Jupai Holdings (JP) CEO Jianda Ni on Q3 2018 Results - Earnings Call Transcript

|
About: Jupai Holdings (JP)
by: SA Transcripts
Subscribers Only
Earning Call Audio

Jupai Holdings (NYSE:JP) Q3 2018 Earnings Conference Call December 7, 2018 7:00 AM ET

Executives

Harry He - Director, Investor Relations

Jianda Ni - Chairman and Chief Executive Officer

Analysts

Operator

Thank you for standing by for Jupai's Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Please note today's conference call is being recorded. If you have any objections, you may disconnect at this time.

I’d now like to turn the meeting over to your host for today's conference Mr. Harry He, Jupai's Investor Relations Director. Thank you. Please go ahead, sir.

Harry He

Thank you, operator. Hello everyone, and welcome to Jupai’s earnings conference call for the third quarter ended September 30, 2018. Leading the call today is Mr. Jianda Ni, our Chairman and CEO, who will review the highlights for the third quarter 2018. I will then discuss our financial results. We will then open the call to questions, at which time our CFO, Ms. Min Liu, will also be available.

Before we continue, I refer you to our Safe Harbor statement in the earnings press release, which applies to this call as we will make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in Renminbi.

I will now turn the call over to Mr. Jianda Ni, our Chairman and CEO and I will do the interpretation for his remarks for you.

Jianda Ni

[Foreign Language] Thank you, Harry, and welcome everyone to today’s conference call.

[Foreign Language] China’s wealth management industry has been facing strong headwinds over the past quarters. Since early 2018, we have seen investors becoming increasingly conservative, due to an uncertain economic outlook in China and globally. A weakening real economy as a result of deleveraging and the tightened regulations in the financial service industry. As a result, the aggregate value of wealth management product distributed by Jupai during the first nine months of 2018 decreased by 32.8% from that in the corresponding period in 2017 to RMB25.9 billion.

[Foreign Language] However, as real estate companies continue to face rising cost of capital, we have benefited from our enhanced bargaining power. Our average one-time commission rate reached 2.8% in the third quarter, up from 2.2% in the corresponding period in 2017, reflecting Jupai's competitive advantage across the wealth management industry value chain.

[Foreign Language] Leveraging our rich resources and network within the real estate industry, Jupai remained dedicated to developing high-quality real estate related products during the first nine months of 2018. Our total assets under management grew to RMB57.8 billion as of September 30, 2018, up 15.3% year-over-year.

Looking ahead, in order to build a healthy long-term growth rate, we will put more effort into the development of proactively managed funds, further diversify the industries underlying our products, and continue to enhance the quality of our AUM, so as to create room for further growth in recurring management fees and performance fees.

[Foreign Language] Although we expect China's wealth and asset management industry to remain in a transition period given the current macro-level deleveraging and changing regulatory landscape, we believe that China's decades of rapid economic expansion have laid the foundation for a vibrant future for our industry. Additionally, we are confident that investors will increasingly choose to work with the well-known, reputable industry leaders such as Jupai during these turbulent times in the capital markets.

[Foreign Language] Jupai will continue to adapt to changes in the wealth management and asset management industry in order to better manage our funds, strengthen our talent base, increase product diversity, and improve our risk control system. We look forward to building Jupai into the leading wealth and asset management brand in China and creating long-term value for our shareholders.

[Foreign Language] I will now turn the call over to Mr. Harry He, our Investor Relations Director to go through the financials in more detail. Thank you.

Harry He

Thank you, Jianda. While we face ongoing challenges in our industry, we will use this period of transition to increase operating efficiencies through cost controls, personnel optimization, and IT system enhancement. We believe that these measures will help us lay a solid foundation to expand our margins in the mid-to-long term.

Now, let me walk you through our financial highlights for third quarter of 2018. Net revenues for the third quarter of 2018 were RMB310.6 million, a 29.5% decrease from the corresponding period in 2017, primarily due to decreases in both one-time commissions and recurring service fees. Net revenues were RMB1,187.4 million for the first nine months of 2018, a decrease of 4.7% from the same period in 2017.

Net revenues from one-time commissions for the third quarter of 2018 were RMB147.7 million, a 44.3% decrease from the corresponding period in 2017, primarily as a result of a decrease in the aggregate value of wealth management products distributed by the company. For the first nine months of 2018, net revenues from one-time commissions were RMB706.4 million, a decrease of 3.2% from the same period in 2017.

Net revenues from recurring management fees for the third quarter of 2018 were RMB96.4 million, a 6.3% increase from the corresponding period in 2017, primarily due to an increase in the value of assets under management. The company recognized RMB5.7 million and RMB18.1 million carried interest in the third quarter of 2018 and 2017, respectively.

For the first nine months of 2018, net revenues from recurring management fees were RMB341 million, a 35.2% increase from the same period in 2017. RMB49.7 million and RMB41.6 million carried interest was recognized as part of Jupai's recurring management fees for the first nine months of 2018 and the same period in 2017, respectively.

Net revenues from recurring service fees for the third quarter of 2018 were RMB10.1 million, a 53.3% decrease from the corresponding period in 2017, primarily because the company provided ongoing services to fewer product suppliers. The company recognized zero and RMB0.9 million variable performance fees in the third quarter of 2018 and 2017, respectively.

For the first nine months of 2018, net revenues from recurring service fees were RMB36.6 million, a 54.9% decrease from the same period in 2017. The company recognized RMB0.3 million and RMB13.7 million variable performance fees for the first nine months of 2018 and in the same period in 2017, respectively.

Net revenues from other service fees for the third quarter of 2018 were RMB56.3 million, a 11.1% decrease from the corresponding period in 2017, primarily due to a decrease in sub-advisory fees collected from other companies. For the first nine months of 2018, net revenues from other service fees were RMB103.4 million, a decrease of 43.5% from the same period in 2017.

Starting from January 1, 2018, the company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers, on a modified-retrospective basis. The adoption has no material impact on the company's financial position, results of operation, or cash flows.

Operating costs and expenses for the third quarter of 2018 were RMB283.3 million, an increase of 4% from the corresponding period in 2017. For the first nine months of 2018, operating costs and expenses were RMB847.3 million, an increase of 7.7% from the same period in 2017, largely due to higher marketing expenses, as well as G&A costs.

Operating margin for the third quarter of 2018 was 8.8%, compared to 38.2% from the corresponding period in 2017. For the first nine months of 2018, operating margin was 28.6%, compared to 36.9% from the same period in 2017.

Loss from equity in affiliates for the third quarter of 2018 was RMB18.7 million, as compared to income from equity in affiliates of RMB0.2 million for the corresponding period in 2017. The loss was primarily attributable to RMB15.8 million of impairment loss relating to the company's investment in Shanghai Runju Financial Information Service Corporation, a non-controlling investee of the company.

As the industry regulations newly introduced on March 28, 2018 emphasize that asset management business conducted through internet are subject to oversight from financial regulatory authorities, Runju has formulated a new business plan to adjust its business model and is in the transition of its business.

Based on management's latest evaluation, impairment loss of RMB33.8 million was recorded as loss from equity in affiliates for the nine months ended September 30, 2018, including RMB15.8 million recorded in the third quarter of 2018. Future impairment analysis will be performed at each quarter-end.

Net income attributable to ordinary shareholders for the third quarter of 2018 was RMB1.7 million, a 98.5% decrease from corresponding period in 2017. For the first nine months of 2018, net income attributable to ordinary shareholders was RMB205.4 million, a decrease of 35.6% from the same period in 2017.

Net margin attributable to ordinary shareholders for the third quarter of 2018 was 0.5%, as compared to 26.2% for the corresponding period in 2017. For the first nine months of 2018, net margin attributable to ordinary shareholders was 17.3%, compared to 25.6% for the same period in 2017.

Net income attributable to ordinary shareholders per basic and diluted American depositary share for the third quarter of 2018 was RMB0.05 and RMB0.05, respectively, as compared to RMB3.54 and RMB3.39, respectively, for the corresponding period in 2017. For the first nine months of 2018, net income attributable to ordinary shareholders per basic and diluted ADS was RMB6.16 and RMB5.85, respectively, as compared to RMB9.83 and RMB9.43, respectively, for the same period in 2017.

Non-GAAP net income attributable to ordinary shareholders for the third quarter of 2018 was RMB25.5 million, a 79.8% decrease from corresponding period in 2017. For the first nine months of 2018, non-GAAP net income attributable to ordinary shareholders was RMB267.1 million, a 24.2% decrease from the same period in 2017.

Non-GAAP net margin attributable to ordinary shareholders for the third quarter of 2018 was 8.2%, as compared to 28.6% for the corresponding period in 2017. For the first nine months of 2018, non-GAAP net margin attributable to ordinary shareholders was 22.5%, as compared to 28.3% for the same period in 2017.

Non-GAAP net income attributable to ordinary shareholders per diluted ADS for the third quarter of 2018 was RMB0.73, as compared to RMB3.69 for the corresponding period in 2017. For the first nine months of 2018, non-GAAP net income attributable to ordinary shareholders per diluted ADS was RMB7.60, as compared to RMB10.42 for the same period in 2017.

Looking to our balance sheet and cash flow. As of September 30, 2018, the company had RMB740.6 million in cash and cash equivalents, as compared to RMB1,527.8 million as of December 31, 2017. Net cash used in operating activities during the third quarter of 2018 was RMB104.7 million.

For the first nine months of 2018, net cash used in operating activities was RMB115.9 million. Net cash used in investing activities during the third quarter of 2018 was RMB217.6 million. For the first nine months of 2018, net cash used in investing activities was RMB550 million.

Net cash used in financing activities during the third quarter of 2018 was RMB17.5 million. For the first nine months of 2018, net cash used in financing activities was RMB121.2 million. That concludes our prepared remarks.

I will now turn the call back to operator, to begin the Q&A session. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of [Haifeng Cao] from UBS. Please ask your question.

Jianda Ni

Hi, Haifeng.

Unidentified Analyst

Hi, thank you for the opportunity to ask the questions. I am Haifeng from UBS. I have three questions. Firstly, the wealth and asset management industries in China, has been under pressure and facing lots of challenges, since the beginning of this year. Can you share with us your view and outlook for the industry and Jupai also? And secondly, we understand that Jupai's one-time commission rate has been stable in the third quarter, despite challenging industry environments. Can the management share with us your view on the trends in your one-time commission rate going forward? This is my second question. And my third question is, I wonder, what is your expectations on Jupai's performance fee income going forward? And when do you expect to complete the exit of your Focus Media related fund products? Thank you. That's my three questions.

Harry He

Sure. I mean, thank you very much for asking these good questions. And let me do a translation for our Chairman and we will answer you question one by one.

Unidentified Analyst

Yes. Thank you.

Harry He

Our Chairman will address your first question first.

Jianda Ni

[Foreign Language] Since the beginning of 2018, we have seen the supply and demand of wealth management and asset management products being impacted by two factors. The continued deleverage by the government and the continued tightening of regulatory requirements.

[Foreign Language] From the supply perspective, the strict review process led to the prolonged product registration timeframe leading to decreased supply of wealth and asset management products. Although we noticed that the review process has loosened up a bit over the past one-month or so. We believe the pressure on product supply with remain for a while going forward.

[Foreign Language] From the demand perspective, due to a continued deleverage by the government, overall funding costs had been rising driving many mid and small companies as well as low quality wealth management and asset management companies out of business all causing significant cash flow problems. The result in [indiscernible] have made investors extremely cautious about investing in wealth management products which have inevitably impacted Jupai’s business performance.

[Foreign Language] Given the high uncertainty in the current macro environment management believes that it will be more prudent for us to seize providing specific guidance on our financial outlook. However, we do plan to offer investor official guidance, again when the industry and market outlooks becomes more clear. To offer investor some general visibility, we expect the aggregate value of wealth management products distributed by Jupai for the fourth quarter of 2018 to be around RMB5 billion.

[Foreign Language] We believe that the wealth management industry has entered into a critical transition period since the beginning of this year. Jupai will prepare our self with various strategic measures to enhance our operating efficiency. Two of the most important measures are IT system upgrade and optimization of our talent resources.

[Foreign Language] For the IT system upgrade, post the upgrade, our new IT system and mobile app will significantly increase the degree of digitalization throughout entire transaction process covering contract signing, client management, and interim product reports, which we believe will greatly increase the efficiency of our client managers.

Moreover, to analyzing client data such as product browsing history and client’s actual transactions we can more effectively understand our clients needs, and further strengthen our product design and the customer service capabilities. Regarding the partner enhancement we continually provide online training sessions to our client managers to our in e-learning system covering topics such as sales techniques management and finance.

[Foreign Language] In 2019, we look to launch our product management system for our asset management arm. This system will cover functions across the entire business cycle from project screening peer analysis, collaboration partner management, product risk management, and internal approval, as well as post-investment management and we believe it will allow online management and big data analysis raising our asset management division.

[Foreign Language] So, the optimization of Thailand resources, from the beginning of the share, we increasingly motivated our staff mainly through optimizing our incentive program and a raising performance requirement bar. In addition, we effectively streamlined our talent resources, which will be likely reflected in the next one or two quarters. As we continue to enhance capabilities of our team, we look to greatly improve working efficiency and customer satisfaction.

With these measures in place, we believe that Jupai can further strengthen our competitive advantages, which will allow us to swiftly capture new market opportunities when the industry moves beyond current transition period. That will be the end of your first question and I will do translation for the second question for our Chairman.

[Foreign Language] Jupai was able to achieve a stable average one-time commission rate in Q3 in line with our previous expectation. Our average one-time commission rate for Q3 rose to 2.8% from 2.2% in the same period last year and stayed relatively flat compared to Q2.

[Foreign Language] As an impact from property purchase restriction policy started to kick in the second half of 2017, cash cycles for property developers has been greatly extended. Moreover, commercial banks have been reducing their funding support for property developers. As a result, property developers are willing to accept higher funding costs, which enhanced Jupai’s bargaining problem.

[Foreign Language] Looking ahead, we expect the overall raise the industry to continue facing very tight cash cycles. Consequently, we believe that it is highly likely that our one-time commission rate will remain at the current relatively high level over the following quarters. So, that will be the second question and let me do the translation for the last question for our Chairman.

[Foreign Language] From a mid-to-long-term perspective will be with Jupai’s performance fee income will continue on a rising trend going forward, mainly due to the increasing or examine over the past few years and the change in our product mix. Since early this year, we have been devoted to optimizing our product structure to launch more products that are actively managed and developing more equity related products, which we believe allow us to achieve higher management fee income and the carried interest.

[Foreign Language] Specifically, regarding the performance fee income related to the exit of our Focus Media funds, we originally expected that to complete our exit by the end of 2018, but there has been some delay in the timeline, so Jupai has signed a contract with a well-known player in the industry for a share disposal and we expect to complete this transaction in the first quarter of 2019.

So, that will be the answer for all your questions Haifeng. Was that helpful?

Unidentified Analyst

Thank you. It was very convincing.

Jianda Ni

[Foreign Language] Thank you, Haifeng.

Unidentified Analyst

Thanks.

Operator

We are now approaching the end of the conference call. I will now turn the call over to Jupai’s Investor Relations Director, Harry He, for closing remarks.

Harry He

Thank you, investors. This concludes today’s call. If you have any follow-up questions, pleased get in contact with us. Thank you. Thank you, operator.

Operator

Thank you, sir. Thank you for your participation in today’s conference. You may now disconnect. Good day.