last question is what do you think of some new Chinese impact company is going to improvise in U.S.? Thank you.

[Harry He:]

Okay, Steven. Let’s address your question one-by-one okay. First, let me do a translation.

[Jianda Ni:]

[Foreign Language]

[Harry He:]

If you compare our actual results against our guidance we gave in the past few quarters, you will realize our guidance is generally 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 operating margin that we believe net operating margin will be around 20% in the foreseeable future. The diversification of product structure will continue. For example, going forward, we will be focusing on developing more products on M&A front, overseas front, top-line China finance products and insurance products. In terms of our assed network, we are planning to setup more clients entering coastal areas. Moreover, we will have a new partnership incentive plan to motivate top relationship managers. That’s for the first question and let me address the second question. [Foreign Language] Let me do the translation for other investors. This is actually related to many other issues. The best selling products last year was fixed income product, most of which are managed by ourselves. The management fees rate for fixed income products is very low far below PE rated equity products. On the other hand, incomes of products that are managed by Jupai and the third parties strategically we would like to share more management fee with our partners that we believe we’ll need more quality partners to enhance our PE rated portfolio. We believe it will benefit Jupai in long-term. And that is why overall management fee grew much slower. And let me address your last question. [Foreign Language] For the benefits of other audience, let me do the translation. Jupai’s active clients are high-net-worth individuals, well those fin-tech companies are largely focusing on mass affluent clients as there are growing numbers of wealth management companies going for IPO, investors are getting more interested in this industry and also as top universe ratable for portfolio managers is getting much broader. Jupai is glad to see all this happening. We believe we eventually we will be able to witness the birth of several world-class Chinese wealth-management companies within next decade. So, Steven, that’s answer for your three questions. Was that helpful?

[Stephen Ju:]

Thank you. Yeah, it’s very helpful. Thank you very much. Thank you.

[Harry He:]

Thank you, Stephen.

[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. You may now disconnect. Good day.