Puyi Inc. (NASDAQ:PUYI) Q4 2023 Earnings Conference Call September 25, 2023 9:00 PM ET

Company Participants

Jing He - General Manager of Financial Reporting Department

Yong Ren - Chairman and CEO

Conference Call Participants

Operator

Ladies and gentlemen, welcome to Puyi Inc.'s Fiscal Year 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. Following Management’s prepared remarks, there’ll be a question-and-answer session. For your information, today's conference call is being recorded. This conference call is also being broadcasted live over the Internet and will be available for replay purposes on the company's website.

I would like to turn the meeting over to your first speaker today, Ms. Jing He, Puyi's General Manager of Financial Reporting Department. Thank you. Please go ahead.

Jing He

Thanks, operator. Good evening. Welcome to our earnings conference call for the fiscal year 2023. Our annual report on Form 20-F has been uploaded to the website of U.S. Securities and Exchange Commission earlier today and is also available on our IR website.

Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. The accuracy of these statements may be impacted by a number of risks and uncertainties that could cause our actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but not limited to, those outlined in our filings with the SEC, including our 20-F. We do not undertake any obligation to update these forward-looking statements, except as required under the applicable law.

Joining us today are our Chairman of the Board and Chief Executive Officer, Mr. Yong Ren and Chief Financial Officer, Mr. Anlin Hu. Mr. Yong Ren will first walk you through our business and financial conditions of the fiscal year 2023. And then together with Mr. Hu, he will answer your questions after the prepared remarks.

Now I will turn the call over to Mr. Ren.

Yong Ren

[Foreign Language] Good evening, everyone. Welcome to our 2023 fiscal year earnings conference call. Here with me is our Chief Financial Officer, Mr. Anlin Hu. First of all, I will give you an overview of our financial and operational conditions for the fiscal year 2023. Then I will discuss briefly our business outlook for the future. Finally, we'll have a question-and-answer section to answer any questions you may have.

Now let me present an overview of our operational results and business initiatives in the fiscal year 2023. In fiscal year 2023, influenced by various factors such as strict control measures due to the COVID-19 pandemic in late 2022, the trade tension between U.S. and China and the geopolitical conflicts, the economic situation has been complex and challenging. The capital market has shown a volatile trend, resulting in a lack of investor confidence and relatedly risk overall investment sentiment.

Against this backdrop, our management team has adhered to the principle of good management in the fiscal year 2023. On the one hand, we focused on our core business, and rigorously develop institutional business with transaction value of our public raised fund products contributed by institutional clients exceeding RMB5 billion, representing a year-on-year growth of approximately 266%. On the other hand, we explore the demand of high-net worth clients and expanded family office business by promoting insurance premium trust products. As of June 30, 2023, we had assisted an aggregate of 366 affluent family clients to set up trust accounts with entrusted assets of RMB4.1 billion through our trust consulting service.

Furthermore, we continuously work on reducing costs and increasing efficiency while enhancing professional skills by providing internal training. In the fiscal year 2023, we were able to reduce our operating cost by 34% compared to the previous year, and our operating loss also reduced by 28% as well.

Our main business operations and strategy during the fiscal year 2023 are reported as follows. Firstly, we focus on our core business of distributing market-oriented funds to individual investors and strengthen our professionalism to meet individual investors' needs. On the one hand, by accompanying investors through the uncertainties, we aim to strengthen long-term relationships with them.

Since January 2023, China has entered a post-academic era, but the expected economic range rise did not come as expected, followed by a poor economic and capital market performance, which has affected investor confidence.

To address this issue, we adhere to investment education of long-term investment mechanism to boost our clients' investment sentiment. At the same time, collaborating with outside the sectionals, we introduced our investment advisory service to our clients to improve analysts of our fund product portfolios to reduce product volatility under the current weak market performance and to stabilize our clients' investment sentiment. We are pleased to see that after carrying out these initiatives, we have gained trust and praise of our clients. As of June 30, 2023, most of our clients grew whole portfolio products, were willing to purchase our investment advisory service, which could bring us new source of revenue growth.

On the other hand, we have enriched our fund product lineup and implemented precise marketing strategies. We deeply understood the importance of enhancing our own investment research capabilities and providing more from products to meet the diverse needs of investors.

In terms of public raised fund products, we further expanded our public raised fund product portfolios by increasing the number of public fund companies we source products from, which increased from 89 as of June 30, 2022, to 103 as of June 30, 2023, including a total of approximately 7,646 public raised fund products.

In addition, we added two new fund product portfolios according to the needs of clients in the market, including the automatic redeem product, the target yield product, which automatically redeems when reaching the target profit rate and smart regular investment product, a smart product, which periodically advise investors to contribute different amounts of investments based on the current market condition. Through the new products bringing new investment strategy, these two differentiated and customized products meet the needs of clients and stabilize the balance of public related fund products.

And regarding private related fund products, we have further enhanced the diversity of our private fund strategies, particularly by timely launching convertible bonds and commodity future strategies based on market demand. These strategies can capture profit opportunity for clients in volatile market conditions.

Secondly, we upgraded the institution transaction platform based on our core transaction system to achieve breakthrough and growth of institutional business. Institutional investors possess characteristics such as large capital size, stable investment and high platform stickiness, gaining favor from institutional investors plays an important role in the next phase of the development for our company's public raised fund business.

In the fiscal year 2023, we have increased investment in the transaction platform designed for institutional investors based on our core system and have attracted a number of institutional investors. We believe that the upgrade and construction of the institutional transaction platform will soon bring returns to the growth of the public raised fund business.

In fiscal year 2023, our institutional business in the financial institution market achieved a breakthrough. We currently have institutional clients covering most types of financial institutions, including banks, insurance companies, security companies, future companies and trust companies. In the fiscal year 2023, the transaction value of public raised fund products contributed by institutional clients exceeded RMB5 billion.

Thirdly, we will rigorously develop our family office business by promoting insurance premium trust products and the number of completed trust consulting service projects reached a new record high.

As of June 30, 2023, we had assisted an aggregate of 366 affluent family clients to set up trust accounts with entrusted assets exceeding RMB4.1 billion through our trust consulting service. At the same time, we have diversified and will continue to diversify our service offerings for our high-net worth clients through establishing cooperation with education service providers, tax firms, law firms, health care service providers and other professional firms.

We believe that through our comprehensive service offering, our capability in serving high-net worth clients will continue to improve, creating greater value for clients and achieving a more stable and sustainable development.

Fourth, we developed a self-developed IT infrastructure to assist in the continuous improvement of our core business. In the fiscal year 2023, we have concentrated our resources on supporting the development of our core business. We have placed emphasis on upgrading the Puyi Fund app institutional transaction platform, family office business internal systems and our core transaction system.

For the Puyi Fund app, we further improved it as a full scope online transaction processing service platform. We successfully upgraded its intelligent investment advisory system through digitalization and artificial intelligence, integrating companionship and adviser service to the client’s entire investment life cycle.

And in terms of institutional transaction platform, we have launched a smart port system to connect with other financial institution systems to support the development and expansion of our financial institutional clients. We have also optimized and integrate the functionality of the institutional transaction platform, further enhancing our service levels.

For our family office business internal system, we have a cost focus on three key aspects. We have integrated our IT infrastructure to connect with other trust company systems and their information network, achieving information through digitalization and improving trust process efficiency. Then we have strengthened our digitalization construction by opening self-service channels and allowing our financial advisers real-time tracking of trust progress and status.

Lastly, we’ve overall optimized and improved our family office business internal system to better support the development of our family office business.

Last, in terms of core transaction system, we have replaced and integrated the functionality by expanding the existing functional system such as adding payment systems and investment advisory systems.

Fifth, we deeply optimize our organization and expense management, achieving a significant cost reduction. In terms of marketing expense control, considering the current external operating environment and the company's yet to achieve profitability, we have changed our marketing initiatives for public raised fund product portfolio from stimulating the growth of new accounts to stimulating the growth of new investments.

And in terms of our organizational structure, we divest our one subsidiary and closed several branch offices with long-term losses and minimal business activity in conjunction with personnel optimization. As of June 30, 2023, the number of employees decreased by approximately 48% compared to that on June 30, 2022, while the office area of the headquarters decreased by approximately 40% and the office area of the branch office decreased by approximately 6% -- 60%. In all, during the fiscal year 2023, we have significantly alleviated resource consumption, resulting in a 34% year-on-year decrease in operating costs.

Next, I will briefly discuss the financial condition of our company in the fiscal year 2023. Our net revenue for the fiscal year 2023 were RMB114.4 million, $15.8 million, with a decrease of 39.4% year-on-year as compared to RMB188.7 million in the fiscal year 2022.

Now let's turn to each individual business line. First, for our wealth management service. Net revenues generated from our wealth management service decreased year-on-year by 44.6% from RMB171.5 million in the fiscal year 2022 to RMB95 million, $13.1 million. Net revenues generated from distribution of privately raised fund products decreased year-on-year by 58.2% from RMB61.6 million in the fiscal year 2022 to RMB25.7 million, $3.6 million.

In the fiscal year 2023, the decrease was primarily due to, first, the investors' negative sentiment for private raised fund products and other high-risk products and investors' willingness to redeem funds has increased due to market volatility. Therefore, during the reporting period, both the transaction value and outstanding balance of our private raised fund products have decreased resulting in a decrease in commission income, including management fees. And second, the performance base income of RMB1.8 million, $0.3 million in fiscal year 2023 as compared to RMB3.1 million in the fiscal year 2022, representing a year-on-year 40.2% decrease.

Second, for our asset management service, net revenue generated from asset management service in the fiscal year 2023 was RMB2 million, $0.3 million, representing a 66.3% year-on-year decrease from RMB5.9 million in the fiscal year 2022. The decrease was primarily due to a 96% decrease in performance base fees generated by our actively managed fund of funds from RMB2.4 million in the fiscal year '22, to RMB 96,000, $13,000 in the fiscal year 2023.

Last, for our other service. Revenue from other service in the fiscal year 2023 was RMB17.4 million, $2.4 million, increased by 54.2% year-on-year from RMB11.3 million in the fiscal year 2022. The increase was mainly attributed to the growth in trust consulting service and insurance service.

Last but not the least, let's elaborate on our strategy, plans and outlook for the future. Against the factor of the current unfavorable environment, we will strive for sustainable development through the efforts of management and all employees. Despite recent challenges, there are also factors such as favorable policies that provide us with right long-term perspective. For example, in July 2023, the 2023 July Politic Bureau Meeting and the State Council Executive meeting made consecutive payments to increase the capital market and boost investor confidence.

Then in August, multiple positive news were released, including the announcement by the Ministry of Finance to half the stamp duty, the announcement by China Securities Regulatory Commission to slow down the pace of IPOs in China and control the reduction of shareholdings for large shareholders and encourage margin financing. We will closely follow the national policies and focus on the following key areas in the future.

First, to further enrich the product portfolio to seize opportunities for development. The distribution of public raised fund product portfolios is our core and main business, characterized by public raised fund product visibility and transparency. We believe that public raised fund product portfolios will become the preferred financial products for clients seeking stable returns. As bank interest rates decline and the traditional insurance annuity products, which have 3.5% annual compound interest rate becomes history, investors particularly middle-class investors are more inclined to product with lower volatility or more pronounced returns.

Timely utilizing our own research and investment capabilities, along with the long-term accumulation of diversified public raised fund products, we have developed a portfolio of products with an expected yield of 4.5%, which has been launched in September 2023. We believe that this product will meet the urgent needs of investors and can serve as an effective to maintain and expand our client base.

Looking ahead, as the financial market continues to develop and the demand of investors with stable returns increase, the public raise from product portfolios will become and continue to play an important role in the business of third-party fund distribution companies are like us.

On the other hand, we will continue to upgrade the offering of privately raised product and replace the old products with the new exceptional and distinctive fund products, enriching our equity investment strategies and enhancing the generation of excess returns for our clients.

Indeed, the recent reduction in subscription and management fees by public raised fund companies has had an impact on our future revenue. However, in the long run, we will listen carefully to the needs of our clients, continuously optimize our product strategies, provide professional investment service and launch more stable products to provide clients with a sense of sustainability and well-being. At the same time, this will have to maintain our foundation and achieve continuous growth in our client base, ensuring steady development of our company.

Second, to strengthen the mindset of serving large institutional clients and actively expand institutional business. With the continuous development of the financial market, the institutional business holds tremendous potential for third-party fund distribution companies like us, in particular, banks and insurance companies as clients process significant scale and expensive influence in the financial sector, making them to be the important partners for our company. In the future, we will strengthen the life set of serving large institutional clients, establish deep partnership with key institutional clients and then assign dedicated teams for institutional client’s maintenance.

For the cooperation, with outside investment research teams, professionals of fully family office department and other resources, we expect to empower our institutional clients different our present in the banking and insurance industry to achieve multidimensional and profound strategic cooperation, expand business scale with key institutional clients and to stabilize the foundation of our institutional business.

First, to continuously optimize our IT system to support the development of our core business. In the future, we will base on business development needs and with a focus on serving financial advisers concentrate on the digitalization and intelligent construction of core business operations, key aspects include. For our cost transaction system, we will work on effectively allocate resource and systematically advance our self-developed process and place emphasis on paying routing systems. This includes connecting with multiple banks through direct channels, thus maximizing efforts to reduce the payment fees and enhance the user experience.

And for our Puyi Fund app, we will serve its digitalization and intelligence construction enhance online operational capabilities include the asset allocation and recommendation system and increase user stickiness and activities, driving fund transaction value and daily outstanding balance to grow.

For our institutional transaction platform, we will fully support the development of institutional business by improving platform profitability based on the needs of our institutional clients, building upon our self-developed cost transaction system, we will construct a platform that supports various business development, including fascinating the transactional private rate from products for institutional clients.

Last, for our i Financial Planner app, we will continuously enhance the involvement and management of financial advisers. On the one hand, we will gradually establish a financial adviser membership management system to optimize the financial advisers experience and increase their loyalty. On the other hand, we will develop data visualization capability to track and analyze fund transaction data, thereby better supporting the financial advisers their fund sales business.

Based on the long-term positive outlook for China's economic development and the government's favorable policies towards the capital market, we believe that there will be sustainable benefits for this wealth management industry in the future. We will lead all our partners to respect risk via no challenges work together with Unity and determination operating compliance and deliver high-quality service.

That ends with today's prepared remarks. Now we are open for questions. Operator, please.

Question-and-Answer Session

[Operator Instructions] There are currently no questions on the line. I would like to hand the call back to management for closing.

Jing He

Thank you very much for attending today's conference call. If you have any questions, please feel free to contact us any time. Thank you, and we have no other comments. Operator?

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.