Puyi Inc. (NASDAQ:PUYI) Q2 2023 Earnings Call Transcript March 21, 2023
Operator: Ladies and gentlemen, welcome to Puyi Inc.’s Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, there will be a Q&A session. For your information, today’s conference call is being recorded. This conference call is also being broadcasted live over the Internet and will be available for replay purposes on the company’s website. I’d like to turn the meeting over to your first speaker today, Ms. Jing He, Puyi’s General Manager of Financial Reporting Department. Thank you. Please go ahead.
Jing He: Thanks, operator. Good evening. Welcome to our earnings conference call for the first half of the fiscal year 2023. Our half year report on Form 6-K has been uploaded to the website of U.S. Securities and Exchange Commission earlier today and is also available on our IR website. Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. The accuracy of these statements may be impacted by a number of risks and uncertainties that could cause our actual results to differ materially from those projected or anticipated. Such risks and uncertainties include but not limited to, those outlined in our filings with the SEC, including our 20-F.
We do not undertake any obligation to update these forward-looking information except as required under the applicable laws. Joining us today are our Chairman of the Board and Chief Executive Officer, Mr. Yong Ren; and Chief Financial Officer, Mr. Anlin Hu. Mr. Ren will walk you through our business and financial conditions of our first half of the fiscal year 2023. And he, together with Mr. Hu will answer your questions after the prepared remarks. Now, I will turn the call to Mr. Ren.
Yong Ren: Good evening, everyone. Thank you for joining us today on the conference call for the first half of the fiscal year 2023. Here with me is our Chief Financial Officer, Mr. Anlin Hu. We will begin today’s call with an overview of our financial and operational results for the first half of the fiscal year 2023 followed by a brief discussion of our business outlook for the future. We will then open the call for questions. First of all, let’s take a look at our business development in the reporting period. In the first half of the fiscal year 2023, due to the impact of COVID-19 pandemic, China’s economy has not recovered prominently and the capital markets have been volatile, which led to weak investment sentiments and poor investor experiences.
Despite dismal conditions, our management team strategically maintained our focus to reduce costs and increase efficiency, while strengthened the internal training to enhance professional skills. We were able to reduce our operating expenses by 28% period-on-period. Furthermore, we continued to strategically reinforce our focus on wealth management and inheritance services for wealthy and high-net-worth clients. In particular, our trust consulting services achieved great progress, with the number of completed trust consulting service projects increased by more than five times period-on-period. Our main business operations and strategies during the reporting period are listed as follows. First, we diversified our product offerings based on client needs and stabilized our fund distribution business.
The retail fund distribution business is the foundation of our business and the main source of our income. Although the Asia’s secondary market had an overall poor performance, the of most of our sub-products in the current period outperformed the bench index. As we continue to focus on changes in client mix and through the client emotions, through higher frequency of investor education and manage to improve the performance of our fund product portfolios by enhancing our own investment and research capacity. In terms of product investment and research, we further expanded our publicly raised fund product portfolio by increasing the number of public fund companies we cooperate with, which increased from 89 as of June 30, 2022 to 109 as of December 31, 2022.
Our publicly raised fund product offerings currently covers most of the products over the market. In addition, we added two new fund product portfolios according to the needs of clients in the market including automatic redeem product, a smart product which automatically redeems when reaching the target profit rate and a smart regular investment product, a smart product which periodically advise investor to contribute different levels of investments based on the current market condition. Through the new product training and new business strategy, these two differentiated and customized products meet the needs of clients and stabilize the balance of publicly raised fund products. For our privately raised fund products, we further enhanced our private fund product strategies.
For example, we timely launched convertible bonds and commodities future strategies according to market demand and was able to capture higher opportunities for clients in volatile markets. Second, we diversely developed our family trust business such as insurance premium trust products and there are number of competitive trust consulting service projects reached a new high. During this reporting period, the number of competitive trust consulting services increased by more than five times over the same period in the fiscal year 2022. At the same time, we successfully established an all encompassing service system for wealthy and high net worth clients, including but not limited to, tax, law, education, and overseas asset allocation service. We believe that for the insurance premium trust and family trust service, our ability in providing service to wealthy and high net worth clients will improve significantly.
First, we upgraded the institutional business transaction platform and rigorously expanded business with institutional clients. In terms of the construction of institutional business transaction platform, we achieved multiple upgrades during this period in reaching the service experience of financial institutions, especially small and medium size banks. In this reporting period, we successfully launched our business in financial institution market currently covering most kinds of financial institutions including banks, insurance companies, security companies, future companies and trust companies. In this reporting period, the transaction value of publicly raised fund by institutional clients exceeds RMB2 billion US$0.3 billion, far exceeding the transaction value for our entire 2022 fiscal year.
Fourth, we continuously optimized the IT system to provide comprehensive service across all business lines. During this reporting period, we made several technological advancements, including upgrading the Puyi Fund App, launching an independent operating system and optimizing system performance. First, we established a proprietary investment consulting system, which is embedded into the Puyi Fund App according to the new regulatory requirement and connected to compliance portal of our investment consulting system to other fund companies’ system to ensure compliance with relevant regulation in online transactions of publicly raised fund product portfolios. Second, we further upgraded our core transaction system and institutional business system to improve our controlling and the flexibility of our operational system infrastructure.
Image by Gerd Altmann from Pixabay
First we progressed in the standardization of our system for family office business. The family office service and the entire lifecycle of trust management can now be conducted entirely online, greatly improving the operational efficiency of our family office business. And fourth, we further optimized our i financial planner app and Puyi Business School app. We launched the insurance policy bike lost and fund healthcare diagnose functions for the i financial app to better empower financial advisors. We upgraded the function of the Puyi Business School app to satisfy the entitlements of being an independently operating commercial application. Fifth, we strictly control cost and expenses and achieved the best in organizational structure optimization.
Despite the yet to be improved external business environment, the management continues to reduce costs and increase efficiency in this reporting period. For our branch office, we further shrink the operating space and reduced the work place expense, at the same time we are able to decrease our marketing expenses significantly as we changed our marketing initiatives for publicly raised fund product portfolios from stimulating the growth of our new accounts to stimulating the growth of new investments. Next I will briefly discuss our financial conditions for the first half of the fiscal year 2023. For the first half of the fiscal year 2023, net revenues decreased period-on-period by 32.6% from RMB101.5 million to RMB68.4 million, US$9.9 million.
Now let’s turn to each individual business lines. First, for our wealth management service. Net revenues generated from our wealth management service decreased period-on-period by 43.2% from RMB94.2 million to RMB53.5 million, US$7.8 million, in particular. Net revenues generated from the distribution of privately raised fund products for the reporting period were RMB17.8 million, US$2.6 million, representing a 54.1% period-on-period decrease from RMB38.8 million. The decrease was primarily due to, first, the fact that investors were affected by the volatile market with increased uncertainty of the future, leading to negative sentiments for privately raised fund products and other high-risk products and their willingness to redeem funds has increased.
Therefore, during the reporting period, the transaction value and outstanding daily balance of our privately raised fund products decreased, resulting in a decrease in commission income including management fees; and second, performance-based fees of RMB1.8 million recognized in the first half of the fiscal year 2023, as compared to RMB3 million in the first half of the fiscal year 2022, representing a 41.7% decrease. And net revenues generated from the distribution of publicly raised fund products for the reporting period were RMB35.8 million, US$5.2 million, representing a 35.5% period-on-period decrease from RMB55.5 million. The decrease was primarily due to the influence of global geopolitics and COVID-19-related restrictive measures, which led to the long-term depression of the A-share market and the low investment confidence of the investors, resulting in the decrease in transaction value of publicly raised fund products and the reduction in commission income.
Currently, the COVID-19 control measures have been relaxed and the domestic economic and financial markets have entered a recovery period, we are confident that with the recovery of China’s economy, the transaction value of publicly raised fund products will be restored soon. Second, for our asset management service. Net revenues generated from asset management services for the reporting period were RMB1.2 million, US$0.2 million, representing a 68.7% period-on-period decrease from RMB3.7 million. The decrease was primarily due to a 95.7% decrease in performance-based fees generated by our actively managed fund of funds to RMB76,000, US$11,000 for the first half of the fiscal year 2023, from RMB1.8 million for the same period of the fiscal year 2022.
First, for our insurance consulting service. Net revenues generated from our insurance consulting services for the reporting period were RMB7.0 million, US$1.0 million, representing a 112.7% period-on-period increase from RMB3.3 million. The increase was primarily due to the fact that we provided consulting services to more clients, and the insurance premium had increased accordingly. Last, for our other service. Net revenues generated from our other services for the reporting period were RMB6.7 million, US$1.0 million, representing a 2,485.8% period-on-period increase from RMB0.3 million. Revenues from other services in this reporting period mainly came from consulting services related to trust and family wealth inheritance provided to clients.
Last, but not the least, let’s elaborate on our strategic planning and our outlook for the future. In light of the relaxation of the pandemic prevention and in control policy at the end of 2022, we believe that China’s economy will experience an upward growth in 2023. The introduction of registration-based IPO system will also reform China’s capital market ecosystem as investor confident recovers and tries, we believe that domestic wealth management industry is expected to improve continuously in 2023. We will focus on the following four main strategies: First, to stabilize our core business and capitalize on the trend of economic recovery. Distribution of publicly raised fund product portfolios is our core and main business. The outstanding balance of our publicly raised fund product portfolios declined in the past two years due to the impact of the pandemic and the sluggish capital market caused by the economic downturn.
Our management emphasized to seize the opportunity and capitalize on the economic recovery in 2023 further strengthen our investment and research capabilities of public funds, enhanced service operations capabilities, timely devote efforts in marketing and promotion of public funds and seize new growth opportunities while maintaining regular business operations. Second, to further explore the needs of family trust service capabilities. We will continue to improve the quality of our family trust service for wealthy and high net worth clients by increasing operational efficiencies through ourselves developed family office system, launch and optimize our products and services for client needs; scale our client base through expanding corporate channels and strengthen our company’s speed to e-service capabilities through optimization of IT system.
Further, we will pay attention to the needs of families of wealthy and high net worth clients, observe the upstream and downstream wealth management index change, seek opportunities for business collaborations and mergers and acquisitions and try to provide more a path for potential future business opportunities. Despite fierce competition, leveraging our expense with existing client base of banks and insurance companies, we hopefully advantage opportunities against our industry peers. In the future, by adopting an investors’ point of view, combined with our investment research capabilities and professional team as Puyi family office department, we will expect to empower our institutional clients, especially banks and insurance company clients and share them sincerely with an open mind and achieve a win-win situation, ultimately increasing our market share.
Fourth, to develop a well controlled IT infrastructure to assist in the continuous improvement of our core business. In 2023, we will concentrate our results on upgrading the Puyi Fund App, institutional business system and family office business system. First, to further improve the Puyi Fund App as a one-stop comprehensive investment advisory service platform, we will upgrade its intelligent investment consulting system through digitalization and AI, integrating it to the client’s entire lifecycle. Second, for the institutional business system, we will timely optimize and iterate its functions to keep up with leading platforms at the soonest. And third, for the family office business system, we will upgrade from three aspects. First, to integrate our IT infrastructure with the trust company system and information network to further improve the efficiency in providing our trust consulting service.
Second, to strengthen our digitalization construction to obtain To further improve the efficiency in €“ our line just dropped off for a second. So let me repeat, and first for the family office business system, we will upgrade it from three aspects. First, to integrate our IT infrastructure with the trust company system and its information network to further improve the efficiency in providing our trust consulting service. Second, to strengthen our digitalization construction through obtain real-time data analytics of our trust service progress and status. And third, to optimize and improve our IT infrastructure to better support the development of the family office business. Past a fallen ship, one thousand sail onward; for a sick tree, ten thousand thrive by spring.’ Post-COVID era, the wealth management industry is expected to embrace a long-term sustaining growth cycle.
Puyi management will pursue a business strategy of stable growth, while calmly responding to risks and challenges and seizing market opportunities. We are very confident in the future development of our company. That ends with our prepared remarks. Now we will open for questions. Operator please.
Operator: At this time, I would now like to turn back to Jing He for closing remarks.
Jing He : Thank you. Since no questions at this time, it seems like our line dropped off for a second, so if you are interested in the free full transcript, we will upload it on our website after this call. Please go ahead and see if you’re interested. And we have no other comments at this time. Thank you everyone for attending our fiscal year 2023 earnings call. If you have any further questions, please feel free to contact us. Thank you very much. Operator?
Operator: This now concludes today’s conference call. Thank you for participating. You may now disconnect.
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