SAP Q2 2024 Earnings Call Transcript

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July 31, 2024

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by for Autohome's Second Quarter and Interim 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow management's prepared remarks. As a reminder, this conference call is being recorded. If you have any objections, you may disconnect at this time.

Operator

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 Sung, Autohome's IR Director. Mr. Sung, please go ahead.

Speaker 1

Thank you. Thank you, operator. Hello, everyone. I'm Sterling Sung, and welcome to Autohome's 2nd quarter and the interim 2024 Earnings Conference Call. Earlier today, Autohome distributed its earnings release, which can be found on the company's IR website at ir.

Speaker 1

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

Speaker 1

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.

Speaker 1

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 laws. Please also note that Autohome's earnings press release and this conference call include discussions of certain non GAAP audited 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.

Speaker 1

I will now turn the call over to Autohome's CEO, Mr. Wu, for opening remarks. Please go ahead, Mr. Hu Thank you, sir. Hello, everyone.

Speaker 1

This is Tao Wu, CEO of Autohome. Thank you for joining our earnings conference call today. In the Q2, Autohome's net revenues grew steadily, user traffic increased noticeably and our innovative business continue to make breakthroughs driving the continuous optimization and upgrade of our entire business structure. 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 others business continue to maintain double digit growth year over year, reaching 33.1% of total revenue. Notably, many business lines such as data products and NEV have experienced robust growth with revenues for the quarter increasing by over 15% and nearly doubling, respectively, year over year.

Speaker 1

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 Q2, adjusted net income attributable to Autohome was RMB572 1,000,000, allowing our adjusted net profit margin to reach 30.6%. 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 doors as the core hub to expand our reach into neighboring low tier cities, create a network that radiates from 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 access a broader market and a wider range of users.

Speaker 1

On digitalization, we continue to drive product innovation and upgrade by leveraging the capabilities of our Smart Series product we've 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 system, allowing them to achieve increased efficiency in their business operation. In addition, our cooperation with Ping An Group has also entered a new phase. During the Q2, 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 owner providing users with a convenient one stop service experience. Looking forward, we'll remain focused on our user centric approach, harness innovation to drive development, while continuously exploring new models of online to offline integration, and in the process, strive to provide users with even higher quality, even more convenient and even more efficient service experience. Over this course, we will fully explore and elaborate the extensive resources and technology of Ping An Group to see even greater synergies and identify additional opportunities in the automotive ecosystem.

Speaker 1

We believe that with our solid business foundation and diversified range of businesses, Autohome is well positioned to achieve a new phase of high quality development. With that, I will now turn the call over to our CFO, Craig Sung, for a closer look at our Q2 2024 operating and financial results. Thank you, everyone. Thank you, Amifu. Hello, everyone.

Speaker 1

This is Craig Zeng, the Chief Financial Officer of Outengho. In the Q2, we continued to deepen our focus on enhancing our content portfolio, revitalizing the content through 2 categories: professional content and broader general auto related content, establishing Autohome's new IP matrix. For example, regarding professional evaluation, we have expanded our content to include targeted evaluations for hybrid vehicles, NEVs and ICE vehicles. On general auto related content, we expanded our design, automotive culture, off road vehicles and other content for unique scenario, resulting in the creation of 8 IT programs, including so fast forecast, top 10 horizontal evaluation and the road of rides. 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.

Speaker 1

To date, these 8 IP programs have garnered a total exposure of 860,000,000 views across the entire network, significantly enhancing the influence of our platform. In addition, by focusing on the new vehicle launch event prioritized by OEM, 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 3 d car model speculation during the pre launch, progressing to an in-depth introduction during launch and then customized evaluation post launch, effectively prolonging the exposure time for each new car's selling point. This not only helps CN customers efficiently promote their products, but also allows Autohome to gain influence among CN users. According to QuestMobile, our number of average mobile DAUs reached 67,901,000 in June, an increase of 8.3% from a year earlier, and scoring our leading position in the auto media vertical.

Speaker 1

Turning to NEV, as Ms. Wu just mentioned, we initiated the satellite plan in mid May, a strategic initiative to establish satellite stores in low tier cities adjacent to the flagship Autohome space stores. This initiative establishes a 1 plus n synergistic service ecosystem, where a single core Autohome face store could support multiple satellite stores, thereby broadening our service reach to more regional markets. To date, we have established all home space stores in 28 cities, including 1st tier and super 1st 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 5 cities Through effective collaboration between core Autohome space stores and base satellite stores, we've developed a comprehensive sales network, upgrading the new retail model from a single point to an upgraded comprehensive model.

Speaker 1

We are confident that the ongoing implementation of the satellite plans will be able to influence and serve more users in low tier cities. In response to the national trade in for new policy, we leveraged our all home state stores and holographic exhibition trucks as platforms to organize the 100 Cities Premium For New Car Buying Festival, providing consumers with immersive car searches, multi brand, comparative pet drives and other services. Cvent brings even more mainstream NEV brand models and used car exchange services to regional markets. Spanning 2 months, the festival featured over 100 offline auto shows and attracted more than 500,000 consumers, we are also pleased to see that revenues from NEB brands saw a continuous rise in the Q2, nearly doubling compared to the same period last year, consistently outpacing industry growth rates. 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 visits rates.

Speaker 1

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 leadership 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 Q2, total data products achieved an increase in revenues year over year of over 15%. 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 percent year over year in the number of authenticated used cars on our platform, effectively promoting the standardization for the entire used car industry.

Speaker 1

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 tour. We plan to expand this model to additional cities in the second half of the year as the model continuously improves and matures. Overall, Autohome's core businesses remain strong and stable, while our innovative businesses thus steadily makes constant progress, contributing to generate incremental revenue streams. This reflects the substantial strides we have made in implementing our automotive ecosystem strategy.

Speaker 1

Looking ahead, we will continue to focus on long term development by enhancing our user experience with more diverse and richer content, professional services and a 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. Next, let me briefly walk you through the key financials for the Q2 of 2024. Please note that as with prior calls, I will reference RMB only in my discussion today unless otherwise stated. Net revenues for the 2nd quarter were CNY1.87 billion, breaking it down by segment.

Speaker 1

Media services revenues were CNY4 33,000,000, lease generation services revenues were CNY820,000,000 and online marketplace and others revenues were $619,000,000 up 14% year over year. Cost of revenues in the 2nd quarter was RMB 346,000,000 compared to RMB330,000,000 in the Q2 of 2023. Gross margin in the second quarter was 81.5% compared to 82% during the same period last year. Turning to operating expenses. Sales and marketing expenses in the 2nd quarter were CNY 753 1,000,000 compared to CNY 824 1,000,000 in the Q2 of 2023.

Speaker 1

Product and development expenses were RMB 315,000,000 compared to RMB 330,000,000 in the Q2 of 2023. General and administrative expenses were RMB118,000,000 compared to RMB91,000,000 during the same period last year. Overall, we delivered an operating profit of RMB412 1,000,000 in the 2nd quarter this year, compared to CNY342 1,000,000 for the same period of 2023. Adjusted net income attributable to Autohome was RMB572 1,000,000 in the 2nd quarter compared to RMB559 1,000,000 in the corresponding period of 2023. Non GAAP basic and diluted earnings per share in the 2nd quarter were 1.18, dollars up from $1.16 $1.15 $1.15 respectively in the corresponding period of 2023.

Speaker 1

Non GAAP basic and diluted earnings per ADS in the 2nd quarter were RMB4.72 and RMB4.71 respectively, compared to 4.62 and 4.61 respectively in the corresponding period of 2023. As of June 30, 2024, our balance sheet remained quite strong with cash, cash equivalents and short term investments of CNY23.47 billion. We generated net operating cash flow of RMB452,000,000 in the Q2 of 2024. The above is our financials summary. With that, we are ready to open up the Q and A session.

Speaker 1

Operator, please open the line for Q and A session, please.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.

Speaker 2

Thanks management for taking my question. So recently we saw some luxury car brands exited the price war. So what do you think the reasons behind? And also government launched some policy couple of days ago. So how it will positively impact us and the whole industry?

Speaker 2

Thanks. Okay. 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 started to raise the price war and in order to gain more shares from the market. You can see that the duration of this round of price war, the intensity of the price cost as well as the depth to this impact goes beyond everybody's expectation.

Speaker 2

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, we decided to withdraw from the price war after participating for more than 1 year. We think that there might be the following reason. 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 is one example.

Speaker 2

They originally priced 300,000 cars now only sold RMB 200,000 with a price cost of RMB 100,000. Even like that, in first half of this year, Mercedes Benz and BMW here and China sales continue to decline versus December period last year. However, at the same time, the price cut also imposes negative impact on the brand image of those luxury brands. Besides, we can see continuous price will also harm the profitability of the automakers. And secondly, from the dealer's perspective, those dealers are also under big operation pressure because of the continuous price war.

Speaker 2

There are 2 aspects of it. The first thing is pretty high inventory pressure. According to the statistics of Chinese Association of Automobile Manufacturers, in June, you can see that the Chinese dealers inventory alert index was 62.3%, which is already above the threshold of PMI and 5 brands luxury and imported brands, their inventory early alert in-depth was 66.4 percent 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 2 categories. And the second side is actually BBS dealers already start to suffer from big losses.

Speaker 2

You can see according to the statistics, in the first half of this year, more than 80% of dealers cannot complete their sales goals and tasks. If they continue to go for the price for volume strategy, quite a few BBA dealers, we cannot survive anymore. In these circumstances, BMW Brilliance CEO said that BMW will continue to keep the close contact and discussion with upstream and downstream partners so as to explore the commercially viable model and to ensure all the partners can make enough money so as to report the future. 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 press war. So after BBA decided to withdraw from the press war, we see that different automakers, they don't act in a consistent manner.

Speaker 2

Some choose to follow and the others choose to withdraw from the price war. However, most of the automakers still adopt a we then see attitude. We think that in short term, the price war cannot be totally ended And with price cuts as well as core sales performance, the price adjustment as well as withdrawal from the press war may impose pressure on the sales volume of the automakers. As a result, we can see that market competition is still pretty fierce. In terms of the policy update, since July 25, NDRC and Ministry of Finance has printed out the document called several opinions intensifying the support on large scale equipment replacement and consumer products trading for new.

Speaker 2

So as you encourage trade in to promote the consumption of the automobile and also at the same time the designated car garment strategy subsidy standards have been really improved. And now for the purchase of the NEV passenger vehicles, we can get a subsidy of RMB 20,000 and the purchase of 2.0 liters and below, cards can get subsidy of RMB15000. So versus the previous policy, now car as rapid can get a doubling subsidy. Mr. Cuedong Xu, Secretary General of the DA also said that this round of car rapid and replacement subsidy expansion and doubling is a very favorable news for the entire auto market.

Speaker 2

It is expected to drive around 2,000,000 car consumptions of this year sorry, 2,000,000 cars as rapid of this year and also in favor of driving more than 100 of 1,000,000,000 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 franchising stores, we will better satisfy the customers' need on car selection and car purchase. And for Autohome, we can see that the revenue coming from the AEB brands will also quickly on a rise in the near future. And in short term, you can see that more than 1 year of revenue seen in this industry really compromised the profitability of the automakers and also triggered a series of issues and were also affected by this industrial headwind.

Speaker 2

However, in the long run, with the mitigation of the price war and with government keep 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.

Operator

Thank you. Our next question comes from the line of Brian Kong from Citi. Please ask your question, Brian.

Speaker 3

Thanks management for taking my question. I have 2 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?

Speaker 3

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.

Speaker 2

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 points year on year. So in the same time, 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.

Speaker 2

So here you can see that we are already approaching the half year. So for the half year volume campaign resulted in very big volatility of the new car transaction price. As a result, the sales rate for the used cars 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. So if you look at the market, we can observe the following two characteristics of the used car market.

Speaker 2

The first thing is that the price remains low. And in June, you can see that the used car average price remained at about RMB6400, 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 the cross regional trading is very active and the entire market is do have a lot of vigor and vitality. This is pretty unique in the Chinese market.

Speaker 2

As a result, to construct integral and trustworthy and transparent industrial environment is very important. 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 this longer future, we think that used car market is still got a lot of potential and expected to grow in a sound manner. As you can see from Autohome perspective, we're also very much focusing our own capacity building. For example, we intensify our products in terms of the car conditions and car status inquiry products.

Speaker 2

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. 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 the 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.

Speaker 2

But this is not a one way change or adjustment. If you look at the overall auto sales volume, actually 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 for the OEMs or the dealers, they have to adapt and have to transform according to this trend.

Speaker 2

So 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 that 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 expansion. So for Autohome, it's those opportunities as well as challenges.

Speaker 1

Okay, operator, the next one please.

Operator

Thank you. Our next question comes from the line of Richie

Speaker 4

Thank you management for taking my questions. I have 2. First of all, in terms of competition, we have observed that a lot of Internet platforms started to develop the least generation businesses as well as using large language model to improve the efficiency and conversions. So what does management will do? What will management do to address these challenges?

Speaker 4

2nd or 4, in terms of the cash balance, it's very adequate and profit is also quite stable? Will 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.

Speaker 2

So for your first question, which is actually about the other entrance into the lead 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. So before Autohome enter into this area, actually there are already some search platforms as well as some pan media engaging in this business. And after we enter into this area for more than 10 years, we still face quite serious competition. And so Autofocus, 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.

Speaker 2

And in terms of the content measures to the challenges, we have 3 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 you enrich our ecosystem of the content. Well, at the same time, we also build a lot of inclusive 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.

Speaker 2

And third one is in terms of the corporation channel expansion. We have been cooperating with a lot of So the second question is about dividend payout. Let me first review our dividend payout history. Over the past 2 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.

Speaker 2

And in the year 2022, we also updated our dividend payout policy with a fixed amount of RMB503 1,000,000, which is equivalent to 28% of our net margin of the same year. And in December 2023, we keep amend our dividend payout policy and overnight about rmb 1,000,000,000 yen dividend payout decision, which is a hands of our dividend payout ratio to 50% of our net margin. So I think that in the next 3 years from 2024 to 2026, the annual dividend payout amount will be no less than RMB 1 point

Speaker 1

5,000,000,000.

Speaker 2

Thank you.

Speaker 1

Operator, the next question please.

Operator

Thank you. Next question comes from the line of Xiaodian Zhang from CICC. Please ask your question.

Speaker 2

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 Q2, so how should we think of your expansion plan going onwards? Thank you. Okay.

Speaker 2

Thank you for raising this question. I think that since the launch of the 1st offline store in September 2022, now we already actually our safe store already take roots in 28 cities in China and covering Southeast and Southwest as well as North part of China. And so far, you can see that our satellite store model already covered 5 cities, including Zhejiang, Yian, Louji, Shantan as well as Suzhou. And this is actually a new trial and in the future we're going to have the similar trial from the different angles and the store opening pace is quite consistent with our communication at the beginning of the year because of 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 out and coverage.

Speaker 1

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

Operator

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

Speaker 1

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 e mail if you have any further questions or other comments. Thank you very much.

Speaker 1

Bye bye.

Operator

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

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