Yeahka Limited (9923) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Yeahka Limited 2024 Interim Results Announcement Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I'll now pass the call to Mr. Vincent Chan, General Manager of Capital Markets for the company. Please go ahead, sir.

Thank you, and hello, everyone. Welcome to Yeahka's 2024 Interim Results Conference Call. Before we start, we would like to remind you that this presentation includes forward-looking statements that involve a number of risks and uncertainties. Information on general market conditions come from a variety of sources outside of Yeahka's control. Please refer to our disclosure documents on our website IR section for a detailed discussion of risk factors. Now let me introduce the management team on today's call. Luke Liu, our Founder, Chairman and CEO, will kick off with a short overview. I will then provide a business review. John Yao, our CFO, will conclude with financial review, translated by Derek Lai, Director of Finance, before we open the floor for questions. Without further ado, I will now turn the call over to Luke.

Thank you, Vincent. Hello, everyone. Amid the macroeconomic volatility in the first half of 2024, we remain steadfast to our long-term vision: Being the all-rounded commerce development services provider to merchants. We made more progress increasing synergies beyond payments into other business lines, more international expansion and wider application of AI. We believe this provides us a higher quality of basis to seize more opportunities in the longer game and to deliver sustainable profits and value to our stakeholders. First, we advanced our one-stop payment services business model, with wider regions, covering underserved markets, further diversified and resilient set of vertical penetrated, more profitable customer segments served and broader customer acquisition channels through deeper collaboration with strategic partners. We serve more large and mid-sized merchants leveraging the network and partnerships, with over 100 of banks as we scaled our product and region coverage. Our one-stop offering of payments plus other commerce development services, also give us a unique edge in digitizing for and certifying the guardrails of demand of large and midsized merchants. We therefore maintain our market leadership with strength to the foundation. Second, we have boost our long payment services commercialization and its share of revenue and profit contribution. This makes our service offering even more comprehensive and resilient than before and underscores our commitment to be the one-stop commerce-enabling services provider for merchants. This long payment business also enhanced their profit margins year-over-year. We also significantly increased sales efficiency in our in-store e-commerce services with agile approaches fitting the macro trends in the industry. This is a visible pathway to run rate profitability in the second half and sustainable growth in the years to come for this business. Third, we made great strides drives overseas, winning over 200 global brands, covering more than 20,000 stores. Our investment company, Fushi, offers proprietary and localized merchant solutions that certified demand from world-renowned customers. It is driving up the latest products and vertical coverage. As many of you know, overseas market has many pockets with attractive economics, and this paves the way for very wide channels of profit to come. Fourth, we further integrated large language models for both revenue-generating and cost-optimizing purpose. Our new products help merchant automate price-setting to optimize monetization. We empowered them with precise marketing and automatic content-generation tools to raise sales conversion. We also applied to our own customer servicing system, therefore, our selling and administrative expenses continue to decrease year-over-year by more than 10%. And the last but not least, our ESG efforts were recognized internationally, for instance, in S&P Global's 2024 Sustainability Yearbook, and ranked first in our industry in China. Our business uplifts underserved merchants and consumers in communities locally and abroad. In the first half 2024, we increased the energy usage utilization rate by 7% through constructing green data centers and treated 12 million risky transactions with a wider adoption of AI. We remain committed to based on payments, beyond payments. Our proposition has always been to leverage our extensive payment platform to fully digitize merchants all around their commerce. Such full-suite technology remains our edge over others in building more [ high gel ] scaling up. And now it's increasingly about going global as we play a more important role in global journey of digitization. On this note, may I pass to Vincent to give a detailed business review.

Thank you, Luke. We sustained market leadership in one-stop payment services business with the foundation reinforced for all-rounded, high-quality growth. Whilst industry-wide down-trading consumption drove down every transactional a month per customer and hence GPV, our peak daily counts of app-based payment transactions maintained nearly 60 million and our fee rate remained stable at 12.3 bps in the first half of 2024. This demonstrates our pricing power as China's leading payment brand and merchants' preference for our services. Interchange fee adjustment also impacted our payment revenue in the first half, but such impact will cease in the second half. We therefore focused on intrinsic resilience of this business. First, we deepened into lower-tier cities, especially in North and Southwest China, to assess many underserved merchants. Second, we diversified our verticals into those with stronger economic resilience. For example, sports and fitness, health care, energy and services. Third, we selected collaboration with more profitable customers, including serving large and medium-sized merchants. Fourth, we adopted broader customer acquisition channels, such as the SaaS providers and over 100 of banks. Such network and partnerships helped us win more large and medium-sized merchants. Our services that go beyond payments into many other commerce-enabling technology also satisfied high demand from larger-sized clients. Our proactive overseas expansion also grew rapidly. For instance, our GPV in Singapore grew over 50% year-on-year. New global brands won over include Bulgari, Chow Tai Fook Jewellery, Rolex, MIKIMOTO, TWG Tea, Fred Perry, and [ Beach and How ]. For products in overseas regions, we also expanded services such as local wallets, overseas wallets, credit cards, foreign exchange and cross-border remittances to satisfy customers' demand in various regions. We collaborated with chain stores, large shopping malls and food courts to improve efficiency of acquiring payment transaction volume. Our store competitive advantage overseas is our payment plus commerce enablement technology. This helps us present one-stop services to merchant overseas and offer convenient solutions to the demand in changing circumstances. That allows us to capture more opportunities globally, where customers' willingness to pay is generally more attractive. Turning to Merchant Solutions business. We maintained our strong capabilities in providing tailor-made offerings to merchants specific to their different verticals. We provided a wider variety of value-added services to address our merchants' entire life cycle demands. We also increased monetization, therefore revenue from our Merchant Solutions grew 21.2% year-on-year in the first half of 2024. Our AI and data-driven tools are backed by our proprietary technology stacks as well as our computing algorithm, and our big data models are continually trained by the sheer amount of transactional and behavioral data through our services. So we are well positioned to devise further application scenarios in various settings, geographies and markets. As much of the R&D investments were made in the past, gross profit margin for our Merchant Solutions further increased to 90.9%. In terms of in-store e-commerce services, we strategically focused on higher-quality and more profitable customers based on continued review of market dynamics in each locality while phasing out those who are not generating as much. For example, we increased servicing key accounts and chain stores, such as NAIXUE and Yuanji Yunjiao from over 13,000 branded stores at year-end of 2023 to over 18,000 at the end of current first half, or an increase of 35%. They have more demands for customized services in creative marketing through various forms of content channels, and these are met by our diverse range of services, including short videos, live streaming and online store upgrades that boosted their store-level productivity, thereby increasing their stickiness to us and also willingness to pay for our services. As a result, sales efficiency grew. Both revenue per merchant and revenue per our employee increased during the first half of 2024. Furthermore, we increased adopting upfront fees in addition to commission fees based on merchants' GMV. These fees, in advance of our launch of services, helped protect profitability of each project we select. As a result, our gross margin further increased to 81.5% in the first half of 2024. Both gross profit per merchant and gross profit per our employee increased during the period. Net loss in the first half of 2024 also continued to decrease by 39.6% year-over-year to RMB 15.6 million. Run rate profitability has become more visible by this second half. Such strategic upgrade also lays a more solid foundation for sustainable high-quality profit growth in the long term. Our long-term international development strategies also made remarkable progress across business lines. We entered into economically attractive markets with customers' high willingness to pay, and that increases our profit quality. On the back of the 50% year-over-year GPV growth overseas, we believe the global customers in payments give us good opportunities to expand our broader commerce-enablement offerings to merchants. All our proprietary technology stacks, established payment rails and big data algorithm as a result of experiences working with tens of millions of merchants for over a decade, are all ready for deployment further overseas. In fact, our Fushi business e-commerce enablement platform in APAC is already serving our merchant solutions overseas for over 200 global and regional brands, such as Starbucks, Muji, Pizza Hut, Sunway, New Balance and Levis, covering over 20,000 stores in Southeast Asia, including Indonesia, Vietnam, Malaysia and Singapore. As these brands expand footprints in the region, Fushi is also naturally positioned to provide various self-developed products to these brands in the new geographies. For example, more customized applications are served for these same customers to improve their service efficiency, thereby increasing their stickiness to us. We have our own local team overseas that understands very particular customer's preference by various verticals within these overseas markets. We are also expanding into more verticals, such as energy, real estate and business services as we scale. And last but not least, as a company founded with tech DNA, we remain relentless using large language models for both revenue-generating and cost-optimizing purposes. We have our own AI laboratory and development and science center to coordinate such assets across departments so that AI usage in various commerce scenarios are optimized for merchants, both domestically and internationally. For example, we launched new products to help merchants automate price-setting, perform precise marketing with tools otherwise more available to larger corporates, and generates automatic content with style consistent to their unique branding. All this increased our merchant sales conversion and productivity and lower their cost per head. We also further applied AI usage to our sales team. We raised AI code adoption rates to enhance programming efficiencies. We integrated large models into our process upgrade to streamline workflows. We also stepped up language conversion tools for consumers, servicing chatbots in multi-language environment as we scale overseas. Our automated customer service efficacy rate increased to over 80% and our selling and administrative expenses continue to decrease year-over-year by more than 10%, which is yet another driver for our sustainable delivery of profitable return to our stakeholders as we scale along the global journey of digitization. On this note, I'll pass to John, our CFO, to review our financial results and be translated by our Director of Finance, Derek. Thank you.

[Foreign Language].

[Interpreted] Thanks, Vincent. Hello, everyone. Let me introduce the financial performance of Yeahka in the first half of 2024.

[Foreign Language]

[Interpreted] Our revenue decreased by 23.5% from RMB 2.1 billion in the first half of 2023 to RMB 1.6 billion in the same period of 2024.

[Foreign Language]

[Interpreted] This is due to macroeconomic volatility which lead to a temporary decline in the payment GPV.

[Foreign Language]

[Interpreted] In addition, we proactively eliminate customers and projects with lower profitability.

[Foreign Language]

[Interpreted] Although the total revenue decreased, our revenue structure was further optimized.

[Foreign Language]

[Interpreted] Besides the revenue of nonpayment business increased year-on-year, the contribution ratio of nonpayment business revenue to the company's overall revenue has also increased from 11% in the first half of 2023 to 14.6% in the same period this year.

[Foreign Language]

[Interpreted] Yeahka's unique advantage is that it can provide merchants with a full range of services, from basic payment facilities to digital solutions, which makes our business highly flexible and scalable.

[Foreign Language]

[Interpreted] In the first half of 2024, our gross profit decreased to RMB 300 million, mainly due to the decline in revenue. However, the overall gross profit margin increased from 17.7% in the first half of 2023 to 19% in the same period this year.

[Foreign Language]

[Interpreted] This is mainly due to the increase in the proportion of nonpayment revenue mentioned above. This gross profit margin is not only higher than that of payment business, but also has been rising in the past 3 years.

[Foreign Language]

[Interpreted] The gross profit margin of Merchant Solutions increased from 87.6% in the first half of 2023 to 90.9% in the same period this year. And the gross profit margin of in-store e-commerce services increased from 76.9% in first half of 2023 to 81.5% in the same period this year.

[Foreign Language]

[Interpreted] All these results benefit from the continued cross-selling and synergies of our three business lines.

[Foreign Language]

[Interpreted] Nonpayment business has always been an important part of our long-term strategy. The benefits of our early R&D investments have gradually begun to show.

[Foreign Language]

[Interpreted] This has helped diversify the company's profit structure, increasing the gross profit margin of nonpayment business from 52.6% in the first half of 2023 to 69.1% in the same period this year.

[Foreign Language]

[Interpreted] Our net profit in the first half of 2024 of RMB 32.6 million has exceeded 3x of the annual net profit of RMB 10.1 million in 2023.

[Foreign Language]

[Interpreted] This is because our cost and expenses have been further improved and optimized.

[Foreign Language]

[Interpreted] First, the in-depth use of AI has saved our labor costs. Therefore, the sales and administrative expenses in the first half of this year decreased by 11.2% compared with the same period last year.

[Foreign Language]

Second, we reduced financing costs and optimized capital structure, resulting in a 6.2% decrease in financing costs.

[Foreign Language]

[Interpreted] And a decrease in gearing ratio from 45% at the end of last year to 41% in the middle of this year. And this is expected to decline further in the second half of 2024.

[Foreign Language]

[Interpreted] The above-mentioned layout provide a solid foundation for the company's continued high-quality profit growth and can help the company develop healthily in the global digitalization process?.

Thank you, John. Thank you. With that, may we open up the call to any questions from the line. Operator, kindly go ahead.

[Operator Instructions] Your first question comes from the line of Thomas Chong from Jefferies.

[Interpreted] Let me translate myself. I've got three questions here. The first one is the impact of the macro environment on payment business. And the second, what's the future strategy on local services? And the last one is what's the latest update on overseas business?

Thank you, Carol. Regarding your first question about macro impact. The first half of 2023 or '23 as a whole year is indeed a high base given the consumption recovery in China, post-COVID. The problem in first half this year is macroeconomics in China and its impact on consumption pattern towards non-trading. That means a decrease in average transaction value, which is consistent to many industry reports and narratives on results from other public companies and other reports that you might have seen. If that did not change, our GPV and revenue will be better because we kept up the number of transactions served day in and day out as well as the fee way. Our peak daily count of transactions, as I mentioned earlier, remains at about 60 million per day, and our fee rate remains 12.3 bps, which speaks about: One, the frequency of transaction activities in China is still vibrant, by and large; And number two, our continued ability to garner this market share given our brand and our product services capabilities. And generally, we also think that regulations are good for the industry long term. It provides a healthier environment for capable service providers to demonstrate their real edge. Merchants appreciate one-stop services addressing their genuine commercial needs. That sets us apart from the crowds because there are many service providers out there but not full-suite payment and commerce-enablement technology solution end-to-end, and across China and overseas. And with regard to your second question about in-store e-commerce strategies. We upgraded our model to focus on higher-quality and more profitable customers. We continually reviewed the market dynamics in each locality. We also phase out some of the customers that may not be generating as much. And that's why some of the names that I mentioned earlier came into place. They are all chain stores like -- and the number of stores served for them also increased by 35%. These type of customers, like Tuscanny, Bergers and all the big name chains, they have more demand for customized services through short videos, live streaming, text, graphics, online store upgrades. And we provide all this end-to-end and we help them do their business better. And that's how we grow our sales efficiency, how we grow our revenue per head, revenue per merchant as well as gross profit from each of these merchants. And another important upgrade is the way we receive revenue from them by increasing the upfront fees portion. And that's very important because it's loosen up the connection with the GMV with these merchants as well as helping us to make sure that the profitability of each project we take on, it's good enough to fit into our long-term plan. And as a result, our gross margin increased and the net loss for this business also increased (sic) [ decreased ] by quite a large amount this year. And therefore, as we project further out, we are quite confident about run rate profitability by the second half of this year. And that's very important because it lays a stronger foundation for us to deliver sustainable growth in many years to come. And your last question about overseas progress. There's a lot of remarkable progress to share. The GPV in Singapore grew over 50% year-on-year, for example. We won a lot of new global brands by serving these customers locally in these overseas regions. We also expanded our product offerings to make it as comprehensive as possible, ranging from local, international, foreign exchange, all kinds of payment methods, by collaborating also with more merchants, more chain stores, larger shopping malls, food courts, that help us acquire larger transaction volume. And we believe that our core proposition, being payment plus commerce enablement technology also applies over there because we present our one-stop services solution to these merchants overseas, and they have these demands, and they appreciate that, and therefore use our services also overseas. From our point of view, we are very excited about this. Overseas market, we see that customers offer higher attractive economics and their willingness to pay is also higher. That's on the payment side. On the commerce enablement side, our Fushi business is also serving many customers overseas, names like Starbucks, over 200 of these overseas, they are using our services already. And we are very excited about it because, as these brands expand footprint in the region, we are also naturally positioned to provide various self-developed products to these brands in the new geographies. For example, more customized applications have served for these same customers to improve their service efficiency and to increase their stickiness to us. And we believe that our local team overseas that understands local demand will also help us expand into further verticals going forward. And so we believe, all these global customers in both payment and nonpayment sides give us good opportunities to expand along with them. And our tech stacks, our payment rails, our big data algorithm, all this would be very helpful for us to keep serving them overseas.

Your next question comes from the line of Vicky Wei from Citi.

Will management share some color about the fee rate trend and the competition landscape for the payment business in the second half?

Thanks, Vicky. Thanks for dialing in. On fees rate. First of all, as I mentioned before, 2023 is quite a high base. But if you put into perspective the fee rate in 2021 was 10, 11 bps; '22 was 12, 15 bps; '23 was 13, 14 bps, it will be unrealistic to forecast ways to keep growing in the macro environment facing us in China today. If you look at our 12.3 bps fee weight in the first half this year remaining similar to our previous halves, even though the external environment was better last year, we think that speaks about our market share and leadership by leveraging our full suite payment and digital tech services and reinforce our ecosystem, leaving our partners with reasonable margins as well. So we are quite confident about our fee rate being maintained at low teens, even if we are to be conservative about the macro environment going forward. In terms of competitive landscape. The market continues to prefer service providers with full service, full value chain, one stop. That's our unique proposition. Those who are constrained by product range, regions coverage or technological abilities or ability to adapt in an ever-changing environment will generally lose their places along the value chain, I believe. And that leaves the relatively fragmented market today to be more consolidated going forward towards the top ones. That's the case in many other parts of the world we see. And therefore, in our overseas expansion, we have adopted a similar approach, leveraging the tech stacks and service offerings we already have as we believe high-quality services and channels are appreciated by merchants, and that's how we won our global names like Chow Tai Fook and MIKIMOTO. And we do see a lot of room to grow in these overseas markets which offer attractive economics with high willingness to pay. And I also think AI will be another key differentiating factor on both revenue generation and cost reduction. We started to monetize through helping merchants automate price-setting, launch precise marketing, generates content automatically, et cetera. It's not just about the tech, but domain knowledge about the verticals about knowing your clients in each specific industry. And those who have this combination, we believe, would have a unique edge in the long game. Hopefully, that gives you more perspectives about how we look at the industry going forward.

Your next question comes from the line of Hang Su from CICC.

[Interpreted] So this is Hang Su from CICC. I have two questions for the management. The first is how you think of the trend of regulation and the impact of offline post payment business? And the second is what's your midterm strategy of overseas payment business, including the target markets and focuses of business?

Thanks, Su Han. I'll answer the first question and Luke will take the second one. First one, about regulations. I think it is generally good for the industry on a longer-term basis. Merchants do appreciate one-stop services addressing their genuine commercial needs, and regulation provides a healthier environment for those who are capable to demonstrate their edge. And I think that sets us apart from the crowds because there are many service providers out there, but not all of them can provide the unique proposition that we offer day in and day out. I'm not too worried about regulations. No impact from the bigger picture as we have demonstrated about our market share through the number of transactions as well as our pricing power through the fees rate that we see. And internationalizing has been also our core strategies because our global customers give us good opportunities to expand along with them with attractive economics and also good margins overseas. We think that paves the long way for a very wide channel of profits to come as we serve overseas like a local service provider. And again, AI is truly exciting. We started to monetize through it already. And we believe this is an early start in making tools more widely available to merchants, leveraging all these merchant insight we have across different verticals that even pure tech technology companies without the merchants edge don't have. I'll hand over to Luke for the second question about our plan overseas and our focus.

Okay. So for the overseas business strategy, if I can summarize, it's we try to leverage existing products and experience in China to other regions. So we are well-focused on the local customer and try to provide the products to the local consumers and merchants, not only targeting the Chinese tourists. I think this is a big difference between us and the competitors. And secondly, we want to provide one-stop service for the merchant side, not only the payment business, but also the digital solutions, marketing solutions and the fintech services. So it's a blue ocean for a lot of regions. It's hard for a merchant to find a full suite, I mean, service package can get all the, I mean, solution done. A lot of them can use the payment infrastructure, can use mobile payment, they can collect money. But they cannot, I mean, to automate their inner process of their stores or their shops. We can give them, I mean, high-quality, but lower-cost solutions. I think it's also a unique advantage of us. We are still setting up the infrastructure so far. We are confident on that one day we can provide the whole services which we also provide in China.

[Operator Instructions] Your next question comes from the line of Johnny Xie from Deutsche Bank.

This is Johnny from Deutsche Bank. My question is about overseas expansion. So could you share more, how much revenue and GMV? As well as the profit contributed from overseas? And what you expect the optimal percentage of contribution in the future? Second question is about the -- I noticed that the company employees number continue to reduce. So could you share -- so which kind of job function has been reduced? And how much more operating costs can be reduced in the second half?

Thanks a lot, Johnny. Thanks for initiating coverage on us as well. First of all, in terms of our overseas business contribution, we are currently deriving revenue from a variety of countries, from Singapore, Indonesia, Malaysia, as well as other in the region. We will continue to expand the contribution from a wide variety of sources. We do think that is a very important long game. This is a relatively early start of us. But at the same time, there's a lot of growth opportunities in the overseas market, especially in the developed ones. We see that the economics are very attractive. The margin is also more so over there. And therefore we are very focused on the type of segments and markets that we are entering into, to ensure that as we grow further, there will be a meaningful contribution to our business model as well as helping us to deliver sustainable growth delivery. Secondly, in terms of the lower number of employees, a lot of that are indeed replaced by our AI expertise. I'll give you examples. In the automatic content generation space as well as the servicing space with customers, a lot, we replaced by chatbots, doing so based on our large language models. And therefore, we don't need as many manual labor as before. And we find that customer experience that we heard is also very satisfactory, and therefore, help us to deploy more AI technology going forward in this regard. We think that there's a trend. We think that there's more to be done, and there is more to be harnessed. For example, if I take customer servicing rate right now, we have increased it to about 80%, but there's also more things to be done in this regard and in many other regards as well. So many more exciting things to come.

Thank you. This concludes today's question-and-answer session. I'll now hand the call back to management for closing remarks.

Thank you very much. I would like to thank you, everyone, again for joining our results today. We are now ending the call. If you have any further questions, please feel free to contact us directly. Our contact, together with other information in relation to our results, can be found on our website at www.yeahka.com. Thank you, and see you again soon.

This concludes today's conference call. Thank you for participating. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]