Earnings Transcript for DXF - Q4 Fiscal Year 2018

Operator: Welcome everyone to DXF 2018 Full Year Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session. Please follow the instructions given at that time, if you'd like to ask questions. And for your information, a con call replay will be available within a few hours after this conference has ended. Please visit www.dunxin.us/irwebsite under the Event Calendar section. Now, I would like to introduce the CEO, Wei Qizhi; and CFO, CJ; also IR Manager, Claire Chen. Please go ahead.

Claire Chen: Thank you, operator. Good day to all participants, and welcome to Dunxin’s 2018 earnings conference call. You may find a copy of our Form 20-F that [Technical Difficulty] in the SEC website and at the ticker DXF or the IR section of our Company website. Joining me today on the call is Dunxin’s Chairman and CEO, Mr. Wei Qizhi; Dunxin’s Chief Financial Officer, Mr. CJ Ng; and the Dunxin’s IR Manager and interpreter, myself, Claire Chen. Please note that we will be making a number of forward-looking statements today and all such statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the Company, including the risks specified in the most recently filed Form 20-F with the SEC. Let me turn the call over to Chairman, Wei, who would like to make some introductory comments. I will translate for him. Mr. Wei, please go ahead.

Qizhi Wei: [Foreign Language] Good day to everyone and thank you for joining us on earnings call. I would like to take this opportunity to summarize the Company’s financial results of 2018 and the future business plan. Dunxin Financial is [Technical Difficulty] licensed microfinance lender serving individuals and small and medium sized enterprises in Hubei Province. As we know, in China, there are huge number of small and medium sized enterprises, which play an increasingly important role in contributing to the national economic growth, alleviating employment pressure and optimizing the overall economic structure. While the SMEs have the increasing needs of working capital to support their ongoing business operations, our Company is positioned to offer wide range of credit product portfolio, helping them achieve high quality and sustainable business development. In the past, 2018, the global economy was full of uncertainties. Against the backdrop of such global trend, the Chinese economy is also facing downward pressure. The GDP growth is slowing because of weak domestic demand and export growth, and the employment rate is also falling. Coupled with the regulatory tightening and the nationwide deleveraging policy, the SMEs face severe business challenges in this economic environment, and those enterprises we serve have also suffered a loss. Even with a volatile macroeconomic environment, we are happy to see that Company’s loan interest income increased from about RMB 120 million in 2017 to about RMB 142 million in 2018, achieving a growth rate of 18.6%. However, the Company’s management also noticed that under the complex economic environment and industry background, it may be difficult to achieve sustainable development in the long run, just relying on the traditional micro lending business. Therefore, as early as 2017, the Company began to explore new potential business models and finally decided to develop a new supply chain finance business after 1.5-year of intensive market research and analysis. The supply chain finance refers that financial institutions provide financial services to support the enterprises in upstream or downstream of the overall industrial supply chain, having supported steady and healthy development of the underlying industry. Now, the central government has introduced many supportive policies that emerging supply chain finance industry is expected to grow more rapidly in future. We are currently focusing on supply chain financial services in the logistics industry. It took us half a year on the research and development of a cloud-based supply chain finance platform. And the first mobile application product HiTon was formally rolled out on May 13th. Users can download app by scanning the QR code. According to the 2018 China logistics and supply chain finance development report, the road transportation industry in China has reached the market size of about RMB 5 trillion and the most of market participants is comprised of medium, small and the micro enterprises, who might be the seller of goods, a buyer goods or the logistics company, or considered as the potential users of the HiTon AOPP that tends to meet their untapped demand in this market. HiTon is designed to help sellers receive payment on same day of shipment by offering them short-term credit support that greatly improves capital efficiency by shortening the accounts receivable period, which traditionally lasts for 7 to 15 days. Leveraging the financial capabilities of Dunxin Financial, the logistics company will be positioned to change from a pure-play logistic operator into a comprehensive service provider by offering logistics, financial and settlement services, thus expanding their scale of business and improving profitability. Dunxin’s supply chain finance cloud platform is a technology-driven platform enabled by the big data analytics, cloud computing, AI, and mobile internet technologies. The platform is also built with a sophisticated risk management system, which includes automated customer selection, fraud detection, and credit scoring and assessment that can reduce the transaction risk significantly. The rollout of our supply chain finance cloud platform and HiTon app marks the Company’s efforts of transforming from the traditional micro lending business into the supply chain financial services, thus shifting from the offline business model to the new O2O business model. Looking into the future, the Company will continue to develop a variety of financial products in supply chain industry to meet the increasing needs from small and micro customers and achieve vision of inclusive [ph] finance. At the same time, as rooted in the regional market in Hubei Province, we plan to expand nationwide footprint in long run by the way of independent business operations, partnerships or potential acquisitions. We’ll also improve the customer [Technical Difficulty] and strengthen with management capabilities of this new app. Dunxin Financial has reached a milestone when developed a brand new supply chain finance business. The year of 2019 is a turning point for the Company to build on this new business model in the inclusive finance industry. Leveraging our leadership in the regional market, the dominant market here and brand name as the first financial service provider listed on the [Technical Difficulty] we will uptake more opportunities to strengthen the market position and expand market presence, and by offering more differentiated products and services to increase probability, achieve strong performance growth and to maximize shareholder value in the long-term. Thank you. With that, I would like to turn the call over to CJ who will go through our financials. Thank you.

Chee Jiong Ng: Thank you. I believe most of you will have more questions to ask Mr. Wei. We will take your questions after I go through the financials. As some of you may be aware, the International Financial Reporting Standards 9, IFRS 9 financial instrument and IFRS 15 Revenue from Contracts with Customers are effective for any period beginning on or after January 1, 2018. Since new IFRS are complex and require huge amount of historical data on 2016 to calculate the historical [Technical Difficulty]. Hence, for the adoption this new IFRS standard, we engaged a financial reporting expert to assist us in the implementation of these IFRS standards. The financial reporting expert is retired ex partner from an accounting firm, who has significant experience and knowledge about the IFRS. Without going into details on this IFRS, let me briefly discuss about IFRS 9 and its implication to us. IFRS 9 outlines a three-stage model for impairment based on changes in credit quality since initial recognition

Claire Chen: Okay. Thank you, CH. So, we’ll now move to the next session, the Q&A session. So, operator?

Claire Chen: Thank you, operator. Thank you. In closing, on behalf of the entire senior management team, we would like to thank you for your interest and participation in today’s call. If you require any further information or have any interest in visiting us in China, please let us know. Thank you for joining us today. This concludes our call. Thank you.

Operator: We thank you for your participation in today’s conference. You may now disconnect. Thank you and goodbye.