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Edited Transcript of BITA earnings conference call or presentation 28-Nov-18 12:00pm GMT

Q3 2018 Bitauto Holdings Ltd Earnings Call

Beijing Dec 3, 2018 (Thomson StreetEvents) -- Edited Transcript of Bitauto Holdings Ltd earnings conference call or presentation Wednesday, November 28, 2018 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ming Xu

Bitauto Holdings Limited - CFO

* Catherine Xiaozheng Liu

Yixin Group Limited - CFO

* Andy Xuan Zhang

Bitauto Holdings Limited - CEO & Director

* Xiaoke Liu

Bitauto Holdings Limited - COO

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Conference Call Participants

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* Binbin Ding

JP Morgan Chase & Co, Research Division - Analyst

* Hillman Chan

Citigroup Inc, Research Division - Research Analyst

* Liping Zhao

China International Capital Corporation Limited, Research Division - Analyst

* Monica Chen

Crédit Suisse AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the Q3 2018 Bitauto's Holdings Limited Earnings Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today, Wednesday, the 28th of November 2018.

I would now like to hand the conference over to your host today. Thank you, please go ahead.

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Unidentified Company Representative [2]

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Thank you. Welcome to Bitauto's Third Quarter 2018 Earnings Conference Call. Speakers from the company today are Mr. Andy Zhang, CEO; Mr. Xiaoke Liu, COO; and Mr. Ming Xu, CFO. After management's prepared remarks, Andy, Xiaoke and Ming will be available to answer your questions. In addition, Catherine Liu, CFO of Yixin, will be available to answer your questions related to Yixin.

Before we proceed, please note that discussions today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities and Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties which 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, including registration statement on Form F-1. Bitauto does not undertake any obligations to update any forward-looking statement, except as required under applicable law.

This call will include discussions of certain unaudited non-GAAP financial measures. Please refer to our earnings release, which was issued earlier today, for reconciliations of these unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures.

As a reminder, this conference call is being recorded. In addition, a live and archived webcast of the conference will be available on our website.

I will now turn the call over to Andy Zhang, CEO of Bitauto.

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Andy Xuan Zhang, Bitauto Holdings Limited - CEO & Director [3]

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Hello, everyone, and thank you for joining us for our third quarter 2018 earnings conference call. Despite softer new passenger car sales over the past few months, we were pleased to maintain healthy growth across our businesses in the third quarter of 2018 with total revenue rising 25.9% year-over-year to RMB 2.72 billion.

In our advertising and subscription businesses, we achieved 7.7% year-over-year growth, with revenue reaching RMB 1.06 billion in the third quarter of 2018. In particular, our core advertising and the subscription business, which excludes contributions from subsidiaries in which we hold controlling interests, grew 14.9% year-over-year for the quarter. We also recorded higher sequential growth in our core subscription business compared with industry peers.

In our transaction services business, revenue saw a steady growth of 39.6% year-over-year to RMB 1.36 billion.

In our digital marketing solutions business, revenue growth recovered in the third quarter, recording a 47.7% year-over-year increase to RMB 305 million.

In our ad business, we continued to identify and develop new business areas which we believe can be potential growth drivers for the long term. For example, our collaborations with key opinion leaders to provide customized content and services for automakers continued to gain traction. And we're extending this initiative to a larger group of self-media and automakers. Moreover, our advertising revenue from new energy automakers was up nearly tenfold in the third quarter versus the same period last year.

In our subscription business, we further optimized our business mix by converting more members to premium service packages, with penetration of premium packages reaching 74%, up from 70% in the second quarter of 2018. We also expanded our subscription membership base as we roll out tailored services to China's vast market of independent automobile dealers, an under-tapped segment of the auto dealer market in China.

We currently cover over 19,000 independent automobile dealers now through which we service more than 30,000 salespersons.

In our transaction services business, despite industry-wide headwinds, Yixin posted resilient results, facilitating approximately 123,000 financed automobile transactions.

In October, Yixin's accumulated financed automobile transactions reached 1 million, making it the first independent automobile finance platform in China to achieve such a scale.

Looking to the future. Although we expect pressure on passenger vehicle sales to continue in the near term, we're confident in the long-term growth of China's auto industry. In addition, against the backdrop of slower new car sales, we expect both penetration rates of the new car financing and the used car sales to continue rising, a trend which will benefit Bitauto and Yixin.

Looking forward, Bitauto will remain dedicated to executing our core business strategies. First, we will continue to enhance user stickiness and Bitauto's brand value through more engaging content initiatives, especially targeting China's younger population. We recently introduced major updates to our Bitauto App to further enhance user experience, attract traffic from younger users and increase user stickiness through more compelling content and richer social features. For example, we continue to upgrade the display format of automobile-related information from traditional graphics and videos to high definition AR and VR, which now covers more than 1,000 car models, an industry-leading level.

Our new Yiche app also provides chat groups for hot-selling vehicles, with audio commentaries by industry KOLs, which we believe suit the lifestyles and preferences of young crowd and young consumers.

Second, we will maintain our growth by developing new business areas with strong potential. For example, we will work closely with new energy automakers in 2019 to serve their marketing needs. We will also continue to upgrade our dealer subscription package and further expand our coverage to independent dealers.

Third, we will drive further synergies between Bitauto, Yixin and the other Bitauto ecosystem companies to create more diversified offerings and better serve consumers and the business partners. We will further enable crossover of user accounts and access to data sources across the Bitauto ecosystem, including user profiles, automobile data generated through the entire auto consumption cycle.

With strong momentum and a market-leading position, we're confident that we will continue to outgrow the overall auto media and transaction market and achieve our goal of becoming China's top online auto media and transaction services platform.

With that, I'll turn the call over to Ming to go over the financial statements.

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Ming Xu, Bitauto Holdings Limited - CFO [4]

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Thank you, Andy. Good evening, and good morning, everyone. Amid a more challenging industry environment in the third quarter, we remain dedicated to driving growth at both our top line and bottom line.

Our advertising and subscription business achieved steady growth on the top line and, in particular, we had higher sequential growth in our core subscription business compared with our industry peers. We were also able to further improve operating margin, thanks mainly to better cost control measures, including lower traffic acquisition cost and more effective selection of media channels.

Looking ahead, we're confident that our superior and ever-improving products and services as well as traffic scale will continue to win the trust of our automaker and dealer customers and continue to drive our revenue and profit growth.

For our transaction services business, Yixin maintained its revenue growth momentum, thanks to greater accumulated loan volume in its self-operated business and its rapidly expanding loan facilitation business. In particular, our third-party loan facilitation was growing very fast. We believe Yixin's total auto financing transaction volume and the quarter-over-quarter growth of loan facilitation transaction were both ahead of peers in the industry.

In the third quarter, 24% of total financed automobile transactions was through third-party loan facilitation services, up from 19% in the previous quarter. And so far, in the fourth quarter, loan facilitation service has contributed over 40% of total financed automobile transactions. We believe the third-party loan facilitation services will have better scalability as well as margin profile over the long run and we expect this upward trend to continue.

Now let's look at our Q3 2018 financial highlights before moving to Q&A.

Bitauto reported revenue of RMB 2.72 billion, USD 396.7 million for the third quarter of 2018, representing a 25.9% increase from the corresponding period in 2017. The increase in revenue was attributable to the growth of the company's transaction service business, digital marketing solutions business and advertising and subscription business.

Revenue from the advertising and subscription business for the third quarter of 2018 was RMB 1.06 billion, USD 154 million, representing a 7.7% increase from RMB 980.5 million, USD 143 million in the corresponding period in 2017. In particular, our core advertising and subscription business, which excludes contribution from subsidiaries in which we hold controlling interest, grew 14.9% year-over-year.

Revenue from the transaction service business for the third quarter of 2018 was RMB 1.36 billion, USD 199 million, representing a 39.6% increase from RMB 976.6 million, USD 142 million in the corresponding period in 2017, mainly attributable to the revenue growth of loan facilitation services and self-operated financing business.

Revenue from the digital marketing solution business for the third quarter of 2018 was RMB 305 million, USD 44 million, representing a 47.7% increase from RMB 206.5 million, USD 30 million in the corresponding period in 2017, mainly driven by higher spending from its advertising customers as well as more diversified services.

Cost of revenue for the third quarter of 2018 was RMB 1.05 billion, USD 153 million, representing a year-over-year increase of 56% from the corresponding period in 2017. The increase was primarily due to increased funding costs related to the growth of transaction services. Cost of revenue as a percent of revenue in the third quarter of 2018 was 38.7% compared to 31.1% in the corresponding period in 2017.

Gross profit for the third quarter of 2018 was RMB 1.67 billion, USD 243 million, representing a 12.2% increase from the corresponding period in 2017.

Selling and administrative expenses were RMB 1.52 billion, USD 221 million for the third quarter of 2018, representing a 15% decrease from the corresponding period in 2017. This decrease was primarily due to the decreases in share-based compensation, marketing expenses which was offset by the increase in provision for credit losses of finance receivables.

Product development expenses was -- were RMB 154.6 million, USD 22.5 million for the third quarter of 2018, compared to RMB 156.5 million, USD 23 million in the corresponding period in 2017.

Share-based compensation which was allocated to related operating expense line items, were RMB 173.1 million, USD 25 million in the third quarter of 2018 compared to RMB 522 million, USD 76 million in the corresponding period in 2017, which was incurred as a result of options granted by Yixin to its employees in the third quarter of 2017.

Non-GAAP net income from operations in the third quarter of 2018 was RMB 408.3 million, USD 59 million, a 53.4% increase from the corresponding period in 2017.

Net loss in the third quarter of 2018 were RMB 20 million, USD 2.9 million compared to the net loss of RMB 510 million, USD 74 million in the corresponding period in 2017. Net loss attributable to Bitauto in the third quarter of 2018 was RMB 26.7 million, USD 3.9 million.

Non-GAAP net income in the third quarter of 2018 was RMB 345 million, USD 50 million, a 48.8% increase from corresponding period in 2017. Non-GAAP net income attributable to Bitauto in the third quarter of 2018 was RMB 265.8 million, USD 38.7 million. Basic and diluted net loss per ADS, with each representing one ordinary share, in the third quarter of 2018 amounted to [RMB 0.44] (corrected by company after the call), USD 0.06 and RMB 0.47, USD 0.07, respectively, taking into consideration of the accretion of -- to redeemable noncontrolling interest amounting to RMB 7.1 million, USD 1 million.

Non-GAAP basic and diluted net income per ADS in the third quarter of 2018 amounted to RMB 3.66, USD 0.53 and RMB 3.36, USD 0.49, respectively, taking into consideration of the accretion to redeemable noncontrolling interest amounting to RMB 7.1 million, USD 1 million.

As of September 30, 2018, the company has cash and cash equivalent and restricted cash of RMB 8.98 billion, USD 1.31 billion.

Cash provided by operating activities, cash used in investing activities and cash provided by financing activities in the third quarter of 2018 were RMB 246.9 million, USD 36 million, RMB 2.15 billion, USD 313 million and RMB 2.83 billion, USD 413 million, respectively.

Number of employees totaled 7,739 as of September 30, 2018, including employees of entities in which Bitauto has acquired and holds controlling interest. This represents a 7.64% year-over-year decrease, primarily due to the decreased headcount in Yixin, following its strategic de-emphasize (sic) [de-emphasis] of used car transaction facilitation services.

Given Yixin's scale and significance to Bitauto, I would also like to share with you some of Yixin's operational and financial highlights in Q3 of 2018. In the third quarter of 2018, Bitauto's controlled subsidiary, Yixin, the primary operator of the company's transaction services business, facilitated approximately 123,000 financed automobile transactions, with the aggregate loan amount of approximately RMB 9.8 billion through its loan facilitation services and the self-operated financing business. In particular, Yixin's third-party loan facilitation transactions continued to gain momentum, contributing approximately 24% of total financed automobile transaction volume in the third quarter, up from 19% in the previous quarter.

In the third quarter of 2018, through its loan facilitation services for partner banks, Yixin facilitated approximately 30,000 financed automobile transactions, a year-over-year increase of approximately 300x and approximately RMB 2.2 billion amount in auto financing.

In the third quarter of 2018, under U.S. GAAP, Yixin's total revenue reached RMB 1.38 billion, USD 201 million; gross profit reached RMB 610.5 million, USD 89 million; net loss was RMB 3.9 million, USD 0.6 million; and non-GAAP net income was RMB 121.6 million, USD 18 million.

Yixin's non-GAAP net income is calculated as net loss excluding share based compensation of RMB 89.9 million, USD 13 million. Amortization of intangible asset resulting from asset and business acquisition of RMB 35.7 million, USD 5.2 million. And offset by tax impact of RMB 0.04 million, USD 0.01 million.

In the third quarter of 2018, Yixin entered into certain transactions with other subsidiaries of Bitauto, which have been eliminated upon Bitauto's consolidation of Yixin. The revenue that Yixin recorded for the service provided to those subsidiaries of Bitauto amounted to RMB 4.1 million, USD 0.6 million.

As of September 30, 2018, Yixin has cash and cash equivalent and restricted cash of [RMB 5.73 billion] (corrected by company after the call), USD 835 million; total finance receivable of [RMB 38 billion] (corrected by company after the call), USD 5.53 billion; and total borrowing, including bank borrowing and asset-backed securitization debt, of RMB 31.65 billion, USD 4.6 billion.

As of 30th -- September 30, 2018, 90 days-plus past due ratio, including 180 days and [180] (corrected by company after the call) plus days past due ratio for Yixin's self-operated finance business was [1.04%] (corrected by company after the call) and 0.53%, respectively.

90 days-plus past due ratio, including [180] (corrected by company after the call) days plus and 180 days-plus past due ratio for all financed transactions, including third-party loan facilitations, were 0.97% and 0.49%, respectively.

Under U.S. GAAP, Yixin's provision for credit losses of finance receivable in the third quarter of 2018 were RMB 130.6 million, USD 19 million. The balance of provision for credit losses of finance receivable were RMB 276.3 million, USD 40 million as of September 30, 2018.

With that, I will turn to guidance for the fourth quarter of 2018.

Bitauto currently expect to generate revenue in the range of RMB 2.92 billion, USD 425 million to RMB 2.97 billion, USD 432 million in the fourth quarter of 2018, representing a 17.2% to 19.2% increase from the corresponding period in 2017. The forecast reflects revenues net of VAT under the new revenue guidance ASC Topic 606, which has been adopted by Bitauto starting from January 1, 2018. If presented on a gross basis, as consistent with in year 2017, forecasted revenue will be between RMB 3.14 billion, USD 458 million to RMB 3.2 billion, USD 465 million in the fourth quarter of 2018, representing a [16.8% to 18.8%] (corrected by company after the call) increase from the corresponding period in 2017. This forecast takes into consideration of seasonality forecast -- factors in Bitauto's business, and excludes any impact of foreign currency fluctuation. It reflects management's current and preliminary view, which is subject to change.

Now let's start the Q&A session. Andy, myself, Xiaoke and Yixin's CFO, Catherine, are available to take your questions. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first questions comes from the line of Binbin Ding from JPMorgan.

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Binbin Ding, JP Morgan Chase & Co, Research Division - Analyst [2]

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My first question is on the macro impact. So what is your current view on the macro outlook given the decline of the new car sales over the past few months? How should we look at the trend into 2019? And my second question is on auto financing service. So we noticed there are some new players being listed in recent months also in the auto financing services sector. And they seem to have generated decent margin. So can you help us to understand the reason behind the margin difference between us and the new players? And is it because the difference in business models or accounting treatment or some other reason?

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Andy Xuan Zhang, Bitauto Holdings Limited - CEO & Director [3]

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I'll take the first question in terms of the overall market. Obviously, we've seen quite a few different indicators, indicating the new car -- passenger car sales has been really slowing down. I think for the month of October as well as for the first 3 weeks of November, we've also -- we have not seen any recoveries from the decreasing trend from the third quarter. I think 2018 will probably be marked the first ever year of auto sales being negatively growing or a decrease in terms of overall sales volume. I think, right now, most of the OEMs are working up their budgets in terms of the forecast for 2019 as to what to look forward to. I think there's a few points I think that needs to be pointed out for the market overall. We talk about the new car first and then we'll talk about used car. First of all, I think 2018 marks the first year that we -- in the last 3 years that we don't -- we didn't have the tax stipends from the government. Whether or not the government will see this particular weak trend in the new car sales as a sign of reviving such a benefit to the market, that's something that needs to be waited out at least until the first quarter of next year. But chances are because the new car sales accounts for about 20% of the overall retail revenue volume in China, so therefore, I think this is one of the biggest factor that cannot be overlooked by the central government. Secondly, we do also see the rise of the new energy cars. I think for the first 9 months, the sales of new energy cars has actually grown in high double-digit percentages. This whole year will mark the -- I think the first year that the new energy cars will be selling over 1 million units. Given the trend and given also the right rules and regulations that kicked in for environmental factors as well as the points that the OEM has to accumulate on these factors, we do expect the new energy cars will actually grow much, much faster in the year of 2019. Also, we have, as a company, been building up very solid relationships with these new energy car companies. There's 2 breeds mainly. One is the extension or the newly developed new energy segments from the existing traditional OEMs. But there's also a breed of the, what we call, the new breeds of the new energy car companies, mostly coming from the Internet players. Let me just name a few. NIO auto, who just got listed in the U.S. back in September. So we do have a lot of the different choices of the new car -- new energy cars available to consumers in the year of 2019. I think that will actually significantly outgrow the market in general. And that's a sector that I think people like us, BITA as well as Yixin, cannot overlook. We do expect to generate another significant increased amount of our revenues from these new energy players in the year of 2019. Let's talk about -- a little bit about the used car sector. For the first 9 months or I think the 10 months, the used car has been selling at a rate of 16%, 17% increase compared to last year. This trend and momentum will likely to continue. I believe that for the whole year of 2018, we will see about high teen growth in terms of the used car selling in China. I also believe that this trend will continue in the year ahead of us. And given that this year we're looking at about maybe 14 million transactions in used car, next year, we can expect another maybe 2 million more on top. So I think for the business of -- especially for Yixin, it taps both into new car finance as well as used car finance. So therefore, this also serves as a very good signal for us in terms of the -- on the market side. Just the -- since the overall macro relates to us not only taps into the sales volume but also taps into the penetration of finance and the leasing on the retail end. In the year of 2018, we also expect for the entire market the finance/leasing penetration will go from the 2017's almost 40% level to definitely above 50% in 2018. We do also see this trend to continue in 2019. As per my prediction, we're probably looking at penetration for both new and used car market on the financing side and leasing side to be above 60% for 2019. So in general, at least the market will continue to -- penetration will continue to grow. That's the market that's tailored for Yixin. So that's the overall macro condition for both the new car sales, used car transaction as well as the finance and lease penetration. I think, Catherine -- Xu Ming will actually answer the second question along with Catherine.

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Ming Xu, Bitauto Holdings Limited - CFO [4]

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Thanks, Binbin. I'll take your question and Catherine may add if there's anything I omit. I think we differ from our U.S.-listed auto finance peers in several ways. Firstly, on -- in terms of product, we offer both auto finance product in -- for new car buyers and used car buyers, while our peers, they're either purely operating new car area or purely used car area. And secondly, we offer both self-operated business and also loan facilitation business. While our peers, they offer main -- they offer primarily facilitation business. Secondly, in terms of sales channel, we operate -- we work with both the 4S dealers and also the independent, unauthorized dealers. While our peers mainly work with the unauthorized channel. So we have a more comprehensive sales channel. And thirdly is on the calculation on the treatment of provisions. I think the provision method of -- the calculation method of provision depends on various factors, such as business models and also regulatory environment, including, but not limited to, the fact that Yixin is a separately listed company. Compared to our peers that also adopt U.S. GAAP, we believe we use more conservative parameters on the Bitauto side in our financial reporting in treating the provisions.

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Catherine Xiaozheng Liu, Yixin Group Limited - CFO [5]

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Just to add to Ming's point, because for Yixin, we are listed under Hong Kong Stock Exchange, which we're required to use IFRS. And then under IFRS, the provision recognition policy is very different from U.S. GAAP, which resulted in much higher provision expenses than if we would have used U.S. GAAP. But our peers that were listed all use U.S. GAAP and are listed in the U.S. And secondly, because a majority of our revenues are from self-operated financing business which the revenue is recognized over 30 months, while for the loan facilitation services, the revenue is recognized at the time of the transaction. So that's why for -- if you look at Yixin's revenue and profit, actually quite a significant amount of the revenue and profit will be recognized in the year after and then the year -- in the 2 years after the transaction. So that's also contributing the difference.

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Andy Xuan Zhang, Bitauto Holdings Limited - CEO & Director [6]

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Right. Lastly, I think I want to just... well, lastly, I think I just want to conclude is on the note where that -- as Yixin's asset size gets to the limit where sort of according to the leverage ratio that normally are practiced in China. And also, given the much higher penetration of the loan facilitation business that's being accounted for in the fourth quarter and moving on, we do expect our margin profile to be, I wouldn't say exactly flipped, but also just that the margin profile will actually change significantly in 2019, mainly because majority of the transactions that will be carried out in 2019 for Yixin will be facilitated transactions, which is comparable to most of the peers that's on the market. And Yixin will always have its own balance sheet, but the size of the balance sheet will not continue to increase in the years ahead. Quite the contrary, probably it will decrease as well. So that also contributes to their margin improvements, especially on the gross side because of different revenue treatment. So just to give us a head -- give everyone a heads up that the margin profile for Yixin will change in 2019 and the years ahead because of those changes. Thank you.

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Operator [7]

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I'll move on to the next questions from Monica Chen from Crédit Suisse.

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Monica Chen, Crédit Suisse AG, Research Division - Research Analyst [8]

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I have two questions here. Number one, so it's regarding our traffic. We see we launched a major app upgrade last month, and which this new version is more focused on content and user interaction. So I wonder what kind of traffic mix have we observed so far? And what kind of user growth trends are we expecting for next year? And also, on the cost side, so what's the plan for spending our -- for branding and product promotion versus for the user acquisition going forward? And my second question is on the dealer products. So I want to understand what is our strategy to increase the premium package penetration and to cover more independent dealers considering there is the general slowdown in the auto sales and the macro uncertainty. Plus there could be some potential competition from Dongchedi, given we think they may consider to launch similar dealer packaged products next year. So any colors on that will be very helpful.

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Xiaoke Liu, Bitauto Holdings Limited - COO [9]

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(foreign language)

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Unidentified Company Representative [10]

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Thank you very much for the question. First of all, let me kick off with your first question regarding the upgrading of our new app. Actually, in September, we have released our new logo and branding image. And in October, we have upgraded our app. Actually, the feedback is -- well, it's beyond our expectation because the user growth reached to 25%. And also in the latest ranking of the Apple app download, we are #6.

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Xiaoke Liu, Bitauto Holdings Limited - COO [11]

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(foreign language)

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Unidentified Company Representative [12]

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And in terms of the app upgrade, we have attracted a lot of young users. A lot of our content has been young user-driven. And we used to be car-centric company. Now we have shifted into people oriented or young user-oriented strategy. We also have full new strategies focusing on the young users and also we have achieved better interaction between the users. And the designing was also quite appealing for the young users.

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Xiaoke Liu, Bitauto Holdings Limited - COO [13]

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(foreign language)

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Unidentified Company Representative [14]

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Well, talking about the details of the strategy of upgrading the app, we have 5 areas I want to share with you. Firstly, it's big data driven. We have digged deeper into the verticals, and we have more effective content recommendation for the CTR value which has grown 167%.

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Xiaoke Liu, Bitauto Holdings Limited - COO [15]

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(foreign language)

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Unidentified Company Representative [16]

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Now the second biggest area is more social interaction has been embedded into the new app. For example, we have embedded more quotes or comments into the content. And we do see the volume of the quotes have grown up very quickly. Comparing with our competitors, Autohome and Dongchedi, they also launched their version of the social interaction post and comments. We believe the post and comments would be a big battle in this field, and we are very confident that we can fight with our competitors in this battle. And also, for the social media, we have exclusively offered IM, Instant Messenger, product. And the IM product contribute -- actually, the ratio has gone up from 2.7% up to 3.5%.

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Xiaoke Liu, Bitauto Holdings Limited - COO [17]

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(foreign language)

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Unidentified Company Representative [18]

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And the third area is we have embedded more IR, AR and VR Intel app. Let's take VR app as an example. For the top 100 car models, we already covered 95% of them to offer the VR version of the car models. And we have embedded a lot of IR tools. For example, the IR-based customer service answering system, 70% of the questions can be answered. And also the volume can be over 100,000 pieces of answers being provided.

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Xiaoke Liu, Bitauto Holdings Limited - COO [19]

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(foreign language)

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Unidentified Company Representative [20]

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And we not only offer the upgraded version of app but also we have a matrix of new products. For example, under the Bitauto, we have the new app, we have the M-site. The M-site also is growing. We also have the mini programs. In the third quarter, we have launched 3 new versions of the mini programs. One is called the Bitauto mini app and also the auto price quote and the car price quotes on a daily basis. And we have been very active under the WeChat ecosystem of -- under Tencent. And in the recent billboard ranking of all the mini apps, we ranked as top #34 out of the total billboard ranking and we are #1 under the vertical auto ranking.

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Xiaoke Liu, Bitauto Holdings Limited - COO [21]

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(foreign language)

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Unidentified Company Representative [22]

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Okay. That's all for the product. Thank you.

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Ming Xu, Bitauto Holdings Limited - CFO [23]

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Thanks, Monica. And I'll take the question about the promotion expenses. Yes, we will increase our promotional spending in the sales and marketing expenses in the fourth quarter for the -- mainly in 2 ways. One is branding of our new app and our new brand logo. Some of you may already noticed in elevators that we started to show our ad a couple of days ago, and we will run this campaign until the end of this year. Secondly is we will do more aftermarketing in -- both on the iOS side and on the Android side. But I want to highlight that, firstly, is this increased spending is within our original budget. And secondly, we believe it's -- the increased DAU of our app will bring long-term benefit. Actually, we already -- although we have only launched the app for less than a month, we already started to show -- see a pickup in the sales contribution from the Yiche app and also the sales leads from that app is -- actually have higher quality compared to the sales leads from other channels. And then I'll take your question about our growth strategy for the dealer subscription business in 2019. I think I'll take -- I'll talk about this topic in 3 ways. Firstly is about our existing 4S store service business. I think we will continue to expand our coverage. And also we -- because, obviously, we still have a gap with our peer in terms of coverage, although we noticed that the gap is shrinking quarter by quarter, but we still can pick up some more dealers. And at the same time, we will try to increase our ARPU in the dealer subscription business. We will try to not just hiking the price, but actually providing more services to the dealers. We'll try to migrating -- transfer -- transforming our product from a purely lead gen product to a more SaaS-based platform. We're integrating more services that is powered by AI to try to help the dealers to improve their efficiency. For example, we integrated like a smart reply product to help them to -- help the salespeople to automatically interact with the potential customers. And also we tried to integrate some smart insurance product for -- to help the dealers sell their insurance product. Secondly is in our coverage of the unauthorized dealers. We have been talking about this initiative since I think 1 or 2 quarters ago. And I noticed that our competitors are also starting to -- are also picking up this topic. But we believe we have established a pretty strong early mover advantage. Currently, as we released, disclosed in our filing as of September [19], we already cover 19,000 independent car dealers and service around 30,000 salespeople from those dealers. And I can say that this number is still increasing these days. And I want to emphasize this number is very important because even though we're -- there is an industry number people are talking about like 100,000 unauthorized dealers in China in total, but we believe that the important ones of them, the sizable ones and those that can be monetized, the total size number is far fewer than 100,000. So that 19,000 existing coverage is a very important early mover advantage. And secondly is in terms of the business, we already try -- we already serve them in multiple ways, including like sales lead, like we did for the -- like what we're doing for the 4S stores. But beyond that, we're also providing inventory sourcing and other services to the dealers. We expect in the year of 2018 we can facilitate over 100,000 cars on our platform for the use -- for the unauthorized dealers. And we believe this level is actually among the first level players in the industry. And thirdly, we haven't started monetizing from the unauthorized dealers, but we believe going into 2019, we'll try to look at different ways of monetizing -- monetization. And thirdly, in terms of our growth strategy for the dealer business, I believe you noticed that one of our important share -- strategic shareholder recently announced their strategy to put more emphasis on the 2B side of Internet service. Because we have this strong positioning advantage in this dealer coverage, we're also actively looking at more closer opportunity -- cooperation opportunities with the shareholder. We're actively talking with them in terms of what we can do together to leverage both of our edges. I hope this answers your question.

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Andy Xuan Zhang, Bitauto Holdings Limited - CEO & Director [24]

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And also lastly, I think just to add one more point to the significance of the currently over 90,000 for 2018 annually over 100,000 B2B transactions that we, as a EP platform, actually carry out on behalf of the second-tier dealers, helping them sourcing the inventories. I think that was one of the strategies that we decided to undergo earlier in 2018. Given the idea that we historically have only been helping the dealers to sell cars to Cs but we do see a B2B transaction as a huge potential for the future growth. And after 9, 10 months of trying out and redesigning the product, apparently most of these second-tier dealers has been really accepting this particular product offerings that we have created for them. And in 2019, it's our belief that this product will also begin to have a sizable revenue stream coming from this area. Compared to this year, it's mostly for free, sort of a try-out for the dealers. Currently, I think we have approximately about 140,000 second-tier dealer employee or salespeople that's linked up to this particular platform. And they do actually have different exchanges of inventories availabilities as well as daily routine business that's being carried out among them. We're also seeking additional ways to monetize this particular network we have built and utilized by these industry players. This also fits right into our company's overall strategy in terms of connecting the 5 million industry players to -- with the existing hundreds of millions, maybe 200 million car users and buyers. So this part of the business is something that we'll put heavy emphasis on in the year 2019, and hopefully will drive another very healthy revenue stream coming from their end as well. Thank you.

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Operator [25]

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The next questions comes from the line of Liping Zhao from CICC.

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Liping Zhao, China International Capital Corporation Limited, Research Division - Analyst [26]

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I have a quick question regarding Yixin. So can the management tell us what's the funding cost level for Yixin in the third quarter? And should we expect the cost to be stabilized in 4Q?

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Catherine Xiaozheng Liu, Yixin Group Limited - CFO [27]

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Yes, the funding cost in Q3 has already stabilized. So it's similar to Q2. So we think in Q4, the funding cost is also going to stabilize compared to its Q2 and Q3.

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Andy Xuan Zhang, Bitauto Holdings Limited - CEO & Director [28]

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Just to give you an... yes, sorry. Just to give you an example, because these are publicly available information, in the second quarter we've undergone an asset-backed securitization at the end of June. I think the primary exchange cost was 6.5% to 7%, if I remember correctly. We've also done recently within this month an asset-backed note, which is in between the banks. And this particular offering was also in the size of 1.5 billion, I believe. And the primary exchange cost is approximately 5.5% compared to 6.57% in the second quarter. So we do see that our funding cost has been stabilized. And I think hopefully within 2019, that will also be the case more compared to fourth quarter instead of the second quarter. And also because of the -- I wouldn't say adjusted, but because of the facilitation side of the business has been really growing fast. So this particular funding cost impact to us will be getting smaller and smaller as days move on, okay? Just to add that point.

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Operator [29]

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Our next questions comes from the line of Hillman Chan from Citigroup.

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Hillman Chan, Citigroup Inc, Research Division - Research Analyst [30]

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My first question is regarding our dealer product. From your recent conversation with your dealer customer, what are the feedback from them on our potential price hike in dealer product given soft retail sales outlook in 2019 and some accounts on competing products from like Dongchedi? And then my other question will be on the Yixin's business. So in the third quarter, we have about 123,000 financed auto transactions. So could you share the run rate for October and November? And also the percentage of third-party loan facilitation as well? And lastly, on the fourth quarter guidance, could you give us some underlying guidance for the media and transaction business, respectively?

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Ming Xu, Bitauto Holdings Limited - CFO [31]

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Thanks, Hillman. I think, yes, in terms of our potential price hike I think, yes, on the one hand, the dealers, they are facing high inventory and probably very weak outlook for the -- for sales in the upcoming quarters. But on the other hand, this actually increased their spending -- increased their need or urgency to spend on effective channels. And I think we believe we are still one of the most effective channels for the dealers in both the quality of sales lead and also the scale of sales lead. I think although some of our upcoming competitors are rising very fast, but actually, what we know that, their, the total size of a sales lead they can generate every day for the dealers are just a fraction of our size. So we believe that we are -- we still have the pricing power against the dealers, although we won't actually leverage this kind of pricing power to push too hard on the dealer if we want to build a long-term relationship with them.

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Xiaoke Liu, Bitauto Holdings Limited - COO [32]

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(foreign language)

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Unidentified Company Representative [33]

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Thank you. I want to answer the question related to your competition with Dongchedi. Comparing with our competitor, Dongchedi, we believe that we have a more diversified product portfolio. We not only have the PC product, but we also have the M-site and the double app and the mini programs. So this is a matrix of different diversified product offerings, which is more advanced than our competitors. And then secondly, we can provide a more precise conversion rate for the dealers because we have accumulated multiple years of experience and we can really achieve a higher conversion rate for the dealers. And then we also have a lot of very loyal core dealers as our members. So that's why we do have advantages of -- over our competitors.

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Xiaoke Liu, Bitauto Holdings Limited - COO [34]

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(foreign language)

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Unidentified Company Representative [35]

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Thank you very much.

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Catherine Xiaozheng Liu, Yixin Group Limited - CFO [36]

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To your second question, in the third quarter we have done about 123,000 units and we expect that the Q4 will grow over Q3. And then the total annual units will probably have about 20% of growth over last year despite the weak market. We think next year, despite the current weak market, we think we should still be able to grow about 20% to 30%. And in terms of loan facilitation, in the third quarter, our loan facilitation contributed about 24%. And in the fourth quarter, to date, we have already seen the loan facilitation contributing over 40%. We think next year, the loan facilitation is going to be contributing more than 60 -- about 60% to 70%.

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Ming Xu, Bitauto Holdings Limited - CFO [37]

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Hillman, regarding your third question about the breakdown of our guidance. I think in the fourth quarter, our media and our advertising and lead gen business is -- we expect to -- we expect the business to grow at a single -- high single-digit year-over-year. But I still want to highlight that if you exclude all the subsidiaries which we hold controlling stake, the core of our business will grow at low- to mid-teens year-over-year in the fourth quarter. And our transaction service will grow -- have a growth -- year-over-year growth of 25% to 30%. And our CIG business revenue growth would be around mid-teens year-over-year.

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Operator [38]

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Now I would like to hand the call back to the management for closing.

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Ming Xu, Bitauto Holdings Limited - CFO [39]

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Once again, thank you very much for joining us today. Please don't hesitate to contact us if you have any other further questions. Thank you for your continued support, and we look forward to talking with you again in the coming months.

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Operator [40]

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Thank you, ladies and gentlemen. That does conclude the conference for today. Thank you for your participation. You may now disconnect your lines.