Good morning and good evening ladies and gentlemen. Thank you and welcome to Yunji Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Chen Chen, Chief Financial Officer; Mr. Hui Ma, Chief Strategy Officer and Chief People Officer; and Ms. Kaye Liu, Investor Relations Director of the company. I'll now turn the call over to the first speaker today, Ms. Kaye Liu, IRD of Yunji.

Hello everyone. Welcome to our second quarter 2019 earnings call. Before we start, please note that this call will contain forward-looking statements. These forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussion of these risks and uncertainties, please refer to our latest documents filed with U.S. SEC. Any forward-looking statements that we make on this call may based on assumptions as of today and we do not undertake any obligation to update these statements except as required under applicable laws. These forward-looking statements are based on management's current expectations observations that involve known and unknown risks, uncertainties, and other factors not under the company's control, which may cause actual results, performance, or achievement of the company to materially different from the results, performance, or expectations implied by these forward-looking statements. All forward-looking statement especially qualitied in the entirety by the cautionary statements, risk factors, and details of the company's filings with the SEC. Yunji undertakes no duty to revise or update any forward-looking statements for select events or to commensurate after the date of this conference call. With that, I would now turn over to Shanglue Xiao, Chairman and CEO of Yunji.

[Foreign Language] Hello everyone and welcome to Yunji's second quarter 2019 earnings call. We have made meaningful progress in extending our growth rate social e-commerce network around gross selling with social connections among our members, service managers, and brand suppliers. At the same time, we have struck a balance between quality and speed of care expansion, maintaining a disciplined approach in the sales and marketing and construct a solid foundation for sustainable growth. During the second quarter our GMV increased by 46.4% year-over-year to RMB8.2 billion, while our total revenue reached RMB3.07 billion. As of June 30, 2019, cumulative members increased by 19.5% to 10.8 million or 9.0 million as of March 31st, 2019. In the 12 months ended June 30, 2018, our transaction members increased by 125.1% year-over-year further demonstrating the activity of our platform. We achieved such healthy using growth rates mainly through executing our three strategies. First, allocating resources permanently and bring excessive promotions. Second, the fine production enhanced supply chain capabilities. And third, liberate social features and improve member benefits as well as service manager income. First, in pursuit of a healthy and value growth for the long haul, we will bring something to called intra-brand battle on [indiscernible] during the June 2018 online shopping campaign not only was industry-wide promotion during [indiscernible], they will also be flooded our platform with growth quality users who did not meet our criteria and may end up wasting our precious resource in Marketing & Services. In fact we focus our results on higher ROI activities, so that we can maximize our member benefits, promote our member engagement, strengthen our prior member user connections and deepen our member engagement, all in the most cost-effective manner, for example into sports anniversary promotions on May 16 proved to be highly effective as…

Thank you, Shanglue. Hello everyone. Before I go through our financial results with you, please note that all numbers stated in the following remarks are in RMB terms unless otherwise noted. In our revenues, our GMV increased by 46.4% year-over-year in the second quarter of 2019 to RMB8.2 billion from RMB5.6 billion in the same period of 2018. Our revenues in the second quarter of 2019 was RMB3 billion compared with RMB3.26 billion in the same period of 2018. Revenues from the net sales of merchandise was RMB2.73 billion accounting for 89.1% of our total revenues and decreasing by 8.7% in the same period of 2018. The year-over-year decrease in our quarterly revenues was due to the increasing of the launch of our marketplace business among merchants. Our marketplace business was launched in the first quarter of 2019 and in the second quarter generated a total of RMB53 million in revenues representing 1.9% of our total revenues. During the second quarter, we introduced more sales formats and that developed our marketplace business to meet the evolving demands of our members and users. Consequently, a portion of the revenues, which was previously generated from merchandise sales and recognized on gross basis shifted to being generated from marketplace model and recognized on a net basis. In the meantime, improvements to our product category and the value proposition creating a more user engagement and help to convert users into members. Importantly, this led to an increase in revenues from membership program, which partially offsets the decrease in revenue contribution from our merchandise sales. At the same time, the decrease in merchandise sales reduced the cost related to activities such as inventory write-down and the merchandise procurement. As we continue to implement our product mix upgrade strategy through improvements to our sales formats and…

Operator?

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Tina Long from Credit Suisse. Please ask your question.

[Foreign Language] Ivy Liu on behalf of Tina. [Foreign Language] I'll quickly translate myself. So I have two questions here. First is on GMV. Will the sequential growth rate be higher than this quarter's 21% given the seasonality in Q4 and will there be a spike? And second is can management share some user metrics such as order frequency and engagement level in this quarter and going forward? Thank you.

Thank you. So I will take this question. So GMV, our competitor GMV increased the rate. Now we are more focused on the healthy member growth and we are also focused on the user retention and the repurchase rate. So by doing that -- so first of all, we believe how GMV increased rates in both Q3 -- in Q3 will be a little bit higher than in Q2. And then in Q4 it will be further increased. And by doing that, we will enhance -- to achieve that goal, we will enhance our user retention and repurchase rates for members through a strategy of -- or still just to mention that by increased -- by cap rate curating products with price advantage to provide to our members and also by better developing private label products and exclusive products provided by brands and the factories and also by increasing the social interaction between our service managers with our members and users. So our goal is to increase our member values in which see there's a long-term goal. And in this quarter as you can see the GMV increased ratio is not higher than Q1. That is because in Q2, we think as our membership based social e-commerce company quality is the first priority for us. So in Q2, we eliminated around 300 brands out of GMV in Q2 and the 1P model. So these 300 brands, they can bring us revenue and also bring us profit. But due to the quality and the user satisfaction, it does not meet our standard. And so we eliminated them out. So this -- we believe this will benefit us in the long run, because we want to insist -- our target is to increase the value of our members. I think this is to your first question. So for your second question. So for the order -- the number of orders in Q2, we -- totally we have fulfilled our 55 million orders and the buy -- for the whole -- the first half year the total order fulfilled is close to 100 million. And as our member repurchase rate is 93%, so 93% of our members, they purchased once and the second times in the first half of the year.

Thank you. Thanks for the details.

Your next question comes from the line of Eddy Wang from Morgan Stanley. Please ask your question.

[Foreign Language] Good evening management. I have three questions. The first one here is related to the marketplace business. Actually in the second quarter we have witnessed that a proportion of the marketplace out of total GMV had been increased significantly. So what should we expect is the proportion of marketplace GMV in the second half of this year? And my second question is that the takeaway of the marketplace business is around that 2.4% in the second quarter. And you mentioned in the earnings release that you are trying to increase the conversion rates in the coming quarters so what kind of the take rate we should expect in the second half. And the third question is about the incentive to the service manager. If we compare with the marketplace model versus the 1P model sales of merchandise, so what -- is there any difference in terms of the incentive to your service manager?

Okay. Thanks. Eddy, I will take this take your questions and so for the first question, as you can see the marketplace GMV is around 25% of our total GMV in Q2, but it's hard for us to forecast this as a whole year the GMV allocation between the P model and the 1P model, because we will -- which model we choose to couple with is based on which model can bring to just both the supplier and our members more values. So our 1P model is still growing very well in Q2, because the 1P model is suitable for selling the high-margin products that requires communications. And this model can guarantee the quality of the products, customer service. But -- and sometimes our members still desire daily needs' products and a wide selection of the products so -- which can be covered by the marketplace model. So we want to balance the wide selection needs from our members and also to balance the high-margin products through the 1P model. So our target is to keep the 1P model at a stable increase rate and the -- but the subscription model increased faster than the 1P model. And also for the subscription model, we will still follow product curation, so that means in each product's categories under the marketplace model. Unlike the Tmall, JD or Pinduoduo, they will have a lot of the competitions. We will always select three to five brands in each category and we will replace the underperformer on a quarterly basis and eliminate them and find the new brands in our marketplace model. So we are committed to selecting and working with the best supplier as possible in the marketplace model. So that's our answer for the question one. So for the second question, for…

[Foreign Language]

[Operator Instructions] Your next question comes from the line of Andre Chang from JPMorgan. Please ask your question.

[Foreign Language] So I will translate by myself. I have two questions for the management. First is about the supply chain restructuring. Management mentioned about the shift from the 1P model to 3P model. I'd like to know whether most of the transition has been done or there will be more to come. And also management talked about the elimination of some less-good quality products. I'd like to know the process is done as well or, again, there will be some more impact in the second half and the proposed issue, will that impact the margins in second half or not? And my second question is about the private label products. How's the progress and exposure in second quarter? And what's the outlook in the second half? Thank you.

Okay. Thank you, Andre. For your first questions, we started to shift to the 1P model, some brands under the 1P model to 3P model in Q2 and we believe we still need some time to complete the transaction. And going forward, we think we will not force brands under this model to 3P model. But we will -- for the new brands come to us to want to sell products on Yunji, we will judge if they are more suitable under the 1P model or 3P model. So, we see itself it's a continuous improvement process. But for the margin because as you can see the take rate for the 3P model is around 2.5% in Q2 and this is a net margin after deducting the cost of products and the fulfillment cost and the customer service cost. So, if we look at the operating margin level, we believe going forward is the 3P model. Operating margin will not be lower than the 1P model. So, we think the transfer will not impact our -- will not negatively impact our operating level margin. Going forward, we will put more high-margin products under the 1P model like the -- our own branded products and the products from the emerging brands like the several ODM or OEM manufacturers. If they can create some brands for Yunji, we will take them in the 1P model because they have higher margin and we can negotiate the production volume with these factories. So, we want to -- if the products we can ensure, we can sell them in a short time and can get to the higher margin, we will prefer to put them under the 1P model. But if the products, the brands, they sell the products not exclusively on Yunji, they sell the similar products on both Tmall or JD or Pinduoduo, normally we'll ask them to operate under the solution model because we will not guarantee any inventory risk for them. So, that's how we will differentiate this 1P model and this 3P model. So, for your third question, the progress of our private label products. So, in Q1 our high-margin private label products, the percentage to the total GMV is around 14%. But in Q2, the rate is decreased to 12% such as because we will still do some product selection. As I just mentioned, we eliminated around 300 brands out of Yunji in Q2. Part of them are -- was a high margin and within the scope of the emerging brands, although they can bring us the profits. But there's a feedback from our members is not good, so we still eliminate them out of Yunji. But as our CEO just stated, our focus in next quarters or maybe next year is still to increase the brands we coupled with under our own brands, the emerging brands of our products. So we believe the percentage of the -- such products will increase gradually quarter-by-quarter.

[Operator Instructions] There are no further questions at this time. I would like to hand the conference back to today's presenters. Please continue.

Thank you for joining our call. We're looking forward to speaking with everyone next quarter. Thanks.

Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may now disconnect.