E-House Holdings Limited (NYSE:EJ)
Q4 2013 Earnings Conference Call
March 11, 2014 07:30 ET
Xin Zhou – CEO
Li-Lan Cheng – COO
Bin Laurence – CFO
Jinsong Du – Credit Suisse
Ella Ji – Oppenheimer
Jack Yeung – TH Capital
Gregory Chow – Citigroup
Zhuang Chao – Macquarie
Wendy Huang – Standard Chartered
Hello and thank you for standing by for E-House Fourth Quarter and Full Year 2013 Earnings Conference Call. (Operator Instructions). I will now like to turn the meeting over to your host for today’s conference Ms. (indiscernible), E-House Investor Relation specialist. Thank you, please go ahead.
Unidentified Company Representative
Hello everyone and welcome to E-House earnings conference call for the fourth quarter and full year 2013 and it's September 31, 2013. To download a copy of the earnings press release or to sign up for the investor distribution list, please go to the IR section of our website at www.ehousechina.com.
Leading the call today is Mr. Li-Lan Cheng, our COO, who will review highlights for fourth and full year 2013 and Ms. Bin Laurence, our CFO, will then discuss our financial results. We will then open the call to questions, at which time, our Co-Chairman and CEO, Mr. Xin Zhou will be available.
Before we continue, please allow me to read you E-House’s Safe Harbor statements. Some of the statements during this conference call are forward-looking statements made under the Safe Harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC.
You are encouraged to review the forward-looking statements section of our Annual Report on Form 20-F filed with the SEC for additional information concerning factors that could cause those differences. E-House does not undertake any obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Our earnings press release and this call include discussions of unaudited GAAP financial information as well as some unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollars.
I will now turn the call over to E-House COO, Mr. Li-Lan Cheng. Mr. Cheng, please go ahead.
Hello everyone. Thank you for joining us today. In 2013 we achieved significant growth in all of our major lines of business especially our e-commerce business and we’re already on to a great start in 2014. Yesterday we announced a strategic partnership between our online subsidiary Leju Holdings Limited and Tencent Holdings Limited. The partnership will leverage Tencent’s powerful Weixin platform and SINA’s Weibo platform throughout China’s, two of China’s top mobile platforms to launch our real estate online e-commerce mobile e-commerce 1.0 product which will further enhance our competitive advantage in real estate e-commerce sector.
“In addition, as our existing businesses have continued to grow steadily, we are pursuing new strategic initiatives to establish two new business units to offer financial services and community value-added services. With these two units, we will begin the process of broadening our service scope beyond facilitating new home sales and into the areas of serving existing home owners on an ongoing basis. We are excited about the opportunities these new services will bring and believe this will form the remaining links within our complete real estate services chain, making us a stronger enterprise in the long run and creating new and lasting value for our shareholders.
I will now turn the call over to our CFO, Bin Laurence who will review our financial highlights for the fourth quarter and full year 2013.
Thank you Li-Lan. Good morning or good evening everyone. First of all we’re very proud of the progress we made in 2013. We achieved significant growth in revenues and delivered strong profitability last year. In addition we generated strong operating cash flow of over a $100 million and enhanced our liquidity so that we are well positioned for continued growth.
Now let me walk you through our financial results in more detail. Please note all figures are in U.S. dollars unless otherwise noted. Our fourth quarter total revenues were $255.4 million, an increase of 67% compared to last year. Full year 2013 total revenues were $731.1 million an increase of 58% compared to the same period of 2012. Both increases were driven by growth in all of our major business lines specifically real estate online services, real estate brokerage services, and real estate information and consulting services.
Fourth quarter revenues from real estate online services were $126.3 million, an increase of 126% compared to last year. This increase was mainly due to the growth in e-commerce revenues, online advertising revenues and listing revenues. Revenues from e-commerce services were $77.5 million, an increase of 552% compared to last year. Revenues from online advertising services were $43.2 million, an increase of 4% compared to last year. Revenues from listing services were $5.6 million, an increase of 132% compared to last year.
For the full year of 2013, revenues from real estate online services were 335.4 million an increase of 98% compared to last year. This increase was mainly due to the growth in e-commerce revenues. Online advertising revenues and listing revenues.
Revenues from e-commerce services were a 170.2 million, an increase of 530% compared to last year. Revenues from online advertising services were $145.4 million, an increase of 6% compared to last year. Revenues from listing services were $19.8 million, an increase of 257% compared to last year.
Our fourth quarter revenues from real estate brokerage services which included primary agency services and secondary brokerage services were 92.1 million an increase of 23% compared to last year. For the full year of 2013 real estate brokerage revenues were 280.8 million an increase of 35% compared to last year. Fourth quarter revenues from primary real estate agencies services were 89.2 million an increase of 27% compared to last year mainly due to a 9% increase in the total GFA of new properties sold and a 24% increase in the total transaction value of new properties sold.
For the full year 2013, revenues from primary real estate agency services were a 269.6 million, an increase of 40% compared to last year mainly due to a 26% increase in the total GFA of new properties sold and a 41% increase in the total transaction value of new properties sold. Fourth quarter revenues from secondary real estate brokerage services were 2.9 million compared to 4.5 million from last year.
For the full year 2013 revenues from our secondary real estate brokerage services were 11.2 million a decrease from 16.6 million for 2012. Both decreases were mainly due to the year-over-year decreases in a number of our physical brokerage stores as we shifted our secondary real estate focus from offline to online. Fourth quarter revenues numbers real estate information and consulting services were 24.4 million, an increase of 82% compared to last year.
The increase was mostly due to revenue increases in both information and consulting services. For the full year 2013 revenues from our real estate information and consulting services were 76.7 million an increase of 41% compared to last year. The increase was mostly due to revenue increases from both information and consulting services. Fourth quarter revenues from other services which include offline real estate advertising services, promotional event services and real estate fund management services were 12.6 million an increase of 52% compared to last year. The increase was mainly due to the revenue increases promotional event services.
For the full year 2013, other services were 38.2 million an increase of 28% compared to last year. Again mainly due to the revenue increases from our promotional event services. As for costs and expenses fourth quarter cost of revenues was 83.2 million and an increase of 38% compared to last year. For the full year 2013 cost of revenues was 274 million an increase of 35% compared to last year. This sequential and full year increases were primarily due to number one, higher salary expenses for additional sales staff and higher commissions associated with increased revenues from primary real estate agency services. Two, higher salary expenses for additional editorial staff associated with our real estate online services and three higher cost associated with the increased revenues in offline advertising and promotional event services.
Fourth quarter SG&A expenses were a $136.3 million, an increase of 43% compared to last year. For the full year of 2013 SG&A expenses were a 400.9 million, an increase of 19% compared to last year. The year-over-year increases were primarily due to one higher marketing and promotional expenses of real estate online services, 2, higher commission expenses associated with increased revenue from real estate online services, and 3, higher bonus expenses of both primary real estate agency services and real estate online services associated with increased profits.
Moving to operating and net income, fourth quarter operating income was $38.0 million, compared to operating loss of $2.6 million for the same quarter of 2012. Fourth quarter non-GAAP operating income was $48.1 million compared to non-GAAP operating income of $9.5 million for the same quarter of 2012.
For the full year 2013 operating income was 61 million compared to operating loss of 71.1 million in 2012. For the full year 2013 non-GAAP operating income was a 102.5 million compared to non-GAAP operating loss of 12.5 million for 2012. Fourth quarter net income was 29.9 million compared to net loss of 5.4 million for the same quarter of 2012. Fourth quarter non-GAAP net income was 36.5 million compared to non-GAAP net income of 5.8 million for the same quarter of 2012.
For the full year 2013 net income was 51.1 million compared to net loss of 71.1 million in 2012. For the full year 2013 non-GAAP net income was 84.9 million compared to non-GAAP net loss of 15.7 million in 2012.
Fourth quarter net income attributable to E-House shareholders was 31.8 million or $0.22 per diluted ADS, compared to net loss attributable to E-House shareholders of $1.7 million, or $0.01 loss per diluted ADS, for the same quarter of 2012. Fourth quarter non-GAAP net income attributable to E-House shareholders was $38.3 million or $0.26 per diluted ADS compared to non-GAAP net income attributable to E-House shareholders of 9.5 million or $0.08 per diluted ADS, for the same quarter of 2012.
For the full year 2013 net income attributable to E-House shareholders was 52 million or $0.38 per diluted ADS compared to net loss attributable to E-House shareholders of 57 million or a loss of $0.54 per diluted ADS in 2012. For the full year 2013 non-GAAP net income attributable E-House shareholders was 85.4 million or $0.63 per diluted ADS compared to non-GAAP net loss attributable to E-House shareholders of 8.4 million or a loss of say $0.08 per diluted ADS in 2012.
Regarding cash flow as of December 31, 2013 our cash and cash equivalent totaled 413.3 million. Fourth quarter net cash generated in operating activities was a 113.9 million. This was mainly attributable to non-GAAP net income of 36.5 million to an increase in income tax payable and other tax payable of 48.2 million. And three a decrease in customer deposits of 55.6 million and four, an increase in accrued payroll and welfare expense of $35.9 million, partially offset by an increase in properties held for sale of $43.9 million and an increase in accounts receivable of $23.8 million.
Fourth quarter net cash used in investing activities was $11.9 million which included $11.3 million paid in an exclusive rights arrangement with Baidu. Fourth quarter net cash proceeds from financing activities were $101.1 million, mainly comprised of $130 million in net proceeds from the issuance of convertible bonds, $8.0 million in proceeds from a non-controlling interest investment and $7.4 million in proceeds from the exercise of options, partially offset by the payment of a call option of $45 million associated with the convertible bond issuance.
As for our forecast for 2014, we estimated that our fiscal 2014 total revenues will be approximately 880 million to 900 million, an increase of approximately 20% to 23%. This forecast reflects our current and preliminary view which is subject to change.
I would also like to announce that our Board has authorized and approved our payments of a cash dividend of $0.20 per ordinary share. The cash dividend will be payable on or about May 30, to shareholders of record as of the close of business on May 2nd.
We will now take your questions. Operator please go ahead.
(Operator Instructions). And the first question comes from the line of Jinsong Du of Credit Suisse. Please ask your question.
Jinsong Du – Credit Suisse
I have a question regarding the growth guidance. I would like to understand whether the full year growth guidance is on the conservative side and how do you derive the guidance like for example for each business segment what will be the expected growth and also what will be the impact from the new product integration with Tencent’s WeChat and SINA’s Weibo. Thank you.
First of all our guidance does not include the new business units that we just announced today namely the financial services units as well as the community value added service units nor do we include the plan products involved WeChat or Weibo. And secondly our full year guidance was based on previous estimate of the real estate market condition in China and before or the new initiatives that we announced in last two days.
So even though we did not include the new business initiatives and potentially new products we will work very hard, try to generate extra revenues from those new initiatives and products. Thank you.
Thank you. And the next question comes from the line of Ella Ji of Oppenheimer. Please ask your question.
Ella Ji – Oppenheimer
First I want to follow-up with the previous question, so since 2014 the real estate market is performance is relatively stable and also especially after the Chinese New Year we have not seen any strong pick-up in the transaction volume. I wonder if Xin Zhou [ph] can discuss about real estate market general performance. Your expectations for 2014 and what’s your assumption of the market performance when you’re provided the guidance and that’s my first question.
You’re right that 2014, the first few months was relatively quiet for the real estate market. My general view on the markets for 2014 was outlined in my way forward message. So I will elaborate a little bit, first of all given the general downwards pressure for the economy and the government 7.5 GDP growth targets I believe that the overall real estate market will not be too bad.
Secondly, the government has allowed both upwards and downwards market adjustments therefore we don’t believe there is a huge downside in terms of price for the Chinese real estate properties. Thirdly, the latest NCP had said that we should increase the investment in mid to west portion of the country as well as Northwest part of the country which means that there are opportunities there are potential growth in those markets.
Fourth point is given that they are still saying we should try to establish a real estate property tax means that it won't come out in the near term. And number five, the continued urbanization as well as the improvement in the old section of our various cities promoted by the government that means there is underlying demand for associated demand that for the real estate property markets.
And my conclusion is stability is good. As you guys know in the last few weeks there are various news reports on the potential price declines in several cities as well as some banks tightening their real estate related credits. I think that it's very normal, these are very normal events. First of all some of them is associated with the Chinese New Year activities in terms of volumes and the price the decrease was as a result of some developers decision to have some promotions related to their own inventories. My view is to judge the overall real estate market in 2014. We have to take a look at the NCP meeting policies as well as volumes and price for the March real estate data.
So far in the first 10 days of March we have seen that both volumes and price are stable. Therefore I believe overall 2014 real estate market will be quite stable. Thank you.
Ella Ji – Oppenheimer
And my second question is relating to your cooperation with Tencent. Just you know something to help understand your business model better. In your existing business such as (indiscernible) that you order e-commerce business you’re a direct marketing platform for the developers but as you start to use WeChat platform are you -- do you think you’re becoming an agent rather than a direct marketing platform? And also when you talk to your developer clients do you charge it separately for the WeChat and Weibo marketing or do you bundle them together? And lastly can you share with us some colors for daily unique visitors of WeChat as a public accounts on average how much is that?
Regarding your question in terms of our cooperation with Tencent, I believe a lot of people have similar questions why we are forging this strategic relationship. Mainly the underlying reason is we believe that the overall mobile e-commerce competition will intensify this year.
Within the mobile application platforms the largest two in China are Weibo and Weixin from Tencent. Previously we had already had some strategic cooperation agreement with Weixin and Weibo and through yesterday’s announcement of our corporation with Tencent we’re able to leverage both Weibo’s as well as Weixin’s public accounts so that we could establish our mobile application strategies for our e-commerce business. In addition we have an existing brokerage mobile application (indiscernible) and combined with our own application we believe that we will take competitive advantages in our mobile e-commerce products.
Today we also announced that we have already launched our mobile e-commerce 1.0 products which is the beginning of our mobile e-commerce activities.
I didn’t understand one of your questions; you asked something about whether this cooperation with Tencent would make us more like an agent? What did you mean by that?
Ella Ji – Oppenheimer
Existing business, you’re direct to marketing platform right? It plays advertisements on your website or they use your eju.com for e-commerce business. But if you now also use WeChat and Weibo I don’t know what’s your public account will look like but does it sound alike that you’re like intermediary and that the end and direct platform is WeChat and Weibo so you’re in the middle between the developers and Tencent in Weixin. That’s slightly different from your prior rule which your direct marketing platform.
Well no that’s not entirely correct, yes you’re right on SINA’s website developers place advertisements but also the reason they are willing to pay for advertising on SINA is that users potential home buyers go to SINA’s website, go to our website to look for realtor related information very specific comprehensive product, basic information and you also point on our e-commerce web based platform, users can go on and get very detailed information and then we even have the payment platform. All of this will now be available on mobile platform whether to SINA’s Weibo or Tencent’s Weixin. By the way we don’t want to use WeChat, that’s a platform product offered outside of China, that’s beyond the scope of our cooperation. So within China we still call it Weixin.
So just think that the Weixin platform the project turned as the same way users, potential home buyers obtain information and potentially conduct transactions expect now that they can do it on their cellphone rather than on a computer. So it doesn’t change our role.
Thank you. And the next question comes from the line of Jack Yeung of TH Capital. Please ask your question.
Jack Yeung – TH Capital
I’ve a question about your new business. Can you give us some more color on the contract with (indiscernible) how many users have already got and possibly how many other banks are approaching to cooperate and what could be the revenue models for new business especially for the community value added services because we haven't really know something about it. That’s all for my question...
So the new platforms that we announced today are continuation of our business expansion in the real estate sector as to our brokerage services, our online services as well as our information consulting services.
First I would like to get into some details of our financial service business that we’re planning to get into. As you know in November of last year we announced that we and should expect to go there introduce a product called (indiscernible) through which specific bank is committing (indiscernible) I&B to that. I would like to update you that so far we’ve walked through this whole process and we know that this would work now and this product is being launched officially. This new joint venture that we’re establishing SINA and other parties is along the idea that we will use the asset back or mortgage loan backed asset to introduce related financial products.
Currently there are a lot of PCP platforms utilizing the internet to offering loans and investment products but so far most of those products are unsecured. As we all know the unsecured portion of the financial market is a smaller portion versus the secured markets. Therefore we believe that the secured asset financial products will be a very big market and increasingly gaining importance.
As we all know E-House has vast number of home buyers and SINA has huge number of online users therefore the idea behind is to leverage those strengths that we have together with partnership of leading financial institutions that we can bridge individual to have borrowing needs with those who have investment in them.
Currently we’re in a process of developing a series of products. I’m hoping that in our next earnings release we can yield one or two of those products so that we can share more information on this aspect with you guys. I believe that market opportunity for this is huge.
As to our announced community value added services we’re hoping to leverage SINA Weibo and mainly [ph] social network community accounts as well as E-House expertise and customer data in the local communities adding together focused media’s community interactive networks and (indiscernible) capabilities to make it an asset light business model.
We’re currently in the process of finalizing our business models and explore various online to offline products. We’re hoping that we will be able to update you with something more concrete in the near term.
On the other hand we also believe that the value added community service units will add additional significant impact to E-House’s original business, we’re turning our existing business into a more long lasting post home purchase model so that it will create more lasting revenue streams and business for E-House in the long run. Thank you.
Thank you. And the next question comes from the line of Gregory Chow of Citigroup. Please ask your question.
Gregory Chow – Citigroup
I have several questions. Actually in terms of one two make it clear about our cooperation with Tencent. So I have seen the cooperation is mainly focusing on the mobile platform rather than on the PC platform. I mean some cooperation with house.qq.com, right?
The answer to that is yes.
Gregory Chow – Citigroup
So my question focusing on the cooperation mobile, in your press release you mentioned specifically mentioning payment solution, so from my understanding about our e-commerce business we think is currently in the 020 e-commerce business model. I think that almost all of the transaction on the payment is actually settled in offline. So how do we plan to get Weixin payment to get involved in the transaction, this is my first question.
To answer your question, we in a process of working with Tencent to develop detailed products. The e-commerce, the mobile real estate e-commerce 1.0 we announced today is the first step through our goal is number one through the Weibo and Weixin mobile platform we will introduce our, the idea of an online real estate shop so consumers can actually view information and have an online transaction, and number two process. Number two, is we’re soon going to introduce transaction process more and more online as well our payment process gradually from offline to online so that in the end we will have a true mobile e-commerce platform. Not just a simple online mobile e-commerce payment platform.
Thank you. (Operator Instructions). And the next question comes from the line of Zhuang Chao of Macquarie. Please ask your question.
Zhuang Chao – Macquarie
I have a question on your mobile strategy as well, we finally app, it used to be a primary mobile app. I was just wondering Weibo and Weixin product. We have the complete set of primary and secondary listings in Weibo and Weixin or you have a sort of select set, or subset of those listings and as you move forward what’s your marketing strategy to sort of promote your own mobile app versus partnerships with SINA and Tencent in this case.
So first the Weibo and Weixin mobile products will include both primary and secondary listing. Currently our Leju [ph] set of products and platforms include SINA’s (indiscernible) on the PC and side we’re seeing Weibo as well as our own (indiscernible) as well on those four on the mobile side. Where the volumes come from whether it's from the PC side or the mobile side. Our motto is that we will capture the consumers who visited the transaction portion, who visited the process of our transaction both online and offline and in a process we’re turning, we’re converting those consumers into home buyers and obtain online advertising as well as e-commerce revenues.
Thank you. And the next question comes from the line of Wendy Huang of Standard Chartered. Please ask your question.
Wendy Huang – Standard Chartered
Currently the company is getting only more than $2 million cash and also you’re issuing dividends at the same time but at the same time you announced SINA’s ability to, I wanted to know raising more cash flow (indiscernible) also recognizing this swing up now. And also giving historically the company had already done the swing up in past. So what can you actually did there, investor sort of more competence that this time they got well. Thank you.
(Indiscernible) is a relatively mature platform already. As we all know in this online real estate sector competition is quite intense. Some of our existing competitors such as (indiscernible) and 360 are already public companies and we also know that there are few other potential competitors who might have IPO plans as well. Therefore we believe that making Leju [ph] a standalone public company with comparable online asset will allow Leju [ph] to compete more directly in this space.
As many of you know five years ago we acquired SINA’s vertical real estate channels. It's only a vertical part of our general portal. Through five years of very hard work now this platform regardless of the products, the team competitiveness as well as various other aspects we can probably say that we’re leader in this space. Therefore the facts that we’re able to stay off Leju [ph] as an independent platform demonstrated that our effort is paying off.
(Operator Instructions). The last question is a follow-up question coming from the line of Gregory Chow of Citigroup. Please ask your question.
Gregory Chow – Citigroup
Actually my question is about, earlier you mentioned the cooperation with SINA [ph] and local community to develop some local services. So would you have detailed plan and what will be the key technically of the services that we provided like housing rental or some other technically Job Hunting or Yellow Pages. I think if we’re moving to the area do you think we will directly complete with some competitors like (indiscernible). Thank you very much.
As I mentioned before we’re still in the process of finalizing our detailed product and service plans. Therefore I won't be able to elaborate too much at current stage.
There are several websites that you have mentioned before (indiscernible) and few others have common characteristics, they haven't entered the actual communities. Even though many companies have online capabilities one of the unique things about China is that there is each individual communities or compounds with an actual entrance or gates. I still address these communities (indiscernible) service demand is what we’re trying to adjust here.
Even though we’re still in the products development stage we’re quite confident that through our hard work we will bring out some great services like where we did with our previous platforms. That being said I would like as Investors or analysts not to read too much into those two new business services that we announced today. The main preference of this announcement is so that our team know that we have established those two platforms for the next few years and as what we did for our previous platforms we believe that it might take few years of hard work to bring through out of those two new platforms therefore we asked people to be patient and to give us some time.
Thank you. Ladies and gentlemen we are now approaching the end of the conference call. I will now turn the call over to E-House Investor Relation specialist (indiscernible) for her closing remarks. (indiscernible) please go ahead.
Unidentified Company Representative
This concludes today’s call. Thank you for joining us and have a nice day.
Thank you. Ladies and gentlemen for your participation in today’s conference. This concludes the presentation. You may all now disconnect. Good day to all.
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