China Xiniya Fashion's (XNY) CEO Qiming Xu on Q2 2016 Results - Earnings Call Transcript

| About: China Xiniya (XNY)

China Xiniya Fashion Limited (NYSE:XNY)

Q2 2016 Earnings Conference Call

November 21, 2016 07:00 AM ET

Executives

Ng Chee Jiong - CFO

Qiming Xu - Chairman and CEO

Analysts

Matthew Lawson - Morgan Stanley

Operator

Welcome everyone to China Xiniya Fashion Limited 2016 First Half Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session. Please follow the instructions given at that time, if you'd like to ask a question. And for your information, a webcast replay will be available within an hour after the conference is finished. Please visit www.xiniya.com under the Investor Relations section.

Now, I would like to introduce Mr. Ng Chee Jiong, Chief Financial Officer. Mr. Ng, you may begin.

Ng Chee Jiong

Thank you. Good morning and good evening to all participants and welcome to Xiniya’s 2016 first half earnings conference call. You may find a copy of our earnings press release that we've released today in the IR section of our IR website.

Joining me on the call is Xiniya’s Chairman and CEO, Mr. Qiming Xu and myself. Please note that we will be making a number of forward-looking statements today and all such statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the Company, including the risks specified in the most recently filed Form 20-F with the U.S. Securities and Exchange Commission.

Let me turn the call over to Chairman Xu, who would like to make some introductory comments. I will translate for him. Mr. Xu, please go ahead.

Qiming Xu

Good morning and good evening to everyone and thank you for joining us this call. I would like to take this opportunity to talk about the business operations of Xiniya and the status of the transaction with Fujian.

With regards to our business operations, our current market remains to be challenging. The entire markets environment is still weak and we consider spending competition with capacity sales channel with high inventory and other issues. In this context, we effectively re-project all inventories from our business partner in the second quarter to the fourth quarter of 2016. From thereon, our retail network will only have new products and no old inventories. Our research channel is rejecting not all inventories and research channel can be developed in a more healthy manner.

In the second half of 2016, we will be implementing the business compressing initiatives by rewarding certain distributors in our business model. The profitability of our retail partners will improve and further enhanced the competitiveness of the sales channel. As of this year with these initiatives, our business has the required confidence to meet the future challenges. When the China economy improved, we are confident that our business will in-turn grow and profitability.

Our progress is advancing according to the predetermining plan in accordance with our business plan the transaction goes [Indiscernible] around February next year.

With that, I would like to turn the call over Ng Chee Jiong who will go through our financial. Thank you.

Ng Chee Jiong

We will take you questions after I go through the financial. For the first half of 2016, we have recorded revenue of RMB15.1 million compared to RMB214 million in 2015. Our research network of authorized retailers had a net increase of one retail outlet in the first half of 2016. The total number of authorized retail outlet was 505 as of June 2016.

Net loss as of June 2016 was RMB129 million as compared to net profit of RMB9.6 million in June 2015. This affects into loss per ADS was $1.37 as compared to earnings per ADS of $0.11 last year.

Now moving onto our financial position, as of June 2016, the Company has cash and cash equivalents of RMB63 million.

This concludes our prepared remarks. We are now ready to take your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] The first question is coming from Matthew Lawson of Morgan Stanley. Go ahead please.

Matthew Lawson

Good evening and thanks for taking my call. Kind of hard to understand what's going on here, but I'll throw out a couple of questions. The transaction that you've discussed will close in February hopefully. That's really what this is all about it seems because if there's a transition to a new business model, and one that I guess is financially oriented kind of a peer-to-peer lending model. Is that what the expectation is for shareholders that remained with XNY?

Qiming Xu

Business [Indiscernible] which we already have a preference in July, and think it also came to that July press release. The XNY was traded to Fujian business and XNY apparel business to [Indiscernible].

matthew Lawson

Okay. All right. The business is going to be a lot smaller because you're reducing the inventories and the sales channels and all that. But of the shares that are being sold the 50.5% of the shares to the new entities that will have a different business model according to the July news release. Are current shareholders going to participate in this new business model?

Qiming Xu

The current shareholders will be 8% interest in XNY, after the completion of the transaction.

Matthew Lawson

Okay. And then what about the rest of the Company are we, the current shareholders going to participate in the new business model that transaction which will close in February?

Qiming Xu

Yes.

Matthew Lawson

Okay. And if you could just give us a little more clarity of what that business model is, in the July release they said it was financial oriented business model versus the retail fashioned business model?

Qiming Xu

In 2015, financial lending.

Matthew Lawson

Okay. That's why I call it peer-to-peer lending, but it might be some other lending is that online lending model, is that right?

Qiming Xu

Not, exactly online.

Matthew Lawson

What could you -- could you describe it then? I mean can you give us name of kind of like one of the competitors so we can get a sense of what the new company's going to be like?

Qiming Xu

The nearest competitor I can think of [Indiscernible] some of the names offhand.

Matthew Lawson

No, I'm trying to get a sense that the state of the Company now has trend down dramatically. There is not much cash on the balance sheet. You've made some changes to make the Company presumably more profitable going forward. But the current shareholders were only own a small percentage of the retail and fashion business, the rest will be this new business model that is financial oriented. That's what you just said and I'm just trying to get a sense of what the new business model is going to be, if you can just go into some detail I would appreciate it.

Qiming Xu

Its financial lending that can allow us to sell away the closing business to existing channel and that allows [Indiscernible] financial lending business once again.

Matthew Lawson

Actually, what I thought the financial lending that's a broad term. Is it like a bank? Is it like as if peer-to-peer there is a company that's listed YRD as a symbol [Indiscernible] is that what you all are going to be emulating?

Qiming Xu

Yes, seamlessly given areas now they are assuming quite a seamless to invest.

Matthew Lawson

So that's why you are -- okay and that would be the new business?

Qiming Xu

Actually [Indiscernible]

Matthew Lawson

All right. And so the important thing is that current shareholders will have a small price of the fashion business, but really for 2017 our participating will be with the financial lender that's really what our upside would be if that goes well, is that correct?

Qiming Xu

Yes, the upside will be the financial lending and income.

Matthew Lawson

All right and…

Qiming Xu

But interesting shareholders would thoroughly the [Indiscernible] the clothing business.

Matthew Lawson

Correct. Now do you have any idea what the earnings power or the revenue power of this new business in 2017 will be? So we can get a sense of how it will compare with the fashion business which was not making money? Can you give us some idea or some guidance for next year?

Qiming Xu

When if only can be [Indiscernible] probably some venue would be we think in [Indiscernible]

Matthew Lawson

All right. Okay, there are going to be any new shares issued or is it just we are going to be with the current shares and we're just going to hope that this transaction that the founder of XNY has decided to give some a better investments for this fund and then as the shareholders the same that, that the new financial lending business model will be superior to shareholders than the fashion business has been is that?

Qiming Xu

Yes.

Matthew Lawson

There is a whole of that.

Qiming Xu

[Indiscernible]

Matthew Lawson

And then I guess last question, you've repurchased all this inventory and that resulted in a big loss of a $1.37 per share. So you have all this inventory that, what are you going to do with that stuff, is there any residual value for that that you can get something for that inventory you bought back?

Qiming Xu

Yes, of course. We're going to sell it [Indiscernible].

Matthew Lawson

Okay. Do you have any idea what you might be able to get that at?

Qiming Xu

Ranging from $0.20 to $0.30 for balance.

Matthew Lawson

All right. So that or whatever, that'll be an asset. You've already written it off, so that when you do sell that you'll be able to write it back up in value. Is that a reasonable way to look at it?

Qiming Xu

Okay, but the book early in its asset $0.20 to $0.30 kind of range.

Matthew Lawson

Okay. And then I guess just a curious question. In years past XNY had a very less cash balances of a RMB1 billion, which translated to well over a US$100 million. Now the cash balance after all these transactions is really quite small. What happened to all those funds in the meantime?

Qiming Xu

They were used to repurchased the inventory and purchased the [Indiscernible] and with these details in our [Indiscernible] which we discussed in depth there. So, that's the main cost and also because of the operations, not doing well, so [Indiscernible].

Matthew Lawson

So the long and short of it is that the new business, the financial lending business is viewed as superior as a profit making business to the founder of the Company. And that's why he's selling over half the Company giving control to the new buyers and we will just have to wait to see how that works out in 2017 shareholders. Is that a good way to?

Qiming Xu

That is superior, much-much more superior in the growing company.

Matthew Lawson

All right. And then one last question, is there any -- can you give us any guidance of what sort of revenues or earnings that you expect because this is a major transition for shareholders, and if the founder wanted to make this transaction for themselves and see what the largest shareholder there must be some motivation. So, can you give us a sense of what you feel the upside could be as far as earnings per share or revenue or something in that area?

Qiming Xu

At the moment, they are points that what is going and take a look, so I have no [Indiscernible] about this property. Definitely, we have found numbers that [Indiscernible] right now.

Matthew Lawson

All right. So, will be able to get some numbers or do we have to wait till the closing occurs?

Qiming Xu

It's going to the closing.

Operator

[Operator Instructions] There are currently no questions at this time. I'll pass it over to Mr. Ng Jiong for closing comment. Ng, please proceed.

Qiming Xu

Thank you. In closing, on behalf of the entire senior management team, we would like to thank you for your interest and participation in today’s call. If you require further information or has any interest in visiting the Company in China, please let us know. Thank you for joining us today. This concludes our call. Thank you.

Operator

And we thank you for your participation in Xiniya’s conference. There will be a webcast replay within an hour. Please visit www.xiniya.com under the Investor Relations section. You may now disconnect. Thank you and goodbye.

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