Ladies and gentlemen, thank you for standing by for Autohome’s Second 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, Joyce Tang, Autohome’s IR Senior Manager. Ms. Tang, you may begin.

Thank you, operator. Hello, everyone and welcome to Autohome’s second 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 CEO; Mr. Haifeng Shao, Autohome’s President; and 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 the law. The earnings press release in 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 will now turn the call over to Autohome’s Chairman and CEO, Mr. Lu. Mr. Lu, please go ahead.

Thank you, Joyce. Hello, everyone. Thank you for joining us today to discuss our second quarter 2018 results. I am pleased to report another strong quarter, in which our revenue excluding direct sales, increased 36% year-over-year to RMB1.87 billion. This further solidifies that our core business and the new initiatives are gaining significant acceptance in the market and all four pillars of our business are on track with continued growth momentum. Now, let me update some recent efforts in our core media and lead generation business. Firstly, we are able to continue expanding high quality traffic. During the second quarter of 2018, the number of average daily unique visitors who accessed our primary application Autohome increased by 54% year-over-year to reach 10.3 million according to the Quest Mobile. Also, our mobile advertising revenue grew 30% compared to the same period last year accounting for 52% of our media service revenues. Secondly, we have further broadened content with data-driven customization and intelligent recommendation. For example, currently, they are 8,000 professional contributors to our PGC platform and the overall publications, including articles and videos increased about 150% growth sequentially. Also, as part of further upgrading the PGC ecosystem, we are expanding collaboration with all other measures, KOLs, professional experts and social media etcetera. In addition, Autohome has further diversified its content production by launching nine columns, including celebrity talk show, gourmet on the road, animated car showcase, comedian car review, cars for HER, cars and the culture, road music, industry opinion interview and test drive. Next, I will show you a chart, we continued to expand now with over 76,000 groups spanning across 351 cities, a roughly 30% increase compared to 54,000 groups in the first quarter of 2018. Finally, the vast VR product portfolio continued to expand. Now we have AR…

Thank you, Min. As Min has already highlighted, we are very excited to report another outstanding quarter. Before I start, let me briefly recap that we completed $100 million convertible bond investment in TTP, with 8% annual coupon rate. Within the next 3 years, Autohome has the right to purchase additional convertible bonds of $65 million. Our strategic investment of TTP in partnership with trusted used car dealers it’s a key milestone in our online transaction initiative. We believe this C2B2C model will maximize Autohome’s powerful platform as a win-win for all of our consumer and dealer partners. Now, I will continue the quarterly reporting and please note that I will reference RMB only in my discussion today. Net revenue for the second quarter was RMB1.869 billion, representing 36% year-over-year increase, excluding direct sales. This was above the high-end of our original guidance. For detailed breakdown, media and lead generation revenue for the second quarter was RMB930 million and RMB740 million, up 25% and 23% year-over-year respectively. Now, online marketplace and others revenue, were RMB199 million, representing an increase of 310% year-over-year, if excluding direct sales in the same period last year. So, we are very pleased of the progress of these new initiatives in the second quarter. Moving on to cost perspective, cost of revenue increased slightly by 3% year-over-year to RMB209 million. This, excluding the cost of direct sales in Q2 of last year, cost of revenue increased by 35% year-over-year, which is in line compared to our top line growth rate. Now for operating expense, sales and marketing expense in the second quarter of 2018 was RMB588 million compared to $404 million in the same period last year primarily due to an increase in offline execution and branding expenses. Product development expenses were RMB313 million compared to…

Thank you. [Operator Instructions] Your first question comes from Liping Zhao from CICC. Your line is now open. Please go ahead.

I have two questions for the management. The first one is related to our media and lead gen business as the new car sales this year is soft, which impact our second half growth of the media and lead gen business? And the second question is related to our new business initiatives, as Autohome has very strong growth in online marketplace this quarter, thanks to auto financing data and used car business. So what’s the strategic focus of the management for the coming quarters? And will these new initiatives impact our margin trend? Thank you.

So, let me take your question. Let’s start with the first question first. As you have said, the auto market is quite weak. We do see quiet growth if we compare with a few years back. Actually, in terms of OEMs, I think they are in three conditions. The first one, they still enjoy very good growth. The second category, the growth was quite slim or they have slightly downward shift of the growth. The third category who enjoy sharp declining. For the third category, as the business enjoys sharp declining, so that’s why they cut their budget. But for the first category and the second category, they were not capital budgets on the market, some even growth their budgets. As I said for the OEMs, there are three categories, which we do see a big divergence this year. So that’s why in terms of the budgeting on the dollars, expenditure on the marketing and advertisement, they do need to think twice and make some alternative choices. So, they will invest more on the areas which can help them to grow their sales. Because of other Chinese OEMs, the sales volume is the most important KPI, they have to pay a lot of attention to this KPI. So, for Autohome, we are trying our best to improve the following, firstly, to improve the effectiveness of the lease conversion, so that’s why we can generate more effective leads. So, we leverage on our big data capabilities and also the smart algorithm and some other high-tech tools, which we can help to generate more conversion of the leads. Talking about the numbers of leads and also the lease conversion rate, Autohome enjoyed the highest in the industry. So, I firmly believe that if the OEM, have to force to shrink the budget,…

Thank you. Your next question comes from Eddy Wang from Morgan Stanley. Your line is now open. Please go ahead.

My first question is about the used car business, so basically, we have seen that the company has already established the C2B2C model, the used car transaction business and has the capability to close the transaction loop. So, my question is compared with the other used car platforms actually in China, no sooner than sensitivity model and sooner than adjusted adopted PGC model, what’s our advantage and what’s our long-term target about the used car business in the longer term? And my second question is that we have been announced actually around RMB1 billion to further improve and invest in the TTP platform and the related content such as the short video. So, basically, what’s our – have we seen any signs of increased interest in our progress upon OEM, dealers and customers just part of the content and new content? Thank you.

Okay. Let me answer you first question, which is about the used car business. Now talking about our investment on the C2B side, we invested in the TTP platform. Now, on the B2C side, we work with the selectors and good quality dealers we formed at the Authome Trusted Alliance. For the car buyers, I think the used car buyers have the biggest concerns over the quality of the car and they easily get frauded. So that’s why we come up with Autohome Trusted Alliance, which is like a promise of the authenticity of the source of the car as well as the good condition of the car. If the buyers identified any untold problem of the car within 5 days, they can get easily refunded. It’s just like omni-paced system that buyers put the money with the platform if they identify any problem within 5 days, they can get refund from the platform. While this business is just getting started, this is quite new business and next year we would continue to grow this business and hopefully there will be thousands of good dealers, especially on the top quadrant of the dealers would join us. Our business model is very clear, especially we have the C2B and B2C which is a closed loop transaction model. Now, the second business is the leads purchase, because we generated a lot of leads. And those leads, some of them can be digested by the trusted alliance dealers and some would be taken by the secondary or Tier 2 dealers, so this is our leads business. And the third business is the ad business, the advertisement. So we can say that we have very clear business model for our used car business. We are the platform to enjoy our field privileges and advantages…

Thank you. Our next question comes from Miranda Zhuang from Merrill Lynch. Your line is now open. Please go ahead.

Let me translate my question. So, I have two quick questions. The first one is to follow-up with the company’s plan to invest RMB1 billion to empower the PGC content creators. So, can you elaborate more on that details, for example, like what kind of KOLs are you targeting, are you touching those top tiers or that could meet tier KOLs? And then are those collaborations exclusive and then how we will expect this investment to impact the top line and bottom line for the next few quarters? And then my second question is about the big data business. So, in this quarter, you previously mentioned that they are about 6,000 dealers that paid for the big data products and last quarter number is around 5,300. So, on a Q-on-Q basis, it seems that the increase is not that much. Can you elaborate on the reasons behind? Thank you.

Yes. To answer your first question, the PGC question, the RMB1 billion is not from our own pocket, it is the new marketing dollars paid by the OEMs, that’s why this is what about RMB1 billion investment. Talking about the KOLs, some of them can be top tier, some of them can be second or middle tier, it depends. The plan itself it should be exclusive. But as we said before, we are still open. We are not forcing the KOLs to exclusively work with us. Actually, we are open in that still. And hopefully, more and more KOLs, they can leverage our big data and the technical tools to help them to be more productive and more effective and efficient in content generation. So we hope we can attract very good KOLs. As you know, our platform is auto oriented traffic platform. So, that’s why the KOLs if they published the content on our APV, there will be numerous leaders. We help them to generate more traffic and help them to attract more sense. [Technical Difficulty]

Ladies and gentlemen, can we stay on the line? We are currently experiencing technical issues. We will be back momentarily. Once again, kindly stay on the line, ladies and gentlemen, we are currently experiencing some technical issues, we will be back momentarily. Thank you for your patience. Thank you all for your patience. Our speaker is back. Speakers, please continue.

Sorry that we dropped the line. As we said, because we can help them to leverage our big data and technical tools, they can generate more effective content and attract more sense and they will have more traffic. This would enhance our closer relationship with content generators. So in this way, we can achieve the win-win situation together with content providers. So to answer your question, whether this will affect our performance, the answer is very positive. It will be positively affecting our performance. And also depends on whether we can make the good progress of this program. Now, talking about big data business, there are two pieces of our big data business, one is to OEM, another is to dealers. Now, talking about the dealers, as we said, we have a very rapid growth first quarter, so that’s why, in Q2, the growth decelerated. But we are doing two things. Firstly, we have provided more choices of our products. We have a better product portfolio for the dealers to choose from and some of dealers had made the first questions than the second, than the third, they are multiple buyers. Secondly, we are truly helping the dealers to make effective utilization of the tools, the purchase from us. Let me give you one example. We have a product which is called the smart online sales. So therefore the intelligent DCC tool, some of the dealers, they are very experienced in using this tool, but it’s still muted. Well, some of the users, they have look at the big screen, they also used several, they are still not used to it. So we are helping them to projecting their sales on content into the big screen. In this way, they have the unified user interface and they will be more…

I will also add to Mr. Lu’s comment, Miranda, the 5,300 number that you mentioned was actually by the earnings date of last quarter, which is May 8. So it’s not by end of first quarter. And also we did mention that this quarter we have more than 6,000 dealer subscribers. We didn’t mention how many more hundred more than 6,000, actually it’s quite a few hundred more than 6,000, but anyway so thanks for your question.

Thank you. Thank you very much.

Thank you. Your next question comes from [indiscernible] from Credit Suisse. Your line is now open. Please go ahead.

So I will quickly translate my question. My first question is regarding the unauthorized dealer strategy, so we have already have a high penetration into the authorized dealers, but I want to know how many of the unauthorized dealers are covered by Autohome right now and what kind of service are we providing to them, I know at least they are covering spending levels? My second question is regarding the sales and marketing spending this quarter, it’s just a little bit higher quarter-over-quarter and year-over-year, so how much of that is related to our branding efforts in lower tier cities and what’s the trend for the second half of 2018? Thank you.

Now, talking about the authorized dealers’ strategy, we have been trying this business for 2 years. We have tried to readjust our business. This is kind of exploration in this business. You are asking how many was covered by Autohome, the answer is about 700 to 800, but the number doesn’t matter too much. Because the core question is how can we better transfer the online sales leads into true sales? These are the weakest in this whole cycle. And recently, we have revised our model. I can tell you for the later half of the year, we already covered 20 provinces across China. End of this year, we are going to cover maybe 30 provinces or even more. And in the future, we want to have at least 1 in each of the city or even in one country. After we revised our model, we need only 1 in each of the smart city. Although we are still in the conversion process, but we are very confident we already found the new direction and in the later half of the year, we are going to get into each of the smart cities. We do see that the auto sales in the lower tier cities from Tier 1 to Tier 5 cities, they are growing. So that’s why we have placed advertisement with CCTV targeting at the lower tier cities. We do see it’s quite effective. And our investor Mr. [indiscernible] world champion, he had many games this year and this is very effective commercial for us. As for how many app downloads are triggered by the CCTV commercial, it’s not easy to make this a good fit. But we do see the traffic of visiting our app, we are growing very rapidly. Okay, that’s all. Thank you very much.

Thank you. I will now turn the conference back to the management for closing remarks. Please go ahead.

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’ time. In the meantime, please feel free to get in touch with us, if you have further questions or comments. Thank you.

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