Fang Holdings Limited
Q1 2018 Earnings Call Transcript

Published: 25 Jul 2018

[Operator:]

Hello, everyone and welcome to Fang’s First Quarter 2018 Earnings Conference Call. Joining us today to discuss Fang’s results are our Chairman and CEO, Mr. Vincent Mo; and our CFO, Dr. Hua Lei; and Jessie Yang, the IR Director. I would now like to hand the conference over to Jessie. Thank you. Please go ahead.

[Jessie Yang:]

Thank you, operator. Hello, everyone, and welcome to Fang’s first quarter 2018 earnings conference call. My name is Jessie Yang and I’m the new IR Director at Fang Holdings. Joining us today to discuss Fang’s results are our Chairman and CEO, Mr. Vincent Mo; and our CFO, Dr. Hua Lei. After their prepared remarks, Mr. Mo and Dr. Lei 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 uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Fang assumes no obligations 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. I will now pass the call over to Dr. Lei to discuss the financial results. Dr. Lei, please go ahead.

[Hua Lei:]

Thank you everyone for participating in today’s call, and this is Hua Lei. Let me walk you through our financials first, after the call we will start on the Q&A session. Revenues. Our reported total revenue were up 62.8 million in the first quarter of 2018, 42.8% from 109.8 million in the corresponding period of 2017. Revenue due to the decline [indiscernible] was 26.7 million in the first quarter of 2018, a decrease of 21.5% from 34 million in the corresponding period of 2017, primarily due to the decrease in number of premium members. Revenue from marketing sources was 17.3 million in the first quarter of 2018, a decrease of 36.6% from 27. 3 million in corresponding period of 2017 primarily due to the slowdown in the risk based margins continue to impact taking government policies. Revenue from e-commerce sources was 7.2 million in the first quarter, a decrease of 82% from 39.9 million in the corresponding period of 2017, primarily due to its balance transformation back to our technology to a open platform. Revenue from international financial success was 5.1 million in the first quarter of 2018 an it equates to an increase of 124.9% from 2.2 million in the corresponding period of 2017 driven by the increases in few of the customer loans. Revenue from other value added sources was 6.5 million in the first quarter of 2018, an increase of 4.1% from 6.3% in the corresponding period 2017, primarily due to a rise in demand for our data and the research sources. Cost of revenue was 20.2 million in the first quarter of 2018, a decrease of 66.7% from [60.7] (Ph) million for the corresponding period 2017, primarily due to the downsizing of the separate brokerage achieved in the progression of e-com sources and optimizations in our cost structure, our technology to an open platform model. Operating expenses was 46.5 million in the first quarter 2018, a decrease of 15.8% from 55.2 million in the corresponding period of 2017. Selling expenses was 15.6 million in the first quarter of 2018, a decrease of 33.3% from $23.4 million for corresponding period of 2017, primarily due to the decrease in selling expenses associated with our e-commerce services and advertising and promotional expenses. G&A expenses was $30.7 million in the first quarter of 2018, a decrease of 3% from $31.6 million of corresponding period of 2017. Operating loss. Operating loss was $3.9 million in the first quarter of 2018, primarily due to operating loss of $6.1 million in the corresponding period of 2017, primarily due to the downsized of e-commerce services and effective cost control. Change in fair value of equity securities for the first quarter of 2018 was a loss of 42.2 million, among which 47.7 million was related to the fair value change of World Union, an investee company. The amount represents changes in fair value of equity securities in accordance with FASB ASU 2016-01, which became effective on January 1, 2018. Income tax benefits was $4.2 million in first quarter of 2018 compared to income tax expenses of 4.8 million in the corresponding period of 2017, primarily due to the effect of change in fair value of equity securities. Net loss attributable to Fang's shareholders was 44.9 million in the first quarter compared to net loss of 12 million in the corresponding period last year, which is primarily caused by change in fair value of equity securities. Loss per fully diluted ordinary share and ADS was 0.51 and 0.10 in the first quarter of 2018 compared to loss of 0.14 and 0.03, respectively, in the corresponding period of 2017. Adjusted EBITDA, defined as GAAP net income or loss before share-based compensation, investment income, change in fair value of equity securities, income taxes, interest expenses, interest income and depreciation was 7.1 million in the first quarter of 2018 compared to one million in the corresponding period of 2017. Cash. As of March 31, 2018, Fang had cash and cash equivalents, restricted cash and short-term investments of 492.4 million compared to 547.1 million as of December 31, 2017. Net cash used in operating activities was seven million in the first quarter of 2018 compared to cash flow used in operating activities 11 million in the same period of 2017. Business outlook. Based on current market conditions and current operations, Fang expects its non-GAAP net income to be profitable for the fiscal year ending December 31, 2018. These estimates represent management's current and preliminary view, which is subject to change. Thank you for joining me and we are now open for the questions. Operator, please go ahead.

[Operator:]

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Monica Chen from Credit Suisse. Please ask your question.

[Monica Chen:]

Hi good evening management Mo, Hue and Jessie. I have three questions here, my first question is regarding the China property market. Actually we see the property sales in recent months has been quite strong which has surprised the market. So how do we see the impact to our business in Q2 and for the rest of the year, especially our marketing business? And my second question, can you maybe share more color on the decreased payment for listing service for this quarter and how do we see the trend in second quarter and if you can provide a breakdown by different tiers of cities that would be great? And my third question is about content so we have recently noticed there are some content upgrades in our mobile app. So we actually see more short meetings and I think we see upgraded the tacking tool [indiscernible]. So can management share your thoughts on our contents and our product upgraded strategy for this year? Thank you.

[Hua Lei:]

Monica, this is Lei. Yes for the first question which is related to the property markets, yes while saying that the property market is improving first quarter and the transaction volumes also is there in quarter one and they are right sizing the Chinese volumes for the new home and second home will keep increasing in quarter three and quarter four. So overall speaking, we are [indiscernible] market for the second half of this year and also we are saying some project side from the policy side and that day I saw some news which say that bonds begun to low downs the interest rate and mortgage rate from that. So we think also know when policy and the patent policy from the comments will be stopped or removed, but we think the policy environment in would be more relaxed both for the profit market also for us. I mean for the remaining of this year, so definitely we think our more profit marketing is good to our business and also we have already seen some positive improvements in our business in quarter two and also we expect in quarter three and quarter four our business will continue to be improved. Thank you, so there are more reasons for your first question, right. Sorry, what is your second question?

[Monica Chen:]

My second question is about why we see decline pay in members for the recent service in Q1 and then how is it trending in Q2 and breakdown by different cities?

[Hua Lei:]

Yes, I mean in our listing business actually we had some problem, I mean in quarter one. I think the first reason probably is the market that which is not very hectic, which is not very hectic. The second is, internally we are also operating our technology platform, also we offer [indiscernible] in our products, which actually costs our users to a little more time to get used to our new system which probably also is one of the reason caused the decline in members.

[Monica Chen:]

So my third question is about the conference. So you just mentioned that we have been doing a lot of efforts to upgrade our products and update the content and we have seen some major ethics in the AGT. So what is our overall strategy for this year?

[Hua Lei:]

Yes, certainly I mean the products is one of the top priorities for the company, also for our business, actually since last year and that Vincent and the whole management team, we have already decided to upgrade our products. As you mentioned like new Fang portfolio on average I can tell you in those new products which are initiated since last year, like it’s new products for this year. Certainly, we believe we need to keep providing new products to end users, which including the homebuyer and also our clients including developer and also the Asian companies. And going forward, we will keep improving our products by hiring more talented people to our team and also by working with other hotels and other companies to keep increase our products. Thank you.

[Monica Chen:]

Sorry, just I have quick follow-up on the video, that Fang you just mentioned. Does this have anything related to Dolby, I mean do we have any cooperation or partnership with Dolby? And also isn’t this a video conference or do we see conference where it connects more focus on video, well then images and then texts in the past?

[Hua Lei:]

Yes, definitely I mean Dolby is a very - I think it’s a great product, right, definitely. Actually digital fast ideas from Dolby family and we are very looking forward to working with Dolby in the future and there is moment where we haven’t done any professional streaming. And also we believe the video definitely is the change for the future. Actually if you look at the recent development at home, there actually was enough change - that asset - the front page to the more radio-based very similar to Dolby. So definitely in the future we want to follow this trend to improve our products and also the use of these trends and experience.

[Monica Chen:]

Thank you, that was helpful. Thank you Lei.

[Hua Lei:]

Thank you Monica.

[Operator:]

Thank you. Our next question comes from Leif Zhang from Morgan Stanley. Please ask your question.

[Leif Zhang:]

Hi thanks for taking my question. I have three questions here, so number one is the question about some numbers. So can you give us about a number of your paying member in your ARPU in the first quarter and second quarter? And what is the - I think you have mentioned some trends for your overall business that we may have a more detailed gross trend for your paying member in the second half of this year. My second question is that I think you have revised now your full-year earnings guidance, so could the management elaborating more about the decision and my last question is about your capital expenditure. So year-to-date correct me if I’m wrong, your capital expenditure including one investment is around US$200 million. So what is the full-year guidance on CapEx and if there is any medium term guidance on CapEx for 2019 and 2020? Thank you.

[Hua Lei:]

Okay, this is Lei. First the question, at the end of cost one our total payment that is 197,000 so which actually is I said 7% year-over-year decrease unfortunately. And also if you look at the ARPU is $140 per users. Going forward to the quarter two and quarter three, quarter four actually I think in our total payment in ARPU will be improving, that’s for sure, because we are seeing more positive sign from our business in quarter two and also quarter three and quarter four at the seasons for our business. So we expecting definitely the paid members in that for keeping them improving. So this is my expectation for our payment and also I don’t [indiscernible] questions, for the first question.

[Leif Zhang:]

So my second question is about your 2018 full-year earnings guidance, I guess that remember that you know quarter - yes.

[Hua Lei:]

Yes before we give out the 100 million to 120 million net profit guidance at the end of 2017 and at this moment based on the quarter one results and the market conditions, we sense we need to be more aggressive on the second half of this year. It means we want to spend and also we want increase our spending in the marketing and promotion. So it means probably we cannot maintain our progress 100 to 120 net income and guidance. So we adjust that in our guidance to be profitable for these [constitution] (Ph). Also another reason is that because the share price at World Union was decreased a lot, which also impact our guide net income. So also we changed the guide to non-GAAP net income. So this is now viewed.

[Leif Zhang:]

And my third question is about your capital expenditure. So I just want to confirm that how much you spent year-to-date on capital expenditure, if you could [indiscernible] investment, and what is your full-year guidance on CapEx?

[Hua Lei:]

Yes, I said, we probably spend [1 million to 50 million] (Ph) on same for - 20 billion in the first quarter this year. And going forward I think at this moment I don’t see any significant or big CapEx for remaining of this year and for 2019 and I think at this moment we don’t know yet. For the second half this year probably we don’t see anything big in the CapEx. Thank you Leif.

[Leif Zhang:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Binbin Ding from JPMorgan. Please ask your question.

[Binbin Ding:]

Hi good evening Mo, Hua and Jessie, thanks for taking my question. I have a question on your long-term strategy. Can you share something regarding the strategic directions you are currently thinking about? We know recently SouFun invested in the new energy business of Wanli which doesn’t seems to be very relevant to our core business. So taking two to three years’ view, what type of platform shall we expect SouFun to become eventually, will we still focus on executing business and being more information-centric platform or are we trying do some new trials in transactions or in financing excess or? Thank you.

[Hua Lei:]

Yes, this is very big question, let me try to answer you in several. Yes, for the first part, our strategy. So yes, while saying change in the industry like paper, they entered this market and also they had their investment in [indiscernible]. And so it needs more peers get into the market. For us, first, we are still - China’s call first, I mean for the homebuyer and also for the agent and also for the developers. So in the future I think firstly we are now trying to continue to increase our market share, so providing more and more better contents and the reliable things, increase our platform. Also we want to have relationships and the collaboration with our owners, which including regions, risk management companies, risk agents, also you know SaaS and service providers through the coloration with them you know which can continue to increase and strengthen our presence. So I think you know we also we can firstly we can increase our branding recognition and increase our data quality. Also we can back - manufacturing our products, so speaking is you know actually firstly, first that we want to start online our position by improving our traffic and our content quality and also we also want to gain advantage through our prime completion in our [indiscernible]. So I think this is probably your first part of your question. Secondly, you mentioned for the one investment, then our investment. I said all investment one is very long time and strategically low in positioning for this company, I said up invest behind one - we have two choices here. One is we can retain inject some existing business to value to have a share platform. Also in our choice we can use one or two developing new business, but however at this moment, we haven’t decided which part to choose and we think you know one transaction we are benefitting the company for the long term. Thank you.

[Operator:]

Thank you. [Operator Instructions]. We have a follow-up question from the line of Leif Zhang, from Morgan Stanley. Please ask your question.

[Leif Zhang:]

Hi, thanks for taking my questions again. So another follow-up about your full-year guidance, because previously you just mentioned the key reason for the downward of your earning guidance is mainly because of potentially the higher SG&A expense on your higher marketing budget. So I just want to see if you, if management can give us the guidance for the revenue so that we can try to find out maybe what percentage of gross for your SG&A expense? Thank you.

[Hua Lei:]

Yes at this moment we probably you know want to provide guidance on the revenue because you know our quarter two will be here very soon, probably three to four weeks, probably within for a while you know the best guidance when we take the revenue quarter two earnings call. Is this okay?

[Leif Zhang:]

Okay, great.

[Hua Lei:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Miranda Zhuang from Merrill Lynch. Please ask your question.

[Miranda Zhuang:]

Thank you very much for taking my questions. I have to questions. The first one is, can management give us some update of the headcount for this quarter and then for the whole year and the implication to general and administration expense for the company? And then my second question is about, can management comment on the strategy to pick for the company in the near term because we have seen that competition in housing listing space is becoming more intense, for example like with the newcomer [indiscernible] has formed alliance with the other major real estate agencies. So can management share with us your strategies to try to get more market share to meet this kind of competition landscape? Thank you.

[Hua Lei:]

Yes. Hi, Miranda. I mean, yes, I mean yes, sorry, for the headcounts, we had quarter one ranch up over 5,000 headcount, came down to last year which was significant decreased definitely. Going forward, we still need to maintain I think 4,000 to 5,000 in headcount, although we are going to - many new technology like AI to reduce the headcount and I think we still need to maintain 4,000 to 5,000 people for the company. And for the G&A expenses, so I think which will keep positive at company level for next one to two quarters. So this is for the first question. For the second question about the strategy, yes, as I just mentioned, we are seeing more new comers like [indiscernible] to these markets and for us I think firstly is we want to and also we need to keep our current position leading platform from buyer and from seller and also the development agent companies in this industry. So for sure by providing that content, better quality for the emissions and by improving our capital, right, so this for sure, we need to improve our online advantage. Also we need to put more effort to cooperate with our partners which including agent companies, also start companies, financial companies and also may be big others, right. So to do that, our online, offline advantage, so this is our current thinking. Thank you.

[Miranda Zhuang:]

Thank you

[Operator:]

[Operator Instructions]. There are no further questions at this time, I will now like to hand the conference back to the speaker. Thank you.

[Jessie Yang:]

Thank you every one for joining today and we look forward to speaking with you again for our second quarter call. Thank you.

[Hua Lei:]

Thank you everyone.

[Operator:]

Ladies and gentlemen, this does conclude our conference for today. Thank you for participating. You may all disconnect.