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Edited Transcript of JP earnings conference call or presentation 5-Aug-19 12:00pm GMT

Q2 2019 Jupai Holdings Ltd Earnings Call

SHANGHAI Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Jupai Holdings Ltd earnings conference call or presentation Monday, August 5, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Harry He

Jupai Holdings Limited - Director of IR

* Jianda Ni

Jupai Holdings Limited - Chairman of the Board & CEO

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Conference Call Participants

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* Haifeng Cao

UBS Investment Bank, Research Division - Research Analyst

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Presentation

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Operator [1]

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

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

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

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Hello, everyone, and welcome to Jupai's earnings conference call for the second quarter ended June 30, 2019.

Leading the call today is Mr. Jianda Ni, our Chairman and CEO, who will review the highlights for the second 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.

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

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(foreign language)

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

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

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

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(foreign language)

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

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[Interpreted] Although the second quarter of 2019 remained challenging for Jupai, we saw initial signs of stabilization in our core business.

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

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(foreign language)

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

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[Interpreted] Despite sustained weakness in investor confidence, our cost control efforts began to pay off, adding to our bottom line performance in the second quarter. If the performance fee income from the disposal of Focus Media shares was excluded from our first quarter results, our net loss attributable to ordinary shareholders in the second quarter would represent a substantial recovery from the first quarter.

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

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(foreign language)

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

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[Interpreted] Jupai will continue to execute our 3 strategies to optimize our business and enhance profitability.

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

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(foreign language)

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

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[Interpreted] Firstly, we will continue to develop our real estate equity products, as we believe that real estate remains an asset class with relatively low investment risk, especially compared with asset categories such as consumer credit and the supply chain management products.

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

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(foreign language)

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

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[Interpreted] Secondly, we will enhance our risk control system to further build investor confidence.

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

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(foreign language)

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

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[Interpreted] Thirdly, we target to achieve incremental growth in our overseas business. We believe that these strategies will help Jupai capture market opportunities as investor sentiment and the wealth management industry recover.

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

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(foreign language)

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

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

Thank you, Ni Jian. The various cost control measures that Jupai began implementing several quarters ago have begun to bear fruit. We are encouraged to see overall operating expenses, especially our cost of revenue, decline on a year-over-year basis for the first time this quarter.

We expect to realize additional cost reductions in the coming quarters as we further downsize our workforce, amend our incentive schemes, optimize our coverage network and streamline our business operating procedures.

Now let me walk you through our financial highlights for the second quarter and the first half of 2019.

Net revenues for the second quarter of 2019 were CNY 185.9 million, a 58.1% decrease from the corresponding period in 2018, primarily due to decreases in both onetime commissions and recurring management fees. Net revenues were CNY 466.9 million for the first half of 2019, a decrease of 46.7% from the same period in 2018.

Net revenues from onetime commissions for second quarter of 2019 were CNY 86.5 million, a 69.3% decrease from corresponding period in 2018, primarily as a result of decrease in aggregate value of wealth management product distributed by the company.

For the first half of 2019, net revenues from onetime commissions were CNY 141 -- CNY 145.1 million, a decrease of 74% from the same period in 2018.

Net revenues from recurring management fees for second quarter of 2019 were CNY 67.8 million, a 44.3% decrease from the corresponding period in 2018, primarily due to the decrease in the value of assets under management.

CNY 11.1 million and CNY 23.3 million carried interests were recognized as part of Jupai's recurring management fees in the second quarter of 2019 and 2018, respectively.

For the first half of 2019, net revenues from recurring management fees were CNY 260 million, a 6.3% increase from the same period in 2018. CNY 138.5 million and CNY 44 million carried interest was recognized as part of Jupai's recurring management fees for the first half of 2019 and the same period of 2018, respectively.

Net revenues from recurring service fees for the second quarter of 2019 were CNY 31.6 million, a 176.5% increase from corresponding period in 2018, primarily because the company provided ongoing services to more product suppliers. The company recognized CNY 0 and CNY 0.3 million variable performance fees in the second quarter of 2019 and 2018, respectively.

For the first half of 2019, net revenues from recurring service fees were CNY 47.9 million, an 80.8% increase from the same period in 2018.

The company recognized CNY 0 and CNY 0.3 million variable performance fees for the first half of 2019 and in the same period in 2018, respectively.

Net revenues from other service fees for the second quarter of 2019 were 0% and a 100% decrease from the corresponding period in 2018, primarily due to no sub-advisory service provided to other companies.

For the first half of 2019, net revenues from other service fees were CNY 13.9 million, a decrease of 70.4% from the same period in 2018.

Operating costs and the expenses for the second quarter of 2019 were CNY 241 million, a 14.9% decrease from the corresponding period in 2018.

While we saw decreases in cost of revenue and the selling expenses, thanks to our cost control measures, there was an increase in G&A expenses, largely due to provision for doubtful accounts of CNY 31.7 million and a service fee for client relation maintenance.

For the first half of 2019, operating costs and the expenses were CNY 533.9 million, a decrease of 5.3% from the same period in 2018.

Operating margin for the second quarter of 2019 was minus 29.7% compared to 36.1% for the corresponding period in 2018.

For the first half of 2019, operating margin was minus 14.3% compared to 35.7% for the same period in 2018.

Net loss attributable to ordinary shareholders for the second quarter of 2019 was CNY 61 million compared to net income attributable to ordinary shareholders of CNY 87.8 million from the corresponding period in 2018.

For the first half of 2019, net loss attributable to ordinary shareholders was CNY 86.6 million compared to net income attributable to ordinary shareholders of CNY 203.7 million from the same period in 2018.

Net margin attributable to ordinary shareholders for the second quarter of 2019 was a minus 32.8% compared to 19.8% for the corresponding period in 2018.

For the first half of 2019, net margin attributable to ordinary shareholders was minus 18.6% compared to 23.2% for the same period in 2018.

Net loss attributable to ordinary shareholders per basic and the diluted American depositary shares for the second quarter of 2019 was CNY 1.82 and CNY 1.82, respectively.

As compared to net income attributable to ordinary shareholders per basic and a diluted ADS of CNY 2.63 and CNY 2.49, respectively, for the corresponding period in 2018.

For the first half of 2019, net loss attributable to ordinary shareholders per basic and a diluted ADS was CNY 2.58 and CNY 2.58, respectively, as compared to net income attributable to ordinary shareholders per basic and a diluted ADS of CNY 6.12 and CNY 5.79, respectively, for the same period in 2018.

Non-GAAP net loss attributable to ordinary shareholders for the second quarter of 2019 was CNY 58.6 -- 50.8 -- CNY 58.6 million compared to non-GAAP net income attributable to ordinary shareholders of CNY 115.5 million from the corresponding period in 2018.

For the first half of 2019, non-GAAP net loss attributable to ordinary shareholders was CNY 81.3 million compared to non-GAAP net income attributable to ordinary shareholders of CNY 241.6 million from the same period in 2018.

Non-GAAP net margin attributable to ordinary shareholders for the second quarter of 2019 was minus 31.5% as compared to 26% for the corresponding period in 2018.

For the first half of 2019, non-GAAP net margin attributable to ordinary shareholders was minus 17.4% as compared to 27.6% for the same period in 2018.

Non-GAAP net loss attributable to ordinary shareholders per diluted ADS for the second quarter of 2019 was CNY 1.74 as compared to net income attributable to ordinary shareholders per diluted ADS of CNY 3.28 for the corresponding period in 2018.

For the first half of 2019, non-GAAP net loss attributable to ordinary shareholders per diluted ADS was CNY 2.42 as compared to non-GAAP net income attributable to ordinary shareholders per diluted ADS of CNY 6.87 for the same period in 2018.

Looking to our balance sheet and cash flow as of June 30, 2019, the company had CNY 1,119.3 million in cash and the cash equivalents and the restricted cash compared to CNY 1,302.6 million as of December 31, 2018.

Net cash used in operating activities during the second quarter of 2019 was CNY 127.9 million. For the first half of 2019, net cash used in operating activities was CNY 124.5 million.

Net cash provided by investing activities during the second quarter of 2019 was CNY 180.7 million.

For the first half of 2019, net cash used in investing activities was CNY 58.8 million. Net cash provided by financing activities during the second quarter of 2019 was CNY 0. For the first half of 2019, net cash provided by financing activities was CNY 29,600. Given the high uncertainty in current macro environment, management believes that they will be more prudent for us to seize providing specific guidance on financial outlook. However, we do plan to offer investor official guidance again when industry and the market outlook becomes clear.

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

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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 Haifeng Cao from UBS.

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

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I have one question, if I may. And I'm actually happy to know that Jupai's business performance has started to show some initial signs of stabilization in the second quarter. I'm just wondering what are the measures taken? And what are the management's expectation or outlook for Jupai and the overall industry in the third quarter? And can you give us some color on your strategy going forward? This is my question.

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

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Sure, sure, Haifeng. Let me do the translation for the Chairman. Just hold on for a second.

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

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(foreign language)

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

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[Interpreted] For the benefits of other audience may limit to this translation. The overall environment remained tough in the second quarter of 2019 for the entire wealth management industry. From the macro point -- from the macroeconomic point of view, as we're mentioning in our previous earning calls, since early 2018, the government has accelerated the deleveraging of the overall economy and significantly tightened the regulatory requirement and supervision on the financial institutions. This change has led to extremely tight cash cycles for many enterprises, some of which fail to adjust their business model in a timely manner and were even pushed towards the edge of bankruptcy. This has caused a ripple effect to negatively impact their counterparties, which are financial institutions, such as private equity firm and wealth management companies and led to much negative news coverage on the wealth management industry over the past quarters. In our view, these short-term pains are unavoidable on the path to healthy long-term economic growth. However, we cannot deny that such short-term pains have negatively influenced investor's confidence in the near term. Additionally, international, political and economic instability has also made investors more conservative.

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

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(foreign language)

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

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[Interpreted] In this conservative fear, Jupai remained under pressure in the second quarter of 2019. Nonetheless, on the bottom line perspective, we started to reduce our net loss in the second quarter, as various cost control measures we have undertaken over the past quarters began to pay off. If we exclude the impact from the disposal of Focus Media shares from our results in the first quarter, we reduced our loss from operations from approximately CNY 120 million in the first quarter of 2019 to about CNY 55 million in the second quarter.

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

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(foreign language)

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

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[Interpreted] Jupai began implementing various cost control measures since the mid of 2018. And this was the first quarter in which our operating expenses declined year-over-year. In particular, our cost revenues declined about 37.6% year-over-year in the quarter, as we optimized our compensation and incentive schemes and streamlined our headcount and the coverage network.

In terms of headcount reduction, Jupai reduced our number of stuff from around 2,500 at the beginning of 2018 to approximately 1,300 as of June 30, 2019. We also convened our net -- coverage network from 72 offices covering 46 cities at the beginning of 2018 to 61 office covering 45 cities as of June 30, 2019.

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

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(foreign language)

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

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[Interpreted] Looking forward, we believe that investor confidence will be slow to recover as we expect concerns -- as we expect our concerns over the slowdown in domestic economic growth and the instability in international market will still continue. As a result, our market environment will likely remain challenging for both the wealth management industry and the Jupai in the coming quarter.

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

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(foreign language)

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

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[Interpreted] In light of the bearish market sentiment, we will continue to make efforts to enhance Jupai's operating efficiency. We believe that there will be room for further reduction in our operating expenses in the third quarter. We will remain dedicated to executing our 3 core strategies and meet this industry uncertainty. Firstly, we will enhance our overwhelming product and improve our product structure through further diversification of product lines. Second -- secondly, we will strengthen our risk control system across the entire life cycle of our products. Thirdly, we will continue to expand our overseas business to achieve incremental growth in our business.

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

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(foreign language)

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

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[Interpreted] In terms of our product, in addition to real estate fixed income product in which Jupai has significant competitive advantages, we will continue to promote our real estate equity products. We believe that real estate remains an asset class with relatively low investment risk, especially compared with asset categories such as consumer credit and supply chain management products. Moreover, as real estate companies continue to face rising cost of capital and increasing volatility in the real estate market, we feel it is now a great time for investor to get into the equity investments in leading real estate enterprises.

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

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(foreign language)

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

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[Interpreted] In addition, we will continue to strengthen our risk control schemes and also enhance the transparency of the management of the underlying assets and projects of our products, which could allow investor to get involved in the process such as project selection, product research and the development.

Additionally, Jupai is focusing on upgrading our risk management with a holistic approach, including raising the quality threshold of counterparties of the underlying assets and the projects of our products and raising the risk management awareness of our customers.

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

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(foreign language)

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

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[Interpreted] In terms of overseas business, as we mentioned earlier in this call, Jupai has made a progress in overseas business over the past year. We will continue to expand our overseas product offering to better fulfill investors' needs for global asset allocation.

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

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(foreign language)

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

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[Interpreted] In summary, immediate -- this immediate -- the current industry downturn will remain dedicated to providing superior quality and innovative wealth management products to our customers and improving our operating efficiencies.

With the 3 strategies in place, we're confident that Jupai will be well positioned to capture market opportunities when the market recovers and to create values for our customers and the shareholders.

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Operator [22]

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

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

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

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Operator [24]

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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.]