Ladies and gentlemen, thank you for standing by for Autohome's Second Quarter and Interim 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded.

If you have any objections, you may disconnect at this time. It is now my pleasure to introduce your host, Sterling Song, Autohome's IR Director. Mr. Song, please go ahead..

Thank you, Operator. Good morning, everyone, and welcome to Autohome's second quarter and interim 2023 earnings conference call. Earlier today, Autohome distributed its earnings press release and you may find a copy on the company's website at www.autohome.com.cn. On today's call, we have Chairman and Chief Executive Officer, Mr.

Quan Long; and the Chief Financial Officer, Mr. Craig Yan Zeng. After the prepared remarks, our management team will be available to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the U.S. Securities and Exchange Commission and the stock exchange of Hong Kong Limited.

Autohome doesn't undertake any obligation to update any forward-looking statements, except as required under applicable law. Please also note that Autohome's earnings press release and this conference call includes discussions of certain unaudited non-GAAP financial measures.

Please refer to our press release, which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and is available on Autohome's IR website. As a reminder, this conference call is being recorded.

In addition, a live and archived webcast of this earnings conference call will also be available on Autohome's IR website. I will now turn the call over to Autohome's Chairman and CEO, Mr. Long, for opening remarks. Please go ahead, Mr. Long..

[Foreign Language] Thank you, Sterling. Hello, everyone. This is Quan Long. I'm Chairman and CEO of Autohome. Thank you today for joining our earnings conference call.

[Foreign Language] In the second quarter, our financial and operational results continue to recover steadily with a 5.8% year-over-year increase in total revenues, marking fourth consecutive quarters of positive growth.

Online marketplace and others revenues experienced strong growth of 20.4% compared to the same period last year becoming the primary driver of our top-line growth.

Notably, TTP and data products both delivered double-digit year-over-year revenue growth and the revenue from NEV brands maintained its robust growth momentum, as revenue continues to expand in scale, not only has our revenue risen, but our profitability has also significantly improved.

Adjusted net income attributable to Autohome for the second quarter was up by 20.6% year-over-year, and our adjusted net margin remained at a competitively high level of 31.1% an increase of 3.8 percentage points year-over-year.

[Foreign Language] During the second quarter, we actively advance our C-end strategies making steady progress across content optimization and the business diversification, while expanding our traffic through multiple channels.

Our goal is to provide users with high quality content, practical tools, and exceptional services, thus enhancing Autohome's brand recognition among users. In May, we unveiled our first Autohome Energy Space franchise store in Haikou marking the beginning of this new retail franchise model across the country.

We also accelerated the application of AI technology in all scenarios and promoted the digital upgrades and the reconfiguration of customer business processes, enabling our partners to reduce costs and increase efficiency.

In addition, our collaboration with Baidu large language model has yielded remarkable results in both user and in customer end, product application providing both cohorts with more efficient services.

[Foreign Language] Looking ahead, as technology continues to develop; new technologies will eventually penetrate all aspects of the existing industrial change.

Autohome has taken advantage of this chance to transform technology into productivity, introduce innovative business models, and use technology and innovation to drive the digital transformation of the automotive industry.

We are confident that with long-term accumulation of cutting-edge technology and our growing brand advantages as well as our comprehensive innovation incubation system, Autohome is well-positioned to seize rising opportunities break new grounds, and ultimately achieve diversified business growth.

[Foreign Language] With that, I will now turn the call over to our CFO, Ms. Craig Zeng, for closer look at our second quarter operating and financial results..

[Foreign Language] Thank you, everyone. Thank you, Mr. Long. I'm Craig Zeng, CFO of Autohome. [Foreign Language] In the second quarter, we continue to actually develop our content ecosystem and business innovation to capitalize on the two major industry trends of NEV and artificial intelligence.

We further enrich our NEV themes content as and activities to enhance our content offering, while also introducing new business models and technologies to meet the average evolving needs of users and customers.

[Foreign Language] On the content front, in mid-June, we hosted the Future City NEV Technology Festival, a major industry IT, following the August 18 Super Auto Show. We combined 3D Visio onsite test drive and started music festival to create an exciting experience for any of the owners and the young users.

At event, we debuted China's first mobile exhibition truck featuring a large-scale holographic display, providing consumers in lower-tier cities with more comprehensive information on NEVs and enabling NEV brands to expand their reach into these markets, in line with the government's policy to support NEV consumption in rural areas.

The event received positive feedback in a total exposure of over $2 billion across the entire network. [Foreign Language] Furthermore, early this month, we launched the NEV content creator acceleration plan to help our content better align with the development of the NEV market and the user's actual needs.

This plan is designed to provide creators with more exposure and monetization opportunities, encouraging them to draw an Autohome and account reviews to the production of NEV content, thereby diversifying our content portfolio.

As we strengthen and build our own platforms premium content, we're also expediting the developments of a new media ecosystem by creating content that is tailored to the unique characteristics of various platforms, helping to promote Autohome's brand and holistically drive traffic.

According to QuestMobile, in June, our mobile DAUs increased by 31.7% year-over-year to reach 62.71 million demonstrating our continued leadership in the automotive media vertical. [Foreign Language] On business front, in the second quarter, new business continues to lead Autohome’s overall business development.

[Foreign Language] First, our NEV business. In the second quarter, revenue generated from NEV brands grew by 60% year-over-year. The successful launch of our Autohome Energy Space franchise store in Haikou, Hainan Province, marks the industry's recognition of the disruptive new retail model.

Energy Space provides a comprehensive one-stop service for car selection and purchase, making it easier than ever for consumers who find their ideal cars.

Automakers also benefit from this innovative approach to NEV sales as it offers a cost effective solution to the issue of single brand sales volume, not being able to support the cost of store building and operation.

Energy Space has been gaining traction with an increasing number of operative brands and a 3D holographic modeling now powers more than 40 mainstream vehicle models. Furthermore, we are seeing more and more automakers and the franchisees actively reaching out to Autohome, which express interest in this model.

As additional energy Space franchise stores are established in various cities in the second half of the year, the scale of Autohome's new retail services will continue to expand. [Foreign Language] In terms of digitalization, we've leveraged the GPT model to develop two decision making assistance products.

Our car selection assistance aggregate and extract information from Autohome platform, helping users finding their ideal car based on their preferences, needs, and the budget.

Operation Butler is a digital assistance for dealer management that can automatically integrate store, operational data, generate analysis, and make suggestions on command to guide dealer in the operation and the management decisions.

In addition, our existing data products have seen a steady increase in adoption with more than 20,000 -- 21,000 dealers using our data products in the second quarter.

Moreover, in the first six months of the year, key metrics such as the average number of data products adopted by each dealer store and the average revenue of data products per dealer store both grew by double-digit compared to the prior year period.

Going forward, we'll continue to apply two fundamental capabilities, large language models, and the knowledge graphs across actual business scenarios to improve our data products quality and usefulness.

[Foreign Language] In terms of the used car business, Autohome's used car business dealers including TTP experienced accelerated revenue growth in the second quarter. TTP’s revenue saw a significant increase in the second quarter and the first half of the year, while also maintaining its profitability.

Through Autohome's matching and auction services, our platform accounted for about 24.7% of all used car transactions in China, representing year-over-year growth of 2.1 percentage points. We have integrated our used car business with new car retail stores providing owners who purchase new cars with an easy way to dispose of their old cars.

Furthermore, we extended used car testing and other services to the stores, cultivating more direct connection with consumers while creating and exploring new opportunities for business collaborations. [Foreign Language] Overall, Autohome's core business remained stable with strong growth across our new businesses.

This makes significant progress in the development of new products and models further strengthening our leading position in key areas.

As we move forward, we'll continue to focus on the industry's two major plans namely NEV and artificial intelligence, constantly innovating to bring superior product and services to our users and customers, while definitely delivering long-term value to our shareholders.

[Foreign Language] And let me walk you through the key financials for the second quarter of 2023. Please note that as with prior calls I will reference RMB only in my discussion today unless otherwise stated. [Foreign Language] Net revenues for the second quarter were RMB1.83 billion, up 5.8% year-over-year.

For a detailed breakdown, media services revenue came in at RMB532 million. Leads generation services revenues were RMB760 million. And online marketplace and others revenues were RMB541 million, up 20.4% year-over-year, primarily attributable to greater contributions from TTP and data products. [Foreign Language] Moving on to cost.

Cost of revenues in the second quarter was RMB330 million compared to RMB279 million in Q2 2022. The increase was primarily attributable to a rise in operational costs. Gross margin in the second quarter was 82% compared to 83.9% in Q2 2022. [Foreign Language] Turning to operating expenses.

Sales and marketing expenses in the second quarter were RMB824 million, compared to RMB739 million in Q2 2022. The increase was primarily attributable to the escalation in market and promotional spending. Product and development expenses were RMB313 million, compared to RMB362 million in Q2 2022.

The decrease was primarily attributable to decline in personnel-related expenses. Finally, general and administrative expenses were RMB91 million, compared to RMB127 million in Q2 last year. The decrease was primarily attributable to the reduction of expected credit losses.

[Foreign Language] Overall, we delivered operating profits of RMB342 million in the second quarter, compared to RMB301 million in the corresponding period of 2022. Adjusted net income attributable to Autohome, Inc.

was RMB569 million in the second quarter, compared to RMB472 million in the corresponding period of 2022, representing an increase of 20.6% year-over-year. [Foreign Language] Non-GAAP basic and diluted earnings per share in the second quarter were RMB1.15 and RMB1.16 respectively compared to both RMB0.94 in the corresponding period of 2022.

Non-GAAP basic and diluted earnings per ADS in the second quarter were RMB4.62 and RMB4.61 respectively, compared to RMB7.7 -- RMB3.77 for both in the corresponding period of 2022. [Foreign Language] As of June 30, 2023, our balance sheet remained very strong with cash, cash equivalents and short-term investments of RMB23.34 billion.

We generated net operating cash flow of RMB522 million in the second quarter of 2023. [Foreign Language] On November 18, 2021, our Board of Directors authorized a share purchase program under which we are permitted to repurchase up to US$200 million of Autohome ADS for a period not to exceed 12 months thereafter.

On November 3, 2022, our Board of Directors authorized an extension of the share repurchase program for another 12 months expiring on November 17, 2023. As of July 21, 2023, we have repurchased approximately 4.7 million ADS for a total cost of approximately US$141 million. [Foreign Language] With that, we are ready to take answer your questions.

Operator, please help to open the line for the Q&A session. Thank you..

Thank you. [Operator Instructions]. Our first question comes from the line of Xiaodan Zhang from CICC. Please go ahead Xiaodan..

[Foreign Language] So thanks management for taking my questions and congrats on the solid results. So first of all, what is your outlook for the domestic auto market in the second half of 2023? And could you please update us on the new retail model for any of these and what is the expansion plan going onwards? Thank you..

[Foreign Language] Thank you for the question. My name is Quan Long. I would like to take your question. So firstly, let me give a summary of what's happening in the market. As you can see, starting from the second quarter, the auto market started to recover as people has expected.

And for the second half of the year, we do believe that the outlook is quite promising. [Foreign Language] To further elaborate on that, firstly, because last year due to the impact of the COVID-19, the base was quite low. Secondly, in Q1, we all knew that there were price wars.

And starting from Q2, with the easing of the price war, consumers also gradually stopped watching while holding cash and started to get into this market. So that's why we believe that for the second half of the year, the outlook of the auto markets would be quite promising.

And also with the National 6B transitional policy was introduced and the pricing was gradually going stable. And especially recently, the central government launched a lot of stimulus policy and favorable policies to better stimulate this market. All this would help the market to gradually push forward.

[Foreign Language] Well, we believe that there are structure opportunities in this market, especially in this two areas. The first would be NEV. Second would be the used car. Now let's talk about the first one. The NEV would still be the focus of the market.

According to the China Passengers Car Association's latest data till the end of June, the penetration rate of the passenger car for the NEV reached 32.4% based on a lot of campaigns, for example boosting the consumption policy of the central and the local government and the marketing activities of a lot of NEVs in multi-sites and also a lot of new car models get launched to the market.

We believe the sales transaction volume of the NEV would continue to improve and for this year, the penetration rate would continue to go high. And also on June 12, MIIT together with other five ministries and the departments, they launched a policy on notice on 2023 Automobiles to Countryside campaign.

And actually on June 21, the Minister of Finance, the Tax Bureau, and MIIT co-launched the fourth extension of the NEV purchase tax car. So we believe this would be very helpful to boost its consumption of the NEV. [Foreign Language] Now the second would be the used car.

We believe this would become a very important part for the intrinsic drivers for the Chinese auto market. According to the data, in May, June, for two consecutive months, the used cars transaction volume reached year-on-year and month-on-month growth.

And also with the independent registration system being launching for the used car, we believe a lot of car dealers group, they would have a lot of potential to further grow business. And with the NEVs development and with more and more car purchasing and low-cost NEV choices for the consumers, this will also boost the development of NEV used car.

[Foreign Language] And after this week, the meeting of the Political Bureau of the Chinese Communist Party showed that the Central Government would try to stimulus the domestic consumption, especially to push forward the fundamental function of the consumption to boost the economy growth, and also to enlarge the general public's revenues and also household income to expand the consumption and to boost the -- and consumption demand.

And also they would leverage on boosting the domestic consumption strategy together with dependent supply side of reform in this way especially they would to stimulates the auto consumption, the electronic consumption, and also consumption for the large furniture, et cetera, home appliances.

So in this way, we are very confident that the Chinese auto market would enrich the long-term and stable growth.

We believe that consumers the potential demand would gradually be released and also the -- with people's awareness would always try to improve and the technology breakthrough and innovation would bring a lot of new opportunities for the NEV and the used car business.

So in summary, I would see a long-term, long cycle, and a huge potential for the growth of the NEV market..

[Foreign Language] My name is Zeng Yan. I would like to take the second question. Actually starting from September of 2022, the Autohome Energy Space offline store was launched in Shanghai.

This was the first and great efforts in our retail channel and NEV innovation, and the store operating was quite good and the business has been successfully promoted and a lot of consumers and the customers and the dealers, they're all think highly of this business model.

And in June of this year, in Haikou City, we started the first franchise store of such Autohome Energy Space franchise store. Actually, in terms of the retail new business model, we have a lot of pilot projects, including the holographic modeling, the test drive reports, the lead services, the purchasing order, and also the offline activities.

For example, the holographic modeling, we already started to work with more than 40 mainstream OEMs. So based on the different characteristics of different cities and its different market potential and market volume, we will very soon start to rollout the franchising stores nationwide.

And we're trying to build the one-stop solution for the NEV consumers and for the OEMs; we are going to help them to get reach out to the consumers and to offset their channels. So currently, we are still proactively contracting with a lot of franchisees and the partners. We're going to seek for more opportunities.

Before end of 2023, we're going to newly establish 10 to 20 offline stores, especially in those middle and the lower tier cities. I think in the future, I would keep you updated on what are the latest progress. Thank you..

Thank you. Our next question comes from the line of Ritchie Sun from HSBC. Please go ahead, Ritchie..

[Foreign Language] I'll translate it myself. Thank you management for taking my questions. So I noticed that we have a very strong DAU growth. Can you please explain the drivers behind that and how should we interpret the consumption power of these users and modern taxation potential? Thank you..

[Foreign Language] Well, thank you for the question. In terms of the user growth, yes, we achieved the wonderful user growth based on the following reasons. Firstly, Autohome launched the high quality, professional and fun content to attract the users. We also made in-depth study of the user behavior.

In this way, we can create content in the targeted way to attract different users' demands. For example, in June, we're going to host the Future City NEV Technology Festival dedicated to the NEV orders [ph] through a lot of our synergy, and we are going to create wonderful experience for the NEV car users and consumers.

And we're also going to launch the first mobile exhibition truck featuring a large scale holographic display. In this way, we would allow a lot of lower tier cities users to experience multiple NEV brands. For example, a few weeks later we are going to work together with CCTV to host the 5th 818 Auto Show.

In this way, this Global Auto Show would be a large campaign. This would also be a very famous IP launched by the Autohome in the NEV industry. Through a lot of enrich content, we are going to help the OEMs and the brands to have more media coverage, to attract more users and to bring wonderful experiences.

[Foreign Language] In terms of the channels, we also established a better ecosystem in the new media to create the differentiated and new content. For example, we have already informed the matrix of a one of content to attract the traffic. Lastly in Q2, we do see that the new media contributes a lot towards more traffic.

[Foreign Language] In terms of the content, in the past, we are more auto-related or auto consumption related. Now we made extension to the auto life and also the services. We are trying to build a car ecosystem centered by using the car.

For example, ever since this year in our Autohome APP we newly launched the carwash and also the special favorable rates on fueling as well as the car lifestyle of the car users. In this way, it helped us to grow our users.

[Foreign Language] In terms of the NEV, we believe this would be the major driver for the auto -- the transaction volume in the auto market. For this group of customers based on the content, we have a lot of new initiatives.

For example, we found out that with the development of NEV, a lot of our car consumers based on their purchasing car needs and the content demand, they are more diversified.

Comparing with the traditional combustion car users, the NEV car users pay more attention to the battery life, mileage, as well as the outer outlook and the smart driving cabinet and the intended -- intelligent cabinet, et cetera. So it's based on these fundamentals. Autohome started to collaborate with Beijing BITNEI Corp.

to establish a lot of real-time user data, especially on the battery life endurance data to give the indicators and the index to our users. [Foreign Language] Secondly, in the NEV especially the intelligently driving assessment system, we also launched the real-time testing and assessment data for the users to consider.

We also launched the car models highlights, combining the core function, the interactive features, and the real-time data. In this way, the highlights would attract a lot of NEV users..

Thank you. Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead, Thomas..

[Foreign Language] Thanks management for taking my questions. I have two questions. The first question is about -- first about the used car market and the strategies for TTP. The second question is about the use of cash, can management share about our use of cash in the coming years. Thank you..

[Foreign Language] Well, thank you for the question. Talking about the used cars, in the second quarter of this year, we do see the domestic used car sales volume grew by 21.3%. According to the China Auto Association's estimation, the yield around used cars would be expected to grow by 25%.

So we believe there is great potential for the volume to grow in the used car market. [Foreign Language] As we just mentioned about the TTP, actually the TTP together with other used car models in the Autohome, in the second quarter, we accelerated the growth.

The TTP's second quarter and the first half of this year's revenue grow rapidly, which outpaced the industry average. It also become one of the new business drivers for the Autohome's business growth. From August of 2022, TTP had become profitable and its profitability has been greatly enhanced for the first half of this year.

We believe that the used car business of Autohome in 2023, we can keep a good profitability. [Foreign Language] In terms of a business model, we already associated with the used car and the retail new business.

The retail stores we are helping the car users, especially the new car purchasers to handle the used car, especially to simplify the trading process of the used car and to solve the on transparency pain points of selling the used car and for purchasing of the new car, the selection time cost would high, et cetera.

We also consolidated the resources with Ping An Group, TTP and the Beijing BITNEI Corp., and also the NEV offline experience stores. After we associate and also leveraged on all the resources, we're trying to create more business synergy.

[Foreign Language] In summary, in the future, we will keep to establish the consolidated one-stop solution ecosystem for the used car, especially leveraging on a one-stop solution for buying a car and selling a car plus SaaS model.

And we're going to seize opportunity in the used car business and enlarge our competency and also we want to quicken the growth of the used car business and keeping leading industry position. [Foreign Language] Now, let me answer your second question.

Actually we have abundant cash reservoir in the firm, and we already established the dividend payout plan designed by the 2022 in first quarter of this year, comparing with the dividend payout of 2021, the dividend payout ratio of 2022 enhanced by 8 percentage points.

According to the corporate BOD, they already approved that starting from 2022 in the next five years, every year, we would give dividends payout no less than RMB500 billion -- RMB500 million. So we attach great importance to shareholders' interest. We would continue to return back to the shareholders in a sustainable way.

We would also consider other plans, which we can enhance the shareholders return. [Foreign Language] Now in terms of the share buyback repurchase plan in this market we already continue to carry out the US$200 million share buyback plan. We already made US$140 million share buyback and in the future, we will continue to carry out this repurchase plan.

[Foreign Language] And meanwhile, we would also pay highly attention to other investments in other businesses, and we're trying to create shareholders return. Thank you..

Thank you. Our next question comes from the line of Brian Gong from Citi. Please go ahead, Brian..

[Foreign Language] Thanks management for taking my question. Congratulations on solid results. My question is regarding data products. How many data products we have for dealers now? And what are penetration for each product to our dealers? On OEM side, when do we expect the amount on data products to recover? Thank you..

[Foreign Language] Thank you for the question.

Talking about the dealer business, actually in the second quarter, we had more than 20,000 of paying paid dealers and we have more than 10 products, which is quite mature to help them including the smart marketplace, the smart intelligent [ph] hall, and the smart quality inspection and intelligent assistance, and the Smart Cloud telemarketing and the Smart Cloud services, which covers the front and before and after sales the whole process of the dealers.

We help the dealers to get into the end-to-end operating information and try to enhance the conversion rate in many areas. In this way, we're guiding and helping the dealers to put their core competency into better serve the customers. In this way, we help them to achieve lean management and to improve its value to the customers.

[Foreign Language] And we also received wonderful feedback from the dealers and we have a lot of high penetration rate for many products. And our product ARPU all have been enhanced. In addition to that, based on the GPT model, we had launched the new decision assistance tools.

For example, the Car Selection Assistant and Operation Butler models, which can help the dealers to enhance its decision making process and enhance efficiency and operating and management.

[Foreign Language] Now talking about our OEMs, during the COVID, we helped them to do a lot of online campaigns to replace its online exhibition for the new models and now post-COVID, their demand has changed. We would also change our service model accordingly to better meet with that demand..

Right. Thank you. We have now reached the end of the question-and-answer session. Thank you for all your questions. I'll now turn the conference back to management for closing comments..

[Foreign Language]. Thank you, everyone. Thank you for joining us today. Appreciate your support and look forward to updating on our next quarter conference call few months' time, so in the meantime, please feel free to contact us if you have any further questions or comments. Thank you every -- thank you very much everyone. Thank you. Goodbye..

Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect..