Cango - Q1 2024

Transcript

Operator (participant)

...Good morning and good evening, everyone. Welcome to Cango Inc.'s First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. This call is also being broadcast live on the company's IR website. Joining us today are Mr. Jiayuan Lin, Chief Executive Officer, and Mr. Yongyu Zhang, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct the Q&A session. Before we begin, I refer you to the safe harbor statement in the company's earnings release, which also applies to the conference call today, as management will be making forward-looking statements. With that said, I'm now turning the call over to Mr. Jiayuan Lin, CEO of Cango. Please go ahead, sir.

Jiayuan Lin (CEO)

Everyone, and welcome to Cango's First Quarter 2021 Earnings Call.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

China's GDP maintained moderate growth in Q1 2024, increasing by 5.3% year-on-year, despite the complex global economic environment. According to the China Association of Automobile Manufacturers, the auto industry also saw strong growth, with production and sales reaching 6.61 million and 6.72 million vehicles respectively. This represents a year-on-year increase of 6.4% for production and 10.6% for sales. New energy vehicles, or NEVs in short, were a particular bright spot. Production and sales surged by 28.2% and 31.8% year-on-year to 2.12 million and 2.09 million units respectively. This strong performance pushed NEV's market share to over 30%.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

Despite positive growth in vehicle production and sales, the auto market faces challenges on both the supply side and demand side. Traditional automakers must transform to compete in a new energy vehicle era, and emerging NEV manufacturers face intense competition and struggle for profitability. On the demand side, slow income growth and job market instability restrain consumer purchasing propensity. Rapid technological developments and price competition lead consumers to delay purchases, further tightening the market.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

In response to the oversupply in the new car market, we took proactive steps to manage inventory and reduce costs. We strategically reduced the scale of our self-operated new car business and streamlined purchasing processes to improve efficiency and improved inventory management to mitigate the risk of declining new car prices. While this strategy resulted in a lower revenue compared to last year, RMB 64.42 million in Q1 this year, it ensured profitability for the company. Our operating profit was RMB 74.15, RMB 74.15 million, and net profit was CNY 90.03 million.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

We maintained financial stability in a challenging macroeconomic environment through strict cost controls and risk management. We closely monitored liquidity and liabilities, reducing our total outstanding facilities financing balance to RMB 7.586 billion by the end of Q1, and our delinquency ratios remain low at 2.87% for M1+ and 1.51% for M3+ as of March 31st, indicating strong asset quality.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

...Q1 also saw the successful integration of Cango Used Cars, strengthening our platform competitiveness in several ways. We secured a consistent supply of high quality vehicles, and dealer service experiences and supply chain management were optimized. Cross-region deliveries became more convenient and secure.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

Cango Used Car achieved impressive growth in Q1 2024. The platform expanded its reach to 8,469 registered car dealers across 31 provinces and 251 cities in China. It generated significant user engagement with over 130 million accumulated page views. The platform also facilitated 124 auctions and 204 facilitated deals.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

And we ramped up our vehicle offerings and transactions in Q1 2024. We strengthened partnerships with existing stores and brought brought on our platform high quality third party vendors nationwide, creating a more diverse and stable vehicle pipeline. Also, we boosted transaction volume by hosting 42 auction events and special sales throughout the quarter.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

We differentiated Cango Used Car in Q1 through an enhanced memberships ecosystem and premium services. We developed a more attractive membership program with exclusive benefits to boost dealer engagement and loyalty. We launched an MCN pilot program in Q1, helping dealers transition to an online plus offline marketing strategy. In addition, we introduced the Hassle-Free Purchase service in April, offering comprehensive transaction support for payments, logistics, and insurance. This streamlines transactions for both buyers and sellers and improves transparency for a better member experience. In Q2, we will continue to focus on deepening user engagement, enriching platform content, and expanding both our membership base and high quality vehicle inventory.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

In addition, we are making waves in cross-border used car market. In March, we launched the first of its kind information platform to connect overseas buyers from different countries and regions directly with China's high quality used car inventory. This platform fills the gap in cross-border used car information services, providing valuable insights to global users. And our goal is to become the go-to gateway for Chinese used cars entering the international market.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

Moving forward, we are committed to unlocking new growth opportunities through innovative business models. Partnering with our dealer network, we will leverage continuous innovation and meticulous management to create additional value in China's rapidly evolving auto sector. This focus will ensure the company's long-term sustainable success.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

Next, I will turn the call over to our CFO, Michael Zhang, for a review of the company's financial performance.

Michael Zhang (CFO)

Thanks, Jiayuan. Hello, everyone, and welcome to our first quarter 2024 earnings call. Before I started to review our financials, please note that unless otherwise stated, all numbers are in RMB terms and all percentage comparisons are on a year-over-year basis. Total revenue in the first quarter of 2024 were RMB 64.4 million, compared with RMB 552.6 million in the same period, 2023. The guarantee income, which represented a fee income earned on the non-contingent aspect of guarantee, was RMB 30.3 million in the first quarter of 2024. Now let's move on to our costs and expenses during the quarter. Cost of revenue in the first quarter decreased to RMB 29.1 million, from RMB 480.5 million in the same period, 2023.

As a percentage of total revenue, cost of revenue in the first quarter of 2024 was 45.1%, compared with 88.6% in the same period, 2023. Sales and marketing expenses in the first quarter decreased to RMB 3.5 million from RMB 12.5 million in the same period, 2023. General and administrative expenses in the first quarter decreased to RMB 37.9 million from RMB 39.8 million in the same period, 2023. Research and development expenses in the first quarter decreased to RMB 1.1 million from RMB 8.1 million in the same period, 2023. Net gain on contingent risk assurance liability in the first quarter was RMB 15 million, compared with RMB 1.6 million in the same period, 2023.

The gain was recognized due to the release of obligations from the contingent aspect of the risk assurance liabilities. Net recovery on provision for credit losses in the first quarter was RMB 66.3 million. The recovery was primarily due to the positive impact from the collections of financing receivables. We recorded RMB 74.2 million in income from operations in the first quarter, 2024, compared with RMB 51.8 million in the same period, 2023. Net income in the first quarter was RMB 90 million. Non-GAAP adjusted net income in the first quarter was RMB 95.7 million.

On a per share basis, basic and diluted net income per ADS in the first quarter of 2024 were RMB 0.85 and RMB 0.8 respectively, and non-GAAP adjusted basic and diluted net income per ADS in the same period was RMB 0.91 and RMB 0.85, respectively. Moving on to our balance sheet. As of March 31st, 2024, the company had cash and cash equivalents of RMB 1.2 billion, compared with RMB 1 billion as of December 31, 2023. As of March 31st, 2024, the company had a short-term investment of RMB 2.3 billion, compared with RMB 635.1 million as of December 31st, 2023.

The increase was mainly due to the conversion from restricted cash bank deposit held for short-term investments of RMB 1,617 million on December 31st, 2023, after the company completed its subscription process. Looking ahead to the second quarter of 2024, we are now predicting our total revenues to be between RMB 35 million and RMB 45 million. Please note that this forecast reflects our current and preliminary view on the market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions.

Operator (participant)

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. We will now pause a moment to assemble our roster. Thank you. Our first question comes from Ping Le Wu from CITIC Securities. Please go ahead.

Ping Le Wu (Equity Research Analyst)

Thank you. My name is Ping Yu. I'm from CITIC. I have a question. The first question is that, recently, the government launched a subsidy program for the trading programs in order to encourage the consumption. So, does the company believe that this will help drive the recovery and growth of the automobile market? And if possible, could you give us a specific number you're measuring the degree of impact of this policy on the demand for vehicles or for automobiles?

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

Thank you very much for your question. So in our view, the government's trading subsidy program creates a positive tailwind for the auto market recovery, and these subsidies act as an incentive for consumers, especially those already considering an upgrade or to trading their older vehicles. This could indeed lead to a significant boost in demand for new cars, which benefits our company.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

... So while the trading subsidy is a positive step, we shouldn't underestimate the broader challenges facing the auto market. Consumer confidence and overall economic conditions will likely take time to improve, potentially limiting the program's immediate impact on new car demand. We commend the State Council and the Ministry of Commerce's efforts, but a comprehensive approach that addresses those other factors will be crucial for a sustained market recovery.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

Thank you.

Speaker 5

[Foreign Language]

Ping Le Wu (Equity Research Analyst)

My second question is, we noticed that our company's Cango U-car app was upgraded in April. Are there any new features after the upgrade?

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

Yes. The latest version of Cango U-Car features our newly added Hassle-Free Purchase service, which provides car dealers with more comprehensive and reliable solutions.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

We've also enhanced the Cangchu Yuka experience for our members with two exciting features. The first is the exclusive membership section. Members now have access to a curated selection of premium vehicles nationwide, and these vehicles are all under three years old and have fewer than 50,000 kilometers, ensuring top quality. Plus, they are offered at competitive prices compared to industry standards. And second feature is the improved in-app communication. With just one click, members now can connect with sellers directly within the app. This streamlines communication and boosts transaction efficiency.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

Thank you.

Operator (participant)

Thank you. The next question comes from Emerson Zhao from Goldman Sachs. Please go ahead.

Speaker 5

[Foreign Language]

Emerson Zhao (Analyst)

Thank you. I'm Emerson Zhao from Goldman Sachs. I have two questions. The first question is, we noticed that the company has decreased your new car procurement. So what will the revenue resources look like moving forward? And my second question is, the company returned to profitability this quarter and holds a significant amount of cash. So will there be any plans for dividend payout?

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

Thank you for your questions. So on your first question, we strategically adapted to a changing market by streamlining our self-operated new car business. While this segment previously generated significant revenue, it offered lower profit margins, and this proactive shift has led to a decrease in total revenue. But our core business has transitioned to facilitation services with much higher gross profit margin due to a leaner cost structure.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

Our evolving business model and optimized revenue structure have boosted profitability, laying a solid foundation for long-term sustainable growth.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

On your second question about dividend payout, well, since going public, the company has been consistently rewarding shareholders with dividends, reflecting our commitment to shared success. Looking ahead, we will strategically plan future dividend allocations considering our evolving business and cash flow requirements.

Speaker 5

[Foreign Language]

Jiayuan Lin (CEO)

Thank you.

Operator (participant)

Thank you. That concludes the question and answer session. Thank you once again for joining Cango's first quarter 2024 earnings conference call today. Have a great day!