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Edited Transcript of SFUN earnings conference call or presentation 30-Aug-19 12:00pm GMT

Q2 2019 Fang Holdings Ltd Earnings Call

Beijing Sep 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Fang Holdings Ltd earnings conference call or presentation Friday, August 30, 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 the Q2 2019 Fang Holdings Limited Earnings Conference Call. My name is Albert, and I will be your operator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call 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. Hello, everyone, and welcome to Fang Holdings' Second Quarter 2019 Earnings Conference Call. Joining us today to discuss Fang's results are CEO, Mr. Jian Liu; and acting CFO, Mr. 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 uncertainty. 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 second 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 second quarter of 2019, an increase of 6.8% from $63.3 million in the corresponding period of 2018, mainly due to the increase in revenues from marketing services.

Revenue from marketing services was $32.5 million in the second quarter of 2019, an increase of 19.3% from $27.2 million in the corresponding period of 2018, driven by Fang's efforts in customer development. Revenue from listing services was $19.2 million in the second quarter of 2019, a decrease of 26% from $26 million in the corresponding period of 2018, mainly due to the decrease of paying members in listing services.

Revenue from leads generation services was $10.8 million in the second quarter of 2019, an increase of 290.2% from $2.8 million in the corresponding period of 2018, driven by the increased effectiveness of the service and customer development. Revenue from financial services was $2.6 million in the second quarter of 2019, a decrease of 3.2% from $2.7 million in the corresponding period of 2018.

Cost of revenue was $8.3 million in the second quarter of 2019 compared to $8.4 million in the corresponding period of 2018. Operating expenses were $30.3 million in the second quarter of 2019, a decrease of 53% from $64.5 million in the corresponding period of 2018, mainly due to the decrease in bad debt and staff costs.

Selling expenses were $16.1 million in the second quarter of 2019, an increase of 12.5% from $14.3 million in the corresponding period of 2018. G&A expenses were $15.7 million in the second quarter of 2019, a decrease of 69.1% from $50.7 million in the corresponding period of 2018, mainly due to the decrease in bad debt and staff costs.

Operating income from continuing operations was $29 million in the second quarter of 2019 compared to operating loss from continuing operations of $9.6 million in the corresponding period of 2018, mainly due to the decrease in operating expenses.

Change in fair value of securities for the second quarter of 2019 was a loss of $48.5 million compared to a loss of $82.9 million in the corresponding period of 2018, mainly due to the fluctuation in market price of investments in equity securities.

Income tax benefits were $20.6 million in the second quarter of 2019, a decrease of 27.2% compared to income tax benefits of $28.3 million in the corresponding period of 2018, primarily due to the effect of change in fair value of equity securities and the reversal of previously reported ASC 740 (FIN 48) income taxes and interest.

Net income was $4.2 million in the second quarter of 2019 compared to a net loss of $53.5 million in the corresponding period of 2018. As of June 30, 2019, Fang had cash and cash equivalents, restricted cash, current and noncurrent, and short-term investments of $500.6 million compared to $439.7 million as of December 31, 2018.

Now I would like to walk you through our first half 2019 results. Fang reported total revenues of $102.6 million in the first half year of 2019, a decrease of 8.7% from $112.3 million in the corresponding period of 2018.

Revenue from marketing services was $45.7 million in the first half year of 2019, an increase of 5.3% from $43.4 million in the corresponding period of 2018, driven by Fang's efforts in customer development. Revenue from listing services was $31.4 million in the first half of 2019, a decrease of 29.7% from $44.6 million in the corresponding period of 2018, mainly due to the decrease of paying members in listing services.

Revenue from leads generation services was $14.8 million in the second quarter of 2019, an increase of 281.2% from $3.9 million in the corresponding period of 2018, driven by the increased effectiveness of the service and customer development. Revenue from financial services was $6.1 million in the first half of 2019, a decrease of 21.1% from $7.8 million in the corresponding period of 2018. Cost of revenue was $16.7 million in the first half of 2019, a decrease of 34.2% from $25.4 million in the corresponding period of 2018, primarily due to cost savings from optimizing Fang's core business.

Operating expenses were $68.6 million in the first half of 2019, a decrease of 36% from $107.2 million in the corresponding period of 2018, mainly due to the decrease in bad debt and staff costs. Selling expenses were $32.5 million in the first half year of 2019, an increase of 16.9% from $27.7 million -- $27.8 million in the corresponding period of 2018. G&A expenses were $38.1 million in the first half year of 2019, a decrease of 52.6% from $80.2 million in the corresponding period of 2018, mainly due to the decrease in bad debt and staff costs.

Operating income from continuing operations was $17.2 million in the first half year of 2019 compared to an operating loss from continuing operations of $20.2 million in the corresponding period of 2018, mainly due to the decrease in operating expenses. Change in fair value of securities for the first half year of 2019 was a loss of $16.5 million compared to a loss of $125.2 million in the corresponding period of 2018, mainly due to the fluctuation in market price of investments in equity securities.

Income tax benefits were $9.5 million in the first half year of 2019, a decrease of 71.7% from $33.5 million in the corresponding period of 2018, primarily due to the effect of change in fair value of equity securities and the reversal of previously recorded ASC 740 (FIN 48) income taxes and interest. Net income was $17.6 million in the first half of 2019 compared to a net loss of $98.4 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. I want to thank, everyone, for joining our call 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 Miranda Zhuang of Bank of America.

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

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Congratulations on the good results. We noticed that the marketing service revenue grew -- turned to a positive strong growth this quarter, so can management share with us like what's the reason behind this? And then how should we think about this revenue line in the second half of this year? And then my second question is about the overall industry dynamics, so can management share with us your outlook for the property advertising budget overall for the industry? How is it trending? Do you see any like dilution or -- and from the -- for example, competition of the property developers sales channel fees towards the online advertising? And the reason is because we have seen that mainly like listing platforms like (inaudible), like (inaudible).

They are working with primary home agents to work on this new home plus secondary home connected sales to get more budget in sales channel fees. So do you see any impact to that -- to the online marketing budgets from that? And then my third question is, we have seen the leads generation service growing very strongly this quarter. And so can management share with us any like underlying matrix for this business, for example, like the number of paying agents or paying developers? And then the ARPU? And then how should we think about the business to trend in the second half of this year? Sorry for many questions. My last question is, does management have any update on the potential spinoff of the advertising and listing business this year?

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

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Okay. Miranda just let me translate for a second, and then our CEO will answer the questions.

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Jian Liu, Fang Holdings Limited - President & CEO [4]

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(foreign language)

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Jessie Yang, Fang Holdings Limited - Director of IR [5]

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[Interpreted] One second and I will translate shortly. Okay. So Miranda's question has 4 parts. The first part was about marketing. And for marketing in the second quarter, we grew 19%. And this is because we increased in terms of management and operations to the new home business within Fang Holdings. Marketing -- in the marketing business industry, Fang is still the first choice for many developers in terms of being a platform. And it's clear that there are very few competitors in this field that can do what we do. And we have the advantage of being straight -- a straight vertical and this is one of the drivers for our growth. And another driver is our innovation and such as new services like online live videos. Those also contribute to the growth of the marketing line of business.

The second question was about leads generation. Now this is the first time we separated leads generation from marketing. And this is because the revenues have reached a certain scale. It's very important in terms of direction for us both for operations and strategy. And this is one of our main focus going forward. And we have seen the effects of leads generation business in terms of connecting users and our clients. We have our initiative called [K-plus] and what it is, is through online telephones, instant messages, targeted data to produce leads for our clients. And what it is, is it guides quickly our clients to the potential users and users would demand for buying homes.

And the revenues and the numbers are showing its effectiveness that we have achieved, and we have also gained very good recognition in the market for this service. So in terms of strategy, execution and operation, this is one of the main focuses of Fang going forward.

The third question was about the budget of developers. Specifically, we see a lot of agents, for example, linking primary and secondary home sales. The developers are closely related to the real estate market. And for example, they adopt -- we see them adopting primary and secondary home sales agents and selling together. And the developers want to use multiple channels. They want to use these specific channels, the primary plus secondary, but they also want to control these channels because they are very costly. So they do want to use different channels for sales, and our advertising platform is one of these channels that they need as well as our leads generation services. So our leads generation services is not only limited to developers but it is also open to real estate agents. So in terms of primary and secondary homes, both developers and agents can use the leads generation service. So as long as market participants have the need for finding clients' demand for purchasing homes, this is a very good service and platform going forward.

And the last question was an update on the spinoff of the marketing and listing service. There is no change since our last update. And we expect to complete the spinoff at the end of the year. And going through the spinoff is also part of the reason that you see growth for our second quarter because it makes us realize what our core businesses -- core business is and where our strengths are.

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Operator [6]

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(Operator Instructions) Your next question comes from the line of [Matt Reynolds] from [Duncan Family].

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Unidentified Analyst, [7]

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My questions have already been asked and answered, but congratulations on a great quarter. Thank you.

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

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Thank you.

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Operator [9]

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(Operator Instructions) Your next question comes from the line of [Kevin Yu] from [Bang Hua Finance].

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

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Okay. Operator, maybe we can go to the next question.

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Operator [11]

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The next question comes from the line of [Shan Lee], a private investor.

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Unidentified Participant, [12]

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Okay. My question is around your earning results. You mentioned (inaudible) successful efforts in customer development. Could you talk more about that? And what you have planned for the rest of the year?

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

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Okay. Thank you for your question. Let me translate that in a second.

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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 just to translate. The growth that we see in terms of new customer development as well as plans for the rest of the year. That was the question. In terms of leads generation, it's very well received by the market in general, and whether it's by real estate developers or a real estate agents. In the past, we were more facing institutions, so companies, but now we have also opened the platform to individual agents as well. So we expect this to increase our client base significantly, and we are confident that we will increase the number of paying clients in the future.

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Jian Liu, Fang Holdings Limited - President & CEO [16]

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(foreign language)

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Jessie Yang, Fang Holdings Limited - Director of IR [17]

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[Interpreted] So additionally, in terms of our strategies for covering the cities in China, the third and fourth cities presents a lot of space for growth for us. And these are new channels that we have made preparations for already, and we plan to develop them in terms of our number of paying customers.

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Operator [18]

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(Operator Instructions) Your next question comes from the line of [Kevin Yu] from [Bang Hua Finance].

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Unidentified Analyst, [19]

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(foreign language)

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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 just to translate. The question was about turning to profitability in the second quarter earnings, the reasons behind this as well as management's views for the rest of the year. And the reason for the growth from a revenue perspective was from marketing -- the growth in marketing and leads generation services and as well as our internal management, we have improved in terms of accounts receivables and bad debt. And for next year or the remainder of this year, what we are focused on mainly is how to increase the effectiveness of our services? How to present accurate leads to our clients? How to bring them more users from third and fourth tier cities and as well as cooperating with other large real estate agencies on our real estate listings platform.

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Operator [22]

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(Operator Instructions) There are no further questions at this time. I may now hand the call over back to Mr. Jessie Yang.

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Jessie Yang, Fang Holdings Limited - Director of IR [23]

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Thank you, operator. I want to thank everyone, again, for joining our call today. And we look forward to speaking with you soon for our third quarter 2019 earnings call. Thank you very much.

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Operator [24]

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Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.