Qeeka Home (Cayman) Inc

HKEX:1739

Earnings Call Transcript 2021-Q2

[Roger Ren, executive]

[Foreign Language]

Good afternoon. Welcome to Qeeka Home's 2021 Interim Results Conference Call today. I'm Roger IR of Qeeka. We have already uploaded our results presentation on our IR site, please check it out.

Let me introduce the management team today. We have Mr. Huajin Deng, Chairman and CEO; Mr. Kang Liang, who is CFO of Qeeka. Mr. Deng will review the company's business and discuss our strategies, and then Mr. Kang will go through the financials. We will then open the call for questions.

[Foreign Language]

To review our remarks during the call [indiscernible] certain forward-looking statements that are based on current expectations. Our statements, other than statements of future call fact during the conference call are forward-looking statements, which are subject to a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of the company.

The expectation of [indiscernible] from the note non-GAAP financial measures that should be considered expression to but not as a substitute for measures of the company's financial performance prepared in accordance with IFRS. Please do take a minute to read the risk factors and the GAAP measures provided in our materials.

Now I will turn the call over to the Chairman, Mr. Deng. [Foreign Language]

[Huajin Deng, executive]

[Interpreted]

Thank you, Roger. Thank for the Investors for joining us in the interim performance release meeting.

In the first half of 2021, the whole employment industry has undergone dramatic changes and the industrial environment has become more complex. On one hand, due to the due impact of real estate policy regulations [indiscernible] in many places, our home improvement industry can't recover, our virtual demand is lower than expectations.

And on the other hand, we see capital has paying more attention to this industry, such as the application of staff service business and also the financing services needed by the large-scale traditional IDC companies. We have seen many improvements.

On the whole, the industry has a trend of centralization, the survival of [the fittest] is intensified. Currently, customer acquisition is still one of the biggest bearing for IDC companies. It is increasingly difficult for a single company to acquire customers. The trend of platform dependency for customer acquisitions may be further enhanced in the future.

At the same time, under the pressure of an increasingly standardized market as the fierce competition seeking to improve our managed capabilities and investment, digitalization and supply chain as economic to sensors or companies and transformation developments and are very imperative.

So these changes have provided good opportunity for Qeeka to promote full product solutions based on [indiscernible]. In health and IDC companies that could obtain online traffic through CRM and other marketing services. It will help us for and the medium-sized and IDC companies to achieve integrated business through supply chain service, all these are very urgent.

In a past 6 months Qeeka has actively promoted stock strategy to help IDC company adaptive to the changes in the industry, embrace the new form of the industry and promote recovery. Meanwhile, we also help traditional IDC companies to improve their operational efficiency within quite a remarkable achievement that active paying IDC companies that are numbers that have rose to 5,667, up 33.8% year-on-year and the company's total revenue has increased to CNY 524 million, up 6.5%. At the same time, we have a profit of CNY 20.54 million, and the overall development was stable as positive, in particular at manufacture and empowerment and have helped us to better attract active paying [indiscernible] to then also increase their loyalty. This has been very attractive, but for the external platform companies.

The first half of 2021 is an important period of Qeeka to consolidate our sales strategy as [indiscernible] Qeeka's business now includes 2 segments. First, staff and related expanded services for IDC companies. The second, interior design and construction and other business.

As for the SaaS segment, SaaS and extended services in under contract of impact adjustments of the industry and also the trend of the digitalization, SaaS has become a very important way for traditional IDC companies to manage marketing, improve efficiency and upgrade their brands. It's very important for them to have a healthy management of the company and acquire repeated the customers. And more, and more IDC companies had [indiscernible]. There is increasingly higher demand for digitalization. The new business model is accelerating. In order to meet the increasing demand of IDC company, in the first at half of 2021, we'll continue to manage SaaS service platform and providing an IDC company with competence of business solutions, covering marketing, specialize the component and supply chain, innovative value services and also help IDC companies to improve their core [indiscernible] from multiple dimensions.

Taking marketing service as an example, we're not only providing [indiscernible] to IDC companies. Our solutions have been provide throughout the whole [indiscernible] of customer acquisition from marketing plan to the segment to the maintenance of budget and the execution, follow up, to the digitalized tools of new media, new channels such as the main programs that we can platform and social group purchasing or other ways of marketing from CRM user itself and loan management to relevant [analyze] [indiscernible] performance management tool and to the final converting to help customers to sign agreement. Thanks to the enabling effect, SaaS strategy, the service capability and reputation of our merchants have been improved. The signing rate of merchants in non-China, South China, South West China have increased. The distribution ratio customer units, the transaction price per transaction and the net income or revenue level have all steadily increased. The income of IDC companies have grown steadily and also with higher unit price. When we use the increase of [indiscernible] prices in many key cities from the data point of view, the total number of active paying merchants in the first half of the year reached [ about ] 5,667 up 33.8% year-on-year -- percentage year-on-year. Our management turnover rate has been reduced by half retention rate has greatly improved the development trend is very soft.

With the development has a diversified business higher requirements that have also been put forward by service providers in order to rather expand our business and also for better implementation as a sales strategy, we have constant optimization and adjustment for the internal company structure, enable a team can be well organized and also improve our operational capabilities that provides strong guarantee for the steady progress of our strategy.

Internal [indiscernible] and expanded services has achieved a very good result in the first half in terms of the number of active paying merchants, merchant retention rate and merchants payments in [indiscernible] as well as revenue. And we believe in the future, IDC companies that have demand for digitalization will increase constantly and [indiscernible] strategy while continuing to become a core driving force for the growth of our business.

The second segment, interior design and construction business. The interior design and construction business mainly refers to the operation of [indiscernible] brands such as [indiscernible]. Our exploration made in this area will help us to understand the front end market and the users in a more comprehensive way. And based on our practice that we are continuing to optimize the service system, provide accurate main empowerment and also better leverage on the synergy and strategy, benefiting from the active exploration.

And in this regard, our interior design and construction business for the first half of the year also have made a remarkable achievement. It has grown to CNY 207 million, up from 140.9% year-on-year, and we forecast that this segment will rely on the staff empowerment and make further achievements can be expected.

And regarding innovation and the other related business this can be reflected at our development in smart home appliances, home improvement and decorations as well as the new retail service. This also has reflected on our continued exploration for diversified liquefaction. And in the first half of this year, this part of the business has been progressing quite well. It has reached 7.9 million with an increase of 44.3%. This is in line with our companies that forecast development.

In terms of the innovation model, we will continue to explore new growth momentum, being both in innovation and strive to realize high-quality developments and foreign companies and also develop some new momentum.

At the same time, in terms of consumer rights protection, in the first half through a series of measures such as the [indiscernible] programs of home improvement and also developed very good work now. In the next 5 years, we'll continue to strengthen our company's position as the most influential home SaaS service providers in China based on this SaaS strategy, we will strengthen the mindset and [indiscernible] power the development of the whole chain of the industry can also establish a focused model, our digitalization, centralization and the ecologicalization.

So in the second half of this year, based on our sale strategy, we are going to continue expanding the scale of merchants, for example, Construction segment and increase the retention rates helped IDC companies to improve their service, capabilities and management to further reduce cost increase efficiency. We will -- we have a plan to carry out our report in several aspects. Will strengthen R&D investment and improve the investment in supporting facilities of SaaS systems and also provide a stable and reliable technical environment for digital transformation and innovation.

And second, we'll continue to optimize the internal organizational structure and also have transformation to implement our strategy, providing effective guarantee for the business.

Third, continuing to deepen the exploration of smart supply chain service driven by the demand in the industry and also improve efficiencies for the industry.

Fourth, we'll continue to strengthen the position of the platform and optimize the big guarantee mechanism to help users avoid the possible risks during the other from employment program. We'll fully support the rights and the interests in our users that bring consumers and [indiscernible] for improvement experience.

Thank you. Now I will give the floor to Kang Liang, our company and CFO, to hear or with out financial performance.

[Liang Kang, executive]

I will continue with the financial performance. We have achieved -- we have about 5,667 actually paying merchants by the end of the first half. which is about 33% increase year-over-year. And we have about CNY 384 million -- CNY 384,000 in gross sales leads that was matched through our platform, which increased about 16.4% year-over-year. And we -- and our revenue from SaaS and extended service reached CNY 309 million in the first half of this year, which increased about 38% compared with the same period last year. And our adjusted net profit reached RMB 20.5 million, which is about 286% increase compared with the same period last year.

And our growth has been attributed to 2 factors. The first is increase of the merchant base. And the second is the increase of the average merchant contribution. So we have by the end of the first -- by the end of the first half, we have 5,667 active paying merchants on our platform and our half year retention rate has increased from 82% to 94%.

In other words, the churn rate has reduced from 17% to 8%, to 7%, 8%, which is reduced by half. And also, our average revenue per active paying merchant is stabilized at RMB 55,000 in the first half of 2021, which is about 3.4% increase compared with the same period last year.

And we have a total about CNY 524 million in revenue in the first half of this year, which increased about 66%. And we have -- and our gross profit also increased about 42% year-over-year to CNY 297 million, and our adjusted net profit increased 286% year-over-year to RMB 21 million in the first half of this year. And as we discussed, we have 2 major business collectors, the SaaS and service business and also the interior -- IDC, the interior design and construction business.

As you can see, the IDC business is growing fast, but the SaaS and the extended service business still contributes the majority of our gross profit.

Okay. And if we look into the details of the SaaS and extended service, we have 3 segments. The SaaS, the merchants or the marketing service and the supply chain service. Here, the marketing services and supply chain service are actually totally integrated into our SaaS platform. So we consider them as part of the SaaS business. But for the reporting purpose, we had -- because we had to charge for additional value-added service fees upon SaaS subscription. So we have the marketing service and supply chain service separate holistic here.

If you look at the SaaS subscription revenue, it increased about 53% year-over-year. This calculation here, excluding the impact from the live video forecasting business, which is very popular in the first half of last year, especially during the COVID-19, the city shutdown periods. The 53% increase of the subscription is driven by 2 factors. And number 1 is the increase of number of active paying merchants, which has grown at 33% year-over-year. And factor number 2 is the increase of average subscription fee for merchants, which grew about 14% year-over-year.

And the marketing services is the largest part of our extended service also increased about 39% year-over-year. This also contributes to 2 factors. Number 1 is the number of -- the increase of number of sales leads, which grew at 16.4% year-over-year, and the increase of the sales leads actually indicates the increasing demand of the merchants from our platforms.

And the factor number 2 is the increase of average revenue per sales lead, which increased about 19% year-over-year. And this also indicates the increasing volume power of our platform.

And our revenue from interior design and construction reached about RMB 207 million, which is 140% increase year-over-year. And our revenue from innovation and others increased about 44% year-over-year to RMB 8 million in the first half of 2021.

Our operating revenue continued to decline due to the strong scale effects. And the selling and marketing expenses is about RMB 232 million in the first half 2021, but extended revenue declined from 57% to 44%. And our administrative expenses, including R&D and others is about CNY 58 million in the first half of 2021, which as a percentage of revenue decreased from 21% to 11%.

And we turned the loss into profit in the first half of this year. Our operating profit increased from negative CNY 52 million to CNY 49 million in the first half of 2021 in IFRS measures and from negative CNY 34 million to CNY 18 million in non-IFRS measures. We also achieved a net -- we also achieved net profit attributable to equity shareholders of CNY 12 million in IFRS measures and CNY 21 million non-IFRS measures.

And we had pretty strong cash reserves to support continuous business expansions. We -- by the end of June this year, we have CNY 929.5 million cash and cash equivalents, which is about 3.6% increase compared with the end of last year. And that was pretty much on my presentation, and we are open for questions.

[Roger Ren, executive]

[Foreign Language]

We'll now open the call for Q&A session. Please introduce yourself before the question. Operator, [Foreign Language]?

[Unknown Analyst]

[Foreign Language]

[Huajin Deng, executive]

[Interpreted] There are 2 -- only 2 questions. First is a questions related with the regulation. So whether the recent issue [indiscernible] on user data will affect the experience and efficiency and marketing services and [indiscernible] extended services. And meanwhile, I would like to understand more about the current cost innovation rate for [indiscernible] marketing service.

The other question is [SaaS] related. We understand [indiscernible] in IDC from the industry, those companies that can't quite be centralized and very obviously low key basis, so how well -- or at least you expand you will get some more customers, customer acquisitions and how big is the market and meanwhile. And do you see we have enough facing difficulties again losing customers under the pandemic? More near [indiscernible] Companies and [indiscernible] the first part of question.

We have several ways for customer acquisition. One is from our word of mouth, [key customer] word of mouth to acquire a customer advancement, and we also have a high [indiscernible] content [indiscernible] to acquire customers. We are also investing on platforms, which I do intend to take [indiscernible] to attract more traffic. And then secondly, I will give floor to Kang to [indiscernible] following questions.

[Liang Kang, executive]

[Interpreted]

I would like to have some other comments. So often investors are asking me why Qeeka has a lot of users that are coming from promotion or the word of mouth. So there are only 2 reasons. First, the traditional IDC companies that are not having strong reputation. So how to choose those IDC companies and how to match the consumer need with those IDC companies are not that clear. [indiscernible] why consumers need third-party platform to help us. For example, if they do to want a local -- localized the separation, that luxury, I think companies would not think that is fit for them. And after we have a value of our platform, so we have a model, we have digital modeling message help us to categorize different customers and IDC companies and also screening [indiscernible] and match them. So that's the value of Qeeka. And just secondly, we have already very strong guarantee mechaniscm for user experience in our platform. We need to screen those IDC companies first. And second, provide them specification for them and also training are provided for them. They also need to be paid the fees to guarantee their services.

And also Qeeka has very well established mechanism for capital management. And traditionally, users need to pay money first to get their home improvement project has started. While in the market, some of the IDC companies, especially small sale, but they may have various [indiscernible] problems and even thought and activities, the users they cannot be guaranteed while Qeeka has third-party service banking systems for capital costs, therefore, the guarantee [indiscernible] capital [indiscernible] sure.

On the other hand, we also have a professional distribution and inspection teams all over China. So 1, the project has been [indiscernible]. And the second, [indiscernible] users money will be paid through the platform, that is a strong guarantee for users.

Meanwhile, [indiscernible] is actually lease only instead of a system. And in this system or platform, you can use the channel to supervise the conditions on the construction site. The program can be monitored in real time. We can also help you to communicate and also deal with the complaints and [indiscernible]. Therefore, these are the strong guarantees for users and it's also a part of our stock strategy.

There are many users that have experienced in our high-quality service and for with cloud in development step by step. If you go to our [ APP ] or the forum, you will be able to see the comments of user. Some claim that they have very good experience of strong improvement using Qeeka service for several years or decades, the goal as they come back for more service.

So I would like to answer the [protection] questions and the major 2 questions that you have asked. So regarding the protection, data protection for users, we -- as we know, the personal data safety has attracted a lot of attention. So this requires a higher regulations and responsibilities that to be showing in the part. And therefore data protection. Indeed, the sales lead may have some relevance of [indiscernible] [ limited ] stock.

So actually, after [indiscernible] all the recommendations are based on the information left proactively by users themselves. So we have a customer service centers that are formed [indiscernible] communications in order to provide the best service for users, we will only assess the information after getting consent of the users, personally. There's no existing conditions such as rising messages that without authorization of users. So once we get there, we get their inquiry, we will push the IDC companies at which in line with their requirement.

And secondly, the release of the policy is actually an opportunity for us and for some of the lower tier [indiscernible] and areas, the awareness of protection for personal information is weak there. Therefore, we do see some messages have been sold through different channels such as mortgage information or [indiscernible] purchasing house, apartments with the launch of the policy, the privacies on the awareness of citizens on their private information protection will be further [indiscernible] and is going to benefit us and also we will see the withdrawal of some candidates.

In the home improvement industry, we actually have a saying that this is the big industry, but with many small companies. And if we exclude the defined declaration, [indiscernible] there is a market size of over CNY 2 trillion, and the information level is very low, less than 10% in the market therefore huge opportunities. And we know there's -- regarding the information well developed and the information market is only 0.1% to 1%. And meanwhile, there's a high cost for acquisition, for customer acquisitions, it's more than 5% to 10% in the market, especially in Shanghai and Beijing. Therefore, there's an overall market more than CNY 100 million to CNY 200 million.

Regarding the central decentralized industry, we do see a trend higher level of integration in the market and in the [indiscernible] cities, there are -- we need to have off-line shelves to promote the business [indiscernible] which has [ stock ] service and other services that need to be implemented in a face-to-face with IDC company owners providing them [indiscernible] and the keys. So this is indeed -- and some -- required a high level of skill.

And meanwhile, in the market and those companies with high efficiency will finally surpass others. Our retention rate is also very high, 3%. We've already launched a 7% to customers. Therefore, much higher than the average in the market.

[Unknown Analyst]

[Interpreted] ]

I'm an analyst from [ HDC ]. My question is on what is the gap -- what is the difference of that to [indiscernible] demand competitive advantages.

And the other question is that can we get more knowledges about our company's guidelines for [indiscernible] and extended services in the next few years.

[Huajin Deng, executive]

[Interpreted]

I will answer your first questions and then Liang Kang will answer the a second question [indiscernible] company while we also provide. We also provide [SaaS] service. Meanwhile, it quickly starts from the services for IDC companies. And we have better understanding of IDC companies and with -- at the same time, we also have our own IDC business. Therefore, we have advantages and [indiscernible] customer acquisition and user management.

As you know, the cost is that high for construction and supply chain management while on the other hand, [indiscernible] cost for user acquisition is high as well. Qeeka can provide the stack service for the whole process. And the IDC companies once we're starting to use our software there [indiscernible] and their conversion rate has been improved while the customer acquisition reduced [indiscernible] is also benefiting our platform. Once the experience by IDC companies become improved [indiscernible] have been further developed, users will increase. That operational cost will be used then as [indiscernible] can the most valuable supply chain [indiscernible] management in a very long process [indiscernible] Our [indiscernible] to develop the whole product management and then the holding will have to -- the -- our differentiated advantages.

[Liang Kang, executive]

[Interpreted] Yes. Regarding the guidance for start services next few years. This year, for the first half of this year, we have -- the growth rate has achieved 38%. And we expect the [indiscernible] growth in the long run will be achieved. And currently, the information level in the industry still hope takes time for us to educate the market after a period of time, we can expect a faster growth. We have adopted different ways to educate markets, including the [indiscernible] channel.

[Unknown Analyst]

[Interpreted] Hello, I'm Max from Hong Kong. I have 2 questions regarding the 3 major [red lines] of the real estate and [indiscernible] released by the government and also increased the market interest rate as well as the potential real is that tax and the large increase of raw material price. What are the impact of those policies to improve industries and companies. And additionally, the second question, companies themselves operated business is growing rapidly. So what strategy for this segment in the future.

[Huajin Deng, executive]

[Interpreted] And these are very good questions. Every year, we know that new policies is released for the real estate industry. So those in turn have influenced the home improvement in our industry. However, the impact are just for short term, not the long term. It will be going after some time and [indiscernible] decoration of the home improvement is rich demand, just fixing the demand before the buying apartments. There are [3 things] of decorations needed and 1 is for new apartments, and others are for second hand, and existing renovation of existing apartments.

So the requirement for those decorations are different. In the past several years, [indiscernible] the apartment for decoration and renovation has been increasing very rapidly through the times such as the local life decoration and also there are further finance decoration needed for new hose or customized decoration and Qeeka actually have more users for second-hand apartment decoration. Therefore, the impact on Qeeka is smaller than other traditional IDC companies.

In the first half of the year, the raw material increase in [indiscernible] such metal, such petroleum, oil, et cetera. But [indiscernible] is wider, it's bigger on exports than domestic and decorations. There's also interest from exchange rate as well. And decoration is a [indiscernible] need. As I mentioned, the increase of the price or the price on decoration, we may not have any big impact on our work. Therefore, we're still seeing the ISP come for the improving market growing [indiscernible].

The second question Kang Liang to answer it.

[Liang Kang, executive]

[Interpreted] And the second question for the factory IDC business, we do see us growing constantly over the years. It's because the IDC business flowing very [ flat ] only in the market and it's only due to the starts related to empowerment and business. In terms of strategy, we're going to [indiscernible] with more efforts in standardization, only with the standardization. Only with standardization can our business be better and develop the next. And so we are developing at a system level as well [indiscernible] improving the management of skills to enable our business to be able to copy and rollout in a larger scale. And we -- as you know [indiscernible] our fully-owned subsidiaries that we have an independent business teams for them. There's no confidence that with our other business compared with the growth side of the market, which is CNY 2 million to CNY 3 million. We expect this part is still more we can expect the revenue growth.

[Operator]

Well, thanks all for joining the meeting today, and we will see you the next time. Have a good day.

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