Cango - Q2 2023

Transcript

Operator (participant)

Good morning and good evening, everyone. Welcome to Cango Inc.'s 2nd quarter 2023 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. Yongyi Zhang, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct a question and answer session. Before we begin, I would like to refer you to the Safe Harbor statement and the company's earnings release, which also applies to the conference call today, as management will make forward-looking statements. With that said, I would now like to turn the call over to Mr. Jiayuan Lin, CEO of Cango. Please proceed, sir.

Jiayuan Lin (CEO)

大家好，欢迎参加灿谷2023年第二季度财报电话会议。

Speaker 5

Hi, everyone, and welcome to Cango's 2nd quarter 2023 earnings call.

Jiayuan Lin (CEO)

2023年上半年，尽管从中央到地方不断释放促进汽车消费的刺激政策，但消费者信心仍待提高。同时，行业持续强劲的、增强的大幅促销活动，对汽车市场的价格体系又形成了较大的干扰，观望情绪仍然较为浓厚。

Speaker 5

Despite ongoing stimulus policies from both central and local authorities to boost car consumption, consumer confidence stayed low in the 1st half of 2023. Moreover, the intense price war in China's auto market disrupted the pricing structure of the automotive industry, creating a widespread sense of caution.

Jiayuan Lin (CEO)

本季度中，面对整体市场发展趋势，我们继续聚焦平台服务能力建设，深挖汽车经销商需求，持续完善配套产业资源，进一步发掘我们以汽车交易为锚点，多元服务变现的业务模式，业务模式潜力。2023年第二季度，公司实现总收入人民币6.81亿元，同比增长134%，其中汽车交易服务业务收入人民币5.6亿元，同比增长157%，占总收入83%。截至2023年6月底，灿谷促成的汽车贷款再贷余额，由2023年3月底的人民币207亿元下降至人民币166亿元，风险敞口继续收窄。M1+ 和 M3+ 也由一季度末的2.33% 和1.29%，分别进一步下降至2.12% 和1.09%。

Speaker 5

In response to the market trends, our focus throughout Q2 of 2023 has been to enhance our service capabilities across our platform. This was achieved by gaining a deep understanding of dealer demands and continuously refining our resource allocation along the automotive value chain. Consequently, we were able to make further strides in diversifying revenue streams anchored in automotive transactions, capitalizing on the potential of our business model. In Q2, the company reported total revenues of CNY 680 million, representing a robust year-on-year increase of 134%. Of this, revenues from car trading transactions accounted for CNY 560 million, making a significant year-on-year growth of 157%, and a contribution of 83% to our overall revenue.

Moreover, by the end of June 2023, the total outstanding balance of financing transactions we facilitated decreased from CNY 20.7 billion as of March 31, 2023, to CNY 16.6 billion, thereby further mitigating our risk exposure. The M1+ and M3+ overdue ratios also saw a decrease from 2.33% and 1.29% as of March 31, 2023, to 2.12% and 1.09% respectively.

Jiayuan Lin (CEO)

下面我就与各位分享公司主要的业务进展。

Speaker 5

Now, I'd like to share more details on the major progress we've made with our different business lines.

Jiayuan Lin (CEO)

首先是新车交易。二季度，灿谷好车共售车 5,893 台，同比增长 157.2%，较 2023 年一季度环比增长 52.3%。上半年，灿谷好车共售车 9,760 台，同比去年同期微升 7%。截至 2023 年 6 月 30 日，灿谷好车合作车商总数达到 11,066 家，同比增长 34.3%。截至季度末，灿谷好车 APP 总 PV 超 1,000,000，累计 UV 超 98,000。

Speaker 5

First, the new car trading transaction. We witnessed a total of 5,893 cars sold through Cango Auto within the 2nd quarter, reflecting a year-on-year growth of 157.2%, and a quarter-over-quarter increase of 52.3%. In the 1st half of 2023, Cango Auto recorded a total of 9,760 car sales, indicating a modest year-on-year growth of 7%. As of June 2023, the total number of dealers engaged on Cango Auto rose to 11,066, a year-on-year growth of 34.3%. Furthermore, the Cango Auto app saw over one million page views by the end of Q2, attracting more than 96,000 unique visitors.

Jiayuan Lin (CEO)

在第二季度，我们继续打磨交易配套服务，力争完善车商的一站式服务体验，并协助并助力车商实现业务发展和利润增长。二季度中，我们推出的车险及非车保险产品，有效地协助车商在日常售车过程中进行交叉销售和增加客户粘性。...确实为车商开拓了新的利润增长路径。

Speaker 5

We improved our transaction supporting services in the 2nd quarter to provide one stop service experience for dealers and help them grow their business and profitability. For example, we launched auto and non-auto insurance products to help dealers cross-sell and increase customer loyalty while creating new profit streams.

Jiayuan Lin (CEO)

同时，灿谷好车APP发布了分期购车功能，支持全款或分期付款购车，旨在为车商提供一站式打包解决方案，降低车商的经营资金压力。车商仅需提供购车客户资料、支付定金和保证金，即可享受从下订到完成抵押手续的全流程一站式服务，轻松解决车商库存占用资金的问题，从而提高流动资产周转率，降低经营成本。

Speaker 5

We also added a car loan product to the Cango Haoche app, allowing car buyers to pay in full or installments. Dealers only need to input car buyer information, pay the down payment and the deposit, and they can enjoy a seamless one stop service from ordering to loan applications and administration. This solution helps dealers reduce inventory related cash flow pressure, improve asset turnover ratio and lower operating costs.

Jiayuan Lin (CEO)

灿谷好车始终致力于从车源、金融、仓储物流等多个方面精准解决中小车商的业务痛点。在二季度，我们开始对新车异地交付进行部分地区的试点，并取得了良好的成果。未来我们将继续稳扎稳打，充分发掘车商需求，打造真正有价值的底层数字化基础设施，提供从车商到落地渠道的全链条数字化服务，释放各个环节的效率，在增强车商效率和粘性的同时，协助推动行业的长期发展。

Speaker 5

Cango Haoche aims to support small and medium-sized dealers by addressing their various business challenges such as vehicle inventory, auto financing, warehousing, and logistics. To this end, we started a pilot cross-region delivery program for new car services in some parts of China in the 2nd quarter, and it was very successful. As we move forward, we will understand dealers' diverse needs better and use our digital infrastructure to support their full sales cycle with digital services from manufacturing to sales, improving efficiency at every step. Through these initiatives, we will boost dealers' efficiency and loyalty and help the auto industry grow in the long term.

Jiayuan Lin (CEO)

另一方面，我们也看到，经历五、六月份新车销量整体上升的阶段之后，进入七月份，根据乘联会数据，新车销量环比下降6.3%，同比下降2.3%。随着可能出现的整车生产企业进一步加大促销力度，以及随之而来的车价大幅波动，特别是叠加居民消费不振的背景，防范可能的库存车辆产生风险，将成为下一阶段公司新车交易业务的侧重点，我们将更加审慎地控制相应交易规模。

Speaker 5

Regarding our outlook for the new car market, new car sales increased in May and June, but decreased by 6.3% month-on-month and 2.3% year-on-year in July, according to CPCA data. With more sales promotions by vehicle manufacturers and possible sharp price swings, especially in the weak consumption environment, our focus in the next stage of the new car trading business will be on avoiding potential vehicle inventory risk, and we will control our transaction scales more carefully.

Jiayuan Lin (CEO)

接下来是二手车交易方面的进展。二季度，灿谷优车APP功能进一步完善，依托大数据和数字科技，灿谷优车APP为全国二手车商及个人提供安全、可靠、多样、高效的二手车交易相关服务，涵盖历史车况查定、车辆评估、限时报价、在线寻车、车源发布、自营二手车采购。截至二季度末，灿谷优车APP及小程序的注册二手车经销商达到6,900家，累计PV、UV超过61.1万和3.1万。灿谷优车在二季度单季完成二手车交易651台。

Speaker 5

Next, on used car trading, we improve the functions of Cango U-Car in the 2nd quarter. Using our advanced big data and digital technologies, the Cango U-Car app provides secure, reliable, and efficient services to used car dealers and individuals nationwide, such as historic vehicle condition reports, vehicle evaluations, online auctions, online car searches, used car listings, and self-operated or proprietary used car purchases. By the end of 2nd quarter of 2023, we had 6,900 registered used-car dealers on the Cango U-Car app and mini programs with over 611,000 page views and over 31,000 unique visitors. In the 2nd quarter, we sold 651 used cars on Cango U-Car.

Jiayuan Lin (CEO)

自营车源一直是灿谷优车全链路服务能力的起点和重要保障。我们在自营车源的独特优势源于我们过去10多年的汽车金融业务禀赋，主要包含逾200万金融存量客户的置换二手车以及金融处置车等丰富优质车源。未来，我们将继续着力发掘车源端的潜力，拓宽个人车源获取渠道，提高转化率，并夯实处置车的车源转化路径，持续打造灿谷优车在车源端的差异化优势。

Speaker 5

...Our proprietary vehicle inventory is the core of Cango U-Car's full service capabilities and our main advantage. It comes from the auto financing business we have developed over the last decade, which includes trades and repossessed cars from over 2 million auto financing customers, as well as other high-quality used car sources. We will keep exploring more potential vehicle inventory resources in the future by increasing the channels to acquire used cars from individuals, raising transaction conversion rate, raising transaction conversion rates, and strengthening repossessed cars and conversion channels. We will make Cango U-Car more distinctive and competitive in vehicle inventory. We upgraded Cango U-Car's online functions in June after getting the online auction license in April. All registered used car dealers now are able to list their used cars for B2B auctions.

This gives used car dealers another tech-powered sales channel, helping them sell faster and better. We also set up an in-house inspection team in the 2nd quarter to provide more professional services as we cover more of the used car trading transaction service chain. Our trained technicians offer professional services such as vehicle condition checks, price evaluations, and documentation verification. Besides, our on-site service team of over 100 experts is now offering basic vehicle inspection and other related services, working closely with vehicle inspection professionals to improve our overall service efficiency.

Digital capabilities are essential to improve service capacity across the platform. As we drive changes in our platform business ecosystem, we have also been working on group-wide digital transformation. By using a data-centric approach to improve operating efficiency and optimize business processes, we have made our core resources smarter with digital operations, lowering costs and increasing efficiency.

We also plan to use data exchanges to share our industry expertise and the know-how we have gained over the last decade with more stakeholders, empowering more segments and industries. We listed our 1st data product on the Shanghai Data Exchange in May with our car dealer operational index query. It covers the operational data of more than 80,000 4S dealers and non-4S dealers nationwide, and ranks dealers from multiple dimensions such as enterprise information, operating information, risk information, et cetera.

It provides reference indicators for the overall operations of dealers. It is the 1st data index that includes comprehensive operational information on car dealers in lower tier markets in the country, and it can be a tool for assessing the financial position and ongoing concern of car dealers in these markets. We will keep innovating in technology and keep industry grow healthily and steadily.

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

Yongyi Zhang (CFO)

Thanks, Jiayuan. Hello, everyone, and welcome to our 2nd quarter 2023 earnings call. Before I start 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. Our total revenue for the 2nd quarter grew by 133.6% to RMB 675.4 million, of which the car trading transactions business revenues were RMB 562.8 million, or 83.3% of total revenues. Now, let's move on to our costs and expenses during the quarter.

Total operating costs and expenses in the 2nd quarter of 2023 were CNY 684.4 million, compared with CNY 643.3 million in the same period, 2022. Cost of revenue in the 2nd quarter of 2023 was CNY 615.8 million, compared with CNY 272.7 million in the same period, 2022. As a percentage of total revenues, cost of revenue in the 2nd quarter of 2023 was 91.2%, compared with 94.3% in the same period, 2022. Sales and marketing expenses in the 2nd quarter of 2023 decreased to CNY 12.2 million from CNY 41.8 million in the same period, 2022.

As a percentage of total revenues, sales and marketing expenses in the 2nd quarter of 2023 were 1.8%, compared with 14.5% in the same period of 2022. General and administrative expenses in the 2nd quarter of 2023 decreased to CNY 36.8 million from CNY 124.7 million in the same period, 2022. As a percentage of total revenues, general and administrative expenses in the 2nd quarter of 2023 were 5.5%, compared with 43.1% in the same period, 2022. Research and development expenses in the 2nd quarter of 2023 decreased to CNY 7.7 million from CNY 12.9 million in the same period, 2022.

As a percentage of total revenues, research and development expenses in the 2nd quarter of 2023 were 1.1%, compared with 4.4% in the same period, 2022. Net loss on contingent risk insurance liabilities in the 2nd quarter of 2023 was CNY 1.6 million. Provision for credit losses in the 2nd quarter of 2023 was CNY 10.2 million. We recorded a loss from operations of CNY 8.9 million in the 2nd quarter of 2023, compared with CNY 354.1 million in the same period, 2022. Net income in the 2nd quarter of 2023 was CNY 36.2 million. Non-GAAP adjusted net income in the 2nd quarter of 2023 was CNY 48.2 million.

On a per share basis, basic and diluted net income per ADS in the 2nd quarter of 2023 were 0.27 and 0.26 respectively, and non-GAAP adjusted net basic and diluted net income per ADS in the same period was 0.36 and 0.35 respectively. Moving on to our balance sheet. As of June 30, 2023, we had cash and cash equivalents of CNY 589.4 million, compared with CNY 696.6 million as of March 31, 2023. As of June 30, 2023, the company had short-term investment of CNY 2.1 billion, compared with CNY 2 billion as of March 31, 2023.

Looking ahead to the 3rd quarter of 2023, we are now predicting our total revenues to be between CNY 300 million and CNY 350 million. Please note that this forecast reflects our current and preliminary view on market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, operator, we are now ready to take questions.

Operator (participant)

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If your question has been answered and you wish to withdraw your question, please press star then two. We will pause for one moment to assemble our roster. Our 1st question today will come from Helen. Please proceed with your question.

Speaker 4

感谢管理层接受我的提问。那我第一个问题是说，八月以来，就是其实我们有看到很多刺激消费的措施在逐步的落地，那我们想了解一下，说管理层对下半年，整体车市的一个看法。那我很快自己翻译一下。

Speaker 5

As the stimulus like policies we see to boost, like the consumption, have been graduated released since the August. So could management comment on the auto market in the 2nd half of the year?

Yongyi Zhang (CFO)

好，谢谢。关于这，...

随着刺激消费政策的措施的逐步落地，它一定是会对我们整个市场是有所助力的。但根据，乘联会数据，七月份狭义乘用车销量，零售销量虽然达到了177.5万辆，但环比降幅达到6.3%，同比降幅也达到2.3%。这意味着超预期的交付数据，实际上受到了前期订单积累的影响，而且去年同基数相对较高。所以我们预计下半年车市整体销量可能还会有所波动。

Speaker 5

First of all, thank you for your question. As the stimulus policies are being implemented, we do see an effect on the car sales and also on the car market as a whole. However, if you look at the July numbers, the retail sales volume of passenger vehicles in July was about 1.77 million, decreasing by 6.3% quarter-over-quarter and down 2.3% year-on-year, according to data from China Passenger Car Association, CPCA. This indicates that the higher than expected delivery figures were actually mainly due to order backlogs in the previous periods. Also, the base for comparison, i.e. the numbers of the same period last year, was relatively high. So the auto market's overall sales volume may decline actually in the 2nd half of the year.

Jiayuan Lin (CEO)

...会回答，回答结束。

Speaker 4

那我还有一个follow-up的一个question，就是现在实际上我们也会看到说，今年整体各大这个车企都开启了这个汽车出海的业务，那我想问问看管理层和公司在这一方面是否有一些相关的战略安排呢？那，我很快地

Speaker 5

translate it, as like an, Chinese automakers actually started to tapping into the overseas market, but since this year, wondering if, management can share with us like more color, if the company has any plans to explore the global market as well?

Jiayuan Lin (CEO)

关于出海业务，我们既持乐观，但也相对谨慎。我们相关业务部门也在研讨可能性，因为我们不是汽车厂商，也不控制生产环节和海外销售环节，所以出口的盈利性和业务模式还尚在讨论。

Speaker 5

Regarding this question, actually we are positively cautious about the plan of going overseas, and the business units are studying the feasibility. As we are not auto manufacturer and do not control the production process, the car export business model and potential profitability still need to be explored.

Jiayuan Lin (CEO)

Thank you.

Speaker 5

Thank you。

Speaker 4

Thank you.

Operator (participant)

Thank you. Our next question will come from Sophia Zhu with Goldman Sachs. Please proceed with your question.

Sophia Zhu (Executive Director)

谢谢管理层，我这儿有两个问题。第一个问题的话跟宏观相关，就是大家知道那个八月的话，美国总统拜登签署了对华投资限制的这个行政命令，那咱们作为一个纽交所上市的公司，这个对咱们会有什么样的影响？以及，公司准备如何应对？第二个是一个业务上的问题，就是我们想了解一下，就是公司目前新车和二手车的一个毛利水平情况。

Speaker 5

Thank you, I have two questions. The 1st question is on the macro environment. As we understand that on August the ninth, the U.S. President Joe Biden signed the executive order that will prohibit some new U.S. investments in China in sensitive technologies. So as a new company listed on New York Stock Exchange, well, Cango be affected by this order, and how well the company cope with it? That's the 1st question. The 2nd question is related to your company's business. So could you share with us more information on the gross margin of both the new car and used car business?

Jiayuan Lin (CEO)

好，关于第一个问题，就是拜登签署对华投资限制的行政命令。我们也注意到了相应的新闻报道，我们作为一家以汽车交易为主要业务的公司，不涉及行政令所涉及的领域，该行政命令给出了例外情况，包括对外市场进行证券投资，所以我们将对这件事保持持续关注。

Speaker 5

Okay, so on your 1st question, on the executive order, we have seen the order and the latest coverage and the news. As China's leading automotive transaction service platform, our services are not affected by the order's sectors. Moreover, the order exempts publicly traded securities and some other investments, and we will definitely follow the situation closely.

Jiayuan Lin (CEO)

关于第二个问题，新车和二手车的毛利水平。新车交易毛利水平差不多维持在1%左右，但这也分车型，部分车型可以达到2%。我们的业务模式以统一向主机厂集采，然后销售给中小经销商的方式进行，但并不控制生产环节，所以毛利水平较低，同行业毛利水平普遍也在1%左右，因此我们认为这个毛利水平将持续一段时间。

Speaker 5

On your 2nd question, the gross margin on new car transactions is generally about 1%. It really depends on the car model, though with some models reaching 2%. Our business model involves centralized purchasing cars from OEMs and then selling them to small and medium-sized dealers. As we do not control the production process, our gross margin on new car transactions is relatively low. Since our peers maintain a similar gross margin level, we believe these gross margin will remain stable for a while.

Jiayuan Lin (CEO)

二手车因为是一车一况，车价不等，所以单车的利润在1,000元-2,000元不等。

Speaker 5

On used cars, since the price of used cars really depends on the condition of the cars, the gross profit for each car can vary from CNY 1,000 to CNY 2,000.

Jiayuan Lin (CEO)

OK, 回答完毕, 谢谢。

Speaker 5

That's all from me. Thank you.

Operator (participant)

Thank you. That concludes our question and answer session. I would now like to turn the conference over back to Mr. Jiayuan Lin for any closing remarks.

Jiayuan Lin (CEO)

谢谢大家对灿谷的关注和支持。这就是我们今天的会议到此结束，谢谢大家！

Speaker 5

Thank you all for your interest in and support for Cango. That concludes today's earnings call. Thank you!

Operator (participant)

Thank you very much. The conference is now concluded. Thank you everybody for joining today's presentation. You may now disconnect your lines.