Ladies and gentlemen, thank you for standing by for Autohome’s Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to introduce your host, Anita Chen, Autohome’s IR Director. Ms. Chen, you may begin.

Thank you, operator. Hello, everyone and welcome to Autohome’s second quarter 2020 earnings conference call. Earlier today, Autohome distributed its earnings press release and you may find a copy on the company’s website at www.autohome.com.cn. On today’s call, we have Chairman and CEO, Mr. Min Lu; Co-President, Mr. Haifeng Shao; Co-President, Mr. Jingyu Zhang; and CFO, Mr. Jun Zou. After the prepared remarks, Mr. Lu, Mr. Shao, Mr. Zhang and Mr. Zou will be available to answer your questions. Before we begin, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties may include, but are not limited to, those outlined in our public filings with the Securities and Exchange Commission. Autohome does not undertake any obligation to update any forward-looking statements, except as required under applicable law. The earnings press release in this call also includes discussion of current unaudited non-GAAP financial measures. Our press release contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and is available on Autohome’s IR website. As a reminder, this conference is being recorded. In addition, a live and archived webcast of this earnings conference call will also be available on Autohome’s IR website. I will now turn the call over to Autohome’s Chairman and CEO, Mr. Lu.

Thank you, Anita. Hello, everyone. Thank you for joining us today. I am pleased to report a solid quarter with total revenue of RMB2.31 billion. Revenue from new initiatives increased by 38% year-over-year and contributed to 22% of total revenue driven by strong growth from beta products as well as the auto financing and transaction business. Adjusted net margin increased year-over-year to 38.1%. In the second quarter, we made steady strides in building an open and diversified automotive ecosystem with our unique product metrics and ongoing innovation. June traffic saw the number of DAUs who accessed our mobile websites, primary app and mini apps increased to RMB38 million, a slight improvement compared with the same period of last year and up to 20% compared to March 2020. Regarding live stream, in the second quarter, over 40 brands delivered 93 live-streamed programs on our platform with average viewership reaching 420,000 for each program. We also integrated live stream into large activities such as the 818 Global Super Auto Show and provided training courses to dealers. Our road trip business also achieved a rapid ramp-up with cumulative GMV in the first 7 months of the year totaling RMB230 million, more than doubled compared with the number for the full year of 2019 despite the unfavorable market conditions. In addition, we have accumulated about 1 million pieces of trip reviews and short media posts further diversifying our content library and establishing a solid foundation for our 2C business. Our products continue to host strong growth in both revenue and the number of paying customers. In the second quarter, revenue from data products increased by nearly 70% year-over-year, and for the first half of 2020, a total of 25 automakers were engaged with us. Our intelligent new car launch and intelligent marketing solutions collectively brought us about 70 programs in the first half of 2020, equivalent to the total number of programs for the full year 2019, demonstrating the value of our intelligent product series. Our continuous efforts in product innovation have been translated into improved monetization as we saw a considerable increase in average revenue per automaker. In terms of our data products to dealers in the second quarter, over 17,000 dealers used our data products. We will continue to strengthen our service quality and enhance our competitiveness by optimizing existing products and rolling out new ones. For example, we will further upgrade our online showroom and launch the smarter store 2.0. As the next step, we plan to release smart sales and smart after-sales products. The former helps dealers manage the users' in-store visit process and assists in the conversions, and the latter aims to generate service leads for dealers through content and interactive tools. With the expanded smart series product portfolio, we are able to provide end-to-end closed loop services from pre-sale to after-sales. To further support OEMs' digital transformation, we expanded our offerings beyond project-based services. With the annual performance-based comprehensive marketing solutions now available, we help our automaker partners plan and carry out their marketing campaigns more effectively and efficiently. We have already engaged with some of our strategic automaker partners regarding this solution. As the flagship event for the year, the 818 Global Super Auto Show attracted broad attention from different OEMs and dealers in addition to massive auto consumers and influencers. As a result, more than 70 brands and over 2,400 dealers joined the event. In terms of our used car platform, in the second quarter, our used car business unit as a whole achieved record revenue with nearly 30% year-over-year growth. For the auto financing business in the second quarter, total GMV for consumer loans increased by 45% year-over-year. Finally, for the overseas business, we continue to refine our U.S. auto product; our VR and 3D products are unique in overseas regions that attracted a broad user base. In August, the total amount of unique visitors for the U.S. auto exceeded the 1 million mark and it continues to grow. Alongside the ramp-up in traffic, dealer customer expansion showed strong traction; as of last count, we have connected with over 2,200 dealers and total SKU of our overseas platform reached 450,000. Following our recent 818 Auto Show, we plan to organize our first dedicated overseas online Auto Show next month to support our customers and further promote our brand in overseas markets. In conclusion, Autohome will continue to leverage its competitive advantages in content, technology, and big data to provide customers with results-driven marketing solutions. We believe that in facing new market dynamics we remain focused on expanding the breadth and depth of our offerings while providing customers with highly efficient intelligent services that generate even more value for the automotive industry. With that, I will now turn the call over to our CFO, Jun Zou for a closer look at our second-quarter financial results as well as the business outlook for the third quarter of 2020.

Thank you, Min. Hi everyone. As Min has already highlighted, we are pleased to report a solid second quarter. Please note that, as to prior calls, I will reference RMB only in my discussion today. Net revenues for the second quarter were RMB2.31 billion, a slight increase compared to Q2 last year. For additional breakdown, media services revenue were RMB132 million. Lead generation services revenues were RMB841 million. Online marketplace and others revenues increased by 38% year-over-year to RMB540 million primarily driven by growth in data products as well as auto financing transactions businesses. Moving on to costs, cost of revenue was RMB265 million compared to RMB264 million in Q2 of last year. Gross margin remains stable at 89% in the second quarter. Turning to operating expenses, sales and marketing expenses in the second quarter were RMB872 million compared to RMB893 million in Q2 of 2019. P&D expenses were RMB326 million compared to RMB361 million in Q2 2019. Finally, G&A expenses were RMB82 million, roughly stable compared to that of 2019. Overall, we delivered an operating profit of RMB871 million for the second quarter, compared to RMB835 million in the corresponding period of last year. Adjusted net income attributed to Autohome was RMB881 million for the second quarter compared to RMB855 million in the corresponding period of 2019. Non-GAAP basic and diluted earnings per share and per ADS for the second quarter were RMB7.39 and RMB7.36 respectively compared to RMB7.22 and RMB7.15 respectively in the corresponding period of last year. As of June 30, 2020, our balance sheet remained very strong with cash, cash equivalents and short-term investments of RMB13.43 billion. We generated operating cash flow of RMB466 million in the second quarter of 2020. Let me address our third-quarter 2020 outlook, which reflects our current and preliminary view on the market and operating conditions and may be subject to change. At this point, we expect to generate net revenues in the range of RMB2.240 billion to RMB2.280 billion. In summary, our second quarter results reflect solid progress in exceeding our key growth strategy. Data products together with auto financing and transactions business achieved double-digit revenue growth contributing to strong year-over-year growth of 38% in online marketplace and other revenues. Core businesses also registered sequential improvement, which indicates the gradual recovery of the auto market. Meanwhile, net margin for the quarter improved on a year-over-year basis as we remain committed to enhancing operating efficiency across the platform. We will continue to explore new growth opportunities while keeping a disciplined cost structure in order to deliver positive returns for our shareholders in the long run. With that, we are ready to take your questions. Operator, please open the line for questions.

Thank you. We will now start the Q&A session. Our first question comes from Thomas Chong from Jefferies. Please go ahead with your question.

Hi, good evening. Thanks management for taking my questions and congratulations on a solid set of results. My question is about the auto industry outlook in the second half as well as how we think about the competitive landscape in the coming quarters? And a quick another follow-up is more about the data products that we have just talked about, how should we think about the data products that are going to be launched in the second half and how many products do we expect in 2021? Thank you.

Yes. So, the first question I would like to invite Mr. Shao to take the first one, the outlook of the auto industry for the second half of the year.

If you ask me to comment about the overall market outlook related to competition, I would say if you look at the year-round, the second half of the year would be better than the first half. My reasoning behind this is if you look at the first half of the auto business in China, the overall industry dropped by 20% and the year-round outlook would be flat or single-digit growth. So if this is the case we can draw a conclusion that the second half would be better than the first half. Now, talking about the competition, this is in accordance with what we have expected at the beginning of the year that many automakers are moving their budgets from offline to online. So, there will be a lot of digitalized and online-based activities in marketing. We also see the second trend, which is more budgeting would be allocated to the top players in the industry. And the third feature is that people pay more attention to the quality and the effectiveness of the activities. Okay, that’s all for my answer. Thank you.

Thank you for the questions. And related to the answer for your question about our data products for the first half of the year, actually we already signed contracts with 25 automakers and launched about 70 projects, which is comparable to what happened in 2019. For the latter half of the year, we do have a plan to further upgrade the intelligent auto launch into version 2.0. As for the data products for the dealers, we have already signed contracts with 17,000 dealers, all 4S store dealers. For the latter half of this year, we will further consolidate our business in smart sales, smart store, and smart after-sales for the dealers. And for the data products blueprint for next year, we have already conducted basic research and R&D for next year’s data products; we are going to transform from a single scenario into a more integrated, more macro picture scenario, which will echo with the industrial internet business. So this will be our new strategy for data products next year. That’s all for my answer. Thank you very much.

Thank you. Now moving on to the next question, we have Miranda Zhuang from Bank of America. You may begin the question.

Hey, thank you operator. Thank you for taking my question. So my question is about the profit margin and cost control. We have seen that companies achieved a year-over-year improvement in margins in the second quarter and the non-GAAP sales and marketing, R&D expenses in the second quarter both declined year-over-year. So I wonder about the outlook for the profit margin in the second half of this year. I would also like to understand more details about how we are managing the cost. We understand the direction is to control sales and marketing costs, especially those related to offline expenses, and also control headcount. However, could the company share with us its approach to manage the cost, and how do you decide which costs need to be reduced and which costs need to be returned? And how do you balance the need to reduce the cost of controlling costs versus the need to expand your business, invest in new businesses, and attract the best talent in the industry? Thank you.

Thank you, Miranda for your question. Well, you actually asked a question that would probably take a few hours to address, but in a nutshell, in the last few years, we have gradually streamlined our cost control process and budgeting process; we have set up some new cost expense standards for each type of expense. We have been able to stick to our flexible budgeting process and always keep ROI in mind. We always evaluate ROI, but we also look at our different businesses in three different types. First is traditional businesses; these are the type of businesses that we want to maximize returns and optimize operating efficiency. The second category is growing businesses; in these kinds of businesses there’s a different standard that we strengthen growth rather than just profit. And the third type is incubations; we have a pipeline of new products, businesses, and initiatives that we invest in quite extensively each year to prepare for future growth. So we see that those three types of businesses are initiated differently. All our efforts aim to save more in traditional businesses and reinvest in new initiatives to continue to grow. Yes, that’s what we have been doing, and we have delivered on that approach. That’s my answer. Thank you, Miranda.

Next question we have Eddy Wang from Morgan Stanley. You may begin the question.

Thank you, management for taking my question. My first question is just to clarify that Shao just mentioned that in the first half auto sales in China have been down by 20% year-over-year, but given the recovery in the Chinese auto market, do you expect that for the full year auto sales will be flattish or may record a single-digit growth on a year-over-year basis? On top of that, have you witnessed a strong recovery of OEMs to do more advertising? Will this bolster overall media service revenue growth in the second half, especially considering the easy comparables in the second half of this year? Yes, thank you.

Eddy thanks for the question. Let me add to what Mr. Lu has said. I think Mr. Lu was referring to the industry's view for the second half; new car sales will see a slight increase, like single-digit increase. For the full year, the current industry estimate is still that there will be maybe a minus 5% to minus 10% growth. What we might see are different sorts of developments later in the year, which is something we hope to see, of course. As for automakers’ budget, of course, if their sales start to recover, I think their spending will recover. As the leader in the online marketing space, we will get more wallet share with our overwhelmingly large number of users and influence overall in the industry, along with our performance-based approach to help OEMs get more leads in sales. Yes, that’s our view. Thank you, Eddy.

Thank you. Next, we have Brian Gong from Citigroup. You may begin the question.

My question is regarding how is the opening progress of dealers so far given some auto sales has improved a lot? Do you have the client plan for the price hike for dealer substitution for next year after the market stabilizes? Thanks.

Thank you for your question. In terms of the number of dealers, they grow or shrink according to sales revenue. If sales go up, there may be more dealers entering the market, and if sales go down, there will be exits. So, the dealer numbers fluctuate according to sales, which is quite normal in this market. Regarding your second question, whether we are going to raise prices for next year, we have not decided yet. We will conduct some assessments in September and October this year to determine this.

Thank you. Next we have Liping Zhao from CICC. You may begin your question.

Good evening, management. I have two questions here. My first question is related to the 818 Auto Show; could management share details about the investments in the auto show and its expected contribution to the top line? And my second question is about the U.S.; as China is gradually recovering from COVID-19, what’s the DAU level of our PC and mobile users? Thank you.

Thank you for the question. The first one is related to the 818 Super Auto Show. Looking at the participant ratio, almost all the active OEMs participated proactively in this 818 Super Auto Show. There were more than 10,000 merchants and 2400 dealers who also participated in this 818 Super Auto Show. We also see that over 100 dealers launched a similar online version of this Auto Show on their mini city level. During this 818 Super Auto Show, alongside the Chinese Association of the Auto Industry, we launched the Auto Consumers Forum. We helped to create 17 billboards for different rankings, which reflected Chinese consumers’ preferences for auto consumption. We also improved the traditional online Auto Show and upgraded it into an auto festival, which has become the biggest event for the Chinese auto industry.

We also hosted a grand gala evening for the auto show. We invited 47 superstars to participate and perform during this gala evening, which attracted a large audience. In terms of viewer metrics, we ranked number one in viewers during that time and this helped us become even more successful than e-commerce giants on the same night. This success was reflected on social media, where we trended as one of the top buzzwords. This year marks the second time we hosted such a large-scale auto show and we have matured and gained experience; this year was even more successful than last year.

Let me address the second question about traffic. We have seen that our mobile traffic slightly increased on a year-over-year basis and a 20% sequential increase. The number of visits per user per day on our app and the time spent on our app also increased year-over-year. This increase is a result of our enriched content portfolio, which includes road trip reviews, short videos, live video streaming, and other content that contributed to our traffic growth. Thank you, Zhao.

Thank you. Next, we have Ben Huang from T.H. Capital. You may begin the question.

Good evening, management. Management just mentioned that the auto market in the second half is likely to be better than in the first half. I wonder what the driver of this improvement is—whether it is organic growth or some kind of government stimulation plan? In terms of government stimulation plan, in previous years, whenever the auto market was weak, we often saw many stimulation policies. However, this year, it seems like there haven’t been many effective ones. So, what’s the management’s insight on that front? Thank you.

Thank you for the question. First of all, let me explain why the second half of this year is expected to be better than the first half. We compare this year over the same period last year. If we look at the OEMs, especially in May, June, and July, their car sales improved, and they even achieved positive car sales during that time. Their budgeting would be increasing, leading to more promotions. Also, the impact from the COVID-19 epidemic will be less severe in the second half compared to the first half. These are the reasons we believe the second half will be better.

Let me add to what Mr. Lu has just said. Of course, part of the recovery from May to July was due to delayed demand during the COVID-19 pandemic in the first four months. Moreover, the current auto penetration rate in China is only 170 cars per 1,000 people, which is much lower than Thailand, Malaysia, or South Korea, which range from 240 to 400. The overall industry estimate is that China's auto penetration should be able to reach 400 cars per 1,000 people in the mid-term. We believe it’s time for us to see some growth. You are correct, we do see a variety of stimulus packages from local and central governments, ranging from subsidies for NEVs to reductions in sales taxes for used cars and the removal of sales tax for NEVs. Different cities and provinces also have subsidies for purchasing cars or swapping used cars. All these efforts help promote new car sales.

Thank you. Next, we have Frank Chen from Macquarie. You may begin your question.

I will translate myself quickly. I just want to get a sense of your view on the increasing geopolitical tension and how this would impact your internationalization strategy? What’s our investment budget on that? Also, since we have launched our U.S. auto platform in the UK and Germany for several months, could you quickly share some KPI on it? Thank you.

Let me take this question. Actually, the overseas strategy is one of our long-term strategies. Ever since last year, we have made extensive research and analysis and decided to invest in Europe. Currently, we see that our progress in Europe is even better than we had expected. Due to the COVID-19 pandemic, we thought the overseas market may not be as promising, however, ever since we launched the YesAuto Go Live in May, after three months, we accumulated MAU of 1 million. After breaking the 1 million mark at the end of August, we have already achieved 1.3 million MAU and expect to reach a year-end MAU of 2 million. Our products are very popular among overseas OEMs and dealers, for instance, our VR showroom is very innovative and has been warmly welcomed. I can confidently say that till today we don’t see the geopolitical complexity negatively impacting our business; our main focus is to establish a good platform and serve our customers well. Some local governments even provide ample support to us.

Thank you. Next question we have Robin Zhu from Bernstein. You may begin your question.

I have two questions. One, just regarding the online share of advertising. It presumably went up in the first half. Will that now dip in the second half given offline activities resume? What’s a long-term plateauing kind of level for online advertising penetration? Secondly, on data products, does the management have any medium-term financial targets for this business?

Let me address your question. Thank you. According to our survey with most of the OEMs in the first half, they are spending about 50% or more on online advertising this year, which is definitely an increase compared to the past. What we have learned from them is that they have experienced how efficient online digital solutions are, and they are pleased with our overall solution, whether it’s a new car launch, intelligent marketing, or data services provided to help dealers convert more customer needs. Online digital solutions have proven to deliver better ROI than offline solutions. We believe they will continue to reserve a certain portion of offline spending, but the trend is clearly shifting to online. Regarding your second question about data products, in the medium term, yes, data products will easily replicate our traditional businesses, and that is our goal.

Thank you. There are no further questions at this time. I will turn the conference back to management for closing comments.

Okay. Thank you very much for joining us today. We appreciate your support and we look forward to updating you on our next quarter’s conference call in a few months. In the meantime, please feel free to get in touch with us if you have any further questions or comments. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.