Qeeka Home (Cayman) Inc

HKEX:1739

Earnings Call Transcript 2022-Q2

[Unknown Executive]

Good afternoon, everyone. Welcome to join us in the 2022 Interim Results Announcement on [indiscernible] Qeeka Home. I'm Betty from the Investor Relations Department of the company. The conference will be broadcast online and also access by phone call.

Before the conference start, I will read the disclaimer. The description forecast and goal of the future development in this meeting are based on existing public information and reasonable assumptions made in consideration of the historical and future development change from the company.

And hereby expected that it should not be held responsible for any losses caused by information errors and emissions and misstatement, et cetera. So first of all, we'll go forward to [indiscernible] to share the business performance for the first half -- and later, Mr. [indiscernible] PA for Finance, will review the financial highlights, but finally we'll have a Q&A session now. I'm going to hand it over to Mr. Deng.

[Huajin Deng, executive]

Hello, investors. Good afternoon. Thank you for joining us in the interim results and announcement. Now I'm going to share with you the overall performance in the first half of the year. In the first half of the year, home improvement [indiscernible] encountered unprecedented difficulties and challenges, especially in second quarter. The reoccurrence of the pandemic domestically leads to the shutdown of some core cities for quite a long time. The [ static ] for cities are -- have made a home improvement to be suffered quite a lot. And the fact by internal factors such as the micro control of real estate industry as a [indiscernible] an inevitable impact on our company business, and it's also a severe [ talent ] for us.

As a digital ecological platform that empowers and connected users, merchants and [ declaration ] materials manufacturers [ all other ] quarters have been impacted by the pandemic to various degrees and due to the demand for decoration and business activities as successful door-to-door measurement and construction delivery by [ mentions ] have been forced to stop them. The interruption of the logistics have paralyzed the supply chain. Under such an unfavorable factors on how a company's performance is under pressure.

Looking back to 5 years ago, our stores and marketing business started to grow rapidly from 2017 to the first half of 2020. After 2 years, an annum. Since the outbreak of Covid-19, the pandemic has been brought under control. The real estate industry is fully regulated by policies, while international situation with [ Tent ] is a design to have suppressed the growth of the industry. Our business has positive influence to a certain extent. They still continue to be based on the [ soft ] strategy while empowering the industry.

We'll actively promote the steady development of [ cars ] and the marketing services, interior design and construction business. The total revenue is JPY 430 million compared year-on-year. There is a slight decrease. [indiscernible] is extended and services have achieved a revenue of JPY 26 million (sic) [ 216 million. ] And in the first half of the year, a decrease of 17% year-on-year, of which sales and marketing revenue was JPY 240 million.

This is mainly related to the pandemic prevention measures in some of the first tier and second tier cities such as the [ Chongqing ],Suzhou, Shanghai and in Beijing. So March to May this year due to lockdown of residential community, many sites that cannot start construction. So [indiscernible] merchants have reduced their budgets for marketing on our platform. The number of paying users decreased by 4% to 5,455 -- but that compared with the first half of 2020, which was also a pandemic period. There's still an increase [indiscernible] due to the impact of both the prevention and control measures for the pandemic and users demand for decoration has been suppressed.

In the first half, our sales lease decreased by 11% to 340,000 an increase of 4% compared with [indiscernible] in 2019. And meanwhile, our conversion rate from South [ link ] to recommended users in the first half of this year increased from 2% to 85%. And in terms of supply chain, the [ reoccur ]of Covid-19 has led to long-term interruption of the logistics and upstream manufacturers and factories have also been greatly impacted.

Our supply chain business and revenue in the first half of the year has dropped significantly. In terms of the interior design and construction business, we now operate in -- We have 2 South operators in the business and hopefully the [ space ] decoration and homing and decoration demand business and of the public space decoration has been -- we have seen some lagging in payment leads to rising risk. So that's why we haven't continued the expansion of this business. The revenue in the first half of the year was JPY 140 million, a decrease of 19% year-on-year, while also being impacted by the pandemic. The delivery and the acceptance of the projects were delayed, revenue was JPY 23 million, down 10% year-on-year.

Our innovative business has started in [indiscernible] in smart home, [indiscernible] finishing and new retail sector. And then targeting the diverse on our business, we're exploring more to different areas. There are some new changes and new trends in the market. We believe it is very necessary and valuable to invest in developing innovative business, looking into the future as the pandemic prevention control measures gradually become more efficient and micro policies will have more flexible and precise and this economy will continue to recover -- and the recoveries on both shifts from externally-driven to domestically-driven.

In the short term, the consumer market will still be affected by Covid-19 prevention and control. However, in the medium, long run, there is a still a benefit that we can enjoy from urbanization rate increase and also the policy and preferential policies from the [ indices ] perspective, in the first half, the sales of the domestic and commercial housing and these areas and -- Completion areas have decreased significantly.

There is a downward trend in the real estate market and confidence that the market was not sufficient. And while we'll try to consolidate our core business and accumulate and develop our core capabilities and resources and make every efforts to stabilize the business fundamentals, to cope with difficulties and challenges together with our partners.

We simply believe that impact of external factors such as the pandemic is temporary. There are still new opportunities now and the chances of an [ emerge ] with the gradual increase in housing stock and residential demand for improving their life quality and the renovation of old houses and partial renovations are showing great potential. More than decoration industries is in the stage of a reshuffling, Competition is very intense. Now will address the net accordingly and explore the financial areas and make find new areas of growth for the future growth of our company. Thank you very much.

Now I hand it over to [ Mr. Lu Jing, ] VP of Finance, to share with us on the company's performance and financial highlights.

[Unknown Executive]

Thank you, Mr. Deng. Now I'm going to share with you the performance in the first half of 2022. In the first half, the real estate industry has been not yet recovered from the [ downturn ] of the micro in control. The epidemic has now broke out in many places and as an [ M&E ] service supplier of the [ fast ] solution. So our business has been impacted overly speaking. In the first half, our total revenue was JPY 433 million, down by 70% year-on-year.

Gross profit was JPY 215 million, down 17.4% year-on-year, which was consistent with the decline in revenues. The gross profit margin was 56.7% same as the last period last year. On a whole, August [indiscernible] operating. The adjusted net loss attributed to parent company with the JPY 21 million many [ buying ] debt provision and the cash and cash equivalents as well as our other working capital of about JPY 120 million. So the major JPY 21 million of adjusted net loss is attributable to parent company is caused by bad debt provisions of an account receivable decorated room. The total of the working capital and cash equivalents is about JPY [ 720 million ], as I have mentioned previously. Below on our IO share with you the income of different revenue different sectors that [indiscernible] is extended services comes for 59.2% of total revenue, which was understand as that of the [indiscernible] last year. And they were [ many ] as our core business. And Mr. Deng has mentioned the [ reoccur ] of the pandemic from March to May, some of the budgets as merchants have been decreased for marketing on our platform.

However, as we compared with the first half of 2020, we still see close in marketing revenue. It's about 16.3%. From the user side, our sales lease decreased by 11% to JPY 340,000 compared with the same period last year. It has been impacted by the pandemic. The decisions from users for whether to have decoration or not takes longer time. So we also try to help some merchants in difficulties.

And we have waived a [ destock ] subscription fees for some of them and have given some discounts [indiscernible] like the situation in 2020 at least to 5% of decrease as a revenue. That is one of the part of the reasons that our size and marketing business is declining because of being impacted by the pandemic. For the first half the year, in the supply chain, upstream and downstream, merchants have been influenced. And therefore, in the first half of the year, our supply chain revenues were JPY15.83 million, down 44.2% year-on-year.

Our decoration business incurred public-based improvement, home experiment and the franchise. In the first half, the revenue from decoration business was JPY 170 million, down by 18% year-on-year. Now due to the outbreak of the pandemic, many places and constructions were unable to continue. And in addition, the public space and improvement and the business accounts for 80% of our total revenue, there is a prolonged and payment period due to the slow collection fees from upstream developers. And therefore, in order to avoid the risk, we have been proactive and in controlling the expansion of this business. Therefore, the revenue from this sector slowed down.

Our innovative business achieved a JPY 6 million revenue in the first half. However, it is still in the preliminary stage and scale effect have not been seen yet. We still believe the innovative business are very important for our future. The gross profit in the first half of 2022 was RMB 250 million lower than year-on-year, mainly due to the decrease in gross profit caused by decrease in revenue.

Overall, gross profit margin was 57% and the same as the [ interior ] last year. Size and marketing services and the core business still maintained a high gross profit margin around 96%, and the gross profit margin year-on-year has been quite relative -- stable. The gross profit margin of the supply chain business in the first half of the year was 12 [indiscernible] fairly higher than 11% in the same period last year.

We have advantages and [ decentralized ] procurement, therefore, the rising cost did not impact significantly for us. And then the gross cost point of decoration business in social was at 8% due to the decline of public space and an improvement business and also displayed projects due to pandemic and labor force and shortage leads to rising in cost. Therefore, the cost profit was declined. In terms of period expenses, these are sales expensive management expense [ R&D ] and assets and internal losses.

The total expenses in the first half of 2022 are JPY 280 million, down 4% compared with JPY 290 million in the same period last year. Among them, we can see sales expenses. To sell the expenses in the first half were JPY 209 million, down 10% to compared with JPY 233 million year-on-year. That's mainly because we reduced the budget for precise the marketing and advertisement costs. In the third half decreased to JPY 20 million compared with last year, down 14% year-on-year. We has been seen that there's a 5% decline in the customer acquisition cost per [indiscernible]. And these are some measures that we have taken to increase efficiency and the use of cost.

And in order to improve efficiency, we optimize our customer service system and reduce some of the costs in the system. As for the management expenses, in the first half are at JPY 38 million, which is slightly higher year-on-year. It is fairly reflected in the cost increase of management personnel. We recruit those personnel in order for expanding new business. With regard to R&D expenses, we attached great importance to technical innovation to promote the application of logical innovation in all key areas of our [indiscernible] services.

These expenditures of R&D is JPY 20 million, slightly lower year-on-year. It's [ now ] due to the upgrade of all systems in the first half. We're trying to improve automation in the system to improve the efficiency and reduce the costs. With regard to impairment loss due to the debt default as the leading real estate developments in 2021, real estate and the prices were involved in debt prices and in submissions. So according to the estimated debt loss of an account receivable. We have prepared a provision was JPY 13 million, and that leads to the loss of our self-operated business.

At the end of the year, we revised the business and strategies to actively reduce business expansion. And in the second half of this year, we'll make more aspects to collect payment and actually reverse the operation loss caused by bad debt provisions. As the losses in the first half of 2021 amounted to JPY 27 million, our investment targets as we know, many from the strategic partners, and I believe [ why ] the market recovers, those will still bring us on good returns.

In terms of our profitability, net loss attributable to parent company in the first half of the year was a JPY 57 million. And we have also adjusted the net profit under non-IFR as a standard. So the after adjustment, it was at JPY 20.68 million. In terms of the cash flow reserves and in order to deal with the volatile [ regional ] environment, we have hold -- we have started the strategy of cash holdings. By the end of 2022, our cash reserves was sufficient and it's about JPY 720 million. Now please let us have a look at the [indiscernible] income statement below. For specific data, please get those information on our official website. Our total assets are now JPY 1.9 billion. Our net assets are JPY 1.23 compared with last year, no major changes. And these are the brief sharing on the financial highlights. Now let's start the Q&A session. Thank you.

[Unknown Executive]

Now let's start the Q&A session. Conference Secretary, please share with us how to ask questions and also please share with us for name and organization before you start.

[Unknown Executive]

[Operator Instructions] Mr. [indiscernible] from Citi Securities.

[Unknown Analyst]

I have 2 questions for you. Currently, the real estate market is still largest while the proportion of your business and of this part is quite significant. So what's your strategy in dealing with this situation? Would you contain expansion? Or you have other strategies? And the performance or the situations have been impacted by the pandemic and what's your solutions accordingly?

[Huajin Deng, executive]

Thank you, Mr. [indiscernible]. Yes, indeed, the real estate and industries has been influenced by pandemic significantly this year. Home improvements and businesses is a major part of our business. As you know, we can provide quite major value to some of the sectors. And we can see the demand in the market for overall interior decoration. Over the years, standardization regardless in marketing or delivery or other sectors, standardizations have been improved. We can see there is a trend of scale in this industry. So that's why we have put more efforts into it. We will invest in the home improvement sector continuously. There is another part in the home improvement segment. In the next few years, we believe that there is still a downward trend. However, there are some needs for renovation of existing houses. Many of them are [ self-owned ] apartments and houses.

We see partial renovation that has exhibited a rapid growth within the past few years. And the supply has not been able to match the demand in the market. So that's why we have developed this part accordingly. As for the public and [indiscernible] improvement or sector is being impacted by the real estate and industry as a whole. It was quite rigorously developed in the past few years. However, since the real estate market has some changes that we will change accordingly.

And secondly, as you mentioned, there is quite major saturation in business. And we had a profit attributable to parent companies around JPY 57 million for the first half of a year. That's due to -- And the decrease in public space improvement. There are several reasons the projects could not start due to the pandemic and also the decisions of whether to have decorations by users. Users decisions and have been impacted by the pandemic as well.

Additionally, for the finished or decorated houses, since the period of construction or decoration has delayed the payment has been delayed accordingly. Therefore, we have prepared some provisions for bad loans. In the future, we will be proactive in reducing the business and for this part as the work.

Records of impact from pandemic and the shortage of the labor force and changes in the real estate market. We can actually provide some solutions to help the industry through the whole value chain, we would still invest into some innovative business. Sales and marketing services as our core business is still developing stably and cash is quite sufficient and it will still have a steady growth.

[Unknown Executive]

Any other questions? [Operator Instructions] Okay in the interest of time, we will conclude today's meeting. Investors and [ friends ], if you have any further questions, you're welcome to contact us with the team by email. Thank you very much for joining us in Qeeka Home 2022 Interim Results announcement. See you next time. Thank you.

Thank you for joining us in the conference. We are about to close this session. Thank you.