Xiaomi Corporation
Q1 2021 Earnings Call Transcript

Published: 27 May 2021

[Wing Ki Chan:]

Ladies and gentlemen, thank you for standing by and Welcome to Xiaomi 2021 First Quarter Results Announcement Conference Call. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I'd like to introduce myself Ms. Wing Ki Chan, Head of Investor Relations. Good evening, ladies and gentlemen. Welcome to Investor Conference hosted by Xiaomi Corporation regarding the company’s 2021 first quarter results. Before we start the call, we would like to remind you that the call may include forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Xiaomi. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for the company’s financials prepared in accordance with IFRS.

[Wang Xiang:]

Thank you, Amira. Hello, everyone. Thank you for joining our first quarter 2021 earnings call. In this quarter, we reported outstanding results across all business segments. Our revenue reached RMB76.9 billion and adjusted net profit reached RMB6.1 billion, up 54.7% and 163.8% year-over-year respectively. Both revenue and adjusted net profit achieved historical highs. Throughout this quarter, we remain committed to advancing our core Smartphone x AIoT strategy. I’m pleased to share that our global smartphone shipments ranked number three for the third consecutive quarter with market share of 14.1% in this quarter. Notably, we saw exclusive growth in Europe and ranked number two in the region for the first time. We continued to strengthen our position in premium smartphone market. In this quarter, we further expanded our premium offerings through the launch of Mi 11 Ultra and Mi Mix Fold priced above RMB5,999 and RMB9,999 respectively. Our premium smartphones have been well received by the market as shipments exceeded 4 million units globally in the first quarter of 2021. We continue to deliver cutting-edge technologies and a better experience to our users. For example, our Mi 11 Ultra achieved the global number one DXOMARK position, and the first foldable smartphone Mi Mix Fold features our proprietary Surge C1 Image Signal Processor, making a significant milestone for our imaging technology and leading us to a greater technological aspirations. We also announced our official entry into smart electric vehicle business. The smart electric vehicle represents indispensable components of smart leading. And entering the Smart EV business is a natural choice for us as we expand our smart AIoT ecosystem and pursue one of the largest business opportunities of the next decade. Last, but not least, the first quarter, we also introduced our new logo, which presents Xiaomi’s new brand identity. We believe the new brand identity will allow more people to feel and understand Xiaomi's corporate philosophy to let everyone in the world enjoy a better life through innovative technology.

[Alain Lam:]

Thank you, Xiang. Good evening everyone. Thank you for joining us today for our 2021 first quarter earnings call. In the first quarter of 2021, we maintained solid growth trajectory across all business segments. Total revenue grew 54.7% year-over-year to RMB76.9 billion. And adjusted net profit grew 163.8% year-over-year to RMB6.1 billion. Our revenue and adjusted net profit, both hit record highs in this quarter. In this quarter, we maintained a number three position in global smartphone shipments with a market share of 14.1%. Our shipments increased 61.9% year-over-year, the highest growth rate among the top smartphone companies. We have strengthened our position in the premium smartphone market. In March, we released three premium flagship smartphones, Mi 11 Pro, Mi 11 Ultra and Mi MIX FOLD, and all have been well received by the market. To illustrate, from January to April of 2021, total orders for Mi 11, Mi 11 Pro and Mi 11 Ultra exceeded three million units. Meanwhile, the Mi 11 Series ranked number one in its category among all Android smartphone series in Mainland China. In total, we shipped over four million premium smartphones this quarter. Our premium smartphones we define as retail prices at or above RMB3,000 in Mainland China and €300 in the overseas markets. Our market share in the premium smartphone category in Mainland China grew considerably to 16.1% in the first quarter, up from 5.5% in the first quarter of 2020. Our achievement in the premium smartphone market is underpinned by our relentless pursuit of technology innovation. For example, the Mi 11 Ultra achieved a DxOMark score of 143 for overall camera performance and ranked number one globally. In addition, it debuted a jointly developed GN2 sensor, the largest smartphone camera sensor currently on the market. In terms of charging technology, Mi 11 Ultra debuted the silicon-oxygen anode battery, which enables faster charging in a thinner smartphone body and set a new benchmark with 67 watts wireless charging support. Our Mi MIX Fold is another example of our pursuit of technology innovation. It is equipped with our proprietary Surge C1 image signal processor, which uses advanced algorithms for auto focus, auto exposure and auto white balance, significantly enhancing the image quality. Additionally, it is the world’s first smartphone to use Liquid Lens technology, which combines macro and telephoto capabilities in a single lens. In terms of display, it is equipped with a flexible 8.01-inch OLED screen, featuring Xiaomi’s own color calibration algorithm with impressive color accuracy.

[Wing Ki Chan:]

Thank you, Alain. We will now proceed to the Q&A session. Please limit your question for maximum of two, so that we could allow more investors to ask their questions.

[Operator:]

Thank you. The Q&A session is now open. And the first question comes from Huang, Leping with Huatai. Please go ahead. Thank you.

[Leping Huang:]

Okay. Thank you for taking my question. My first question is about the chip shortage and the inventory issue. So chip shortage has been a major problem for the tech industry for last few months, but we also see some weakness in the smartphone demand, especially in China and India recently. And when I look at your financial statement, you have a large increase in raw material inventory, but a large decline in the finished goods inventory. So can you comment on this, Alain, at this point of time, what is mainly – your view on the impact of the chip shortage and inventory and what’s the impact on your future growth? Thank you.

[Wang Xiang:]

Yes. Thank you. Thank you for the question. Actually, the shortage is – happens every three to four years in the semiconductor industry. But this time, it’s stronger because of many, many factors. One factor is the pandemic, right. So we are working very hard with our suppliers, try to, how to say, optimize our supply situation and do some preparation for the future. So we are – that’s why we are – I think we are – our inventory level is in the healthy – I think in general is very healthy. So, yes, we do some preparations for the shortage for the second half in the raw materials. Yes, that’s for sure. But overall – we are – I don’t see any issues for this year. It’s not going to be a major problem even with the shortage actually. We think we can still have a big or significant increase compared to the year 2020. So that’s the – this question. So your second part of the question is how long it’s going to last, right. I think to be very honest, I think for this entire year 2020 and 2021, I don’t think the issue will be resolved within this year. So we can expect maybe second half of next year, the supply environment will be changed this is a – the whole industry is working very hard actually to try to improve the manufacturing capacity, not only for the SoC suppliers, but also memory, also display, the whole industry actually is working on that, I think maybe second half of next year, it will be improved. This is our will. Regarding the market actually we know, we recently we noticed, there are some companies or some research agents or institutions, they are seeing the soft demand for the – in the China market for smartphone. So we are monitoring the market environment very closely. So far, we don’t change our plan. We will keep our plan for 2021, but we are closely monitoring the market dynamic. Yes, that’s my…

[Alain Lam:]

I think a couple of additional points. I think one, obviously, I think the entire street not just in our industry, but also in other industries, we are seeing chip shortage that I think the auto industry, for example, due to a demand-shock, right, because there is more demand from these new EV players, laptop players due to the pandemic, as there has been an increase in demand and then the suppliers flow or flowing catching up right because of the pandemic, they haven’t really spent that much CapEx in terms of building new capacity. So I think that will take a while for that to normalize, something that probably takes to next year for the chip shortage to ease. So obviously, as Xiang also mentioned, right, number one, we have been investing strategically, right, as you noted some of our raw material inventory has increased. At the same time, I think the fact was our – as you also see the finished goods inventory has dropped because we are – our products remain very popular with our user base. From a management standpoint, we are trying to optimize our product portfolio, we’re trying to optimize our – make sure that we strategically optimize our margin as well in our business, due to enhanced product portfolio as a result.

[Leping Huang:]

The second question, it sounds like, I asked the same question maybe definitely many years ago, so your room of growth, you actually delivered very strong growth in last one year. When I calculated the number, you’ve already shipped 15 million units of smartphones this quarter. If you multiplied by four, it’s 200 million versus Samsung only 200 million reach, I think you already very close to global number two. And so, when you plan your geographical expansion and the way you plan your product mix, so where’s the room coming from now? And especially do you plan to enter markets like the United States? And do you plan to have a much bigger market share in the premium segment, like which countries dominated by your assumption? Thank you.

[Alain Lam:]

Yes. Actually we see a lot of room to grow in many, many markets, taking Europe as an example. Right now, in entire Europe we ranked number two. This is a significant milestone for us. Our market share now in entire Europe is over 20%, but we still think we still have a good room to grow, because in Western Europe our market share is less than 20%, I think it’s above 18% – maybe 18%, so Western Europe, we see very big room to grow there. So we are – right now, we are number one in Spain for five consecutive quarters with market share above the 35%. We are number two in France, in Italy, number three in Germany, all those market, we all see a huge potential to further grow. So that’s a one area. Another angle is, our growth in the carrier channel, we’re very, very strong in Q1 2021. We just started carrier business. We have a – our market share in carrier channels still very low, but we – our growth is over 100%, maybe 300% in Q1. It’s a very strong growth. You see the trend that we’re going to grow our smartphone shipment in the carrier channels. That’s another potential. So if you look at the China market, right, we are above 40%, 33% in China online market, but we are still not very high. We don’t have a very high market share in the offline market of China. So that’s why we are putting a huge effort to establish our offline channels and the retail stores across the country. So that’s another big area to grow. Other example, including Russia, including Latin America, we also see a very strong potential to grow. So yes, we are happy to share, that last year we shipped 140 – maybe over 140 million unit. But this year, even with the shortage, I think we’re very confident to have a significant growth in smartphone market. And U.S. market, U.S. market is always very, very attractive to everyone. So we are – right now, we put our focus on the European market, not instead of North American market because of resources issue. We will continue to increase our investment in R&D, so that we have more resources, then we can maybe – we were prepared, we will go to North American market. We don’t have a – so far, we haven’t announced any plan yet. But that market definitely attractive market to us in the future.

[Leping Huang:]

Okay. Thanks. Thank you very much.

[Operator:]

Thank you. Our next question comes from Kyna Wong with Credit Suisse in Hong Kong. Thank you.

[Kyna Wong:]

Thanks for taking my questions. Congratulations for such good strong results. And I have two questions. One is about the smartphone gross margin, which already reached 12.9%. It is a very encouraging level. And we want to see is like, how much is actually from the fewer sales promotion, better mix and also somehow if there is any impact which is from some finished goods that are already, it’s actually based on lower cost that right now your cost may increase because of chip crisis and what should we expect like going forward in the coming quarters, because I think the chip crisis will stay this year and probably will resolve second half next year as Leping mentioned. So is that a sustainable margin level? So this is the first question. The second question is about the Internet business, because we do see the advertising and also advertising revenues grew very strongly was like 46% and Gaming also actually I think, the expectations illustrate it, because it’s like up 24.8% on a high base last year, because last year is actually due to lockdown in China, but I mean, we see Gaming got like impact on commission base, that may change and also high base still achieve such high growth here. So I just wonder if like that is because the better mix in the smartphones and/or like expanding your channel in internet business and when should we expect normalization in this impact because they continue to decline, I mean, for some time, then it should be like getting less impacted overall Internet business. So, these are my two directional questions. Thanks.

[Wang Xiang:]

Thank you. Thank you for the question. I will take the first one and Alain will answer the second one. So the first one is regarding to the gross margin, the sustainability of the gross margin, right, so I think our – as a company, right now, our focus still to increase our market share globally. We’re not targeting to increase the gross margin. The gross margin is good. We like gross margin, but our first priority is to enlarge our market to increase our customer base. So, I think we achieved a very good gross margin for the last quarter and this quarter, because we have a very good or much better product, and a product mix. We have many, many – very strong mid and higher tier products that contribute good reasonably the gross margin. And also during the shortage, right, everyone in the market were all not very aggressive on pricing. That also help us to maintain the healthy margin, but overall, we’ll focus more on the customer base and market share instead of the margin, but with very good product and the product mix, I think we will have a healthy – we’ll maintain a healthy gross margin and profit.

[Alain Lam:]

So yes, look, I think, Kyna, on the Internet Services, the advertising, as you noted, has performed very well. Part of it is really due to the growth of premium smartphone within our portfolio, right, obviously command a much higher pre-installed as far as much higher revenue potential. On the Gaming side, it has done very well. I mean, I think seasonally, Q1 has always been a strong kind of Gaming quarter anyway with many people at home during Chinese New Year. But it also exceeded the Q4 by quite a lot. I mean, I think as I mentioned in previous call, it’s hard to compare with year-over-year, given that the particular factors in Q1 of last year. There is always hard to beat that number, but we’re very glad that it beat the Q4 numbers by a pretty healthy margin. Also, as you rightly pointed out, the move to premium smartphone was we generated a higher gaming GMV as we showed in previous quarters. On the pretax side, again as I said before, it’s always hard to – it’s again hard to compare year-over-year given there is a part different business model compared to a year ago. So that’s why we try not to compare it year-over-year, but I think as we continue to decrease our group of balance sheet as you continue to decrease the overall use of the loan product, I think you probably see a more healthier pickup in the second half of next year. It’s also kind of dependent on all these regulations that are going on. I think we are trying to do everything we can to compare with – for the regulators who have set for. And so, it may still have some trust in the overall fintech model before it settles down due to the ongoing regulatory scrutiny.

[Operator:]

Thank you. Our next question comes from Andy Meng with Morgan Stanley in Hong Kong. Thank you.

[Andy Meng:]

Thank you, Xiang Wang and Alain for the detailed presentation and congratulations on the great results. I’m Andy from Morgan Stanley. I have two questions, I’ll ask the first question, is focusing on the offline expansion. We know Xiaomi having opened a lot of new stores offline, I want to know what’s the latest like a status regarding the operation, is the high inventory turnover strategy working well or do we receive any pushback? And in recent days, we also noticed that we’re having started some promotion on certain smartphone products. So whether our online and offline will apply the same promotion or do you have different strategy, and for the offline, if they have already built inventory based on the previous like the price when we’re having the promotion, were the offline also having the same price cut promotion or the distributor have to bear this inventory caused by themselves? So, this is my first question. Thank you.

[Wang Xiang:]

Yes, this is a very good question. This a complicated question, maybe let me answer the second half, the second part of the question. Actually, this time actually, we have done a lot change in the offline strategy. So, we synchronized online and offline. Whenever we do a promotion, no matter its online or offline, that’s one action. So, we will do this – we will do the same promotion at the same time with same price, the synchronized. We can synchronize this time because we do a lot of changes, lot of innovations, right. Actually, we developed a system, which can track the pricing, the sell-in and the sell-out real time for every store. So, that’s why we can manage the promotion very, very efficiently. So, the situation in the past is, because without the technology, how to say, that the tools sometimes we cannot synchronize the price on and offline. That creates some problems to our partners, but this time, the situation will be changed with the technology. So, I think we are seeing the acceleration of the offline stores build up. So, up to now, I think the latest number show that we have over 5,500 stores in operational already. So, we continue to build the stores in the very higher paced. So, I remember last year, we had a – end of last year, we had 3,000 stores. But now we have 5,500 stores. So, we’re going to build much more stores by the end of this year, probably over 10,000 stores. So, we want to cover every, how to say, the tongs in China. So, with the technology – with the technologies, with the partners, I think we were able to do it. So, with those stores, we can build our – how to say, point of sales. So, with the point of sales, we can sell a lot more phones, which online channel cannot cover. So, I just mentioned earlier, we have 38% of our online – China online smartphone ship – online smartphone market. But the offline, we still have a lot big room, much bigger room to grow. So, with the 10 million or even 50 million stores in the future or more stores, we can cover those territories to let those people living in those small villages chance to buy our product more conveniently. So, that’s our plan.

[Alain Lam:]

Thank you, Xiang Wang. My second question is based on communication with investor, I think most people definitely very exciting about the first quarter upbeat results, but at same time, we’re worried about the second quarter or even second half slowdown. What will be the company’s strategy in the second quarter or second half, trying to sustain the strong performance no matter from the revenues, shipments and the margin perspective? Something we are discussing like possibility, like for example, we have the weakness in India distancing, the macro-driven, we cannot control the outbreak of COVID, but is it possible to ship more volume to like other market with high growth potential like Europe. In that case, if the Europe market, the margin is higher than India, it could even generate a better profit for the company. So, those are the potential solutions. But I think the company, the management, probably will have more to share with us to let us know what will be the company’s operating strategy in the second quarter or the second half of this year? Thank you.

[Wang Xiang:]

Yes. Actually, because we have multiple markets, that means we have big room to play to optimize our supply, I think last year, our strengths. So, we definitely will optimize our supply to help our channels and the regional market. We’re doing – we are working very hard on that. So, India market actually, the – right now the challenge is the pandemic. The whole company is doing very hard, try to do our best to contribute to the society to, how to say, to help them on the difficult challenges. But at the same time, we will use the different channels try to ship smartphones. In India, actually, there are many, many provinces, they are 100% lockdown, but there are another part of the – half of the country, the – because still this online channel, they ship products. We are working with those channel partners to ship our smartphones to the people who may need it during the pandemic. The manufacturing right now has stabilized. So, yes, we are working with our partner there, trying everything possible to stabilize to get the supply. At the same time, we will optimize our supply chain, that’s the very important thing for us.

[Andy Meng:]

Thank you very much, Xiang Wang.

[Wang Xiang:]

Yes.

[Operator:]

Thank you. Our next question comes from Gokul Hariharan with JPMorgan in Hong Kong. Thank you.

[Gokul Hariharan:]

Yes, thanks. Congrats on the great results. First question I had was on smartphone. Given the aggressive push into the offline channel, especially in China, do you start to feel the need to potentially create offline specific product or specific brands like some of your competitors who have much bigger market share at one point in time in China had done. Is that something that we are thinking about as we start to increase our presence in offline?

[Wang Xiang:]

Actually we – right now, we are using the same product portfolio to sell the same product portfolio online and offline. So, we know that – we notice that for the mid and high tier products, maybe many consumers, they want to feel and touch, they want to buy from offline. Yes, we are making that effort to do a better demo, so that our customers even in the rural areas can see the device, can feel and touch the device before they made their purchasing decision. This is what we’re trying to do. But we are still maintaining the same product portfolio for online and offline.

[Gokul Hariharan:]

So, you don't see the demand for different kind of product portfolio offline so far from the distributors or your customers?

[Wang Xiang:]

So, our offline model actually, as we build stores together with our partners. We are not using the traditional distribution channel a lot. Actually, we work directly with the retailers. The partners to build a store in the Tier 1, Tier 2, Tier 3, Tier 4, Tier 5 cities in the countries. So, in the Tier 1 cities, actually we have our store, our flagship store in the shopping malls, right. But in Tier 6 to Tier – Tier 4 to Tier 6 cities, maybe we – normally, we find a partner to build a store together with us. So, we are – actually, we are very responsible for finding a place to hire their staff and do some of the decorations, renovations for the store, but Xiaomi, we will offer – we will send Store Manager, that's on our payroll, our own employee to be the Store Manager and also we help them on the furniture's, the decorations, the billboards and the more importantly, we provide the tools, I just mentioned, very powerful tool for retail, so that we help our partner to manage their inventory and the promotion, so that they can focus their effort to sell the product. So, that’s the new bonding.

[Gokul Hariharan:]

Okay. That's very clear. My second question is on the Internet services. I mean, the gross margin we are seeing is probably the highest we've seen for quite some time. What goes into the gross margin mix? Is it just that advertising is a much higher margin product compared to everything else? And also from a growth perspective, could we see first half of this year to be kind of like a broadened in terms of year-on-year growth for Internet services and expect the reacceleration that's beginning into second half of this year, given the Internet finance-related scale-down probably lastly then?

[Wang Xiang:]

Yes. Look, Gokul, I think the combination, right, I think the gross margin being high in the first quarter was one that you rightly said, the advertising gross margin. I think second is the Fintech, the recovery of the Fintech gross margin as well, where I think, we remember last year, the first quarter is probably lot of loan provisions and whatnot, right. And so, the margin was not as good and it dragged down the overall margin. I think this year, this first quarter even though, that the overall revenue for the Fintech business was lower, but the margin has actually ticked up at the credit cycle in China improved, right. I think so those are I think the two key factors, right. I think, in terms of what's going to happen for the Internet services over the year, I do – I mean over this year, I do think that you start to see that picking up in the next three quarters, as we continue to generate a good proportion of revenue coming from the advertising business, right, as our base continued to grow and as our MAU, nobody asked us MAU questions so far this quarter. So, you guys must be happy with that. And as our China MAU continues to grow, that outflow bring a higher percentage of revenue from advertising overall and then, the Gaming recovery as well as the or normalized comparison, that’s why the fintech comparison being more normalized. We will certainly see the second half of the Internet services being better than the first half.

[Gokul Hariharan:]

Got it. Thank you very much.

[Wang Xiang:]

Thank you.

[Operator:]

Thank you. Our next question comes from Piyush Mubayi with Goldman Sachs in Hong Kong. Thank you.

[Piyush Mubayi:]

Thank you. Can I just dwell on the last point you just made in response to Hari’s question about the MAU. So, if I look back at all the orders for the last three years, you’ve never grown your MAU in China the way it’s grown in the first quarter, it’s probably explains the strength of the quarter’s Internet revenue and – as well as the higher gross margin. If you just take us through what was so different about this quarter that led to almost an €8 million ads when we’ve never seen anything, even I think you’ve got to go back three years to see a number at €5 million a long time ago. What was different in the quarter that made that difference? And also you talked about the premium that you earn with higher-end Smartphones. Could you give us a feel for, is it the factor three, or factor four, or factor five that comes through because of the high-end customer who comes on board? And my third question is on the Smartphone side, you build out the vastly improved distribution network in the offline space. Can you give us a feel for what percentage of the offline business – offline sales of Smartphone you’re capturing? Also give us a feel for how much – how this premium end of customer base is coming onboard? Where is it coming onboard from online, offline, or is it just a simple fact that you’ve got a far better range of Smartphones or is it with the Mi 11, it was really three products being launched simultaneously that led to €3 million sales. So, just take us through the dynamics that you would firstly? Thank you.

[Alain Lam:]

Yes, Piyush, let me try and then Xiang Wang can add to it. I think first of all, the growth in users as we previewed in our previous call was really due to a large number of new Xiaomi users, right, people who haven’t used Xiaomi phones before, right. So, Xiaomi 11, for example, was very popular and last quarter, we did talk about a large percentage of those buyers being new Xiaomi users, right. The new phones we launched are trying to address different user base as well, right, whether it’s the premium end users, whether business users, whether it’s the female demographics, whether it is the gamers, right. So, we are – our product lined up, not just more product, but also kind of different products offsetting, different segments and different demographics. And I think that’s probably key to attracting a lot of our new users to Xiaomi, they haven’t previously used Xiaomi phone before, right. So, I think that leads to a larger number of new users. A large number – a large increase in MAU for this quarter, right. So, that’s the first question. Second question is, to give you a sense of advertise difference between premium phones and kind of the mid to low-end phones. I mean, we can tell you that, like for example, pre-installed, which is not a big part of the advertising revenue, but just an illustration, right. I mean, we probably see three to five more apps that we can pre-install on a Xiaomi phone versus a Redmi phone, just to give you an illustration. So, in terms of the space and people willingness to buy those spaces that we offer. In terms of unit pricing as well, I think you probably see a 10% to 20% difference in terms of unit price for each of those apps, right. So, factor into both a larger number of apps that you can pre-install, people willing to buy and a higher ARPU or higher unit price for each of those apps that gives you sense, right, in terms of how much we can generate, not to mention the other revenue like search and gaming and whatnot, right. So, I hope that – I mean it’s probably not 4 times or 5 times, I don’t think, but it’s a decent premium, right. In terms of the offline smartphone sales and online smartphone sales, look, I think the offline sales is still very early for us, right. We have got 5,500 stores, right now.

[Wang Xiang:]

5,500 stores.

[Alain Lam:]

Yes, 5,500. But if you look at our competitors, they’re probably more like 50,000 to 100,000 –

[Wang Xiang:]

Maybe 100,000.

[Alain Lam:]

100,000 stores, right. So we feel very early, and if you look at our market share in the offline market, it’s still very low, right, and so even though our online market share is very high right now. So I think it’s across all channels and obviously, we’re still selling more offline – online and offline at this point in time, but we want to change that ratio, right. That’s why we want to build 10,000 plus stores this year, right to capture the opportunity. Does that make sense?

[Wang Xiang:]

Yes. And also, you see actually online market represent probably 30% of the entire China smartphone shipments, right, the offline is 70%. In those 70%, right now, we are only probably 7% – maybe seven something percent of the share, so that means we have huge, huge room to grow in the offline market, we want to be Number one, right. So, we – that’s why we are working very hard on the offline strategy and execution. So I think one of the issue for us is we are in the – as Alain mentioned, we are in very early stage of the offline development. Like the coverage is our current priority, we want to increase the coverage. We want that people who buy our product, they can find a store, our store in the – especially in the rural areas, not only Tier 1, Tier 2, Tier 3 cities, but those countries and towns, right. So, we got to make the coverage there. So I visit after the early May, I visit Hebei province, I visit towns and the villages, I see the demand there. So we must have a coverage to build the covering in those areas, so that we can sell – make actual sales in those areas. So that means a huge potential for us.

[Piyush Mubayi:]

All right. Thank you.

[Operator:]

Thank you. This concludes the conference call today. Thanks again for joining us, you may now disconnect.