Edited Transcript of 1896.HK earnings conference call or presentation 18-Aug-20 12:00am GMT

So you probably will see we’ve helped as the measurement was implemented during all the pandemic crisis in the first half of 2020. Beside, to help encourage consumer to return to the cinema, we partnered with many local governments, trade unions and other institutes to organize discount of free movie viewing across the country. We also give our top priority to protecting the health and safety of our employees. During the pandemic, we adopted flexible work practice and stocked up sufficient disease prevention supply for our employee. At the same time, we further implemented strict cost control measurements and channeled our resource towards revenue-generating activity. More importantly, we have done and will continue to do great effort to enhance our resilience against the market, raised our ceiling for growth and bolster our competitive advantage.

These are the several development and strategic experiments I would like to share. First off, we optimized our online ticketing platform, upgrade our ticketing sales and settlement system and launched a series of new products, including the Safe Cinema to help movie theaters’ speedy reopening. We enhanced our collaboration with relevant ticketing system operator to support the cinema with Maoyan’s customized ticketing system. And also, we strengthened our technology advantage in smart stadiums, upgrade to our smart ticketing capability and accelerating our off-line value partners’ digitalization process. We also expand our reservoir of postpandemic live entertainment events for — contracting a number of the large-scale off-line concerts performed by leading artists. Meanwhile, we have actively explored new business model related to online entertainment performance. For example, we recently acted as exclusive ticketing agency for Rocket Girls 101 (foreign language), a live concert event backed by Tencent Video.

Secondly, we continue to invest in the product and distribution of the high-quality content. And now we have built up abundant reserve content. Especially, we have self-produced several films with great reputation or honors, which demonstrates our improved original content production capability. For example, the movie Back to the Wharf (foreign language) that we self-produced has been nominated for a Golden Goblet Award in 23rd Shanghai International Film Festival. Also, we are co-producer and distributor of a number of the movie titles with excellent quality, such as Rescue (foreign language), G Store (foreign language), One Second (foreign language) and Warriors of Future (foreign language).

On the television and TV series fronts, we co-produced a number of the TV drama series, including Inside Man (foreign language) and Shichahai, which already released. Probably many of you watched them on the TV and on the online leading — streaming platform. And Miss Crow and Mr. Lizard, and Babel (foreign language), which we produced in collaboration with Tencent Video. Meanwhile, we’re now increased our investment in self-production of TV drama series. We are currently in active production of a number of titles, including Defense Out of the Court (sic) [Defense Out of Court] (foreign language) and (foreign language), the Game Genius (sic) [Game of Genius] and so on.

In addition to movie and TV dramas, we proactively explore various new formats of entertainment content. In the first half of 2020, for example, we have already produced and distributed several streaming movies in genres ranging from action to suspense, historic drama, science fiction and many more. And also, we laid the groundwork to form movie-TV soundtrack value chain, and we have developed original soundtrack for various movie and TV series in collaboration with top-tier producer musician, such as the OST for Shichahai, which we also entered into exclusive copyright cooperation with Tencent Music for the soundtrack.

Third, we further expand our online promotion and distribution capability by integrating data analysis, technology, automation and advanced service. We have developed a highly-integrated one-stop online/off-line marketing solution that encompass the entire life cycle from strategic formatting to promotion execution, channel marketing and smart distribution. In addition, we launched several new promotion products, including Maoyan Online Chat (foreign language), Fast 24 Hours (foreign language) and the Story Behind the Movie (foreign language). In July 2020, Maoyan Pro launched a new feature suite called Smart Promotion and Distribution (foreign language), which include 33 functions at 8 different categories.

In addition, we continue to augment our data platform and expand our data sources. In June, Maoyan Pro officially interfaced with Tencent Video’s online movie box office (foreign language) what is called online-based movie, it’s different from the cinema movie and begin exchange data. Thus, we became the first platform in China to have integrated access to box office of streaming movies from Tencent Video, iQIYI and Youku. We’re still the only platform to be able to integrate third-party data and serve as a consistent measurement for the industry. In July, Maoyan Pro launched the Uni Chart by Tencent Music which syndicates the data on the movie MV list, movie soundtrack lists, TV series soundtrack list and many more. It gives a great indication about the music and how it really plays out during the movie promotion distribution.

Besides, on the advertising front, we further developed our cooperation with cinema and brand advertising. Regarding to our prescreening advertising, we believe that by combining the prescreening advertising and premise advertising, we are able to showcase advertisement through the entire closed loop of entertainment consumption circle, including ticketing purchase, ticketing claims, in-person view. And as the theater reopens and their audience gradually return, our unique competitive advantage in integrated marketing and advertising will become further strength.

As to date, Chinese movie industry has shown remarkable resilience. Since the reopening of the cinema in late July, daily box office has been growing steadily and weekly box office surpass the CNY 100 million mark within the first week of the reopening. The off-line entertainment industry is also coming back to the life. For example, the 2020 Honor of Kings World Final Championship Cup backed by Tencent is scheduled to take place in August, for which we are acting as exclusive general ticketing agency.

Looking ahead, as the lead entertainment portal and the management platform for entertainment distribution, data and products, we continue to adhere to our Cat Claw Strategic Model, upgrading our content capability, enhance our Internet-native advantage, expanding our online business model, refining our online/off-line promotion and distribution service and so on. We will stand side-by-side with our partners, support our users, help to accelerate the recovery of the pan entertainment industry and blaze a trail to a bright tomorrow for all.

With that, I will turn the call over to our CFO, Kevin Shi, to go through the details of our financial results. Thank you.

——————————————————————————–

Kangping Shi, Maoyan Entertainment – CFO [4]

——————————————————————————–

Thanks, Peter. Hello, everyone. I will walk you through our financial highlights for the first half year of 2020. Please note that all the financial numbers we are presenting today are in the renminbi terms and the percentage changes are on a year-over-year basis, unless otherwise stated. Revenue in the first half of 2020 decreased to CNY 203 million from CNY 1.985 billion in the first half of 2019, which was mainly due to the decreased revenue from our entertainment ticketing services and the entertainment content services as a result of COVID-19 pandemic. Revenue from online entertainment ticketing business in the first half of 2020 was CNY 104 million compared to CNY 1.083 billion in the same period last year, which was primarily due to the closure of movie theaters since January 24 in China.

Revenue from entertainment content services in the first half of 2020 was around CNY 16 million compared to CNY 666 million in the same period last year. The decrease was mainly due to the withdrawal of movies that we participated in the production, promotion and the distribution during the Spring Festival holiday as well as the postponed release schedule for the other projects as a result of shutdown of movie seaters. Revenue from advertising services and others in the first half of 2020 was CNY 84 million compared to CNY 236 million in the same period last year. The COVID-19 has relatively smaller impact on this segment than other 2 segments because we still have some revenues from advertising and the supply chain financing business even when movie theaters were shut down.

In the first half of 2020, our gross loss was around CNY 21 million compared with a gross profit of one thousand CNY 1.187 billion in the same period last year. The decrease was mainly caused by the decrease in revenue as a result of the pandemic and the related theater closures whereas our fixed cost and expenses didn’t decrease at the same proportion as revenue. Selling and marketing expenses in the first half of 2020 decreased by 72% to CNY 171 million from CNY 611 million. G&A expenses in H1 2020 were CNY 204 million compared with CNY 185 million in H1 2019. Most of the G&A expenses are fixed expenses and the slight increase was mainly driven by the increased investments in R&D employees.

In the first half of 2020, our adjusted EBITDA was negative CNY 284 million compared with positive CNY 512 million in the same period last year. Net loss for the first half of 2020 was CNY 431 million compared with a net profit of CNY 257 million in the first half of 2019. Adjusted net loss in the first half of the year of 2020 was CNY 307 million compared with an adjusted net profit of CNY 380 million in the first half of 2019. As of June 30, 2020, we had cash and cash equivalents and other forms of bank deposits of around CNY 1.4 billion.

In response to the industry headwinds caused by the outbreak of COVID-19, we will continue to adopt a prudent treasury policies in cash and financial management, implement a centralized risk control structure and minimize our cost of funds. We believe that the maintenance of a healthy cash position is crucial to supporting our current operations, investing in additional opportunities along the industry value chain and improving our ability to capture future market opportunities as the pandemic is gradually brought under control and audience demand for quality off-line entertainment experience recovers.

This concludes our prepared remarks for today. Operator, we are now ready to take questions.

================================================================================

Questions and Answers

——————————————————————————–

Operator [1]

——————————————————————————–

(Operator Instructions) First question comes from the line of Alex Liu of China Renaissance.

——————————————————————————–

Zhangxiang Liu, China Renaissance Securities (US) Inc., Research Division – VP [2]

——————————————————————————–

(foreign language) So during the pandemic, I think the entire movie distribution business was basically only conducted online. And I was wondering now everything back to normal, mostly in China, I was wondering how this impacts the movie distribution business gradually. And what are the main advantages of Maoyan on this front?

——————————————————————————–

Zhihao Zheng, Maoyan Entertainment – CEO & Executive Director [3]

——————————————————————————–

(foreign language)

——————————————————————————–

Xia Zheng, Maoyan Entertainment – Joint Company Secretary [4]

——————————————————————————–

And now I’ll make a brief translation. Okay. I’ll make a brief translation. We believe that the online distribution of movies has its own incomparable advantages. For example, the immersed viewing experience and strong social nature of watching movie in theaters are unique. And so those online video platforms limit this pressures on cost control, and balance is being lost in movie streaming because the cost per minute of movies is much higher, and it also face some technical problems. And besides, it may not have great positive impact on those platforms’ DAUs, MAUs compared with pushing others.

And also, cinema movies can provide significantly higher monetization efficiency than online movies. Cinema movie ticket price are much higher than that of online movies and — which may also have lower numbers of users than the actual total viewers. And besides the data of movie streaming is still not so transparent. Therefore, we strongly believe that the movie producers who have confidence in the quality of their work will still prefer theaters to distribute their work and improve their monetization. I also believe that online media has its own characteristics, such as work sharing and long display cycles.

Speaking of Maoyan, we will continue focusing on how this model can be better matched to the requirements of the movies and do our best to help accelerating the resumption and the development of the whole industry with all kinds of measures, especially with the advantages that Maoyan has accumulated during the off-line movies. We will continue to utilize our advantage in data and resources to strengthen our marketing and distribution capabilities and empower the promotion and distribution of more quality content, including online and off-line movies.

——————————————————————————–

Operator [5]

——————————————————————————–

So next question comes from the line of Xueqing Zhang from CICC.

——————————————————————————–

Zhangxiang Liu, China Renaissance Securities (US) Inc., Research Division – VP [6]

——————————————————————————–

(foreign language)

——————————————————————————–

Zhihao Zheng, Maoyan Entertainment – CEO & Executive Director [7]

——————————————————————————–

(foreign language)

——————————————————————————–

Xia Zheng, Maoyan Entertainment – Joint Company Secretary [8]

——————————————————————————–

Okay. Firstly, according to data from Maoyan Pro, after reopening since July 20, the box office of the fourth week reached RMB 110 million. And as of August 17, the total number of reopened theaters rate in China was nearly 80%, and the weekly box office is growing with more than RMB 200 million for 2 consecutive weeks. In particular, since August 10, various regions have introduced further relief policies such as [raising] their seat limit from 30% to 50% and removing the required break of movies with a duration of more than 2 hours. And also large-scale movies such as My People, My Homeland (sic) [My People, My Country], The Eight Hundred and so on, they all have confirmed their schedules. We believe that above all these layers, they will further boost the box office in the second half of the year.

——————————————————————————–

Zhihao Zheng, Maoyan Entertainment – CEO & Executive Director [9]

——————————————————————————–

(foreign language)

——————————————————————————–

Xia Zheng, Maoyan Entertainment – Joint Company Secretary [10]

——————————————————————————–

Certainly, there are a number of movies we act as producer or distributor that can be released at an appropriate time, such as The Rescue, Detective Chinatown Vol. 3, Boonie Bears, One Second, G Storm, Warriors of Future and many more. And we hope those movies will contribute to the box office in China. On the other hand, we are actively exploring our content capabilities to present better content to the audience with our partners. For example, the movie Back to The Wharf that we self-produced has been nominated for the Golden Goblet Awards at the Shanghai International Film Festival, which is a clear-cut demonstration of our content production capabilities. We also self-produced several movies, including On Your Mark, Moses on The Plain, and the Games (sic) [Game of Genius] and [Identity], et cetera, which we collaborated with many well-known artists.

——————————————————————————–

Zhihao Zheng, Maoyan Entertainment – CEO & Executive Director [11]

——————————————————————————–

(foreign language)

——————————————————————————–

Xia Zheng, Maoyan Entertainment – Joint Company Secretary [12]

——————————————————————————–

We actively participated in the investment of TV series projects. Now we have already released the number of quality TV series such as co-produced TV series Inside Man and Shichahai, both of which were released in the first half of 2020 and got excellent audience feedback. And also some of our co-produced series, such as the Legendary Tavern have won multiple awards at 26th Shanghai TV Festival. We also progressed our cooperation with other platforms such as Tencent Video, with which we are in the midst of production of Miss Crow and Mr. Lizard as well as Babel. And also, we upgrade our content management for self-produced TV series, such as Defense Out of the Court, Chess Prodigy, et cetera. They all have great qualities and reputation. And through that, we aim to enrich our IP-centric content ecosystem and, therefore, explore the monetization potential for our content.

——————————————————————————–

Operator [13]

——————————————————————————–

The next question comes from the line of Thomas Chong of Jefferies.

——————————————————————————–

Thomas Chong, Jefferies LLC, Research Division – Equity Analyst [14]

——————————————————————————–

(foreign language) I have a questions about earnings in 2020 — this year strategic outlook. Can management share about how we should think about our strategy across different segments this year?

——————————————————————————–

Zhihao Zheng, Maoyan Entertainment – CEO & Executive Director [15]

——————————————————————————–

(foreign language)

——————————————————————————–

Xia Zheng, Maoyan Entertainment – Joint Company Secretary [16]

——————————————————————————–

Okay. Thank you. In the past few years, we have developed our powerful data analytics capabilities, our outstanding advantages in the assets of content creation, marketing and distribution, cooperation efficiency and the resource integration. And also, we are able to operate our various business lines synergistically. This — our business continues to grow and expand, and our revenue mix is constantly optimized. We successfully generated profits in 2019.

In the first half of 2020, the outbreak of pandemic and its impact has evolved the Maoyan to make more thinking and exploring. While adhering to our Cat Claw Strategic Model, we’ll continue to deepen our industry platform capabilities and services and explore innovative businesses, enhance overall width of business capability and drive higher profits. And there are several assets that we would like to share. In terms of our ticketing business, we explored multiple types of cooperations in our world with theaters to actively help them improving their service capabilities and the monetization efficiencies such as prescreening advertising business cooperation and the providing with our customized and compatible ticketing system services.

And in terms of content, besides producing and distribution of more quality content, we are also committed to cultivate our ability to produce higher — high-quality content, which we can transform into other various forms of content, such as movies, TV dramas, Internet dramas, et cetera. And in addition, we have launched the original soundtrack partnership program in the first half of 2020 and have developed our cooperation with TME, our number of movies and TV series projects such as Shichahai. Besides, in July 20, we launched a new feature suite in Maoyan Pro called Smart Promotion and Distribution to bring better distribution and promotion services to industry partners.

For example, through multiple trailers posted on our official Douyin account, under our media metrics, we successfully helped My People, My Hometown to become the first movie that generated over 100 million views since the reopening of the theaters. And also in July 20, we launched the Maoyan Screening Room on Maoyan app and officially entered into the paid long-form video business. This is the natural extension of our content ecosystem. And we have a unique business focus and model, especially with our precise grasp of user needs and other capabilities, we will provide users with more viewing scenarios, improving the monetization efficiency of long-form videos. Thank you.

——————————————————————————–

Zhihao Zheng, Maoyan Entertainment – CEO & Executive Director [17]

——————————————————————————–

(foreign language)

——————————————————————————–

Operator [18]

——————————————————————————–

Last question is from the line of Sara Wang of Morgan Stanley.

——————————————————————————–

Sara Wang, Morgan Stanley, Research Division – Research Associate [19]

——————————————————————————–

(foreign language) So we have noticed that Maoyan had entered into a series of partnerships with Tencent on, for example, music, live entertainment events and also others. So we’re just wondering what the future strategic cooperation is with Tencent.

——————————————————————————–

Zhihao Zheng, Maoyan Entertainment – CEO & Executive Director [20]

——————————————————————————–

(foreign language)

——————————————————————————–

Xia Zheng, Maoyan Entertainment – Joint Company Secretary [21]

——————————————————————————–

In July 2020, Maoyan Pro launched the Uni Chart by TME. This is also a practice of our data resource collaboration with Tencent under our fortified alliance. Besides, through our fortified alliance with Tencent Group since 2019, we also deepened our collaboration across multiple areas. For example, we partnered with Tencent in the areas of content production and distribution for a number of movies. We also collaborated with Tencent Video on a number of TV series. And as we mentioned before, we have this partnership with TME to cultivate more organic synergies on OST projects. Besides, in June, Maoyan Pro officially interfaced with Tencent Video’s movie streaming box office and thus, began exchanging data. We also partnered with Tencent Video to build a movie streaming database.

On the live entertainment front, our partnership spans from operation model design to project operation. For instance, we acted as an exclusive ticketing agency for 2020 Honor of Kings World Final Championship Cup and the Rocket Girls, both backed by Tencent, and we will have more cooperation in that area in the future. And in terms of investments, we co-worked with Tencent to explore valuable resources and investment opportunities, such as co-investing in teen medium with Tencent in 2019 to further expand our off-line and advertising coverage. And as you guys may notice, the Director of Maoyan [by Tencent] has changed from [Bill] to Edward, who is in charge of China Literature and Tencent Film (sic) [Tencent Pictures], which may give us more opportunity to have more cooperation.

In conclusion, since forming our strategic alliance with Tencent in 2019, we have deepened and advanced our collaborations. This enhanced partnership will help to integrate products, data and resources in both Tencent’s and Maoyan’s ecosystems to build a powerful business foundation. Thank you.

——————————————————————————–

Operator [22]

——————————————————————————–

With that, ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect your lines.