Yeahka Limited (OTCPK:YHEKF) Q2 2022 Earnings Conference Call August 30, 2022 8:00 AM ET
Company Participants
Ben Zhao – General Manager, Corporate Development and Capital Markets
Luke Liu – Founder, Chairman and Chief Executive Officer
John Yao – Chief Financial Officer
Conference Call Participants
Han Xu – CICC
Linlin Yang – Guangfa Securities
Vicky Wei – CITI
Operator
Ladies and gentlemen, thank you for joining the call today. Welcome to Yeahka Limited 2022 Interim Results Announcement Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Please be advised that today’s conference is being recorded.
I’ll now pass a call to Mr. Ben Zhao, General Manager of Corporate Development and Capital Markets for the company. Thank you. Ben, please go ahead.
Ben Zhao
Hello, everyone. Welcome to Yeahka’s 2022 interim results conference call. Before we start, we would like to remind you that this presentation includes forward-looking statements that involve risks and uncertainties. Information on general market conditions come from a variety of sources outside of Yeahka.
Now, let me introduce the management team on today’s call. First, Luke Liu, our Founder, Chairman and Chief Executive Officer will kick off with an overview of our business. I will then go through our business review. John Yao, Chief Financial Officer will conclude with a financial review before we open up the floor for questions. Derek Lai, our Director of Finance will translate for John.
I will now turn the call over to Luke.
Luke Liu
Thank you, Ben. Good evening and good morning, everyone. The resurgence of a COVID-19 pandemic has made the first half of 2022 challenging slowing down [indiscernible] retail growth and the significantly disappointing offline commerce. [But far] [ph], because of our [growth coverage] [ph] that ranges across over 300 cities and our low geographic concentration, we continue to make progress to scaling up and monetizing our commercial digitalize ecosystem.
We have been proactively providing the new [indiscernible] challenging internet industry. Be more cost cautious and [indiscernible]. Demonstrated by our financial performance in the first half, total revenue and gross margin both showed encouraging improvement year-over-year. Particularly with gross profit increased 72.1% on year-on-year basis to [RMB529.3 million] [ph].
We firmly believe that the fast tracking on localized tire market brings significantly realized value to consumers and merchants because consumers can extendedly save money using our services. And merchant can post their in-store revenue and [indiscernible]. As we continue to heavily invest and monetize on our in-store e-commerce business, we’re into the temporary network vertical line.
However, the in-store business has experienced strong growth on GMV during the first half and coupled with our effective operations of optimization. We have seen significantly [indiscernible] loss making and are on the trajectory to achieve breakeven and start contributing proceeds by the end of this year. My team and I will share further details on some of the exciting progress and achievements [indiscernible] made for the first half of 2022 on this call.
The one-stop payment service is a foundation of our ecosystem and based on which we are able to cross sell our in-store e-commerce and merchant solutions. In the first half of 2022, our [CTV] [ph] was up 7.4% year-on-year, despite of the pandemic. The number of merchants using our one-stop payment services reached historic higher 7.6 million.
Our partnership was close to 100 local commercial banks has also showed initial success as our panel of banks allow us to provide payment services to their merchant base in exchange for bank account [opening ours] [ph], creating win-win for all three parties. For the small merchants too, they are now enjoying attentive digital services from both the banks and [indiscernible].
Next, I’ll talk about our in-store e-commerce service, which is a valuable extension of our payment business. Further connecting merchants and consumers, [but] [ph] facilitating their interaction. It can retain our nationwide consumers who also took advantage of our one store payment stores and have merchants grow their business and generate offline traffic and sales.
By the end of the first half, the GMV has exceeded RMB1.3 billion, which is a nearly 18x increase from the same period last year. The number of paid customers have reached to nearly 10 million. And the big monthly active user across our customer interface has gone up to nearly 20 million. Our over 4 million registered KOLs are constantly posting and sharing their real personal in-store visits, reviews in articles and short videos shown on our partners such as [indiscernible] etcetera.
Upon watching our consumers, are able to find the same lower and exciting local lifestyle experience packaged at grid value with our mini program on those partnered media. Of growing this business is to foster wide range business community, net consumers have found with exclusive and valuable experience and enable local business to [drive] [ph].
Now, let me move on to the Merchant Solutions segment, a [full life] [ph] of cycle solutions which include our digital SaaS modules, fintech, and precision marketing have merchants reduce costs and improve efficiency through digitalized operating tools. The pandemic world challenged for small and medium merchants and accelerate their adoption of our digitalized operating services.
As we are encouraging more small merchant owners to embrace our digital technologies to manage their business in one go to faster. They are user stickiness for a sustainable ecosystem. In the phase of research and pandemic, we provide a key incentive to some renewing merchants as a result. As of June 30, 2022 we served nearly 1.5 million active merchant solutions customers, a new record high in history.
Next, update on share repurchase. In the first half of 2022, we made a HK$521.7 million purchase of shares under [ICUs deal] [ph], counting for [5.65%]] of total shares outstanding. The Board has also approved additional US$70 million share of buyback and purchase plan on August 30 to further increase shareholder value and to motivate and attract talents. We’re flagging our solid confidence in the company’s fundamental stand and growth potential.
However, empowering the physical economy, particularly small and middle sized offline merchants, has been at the heart of our mission since inception in 2011. As we enter the second half of 2022, we’ll continue to invest in research and development in regional product mix, enhance user experience grew our diversified revenue streams, extended the bunkering of our business and a pretty sustainable long-term value for shareholders, employees, and society.
Before finishing up, I’d like to mention that on our official website, we have posted in-store e-commerce product [indiscernible] for better comparison. With that, I’ll hand it over to Ben to give a detailed business review. Thank you.
Ben Zhao
Thank you, Luke. Good evening and good morning to everyone. Credit to our clear strategy, resilient business model, and outstanding execution capabilities, we have once again achieved remarkable results in the first half of 2022 amidst the resurgence of the pandemic. I will now provide more color on the development of our core three business lines.
Our one-stop payment service enabled cross-selling for the in-store e-commerce and merchant solutions. Our small and medium sized merchants enjoy a high level of geographic diversification spanning over 300 cities and most of them are providing life necessity services and products, which were less impacted by the decline in consumer discretionary spending.
As a result, the first half of the year has shown strong resilience, despite a challenging macro environment. Last year, we capitalized the opportunity to expand our traffic significantly. Going into 2022, as we have become the market leader in a QR code business and embraced the new norm of Internet industry by focusing on profitability. The overall fee rate increased to 12 basis points from 10.5 basis points in the first half of 2021.
Accordingly, we’re able to reduce the revenue sharing with sales partners, improving the gross margin from 18.8% to 20.9%. While the GPV reached approximately RMB1.06 trillion, representing a year-on-year growth of 7.4%, among which the ad-based payment GPV increased by 22.6% year-on-year and accounted for 70.6% of the total GPV, up from 61.8% in the first half of 2021.
Over the past 10 years, built an extensive nationwide sales network of nearly 16,000 independent sales partners in order to reach every small and medium sized merchant in China. Additionally, for cloud payment platform, we also added nearly 1,000 partners bringing us a total of over 3,000 partners as of June 30, 2022. That includes SaaS, ISV, fourth party payments, and financial institutions, utilizing our standardized open API.
To further solidify our success with our financial partners, we collaborated with nearly 100 banks during the first half, sharing our nationwide networks and massive merchant resources with co-developed merchant service systems and provided both bank card acquisition and payment services so that the merchants can enjoy the trusted services from both the banks and us. This would open up an additional 20% of the potential payment merchants currently served by the banks to our ecosystem.
Let’s move on to our in-store e-commerce services. We launched this two-sided marketplace to enhance connections between merchants and consumers last year as part of our [indiscernible] to expand our commercial digitalized ecosystem, establish our consumer services. Similar to payments, our in-store e-commerce services achieved considerable growth under controllable investment.
As we are actively converting the consumer base reached by our merchant payment services to our in-store platform, our MAU across our ecosystem has gone up to close to 20 million. In the first half, close to 10 million consumers have made purchases out of 16 million purchase orders, demonstrating our strong user demand and stickiness. And our GMV reached nearly RMB1.4 billion, representing a year-on-year increase of nearly 18x.
By continuing optimizing our operations, and gradually realizing economies of scale, our operating efficiency improved significantly. Out of 300 plus regional sites, nearly half of the sites are stabilized and profitable and we are approaching the breakeven point very soon. Concurrently, our GMV has already succeeded RMB360 million in July and thus we reaffirm the guidance of achieving RMB2.8 billion to RMB3.5 billion in GMV for the full-year of this year.
To ensure our consumers enjoy great experiences on our platform, we have a dedicated team of close to 1,500 product marketing specialists with extensive knowledge of local consumer preferences and competitive landscapes. Building on the geographic coverage and merchant base for our one-stop payment services, we have covered over 300 cities. As of June 30, the number of SKUs we offered has surpassed 205,000, an increase of nearly 16x from the first half of last year and an increase of 39.6% from the second half of last year.
I will now move on to our Merchant Solutions business. The two biggest challenges faced by many SaaS companies are: one, high customer acquisition costs with lower retention; and two, the higher R&D expenses. And for us, we position ourselves uniquely to ensure a profitable economic model. Our merchant solution modules are seamlessly integrated with the payment apps or end terminals used by our merchants on the payment side, allowing us to provide one-stop user experiences.
Our products offer a very intuitive and simple user experience and merchants are able to use them without training. As a result, most of the merchants come on board with minimal sales effort and that allows us to charge lower fees and in return attract more merchant users. As we are targeting small and medium merchants, customization for each [K client] [ph] turn into standardized industry SaaS models based on deep understanding of the merchant [pain points] [ph].
Over the past 10 years and our in market industry specific customer successful teams, constantly [feed demands] [ph] to our R&D teams, and we have constantly upgraded our digital modules to help our merchants to stay competitive in this environment. Expanding our merchant base is our short-to-medium term core strategy. To support our merchant community during the resurgence of the pandemic this first half and ensure long-term user stickiness, we offered renewing merchants certain fee discounts policies this year to help them to go through the pandemic.
We served 1.5 million active merchants with our merchant solutions during the first half. And the number of merchants increased by 25.8% year-on-year. The revenue from our Merchant Solutions business has reached RMB208.8 million, during the reporting period. And notably, our gross margin has increased to 82% demonstrating the scaling potential of this asset light business model.
We always stay ahead of technology development. We are also actively embracing emergent technologies such as the Metaverse and online games. For example, a 3D city simulation game is on the development where merchants and consumers can find new ways of interaction, breaking the barriers between the virtual world and the real world with coupons to achieve social [indiscernible] marketing and empower our ecosystem.
Our strategy development is centralized on expanding our payment based commercial digitalized ecosystem. For payment, we will continue on strengthening our sales network, particularly on our open API SaaS partnerships and also the bank partnerships. We will also look to embrace new payment standards such as DCEP.
On merchants side, building upon strong payment merchant network, we’ll continue to empower them on optimizing digitalized operations and enhancing efficiency. On consumer side, we’ll put utmost emphasis on improving user experiences and focus on breakeven in the second half of the year as we are constantly optimizing our cost structure and operating efficiencies.
Based on the strong results in the past few months, we are confident to continue to realize tremendous growth on GMV, while achieving breakeven. Lastly, we have raised US$70 million to strengthen our offshore balance sheet and we’ll explore overseas opportunities as the cross border travel became gradually available in China. And thank you, everyone.
With that, I will now pass the floor over to John, our CFO, our Director of Finance, Derek will provide the translation.
John Yao
[Foreign Language] Thank you, Ben. Following Luke and Ben’s presentation, I would like to reemphasize that our current portfolio of one-stop payment services, in-store e-commerce and merchant solution at the driving force behind our strong financial results, which enable us to continue to [indiscernible] a scalable and sustainable commercial digitalized ecosystem. Now, let me briefly go through highlights of our financial results for this year.
[Foreign Language] Our total revenue reached RMB1,600 million, representing a year-on-year increase of 17%. Gross profit margin increased from 24% to 32%. Adjusted EBITDA for the period decreased by 5.2% from 73 million to 69 million for the comparative period in 2022, [primarily] [ph] due to our increased investment in the fast growing in-store e-commerce services.
Adjusted EBITDA reflects the true operation profitability, which showed a 39% increase, compared with the 6 months ended December 2021 period. Even with a net loss of RMB159 million for the in-store e-commerce services.
[Foreign Language] The increase in revenue was mainly attributable to the resilient recovery of our one-stop payment service from the impact of the pandemic, as well as the rapid growth in in-store e-commerce services. In particular, the revenue contribution of in-store e-commerce services increased to 9.8% from 3.2% in the same period of last year.
[Foreign Language] Gross profit was RMB529 million, representing a year-on-year increase of 52%. Within this gross profit of in-store e-commerce services contribution, increased from 3.3% in the same period of 2021 to 17.4%.
[Foreign Language] The overall fee rate increased to 12 bps for the first half of 2022 from 10.5 bps in the first half of 2021. Within this traditional payment fee rate was 8.4 bps, while ad based payment fee rate was 13.5 bps. The GTV of the app based payment services accounting for 70% of the total GPV for the six months ended June 2022, up from [51%] for the comparative period in 2021.
[Foreign Language] We continue to increase our investment in R&D. R&D expenses were 134 million in the first half of 2022, representing a year-on-year increase of [indiscernible], predominantly driven by increased number of R&D personnel and increased investment in systems, big data, and product development.
We believe that the continuous upgrading of our proprietary technology core platform will consistently give the best merchant solution, which help merchants with digital operation, while supporting our unsustainable development.
Ben Zhao
Thank you, everyone. That’s it for our prepared remarks. Operator, please open up the floor for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from Han Xu from CICC. Please ask your question [indiscernible]. Your line is open. Please ask your question.
Han Xu
Okay. Thank you. Hi, management. Thanks for taking my questions. This is Han Xu from CICC. I have two questions about the in-store e-commerce business. The first one is about the growth strategy. Given the GMV is growing rapidly where we cooperate with more platforms in the future, and if so, how will this impact the [take rate] [ph] and gross margin? The second one is about the competition. I will see more competitions in this area and how we adapt to more pressure [indiscernible] growth? Thank you very much.
[Foreign Language]
Ben Zhao
Appreciate your question. Let me address them one-by-one and maybe the other management can add to it. So, to your first question on the growth strategy, you’re absolutely right. So, we are currently pursuing our proprietary traffic model, plus our partnership with the mainstream media such as [indiscernible] or other, kind of interest driven [Technical Difficulty] media. So, currently our take rate and our gross margins, as you can see, particularly our gross margins, are showing very favorable trajectory adding to 57% in the first half of this year and that just shows the bargaining power we have and the economy of scale we can achieve while we increase the GMV.
So, by partnering with more platforms, in fact, we believe our core competency or our core [competitive advantage] [ph], which is on the supply chain side, with the payment business, we already have close to 7.6 million of these active merchants that we serve. So, using these as our foundation of our SKU, we can basically just convert them into our in-store e-commerce business to provide those very attractive local lifestyle packages to our consumers.
So that way, we can greatly reduce our customer acquisition costs on the merchant side. Additionally, on the consumer side, in addition to partnering with these external traffic partners, we also are able to convert our consumers that are reached by the payment services into our in-store e-commerce business by basically converting the QR code payment.
So, every time a consumer uses the QR code to make a transaction payment completion page, he or she can basically see an icon or push depending on this consumers transactional behavior, we can push the appropriate merchants or packages to the consumers and the consumers can click on that link or that icon to be redirected to our WeChat Mini-Program, which we will treat it as our proprietary traffic.
Even on our partnership traffic platforms, we also operate our Mini-Programs [indiscernible], which that whenever the consumers they need to make repeat purchases, they will log on to our Mini-Program voluntarily and make the purchases themselves. So, very encouragingly we’re seeing the MAU to reach close to 20 million in the first half of the year and it’s continuing to grow very strongly. So that’s I guess first question.
And the second question on competition. So, I think the players that are most that our best positioned to conduct this business model is the payment players, right? Because the payment players on the merchant side as mentioned, they already have that, sort of the merchant base that they serve. And on the consumer side, we already have close to 1 billion of the consumers that we get to reach out to during the payment process. So that way, we can accumulate all of these consumers with our payment business.
So, we are seeing some small non-listed companies that are doing this similar business model, but in terms of scale, in terms of their customer acquisition costs, in terms of their growth prospects, I think we all prevail in these areas.
Han Xu
Thank you very much.
Ben Zhao
Thank you.
Operator
[Operator Instructions] Next question comes from the line of [Betsy Li] [ph] from CLSA. [Betsy] [ph], your line is open. Please ask your question.
Unidentified Analyst
[Foreign Language] Thanks. So, let me translate my question. This is [Hans] [ph] from CLSA. I got two questions. Number one is, more about the payment services. So, for the payment services, we have seen that GPV in the first half increased by 7.4% , which is good. But just wondering given that the breakouts of the COVID recently in July and August, what’s trend of GPV? And also take rate in the first half increased from 10.5 bps to 12 basis points. So, what’s the latest trends in the last two months?
Second question is about the [indiscernible]. I just want to clarify what’s our role in a [indiscernible] rollout? And does the management see this as a more like an opportunity or a challenge? That’s my question. Thank you.
John Yao
[Foreign Language] So, I’ll repeat this in English. So, essentially, we are benefited by our very geographically diversified merchant base. None of our cities have a concentration of more than 5% in terms of our total GPV. So that the resurgence of pandemic have very limited impact on our overall growth on the GPV side. So, we’re seeing in terms of July and August, we’re seeing the GPV growth to stay at a similar level to April and May when we also saw the lockdowns in Shanghai and Beijing.
And in terms of our fee rate, I think it’s growing very healthily from last year to the first half of this year as we leverage our leading competitive vantages and our QR code business. So, we do think that with our current strategy we will monitor the situation very closely. And we do think that fee rates will stabilize and even gradually improve in this going into the second half of this year.
And to the second question on the [DCEP] [ph]. So, we are actively participating in the DCEP development. And our role is very similar to what we are doing on a QR code business side, because on the DCEP side, it’s really the banks that are serving the consumers whereas for the QR code, it’s really the e-wallet operators such as the WeChat Pay or Alipay who are serving on the consumer side.
So, our law is basically still acquiring the merchants and continuing to serve them as we do. So, based on the current pilot program, we already have partnerships with the leading top four the [ICBC Bank of China] [ph], etcetera. with these commercial banks. And our role is essentially the same, which we help these banks to acquire the merchants to enable them to accept the DCEP payments.
So, we’re actively participating in that and we do think we do see as an opportunity as we help – as we are geographically [expand across] [ph] China and we have close to 7.6 million active merchant base. So that would mean our role or our competitive advantage as we distribute the DCEP capabilities are top of the field. So, yes, we do think that the development of DCEP is going to be an opportunity for us.
Unidentified Analyst
Thank you very much. Thank you.
Ben Zhao
Thank you.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Linlin Yang from Guangfa Securities. Linlin, your line is open. Please ask your question.
Linlin Yang
[Foreign Language] Thank you, management. My question is about the – how do you think about the balance – how do you balance the growth of GMV and the net loss? When will you see this business breakeven? The second question is about the take rate. Can you give us more – can you give us some guidance about the change of the [take rate] [ph] in the future? Thank you.
Ben Zhao
Thanks for the question. Very keen observation on the in-store e-commerce business as we are devoting a lot of resources to ramp it up. So, we also have disclosed the numbers in terms of the net losses on this new business lines. And in the first half of the year, we have actually contributed 160 million of the net losses for this new business segment. That actually means our payment business and our Merchant SaaS business is actually showing very strong profitability, but putting that aside, so we do think that 160 million on the in-store e-commerce is very well spent as we’re seeing very active consumer and merchant participations into this business model.
We are already achieving close to 20 million on the active consumer base. And also, we are seeing more than close to 10 million of the paying consumers with 16 million of the paid orders, so repeat purchase there. And in terms of our breakeven points, we are actually very close to breakeven in this business. We are actually achieving very close to breakeven in the third quarter of the year because we are actually looking at a new normal of the Internet sector as we speak.
The profitability is one of the core focus for the management as we are balancing the growth and also the profitability. So, the efficiency comes on top as we as we balance, for example, the gross margins and also the take rates. So, actually, to answer your – to address your second question at the same time, so the reason why you see the take rate to show a decline in the first half of the year is we started to realize the key to improve or to increase the consumer user [stickiness] [ph] and repeat purchases is to have great products.
So that would mean, we need to – as a two-sided marketplace we need to reduce the take rates in order to get more of the better merchants to come onboard. So, in the beginning, as we ramp up the business model, we are naturally giving out slightly more shares to the merchants every time a consumer makes a purchase right? Let’s say, [indiscernible] makes a $100 purchase, we are giving the merchants $88 in return and we are left with $12 as our take rate.
So, as our business ramps up and as our magnitude increases, the opportunity to increase that take rate is very foreseeable as we have demonstrated in the second half of last year, but for now, we are keeping it at 12% so that we can attract all of these merchants to come on board to enjoy the traffic that we bring to them. And as they realize, our platform has the capability to make them successful, we will then have more bargaining power to increase the take rate.
So, in July, we’re already seeing the GMV to reach 360 million in renminbi. So that gives us a lot of confidence to achieve our guidance of 2.8 billion to 3.5 billion for the full-year of this year. And we do expect the potential of the GMV increase to be very significant going forward as well. Because right now, we are only partnering with one of the leading online media, but there are many out there that we cannot partnership and to retain the users within their ecosystem by operating our own Mini-Program.
Operator
Linlin, do you have any follow-up questions?
Linlin Yang
Very clear. Thank you.
Ben Zhao
Thank you.
Operator
[Operator Instructions] [Technical Difficulty] question comes from the line of Vicky Wei from CITI. Vicky, your line is open. Please ask your question.
Vicky Wei
[Foreign Language] Thanks management for taking my questions. Will management provide the latest updates on the overseas business development and related investment amount? Thank you.
Ben Zhao
Sure. For that question, maybe Luke can address.
Luke Liu
Okay. So, I’ll answer the same question. Your last call in March [Technical Difficulty] I think we are almost achieving getting [indiscernible] in Singapore now and we also acquired a small team and they are running some local [acquiring business] [ph] in Singapore. The R&D team is in China. And we also have got the payment license MSP in U.S. and we are looking for some experience expert to be the consultants for us to run the business in U.S., which can, I mean, transfer money to the company in Singapore and create value for the local merchants in China to the U.S. dollar and exchange the U.S. dollar to renminbi.
And we also try to apply the payment license in Hong Kong, MSO license. Basically, we are creating the infrastructure for the cross-border payment. And I think it’s a long-term strategy for [indiscernible]. We try to make the company to be a global company that can fund the payment business well over the world. Thank you.
Vicky Wei
Thank you.
Operator
[Operator Instructions] All right. Thank you all very much for your questions. We have reached the end of the question-and-answer session. I would now like to turn the conference back to Mr. Ben Zhao for closing remarks.
Ben Zhao
Thank you, everyone, once again, for joining us today. If you have further questions, please feel free to contact the Yeahka’s Investor Relations department through the contact information on our website. Thank you once again.
Operator
Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.
Be the first to comment