Antelope Enterprise Holdings Ltd (AEHL) 2022 Q2 法說會逐字稿

Good day, and welcome to the Antelope Enterprise Holdings First Half 2022 Earnings Conference Call. (Operator Instructions) Please note, today's event is being recorded. I would now like to turn the conference over to David Rudnick with Precept Investor Relations. Please go ahead, sir.

Thank you, Roco. Good morning, ladies and gentlemen, and good evening to those of you who are joining us from China. Welcome to Antelope Enterprises First Half 2022 Earnings Conference Call. With us today are Antelope Enterprise's Chief Executive Officer, Ms. Meishuang Huang, and Chief Financial Officer, Mr. Edmund Hen. We will turn the call over to Ms. Huang, who will like to address forward-looking statements that may be discussed on the call. Forward-looking statements involve risks and uncertainties and include, among others, those regarding revenue, operating expenses, other income and expense, taxes and future business outlook. Actual performance, outcomes and results may differ materially from those expressed in forward-looking statements. The company claims the safe harbor protections for such forward-looking statements as contemplated under the Private Securities Litigation Reform Act of 1995.

Please refer to the documents filed by the company with the SEC, specifically, the most recent reports on forms 20-F and 6-K, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. We assume no obligation to update any forward-looking statements or information, which speak as of their respective dates.

And now it's my pleasure to turn the call over to Antelope Enterprise's CEO, Ms. Meishuang Huang; and Antelope Enterprise's CFO, Mr. Edmond Hen. Charlie Jay will be translating from Ms. Huang. Ms. Huang, you may proceed.

(foreign language)

[Interpreted] Thank you, David. On behalf of the company, I would like to welcome everyone to our first half 2022 earnings conference call.

(foreign language)

[Interpreted] For the first half of the fiscal 2022 we continue to execute upon our strategic plan to diversify our business into new technology sectors. Our technology businesses comprised 88% of the total revenue for the first 6 months of the year, which followed its comprising 38% of the revenue for the second 6 months of the fiscal 2021. We are pleased with this sequential growth since it confirms our entry into new technology sectors and largely offset the operating results from our legacy ceramic tile business, which has suffered due to the continued slowdown of the real estate sectors in China.

(foreign language)

[Interpreted] Our new technology subsidiaries are engaged in selected markets in China, which we believe have strong growth potential. This includes business management, information system consulting, online social commerce and media and live broadcast streaming in China. We are encouraged by the market opportunities as represented by these new sectors and are optimistic that the strategic transformation of the company is on course.

(foreign language)

[Interpreted] Due to the challenging conditions for real estate and building materials in China, in November 2021, we entered into a 5-year lease agreement to lease out the Hengdali facility with the same lessee that had been leasing out just a portion of the plant. This decision was consistent with our results to pivot towards the new technology growth sector.

(foreign language)

[Interpreted] We are committed to our strategic plan to transform the company to operate in selected growth technology sectors and are encouraged by the strong contribution from our new businesses to date. In particular, we believe the online social commerce and live streaming in China will experience sustained growth in the years to come.

(foreign language)

[Interpreted] With that, I would like to turn over the call to the company's Chief Financial Officer, Mr. Edmnd Hen, who will discuss the company's first half 2022 earnings results in more detail. Thank you.

Thank you, Ms. Huang. I will now move on to a more detailed discussion of our financial results for the 6 months ending June 30, 2022. Our revenue for the 6 months ended June 30, 2022, was RMB 135 million or USD 20.9 million, a 169.3% increase from RMB 50.1 million or USD 7.7 million for the same period of 2021.

The increase in revenue was due to the generation of RMB 118.2 million or USD 18.3 million in our first -- in our business management and consulting segment, which accounted for 87.6% of the company's total revenue in the current period. However, the contribution from our business management and consulting segment was partly offset by RMB 25.5 million or USD 3.9 million decrease in ceramic tiles sales, which were RMB 16.7 million or USD 2.6 million for the 6 months ended June 30, 2020, a 60.4% decrease from RMB 42.2 million or USD 6.5 million for the same period in 2021.

We produced and sold only porcelain tiles for the 6 months period ended June 30, 2020, to position our sales efforts on as realistic bases as possible to address the difficult business conditions attributable to uncertainties in China's real estate market as well as the continued effects of the COVID-19 pandemic. The decrease in ceramic tiles sales was due to a 65.7% decrease in ceramic tiles sales volume to 0.7 million square meters of ceramic tiles from the year ago 6-month period, which was partly offset by a 15.4% increase in average selling price to RMB 23.8 or USD 3.67.

Gross loss for the 6 months ended June 30, 2020, was RMB 404,000 or USD 62 million (sic) [62,000] as compared to a gross loss of RMB 6.5 million or USD 1 million for the same period of 2021. The blended gross loss margin was 0.3% as compared to a gross loss margin of 13% for the same period of 2021, which mostly consisted of ceramic tiles segment.

During the first half of 2022, we had a gross profit margin of 13.8% for the ceramic tiles segment, and a gross profit margin of 1.6% for the business management and consulting segment. Other income for the 6 months ended June 30, 2022, was RMB 10.4 million or USD 1.6 million as compared to RMB 7.2 million or USD 1.1 million for the comparable period of 2021.

Other income primarily consists of rental income that the company received by leasing our Hengdali facility in the entirety, which includes building, plant and all of its production lines. In addition, we received RMB 632,000 in government grant from a local authority for attracting outside-the-region enterprises to invest to help develop the local economy, and RMB 887,000 in a tax subsidy due to the impact of COVID-19 which occured via our Hainan Kylin subsidiary.

Selling and distribution expenses for the 6 months ended June 30, 2022, were RMB 6.9 (sic) [4.9] million or USD 0.7 million as compared to RMB 3.2 million or $0.5 million for the comparable period of 2021. The increase in selling and distribution expenses was primarily due to an increase in commission expenses of RMB 1.9 million.

Administrative expenses for the 6 months ended June 30, 2022, were RMB 16.5 million or USD 2.5 million as compared to RMB 17.2 million or USD 2.7 million for the same period of 2021. The decrease in administrative expenses was mainly due to a decrease in consultant fees of RMB 4.7 million. The net loss for the 6 months ended June 30, 2022, was RMB 25.7 million or USD 4 million as compared to a net loss of RMB 70.8 million or USD 10.9 million for the same period of 2021. The decrease in net loss was mainly due to the decrease in bad debt expense.

The decrease in gross loss and increase in our other income as compared to the same period for 2021. The loss per basic share and fully diluted share for the 6 months end June 30, 2022, were RMB 4.88 or USD 0.75 as compared to a loss per basic and fully diluted share of RMB 16.24 or USD 2.1 for the same period of 2021.

Turning to our balance sheet. As of June 30, 2022, we had cash and bank balances of RMB 15 million or USD 2.2 million as of June 30, 2022, compared with RMB 27.9 million or USD 4.4 million as of December 31, 2021. As of June 30, 2022, our inventory turnover was as 327 days as of June 30, 2022, as compared to 183 days of December 31, 2021. The increase in inventory turnover days was primarily due to the continued slowdown of as and the building material sector in China during the 6 months ended June 30, 2022. We believe that the value of our current inventory is realizable.

The trade receivables turnover of our ceramic tiles segment, net of value-added tax was 329 days as of June 30, 2022, as compared to 168 as of December 31, 2021. The increase in trade receivables turnover was primarily due to the slow collection of our trade receivables as a result of tight cash flow as reported by our customers due to the COVID-19 pandemic. Trade receivables turnover of our business management and consulting segment was 0.3 days as of June 30, 2022, as compared with 11 days as of December 31, 2021.

The decrease in trade receivable turnover from our business management and consulting segment was primarily due to the timely collection of outstanding accounts, receivables including payments received in advance from our clients. The trade payables turnover of our ceramic tiles segment, net of value-added tax, was 32 days as of June 30, 2022, as compared with 20 days as of December 31, 2021. The average turnover days was within the normal credit period of one to four months granted by our suppliers. Trade payables turnover of our business management and consulting segment was 5 days as of June 30, 2022, as compared with 7 days as of December 31, 2021.

In terms of our plant utilization and CapEx, we utilized the plant capacity capable of producing 0.7 million square meters of ceramic tiles for the 6 months ended June, 30, 2022, as compared to 2 million square meters for the same period of 2021. Our reduced utilization during the current period was primarily attributable to the continued slowdown of the real estate industry in China, which was still being impacted by the continued effect of COVID-19 pandemic.

All of the current period production attribute to our Hengda facility, which has a total and new production capacity is 22.8 million square meters of face. Since effective November 1, 2021, we entered into a 5-year lease agreement for our Hengdali facility in its entirety, which includes building, plant and all of it's machinery, equipment and production lines. We review the level of capital expenditure throughout the year and make adjustments subject to market conditions.

Although business conditions are subject to change, we anticipate a modest level of capital expenditure for the remainder of 2022, other than those associated with minimal upgrades, more repairs and maintenance of equipment.

Moving to our business outlook. During the first 6 months of 2022, we continued to execute on our strategic plan to transform our business to diversify our operations due to the difficulties of our legacy ceramic tiles business, which has suffered due to continued slowdown of the real estate sector in China.

Therefore, beginning in the first half of fiscal year 2022 (sic) [2020] we entered into new technology sectors and continued to tactically ramp our efforts over the last 2 years. For the first 6 months of fiscal 2022, we generated RMB 118.2 million or USD 18.3 million in revenue from our new subsidiaries in business management, information system consulting and included the sales of software use rights of digital data storage platform and asset management system. And online social media platforms, including short video, live broadcast, e-commerce platform, development and consulting. These new businesses account or 87.6% of the company's revenue in the first 6 months of 2022, and enabled us to realize 169.3% increase in total revenue for the first 6 months of 2022 as compared to the same period of 2021.

In particular, we expect rapid growth to continue in social e-commerce and broadcast industry in China over the next few years, which is the largest in the world, and that we believe having strong growth potential. Such market includes new formats such as live broadcasting, short videos, social e-commerce, enterprise management and new stream media, where we believe our SaaS and PaaS system platform have the capacity to capitalize upon these new modalities. We are optimistic as to the market opportunities represented by this new sector and are encouraged by strong contribution to revenue of our new technology businesses to date.

In terms of our ceramic tiles segment, for the 6 months ended June 30, 2022, this operating result continued to be impacted by the slowdown of China's real estate sector. This is attributable to several factors, including the continued effects of COVID-19 pandemic. China's central government reigning in real estate developers with stricter financial rules due to the sector's over leveraging, homebuyer mortgage boycotts on unfinished homes. A contraction of new homebuilding starts, overbuilding in some lower tier cities and a continued drop in home prices. Due to these challenging conditions, for the 6 months ending June 30, 2022, we developed a plan to produce and sell only our porcelain ceramic tiles, which is our best selling and highest margin ceramic tiles in order to address the market on as realistic a basis as possible. However, the enactment of this plan was not able to surmount the difficult market conditions of the first 6 months of 2022.

The sales of porcelain ceramic tiles, and therefore, our entire ceramic tiles segment declined 60.4% for the first 6 months of fiscal 2022 as compared to the year ago period.

Looking forward, we will continue to evaluate any improvement in the market conditions of China's real estate sector and develop further strategic strategies as needed.

The business outlook reflects the company's current and preliminary views and is based on information currently available to us, which are subject to change and subject to risks and uncertainties as well as risks and uncertainties identified in the company's public filings. At this point, we would like to open up the call to any questions pertaining to our first half 2022 financial results. Operator?

(Operator Instructions) Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Thank you, Rocco. On behalf of the entire Antelope enterprise management team, I want to thank all of you for your interest and participation on the call. This concludes Antelope Enterprises First half 2022 Earnings Call. Thank you.

Thank you, ladies and gentlemen. Today's conference has now concluded. You may disconnect your lines, and have a wonderful day.