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Edited Transcript of SFUN earnings conference call or presentation 4-Jun-20 12:00pm GMT

Q1 2020 Fang Holdings Ltd Earnings Call

Beijing Jun 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Fang Holdings Ltd earnings conference call or presentation Thursday, June 4, 2020 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 - CEO

* Zijin Li

Fang Holdings Limited - Acting CFO & Secretary

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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 Q1 2020 Fang Holdings Limited Earnings Conference Call. (Operator Instructions) I must advise you that this conference is being recorded.

I would now like to hand the conference over to your first speaker, Ms. Jessie Yang. Thank you. 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 First Quarter 2020 Earnings Conference Call. Joining us today to discuss Fang's results are our 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 first quarter 2020 financials, after which Mr. Liu and Mr. Li will answer your questions for the Q&A session.

Fang reported total revenues of $38.3 million in the first quarter of 2020, an increase of 9.4% from $35 million in the corresponding period of 2019. Revenue from marketing services was $17.3 million in the first quarter of 2020, an increase of 30.3% from $13.3 million in the corresponding period of 2019, mainly due to the increase in aggregate market demand.

Revenue from listing services was $10.2 million in the first quarter of 2020, a decrease of 16% from $12.2 million in the corresponding period of 2019, mainly due to the decrease in the number of paying customers. Revenue from leads generation services was $7.5 million in the first quarter of 2020, an increase of 88.6% from $4 million in the corresponding period of 2019, mainly due to an increased acceptance and popularity of our leads generation services. Revenue from financial services was $1.7 million in the first quarter of 2020, a decrease of 50.7% from $3.5 million in the corresponding period of 2019, mainly due to the decrease in average loan receivable balance.

Cost of revenue was $5.4 million in the first quarter of 2020, a decrease of 35.9% from $8.4 million in the corresponding period of 2019, primarily due to the decline in sales and the optimization in cost structure. Operating expenses were $32.1 million in the first quarter of 2020, a decrease of 17% from $38.7 million in the corresponding period of 2019. Selling expenses were $13.6 million in the first quarter of 2020, a decrease of $16.9 million -- 16.9% from $16.3 million in the corresponding period of 2019, mainly due to the decrease in staff-related costs. General and administrative expenses were $18.6 million in the first quarter of 2020, a decrease of 17.1% from $22.4 million in the corresponding period of 2019, mainly due to the decrease in staff-related costs.

Operating income from continuing operations was $2.7 million in the first quarter of 2020, compared to operating loss from continuing operations of $11.8 million in the corresponding period of 2019. Change in fair value of securities for the first quarter of 2020 was a loss of $42.6 million, compared to a gain of $32 million in the corresponding period of 2019, mainly due to the fluctuation in market price of investments in equity securities.

Income tax benefits were $2.5 million in the first quarter of 2020, compared to an expense of $11.1 million in the corresponding period of 2019. Net loss from continuing operations was $39.1 million in the first quarter of 2020, compared to a net income from continuing operations of $5.1 million in the corresponding period of 2019. Based on current operations and market conditions, Fang's management predicts a positive net income for the year of 2020, which represents management's current and preliminary view and is subject to change.

Thank you for joining our call today, and we are 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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Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) And our 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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(foreign language)

So my first question is regarding the traffic. So we understand that in the first quarter, the company has organized quite a lot of online activities, like broadcasting or VR online showrooms for users to do the house booking activities online. So now as the off-line activities has come back to normal in China, so just wondering how is the online activities now recently? Wondering if you see like fall in the online activities?

And then, secondly, since there has been several months up to the conduction of your like online live broadcasting and other online house sales and promotion activities, just wondering like how is the actual conversion or transaction conversion look like?

And then my third question is about, do you see any changes in the organization structure in the property developers so that? For example, do you see them like set up in-house teams for live broadcasting or online sales, et cetera, so that the online -- activity migration to online could be sustainable in the long run?

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Jian Liu, Fang Holdings Limited - CEO [3]

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Thank you. (foreign language)

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Jessie Yang, Fang Holdings Limited - Director of IR [4]

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(foreign language) Okay. So I will translate Mr. Liu's response.

[Interpreted] So the first question was on online sales activities. And the current situation with online sales activities, given that off-line activities have picked up, and the response is that the pandemic has had a significant impact for both the global and Chinese economies. And there's a saying that although the pandemic has passed, we cannot go back to our previous habits in the past. And one result of the pandemic is increased reliance on online methods of information gathering as well as economic activity. We don't see that changing.

Now in China, consumers can visit properties off-line. So we do see a release in some of that pent-up demand, and this is especially relevant in the new home market, where in Shanghai and Shenzhen and Hangzhou, we see significant increases in sales and a release of this previously suppressed demand. And we believe that this is directly related to demand generated from previously online activities. This also represents an increase in effectiveness of our online sales activities and efforts, and we don't see that decreasing even though off-line activities have picked up as well.

The second question is regarding the conversion of online sales efforts to off-line sales transactions. We don't have numbers for this metric, but I will reiterate that the increase in sales activity we see off-line is directly related to the suppressed demand generated from our online sales efforts.

And the third question is relating to the -- if there are any structural changes from the developers companies and -- that are due to this increase in online -- reliance on online marketing and promotion efforts? We do see that clearly as a trend, and [Hong Da], for example, has significantly used online sales platforms to promote their developments, and we see that as a trend with many major developers. And due to the epidemic, consumers are more and more familiar with online sales efforts and including the development of the specification of these efforts, for example, in our VR home showings and live broadcast. So clearly, developers have increased headcount and added professional teams to promote their online sales as well.

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Operator [5]

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And your next question comes from the line of [Josh Reed] from [Reed, Crane & Company].

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Unidentified Analyst, [6]

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So I've just got 3 questions today. I wanted to -- it really looks like the marketing and lead generation segments are starting to take off, which is a good sign. I just wanted to get your thoughts on whether this can completely offset the declines in the other segments and how big these new segments can be, is my first question.

My second question was regarding the $170 million of convertible bonds, which are sort of coming due in 2020. I wanted to know what the company's plans for addressing those would be and what the shareholders should expect?

And my third question is just regarding the rationale behind sort of spinning off China Index Holding last year, but then sort of reacquiring a 15% stake in it post spin-off. I just wanted to know what your plans for that investment was.

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Jessie Yang, Fang Holdings Limited - Director of IR [7]

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Thank you, [Josh]. Let me just translate briefly. (foreign language)

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Jian Liu, Fang Holdings Limited - CEO [8]

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Okay. Thank you. I will answer the first question. (foreign language)

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Jessie Yang, Fang Holdings Limited - Director of IR [9]

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(foreign language) So I will translate first the response to the first question in terms of marketing and lead generation businesses taking off and whether this will offset the decline in other segments.

[Interpreted] So marketing and leads generation are long-term core businesses for us. Whether for new home or secondary home clients, they are actually very important channels. And they help the market especially in the pre-transaction segments, marketing and promotion to effectively find relevant leads and interested consumers. So this is a very valuable business for our clients, and we try our best to match the best projects to the most interested consumers. So from Q1, we saw that the demand for these services are actually quite high, and we see significant potential for these business segments.

In terms of listing, it is also a very important business for us, and we do expect for it to expand as well. It is, however, more affected by off-line real estate market activity, which has been more significantly impacted by the epidemic. So we do not expect to decrease our focus on listing, and we will also focus on it as much as the other segments. Thank you.

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Operator [10]

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(Operator Instructions) And we've got a follow-up question from...

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Unidentified Company Representative, [11]

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Hey, operator. Excuse us. We want to answer the question 2 and question 3 for the previous asker.

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Zijin Li, Fang Holdings Limited - Acting CFO & Secretary [12]

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Okay. So the second question about the convertible bonds principals. To do this for the convertible bonds (inaudible) 2022, which is 2 years ahead of us. And the company actually won't think this a problem about the repayment of the principals.

The one solution we can think of instantly is our fixed assets, especially our buildings. On our financial reports, those buildings are recorded as initial value, which is book value. And our buildings' market value is much more higher than the book value for now. So compared to the market value, our leverage rate is only about 20% to 30% of the actual value. So if we actually need more money from the banks, we can easily get it. So that's for the question 2.

And for the question 3 of purchase of CIH. First of all, purchasing CIH, the company think it's a very good investment. For December last year, I think CIH is, on the secondary market, is about $3.20, and which is actually very low and we think it's undervalued. So the company signed an agreement with the biggest shareholder and acquired 505 million shares.

Actually, before acquiring the 5 million shares, company attempt to acquire some shares in the secondary market, which actually influenced the market to fluctuate very big. So that's why the company choose to and to probably deal with the biggest shareholder. That was the answer for question 3.

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Operator [13]

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(Operator Instructions) We've got a follow-up question from [Josh Reed] from [Reed, Crane & Company].

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Unidentified Analyst, [14]

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Yes. Okay. No, I was just following up on my question 2 and question 3, but those have been answered. So that's it for me.

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Operator [15]

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(Operator Instructions) There are no further questions at this time. Speakers, you may continue.

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Jessie Yang, Fang Holdings Limited - Director of IR [16]

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Thank you, everyone, again for joining our call today. And we look forward to speaking with you soon for our second quarter 2020 earnings call. Thank you.

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Operator [17]

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And that does conclude our conference for today. Thank you for participating, you may all now disconnect.

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