Baozun Inc.

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Good morning, ladies and gentlemen, and thank you for standing by for the Balsam's Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded. I will now turn the meeting over to your host for today's call, Ms. Wendy Sun, Senior Director of Corporate Development and Investor Relations of Baozhen. Please proceed, Wendy.

Thank you, operator. Hello, everyone, and thank you for joining us today. Our sub-quarter 2022 earnings release was distributed earlier this and it is available on our IR website at ir.baozhen.com, as well as on global newsware services. We have also posted a PowerPoint presentation that accompanies our comments to the same IR website, where they are available for download. On the call today from Baozhen, we have Mr. Vincent Chiu, Chairman and Chief Executive Officer, Mr. Arthur Yu, Chief Financial Officer, Ms. Tracy Lee, Vice President of Strategic Business Development, and Ms. Sandra Serbis, President of Thousand Brand Management. Ms. Chiu will review the business operations and company highlights, followed by Mr. Yu, who will discuss financials and key operating metrics. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Security Exchange Act of 1934 and the U.S. Private Security Litigation Reform Act of 1995. These forward-looking statements are based upon management current expectations and current market and operating conditions. and relates to events that involve known or unknown risks and certainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results to differ materially from those in the forward-looking statement. Further information regarding these and other risks and certainties or factors is included in the company's filings with the U.S. SEC and in announcement on the website of Hong Kong Stock Exchange. The company does not take any obligation to update any forward-looking statement except as required and applicable law. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in RMB, and comparations are on year-over-year basis. It is now my pleasure to introduce our chairman and chief executive officer, Mr. Vincent Chu. Vincent, please go ahead.

Thank you, Wendy. Hello, everyone, and thank you all for your time. Despite the ongoing challenging environment, we are encouraged with resilience of business, as shown on slide number two. In addition, we deliver double-digit growth in several categories, including luxury, fashion apparel, and FMCG. Moreover, digital marketing and IT solutions revenue increased by 22%. While product sales continue to decline as planned as we keep optimizing distribution model, service revenue grows 4% year over year. Business development during the quarter was on track with a net addition of seven brand partners for store operations. For existing client base, It's worth noting that our business development also speaks to higher engagement in omnichannel and more value-added services. Our integrated omnichannel operations help brands to timely identify evolving e-commerce trends, thus enhancing resource allocation efficiency. During the quarter, over 42% of our brands engaged with us on an omnichannel approach. We continuously develop new features and tools to augment bundled value added service. This quarter, we launched a short video clicking tool which automatically converts long video or live streaming record to short videos. We also co-developed with Marketplace an AI-based outbound calling system to make proactive communications to targeted brand customers. This helped us with better purchase frequency and conversion. We expanded the regional service centers to more cities recently and added a new scope to them. Supported by our customer service management systems, or CENI, as a backbone, we improved not only service quality, but also efficiency. A new module named DANI, which means Design Anywhere, has been developed and ported onto Sani for its centrally managed content creation tool during the quarter. Despite the short-term headwinds from macro environment, we are glad to see that brand partners still take China as one of the most critical markets with a lot of potential. We continue to see a trend of digital transformation, such as the rapid convergence between online and offline, or OMO, continues. Along with the digital transformation trend and the emphasis on China for China strategy, brands are investing in IT solutions for the long term. As such, our technology-related revenue sees notable growth with a sound pipeline for additional growth. In light of the strong demand, we officially launched a bulk dock the Baozun omni-channel digital operation platform, a package of solutions with powerful customization capabilities. Box-top is centered on multiple-channel order fulfillment and delivers powerful omni-channel diversity, data intelligence, and decision support functionalities to our brand partners. Following many years of non-stop investment in technology, we started expanding upstream in recent years and the target to evolve into a technology-driven omnichannel commerce player. Early this November, we announced our acquisition of Gap Great China, one of the largest American specialty apparel brands. Along with the acquisition, we launched Baozun Brand Management, a new line of business that we see as a strategic addition that naturally flows from our core e-commerce service and technology. The acquisition is a good fit to develop BBM since we have worked with the brand for many years. We love it and believe in it. It has only been a few weeks since our announcement and we are still in the process of finalizing the acquisition. It is encouraging that since the news was on there, many other brands have come to us to discuss about China for China strategy and about our technology-driven approach. It has become obvious that our brand management offering clearly can add more to our value proposition and it differentiates us from traditional service providers. While it will take time and hard work to fully actualize our vision, we believe but closed loop demand to supply value chain as well as integrated offline and online commerce will make brands unique and much more successful than before. I shall now hand over the call to Arthur to go over our financials. Thank you.

Okay. Thank you, Vincent. And hello everyone. Please turn to slide four. During the quarter, Our total GMV increased by 16% to 18.6 billion, mainly due to outstanding performance of one leading electronics brand. Excluding this brand, the adjusted GMV would have been flat on a year-over-year basis. Total revenues declined by 8% to 1.7 billion, of which product sales declined by 29%, while service revenue increased by 4% compared with the same period of last year. Now let's turn to slide number five for a breakdown of revenue. Despite a decline in total revenue, several categories, including apparel and FMCG, achieved double-digit growth. The value-added services has shown more resilience in this quarter where digital marketing and IT solutions increased by 22% and the warehousing and fulfillment service revenue declined by only 7%. Overall, the contribution from value added service increased to 23% of total revenue in this quarter. Please turn to slide number six. In this quarter, our cost of products decreased by 30% to $415 million, mainly due to continued efforts in optimizing product sales business. As a result, despite a reduction of 29% in product sales revenue, the growth margin for product sales improved by 175 bps to 16.6%. Moreover, Our overall growth margin improved by 800 bps to 76.2%, driven by a combination of a higher service revenue mix and improving growth profit margin. Now turn to slide number seven. Our non-GAAP income from operations was 17 million during the quarter. representing a non-GAAP operating profit margin of 1%. Non-GAAP net income was breakeven this quarter, mainly impacted by unfavorable exchange rate movements. Once again, we have prepared waterfall diagrams depicting our analysis of how our top line and bottom line evolved year over year. As a reminder, this analysis is unaudited and should solely be used as supporting numbers to aid discussion. First on slide number eight, this diagram shows our net revenue walk from quarter three 2021 to quarter three 2022. In red, you can see the biggest item impacting our revenue this quarter was product sales. As we continued our efforts, to optimize low-quality distribution revenue. Revenue from DM and IT services, which we view as value-added services, grow by 22% this quarter. Revenue from warehouse and logistics decline by 7%, mainly due to our decision to de-invest a subsidiary in the business, which I will address more later. Excluding such reinvestment, revenue from warehouse and logistics should have been a slight increase year over year. On a positive note, this initiative led to better profitability. Now please turn to slide number nine for the indicative work of non-GAAP operating profits. As mentioned earlier, The combination of higher COVID-related costs and general operating deleverage due to lower revenue resulted in less profits for online store operation businesses, generally across all categories. However, as shown, non-GAAP operating profits from digital marketing and IT improved by 30 million year over year. In addition, the optimization of low quality distribution business contributed 3 million and the profits from warehouse and logistics business improved slightly by 1 million. We also generated a positive savings of 3 million from back office cost optimization. In cost optimization, we continue to gain higher efficiencies by centralizing our operating capabilities, rationalizing incentives, and consolidating office footprint. More significantly, this quarter we selected more cities such as Jinan, Chengdu, and Anqing to expand the scope and scale of our regional survey center. Now approximately 60% of our customer service staff are located in regional service centers. By placing customer service staff in regional centers, increased service flexibility and agility to better cope against COVID induced turbulence. Moreover, we expanded beyond customer service and added more operating functions at regional survey centers and live stream studios. We also further deepened our cooperation with Chineo to leverage on its established infrastructure and network. As you may recall, in the second quarter, we began to manage Chineo's warehouses in the apparel category. got business referrals in luxury and premium sectors, and also launched the mall solution for some of our key sportswear brands. Motivated by the synergies and after further careful evaluation, we decided to reduce our shareholding of Bao Bi Da, a last mile delivery agency. to minimize duplication with China. As you may recall last year, prior to our strategic alliance with China, we invested into Bobita to expand our logistics capabilities. However, now with China alliance, we decided to withdraw our investment to a minority holding in Bobita. Now turning to slide number 10 about our cash flow. As of September 30, 2022, our cash and cash equivalent totaled $2.9 billion. In light of micro uncertainty, we continue to improve working capital efficiency. During the quarter, we launched new initiatives to further advance our back-end process. to improve infantry management, billing and collection activities. Historically, in order to prepare for the Double 11 Festival, the third quarter typically require peak operating cash flow. This third quarter, benefiting from the progress in our infantry procurement planning, we were able to narrow the operating cash outflow to only 113 million. compared with $740 million a year ago. During the quarter, we repurchased approximately 700,000 ADS for approximately $6.1 million. To date, with our share buyback effort, we repurchased a cumulative total of $68 million in the last nine months. Lastly, the voluntary conversion into a primary listing status on the main board of the Stock Exchange of Hong Kong Limited became effective on the 1st of November. Baozhen is now a dual primary listing company on both Hong Kong Stock Exchange and the Nasdaq Global Select Market. This marks a significant milestone in our capital market journey. Overall, our effectiveness in maintaining operations and supporting our partners' success during this period of micro uncertainty underscores the durability and strength of our business model. Throughout this year, we prioritized cost transformation and working capital efficiency. And our efforts are bearing fruit in terms of higher growth margin, lower operating expense, and better cash flows. The establishment of Belgian brand management along with the acquisition of Gap Greater China will provide us with good opportunity for future growth. This is my financial review section and that concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

thank you if you wish to ask a question you will need to press star one and one on your telephone and wait for your name to be announced please stand by while we compile the q a roster our first question comes from the line of alicia yak from city please go ahead your line is open

Hi, thank you. Good evening, management. Thanks for taking my questions. I have two questions. First, if management can share with us any preliminary color that you are seeing in terms of the consumption sentiment and across all the channels post the single stage. So in relation to that, how should we think about the overall GMV and revenue growth for the fourth quarter, and if management also has any preliminary review on the 2023 outlook. Second question is your digital marketing and IT solution is actually doing pretty well.

If you can elaborate a

little bit what type of the brand, customer, and the operation metrics like the take rate that you can share with us related to this service, and will this revenue line continue to deliver decent growth in the coming quarter? So how should we think about that? Thank you.

Okay, thank you, Alicia. So maybe Tracy can comment on the W11 performance and the consumption sentiment, and I can answer about the views of Q4 and next year, if that's okay?

No problem. Thanks for the question. I think right now the China consumer is still very largely impact from the COVID-19. And also, you can see recent two months actually from the logistic part of you, there's still a lot of lockdown and the impact on that. But assume the W11's number, we can see the overall number is still under pressure, which means there's no big increase. But still, it is a very important window. We see the trends on different categories. So on that part, actually, I can summarize some of the observations from our point of view from our BI system and also from the public system. We see from the consumption trend, the upgraded consumption, home improvement, self-care, and the sports lifestyle are the four heated schemes. Take the sports lifestyle scheme for example, the sales of the category outdoors, sports equipment, yoga, and also the sports footwear were lifted by a range from 28% to 9% year-on-year increase representatively. And also you can see the fitness, mountain climbing, skiing, urban sports, camping, and the running and basketball contribute to most of the category. And also we can see the luxury and also previous jewelry bags and luggage has been the several, I mean, a few of the category are still reach steady growth in the past four quarters. So I think Among these four areas, we still can see the opportunity for next year. But also there are also downtrends category like the fashion accessories and also men's and women's footwear. And this has been reflected over two or three quarters decline. in most of the daily sales and the big promotion. So for all of this part, we still need steady growth way to sticking out. And besides the category shift, I think we also see the platform pay more attention on the user retention and the acceleration of private domain for new vendors and incrementals, like Ali supported multi-address in one order, and doing newly added store member enrollment benefits, the membership coupon and membership gifts. And all of this has gave our potential to collaborate with brands and platform together on the digital marketing and also interactive technology related. So I think on that part, we can back to others part to talk about our next year's plan. Yeah.

Okay. Thank you, Tracy. In regarding to the Q4 outlook, our current view is from the GMV perspective, we see some good momentum in the electronics and FMCG, but we also see some strong headwinds in terms of the apparels and the sportswear. So overall, we believe our Q4 GMV will be in line with the market. which is likely to be flat year over year. In terms of the revenue, at this moment, we still see the optimization of the low quality product sales will continue unless the market sentiment is picked up. So from a revenue perspective, we think it will be a low team decline year over year, the main contributor factor is the product sales, which we continue to optimize. In terms of the next year, I think it's a little bit too early to comment because there are still some very big factor, which is in the overall micro kind of condition and also the COVID policy. But our view for next year from a current perspective is conservative, and we want to plan on a conservative basis for the next year as well, i.e. to focus on the quality instead of focus on the growth. On your second question, Alicia, regarding the digital marketing and IT solution, our view on the value-added service, I think that's one of the areas we see quite a strong momentum from our client base. So basically, at this moment, our brand partners start to focus on the medium and long-term investments of their business in China. So therefore, we have seen a strong kind of the pipeline from the value-added service like the IT solutions, like the digital marketing and the martech related kind of the proposals from our offerings. So we think that will continue and given the investment into the technology in the last few years, I think Baldrin is well positioned to take on those opportunities at the current market situation. Okay?

Yeah. Thank you, Arthur. Thank you, Tracy.

Okay. Thank you, Alicia.

Thank you. We will take our next question. Our next question comes from the line of Charlie Shen from China Renaissance. Please go ahead. Your line is open.

Thanks, management, for taking my questions. I got two questions here. The first one is regarding the GMV combination. So I can see in this quarter, the GMV contribution from non-Tmall channel seems to be a little bit lower than last year for Q2021. So can you explain what's the rationale and background behind this and what's the long-term goal of this GMB growth between TMO and non-TMO channel? That's the first question. And the second question is regarding the gap acquisition as well as the whole restructuring So can you give us more color about the progress after you announced the acquisition of GAAP? And also I can see Belgium seems to be transforming from a pure marketing agency to a more comprehensive service company. So how do you expect the length of this transition period? When do you see the synergies or integration should be completed and we can see some results or impact going forward. Thank you.

Hello?

Hey, operator, can you hear me? Yes, I can hear you, light and clear. Okay, seems the line was just got dropped.

Please continue to stand by. Your conference will resume shortly. Hey, operator.

Hi there. I can hear you. Okay. You can only hear us from this side. Does it mean the way?

Yes, but you are coming through lighting clear.

Actually, how about Charlie? Do you actually ask about brand management for the second question?

Maybe Sandrine, can you take this one while we try to get this one ready?

Yes, sure, sure. Hello, Charlie. This is Sandrine. Thank you for your question. So it's about three weeks we have signed with DAF. We have not yet finished the acquisition. This will happen in January if everything goes smoothly on the approval procedure. So we are very mobilized in the preparation, which now focuses on really taking some deep dives with the different lab functions to enable a deeper understanding of the operation today and really identify the areas for improvement. And then based on this, we'll be able to be much more detailed. But still, I understand you want to have a little bit of color. So for the time being, what we are learning from this deep dive is confirming what we were seeing during the due diligence. That on the one hand, there will be some quick wins in terms of a bit of restructuring and cost cutting, mainly coming from the fact that we are now managing from China a Chinese company. And then going forward, as we mentioned earlier, we see some real opportunities around products that can be produced in a much more locally relevant way. And as you may remember, we have full freedom on the supply chain. The supply chain is ours, so we can really improve the speed to market, reactivity to trends, and also bring some elements that are more locally relevant in the product design and development. That's one aspect. The other aspect is to work, and actually the first one was also trending to this, to work on the gross margin and reduce the discount levels, which are in our view too high today. And we believe that by differentiating products by channels, which is not really done today, we can really improve the discount situation. The third aspect, which would be a priority, is for us to revamp the current portfolio of stores. So it's not going to be about opening many more stores. It's going to be really to make the current stores both in terms of look and feel, and in terms of operations, much better than what we have today. So this is really as much cover I can give today. With all this, financially, we think that it can translate into a very significant reduction of the loss in 2023. We consider that loss can be reduced by from how it used to be in 22, then we will see a further reduction of loss in 24 in order to reach breakeven point in 25 and profit in 26. So that is for GAP. And I would leave it to Wendy to allocate the other questions to some other people.

Charlie, let me maybe answer your question on the Tmall. So the trend you have seen is actually impacted by a major electronic brand outperforming in quarter three. So if we are excluding the increase of this one single brand, our Tmall percentage has actually dropped, i.e. non-Tmall has increased by a single digit. So that's the true reflection of what's going on in the non-Tmall channel. And in addition, our omni-channel strategy is actually not with a purpose to push the people from the Tmall to a non-Tmall channel. It's actually to encourage people to go for the Omni channel, which has increased the stickiness and to drive more value added service from Baldwin to the client. So by this quarter, we have 42% of our total brand partners choose Baldwin to operate Omni channel for them. So this is our current situation. Thank you.

Thank you.

Thank you. We will take our next question. Please stand by. Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead. Your line is open.

Thanks, management, for taking my question. So I have two questions. My first question is could management share some color about change of domestic versus international brands? And my second question is could management share some updates about the cooperation with China and our thoughts about expansion into Southeast Asian market? Thanks.

Okay. Okay. So Tracy, if you can take the first one, then I will take the second one.

Sure. No problem. Hello. Thanks for the question. I think in terms of to win in the consumer side, I think they are facing the same pressure, no matter if it's foreign or local brands, how to solve the short-term problem and how to invest in longer program to win last round. But for the online business, we can see actually most of the players are still emphasizing the importance of the online part because of the relatively poor store performance in recent quarters. So right now actually we're working with our brand partners to come up with the three years plan to talk about how to connect with their consumer directly and then how to allocate their budgets smartly. I mean, cross channel and also to reach the direct communication with the consumer. And also for the local brands part, we are very lucky to share, we have some breakthrough in the past few months to seek the collaboration opportunity in professional ways, areas like IT service, content marketing, interactive marketing technology, and the consumer customer service. I think in the longer run, these professionals in specific areas still will be the win in the service market. Thank you.

Okay, thank you, Tracy. In regarding to the Chinao, we have continued our good progress in terms of getting the synergy. So as we mentioned in the past, we see the synergy coming from three areas. So the first one is joint BD. So with China and Alibaba ecosystem, we would be able to, I mean, we are seeing some additional BD opportunity coming in from the ecosystem. So which is helping both Baochong Logistics and also Baozhenazhou to conduct more business. The second one we see is actually to utilizing the scale and infrastructure of Chania. So basically in terms of the warehousing and in terms of the last mile delivery, Chania has provided very good kind of support for us to get more resource. And finally, we see is the technology enhancement. So basically, previously, it's actually both made the investments into the technology on the logistics part. And now we can utilize the China network on the technology enhancement, like the RFID technology. which is giving us more efficiency when we're operating the warehouse. So overall, we think we are in the good trend with our alliance with China. In terms of the Southeast Asia expansion, we are continuing to focus on building our own capability in that region. And also, our approach is trying to replicate some best practices and take the learnings we had from operating the e-commerce in China. But also, our approach in Southeast Asia is to work closely with the brands to grow the e-commerce offerings in that region. So, when we have made more progress, we will come to report back to the market. Okay.

Thank you.

Thank you. Thank you. We will take our next question. Our next question comes from the line of Wandao from CICC. Please go ahead. Your line is open.

Hi. Good evening, management. Thank you for taking my question. We noticed that the number of brand partners for store operations increased as the medical environment is weak. Could you please share something about customer acquisition strategy using this quarter? And could you please share some details about the new brand partners such as their industries, scale, and the main channels we help them to operate? Thank you.

Okay. Thank you. Tracy, would you like to take on? And then I can maybe add on more colors after you.

Sure. Thanks for the question. For the last quarter, actually, most of our new wins focusing on our new revenue source, which is the IT client and also digital marketing clients. And you can see, actually, they are combined with our emerging category like the uh our our cc category and also the luxury category so which indicates actually our strategy on the one two one two uh one stop solution which means we uh come uh actually we start from the operation but we extended our service to other parts strategy works and you can see actually in this market We can see some of our clients actually invest a lot in the long term strategy, including the interactive marketing and also their data and also infrastructure set up. Yeah. Also, do you have any other supplementary question or answer for this?

No, I think another thing I would like to add is in terms of the value-added service, we are utilizing the Omni channel and also utilizing the foundation we have built over the time. I think that will be a main source of the new business coming in the next few quarters. That's it.

Thank you. Thank you. Thank you. Once again, if you wish to ask a question, please press star 1 and 1 on your telephone. And we will take our next question. The next question comes from the line of Keifan Yang from Guangfa Securities. Please go ahead. Your line is open.

Hello, management team. So I have two questions. The first one is about the luxury revenue has reached the best growth during the past quarter. So could you please elaborate earlier on the future strategies for expanding the luxury category? Also, do you have a certain benchmark percentage of luxury categories contributed to the revenue? The second question is, do you have the investment strategy for the 2023? Thank you.

Okay. Let me answer your second question first, and then Tracey can cover the luxury question. Yep. In terms of the investment strategy, as you have seen, we recently made the announcement of acquiring Gap China's business. So in the short term, our focus will be building the Gap China business and building the Bolton Brand Management as a new business unit. So we will focus our effort on integration and also transition to make sure it is a success. Um, and, uh, in terms of, uh, uh, the investment, our focus will, uh, in the short term, the, the brand related investments will be our focus. Uh, so I, uh, I mentioned in the last few quarters, Baldwin has made investments, uh, either, uh, uh, the minority investments or the controlling investments into six brands. and we have made some good progress in terms of those brands, which in double 11, the GMV from those six brands adding together has grown over 200% year over year, which shows the enhancement of Balgenet's adding value to those brands. And also, forget the double 11 performance has also been good. the GMV has grown 22% year over year for the gap during double 11, which outperforms the market. All these shows with bulging enhancement, we will be able to add more value to those brand growth kind of story. At the same time, when we're looking at the investment, we're also practically optimizing our investment portfolio. As mentioned earlier, the Bobita which is the last mile delivery investments we made we actually practically introduced another strategic investor to take the controlling stake and make autumn become a minority stake this is because this investment is a little bit duplicate to our strategic align to with China. So with that in mind, we actually optimized our investment portfolio to turn ourselves from a majority shareholder into a minority shareholder. Looking at the medium to longer term, I think our investment priorities are focused on the international expansion and also building technology capability. on top of the brand management. And with the current market conditions, we actually keep an open eye on the good value assets as we did for the Gap China acquisition. Okay, so that's on the investment strategy. So Tracy, maybe you can add something on the luxury business, yeah.

Yeah.

Tracy, can you hear me?

I'm mute, just now. Yes, come back to the luxury story. I think we need to look to the industry from different angles. In short term, actually, definitely the market is facing pressures on the slowing down growth. Take this W11 for example. Many brands have ramped up in variety and intensively of benefits to enhance the sales, such as deeper discount, interest-free installment, and also GWP gift. But on the other hand, we see many of our brands' partners are investing for the middle to longer strategy. Some of them take this two years as opportunity to adjust their pricing strategy They are more focusing on the product innovation itself. And also the brands group, they emphasize on the consumer centric and increase their budgets on content marketing and the data infrastructure. We see a lot of innovations initiative happening in this W11. They lifted their NFT triad. And also you see a lot of limited edition SQs and online fashion shoes have moving to the live stream topics. to continue to drive the sales and also to attract new members. So I think that is the two sides of the factor base currently in the industry. And for Bozun, we still treat luxury as our strategic part of our overall business because of the luxury market is still growing. They still have lower penetration and we see a lot of duties in new pipelines right now. And winning in the longer round, I think it's not just to rely on one or two cases. We rooted in, I think, over 10 years practicing fashion, and then we developed our luxury industry solutions in more forward-looking strategy, which is more omni-channel with leading IT solution and more consumer-driven with a strong in-house sales team. and more reliable and value added service related logistics solutions. And with all of this, we have the strong belief to grow with the market in the next one or two years. Thank you.

Thank you. We will take our next question. Our next question comes from the line of Charlie Shen from China Renaissance. Please go ahead. Your line is open.

Thanks, management, for taking my questions again. So I have one question regarding the launch of BOC, DOC. So I heard Vincent mention that. So can you share more color about this topic and how to think about the cost and the top line contribution for 2023? Thank you.

Thank you for the question. This is Vincent. I'll talk about the concept of this BOCDOP. We call this BOCDOP. In Chinese, we give it a Chinese name called Baoduo, this product line or solution. And then, Arthur, maybe you can talk more about the revenue, you know, of local expectations. Yes, sir. Yeah, yeah. Actually, In the past several years, Baldwin's core system, we would call this a middle-end system, including all the other fulfillment, other management and processing system, and also other fulfillment system. We call this middle-end. This middle-end or DOP, digital operating platform, plays a very important role to support the omni-channel, you know, retail and D2C-based businesses. Because all the traditional ERPs, they don't have this kind of offerings. And in China, because of the omnichannel and the online-offline integration is much faster and advanced than the other countries in the markets. So there's a strong demand in the local market for this kind of system. With this system, all the brands can operate their retail and D2C You know business America open stores on Timo and JD and we chat that we're wearing the same time and they can process all the orders from different channels and Make sure they can deliver all these orders to the customers. So that is just system so if previously it's just about a Highly customized system for each of the clients buzzing, you know, do the same as the other players and Recently, we put a lot of investment in the packaging and the product size of this solution. And right now, I think the productization level is much higher than before. So we package this as a solution. It's more ready to market. So we are trying to market the solution to Bosun client base and also other new clients and also some medium and small size of the clients. you know, trying to help them with the omnichannel solution, you know, strategy. So that is the concept of the products. We are seeing very good progress and we're trying to make it better, you know, in the future, in the near future. And Arthur, about the revenue, what's your view on that? Yeah.

Yeah, sure. So Charlie, thanks for the question. From a financial point of view, I think we may continue the investment into technology, which is to build the competitive advantage of Baldwin over our competitors. And from the introduction of the bulk stock, which is actually helping us to commercialize those technology in a more advanced way. So looking forward, we will be able to see the investment side we continue to make a similar amount of investment into technology year over year. So the cost would not increase. However, we foresee the revenue from the technology will increase year over year because our better structured productization and also commercialization of our IT offerings. So in return, that will help us to drive our profit margin from the type offering into the market.

One more thing. Thank you, Arthur. One more thing is that, you know, not only support all the clients with Omni channel, all the processing and fulfillment capability, but also with all the data, you know, collected from different channels, we can also deliver a much better, you know, business intelligence capability and decision support capability to all the brands. Yeah.

Yes. Thank you. And also in addition to that, I think investments into technology not only benefit the traditional e-commerce business, it will also benefit the Belgian business management business as well. So with the Gap China, we will be able to use our technology to drive the transformation

of the brand we acquire as well so that will help to create more value thank you very much thank you there are no further questions so i would like to hand back to management for closing remarks oh thank you operator um including on behalf of the thousand management team we would like to thank you for your participation in today's call If you require any further information, feel free to reach out to the IR team. Thank you for joining us today. This concludes the call.

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

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