Ladies and gentlemen, thank you for standing by for Autohome's first quarter 2018 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, Fang Liu, Autohome's IR. Ms. Liu, you may begin.

Thank you, operator. Hello, everyone. And welcome to Autohome's first quarter 2018 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 Mr. Min Lu, Autohome's Chairman and Chief Executive Officer; Mr. Haifeng Shao, Autohome's President; Mr. Jun Zou, Autohome's Chief Financial Officer. After the prepared remarks, Mr. Lu, Mr. Shao 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 US 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 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 and this call also includes discussions of certain unaudited non-GAAP financial measures. The 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 webcast of this conference call will also be available on Autohome's IR website. I'll now turn the call over to Autohome's Chairman and CEO, Mr. Lu.

Thank you, Fang. Hello, everyone. Thank you for joining us today to discuss our first quarter 2018 results. I'm pleased to report a strong start to the year in which revenue, excluding direct sales, increased 33% year-over-year to RMB 1.3 billion. For a detailed breakdown, our media and leads generation services revenue grew 28% and 31% year-over-year, respectively, which continued to outpace the growth in the overall market. Our online marketplace and other revenue, primarily including new business over auto financing, data products and e-commerce, increased substantially by roughly 404% year-over-year excluding direct sales in the first quarter of 2017. We are glad to see the progress and the signals that our new business are on track and the growth momentum is expected to continue throughout 2018. Also, adjusted net income during the quarter grew 42% year-over-year to RMB 520 million, representing an adjusted net margin of 40%. Now, let me go over the three key factors that support our media and leads generation business strategy. Firstly, we are able to continue expanding high-quality traffic. During the first quarter of 2018, the number of average daily unique visitors who accessed our primary application Autohome increased by 34.5% year-over-year to reach 10.1 million according to Quest Mobile. Currently, the newly activated users of Autohome app has reached 250,000 on a daily basis. We are glad to see continued healthy traffic growth in mobile and a record traffic ramp up in newly launched channels and products such as user foreign [ph] and short video [ph]. As a result of these efforts, our mobile advertising revenue grew 58% compared to the same period of last year accounting for almost [indiscernible] media service revenue. This is very essential for effective advertising and it's driving automakers and dealers to select Autohome as the primary digital…

Thank you, Min. As Min has already highlighted, we are very pleased to report another strong quarter. But before I start, let me mention that, starting first quarter 2018, given the continued growth of our new businesses such as data, we have elected to revise the presentation of our revenue segments for better transparency. Primarily online marketplace and other revenue will now include revenues from new and used car marketplace, auto financing business, data products and aftermarket services. The impact on the other two revenue segments of media services and lead generation are minimal. In addition, as a reminder, in the first quarter of 2018, we have also adopted the revenue recognition accounting standard ASC 606, which changed the presentation of value-added tax from growth basis to net basis. Compared to presentation on growth basis, the revenue under net basis for the first quarter of 2018 was around 9.5% low. Now, I'll continue the quarterly reporting using these revised revenue presentations, including the first quarter of 2017. And please note that I will reference RMB only in my discussion today. Net revenue for the first quarter was RMB 1.288 billion, representing 33% year-over-year increase, excluding direct sales. This was about the high end of our original guidance. For detailed breakdown, media and lead generation revenue for the first quarter was RMB 584 million and RMB 611 million, up 20% and 31% on a year-over-year basis respectively. Online marketplace and other revenues were RMB 93 million excluding direct sales. [indiscernible] the first quarter of last year, it increased substantially by 404% on a year-over-year basis. A significant part of these revenues were generated from auto financing and data products. So, we're very pleased of the progress of these new initiatives so far into the year. Moving on to costs, cost of…

Thank you. [Operator Instructions]. Your first question comes from Eddy Wang from Morgan Stanley. Please go ahead.

Hi, management. Thank you for taking my questions. First of all, congratulations on the very strong results. Now, I have three questions. First of all is regarding the online marketplace and other business, can you give us some color on the growth of each such as the auto finance, auto insurance, data product. Your revenue growth guidance of business in this year. I know management have highlighted that [indiscernible] this business. So, my second question is related to this year. We noticed that the OpEx ratio actually increased in the first quarter compared with the first quarter last year. So, what's your guidance of this [indiscernible] of this year. And the third question is about the headcount. I noticed that the headcount at the end of this first quarter actually [indiscernible] quarter-over-quarter to compare with end of last year. Would you please give us [indiscernible] of why the decline and what [indiscernible]? Thank you.

Eddy, I think you're breaking off. We didn't quite hear your last question.

Yeah. Last question, let me repeat. The last question is about the headcount. So, at the end of the first quarter, it seems to have declined compared with – at the end of last year. So, I just want to know the reason behind this and if there is any color around the trend of [indiscernible] in this year. Yeah.

[Foreign Language]. Talking about the new business, we're referring two business. One is about auto financing and also financial-related business. The second are data related business. [Foreign Language] Now, talk about auto financing, as we mentioned, the total transaction is about RMB 2.1 billion. And I think in the future, we're going to further grow this number. And the key is we have to drive the volume of our platform for the used car business. If we drive the volume of the used car business transaction up, then I think this number will further grow. [Foreign Language] Now, talking about the auto insurance business, as you know, there are some regulatory updates and changes in the market. Before the new regulation, no offers are allowed. And we heard that the Chinese Banking and Insurance Regulatory Commission is going to free to premium policy in three provinces. If this policy gets introduced to the market, that would further expand our auto insurance business. [Foreign Language] Now, the second business I want to echo is the data product. We already signed the contract with 10 OEMs and 5,300 dealers. [Foreign Language] Well, this is only just getting started and the real number is actually bigger than this one because according to our financial and accounting principle, we have to amortize the newly signed contracts in 12 months. So, that's why in terms of financial current system, we have to do such amortization. That's why the real number is bigger than we quoted. [Foreign Language] As we had different relationship with OEMs and dealers, we would understand better how to serve them with our data products. [Foreign Language] So, on one hand, we are making ourselves. On the other hand, we are getting to know our customers better and we are developing our…

Eddy, as for operating expense, we have mentioned in the past that we believe we will try to maintain our operating margin very similar to last year's level excluding direct sales business. And in the meantime, I believe we would try our best to achieve operating leverage, even though we will also continue to spend to grow our new business. But let's say the bottom line is that we will at least try to maintain our margin profile similar to that of last year. And just to add on to Min's answer to question three, I think for this year we will try to limit our headcount sort of growth by single digit compared to the end of last year. And most of the addition should be non-P&D side.

Thank you very much. Thank you.

[Operator Instructions]. Your next question comes from Liping Zhao from CICC. Please go ahead.

[Foreign Language] I have two questions. So, first question is related to the insurance business. The management elaborated the business model for insurance segment. And what's the take rate for the business? And my second question is related is financials. The first one is regarding the growth in the other income. Is it related to the standards adjustment? And then, second question is about the OEM revenues. How many OEM clients were there in the first quarter? Thank you.

[Foreign Language] Now, let me answer the question about our business model for the auto insurance business. Our auto insurance business in Q1 is still a traditional insurance business model. The subscribers would purchase insurance under subscriber premiums from the Autohome app. [Foreign Language] Actually, we do not advantages as offline sales because online sales, we're not allowed to generate offers. [Foreign Language] As our president just mentioned, there are new regulatory changes released by the regulators which they are going to select three provinces as pilot province to start reforming of the online premium subscription. They would allow offer for the online insurance subscription in three provinces. [Foreign Language] The purpose of such regulatory change is try to reform the online insurance market which offer the clients with a better premium if they subscribe online. Actually, it's like a unified standards for online and offline offering. And if the insurance – and the insurer doesn't have any accident, they can enjoy a better premium. [Foreign Language] Actually, in terms of this regulatory change, how would that affect our insurance brokerage business? I think there are both benefits and also disadvantages. Now, talking about the benefits, I think the business transaction volume and the user number would both grow. [Foreign Language] However, such policies, the government just announced the framework. They haven't started the releasing of such policy yet. So, implementation will still have to wait. And also, due to the government time table, they're going to select three provinces to start this new policy. And for the three provinces, the insurance business only accounts for 5% of the national total.

So, now, Liping, I will answer your second question. The first part of your second question, yes, auto income increase is related to actually the accounting policy change. Now, in ASC 605, we actually have booked the 13% rebate from our lead generation business as a cost reversal to offset our cost. And now, under the new policy, under ASC 606, we book that as – we firstly book actually the revenue from lead generation from a net basis after the 17% VAT and then we book the tax rebate under other income. So, yes, that's related to the account policy change. And as for the second part of your question, the OEM customers, in the past quarter, we still have around 90 OEM customers, a similar number to that of last year.

All right. Very clear. Thank you.

Thank you. As a reminder, each participant will be allowed one question only to allow other participants in the queue to ask their question as well. Your next question comes from Miranda Zhuang from Merrill Lynch. Please go ahead.

Good evening, management. Thank you for taking my questions. I have one question about our strategy to penetrate into lower-tier cities. I want to know the company strategy in terms of acquiring dealers and the users in the lower-tier cities. Thank you. [Foreign Language]

[Foreign Language] Thank you for the question. Well, if you look at Q1, the auto sales in the lower-tier cities, they're growing. [Foreign Language] Now, we're going to ready for two things. First one, we are trying to build up our branding in the lower tier cities. [Foreign Language] To build up the branding image, that's why we subscribed to the CCTV advertisement for other homes. [Foreign Language] We worked with CCTV Channel 1, Channel 5 and Channel 6 which enjoy good viewing in the lower-tier cities. So, we want to try this out to see which one would be more effective to penetrating into the lower-tier cities. [Foreign Language] And also, we hired an ambassador which is a celebrity ping pong ball player in China and he just won the ping pong champion, for the group champion yesterday in an international competition. His name is [indiscernible]. He has become our ambassador. [Foreign Language] He's very young. He's only 21 years old and how he's ranking in the world in number one. [Foreign Language] In last week, it's just [indiscernible] for the ping pong games and which enjoy a very high penetration rate for viewing for CCTV 5. [Foreign Language] Now, the next thing is we have established AR auto show during the Beijing auto show which is very successful. [Foreign Language] The Beijing auto show is a massive scale auto show, but is also trying to generate leads and also to convert the leads into sales. [Foreign Language] So, we want to bundle online plus offline. We want to connect both sides. So, in this way, for online, we can generate traffic and divert the traffic into lower tier cities. And we also provide the lower-tier cities sales opportunities. In this way, we can combine online/offline sales. [Foreign Language] Talking about the dealership, the dealers in the lower tier cities, they all had collaboration with us. [Foreign Language] In summary, by building our marketing strategies and branding as well as combining the offline channels with online channels, we are trying to get higher penetration into the lower-tier cities and try to help the lower-tier city users to get the car which they want to buy. [Foreign Language] Thank you.

Thank you very much. That's very helpful. Can I have just one very quick follow-up. So, can you remind us the mix of the users and dealers from lower-tier cities in Autohome?

So, you're referring to, like, the percentage of customer from lower-tier cities.

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

We work with basically all the dealers. Out of these 28,000 dealers, we work with 26,000 dealers. And we also work with tier two sales networking dealers. In terms of the users, I think the lower-tier city users account for basically half of our users.

Thank you very much.

Thank you. Your next question comes from Monica Chen from Credit Suisse. Please go ahead.

Good evening. I have one question regarding our online marketplace business. So, I was trying to understand our target for our auto financing business loan balance or our auto transaction volume target by end of this year for each of the customer loan and merchant loan respectively. And also, any of our customer target for the OEM and dealer data product also for this end of this year? [Foreign Language]

[Foreign Language] Talking about the target, we do have internal KPI and targets. But I'm not in a convenient position to quote this target to the external analyst. Well, we want to achieve beyond – even beyond this target. This is the very first time for us to do such new business. So, even if we have a target, this may not 100% be accurate. But what we're trying to do is what we would try our best to exceed our internal targets. [Foreign Language] Talking about our financial business, I think the key is if we drive the transaction volume in the closed-loop transaction, I think the business volume would go up. [Foreign Language] For example, the used car transaction already occurred in our closed-loop transactions. [Foreign Language] Especially the C2B. [Foreign Language] Now, talking about B2C business, this is relatively speaking more complex than C2B. And also, we need to deploy more POS machines to a lot of our cities. About May or June, we're going to make new release about the B2C business. [Foreign Language] Talking about the data products, we already gained feedback – very positive feedback from customers. So, we would continue to come up with our further development of the next generation data product offering. [Foreign Language] During the May auto show, the Dongfeng automotive group already signed a lumpsum contract with us. [Foreign Language] All of that is strategic collaboration contract with us. Major piece of that was the data service. [Foreign Language] And in May, there's another OEM which is going to sign the strategic collaboration agreement with us. There are further OEMs who showed their interest. So, hopefully, we can be more interactive with our customers and we can come up with better data products for the OEMs. [Foreign Language] Thanks. Thank you.

[Foreign Language] Thank you very much.

Thank you. Your next question comes from Hillman Chan from Citigroup. Please go ahead.

[Foreign Language] So, my question is on the data product for the OEM. So, can management share more color on which data product and targeting which part of the value chain is more popular among the OEM customer and a rough price range for that. And the other question is about the competition from Dongfeng and how the management see the competition from them? And lastly is on the auto loan. Can management share more color on the difficulties we face during the process related to the customer engagement dealer partnership integration with Ping An and how you expect to improve going forward? Thank you very much.

[Foreign Language] Now, I want to echo in the first question which is about data product. We have data product signing at OEM as well as targeting at the dealers. [Foreign Language] We are now pushing forward both piece of business. [Foreign Language] Now, your question is focusing on the OEM data product. Actually, we have multi-offering in terms of the data products to OEMs. Generally speaking, they are different categories. For example, the data product related to RMB. [Foreign Language] The second category is about strategy collaboration and competition. [Foreign Language] A lot of OEMs, their big boss come to our showroom and they can witness what kind of strategic competitive edge of them comparing with competitors each day, each week or each month. [Foreign Language] And the third category is about marketing and sales. We do have a sales tour for them to see how clearly they have made the conversion from leads to absolute sales. [Foreign Language] In the sales funnel, they can see that how many showed interest and how many leads are there. So, that's why they can clearly understand for their car model, under some of the brands, what are the difficulties they're facing and what are the areas people showed great interest in. [Foreign Language] So, in this way, if they deepen their collaboration with us, we can help the OEMs to make a higher conversion rate along different layers of the sales funnel. [Foreign Language] They can also make comparison with competitors and also to compare the competitive car models, which are better, which are worse. So, in this way, they would have a clear competitive perspective over the market. [Foreign Language] And also, it's related to improving the quality of the product. For example, we have a lot of user-generated data…

[Foreign Language]

Our next question comes from Wendy Huang from Macquarie. Please go ahead.

Thank you. I just have a few follow-up questions. First is, we have seen the tightening regulation in China's social networking and also online advertising space. Some of the players such as [indiscernible], they got hit. So, this question is not really about specific competition from Dongfeng. It is more about whether there has been any auto budget shift you observed actually shifted from the [indiscernible] overall to actually Autohome or overall online auto space. And second, you mentioned earlier that the integration with Ping An Bank has been quite smooth recently. So, can you elaborate a little bit on that? And also, how well – or how has Autohome already actually leveraged Ping An's 1.4 million insurance agents on the ground to develop your business? Thank you.

Now, to answer your first question, if you look at Q1, actually, the auto sales growth in China is not very strong. It's within 3%. [Foreign Language] We do see the slowing down of the growth if we compare this number with a few years back, which was double digit. [Foreign Language] But we're happy to announce that in Q1, in terms of OEM, media service, we have more than 20% growth. [Foreign Language] So, this growth was quite good even if we compare the data with the good years, which the growth was double digit for auto market. [Foreign Language] We understand the competition are always there and it's hard to tell who took whose market share. But what we want to focus is to try to create better value for our customers. [Foreign Language] So, we are dedicated and are focused on our core competency including our data service business. I think we would have very good collaboration with one or more OEMs. [Foreign Language] Talking about the collaboration with Ping An Bank, we have a few business collaborating with them. [Foreign Language] The first one is credit card business. [Foreign Language] Secondly, auto financing. [Foreign Language] For the 1.4 million agents of the life insurance under Ping An Bank, they help to generate C1 and the C2 – [Foreign Language] They help to generate C1 and C2 leads for used car. [Foreign Language] Thank you.

Thank you. There are currently no more questions in queue. I'd like to hand over the call back to your speaker today. Please go ahead.

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

Thank you, sir. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.