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Edited Transcript of YIN earnings conference call or presentation 31-May-19 12:00pm GMT

Q1 2019 Yintech Investment Holdings Ltd Earnings Call

Jun 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Yintech Investment Holdings Ltd earnings conference call or presentation Friday, May 31, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Wenbin Chen

Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO

* Yvonne Young

Yintech Investment Holdings Limited - IR Director

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Conference Call Participants

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* Johnny Wong

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Q1 2019 Yintech Investment Holdings Limited Earnings Conference Call. (Operator Instructions) And please note that today's event is being recorded. And I would now like to turn the conference over to Yvonne Young, Investor Relations Director. Please go ahead.

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [2]

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Thank you, William. Hello, everyone. Thank you, and welcome to Yintech First Quarter 2019 Earnings Conference Call. Our earnings release was released earlier today and is now available on our IR website.

On the call today from Yintech are Mr. Wenbin Chen, Chairman and CEO and CFO; and myself, Yvonne Young. Mr. Chen will review business operations and company highlights, followed by myself. I will go over the financials and guidance on behalf of Mr. Chen. We'll both be available to answer your questions during the Q&A session that follows. Questions can be asked in English or Chinese. If you ask your question in Chinese, please translate into English yourself afterwards.

Before beginning, we would like to remind you that discussions during the call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties and factors that may cause actual results differ materially from those contained in any such statements. Further information regarding potential risks, uncertainties or factors is included in Yintech's filings with the U.S. Securities and Exchange Commission. Yintech does not undertake any obligation to update any forward-looking statement, except as required under the applicable law.

During this call, we will be referring to several non-GAAP financial measures as supplemental measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release.

I will now turn the call over to Mr. Wenbin Chen. Mr. Chen will give his remarks in Chinese and I will translate for him. Thank you. Mr. Chen, go ahead.

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [3]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [4]

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Welcome to the first quarter of fiscal 2019 earnings conference call. Q1 2019 was a landmark quarter for Yintech, highlighted by record net revenues and profitable growth for the first time since we made transition to a comprehensive financial service provider in almost 2 years, thanks to a number of business, environmental and industrial tailwind.

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [5]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [6]

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The equity market gathered momentum during the quarter with China A share rising over 30%, delivering its highest increase in the past 3 years, and S&P 500 posted best first quarter since 1998. Benefiting from the market rally, heightened investor activity and our abilities to capitalize on the market opportunity, we demonstrated growing strength in RMB asset management, corporate travel management as well as client engagement for our overseas securities services. All of this improvement contributed significantly to our top line and bottom line growth.

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [7]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [8]

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In the first quarter, we earned revenues of RMB 454 million, up 69.2% year-over-year and 53.9% sequentially, 37.7% to 22.8% higher than our previous guidance of RMB 330 million to RMB 370 million. Excluding trading gains, net revenues reached RMB 267.2 million as compared to our previous guidance of RMB 222 million to RMB 240 million. We also achieved a strong profitability of non-GAAP net income of RMB 85.6 million and non-GAAP EPS of RMB 1.14. The strength of these results more than offset the slight decline in commodity trading revenues.

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [9]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [10]

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In the first quarter, our asset management business not only delivered outstanding results to both top line and bottom line growth, evidenced by vast majority of the total revenue RMB 187 million trading gain, but also continues its remarkable performance and gaining greater industry recognition. In total, our asset management team received 13 high ranking in various competitions in a single quarter. To name a few, according to (inaudible), it was ranked #5 of the Top 10 Equity-Oriented Private Equity Companies for the first 2 months of '19 -- 2019 among over 10,000 peers of similar size in China, and the ranking was further lifted to #3 for the first 3 months. Our convertible securities funds also delivered outstanding results, one of which was rated #6 in February and remained top 10 in the first quarter out of 1,500 PE competitors.

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [11]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [12]

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We are proud of the phenomenal success given the asset management business was only in its third year of operation. We see this recognitions as an affirmation of our emphasis on professionalism, value, service and honesty as we attract and support a growing share of China investable wealth. We owe this initial success more to investment stability than luck, given its consistent performance. On average, our equity funds and convertible securities funds largely outperformed SCI 300 index and other major comparable indexes. We believe our investment insights and skills will continue to convert to financial performance as well as business growth in the mid to long run.

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [13]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [14]

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Client experience remains paramount to all that we do. Under the mission of leveraging our expertise, technology and people to bring greater ease, knowledge, fun and accessibility to investments and trading to investors, we remain steadfast in enhancing the clients' experience. We have created a team within our fintech innovation lab solely focused on innovation of quantitative trading and artificial intelligence. The team works across our 5 business lines allowing the business partners and AI-driven technology to develop qualitative application software, which seeks to offer successful value-added products and services to our clients.

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [15]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [16]

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Our fintech innovation lab rounded out our value-added services continuum in the first quarter with the completion of Intelligent Investor, compelling stocking screening software, focusing on finding undervalued stock against its intrinsic value. Additionally, our advanced technology effort, such as Stock Profiling, a 360-degree stock analysis application targeting A-share, Hong Kong and U.S. stock are gaining traction with clients. And we'll continue to expand the ways in which we -- our clients can interact with us online, bringing more enjoyment and ultimately more gains to clients and the company.

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [17]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [18]

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Strategically, we're expected to see potential benefits of our successful acquisition acquiring of Type 2 and Type 5 regulatory licenses from the Hong Kong Securities and Futures Commission, which permitted Forthright Securities, our fully owned subsidiary company, to deal in futures and advise on futures contracts. In securing these licenses, our clients can trade multiple asset classes, including securities and futures, and continue to rely on our leading technology and trading expertise combined with a specialist in-depth insight into the securities and futures industry, which is an important component of our value proposition. This new business area put us in a better position and allows for greatly enhanced services that will benefit a range of investors.

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [19]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [20]

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It's critically important that we continue to push ourselves to run more ably as we evolve our business in light of new demand in the face of new market competition market environment. While most of our efforts have been through technology and internal process enhancements, we are able to stop doing things when they have not delivered the right results in the course we expect. It's just as important to improve operational efficiency and resiliency. In the first quarter, we continued to streamline our business. As part of our efforts, we terminated contracts with some employees and stopped certain projects which did not perform well and combined their results and remaining productivity -- productive members into our existing projects and teams. This was another step forward in implementing our strategy of being a leaner company. We are sure these efforts will help to improve productivity and accelerating our growth pace.

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [21]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [22]

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Beginning in late April and early May, we witnessed a spike in volatility, including a substantial decline in major indexes in Asia and S&P 500 due to panic over China and U.S. trade war, among other factors. This market event will have a significant impact on investments sensitive to volatility in an increasingly dynamic market environment like the one we experienced in the quarter. Purity and agility is key in maintaining sustainable growth of Yintech. We'll prioritize our business with shifts in investor sentiment and give attention to asset classes. We'll continue to leverage our diversified business model to stay nimble, adjusting clients recourse when need in order to drive strong results with reasonable, effective and efficient use of resources.

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [23]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [24]

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Our team has made great progress across multiple fronts to reposition the company for a transformative year in 2019 -- 2018. And as far as we can see, 2019 is full of opportunities, but also tremendous challenges ahead. We believe that maintaining capital discipline and returning capital to shareholders will be key components of our ongoing strategy. To that end, in the first quarter, Yintech completed a 167,539 ADS for a total consideration of approximately USD 1.1 million repurchase of stock at market price. As of March 31, 2019, the company had purchased an aggregate of 938,410 ADS. Yesterday, our Board of Directors authorized a new share repurchase program of up to USD 20 million with repurchase to begin on or after June 2, 2019. All purchased shares will be canceled. We'll continue to execute this program to repurchase stocks as market conditions allow.

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [25]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [26]

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With that, I will now turn the call over to Yvonne Young, our Investor Relations Director, to discuss our financial results for the first quarter of 2019 as well as providing guidance for the second quarter of 2019.

Thank you, Mr. Chen. As Mr. Chen mentioned, we had a strong quarter's results in Q1. Our net revenues rose 69% year-over-year to RMB 454.3 million. Net commissions and fees from our securities services increased 172% year-over-year, thanks to the robust demand of our overseas securities services and significant contribution to our asset management team, which contributed RMB 187 million. We returned to profitability with non-GAAP net income of RMB 85.6 million and non-GAAP EPS of RMB 1.14 since we transited to a comprehensive financial service provider in the second half of 2017.

Next, I will walk you through our financial performance for the first quarter and provide guidance for the second quarter. Revenues for Q1 was RMB 454.3 million or USD 67.7 million compared to RMB 268.5 million in the same quarter last year and RMB 295.2 million in the previous quarter. The year-over-year sequential increases was mainly attributable to increase in net commission fees from securities services as well as trading gains generated from our asset management business.

Net commission and fees for the quarter were RMB 246.5 million or USD 36.7 million, representing an increase of 1.6% year-over-year and a decrease of 9.8% sequentially. The year-over-year increase was primarily due to the increase in securities services, partially offset by the decrease in commodities services. The sequential decrease was mainly resulting from lower trading volumes of commodities from the previous quarter.

Net commission fees from commodities services for the quarter were RMB 123.7 million or USD 18.4 million, a decrease of 18.9% from the previous quarter, primarily as a result of decrease in customer trading volume for futures commodities. Our customer trading volume for commodities, which represent customer trading volume of spot and future commodities, was RMB 315.3 billion or USD 47 billion during the quarter, a decrease of 36.9% year-over-year and 23.8% from the previous quarter, primarily due to low volatility of gold in the first quarter.

Effective fee rate for commodities for the quarter was 0.039% compared to 0.04% in the same quarter last year and 0.037% in the previous quarter. Net commission and fees for securities services for the quarter were RMB 122.8 million or USD 18.3 million, an increase of 1.6% from the previous quarter, primarily due to growth of overseas brokerage services in more favorable market conditions relative to the previous quarter. The robust growth demonstrate the effectiveness of the company's strategy to expand its securities business and our ability to execute.

Expenses for the quarter were RMB 306.4 million or USD 45.7 million, a decrease of 0.9% from RMB 309.1 million in the same quarter last year and a decrease of 70.6% in the previous quarter. The sequential decrease was mainly attributable to a noncash impairment charge of RMB 639 million recognized in the fourth quarter of 2018.

Net income for the quarter was RMB 75.1 million or USD 11.2 million compared with net loss of RMB 63.1 million in the same quarter last year and net loss of RMB 732.2 million in the previous quarter. Net income attributable to Yintech for the quarter was RMB 69.2 million or USD 10.3 million compared to a net loss of RMB 50.3 million in the same quarter last year and net loss of RMB 727.7 million in the previous quarter.

Diluted earnings per ADS for the quarter was RMB 0.92 or USD 0.14 compared with diluted loss per ADS of RMB 0.71 in the same quarter last year and diluted loss per ADS of RMB 10.39 in the previous quarter.

Non-GAAP net income attributable to Yintech for the quarter was RMB 85.6 million or USD 12.8 million compared to net loss of RMB 29.1 million in the same quarter last year and net loss of RMB 106.8 million in the previous quarter. Our non-GAAP diluted earnings per ADS for the quarter were RMB 1.14 or USD 0.17 compared with non-GAAP diluted loss per ADS of RMB 0.41 in the same quarter last year and non-GAAP diluted loss per ADS were RMB 1.52 in the previous quarter.

Now move to our balance sheet. As of March 31, 2019, we had RMB 1.75 billion, equivalent to USD 261.2 million in cash and cash equivalents, compared with the RMB 1.74 billion as of December 31, 2018.

Based on the information available as of the date, we expect our revenues from commissions, interest income and other revenues in the second quarter of 2019 will be in the range of RMB 250 million to RMB 270 million. Revenues from trading loss will be in the range of negative RMB 70 million to negative RMB 100 million.

This concludes my prepared remarks for today's call. William, we are now ready for the Q&A session. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And today's first questioner will be Johnny Wong with Jefferies.

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Johnny Wong, Jefferies LLC, Research Division - Equity Analyst [2]

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Congratulations on a very good quarter. I was just wondering if you can give some color as to the traditional spot and futures market for commodity. It seems like that we are still -- must be a year to almost 2 years now where we've seen sequential decline in trading volume and volatility. Can management let us know what we should be looking for in order for that market to recover? Yes.

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [3]

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Thank you, Johnny. Let me translate for Mr. Chen first. (spoken in Chinese)

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [4]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [5]

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Well, you can see that a very important component of the commodities business is gold -- spot gold commodities. Traditionally is the business that contributed most of our revenues, but since we transited to a comprehensive financial service provider and -- on one hand, that we contributed some resources to other business. On the other hand, and more importantly, is that we witnessed the low volatility of gold price in the recent 2 years. And if the volatility remains low at the present value -- at present level, we expect that the contribution from gold commodities will not increase as we expected. This is number one. (spoken in Chinese)

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [6]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [7]

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Commodities. Johnny, are your question about the commodities or spot commodities?

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Johnny Wong, Jefferies LLC, Research Division - Equity Analyst [8]

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Actually, both. But I suppose mainly the spot commodities because it seems like that is the -- we've seen a longer period of depressed volatility.

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [9]

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(spoken in Chinese) Okay. So just now we -- Mr. Chen addressed the question that the main reason is the low volatility because this business is very much market driven. If the price remains low and we -- there is not much we can do, so that's why we allocated most of our resources to other business. (spoken in Chinese) Yes.

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Johnny Wong, Jefferies LLC, Research Division - Equity Analyst [10]

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Okay. Can I just have a follow-up question? And assuming if the volatility remains quite low, you mentioned earlier about streamlining the operations and maybe cutting the headcount. Would we expect more in the future in this particular segment if volatility remains low, we will maybe slow the -- again, cut down in the number of people and related costs?

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [11]

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(spoken in Chinese)

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [12]

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(spoken in Chinese)

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [13]

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Let me summarize Mr. Chen's points. Well, we basically do not expect any further cutoff of our employees or teams. So basically, we already ended this process. This is the number one point. Number two point is that, as you can see that we are no longer a commodity-focused company since we made the transitions in the second half of 2017. And we so far have established the 5 business lines, including spot commodities that just now Mr. Chen mentioned, and futures commodities business, which is also a very key component of our revenue contributor. And the third one is securities advisory services, and number [five] is our asset management business, and the last one is our overseas securities brokerage services.

So we -- over the past 2 years, we have formed this ability to swiftly and flexibly to allocate our resources, and the human resources and company resources to deploy these resources among -- across the 5 business lines. That will enable our company to remain agility, flexibility and to be strong in resistance to the market volatility. So we believe that the abilities we accumulated in the past year can enable us to grow stronger and more powerful in the future, which is very important to us and which is also the areas that we are very proud of. And so we believe that these 5 business lines, not just the spot commodity business, will enable the company to grow stronger.

And just add some more points to Mr. Chen's remarks. Well, so far, we have not just emphasis the spot business any longer. And if you look at our business revenue breakdown, you will see that most of the revenue contributed from overseas securities services which is why it increased 172% in this quarter. And also, asset management business, although it's a very new business, but it contributed a lot to our top line growth as well. So we believe that this new business carries a lot of potential for the business -- for the company to grow to the next level instead of the traditional spot business. And we still have the teams and abilities to restart the business if the market -- if the price pick up again for the gold price.

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Operator [14]

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(Operator Instructions) Okay. And there look to be no further questions at this time, so this will conclude our question-and-answer session as well as today's conference call. I just want to thank you all for attending today's presentation and you may now disconnect your lines.

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [15]

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Thank you, operator. Bye-bye.