Antelope Enterprise Holdings Ltd (AEHL) 2021 Q4 法說會逐字稿

Thank you for standing by, and welcome to the Antelope Enterprise Second Half and Fiscal Year-End 2021 Earnings Conference Call. (Operator Instructions) I would now like to hand the conference over to your first speaker today, David Rudnick. Please go ahead.

Thank you, Julianne. Good morning, ladies and gentlemen, and good evening to those of you who are joining us from China. Welcome to Antelope Enterprise Holdings Limited Second Half and Fiscal Year-End 2021 Earnings Conference Call. With us today are Antelope Enterprise's Chief Executive Officer, Ms. Meishuang Huang; and Chief Financial Officer, Mr. Edmund Hen.

Before I turn the call over to Ms. Huang, I'd 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. Antelope's future 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 and 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. Edmund Hen. [Sallie J.] will be translating for Ms. Huang. Ms. Huang, you may proceed.

[Interpreted] Thank you, David. On behalf of the company, I would like to welcome everyone to our Second Half and Fiscal Year-End 2021 Earnings Conference Call.

During fiscal year 2021, we continued to experience challenging market conditions for our ceramic tile product sales due to the slowdown of the real estate sector in China, which will still be impacted by the continued effect of COVID-19 pandemic. To mitigate these challenging conditions, in 2021, we continued to execute our strategic plan to diversify our business and to our growth by incorporating several new technology sector subsidiaries.

These new subsidiaries are engaged in selected markets in China, which we believe has strong growth potential. This includes business management, information system consulting and social media, online social commerce and live streaming. We are pleased that this new business segments contributed 38% of revenue to our financial performance for the second half of 2021 and 33% for the full year 2021, which shows that our strategic plan is on course.

Due to the continued challenging conditions for the real estate and building materials in China, in November 2021, we entered into a 5-year lease agreement to lease out the entire Hengdali facility with the same lessee that has been leasing out just a portion of the plant. However, we are secured in terms of having ample unused production capacity at our Hengda facility for when the real estate market turns around, and this decision is consistent with our resolve to pivot towards technology growth sectors.

We are committed to diversifying the company into growth technology sectors and are encouraged by the strong contribution from our new technology subsidiaries to date. In particular, we believe that social media, online social commerce and live streaming in China will experience sustained growth in the years to come.

With that, I would like to turn over the call to the company's Chief Financial Officer, Mr. Edmund Hen, who will discuss the company's second half 2021 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 December 31, 2021. Our revenue for the 6 months ended December 31, 2021 was RMB 166.2 million or USD 25.8 million, a 16% decrease from RMB 143.2 million or USD 21.1 million for the same period of 2020. Year-over-year increase in revenue was due to the generation of RMB 63.6 million or USD 9.9 million in the business management, information system consulting and online social commerce and live stream operations revenue from Chengdu Future, Antelope Chengdu and Hainan Kylin Cloud Services, new operating subsidiaries of the company, which account for 38.3% of the company's total revenue in the current period. However, this contribution was partially offset by RMB 40.6 million or USD 6.3 million decrease in ceramic tile sales.

Gross profit for the 6 months ended December 31, 2021 was RMB 73.8 million or USD 11.5 million compared to a gross loss of RMB 26.9 million or USD 4 million for the same period of 2020. The gross profit margin was 44.4% as compared to a gross loss margin of 18.8% for the same period of 2020. Other income for the 6 months ended December 31, 2021 was RMB 2.3 million or USD 0.4 million as compared to RMB 12.2 million or USD 1.8 million for the same period of 2020. Other income consists of rental income that the company received by leasing out 1 of the production lines from this Hengdali facility pursuant to an 8-year lease contract.

Seller and distribution expenses for the 6 months ended December 31, 2021 were RMB 3.1 million or USD 0.5 million, a decrease from RMB 4.2 million or USD 0.6 million for the same period of 2020.

Administrative expenses for the 6 months ended December 31, 2021 were RMB 15.2 million or USD 2.4 million as compared to RMB 11.9 million or USD 1.8 million for the same period of 2020. The increase in administrative expenses was primarily due to an increase in consulting and proportional fees.

Bad debt expenses for the 6 months ended December 31, 2021 and (inaudible) were RMB 75.7 million or USD 11.8 million as compared to bad debt expense of RMB 48.5 million or USD 7.2 million for the same period of 2020. We recognized a loss allowance for an expected credit loss on our financial assets, primarily on our trade receivables, which are subject to impairment under international and financial reporting standards. We believe that we have undertaken appropriate measures to resolve the bad debt expense going forward. We will continue to renew credit losses of each of our customers and continuously test our trade receivables balance in each upcoming fiscal period.

Net loss for the 6 months ended December 31, 2021 was RMB 19.3 million or USD 3 million as compared to a net loss of RMB 81.6 million or USD 12 million for the same period of 2020. The decrease in net loss was primarily due to an increase in gross profit, a decrease in bad debt expenses and substantial increase in the reversal of the inventory impairment provisions in the current period.

Loss per basic and fully diluted share for the 6 months ended December 31, 2021 were RMB 3.75 or USD 0.58 as compared to loss per basic and fully diluted share of RMB 24.85 or USD 3.67 for the same period of 2020.

Turning to our balance sheet. As of December 31, 2021, we had cash and bank balances of RMB 27.9 million or USD 4.4 million as compared to RMB 12.3 million or USD 1.9 million as of December 31, 2020. As of December 31, 2021, our inventory turnover was 183 days as compared to 190 days as of December 31, 2020. Our trade receivables turnover of ceramic tile products, net of value-added tax was, 168 days as of December 31, 2021 compared to 242 days as of December 31, 2020. Trade receivables turnover of our business management and consulting segment was 11 days of December 31, 2021. Our trade payables turnover of ceramic tile products, net of value added tax, was 20 days as of December 31, 2021 compared with 22 days as of December 31, 2020. Trade receivables turnover of our business management and consulting segment was 7 days as of December 31, 2021.

In terms of our plant utilization and CapEx, we utilized plant capacity that produced 1.2 million square meters of ceramic tiles for the 6 months ended December 31, 2021, as compared to 1.5 million square meters of ceramic tiles for the same period of 2021, with all of the current period's production attributable to our Hengda facility. Our reduced utilization during the current period was primarily attributable to the continued slowdown of the real estate industry in China, which are still being impacted by continued effects of the COVID-19 pandemic.

Effective November 1, 2021, we entered into a new lease agreement with the same lessee that has been leasing one of the production lines at the Hengdali facility. The new lease is for Hengdali in its entirety, which includes building, plant and facilities, and which contains all of its office machinery, equipment and production lines. The new lease has a term of 5 years from November 1, 2021 through October 31, 2026 for an annual rent of RMB 18 million.

Therefore, the company's total annual production capacity is 22.8 million square meters of ceramic tiles, which is solely attributable to its Hengda facility. We intend to bring unused production capacity at Hengda online as consumer demand dictates and when there are signs of improvement in China's real estate and construction sectors.

We review the level of capital expenditures throughout the year and make adjustments subject to market additions. Although business conditions are subject to change, we anticipate a modest level of capital expenditure for 2022, other than those associated with minimal upgrades, small repairs and the maintenance of equipment.

Moving on to our business outlook. In terms of our ceramic tiles business, for fiscal year 2021, the company's operating results continue to be impacted by the slowdown of China's real estate sector due to the continued effect of COVID-19 pandemic. After rise in property prices month-over-month for the first 6 months of 2021, average new home prices in China's 70 major cities fell month-over-month for the second 6 months of 2021. And early 2022 data shows the weakest rise in new home prices since November 2015. Due to these challenging market conditions, we enacted a plan to work ceramic tiles production already in inventory through our sales channel, although we contributed to engage in marketing for our products for when the real estate market turns around.

Looking forward, China's central government indicated that it would invigorate the economy, as it has in the past, which would include helping to support China's real estate sector. In early 2020, the People's Bank of China cut its reserve requirement ratio, which freed up more loan capital for homebuyers. Due to weakened market demand, banks have lowered the mortgage rates by an average of 20 to 60 basis points. And some provinces have loosened some of their policy, which including removing restrictions on home purchases for those without full local residency status. Real estate continues to be a vital component of China's economic growth as the real estate and its related business activities is estimated to comprise 25% of China's GDP.

We believe that the demand for our ceramic tiles products will mostly come from Tier 3 and lower tier cities as well as coastal cities over the next few years, and we will be increasing our efforts to secure customers in larger Southeast Asia markets.

In terms of our new technology business development activities, during fiscal 2021, we continued to execute on our strategic plan to diversify our operations with new technology sector operations as we generated RMB 71.5 million or USD 11 million in revenue from our new subsidiaries in business management, information system consulting, which includes the sales of software use rights for digital data deposit platforms and asset management systems, and an online social media platform, including live streaming and e-commerce platform development and consulting.

This new business segment enabled us to realize an 18.2% increase in total revenue for fiscal 2021 as compared to fiscal 2020. Business's outlook reflects the company's current and primary views and is based on the 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 filing.

At this point, we would like to open up the call to any questions pertaining to our second half 2021 financial results. Operator?

(Operator Instructions) No further questions at this time. David, please continue.

On behalf of the entire Antelope Enterprise Management team, we would like to thank all of you for your interest and participation on this call. This concludes Antelope Enterprise's Second Half and Fiscal Year-End 2021 Earnings Conference Call. Thank you.

That does conclude our conference for today. You may now disconnect.

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