Uxin Limited

and welcome to the UChain Limited fourth quarter and fiscal year 2024 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. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce your host for today's call, Mr. Jack Wang. Please go ahead, Jack.

All right, thank you, operator. Hello, everyone. Welcome to Yuxin's earnings conference call for the fourth quarter and full fiscal year ended March 31, 2024. On the call with me today, we have DK, our founder and CEO, as well as Zhang Lin, our CFO. DK will review business operations and company highlights, followed by Zhang, who will discuss financials and guidance. They will both be available to answer 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 current expectations. For detailed discussions of the risks and uncertainties, please refer to our filings with the SEC. And now with that, I will turn the call over to our CEO, DK. Please go ahead, sir.

Thank you, Director. Hello everyone, thank you for your continued interest and support. It's a pleasure to welcome you to our earnings call today.

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

China's economic situation is in a new stage of development. Like many other industries, the second-hand car industry is also facing many challenges, especially since the beginning of last year, the entire car industry has started a more and more intense price competition.

The current economic landscape in China is entering a new phase of development, bringing numerous challenges to various industries, including the used car sector. Notably, the competitive pricing strategies initiated by car manufacturers early last year have severely disrupted the price structure of the used car market. leading to a substantial decline in profitability across the industry.

But we are still happy to see that the challenge is accompanied by opportunities. In the past year, China's second-hand car market is still on the track of rapidly increasing in size. In 2023, the number of second-hand car transactions in the country exceeded 18 million units, which increased by nearly 15%. The government has repeatedly proposed many good policies to encourage the development of the second-hand car industry. However, we are pleased to see opportunities amidst these challenges.

Over the past year, China's used car market has continued its rapid growth trajectory, with national used car transactions surpassing 18 million units in 2023, reflecting a near 15% year-over-year increase. The government's series of favorable policies to encourage the development of the used car industry, coupled with substantial incentives for trading in old cars for new ones, have spurred consumption growth in the sector. In an increasingly complex and dynamic operating environment, resources are beginning to concentrate towards leading used car dealers, providing long-term sustainable growth and profitability opportunities for companies that excel in scale, branding, and efficiency.

Youxin Erlouche is a super marketer. As a business model that is unique in the Chinese Erlouche industry, it shows excellent competitiveness in all aspects. The advantage of the city in the market is becoming more and more obvious. In the four seasons of the 2020 fiscal year, our retail sales have maintained a continuous growth. The entire fiscal year, the retail sales were 10,179 units. From January to March of 2024, even during the traditional season during the Spring Festival, we still achieved 3,124 retail sales, which increased by 38% compared to the same period last year. Youxin Super Big Market has become the first brand of second-hand cars that the local consumers recognize. Yuxin's unique business model, characterized by our flagship used car super scores,

has demonstrated strong competitive advantages across various dimensions, becoming increasingly prominent in the cities where our super stores are located. In the fourth quarter of fiscal year 2024, our retail sales continued to grow with a total of 10,179 units sold throughout the year. From January to March 2024, even during the traditional slow season of the Spring Festival, We achieved retail sales of 3,124 units, a 38% increase compared to the same period last year. Our super stores have become the leading brand in their respective regions with a Net Promoter Score, or NPS, consistently around 60 points for 10 consecutive quarters, the highest level in the industry, and a regional market share of 10% and growing. Our overall vehicle inventory turnover days are around 30 days, and our standardized, streamlined, and digitized operating system has matured over the past year, significantly surpassing the industry average in operational capacity and efficiency.

Looking back at the past year, we have made positive progress in many aspects of our business. We have prepared for a scale-up of profit and loss. I will choose three important results to share with you.

Reflecting on the past year, we have made substantial progress in numerous areas of our business, positioning us well for scalable profitability, and I will highlight three key achievements.

First, brand power and sales power generate positive effect. Sales efficiency significantly improves.

First, our branding and sales capabilities have generated a positive flywheel effect, further enhancing sales efficiency. By connecting with customers through superior products and services, we have built a stronger network effect in regional markets as customers' trust and reputation has grown, further boosting sales conversion rates. As a result, our in-store customer conversion rate has reached approximately 40%. Despite intense industry competition, our retail vehicle inventory turnover rate has improved by over 60% compared to the previous fiscal year, allowing us to achieve higher retail sales with the same inventory size.

The digitalization capability created by the industry experience over the past 10 years has greatly improved sales performance. Our AI pricing model, dynamic monitoring of all 600,000 second-hand vehicles, from car prices, car sales, car stock, mileage, etc. to form a competitive model, and combine the customer's driving record with the current market price, quickly generate the sales price and make immediate adjustments to ensure that the best-selling cars maintain a competitive level in the market. In the new car price drop trend, any type of car with a drop in price, our pricing system will respond quickly to adjust the same type and type of car in the stock. The faster the price adjustment, the faster the car sales, and the smaller the impact of new cars, we can enter the next round of normal sales as soon as possible.

Yuxin's decade-long industry experience has greatly empowered our sales capabilities through digitization. Our AI pricing model dynamically monitors 600,000 of used car data points across the Internet. creating competitive models based on factors such as the car's model, age, condition, and mileage. This system, combined with customers' viewing records and offline price graphs, can generate purchase and sale prices and adjust them promptly to ensure users' vehicles remain highly competitive in the market. During the new car price cuts, Our pricing system responded quickly to adjust the acquisition and selling prices of similar models to accelerate the sales of impacted inventory. By adjusting our prices faster, we can accelerate vehicle sales, mitigate the effects of new car price reduction, and transition into the next regular sales cycle sooner.

PR. The second, while increasing the sales volume, we have also boosted our gross profit per vehicle.

Our gross profit margin has risen from 1.2% in fiscal year 2023 to 5.9% in fiscal year 2024. In the used car industry, prices typically decrease as inventory ages. Therefore, by accelerating our sales turnover, we have naturally enhanced our gross profit per vehicle.

Based on the current situation of the offline wholesale market and ready-to-sell factories, we continue to expand the extension of high-performance services to provide consumers with high-performance financial, insurance, insurance, products, maintenance, and maintenance services. In the past year, the penetration rate of these increased services has quickly increased, leading to a significant increase in profit.

Meanwhile, leveraging our one-stop shopping experience at offline super stores and reconditioning factories, we have continuously expanded our high-margin value-added services. These include the financing services, insurance, extended warranties, premium accessories, and maintenance. Over the past year, the penetration rate of these value-added services has rapidly increased, boosting our gross profit margin.

On the other hand, the cost of single-car preparation has significantly decreased. The transparent factory in Youxin has been completed. The vehicle has been in the warehouse for three days on average. Additionally, our per-vehicle reconditioning costs have significantly decreased. Yuxin's transparent factory is now fully operational, with vehicles taking an average of only three days to move from warehousing to sales, allowing for faster sales entry.

Through bulk procurement of parts, smart repairs, and the application of 3D printing technology, our reconditioning cost per vehicle in the fiscal year 2024 has decreased by 50% compared to the previous fiscal year.

We have continued to reduce costs, improve efficiency, and optimize our operating expenses.

adjusted EBITDA for the fiscal year of 2024 with a loss of 176 million RMB, representing a nearly 40% reduction in losses compared to the fiscal year of 2023. And this year, we implemented a series of cost reduction and efficiency enhancement measures. Looking forward, we expect fixed costs and expenses in the fiscal year of 2025 to be reduced by over 100 million RMB compared to the fiscal year of 2024, driving faster overall adjusted EBITDA profitability at the company level.

Using market marketing as an example, we have explored a set of high-performance, low-cost purchasing methods. The overall market cost dropped more than 50% last year. We take marketing as an example. We have developed a highly cost-effective customer acquisition strategy, reducing advertising and promotion expenses by more than 50% compared to last year.

Leveraging our large venues, we actively explored community integrated marketing strategies by organizing events such as sport meetings, anime conventions, job fairs, and vehicle test drives, et cetera. These activities increased our regional market exposure, generating substantial organic traffic, and significantly lowering customer acquisition costs.

In the past year, our offline superstore model has proven successful, placing Yuxin on a rapid growth trajectory.

Looking ahead to the new fiscal year, we have set three primary business objectives, aligning with our current development plan.

First, continue to promote sales. It is expected that sales will increase by 150% by 2025. We are confident in maintaining the sales efficiency of current vehicles and gradually increasing storage. First, we aim to significantly increase sales volume, projecting a year-over-year retail sales growth of 150% for fiscal year 2025.

We're confident in maintaining our current sales efficiency and we'll gradually ramp up inventory, expecting inventory levels to increase two to three times compared to the beginning of the fiscal year. This will drive continuous retail sales growth in the coming quarters, ensuring the achievement of our sales target for the new fiscal year.

Second, achieve company-scale profit. Our goal is to achieve our company-scale profit Second, we plan to achieve company-wide profitability at scale. Our goal is to achieve positive adjusted EBITDA for the entire company in the quarter between October and December 2024.

With new car prices now stabilizing, the profitability of used cars is beginning to recover, and our inventory scales and sales continue to climb. We're confident in meeting this profitability target.

We have recently announced a joint investment of 1.7 billion yuan with the local government of Zhengzhou Airlines to set up a joint venture company to support Youxin in Zhengzhou to set up a new second-hand car super market. Zhengzhou is one of the most active second-hand car trading cities in China's central region, and is one of the most active second-hand car trading cities. It has more than 1,300 million long-term residents and 5 million cars. It has the best conditions to run a large-scale second-hand car market. In addition to Zhengzhou, we have a few other cities that are also advancing the landing plan. This will continue to promote the national business development and growth of Youxin in the next few years.

And third, we will finalize the location selection and operation preparations for two to three new superstores, enhancing our reintegrated online and offline superstore network. Recently, we announced a strategic partnership with the Zhengzhou Airport District Government with a joint investment of 170 million RMB to establish a new Yuxin used car superstore in Zhengzhou city. As a transportation hub in central China and one of the most active cities for used car transactions, Zhengzhou boasts a population of over 13 million and a car ownership of 5 million, making it an ideal location for operating a super large scale used car superstore. And besides Zhengzhou, we are also advancing implementation plans in several other cities, which will drive Yuxin's national expansion and business growth in the coming years.

Yuxin is ready to go. We are very confident in the advantage of Yuxin's large-scale market model and the growth trend. We are still on a track of 100 billion-level and booming development. Everything is in place for us to achieve our goals. We have confidence in the competitive advantage of using SuperStorm model and the momentum driving our business growth.

We remain dedicated to leading the transformation and upgrading of China's used car industry with a steadfast commitment to customer-centric value creation. Once again, we sincerely thank you for your continued trust and support. We look forward to achieving new breakthroughs together in the coming fiscal year.

我今天先分享到这里。 接下来我们的CFO John会为大家展示财务上的情况。 有请John。

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

Okay. Thank you, DK, and hello, everyone. I will provide a closer look at our financial results.

From the fourth quarter and fiscal year 2020 tour, to facilitate communication with both domestic and international investors on the call, I will make my remarks in both Chinese and English.

Looking back at the fourth quarter of the Chinese year, which is the year of nature, from January to March of 2024, due to the impact of the spring festival, it is a traditional period of second-hand car sales. Due to the comprehensive improvement in brand power, product power, and service power, we have still obtained good sales results.

As we review our performance in the fourth quarter of fiscal year 2024, which ended March 31, 2024, we faced the traditional off-season for used car sales due to the Chinese New Year. Nevertheless, the enhancement of our brand strength, as well as product and service quality, enabled us to deliver remarkable sales results. with a total retail transaction volume of 3,124 units, a 38% increase compared to the same period last year.

In the fourth quarter of this year, the total sales revenue was 2.69 billion RMB, which is a 2% increase. The current economic situation in China is still challenging, and the whole country is still in a strong price war. In the past year, we have actively adjusted the storage structure to adapt to the changes in the market. Total retail revenue for the fourth quarter was 269 million RMB, representing a 2% year-over-year increase. Despite certain challenges in the current domestic economic landscape and the ongoing intense price competition among domestic carmakers,

we proactively adjusted our inventory structure to adapt to market changes. The average selling price, or ASP, of our retail vehicles decreased from 117,000 RMB in the same period last year to 86,000 RMB this quarter. However, the significant change in sales volume offset the impact of the price reduction. 车辆批售方面,四季度的批售销量934台,

Our wholesale transaction volume in the fourth quarter decreased by 31% year-over-year to 934 units, leading to a total wholesale revenue of RMB39.7 million.

With our offline superstore model not fully operational, we are focusing more on the retail vehicle business, and the proportion of wholesale business will naturally decrease over time.

Overall, the total revenue of the fourth quarter is 3.19 billion RMB. Our turnover efficiency has improved significantly in the market. The turnover speed of the overall inventory has dropped from 45 days in the beginning of the year to about 30 days in the current year. As such, our total revenues in the fourth quarter were 319 million RMB,

Importantly, our turnover efficiency has reached a new height amidst increasing market fluctuations, with the overall inventory turnover decreasing from 45 days at the beginning of the fiscal year to approximately 30 days currently. Faster vehicle turnover has allowed us to achieve higher net vehicle income. Additionally, the penetration rate of value added services has been steadily increasing, driving the gross profit margin for the quarter up to 6.6%, compared to 4.8% in the previous quarter and 2.3% in the same period last year. And we anticipate further growth in our gross profit margin.

We are constantly improving the efficiency of our business, and continuously implementing strict cost and fee control. We also further enhance our operational efficiency and maintain strict cost control measures. As part of this ongoing effort, we have completed organizational adjustments and structural optimizations in March.

In the first quarter, our adjusted EBITDA loss was 39.7 million RMB, a reduction of 4.1 million RMB compared to the previous quarter.

Regarding the performance of the whole year of fiscal year 2024, the sales volume of the entire fiscal year was 10,179 units. In the four seasons of the fiscal year, under the influence of the new vehicle price station, the sales volume continued to grow, achieving a sales revenue of 10.24 billion RMB. Regarding the full fiscal year 2024 performance,

Our total retail transaction volume totaled 10,179 units. And despite the impact of the new car price force, we maintain a continuous sales growth across all four quarters, achieving a retail revenue of 1.02 billion RMB and total revenues of 1.38 billion RMB. Our offline SuperStorm business model is now fully operational, enabling us to narrow our adjustment 104 million RMBs, nearly 40% from the previous fiscal year to 176 million RMBs. Detailed information on our financial results from the fiscal year can be found in our recently released earnings report and annual report, so I won't repeat them here.

We have achieved the first sales level adjustment of EBITDA in January 2024. With the rise in the price of new cars, we are gradually increasing the storage level. On the basis of maintaining the current car cycle efficiency, the number of cars will continue to grow. At the same time, we expect that the fixed cost of the fiscal year 2025 will continue to reduce more than 100 million yuan from the fiscal year 2024, to accelerate the overall performance of Adjust the Vita at the company level.

In January 2024, we achieved adjusted EBITDA profitability at a superstore level for the first time. With new car prices stabilizing, we have already begun gradually increasing inventory levels. Meanwhile, maintaining our current vehicle turnover efficiency will drive sustained sales growth. Additionally, we expect fixed costs and expenses for the fiscal year of 2025 to be reduced by over 100 million RMB compared to the fiscal year of 2024, accelerating the achievement of company-wide adjusted EBITDA profitability.

Regarding the performance growth of the first quarter of 2023, that is, from April to June of 2024, our retail sales are expected to be 4,000 units, with an increase of more than 25%, and the wholesale sales are expected to be 1,500 units. Moving on to the outlook for the first quarter of fiscal year 2025, which ended June 30, 2024, we expect our retail transaction volume to reach 4,000 units, representing a sequential increase of over 25%.

Wholesale transaction volume is expected to be 1,500 units. Total revenues are projected to be between 390 million RMB and 410 million RMB. We also anticipate that our gross profit will remain stable compared to the fourth quarter of fiscal year 2024.

As for the full fiscal year of 2025, we project a retail transaction volume of around 25,000 units.

representing a year-over-year increase of 150%. Our goal is to achieve company-wide adjusted EBITDA profitability starting from the third quarter of the fiscal year, which is from October to December in 2024.

And that concludes our prepared remarks for today. Operator, we are now ready to take questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. When asking a question in Chinese, please restate your question in English immediately after for the convenience of everyone on the call. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Fedai with TF Securities. Please go ahead.

Hello, I'm Daifei, a researcher at Tianfeng Securities. We have noticed that the company has achieved a strategic cooperation of 1.7 billion with Zhengzhou recently. Could you please introduce the cooperation in detail and how long does it take for the new market to invest in profit? In addition, what is the strategy of the company to choose a new industrial city? Are there any other cities in discussion at the moment? We noticed that the company recently entered a strategic cooperation with Zhengzhou worth 117 million RMB. Can you elaborate on this cooperation and how long it will take for the new superstore to achieve profitability? Additionally, what is the company's strategy for selecting new cities for expansion? And are there any other cities currently in progress? Thank you. 谢谢戴菲,我来回答。

That is, our cooperation with Zhengzhou has recently come to a standstill. The local government has provided us with great support for our local 2-car business. In addition to the 1.7 billion yuan joint investment in Zhengzhou's large market, the government has also built a factory store for our other investment of 500 million yuan, and provided support in many aspects such as industrial subsidies, people-to-people cooperation, so that our projects in Zhengzhou can be launched as soon as possible.

Hi, this is DK, and we'll address that question. You're correct. We have recently signed a contract with the Zhengzhou city government, and the local government plans to provide substantial support for our used car business in the area. And in addition to the joint investment of 170 million RMB for our Zhengzhou Superstore operation, the government also plans to invest an additional 500 million RMB in constructing the Superstore site. The government will also offer industry subsidies, facilities, and other various other support to ensure that our project in Zhengzhou can commence as soon as possible.

The construction of the factory will take some time. It is expected to start production next year. We have been doing very well in the mode of the sub-contractors in Xi'an and Hefei. The new sub-contractors will only take 12 months or less from the start-up to EBITDA profit.

The construction of the store will take some time and is expected to be completed next year. Our offline superstore models in Xi'an and Hefei are running smoothly, and we anticipate that the new superstore will take approximately 12 months or less from commencement to achieving EBITDA profitability.

We choose the new area industry, considering the high local car volume and active second-hand car transactions, When choosing new areas for expansion, we prioritize cities with large vehicle ownership.

high activities in used car transactions and superior traffic conditions. For example, Zhengzhou is a transportation hub in central China and one of the most active cities for used car transactions, with over 13 million residents and a vehicle ownership of 5 million, making it an ideal location for a new superstore. We also consider specific city conditions such as available land plots and whether government support aligns with our needs for expanding new store stores. Given the backdrop of policies encouraging the development of the auto aftermarket, local governments are very supportive of our offline superstore model. We are currently in negotiations with multiple cities and expect to finalize cooperation with one to two cities within this year. So please do stay tuned for our further announcement on this front. And that's our answer to the first question. And we actually do have another question from Water Tower Research, who couldn't be here in person. So I will just ask that question on behalf of them. The question is, how is our used car, used new energy vehicle business developing? And what percentage of used energy inventory do they make up? Compared to fuel-powered used cars, are there major differences in profitability and cost when selling used new energy vehicles. We have a translator who studies water towers, but he can't be here today, so I'll ask him this question. Currently, in the new car market, the sales ratio of new energy vehicles is getting higher and higher. So, how is the development of the current company's new energy second-hand car business? How much is the storage ratio? Is the new energy in the second-hand car compared to the fuel second-hand car at a profit level? What is the big difference between the investment and the cost-benefit ratio?

The increase in sales of new cars in China this year is indeed very fast. The market share rate is close to 50% in the new car sales. We are also very concerned about such a trend development. Because the explosion of new cars has been in the last two or three years, the stock volume is about 25 million cars. Currently, there are 3.4 billion cars in the country. So it's less than a hundred now. The growth rate of NEV sales in China this year has indeed been very impressive, with their market share in new car sales now approaching 50%. We're keeping a close eye on this trend.

And since the NEV boom only started in the last two to three years, their total ownership is only about $25 million, which is less than 10% of the national vehicle ownership of $340 million. Most NEVs haven't yet entered the used car sales space yet. So currently, the proportion of our NEV sales is between 10% to 15%, which is still above market level.

In terms of our sales experience, the profit level of new energy two-wheeled vehicles will be slightly higher than that of diesel two-wheeled vehicles. First of all, because new energy two-wheeled vehicles have a very high cost-effectiveness ratio, and the update and change cycle of new energy vehicles is shorter, there is a certain consumption of electronic products attribute, so the sales of new energy two-wheeled vehicles will be higher than that of diesel two-wheeled vehicles, which will bring a higher price difference income. In addition, because the average mileage of new energy vehicles is shorter, the car frame and battery status are better, and it does not involve engine, transmission, etc. So the average preparation cost of new energy two-wheeled vehicles is also lower.

From our experience, the profitability of used NEVs is slightly higher than that of fuel-powered used cars. Firstly, used NEVs offer excellent value for money. And due to their shorter update cycle and some characteristics similar to electronic consumer goods, their sales turnover rate is higher than that of field cars, leading to higher price markups. Additionally, since NEVs generally have a shorter average age, Their condition and battery status are relatively better, and they do not involve issues with engines and transmissions, resulting in lower average reconditioning costs compared to fuel-powered cars.

From the perspective of us as professional two-wheeled car dealers, new energy two-wheeled cars and fuel-powered two-wheeled cars are not much different in terms of management. Our management system can fully support the purchase, preparation, sales, and service of new energy two-wheeled cars. We have established a database of new energy vehicles of various brands, including Tesla, Biadi, and WeChat, and have invested in price monitoring, maintenance system, battery evaluation, and other aspects. We are also working with the National Data Alliance of New Energy Vehicles, From our perspective as a professional used car retailer, there is no significant difference in the fundamental operations between used NEVs and fuel-powered cars.

Our operational system fully supports the acquisition, reconditioning, sales, and after-sales services for used NEVs. We've built a database of NEVs as well, including brands like Tesla, BYD, NIO, XPEV, and LiAuto, et cetera, and have invested in price monitoring, value retention systems, and battery assessment equipment. We're also working with the National Big Data Alliance for New Energy Vehicles, core suppliers in the supply chain, and vehicle manufacturers to promote a series of technical and informational collaborations to prepare for the used NEV business. We believe that with the rapid development of NEVs in China, the proportion of NEVs in our retail business will continue to increase, and we're fully prepared to capture that opportunity. And that's our answer to the second question. Operator, let's see if we have any other questions.

Yes, if you would like to ask a question, please press star, then 1. And this concludes our question and answer session for today. I would now like to hand the call over back to management for any closing remarks. Please go ahead.

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

The conference is now concluded. Thank you. Bye bye. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.