China Index Holdings Limited (NASDAQ:CIH) Q2 2022 Earnings Conference Call August 17, 2022 7:00 AM ET
Company Participants
Jessie Yang – Head of IR of China Index Holdings
Yu Huang – CEO
Conference Call Participants
Operator
Good day, and thank you for standing by. Welcome to the China Index Holdings Limited Full Year 2022 Second Fiscal Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded.
I would now like to hand the call over to your first speaker today, Jessie Yang, Head of Investor Relations of China Index Holdings. Thank you. Please go ahead.
Jessie Yang
Thank you, operator. Hello, everyone, and welcome to China Index Holdings second quarter 2022 earnings conference call. Joining us today to discuss CIH’s results are our CEO, Ms. Yu Huang; and Deputy CFO, Ms. Lili Chen.
After the prepared remarks, our management will answer your questions. Before we get started, I would like to remind you that during the course of this conference call, we may make forward-looking statements, statements that are not historical facts, including statements about our beliefs and expectations. Forward-looking statements involve inherent risk and uncertainty. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements.
CIH assumes no obligation to update the forward-looking statements in this conference call and elsewhere. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC, including our Form F-1.
Now I would like to walk you through our second quarter 2022 results. After which, Ms. Huang will answer your questions for the Q&A session.
CIH reported total revenues of RMB110.2 million in the second quarter of 2022, a decrease of 27.8% from RMB152.7 million in the corresponding period of 2021, primarily due to the broad macro environment challenges the industry was facing. Revenues from information and analytics services, SaaS, were RMB63.4 million in the second quarter of 2022, a decrease of 14.4% from RMB74.1 million in the corresponding period of 2021.
Revenues from marketplace services were RMB46.8 million in the second quarter of 2022, a decrease of 40.4% from RMB78.5 million in the corresponding period of 2021. Cost of revenues was RMB19.5 million in the second quarter of 2022, a decrease of 31.8% from RMB28.6 million in the corresponding period of 2021, primarily due to the cost savings action Sage has taken in response to the broad macro environment challenges.
Operating expenses were RMB45.7 million in the second quarter of 2022, a decrease of 12.1% from RMB52 million in the corresponding period of 2021. Selling and marketing expenses were RMB29.4 million in the second quarter of 2022, a decrease of 8.9% from RMB32.2 million in the corresponding period of 2021.
General and administrative expenses were RMB16.3 million in the second quarter of 2022, a decrease of 17.2% from RMB19.7 million in the corresponding period of 2021.
Operating income was RMB45 million in the second quarter of 2022, a decrease of 37.6% from RMB72.1 million in the corresponding period of 2021. Income tax expenses were RMB25.3 million in the second quarter of 2022, an increase of 152.4% from RMB10 million in the corresponding period of 2021.
Net income was RMB21.2 million in the second quarter of 2022, a decrease of 68.6% from RMB67.3 million in the corresponding period of 2021. In the first half of 2022, CIH reported total revenues of RMB228.7 million, a decrease of 20.1% from RMB286.4 million in the corresponding period of 2021, primarily due to the broad macro environment challenges the industry was facing.
Revenues from Information and Analytics Services SaaS were RMB120.1 million in the first half of 2022, a decrease of 12.9% from RMB137.9 million in the corresponding period of 2021. Revenues from Marketplace Services were RMB108.6 million in the first half of 2022, a decrease of 26.8% from RMB148.5 million in the corresponding period of 2021.
Cost of revenues was RMB41.2 million in the first half of 2022, a decrease of 23.5% from RMB53.9 million in the corresponding period of 2021, primarily due to the cost saving actions CIH has taken in response to the broad macro environment challenges. Operating expenses were RMB97.2 million in the first half of 2022, a decrease of 2.4% from RMB99.6 million in the corresponding period of 2021.
Selling and marketing expenses were RMB53.9 million in the first half of 2022, a decrease of 8.2% from RMB58.8 million in the corresponding period of 2021. General and administrative expenses were RMB43.3 million in the first half of 2022, an increase of 6% from RMB40.8 million in the corresponding period of 2021.
Operating income was RMB90.3 million in the first half of 2022, a decrease of 32% from RMB132.9 million in the corresponding period of 2021. Income tax expenses were RMB32.3 million in the first half of 2022, an increase of 67.9% from RMB19.2 million in the corresponding period of 2021.
Net income was RMB63.1 million in the first half of 2022, a decrease of 49.1% from RMB123.9 million in the corresponding period of 2021. Due to current unstable market conditions, management believes CIH’s 2022 annual revenue is expected to record a double-digit decrease year-over-year. These estimates represent management’s current and preliminary views, which are subject to change.
And I would like to thank you for joining us today, and we are now open for questions. Operator, please go ahead.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] First question comes from the line of [indiscernible]. Please go ahead.
Unidentified Analyst
Hi, good evening. I have a few questions. One is why Information Analytics revenue increased between Q2 and Q1 but Marketplace revenues fall? The second question is, what are the key data indicators that CIH collects to monitor whether the Chinese real estate market is recovering or worsening? And how long do you estimate the downturn to be?
The third question I have is the minimum bid price issue. What are the options that CIH can consider to resolve it? And is there any risk of delisting similar to China Mobile? And the final question is, is there any concern about the significant increase in accounts receivable? Thank you very much.
Jessie Yang
Thank you, Watson. Now I will translate for Ms. Huang, and then will get back to you with the answer. Thank you.
Yu Huang
[Foreign Language] Okay. So thank you for your questions. For question one, between the first and second quarter, our Data and Analytics Services has increased. And this is because, for our clients, data is a fundamental need and especially when there are changes in the market, market participants and industry participants need data to monitor what is going on. Marketplace Services, in comparison, is less of a basic need than our data services.
Okay. So for your second question, CIH has our own logic for data collection, starting with land sales and auctions. So we monitor land prices and information regarding the land, regarding this lot. So for example, what type of land this is, the size and the type of property. We have analytics reports, SaaS tools regarding — around this information. And after the sale of this lot, we follow the project. So from its development, when it is introduced, the size and price of each sale and changes in sale price.
After these new constructions, we follow the same lot of land in the secondary market. So price changes for each transaction, price trends, et cetera. And looking at the specific lots from land to new development to secondary market sales, we collect the data and we input the data into our own models. And so from the land sales platform, there’s also marketing platform for — to help the agents. And so one reason that we are different from data — other data services companies is that maybe some of them have data only, but they don’t have tools that monitor changes in the broad real estate market. So for us, we have both data and the analytical tools. Now for the third question.
Okay. So there was a second part to the second question, which was around the decline of the Chinese real estate market. We monitor the Chinese real estate market through data and provide for our clients a basis for a market analysis. From our data and from transaction volumes and changes in price, we can see that the realty market is in an adjustment phase currently. At the same time, we know that the Chinese government and local governments have played out a lot of policies in order to try to stimulate the market.
These policies are slowly seeing their effects, and this is present especially in second-tier cities that is being affected and it’s less affected in third and fourth tier cities. And after the fast development of the Chinese real estate market in the past, it is normal that they are going through an adjustment phase. And then first and second tier cities are relatively more stable compared to third and fourth-tier cities. And our business, in particular, is present in China’s main markets around the country and servicing the main clients that are present in those cities.
So the third question was regarding CIH’s stock price. And in general, Chinese companies that are listed in the U.S. are not performing well. We are monitoring the situation actively. And regarding some of the names that you mentioned, how we are different is that they are Chinese state-owned enterprises and we are a private company. And in this way, we are fundamentally different from them.
So for the fourth question regarding accounts receivable, there are two parts to this question. First is we are experiencing market adjustment in the broad real estate market. And so our collection time is lengthier than before. However, most of our products and services are prepaid or paid in advance. And so from a bad debt perspective, there is low risk in this area. Secondly, in the broad macro environment, we are working to develop new clients including new sectors, and we’re working continuously to sign new customers. Thank you.
Jessie Yang
Operator, we can go to the next question.
Operator
Certainly. The next question comes from the line of [indiscernible]. Please go ahead.
Unidentified Analyst
Good evening. Thank you for hosting this call. I have three questions. The first question is, can you talk about the amounts due from related party of RMB31.788 million. Can you explain — can you elaborate on that? And when do you expect that amount to be repaid? That’s number one. The second question relates to your income tax expenses and maybe some more clarity on why income tax expense increased by 152%. And then the third question is a follow-up to the first question on regaining compliance with the minimum price — bid price requirement. Why doesn’t the company — I guess, the simplest solution maybe to engineer a river stock split. So is that being considered? If not, why?
Jessie Yang
Okay. Thank you. Let me translate briefly.
Yu Huang
[Foreign Language] So thank you for your question. The first question regarding the RMB31 million payments. It is a payment in advance by fund that CIH repaid. And this payment is approximately the same amount every year, but the timing of the payment may be different, and this is why you’re seeing this in the financial statements. But it is part of normal operations.
So regarding the income tax expenses, we are looking after seeing a strong dollar this year. We have decided to exchange into USD in order to prepare for USD expenses potentially in the future. Regarding the third question on the reverse stock split, we are discussing this issue internally, and we are considering this option among others. Thank you.
Operator
[Operator Instructions] Thank you. We have a follow-up questions from [indiscernible]. Please go ahead.
Unidentified Analyst
Hello. Thank you very much for your clear answer. I have a question — a follow-up question on the — when you mentioned about how long would the downturn last, are you saying that because your business is mostly in the first and second tier cities, you will be less affected by the ongoing crisis in China real estate? The second question I have is, I’m a shareholder, a retail shareholder. So — and I don’t buy the China Index Holdings, your tools. So from a retail shareholder perspective, what would you recommend as the data or companies that we can look at to monitor whether the real estate market is improving?
And then the last question is based on the — your understanding of the China policies. Do you think that the Chinese government will require state-owned banks and insurance, large ones, to absorb losses from the developers?
Jessie Yang
What was the last question? Can you repeat the last question?
Unidentified Analyst
The last question is based on your — I mean, your experience and understanding of the policies in China, the government policies. Do you think that — is there — do you think that the Chinese government will require state-owned companies like banks and insurance to exhaust losses in order to stabilize the market? How do you think — I mean, just based on your experience, the market can be stabilized?
Yu Huang
Got it. Thank you. Okay, let me translate your question briefly. [Foreign Language] Thank you for your questions. For the first question, relatively speaking, we are less affected by the broader real estate market.
And this is because our products and services are concentrated mostly in first and second tier cities. And they are, in turn, less affected by the broader economic market downturn. In the services industry, as long — since we are in the services industry, as long as the broader market exists and the demand is there as some companies perhaps fail other companies will rise and meet the gap in demand.
Internally, we say that there is a turnover in our client base. And we are still affected as this turnover in client base is relatively slow and our revenues slowly are recovering. And then for regional state-owned enterprises and financial services, so for the financial services, they need our data for risk management and decision making. And so the regional SOEs and financial service industry, they are becoming our new clients. And in the Chinese real estate market, the new developments are facing headwinds, but the existing market and service sector around real estate, they still need our products and services. And so our client base is continually evolving and the addition of new clients kind of mitigates the effect that the broader real estate market has on our performance.
Okay. So for the second question, for our retail clients, we actually do have products and services. They are located on what we call the CIH Cloud, and it is a data-based market. And you can purchase one or two or multiple groups of data markers and, for example, prices or transaction volume in certain cities as well as historical data. And at the same time, you can monitor changes of the market — real estate market in specific cities.
And you can also purchase reports for RMB10 or RMB20 to understand local market changes. And at the same time, if you have a company as a small-medium enterprise, you can register for a trial of our data and tools and the trial is usually for seven days.
So for the third question, we are in the current cycle of market adjustment and financial services have team developers in the past. And as a result, some projects, due to the market, have decreased their sale prices and there are losses involved as a result. And the developers use the development project as collateral and some may have been defaulted. So it’s now in the hands of the banks for treatment. And regardless of loss or gain, the main kind of emphasis is still on market prices and market operations.
The central government emphasized the focus on kind of specific projects as a focus for the treatment of bad debt or financial restructuring and financial responsibility. So the government will provide some financial support for the final payment kind of segments. But again, it will be on a project-by-project basis, and we do not see the government building out the sector in general. Thank you.
Operator
We do have a follow-up question. At the moment, the line is being opened. [indiscernible], your line is now open.
Unidentified Analyst
Thank you. Apologies if I’ve missed it, but has the company responded to the going private proposal from General Atlantic that was made in November of 2020? If not, is that proposal still under consideration?
Jessie Yang
Thank you.
Yu Huang
[Foreign Language] So thanks for your question. So the last time we received the offer from General Atlantic, it has been almost two years. And we have not received a new offers on this. But if there’s any changes, we will actively post — send a press release. Thank you.
Operator
Thank you for the question. Follow-up questions from the line of [indiscernible]. Please go ahead.
Unidentified Analyst
Hello. Yes, I just want to say thank you. And follow-up maybe with Jessie on how to buy the retail data. I don’t know what we had to do. My Chinese is not very good. But thank you.
Jessie Yang
Thank you, Watson. Yes, I’d be happy to follow up with you on that.
Operator
Thank you for the questions. We have a follow-up question from [indiscernible]. Please go ahead.
Unidentified Analyst
Yes, hi. Just a follow-up again on the proposal from General Atlantic. Did the company actually respond or the Board actually respond to the proposal? I don’t see a press release. I’m just wondering what the Board’s evaluation of the proposal was and whether there was an actual response made. And has that offer expired? Thank you.
Jessie Yang
Thank you. Sam, this is Jessie. So I will respond to your question directly. Basically, at the time we received the General Atlantic offer, the Board did have discussions around the offer. However, since then, we did not receive any update from General Atlantic. So there has been no new developments on this. However, if anything changes, we will make press releases. Thank you.
Operator
Thank you for the questions. With that, we have come to the end of the Q&A session. I would now like to turn the conference back to the management for closing remarks.
Jessie Yang
Thank you, operator, and thank you, everyone, for joining China Index Holdings’ second quarter earnings call today. We look forward to speaking with you again for our third quarter 2022 earnings call. Thank you.
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect.
Be the first to comment