Q4 2019 Earnings Call
Just 2019 earnings conference call.
At this time, all participants so listen only mode.
After the speakers presenting <unk> there will be a question that also session to ask a question. During the session you do the press star one on the telephone.
There's a bunch of fiscal discipline recorded.
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Thank you operator, and thank you for joining us today to discuss our fourth quarter and full year 2019 results. Joining me all the coal today or at least Li Chairman and Chief Executive Officer.
<unk>, Chief Financial Officer, and Robbins, <unk> Senior Vice President.
As a reminder, today's call may include forward looking statements, which represent the company's belief regarding future.
Which by their nature uncertain and are outside the company's control.
Forward looking statements involve inherent Brett.
Certainty.
We caution you that a number of important factors could cause actual results to differ materially from those containing any forward looking statement.
The more information about the potential risks and uncertainties. Please refer to the company's filings with the FCC, including this registration statement.
So with that I'll now turn the call over to lease like legal make his comments in Chinese and I would translate.
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Hello, everyone. Thank you for joining us today.
I'm pleased to once again, another strong quarter driven by robust growth in paying claims and total claims.
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We added 21620 paying claims in the fourth quarter 2019, the highest quarterly paying claims that position we have witnessed so far.
You're out of the total number of paying claims reached over 198000, representing a 49% increase year over year.
When we reported third quarter earnings our guidance was 190 to 195000 paying clients.
Were pleased that our actual results surpassed our previous expectation.
2020, we're aiming for 45% brand and a number of paying claims.
Which means that our total clean claims worth about 285000 by the end of 2020.
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We attribute our strong can claim trends in the fourth quarter, two we combination and optimize marketing efforts have been market sentiment and high profile going idea.
In the fourth quarter, we selectively worked with a number of targeted third party channels. This claim profile is similar to ours.
The opposite IPO market was also beneficial for our.
Our clients total subscription for Ali Baba and wholly poverty development ideas, both exceeded 5 billion hung on dollars.
Notably our class accounted for 13% of Ali Baba total number of retail subscribers and 5% of its public traunch publication.
Our friends in your route Ali Baba secondary lift in Hong Kong gives us confidence that our business will be a key beneficiary of the continued dual and secondary listing of high quality Chinese new economy companies in Hong Kong.
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Total client assets jumped to 71% year over year into 87.1 billion Hong Kong dollars.
Average flight outside totaled 439000, Hong Kong dollar sounds like you're right.
15% year over year.
As we transform to that business model that increasingly life on the line based income we are encouraged the clients continue to entrust us with more asset.
With a growing share if their assets flowing into our mutual fund distribution business.
Total client assets and mutual fund the surpassing spill in Hong Kong dollar another year of about four months after the official launch in the business representing over 100% sequential growth.
We have established comprehensive funds selection criteria and continue to source and onboard the best performing fund products across asset classes from top notch Cheney and global thing analysis.
We expect to distribute over 15 neutral funds on our platform by mid 2020.
Besides mutual funds, we also plan to roll out other wells nitrogen products and the second half of 2020.
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Our enterprise service and the fourth quarter posted strong results yet again.
We added a record 23, new eats up plans, which brings our total number of clients to 79 house if you're on.
In addition, we provided subscription services to 80, what might be a during the fourth quarter.
Our enterprise clients continue to make steady contribution to new paying clients.
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Moving onto the current quarter.
Despite the outbreak of the Kogan 19, our operating they trust fees have showed resilience so far.
Many traditional financial institutions that rely heavily on and off line presence for account opening a customer service as I've had to suspend the operations at their physical branches, which at this difficult time underscores the merit, that's really all line one stop financial technology platform like us.
Where clients can enjoy until and mobile experience for everything from account opening that money transfer to trade execution margin lending mutual fund investments, marking and social interaction.
The lounge of new products and services during the first quarter, maybe slightly delayed but it should not way on the long term growth prospects at Darden said.
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In 2020, we went up we redefined our company's mission and vision house below.
Our mission is to make investing easier and on 11.
Our vision is to become a highly influential global financial services platform.
To achieve that we'll continue to enhance our technology infrastructure maintain our relentless focus on user experience in rich training product offering.
Expand our wealth management services to train and promote social collaboration.
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In 2020, we will continue to focus on our three Kate <unk>, namely paying clients client retention and I thought inflow.
We're confident that we will expand our market leading position and further entrench ourselves up the broker choice.
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Next I'd like to invite our CFO author to discuss our financial performance.
Thanks leave as Daniel a in the fourth quarter. We record total revenue 250 for me that Hong Kong ups are they similar person deal we end up 20% of Q on Q, Let me walk you through some of our key financial details for this quarter.
Broker Commission and the handled in charge income of 152 million in Hong Kong increase of 34% the bulk of from the same period into some of the 18 and 23% to Q on Q told no trading volumes this quarter with relatively flat year over year, but it was up 7% sequentially our blended the commission rates climb to.
6.7 basis point in the fourth quarter deferral rate hike can be attributed to higher IPO subscriber fees amid a active Hong Kong IPO market and a growing contributions from derivative trading.
Mortgage commissions and handling charge income contributed about 49%, although total revenue you just pop quarter.
Interest income was 128 million in Hong Kong increased from 24% year over year and the 11% of Q on Q. This growth was mostly due to.
52% that you'll be increase in bargain financing and the security lending balance IPO financing interest income also search due to higher phone call IPO subscription.
Interest income contributed about 41% of our total revenue.
Other revenue was sold at 1 million in Hong Kong did 185%, Yeah. When you increase what maybe a true attribute to our new mutual fund distribution business and a higher IPO financing Soviet charges to income as well.
The income contribution about 10% of our total revenue.
On the cost side total cost what.
If you sit above the minimum Hong Kong and increase over 35% year over year, and the 24% UQM to most golf course school inline with our revenue.
That's a result gross margin was 72%, which wasn't relative flat compared with the same here with a lot here.
In terms of the operating expenses total expenses were 181 million that's on call an increase of 81% year over year, bringing down our operating expenses R&D expenses were 74 million in Hong Kong increase of 63% from the from Lafayette, and a 4% from last quarter.
You know, but you're right was primary due to the increase new ideas have caused me to some of the lion King as we continue to gain cost me, Patricia and enrich our product offering.
If you can see you from the Q on Q trend Oh, I leave had the call stabilize before Q and now we are protecting a moderate how the call increase.
Interest on the topic.
Selling and marketing expenses was 51 million a phone call, 188% year over year, 30% of killing two we further diversified all marketing effort now the partner with some pockets. So the potty channel to continue to bring high quality Cline.
Average assets propane Cline goal at.
4000, 439000, Hong Kong.
Yeah, which is much higher than our peers.
General and administration expenses were 56 million Hong Kong increase over 80% on a yearly basis.
The rise was primary due to the increasing how the calling for general and administrative personnel as well.
Hi, a professional service fees post IPO.
Net income increased by 15% of yield, but yet to 44 million in Hong Kong non-GAAP adjusted net income increased by 19% to 49 million in Hong Kong.
Overall, we are pleased with our performance.
During this quarter, we haven't demonstrate recipient growth across our operating matrix and the we are particularly glad to see that our pain Klein growth has a brief follow rigs in fourth quarter, we are expecting robust growth in the fourth quarter with yes, well that's all appeal. They all line business has benefited from that.
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We continue to increase show you reach our trading card offering and execute our strategy or becoming a one stop digital financing.
Well, we are confident about the growth prospects of our business into selling the printing.
That concludes our prepared remarks, we are now like to open the call two questions.
Operator. Please go ahead. Thank you.
Thank you.
Ladies and gentlemen, I'm really not because of the question answer session. If you wish to also question. Please press star one on the telephone and work from them to be announce if your Wisconsin, Chris Please press the Paul.
We have a first question coming from Goldman Sachs.
And with the school.
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Okay. Okay. So congratulations on the film for sport boats.
I've got two questions one as regarding decline a second regarding suffers pricing so while the clients we.
Actually we see a very strong.
You can find grows in the fourth quarter I think you elaborate some more on on the results about IPO.
A body by by in some for third parties.
Channels.
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Working with so it can you elaborate more on third party channels like how how do they worked with you and things like Klein trouble traffic extraction trucking and secondly is <unk>.
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We can be trade Oh, it's the type of clients.
And secondly.
Just wanted to ask you see the brokerage commission, where it has picked up quite locks in the fourth quarter because plays around like the gross producing raise around a 6.7 bips.
And.
Can you yet this explains some.
More on White Weigert system Pickles and also regarding the.
Marketing financing pricing, so we see the there.
The Hong Kong Financial Bureau has caused the.
Thanks, what interest rate, so not surprisingly prime rate, yet, but it would that be a subject when.
Great cards.
Mortgage refinancing loans.
Supporting fund.
Thank you.
Okay. Thank away turn a this is also I think to you you mentioned the pool points, maybe I addressed or the for.
The second twofold question I wasn't the prescription to my colleagues robbing shoot who can elaborate or our cooperations with third party channels in terms of new car acquisitions in the fourth quarter.
In terms of decline profile, we see a very strong growth from the mainland in fourth quarter, I think partially because of.
Many halt IPO, such as Ali Baba and poly parking management the name.
Steve Chinese clients quite familiar so they are more willing to participate in these activities.
So far I think at the end of last year, the Hong Kong based decline a comfortable roughly 50% of our total paying claims and I do think this percentage wise. This portion may continue to increase in the first quarter off this year.
We call her very strong momentum.
Hong Kong interim for new client with issue.
And in terms of the pricing on the P. right I think if the the major reasons leaf and I mentioned in the opening remarks.
There are certain one off activities such as the IPO subscription fees, which also we blended into our treating commission right.
Turning to our total commission revenue in fourth quarter and also a US we mentioned to invest the earliest because even though silico of our new clients normally we will offer them three to six month a commission free period.
US more and more people.
You know the.
Commission free period expires.
Yes, we will boost to all what Blender Commission rate.
And.
In terms of the market and also the NPL the interest rate cuts.
We do note is that the recently on a fresh cut rate very aggressively.
I think for the time being we will continue to maintain our margin rate policies.
Even back we are just the recall when we launch our margin business three to four years ago. That's hard to know the fast was was also you know keeping the zero.
Zero right. So for the time being we will continue to keep whole fixed the margin rate in Hong Kong.
And then the U.S. as well.
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Yes.
So bringing down our new paying client acquisition in the fourth quarter. So are paying clients from word of mouth referral Scone as always and that's where you thought plan. It may take some time to their shares in our seem to get faster. So you will see some of the impact from our astronomy thought business later.
In the following quarters.
And regarding the third party China collaboration as we mentioned the fourth quarter was very hot we saw very hot icons on IPO market and during the third party channels, we are able to reach a lot of plans their interest and these high quality Chinese steel economy company and the fourth quarter Ross.
The 20% of are you paying clients come from does channel and in terms of how our Hong Kong and paying clients. So in the third quarter due to the social situation. The Cline acquisition growth came down a bit though we are very glad to see that the growth rate has rebounded in the fourth quarter and the contribution.
From Hong Kong paying clients continue to increase definitely.
Yeah. Thank you all being an office I, just I can follow up a bit on the current acquisition. So.
Given all like we said.
Okay, So cool events.
Using out and like we can see with from the fourth quarter.
New Klein from Hong Kong local investors. So is there any.
Changes in marketing strategies in the home on local market, it's maybe <unk> million in overall I in China.
So I assume you change your from walking strategy or plot acquisition strategies.
Including like the third party channel you mentioned that you work with them fourth quarter.
More.
Thank you collaborate.
In 2020 to attract more clients.
I will leave the question to lugging.
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Right. So in terms of around our strategy. So we see a growing contribution from our online marketing channels. So in the fourth quarter and also in the first quarter 2020.
We have over 90% of car paying clients that come from online marketing and in a short time being will also prioritized all and client acquisition in Hong Kong and asked for mainland China client acquisition strategy I think we want to change our strategy dynamically based on the market sentiment.
And also made tying into the hot topics in the market and obviously.
The hot IPO.
And I feel market in the fourth quarter kind of field the growth in the third party channels marketing. So we'll also keeping an eye on what's going on in a market and timely adjust our strategy.
Okay. Thank you.
Our next question comes from the large off.
No no pulling from Citi. Please go ahead.
Oh, Hi, Hi management. Thanks for taking my question. So I'll have a couple questions.
I, probably will go one by one.
So the first question is about your the trading volume or do you terminals. So is that Weve Ostrovsky panel.
I think.
Oh, okay.
Actually apartment wishes.
Chicken volume by a your average type assets, so I would be one learning right it's out there.
Structural trends because of the change in high profile.
Hi, it's getting less active compared to.
Yes, I time and yeah, so if the out of here.
And also related to attack this stock since you're launching some new theoretic, although whether that will help improve the tunnels are going forward.
Okay. Thank you definitely a this is also let me also your questions I think it is due to holiday tusa to judge whether they can best of pull file all characteristic have been connect dramatically changed you're right. Our in terms of trading but also taste of our climb in 2000.
19 was.
Huh compare with what they did you sound. The 18 about we think it is mainly due to the market fluctuations in the market the mobile markets handlebars slowdown in 2019.
Yes, they actually you know we see the trading velocities increase alone partially due to the Boulder tile market and the second delay due to our continued expansion of our new Cline. So I think it is due to early to tell there's any scratched the structural changes for the trading below.
Hey assumptions going forward.
Oh, okay, but.
The product launch to have actually two and cool well have you seen I need a impacts.
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Yes.
We launched our Hong Kong option trading seen last fourth quarter and also we just to launch our index future partner.
In Hong Kong dislodge we do think you know we do also said that they're trading velocities are for these new products.
Help our for treating velocity increased a lot.
And I think even though.
We will continue to enrich our product.
In the future this asset class going forward. So I do think even though this will help us any we gained momentum in terms of treating velocity this year.
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And then that's collection is Oh, good trading body on right now so can you give us.
By my Count Hong Kong for since you asked also byproducts Oh, how much contribution haslam do it shifts into a phone.
Sure Similarly to the previous quarter into fourth quarter.
The trading volume was roughly evenly spread.
Overall, Hong Kong, and the U.S. and the interim salt the asset class a fueled mainly comes from the the cash brought us given that the we just launched the option trading in Hong Kong last November I do expect.
In the in the coming quarters, you can see passed the percentage wise that their relative contribution will become much much higher.
Oh, Okay and the next question is actually a follow up all the the interest rate cycle. So Ah you mentioned just now.
Oh the pricing.
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It does it stop Oh, you're actually going to expand.
Great recycled paper, I guess carbon costs should be coming from.
Wow.
Mhm.
Well again.
We are you doing the detail evaluations are looking past the youth well just Alta early this week on the static basis I think the rate cut the may hot our topline by 7% to 8% given we will suffer.
The interest income from kind of idle cash definitely the rate cut it will help our profitability taste.
But I think on the flip side. It is also up opportunities for us to get closer to kind of people are seeking for more investment portals and they used for investment education.
And then we will become more gets coming to move forward, our wealth management business initiatives. This year.
Oh.
You mean that decline.
There's a student.
Cash.
Keith Johnson.
Yes, I think even though the in terms of margin I also a waitress questions before initially or for the time being we will continue to maintain all fixed rate, which the pricing charged to client. So in terms of the the marketing spread I turn it we were kept some benefit from that.
Great.
But this benefit cannot fully offset.
The revenue loss, we we generate from declines idle cash.
Right right on this one.
Okay enlighten is the quality of commission weight.
Commercial range. So can you get from Oh no.
Hi, I'm here because.
We've seen that has seen rising in the past feel court huh.
One thing that mix the current blackboard like therefore, if you're an Apple was 6.7 basis farm is this sustainable Oh, yes, so how should we expect the trends going forward.
Sure I think you know there are some oh, a one off reasons for fourth quarter High Commission rate because of the you know we plan doesn't have the IPO contributions.
To the commission income so Oh, a like for like basis I do think there's a known yield some pressure in terms of commission pressure.
From a competitive landscape.
So I think at the average numbers, which we generate in 2019 can be a reference point, what's what's on the 20.
Oh, okay.
Me too.
Oh contributions.
May I know how to you.
IPO revenue because I see that comes in actually.
So.
Contrary to pull steel brokerage commission.
Carl status.
Other income.
So how do you see opportunity.
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Yeah, well for the Hong Kong Appeal for example, we do some marketing campaigns and appeal activities 40.
IPO companies or the culprit. So we book the revenue generating from such kind of saw this into the other income and for the IPO retail portion participation.
Besides the normal trading commissions when people participate IPO subscriptions, we will have additional one off commission charge.
We will book These commission charge into the overall all commission revenue.
Okay.
Thank you.
Thank you.
Our next question comes from a long of studies show from Goldman Sachs. Please go ahead.
Oh, Hi management team. Thank you for taking my question actually won't be full up a bit so wealth management sector or we see that the total client assets in mutual funds. So pouts 66 going in helping dollars, which speaks to the last management guidance.
It was just wondering what is the main driver for this and and on top up that's a underappreciated management to provide some more outlook wealth management business 2020. Thanks.
Sure. Thank you.
Well the major reason.
For the the increase in terms of AIU and in the wealth management in fourth quarter is the more product offering because in the into sort of quarter. We just have less than 10 mutual fund products.
Launched in all sample.
For the into fourth quarter last year, we provide a more products in particular, we diversified from.
Money market funds to more fixed income products and also the equity fund.
Not only just a you know concentrate.
How China on Asia actually will provide a more diversified global product.
We can flow the you know.
Hello.
Our clients in Asia.
We will maintain such strategy.
I do think that no pulled up and ability is a very important when we start to you know kicking a this new business leaf mentioned during the opening remarks, we do expect.
In our platform you can see over 50, new mutual funds product.
Launched.
In the middle before the Middle office here.
In terms of the the client assets.
It is very difficult hotel in particular judging from the recent market Volatilities, we we do see a very strong through the momentum in terms of AIU and growth.
January and also in February, but suddenly have being pulled back a long in the past the two weeks.
Well from the market Volatilities I love, how people just to redeem their money market funds and the try to you know.
Average down the our cat desktop positions.
No despite.
Let's see a near term market Volatilities, we do think.
We should.
We should we should we though we should begin to make up very big effort in terms of the going the wealth management you. After this year.
I think you know a while all the reasons we have some hesitation off here, yes, because of the the re cycle.
Aside on sort of productions to definitely and also way to before.
But this hurdle has been raised given that the pad has cut the rates into there.
So the opportunity cost for US no answer to become nothing so we will make more effort into the fund distribution.
Oh, that's very helpful. Thank you.
Thank you.
Once again, if you wish to also question. Please press star one on the telephone from them to be in house.
Our next question comes from long off.
Maybe due from <unk>. Please go ahead.
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Sure.
I will ask this question English.
Because we see a very significant gross in the balance of margin.
So going forward well see a it's a source of funding for this.
Isn't that Scruggs and are we see a massive margin coal pressure from our clients in the recent Mackie crotch. Thank you.
Okay. Thank you really a this is also well two questions I will also your second question first Oh, well leave the first question about the growth and the competitive landscape.
To my colleagues leave and the Robyn.
In terms of margin balance you're right. We've we've maintained very good momentum.
He says I want to 19, partially thanks to the overall good mob penile market condition.
In terms of funding source.
Last year.
Equity funding.
Ill on capital comfortable about 50% of the funding source and the remaining 50% main income could come from our financial.
Ponder such as you know commercial banking Hong Kong.
That's right.
Currently opt to all off yes, IPO I do think into our leverage ratio is still quite healthy.
So in terms of the leverage a side, we do have a very room to pick room to grow.
Okay lets him, but I do you go into solvency should.
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Sure.
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Hi, This is Sean and Labonte and good grant was up to this without your whats you shouldn't Michelle.
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Margin called <unk> Yeah.
Sure I think to know the recent my people that anything they let people concerned whether there's any margin calls I think in though in Hong Kong markets and also contiguous market. We do use of every prudent.
Margin policies.
No. We didn't know that provide on a very high leverage a true to our clients. We do see some you know small margin calls I think the overall the size, it's not very material compared with our upcoming book coming first quarter Pn knowing that.
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Once again, if we sort of question. Please press star one on the telephone and went from him to panels.
No no further questions at this time a lot to have the conference spectrum from Suntrust. Please continue.
Thank you that concludes our call today I'll be happy to 50 management team I like to thank you for joining US today. If you have any further questions. Please do not hesitate to contact me or any of our Investor Relations representative Thank you and goodbye.
Yeah.
Ladies and gentlemen that does conclude teleconference for today. Thank you for participation you may now disconnect.
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