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Edited Transcript of SFUN earnings conference call or presentation 18-Nov-19 12:00pm GMT

Q3 2019 Fang Holdings Ltd Earnings Call

Beijing Dec 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Fang Holdings Ltd earnings conference call or presentation Monday, November 18, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jessie Yang

Fang Holdings Limited - Director of IR

* Jian Liu

Fang Holdings Limited - President & CEO

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Conference Call Participants

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* Xiaomeng Zhuang

BofA Merrill Lynch, Research Division - Associate

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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 Quarter 3 2019 Fang Holdings Limited Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Ms. Jessie Yang. Please go ahead.

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Jessie Yang, Fang Holdings Limited - Director of IR [2]

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Thank you, operator. Hi, everyone, and welcome to Fang Holdings Third Quarter 2019 Earnings Conference Call. Joining us today to discuss Fang's results are CEO, Mr. Jian Liu; and acting CFO, Zijin Li. 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 risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Fang assumes no obligation to update the forward-looking statements in this conference call and elsewhere. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC, including our form 20-F.

Now I would like to walk you through our third quarter 2019 financials, after which Mr. Liu and Mr. Li will answer your questions for the Q&A session.

Fang reported total revenues of $67.6 million in the third quarter of 2019, an increase of 11.8% from $60.4 million in the corresponding period of 2018, mainly due to the increase in revenues from marketing and leads generation services. Revenue for marketing services was $30 million in the third quarter of 2019, an increase of 16.1% from $25.8 million in the corresponding period of 2018, driven by Fang's efforts in customer development. Revenue from listing services was $19.4 million in the third quarter of 2019, a decrease of 3.7% from $20.2 million in the corresponding period of 2018. Revenue from leads generation services was $14.1 million in the third quarter of 2019, an increase of 181% from $5 million in the corresponding period of 2018, driven by the increased effectiveness of the service and customer development.

Revenue from financial services was $1.7 million in the third quarter of 2019, a decrease of 69.7% from $5.6 million in the corresponding period of 2018 due to a decrease in average loan receivable balances.

Cost of revenue was $5.7 million in the third quarter of 2019, a decrease of 59.3% from $14.0 million in the corresponding period of 2018 primarily due to optimization and cost structure. Operating expenses were $35.1 million in the third quarter of 2019, a decrease of 3.2% from $36.3 million in the corresponding period of 2018 mainly due to a decrease in staff cost.

Selling expenses were $14.8 million in the third quarter of 2019, a decrease of 10.7% from $16.6 million in the corresponding period of 2018.

General and administrative expenses were $21.7 million in the third quarter of 2019, a decrease of 7.1% from $23.4 million in the corresponding period of 2018. Operating income from continuing operations was 27 -- $26.7 million in the third quarter of 2019, an increase of 164.8% from $10.1 million in the corresponding period of 2018.

Change in fair value of securities for the third quarter of 2019 was a loss of $26.1 million compared to a loss of $10.9 million in the corresponding period of 2018, mainly due to the fluctuation in market price of investments in equity securities.

Income tax benefits were $0.1 million in the third quarter of 2019, a decrease of 97.8% compared to income tax benefits of $5.4 million in the corresponding period of 2018.

Net income was $0.7 million in the third quarter of 2019, a decrease of 92.8% compared to net income of $10.2 million in the corresponding period of 2018. Based on current operations and market conditions, Fang's management remains confident that net income is expected to be positive for the fiscal year ending December 31, 2019. This estimate represents management's current and preliminary view, which is subject to change.

Thank you everyone for joining the call today, 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) We have the first question comes from the line of Miranda Zhuang from Bank of America.

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Xiaomeng Zhuang, BofA Merrill Lynch, Research Division - Associate [2]

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So as a first question regarding the online marketing services industry, so can management give us any color on how is the property developers are spending trending in second half of this year? And what's your expectation for next year?

My second question is about the -- so can management work out through the initiatives that you've taken to drive the growth momentum for your marketing service and also for your leads generation services?

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Jessie Yang, Fang Holdings Limited - Director of IR [3]

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Miranda, can you repeat your question again in Chinese, please?

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Xiaomeng Zhuang, BofA Merrill Lynch, Research Division - Associate [4]

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Sure. Sure. (foreign language)

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Jian Liu, Fang Holdings Limited - President & CEO [5]

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Okay. (foreign language)

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Jessie Yang, Fang Holdings Limited - Director of IR [6]

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[Interpreted] Okay. So I will translate. So the first question was about marketing and the advertising market for real estate developers and how they are spending -- their spending patterns. And the response is, developers been very cautious in their spending and this is related to the pace of sales and real estate market in general. And they will choose the most effective and cost-effective means to promote themselves and their projects, and Fang remains the preferred channel, whether or not advertisers have been increasing or decreasing their spending. And this is why our marketing has increased for the third quarter.

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Jian Liu, Fang Holdings Limited - President & CEO [7]

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(foreign language)

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Jessie Yang, Fang Holdings Limited - Director of IR [8]

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[Interpreted] So for marketing and leads generation's growth, because Fang is the preferred channel for advertisers and real estate developers, we have updated on our technology and applications, including live streamed videos, which are -- and videos, which are very popular in today's 5G environment, and we would remain the leader in these applications and these marketing tools. And that is why real estate developers have preferred to spend their spending dollars with us. And in terms of marketing, in the past, we had a closer relationship to real estate developers, and now we are approaching the real estate brokers directly by providing them with such tools and services to increase the effectiveness and results for them.

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Jian Liu, Fang Holdings Limited - President & CEO [9]

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(foreign language)

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Jessie Yang, Fang Holdings Limited - Director of IR [10]

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[Interpreted] So in terms of -- so the previous section was about marketing and advertising revenue, and now we will talk about leads generation revenue. And clients have increased their demand for accurate leads generation. So part of our increase in revenue is meeting this market demand. Now where you've seen technology and our product and new methods to profile the needs of our clients and better match them with the needs of their clients, and this not only increases effectiveness for them, but it also increases the effectiveness of our own product, and helps us to improve our own platform to better service our clients as well as to meet their clients' needs.

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Xiaomeng Zhuang, BofA Merrill Lynch, Research Division - Associate [11]

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(foreign language) So I have one follow-up question. So yes, we have seen that live broadcasting has been trending very fast in China, especially in the e-commerce space. So just curious, how will Fang monetize for the live broadcasting on the new home space? And also the other question is about, is there any update for the potential spinoff for the core business?

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Jian Liu, Fang Holdings Limited - President & CEO [12]

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(foreign language)

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Jessie Yang, Fang Holdings Limited - Director of IR [13]

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[Interpreted] So in terms of the question about live broadcasting and its usage in real estate, at the moment it's very suitable for the internet environment as well as the habits of our clients because you can directly engage with customers online, and this increases the effectiveness of the advertising. In real estate, it's not very much like e-commerce, where it's not as direct as e-commerce. And so this new application in real estate increases the effectiveness of advertising. However, we are exploring possibilities to see if it's possible to also increase the direct effect as it would, for example, in e-commerce situations.

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Jian Liu, Fang Holdings Limited - President & CEO [14]

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(foreign language)

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Jessie Yang, Fang Holdings Limited - Director of IR [15]

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[Interpreted] So the spinoff is still in the process. So because of that, we won't talk too much about it because it's still in the process, there hasn't -- there's no (inaudible).

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Operator [16]

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(Operator Instructions) The next questions comes from the line of (inaudible) from 86Research.

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Unidentified Analyst, [17]

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Congratulations on the good results. I have a question about the new home products you mentioned previously. We noticed that your competitors like (inaudible) also has some new product about new home. So I would like to ask, what do you think of that competitive landscape in the future?

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Jian Liu, Fang Holdings Limited - President & CEO [18]

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(foreign language)

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Jessie Yang, Fang Holdings Limited - Director of IR [19]

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[Interpreted] So to answer the question about new home products, particularly by (inaudible). It could be their channel's cooperation product and it's one of their business decisions. The market is a bit complicated, especially in the real estate sales at the moment. And -- so there are also sales that combines new and resale markets, and whether one can maintain high profits is questionable, however, for us, we will focus on our core businesses of internet marketing, listing, and leads generation services.

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Jian Liu, Fang Holdings Limited - President & CEO [20]

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(foreign language)

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Jessie Yang, Fang Holdings Limited - Director of IR [21]

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[Interpreted] So Fang remains an open platform, and currently in our industry, it's very popular for brokers to combine new and resale homes, including for companies like [Baker] and other real estate broker agencies. Our platform is more diverse and more effective, and we are focused on internet online methods, and not offline methods at the moment. Yes.

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Operator [22]

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(Operator Instructions) Next we have the follow-up question from the line of (inaudible) from 86Research.

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Unidentified Analyst, [23]

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Maybe I have a follow-up question on the new home industry. Could you share -- could you please share us the outlook for the new home industry in China for the next 3 to 5 years? You mentioned that new home industry situation is relative -- complicated previously.

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Jian Liu, Fang Holdings Limited - President & CEO [24]

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Okay. It's (foreign language)

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Jessie Yang, Fang Holdings Limited - Director of IR [25]

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[Interpreted] So 3 to 5 years is a rather long-term outlook. And our understanding of the new home market is that it will always exist, and the next year, for example, we see the market to be more stable from both a real estate developer's perspective as well as land purchasing and financing, et cetera. Also from a macro policy perspective, including financial policies, it's also a very mature environment where the policies want the market to be growing stably. It will not be very -- a frozen market with no sales, but it will also be not be very fast-growing -- a hot market. Also, homebuyers have become more mature, from not understanding the market very well to having a very mature understanding of the market, and these are a few perspectives that we are all hoping to see.

From a service provider's perspective such as Fang, we are more and more focused on our products and services, and the application and use of data and technology to increase the efficiency in this market and to bring better services to the real estate market as a whole, and this is overall a sign of a mature market.

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Jian Liu, Fang Holdings Limited - President & CEO [26]

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(foreign language) Okay.

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Jessie Yang, Fang Holdings Limited - Director of IR [27]

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[Interpreted] So -- and based on these trends, developers with high debt will basically fully exit the market, either through M&A or they will just exit by themselves. And this is also another view that we have.

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Operator [28]

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(Operator Instructions) There are no further questions at this time. I would now like to hand the conference back to Jessie. Please continue.

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Jessie Yang, Fang Holdings Limited - Director of IR [29]

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Thank you, and thanks again to everyone for joining the call today. We look forward to speaking with you soon for our fourth quarter 2019 earnings call. Thank you.

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Operator [30]

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