Ladies and gentlemen, thank you for standing by for Autohome’s Second Quarter and Interim 2021 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, the conference call is being recorded. You have any objections you may disconnect at this time. It is now my pleasure to introduce your host, Aggie Zhao, Autohome’s IR Director. Mr. Zhao, you may begin.

Thank you. Thank you, operator. Hello, everyone, and welcome to Autohome second quarter and the interim 2021 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 Chief Executive Officer Mr. Quan Long; co-President Mr. Haifeng Shao; Chief Technology Officer Mr. Xiao Wang; Vice President Mr. Jun Zou; and Finance Director Miss Hong Jiang. After prepared remarks, Mr. Long, Mr. Shao, Mr. Wang, Mr. Zou and Miss Jiang will be available to answer your questions. Before we begin, please know 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 expectation. Potential risk and uncertainties include, but are not limited to those outlined in our public filings with the Securities and Exchange Commission. Autohome doesn't undertake any obligation to update any forward-looking statements except as required under applicable law. The earnings press release in this quarter includes discussions of certain 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. Now I will turn the call over to Autohome Chairman and CEO, Mr. Long. Mr. Long please?

Thank you everyone. And thank you for joining us today. We are pleased with the improving metrics across our new initiative in the second quarter, along with margin expansion. Total revenues for the second quarter were RMB1.94 billion. Revenue in our online marketplace and others business increased 10% year over year, and it contributed 30.7% to total revenue, compared with 23.4% in the same period last year. Data product maintained a strong growth momentum, generating a revenue increase of 47.1% year over year. Thanks to the higher contribution from OEM data product. We are excited to report that with steady operating efficiency improvements, TTP broke even at the operating levels for the first time in June, representing a significant milestone class. We also made further progress in our cooperation with new energy vehicle automaker. During the second quarter, revenues from NEV brands jumped 238% year over year. Adjusted net margin in the second quarter continue to expand rising 2.7 percentage points year over year to 40.8%. As the impact of global trade shortage on the new passenger vehicle sales market gradually deepened in the second quarter, the production sales of new EVs in May decreased by 2.7% and 1.7% year over year, respectively. This trend continues to improve with production and sales declining by 13.7% and 11.1% year over year respectively. In addition, automakers were further impacted by the sharp rise in cost of raw material. As automakers contend with multiple unfavorable conditions, they are adopting even more cautious approach to plan marketing budget and our traditional business is facing great challenges. On the other hand, China's auto market has continued evolving with mixed performance across different segments. The market has witnessed expanding trading volume for used cars and the new energy vehicles are moving into the fast lane highlighted…

Thank you, Quan Long. Now, let me walk you through the key financials for the second quarter. Please note that, as with prior quarter I will reference RMB only in my discussion today unless otherwise stated. Net revenue for the second quarter was RMB1.94 billion. For a detailed breakdown, media service revenue came in at RMB600 million, leads generation service revenue was RMB744 million, and the online marketplace and others revenue increased by 10% year over year to RMB594 million primarily driven by the consolidation of TTP and the increased contribution from data products. Moving on to cost. Cost of revenues was RMB262 million, compared to RMB265 million in the second quarter of 2020. Gross margin was 86.5% in the second quarter compared to 88.5% in the same period last year. Turning to operating expenses. Sales and marketing expenses in the second quarter were RMB562 million compared to RMB872 million a year ago. The decrease was primarily due to a decrease in promotional spending. Product and development expenses were RMB335 million, compared to RMB326 million in the second quarter of 2020. Finally, G&A expenses were RMB177 million, compared to RMB82 million in Q2 2020. The increase was primarily attributable to the consolidation of TTP and bad debt provision related to certain advertising customers. Overall, we deliver operating profit of RMB673 million for the second quarter compared with RMB871 million in the corresponding period of 2020. Adjusted net income attributable to Autohome Inc., was RMB790 million for the second quarter, compared to RMB881 million in the corresponding period of 2020. Non-GAAP basic and diluted earnings per share for the second quarter were RMB1.57 and RMB1.56 respectively, compared to RMB1.85 and RMB1.84 in the corresponding period of 2020. Non-GAAP basic and diluted earnings per ADS for the second quarter was RMB6.27 and RMB6.26 respectively, compared to RMB7.39 and RMB7.36 in the corresponding period of 2020. As of June 30, 2021 our balance sheet remained very strong with cash, cash equivalents and the short-term investments of RMB18.43 billion. We generated operating cash flow of RMB581 million in the second quarter of 2021. With that, we are ready to take your questions. Operator, please open the line for Q&A.

We will now begin the question-and-answer session. [Operator Instructions] And the first we have Thomas Chong from Jefferies. Your question please.

Thomas, please go ahead. Hello? Thomas? Operator, there's no one to ask…

Sorry, can you hear?

Next, we have -- hi, Thomas.

I'm sorry about that. The connection was -- had some problems. The question is about auto industry outlook. Can management share about the change going forward? Thank you.

We will ask Chairman and CEO, Mr. Long to answer your question.

Thank you for the questions. Actually, if you look at the first half of the year, and then we make some judgments over the future outlook. So, first of all Q1 data was really good in the auto market. Q2 we do see the data dropped sharply. And after we communicated with the industry experts, we found out that the lack of enough supply of chips as well as the raw material, increasing of the cost does impact the auto market. I don't think this situation will be eradicated in the short period of time. Maybe in Q4 the condition may be more ease. So, we believe that for the whole year in terms of the auto sales, we would experience positive growth. However, the positive growth would be quite not so robust. It may be single digit growth. So, definitely it will be less than 10%.

Okay, thank you for Mr. Long’s answer. Operator we can go ahead.

Next, we have Ritchie from HSBC. Your question please.

Let me translate this myself. So, I have two questions. So first one is can management comment how will this regulatory environment affect the competitive landscape going forward? And what are the costs and opportunities that we foresee from this new environment? And second question is, what is the outlook for used car industry? And how is the competitive landscape and what are the areas that we can still improve on? And do we see any M&A opportunities in this space? Thank you.

Thank you for your questions. Here we have our President Mr. Shao to answer your question. Mr. Shao please.

Thank you. I would like to take your second question which is about the used car business. Just as Mr. Long has said, we believe that the room for the used car market is very promising. Actually, there are three features of the used car business in China as a status quo. The first characteristic is, it is more or less a chaos market and a segmented market. Secondly, the market lack of enough trust and transparency and thirdly, we lack of enough financial support. So, I believe that the business model which is C2B and B2B, they both have potential to be profitable. However, for the B2C business, it may suffer loss sometimes. So, it may be on the edge of the profitability. So, for Autohome, we did have a few strategies in used car business. The first one is like asset model we would seek to like assets. And secondly, we do have the long term strategy on this market. As you know, the whole used car market in China is developing very fast. And there's a lot of changes in this market. We have to be persistent and we have to carry on until the tipping point occur in this market. And in that time, we should be prepared in terms of we have enough capital, we have enough capacity and we have good experience and good branding. So, in this way, we would get prepared for this market to further grow. And lastly, I want to comment on TTP. We already have chemistry with TTP, as we know we have a lot of resources. And also, we embedded the internet technologies and the know-hows with TTP and together with Ping An we empowered TTP. So actually, in this room, there’s something historical happened which is we achieve breakeven in this June. So, this is a very successful experience, which we believe we can copy that to some other areas. For example, new business investment opportunities are there.

Okay, that is all for your question. Operator, we can go ahead.

Thank you. Next, we have Eddy from Morgan Stanley. Your question please.

[Non-English]

Yes, we can. Please go ahead.

I have two questions first is about the competition. So, the first level of the question is that can you comment on the competitive landscape within the auto vertical between us versus the other the vertical players in the first half of this year? And the second level of this question is that, can you comment or give us some color about how the dynamic between the auto vertical versus other new channels in terms of their getting budget for these OEMs and dealers? The second question is about the tax. So, as we noted that some of the platform -- internet platform company, they not get approved in terms of the lower tax rates 10% of the key software, the company tax rate. Just wonder if we have any this kind of the problem as well? Yeah, thank you.

Thank you very much. I would like to take your first question, which is about competition. As you know, for any industry, you always have competition. We welcome our competitors, because we believe competition would produce to the whole industry to further develop. And this would be a good opportunity for us to learn from each other. And if we actually boosted the collaboration and competition, we believe that we will push forward our technical know-hows and we can build a more high-end number for this whole market. Well, as you know, I have just issued my report which has said, our constant efforts in constant enrichment are propelling our progress. And we are pleased to see our traffic continues to lead the whole auto media vertical, surpassing the total traffic volume of the second and the third players while maintaining the rapid year over year growth. So, in this way, our DAU numbers also reached to a historical high which is 44.1 million. So, in this way, we have actually achieved great success in getting a lot of traffic and we're definitely in a leading position. Now talking about the regulation. As you know, Autohome is a listed company and we are fully compliant with the regulations and the laws and policies. As you know, for the first half of the year, we did see the regulation and compliance gets tightened. However, in terms of data security as well as the personal privacy protection, we have never received any notice or any warnings from the regulators in China, which means we are fully compatible with the laws and regulations in terms of data protection, security protection and the privacy protection. We not only be fully compliant with laws and regulations, we also take one step ahead, which is the regulation plus one which means we are even in a tighter position in terms of be fully compliant with the laws and regulations. Now, I want to answer your second question that was about the tax policies. As you know, the resolution has been tightened for the key software corporation to receive the favorable tax policies. Actually, for Autohome, we are fully compatible with laws and regulations. And we are eligible for applying for such favorable tax policy. We will continuously keep a close eye on this policy. And we would understand that the policy in the full right. And we would continue to apply for the favorable tax policies.

Operator, we can go ahead.

Thank you. Next, we have Brian Gong from Citigroup. Your question please. Hi, Brian, please go ahead.

Hi, management. [Non-English]

Next, we'll ask Mr. Shao to answer your question

Thank you for the question. In terms of the automaker's budget of advertising, we believe that in Q3, the shortage of the supply of chips still affected the capacity of the automakers. And also, it affected the sale. And in Q4, we believe this the situation would be more eased. However, for the next half of the year, we can see the automakers advertising budget always go with its sales volume and it also goes with their annual profit target. So, if the sales volume is under pressure and the profit target is under pressure, we believe their advertising budget would be under double pressure. Now the second question is about the dealer’s numbers. Actually, we have some statistics till the end of June. We call them the auto dealers, which is already on the internet, actually, on our network. Actually, last year, this number was 23,800. And that was last year. This year, this end of June, the number is 25,600. So slightly up. And my last comment on this question is the coverage rate. The penetration rate or coverage rate for Autohome for the auto dealers was very good. So, in this way, especially the paying members, we have flat pay members for the dealers as over last year.

Thank you for your question. We can go ahead.

Thank you. Next, we have Leo from DB. Your question please.

So, I'll translate myself. So, the first question is, we see like the sales and marketing expense in second quarter declined quite a bit. So, while our competitors still acquire user growth aggressively, so want to ask like what is our user growth strategy in the future? My second question is regarding data products. So, we see our data products still grow robustly, and what is the outlook for second half and what is the new product in the pipeline?

Okay, thank you for your question. We have our Vice President, Jun Liu to answer your question first and then our President, Mr. Shao will answer your question. Mr. Jun please?

Thank you. Let me decompose your question. The first one is about the sales expenditure declining in Q2 versus our competitors. They are spending more in acquiring new customers. So, actually if you look at our customer and the traffic strategy, on the to C and to B side, we are number one in terms of the market share and also the traffic. According to QuestMobile, on the mobile side, our traffic is more than the total sum of number two and the number three players. If we add up the PC side traffic, we definitely can see even more actually good [ph] growth traffic advantages. So, we are in the leading position in terms of the traffic and the market share in the vertical media industry. In the future, how can we expand our user base? We discovered few strategies. Firstly, is go more granular level, we call things now into lower density. If you look at the incremental new members, actually, we used to have 50% from the Tier 3 cities. Now this number has gone to 70%. Second is, we are attracting more younger users, for example, the age at or below 35 years old. They are accounting for a higher portion of total users. In the future, we actually want to say our sales expenditure are always dynamically changing. We will be readjusting dynamically based on the status quo of the customers, competitors in the market. We launched the 11.0 new version, which would be more video based, more younger generation targeted and more diversified. We could try a lot of new efforts, for example, live streaming videos, as well as a lot of our new scenarios. Now, Mr. Shao is going to address your second question which is about the data product.

We are very glad that you have noticed that we do achieve good growth on our new data products business. In Q2 the growth is about 47%. Our long-term strategy for the data product is, we will further enhance the total weight of the data products in our total revenue and leveraging on high growth of the data products. We're going to achieve a higher growth on our revenue. So, to better understand our scenario, we would warmly invite you to attend our September 16’s New Strategy Conference. On this New Strategy Releasing Conference, we're going to elaborate on the data product strategy and the target. Actually, we also had a lot of new moves. For example, from the beginning of the year till today, we always have upgraded our data product and optimized our data products. For example, this year for the dealer’s data product, we launched 11 modules. And in June -- in September, we are going to release the new version, which is the 2.0 version of the intelligent new car launch module.

That is all the answers. Operator, let's move on to the next question.

We will now be taking one last question from Ashley from Credit Suisse. Your question please.

I just want to check about our initiative starting this April that, we require users to verify through message when they leave their contacts. So, just want to check the background and impact from this initiative. And if we look forward, how would this impact the pricing in our next negotiation round with the dealers? Thank you.

Thank you, Ashley. Our President Mr. Shao will answer your question.

Thank you very much for your question. Actually, ever since April, we launched the blue-sky plan, which we want to be a role model in the industry to implementing the information protection law and the data protection law of China. And secondly, in terms of the quality of the leads we generated, we claim to be the best in the industry and we are proud to say, we are the best. Actually, after implementing this April Blue sky plan, if you look at the number of the leads, it jumped by 10%. Actually, if you look at lead quality, the lead quality has improved. And followed by our initiative, in June, some of our peers, they have gradually introduced a similar plan carrying different names. And then we shift our focus into optimizing of the product, and then tried to enhance the user experience. And until August, we do see that our lead generation numbers have already recovered to the period of time before we carry out the Blue-sky plan, So, what I want to say is, the Blue-sky plan would never be a barrier for our dealers and automakers to continue to renew their contract with us. On contrary, it will lay a solid foundation for them to recognize we are the market leaders, and the quality of our lead has been greatly improved. So, in this way, this plan is quite positive.

That's all for the answers, operator. Time runs out so let’s move on to the last part. Thank you.

Due to the time constraint, this will be the last question we take on this call. I will now turn the conference back to the management for closing comment.

Thank you. Thank you everyone 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 any further questions. Thank you everyone. Bye-bye.

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