Fang Holdings Limited
Q1 2020 Earnings Call Transcript

Published: 4 Jun 2020

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Q1 2020 Fang Holdings Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded. I would now like to hand the conference over to your first speaker, Ms. Jessie Yang. Thank you. Please go ahead.

[Jessie Yang:]

Thank you, operator. Hello everyone, and welcome to Fang Holdings first quarter 2020 earnings conference call. Joining us today to discuss Fang's results are our CEO, Mr. Jian Liu; and Acting CFO, Mr. Zijin Li. After the prepared remarks, our management will answer your questions. Before we get started, I would like to remind you that, during the course of this conference call, we may make forward-looking statements, statements that are not historical facts, including statements about our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainty. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Fang assumes no obligation to update the forward-looking statements in this conference call and elsewhere. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC, including our Form 20-F. Now, I would like to walk you through our first quarter 2020 financials, after which Mr. Liu and Mr. Li will answer your questions for the Q&A session. Fang reported total revenues of 38.3 million in the first quarter of 2020, an increase of 9.4% from 35 million in the corresponding period of 2019. Revenue from marketing services was 17.3 million in the first quarter of 2020 an increase of 30.3% from 13.3 million in the corresponding period of 2019 mainly due to the increase in aggregate market demand. Revenue from listing services was 10.2 million in the first quarter of 2020, a decrease of 16% from 12.2 million in the corresponding period of 2019, mainly due to the decrease in the number of paying customers. Revenue from leads generation services was 7.5 million in the first quarter of 2020, an increase of 88.6% from 4 million in the corresponding period of 2019, mainly due to an increased acceptance and popularity of our leads generation services Revenue from financial services was 1.7 million in the first quarter of 2020, a decrease of 50.7% from 3.5 million in the corresponding period of 2019, mainly due to the decrease in average loan receivable balance. Cost of revenue was 5.4 million in the first quarter of 2020, a decrease of 35.9% from 8.4 million in the corresponding period of 2019, primarily due to the decline in sale and the optimization and cost structure. Operating expenses were 32.1 million in the first quarter of 2020, a decrease of 17% from 38.7 million in the corresponding period of 2019. Selling expenses were 13.6 million in the first quarter of 2020, a decrease of 16.9% from 16.3 million in the corresponding period of 2019, mainly due to the decrease in staff related costs. General and administrative expenses were 18.6 million in the first quarter of 2020, a decrease of 17.1% from 22.4 million in the corresponding period of 2019, mainly due to the decrease in staff related costs. Operating income from continuing operations was 2.7 million in the first quarter of 2020 compared to operating loss from continuing operations of 11.8 million in the corresponding period of 2019. Change in fair value of securities for the first quarter of 2020 was a loss of 42.6 million compared to a gain of 32 million in the corresponding period of 2019, mainly due to the fluctuation in market price of investments in equity securities. Income tax benefits were 2.5 million in the first quarter of 2020 compared to an expense of 11.1 million in the corresponding period of 2019. Net loss from continuing operations was 39.1 million in the first quarter of 2020 compared to a net income from continuing operations of 5.1 million in the corresponding period of 2019. Based on current operations and market conditions, Fang's management predicts a positive net income for the year of 2020, which represents management's current and preliminary view and is subject to change. Thank you for joining our call today and we’re now open for questions. Operator, please go ahead.

[Operator:]

Thank you so much ladies and gentlemen. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Miranda Zhuang from Bank of America. Miranda, your line is now open.

[Miranda Zhuang:]

Thank you for taking my question. So my first question is regarding the traffic. So, we understand that in the first quarter, the Company has organized quite a lot of online activities, like broadcasting or VR online showrooms for users to do the house routine activities online. So now, as the offline activities has come back to normal in China. So, just wondering how is the online activities now recently? Wondering, if you see for the online activities? And then, secondary, since there has been several months up to the conduction of your like online live broadcasting and other online house sales and promotion activities. Just wondering like how is the actual conversion or transaction conversion looks like? And then my third question is about, do you see any changes in the organization structure in the property developers? So that for example, do you see them like set up in-house teams for live broadcasting or online sales or et cetera, so that the online -- activity migration to online could be sustainable in the long run? Thank you.

[Jian Liu:]

[Foreign Language]

[Jessie Yang:]

Okay. So, I will translate Mr. Li's response. So the first question was on online sales activities and the current situation with online sales activities, given that offline activities has picked up, and responses that the pandemic has had a significant impact for both the global and Chinese economy. And there's a saying that although the pandemic has passed, we cannot go back to our previous habits in the past. And one result of the pandemic is increased reliance on online methods of information gathering as well as economic activity, we don't see that changing. Now in China, consumers can visit properties offline. So, we do see a release in some of that pent up demand. And this is especially relevant in the new home market where in Shanghai and Shenzhen and Hangzhou, we see significant increases in sales and a release of this previously suppressed demand. And we believe that this is directly related to demand generated from previously online activities. This also represents an increase in the effectiveness of our online sales activities and efforts. And we don't see that decreasing even though offline activities have picked up as well. The second question is regarding the conversion of online sales efforts to offline sales transactions, we don't have numbers for those metrics, but I will reiterate that the increase in sales activity we see offline is directly related to the suppressed demand generated from our online sales efforts. And the third question is relating to the -- if there are any structural changes from the developers company and better due to this increase in online reliance on online marketing and promotion efforts, we do see that clearly as a trend and [Hong Da] for example, has significantly used online sales platforms to promote their developments, and we see that as a trend with many major developers. And due to the epidemic, consumers are more and more familiar with online sales efforts and including the development of the specification of these efforts. For example, in our VR home showings and live broadcast, so clearly developers have increased headcount and added professional teams to promote their online sales as well. Thank you.

[Operator:]

Thank you so much. And your next question comes from the line of Joash Reid from Reid Green & Co. Your line is now open.

[Joash Reid:]

Thank you. Hi, Jesse. Hi, management team. Thank you for taking my questions. So I've just got three questions today. I wanted to -- it really looks like the marketing and lead generation segments are starting to take off, which is a good sign. I just wanted to get your thoughts on whether this can completely offset the declines in the other segments and how big these new segments could be, is my first question? My second question is regarding, the 117 million of convertible bonds. The checks are coming due in 2020. I wanted to know what the Company's plans for addressing those would be and what the shareholders should expect? And my third question is just regarding the rationale behind, so spinning off China index holdings last year, but then sort of requiring a 15% stake in that post spinoff. I just wanted to know what your plans for the investment was?

[Jessie Yang:]

Thank you, Josh. Let me just translate briefly.

[Jian Liu:]

Okay. Thank you. I will answer first question. [Foreign Language]

[Jessie Yang:]

Thanks. So, I will translate the response to the first question. In terms of marketing and lead generation businesses taking off and whether this will offset the decline in other segments. So, marketing and lead generations are long-term corporate interests for us whether for new home or secondary home clients, they are actually very important channels. And they help the market, especially in the pre-transaction segment, marketing and promotion to effectively find relevant leads and interest to consumers. So, this is a valuable business for our clients and we try our best to match the best projects to the most interested consumers. So from Q1, we saw that the demands for these services are actually quite high and we see significant potential for these business segments. In terms of listing, it is also a very important business for us and we do expect for it to expand as well. It is, however, more affected by offline real estate market activity, which has been more significantly impacted by the epidemic. So, we do not expect to decrease our focus on listing and we will also focus on it as much as the other segments. Thank you.

[Operator:]

[Operator Instructions] And we've got a follow-up question from…

[Zijin Li:]

Hey, operator. Excuse us. We want to answer the question two and question three for the previous asker.

[Operator:]

Okay, sorry.

[Zijin Li:]

Okay. So, the second question about convertible bonds principals. To do this with the convertible bonds with [indiscernible] 2022 which is two years ahead of us, and [indiscernible] actually won't think this a problem about the repayment of the principles. The one solution we can think of instantly is our fixed assets, especially our buildings. On our financial reports, those buildings are recorded as initial value, which is book value. And our buildings' market value is much more higher than the book value for now. So compare to market value, our leverage rate is only about 20 to 30% of the actual value. So, if we actually need more money from the banks, we can easily get it. So that's for the question two and for the question three of purchase of CIH. First of all, purchasing CIH, the Company thinks it's a very good investment. For December last year, I think CIH is, on the secondary market, it's about the $3.20, which is actually very low, and we think is undervalued. So, the Company signed the agreement with the biggest shareholder and acquired 5 million shares. Actually, before acquiring the 5 million shares, company attempts to acquire some shares in the secondary market, which actually influenced the market to fluctuate very big. So, that's why company chose to enter a private deal with the biggest shareholder. That's all the answers for question three. So, operator, you can continue.

[Operator:]

Thank you so much. [Operator Instructions] We've got a follow-up question from Joash Reid from Reid Green & Co. Joash, your line is now open.

[Joash Reid:]

Okay, thanks. I was just following up on my question to question two and question three, but those have been answered. So, that's it for me. Thank you.

[Operator:]

Thank you so much. [Operator Instructions] There are no further questions at this time. Speakers you may continue.

[Jessie Yang:]

Thank you everyone again for joining our call today. We look forward to speaking with you soon for our second quarter 2020 earnings call. Thank you.

[Operator:]

And that does conclude the conference for today. Thank you for participating. You may now all disconnect.