TravelSky Technology Limited (OTCPK:TSYHY) Q2 2022 Earnings Conference Call August 25, 2022 10:30 PM ET
Company Participants
Huang Rongshun – Chairman and General Manager
Li Jinsong – Vice General Manager and CFO
Yu Xiaochun – Secretary, Board
Zhu Yong – Director, Strategic Development and Reform Department
John Wang – Director, Finance Department
Yu Jing – Director, Science and Technology Management Department
Yungi Rice – Director, Human Resource Department
Yi Jen – Vice Director, Board Secretary’s Office
Taa Issa – Vice Director, Capital Operations Department
Chao Li Wei – Assistant, Director, Marketing Department
Yingjie Sheng – Manager, Investor Relations
Tung Bo – Accounting Manager, Finance Department
Conference Call Participants
Justin Lee – Credit Securities
Yue Xin – Guotai Junan Securities
Mark Li – Citi Bank
Operator
Dear friends from the investment community, good morning. On behalf of TravelSky Technology Limited, I would like to welcome everyone to join us in Global Investors Conference Call on our company’s 2022 Interim Results Announcement.
The conference call has two channels, Chinese and English. Executive interpretation will be provided during the moderators introduction and Chairman’s speech. Simultaneous interpretation will be provided during the Q&A session.
On behalf of our company, please allow me to express our sincere gratitude for your long-term attention and support. There will be a Q&A session. Feel free to ask a question. The presentation slides have been sent through the email on address of our participants before the meeting. Please kindly check it.
Now please allow me to introduce the participants of our company joining today’s meeting. They are Mr. Huang Rongshun, Chairman and General Manager; Mr. Li Jinsong, Vice General Manager and Chief Financial Officer; Mr. Yu Xiaochun, Secretary to the Board; Mr. Zhu Yong [ph], Director of the Strategic Development and Reform Department; Mr. John Wang [ph], Director of Finance Department; Mr. Yu Jing [ph], Director of Science and Technology Management Department; Mr. Yungi Rice [ph], Director of Human Resource Department; Mr. Yi Jen [ph], Vice Director of Board Secretary’s Office; Ms. Taa Issa [ph], Vice Director of Capital Operations Department; Ms. Chao Li Wei [ph], Assistant for Director of Marketing Department; Ms. Yingjie Sheng, Manager of Investor Relations; Ms. Tung Bo [ph], Accounting Manager of Finance Department; and colleagues from the Board Secretary Office, Financial Department and Capital Operations Department.
Let’s welcome Mr. Huang Rongshun, Chairman of TravelSky Technology Limited to deliver an opening speech and introduced the interim performance of the company.
Huang Rongshun
Dear investors and analysts, hello, everyone. And welcome to join us in the 2022 conference call on interim results announcement. Thank you for your long-term attention and support. Today I’m very pleased to share with you our company’s operation and performance in the first half of the year. We’re looking forward to the future and seeking common development.
In the first half of the year, the international situation was complicated and severe. In the domestic COVID-19 pandemic spread locally in many places and in the face of unprecedented difficulties in the civil aviation transportation industry, our company have analyzed the situation and made a scientific plans to safeguard the bottomline of both production stabilize and expand the business, promote reform and stipulate the vitality, strengthen innovation and accumulate growth.
Revenue was at RMB2.27 billion, down 20% year-on-year, net profit of RMB460 million, up 54.6%, basic and diluted earnings per shares is RMB0.151, up 56.7%, profit attributable to equity holders was RMB414 million, up 61% year-on-year.
In the first half of the year, the company’s progress in business promotion, technological innovation, and social contribution can be shared briefly as follows. First, we focused on the main responsibility saying to make major business and softly promote sustainable development of production and operations.
We have been affected by inference by the industry recovery. The total processing volume of our electronic travel distribution system was about 120 million a year-on-year decrease of 51.4% facing the challenges.
The Group firmly developed our strategies and the focus on creating the whole process and systematic aviation business solutions. There are 152 foreign and regional airlines that are directly connected to the Group CRSM return and with a proportion of direct sales has reached an approximately 99.9%.
Together with the Civil Aviation Administration of China we have shortly reached the transit passenger service performance completed a function development and platform that was created into operation in 68 airports. We have accelerated the establishment of third generation passenger revenue management platform in line with the new distribution capacity and the development trends of the unified orders.
Second, we continued to improve research and development capabilities, and we’ve put more efforts into developing the basic platform and core system. We have won seven Social Science and Technology awards at provincial and ministerial level and attempts 33 patents.
The research on key technologies for improving flight cooperation and control efficiency based on real-time computing and online data project was awarded the Excellent Practice of Intelligent Technology Innovation Application at the six sessions of the World Intelligence Congress, the ATG Sky [ph] and NBC integration platform closely followed the development training of new aviation retails and has been certified by the Airline Retailing Maturity index of the IATA.
Certainly, we actively fulfilled its social responsibilities and provided strong technical support and service guarantees for pandemic prevention and control. The baggage travel platform have completed to support functions such as abnormal luggage and transit luggages and helped the luggage tracking system service staging Winter Olympics to help travel international passenger help information integration automatic verification platform has been independently developed and setups which supports and puts into operation in several international routes of commercial airlines, empowering International Civil Aviation and academic prevention and control we actively implementing the national strategies of carbon peaking and carbon neutrality. Our data center was successfully rated as the National Green Data Center by six ministries, including the Ministry of Industry and Information Technology.
In a second half of the year in facing — in the face of new challenges and new trends, our company will continue to focus on the development strategies, be confident, face and — to face any difficulties, consolidate the foundation for protection, safety and expand in the emerging businesses and strengthen product and promotion and focus on smart civil aviation continue to improve technology and innovation capabilities to further promote the modernization of government and strive to achieve stable growth, prevent risks from managed reform and pursuit innovations, we will fully promote the high quality development of the companies provide more convenient services for users and civil aviation passengers and creating stable withstand investment returns for shareholders and investors.
The above is my sharing on the operation and the performance of our company in the first half of the year. Now I will keep the time for you to ask questions.
Unidentified Company Representative
Thank you, Chairman, for your speech. Now is the Q&A Session. Investors and analysts, please get prepared with your questions. And also please inform us about your names and your organization.
Question-and-Answer Session
Operator
[Operator Instructions] Now, let’s welcome Justin Lee from Credit Securities to ask a question.
Justin Lee
Thanks dear leaders of TravelSky. I am Justin Lee analyst from Credit Securities. Thank you for taking my question and congratulations on your performance and for the first half of the year on under the severe pandemic situation. My question focused on revenue, first of all, as we know, the booking volume has declined quite significantly, however, settlement and the clearing service the decline was not very significant. So why is that? Secondly, the system integration service under the severe pandemic situation for the first half, there’s a quite a major increase you have experience in that, it isn’t related to the settlement and projects and other projects. However, I still would like to get to know more ideas on why in the first half of the year, there was an insignificant increase and what’s the guideline for the whole year for this part of the business? Lastly, for technical supporting service and what’s the forecast for the future? Thank you.
Huang Rongshun
These are three questions. I will ask Deputy General Manager and the Chief Financial Director, Mr. Li Jinsong to answer.
Li Jinsong
The first question, as per settlement and clearing service revenue, overlay speaking it’s declined. However, the magnitude of declining is not as high as the declining passenger volume. It is related to the total scale of the business, because it is calculated by each order. It is relevant with the volume of passengers and however it is not a linear relationship. So that’s why it did not decline significantly and the business on the consoles from domestic markets and the overseas market for settlement and the clearing.
Compared with last year, there’s no significant decline from the overseas settlements in there and the clearing sector all this done overseas. So every year it’s actually quite similar. It is not one a direct linear relationship with passenger numbers and it is charged by the face value and that’s my answer for settlement.
And in the first half of the year, we have integrated or concentrated on for several airports, such as, Hangzhou Airport. We — there are three airports have the settlement together which leads to an increase of their revenue for the system integration service in terms of trend.
As we know investment has been encouraged by CAC, we are positive about the mid- and the long-term prospects on airport development. It has increased than compared to with the same period of last year, not — it may not be exactly the same the proportion, of course.
Certainly your question is the regarding technical support, always speaking this business is stable while there is some adjustment in structure, the expense features in the first half and in the second half are normally faster expenditures that would be faster in the first half and the slower in the second half. So I would like to ask you the technical service or revenue regarding other services then because the fluctuation is not high in this sector.
Justin Lee
That’s my question. Thank you.
Huang Rongshun
I would like to clarify on that. Technical service had a slightly growth. You would — do you want to understand the change?
Justin Lee
I would like to know what’s your view on the future and plan on future training?
A
Regarding technical service, in the past few years ago, we have put more investment in technology developments and it will maintain a stable growth momentum in the long run.
Justin Lee
Thank you for your answer. I don’t have other questions.
Operator
Now, let’s welcome Zhen Wu [ph] from Guotai Securities to ask questions.
Unidentified Analyst
Thank you for the opportunity. I have three questions. The first is relevant to the business model and the rest of two questions is related to cost. The first question, and we see new technology has been mentioned in the financial report and overseas and our custom clients that have also been mentioned. Can you share more with us or give an example of the overseas clients? What kind of clients is it and what’s the business model of profitability, do you provide a set of technology or other solutions? The second question is about our management and expenditures such as R&D, because you have invested lots into the new generation systems such as an NBC system. So looking into the future, what will be the cost or expenditure, will it maintain stable or increase? The third is on the base plan for CapEx?
Huang Rongshun
The first question, Ms. Chao Li Wei from Marketing Departments, please take the questions.
Chao Li Wei
Hello. Currently, in — our cooperation with NBC system with overseas and airlines have progressed. There are about a six in oversees airlines and connected to this technology and system and now we include Australian Airlines.
The cooperation with those airlines are service based. It means we help them to install [ph] NBC service. So this is the model for our cooperation. There will be more airlines or flights open diplomatically therefore we can expect the revenue source of this sector can grow.
Huang Rongshun
The second and third question goes to our Deputy General Manager.
Li Jinsong
Regarding the R&D expenses, the proportion of R&D expenditures is around 14% for the first half. We could tie attentions to R&D. It is in a table. There will be — the expenditure of R&D will be stable for the middle-term.
And in terms of CapEx for the next three years, in terms of a new business and second phase on a project construction, we currently they are under the process of approval. Currently, we don’t have a specific numbers in this regard.
Unidentified Analyst
Okay. Thank you for your answer. It is clear.
Operator
Now, let’s welcome Yue Xin from Guotai Junan Securities.
Yue Xin
Thank you, leaders. I am Yue Xin from Guotai Junan Securities. Thank you for the opportunity. Congratulations for those performances, you still have lead tandem profit — profitable under the huge pressure of a pandemic and it has exceeded my expectations. I have three questions. First, in the second half of last year, the unit price for the aviation service. This has to work a lot of attention, as we know, the revenue or the unit price for such service has declined halfway through the month-on-month and unit price in this year has recovered. So regarding aviation technical service, especially the unit price, the factors that had an impact on the unit price, and in the second half of last year, has it been revised this year, technically, in terms of the cost, labor costs or employee — cost in employee, labor force and also the R&D. So can you share with us about the decline of the cost in labor and what’s the trend for the second half of the year and next year, is it sustainable, well, it’s been pretty crazy continuously. And the second — secondly, the provision has been better than your competitors, however, in this year, there’s a lot of pressures in the industry. So can you share with us, there are more — are there any risk of provisions if any in the future?
Huang Rongshun
Okay, in the first half of this year and the second half of last year it actually service had no change. There’s no change in the charging standard. The unit price increase and that is due to the declined passenger numbers in the first half compared with the second half of last year. So we haven’t adjusted the price.
Actually the price has not been adjusted, but the way to calculate it has changed and the decline of labor force cost is due to two reasons. The pandemic in the first half of the year is more severe than that of last year, so our — we are facing a lot of pressure to achieve the goal of this year. Labor costs in the first and second half year have been very carefully calculated. We’ve been cautious in spending in the first half of the year.
And in terms of the structure of R&D expenditure, there’s the increase of sustained and medium- and long-term R&D projects. So we have invest in more in our proprietary R&D projects. So the cost on — as a labor force and within these kinds of projects increased.
And also really speaking, in terms of the proportion for the whole year, the expand R&D expenditures should not change significantly and we don’t hope to reduce the labor costs per unit to develop, you still need to have a view for the long-term for stable development. So overly speaking, labor costs, in other words, is stable.
R&D expenditure are going to be relevant with the progress at all the stages of a specific project. The progress of a project has been slower than expectation, but for the whole year, we think it will still be mostly stable, so the expenditures still would be maintained.
There are some bad preparations. According to the accounting standards we will have some provision in this year, especially the second half year, we need to get prepared to face the risks of accounts payable with more assets into collecting the payments and there’s quite a lot of pressures on the cash flow and on the — of airline and us. Overly speaking, we are under great pressure.
Yue Xin
Thank you. I have a follow up question about the AIT charge, the charging standard has not changed, however, it’s a bit lower in the second half of the last year and for the third quarter, we have seen recovering of the passenger volumes, would you see a recovery in the trends accordingly for the second half.
Huang Rongshun
So if we compare, it’s difficult to have a clearer estimations for the passenger volumes in the second half, if we compared to the same period of last year. However, overly speaking, the situation has not changed significantly.
Yue Xin
Thank you. Thank you for your answers.
Operator
[Operator Instructions] Now let’s welcome Wuxi Clin from Citigroup Company [ph].
Unidentified Analyst
Thanks. Hello, everyone. Dear leaders, I have two questions regarding revenues. First of all, the digital network and service had been quite obvious an increase in the first half. So, I would like to understand why. Is it due to inquiries and growth from agents or there are other reasons. The secondly, leasing and maintenance business had — and some other — some others had an increase. So regarding the leasing business and is it because it’s a stay quite stable at the moment?
Huang Rongshun
For those question I will still past it to Mr. Li Jinsong to take the question.
Li Jinsong
Digital network income increases year-on-year, it is major due to the recognitions of our clients and the high end products and services from our company. So the structures and products have changed, it switched from low end product and service to high end, that’s why the revenue also increase and it is not only due to the increase passenger inquiry, so that’s the change. In fact if you look at, for data leasing and maintenance, we see it is quite a stably increase. So that’s my answer.
Unidentified Analyst
Thank you.
Operator
Now let’s welcome to Jerome [ph] from [inaudible] to ask questions.
Unidentified Analyst
Thank you, leader. For the technical service and for airlines, as you mentioned previously, I would like to double check that, in the second half of last year, there’s a 200 million passengers, while the revenue was — to RMB650 million. So in the second half year, this year, if passenger volume is still around the 200 million, then the technical service and our revenue still be around RMB650 million or there — will there be a significant increase? Can you hear me?
Huang Rongshun
Well, I think, it’ll be stable.
Unidentified Analyst
So you mean, it will be similar as the figure RMB650 million in the second half year of last year?
Huang Rongshun
Yes. Right. Right.
Unidentified Analyst
Okay. I would like to understand in terms of digital network service, what are the services in the others and what are the differences of this part compared to with services from others?
Huang Rongshun
So, one, our technical services for agents and the other for airlines, the clients as well. It is long-term digital platform. So that’s why we have put them into those categories. So this part has been included into the other revenues. So you mean in the item of RMB230 million. So, in the others that target revenues for data service for airlines.
Unidentified Analyst
Okay. In the terms of half year, the tourism are still sluggish. There’s quite a lot of major pressures on aviation industries and especially for agents. So I would like to know, what services can we provide to agents? How can we help them to increase revenue?
Huang Rongshun
So you’re asking for agents support for agents, regarding the RMB230 million, data service we provide for agents has different categories. So with the developmental for mobile internet agents has increased demand on automatic data.
So, our R&D has — is relevant both with the traditional business and also the latest in mobile technologies. There is a transition from traditional products to high end service. So that leads to the products and products revenue change in the first half of this year.
Operator
Now, let’s welcome Mark Li from Citi Bank.
Mark Li
Hello, everyone. Thank you for the opportunity. I have one question, in the PPT slides, International Aviation Association has predict that the traffic can return to 80%. So, what’s your view on that?
Huang Rongshun
Ms. Chao Li Wei from Marketing Department please take the question.
Chao Li Wei
By our understanding that this recovery rate are global based. However, for the mass market, there still will be quite big fluctuations. Currently, our revenue is still relevant with some of the recovery of the domestic market, as well as the outbound traveling business. We cannot completely rely on the international report. We still need to focus more on the analysis of CAAC and also other domestic data stores. These will have a major impact on our business in the future. Thank you
Operator
Now let’s welcome Herbert Lu [ph] from UBS Security.
Unidentified Analyst
Thank you for taking my questions. I have a follow up. I have a question on the AIT service, in the second half of last year the unit price, it has been impacted by business adjustments and the confirmation, so the unit prices declined quite a significantly. If those factors can be removed for this year, well, the unit price should be increased significantly year-on-year, and if the AIT service and revenue is better than RMB650 million in the first — in the second half of last year.
Huang Rongshun
Mr. Li Jinsong take the question.
Li Jinsong
Well, the trend of the second half is consistent with the first half and then the business are ranged what from the age influence of factor. However, overly, it will not have a major change.
Unidentified Analyst
Okay. Thanks you.
Operator
Now let’s welcome Xiaofeng Shen from Huatai Securities [ph].
Unidentified Analyst
Thank you for the opportunity. I have three questions and detailed questions. One is on relevance with the digital network. I want to know according to charge and according to traffic and the other part of charges are based on new products. So revenue from existing service and one from new products and what are the proportions of these two? And second things for the integrated service — system service, currently the revenue was coming from airports and now we see a service and the revenues coming from airlines, so what kind of service are you providing to them? And thirdly, since we have high and new technologies and new software, do you have more forecasts in providing these kinds of service for preferential solution? Thank you.
Huang Rongshun
Well, for the overall trend of digital or digital network all the revenue is shifting towards the traffic based service. So currently these two parts are about half and half. The next question, that’s the answer for the first question.
Regarding system integration, we have developed an operation product for airlines. Traditionally, we development commercial systems for airlines and recently we also have explored or extended operation and management service for airlines, since this is a preliminary stage and it is not high in volume.
And for the preferential tax it is encouraged by governments for hiring high technology companies. Of course, every year, it needs to be re-evaluated, there is some change, the standards for each year are not the same. That’s the overall situation.
Unidentified Analyst
Thank you. I have a follow up on the second one, system integration provided by you is it similar with Daxing Airports models or is it the traditional airport model.
Huang Rongshun
Well, for system integration, there should not be large amounts related to airports.
Unidentified Analyst
I would like to understand more about the charging mechanism?
Huang Rongshun
It is charged based on projects and it’s not an easy suspend or continuous charging model, it is project based charging model.
Unidentified Analyst
Thank you. It’s clear.
Operator
And now let’s welcome Herbert LU [ph] from UBS Securities.
Unidentified Analyst
Hello, leaders. I have a question for you. If international routes could not be opened till the first half of the next year, our revenue can be difficult to achieve the level of 2021. So what’s our plan to improve revenue structure and while also reduce expenditure.
Huang Rongshun
Well, as for pandemics, we hope it can recover as soon as possible. Telling from the global landscape it has been deregulated and there is a short-term rebalance in traveling. That’s an obvious trend globally.
If pandemic cannot be well controlled and improved, it is a significant factor and that will influence our industry. So definitely it will have a huge impact on our industry in the short-term. Our revenue comes from airlines and airport agents.
Significant improvement for the short run is still relevant with the pandemic. It’s difficult to revise it and if the pandemic doesn’t improve, we are trying to find more solutions. So first we’ll focus on the long-term development, putting some resources into consolidating our capabilities and get ready for the rebounds for consumption.
On the other side, we also have been proactive in exploring other areas and we are exploring and developing the overall digital economy model. However, in the short run, it’s still difficult to be different and from the trends in the overall industry of aviation.
Unidentified Analyst
So if we don’t have international business, we only have domestic market. What’s the percentage that we — of the revenue that compared with data of 2019.
Huang Rongshun
If domestic market is promising, even international passengers or cross-border passengers, recovery cannot achieve the level of 2019 while domestic markets recovered and that’s better than the level of 2019. In such a scenario, we’re still quite competent about our performance.
Operator
[Operator Instructions]
Unidentified Company Representative
Moderator there’s no further questions at the moment. Thank you very much for your questions and thank leaders for answering. Now, let’s then handed over to the Yu Xiaochun, Secretary of the Board.
Yi Jen
Just now Mr. Huang and his teams answered a lot of questions from investors and analysts and we had a good communication. I believe that this will be helpful to understand our business and performance. We will arrange a series of meetings in the future. Keep in touch with you. And hopefully you please pay attention and then keep in touch with us and we conclude the meeting today. Thank you very much. Good-bye.
Unidentified Company Representative
Thank you, Mr. Yi for your summarization. Dear participants, if you have any other questions or you would like to book the meetings in the future, please go to our website and/or dial the hotlines and you get in touch with our colleagues from the IR Department. And in order to provide better service for you we would like to send you a questionnaires after the meeting and please do take a few minutes to give us your feedback. Thank you again for joining us in the TravelSky’s 2022 interim results announcement and looking forward to meet you next time. Good-bye.
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