Cango Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 12, 2024

Key Takeaways

  • Despite a challenging macro environment, China’s auto production rose 6.4% and sales grew 10.6% in Q1 2024, with NEV production up 28.2% and market share exceeding 30%.
  • Cango reported Q1 revenue of RMB 64.42 million, down from RMB 552.6 million year-on-year, but achieved operating profit of RMB 74.15 million and net profit of RMB 90.03 million through strict cost controls.
  • The company strategically scaled back its self-operated new car business to manage inventory and pivot to higher-margin facilitation services, ensuring profitability despite lower overall revenue.
  • Integration of Cango U Car strengthened supply chain management, dealer services, and cross-region deliveries, enhancing the platform’s competitiveness and vehicle pipeline quality.
  • The Cango Yuka platform expanded to 8,459 registered retailers with over 130 million page views, introduced a premium membership ecosystem, MCN marketing pilot, hassle-free purchase service, and launched a cross-border used car information platform for global buyers.
AI Generated. May Contain Errors.
Earnings Conference Call
Cango Q1 2024
00:00 / 00:00

There are 3 speakers on the call.

Operator

Good morning and good evening, everyone. Welcome to Cango Inc. First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. This call is also being broadcast live on the company's IR website.

Operator

Joining us today are Mr. Jiayuan Ming, Chief Executive Officer and Mr. Yongli Zhang, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct the Q and A session. Before we begin, I refer you to Safe Harbor statement in the company's earnings release, which also applies to the conference call today as management will be making forward looking statements.

Operator

With that said, I'm now turning the call over to Mr. Jiayuan Min, CEO of Pango. Please go ahead, sir.

Speaker 1

Welcome to Cango's Q1 2021 earnings call. China's GDP maintained moderate growth in Q1 2024, increasing by 5.3% year on year despite a compact global economic environment. According to the China Association of Automobile Manufacturers, the auto industry also saw strong growth with production and sales reaching 6,610,000 and 6,720,000 vehicles respectively. This represents a year on year increase of 6.4% for production and 10.6% for sales. New energy vehicles, or EVs in short, were a particular bright spot.

Speaker 1

Production and sales surged by 28.2% and 31.8% year on year to 2,120,000 and 2,090,000 units respectively. This strong performance pushed NEV's market share to over 30%. Despite positive growth in vehicle production and sales, the auto market faces challenges on both the supply side and demand side. Traditional automakers must transform to compete in a new energy vehicle era and emerging and EV manufacturers face intense competition and struggle for profitability. On the demand side, slow income growth and job market instability restrain consumer purchasing opportunity.

Speaker 1

Rapid technological advancements and price competition lead consumers to delay purchases, further tightening the market. In response to the oversupply in the new car market, we took proactive steps to manage inventory and reduce costs. We strategically reduced the scale of our self operated new car business, a streamlined purchasing processes to improve efficiency and improve inventory management to mitigate the risk of declining new car prices. While this strategy resulted in a lower revenue compared to last year, that is RMB64.42 million in Q1 this year, it ensured profitability for the company. Our operating profit was RMB74.15 I mean RMB74 point one five million and net profit was RMB90.03 million.

Speaker 1

We maintained financial stability in a challenging macroeconomic environment through strict cost controls and risk management. We closely monitored liquidity and liabilities, reducing our total outstanding facilitated financing balance to RMB7.586 billion by the end of Q1, and our delinquency ratios remain low at 2 point 8 7% for M1 plus and 1.51 percent for M3 plus as of March 31, indicating strong asset quality. Q1 also saw the successful integration of Cango U Car, strengthening our platform competitiveness in several ways. We secured a consistent supply of high quality vehicles and dealer service experiences and supply chain management were optimized. Cross region deliveries became more convenient and secure.

Speaker 1

Kangou Yuka achieved impressive growth in Q1 2024. The platform expanded its reach to 8,459 registered card retailers across 31 provinces and 2 51 cities in China. It generated significant user engagement with over 130,000,000 accumulated page views. The platform also facilitated 124 auctions and 204 facilitated dues. And we ramped up our vehicle offerings and transactions in Q1 2024 with strengthened partnerships with existing stores and brought on our platform high quality third party vendors nationwide, creating a more diverse and stable vehicle pipeline.

Speaker 1

Also, we boosted transaction volume by hosting 42 auction events and special sales throughout the quarter. We differentiated Kangoyouka in Q1 through an enhanced membership ecosystem and premium services. We developed a more attractive membership program with exclusive benefits to boost dealer engagement and loyalty. We launched an MCN pilot program in Q1, helping dealers transition to an online plus offline marketing strategy. In addition, we introduced the hassle free purchase service in April, offering comprehensive transaction support for payments, logistics and insurance.

Speaker 1

This streamlines transactions for both buyers and sellers and improves transparency for a better member experience. In Q2, we will continue to focus on deepening user engagement, enriching platform content and expanding both our membership base and high quality vehicle inventory. In addition, we are making waves in cars for the used car market. In March, we launched the 1st of its kind information platform to connect overseas buyers from different countries and regions directly with China's high quality used car inventory. This platform fills the gap in cross border used car information services, providing valuable insights to global users.

Speaker 1

And our goal is to become the go to gateway for Chinese used cars entering the international market. Moving forward, we are committed to unlocking new growth opportunities through innovative business models. Partnering with our dealer network, we will leverage continuous innovation and meticulous management to create additional value in China's rapidly evolving auto sector. This focus will ensure the company's long term sustainable success. Next, I will turn the call over to our CFO, Michael Zhang, for a review of the company's financial performance.

Speaker 2

Thanks, Jiayuan. Hello, everyone, and welcome to our Q1 2024 earnings call. Before I started to review our financials, please note that unless otherwise stated, all numbers are in RMB terms and all percentage comparisons on a year over year basis. Total revenue in the Q1 of 2024 were $64,400,000 compared with $552,600,000 in the same period of 2023. The guarantee income, which represented a fee income earned on the non contingent aspect of guarantee, was RMB30.3 million in the Q1 of 2024.

Speaker 2

Now let's move on to our costs and expenses during the quarter. Cost of revenue in the Q1 decreased to $29,100,000 from $480,500,000 in the same period 2023 As a percentage of total revenue, cost of revenue in the Q1 of 2024 was 45.1% compared with 88.6% in the same period 2023. Sales and marketing expenses in the Q1 decreased to $3,500,000 from $12,500,000 in the same period of 2023. General and administrative expenses in the 1st quarter decreased to $37,900,000 from $39,800,000 in the same period 2023. Research and development expenses in the Q1 decreased to $1,100,000 from $8,100,000 in the same period 2023.

Speaker 2

Net gain on contingent risk assurance liability in the Q1 was $15,000,000 compared with $1,600,000 in the same period 2023. The gain was recognized due to the release of obligations from the contingent aspects of the risk assurance liabilities. Net recovery on provision for credit losses in the Q1 was $66,300,000 The recovery was primarily due to the positive impact from the corrections of financing receivables. We recorded $74,200,000 in income from operations in the Q1 2024, compared with $51,800,000 in the same period 2023. Net income in the Q1 was 90,000,000 dollars Non GAAP adjusted net income in the Q1 was $95,700,000 On a per share basis, basic and diluted net income per ADS in the Q1 of 2024 were 0.85 and 0.8, respectively, and non GAAP adjusted basic and diluted net income per ADS in the same period was 0.91 and 0.85, respectively.

Speaker 2

Moving on to our balance sheet. As of March 31, 2024, the company had cash and cash equivalents of RMB1.2 billion compared with RMB1 1,000,000,000 as December 31, 2023. As of March 31, 2024, the company had a short term investment of RMB2.3 billion compared with RMB635.1 million as of December 31, 2023. The increase was mainly due to the conversion from restricted cash bank deposit held for short term investments of RMB1670 1,000,000 on December 31, 2023, after the company completed its subscription process. Looking ahead to the Q2 of 2024, we are now predicting our total revenues to be between $35,000,000 $45,000,000 Please note that this forecast reflects our current and preliminary view on the market and operational conditions, which are subject to change.

Speaker 2

This concludes our prepared remarks. Operator, we are now ready to take questions.

Operator

Thank you. Thank you. Our first question comes from Qinghai Wu from Citic Securities. Please go ahead.

Speaker 1

Thank you. My name is Ping Yan from Citiq. I have a question. The first question is that recently the government launched a subsidy program for the trading programs in order to encourage the consumption. So does the company believe that this will help drive the recovery and growth of the automobile market?

Speaker 1

And if possible, could you give us a specific number you're measuring the degree of impact of this policy on the demand for vehicles or for automobiles? Thank you very much for your question. So, in our view, the government's trading subsidy program creates a positive tailwind for the auto market recovery. And these subsidies act as an incentive for consumers, especially those already considering an upgrade or to trading their older vehicles. This could indeed lead to a significant boost in demand for new cars, which benefits our

Speaker 2

company.

Speaker 1

While the trading subsidy is a positive step, we shouldn't underestimate the broader challenges facing the auto market. Consumer confidence and overall economic conditions will likely take time to improve, potentially limiting the program's immediate impact on new car demand. We commend the State Council and the Ministry of Commerce's efforts, but a comprehensive approach that addresses those other factors will be crucial for a sustained market recovery. And my second question is, we noticed the company's Pengoyuka was upgraded in April. So are there any new features after the upgrade?

Speaker 1

Yes, the latest version of Kangoo You car features our newly added hassle free purchase service, which provides large car dealers with more comprehensive and reliable solutions. We've also enhanced the Kangol Youkai experience for our members with 2 exciting features. The first is the exclusive membership section. Members now have access to a curated selection of premium vehicles nationwide, and these vehicles are all under 3 years old and have fewer than 50,000 kilometers ensuring top quality, plus they are offered at competitive prices compared to industry standards. And second feature is improved in app communication.

Speaker 1

With just one click, members now can connect with sellers directly within the app. This streamlines communication and boosts transaction efficiency.

Operator

The next question comes from Emerson Zhao from Goldman Sachs.

Speaker 1

Thank you. I'm Emerson Zhou from Goldman Sachs. I have two questions. The first question is we noticed that your company has decreased your new car procurement. So what will the revenue sources look like moving forward?

Speaker 1

And my second question is the company returned to profitability this quarter and holds a significant amount of cash. So will there be any plans for dividend payout? Thank you for your questions. So on your first question, we strategically adapted to a changing market by streamlining our self operated new car business. While this segment previously generated significant revenue, it offered lower profit margins.

Speaker 1

And this proactive shift has led to a decrease in total revenue, but our core business has transitioned to facilitation services with much higher gross profit margin due to a leaner cost structure. So our evolving business model and optimized revenue structure have boosted profitability, laying a solid foundation for long term sustainable growth. On your second question about dividend payout, since going public, the company has been consistently rewarding shareholders with dividends, reflecting our commitment to shared success. Looking ahead, we will strategically plan future dividend allocations, considering our evolving business and cash flow requirements. Thank you.

Operator

Thank you. That concludes the question and answer session. Thank you once again for joining Cango's Q1 2024 earnings conference call today. Have a great day.

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