Autohome Inc (ATHM) 2024 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by for Autohome's second quarter and interim 2024 earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded.

A live and archived webcast of this earnings conference call will also be available on Autohome's IR website. It is now my pleasure to introduce your host Sterling Song, Autohome's IR Director.

Mr. Song, please go ahead.

Thank you. Thank you, operator, and hello, everyone. I'm Sterling Song, and welcome to Autohome's second quarter and interim 2024 earnings conference call. Earlier today, Autohome distributed its earnings release, which can be found on the company's IR website at ir.autohome.com.cn.

Joining me on today's call are Chief Executive Officer, Mr. Tao Wu; and Chief Financial Officer, Mr. Craig Yan Zeng. Management will go through their prepared remarks, which will be followed by a Q&A session, where they will be available to answer all your questions.

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 Hong Kong Stock Exchange. 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 measures. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release.

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

(spoken in foreign language)

Thank you, Sterling. Hello, everyone. This is Tao Wu, CEO of Autohome. Thank you for joining our earnings conference call today.

(spoken in foreign language)

[Interpreted] In the second quarter, Autohome's net revenues grew steadily, user traffic increased noticeably, and our innovative business continued to make breakthroughs, driving the continuous optimization and upgrade of our entire business structure.

(spoken in foreign language)

[Interpreted] Specifically, in the second quarter, total revenues grew by 2.2% year-over-year to reach RMB1.87 billion. Of which, revenues from the online marketplace and other businesses continued to maintain double-digit growth year-over-year, reaching 33.1% of total revenue. Notably, many business lines such as data products and NEVs have experienced robust growth, with revenues for the quarter increasing by over 15% and nearly doubling, respectively, year-over-year.

In addition, we have maintained a healthy profitability while driving the development of our businesses and fulfilling our commitment to provide stable shareholder returns. In the second quarter, adjusted net income attributable to Autohome was RMB572 million, allowing our adjusted net profit margin to reach 30.6%.

(spoken in foreign language)

[Interpreted] In our innovative business arenas, we have further expanded our new retail business’ reach, increasing and intensifying our penetration from high-tier to low-tier cities. By leveraging our established flagship Autohome Space stores as the core hub, we have rapidly initiated our “Satellite Plan”.

This plan utilizes our Autohome Space stores as the core hub to extend our reach into neighboring lower-tiered cities, creating a network that radiates from a single point to cover an entire region. This network dynamic not only accelerates the reach and depth of the sales network, but also significantly broadens the scope of our services, enabling us to assess a broader market and a wider range of users.

On digitalization, we continue to drive product innovation and upgrade. By leveraging the capabilities of our smart series products, we have introduced a comprehensive digital business management platform for our dealership partners - encompassing everything from infrastructure setup and development, digital tools empowerment, and the implementation of sophisticated operations management - providing our dealership partners with an advanced and systematic digital support systems, allowing them to achieve increased efficiency in their business operations.

In addition, our cooperation with Ping An Group has also entered a new phase. During the second quarter, we integrated various resources, including car purchasing tools, content, and vehicle services to establish a comprehensive service system that spans the entire lifecycle of car ownership, providing users with a convenient one-stop service experience.

(spoken in foreign language)

[Interpreted] Looking forward, we will remain focus on our user-centric approach, harnessing innovation to drive development while continuously exploring new models of online-to-offline integration - and in the process, strive to provide users with an even higher quality, even more convenient, and even more efficient service experience.

Over this course, we will fully explore and leverage the extensive resources and technology of Ping An Group to seek even greater synergies and identify additional opportunities in the automotive ecosystem. We believe that with our solid business foundations and diversified range of businesses, Autohome is well positioned to achieve a new phase of high-quality development.

(spoken in foreign language)

[Interpreted] With that, I will now turn the call over to our CFO, Craig Zeng, for a closer look at our second quarter 2024 operating and financial results.

(spoken in foreign language)

[Interpreted] Thank you, Mr. Wu. Hello everyone. This is Craig Zeng, the Chief Financial Officer of Autohome.

(spoken in foreign language)

[Interpreted] In the second quarter, we continued to deepen our focus on enhancing our content portfolio, revitalizing the content through two categories: “professional content” and broader “general auto-related content”, establishing Autohome's new IP matrix.

(spoken in foreign language)

[Interpreted] For example, regarding “professional” evaluations, we have expanded our content to include targeted evaluations for hybrid vehicles, NEVs, and ICE vehicles. On “general auto-related content”, we've expanded our design, automotive culture, off-road vehicles, and other content for unique scenarios, resulting in the creation of 8 IP columns, including “So Fast So Test”, “Top 10 Horizontal Evaluations”, and “Road of Rise”.

We are also integrating live streaming and short video formats into our content to form a more comprehensive content matrix that caters to our users' diverse consumption preferences. To date, these 8 IP programs have garnered a total exposure of 860 million views across the entire network, significantly enhancing the influence of our platform.

(spoken in foreign language)

[Interpreted] In addition, by focusing on the new vehicle launch events prioritized by OEMs, we've developed a set of content offerings that spans the pre-launch, during-launch, and post-launch stages of each new car launch. This approach begins with exclusive 3D car model speculations during the pre-launch, progressing to an in-depth introduction during launch, and then customized evaluations post-launch, effectively prolonging the exposure time for each new car's selling points.

This not only helps B-end customers efficiently promote their products, but also allows Autohome to gain influence among C-end users. According to QuestMobile, the average mobile DAUs reached 67.91 million in June, an increase of 8.3% from a year earlier, and underscoring our leading position in the auto media vertical.

(spoken in foreign language)

[Interpreted] Turning to NEVs, as Mr. Wu just mentioned, we initiated the “Satellite Plan” in mid- May - a strategic initiative to establish satellite stores in lower-tier cities adjacent to the flagship Autohome Space stores. This initiative establishes a “1+N” synergistic service ecosystem where a single core Autohome Space store could support multiple satellite stores, thereby broadening our service reach to more regional markets. To date, we have established Autohome Space stores in 28 cities, including first-tier and super first-tier cities across China, achieving full coverage in these key urban areas.

Additionally, we are piloting and testing the water for the satellite store model in five cities. Through effective collaboration between core Autohome Space stores and these satellite stores, we have developed a comprehensive sales network, upgrading the new retail model from a single point to an upgraded comprehensive model. We are confident that the ongoing implementation of the “Satellite Plan” will enable us to influence and serve more users in lower-tiered cities.

(spoken in foreign language)

[Interpreted] In response to the national “trade-in for new” policy, we leveraged our Autohome Space and holographic exhibition trucks as platforms to organize the “Hundred Cities ‘Trade-in for New’ Car-Buying Festival”, providing consumers with immersive car searches, multi-brand comparative test drives, and other services.

The event brings even more mainstream NEV brand models and used car exchange services to regional markets. Spanning two months, the festival featured over 100 offline auto shows and attracted more than 500 thousand consumers. We are also pleased to see that revenues from NEV brands saw a continuous rise in the second quarter, nearly doubling compared to the same period last year, consistently outpacing industry growth rates.

(spoken in foreign language)

[Interpreted] In the digital realm, we are embracing the trend of refined operations and have introduced “Smart Digital Connection”, a data product using model algorithms to improve user profiling, helping customers to more accurately identify target users, assess vehicle replacement intentions, leading to increased store visit rates.

“Smart Test Drive”, another data product, integrates software, hardware, and AI-driven quality control capabilities to address the customer pain points of information opacity in test drive scenarios. This solution provides dealerships clients with digital management tools covering the entire test drive process, enhances the user test drive experience, and helps dealers establish a closed-loop data-driven ecosystem for their offline services. During the second quarter, total data product achieved an increase in revenues year-over-year of over 15%.

(spoken in foreign language)

[Interpreted] In the used car segment, our vehicle condition inspection tools have seen continued momentum with the proportion of strictly verified high-quality vehicles in our system consistently on the rise.

In the first half of this year, there has been an increase of 55.4% year-over-year in the number of authenticated used cars on our platform, effectively promoting the standardization for the entire used car industry. In terms of our business model, our used car business combines Autohome Space stores for offline services, with Ping An’s extensive network of car-owner service centers to provide after-sales support.

This one-stop used car service model has achieved strong results at our Chengdu pilot store. We plan to expand this model to additional cities in the second half of the year as the model continuously improves and matures.

(spoken in foreign language)

[Interpreted] Overall, Autohome's core businesses remain strong and stable, while our innovative businesses steadily make constant progress, contributing to generate incremental revenue streams. This reflects the substantial strides we have made in implementing our automotive ecosystem strategy. Looking ahead, we will continue to focus on long-term development by enhancing our users' experience with more diverse and richer content, professional services, and more personalized and intelligent solutions.

Furthermore, we will seek out and seize opportunities for growth in new business areas, injecting new vitality into the company's development with the aim of creating stable, long-term, positive returns for our shareholders.

(spoken in foreign language)

[Interpreted] Next, let me briefly walk you through the key financials for the second quarter of 2024. Please note that, as with prior calls, I will reference RMB only in my discussion today, unless otherwise stated.

(spoken in foreign language)

[Interpreted] Net revenues for the second quarter were 1.87 billion. Breaking it down by segments, media services revenues were 433 million, leads generation services revenues were 820 million, and online marketplace and others revenues were 619 million, up 14% year-over-year.

(spoken in foreign language)

[Interpreted] Cost of revenues in the second quarter were 346 million, compared to 330 million in the second quarter of 2023. Growth margin in the second quarter was 81.5%, compared to 82% during the same period last year.

(spoken in foreign language)

[Interpreted] Turning to operating expenses. Sales and marketing expenses in the second quarter were 753 million, compared to 824 million in the second quarter of 2023. Product and development expenses were 315 million, compared to 330 million in the second quarter of 2023. General and administrative expenses were 118 million, compared to 91 million during the same period last year.

(spoken in foreign language)

[Interpreted] Overall, we delivered an operating profit of 412 million in the second quarter, compared to 342 million for the same period of 2023. Adjusted net income attributable to Autohome was 572 million in the second quarter, compared to 569 million in the corresponding period of 2023.

(spoken in foreign language)

[Interpreted] Non-GAAP basic and diluted earnings per share in the second quarter were 1.18, up from 1.16 and 1.15, respectively, in the corresponding period of 2023. Non-GAAP basic and diluted earnings per ADS in the second quarter were 4.72 and 4.71, respectively, compared to 4.62 and 4.61, respectively, in the corresponding period of 2023.

(spoken in foreign language)

[Interpreted] As of June 30, 2024, our balance sheet remained very strong with cash, cash equivalents and short-term investments of 23.47 billion. We generated net operating cash flow of 452 million in the second quarter of 2024.

(spoken in foreign language)

[Interpreted] The above is our financials summary, with that, we are ready to open up the Q&A session. Operator, please open the line for Q&A, please.

(Operator Instructions) Thomas Chong, Jefferies.

(spoken in foreign language) Thanks management for taking my question. So recently we saw some luxury car brands exited the price war. What do you think is the reason behind? Also, the government launched some policy a couple of days ago. How will it positively impact us and the whole industry? Thanks.

(spoken in foreign language)

[Interpreted] Thank you for raising this question. Since last year we said that the auto market competition becomes even more fierce with very severe rat racing and all kinds of automakers start to reach the price war and in order to gain more shares from the market.

You can see that the duration of this round of price wars intensity of the price cuts as well as the depth to this impact goes beyond everybody’s expectation. Since the beginning of last year to now, the price war has already lasted for more than 500 days.

So for BBA as well as the other luxury brands, they decided to withdraw from the price war after participating for more than one year. We think there might be the following reason.

(spoken in foreign language)

[Interpreted] So first of all, from the OEM perspective, we have observed that price for volume strategy doesn’t slow down the decline of the sales. You can see there’s one example. They originally priced RMB300,000 cars, now only sold at RMB200,000 with a price cut of RMB100,000.

Even like that, in the first half of this year, the sales of Mercedes-Benz and BMW in China continued declined versus the same period of last year. However, at the same time, the price cut also imposes negative impacts on the brand image of those luxury brands. Besides, we can see continuous price war will also harm the profitability of the automakers

(spoken in foreign language)

[Interpreted] Secondly, from the dealer's perspective, those dealers are also under big operation pressure because of the continuous price war. There are two aspects of this. The first thing is a pretty high inventory pressure.

According to the statistics of China Association of Automobile Manufactures in June, you can see that the Chinese dealers' inventory alert index was 62.3%, which is already above the threshold of PMI. And five brands, luxury and imported brands, their inventory early alert index was 66.4%. And for those mainstream joint venture brands, 60.8%. And the Chinese domestic brands, 61.5%. We can see that the luxury brands are under the biggest pressure much higher than the other two categories.

(spoken in foreign language)

[Interpreted] And the second side is actually BBA’s dealers already start to suffer from big losses. You can see according to the statistics, in the first half of this year, more than 80% of BBA dealers cannot complete their sales goals and tasks. If they continue to go for the price war volume strategy, quite a few BBA dealers cannot survive anymore.

In this circumstance, BMW Brilliance, CEO said that BMW will continue to keep a close contact and discussion with upstream and downstream partners to explore the commercially viable model and to ensure Auto-partners can make enough money to live for the future.

(spoken in foreign language)

[Interpreted] As a result, with the decline of the sales volume, with all kinds of pressures such as profitability, brand value, as well as dealership, BBA decided to withdraw from the price war. After BBA decided to withdraw from the price war, we see that different automakers don't act in a consistent manner. Some choose to follow and withdraw from the price war. However, most of the automakers still adopt a wait-and-see attitude. We think that in the short term, the price war cannot be totally ended. And with price cuts as well as poor sales performance, the price adjustment as well as withdrawal from the price war may impose pressure on the sales volume of the automakers. As a result, we can see that market competition is still pretty fierce.

(spoken in foreign language)

[Interpreted] In terms of the policy update, since July 25, NDRC and the Ministry of Finance of the PRC have printed out the document called several opinions on intensifying the support on large-scale equipment replacements and consumer products trading for new. So as to encourage trade-in to promote the consumption of the automobiles.

And at the same time, the designated car garment scrappage subsidy standards have been greatly improved. And now, for the purchase of the NEV passenger vehicles, you can get a subsidy of RMB20,000. And the purchase of 2.0 Liters and below ICE cars can get a subsidy of RMB15,000. So versus the previous policy, now car scrappage can get a doubling subsidy.

(spoken in foreign language) [Interpreted] Mr. Cui Dongshu, secretary general of the China Automobile Dealers Association, also said that this round of car scrappage and replacement subsidy expansion and doubling is a very favorable news for the entire auto market. It is expected to drive around 2 million cars scrappage this year and also in favor of driving more than hundreds of billion of replacement-related consumption.

And for Autohome, you can see that with the increase of the NEV replacement, it will be favorable for our NEV business. And with the opening of the offline franchise stores, we will better satisfy the customers' needs on car selection and car purchase. And for Autohome, we can see that the revenue coming from the NEV brands will also quickly on the rise in the near future.

(spoken in foreign language)

[Interpreted] In short term, you can see that more than one year of rat racing in this industry really compromised the profitability of the automakers and triggered a series of issues and we are also affected by this industrial headwind. However, in the long run, with the mitigation of the price war and with government keeps launching favorable policies to support the auto market consumption. We strongly believe that the auto market still equipped with long-term growth potential, and we are also bullish about the long-term sound development of the auto industry in China.

Brian Gong, Citi.

(spoken in foreign language) Thanks management for taking my question. I have two questions. First question is regarding the used car markets given recently easing price war by OEMs. What’s the latest situation for used car markets? Have you observed any improvement -- marginal improvement for used car market?

And the second question is about dealers, have we seen a lot of closure of those dealers recently or do you expect any large-scale closure in the future? Thank you.

Craig Yan Zeng (spoken in foreign language)

[Interpreted] Okay, thank you for raising this question.If you look at the used car market, because the new car price has been keeping declining, as a result, it imposes a lot of pressure on the used car market. In June, you can see that the used car sales dropped by 1-percentage-point year-on-year. Well, in the meantime, a lot of used car potential buyers tend to purchase the new car and the car holders because of their price volatility, they wouldn't like to sell their cars.

So here, you can see that we are already approaching the half-year. So, for the half-year volume campaign resulted in a very big volatility of the new car transaction price. As a result, the sales risk for the used car is already intensifying. And in June, you can see that used car UCMI index is also declining to 41.2%, a drop of 2.4-percentage-points year-on-year, and also highlighting that the used car market is not performing pretty well with a lot of big competition as well as the pressure of the entire market.

Craig Yan Zeng (spoken in foreign language)

[Interpreted] So, if you look at the market, we can observe the following few characteristics of the used car market. The first thing is that the price remains low. And in June, you can see that the used car average price remains at about RMB64,400, which is the low point within this year. And I think that this is within our expectation because of the new car price.

And the second thing is that cross-regional trading is very active. And the entire market still has a lot of vigor and vitality. This is pretty unique in the Chinese market. As a result, to construct an integral and trustworthy and transparent industrial environment is very important.

Craig Yan Zeng (spoken in foreign language)

[Interpreted] Even though there are some challenges in short term for the used car market, but in the long run, we think that the scale, the policy environment, market structure, as well as the consumer demand of the used car market doesn't fundamentally change.

And I think that with the car consumption market expansion as well as the rising recognition of the consumers for the used car, in the longer future, we think that the used car market still has a lot of potential and is expected to grow in a sound manner. And you can see from Autohome perspective, we're also very much focusing on our own capacity building.

For example, we intensify our products in terms of the car conditions and car status, inquiry product. In the first half of this year, I already mentioned, our platform, the authenticated high-quality vehicles number increased by 50% year-on-year. We hope that with the entrance of Autohome into this market, the consumers can actually purchase the used car in the reassured manner, and the used car market can become very active again.

(spoken in foreign language)

[Interpreted] The second question is about whether there is closure of the stores for the traditional ICE dealers. And I think that if you look at the ICE sales volume as well as any of the announcements of the listed company, I think that the closure of the traditional ICE dealers is inevitable. If you look at the first half of this year, there are almost 5,000 stores are shut down.

(spoken in foreign language)

[Interpreted] But this is not a one-way change or adjustment. If you look at the overall auto sales volume, there’s no big decline. So this is actually the restructuring of this industry. We see the emergence of the NEV as well as the bigger penetration into the lower tier cities. So I think that in this circumstances, no matter what OEMs or the dealers, they have to adapt and have to transform according to this trend.

Craig Yan Zeng (spoken in foreign language)

[Interpreted] Thus from Autohome perspective, we’re also actively empower our clients to cope with this kind of challenges. As I mentioned before, in our new retail businesses, we also launched the “Satellite Plan” just to enable our dealers as well as our OEM partners. And for dealers, we also actually help them in the car use services, acquisition as well as extension. So for Autohome it grows opportunities as well as challenges.

Okay. Operator, the next one, please.

Ritchie Sun, HSBC.

(spoken in foreign language) Thank you management for taking my questions. I have two. First of all, in terms of competition, we have observed that a lot of internet platforms started to develop the lead generation businesses as well as using large language model to improve the efficiency and conversions. So what will management do to address these challenges?

Second of all, in terms of the cash balance, it is very adequate and profit is also quite stable. Our management, what does management feel on the potential special dividends or even lifting the dividend payout ratio? And would management consider launching a big scale buyback program? Thank you

(spoken in foreign language)

[Interpreted] So for your first question, which is actually about the other entrance into the leads generation businesses, actually this is not something new and it already happened for quite a long time. And for Autohome, we think that this is a long-term challenge for us because we cannot monopolize this business.

Craig Yan Zeng (spoken in foreign language)

[Interpreted] So before Autohome entered into this area, actually there are already some search platforms as well as some hand media engaging in this business. And after we entered into this area for more than 10 years, we still face quite fierce competition. And for Autohome, we think that our specialty is about professionalism in the verticals. And we actually cover the whole life cycle including car selection, car purchase, car use as well as car replacement.

Craig Yan Zeng (spoken in foreign language)

[Interpreted] And in terms of the content measures to these challenges, we have three solutions. First is in terms of the content innovation. In recent years, Autohome have introduced a lot of short form videos and live streaming as well as the other new formats that do enrich our ecosystem of the content.

Well, at the same time, we also build a lot of exclusive and unique IP that you have our IP ecosystem to differentiate from our competitors. And the second is in terms of the user experience enhancement, we keep optimizing our website as well as app interface design so as to offer more convenience to our users.

And third one is in terms of the cooperation channel expansion. We have been cooperating with a lot of media platforms so as to build the traffic matrix and so as to deliver win-win against the big competition.

(spoken in foreign language)

[Interpreted] So the second question is about dividend payout. Let me first review our dividend payout history. Over the past years we have been keep enhancing the return to our shareholders. From 2019 to 2021 we actually distributed 20% of our net margin to the shareholders as a dividend. And in the year 2022 we also updated our dividend payout policy with a fixed amount of RMB500 million, which is equivalent to 28% of our net profit of the same year.

And in December 2023 we further keep amend on dividend payout policy and approved RMB1 billion dividend payout decision, which is enhanced our dividend payout ratio to 50% of our net profit. So in the next three years, from 2024 to 2026, the annual dividend payout amount will be no less than RMB1.5 billion

(Operator Instructions)

Operator, the next question please.

Xiaodan Zhang, CICC.

(spoken in foreign language) So thanks management for taking my questions. And my question is regarding your new retail model for NEVs. As Autohome launched the so-called “Satellite Plan” in the second quarter, so how should we think of your expansion plan going onwards? Thank you.

(spoken in foreign language)

[Interpreted] Okay, thank you for raising this question. I think that -- since the launch of the first offline store in September 2022, now our Space store already took root in 28 cities in China, and covering South, East and Southwest, as well as North part of China. And so far, you can see that our satellite store model already covers five cities, including Yueyang, Yiyang, Loudi, Xiangtan, as well as Zhuzhou.

And this is actually a new trial. And in the future, we're going to have a similar trial from the different angles. And the store opening pace is quite consistent with our communication at the beginning of the year, because the satellite store is pretty new model and the major purpose is to cover more low-tier cities so that our Space stores can have a better reach and coverage.

Okay, operator. That's the end of the Q&A session.

Thank you. I'll now turn the conference back to the management for closing comments.

(spoken in foreign language)

[Interpreted] Okay. Thank you, everyone. Thank you very much for joining us today. We appreciate your support to the company, and look forward to updating you on our next quarter’s earnings conference call in a few months' time. And in the meantime, please feel free to contact us or email us if you have any further questions or other comments. Thank you very much. Bye-bye.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.