Joint Stock Company Kaspi.kz Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 22, 2024

There are 10 speakers on the call.

Operator

Hello, and welcome to the Kaspi KZ Second Quarter First Half Financial Results Conference Call. My name is Elliot, and I'll be your coordinator today. I would now like to turn the call over to David Ferguson. Please go ahead.

Speaker 1

Thanks, Elliot. Good afternoon, good morning, everybody. I'm David Ferguson from CASB. Welcome to our 2Q first half twenty twenty four financial results. As usual, joining me on the call, I have our CEO and Co Founder, Mikhail Lomtarta our CFO, Tengiz Mercidis and our Head of Capital Markets, Yuriy Dudenko.

Speaker 1

Standard sort of procedure for the call, Mikhail will take you through the strategic product updates. I'll run you quickly through the financials and the guidance for the remainder of the year, then we'll open the call up to Q and A. So on that note, handing over to you, Michal. Over to you.

Speaker 2

Hello, everyone. So pleased to report our 2nd Q results performance. So we have done pretty well in the second quarter and for the first half year 2024. Pretty much see the growth Petro Solar Businesses And then new services showing a remarkable growth. Obviously, all that is a result of our team's historically known execution capabilities.

Speaker 2

Our consumers continue sort of strong engagement. So we have 72 monthly transactions per active consumer. And that's an important as we build on this engagement of the platforms and individual services, and this is really driving our innovation. So the payments TPV is up 32% year over year, shows the growth is strong on top of a really sort of big business, revenue up 23% and the net income up 22%. Marketplace has been showing a very strong performance and now is our fastest growing business.

Speaker 2

GMV is up 62% year over year and revenue 96% and net income 68%. And again, marketplace is something which really excites us because that's a business where we add the value of connecting the sellers and merchants and most of the innovations from us actually will be coming from our marketplace business. Fintech, growing nicely on the TST, 43% year over year, revenue 23% and net income plus 2%. As TSC, which is basically the volumes of our origination are growing very nicely. You would actually see in the 3rd Q and the rest of the year quite rapid acceleration of our net income.

Speaker 2

And on top of it, the interest costs and interest rates have been going down. And as a result, you will see profits going through our P and L and the net income growth accelerating. Our consolidated revenue consolidated financials showing very strong performance. So, our revenue 36% up year over year and the net income is 25% up. We have been historically sort of diversifying across our 3 platforms and happy to report they are more or less equal now in size.

Speaker 2

So, 68% comes from payments in the marketplace And the marketplace and the payments have been historically growing faster than Fintech. And now marketplace is the one that grows fastest from all three. So we're really excited about this diversification is from all three and really excited about the new services, which actually also driving our growth. In terms of the e grocery, we just started a couple of years ago. We're really excited about this business.

Speaker 2

Execution skills are top quality from our team across operations, marketing, the product and the user experience. So you can see that active consumers now reached 639,000 consumers in the 2nd Q, almost doubled the GMV, 99% growth and average ticket remains very high of 14,000, which is basically the weekly purchase. So it's not a quick commerce sort of small ticket transactions. And then in terms of number of purchases, we bypassed 2,000,000 purchases in the Q2 and up 83% from the last year. We are expanding our existing dark stores, which means just adding more capacity.

Speaker 2

We always work on 2 fronts. Number 1 is increase the capacity, which means increase the size of existing dark stores, but also work on the efficiency, which means throughput rate of the dark stores. And both are giving us very good results, but demand is so high from our consumers that we are now investing into building another large dark store in Almaty. And as a result, we will be able to basically support the growth and the demand we have from consumers. We are now present in 3 largest cities, Almaty, Astana and Shimpkent and those cities represent roughly about half of the total food retail trade in the country.

Speaker 2

So for the remaining of this year, those cities would be our priority. And again, we're just continuing executive. Consumers are divided. Demand is extremely strong. So we are just scaling in terms of the capacity building the new dark stores, but also expanding the capacity of existing dark stores.

Speaker 2

So really excited about this business and the growth rates that we're achieving. Again, on the back of the consumers loving the service and we have a very strong demand in this vertical. We have been also scaling from last year another new service, which is vacation packages, incredible growth, 6 44% from last year. This is the business when our consumers basically can book their vacations across several countries and now we are going into the season and the growth is really due to the fact that we have a very strong seasonal offering pretty much from every tour operator in the country. The good thing about this service is not just that it gives us volumes and consumers love it, but also it's a high take rate business for our travel.

Speaker 2

So it's really enhancing take rate and that business in the 2nd Q is showing 7.9% take rate. So we're really excited. We're still going into the season. So summer will be strong, because differently from many other countries, our consumers actually don't plan their vacation sort of 6 months ahead. So they usually plan in a month, several weeks before actually taking the vacation.

Speaker 2

So there is a very good season in front of us, really excited about this business. We are continuing scaling and innovating across the value added services. So, as you can see, we have increased dramatically the size of that business that's advertising, classifieds and delivery. So, almost more than 4 times increase from last year. And now out of 9.5% of total take rate in the marketplace, 1.6% is actually coming from the added value services and that compared to 0.6% of last year.

Speaker 2

Again, added value services in our case is the services which we develop for merchants, so they can promote their products, they can deliver their products across the country. And the reason why we call them value added because actually they generate additional sales. And we are again, I would like to emphasize, we are carefully scaling those services because we want to make sure they add value to our merchants. But even with such a careful scaling, it's showing a remarkable result. So we're really excited about innovations which come in from us and for our merchants in those spheres.

Speaker 2

This example of the recent launch is the brand advertising. So this is the service which we just basically launched that's a service for the brands or the merchants that have their own brands and advertising agencies. So, you can increase the brand awareness by launching this service. You can sort of go from very simple steps. You basically create the campaign.

Speaker 2

You sort of select the products which you would like to promote. You select the sellers, which you believe should be participant of your promotional campaign, then you upload your materials, which are banners to be shown in different locations of our CasterK's ad super app and then you can see your ads in our mobile application. So, that's a service which we like because we are actually going after different revenue stream. We are going after digital and online marketing services, which come from the global brands, local brands and some of the merchants that actually are promoting their own brands. And just to remind everyone, that's a second service, because our initial service, which we have launched for merchants, was to promote their own products.

Speaker 2

So that's the different segments. If I'm the merchant, I want to increase the sales. I want to increase sales of the specific products. I use product advertising. However, if I am a brand, advertising agency or the merchants with my own brand, then I use brand advertising and that really is all about top of mind, promoting brand awareness, views and things like that.

Speaker 2

So really excited about this addition and reception has been really good. So hopefully, that's another service, which we will continue sort of scaling successfully and developing innovations around it over time.

Speaker 1

Okay. So moving on to the financials. I'll start with the payments platform. So transactions, transaction trends remain very strong, up 46% in the second quarter, up 44% year on year in the first half. So slightly stronger in the Q2 despite again the this is, as Michal said, a pretty large business.

Speaker 1

The growth is being driven by all products led by Kaspi Pay QR, B2B, but with bill payments still very, very robust. Strong volume growth translates into therefore strong TPV growth, albeit with a lower average ticket size as consumers use us more frequently for more of their everyday needs. TPV up 32% in the second quarter, up 34% for the first half of the year. Take rate broadly stable, albeit with the impact of lower take rate, CASB Pay, QR visible at the margin. And that is a trend that we've talked about over several years.

Speaker 1

B2B payments is the fast remains the fastest growing component of payments platform up to 5% of TPV from 0 just 2.5 years ago, but with a long runway ahead, both in its own right and in terms of the other products and services that can naturally open book. Strong transactions, strong TPV drops through to good revenue growth. Just keep in mind here that as interest rates fall, liquidity revenue grows at a slower rate than transaction revenue. So transaction revenue in the 2nd quarter up 26% year on year versus liquidity revenue up 12% year on year. Overall, payments revenue for the quarter up 23% year on year and up 24% for the first half of the year.

Speaker 1

Tight cost control is ensuring that that strong top line drops through to the bottom line. I think overall, the message on Payments platform is that it is comfortably on track for delivering on the full year guidance. So moving on to the marketplace platform. As with payments, marketplace transactions remain or purchases remain strong and consistent, up 38% in the 2nd quarter, up 36% for the first half of the year. The difference versus payments is higher ticket size, so that translates into faster GMV growth, up 62% year on year for both the second and first half of the year.

Speaker 1

E commerce is the fastest growing component of marketplace, now almost half of marketplace GMV, 45% in the first half of the year. And tape rate moving up on the back of promotional events, namely Caspi Juma, but also the value added services that Mikael talked about. So take rate of 100 bps both in the quarter, second quarter and for the first half of the year. Looking at the individual components, e commerce, e commerce GMV up 113% in the second quarter, a similar number for the first half of the year. So, e commerce demand very, very strong, driven by number 1, e grocery number 2, general goods and the promotional campaigns that we're running in the value added services, delivery and advertising driving take rate of 30 basis points in the second quarter and up 60 basis points for the first half of the year.

Speaker 1

We're just flagging here, we talked about we introduced Caspi poster mats around 2 to 3 years ago as a key strategic initiative. And just flagging now is sort of past that milestone, 50% of e commerce orders delivered via post maps. So this is important because the initiative is proved extremely popular from a consumer perspective. Consumers like the convenience of poster mass and important for merchants because it's more efficient. It's bringing the cost of last mile delivery down.

Speaker 1

So, adoption has been highly successful. We're targeting 7,000 poster maps by the end of this year. So, there's still more we can do with this initiative. CASB Travel, decent GMV growth during both the quarter and the half of 33% 38%, respectively. Tours are now up to 8% of GMV in the first half.

Speaker 1

And tours are not only GMV growth enhancing, but are also take rate enhancing as well. And then moving on to m Commerce. M Commerce in the first half of this year has seen very, very strong GMV momentum, particularly as a result of the promotional campaigns that have driven higher ticket size GMV ahead of purchases and have also driven higher take rates, 100 bps, both in the second quarter and in the first half

Speaker 3

of the

Speaker 1

year. It's probably worth at this point just flagging that on marketplace, particularly promotional events, Tumor. Tumor will take place 3 times this year. It took place in Q1. It took place in Q2 and it will take place in Q4.

Speaker 1

Last year, it took place 2x in Q3 and Q4. So what that means for Q3, it's the only quarter of this year without tumor, number 1. And number 2, the comp is tough because it's up against the tumor events that took place in the Q3 of last year. The implications of that for the Q3 will be GMV growth at a lower rate and lower profitability before then a strong rebound in the Q4. The decision to hold Juma 3 times a year is just a reflection.

Speaker 1

The assortments on marketplace has expanded dramatically over the last couple of years. That includes items with high seasonality like, for example, packaged tours. And by holding the event at 3 times during the year, it gives us the opportunity to focus on the right seasonal assortment at the right time. Packaged tours, for example, are a big focus in the June JUMA. So, this is something that is reflected in the full year guidance, but when you're trying to think about the phasing between Q3 and Q4, it's something to keep in mind.

Speaker 1

I suppose it's also worth saying that for FinTech and TFE, which is a big component of the Juma promotional campaigns, that also means you'll see lower TFV growth in the Q3, but again, then the strong rebound in the Q4 and as we go into 2025. For the Q2, what you see is that the strong volume trends, higher ticket size, faster GMV growth, with take rate expansion translates into even faster revenue growth for marketplace of 96% in the 2nd quarter, over 100% for the first half of the year. And even with rapid growth from 1P, eGrocery and eCARS, net income up 68% in the 2nd quarter and up 72% for the full year. So again, here for the full year guidance that we've provided, marketplace very, very much on track. Finally, moving on to the FinTech platform.

Speaker 1

A strong TFB origination has been a theme for the last 2 years. That continues to be the case, driven by strong growth in marketplace and specifically linked to buy now pay later and merchant financing. So TFB growth of 43% in the 2nd quarter, 45% in the second half in the first half of the year. Portfolio conversion stable, so that tells you that customer behavior is normal. They are repaying quickly and in a consistent manager manner, average loan term just over 5 months.

Speaker 1

And going forward, we still think that merchant financing, whilst it's now sizable at 17% of our TFB origination, It's the fastest growing component and the backdrop is still an underpenetrated market opportunity. So there's a lot more we can do there. In the first half of this year, for the first time in several years, net loan portfolio grew faster than deposits in the 2nd quarter, loan portfolio up 42% versus deposits of 26%, similar trends for the first half of the year. What that's meant is that the loan to deposit ratio has moved up from 74% to 85%. The implication of that will be particularly from Q3 and again in Q4, you'll see a step up in the profitability of the FinTech platform.

Speaker 1

And again, that will be a run rate going into when you're thinking about 2025 growth. FinTech yield is lower as a result of BNPL and Merchant financing growing share within the mix. And again, that's something that we've talked about as a long run trend that's been playing out over several years. In terms of risk metrics, whether you look at defaults, losses, collections, I think the message here is very simple that the trends are low and consistently stable. And again, that mirrors itself in cost of risk metrics broadly stable year on year at 0.6%, on track for around 2% this year.

Speaker 1

And NPLs again broadly stable versus the beginning of the year, 5.6% versus 5.5% at the beginning of the year and down from 6% this time 12 months ago. NPL coverage is lower in the Q2, but over the course of the year should trend consistently with what you've seen in previous years, so around 98%, 99%. The combination of strong origination over the last 2 years, albeit with slightly lower yield, translates into decent healthy FinTech revenue growth of 23% 25% for 2nd quarter and first half respectively. We lowered interest rates for the first time at the end of February. The deposit base takes 12 months to reprice fully.

Speaker 1

So, at this stage in Q2, you don't see the rebound in net income and FinTech profitability, but you will see that in Q3. And again, you'll see it to a greater extent in Q4. So again, you've got those moving parts in Q3. For marketplace, you've got lower GMV growth and lower profitability rebounding in Q4. For FinTech, you've got lower TFE, limited near term P and L implications of that, where you'll see the strong rebound in FinTech profitability kicking in.

Speaker 1

So again, sort of as I said, different parts moving in different directions. But overall, FinTech also comfortably on track for the full year guidance that we've provided. So here is the consolidated performance. I think the summaries the divisional platform summaries that I've given sort of are clear. A dividend of $850,000,000 declared.

Speaker 1

Just a message here remains consistent that whilst we have excess capital, we're happy to return it to our shareholders. In the press release, we do say that we're working hard to expand CASB outside of Kazakhstan. And when we think both the time and opportunity is right, we won't hesitate to deploy capital in that way. So that's just to sort of preempt any questions around higher dividends, buybacks. That's the sort of the message on capital allocation priorities.

Speaker 1

Here is the guidance for the remainder of the year. So each of the respective platforms on track, CASB KZ on track for 25% net income growth for 2024. So overall, we expect to deliver another strong year, albeit that we'll be phasing the growth in the second half will be Q4 weighted. That's it. So maybe, Elliot, we can open the call up to Q and A, please.

Speaker 1

Thank you.

Operator

Our first question today comes from Darrin Peller with Wolfe Research. Your line is open. Please go ahead.

Speaker 4

Guys, thanks. Some of these initiatives are great to see the momentum on, but I just wanted to first touch on a financial question. And I know you hinted or touched on that a little bit just at the end there, but you're reiterating your fiscal year expectations. Obviously, the underlying assumptions call for somewhat of a deceleration in second half relative to first half just given the guide on the segment level detail relative to first half growth rate. So if you could just help us understand if it's just comps and maybe building in some element of conservatism given how strong some of the trends have been in first half.

Speaker 4

So we understand the second half cadence, if there's any nuances on a per segment basis we should keep in mind? Thanks.

Speaker 1

All right, Darren. I think sort of really I'll just reiterate what I've said there. So I think the key things you need to be aware of when you're thinking about Q3, Q4 is the Jumu promotional event. It's important. And what's different this year is it's taking place 3 times.

Speaker 1

It only took place 2 times last year. And the phasing of marketing campaigns can always vary. This year, those campaigns are taking place in Q1, Q2 and Q4. Last year, those campaigns took place in Q3 and Q4. So, the point really is that Q3 is the quarter without that sort of big important promotional event.

Speaker 1

It manifests itself in a number of ways. It manifests itself in lower GMV growth, lower marketplace profitability, lower TFV growth, although the nature of TFV, it feeds into the P and L over a longer period of time. So from a P and L implication, it's not material in the Q3. You've also got the added dynamic not related to Jumor, just the rebound in profitability in the Fintech division starting from the Q3 of this year. But the takeaway ultimately is you will see lower growth across the board, across payments sorry, across marketplace and for the group as a whole in the Q3, significantly higher growth in the Q4.

Speaker 1

And that's important because that gives you a sense of the run rate going into 2025. But the full year guidance that you have, that's the right number that you should be working to. So to your point about conservatism, use that as your number. It's realistic guidance.

Speaker 4

All right. Thank you, David. Just one quick follow-up on the international efforts and aspirations. I know last time we spoke, there was a hope that it could come as early as maybe even the end of this year into next year in terms of some sort of momentum on any of those fronts. Any update there in terms of progress or just a sense of opportunities you're looking at and regions you're seeing the most opportunity in?

Speaker 1

Yes. Michal?

Speaker 2

Sure. Hi, Dan. Thank you for your question. I mean, in general, I would say that we continue working on this just to reinforce basically our really the desire and capability to bring this business outside of Kazakhstan. As some people are saying during our discussions, basically bring the custom magic to other markets.

Speaker 2

And the good news is that we are passing basically, we're not pursuing some opportunities, just to tell you that how selective we are and there is a healthy pipeline of some of the companies we're working on. I wouldn't speculate about region or a specific target that we would like to work on or we're working on at the moment. But yes, but we are clearly sort of working on this, putting our resources at the time mostly and working with advisors and different opportunities basically. So but we are again, careful. We want to make sure that we get it right.

Speaker 2

We want to make sure that the company and the market we look at, there is added value from us, again, from knowledge, technology, experience perspective. But I think we are at the stage when we're also lucky that some of the companies and the targets we look at are really high quality companies and high quality targets, which means we're looking at how we can complement to those companies' management teams to become even better considering Castis' unique experience technology and the business model. So again, really excited. We're working on it. At the moment, can't really tell you any specifics of any project that we're executing.

Operator

Our next question comes from Reggie Smith with JPMorgan. Your line is open. Please go ahead.

Speaker 5

Hey, good morning. Thanks for taking the question. I appreciate the color on the brand advertising launch.

Speaker 2

I was hoping to get a

Speaker 5

little bit more. Did you guys say exactly when that went live? Mostly curious about how many brands are on the platform today. And maybe talk a little bit about the process of adding brands. I'm not sure if you've got a outreach program to sales or like I'm curious how that actually how that plays out?

Speaker 5

Thank you. I've got a follow-up.

Speaker 2

Sure, Roger. Thanks for your question. Basically, we are in a really interesting position as a company in a sense that some of the ideas are really coming from the use cases that we already have and they are almost requests from our merchants or the brands whether we could launch the services. So that's something which is really exciting to be in the type of position as we are, because when basically what that means when we launch the service, there is already market for it. So that's why it's exciting.

Speaker 2

The brand advertising, we are at the moment, it's at the scaling stage, already have FMCG brands working with us just because we have become one of the largest cross orders in the country and not just in Almaty with the fastest growth compared to anyone on the market. So the brands on FMCG side basically are working with us on the advertising and they already have the contracts in place with them. So you will see a very healthy growth on the side of the brands, which are selling grocery through us. On the other hand, general goods, the same brands, I mean, I've just shown the Samsung as an example, it's actually one of the brands that is working with us as we speak. And on the general goods, there are pretty much either the brands which are sort of global or the merchants which have their own which they have which have their own brands, you know, like locally selling basically, they want to promote the awareness.

Speaker 2

In terms of the size of this opportunity, I would say that something which and another it's a good question that you asked, because another thing you need to keep in mind, we're launching the product when most of the brands have allocated budgets to this type of advertising, especially to global players. They make these decisions end of the year. So, and even in this environment, we're able to successfully scale. So, opportunity is, in my sort of opinion, probably equal to the size of the, if not more of the opportunity when merchants are promoting their own goods. So, yes, so it's a big it's really a big opportunity and we're just sort of scaling it and it's not reflected in the numbers which you see in advertising.

Speaker 2

The numbers at the moment are not material, but they will be growing really fast the second half of the year because we have contracts in place already with those brands. So, kind of Yes, and how are we thinking

Speaker 5

about Yes, it sounds like a really good business. How are you thinking about KPIs for that segment? I know it's early days, you may not have anything mapped out, but maybe you could share there. And I have one follow-up after that, sorry.

Speaker 2

It's I mean, this is really different. I mean, for the KPI, which we or let's say, the targets that we have sort of on the quality level on the merchant when merchants are advertising their goods directly, This is their own listings in our marketplace. Here, we are making sure that it's efficient. So they get the sales and they don't overspend. And so, that's something which is very important for us on the goods advertising side of things.

Speaker 2

And the revenue stream there comes from the merchants themselves as a part of their GMV, which they sell for us. So for example, just one example, if we see the merchants exceeding sort of 5 work with work with the merchants to make sure that this is something which they really want because then the profitability of their business has to be respect, right, right, in the 5%. Not many merchants can really afford to invest into marketing and advertising. So, we just need to make sure they understand the product and if anything we can improve. So, that's on the side when actually merchants are launching their own listings and it's called sort of product advertising.

Speaker 2

When we're talking about the brands, that's actually is a different service altogether because that's brands, they actually want to promote the brand awareness, whatever the global FMCG players or the local brands. And that means they are not necessarily looking just for sales straightaway, but they are looking for people to know the brand and the monetization there is really more on the views rather than on the sales. And they have budgets allocated also globally. So, that's basically is very big difference. And also from a consumer perspective, it's a different product.

Speaker 2

The goods advertising is like Amazon ads or Google when you have the products in the listings when you search in our app. And the brand advertising is the visual. So, we started from banners. When you see the item, you see the brand sort of, and then you go to the products after you click the banner. It's a different object, it's a different real estate of the app, and therefore, it's a different pricing, and it's a different revenue stream and it's a different payers, brands payers or advertising agencies.

Speaker 2

So from that perspective, we are we just need to make sure that our on the side of the brand advertising, we are more efficient and when we're competitive. So we are competing with the platforms like Instagram, for example, at the moment, which are providing this type of capabilities. And the first half show us we're number multiple times more efficient than Instagram and then the brands are happy to move their budgets to us. So that's why we're excited about this opportunity.

Speaker 5

No, that sounds exciting. If I can squeeze one more in on Jumah. I guess you always have to be careful about like fatigue there, but is this a product or an experience that you see that could happen 4 times a year, like once every quarter? And then lastly from that, what do you tend to see post Jumia? Do you see a lift in engagement and usage on the app in general?

Speaker 5

Like I was just curious if there are any positive benefits you guys see after Jumu in terms of engagement and things like that? Thanks.

Speaker 2

Yes. Well, when you think about the Jumah in general, you can compare this to like a national sort of shopping events, which happen in other countries. I mean, it would be Black Friday or Amazon Prime and the things like that. So this is really like a nationwide event and pretty much there is nothing else. So there is no other event.

Speaker 2

There is no other Black Friday. So, it's really not the Jumah where thousands of merchants really participate. So, that's number 1. Number 2 is, Zuma is great in a sense that it gives us, as you said, it's an opportunity to get uplift on the engagement. It's a concentrated 3 day shopping festival, which basically give us an ability to introduce some of the new categories we have launched, some new merchants, products.

Speaker 2

So it's really sort of the opportunity for the consumers in a very highly concentrated 3 day period to basically acquire some of the items and therefore for us to promote these new categories, which we would like to promote because it's quite big. It's also big in terms of moving consumers from offline to online. So for example, I would say that vast majority of electronics are now bought online rather than offline just because we have been able to change this sort of consumer and the merchant experience. So, all of that is basically Jumia has been quite a success. As David said, again, the number one reason why we are moving into the seasonal because different categories just have different seasonality.

Speaker 2

You move from one type of clothing to another during the spring and then you move back to another clothing during the winter. So from summer and autumn to the winter clothing or the travel. So, the variety of products is such a I mean, it's unmatched. There is no other company in the world that has such an assortment of different goods and services, which have such a high seasonality. And therefore, we basically reply to our consumer needs and the merchants.

Speaker 2

And this year, it will be a bit, I would say, unfair comparison to last year quarter on quarter. But in general, we think that 3 years is good. Answering to your question, we will see because we have another promotion, which happens in August, September, which is back to school. So it's not Jumah, but that's something which is also big. And that's why we're not really launching the 4th one sort of end of this summer beginning of autumn because we want to see how consumer demand will be shifting as a result of this multiple zoomers during the year.

Speaker 2

But once we get all these learnings, then next year will be both much easier to compare, but also it will be from our side just much more, I would say, it's not the word predictable, but much more comparable year over year. But Juma itself, it just shows incredible results really on all fronts, during the Juma and after the Juma. Shoppers continue to shop basically.

Operator

Our next question comes from James Friedman. Please announce your company name and proceed with your question.

Speaker 1

Jamie, maybe you're on mute. We can't hear you.

Speaker 6

Sorry about that, David. Good evening. It's Jamie at Susquehanna. I wanted to ask, by the way, good results here, but I had two questions about take rates. I'll just ask them upfront.

Speaker 6

So first on Slide 11, when you this is about the payments take rate. When you have this outsized growth in QR code and I think B2B, are those deflationary to take rates because I know you talked about this in the past, you talked about it today even, but wanted the perspective on take rates for payments. And then I'll just ask the other one too, which is about e commerce take rates. So how should we think about the unpacking the components of take rates in e commerce between say e grocery and general goods? So Slide 11 and Slide 16.

Speaker 6

Thank you.

Speaker 2

Do you want me to pick it up? Well, I will start with the payments and then you can jump in, right? So, James, thank you for the questions. In terms of the payments, what we have been sort of saying historically that the QR payments, which is sort of increasing network, basically the service of accepting the payments, it's a 0.95% basically, that's the fee. So what you would see that simply over time, this is something which will be getting closer to that number.

Speaker 2

We have been lucky or not lucky, I mean, because we have been diversifying the services and entering into different verticals. The take rate has been quite sustainable in general around 1.2, but we've decided to provide this more details, not just 1.2, but basically what it is, 1.19, 1.18, which is 1.24, which we had last year, just to give you that it slightly sort of gets towards bigger share of the QR payments. So that's basically how to think about the payments. There are a couple of yes, there are new things we're working on, which will be added value, which will be higher take rate, but those things on the payment side probably will come from us later in the year. So we'll be excited to share with you, but seems like very exciting services.

Speaker 2

On the e commerce side of things, the take rate that you have is basically on the 3P. So the 1P is eGrocery that's not in the take rate. So that's basically a gross profit net income business. And we basically are yes, the eGrocery, it's not part of the take rate. That's a simple answer.

Speaker 2

EGrocery itself continues extremely strong performance. Even though we're investing, it's still 7%, 8% net income margin business and our gross margin is growing in excess of 30% just because there is more demand from the consumers, but also the type of assortment strategy and relationship with the suppliers really enables us to also increase the gross margin. But eGrossery, it's not a part of the take rate. Take rate is only on 3P. David, anything you want to add?

Speaker 1

Yes. I mean, just overall, I think the message on payments take rate is that it's broadly stable. We're showing you an extra decimal point today, but I wouldn't read anything too dramatic into that. Take rate is broadly stable.

Operator

Our next question comes from Sumit Datta. Please announce your company name and proceed with your question.

Speaker 7

Yeah. Hi, there. It's Sumit Tata from New Street Research. Thanks very much for the call and the extra detail. A couple on Intech, if I could, please.

Speaker 7

Firstly, in terms of the improvement in SingTech net income through the second half, that seems to be predicated on deposit remuneration dropping back down. Can you just talk to the phasing of that? How many is that sort of rolling process where depositors kind of roll back over time? Has that sort of is that will that have played out in Q3, Q4? Anything on the phasing of that?

Speaker 7

And as a follow-up, how do you see the mid term loan to deposit ratio for the FinTech business? It's as you say, it's moved around a little bit this quarter. Just curious how you see that over time. And then if I could just on the same vertical, just Mikhail, interested in your perspective on tax increases in Kazakhstan, which I think if they go through will impact the FinTech business rather than the other businesses? Just curious what your take was on the likelihood of that happening and potential timing.

Speaker 7

Thank you.

Speaker 1

All right. Sumit, thanks for your question. Maybe I'll just try and expand on the FinTech question, FinTech profitability and then hand over to Mikael for regulation. So I'd say it's 2 things. It's 1, rates coming down.

Speaker 1

So whilst MBK rates have been coming down since the autumn of last year, our first cut in deposit rates was at the end of February. So that's the first thing. And then it's the second thing is it's the balance sheet being used more effectively or the loan to deposit ratio moving up, either because we're loaning more money or because people are spending more money and saving less or a mix of those factors. So that's why. In terms of phasing, deposit customers are repriced at maturity.

Speaker 1

It takes 12 months to work through that process. So if you think that the first rate cut was in February and it was end of February this year, it starts to be visible immediately, but it only becomes more pronounced with each month that goes by. So in Q3, for the first time, a combination of those factors, loan to deposit ratio moving up, cost of funding moving down, I think it will be visible to you. And you'll see I mean, you can yourself just simply work out what is implied by the guidance for FinTech net income growth in the second half of the year. Q4 will be more than Q3, but that sort of tells you.

Speaker 1

And longer term, there's sort of no reason why the loan deposit ratio can't move up to maximize use of all of the 10 gs liquidity that we have.

Speaker 2

Yes. And David, so thank you for your questions. I will add a bit more color in terms of our strategy and the way the products work. So, in our I mean, in our business, always consumer comes first, right? So we are very unusual compared to some traditional banks with the traditional savings deposit accounts, which means when we have the when we're increasing the rate, we're increasing the rate for everyone.

Speaker 2

So basically, we reprice deposits, of course, and everybody gets benefit of it. And when we reduce the rates, the rates are reduced over time at the maturity. So what that means in terms of the numbers, in February, we decreased the deposit rate by around 1%. And as a result, the full savings portfolio, which includes both new saving accounts and existing saving accounts, they will be repriced at this reduced rate by the February of next year. And as David said, that actually means in the 3rd Q, it will be more, in the 4th Q more, but they will be actually fully replaced in the 1st Q of next year.

Speaker 2

Our business is on the Fintech side of things also to put things into perspective, the interest rates increased over the last several years from 8% to 15% on the saving account. So that's basically when the saving interest rates will normalize. It might take a bit longer than everybody thought across pretty much most of the economies, but we will still see this natural reduction of interest expense. But the good thing about us is that we also acquired consumers with the money and we've built the capability and we have become the largest savings institution in local currency in the country during this period. So we are thinking about consumers, consumer roles always come first.

Speaker 2

So that's about the interest expense and how the savings work in our case. In terms of the loan to deposit ratio, we see a very increased flow of the new selling accounts during the end of the second quarter and the Q3. So, really excited about that again. But at the same time, the origination is growing, especially on the new products such as merchant financing. Car financing will be the fastest growing in the 3rd Q now for the online sort of products, which we are number 1 in car financing in the country as we speak.

Speaker 2

So that really will be driving our financing volumes. So loan to deposit ratio probably would be broadly stable. So that's basically about your first two questions. In terms of the taxes and in general changes in the regulatory landscape, there has been several changes, which I think might be useful for everyone to know. So, first of all, there was a change on the NPLs, which means the financial the banks or microfinance companies cannot sell their NPLs to collection companies.

Speaker 2

That was a one change. Fact we never done this. So there is no impact on us, but there has been the change in the regulation regarding selling your portfolios to collection companies. So, no impact on Caspi at this stage. Then there was a change that you cannot accrue the interest after 90 days delinquency on the consumer lending.

Speaker 2

Caspi has never been accruing interest after 90 days and already for 10 years. So, that has no impact on us as well. And the third change is an interest rate, which is currently discussed, currently is the 56%. The interchange interest rate, which is suggested is 46% for consumer lending on the both banks and the microfinance companies. And I think 100 and 70% on paid debt loans or something like that, that segment we're not playing so, but I think it's around 170%.

Speaker 2

So again, doesn't have really a material impact on us, And but that change has not been in place. It's in the process of a discussion. In terms of the taxes, I think there are several sort of projects, which and the draft of legislation change, which have been put in place and still under the discussion. And I think it's just too early to draw sort of any conclusions and discussion has been also last year and there is a general discussion also currently, but there is nothing really. If all the other things which I've said, I think that is either happened or have a realistic chance to happen in terms of the taxes is difficult to say at the moment.

Speaker 2

I think there are a lot of pros and cons and I think different government bodies are involved together with the financial institutions. The good thing about the tax changes, by the way, which I think are important, is reduction and simplification of taxes for SMEs. And that's really exciting thing, because if that taxes are simplified and reduced for small and medium enterprises, which is the majority of our merchants and both on the payments and the marketplace that will fuel another source of the growth. And I think that's an exciting piece of what's happening. In general, there is really nothing major from us to hear that would have material impact on us.

Speaker 2

If there would be something, we'll be the first one to tell you. Very clear. Thank you. Thank you.

Operator

Our next question comes from Gabor Khomeini. Please announce your company name and proceed with your question.

Speaker 8

Hello, this is Gabor Kameni from Autonomous Research. Two quick follow ups from me please. The first one is on Juma. Are you able to quantify roughly how much of the GMV in Q2 came from Juma, just to give us a sense of how much of the Q2 GMV could be recurring and possibly if you have a budget for the Q4, Juma, you are planning, please? And the other question was on cost of risk, which I believe is slightly higher this time, maybe around 2.45% if we annualize?

Speaker 8

I mean, you mentioned resilient asset quality, but is there anything specific you can call out? Like have you set aside overlay provisions or any reasons for the slight increase? Thank you.

Speaker 2

Okay. So, in terms of JUMA, we've historically suggested that in general, that's roughly about 15% sort of 20% of our JV of that month, roughly in the increase. I think it's difficult to extrapolate for this year, right, because again, the seasonality has changed and the G and D is different because again, different seasonal products, assortment is different. So you should really just sort of bear with us through the year and we'll give you sort of more details, especially let's see how the QT performs because there are changes on all fronts before XUMA, after XUMA. Basically, consumers are waiting for XUMA, so they are making more purchases during 3 days, but afterwards, they continue to buying more in a different verticals.

Speaker 2

And yes, so I think historic performance has been it would be different from what we have this year. Basically, 2 Jumas in the 6 months of this year, there would be substantially more than 1 Jumas that we had in the summer. So but again, I think we'll provide you details as we go through. We just would like to see how the merchant and the consumer behavior is changing with our seasonal approach and the strategy. In terms of cost of risk, I mean, our sort of guidance is and the cost of risk, we are we see no indication of having anything really to report.

Speaker 2

So there is some seasonality on some specific products, like merchant financing is already sort of 17% of our business. And so seasonality plays a bit differently. But for the year and especially in the 3rd Q, we have no reasons to be concerned about the cost of risk. So it's stable that you will see basically no increase. I mean, I can put it backwards.

Speaker 8

Thank you, Mikael. Just a quick clarification here. When you said 15% to 20% a month, your previous guidance for Juma, was that So should that be like a quarter? Sorry, should that be like a 3rd for the quarter? So is this a monthly number?

Speaker 2

Let us give you details. I just don't want to tell you something, which wouldn't be the right number.

Operator

Number. Our next question comes from Mikhail Butkov. Please announce your company name and proceed with your question.

Speaker 3

Good day. Thank you very much for the presentation. I have two questions. One is a clarification on the deposit side. Just what is the average duration of your deposits?

Speaker 3

And also, what do you see the other players on the market also reducing the deposit costs right now? What is the competitive landscape on the deposit pricing, which is here right now? It's the first question. And the second question, we could see in some articles that there were some like investor interest to build large warehouses in Kazakhstan and in Almaty to make it a hub for international deliveries into the Central Asia and into the Europe. Do you see any way how the CASB can benefit from this cross border potential deliveries, e commerce?

Speaker 3

Is it something that you at all consider in your pipeline for the international expansion, the cross border sales, I mean? Thank you.

Speaker 2

So in terms of deposits, I mean, our deposit is quite straightforward, is basically an annual deposit. So So it's a very simple product. And at the moment, we have only one product on the market. So we are unusual compared to everybody else, because everybody else, they have, I don't know, they have different type of deposits and they might have deposit for winter, deposit for spring, summer, whatever, and we just have one deposit because we believe people just want to basically make money on the liquidity which they have and therefore we've launched a simple product and everybody is pricing of our product. So from that perspective, I would say, we are more or less in the market.

Speaker 2

If we reduce the rate, then most of the people usually reduce it. So that's regarding the deposits. In general, we are not thinking like traditional institution, we are not thinking just purely in terms of cost of funding, we are thinking in terms of consumers and the quality of the engagement. We know that consumers with the money and the ability to shop and buy are the best consumers for our marketplace and the rest of our products. So that's regarding the savings accounts.

Speaker 2

Regarding the in general e commerce infrastructure, I think it's in general, it's a great news because that's something which will be sort of promoting the another wave of the e commerce growth on the market. We are having and sort of building the quite a significant size warehouses now for our e grocery. So that's not something which is new for us. I mean, during some of the investors, we have the treat we have showed some of the operations, which I think are quite impressive and they're actually large. It's not like it's like basically a big sort of 10,000 square meter kind of warehouses.

Speaker 2

And yes, so we use that only for eGrocery at this stage. In terms of cross border, that's something which is interesting to explore. We are careful about it in a sense that we are in the business to promote the local merchants and we are doing everything to help them to develop. And as a result, that's essential part of our strategy. So, for example, if we would be flooding our marketplace with some sort of cheap not branded items that will be detrimental to our merchants.

Speaker 2

And we have been able historically and successfully compete with other marketplaces and stand our grounds. But again, we're not standing either also, which I do or whatever. I don't know how to say English word. But we are basically working on different ways to support the local merchants, and the cross border might be interesting from that perspective for us. But we're not going to ourselves directly go into the cross border, at least at this stage.

Speaker 2

Okay. Thank you very much. We support local merchants. And some of the warehouses, which have been built in Kazakhstan, they're also for the not just for Kazakhstan itself, but for maybe some regional ambitions, I don't know. But these warehouses have been built for a long time already.

Speaker 2

So when you see when you read me something in the press, you should come and see the warehouses themselves.

Operator

Yes.

Speaker 3

But, yes, great, great, great. Thank you very much for the color provided on this. Thank you.

Operator

Our next question comes from Cande Meir.

Speaker 9

This is Dan with Wood and Company. I wanted to ask 2 questions. Can you maybe describe the e cars business model and your value add there, Mikael, because e cars is now a substantial portion of the e commerce GMV. So I think that would help. And also in e grocery, can you discuss the business model?

Speaker 9

It's been a growing business, but I mean, I personally don't know what the business model there exactly. And do you also offer BNPLs for e grocery purchase as well? That's the other question about e groceries. Thank you very much.

Speaker 2

Okay. So, bunch of questions about our business model. I will take step back for the second. And before going to the specific verticals, I would mention that we are going now and really excited about it is we are going into specific verticals and building our use cases on the specific user experience, right? So basically buying a I don't know, buying a package vacation, for example, is not the same as buying iPhone or a car or pumpers for the kids.

Speaker 2

So really different user experience. So we've started that with an issue with the travel, then we went into the grocery and then we went into the cars. And what you would see over time from us and maybe second half of this year, really cool ideas about what else we're doing around specific verticals in our marketplace. So we're just pulling out a specific need of a consumer and merchant and we are creating the user experience, which is specifically designed for that vertical. So that's the general the way we're creating this new wave of innovation across our services, which will continue sort of supporting our growth in Kazakhstan.

Speaker 2

In terms of the cars, the way you should think about the cars really is, if you combine together, I would take the U. S. Market as an example, if you combine together Carvana, CarMax in a certain sense, like the biggest sort of one is fully online dealer. The biggest after trader, I think, is the biggest classifier, if I'm not mistaken, in the U. S.

Speaker 2

And then you would combine some platform, which sells the spare parts, which I think nobody has been successful in many other countries and here we are working really hard to crack that. So that's a huge market. And now you're thinking in our car marketplace and on top of GMV generating businesses, it does seem that you don't really know much about our business, but things like drivers can issue the driving license in our app, They can register car ownership. They can pay car taxes so that they can buy tires. So there is or they can buy car, actually car.

Speaker 2

So there is a lot they can get car financed. So there's a huge universe of different services around the car. So we are excited about that business just because it's after an apartment, the real estate, probably the biggest household spending, both buying, servicing, maintaining the car and selling it afterwards. And we are in this market and we started to this strategy from acquiring the largest car classified business last year. So, now we're basically number 1 player in the car vertical, but we're just starting to innovate because there are some things we're really excited about maintaining and serving the car vertical.

Speaker 2

So that's about the car.

Speaker 9

So e cars, just to clarify, so e cars is actually the business you got with Colessa, did I understand it? Fortunately.

Speaker 2

In the e cars, we combine together, we're number 1 in tires. So that is you could actually see in our first two numbers the breakdown, I think, we provided breakdown for spare parts, cars 1P, car 3P. Got it. So it's pretty much everything around selling and servicing cars. And we're number 1 in car sales, we're number 1 in tire sales as we speak and we inspired to become number 1 in the spare part sales And other services that you can imagine around the car.

Speaker 2

I don't want to talk too much about some of the things we are working on. So it's everything around the cars, whatever you can imagine, fueling your car, everything around the car. So will be some cool stuff talking later this year about it. The grocery is pretty much e grocery business. We went into the business.

Speaker 2

We have around 10,000 SKUs. We deliver you weekly purchase home and we are working directly with the suppliers and whatever, Amazon Fresh, something like that. And the main difference of our business compared to many other businesses globally that we have been able to make it in just 12 months, 7%, I think 7% net income margin business. So it's profitable, it's growing and actually we are our challenge is to cope with the demand because there is such a strong demand for that service. And this is a huge market that we're talking about sort of the $14,000,000,000 to 15 $1,000,000,000 market in front of us.

Speaker 2

So and we are in 3 cities and we just started 1 city in spring of this year. So that's something which we'll be scaling. And it includes delivery, it includes stock store, everything relationship with FMCG brands to our marketing platform, but also with the brands and suppliers and distributors. And we are the biggest grocery player, I think, now in Almaty already. So we're really excited about that.

Speaker 2

So that's about the grocery business. I'm not sure if you had any other question, but

Speaker 9

The last question was, do you also offer BNPLs for grocery purchases?

Speaker 2

Well, I mean, BNPL in our case is basically a substitute of a credit card, right? So we offer our consumers an ability to have the payment options which are related to your own money or the NPL. So consumers decide. And what happens with the consumers is consumers don't use the NPL actually for grocery, because that's a small ticket, relatively small ticket transaction and they actually prefer to pay with their own money. But our consumers have a choice of using any payment option they want.

Speaker 2

And we basically completely killed the credit card business because we make approval within 99% and whatever seconds, less than 2 seconds, I think. And it can be it basically people don't need the credit card, which has a fees and non transparent products pricing. And as far as Amphen Sharp credit card business does not exist in Kazakhstan anymore, just because we build such incredible transparent product for our consumers.

Speaker 9

Okay. Thank you, Mikhail.

Speaker 2

Thank you.

Operator

That's all the time we have for our Q and A. I'll now hand back to David Folkestone for any final remarks.

Speaker 1

All right. So thanks, Elliot. Thank you, everyone, for your time. Thank you for your questions. Let's wrap it up for today.

Speaker 1

Happy to take any further questions offline. But if not, thank you and speak to you in the autumn. Thanks a lot. Bye bye.

Speaker 2

Thank you. Have a

Operator

good afternoon. Thank you, everyone. Thank you, everyone. This concludes today's webinar. You may now disconnect from the call.

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Earnings Conference Call
Joint Stock Company Kaspi.kz Q2 2024
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