Good day, and welcome to the Cango Incorporated Fourth Quarter and Full Year 2018 Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference call over to Lin Jiayuan. Please go ahead.

[Foreign Language] Hello, everyone. Welcome to our fourth quarter and full year 2018 conference call. In the fourth quarter of 2018, new vehicle sales in China continued its slide due to macroeconomic uncertainties. Car sales for the full year 2018 fell by 4%, marking the first annual decrease in the last two decades. Despite the unprecedented industry slump, we achieved a sequential quarterly revenue increase of 12.4% during the fourth quarter of 2018 to 326 -- RMB 320.6 million and annual revenue growth of 3.7% for the full year 2018 to RMB 1.09 billion. Our aftermarket services facilitation business, particularly our insurance facilitation business, remains a key growth driver and has contributed to 13.4% of our total revenue in the fourth quarter. Our growth is a result of our effort to strengthen our core competency in auto loan facilitation services, expand our dealership network, improve our service quality, accelerate our aftermarket services development and deepen our collaboration with strategic partners. Now, I would like to share with you details of our fourth quarter results and our growth prospects in the following 3 segments: core auto loan facilitation business, aftermarket services and new initiatives. First, our auto loan facilitation business continued to deliver solid results. Although the Chinese auto market declined in 2018, we were able to boost our competitiveness as we channeled our efforts to enrich and optimize our product and services. During the quarter, we facilitated over 100,000 auto loan transactions, an increase of 13.2% from the previous quarter. At the same time, we continued our efforts to expand and deepen our dealership network. As of the end of 2018, we have more than 46,000 registered dealers in 353 cities, representing a sequential growth in dealership base from the previous quarter. In the fourth quarter, we also further diversified…

Thank you, Jiayuan, and hello everyone. Before I begin, please note that unless otherwise stated, all numbers are in RMB and all comparators are on a year-over-year basis. As Jiayuan mentioned earlier, we continued to deliver healthy, sequential growth in the fourth quarter of 2018, despite a stagnating auto transaction market and a challenging macroeconomic environment in China. Revenue in the fourth quarter of 2018 was RMB 321.1 million, representing an increase of 3.2% from RMB 311.3 million in the same period of last year, also a 12.6% increase from RMB 285.2 million in the third quarter of 2018. Our total revenue for the full year of 2018 was RMB 1,091.4 million, up 3.7% from last year. Such growth was driven by the solid performance of our aftermarket service facilitation business as its revenue in the fourth quarter of 2018 increased to RMB 43 million from RMB 39 million in the third quarter of 2018. Cost of revenue in the fourth quarter of 2018 was RMB 158.8 million. As a percentage of total revenue, cost of revenue in the fourth quarter of 2018 increased to 49.4% from 47.6% in the same period of last year. The increase was due to a high average amount of commission paid to dealers in each financing transaction. Sales and marketing expenses in the fourth quarter of 2018 decreased by 17.8% to RMB 47 million from RMB 57.1 million in the same period last year. As a percentage of total revenue, sales and marketing expenses in the fourth quarter of 2018 decreased to 14.6% from 18.3% in the same period of last year. The higher sales and marketing expenses in the fourth quarter of 2017 was primarily due to high amount of year-end bonus to our sales staff as they met performance targets in 2017.…

[Operator Instructions] The first question we have will come from Michael Li of Bank of America.

[Foreign Language] I'm from Bank of America Merrill Lynch. My name is Michael Li. I have two questions. The first question is about asset quality. So we see that asset quality in some consumer loans deteriorated in the past 3 months. So, we'd like to know whether Cango also sees the trend of asset quality deterioration in car loans, and also, if any more details in terms of geography and the type of cost. The second question is about the fee ratios. Those banks pay to Cango and Cango pays to those dealers.

[Foreign Language] I will take your first question. Well, first of all, in terms of NPL ratio, our NPL ratio has always been maintained at a stable rate. And despite the changes in the sales of cars in the market, in fact, our expected rate remains basically the same, both in terms of geographical distribution as well as the car types. And to answer your second question, in fact, the service fees from the banks, and that is the take rate, has remained stable at Cango. And in fact, the take rate from Shanghai Bank and ICBC are relatively higher due to their lower cost of capital. And in terms of our service fees paid to the dealers; that is the commission rates, because of intensifying market competition, the commission rate has, to some extent, been pushed out. However, we started to remain stable as we continue to expand our dealership network. One point that I would like to emphasize is that we do not compete on prices to get access to dealerships -- to dealers. In fact, we focus on developing a full range of services for the dealers to improve their capabilities, including financing sales services and supply chain financing services, et cetera.

[Foreign Language] Michael, I would like to add a few points to the answer to the first question. That is the question on overdue rate and the back-down rate. Well, in terms of overdue rates, in fact, Cango has spent a lot of efforts to improve loan servicing and also collection. And for example, we have also invested to improve our tele collection services. Over the past quarters, you can see that in terms of our metrics, for example, like M1+, which is 30-day overdue ratio, it has dropped in the last couple of quarters. And also, we think it's particularly important for us to improve the loan servicing capabilities to manage the back-down ratio, including M1+ and M3+ metrics. And another point about M3+, that is the 90-day overdue rate, is if you see -- if you can look at the numbers, you will see that it has also been maintained at a stable level.

Next, we have Lucy Li of Goldman Sachs.

[Foreign Language] So I'll briefly translate my question. So my question is on the collaborating banks. Firstly, is it possible to provide the names of the major collaborating bank? And also related to that, the regulation on -- regarding the local commercial banks, in that their loans cannot breach their original versions, is there any consequences or any impact to our business model? And secondly, we know that the collaboration with ICBC has already started. Can we just get a sense what's the kind of contribution ICBC has made in the past quarter and then how ICBC is going to help our business in 2019 and 2020?

[Foreign Language] Thank you, Lucy. I will take your first question first. Well, in terms of our partnership banks, as of the end of 2018, that is as of December 31, 2018, Cango has established partnerships with 12 banks. While in terms of the capital structure, we saw slight changes since Q4. Well, to be more specific, the Jincheng Bank and also Jiangnan Rural Commercial Bank remain more or less the same, and the WeBank went by state -- went on by state and also Shanghai Bank and ICBC are up a little bit. In terms of our partnership model, it remained the same. In fact, we still provide the loan facilitation services to our funding banks. And earlier, you asked about a question that is the some local commercial banks are no longer allowed to grant loans outside their geographical coverage. Well, in terms of the impact on our operation, my answer is there is no impact on Cango because our partnership banks, for example, ICBC, it is already a national joint-stock bank, and so there is no impact on ICBC. In terms of Jiangnan Bank, it is, as emphasized, a rural and commercial bank. So in terms of the regulations impact on Jiangnan Bank, while Jiangnan Bank can follow the practices allowed for the joint-stock banks. So again, on Jiangnan Bank, there is no impact. WeBank, in fact, is an Internet bank, so there are -- it is also beyond the restrictions. And in terms of Shanghai Bank, no impact as well. And Jincheng Bank, it has already filed its documentation with the regulators, and it is allowed to carry out its business across the country. To answer your second question, or the question on the contribution by ICBC to our business. Well, we, Cango, is the first company that has reached agreement with ICBC to interface with ICBC's new system. And as you probably understand, it takes time to complete the interface. And in Q4, we started negotiating with the OEMs so that we can reach an agreement with these partners and -- so that we can create, customize and subsidize this product for our customers. So again, it takes time for this business to further develop. In January 2019, we already have started the business cooperation with Honda, Dongfeng and Mazda, and we have launched our products in their ForEx stores. And this month, we are also going to launch our products together with Jaguar Land Rover.

We'll go ahead and proceed to our next question and that'll come from Eddy Wang of Morgan Stanley.

[Foreign Language] My question is regarding about the auto demand in lower-tier cities. If you look at the first quarter, I think it's quite a mixed bag. So basically, in the first 2 months, the retail demand is quite resilient, but in the March, maybe due to the Chinese New Year impact, the demand seems to be a little bit weak. So how do you think the demand will be in the second quarter and the second half of this year? Do you expect that there will be some strong recovery in the second half of this year and especially in terms of the demand of the lower-tier cities?

[Foreign Language] To answer your question, well, in Q4 2018, we did see a 15% drop year-on-year. Though, as you said, in January this year, the auto market did see a certain degree of rebound. However, in the longer term, we are not so optimistic about the auto market in 2019. Of course, the car sales in 2019 could be better than that of 2018, but we expect the sales volume to be flat in 2019. And also, in the next few years, we expect the auto industry participants to continue to make structural adjustments in their business and to improve the sales of their stock as well as their -- to increase their future sales. So, we expect the whole industry to continue to optimize the structure -- to restructure itself. And that refers to all parts of the auto industry including manufacturing, marketing, financing, insurance services and aftermarket services. So, I think for participants in the industry, we will only be able to survive and grow in the future if we can find opportunities to increase our sales in this transformation of the whole industry. And also to answer your question about the development in the lower-tiered cities, well, in fact, we cannot use one-size-fits-all description to cover all these cities. For these cities, they are kind of in very different situations. And for lower-tiered cities that have enjoyed good economic development. In fact, the car sales are picking up, though the contribution by domestic OEMs is going down slightly. And for those cities that do not have -- do not enjoy good economic prosperity, we are not so optimistic about the 2019 performance. So, that's all from me.

[Operator Instructions] At this time, we will go ahead and conclude today's question-and-answer session. I would now like to turn the conference back over to management for any closing remarks.

Thank you, everyone. Thank you for your time, and we hope to see you next quarter. Thank you very much.

Thank you.

And we thank you sir and to the rest of the management for your time also today. The conference call is now concluded. At this time, you may disconnect your lines. Thank you. Take care. And have a great day.