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Edited Transcript of YIN earnings conference call or presentation 27-Nov-18 1:00pm GMT

Q3 2018 Yintech Investment Holdings Ltd Earnings Call

Jan 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Yintech Investment Holdings Ltd earnings conference call or presentation Tuesday, November 27, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Rene Vanguestaine

Christensen & Associates - Chairman & CEO

* 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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* Kin Man Wong

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Hello, and welcome to the Q3 2018 Yintech Investment Holdings Limited Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now turn the conference over to Rene Vanguestaine. Please go ahead, sir.

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Rene Vanguestaine, Christensen & Associates - Chairman & CEO [2]

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Thank you, Keith, and welcome to all of you to Yintech's Third Quarter 2018 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 Ms. Yvonne Young, Investor Relations Director. Mr. Chen will review business operations and company highlights, followed by Yvonne, who will go over the financials and guidance on behalf of Mr. Chen. They will both be available to answer your questions during the Q&A session that will follow. Questions can be asked in English or Chinese. If you ask your question in Chinese, please translate into English yourself afterwards so everybody on the call can understand the question.

Before beginning, we would like to remind you that discussions during this 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 to 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 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 Yvonne will translate for him. Please go ahead, Mr. Chen.

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

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(foreign language)

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

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Thank you, Rene, and thank you, everyone, for joining today's quarterly earnings call. In general, throughout the first 9 months of this year, we experienced continued challenging macro market environment. A number of factors come into play in a dynamic market, including dramatically concerns over uncertainty in China's economic transformation has been from the deleveraging and worries about possible adjustments to economic growth expectations as well as external pressures, such as intensified China-U. S. trade disputes and monetary policy adjustments in major economies. As a result, during the third quarter, China's A-share market saw continued volatility that extended from the beginning of year. Key market indices, including Shenzhen Stock Exchange Component Index, the SME broad market and Gold enterprise market, all plunged by more than 10%, indicating a lack of investor confidence and declining market turnover. And the third quarter performance posted by 32 public treaty brokerage firms in China showed a 37.5% year-over-year and 12.6% sequential declines in revenues generated from brokerage services. Similarly, small gold treaty trading on Shanghai Gold Exchange remains sluggish. Volatility reached its lowest level since 2005, declining to 0.29% to -- from 0.32% in the previous quarter, and trading volumes as a whole on the Shanghai Gold Exchange fell by 6% sequentially and 46% year-over-year.

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

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(foreign language)

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

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The overall performance of China A-share stock market and the gold T+ D trading business were lower than our earlier expectations and had a negative impact on transaction-based spot commodities and securities services business. During the third quarter, our customer trading volumes in gold T+ D continued to decline, while revenues from our securities advisory and information platform services increased slightly from the previous quarter, outperforming Chinese brokerage companies I just now mentioned. The core value of these 2 business lies in helping our customers acquire trading knowledge, improve trading skills, enhance risk prevention and ultimately, improve yield returns on investment in financial assets, all of which are closely tied to healthy market and trading conditions.

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

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(foreign language)

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

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Despite the unfavorable market conditions, we achieved a good progress in our business performance during the quarter. We recorded modest top line growth and continued to make progress on our cost control initiatives, which helped to significantly narrow our losses for the past 2 consecutive quarters. Our cash and short-term investments totaled RMB 1.8 billion. Our ample cash position and sufficient liquidity greatly reinforce our ability to manage market uncertainty risk and enable us to continue to grow our existing business while also pursuing strategic investments for greater future growth.

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

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(foreign language)

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

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Business-wise, we continue to deploy resources in key areas. For example, we bolstered our futures research team, strengthened our customer service system and rolled out more process on securities and futures. Meanwhile, our financial innovation labs, by collaborating our business teams, launched a variety of market-leading smart trading products, such as futures market indicators and A-share stock analysis. These value-added products were made available through our apps. By leveraging big data and artificial intelligence, this smart product helped enhance our -- expand our trading volumes and attracted new customers. For example, our futures customer trading volumes increased by 8%, and we're adding nearly 2,000 customers in the third quarter.

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

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(foreign language)

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

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In terms of organization restructuring and business optimization, in this quarter, while enhancing our R&D team and building up our content-producing capabilities, we reduced our staff in front-end business team. This helped to lower down our headcount by nearly 20% compared to the early of 2018. By maintaining a lightweight organizational structure and adoption of effective cost control measures, we further enhanced our core competencies.

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

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(foreign language)

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

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For our new business segments, I'd like to highlight Forthright Securities, which we acquired in late 2017. Forthright was aimed to be a leading investment and trading brokerage, targeting global retail investors. Since the early of 2018, it has experienced a rapid increase in term of product development and daily active users and has established strategic partners, which we note financial platforms, such as (foreign language) Shanghai DZH (inaudible) influence and expand our customer acquisition channels.

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

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(foreign language)

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

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Compared with A-share markets, Hong Kong and the U.S. equity markets enjoyed favorable market conditions where they are much more matured in terms of trading tools, investment products, trading mechanisms and market maturations, et cetera. All of these factors can better mobilize our investors' activities and improve trading sentiment in Hong Kong and the U.S. equity markets. At the same time, we also noticed that the leading Internet brokers in these markets have experienced explosive growth over a relatively short period of time. To a certain extent, their performance indicates a prosperous industry outlook.

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

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(foreign language)

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

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At a policy level, the government has adopted various measures to promote financial innovation reforms to better serve the economy. Among the reforms, China has recently proposed supporting qualified individuals in the free trade zone to conduct overseas securities investments. We believe, this send a positive and powerful signal for the development of overseas securities business and creates opportunities for our business growth on this front.

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

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(foreign language)

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

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We believe that with our deeper understanding to Chinese individual investors coupled with our tailored customer services, we are expected to see rapid growth in a number of accounts and commission fees for Forthright Securities. We are confident that we are able to catch up with Tier 1 competitors in the industry.

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

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(foreign language)

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

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Looking ahead, we'll continue to focus on investor education, enhancing our professional capabilities, improving product and servicing innovation and optimizing resource deployment and looking to invest in emerging business areas while focusing on core business. This will allow us to lay a solid foundation to achieve greater business growth in 2019.

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

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(foreign language)

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

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With that, I will now turn over to Yvonne Young, our Investor Relations Director, to discuss our financial results during the third quarter of 2018 and outlook for the fourth quarter of 2018.

Thank you, Mr. Chen, and hello, everyone, and thank you for joining today's earnings conference call. I'll first walk you through our third quarter 2018 financial performance, followed by our guidance for the fourth quarter of 2018.

Our revenue for the quarter was RMB 267.8 million, equivalent to USD 39 million, compared with CNY 388.3 million in the same quarter last year and CNY 263.3 million in the previous quarter. Both year-over-year and sequential decrease were mainly due to a decrease in commissions and fees from spot commodities services, which were partially offset by an increase in net commissions and fees from securities services.

Our net commissions and fees for the quarter were RMB 208 million, equivalent to USD 30.3 million. This compared with RMB 337.9 million in the quarter -- in the same quarter last year and RMB 217.9 million in the previous quarter, primarily due to the reasons stated above.

Our net commissions and fees from commodities services for the quarter were RMB 123.8 million, equal to USD 18 million, a decrease of 5.1% from the previous quarter, primarily as a result of a decrease in customer trading volume for commodities. Customer trading volume for the commodities were RMB 403.2 billion, equivalent to USD 58.7 billion, during the quarter, a decrease of 0.6% from the previous quarter.

Our net commissions and fees from securities services were RMB 84.2 million, equivalent to USD 12.3 million, a decrease of 3.7% from the previous quarter. This was primarily due to negative market conditions just now Mr. Chen introduced in his prepared remarks.

Our effective fee rate, which represents net commissions and fees from commodities services as a percentage of customer trading volume, for the quarter was 0.31% (sic) [0.031%] compared with 0.4% (sic) [0.04%] in the same quarter last year and 32 basis point in the previous quarter.

Expenses for the quarter were RMB 302.1 million, equal to USD 44 million, a decrease of 4.2% from RMB 315.3 million in the same quarter last year and a decrease of 4% from the previous quarter. The year-over-year and sequential decrease were mainly due to cost control measures implemented on advertising and promotion expenses.

Net loss for the quarter were RMB 33.9 million, equivalent to USD 4.9 million, compared with the net income of RMB 66.5 million in the same quarter last year and net loss of CNY 44.2 million in the previous quarter.

Net loss attributable to Yintech for the quarter was RMB 36.6 million, equivalent to USD 5.3 million, compared with net income of RMB 68.6 million in Q4 last year -- in Q3 last year and net loss of RMB 48.5 million in Q3 -- in Q2 this year.

Diluted loss per ADS for the quarter was RMB 0.56 (sic) [RMB 0.50] or USD 0.07 compared with diluted earnings per ADS of RMB 0.94 in the same quarter last year and diluted loss of RMB 0.64 in the previous quarter.

Non-GAAP net income -- net loss attributable to Yintech for the quarter was RMB 22.3 million or USD 3.2 million compared with net income of RMB 101 million in the same quarter last year and net loss of RMB 31 million in the previous quarter.

Non-GAAP diluted loss per ADS for the quarter was RMB 0.31 or USD 0.05 compared with non-GAAP diluted earnings per ADS of CNY 1.38 in the same quarter last year and loss of ADS CNY 0.41 in the previous quarter.

As of September 30, 2018, we had cash of RMB 210 million or USD 30.6 million and short-term investment of RMB 1.6 billion or USD 232.9 million compared with CNY 381.6 million and RMB 1.3 billion as of June 30, 2018, respectively.

Our total shareholders' equity was CNY 3.36 billion or USD 489.6 million as of September 30, 2018, comparable to June 30, 2018.

Now I'd like to provide our business outlook for the fourth quarter 2018 guidance. We expect the revenue to be in the range of RMB 280 million to RMB 300 million.

We -- the board announced the share repurchase program on May 29 this year, and the board authorized the company to repurchase up to USD 30 million of issued and outstanding ADS during the following 12-month period. As of September 30, 2018, we had purchased an aggregate of 523,377 ADS.

With that, this concludes my remarks. Operator, we are now able to open the questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Johnny Wong with Jefferies.

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

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(foreign language) I just wanted to ask if our revenues continue to be like this, do you think we can do anything on the cost side, such as maybe cutting some human resources costs?

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

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(foreign language)

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

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Okay. For the benefit of our audience, I will translate it into English. Thank you, Johnny, for the questions. As I introduced in my prepared remarks, we have -- we continue all efforts in cost reduction in the third quarter, and we have seen that the cost already reduced. This was mainly due to our effective control over advertising and marketing expenses. Well, we have optimized our starting structure based on the business evolvement, but you may not see the positive result or the positive effect from this cost-reduction efforts, mainly because as we're approaching the year-end, we give bonus to some of business teams and those high-performance staffs. So this will potentially increase our cost in the Q4, and we see that this is quite a normal seasonally expense increase, if you look at our quarterly results in the past 2 years. Well, we believe that the year of 2018 is the most difficult year in the history of our business, not only because of that challenging market environment I just now introduced but also because some of our emerging business, such as the overseas securities business I just now mentioned, and also the -- our new asset management business. Well, we made a lot of upfront investment in 2018 in these new business initiatives. As a result, a lot of this at the moment, and we think that we're going to benefit from this initial investment for pursuing greater success and greater business expansion in the year of 2019. And well -- and lastly, after some years of fine-tuning our business model, we believe that our operational strategy will become more clear right in 2019 as we have addressed the most difficult problems this year for this new business, and we expected to enter into an age of accelerated development in the year ahead while at the same time, the futures and the securities advisory and information platform business have become the major revenue contributor, and we expect to explore some strategic partners -- partnerships in this area in the next year and especially in our futures business. We believe this business will be capable and -- we believe that with this investment in partnership development, we are able to achieve sustainable development in the futures business in the year ahead. Johnny, did we address your question?

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Operator [5]

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And the next question comes from [Tom Hamilton] with [Park Hill Capital].

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Unidentified Analyst, [6]

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You guys have a pretty substantial cash position in short-term investments. What do you intend to do with this? Do you have any acquisition plans?

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

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(foreign language)

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Wenbin Chen, Yintech Investment Holdings Limited - Co-Founder, Chairman, CEO & CFO [8]

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(foreign language)

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

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Well, I'm sorry, I forgot your name. Well, [Tom], right? Tom , thank you for your questions. Let me translate into English. Well, as we mentioned that we have ample cash position, we have total cash of RMB 1.8 billion, and we think that with this sufficient cash position will allow us to transform from single-service provider to diversified full-scale services provider. And we will also increase -- enhance our risk prevention abilities in the face of uncertainties of the market. This is the first point. And secondly, while maintaining our cash required for the expansion our -- of our existing business, it also allows us to pursue a strategic investment for our futures business development and just now I already mentioned. The thirdly is that, we are also -- we are exploring some financial products with relatively longer-term investment horizon, more stable returns and higher overall ROI. For example, the convertible bonds we invest and managed by Chunda Asset Management. This should help us increase our cash return in the future. So those are the initiatives that we are looking to in the year with our ample cash position. Thank you.

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Unidentified Analyst, [10]

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Okay, very good. Just a quick follow-up. Can you specifically explain what kind of opportunities the company is focusing on? Or at least, can you talk about more what those strategic investments mean, exactly?

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

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(foreign language)

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

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(foreign language)

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

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For one thing, we're expanding our existing business. For example, in our futures business, we are now cooperating with a number of futures companies that we also hope to seek long-term strategic partnerships and develop a solid cooperative relationships for the futures business. We think that this will help our business expansion for the longer term and sustainable growth. And at the same time, in order to increase our customers' stickiness, we are also developing some new products to attract investors to stay on our platforms, and we can convert those customers -- those potential customers to our real customers. We offer a series of valuable services to return on these existing customers, and we also acquired new ones and convert the visitor traffic into customers. However, this is still in the early stage of business initiative. We will update the market at the due time when we make substantial progress on this business. And lastly, we have been looking at -- actively looking at other opportunities in the financial service sector, while -- although we do not have a clear path on this yet. Tom, did we answer your question?

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Unidentified Analyst, [14]

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Yes.

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Operator [15]

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(Operator Instructions) However, as there are no more questions at the present time, I would like to return the floor to Rene Vanguestaine for any closing comments.

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Rene Vanguestaine, Christensen & Associates - Chairman & CEO [16]

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Thank you, Keith. Thank you all for joining us tonight and for your interest in Yintech. If you have any questions, please do not hesitate to contact us anytime. This concludes our call tonight. Goodbye.

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Yvonne Young, Yintech Investment Holdings Limited - IR Director [17]

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Thank you. Goodbye.

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Operator [18]

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Thank you. And as mentioned, the conference call has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.