U.S. Markets open in 4 hrs 58 mins

Edited Transcript of JP earnings conference call or presentation 10-Jun-19 12:00pm GMT

Q1 2019 Jupai Holdings Ltd Earnings Call

SHANGHAI Jun 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Jupai Holdings Ltd earnings conference call or presentation Monday, June 10, 2019 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Harry He

Jupai Holdings Limited - Director of IR

* Jianda Ni

Jupai Holdings Limited - Chairman of the Board & CEO

================================================================================

Conference Call Participants

================================================================================

* Haifeng Cao

UBS Investment Bank, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you for standing by for Jupai's First Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, today's conference call is being recorded. (Operator Instructions)

I'd like to turn the meeting over to your host for today's conference, Mr. Harry He, Jupai's Investor Relations Director.

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [2]

--------------------------------------------------------------------------------

Hello, everyone, and welcome to Jupai's earnings conference call for the first quarter ended March 31, 2019. Leading the call today is Mr. Jianda Ni, our Chairman and CEO, who will review the highlights for the first quarter of 2019. 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 interpret his remarks for you.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [3]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [4]

--------------------------------------------------------------------------------

[Interpreted] Thank you, Harry, and welcome, everyone, to today's conference call.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [5]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [6]

--------------------------------------------------------------------------------

[Interpreted] Jupai's first quarter 2019 operating results remained under pressure in addition to fewer working days resulting from the Chinese New Year holiday, weaker-than-expected investor confidence amid the unsettled U.S.-China trade conflict contributed to the headwinds we faced in the quarter. As a result, our total net revenue for the first quarter of 2019 declined by 35.1% year-over-year to RMB 281 million. Our total assets under management as of March 31, 2019, were RMB 53 billion, a 2.8% decrease from 1 year ago.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [7]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [8]

--------------------------------------------------------------------------------

[Interpreted] Given the macroeconomic uncertainties, we believe investor confidence will return gradually in the late of 2019. Amid the prolonged market downturn, Jupai will remain dedicated to executing our trade strategies to optimize our business.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [9]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [10]

--------------------------------------------------------------------------------

[Interpreted] Firstly, we will look to grow our real estate equity products more proactively. We believe that real estate is an asset class, which -- with relatively lower investment risks compared to other categories such as consumer credit or supply chain management products.

The rising funding costs and the current volatility in the real estate industry should continue to provide an excellent entry point for investor to gain exposure to equity from leading real estate companies.

Given Jupai's abundant real estate industry experience, we are well positioned to identify the highest quality real estate projects for our investors.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [11]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [12]

--------------------------------------------------------------------------------

[Interpreted] Secondly, we will continue enhancing our risk control system. We believe risk management capability is one of the most critical aspects of wealth management products and the key to enhancing investor confidence. Over the past several years, we have improved our risk control system across our entire product life cycle. And in the months ahead, we will further strengthen our quality standards for project counterparties.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [13]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [14]

--------------------------------------------------------------------------------

[Interpreted] Thirdly, we target to achieve incremental growth from our overseas business, including development of overseas insurance products and the collaborations with leading international financial institutions to meet the rising demand for global asset allocation from our customers. With these strategies in place, we are confident that Jupai will be well positioned to seize opportunities as the market recovers.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [15]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [16]

--------------------------------------------------------------------------------

[Interpreted] I will now turn the call over to Mr. Harry He, our Investor Relations Director, who'll go through the financials in more details. Thank you.

Thank you, Jianda Ni.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [17]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [18]

--------------------------------------------------------------------------------

In light of the challenging environment, Jupai has implemented various cost control measures, including downsizing our workforce, adjusting our incentive systems, optimizing our coverage network and streamlining our business SOP to improve our operating efficiency and our profitability.

As we foresee our increasing operating expenses over the near term related to the personnel optimization, we expect to realize more positive effects from our cost control measures towards the end of this year.

Now let me walk you through our financial highlights for the first quarter of 2019. Net revenues for the first quarter of 2019 were RMB 281 million, a 35.1% decrease from the corresponding period in 2018 primarily due to decreases in both onetime commissions and other service fees.

Net revenues from onetime commissions for the first quarter of 2019 were RMB 58.6 million, a 78.8% decrease from the corresponding period in 2018 primarily as a result of a decrease in aggregate value of wealth management products distributed by the company.

Net revenues from recurring management fees for the first quarter of 2019 were RMB 192.2 million, a 56.4% increase from the corresponding period in 2018 primarily due to an increase of carried interest recognized in this period. RMB 127.4 million and RMB 20.7 million carried interest were recognized as part of Jupai's recurring management fees in the first quarter of 2019 and '18, respectively.

Net revenues from recurring service fees for the first quarter of 2019 were RMB 16.3 million, an 8.2% increase from the corresponding period in 2018 primarily because the company provided ongoing services to more product suppliers. The company recognized no variable performance fees in the first quarter of both 2019 and '18.

Net revenues from other service fees for the first quarter of 2019 were RMB 13.9 million, a 26.1% decrease from corresponding period in 2018 primarily due to a decrease in sub-advisory fees collected from other companies.

Operating costs and expenses for the first quarter of 2019 were RMB 292.9 million, a 4.3% increase from the corresponding period in 2018.

While we saw decreases in selling expenses, G&A expenses for the first quarter, there was an increase in our cost of revenue, largely due to increased compensations to wealth management advisers and client managers.

Operating margin for the first quarter of 2019 was minus 4.2% compared to 35.2% for the corresponding period in 2018.

Net loss attributable to ordinary shareholders for the first quarter of 2019 was RMB 25.6 million compared to net income attributable to ordinary shareholders of RMB 115.9 million for the corresponding period in 2018.

Net margin attributable to ordinary shareholders for the first quarter of 2019 was minus 9.1% compared to 26.7% for the corresponding period in 2018.

Net loss attributable to ordinary shareholders per basic and diluted ADS for the first quarter of 2019 were RMB 0.76 and RMB 0.76, respectively, as compared to net income attributable to ordinary shareholders per basic and diluted ADS of RMB 3.5 and RMB 3.3, respectively, for the corresponding period in 2018.

Non-GAAP net loss attributable to ordinary shareholders for the first quarter of 2019 was RMB 22.6 million compared to non-GAAP net income attributable to ordinary shareholders of RMB 126.1 million from the corresponding period in 2018.

Non-GAAP net margin attributable to ordinary shareholders for the first quarter of 2019 was minus 8.1% as compared to 29.1% for the corresponding period in 2018.

Non-GAAP net loss attributable to ordinary shareholders per diluted ADS for the first quarter of 2019 was RMB 0.67 as compared to net income attributable to ordinary shareholders per diluted ADS of RMB 3.59 for the corresponding period in 2018.

Looking to our balance sheet and the cash flow. As of March 31, 2019, the company had RMB 1,066.4 million in cash and cash equivalents and restricted cash compared to RMB 1,302.6 million as of December 31, 2018. Net cash provided by operating activities during the first quarter of 2019 was RMB 3.4 million.

Net cash used in investing activities during the first quarter of 2019 was RMB 239.6 million. Net cash provided by financing activities during the first quarter of 2019 was RMB 29.6 thousand.

That concludes our prepared remarks. I will now turn the call back to the operator to begin the Q&A session. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) First question comes from the line of Haifeng Cao of UBS.

--------------------------------------------------------------------------------

Haifeng Cao, UBS Investment Bank, Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

I have one question. So Jupai's operating results have been facing a lot of challenges over the past few quarters. Can you share with us your view on the company's outlook for the second quarter and the rest of the year? And what have you been to adapt Jupai to the changes and challenges in such a market environment?

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [3]

--------------------------------------------------------------------------------

Thank you, Haifeng. Let me do the translation for the Chairman.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [4]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [5]

--------------------------------------------------------------------------------

[Interpreted] Over the past few quarters, Jupai together with the overall wealth management industry has been facing various challenges and unexpected changes.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [6]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [7]

--------------------------------------------------------------------------------

[Interpreted] In terms of the macroeconomy back in 2018, the government continued to encourage deleveraging within the overall economy and return from simply pursuing GDP growth to pursuing better quality and structure of GDP growth, which had led to concerns over the slowdown in the overall economy.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [8]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [9]

--------------------------------------------------------------------------------

[Interpreted] With respect to the wealth management industry, the government started to impose more strict policies on the wealth management industry, forcing wealth management companies to adjust their business model and product strategy to adapt to the tightened regulatory requirement.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [10]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [11]

--------------------------------------------------------------------------------

[Interpreted] Regarding the real estate market, to which most of Jupai's products are related and exposed, the real estate market in the Tier 1 and Tier 2 cities has been weak over the past few quarters, making the investors lacking of confidence in the real estate-related investments.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [12]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [13]

--------------------------------------------------------------------------------

[Interpreted] Additionally, the intensified trade conflict between U.S. and China has led to rising uncertainties in the outlook of global economy. All above -- all the above factors had resulted in weak investor confidence and sentiment as well as highly challenging environment for Jupai to operate in.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [14]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [15]

--------------------------------------------------------------------------------

[Interpreted] Looking forward, we expect the macroeconomic outlook to remain uncertain and the market environment to remain challenging in the medium term. Given the macroeconomic uncertainties, we believe investor confidence will return gradually in late 2019.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [16]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [17]

--------------------------------------------------------------------------------

[Interpreted] And specifically on our operating performance in the second quarter of 2019, we expect our bottom line to show some sort of quarter-over-quarter recovery if we exclude the effect from the RMB 120 million performance fee income we recognized from our disposal of Focus Media shares in the first quarter.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [18]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [19]

--------------------------------------------------------------------------------

[Interpreted] From a long-term perspective, amid the prolonged market downturn, Jupai will continue to work on 2 fronts: firstly, enhancing our product to drive our sales; and secondly, improving our operating efficiency to lower our operating costs.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [20]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [21]

--------------------------------------------------------------------------------

[Interpreted] On the product side, as we mentioned in our prepared remarks, we will look to grow our real estate equity products more proactively and develop overseas products such as overseas insurance. We believe that real estate remains an asset class with relatively lower investment risks compared to other categories such as consumer credit products or supply chain products. The rising funding costs and the current volatility in the real estate industry create such excellent entry point for investor to gain exposure to equity from leading real estate companies.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [22]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [23]

--------------------------------------------------------------------------------

[Interpreted] For example, we have launched the [Rising Star Fund], our real estate equity flagship product. Jupai collaborates with top 100 real estate developers in this fund that have strong brand and scale, quality land reserve portfolios and solid operating efficiencies.

Jupai also selects projects located in wealthier regions, including Yangtze River Delta, Pearl River Delta and the Beijing-Tianjin-Hebei regions to ensure the quality of our products. Given Jupai's abundant experience within the real estate industry, we are strongly positioned to identify the best quality real estate projects for our investors.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [24]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [25]

--------------------------------------------------------------------------------

[Interpreted] Regarding our overseas business, Jupai looks to promote our overseas insurance product and global PE products to meet the rising demand of global asset allocation from our clients. We will continue to strengthen our collaborations with leading global financial institutions such as Blackstone, Brookfield, Carlyle and Oaktree to provide quality global PE products to our clients.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [26]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [27]

--------------------------------------------------------------------------------

[Interpreted] On the cost savings side, since the second half of 2018, we have increasingly motivated our staff mainly through optimizing our incentive program and raising the performance requirement bar. In addition, we have effectively streamlined our talent resources. We look to reduce the number of client managers as well as the number of cities covered and client centers. Based on our current plan, we target to reduce the number of our overall headcount to below 1,500 staff by the end of 2019.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [28]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [29]

--------------------------------------------------------------------------------

[Interpreted] Moreover, we have also adopted other cost control measures, including consolidating our office locations. This cost control measure will take time to materialize and we expect the positive effect from this measure to more meaningfully contribute to our earnings in the next 2 quarters, for example, towards the end of 2019.

--------------------------------------------------------------------------------

Jianda Ni, Jupai Holdings Limited - Chairman of the Board & CEO [30]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Harry He, Jupai Holdings Limited - Director of IR [31]

--------------------------------------------------------------------------------

[Interpreted] In short, during this period of industry transition, Jupai will continue to focus on developing quality and innovative wealth management products and greatly enhancing operating efficiency, which will allow the company to seize market opportunities when the overall industry recovers.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

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, Jupai Holdings Limited - Director of IR [33]

--------------------------------------------------------------------------------

This concludes today's call. If you have any follow-up questions, please get in contact with us. Thank you.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

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

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]