Autohome Inc (ATHM) 2021 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by for Autohome's First Quarter 2021 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference call is being recorded. (Operator Instructions) It is now my pleasure to introduce your host, Aggie Zhao, Autohome's IR manager. Ms. Zhao, you may begin.

Thank you, operator. Hello, everyone, and welcome to Autohome's First Quarter 2021 Earnings Conference Call. Earlier today, Autohome distributed its earnings press release, and 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; Co-President, Mr. Haifeng Shao; Chief Financial Officer, Mr. Jun Zou; and Chief Technology Officer, Mr. Xiao Wang.

After the prepared remarks, Mr. Long, Mr. Shao, Mr. Zou and Mr. Wang will be available to answer your questions.

Before we begin, please note that the discussion today will contain forward-looking statements made under the safe harbor provision 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 Securities and Exchange Commission. Autohome does not undertake any obligation to update any forward-looking statements, except as required under applicable law. The earnings press release in this call also includes sections of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the non-GAAP measures to the most direct comparable GAAP measures and is available on Autohome'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.

[Interpreted]. Thank you, Aggie. Hello, everyone, and thank you for joining us today.

I'm pleased to report a solid quarter with total revenues growing 19.1% to RMB 1.84 billion. Revenues from our online marketplace and other business increased about 74% year-on-year, and contributed to 29.3% of total revenues. Data products continued its strong growth trajectory with revenues increasing 64.9% year-on-year primarily driven by the increasing contribution from OEM data products. In particular, TTP's revenue contribution was larger than our prior expectations. Adjusted net income in the first quarter continued to expand up 13.7% year-on-year.

Before we start discussing our results in detail, I'd like to share some thoughts about industry lending as a whole and some of our own recent developments.

We're witnessing that changes are coming to the automobile industry. In the face of a challenging macro environment and fluctuation in automobile sales stemming from the pandemic, the auto industry has started to step up efforts towards a digital transformation. Emerging premium electric vehicle brands and the traditional auto manufacturers' investments in new energy vehicles have also accelerated the growth in the NEV space. In addition, some new players with extensive expertise in internet services are tapping into the smart automobile market, intensifying the competition in this field. All these trends are reshaping the auto market landscape, including the overall industry value chain.

Against the backdrop of this new market and industry dynamic, on one hand, in the past 2 years, we have been consistently optimizing and trimming low margin businesses, such as off-line insurance business while staying away from price competition to ensure high-quality business portfolio. On the other hand, we rolled out our 4.0 strategies last year, namely, AI, Big data and Cloud capability and SaaS strategies.

Now, we are also planning an upgrade of these strategies by finetuning our action plans to the execution, as we seek to better capture industry opportunities and achieve continued high-quality developments. We expect to announce updates on these action plans in the second half of the year. As a platform with a massive and engaged user base of more than 40 million daily active users, solid business fundamentals, industry-leading innovative capability, as well as effective and strong execution capabilities, we are confident that Autohome can grow beyond its current standing and tap into new growth potentials.

Next, let's move to our Q1 results. In first quarter, the new energy vehicle market expanded the upward growth trend that began in the second half of last year as sales volumes rose (inaudible) year-on-year and accounted for over 9% of total new passenger vehicle sales compared to approximately 6% for full year 2020. The prosperity of the NEV market brought new growth opportunities for us. In the first quarter, we expanded and deepened our cooperation with NEV automakers. Revenue from these automakers increased close to 170% compared to the same period of last year.

In terms of our used car business, we are exploring further opportunities in this area, leveraging our capabilities in NEV financing and relevant supported service resources to empower our customers and serve our users. In first quarter, the transaction volume for TTP Car Inc. increased by 160% year-on-year.

Moving next to our product advances, recently, we unveiled a new version of our intelligent new car launch, integrating VR showrooms and mini video products, while combining our intelligent activities with offline operations. This is allowing new car model debuts to gain more precise exposure and attract more auto fans. In the first quarter, a total of 31 automakers utilized our data products and the total number programs for intelligent new car launch and Intelligent Marketing Solutions was more than 30. By adding private domain on (inaudible) function, including WeChat mini programs and marketing as well as promotional tools to the existing public domain functions, our incremental lease product, Smart Shop 3.0 version works at marketing platform for dealers to capture private traffic, their own users and obtain incremental leads.

On the product for users front, we recently upgraded our main app to offer a streamlined user interface while optimizing the designs that caters to the younger generation. All these efforts help us further enhance the user experience. In the meantime, we also took steps to improve the quality of our sales leads by requiring (inaudible) verification when users leave their cell phone numbers with us, which further strengthens the protection of user privacy and security.

In conclusion, we had a solid first quarter driven by our resilient core business, as well as robust new initiatives. Data products once again delivered strong revenue growth, while TTP boasted our used car business line. We also accelerated our product innovation and iteration in order to further enhance our overall service quality. This achievement reflects Autohome's leading position in these key areas.

Going forward, we remain committed to better serving the interest of our users and customers and delivering long-term value to our shareholders.

With that, I will now turn the call over to our CFO, Jun, for more business details and a closer look at our first quarter financial results.

Thank you, Quan. To start, let me go through some business metrics. In March 2021, the number of average DAUs who accessed our mobile websites, primarily app (inaudible) mini apps grew further to 42.3 million, representing an increase of 33.3% compared to the prior-year period. For the first quarter, all of our OGC, PGC, UGC and other content categories gained solid user contraction.

Now I will talk you through the key financials for the first quarter. Please note that as with prior calls, I will reference RMB only in my discussion today, unless otherwise stated. Net revenues for the first quarter were RMB 1.84 billion, a 19.1% increase compared to the corresponding period last year. For a detailed breakdown, media services revenue were CNY 605 million and lead generation services revenue were CNY 698 million, and online marketplace and others revenue increased by 74% year-over-year to CNY 537 million -- CNY 539 million, sorry, primarily driven by the impact of consolidation of TTP and increased contribution from data products.

Now moving on to costs. Cost of revenues was CNY 243 million compared to CNY 178 million in Q1 last year. The increase was primarily attributable to the impact of consolidation of TTP. Gross margin was 86.8% in the first quarter compared to 88.5% in Q1 last year.

Turning to operating expenses. Sales and marketing expenses in the first quarter were CNY 683 million compared to CNY 524 million in Q1 last year. The increase was primarily attributable to the impact from consolidation of TTP, increased execution cost to support customers and business development.

Now P&D expenses were CNY 305 million compared to CNY 292 million in Q1 2020. The increase was primarily driven by higher investment in research and development activities.

Finally, G&A expense were CNY 129 million compared to CNY 89 million in Q1 2020. The increase was primarily attributable to the impact of consolidation of TTPs.

Overall, we delivered operating profit of CNY 567 million for the first quarter compared to CNY 586 million in the corresponding period of 2020. Adjusted net income attributed to Autohome income was CNY 735 million for the first quarter compared to CNY 646 million in the corresponding period of last year.

Non-GAAP basic and diluted earnings per share for the first quarter were RMB 1.52 compared to RMB 1.36 and RMB 1.35, respectively, in the corresponding period of last year.

Non-GAAP basic and diluted earnings per ADS for the first quarter were RMB 6.08 and RMB 6.06, respectively, compared to RMB 5.43 and RMB 5.4 respectively, in the same period last year.

As of end of Q1 2021, our balance sheet remained very strong with cash, cash equivalents and short-term investments of CNY 17.27 billion. We generated operating cash flow of CNY 546 million in the first quarter of 2021.

As a listed company on the Hong Kong Stock Exchange, we will follow the common practices adopted by public companies in the Hong Kong market. As a result, we will no longer provide guidance on revenues going forward.

Now in mid-March, Autohome successfully listed on Hong Kong Stock Exchange. Additionally, Hong Kong -- Autohome's Hong Kong stocks will be added to Hang Seng TECH Index and Hang Seng Composite Index, marking a key milestone in our history and opening a new journey for Autohome.

In the past few years, Autohome has been leading the development of the industry. As we move forward with our strong balance sheet and profitability, we are confident that Autohome will bring more value to both our users and customers and deliver long-term return and value to our shareholders as well. With that, we're ready to take your questions. Operator, please open the line for Q&A.

(Operator Instructions)

First question is from is Miranda Zhuang from Bank of America Securities.

(foreign language)

Can management share your thoughts on the business outlook for the second quarter and the second half this year, especially for the second half because previously, management mentioned that company will announce action plans for strategic upgrades in the second half. So can you give us a hint of what kind of areas will company focus on what kind of products or services upgrades may be taken?

[Interpreted]

I'd like to take the question about the strategic upgrading, that in China, our market changes very fast, and we do witness 3 different characteristics. The first characteristic is that the sales volume for auto has been volatile and have been very dramatic changes over the past several quarters. In Q1, you can see that there's a very big growth comparing with the same period of last year. There's a growth of 69%. Of course, there's also the factor caused by the COVID-19 pandemic.

And in April, we can see that we only have the growth of about 12%. So the growth jumped from 69% to 12%. And for the first 3 weeks of May, actually for the wholesale business, there's a negative growth year-on-year. So the second characteristic is that because of COVID-19, the digital transition of those automakers has been accelerated. And the third characteristic is that you can see the sales of NEV have been growing very rapidly.

And from January to April of this year, you can see that the sales of the new electric passenger vehicle increased by 288%, almost 300%. So there's a lot of new players, including some of the intelligent -- some of the premium car brands as well as some of the carmakers with very good expertise on internet services. They are all entering into the NEV sector.

In recent times, we also find that the entire auto industry has been developing as well as changing very fast. When we get in touch with the auto makers with those auto OEMs, we also discovered these changes. For example, a lot of the automakers have been directly connecting with the users and some of them directly connected with the operation of the users. At the same time, the integration of the products of the auto OEM is also accelerated. So for Autohome, we think that we're dedicated to pursue long-term sustainable and healthy development of the auto market. So we considered about the upgrading of our strategy. Last year, we launched our 4.0 strategy. And this year, based on the above-mentioned new changes on the market, we are considering about the upgrading of the strategy.

And according to the plan of Autohome, we are actually going to announce the update of the fine-tuning of the action plan to the execution in the second half of this year. So actually, we are dedicated to have the long-term sound, stable as well as a good development, high-quality development in the longer term.

(foreign language)

[Interpreted]

Actually, this year, we're still maintain our estimate about the older market growth in China at the very beginning of the year, which is the estimate of a growth of about 10%. And actually, we still have to observe the changes in development on the market. The central thing we have to take notice is about the shortage of the auto level (inaudible) production. There's a shortage for a while. And secondly, we have to take notice of the relapse of COVID-19 in specific geography. And the second thing is that I think that for the auto OEMs, their budgeting of the whole year is closely to related the sales volume of the car. So this is the 2 points I like to add.

Next question is Eddy Wang from Morgan Stanley.

(foreign language)

My first question is about your comments on the new car sales in April, which has been a little bit slow down and in May first 3 weeks of May, actually, you see a year-over-year decline in terms of new car sales volume. So would you please give us some color how this will impact our revenue in the second quarter? That's the first question. And second question is that you have been talking about in the prepared remarks that the TTP car has delivered a larger than expected contribution to your top line. So can you give us a little bit more color in terms of, firstly, is how the used car industry has been so far this year? And secondly, that how can you -- how did you achieve the -- had expected the top line growth of the TTP car? And how -- what was your strategy in the overall used car kind of sector?

(foreign language)

[Interpreted]

To answer your first question, you can see that in 32 months of this year, in particular, from January to April as well as the first 3 weeks of May, there is a declining trend of the new car sales. So I think that there are basically 2 reasons for that. The first one is the shortage of the trip. And the second 1 is COVID-19 pandemic. So as we estimated the growth for the whole year, which was about 10%, you can see that so far, in comparison, there's a downward trend. And in Autohome, we think that for the auto makers, the marketing is closely related to the sales volume. As a result, you can see that our advertising business is affected because of that.

However, we're still exploring the potential of other businesses. And your second question is about the used car business. You can see that so far, the growth of the secondhand car, the used car is higher than new car sales. And last year, we acquired TTP, and now we are thinking about the cooperation between Autohome and TTP that is to say, we hope that the business of the used car in Autohome as well as TTP, we can form some (inaudible) action, we can form some synergy. The first point is that in terms of the used car business, we do stick to the platform based business model, which is actually focusing them on the light assets.

(foreign language)

(foreign language)

[Interpreted] And for the used car business, together with TTP, from the seller's side, we are actively providing the leads gen services as well as the auction services so as to enable the sellers of the used car. And from the buyer's side, we are offering the lease gen services as well as SaaS platform services to enable the buyers. So I think that in the future, we're also considering about launching the trade-in services and the relevant projects, so that to better integrate our used car business as well as TTP business.

[Interpreted]

I'd like to add at 2 points. Firstly, just like Mr. Shao mentioned, the advertising budget of those automakers are closely linked with the auto sales. So we are also exploring the acquisition of other businesses by offering more products to our clients. And the other thing is that we will pay more attention to the operation of the users so as to enable those auto OEMs automakers. And in terms of NEV, I should see that actually, our clients would like to pay a much higher premium for the lead gen comparing with the lead of the traditional automakers. So I will not tell you the details about the gap between the 2. But I think that this premium is very significant. So I think that through advertising as well as CPS, we will continue to empower the traditional automakers as well as those emerging premium EV brands.

Yes. I also said that, we offer a comprehensive suite of services to EV makers and traditional makers -- automakers that make CVs through advertisement service, through orders and through CPS. So thanks, Eddy.

Next question is Brenda Zhao from CICC.

(foreign language)

I have a follow-up question on NEV. So could management elaborate a little bit more on the corporation model of NEV automakers and our future, like potential other models for this business?

(foreign language)

(foreign language)

(foreign language)

[Interpreted]

We have a very comprehensive cooperation with the NEV automakers as well as the premium EV brands. Actually, since 2019, we already entered into cooperation with the big names like (inaudible) [Ssang Yong], like (inaudible) NIO as well as Li Auto, et cetera. So there is very sustainable and very stable cooperation between us. So in terms of the model of the corporation, actually, this lead gen is actually produced based on the demand and the price of the fleet will be based on the quality of the fleet. So this is the principle of our corporation model. So we offered a package of total sales increased solutions to those clients.

And during the upgrading of our strategy, we will also iterate the cooperation model between us and those NEV automakers. There are 2 main directions. The first one is that we will enhance our services, in particular, the order placement services as well as the online reservation of the test drive. And the second thing is that actually, we will help those NEV automakers to expand their coverage in the different geographies, in particular, in tier 1 cities.

(Operator Instructions)

Next question is Thomas Chong from Jefferies.

(foreign language)

I have a question relating to our OpEx trend and management's comments about our cost strategy for this year as well as our headcount plan. And my second question is about the overseas expansion strategy. Given that COVID is still quite uncertain outside China, will our strategic upgrade actually have some changes in our overseas expansion?

[Interpreted]

I would like to take the first question, and then Mr. Wang will take the second question. Just like our Chairman said in the opening presentation, now we are planning about the upgrading of our strategy. So it's very difficult for me to give you a forecast about the changes in cost as well as the expenses. But according to our traditional legacy, actually, we are very good at cost control as well as the operation efficiency enhancement. And for the cost of sales in our business, we'll use them in the incubation of the new business. I think that this principle will remain unchanged.

[Interpreted]

So for the second question about our overseas business, we will still follow the principle of empowerment as well as output. In terms of empowerment, I mean, we will actually empower our users through the content. It means that there will be very rich content provided online as to facilitate the users to see different models online to actually have the test to drive and to make the reservation online, things like that. And in terms of the output, we mean technical output, we will continue to enhance our 3G plus the auto show capabilities so that we can launch different activities online and to provide more convenience to the online users. And from the fee channels, it means that we will empower the dealers and distributors through our SaaS capabilities and platform. And in terms of our cooperation with the auto OEM, we will empower them with our lead gen capabilities and the content creation capabilities. And you can see that in March, our total SUV is about 3.12 million, and we actually connected with 6,550 dealers. And the (inaudible) is 1.2 million.

Just add 1 point to our CTO's answer. In certain other markets, we don't mind looking into investment or acquisition opportunities to expedite our inroads into those local markets. And we are still confident that our overall technology content and our ability and experience to work with OEM and dealers will help us to penetrate those markets. Next question, please.

Next question is Brian Gong from Citi Group.

(foreign language)

I will quickly translate for myself. So can management share some thoughts on the deepening cooperation with Ping An, and what's the role Ping An will play in the -- in our strategic upgrade plan in the second half of this year?

(foreign language)

[Interpreted]

In terms of our cooperation with Ping An, I think that there are mainly 3 dimensions can discuss about the cooperation. The first one is technology collaboration; and the second one, traffic collaboration and third one is product collaboration. And then the first one, the technology collaboration, I think that we have been briefly empowered and enabled by Ping An in terms of AI automation technology as well as machine learning. And the second one is the traffic collaboration.

We have been incorporating with Ping An, and we have been making our presence on a lot of the mini programs on Ping An website. For example, in the good car owners as well as gold (inaudible) as well as (inaudible) brands, things like that. We have been cooperating with them by making our presence in those mini programs. And the third one is product collaboration.

These are mainly based on specific projects. Say the data projects we have been talking before. In this one, we can (inaudible) precise marketing towards the users based on the accurate user profiling and take this August 18 campaign, for example, Ping An, they have been greatly empowered through their communication as well as media resources capabilities.

[Interpreted]

And I'd also like to add 1 point. Actually, since this year, Ping An has intensified the collaboration, corporation as well as support with Autohome actually for all the subsidiaries affiliated with Ping An, which are related to the auto ecosystem. They have been totally and very comprehensively engaged with the corporation with Autohome. And recently, you can see that when we are actually dealing with the OEMs as well as the dealers, actually, we get a lot of support from Ping An in terms of the daily work.

Thank you. Due to time constraint, I will turn the conference back to management for closing comments.

[Interpreted]

Thank you very much for joining us today. We appreciate your support, and we look forward to updating you on our next quarter's conference call in a (inaudible) time. In the meantime, please feel free to get in touch with us if you have any further questions or comments.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participation. You may disconnect now.

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