Fang Holdings Limited
Q4 2018 Earnings Call Transcript

Published: 28 Apr 2019

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Q4 2018 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 would now like to hand the conference over to your first speaker for today, Ms. Jessie Yang. Please go ahead, ma'am.

[Jessie Yang:]

Thank you, operator. Hi, everyone, and welcome to Fang's Fourth Quarter 2018 Earnings Conference Call. Joining us today to discuss Fang's results are our Chairman, Mr. Vincent Mo; our CEO, Mr. Jian Liu; and our acting CFO, Mr. Zijin Lin. 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 fourth quarter financials, after which our management will start the Q&A session. Fang reported total revenues of $82.2 million in the fourth quarter of 2018. This is mainly -- revenue from marketing services was $41.5 million in the fourth quarter of 2018, a decrease of 16.3% from $49.6 million in the corresponding period of 2017. This is primarily due to a slowdown in real estate market and the continued impact of tightening policies. Revenue from listing services was $24.4 million in the fourth quarter of 2018. That's a decrease of 41.6% from $41.8 million in the corresponding period of 2017. This was caused by a decrease in the number of paying members. Revenue from value-added services was $11.1 million in the fourth quarter of 2018. That's an increase of 28.5% from $8.6 million in 2017, driven by the increased demand for our database and resource services. Revenue from financial services was $2.4 million in the fourth quarter, a decrease of 35.3% from $3.6 million in the corresponding period in 2017. Revenue from e-commerce services was $2.8 million in the fourth quarter, a decrease of 67.1% from $8.5 million in the corresponding period in 2017. This was due to Fang's transformation back to a technology-driven open platform model. The cost of revenue was $12.4 million in the fourth quarter. That's a decrease of 58.1% from $29.7 million in the corresponding period in 2017. This is due to the optimization in our cost structure. Operating expenses was $57.9 million, an increase of 24.4% from $46.5 million in the corresponding period in 2017. Selling expenses were $13.8 million in the fourth quarter, a decrease of 50.2% from $27.8 million in the corresponding period of 2017. This was driven by a decrease in advertising and promotional expenses and deduction of staff costs. General and administrative expenses were $43.8 million in the fourth quarter, an increase of 131.5% from $18.9 million in the corresponding period in 2017. This was due to an increase in bad debts. Operating income was $11.9 million in the fourth quarter compared to $36 million in the corresponding period in 2017. This was caused by the decline in revenue from listing and e-commerce services and increase in bad debts. Change in fair value of securities included in investment income for the fourth quarter was a loss of $34.4 million. The amount represents changes in fair value of securities in accordance with FASB ASU 2016-01, which became effective on January 1, 2018. Income tax expenses were $27.5 million in the fourth quarter. This is compared to income tax expenses of $13.1 million in the corresponding period of 2017. Net loss attributable to Fang's shareholders was $48.2 million in the fourth quarter compared to net income of $20.6 million in the corresponding period of 2017. Loss per ordinary share and ADS were $0.54 and $0.11 in the fourth quarter compared to net income per fully diluted ordinary shares and ADS of $0.23 and $0.04, respectively, in the corresponding period in 2017. Adjusted EBITDA, defined as GAAP net income before share-based compensation, investment income, change in fair value of securities, income taxes, income expenses, interest income and depreciation, was $19.3 million in the fourth quarter compared to $41 million in the corresponding period of 2017. As of December 31, 2018, Fang had cash and cash equivalents, restricted cash and short-term investments of $463.6 million compared to $547.1 million as of December 31, 2017. Fiscal year 2018 revenues. Fang reported total revenues of $303 million for 2018. This represents a decrease of 31.8% from the 443 -- $444.3 million in 2017. This is mainly due to a decline in revenues from listing and e-commerce services. Revenue from marketing services was $119.7 million for 2018, a decrease of 19.8% from $149.3 million in 2017. This is due to a slowdown in the real estate market and the continued impact of tightening policies. Revenue from listing services was $113.5 million for 2018, a decrease of 31.3% from $165.4 million in 2017. Revenue from other value-added services was $36.4 million, an increase of 22% from $29.8 million in 2017. Revenue from financial services was $18.1 million, an increase of 49.8 million -- 49.8% from $12.1 million in 2017. Revenue of e-commerce services was $15.4 million in 2018, a decrease of 82.5% from $87.7 million -- $87.8 million in 2017. Cost of revenue for 2018 was $58.6 million. This was a decrease of 66.5% from $174.6 million in 2017. Operating expenses were $204.5 million for 2018. This is a decrease of 10.1% from $227.5 million in 2017. Selling expenses were $69.5 million in 2018, a decrease of 23.8% from $91.3 million in 2017. General and administrative expenses were $138.2 million in 2018, an increase of 1.9% from $135.7 million in 2017. Operating income was $39.9 million for 2018 compared to operating income of $42.2 million in 2017. The change in value of securities included in investment income for the fiscal year was a loss of $168.7 million. This amount represents changes in fair value of securities in accordance with FASB ASU 2016-01, which became effective on January 1, 2018. Income tax benefits were $11.9 million for 2018 compared to income tax expenses of $21.4 million for 2017. Net loss attributable to Fang's shareholders was $117.3 million for 2018 compared to net income of $21.7 million for 2017. Loss per fully diluted ordinary share and ADS were $1.31 and $0.26 in 2018 compared to net income per fully diluted ordinary share and ADS of $0.24 and $0.05 in 2017. Adjusted EBITDA was $81.7 million in 2018 compared to $68.9 million in 2017. As of December 31, 2018, Fang had cash and cash equivalents, restricted cash and short-term investments of $463.6 million compared to $547.1 million as of December 31, 2017. Based on current operations and market conditions, Fang's non-GAAP net income is expected to be profitable for the fiscal year ending December 31, 2019. These estimates represent Fang management's current and preliminary views, which are subject to change. And this is our fourth quarter financials. Now, operator, we will be open for a Q&A session. Thank you.

[Operator:]

Thank you ma'am. Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions]

[Unidentified Company Representative:]

[Foreign Language]

[Jessie Yang:]

No question?

[Operator:]

We have a question from the line of Miranda Zhuang. Please ask your question.

[Miranda Zhuang:]

Thank you. Good evening management. Thank you for taking my questions. It seems like the transaction of the property has recovered a bit in late March and early April. Can management share with us your view for the property market this year? And what's the sentiment of the advertising purchase from the property developers? And my second question is about the listing business. It seems that the competition for the listing business has become more intensified. Can management share with us your strategy this year for this business, especially on the traffic side and also in empowering the real estate agents? Thank you.

[Unidentified Company Representative:]

Okay. I will take the first question. And I will now -- Zijin, can you take the second one? About the market. So Miranda, as you mentioned, the market did recover shortly in quarter 1. Especially after Chinese New Year, the market has been good. Q2 not -- or about a week ago. So that's the situation. And most recently, in the past 1 week, the top leadership reiterated again that the property market shall be -- remain under regulated -- under heavy policy control. So that's the situation. To my knowledge or my expectation with whole year, the market will be -- keep the current status, which means it will be good to my understanding because the -- we had a 2-year slowdown in the past. So the accumulated demand in the 2 -- past 2 years probably will be released this year, 2019. So my judgment will be the market will be reasonably good for the rest of the year. But that said, I don't think the top management or the government will allow the -- another boom of property market again in 2019. So that's the situation. To us, our advertising has seen -- we have seen a growing momentum in our contract. We still need to have the cashingyet. But contractor-wise, we have seen double-digit growth. I'm talking about [Foreign language]. Yes, we have seen about 30% to 40% increase in the advertising contract. The listing side [Foreign Language].

[Zijin Lin:]

[Foreign Language].

[Unidentified Company Representative:]

[Foreign Language].

[Zijin Lin:]

[Foreign Language].

[Unidentified Company Representative:]

Yes. It's also increasing, right?

[Zijin Lin:]

Yes. Yes.

[Unidentified Company Representative:]

And the listing side, which is for resell market, which is also increasing although comparing to advertising is not as fast as the advertising in the market. So that is the situation of the market. So Zijin, can you ask the -- answer the second question?

[Zijin Lin:]

Second question regarding to the listing, currently, for the fourth quarter in 2018, we can see the traffic of the website and the paying membership number are stable. And in the first quarter of 2019, there's definitely an increase. To the business strategy in the listing side, we are now pushing the agencies to be directly linked to our website. So the properties they listed on our website is more generous and there is -- like it's reduced to some human misstatement in the listing introductions. So basically, that's the main focus we are doing right now to increase the quality of the listing.

[Miranda Zhuang:]

Can I have a follow-up question?

[Zijin Lin:]

So that's -- sure.

[Miranda Zhuang:]

So for -- it looks like the research and database services has been in very good growth momentum since FY '18. So what's the strategy for this business in FY '19?

[Unidentified Company Representative:]

You're right, our data analytics sector has been growing continuously. So this part, we call it China Index Holdings, which is the part we're going to spin off as planned. We had -- separately we had this part along. We had over 30% growth last year and quarter-by -- quarter-to-quarter comparison, year-over-year. So we announced before that we're going to spin off that part of business. They're going to independently list with a stock exchange market. So that's the situation. We expect that the data and analytics business is going to continue their growth momentum in the whole year. Hopefully, we can have a 30% growth, top line and bottom line as well. However, that said, pending on our investment, pending our spending on promotion, marketing and other R&D expenses. So that's the situation for the data and analytics business.

[Miranda Zhuang:]

Okay, I see. Thank you very much.

[Unidentified Company Representative:]

Thank you.

[Operator:]

We have the next question from the line of Frank Chen. Please ask your question.

[Frank Chen:]

Thanks for management for taking my question. This is Frank Chen from Macquarie. I have one quick question. As the market is recovering this year and our business is stabilizing, how should we think of our margin trend in 2019 and onwards? Can management share more color on the margin? Thanks very much.

[Zijin Lin:]

The margin trend for the company, we are still to be more cost effective during the past years. And I think we still have room to be more efficient in the way we're doing our business.

[Frank Chen:]

Okay. Thank you.

[Operator:]

[Operator Instructions]As there are no questions, I'd like to hand the call back to your speakers for any closing remarks. Thank you.

[Jessie Yang:]

Thank you, operator. Thank you, everyone, for joining our call today, and we look forward to speaking with you for our 2019 quarter 1 conference call. Thank you.

[Operator:]

Thank you, ma'am. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.