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Yintech Investment Holdings Limited (YIN)
Q4Â 2018 Earnings Conference Call
March 18, 2019, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Hello and welcome to the Q4 2018 Yintech Investment Holdings Limited Earnings Conference Call and Webcast. All participants will be in listen only mode. (Operator Instructions) Please note this event is being recorded.
Now I would like to turn the conference over to Yvonne Young. Please go ahead, ma'am.
Yvonne Young -- Investor Relations
Thank you Keith. And welcome to Yintech's fourth quarter and full year 2018 earnings conference call. Our earnings release was released earlier today and is now available on the Company's IR website. On the call today from Yintech are Mr. Wenbin Chen, Chairman and CEO and CFO; and myself, Yvonne Young, Investor Relations Director. Mr. Chen will reveal business operations and the Company highlights, followed by myself. I would go over the financials and the guidance on behalf of Mr. Chen. We will both be available to answer your questions in the Q&A session that follows.
Questions can be asked in English or Chinese. If you ask your questions in Chinese, please translate into English yourself afterwards. Before beginning, we would like to remind you that discussions during this call contain forward looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Such statements are subject to risk, uncertainties and factors that may cause actual results to differ materially from those contained in any statements.
Further information regarding potential risks, uncertainties and factors is included in Yintech's filings with the US Securities and Exchange Commission. Yintech does not undertake any obligation to update any forward-looking statements, except as required under applicable law. During this call, we will be referring to several non-GAAP financial measures as supplemental measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the US GAAP. For information about these non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release.
I will now turn over the call to Mr. Wenbin Chen. Mr. Chen will give his remarks in Chinese and I will translate for him. Mr. Chen go ahead.
Wenbin Chen -- Co-Founder, Chairman, Chief Executive Officer & Chief Financial Officer
(Foreign Language) Thank you. And thanks to everyone for joining us on the call today. While the overall Q4 revenues are flat, we remain well-positioned to continue driving robust growth in our core business. During the fourth quarter of 2018, we experienced the broad based demands in major segments of our portfolio of services, in particular spot commodities, security advisory services, future commodities, spot commodities delivering over 30% of growth in NAV (ph) commissions and fees from the previous quarter. This is a reflection of our business momentum and the indication of strong market demand.
(Foreign Language) With that we ended the year with perceived performance of RMB1.09 billion in revenue and maintain strong cash position of RMB1.74 billion coupled with significant changes in strategic reshaping products and services innovations and organization restructuring across our entire business, as well as various branding campaigns we launched in 2018 to enhance our industry recognition. In the face of the most volatile market in our business history and stricter industry regulations, we are largely satisfied with the result we achieved and the great progress we made toward repositioning Yintech as a leading comprehensive financial service provider.
(Foreign Language) 2018 was also the most valuable year for us. In a sense that we are emerged to be stronger in our mind and more resilient in our business model. While maintaining our core competencies in traditional business, we engaged more resources and energies in developing new businesses, investing in areas that are well posed to drive future growth. As we look to capitalize on anticipated growth opportunities, we are preparing for we believe this structural change, along with the visionary investment we made in 2018 will have to gain momentum and ultimately drive longer term sustainable growth for our business in 2019.
(Foreign Language) Next, I'd like to spend a bit more time talking about these major changes and breakthroughs we made in 2018, and why we are well-positioned to benefit from these achievements to drive accelerated growth in 2019.
(Foreign Language) First, let's look at our traditional spot gold commodity services businesses. The volatility of Gold T+D price in Shanghai Gold is changed, reached the lowest level since 2005 in our tracking record. As a natural result, total trading volumes in the exchange hit the historical low (inaudible). Gold T+D's contributions to our total revenues dropped to 1% from high 20%s, even high 40%s in the beginning of 2017. In general, this is largely in line with overall market performance.
(Foreign Language) Of Special note, Gold Master, which we acquired in August 2016, that historically engaged in solely the of mentioned Gold T+D trading services, today conducts a wide area (ph) of financial services as we strive to leverage and take the most advantage of Gold Master's ever growing VAT and the high quality financial investor base is developed in the past many years, a channel to cross sell to our other core financial services business. The potential value of this good deal and customer base is among the key components in valuing the acquisition price of Gold Master we look to offer -- as we look to offer a wide spectrum of financial services to our customers.
(Foreign Language) I'm sure you have been aware of the notable expense increase from a impairment of RMB639 million in relation to the acquisition of Gold Master. This is dramatic to our bottom line partially because the embedded value from Gold Master contributing to certain of our security services are not taking into account in evaluating its carried value in accordance with the accounting policy. We believe the underlying value of Gold Master is way greater than its accounting value. Into 2019, with the foreseeable continuous low volatility of gold price, the team will allocate the resources and will ship to other more promising business while remaining flexible to capture growth potentials if Gold T+D price volatility increases.
(Foreign Language) Now moving to the futures commodities. This business delivers a more stable result, contributing around 50% of our total revenues in 2018. Despite fluctuations in certain quarters, I'm very pleased with our progress in diversifying our partner base while maintaining selective to work with only top ranking names. In 2019, we continue to see opportunities for new business initiatives. We work hard toward building stronger tie with selective partners and leveraging strategic long-term partnerships and dealer networks to realize these growth opportunities. We believe this initiative, coupled with other expansion plans will position us well to expand more aggressively in a sustainable manner in 2019.
(Foreign Language) Our team works diligently in the fourth quarter to position Yintech to succeed in securities advisory business in a dynamic macro environment which posted 54% of growth over the third quarter, demonstrating our ability to adapt to the evolving market environment and our strong ability to execute. In 2019 -- '18 we held ourselves to highest tenders. We have not focused simply on sheer volume growth, but have also emphasized the quality of the income and paying high attention on understanding our customers and serving customers escalating long term needs. For that reason, we have comprehensively strengthened our investment research and product R&D capabilities, integrating technology-driven value add products into our APPs and marketing presence (ph) as a powerful tool to serve increasing need for higher level of services.
(Foreign Language) In the fourth quarter and throughout the year our innovation lab continued to roll out new quantitative financial trading products and constantly upgrade existing products, adopted in the entire spectrum of our services, including futures commodities, Asia, Hong-Kong and US stock and we will need customers' growing use of those products which ultimately increased our revenues.
(Foreign Language) At the same time, we remain at the forefront of cutting edge AI technology and its adoption in financial product trading aiming to expand our customer base, improving customer satisfaction and loyalty will maintain the leading position in terms of our investment on current achievements in these trends. In 2019, we expect our initial investment will achieve possible -- positive result in deepening connections with our customers and to some extent contribute to our top line growth for services that promote these innovative AI products.
(Foreign Language) In 2019 we'll continue to have clients, build their investment knowledge, through professional qualities and continuous introduction of innovative financial services that tailor to the growing needs of different level and the category of customers, including online ordinary investors and offline high net worth customers. This effort will help us upgrade our business from a pure sales-driven model to a comprehensive service-driven model over the long-run.
(Foreign Language) In past year, we continued to explore business opportunities, following the acquisition of Hong Kong based OTS asset management. We have expanded our product pipeline and customer base horizon in our securities services from RMB asset management to global asset allocations for all customers and from targeting online individual customers to also offline high net worth individuals. These are strategic steps forward in establishing our presence in the new business arena and transforming us further to a comprehensive financial product and service provider.
(Foreign Language) Besides addition of new foreign currency asset management business, in 2018, C fund (ph) our RMB PE Fund focusing on investing in secondary Asia market delivered remarkable results since launching its three core products in July 2018. And now it has expanded its equity and convertible bond (inaudible) product to a total of eight. Most of them outperform at CS 300 Index and other major indexes.
(Foreign Language) As of March 1st, 2019, our top three loan only funds ranked top 2.5%, 1.3% and most remarkable number three fund ranked top three respectively, among a total of 10,000 competitors in China according to data and ranking by gogold.com (ph). Our convertible bond products also delivered outstanding performance, two of which ranked top 1.9% and 1.4% in China.
(Foreign Language) Our efforts have garnered high recognition within the industry as well. C Fund has won the top 10 best performance fund for all the five important domestic awards, including (inaudible) award from Securities Times, Guangfa Securities and the gogold.com. This recognition not only affirm our hard work over the past year, but also encourage us to remain vigilant and continue to push hard on our development in this new initiative in asset management.
(Foreign Language) In 2019, while maintaining the outstanding performance, we look to extend our team introducing more equity and bond products, exploring sales channels and enhancing our marketing campaign. Top of priorities remain on gaining greater understanding of and serving the individual and personalized needs of high net worth customers.
(Foreign Language) Lastly I would like to provide a brief summary of our business restructuring to stay on top of the new business environment and improve our operational efficiency. We have streamlined our organization in 2018 to make it more nimble, flexible and agile. We laid off some underperforming employees, and rewarded those contributors, we strategically redeployed key resources in technology and back office to better support our business growth. As of the end of 2018, our total employees have decreased substantially to nearly 2,800 from over 3,800 in early of the year, representing an over 20% reduction. With this effort, we will improve operating efficiencies and increase per capita in contributions. We believe, we will benefit more from these adjustments and anticipated accelerated business expansion in 2019 and beyond.
(Foreign Language) Overall the fourth quarter and full year 2018 results highlight the foundation of our business has never been stronger and that the prospect for future growth remains high. Macro level, the Chinese authorities have continued to introduce reforms designed to open their market to international and domestic investors. Stimulus and a wide range of reforms were implemented by the government to revitalize its economic growth have raised the appeal for stock market. This was particularly true seen from the strong pickup of A-share from the beginning of 2019 and the launch of Shanghai Science Tech Board.
(Foreign Language) We are optimistic with China economy and A-share market. For Yintech we expect to capitalize on the growth opportunities in China and continue to drive incremental improvements in this business as we take advantage of our continuing investments in customer services, research capabilities that provide value added services for our customers and operating efficiencies as well as the spending our core products and services. We are confident that with all of this positive, we will continue to improve our fundamentals and take on new challenges and opportunities ahead.
(Foreign Language) With that I will now turn the call over to Yvonne, our Investor Relations Director to discuss our financial results for the fourth quarter and full year 2018, as well as providing guidance for the first quarter of 2019.
Yvonne Young -- Investor Relations
Thank you Mr. Chen and hello everyone. As Mr. Chen noted, we are pleased with our results for the fourth quarter and full year 2018. Our net revenues for the quarter reached RMB286.5 million compared to RMB386.1 million in Q4 last year and RMB267.8 million in Q3 last year -- Q3 this year. The sequential increase was manly due to increase in commissions and the fees from our core business, namely commodities services and securities services, which was partially offset by the trading loss in connection with the Company's asset management business. The year-over-year decrease was mainly due to decrease in commissions and the fees from spot commodities services. Net commissions and fees for the quarter reached RMB273.4 million, representing a decrease of 4.6% year-over-year and an increase of 31.4% sequentially, primarily due to the reasons I just now mentioned.
Net commission and fees from commodities services for the quarter were RMB152.5 million, representing an increase of 23.2% from the previous quarter, primarily as a result of increase in customer trading volumes for commodities and a higher fee rate related to the Company's future commodities services. Customer trading volume for commodities were RMB413.8 billion during the quarter, a decrease of 42.3% year-over-year and increase of 2.6% from the last quarter. Effective fee rate for commodities for the quarter was 0.037% compared with 0.038% in Q4 last year and 0.031% from the previous quarter. Net commission and fee from securities services for the quarter were RMB120.9 million, an increase of 43.6% from the previous quarter. This was primarily due to the growth of securities advisory and securities information platform business in more favorable conditions relatively to the previous quarter. The robust growth demonstrate the effectiveness of the Company's strategy to expand its securities business and its ability to execute.
Expenses for the quarter were RMB1 billion, an increase of 147.1% from Q4 last year, an increase of 244.7% from Q3 this year. As Mr. Chen just now mentioned in his remarks, during the fourth quarter several factors came into the Company's view indicating the carrying value of certain goodwill and intangible asset in relation to the reporting unit of Gold Master acquired by the Company in August 2016, may exceed its fair value at the end of the period. Based on the independent review and procedures as well as valuation report issued by the independent external valuer, the Company concluded that these assets were impaired and then cash impairment charge of RMB639 million shall be provided as a result. These charges resulted in an increase in expenses and hence net loss attributing to ordinary shareholders and diluted loss per ADS. Excluding the impact of non-cash impairment charge stated above, total adjusted expenses, which is a non-GAAP basis were RMB402.2 million, a decrease of 4.6% year-over-year and increase of 33% Q-over-Q. Besides this, the sequential increase was mainly attributable to an increase in advertising and promotional expense as the Company invested in anticipation for customers growing demand for our services in the more favorable stock market conditions relative to the previous year.
In addition, the payments of year-end discretionary compensation also contributed to the increase in total expense. Net loss, as a result for the quarter was RMB746 million compared with RMB63.6 million Q4 last year and net loss of RMB33.9 million in Q3. Excluding the impact of non-cash impairment charge stated above, net adjusted loss was RMB140.6 million. Net loss attributed to Yintech for the quarter was RMB742.1 million, compared with net loss of RMB54.6 million in Q4 last year and net loss of RMB36.6 million in Q3. Excluding this impact of the non-cash impairment charge, net adjusted loss attributable to Yintech would be RMB136.6 million. Diluted loss per ADS for the quarter was RMB10.6 compared with RMB0.76 in the same quarter last year and RMB0.50 in the previous quarter. Excluding the impact of non-cash impairment charge, adjusted diluted loss per ADS would be RMB1.88.
Non-GAAP net loss attributable to Yintech for the quarter was RMB121.2 million compared with net income of RMB61.4 million in the same quarter last year and net loss of RMB22.3 million in Q3 this year. Non-GAAP diluted loss per ADS for the quarter were RMB1.73 compared with non-GAAP diluted earnings per ADS of RMB0.81 in the same quarter last year and RMB0.31 in the previous quarter.
Next, I would like to walk you through our full year 2018 financial results. Revenue for the full year 2018 were RMB1 billion -- RMB1.1 billion, a decrease of 55.6% from RMB2.4 billion from the full year 2017, mainly due to increase in net commission and fees, which were RMB941.9 million, a decrease of 57% from 2017. Net commission and fees from commodities services for the year 2018 were RMB604.4 million, a decrease of 72.2% from 2017. The decrease was primarily due to a decrease in trading volumes following the termination of trading on local exchanges.
Customer trading volume for commodities were RMB1.72 billion in 2018, a decrease of 55% from RMB3.84 billion for 2017. Net commission and fess from securities services for 2018 were RMB337.5 million representing a sharp decrease of 1,530.4% from last year. Effective fee rate for commodities for 2018 were 0.035%, compared with 0.057% for last year. Expenses for the full year 2018 were RMB1.97 billion, an increase of 8.5% from RMB1.81 billion for the full year 2017, primarily attributable to the non-cash impairment charge of RMB639 million I just now mentioned. Partially offset by decrease in employee compensation as well as advertising and promotion expenses. Excluding this charge, total adjusted expense would be RMB1.33 billion, a decrease of 26.7% from 2017.
Net loss for the full year 2018 was RMB887.2 million compared to net income of RMB467 million for the full year 2017. Excluding the impact of non-cash impairment charge, net adjusted loss was RMB281.7 million. Net loss attributable to Yintech for the full year 2018 were RMB877.4 million compared with net income of RMB480.7 million for 2017. Excluding this impact, net adjusted loss attributable to Yintech was RMB271.9 million.
Diluted loss per ADS for the year was RMB12.23 compared to diluted earnings per ADS of RMB6.65 for the full year 2017. Excluding this impact, adjusted diluted loss per ADS will be RMB3.74. Non-GAAP net loss attributable to Yintech for the full year 2018 was RMB203.6 million compared to net income RMB691.6 million for the full year 2017.
Non-GAAP diluted loss per ADS for the full year 2018 were RMB2.84 compared with non-GAAP diluted earnings per ADS of RMB9.56 for the full year 2017. As of December 30, 2018, the Company has cash of RMB257.8 million and short term investment of RMB1.5 billion compared with RMB690.5 million and RMB1.21 billion as of December 31st 2017 respectively. As of December 31st 2018, total shareholders equity of Yintech was RMB2.62 billion compared with RMB3.58 billion as of December 31st 2017.
Next, let me turn to our guidance for the first quarter of 2019. Based on the information available as of the date of this press release, Yintech provides the following outlook which reflects the Company's current and preliminary views and is subject to change.
From the Q1, management decided to breakdown our revenue guidance by revenue generated from non-cash gains and loss and trading gains and loss that Company invested in trading financial products. 2019 fourth quarter guidance will be below; revenues from commissions, interest income and other revenues will be in the range of RMB220 million to RMB240 million. Revenues from trading gains will be in the range of RMB110 million to RMB130 million.
And this concludes my prepared remarks. Operator, you may now open the call to questions. Thank you.
Questions and Answers:
Operator
Yes, thank you. We will now begin the question and answer session. (Operator Instructions) And the first question comes from Johnny Wong with Jefferies.
Johnny Wong -- Jefferies -- Analyst
Hi. Good evening management. Thank you for taking my call, and a very good quarter in terms of turnaround in the revenue. I have a few questions. Given the change in the Company's businesses, do we have any sort of estimate or guidance as to the proportion of revenues contribution by each of the individual segments such as the spot business, the futures business, as well as the overseas securities businesses and the consulting fee businesses? That's my first question. The -- my other question related to what -- something that (inaudible) said, we are trying to target more high net worth individuals and our traditional expertise is targeting online individuals. How do we go about doing targeting high net worth individuals? What's the plan there? Thank you.
Yvonne Young -- Investor Relations
Thank you, Johnny. Let me translate for Mr. Chen. (Foreign Language)
Wenbin Chen -- Co-Founder, Chairman, Chief Executive Officer & Chief Financial Officer
(Foreign Language)
Yvonne Young -- Investor Relations
Okay, thank you Mr. Chen. Let me translate. Mr. Chen will answer the second question first and I will answer the first one.
For the second question regarding how the Company is able to acquire the customers, those high net worth customers, because those are not our traditionally strengths in our customer base. Mr. Chen shared his views from below perspectives. The first one is that our customers coming from different sources. One primary source is from our existing customer base that we will -- we will select those high net worth customers from the vast customer base, we ever accumulated in the many years in our commodities and securities business can cross-sell the asset management products to those high net worth customers, number one.
And number two; Mr. Chen's view on the core competency of the asset management business lies in the ability of investment research capabilities and also the asset management ability to deliver higher performance as we just now shared with you that Chunda (ph) has -- the three core products of Chunda delivered outstanding performance in the past one and a half years. And we are very proud of achievement we make. The average -- those three products, along with some other convertible bond products outperformed the index and ranking, the top 3% among all the 10,000 funds in China as just now you already hear it. And even the number three fund ranked top 1 among all of the funds in China. So in this sense, we are very satisfied with the performance Chunda Asset achieved in the past years. And then secondly, I think over the past one and a half years, we have accumulated a tremendous experience and developed core competencies in serving our customers and we have enhanced our investment capabilities which are essential to our sustainable growth in our business, and this will also help our business to gain momentum in other business areas.
Johnny, did we address your concern for the second question?
Johnny Wong -- Jefferies -- Analyst
Yes. Thank you.
Yvonne Young -- Investor Relations
Okay. And then come to the first one about guidance, about the revenue breakdown for our major business. As you know that, we have five major business, spot commodities, future commodities, overseas securities, trading services, asset management and securities advisory and investor education services. Well as we give the guidance which is relatively, you know, strong guidance in Q1 and also, as Mr. Chen introduced in his remarks, that we look to enhance our futures and also our overseas security trading business, we do not give the specific breakdown for our business, but in general, our futures commodities and also security advisory and information services will contribute majority of our revenues. So -- and -- but the difference in this quarter and also 2019 is that, we expect our overseas security trading services will contribute meaningfully to our revenue. So, which will be more than 1% in Q1 and 2019.
Johnny Wong -- Jefferies -- Analyst
Thank you very much.
Operator
Thank you. (Operator Instructions) As there are no more questions at the present time, I would like to return the floor to management for any closing comments.
Yvonne Young -- Investor Relations
Yeah. Well, hold on a second. Johnny, do you have some other questions?
Operator
I'm sorry. He's already out of the queue. (inaudible)
Yvonne Young -- Investor Relations
Okay. All right. Well since no more questions, I think we can end the call.
Operator
Okay. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Yvonne Young -- Investor Relations
Thank you. Bye.
Duration: 51 minutes
Call participants:
Yvonne Young -- Investor Relations
Wenbin Chen -- Co-Founder, Chairman, Chief Executive Officer & Chief Financial Officer
Johnny Wong -- Jefferies -- Analyst
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