Good morning and good evening everyone. Welcome to the Cango Inc.'s Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. This call is also being broadcast live on the company's IR website. Joining us today are Mr. Jiayuan Lin, Chief Executive Officer; and Mr. Yongyi Zhang, Chief Financial Officer of the company. Following management prepared remarks; we will conduct the Q&A session. Before we begin, I refer you to the Safe Harbor statement in the company's earnings release, which also applies to the conference call today, as management will make forward-looking statements. Please note this call is being recorded. I would now like to turn the conference over to Mr. Jiayuan Lin, CEO of Cango. Please go-ahead sir.

[Foreign Language] Hello everyone. Welcome to Cango’s second quarter 2019 earnings call today. [Foreign Language] During the first half of 2019, China's automotive industry continued to underwhelm due to the decelerating macroeconomic environment escalating China-U.S. trade dispute, decreasing demand and industry uncertainties caused by new national emission standards. Despite introduction of some regulatory changes to stimulate car sales by the government, the Chinese auto market is still operating at historic lows and is yet to recover. [Foreign Language] Facing external pressure, we remain committed to our growth strategy, and as a result our business achieved steady improvement over the past several months. During Q2, we continued to focus on strengthening our core competencies in auto-loan facilitation services by refining our product offers and expanding our channels. We also accelerated the development of our after-market services, while driving our auto insurance facilitation business with net level of growth [ph]. In addition, we further deepened our corporation with our core strategic partners and our partnership with ICBC has yielded significant results. Moreover, we continue to establish new partnerships with founding partners and OEMs. [Foreign Language] As a result of our efforts in these areas, our total revenue increased by 42.3% year-on-year to RMB336 million in the second quarter. Our after-market services facilitation business, which mainly consists of insurance-related products contributed 35.9 million to our total revenue. The significant contribution from our cooperation was with ICBC was the vital driver of our strong financial performance in the second quarter. [Foreign Language] Now, I will provide you with an update from the progress we achieved in this quarter, as far as the growth prospects of our core auto loan facilitation business, after market services, and strategic partner initiatives. [Foreign Language] First, as our primary growth driver, our auto loan facilitation business continues to deliver…

Thanks, Jiayuan. Hello everyone and welcome to our second quarter 2019 earnings call. Before I start to review our financials for the quarter, please note that unless otherwise stated all numbers are in RMB terms and all comparisons are on a year-over-year basis. Although cost sales in China continues to [crunch] due to uncertainty, the macroeconomic environment and escalation of the China-U.S. trade war, we successfully run through the tape, maintaining our strong growth momentum and delivering another quarter of solid financial results. Our total revenue in the second quarter 2019 was 336.3 million, representing a year-over-year increase of 42.3%, outperforming the high-end of the company’s guidance by 6.8%. Our up-market services facilitation business also continued to ramp up with our revenues going to 35.9 million. Cost of revenue in the second quarter was 125.8 million. As a percentage of total revenues, cost of revenue in the second quarter increased to 37.4% from 34.4% in the prior year period. This increase was primarily driven by a higher amount of incentives paid to employees per each financing transaction. Sales and marketing expenses in second quarter increased to 44.5 million from 37 million in the prior year period, mainly due to increases in travel expenses as we further expanded our operations and share-based compensation expenses. As a percentage of total revenue, sales and marketing expenses in second quarter decreased to 30.2% from 15.7% in the prior year period. General and administrative expenses were 43.4 million or 15.9% of total revenues in the second quarter, compared with 31.4 million or 13.3% of revenue in the prior period. This increase was mainly driven by higher share-based compensation expenses during the quarter. Research and development expenses in the second quarter increased to 12.3 million from 9.5 million in the prior year period as we continue…

Thank you. [Operator Instructions] First question today, comes from [indiscernible]. Please go ahead.

[Foreign Language] So, my question is regarding our partnership with ICBC, wondering how it’s related to product and low yield that we facilitate through ICBC? And management also mentioned about other partnership with some new events, how is this proceeding as well as can the management give some guidance outlook for the second half of the year regarding the car sales and our product development? Thank you.

[Foreign Language] Thank you for your questions. I will answer your questions one by one. Regarding your first question, our partnership with ICBC, well we have been working with ICBC on both OEM subsidized and non-subsidized front. Right now, the 1 billion loan are all based on the non-subsidized loan products. For non-subsidized products, right now the decrease is about 5%, and as I said, the ICBC loan volume lay amongst the non-subsidized loan products and now right now the amount is over 1 billion. And regarding the subsidized product, we have signed agreement with eight OEMs and we have completed system configuration, as well as product launch training with our OEM partners, and we are now engaging with more OEMs. [Foreign Language] Regarding our engagement with other banks, right now, I mean with ICBC, we are working proactively on non-subsidized products, we are also working on subsidized products as well. And the bank, the other banks in the markets, they have witnessed the successful results of our partnership. As for example, like bank of China and Construction Bank of Finance, they have expressed strong interest and actually in these banks they also boast very strong subsidized product resources, especially they are already offering some subsidized products for OEMs in the China market. So, now – that’s why we are now actively engaging with them, and hope that with better incentives and better conditions for collaboration, we will be able to establish our partnership with these other banks successfully very soon. [Foreign Language] Regarding your third question, our outlook for the second half, well there are a lot of negative factors impacting our industry so far like the slowdown in the macro economy, and the trade frictions between China and U.S., decreasing consumption, you know switch over from the National 5 Emission Standards, National 6 Emission Standards as well. That’s a reduction of subsidies for new energy cost. All these factors now are impacting negatively on the China's auto market in the second half of 2019. Although the government has launched some policies to stimulate car sales, we have not yet seen any turning point in the market yet. China's market is yet to recover. So, overall speaking, we are not very optimistic about China's auto market in the second half. [Foreign Language] Based on these challenges in the second half, we will continue to impact expanding our dealership network optimizing our service policy and efficiency and advancing our technology through innovation. As we continue to deepen our collaborations with more financial institutions and OEMs, we are confident that we will sustain our approach despite the persisting industry challenges.

[Foreign Language] That's all from me. Thank you.

Your next question comes from Joey Xu with Morgan Stanley. Please go ahead.

[Foreign Language] I will briefly translate my question. And as currently the car dealer growth has already slowed down, going forward what’s the management plan on the operating efficiency improvement fund, and such as increased dealer coverage efficiency of the sales person or increasing the number of credit applications for dealer? Thank you.

[Foreign Language] To answer your question, yes as it requires the – we are facing a lot of challenges in the external environment and what we can do right now of course is to improve our internal capabilities. So, how do we do that? You probably know that last month, we already launched the – the new sales management system, while we call the sales management system 3.0. And with this new sales management system that we will be able to improve the productivity of our sales people and that’s the first point. And the second point, we are now working very closely with ICBC, and other major banks in China to further penetrate our coverage of dealers across different regions. In other words, we are working on improving the density of our forward dealership coverage, and we believe that with higher dosages we will also be able to improve the operating efficiency. And thirdly, we are also focusing a lot of our efforts right now on aftermarket services part. With that, I think we will also – at the end improve both the productivity and also operating efficiency very successfully. Thank you.

[Foreign Language] There is one more point I would like to add that is, right now, we are implementing a small-scale pilot program in the lower tier cities. That is, we are providing supply chain financing solution for the [non-Forex] dealerships in lower tier cities that is cities in third tier and even lower because you know that 70% of our dealers, they actually are located in lower tier cities that is the third tier and even four tier and lower tier cities. As far as [non-Forex] dealers, in these lower tier cities they have strong demand for car sourcing and also for funding surfaces. So, cancel both the strong competitive advantage in all these areas, so that’s why we’re trying to leverage these advantages to meet the [non-Forex] dealers demand for car sourcing and founding. Right now, the pilot program is still on the small scale, but we are confident that as the pilot program expands, we will be able to further expand our dealership network successfully and also this actual program will help improve the dealers [thickness] with Cango. With that, we are confident that our business will further grow very strongly.

That's all from me. Thank you.

The next question comes from Michael Li with Bank of America Merrill Lynch. Please go ahead.

[Foreign Language] Okay. I will repeat my question in English. So, this is Michael Li calling from Bank of America Merrill Lynch. I may have missed the early part of the statement of the management. So, my question is, in first half, overall auto market in China was quite weak, but war we still see quite strong growth of Cango's revenue in first half. Even except the part of aftermarket service growth, the major business growth was quite strong. So, could management explain what Cango did write in first half to outperform the car market in China? Thanks.

[Foreign Language] Thank you, Michael for your question. I will answer your question and actually I think the reason for our strong is the first – in Q2 in the first half actually there are several risk contributors or drivers. The first one is from the product side, Cango has – in fact it’s happening to optimize our product portfolio, and for example since Q4 last year, we have increased our business with Bank of Shanghai and Bank of Shanghai is a founding partner, in fact offers much lower cost of funding for Cango and so that means we have a better or we are in a more advantages position in our partnership with the Bank of Shanghai along with other funding partners. And that is why, we are more competitive than our industry peers in terms of cost funding in this regard. And from a product side, there is another piece of information that Mr. Lin, our CEO touched upon earlier. That is, in June, our non-satisfied products with ICBC increased strongly in volume. So, that’s why on the product side, we have strong advantages. And the second reason is that in the first half indeed, the car market, the auto market in China underperformed was not, is auto sales were not very high. However, in this cycle, we are also experiencing peaks and troughs. For example, in Q1, that is in about January we saw a small size rebound in auto market. That is the auto sales picked up for some brief period of time. I think the reason was mainly because of the, because some consumptions that should have taken place in late 2018 now was postponed to January as Q1 of 2019. So, this lacking effect has led to the rebound in a car market and…

[Foreign Language]

[Foreign Language]

A follow-up question is about the, we just noted quite the – your partnership with the Bank of Shanghai and your [indiscernible] cost of funding, and it is a major contributor to your revenue growth in the first half. Because Cango's business model is acting as a facilitator, so the bank provides funding for the customers and of course the bank paid [take rate] to Cango. So, low cost of funding does it mean that the take rate received by Cango from the banks will increase? In addition, we expect that the interbank interest rate to go down in the second half actually has gone down in the past few periods. So, what is your outlook for the second half in terms of cost funding? While cost of funding, while it continues to go down, and while that in turn leads to higher take rate for Cango?

So, the answer is as follows. First of all, indeed as you just have described, the funding cost have gone, I mean lower funding cost means that higher take rates for Cango. And second point I would like to make is that actually, lower cost of funding is, brings another benefit that is to the customers. The [APR or order] to customers go down with the lower funding cost and that improves the Cango competitors seeing from the product side, as well as from the channel side. So, overall speaking there is therefore higher take rate that means higher revenue for Cango, and second a lower cost of funding means we are more competitive on a channel side as well. That’s why we have seen growth on both on a price side, and also on the volume side for Cango. And the second point I would like to make is that, indeed we expect the overall market cost of funding to go down in the second half, and regarding our partnership with ICBC and the Bank of Shanghai, yes indeed, as the market of cost of funding is going down of course the cost of funding with this partner will go down as well.

[Foreign Language]

The next question comes from [Tan Ho] with TIH Capital. Please go ahead.

[Foreign Language] So, the reason trade war China increased tariff in [indiscernible] components from China, as well as from the U.S., so how is it going to impact dealers and how is it going to impact [you]? That’s number one question. Number two, recently we see China’s financial system, a lot of the further issues, so in your future development how can you make sure you are not – what together with some, you know [indiscernible] local region bank? That’s second question. Third question, recently we saw some higher delinquency rate from consumer borrowing and lending, and I wonder in your cooperation with the State Bank, do you actually – what’s the term, you are entering into with them for those delinquent loans? Thank you. That’s three questions.

[Foreign Language] Okay, I will take your questions. Thank you for your questions. The first question about the impact of the China U.S. trade frictions and the higher tariff impact on imported auto parts from U.S. and these impacts on that. Right now, we haven’t seen the impact yet, while we do expect to see an impact, but so far, we have not yet seen the real impact or not yet. The reason I think is mostly because most of our customers they are buyers of domestically produce the cost and most of our customers they are located in lower tier cities. So, I think that it takes time for such an impact to transfer to such a customer segment and to such a market segment. So far, we have not seen the substantial impact yet. Also, slowdown in China’s economy does have an impact on the market. For example, Cango indeed has outperformed the market as a whole, however we have not seen the growth rate, especially in terms of sales as high as we expect it to be, despite the heavy investment we have made in improving our sales productivity and or importing our channel. So, the growth rate is not as high as we have expected to be. In addition, to control risk, we have rejected a lot of applications from our customers. So, rejection rate from Cango actually has increased. This also shows the impact of the economic slowdown on our business and Cango in order to better control risk that we have, you know reach out to more customers than many of our peers. And regarding our partnership with the smaller banks, our partners are all major banks in China. We have no small bank partners.

[Foreign Language] I like to add something to the answers. Well, first of all, in regarding our funding partners, first of all, as Mr. Lin described, we are working with the major banks only so far. So, in terms of size, we only work with the big banks. In addition, we are diversifying our funding sources that is, we are now working with different funding partners. So, in regarding funding, we are very safe, and about your question on overdue rates. This also has something to do with our business model. For our loan facilitation services, there are two types of loan facilitation services. One is – the first one is, Cango takes the credit risk. And the second one is that Cango does not take the credit risk. And of course, we have started our collaboration with ICBC and Shanghai Bank not for long. That is, we are to, you know, at the beginning of our partnership, Cango decides to take off the guarantees, responsibilities that is we take on the credit risk. In other words, if the loans are overdue Cango has to buyback the loans.

[Foreign Language] And as I said, well for some of these loan collaborations with the banks, Cango takes the buyback obligation that is Cango takes the credit risk, but in turn, Cango gets higher take rates from the bank for such products in order to compensate for the credit risk that we have take on. But such a model as I described is just for the beginning of our partnership and we – our strategy is that, well as we show our funding partners, our strong post loan performance then we will be able to renegotiate with our corresponding partners on these terms, especially when we reveal our performance after a certain period of collaboration. So, our plan is that in the future then Cango will focus more on products that – products of which we do not take any credit risk. Thank you.

This concludes our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks.

[Foreign Language] If you have no more questions, then let’s close today’s earnings call. Thank you very much.

Thank you, everyone.

This conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.