Fangdd Network Group Ltd. (DUO) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by and welcome to Fangdd Network Group Limited First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the management’s prepared remarks, we will have a question-and-answer session. Please note that this event is being recorded. Now, I’d like to hand the conference over to your speaker host today, Ms. Linda Li, the company’s Director of Capital Markets. Thank you. Please go ahead, Linda.
Linda Li: Thank you, Operator. Hello, everyone, and thank you for all joining us on today’s call. The company has announced its first quarter 2021 financial results today. Our earnings release is now available on the company’s IR website. Today, you will hear from our co-CEO, Mr. Zeng Xi, who will start a call with our overview of the current industry dynamics and details of our development strategies in the quarter. Afterwards, our CFO, Mr. Pan Jiaorong, will go over the financials before we open up the call for questions.
Zeng Xi: Let me translate this part. Hello, everyone, and welcome to our first quarter 2021 earnings call. I would like to start off the call with a real – review of the real estate market in the quarter where we observed a series of changes and opportunities. First, the scale of the new construction properties is massive and has maintained its growth. Under the guidelines of the three red lines policy, real estate developers are increasing focus on improving their turnover rates and utilizing various channels to reduce their inventories. According to the National Bureau of Statistics, the feel of China’s commercial housing sales reached RMB17.4 trillion in 2020, up by 8.7% year-over-year. Meanwhile, scale of the new construction property market continues to grow. Looking ahead, the top line growth rates for average sales in 2021 is 11.85% according to a group of 44 developers, which is still quite a high level. Under the guidelines of the three red lines policy, developers are focused – they are focused more on enhancing their ability to navigate various market channels in order to reduce their inventories and further accelerate – and accelerate their turnover rates. Second, the regulations implemented along restrictions – purchase restrictions and the sales restrictions, as well as centralized land sales, which have led to a rapid decline in developers’ profit margins. As of adopt, developers’ home demands now including loaning their market expenses and reducing their reliance on distribution channels. According to the win date, the real estate industry’s overall net profit margin in 2020 was 9.85%, down by 1.9 – a full 9 percentage points to the prior-year period. Meanwhile, in the industry’s net profit margins continued to decline in 2020 to reach its lowest level since 2015. Introduced in the first quarter, the Ministry of Natural Resources centralized land sale. Our land supplier has continued to drive up land’s price according to Kenny’s data. And to monitor safety, the premium rate of the land transaction jumped to over 25% in April 2021.
Pan Jiaorong: Thank you. I will provide a closer look into our first quarter financial results. Before I begin, please note that all the numbers are in RMB terms, unless otherwise stated. Revenue in the first quarter of 2021 increased by 6.9% to RMB291 million from RMB272.1 million in the same period of 2020. During the quarter, we continue to optimize our revenue mix and prioritize that generation of revenue from value-added services and the new business initiatives such as our SaaS solution for various platform participants. At the same time, in response to market complications, we are actively exploring digital supply chain financial and products to fulfill the market demand for advanced conversion payments. Cost of revenue for the first quarter or 2021 increased by 15.7% to RMB 257.7 million from RMB272.2 million in the fiscal year of 2020. This increase was due to a highly commissioned fee payable to agents from the services they rendered, resulting from the increase in commissions from transactions. In addition, we also recorded an increased cost related to the various SaaS solutions that we offer to market participants in the first quarter or 2021 to further diversify our revenue – our future revenue streams. Gross profit in the fourth quarter of 2021 decreased by 32.6% to RMB33.3 million from RMB49.4 million in the same period of 2020. The gross margin in the first quarter of 2021 decreased to 11.4% from 18.2% in the same period of 2020. Our sequential basis gross margin in the first quarter of 2021 increased by three percentage points.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from the line of Lisa Thompson from Zacks Investment. Please go ahead.
Lisa Thompson: Hello. Congratulations on a good quarter.
Linda Li: Thank you, Lisa.
Lisa Thompson: I’d like to ask a little bit – I would like to ask about – you talked about getting supply chain financing, how far off would that be to put that in place and how much of an improvement do you think that would make to your current business?
Linda Li: Okay. Let us introduce your questions to our managers. Pan Jiaorong will give you the answer to your questions. Thank you, Lisa.
Pan Jiaorong: Last year, cooperation with the banks of supply chain’s financial, we have cooperated with about seven banks and it’s about RMB2 billion. And we will go – sorry?
Lisa Thompson: Go ahead. No, go ahead.
Linda Li: Yes. That’s the answer from our CFO. Is that clear for you?
Lisa Thompson: So, you have it in place now and you’re already using it with seven banks? Or is that something new?
Pan Jiaorong: Okay. It is also expanding your cooperative initiative in the form of cooperation including the ATS form. So, we still try to find some new ways to do this of supply chain financial.
Lisa Thompson: And how much do you think that will help business? Will it have a big impact or not so much?
Pan Jiaorong: Okay. In the short term, the anchors over these large companies who have forced the market to expand to the public advanced commission payments increased commission rates and stimulated a price war with the agents and their agencies. For the long-term use, the company’s own funds for other advanced commission payments will boost its closed-loop transactions of new transactions, a transaction – new construction properties. However, considering that damage from commission repayments and low AR of the payments, the company will focus on its supply chain financial product. This goes back a combined to its combination of the risk control at developments. This will all have high-quality brand developers, and the high-quality projects will use this product. I think it will give a better impact to our business. But we have to do a great job on the risk control.
Lisa Thompson: Okay. Thank you. About the second quarter, I expect we should expect increasing gross margins. But are you also going to be spending, or will the net loss decrease from Q1?
Zeng Xi: In the second quarter, we will adapt a proportion of the revenue in our business constructor. Like SaaS, we began to generate revenue for the second – for the resale property and constructions business, we also grew rapidly. For the new construction business, we are also pursuing efficiencies. Like we mentioned in the ER and in the script, gross profit will be raised. The company’s profitability will go up.
Lisa Thompson: Okay. That’s good to know. Given what you know now, what do you think the revenue level for the quarter would have to be, to be at breakeven? And what gross margin does that assume?
Linda Li: Hi, Lisa. Sorry, we didn’t get quite fully your question. Could you ask that again, please? Thank you.
Lisa Thompson: Okay. Given what you know now, what quarterly revenues would you need to breakeven, and what gross margin assumption is that?
Zeng Xi: It’s not quite convenient to answer that as – that will take the forecast now. But proportion of the SaaS solutions and the second – resale property constructions of our business, their gross profit is relatively high. So we can allot that in the future. Our gross margin will be increased, and the revenue will go better. Increasing investing in the staff and the high margin investment in the resale of construction business, I think this is a big market and that is a window of the digitalization. So, we’re seeing in the future after we’ve more investing this to rapidly increase business, we feel – we will enjoy a better earning in the future.
Lisa Thompson: Okay. As far as the SaaS business, do you feel already that it’s going to be successful or if there’s still some risk that customers won’t be interested?
Zeng Xi: We believe that in the new construction business, the market has entered a fierce competition and the market scale will enter a bottleneck period, and developer built its own digitalization – digitalize the channel. But we will insist to our gross profit and gross margin, and distribution efficiencies. And we invite them all in the SaaS solution where we invest, the skills of R&D and market-oriented production. But innovation is still uncertain, but we still have confidence about the field. In the ratio of construction business, from the cultivation period to the growth has stayed from the cultivated period to growth period. The urban renovation and the city renovation has also into a state of both income and profit growth. So, we think that is the answer for your questions.
Lisa Thompson: Great. Thank you. That’s all my questions. Thank you so much.
Linda Li: Thank you, Lisa.
Operator: Thank you. All right. As there are no further questions, so with that, ladies and gentlemen, we will conclude our conference for today. Thank you participating. You may all disconnect.
