Autohome Inc (ATHM) 2023 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by for Autohome's Second Quarter and Interim 2023 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. If you have any objections you may disconnect at this time.

It is now my pleasure to introduce your host, Sterling Song, Autohome's IR Director. Mr. Song, please go ahead.

Thank you, operator. Good morning everyone, and welcome to Autohome's Second Quarter and the Interim 2023 Earnings Conference Call. Earlier today, Autohome distributed its earnings press release, and the you may find a copy on the company's website at www.autohome.com.cn.

On today's call, we have Chairman and Chief Executive Officer, Mr. Quan Long; and Chief Financial Officer, Mr. Craig Yan Zeng. After the prepared remarks, our management team will be available to answer your question.

Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the U.S. Securities and Exchange Commission and the Stock Exchange of Hong Kong Limited. Autohome doesn't undertake any obligation to update any forward-looking statements, except as required under applicable law.

Please also note that Autohome's earnings press release and this conference call include discussions of certain unaudited non-GAAP financial matters. Please refer to our press release which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures, and is available on Authome's IR website. As a reminder, this conference call is being recorded. In addition, a live and archived webcast of this earnings conference call will also be available on Autohome's IR website.

I will now turn the call over to Autohome's Chairman and CEO, Mr. Long, for opening remarks. Please go ahead, Mr. Long.

(foreign language)

[Interpreted] Thank you, Sterling and hello everyone. This is Quan Long. I'm Chairman and CEO of Autohome. Thank you for joining our earnings conference call.

(foreign language)

[Interpreted] In the second quarter, our financial and operational results continued to recover steadily with a 5.8% year-over-year increase in total revenues, marking four consecutive quarters of positive growth. Online marketplace and others revenue experienced strong growth of 20.4% compared to the same period last year, becoming the primary driver of our top-line growth. Notably, TTP and data products, both delivered double-digit year-over-year revenue growth, and the revenue from NEV brands maintained its robust growth momentum as revenue continued to expand in scale. Not only have our revenues risen, but our profitability has also significantly improved. Adjusted net income attributable to Autohome for the second quarter was up by 20.6% year-over-year, and our adjusted net margin remained at a comparatively high level of 31.1%, an increase of 3.8 percentage points year-over-year.

(foreign language)

[Interpreted] During the second quarter, we actively advanced our C-end strategy, making steady progress across content optimization and business diversification while expanding our traffic through multiple channels. Our goal is to provide users with high-quality content, practical tools and exceptional services, thus enhancing Autohome's brand recognition among users. In May, we unveiled our first Autohome Energy Space franchise store in Haikou, marking the beginning of this new retail franchise model across the country. We also accelerated the application of AI technology in all scenarios and promoted the digital upgrade and the reconfiguration of customer business processes, enabling our partners to reduce costs and increase efficiency. In addition, our collaboration with Baidu Large Language Model has yielded remarkable results in both user-end and customer-end product applications, providing both cohorts with more efficient services.

(foreign language)

[Interpreted] Looking ahead, as technology continues to develop, new technologies will eventually penetrate all aspects of the existing industrial chain. Autohome is taking advantage of this chance to transform technology into productivity, introduce innovative business models, and use technology and innovation to drive the digital transformation of the automotive industry. We are confident that with long-term accumulation of cutting-edge technology and our growing brand advantages as well as our comprehensive innovation incubation system, Autohome is well positioned to seize rising opportunities, break new ground and ultimately achieve diversified business growth.

(foreign language)

[Interpreted] With that, I will now turn the call over to our CFO, Mr. Craig Yan Zeng, for a closer look at our second quarter operating and financial results.

(foreign language)

[Interpreted] Thank you, Mr. Long. Hello everyone. I'm Craig Zeng, the CFO of Autohome.

(foreign language)

[Interpreted] In the second quarter, we continued to develop our content ecosystem and business innovations to capitalize on the two major industry trends of NEV and artificial intelligence. We further enriched our NEV-themed content and activities to enhance our content offerings while also introducing new business models and technologies to meet the ever-evolving needs of users and customers.

(foreign language)

[Interpreted] On the content front, in mid-June, we hosted the "Future City NEV Technology Festival", a major industry IP following the "818 Super Autoshow". We combined 3D visuals, on-site test drives and a star-studded music festival to create an exciting experience for NEV owners and young users. At the event, we debuted China's first mobile exhibition truck featuring a large-scale holographic display, providing consumers in lower-tier cities with more comprehensive information on NEVs and enabling NEV brands to expand their reach into these markets, in line with the government's policy to support NEV consumption in rural areas. The event received positive feedback with a total exposure of over 2 billion across the entire network.

(foreign language)

[Interpreted] Furthermore, early this month, we launched the "NEV Content Creator Acceleration Plan" to help our content better align with the development of the NEV market and users' actual needs. This plan is designed to provide creators with more exposure and monetization opportunities, encouraging them to join Autohome and contribute to the production of NEV content, thereby diversifying our content portfolio. As we strengthen and build our own platform's premium content, we are also expediting the development of a new media ecosystem by creating content that is tailored to the unique characteristics of various platforms, helping to promote Autohome's brand and holistically drive traffic. According to QuestMobile, in June, our mobile DAUs increased by 31.7% year-over-year to reach 62.71 million, demonstrating our continued leadership in the automotive media vertical.

(foreign language)

[Interpreted] On business front, in the second quarter, new business continued to lead Autohome's overall business development.

(foreign language)

[Interpreted] First, our NEV business. In the second quarter, revenues generated from NEV brands grew by 60% year-over-year. The successful launch of our Autohome Energy Space franchise store in Haikou, Hainan province, marks the industry's recognition of this disruptive new retail model. Energy Space provides a comprehensive, one-stop service for car selection and purchase, making it easier than ever for consumers to find their ideal cars. Automakers also benefit from this innovative approach to NEV sales, as it offers a cost-effective solution to the issue of single-brand sales volume not being able to support the cost of store building and operation. Energy Space has been gaining traction with an increasing number of cooperative brands, and its 3D holographic modeling now covers more than 40 mainstream vehicle models. Furthermore, we are seeing more and more automakers and the franchisees actively reaching out to Autohome to express interest in this model. As additional Energy Space franchise stores are established in various cities in the second half of the year, the scale of Autohome's new retail services will continue to expand.

(foreign language)

[Interpreted] In terms of digitalization, we've leveraged the GPT model to develop two decision-making assistant products. Our "Car Selection Assistant" aggregates and extracts information from Autohome's platform, helping users finding their ideal car based on their preferences, needs and budgets. "Operation Butler" is a digital assistant for dealer management that can automatically integrate store operational data, generate analysis and make suggestions on command to guide dealers in their operations and the management decisions. In addition, our existing data products have seen a steady increase in adoption, with more than 21,000 dealers using our data products in the second quarter. Moreover, in the first 6 months of the year, key metrics such as the average number of data products adopted by each dealer store and the average revenue of data products per dealer store both grew by double-digits compared to the prior year period. Going forward, we will continue to apply two fundamental capabilities, large language models and knowledge graphs, across actual business scenarios to improve our data products' quality and usefulness.

(foreign language)

[Interpreted] In terms of the used car business, Autohome's used car business unit, including TTP, experienced accelerated revenue growth in the second quarter. TTP's revenue saw a significant increase in the second quarter and the first half of the year, while also maintaining its profitability. Through Autohome's matching and auction services, our platform accounted for about 24.7% of all used car transactions in China, representing year-over-year growth of 2.1 percentage points. We have integrated our used car business with new car retail stores, providing car owners who purchase new cars with an easy way to dispose of their old cars. Furthermore, we extended used car testing and other services to these stores, cultivating more direct connections with consumers while creating and exploring new opportunities for business collaboration.

(foreign language)

[Interpreted] Overall, Autohome's core business remains stable with strong growth across our new businesses. We've made significant progress in the development of new products and models, further strengthening our leading position in key areas. As we move forward, we will continue to focus on the industry's two major trends, namely NEV and artificial intelligence, constantly innovating to bring superior products and services to our users and customers while ultimately delivering long-term value to our shareholders.

(foreign language)

[Interpreted] Next, let me walk you through the key financials for the second quarter of 2023. Please note that as with prior calls, I will reference RMB only in my discussion today, unless otherwise stated.

(foreign language)

[Interpreted] Net revenues for the second quarter were RMB 1.83 billion, up 5.8% year-over-year. For a detailed breakdown, media services revenues came in at RMB 532 million, leads generation services revenues were RMB 760 million and online marketplace and others revenues were RMB 541 million, up 20.4% year-over-year, primarily attributable to greater contributions from TTP and data products.

(foreign language)

[Interpreted] Moving on to cost. Cost of revenues in the second quarter was RMB 330 million compared to RMB 279 million in Q2 2022. The increase was primarily attributable to a rise in the operational costs. Gross margin in the second quarter was 82% compared to 83.9% in Q2 2022.

(foreign language)

[Interpreted] Turning to operating expenses. Sales and marketing expenses in the second quarter were RMB 824 million compared to RMB 739 million in Q2 2022. The increase was primarily attributable to the escalation in marketing and promotional spending. Product and development expenses were RMB 313 million compared to RMB 362 million in Q2 2022. The decrease was primarily attributable to a decline in personnel-related expenses. Finally, general and administrative expenses were RMB 91 million compared to RMB 127 million in Q2 last year. The decrease was primarily attributable to the reduction of expected credit losses.

(foreign language)

[Interpreted] Overall, we delivered operating profit of RMB 342 million in the second quarter compared to RMB 301 million in the corresponding period of 2022. Adjusted net income attributable to Autohome Inc. was RMB 569 million in the second quarter compared to RMB 472 million in the corresponding period of 2022, representing an increase of 20.6% year-over-year.

(foreign language)

[Interpreted] Non-GAAP basic and diluted earnings per share in the second quarter were RMB 1.16 and RMB 1.15, respectively compared to both RMB 0.94 in the corresponding period of 2022. Non-GAAP basic and diluted earnings per ADS in the second quarter were RMB 4.62 and RMB 4.61, respectively, compared to RMB 3.77 for both in the corresponding period of 2022.

(foreign language)

[Interpreted] As of June 30, 2023, our balance sheet remained very strong with cash, cash equivalents and short-term investments of RMB 23.34 billion. We generated net operating cash flow of RMB 522 million in the second quarter of 2023.

(foreign language)

[Interpreted] On November 18, 2021, our Board of Directors authorized a share repurchase program under which we are permitted to repurchase up to USD 200 million of Autohome's ADR for a period not to exceed 12 months thereafter. On November 3, 2022, our Board of Directors authorized an extension of the share repurchase program for another 12 months, expiring on November 17, 2023. As of July 21, 2023, we have repurchased approximately 4.7 million ADS for a total cost of approximately USD 141 million.

(foreign language)

[Interpreted] With that, we are ready to answer your questions. Operator, please help to open the line for the Q&A session.

(Operator Instructions) Our first question comes from the line of Xiaodan Zhang from CICC.

(foreign language) Thanks management for taking my questions and congrats on the solid result. So first of all, what is your outlook for the domestic auto market in the second half of 2023? And could you please update us on the new retail model for NEV and what is the expansion plan going onwards?

(foreign language)

[Interpreted] Thank you for the question. My name is Quan Long. I would like to take your questions. So firstly, let me give a summary of what's happening in the market. As you can see, starting from the second quarter, the auto market started to recover as people had expected. And for the second half of the year, we do believe that the outlook is quite promising.

(foreign language)

[Interpreted] To further elaborate on that, firstly, because last year due to the impact of the COVID-19, the base was quite low, secondly, in Q1, we all knew that there were price wars. And starting from Q2, with the easing of the price war, consumers also gradually stopped watching while holding cash and started to get into this market. So that's why we believe that for the second half of the year, the outlook of the auto market would be quite promising. And also, with the National 6B transitional policy was introduced and the pricing would gradually going stable. And especially recently, the central government launched a lot of stimulus policies and favorable policies to better stimulate this market. All this would help the market to gradually push forward.

(foreign language)

[Interpreted] Well, we believe that there are structural opportunities in this market, especially in these two areas. The first would be NEV, second would be the used car. Now let's talk about the first one. The NEV would still be the focus of the market. According to the Chinese Passenger Car Association's latest data, till the end of June, the penetration rate of the passenger car for the NEV reached 32.4%. Based on a lot of campaigns, for example, boosting the consumption policy of the central and the local government and the marketing activities of a lot of NEVs in multi-sites and also a lot of new car models get launched to the market, we believe the sales transaction volume of the NEV will continue to improve. And therefore, this year, the penetration rate would continue to go high.

And also, on June 12, MIIT, together with other 5 ministries and the department, they launched a policy on notice on 2023 Auto to the Countryside campaign. And actually, on June 21, the Ministry of Finance, the Tax Bureau and MIIT co-launched the fourth extension of the NEV purchase tax cut. So, we believe this would be very helpful to boost the consumption of the NEV.

(foreign language)

[Interpreted] Now the second would be the used car. We believe this would become a very important part for the intrinsic driver for the Chinese auto market. According to the data in May, June for 2 consecutive months, the used car transaction volume reached year-on-year and month-on-month growth. And also, with the independent registration system be launching for the used car, we believe a lot of car dealers group, they would have a lot of potential to further grow business. And with NEV's development and with more and more car purchasing and low-cost NEV choices for the consumers, this will also boost the development of the NEV used car.

(foreign language)

[Interpreted] And also this week, the meeting of the political bureau of the Chinese Communist Party showed that the central government would try to stimulus the domestic consumption, especially to push forward the fundamental function of the consumption to boost economy growth and also to enlarge the general public revenue and also household income to expand the consumption and to boost the end consumption demand. And also, they would leverage on boosting the domestic consumption strategy together with deepened supply side of reform. In this way, especially they were to stimulate the auto consumption, the electronic consumption and also consumption for the large furniture, et cetera, home appliances. So, in this way, we are very confident that the Chinese auto market would enrich the long-term and stable growth.

We believe that consumers' potential demand would gradually be released. And also, the people's awareness would always improve and the technology breakthrough and innovation would bring a lot of new opportunities for the NEV and the used car business. So, in summary, I would see a long-term long cycle and a huge potential for the growth of the NEV market.

(foreign language)

[Interpreted] My name is Zeng Yan. I would like to take the second question. Actually, starting from September of 2022, the Autohome Energy Space offline store was launched in Shanghai. This was the first and great effort in our retail channel and NEV innovation. And the store's operating was quite good, and the business has been successfully promoted, and a lot of consumers and the customers and the dealers, they all think highly of this business model. And in June of this year, in Haikou City, we started the first franchise store of such Autohome Energy Space franchise store.

(foreign language)

[Interpreted] Actually, in terms of the retail new business model, we have a lot of pilot projects, including the holographic modelling, the test drive reports, the lead services, the purchasing order and also the offline activities. For example, the holographic modeling, we already started to work with more than 40 main street OEMs. So based on the different characteristics of different cities and different market potential and market volume, we will very soon start to roll out the franchise stores nationwide. And we are trying to build a one-stop solution for the NEV consumers. And for the OEMs, we are going to help them to get reach to the consumers and to their channels.

(foreign language)

[Interpreted] So currently, we are still practically contacting with a lot of franchisees and partners. We are going to seek for more opportunities. Before the end of 2023, we are going to newly establish 10 to 20 offline stores, especially in those middle and lower tier cities. I think in the future, I would keep you updated on what are the latest progress. Thank you.

Our next question comes from the line of Ritchie Sun from HSBC. Please go ahead, Ritchie.

(foreign language) Thank you, management for taking my questions. So, I noticed that we have a very strong DAU growth. Can you please explain the drivers behind that? And how should we interpret the consumption power of these users and the monetization potential?

(foreign language)

[Interpreted] Well, thank you for the question. In terms of the user growth, yes, we achieved the wonderful user growth based on the following reasons. Firstly, Autohome launched the high-quality professional and fun content to attract the users. We also made in-depth study of the user behavior. In this way, we can create content in a targeted way to attract different users' demand.

For example, in June, we're going to host the Future City NEV Technology Festival, dedicated to the NEV autos, through a lot of synergy, and we are going to create wonderful experience for the NEV car users and the consumers. And we are also going to launch the first mobile exhibition truck featuring a large-scale holographic display. In this way, we would allow a lot of lower-tier cities users to experience multiple NEV brands.

For example, a few weeks later, we are going to work together with CCTV to host the fifth 818 Auto show. In this way, this global auto show would be a large campaign. This would also be a very famous IP launched by the Autohome in the NEV industry. Through a lot of enriched content, we are going to help the OEMs and the brands to have more media coverage, to attract more users and to bring wonderful experiences.

(foreign language)

[Interpreted] In terms of the channels, we also established a better ecosystem in a new media to create the differentiated and new content. For example, we have already formed the matrix of a lot of contents to attract the traffic. In Q2, we do see that the new media contributes a lot to add more traffic.

(foreign language)

[Interpreted] In terms of the content, in the past, we are more auto-related or auto consumption related. Now, we made expansions to the auto life and also the services. We are trying to build our car ecosystem centered by using the car. For example, ever since this year, in our Autohome APP, we newly launched the car wash and also the special favorable rates on fueling as well as the lifestyle of the car users. In this way, it helped us to grow our users.

(foreign language)

[Interpreted] In terms of the NEV, we believe this would be the major driver for the transaction volume in the auto market. For this group of customers, based on the content, we have a lot of new initiatives. For example, we found out that with the development of NEV, a lot of our car consumers based on their purchasing car needs and the content demand, they are more diversified. Comparing with the traditional combustion car users, the NEV car users pay more attention to the battery life, mileage, as well as the outer outlook and the smart driving cabinet and the intelligent cabinet, et cetera. So based on these fundamentals, Autohome started to collaborate with Beijing BITNEI Corp to establish a lot of real-time user data, especially on the battery life endurance data to give the indicators and the index to our users.

(foreign language)

[Interpreted] Secondly, in the NEV, especially on intelligent driving assessment system, we also launched the real-time testing and assessment data for the users to consider. We also launched the car models highlights, combining the core function, the interactive features and the real-time data. In this way, the highlights would attract a lot of NEV users.

Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead, Thomas.

Thanks management for taking my questions. I have 2 questions. The first question is about the outlook car market and the strategies for TTP. The second question is about the use of cash. Can management share about use of cash in the coming years?

(foreign language)

[Interpreted] Well, thank you for the question. Talking about the used cars, in the second quarter of this year, we do see the domestic used car sales volume grew by 21.3%. According to the China Auto Association's estimation, the year-round used car would be expected to grow by 25%. So, we believe there is a great potential for the volume to grow in the used car market.

(foreign language)

[Interpreted] As we just mentioned about the TTP, actually, the TTP, together with other used car models in the Autohome in the second quarter, we accelerated the growth. The TTP second quarter and the first half of this year's revenue grew rapidly, which outpaced the industry average. It also become one of the new business drivers for the Autohome's business growth.

(foreign language)

[Interpreted] From August of 2022, TTP had become profitable, and its profitability has been greatly enhanced for the first half of this year. We believe that the used car business of Autohome in 2023, we can keep a good profitability.

(foreign language)

[Interpreted] In terms of the business model, we already associated with the used car and the retail new business. Through the retail stores, we are helping the car users, especially the new car purchasers to handle their used car, especially to simplify the trading process of the used car and to solve the non-transparency pain point of selling the used car and for purchasing of the new car, the selection time cost was high, et cetera.

(foreign language)

[Interpreted] We also consolidated the resources with Ping An Group, TTP and the Beijing BITNEI Corp and also the NEV offline experience stores after we associate and also leverage all the resources, we are trying to create more business synergy.

(foreign language)

[Interpreted] In summary, in the future, we will keep to establish the consolidated one-stop solution ecosystem for the used car, especially leveraging on a one-stop solution for buying a car and selling a car plus SAAS model. And we are going to seize opportunity in the used car business and enlarge our competency. And also, we want to quicken the growth of the used car business and keeping in a leading industry position.

(foreign language)

[Interpreted] Now, let me answer your second question. Actually, we have abundant cash reserve in the firm, and we already established the dividend payout plan designed for the 2022 in first quarter of this year. Comparing with the dividend payout of 2021, the dividend payout ratio of 2022 enhanced by 8 percentage points. According to the corporate BOD, they already approved that starting from 2022 in the next 5 years, every year, we would give dividend payout no less than RMB 500 million. So, we attach great importance to shareholders' interest. We would continue to return back to the shareholders in a sustainable way, we would also consider other plans, which we can enhance the shareholders' return.

(foreign language)

[Interpreted] Now in terms of the share buyback or repurchase plan in this market, we already continued to carry out the USD 200 million share buyback plan. We already made USD 140 million share buyback. And in the future, we will continue to carry out this repurchase plan.

(foreign language)

[Interpreted] And meanwhile, we would also pay highly attention to other investments in other businesses, and we are trying to create shareholders' return. Thank you.

Our next question comes from the line of Brian Gong from Citi.

(foreign language) Thanks management for taking my questions and congratulations on solid results. My question is regarding data products. How many data products we have for dealers now and what are penetration for each product to our dealers? On the OEM side, when do we expect the demand on the products to recover?

(foreign language)

[Interpreted] Thank you for the question. Talking about the dealer business, actually, in the second quarter, we had more than 20,000 of paid dealers, and we have more than 10 products, which is quite mature to help them, including the smart marketplace, the smart exhibition hall and the smart quality inspection and intelligent assistance and smart call out telemarketing and smart cloud services, which covers the front and before and after sales, the whole process of the dealers. We help the dealers to get into the end-to-end operating information and try to enhance the conversion rate in many areas. In this way, we are guiding and helping the dealers to put their core competency and to better serve the customers. In this way, we help them to achieve lean management and to improve its value to the customer.

(foreign language)

[Interpreted] And we also received wonderful feedback from the dealers, and we have a lot of high penetration rate for many products. And our product ARPU all have been enhanced. In addition to that, based on the GPT model, we have launched the new division assistance tools. For example, the "Car Selection Assistant" and "Operation Butler" models, which can help the dealers to enhance its decision-making process and enhance efficiency in operating and management.

(foreign language)

[Interpreted] Now talking about the OEMs, during the Covid, we helped them to do a lot of online campaigns to replace its offline exhibition for the new models. Now post-COVID, their demand has changed. We would also change our service model accordingly to better meet with their demand.

We have now reached the end of the question-and-answer session. Thank you for all your questions. I'll now turn the conference back to management for closing comments.

(foreign language)

[Interpreted] Thank you everyone. Thank you for joining us today. Appreciate your support and look forward to updating you on our next quarter's conference call in a few months' time. So in meantime, please feel free to contact us if you have any further questions or comment. Thank you very much everyone. Thank you. Goodbye.

Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.