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Edited Transcript of CIH.OQ earnings conference call or presentation 14-Nov-19 12:00pm GMT

Q3 2019 China Index Holdings Ltd Earnings Call

Dec 6, 2019 (Thomson StreetEvents) -- Edited Transcript of China Index Holdings Ltd earnings conference call or presentation Thursday, November 14, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jessie Yang

China Index Holdings Limited - IR Director

* Yu Huang

China Index Holdings Limited - President, CEO & Director

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Conference Call Participants

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* Gerard Chua

Resurgence Investment Management Limited - Equity 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 and welcome to China Index Holdings Limited FY 2019 Third Fiscal Quarter Earnings conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would like to hand the conference over to your first speaker today, Ms. Jessie Yang. Thank you. Please go ahead.

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Jessie Yang, China Index Holdings Limited - IR Director [2]

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Thank you, operator. Hi, everyone, and welcome to China Index Holdings Third Quarter 2019 Earnings Conference Call. Joining us today to discuss CIH's results are CEO, Ms. Yu Huang; and Financial Controller, Ms. Lili Chen. After the prepared remarks, our management will answer your questions.

Before we get started, I would like to remind you that during the course of this conference call, we may make forward-looking statements, statements that are not historical facts, including statements about our beliefs and expectations. Forward-looking statements involve inherent risk and uncertainty. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. CIH assumes no obligation to update the forward-looking statements in this conference call and elsewhere.

Potential risk and uncertainties include but are not limited to those outlined in our public filings with the SEC, including our Form F1.

Now I would like to walk you through our third quarter 2019 results, after which, Ms. Huang will answer your questions for the Q&A session.

CIH reported total revenues of RMB 158.3 million in the third quarter of 2019, an increase of 38.7% from RMB 114.1 million in the corresponding period of 2018. Revenues from information and analytics services, SaaS, were RMB 77.6 million in the third quarter of 2019, an increase of 46.4% from RMB 53 million in the corresponding period of 2018, mainly due to an increase in the number of customers.

Revenues from marketplace services were RMB 80.7 million in the third quarter of 2019, an increase of 32.1% from RMB 61.1 million in the corresponding period of 2018, primarily due to an increase in the number of customers.

Cost of revenue was RMB 29.2 million in the third quarter of 2019, an increase of 50.5% from RMB 19.4 million in the corresponding period of 2018, mainly due to an increase in personnel cost to support our business expansion.

Operating expenses were RMB 52.5 million in the third quarter of 2019, an increase of 28.7% from RMB 40.8 million in the corresponding period of 2018.

Selling and marketing expenses were RMB 27.5 million in the third quarter of 2019, an increase of 22.8% from RMB 22.4 million in the corresponding period of 2018, primarily due to an increase in personnel cost resulting from the growing number of selling and marketing personnel headcount.

General and administrative expenses were RMB 17.4 million in the third quarter of 2019, an increase of 43.8% from RMB 12.1 million in the corresponding period of 2018, primarily due to an increase in personnel costs to support our business expansion.

Operating income was RMB 76.6 million in the third quarter of 2019, an increase of 42.1% from RMB 53.9 million in the corresponding period of 2018. Income tax expenses were RMB 11.0 million in the third quarter of 2019, an increase of 17% from RMB 9.4 million in the corresponding period of 2018.

Net income was RMB 66 million in the third quarter of 2019, an increase of 43.5% from RMB 46 million in the corresponding period of 2018.

Based on current operations and market conditions, management remains confident in achieving CIH's total revenue expectations for 2019, which ranges from approximately RMB 580 million to approximately RMB 610 million, representing a year-over-year increase of approximately 37.8% to approximately 44.9%. These estimates represent management's current and preliminary view, which are subject to change.

Thank you for joining us today, and we're now open for questions. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of [Louis Wang] From [Annunciation Research].

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Unidentified Analyst, [2]

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Ms. Huang, Ms. Chen, and Jessie, first, congratulations, it's a robust performance of [third] quarter. And we are aware that China Index Holdings, it's a first real estate staff company from China and public in the U.S. And so we wonder could you -- or could you illustrate us some details of a source of features of your products and how your product is better than the competitors? So let me translate in the Chinese.

(foreign language)

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Yu Huang, China Index Holdings Limited - President, CEO & Director [3]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [4]

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[Interpreted] So I will translate for the English speakers on the line. Ms. Huang said -- so the question we all heard from [Louis], and the answer to the questions are our products, our tools that are used to solve specific problems, not necessarily all problems but the main problem faced by participants in certain segments of the real estate industry. One example of such a product is the CIH Landlord, which already had many clients. And the use of this product is to buy land for those who are part of the developers, and they can search for land as well as quickly generate a report that analyzes the piece of land that they're looking at. And this Landlord, CIH Landlord, helps these clients to solve the specific problem. And the competitive advantage of this tool compared to other companies or products are 3 points. One is investment analysis needs -- requires sufficient data, and CIH has amassed 20 years of data in Chinese real estate market, and it has the largest land database in China. So it has sufficient resources to do the investment analysis needed. And there's also a lot of data related to land investment. For example, sales information in the local areas as well as data around the land area and comparable sales.

A second comparative -- competitive advantage is our deep understanding of the Chinese real estate industry in terms of investing in land and purchasing land. And it really helps to incorporate our professional knowledge into tools such as this one.

The third is that we have a large technical team, and we use technology to solve these problems faced by industry participants. In terms of SaaS tools, the technology might not be anything special. It's prevalent in the industry, but more important is that we have a large data resource and a deep understanding of the market. Thank you.

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Yu Huang, China Index Holdings Limited - President, CEO & Director [5]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [6]

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[Interpreted] So another competitive advantage is that we have significant influence in the industry that we built over the years. Therefore, it really helps when we market our products to our clients in the industry.

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Operator [7]

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Your next question comes from the line of [CG Hao] from 86Research.

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Unidentified Analyst, [8]

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My first question is about data products. Management mentioned in the previous call that new products helped bring revenue growth in the first half of 2019, and the company was working continuously to roll out new products and tools. So I'm curious what kind of products will we have in the pipeline in the fourth quarter and the next year?

And also, my second question is about the outlook for the real estate industry in China as well as the implication on our top line growth.

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Jessie Yang, China Index Holdings Limited - IR Director [9]

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(foreign language)

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Yu Huang, China Index Holdings Limited - President, CEO & Director [10]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [11]

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[Interpreted] Okay. So I would like to first introduce some new products that are already in the market. One is, say, each landlord has tool that was previously mentioned that begin its trial period at the end of Q3, and now it's fully in the market as of fourth quarter.

Another example is the office version of database tools. This is a tool for commercial real estate developers and operators as well as financial services institutions. So currently, it is in trial period, or some clients have already bought the database. The third is a risk appraisal tool for financial services institutions.

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Yu Huang, China Index Holdings Limited - President, CEO & Director [12]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [13]

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Okay. So the second part of the question is for real estate market outlook. So recently, the Chinese statistical bureau released the sales area...

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Yu Huang, China Index Holdings Limited - President, CEO & Director [14]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [15]

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Okay. Sales area from January to October of this year, and it was 1.33 billion square meters.

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Yu Huang, China Index Holdings Limited - President, CEO & Director [16]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [17]

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And this showed a slight increase year-to-year. From January to September, there was a slight decrease. In October, there's been an increase in sales. And that's why in January to October of this year showed a slight increase in total.

For 2019, we expect the sales area, total sales area, to be between 1.69 billion to 1.7 billion square meters. Last year, it was 1.72 billion square meters. And this shows that despite restrictive macro policy background, the Chinese real estate market is still remaining to be optimistic.

Our forecast for 2020 is that the sales area in total will decrease slightly. And the investment in new projects, new real estate projects, in terms of growth, its growth will decrease. The government is more interested in the investment of -- into new projects. And we expect that this growth will be between 3 -- around 3% to 5% growth. Year-to-date, from January to October, we've seen 10% growth. And our big data analysis for the macro forecast is relatively cautious. We're not pessimistic but cautious. And we believe that for China and Chinese real estate market as a whole, there's still opportunities as the urbanization rate increases and the standard of living increases. So along with opportunity -- economic growth, there will be opportunities, for example, in the service sector and especially in large cities as well as second- and third-tier cities. Some structural changes that we're seeing is that large city clusters will see better growth opportunities. Whereas smaller cities, where there's less industry and less population, obviously, growth will be less.

For China Index Holdings specifically, there will be a lot of opportunities as we serve the main industry participants of China's real estate industry -- real estate market with our tools and analytical database services.

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Operator [18]

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Your next question comes from the line of Gerard Chua from Resurgence Investment Management.

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Gerard Chua, Resurgence Investment Management Limited - Equity Research Analyst [19]

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Yes. So I think you previously just mentioned about the large city clusters that will see more growth opportunities. Is it possible for you to maybe classify are these Tier 1, Tier 2 or Tier 3 cities?

And the second question I also have is that the expansion of the database, I think in previous calls, you mentioned that the database will increase by 20 cities a year, and it will increase to 40 by the end of 2019. Is that still on pace?

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Jessie Yang, China Index Holdings Limited - IR Director [20]

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Okay. Thank you, Gerard. (foreign language)

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Yu Huang, China Index Holdings Limited - President, CEO & Director [21]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [22]

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[Interpreted] So in terms of the large city clusters, there are 5 large clusters. One is the Shanghai area. One -- second is the Beijing area. Third is the Tianjin area.

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Yu Huang, China Index Holdings Limited - President, CEO & Director [23]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [24]

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Sorry. Third one is Guangdong, Hong Kong and Macau.

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Yu Huang, China Index Holdings Limited - President, CEO & Director [25]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [26]

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Fourth one is cities along the Yangtze River. And the fifth one is Zhongshan.

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Yu Huang, China Index Holdings Limited - President, CEO & Director [27]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [28]

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Zhongshan and Chengdu. So these 5 city clusters in total make up about half of China's GDP, and their basic infrastructure as well as industry -- industries are both in very good situation in terms of economic development. And this year, we've also seen that their contribution to economic growth has increased.

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Yu Huang, China Index Holdings Limited - President, CEO & Director [29]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [30]

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So we've mentioned that before year-end of this year, our operations will cover 40 cities. And right now, we've reached 33 cities. (foreign language) (Operator Instructions)

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Operator [31]

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Your next question comes from the line of [Pan Wei] from [China Securities].

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Unidentified Analyst, [32]

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Okay. Might I have 2 questions? The first is what is the strategy or plan of CIH in the next few years? (foreign language)

And my second question is will -- are also the clients in financial institutions of CIH? And as an aspect of financial company, do we know are there any innovations of the CIH database in the future? (foreign language)

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Yu Huang, China Index Holdings Limited - President, CEO & Director [33]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [34]

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[Interpreted] So we will answer the second question first, in terms of the financial database. So a lot of financial institutions use our enterprise edition as well as macro edition and city urban edition as well as land editions of the database for those interested in investment.

The latest release, which came out mid-October, includes this enterprise risk appraisal tool, and we welcome you to try this through a trial account. And this tool that evaluates the risk faced by real estate companies using CIH model and data. And you can input the companies that you're interested in, and it would generate an automatic appraisal of the risks faced by these companies.

Another product, that financial institution, [Sabre], is our commercial database, including the office buildings database. And for this product, financial institutions actually make up 60% of our client base. This product, we also welcome you to try.

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Yu Huang, China Index Holdings Limited - President, CEO & Director [35]

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(foreign language)

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Unidentified Analyst, [36]

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(foreign language)

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Yu Huang, China Index Holdings Limited - President, CEO & Director [37]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [38]

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[Interpreted] So to answer the first question, in terms of China Index Holdings growth and development plans, yes, our first focus will be to grow our data pool both in terms of coverage and in terms of debt and specifically, building our commercial real estate data, which we've achieved significant steps already.

Second is a focus on new technology, learning from other industries as well as global companies. And 2 specific focuses will be on big data and SaaS tools. And our very important goal is to combine big data and the SaaS tools and technology for use specifically in the Chinese real estate market.

Number three is to increase our city footprint. We would like most industries in the main cities of China to use our products on a broad scale.

And number four is to choose the appropriate time and appropriate targets for M&A, and 2 criteria will be: one is if the company has data advantage; and second, if it has technological advantage. And this is our strategic plan as we continue to seek to use big data and technology to empower China's real estate industry.

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Operator [39]

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(Operator Instructions) Your next question comes from the line of [Qui Hong Wang] from [China Analysis Securities].

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Unidentified Analyst, [40]

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Ms. Huang, Jessie, I have 2 questions. My first question is how is the status of the commercial real estate properties database of fair age in China? And how many clients are using it?

My second question is, is there any difference between the CIH and the CoStar in the business development path? (foreign language)

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Yu Huang, China Index Holdings Limited - President, CEO & Director [41]

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(foreign language)

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Jessie Yang, China Index Holdings Limited - IR Director [42]

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[Interpreted] Okay. So we'll answer both questions together. In terms of the development path between China Index Holdings and CoStar, we have always sought to learn from CoStar. And China and U.S' real estate markets are very different. New developments are very important in China. And we are just now entering the resale market. In terms of structural -- structurally, in China, residential real estate make up about 90% of the market, whereas nonresidential is only 10%. So in the near term, these structural differences exist between China and the U.S., and because of this, commercial real estate development is relatively in its beginning stages in China. But as more people are focused on commercial real estate in the last few years, this is also where our opportunity lies. Since 10 years ago, we have been learning from CoStar. But at the time, we were more focused on residential real estate. However, the structural -- the structure and building of our database, we've learned from CoStar and taken from them as an example. Now that the commercial real estate opportunity is here, we have increased our investment in our commercial database.

And in terms of number of clients, we don't think that it's enough of where we want to be, and this is also where our opportunity lies. Thank you.

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Operator [43]

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(Operator Instructions) There are no further questions at this time. I would like to hand the conference back to today's presenters. Please continue.

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Jessie Yang, China Index Holdings Limited - IR Director [44]

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Okay. Thank you, everyone, for joining China Index Holdings' Third Quarter earnings call today, and we will look forward to speaking with you again for our fourth quarter 2019 earnings call. (foreign language)

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Yu Huang, China Index Holdings Limited - President, CEO & Director [45]

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(foreign language)

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Operator [46]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.

[Portions of this transcript that are marked

[Interpreted] were spoken by an interpreter present on the live call.]