Ladies and gentlemen, thank you for standing by for Autohome's Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] A live and archived webcast of this earnings conference call will also be available on Autohome's IR website. It is now my pleasure to introduce your host, Sterling Song, Autohome's IR Director. Mr. Song, please go ahead.

[Technical Difficulty] On the company's website, at ir.autohome.com.cn. Joining me today on today's call are Chief Executive Officer, Mr. Tao Wu, and Chief Financial Officer, Mr. Craig Yan Zeng. Management, please, will go through their prepared remarks, which will be followed by a Q&A session where they will be available to answer all your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provision 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 expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. Autohome doesn't undertake any obligation to update any forward-looking statements, except as required and applicable law -- please also note that Autohome's earnings press release and this conference call include discussions of certain unaudited non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures have been found in our earnings release today. I will now turn the call over to Autohome's CEO, Mr. Wu for the opening remarks. Please go ahead, Mr. Wu.

Thank you, Sterling. Hello, everyone. This is Tao Wu, CEO of Autohome, and thank you for joining our earnings conference call today. In the third quarter, we continued to advance our integrated online to off-line ecosystem strategy, focusing on deepening engagement across the entire value chain, while further optimizing our business structure. On the online front, we are leveraging our new professional content and product mix to strengthen our differentiated competitive advantages, which has led to a steady increase in our traffic scale. In September, our average mobile DAU increased 5.6% year-over-year to exceed RMB 70 million for the first time and scoring our expanding influence among users. In terms of our off-line offering, we are focused on low-tier markets with the deployment of initiatives like the Hundred Cities, Trade-in for New. In the first 3 months of this year, we successfully organized over 500 offline auto shows providing consumers in this region with a single one-stop service experience that spans from car selection, viewing and test driving to purchase, making the process more convenient than ever. Additionally, by leveraging the products and services available through our franchise stores we are able to offer a comprehensive and integrated online to off-line solutions that further optimize our customers' business operations, driven by robust growth in our new retail business. Revenues from online marketplace and others increased 3.1% year-over-year during the third quarter. Mostly, we significantly accelerated the expansion of our new retail business into lower tier cities this quarter. To date, we have a nationwide network of more than 50 stores with Autohome-based stores in mid- to high-tier cities and satellite stores in middle to lower tier cities. The expansion growing scale of our channels only demonstrate the adaptability of our business model across a wider range of cities, but also…

Thank you, Mr. Wu. Hello, everyone. I'm Craig Zeng, CFO of Autohome. In the third quarter, we continued to enhance our content and tools by successfully introducing the Autohome AH+ content matrix and a real scenario intelligent evaluation system to create a rich array of high-quality content. Additionally, we launched an industry-leading scenario-based vehicle model library that integrates real-life car use scenario, providing users with a more relevant and practical guide for vehicle selection. Specifically, our original content metrics now covers more than 13 programs covering 4 key segments, including new cars, car valuations, car culture and the auto industry, we offer authentic and practical information to users through live streaming and video, addressing a wide range of challenges they encounter throughout the entire life cycle of a car ownership. Our intelligent evaluation system focuses on core product features such as advanced driver assistance and smart cockpit, combining professional evaluation capabilities with users real-life scenarios through professional field test, market dimension vehicle reviews and comparisons and live streaming of technical insight we delivered the most critical and relevant smart evaluation results to our users. On tools, our scenario-based image library covers 3 core leading scenarios, nighttime, spatial and intelligent car viewing. This innovative tools provide users with an intuitive understanding of our vehicles authentic functionality and smart capability, significantly improving the efficiency and convenience of the car selection process. We also upgraded our [indiscernible] benefit platform to aggregate various policies, subsidies and other promotional information in real time, providing users with a one-stop information platform to automatically match and calculate discounts. Additionally, leveraging our upgraded algorithm under the user and vehicle data we have mined. We have deployed tools such as AIGC and chat box across multiple scenarios, including search, live streaming and instant messaging. They deepen interaction with users,…

[Operator Instructions] We will now take our first question from the line of Thomas Chong from Jefferies.

I'd like to ask about the ongoing price war and the trade-in program. What are the impacts to the industry and Autohome?

Okay. Thank you for raising the question. We see that with major car companies fighting price war to grab the market share, which has lasted for more than 1.5 years now. According to our observation, this trend has eased slightly recently, but there is no sign of ending in the short term. However, the ongoing price war did not bring the explosion of the car sales growth. According to the latest data from CPCA, retail sales increased by only 2.2% year-on-year from January to September. The price war has also quickly hurt the profitability of the car companies. From January to September, we see that the average profit margin of the auto industry was only 4.6%, much lower than the average level of the industrial enterprise profit margin of 6.1% in the same period. Meanwhile, dealers are facing tremendous operating pressure due to ongoing price war. According to China Automobile Dealers Association, survey report on the survival of the dealers in the first half of 2024, less than 30% of the auto dealers accomplished their sales target in the first half of the year, and a large proportion of them reached their sales target by exchanging price for volume. In addition, the proportion of dealers operating under loss reached 50.8%, expanding significantly compared with the same period of last year, and the average total gross profit of a single store also had a large drop, especially in the new car business with an average single-store loss of RMB 1.78 million. Generally speaking, the price war in the auto market has caused the car enterprises and dealers to suffer more seriously negative impact. Under such circumstances, China has introduced the policy of trade-in and also upgraded the vehicle scrapping to help release the consumption potential in an orderly manner and to…

Our next question comes from the line of Xiaodan Zhang from CICC.

My first question is on the new retail model of NEVs. So could you please update us on the progress of the satellite plan? And how should we think of the expansion pace for next year? And secondly, could you please give us more color on how we are going to look for more business synergies between Autohome and Ping An Group?

Okay. Thank you for raising this question. I'll first take the first question. At present, the Autohome space stores and the satellite stores altogether has already exceeded 50. In terms of the city layout, the space stores mainly cover medium to high tier cities, while satellite stores mainly cover medium to low tier cities. So this kind of 1+N model with the space store and the core well surrounded by the satellite store can make us quickly penetrate into the lower-tier cities with a network service and reaching up quickly to our clients so as to facilitate the OEMs in their channels with uncovered cities. In terms of the performance of the space stores as well as the satellite stores, we see that it actually facilitate OEM to realize the optimization of their cost efficiency. While at the same time, it also helped the OEMs to lower their channel expansion cost while increasing the sales efficiency. At present, we see that the overall market feedback is very positive. While at the same time, it also generate extra revenue for Autohome. With every increase in penetration of the NEV market, we see that with that good synergy of the space store as well as the satellite store, we can quickly facilitate the upgrading from the new tail network, single point coverage to comprehensive coverage, while at the same time, the NEV brand revenue steadily grow. Well, at the same time, it continued to outperform the overall NEV market, showing very sound market adaptability and competitive edge. So looking to the future, we are also going to work by both labs. On the one hand, we are going to grow the number of the stores. We are going to make our business model even more sound and robust as to gain more…

Our next question comes from Ritchie Sun from HSBC.

First of all, what is management's view on 2025 used car market? And how does management view the goal for [indiscernible] next year? Second, what has management -- what has Autohome made in terms of shareholder return progress? And what is the plan for the future?

Okay. Thank you for raising this question. Let me first take the first question. Like I said before, based on the more than 1-year price war of the new car market, it do actually impose a huge pressure on the used car market. So with continuous downward pressure of the new car price, we see that the users are quite reluctant to make their purchase. As a result, the used car market in China for several consecutive quarters continues to be sluggish. And you can see that the auto dealers, they are not very enthusiastic in their car purchase. Even though there are policy updates such as scrappage, however, as well as what you have observed from January to September of 2024, the cumulative trading volume of the used car only increased by 5.37%, which has greatly declined comparing with the same period of last year. Even though there are policy preferences, we do see that profitability of the automakers are not very good. We can see that the single car trading is still in losses. And we see that in September, the used car trading average price is only RMB 54,200, which is a drop of RMB 1,200 versus the same period of last year, and the strongest demand comes from the price range of RMB 50,000 to RMB 100,000. The profit margin of the auto dealers are greatly squeezed and their profitability cannot improve. So talking about the future, we see that actually for TTP, you can see that a lot of the car vehicle sources are actually rushing into the 4S dealership stores because next year, we expect that the new car price war will not end immediately, there will still be a big challenge for the used vehicle. So for TTP, actually, our previous strength is…

Our next question comes from the line of Brian Gong from Citi.

The management just mentioned about price war, which continues for the auto industry. So on this background, how does management think about OEMs as for the fourth quarter and for next year? And second question is about contract renew with dealers. And what's the biggest progress? And how does management think about the overall contract renew for this one?

Okay. Thank you for raising this question. The first one is about the OEM advertising budget as well as the outlook for the next year. We are already approaching Q4, which is actually the end of the year, and we see actually the sales performance of the OEMs also coming to the end. For those who are expected to keep the sales target, they will actually promote their terminals sales or directly subsidize consumers with their budgets so as to incentivize the transaction. But for those less well behaving or performing OEMs, they will actually cut their advertising budget. So generally speaking, the OEMs, they are very precautious about their advertising strategy. And we think that looking into next year, they will more reasonably balance their advertising budgeting as well as the price war subsidies. Next year this might get better, but it still depends. We will still see how they will perform after next year. As for the contract renew for the lead subscription package, actually, this will initiate at the end of the year and will last on to the first quarter of next year. From historical data, you can see that the contract renew of Autohome for lead subscription package has always been very stable. And present, Autohome has already covered most majority of the dealers on the market. which also shows the overall recognition of the dealers to our service as well as their reliance on our service. As one of our core service you can see that Autohome will continue to leverage on big data technology as well as better service quality so as to further empower the dealers and to further enhance the precision of the matchmaking, as well as the efficiency of the conversion. Well, at the same time, this year, we'll also continue to cooperate with Ping An Group to further provide more diversified instruments for our dealers so as to facilitate them to cope with the fierce market competition as well as the challenge on the profit margin. In terms of the progress of the contract renew, we will keep you updated about the latest progress.

There are no further questions at this time. I'll turn the conference back to the management for closing comments.

Thank you very much for joining us today. We appreciate your support and look forward to updating you on our next quarter conference call in a few months' time. In the meantime, please feel free to contact us if you have any further questions or comments. Thank you very much, everyone. Thank you. Bye-bye.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.