Uxin Limited

Ladies and gentlemen, thank you for standing by and welcome to Eugene's earnings conference call for the fourth quarter and full fiscal year ended March 31st, 2023. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to your host for today's conference call, Mr. Jack Wong. Please go ahead, Jack.

Thank you, operator. Hello, everyone. Welcome to Yuxin's earnings conference call for the fourth quarter and full fiscal year, ended March 31, 2023. On the call with me today, we have CK, our founder and CEO, and Zhang Lin, our CFO. CK will review business operations and company highlights, followed by Zhang, who will discuss financials and guidance. They will both be available to answer your questions during the Q&A session that follows. Before we proceed, I would like to remind you that this call may contain forward-looking statements, which are inherently subject to risks and uncertainties that may cause actual results to differ from our expectations. For detailed discussions of the risks and uncertainties, please refer to our filings with the SEC. Now with that, I will turn the call over to our CEO, DK Frisco-Hazard.

Good day to everyone and thank you for joining for your continued interest and support. It's a pleasure to welcome you on our earnings call today.

To better communicate with our domestic and international investors, I will be discussing our performance over the last fiscal year, as well as providing insights into our prospects in both Chinese and English.

From April 2022 to March 2023, the year of 2023 is the beginning of a new year in Poland. Just like most Chinese companies, we have experienced the social and economic challenges caused by COVID-19. The online and offline second-hand car retail business has gone through a few rounds of climbing, stopping, and then reversing. In such a severe environment, we have achieved a strong growth in performance. The retail sales of the entire year were 10,703 units, with a growth of 105%. At the same time, our customer recommendation value NPS has remained above 60 points for six consecutive seasons, stabilizing at the highest level in the industry. Our high-quality second-hand car products and cross-border service experience have gained more and more consumer approval. The 2023 fiscal year, which is spent from April 2022 to March 2023, presented a myriad of challenges. Yuxin, along with numerous other Chinese enterprises, had to navigate the societal and economic headwinds caused by the COVID-19 pandemic.

Despite these obstacles, our online and offline used car retail operations experienced phases of growth, moments of stagnation, and subsequent resurgence. Nevertheless, we managed to overcome these hurdles and delivered a commendable performance. Our retail transactions increased to 10,703 units, recording a remarkable year-over-year growth of 105%. Notably, our Net Promoter Score, or NPS, remained consistently high at approximately 60 points over six consecutive quarters, solidifying our position as an industry leader. The excellent quality of our used car offerings combined with our exceptional customer service received increasing recognition from our expanding customer base. Furthermore, Yuxin's offline super stores have become the benchmark for industry upgrades within China's used car sector.

China's second-hand car is already a 10,000-year-old race track. At the same time, China has the world's first 3.2 billion cars. A large number of cars enter the resale phase every year to promote the high-speed development of the second-hand car industry. In the first half of 2023, the second-hand car trade in the country will be about 9 million units, which will increase by 15%. Based on the experience of the car industry in the mature market, China will gradually step into the development track of mainstream car trade. The second-hand car trade will soon reach a level of more than 20 million units a year, and there is still 3 to 4 times the growth space.

China's flourishing used car market is a force to be reckoned with. Already at a staggering trillion RMB level, with a whopping 320 million vehicles, China boasts the world's largest car ownership. Each year, a significant number of vehicles enter the circulation stage, fueling the swift growth of the used car industry. In the first half of 2023, the nation witnessed a remarkable surge in used car transactions, reaching approximately 9 million units, showing a notable 15% increase compared to the previous year. Drawing from the mature market experience in the automotive industry, China is progressively pivoting towards a trajectory dominated by stock car transactions. We project that used car transactions in China will soon exceed 20 million units per year with a still a remarkable growth potential three to four times.

However, the upgrade and integration of the Chinese second-hand car industry is still in its early stages. The unrivaled features of each car and each mine, as well as its scattered market structure, and the long-term complex trading chain have all limited the development of the second-hand car industry to be brand, scale, and regular. Youxin's all-terrain off-road super market plus online all-terrain shopping model, as the new business model in the second-hand car industry, After a year of polishing, we have completed the transition from 0 to 1, and formed the core industrial competitiveness of advanced production, new sales experience, and digital drive, and laid the foundation for the next step of scale-up.

While the upgrade and consolidation of China's e-score industry are still in their early stages, the unique characteristics of each vehicle, the extremely fragmented market structure, And the lengthy, intricate transaction chains have all hindered the industry's transition towards brand-oriented, large-scale, and standardized development. Houston's pioneering model of offline superstore plus online nationwide purchase model as a new format in the industry has completed the leap from zero to one. This model centered around advanced production, modern retail experience, and data-driven operations has laid a solid foundation for the next stage of scalable profitability.

First, state-of-the-art reconditioning factories with advanced equipment and technology guarantee the supply of top-quality used car products and products. A large-scale high-quality second-hand car supply is inseparable from the modernized entire factory that is compatible with the production capacity. At a size of 3,000, it is also the largest Xi'an new wheat factory in the Northwest. After the opening, the management system of Youxin Exploration's 1.0 transparent factory, which has been developing and developing for more than a year and a half, also began to invest in the use of transparent factories. The transparent factory achieves a simplified repair and integration. By using a large number of digital monitoring tools to open up the whole chain of engineering, track the car and material status in real time, and return the real formula and cost data,

The supply of ultra-large-scale, high-quality used cars is inseparable from modernized reconditioned factories with suitable production capacity. Following the launch of our new Xi'an Superstore, which is also the largest in northwest China, with a scale of up to 3,000 units, The transparent factory 1.0 management system that Houston has explored and developed for one and a half years has also been put into use. This system seamlessly integrates inspection, evaluation, and repair processes while employing an extensive range of digital monitoring tools to streamline the entire operational management spectrum. Full-scale efficiency is enhanced by the system's intelligent workshop planning, real-time tracking of vehicle and material status, and authentic data on work hours and costs. By leveraging UCI's transparent factory 1.0 system, we have established the most advanced reconditioning factory management system in China's used car industry.

At the same time, we continue to carry out technical updates introduced 3D printing, smart maintenance, and other latest technologies, and integrated the assembly and assembly supply system, the preparation time and cost of the single vehicle has been further reduced. Compared to a year ago, now each vehicle has decreased by 70% from the time it entered the factory to the time it went on sale. On average, it only takes 4 days.

Furthermore, we continue to upgrade our reconditioning techniques, introduce the latest technologies such as 3D printing, smart repair, and develop integrated parts supply system. As a result, the reconditioned time and cost per vehicle have been further reduced. Compared to a year ago, the time it takes for each car to go from factory intake to shelf sale has dropped by 70%, taking an average of only four days. Second, SuperStore's focus on people, products, and venues has reshaped the way consumers buy and sell used cars, a leap for a consumer experience that surpasses traditional marketplaces.

For the vast majority of consumers, the process of buying second-hand cars in China is complicated and lacks security. In the traditional second-hand car purchase scene, consumers are looking for target models in all corners of the trading market and in hundreds of different businesses. For the majority of consumers in China, buying a used car can be a challenging and uncertain experience. Traditionally, the process involves visiting up to hundreds of shops scattered across a used car marketplace.

searching for specific models, inspecting multiple vehicles, and haggling with various dealers over prices. Yet this tedious process offers no guarantee of purchasing a reliable used car at a fair price or receiving adequate after-sales support.

In the past year, Youxin has built a warehouse-style second-hand car market based on new sales standards, allowing consumers to buy second-hand cars and gain an experience of ease and pleasure that is comparable to modern malls. The environment of the factory is fast and clean. There are plenty of display cars. The same product model of modern sales is used to place the car, which makes it easier for customers to compare. Based on international standards, based on the country's standard of construction, the car is placed in a large area. The price is transparent and there is no hidden cost. The station provides services such as finance, insurance, insurance, premiums, and so on. After entering the car office, all transaction processing procedures can be completed that day. In the past year, Youxin has revolutionized the used car buying experience by embracing modern retail standards.

Our superstores offer consumers a relaxed and enjoyable car buying experience comparable to that of modern shopping malls. When customers step into our superstores, they will be greeted by a bright and spacious venue filled with thousands of carefully selected exhibition vehicles. Our cars are conveniently displayed according to the modern retail shelf mode, making it easy to compare different models. we have implemented a scoring system based on the national standard, ensuring clarity and ease of understanding. Customers can be certain that our prices are transparent with no hidden fees. Beyond the traditional dealership experience, we provide a one-stop solution for all your needs, including financing, insurance, extended warranty, accessory upgrade, and other value-added services. To further enhance customers' convenience, we have an on-site vehicle administration office, allowing customers to complete all transaction transfer procedures on the same day. This eliminates unnecessary delays and ensures a smooth and efficient process. We are delighted to share that our super stores in Xi'an and Hefei have quickly become the go-to destinations for used car purchases in their respective cities. Within just one year of opening, we have established ourselves as the leading brand in local used car recognition. The positive word-of-mouth within the consumer group has created a network effect, attracting a steady stream of native traffic to our super stores.

Third, all-line digitalization decision-making, form a unique ultra-large-scale two-car transport system,

Third, U-SYN's end-to-end digital decision-making forms a highly competitive mode in large-scale yeast core operations.

U-SYN's business segment is managed by a single-carrier unit. The system capacity is established in the single-carrier range. The low-end system of Ziyan is like the modern agricultural system for each single-carrier farm. through the second-hand car trade chain, in the collection, preparation, sales, delivery, and delivery of each part, we carry out a single-car dimension of business decision-making based on data, forming the core force that distinguishes us from traditional car manufacturers.

Yuxin's business process is managed on a per-vehicle basis. With the system's capacity built upon the singular vehicle dimension, our proprietary drip irrigation system, like the irrigation practices in modern agriculture that cater to each individual crop, runs through every step of the used car transaction chain, from car acquisition, reconditioning, sales, and delivery to after-sales services. We make business decisions based on data at the vehicle level, which constitutes our core competitive advantage that sets us apart from traditional car dealerships.

With car pricing as an example, Yuxin has built a smart pricing model based on a number of Chinese car trading data accumulated over more than ten years, with the standard price of car number, car frame, mileage, color, and other car number parameters. Combined with customer attention, current stock structure, offline market response, and real-time trading, dynamic correction is carried out. By using large-scale real-time trading data to continuously train relevant parameters, Taking vehicle pricing as an example, Yuxin has established an intelligent pricing model based on more than a decade of accumulated massive Chinese used car transaction data. The model determines the individual price of each vehicle

based on its age, condition, mileage, color, and other parameters, while also considering factors such as customer demand, current inventory structure, offline test drive feedback, and real-time market conditions for dynamic adjustments. By continuously training relevance parameters and iterating the pricing system using large-scale actual transaction data, pricing becomes more accurate, and the adjustment process becomes timelier. This leads to continuous improvement in sales efficiency, with the average time from listing to sale being less than just four days, 45 days.

The larger our sales, the more parameters we can use to enter the system. The richer our price decision, the wider the boundary of price ability. The effect of the digitalized system on the wheel is increasing in scale. This is one of the key factors that can continue to solidify the competitive advantage of the excellent super-large-scale second-hand car operating system.

The number of parameters that can be input into the system also increases. Enriching our price decision anchors and expanding the boundaries of our pricing capabilities, the flywheel effect of digital systems is still increasing, which is the key to continuously solidifying competitive advantages in our ultra-large-scale used car operation system and one of our important roles.

In the past year, in addition to the progress in business, our financial situation has also been greatly improved in the direction of long-term health. In the beginning of this year, we completed the reorganization and repayment of the transferable debt in 2019, which basically solved all historical burdens. Over the past year, in addition to progressing our business,

Our financial situation has also improved towards long-term health. At the beginning of this year, we completed the restructuring and repayment of the 2019 convertible loan, effectively resolving the majority of our historical debt and greatly optimizing the structure of our balance sheet. This allows us to better allocate resources to future business development. Furthermore, we have actively promoted cooperation with banks in credit supply chain financing, obtaining credit lines of approximately 300 million RMB from several reputable banks. These arrangements have facilitated the increased efficiency of our capital utilization, and these efforts will support the achievement of our business plans for fiscal year 2024. Looking ahead into the 2024 fiscal year, we will primarily focus on three key areas based on our current strategic planning. First, the opening of Hefei Supermarket.

What I want to tell you is that the Supermarket, which we co-invested with the Hefei government, has entered the final stage of equipment adjustment after a year and a half of construction. The project will start in August this year and will officially open this year. The new factory has a total construction area of 450,000 square meters. It is the world's most advanced second-hand car remodeling factory and the world's largest second-hand car market. It can accommodate up to 10,000 cars. Hefei Supermarket is a super base for high-end second-hand car industry. It is a major action for Hefei, Anhui and the whole country. It is an important action for us and the Hefei local government to promote the development of the car aftermarket in Anhui Province to create the leading brand of Chinese second-hand car industry.

First, the launch of our new flagship superstore in Hefei. We would like to inform everyone that the construction of the flagship superstore, which is jointly invested by us and the Hefei government, has entered the final stage of equipment and system calibration after one and a half year construction period. We plan to commence trial operations in August and have the grand opening within this calendar year. The new superstore has a total area of 450,000 square meters and consists of the world's most advanced used car reconditioning factory and the largest used car sales area, which can accommodate up to 10,000 vehicles for display and sell when reaching full capacity. The Hefei flagship superstore serves as used central hub for our expansion plans in the used car industry. anchoring in Hefei by extending its reach across the Anhui Province and facilitating sales nationwide. It is an important joint initiative for both Yuxin and the local government of Hefei to promote the development of the automotive aftermarket industry in Anhui Province and build a leading brand in China's used car industry.

Second, the sale market has been successful. Yuxin's offline market has been developing for more than a year. The sales efficiency of the car is constantly increasing, and the profit-making rate is gradually increasing. The cost-benefit structure is greatly improved. In the next quarter, our profit will reach more than 6%. The mid-term profit target is around 10%. In the past few months, due to the disturbance of the new car market, Youxin has maintained a stable purchase strategy without a large-scale increase in inventory. From August, we will accelerate the increase in inventory and bring more sales conversion. We are confident that we will achieve the EBITDA transfer of Xi'an and Hefei before this year.

Secondly, achieving profitability of our superstores. After over a year of consistent development, Yixin's superstores have continuously improved sales efficiency, increased the gross profit margin, and substantially improved overall cost structure. As a result, our gross profit margin is expected to exceed 6% for the first quarter of fiscal year 2024. Our mid-term gross profit margin target will be 10% or above. In the past few months, due to disturbances in the new car market, Yuxin has maintained a prudent purchasing strategy and has not significantly increased inventory. Starting from August, we will accelerate the increase in vehicle inventory to generate more sales conversions. We have confidence in achieving positive EBITDA for the Xi'an and Hefei stores by the end of this year.

Thirdly, completing the expansion planning of two to three new superstores.

Based on the proven success of Yuxin's offline superstore model, we are actively strategizing for expansion into new regions. We aim to finalize the location selection and operational preparations for two to three new superstores to further enhance our regional coverage and branding, as well as improve synergy between cohesive online and offline sales networks. These efforts will lay a solid foundation for our business growth in the coming years.

We will continue to work hard to maintain our original intention and insist on value creation. We believe that we have a wide range of opportunities to serve consumers and create more returns for shareholders, employees, and society. Once again, I would like to thank you for your trust and support. Welcome to our marketplace to experience it in person and to the mobile shopping mall to learn about our products and services. We also look forward to seeing new breakthroughs in the new year.

The Chinese used car sector is vast with significant potential, and our tenacity will ensure our growth to be exponential. By upholding our commitment to value creation, we believe there are spectacular opportunities ahead to serve consumers in the used car business we are passionate about, and to generate greater returns for our shareholders, employees, and society at large. Once again, I extend my deepest gratitude for your unwavering trust and support. I sincerely welcome you to visit our superstores to experience it firsthand, as well as explore our products and services on our mobile platform. We also look forward to achieving new milestones in the new fiscal year at UCN.

That's all for my sharing today. Next, our CFO John will show you the financial situation. John, please.

And with that, I'd like to turn the call over to our CFO to walk you through our financial results. John, please.

Thank you, DK, and hello everyone. Since we have both domestic and foreign investors attending our call,

Our remarks will be delivered in both Chinese and English for everyone's convenience. Now I will provide a closer look at our financial results for the first quarter and fiscal year of 2023.

This is the fourth quarter of 2023. That is, from January to March of the fourth quarter of 2023. Our total sales volume for the quarter is 2,259 units, which is 22% higher than last year. In the fourth quarter, the impact of the long-term one-month Spring Festival holiday is a traditional sign of Chinese second-hand car trade. And in March after the Spring Festival, the new car market carried out a series of price battles, which also had an impact on the second-hand car market. Therefore, the sales of the fourth quarter decreased by 23% compared to the third quarter. The sales income of the first quarter was 2.6 billion yuan, which decreased by 17%. Looking back at the fourth quarter of fiscal year 2023, which covered the period from January to March 2023, the quarterly retail transaction volume reached 2,259 units, a growth of 22% year over year.

We experienced a 23% decrease compared to the previous quarter, mainly due to the impact of the traditional week season during the spring festival holiday, with most of the used car transactions halted for nearly a month. Also in March, the aggressive pricing promotion in China's new car sector also affected the used car market, with customers showing stronger wait-and-see sentiment. The total retail sales revenue for the first quarter amounted to 264 million RMB, a 17% year-over-year decrease. This was primarily attributed to the average selling price of retail vehicles dropping from 173,000 RMB in the same period last year to 117,000 RMB this quarter. The decline in ASP reflects our proactive optimization of the inventory structure over the past year.

In terms of vehicle sales, the sales volume of this quarter is 1,348 units, down 32% compared to the previous quarter. According to our operation experience during the pandemic, we reduced the total sales volume before the Spring Festival, so the sales volume of PEPA will also be reduced accordingly. The price of PESHOU vehicles dropped from 67,000 yuan in the previous quarter to 55,000 yuan in the current quarter. The total income of PESHOU in the fourth quarter is 73,600,000 yuan, down 44% compared to the previous quarter.

In terms of wholesale, the transaction volume for this quarter reached 1,348 units, a 32% decrease compared to the previous quarter. Based on our operational experience during peak and off-peak seasons, we proactively reduced the overall inventory acquisition before the spring festival, which led to a corresponding decrease in wholesale transactions. The ESP of wholesale vehicles also decreased from 67,000 RMB in the previous quarter to 65,000 RMB in this quarter. Consequently, the total wholesale sales revenue for the first quarter amounted to 73.6 million RMB, a 44% quarter-over-quarter decrease.

In the above cases, the total revenue of this quarter was 3.44 billion RMB, and the share price decreased by 27%. mainly due to the impact of the spring break and domestic new car market fluctuations. Compared to the past year, the share price has dropped by 32%, mainly due to the increase in retail sales, the decline in wholesale sales and the overall decline in the price of cars.

So as a result of the above factors, total revenues for the first quarter was 344 million RMB, a 27% decrease compared to the previous quarter, mainly due to the impact of the spring festival off-peak season and fluctuations in the domestic new car market. Compared to the same period last year, there was a 32% decrease. While our retail transaction volume increased, this was offset by declines in our wholesale transaction volume and the average selling prices of the vehicles.

After the end of the pandemic, the operation of the company also began to enter a normal stage of development. Our storage structure gradually returned to a healthy level, and sales cycle and profit level continued to increase. In the fourth quarter of 2023, although we are still under the influence of the end of the epidemic, our net profit has returned to 2.3%. Last quarter, it was 0.6%. Last year, it was 0.2%. There is still room for growth in net profit. In the first quarter of 2020, that is, from April to June of 2023, we expect net profit to continue to rise by more than 6%, reaching a new peak in the last three years.

As we transitioned post-COVID, our operations have realigned to a healthy growth trajectory. The inventory structure gradually returned to a healthy level, with sales turnover and profitability continuously improving. In the fourth quarter of fiscal year 2023, although we were still dealing with the residual impact of the epidemic, our gross profit margin rebounded to 2.3% compared to 0.6% in the previous quarter and 0.2% in the same period last year. We believe there's still substantial headroom for growth in our gross profit margin. We anticipate that in the first quarter of fiscal year 2023, which is the three months between April and June 2023, our gross profit margin will rise to over 6%, reaching a new high in the past three years.

The total operating cost of this quarter is 1.13 billion RMB, which is 9% higher than the previous one. This is mainly due to the loss of 1.7 million historical financial assets in this quarter. This is a non-currency fee, purely for accounting purposes. The accounting process of our historical financial assets is basically completed. In the future, it will not have a significant impact on this report. To kick off this one-time impact, the operating cost of this quarter is about 1 billion RMB, which is 3% lower than the previous one.

The total operating expenses for this quarter amounted to 113 million RMB, with a 9% increase compared to the previous quarter. This was primarily due to a non-cash expense of 17 million RMB from the impairment loss of historical financial assets. The accounting treatment for our historical financial assets has been mostly completed, and it will no longer have a significant impact on our financial statements in the future. Excluding this one-time impact, operating expenses for this quarter were approximately 100 million RMB, a decrease of 3% compared to the previous quarter.

本季度的long gap运营亏损是4670万人民币, 比上个季度减少3890万, 其中包含了债务重组产生的一次性收益4800万, Non-GAAP operating loss for this quarter was 46.7 million RMB, a decrease of 38.9 million RMB compared to the previous quarter. This included a one-time gain of 48 million RMB from historical debt restructuring,

If we exclude this impairment loss of financial assets and the gain from debt restructuring, non-GAAP operating loss for the fourth quarter decreased by approximately 4 million RMB compared to the third quarter.

Regarding the industry situation of the third quarter of 2022, although the epidemic in the first three seasons affected our business development rhythm, the company still achieved significant growth in retail sales and income throughout the year. The retail sales of the whole financial year is 10,703 units, which increased by 105% in total. The retail revenue of the whole financial year is 13.1 billion yuan, which increased by 68%. The total revenue is 10.6 billion yuan, which increased by 26%. The non-GAAP operating loss of the whole financial year is 3.1 billion yuan, which expanded by 57 million yuan in the previous fiscal year, mainly due to the decline in interest rates.

Regarding the performance for the full fiscal year of 2023, despite the impact of the pandemic on our business development pace in the first three quarters, we still achieved a significant increase in retail transaction volume and revenue for the entire fiscal year. Our retail transaction volume for the full year was 10,703 units, a 105% year over year growth, and our retail sales revenue was 1.31 billion RMB, a 68% increase year over year. Total revenues were 2.06 billion RMB, a 26% increase year over year, Non-GAAP loss from operations for the full fiscal year was 310 million RMB, an increase of 57 million RMB compared to the previous fiscal year, mainly due to the decline in gross profit margin. Detailed information on our full year results can be found in the earnings release we just published and our upcoming annual report, so I won't go into further details here.

In the past few months, we have clearly seen a good trend in business development. As the price of the new car market goes up, the whole market of the second-hand car market is gradually stabilizing. Our storage structure is more and more healthy, and sales cycle is further accelerated. Our increased service, such as finance, insurance, maintenance, hardware, and other high-performance businesses, have been continuously improved. These have further improved the profitability of second-hand car sales. To achieve the goal of selling profit this year, we have laid down a solid foundation. In the past few months, Youxin has adopted a stable purchasing strategy and maintained a low storage level. As we started to increase the storage scale, the sales transformation brought about a time-related profit. We will try our best to achieve a profit of one-tenth of what we sold in 2023.

Our inventory structure has become healthier, and sales turnover has further accelerated. The penetration rate of our value-added services, such as finance, insurance, maintenance, and accessory upgrades, which have high gross margins, continue to improve. All of these have further enhanced the profitability of our business, laying a solid foundation for achieving our target of having our superstores break even this year. In the past few months, Yuxin has adopted a prudent acquisition strategy, maintaining a low level of inventory. As we begin to rapidly expand our inventory scale, the profitability brought by sales conversion is only a matter of time, and we will make every effort to achieve positive EBITDA at both of our Xi'an and Hefei superstores by the end of 2023.

In the beginning of this year, we completed all the trend and trend of transferable debt in 2019, and completely resolved the history bubble. The structure of asset debt has been greatly optimized, so that we can get on board in a better state of mind and invest in business development. At the same time, in July this year, we and two investors completed the renovation of the shareholding authority, and the current financing is also being promoted according to the plan. In addition, DK also mentioned that we have cooperated with several banks and received 300 million yuan in deposit financing and receivables. We have also taken active steps to enhance our financial planning and strengthen our cash positions. We completed the restructuring and repayment of all 2019 convertible notes earlier this year, completely resolving the single largest historical burden.

the structure of our assets and liabilities has been greatly optimized, allowing us to grow the business in a much better condition. Additionally, in July, we revised the stock Warren agreements with two investors, and the prospective financing is progressing on track. Moreover, as VK mentioned earlier, we have established a corporation with several renowned banks and obtained 200 million RMB in inventory financing and credit, These partnerships will significantly increase the efficiency of using our own funds and provide robust financial support for inventory climbing and business expansion. Overall, our financial situation is moving towards long-term health.

In the first quarter of the year of 2024, that is, from June to June of 2023, retail sales are expected to be 1,600 units. The retail unit price is 11.1 trillion RMB. Regarding our outlook for the first quarter of fiscal year 2024, which spans from April to June 2023,

We anticipate overall sales to return to a sustained growth trajectory due to market stabilization and the increase in inventory vehicles. We project retail transaction volume to be 1,600 units with a retail ASP of 110,000 RMB. Wholesale transaction volume is projected to reach 1,600 units with a wholesale ASP of 61,000 RMB. Our total revenues, including retail sales revenue, wholesale sales revenue, and value-added service revenue, are expected to range between 270 million RMB and 290 million RMB. Furthermore, we foresee a notable increase in our gross margin, with expectations that our gross margin for the next quarter will exceed 6%.

This is what we are going to share with you today.

And that concludes our prepared remarks for today. Operator, we're now ready to take the first question.

Thank you. If you wish to ask a question, please press star then 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then 2. If you are on a speakerphone, please pick up the handset to ask your question. When asking a question in Chinese, please restate your question in English immediately afterwards for the convenience of everyone on the call. Once again, if you would like to ask a question, please press star then 1 on your telephone. And our first question will come from Tom Kerr of Zacks Investment Research. Please go ahead.

Hello, good morning. Can you discuss any recent market trends or any significant changes in consumer purchasing behavior lately?

All right, let me translate that question first. The first question is, have we seen any changes in the market? Have there been any changes in the behavior of recent consumers?

Okay, thank you, Tom. This is a translation from our CEO, DK.

Indeed, as we highlighted during our previous earnings call, the onset of aggressive pricing strategies in the new car market since January had a significant impact on the used car sector. Consumers' increasing uncertainty over additional reductions in new car prices led to a noticeable hesitation, particularly when considering premium used car priced over 100,000 RMB.

Since June, the market has gradually returned to a steady state, and our sales efficiency has also begun to recover rapidly. The current storage cycle speed is already faster than any previous month. The latest month of sales cycle time for car sales is about 40 days. As we increase the influence of the market in the area, the network effect generated in the consumer community is also gradually enhanced. We are confident to continue to increase our market share in the area.

However, since June, we've seen the market start to stabilize, and our sales efficiency has been on an upward trajectory. Our inventory turnover rate of vehicles on sale in the last month, standing at approximately 40 days, has surpassed the previous monthly record. As our brand presence amplifies in the regions where our superstores are located, we will further strengthen the network effect among our consumer base. Looking ahead, we remain confident in our capacity to continue expanding our market share within those territories. And that's our answer to your first question, Tom.

Okay, thank you. One more question. Can you provide further commentary on future IRCs? Are you looking at many regions or any specific areas for expansion?

All right, let me translate that question first. The second question is whether IRC is looking for new areas to build new IRC projects. As I mentioned in the introduction, our plan is to complete two to three new sales platforms in 2024.

The plan is mainly based on the number of people, the scale of the car market, the level of economic activity, and the location of land traffic. Also, it is very important to comprehensively assess the conditions of the local government's stock policy to build out-of-sales retail enterprises in each new area to improve the offline sales market rate and the online sales brand coordination. Regarding the specific progress and situation of the expansion of the new market area, you can pay attention to the information posted on our IR website public number, Douyin and Twitter.

So as we've mentioned earlier, in our ongoing commitment to growth, we're mapping out the establishment of two to three additional super stores in the fiscal year of 2023. So in determining the loan locations, we will be evaluating a range of criteria, including population density, the use per market size, regional economic vitality, geographical positioning, and local government incentives. With each new establishment, our aim is to fortify UCN's position as a leader in the local used-farm market, improving our penetration into offline markets while bolstering our brand synergy with our online operations. For more detailed information and timely updates on our ongoing and future developments, I would encourage you and our investors to stay connected to our IR website or official WeChat account, Douyin or TikTok, and Twitter. Okay, thank you for the answer.

Yep, thank you. Thank you for all the questions I have.

Operator, let's move on to the next.

The next question comes from Fei Dai of TF Securities. Please go ahead.

Repeat my question in English. You mentioned in your early release that there will be a significant improvement in growth margin next quarter. Where does the momentum for the growth margin expansion come from? What are your long-term growth margin targets? Thank you.

Thank you, Daifei. This question is for Zhuang, okay? Thank you.

Hello, Daifei. As you just mentioned, In recent months, one of the most promising results for us is that our net profit has begun to spread rapidly. We just mentioned that we expect to reach a level of more than 6% in April and June of this year. And we expect to continue to increase in space throughout the year 2023. Based on our financial model, the ultimate net profit target is gradually increasing to 10%. The long-term target, of course, is a higher level.

So this is a translation from our CFO, John. As you pointed out, our recent operational performance has been promising, especially the marked improvement in our gross margin. For the quarter spanning April to June, as we've mentioned earlier, our gross margin had already reached 6%. So looking forward, we forecast further growth throughout the fiscal year of 2024, aiming for a mid-term target of 10%. with aspirations for even higher margin in the long term.

So our gross profit for a retail vehicle primarily stems from two sources. The gross profit from vehicle sales and the gross profit from value added services.

We have seen marked improvements in both areas.

The increase in sales in the car market is mainly because the price difference between sales has returned to a normal level. At the same time, our preparation cost has dropped significantly. In the past two years, because of the shutdown of several rounds of normal business, the market has also dropped dramatically. Our stock sales cycle has been stretched continuously. It will also bring some larger stock losses at any time. This has led to a significant decrease in our sales turnover, which is clearly lower than normal. After the pandemic, our structure has become healthier, and the number of long-term customers has significantly decreased. Our average sales turnover has reached less than 45 days, so our sales turnover has gradually returned to a level close to normal. With the official launch of Xi'an's latest preparation factory, we have also used more advanced preparation technology We can also mention that our transparent factory's speed management system is also on the line, and the efficiency of the road preparation is also greatly improved. Therefore, under the large-scale production, the average cost of single-car preparation of our retail vehicles has dropped by 70% compared to a year ago. The above mentioned aspects have jointly promoted the rebound of our vehicle sales.

So the uptake in our vehicle sales course profit is due to the combination of our sales margin steady recovery and the significant decrease in our reconditioning cost. The past two years presented challenges, with the pandemic causing disruptions and dampening market activity. This led to an extended inventory sales cycle, significant inventory depreciation, and a contraction in our sales margins. However, post-pandemic, our inventory structure has improved, with older vehicles making up a smaller fraction and the average sales cycle reducing to within 45 days. Consequently, our sales margins are trending back to standard levels. Moreover, the inauguration of our CN reconditioning facility and the integration of the state of VR reconditioning techniques coupled with our transparent digital management system have significantly elevated our overall efficiency. Under the scaled production, our reconditioning costs per vehicle, per retail vehicle, have dropped by an average of 70% compared to last year. Collectively, these elements have fueled our gross margins resurgence in vehicle sales.

Then our high-performance upgrades, including finance, insurance, maintenance, and products, etc. In the past period of time, the delivery rate has been constantly increasing. Our retail car's single-car service has increased by more than 30% compared to half a year ago. This has become another major driving force in the growth of horsepower. Youxin has built a modernized large-scale preparation factory. We can provide customers with two-wheeled cars like new cars in e-sports sales, and provide comprehensive service in all directions. And we have lower cost advantages. Our high-margin value-added services, including finance, insurance, repair, and other value-added services, have seen a continuously increasing penetration rate.

Revenue generated from these services per retail vehicle has surged by above 30% compared to six months ago, making it another key driver for our gross profit growth. Our cutting-edge, large-scale reconditioning facilities empower us to offer a comprehensive suite of value-added services to our used car buyers, similar to what new car frass shops offer, but with a distinct cost advantage. This is using Superstore's large-scale model apart from traditional used-car marketplaces and small used-car dealerships.

The rapid improvement in our profit margin is the source of our confidence in the long-term EBITDA profit this year. As we gradually increase our warehouse scale, the profit brought by the scale-based sales is just a matter of time. We will do our best to achieve a large long-term EBITDA profit

We are hardened by the market enhancement in our gross margin, which bolsters our confidence in obtaining EBITDA profitability for our superstores this year. As we start scaling up our inventory, achieving profitability from our large-scale sales is just a matter of time. We're committed to achieving EBITDA profit for our two major superstores in Hefei and Xi'an within 2023. And that's our answer to your question.

Operator, can we move on?

The next question comes from Kai Kang of Citix. Please go ahead.

Thank you, Director. I'm Kang Kai from the Center. I would like to ask if we think that new car dealerships' efforts to do second-hand car business will increase competition and create great challenges for us? And compared to car dealerships, what are our advantages compared to them doing second-hand cars? Do you think that currently some auto dealerships trying to expand into the used car business will intensify competition and pose challenges to used cars? And compared to those dealerships in sales in used car sector, where are used cars stand? Thank you.

Okay, thank you. Let me answer your question. The wave of China's second-hand car industry change and upgrade has already begun. Yes, I think we are very welcome to be more responsible to our customers, and to make the second-hand car industry continue to win customers' trust. Participants are developing together in the industry. Then the future of the Chinese second-hand car market will definitely be those who can use products and experience as the core competitiveness, and become the market mainstay of the retailers with the core core business. Can drive the entire industry together and continue to grow.

This is a translation from our CEO, DK. So thank you for the question. The transformation and industry upgrade in China's used car market is well underway. We genuinely welcome all responsible participants committed to fostering trust with consumers and elevating the industry standard. Going forward in China's used car landscape, those retailers who emphasize product quality customer experience, integrity, and compliance will undoubtedly be at the forefront. Collectively, we have the potential to steer the industry towards stronger growth and broader expansion.

I don't think the second-hand car industry is a non-competitive industry. Then different retail models have their own space for development. In the case of the most mature American market in the car industry, we can see that the largest American car retailer, CarMax, has less than 3% of the market share. In the case of American car dealerships, all of these car dealerships together account for about 40% of the market share. So there is no malicious competition. Everyone runs their own advantageous brands and low-end cars to maintain their customer reputation and achieve good co-preservation. So it's my belief that the used car sector is not a winner-takes-all market.

Each retail model can find its niche and flourish. To draw from a mature market analogy, consider the U.S. where CarMax, its leading used car retailer, captures less than 3% of the market share, whereas branded dealerships represent around 40%. It's not about cup world competition. Each player taps into their strength, catering to a specific brand or pricing segment, thereby nurturing their customer base and establishing mutual respect within the market. So compared to our U.S. peers, both we and new car dealerships in China still have significant growth potential in capturing market shares.

Compared to the new car dealership, our biggest feature is the difference between a large market and a specialized store. We are a warehouse market with a large volume and a high turnover mode. Customers will have more choices here. There are only thousands of cars for consumers to choose from in each market. At the same time, we have the most advanced and most professional large-scale second-hand car manufacturing factories. Based on large-scale preparation and digital management, we also have cost advantages in terms of car quality.

And in comparison to new car dealerships delving into the used car arena, our unique selling proposition is the contrast between our extensive super stores and the more niche specialty stores. So operating under a warehouse-style superstore model, we emphasize volume and turnover. we pride ourselves on the vast array of choices available to customers. With thousands of vehicles under a single roof, moreover, we possess the industry's most advanced larger scale used car reconditioning factory. With a streamlined reconditioning process and cutting edge digital management, we offer a cost effective solution without compromising on vehicle quality. When comparing vehicle types and pricing with new car dealerships, We believe our portfolio is both compelling and competitively priced. And that essentially sums it up. Thank you for the question.

Thank you.

That concludes our call today. I will now hand the call back to management for any closing remarks.

All right. Thank you. Thank you again for joining today's call and for your continued support to Yuxin. We look forward to speaking to you again very soon in the future. Thank you. Bye-bye. Bye-bye. Thank you.