Fang Holdings Limited
Q2 2017 Earnings Call Transcript

Published: 29 Aug 2017

[Operator:]

Ladies and gentleman, thank you for standing by and welcome to the Second Quarter 2017 Fang Holdings Limited Earrings Conference Call. [Operator Instructions] I must advice you that this conference will be recorded today Tuesday 29, August, 2017. Now I’d like to hand the conference over to your speaker today Dana Cheng. Thank you, please go ahead.

[Dana Cheng:]

Thank you operator. Hello everyone and welcome to Fang second quarter 2017 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. Before we get started, I’ll 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 actually results to differ materially from those contained in 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. Now I’d like to pass the line to our CFO Dr. Hua Lei to discuss our financial results for the second quarter and first half of this year.

[Hua Lei:]

Good morning and good evening everyone. Thanks for joining our conference call today, and this is Hua Lei. Let me walk you through our financials first and then Vince and I will answer your questions. I will start with revenues. Quarter two 2017 results; revenue, we reported total revenues of 110.1 million in the second quarter this year, 6.16% decrease from 287 million in the last year, primarily due to decline in e-commerce services revenue by 166.7 million caused by the strategy change. Revenue from e-commerce services was 22.9 million in the second quarter, a decrease of 87.9% from 189.5 million in the last year, primarily due to the change in revenue structure as a result of transformation from self owned and operated services to franchise business. Revenue from marketing services was 35 million for this quarter, a decrease of 31.9% from 51.4 million in the same period last year, primarily due to less demand from property developers for online advertising under government regulations in the real estate market of tier-1 and tier-2 cities. Revenue from listing services was 42.3 million in the second quarter this year, an increase of 57.4% from 26.9 million in the same period of last year, primarily driven by the increased number of paying members in lower tier cities. Revenue from Internet financial services was 2.7 million in the second quarter, a decrease of 75.7% from 11.1 million in the corresponding period of 2016, primarily due to the decreased secondary transaction volumes of Fang's own franchised brokerage services. Revenue from other value-added services was 7.1 million in the second quarter of 2017, a decrease of 11.2% from 8 million in the same period of last year. Cost of revenue was 48.7 million in the second quarter of this year, a decrease of 78.9% from 231.1 million in the same period of 2016, primarily driven by the agent reduction and cost optimization under the newly adopted open platform strategy. Operating expenses were 67.4 million in the second quarter, a decrease of 23.9% from $88.6 million in the same period of last year. Selling expenses were 23.1 million in the second quarter of 2017, a decrease of 55.8% from 52.3 million for the corresponding period of last year, primarily caused by the decrease of advertising and promotion fee, as well as the e-commerce cost decrease. G&A expenses were 43.6 million in the second quarter, an increase of 20% from 36.4 million for the corresponding period of last year, primarily due to the increased bad debt and impairment of commitment deposits. Operating loss was 6.1 million in the second quarter of this year compared to operating loss of 32.8 million in the same period of last year, primarily attributable to the agent reduction and effective cost control. Income tax benefits were 0.6 million in the second quarter compared to income tax expenses of 8.7 million in the corresponding period of last year, primarily due to the reversal of previously recorded FIN 48 tax and interest liabilities. Net loss attributable to Fang's shareholders was 2.1 million in the second quarter of this year compared to net loss of 40.6 million in the corresponding period of last year. Loss per fully-diluted ordinary share and ADS were 0.024 and 0.005 in the second quarter of 2017 compared to loss of 0.43 and 0.09 respectively, in the same period of 2016. Unrealized gain on available for sale securities was 84.6 million in the second quarter of this year compared to 1.4 million in the corresponding period of last year, primarily due to the fair value increase of World Union, a PRC listed company. Adjusted EBITDA, defined as non-GAAP net revenue before income taxes, interest expenses, interest income, depreciation, and amortization, was 1.3 million in the second quarter of 2017, compared to the loss of 24.3 million in the same period last year. Cash as of June 30, 2017, Fang had cash, cash equivalents, and short-term investments of 547.1 million compared to 590.5 million as of December 31, 2016. Net cash generated from operating activities was 23.1 million in the second quarter of this year compared to cash flow generated from operating activities of 36.5 million in the same period of last year. That decrease in cash flows generated from operating activities was primarily due to the decrease of change in loan receivables in operating activities compared to the second quarter of last year. That’s all for the quarterly results. Now let’s look at half-year performance. Fang reported total revenues of 219.9 million for the first half of 2017, representing a decrease of 55.3% from 291.6 [ph] million for the corresponding period of 2016, primarily due to the decline of e-commerce services by 257.7 million caused by the strategy change. Revenue from e-commerce services was 62.8 million for the first half of this year, an 80.4% decrease from 320.4 million for the same period last year, primarily due to the change in revenue structure as a result of transformation from self owned and operated services to franchise business. Revenue from marketing services was 62.4 million for the first half of this year, a decrease of 23.8% from 81.8 million for the corresponding period last year, primarily due to less demand from property developers for online advertising under government regulations in the real estate market of tier-1 and tier-2 cities. Revenue from listing services was 76.4 million for the first half of this year, an increase of 49.8% from 81 [ph] million for the corresponding period last year, primarily due to the increased number of paying members in lower tier cities. Revenue from internet financial services was 4.9 million for the first half of this year, a decrease of 77.2% from 21.7 million for the corresponding period last year, primarily due to the decreased secondary transaction volumes of Fang's own franchised brokerage services. Revenue from value-added services and other services was 13.4 million for the first half of this year, a decrease of 19.2% in the corresponding period in 2016. Cost of revenue was 109.5 million for the first half of this year, a decrease of 75.2% from 441 million for the corresponding period in 2016. The decrease in cost of revenue was mainly driven by the agent reduction and cost optimization under the newly adopted open platform strategy. Operating expenses were 122.6 million for the first half of this year, a decrease of 36.7% from 193.6 million for the corresponding period in 2016. Selling expenses were 46.5 million for the first half of this year, a decrease of 59.2% from 113.9 million for the corresponding period of last year, primarily caused by the decrease of advertising and promotion fee as well as the e-commerce cost decrease. G&A expenses were 75 million for the first half, a decrease of 5.9% from 79.7 million for the corresponding period in 2016, primarily due to the effective cost control measures partially offset by the increased bad debt and impairment of commitment deposits. Operating loss was 12.2 million for the first half of this year compared to operating loss of 142.8 million for the corresponding period in 2016. Income tax expense was 4.2 million for the first half of this year, a 69.3% decrease compared to 13.9 million for the corresponding period in 2016, primarily due to the reversal of previously recorded FIN 48 tax and interest liability. Net loss attributable to Fang's shareholders was 14.1 million for the first half of this year compared to net loss attributable to Fang's shareholders was 154.3 million for the corresponding period in 2016. Loss per fully diluted ordinary share and ADS were 0.16 and 0.32, respectively, for the first half of this year compared to loss per fully diluted ordinary share and ADS of 1.62 and 0.32, respectively, for the corresponding period in 2016. Net cash generated from operating activities was 12.1 million for the first half compared to net cash used in operating activities of 30.7 million for the same period in 2016, primarily due to a 140.2 million decrease of net loss compared to the first half of 2016. Thank you for joining us today and we are now open for the questions. Operator, please go ahead.

[Operator:]

[Operator Instructions] Your first question is from Alvin Jiang of Deutsche Bank. Please ask your question.

[Alvin Jiang:]

I have two questions. First one is, how management evaluates the business model transform in the last couple of months. Do you think this transform is successful? And going forward, what’s the business strategic focus? Is that new business model expansion or the recovery of traditional business. Thank you, I have a follow up.

[Vincent Mo:]

So Vincent, Well, as you know, we experienced a turbulent transformation in the past three years; about half a year ago, we changed our transformation into another direction which is back to the technology driven open platform strategy. Half year has passed. I would say we are on track for the retransformation back to an open platform strategy. We have not done that yet, but we are on track, and I think to the end of the year -- and I think we will be quite back on the open platform strategy. Going forward, we’re going to stick to the open platform strategy, and to provide services and products to our partners, to empower our partners for them to increase their efficiency and generate leads to them and provide more tools to them. So that will be the direction we are heading to. We are still in the process, but we have done a lot of that. One of the single number is that we downsized our payroll staff from over 50,000 people at now around 6,500 people.

[Alvin Jiang:]

My second question is about rental property. There are some recent policy changes for rental property. Do you expect rental to become a meaningful part of the listing business? Thank you.

[Vincent Mo:]

Rental is an integral part of our business including new home, resale, and rental. So those three categories of properties are our key sectors, so we did some transformation in the rental sector before and we changed it back to the open platform since about a year ago. So I believe now and into the future, rental sector will be a co-part of our business, although currently I think our revenue from rental is not more than 10%, but into the future I believe this part will be an important part of our business.

[Operator:]

Your next question comes from Monica Chen from Credit Suisse. Please ask your question.

[Monica Chen:]

I have two questions. The first one is regarding our new e-commerce model. So commencement provides some progress on the updates on the - our new agency model, so in terms of number of franchise stores we have opened up today and what is our year-end target in terms of the number of franchise stores? And what is our focus in terms of like the tiered city, do we plan to open more in tier-1, tier-2 cities or more into lower tier cities. I have another follow up. Thank you.

[Vincent Mo:]

Now that we are now doing construction business through our franchised partners not directly by our staffs, so we provide our brand name and our systems and our need including both the potential buyers and the sellers together, so that’s how we doing our business, our transaction business through franchised model. Up to today, we have around 400 franchised shops. And going forward, I expect every month we’re going to add 50 to 100 shops every month. So to the end of the year, I would expect that we're going to have about 600 to 800 [indiscernible].

[Monica Chen:]

What is our like geographic focus? Do we plan to open more in the tier-1, tier-2 cities or more in lower tier cities?

[Vincent Mo:]

Well, it’s a good question. I would say that we would like to focus on some cities before we expand aggressively, currently, based on what we did in the past, so our franchise partners are spread among about 20 cities. And we are going to focus on this 20 cities for the time being. I think at least to the end of the year, we're not going to expand into more cities.

[Monica Chen:]

So my second question is about our product innovation. So I think we are being working very hard providing the new tools and new technology to our partners and the agent. So can management share, is there any new product in pipeline or any new technology that we are focusing on at this moment? I also heard I think in the last quarter we launched function, our secondary listing business which is like the premier listing [indiscernible]. So I want to understand how is the feedback from this product, do we see is there a higher quick through rates or a higher convention for this kind of high quality distance. Thank you.

[Vincent Mo:]

Yes, we are improving our products overall. Among all of the business lines and products of the company, big data, artificial intelligence are the key things that we are expansively using among our products and services. So we are using our resources, big data resources to enrich and empower our existing products overall. Two specific examples, one the usual, finally you have just mentioned, those premium selected listings. So that’s for the websites for our apps and for our wap website and for our PC website for both the visitors so that they can find [indiscernible] listing and they can feel better in visiting our websites. And also on the other hand, we are encouraging our listing agents to provide us with accurate listings with all those listings which are having pictures including videos. So that our visitors they can feel much more touched or comfortable with listings. So that is one thing. The result is very promising and although we are not aggressively promoting those premier selected listing yet, and the traffic has been keeping you know coming up continuously. So we are going to spend more efforts and focus more on this part and to make sure the quality of listings going to be much better comparing to former situation. So that’s one example from the website part. On the other hand, for our marketing and sales product, we have a new product we call it cloud service of our company, we call it [indiscernible]. The cloud service is really a data driven service. We are selling to developers and agency companies so that they can use our cross service to do promotion and more specifically they can use our cloud service to have lease from us. We promote lease to target with the lease and to our clients including developers and developer’s agents and the agent companies and the agent companies’ agents so that's another innovation of our product. So we're going to continue doing this and to make our visitors feel much more comfortable and feel much better. On the other end, our client, our paid clients the can have a much better results return from their investments into our products.

[Operator:]

Your next question is from Xu Ming of UBS. Please ask your question.

[Wei Xiong:]

This is Wei Xiong calling on behalf of Ming Xu. We have a few questions. First, could management share your outlook of the property market next year especially in tier-1 and tier-2 cities? And also for your listing business, could management share what is the current number of paying membership and also what is your year-end target, do we expect any room to further improve our gross margins? And also just as a quick follow-up on the cloud service that you just mentioned in the new home marketing service, could management elaborate how do we utilize big data to better empower our agent and developer partners to get - to improve the efficiency of their marketing especially how we utilize the big data maybe based on user locations. Thank you very much.

[Vincent Mo:]

I will answer the first part, and you answer the second part and maybe I will continue with the third part. Well the real estate has been under heavy regulations from central and local governments. Since October last year, it’s almost one year. And the treasuries still hanging there and the regulations are still there. So I think to my knowledge and my understanding of the situation in the market, the current situation will continue at least to the end of this year. So the tier-1 cities, tier-2 cities they are definitely the most regulated markets. Tier-3, tier-4 cities, actually the prices has gone up and transactions are good. I think the government has achieved their goal of destock of the existing properties. So going forward beyond this year and next year 2018, I would expect that the policies are going to continue, but we’re cautious. But it depends on the general economy and if the general economy needs the real estate industry for whatever purposes, reasons, I think the policies, regulations may change. But I believe the probability of the continuity of the regulations is high based on my understanding of the industry. So Lei Hua could you answer the…

[Hua Lei:]

For the second question, at the end of quarter two we had over 280,000 paying members including PC and mobile. And if we compare to last year, we’ll have YonY 39% increase and a QonQ 24% increase. If you look at different tier cities, the paid members, we have 20% paid members comes from tier-1 cities. And around 40% paid members comes from tier-2 cities and the remaining comes from tier-3 cities. Thank you.

[Vincent Mo:]

I think we will follow-up a little bit on the cloud service, it’s our new product, one of our new products we are promoting now and although it's still in its early stage, it's not a mature product yet. Basically we use our big data accrued from our daily phone calls to our websites and different leads to the website whether it's new point of interest in new home or the resale in our listing. So we aggregate those numbers and we use the big data analysis analytics to rent those potential property buyers so that we can distribute those needs to our clients, to our developers and their agents, so that we can distribute those needs to our clients, to our developers and their agents, so that our clients, they can have an accurate potential property buyers and they can work much more efficiently and they can sell their properties much faster. So that’s the fundamental of the cloud service and so far we have tested about 20 clients and the results are very promising today. We don’t even need to use a large part of big data with mid-year requirements or our target easily. So we’re going to fine tune our -- this cloud service product and so that we can expand to a large base of our developer clients.

[Operator:]

Your next question is from Robert Cowell of 86 Research.

[Robert Cowell:]

Hey, Vincent and Hua Lei. Thanks for taking my question. I want to focus on the margins and I'm, in particular, wondering if there are any temporary factors impacting the 2Q margins, for instance, some residual loss from the transition away from e-commerce or things like that. And then also in your press release, you mentioned bad debt and commitment deposits causing the increase in G&A. I'm just wondering if you can provide a little bit more color on what exactly is going on there and how you see that playing out in the second half.

[Hua Lei:]

Hi, Rob. Yeah. For the first question, for the margin, yes, we do see weak margin than we expected. There are actually two reasons here. So the first reason is the, we still have like over USD20 million in loss in our separate e-commerce parts. So it means that this is the one-off actual cost for us. Going forward, in tier 3 and tier 4, [indiscernible]. So we will see the margin will improve gradually in next one or two quarters. Personally, I expect our margin will back to over 70%, even close to 80% for the gross margin. This is for the first question. And for the second question related to bad debt, actually, we have one-off, about 5 million bad debt for the commitment deposit for projects with the developer. So yeah, and this is one-off bad debt and we’ll not see any more in the coming quarters. Yeah.

[Operator:]

Your next question comes from Binbin Ding of JP Morgan.

[Binbin Ding:]

It’s Binbin Ding calling from JP Morgan. My first question is on the media services. It seems that the media services revenue has decelerated to minus 30% in the second quarter. I think previously management said they would focus more on the growth of the traditional business for this year as a focus. So I’m wondering are we planning to launch some like new products and new initiatives to cushion the decline in the second half and how shall we look at the full year outlook of the media services revenue? And a quick follow-up on the margin, especially from the G&A side. So you just mentioned this 5 million bad debt impairment provisions. So that means excluding the 5 million impact, so there is still like 38 million G&A expenses in the second quarter, which was still a increase compared to the second quarter last year. So given as we are transitioning from the more asset heavy model from the urban platform model, so where the increase in the G&A expenses coming from and how should we look at the trend in the second half.

[Hua Lei:]

As far as, what’s your first question?

[Dana Cheng:]

Marketing.

[Hua Lei:]

For the media service, yes, I think in the beginning this year, actually on the call, we expect will have flat, at least flat on our market services, I mean, the media service. Actually, on quarter one, quarter two, we do see like over 20% decrease there compared to last year. So that still is a challenge there to modestly follow marketing service. Compared to the listing service, we are getting our market share in the listing, but for the market service, because this year actually because government has launched many new restrictions on the local market, especially for tier 1 and tier 2 cities. So we’re seeing the transaction volumes in tier 1 and tier 2 cities actually dropped a lot and the developers, they have less incentive to launch new projects there. So less demand for our marketing services also. Also the whole context, transaction volumes actually increased over actually around 16% compared to last year, actually for tier 1 and tier 2 cities and the problem is, for us, is that we had bad penetration actually in tier 2, sorry in tier 3 and tier 4 cities in there. So, and the revenue contribution for tier 3 and tier 4 cities are like around 30% of, out of the revenue. So it means that we’re not benefiting from the growth, I mean, in tier 2 and -- tier 3 and tier 4 cities. So I think this is probably one micro reasons why our market services are performing badly and I said, also I said, you’re right, we need more new products in the marketing services [indiscernible] new products on market service and also this product is in good spot, we’re seeing some very positive response from the developers. So going forward, we expect this new product will contribute more revenue for the company. Yeah. So probably this is for your first question. And for your second question about the G&A, yes, we have a one-off like 5 million bad debt for the community, but further also we have like community, other bad debt comes from the operations because back to last year and the year before last year, we moved very aggressively. So we do have some bad debt that comes from our aggressive business and going forward, we expect up with removing those residuals, we believe our margin will be improved gradually.

[Operator:]

Your next question comes from Eddie Leung of Merrill Lynch.

[Eddie Leung:]

Hi. Good evening, Vincent and Lei Hua. Have a question on your listing business. We have seen that we have fast growth in a number of our members from the lower tier cities. Given your experience in tier 1 and tier 2 cities, how much extra potential you think we will still have signing up new paying members in the lower tier cities? Are we, say, reaching I’d say 50% of the penetration, 20% or 60%, 70% any rough sense would be very helpful.

[Hua Lei:]

Yes. So if you look at our pay members in the listing business, we do see over 100% growth there in tier 3 cities. And today, we have over 280,000 pay member. So even comparing to our competitors, I believe we have a very big room for us to improve our paying members definitely. Also, if you look at the market, the second home market definitely will keep growing in the future, because the more and more new homes are transitioned to the second home in the future. So I don’t think the max size is a problem for us. The more important is the, we need that products and that experience for our users. If we can make our users happy, definitely, we believe our clients, those Asian companies, they will grow with us.

[Operator:]

Your next question comes from Hillman Chan of Citigroup.

[Hillman Chan:]

I had a follow-up question regarding the listing business. So our number of paying members was about 200.

[Hua Lei:]

Hello, Hillman.

[Operator:]

Hillman, your line is open. Participants, the line has dropped. We will move on to the next question. Next question is from Ella Ji of China Renaissance.

[Ella Ji:]

Thank you for taking my questions. First, it’s about operating expenses. So we understand that you may have a 15 million bad debt that’s one-off expense. If I hear you correctly, Lei Hua, I think you also mentioned there is some legacy loss from the prior ecommerce business model, that’s about 20 million. Correct me if I’m wrong. So going forward, so if we deduct all these one-time losses, is that going to be the ongoing operating expenses level. So that’s my first question. And the second question is, could you please break down your e-commerce revenue between for example the franchise fee, the coupon business and some other legacy business?

[Hua Lei:]

Ella, for your first question, I think yes, the 20 million loss for severing home e-commerce part is one-off loss there and also we had 15 million bad debt for quarter two and I expect in quarter three and quarter four, we also will have some bad debt, but I believe the amount will be much less compared to I think. So that’s why I said, our margin will be improved in quarter four. I don’t know whether I answered the question or not.

[Ella Ji:]

Yes. Sure. Can you please also elaborate on the sales and marketing expenses, this current level and since the sustainable level in future?

[Hua Lei:]

Just one moment. Yes. Our advertising and promotion cost actually is around USD5 million for this quarter, sorry for quarter two. Last year it was like over 23 million. So actually, yeah, it’s like 80% decrease that we’ve had in promotion cost in there, and also in the second half, we may spend more in our advertising and promotion although in quarter, we only spend that nearly 5 million. Yeah.

[Operator:]

Your next question is from Tian Hou of T.H. Capital.

[Tian Hou:]

Vincent, Lei Hua, I have a question regarding your new business model. So as you develop in those franchised local stations to sell funds, the apartments or houses and how do you manage them and what kind of resources do you provide to them and how do you manage the sales and in return, how do they pay you and what is the current status and what’s going to be the future in that sense? That’s my first question. I have another one to follow.

[Vincent Mo:]

Yeah. Our franchise business is very much standardized business as the traditional franchise model. So number one, we provide a brand that is our brand, our Fang.com. And number two, we provide our technology tool platform, we call it to our franchisees, partners, so they can use our platform to work and also use our platform to work with buyers and sellers, so that is the very powerful tool and individual companies, they are not able to develop, so that’s second. Number three, we provide different leads to our partners, to our franchisee partners from our websites, from our ad swaps and PC websites with the potential property buyers and also with listings. So those are the three key things of basic service to our partners. We don’t manage their sales people and the, our franchise companies, they manage their own people, by the way, do trend if I have to add a number four service, we’re providing that, we do training for our franchise companies. Those are mainly the four categories of services we provide to our franchisee companies.

[Tian Hou:]

So in return, what do you get from them?

[Vincent Mo:]

We get money from them. We have, mostly, it’s three parts. One part, part one is our branding expense. We need to collect branding income from our franchisee companies and number two, we have a -- branding two is fixed and number two is that we collect a proportion of fees, a percentage of the commissions, our franchise companies, they collect from property buyers or sellers and number three and of course we collect money from them when we deliver or distribute needs to them. So those are the three revenue streams from our franchisee companies.

[Tian Hou:]

So how do you manage the sales, let’s say, you touch commissions, right, so you need to know how many apartments they sold and so what kind of system and if you don’t have today, what system are you going to have put in place in the future to monitoring the sales package or progress of local franchisees?

[Vincent Mo:]

Theoretically, because they use our platform and it’s a more kind of a cloud service platform and we have, we can track the transactions. I did mention theoretically it should work like this, but if our partners, they do not use our platform or do not strictly stick to the procedures of the transaction, we may have lost track of them. So that could happen, but I believe going forward, more and more funnels, they’re going to stick to the platform, because the platform is going to be very helpful to increase their efficiency.

[Tian Hou:]

Yes. Good. So Vince, I have another question. It’s regarding the agencies in the market, so from your data, have you seen the agencies start to like people go or shut down their shops?

[Vincent Mo:]

Because of the, it’s recent situation. Yes. You’re right. There are companies, they’re closing their stores. That’s the general trend. There are also companies that may increase stores because they want to be there and to be prepared before the, another weave, another hard time come after the deregulation. So but, general momentum or trend at this stage, the agency companies, they have been very careful, they have been very cautious about opening new stores.

[Tian Hou:]

I see. So one more thing to follow-up on that, remember several years ago, the housing market wasn’t good and do the agencies need to put a lot of listing on the open platform and then later on, they came back to say, they didn’t make money, but still trying to make a lot of money on listing. So do you expect similar thing to happen in the future or not?

[Vincent Mo:]

Well, with the, I think it could happen, but if we manage it well and I think we can avoid that, to me, the lesson I got from the past experiences is that we need to work together with our clients and with our partners and we need to make sure everybody make money or at least most of them make money so that we can make money. So I think we learned a lot in the past and we are I believe that, we can avoid similar things happen in to the future.

[Hua Lei:]

Actually, they all can make, they are making more money.

[Operator:]

Your next question comes from Hillman Chan of Citigroup.

[Hillman Chan:]

Sorry, my line dropped previously. Just a follow-up on the listing business. So in second quarter, we have about 280,000 paying members. So how has that number been trending in to third quarter and how do we see the respective growth in the higher and also the low activity and I have a follow-up question.

[Hua Lei:]

Yeah. For the listing business, if you look at different tier cities, I believe in tier 3 and tier 2 cities, so tier 3 and tier 4 cities definitely we still have higher growth rate comparing to tier 1 and tier 2 cities definitely. But if you compare to the listing business to quarter two, because we’re seeing the market is going down actually in tier 3 and tier 4 cities. So personally, I expect the growth rates probably were not as high as the quarter two number. In the second half, yeah.

[Hillman Chan:]

Are we expecting a sequential decline in the paying members to third quarter for the listing business?

[Hua Lei:]

You mean the paying member, sorry.

[Hillman Chan:]

Yes, yes. Are we expecting a sequential decline in the number of paying members in the third quarter?

[Hua Lei:]

I don’t think there will be a decline. Probably, we’ll see less growth in paying members, but still we think the market size is picking up for us, we just began to tick back our market share. So I believe still our paying members will keep going, but probably in lower growth rates.

[Hillman Chan:]

And my other question is regarding the competition that has been going on for years. So what is our latest thinking regarding the competition against how we go about closing the gap in terms of the user traffic and the listing agent base and how do we see some of these emerging online website platforms from the listing agents including [indiscernible].

[Vincent Mo:]

Yeah. I think we have been experiencing a tough time for our listing services in the past two, three years. We recovered our sales, comparing to our sales, we almost recovered the floor. But comparing to our competitors, we are lagging behind many because of, I think there are three things really today and number one is that our transformation in the past two, three years has really made a lot of our hard work for us. So we couldn’t focus, we did not focus a lot on the listing services and now we’re now. So that’s one and secondarily, I think the product itself needs improvement, needs renovation and also needs upgrade, so that is something we are focusing and we are improving that. And the third thing, it’s really the website, our PC, our PC website and WAP and APP, we need to have increase of traffic, our content including listings as we are. So that is important and we are trying very hard to improve that part and lastly sales efforts or sales management is also important. So we have our management, our sales management team, they are getting back to that. So I believe that with our efforts and focus back on the recent market on the listing, we can improve our service and our client base in to the next part of this year.

[Operator:]

There are no further questions at this time. I would like to hand the conference back to today’s presenter. Please continue.

[Dana Cheng:]

Thank you all for taking the call with us today. And we look forward to speaking with you in the next quarter. Thank you.

[Operator:]

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