Antelope Enterprise Holdings Limited (AEHL) Q2 2022 Earnings Call Transcript

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Antelope Enterprise Holdings Limited (NASDAQ:AEHL) Q2 2022 Earnings Conference Call September 29, 2022 8:00 AM ET

Company Participants

David Rudnick - IR

Meishuang Huang - CEO

Edmund Hen - CFO

Conference Call Participants

Operator

Good day, and welcome to the Antelope Enterprise Holdings First Half 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, today's event is being recorded.

I would now like to turn the conference over to David Rudnick with Precept Investor Relations. Please go ahead, sir.

David Rudnick

Thank you, Rocco. Good morning ladies and gentlemen, and good evening to those of you who are joining us from China. Welcome to Antelope Enterprise's first half 2022 earnings conference call.

With us today are Antelope Enterprise’s Chief Executive Officer, Ms. Meishuang Huang and its Chief Financial Officer, Mr. Edmund Hen.

Before I turn the call over to Ms. Huang, I would like to address forward-looking statements that may be discussed on the call. Forward-looking statements involve risks and uncertainties and include, among others, those regarding revenue, operating expenses, other income and expense, taxes, and future business outlook. Actual performance, outcomes and results may differ materially from those expressed in forward-looking statements. The company claims the Safe Harbor protections for such forward-looking statements as contemplated under the Private Securities Litigation Reform Act of 1995.

Please refer to the documents filed by the company with the SEC, specifically the most recent reports on Forms 20-F and 6-K, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. We assume no obligation to update any forward-looking statements or information, which speak as of their respective dates.

And now it's my pleasure to turn the call over to Antelope Enterprise’s CEO, Ms. Meishuang Huang and Antelope Enterprise’s CFO, Mr. Edmund Hen. Shaoli J [ph] will be translating for Ms. Huang. Ms. Huang, you may proceed.

Meishuang Huang

Thank you, David. On behalf of the company, I would like to welcome everyone to our first half 2022 earnings conference call.

For the first half of the fiscal 2022, we continued to execute upon our strategic plan to diversify our business into new technology sectors. Our technology businesses comprised 88% of the total revenue for the first six months of the year which followed its comprising 38% of revenue for the second six months of fiscal 2021. We are pleased with this sequential growth since it confirms our entry into new technology sectors and largely offsets the operating results from our legacy ceramic tile business, which has suffered due to the continued slowdown of the real estate sector in China.

Our new technology subsidiaries are engaged in selected markets in China which we believe have strong growth potential. These include business management, information system consulting, online social commerce and media, and live broadcast streaming in China. We are encouraged by the market opportunities as represented by these new sectors and are optimistic that the strategic transformation of the company is on course.

Due to the challenging conditions for real estate and building materials in China, in November 2021 we entered into a five-year lease agreement to lease out the Hengdali facility with the same lessee that had been leasing out just a portion of the plant. This decision was consistent with our resolve to pivot towards the new technology growth sectors.

We are committed to our strategic plan to transform the company to operate in selected growth technology sectors, and are encouraged by the strong contribution from our new businesses to date. In particular, we believe that online social commerce and live streaming in China will experience sustained growth in the years to come.

With that, I would like to turn over the call to the company’s Chief Financial Officer, Mr. Edmund Hen, who will discuss the company’s first half 2022 earnings results in more detail. Thank you.

Edmund Hen

Thank you, Ms. Huang. I will now move on to a more detailed discussion of our financial results for the six months ending June 30 of 2022. Our revenue for the six months ended June 30, 2022 was RMB135 million or $20.9 million, a 169.3% increase from RMB50.1 million or $7.7 million for the same period of 2021.

The increase in revenue was due to the generation of RMB118.2 million or $18.3 million in our business management and consulting segment and which account for 87.6% of the company’s total revenue in the current period. However, the contribution from our business management and consulting segment was partly offset by RMB25.5 million or $3.9 million decrease in ceramic tile sales which were RMB16.7 million or $2.6 million for the six months ended June 30, 2022, a 60.4% decrease from RMB42.2 million or $6.5 million for the same period in 2021.

We produced and sold only porcelain tiles for the six month period ended June 30, 2022 to position our sales efforts on as realistic a basis as possible to address the difficult business conditions attributable to uncertainties in the Chinese real estate market as well as the continued effects of the COVID-19 pandemic. The decrease in ceramic tile sales was due to a 65.7% decrease in ceramic tile sales volume to 0.7 million square meters of ceramic tiles from the year-ago six-month period which was partly offset by a 15.4% increase in average selling price to RMB23.8 or $3.67.

Gross loss for the six months ended June 30, 2022 was RMB404,000 or $62 million [ph], as compared to a gross loss of RMB6.5 million or $1.0 million for the same period of 2021. The blended gross loss margin was 0.3% as compared to a gross loss margin of 13% for the same period of 2021, which mostly consisted of the ceramic tile segment.

During the first half of 2022, we had a gross profit [ph] margin of 13.8% for the ceramic tile segment, and a gross profit margin of 1.6% for the business management and consulting segment. Other income for the six months ended June 30, 2022 was RMB10.4 million or $1.6 million, as compared to the RMB7.2 million or $1.1 million for the comparable period of 2021. Other income primarily consists of rental income that the company received by leasing out its Hengdali facility in the entirety which includes building, plant and all of its production lines.

In addition, we received RMB632,000 in government grant from a local authority for attracting outside-the-region enterprises to invest to help develop the local economy, and RMB887,000 in a tax subsidy due to the impact of COVID-19 which occurred via our Hainan Kylin subsidiary.

Selling and distribution expenses for the six months ended June 30, 2022 were RMB4.9 million or $0.7 million, as compared to RMB3.2 million or $0.5 million for the comparable period of 2021. The increase in selling and distribution expenses was primarily due to an increase in commission expenses of RMB1.9 million. Administrative expenses for the six months ended June 30, 2022 were RMB16.5 million or $2.5 million, as compared to RMB17.2 million or $2.7 million for the same period of 2021. The decrease in administrative expenses was mainly due to a decrease in consultant fees of RMB4.7 million.

The net loss for the six months ended June 30, 2022 was RMB25.7 million or $4 million, as compared to a net loss of RMB70.8 million or $10.9 million for the same period of 2021. The decrease in net loss was mainly due the decrease in bad debt expense, the decrease in gross loss and the increase in other income as compared to the same period for 2021. The loss per basic share and fully diluted share for the six months ended June 30, 2022 were RMB4.88 or $0.75, as compared to a loss per basic and fully diluted share of RMB16.24 or $2.51 for the same period of 2021.

Turning to our balance sheet, as of June 30, 2022, we had cash and bank balances of RMB15 million or $2.2 million as of June 30, 2022, compared with RMB27.9 million or $4.4 million as of December 31, 2021. As of June 30, 2022, our inventory turn was 327 days as of June 30, 2022, as compared to 183 days up to December 31, 2021. The increase in inventory turnover days was primarily due to the continued slowdown of real estate and building materials in China during the six months end June 30, 2022. We believe that the value of our current inventories is realizable.

The trade receivables turnover of our ceramic tile segment, net of value added tax, was 329 days as of June 30, 2022, as compared to 168 days as of December 31, 2021. The increase in trade receivables turnover was primarily due to the slow collection of our trade receivables as a result of tight cash flow as reported by our customers due to the COVID-19 pandemic.

Trade receivables turnover of our business management and consulting segment was 0.3 days of June 30, 2022, as compared with 11 days of December 31, 2021. The decrease in trade receivables turnover from our business management and consulting segment was primarily due to the timely collection of outstanding accounts receivable including payments received in advance from our clients.

The trade payables turnover of our ceramic tile segment, net of value added tax, was 32 days as of June 30, 2022 as compared with 20 days as of December 31, 2021. The average turnover days was within the normal credit period of one to four months granted by our suppliers.

Trade payables turnover of our business management and consulting segment was five days as of June 30, 2022 as compared with seven days as of December 31, 2021.

In terms of our plant utilization and CapEx, we utilized plant capacity capable of producing 0.7 million square meters of ceramic tiles for the six months ended June 30, 2022 as compared to the comparable 2 million square meters for the same period of 2021. Our reduced utilization during the current period was primarily attributable to the continued slowdown of the real estate industry in China which was still being impacted by the continued effects of the COVID-19 pandemic.

All of the current period’s production is attributable to our Hengda facility, which has a total annual production capacity is 22.8 million square meters of ceramic tiles. Since effective November 1, 2021, we entered into a five year lease agreement for our Hengdali facility in its entirety which includes building, plant and all of its machinery, equipment and production lines. We review the level of capital expenditures throughout the year and make adjustments subject to market conditions. Although business conditions are subject to change, we anticipate a modest level of capital expenditures for the remainder of 2022 other than those associated with minimal upgrades, small repairs and the maintenance of equipment.

Moving to our business outlook, during the first six months 2022, we continued to execute on our strategic plan to transform our business to diversify our operations due to the difficulties of our legacy ceramic tile business which has suffered due to the continued slowdown of the real estate sector in China. Therefore, beginning in the first half of fiscal year 2020 [ph], we entered into new technology sectors and continued to tactically ramp our efforts over the last two years.

For the first six months of fiscal 2022, we generated RMB118.2 million or $18.3 million in revenue from our new subsidiaries in business management, information system consulting and includes the sales of software use rights for digital data storage platforms and asset management systems, and an online social media platform, including short video, live broadcast, e-commence platform development and consulting.

These new businesses accounted for 87.6% of the company’s revenue in first six months of 2022 and enabled us to realize a 169.3% increase in total revenue for the first six months of 2022 as compared to the same period of 2021. In particular, we expect rapid growth to continue in the social e-commence and broadcast industry in China over the next few years, which is the largest in the world, and that we believe having strong growth potential. Such markets include new formats such as live broadcasting, short videos, social e-commerce, enterprise management, and new streaming media where we believe our SaaS and PaaS system platforms have the capability to capitalize upon these new modalities.

We are optimistic as to the market opportunities represented by these new sectors and are encouraged by strong contribution to revenue of our new technology business to-date. In terms of our ceramic tile segment, for the six months ended June 30, 2022, its operating results continued to be impacted by the slowdown of China’s real estate sector.

This is attributable to several factors including the continued effects of the COVID-19 pandemic, China's central government reining in real estate developers with stricter financial rules due to the sector’s overleveraging, homebuyer mortgage boycotts on unfinished homes, a contraction in new homebuilding starts, overbuilding in some lower tier cities and a continued drop in home prices. Due to these challenging conditions, for the six month period ending June 30, 2022, we developed a plan to produce and sell only our porcelain ceramic tiles, which is our best-selling and highest margin ceramic tiles in order to address the market on as realistic basis as possible.

However, the enactment of this plan was not able to surmount the difficult market conditions of the first six months of 2022. The sales of porcelain ceramic tiles, and therefore our entire ceramic tile segment declined 60.4% for the first six months of fiscal 2022 as compared to the year-ago period. Looking forward, we will continue to evaluate any improvement in the market conditions of China’s real estate sector and develop further strategies as needed.

This business outlook reflects the company's current and preliminary views and is based on the information currently available to us, which are subject to change, and is subject to risks and uncertainties, as well as risks and uncertainties identified in the company’s public filings.

At this point, we would like to open up the call to any questions pertaining to our first half 2022 financial results. Operator?

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And ladies and gentlemen, to close your question-and-answer session, I'd like to turn the conference back over the management team for any final remarks.

David Rudnick

Thank you, Rocco. On behalf of the entire Antelope Enterprise management team, I want to thank all of you for your interest and participation on this call. This concludes Antelope Enterprise's first half 2022 earnings conference call. Thank you.

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