Earnings Call: H2 2017

Mar 22, 2018

Distinguished investors, analysts, and friends from the capital market, good morning. Welcome to the 2017 annual results announcement of Zhou Hei Ya International Holdings Company Limited. Firstly, please allow me to briefly tell you our directors present today. Founder of Zhou Hei Ya, Chairman of the Board, Mr. Zhou Fuyu. Chief Executive Officer and President of Zhou Hei Ya, Mr. Hao Lixiao. Chief Financial Officer of Zhou Hei Ya, Ms. Tong Ying Xiang. I am Ling Zhao Han, the Investment and Financing Director. In the first part, let's welcome Mr. Hao to brief you our results in 2017. Welcome. I would like to walk you through our highlights for the year 2017. In 2017, consumption upgrade and new retail innovation have become the main keynote of the company. Actively responding to the changes, we also grasped opportunities to combine the online and offline markets to center on consumer experience in order to deploy the membership system and the big data system. Just like many consumer goods companies, we are also faced with a number of challenges, including raw material, human capital, and rental costs, et cetera. Neglecting all the difficulties, we are still heading forward. Centering on the new keynotes of consumption upgrade and new retail in 2017, our strategies are centered on six aspects. Firstly, we continued to enhance our strategic geographical location and continued to expand our network. Secondly, we improved the production efficiency. Thirdly, we innovated our technologies and our new products have a very promising market size. Besides, we also strategically established our membership system and hope to use the membership system and big data technology to have precise customer portrait in order to achieve targeted marketing. In terms of brand construction, we also continued to deepen our entertainment strategy and improved our efficiency. For the online channels, we also actively expanded our channels. Next part, I will talk about our key indicators. In 2017, total revenue recorded CNY 3.249 billion, up by 15%. Gross profit, CNY 1.98 billion, up by 12.8%. Profit before tax recorded a Y-O-Y increase of 3.7%, net profit up by 6%, and adjusted net profit was up by 4.8%. As of December 31, 2017, the directly operated store of Zhou Hei Ya increased from 778 to 1,027, up by 32%, and total sales also recorded an increase of 19.2%, whereas our net purchasing price per order also increased 2.06%. In the second part, I would also like to give you more about our financial performances. In 2017, total revenue was CNY 3.249 billion, up by 15.4%. It was mainly attributable to the continued expansion of our offline stores and our sales in online channels and delivery platforms. Our gross profit also grew by 12.8%, while our net profit margin recorded a slight decrease. It was mainly because we enhanced our marketing, increased benefits for membership. Therefore, we had a small adjustment in terms of the average price. The profit before tax was CNY 999 million, up by 3.7%. The net profit also recorded an increase of 6.4%, but the profit margin was lower by a bit. It was mainly because we invested a lot more in terms of the marketing part. Therefore, we had a larger sales and distribution expenditure. You can clearly see from this diagram that our sales channels recorded structural changes, and we had an increasing portion contributed by the delivery part. The delivery part contribution in the revenue increased from 2.5% in 2016 to 8.7% in 2017. In the meantime, we continued to expand our actual physical stores. By the end of 2017, our self-operated stores have already covered 15 provinces and 60 cities all around China, increasing the penetration of the company. Our selling and distribution revenue expenditure was CNY 948 million, up by 35%. It was mainly because we had a significant increase in several platforms and our delivery channels. In the meantime, we also invested a lot more in terms of advertisement. The rental and remuneration for the sales personnel also increased. In the third part, I would like to give you more insights about our business. We were definitely loved by the younger generation, and it was definitely rooted in our understanding of this industry. In 2017, we saw a positive trend in the consumption market with a higher per capita disposable income. It is expected that the braised food industry will exceed CNY 100 billion, and the crayfish market also have a larger market in the future. In the meantime, we think that the retail malls will continue to change with the consumption upgrade background, and Zhou Hei Ya will also adjust itself according to the trend and try to make ourself a sustainable, century-old, leisure-based food industry company. We also continue to expand our self-operated stores. We continued to penetrate in the current markets and also started to enter the new regions. We newly opened 313 self-operated stores, closed 64 ones, resulting in a net opening store number of 249. We newly entered two provinces, including Shandong and Anhui, and 17 new cities. By the end of 2016, our 1,027 direct operator stores are covering 15 provinces and 16 cities. In 2017, we strengthened the development in the Eastern China region, and the revenue grew by over 60%. Its share in the self-operated store revenue also increased to 13%, while as for the Northern China region, it also recorded an increase of revenue of 32%. The self-operated store revenue also increased to 9.7%. In the meantime, the contribution from the Middle China region recorded a smaller decrease. Transportation hub stores continued to be the key importance of the company. In 2017, we cooperated with Shanghai Metro and opened around 40 railway and metro stores. By the end of 2017, we have in total 300 transportation hub stores, contributing over 40% to the total revenue. By the end of 2017, in Wuhan, for every million per population, they will have 20 self-operated stores of Zhou Hei Ya, and we have entered more first-tier and second-tier cities and in over 200 airports, Zhou Hei Ya only penetrated in 14 of them. So we will continue to penetrate these transportation hubs. In 2018, we will continue to enhance our capacity, improve the efficiency, as well as our product quality. Currently, phase one Wuhan facility is undergoing an automation upgrade, and it is expected it will restore the production by the end of 2018. Our Northern China and Southern China industrial parks are expected to enter into production in 2018 and 2019. We are also planning the Eastern China and the Southwestern China region facilities. We will continue to implement our five major region capacity strategy and continue to improve our cost efficiency. In terms of product innovation, we continue to develop all kinds of products. According to the industrial report by the Ministry of Agriculture of China, the crayfish market has a huge potential, with over CNY 140 billion market cap. in May 2017, through a thorough market investigation and a consumer survey, we entered the crayfish market. With our technological innovation, we break through major barriers, for example, for the storage and the seasonal limitations. We hope that the crayfish sector can contribute furthermore in the future for us. Another important strategy in 2017 is to establish the membership system. With our e-membership cards, we combined it with the mobile payment technologies and the big data technology to have a clear customer portrait. Through the big data analysis, we attacked our consumers differently in order to achieve targeted marketing for different target groups. With the online and the offline combination, we enhanced our membership stickiness and increased the repeat purchase rate. In 2017, we continued to invest more in the branding and marketing construction. We had e-membership on both WeChat and Alipay. We attracted over 8 million new registered users in 2017. In the meantime, we also strengthened the scenario marketing. We launched the youth gift sets and several other gift sets to attract more consumers to participate in the consumption. In 2017, we increased two new Zhou Hei Ya high-speed railway. Centering on Wuhan, we also had a lot more advertisements in different parts of China, including the Citigroup Tower in Shanghai Pudong, the Canton Tower, Zhongguancun in Beijing, Jiefangbei in Chongqing, Coastal City in Shenzhen, and Inchin Plaza in Chengdu. All of these have increased our brand profile. In 2017, we also continued to have in-depth cooperation with e-commerce and the delivery platforms. Through the exploration of new retail modes, we integrated our online and offline channels and created all kinds of scenario channels. We achieved double growth in both e-commerce and delivery businesses. In 2017, e-commerce revenue reached CNY 340 million, up by 30%, while the delivery services also recorded fast development. By the end of 2017, Zhou Hei Ya was on shelf on five mainstream delivery platforms in China. We are providing Delivery services in over 55 cities. Delivery service has become a new mode of lifestyle, and it has huge potential. The last part, I would like to give you an outlook for 2018. 2018 presents both opportunities and challenges to Zhou Hei Ya. With the ever-changing market, we'll continue to pursue further our development policies. Number 1, we'll continue to penetrate the current markets and strategically expand to new regions. Secondly, we will deepen our technological innovation and product creations. Thirdly, we will continue to use big data to enhance our membership benefits. Number 4, we will continue to attract our new consumer groups to lead a more convenient and marketized lifestyle. Number 5, we will continue to enhance the industrial resources integration. Lastly, we will continue to solicit more talents. In the future, Zhou Hei Ya is faced with even more complicated internal and external challenges. While grasping all the new opportunities, we hope to reward you with the best performance. I believe that with our concerted efforts, Zhou Hei Ya will continue to become a best leisure food company. Thank you. Thank you, Mr. Hao, for your presentation. We will now have the Q&A session. Should you have any questions, please raise your hand. Thank you, management. Dustin from Morgan Stanley. In the results announcement, most of you did not really want to mention the short-term objectives, and you talked about the broader pictures. I hope you to put it more specific. My number 1 question is, the sales revenue growth was relatively slow in 2017. You stressed that this is trying to laying a good foundation for the future, but currently, we are seeing more capacity from your company, the 2.0 version of crayfish products having well-received by the consumer. So for 2018 and 2019, will you have faster sales growth? Second question is that, looking back in the past 2 years, what kind of aspects should we improve on, and what are we currently improving? My last question is, currently, the incentives for employees, will you have further improvements? For example, we see a lot of growth in O2O and delivery businesses. Are these related personnel's performance correlated with their salary? Will you provide new incentives for them to try to help you enhance these kind of businesses? We think whether option incentive will be an appropriate way to inspire your management. Thank you. Mr. Zhou and I will answer your question. We could say that in 2017, the sales growth was relatively slow comparing to the past few years. We always think that currently, we are undergoing a transformation period. This is not a transformation internally, but rather the overall market. The broad picture in the industry are quite different from that several years ago and before IPO. Before IPO, we are a local brand, but after IPO, we have received better reputation in the market, and we also have more capital. Therefore, we are looking at a much broader market. Through the analysis, you could see that in 2017, the contribution of Central China part contributed a smaller part to the total revenue. This means that we are balancing the 5 regions in China, and this means that the other regions are also having more momentum for growth. We hope that as investors, you could see the future growth opportunities for the company, because we are actually developing at a relatively medium stage, and our growth could not be as fast as the speed when we had, when we were just a young company. We hope you could see our continued efforts to boosting our sales. In 2018, we will see increase in sales revenue, and we will maintain a stable growth rate. We hope you to see that Zhou Hei Ya will have a healthy growth. But today, I cannot give you a concrete number. I cannot give you a very precise prediction, but I do want to make you feel confident, because we have adopted various measures to boost our sales. We always say that Zhou Hei Ya is heading to the retail consumption good brand. But you should know that before Zhou Hei Ya, it is quite difficult to change from a local food company to a retail company, and it is difficult to make such transition. It is rarely to see some companies like us, so I hope you could allow us more time. We are having a very healthy development and positive growth rates. Looking back, there are some places where we should have done better. We think we should invest in big data even earlier. But of course, it is still not too late to invest in big data. We still could catch up with the trend. So we should do more in order to catch up with the other companies. Because you must be curious, a traditional company like us, why should we always talk about the new technologies like big data? But for us, although we have traditional processes, still, we need the new technologies to adapt to the changes in the new market and new retail modes, et cetera. With big data, we can integrate different channels and platforms so that we could achieve furthermore development. We are always thinking, how can we adapt to the new retail trend? And what we are thinking is that we should recover what we haven't done in the past few years. Because in the past year, we are investing a lot more in the market. We think it is an investment. It is not a one-time transaction, but rather it is paving ways for our future developments in 3 to 5 or even 5 to 10 years. So we hope that you could be just as confident as us and make us assured that we could continue to invest to provide long-term returns for you. And on your third question about the incentives. Our incentives are just like what our analyst just said. We do not require the staff to see the current profit. We are looking at the membership number, the number of members, the number of new users. We are not targeting at the sales revenue or the sales profit, but rather we're looking at the membership number. For the crayfish, Mr. Zhou always said that we should make people wanting for more after trying one and another boxes of Little Crab crayfish. We want to achieve a long-term interest in our brand and products. We are thinking about in which scenarios will the consumers want to eat our crayfish food, and we are thinking about how to let these people buy more of our products. And we are updating our crayfish product all the time. Today, we also brought some of our new crayfish product called Little Refresher, Xiao Qin Xin, and we hope it is specifically targeted at the female consumers because according to our market survey, the female consumers contribute to an important part to our total revenue. So we are centering on the consumer experience and we are looking at the customer feedback in order to provide best consumption experience instead of only looking at the sales revenue. It's just like when we emerged from the market. At that time, we didn't really look at how many profit we should obtain from one duck, but rather about the consumer experience. And today, although we are exploring for the new categories, we still want to replicate our previous successful stories in order to create new successes for our new categories, and we are very confident. Next question. Lydia from Citibank. I have three questions. Number one, about our historical data from our sales. Last year, the profit was in our expectation, but for us, in the second interim, the e-commerce revenue profit is only 15%. Although you have a large investment in e-commerce platforms, why do we have such a slowdown in the profit of the e-commerce sector? And, Mr. Hao mentioned that you want to have a stable growth. Can you define the stable performance, or can you give us a range for such stable growth? My second question is about crayfish. For the new crayfish products, you had pre-sale before the Spring Festival, but after that, we didn't see further sales. Still, we have a lot of consumers who really like this product. We want to ask, when will you fully start the selling of the crayfish products? For this year, what is the expectation for your sales in crayfish? After launching the new crayfish products, what kind of feedback have we received, and where do we need to improve on the products? My third question is about the Tiantu investment, Tiantu fund we've just formulated. Can you share with us, in which regions, in which areas will you invest in the future with the fund? Thank you very much for your questions. In our e-commerce segment, we used a single industry indicator to evaluate it. We think that e-commerce platforms are only one of the ways of our distribution. You could say that delivery service can also be defined as e-commerce sales. There are different ways to judge the performance of the online businesses. Last year, we had adjustments in the delivery services, and we are seeing a growing trend in the delivery part. Secondly, what is a stable growth? We will maintain our sales as the level of last year, and we will maintain the similar growth rate in 2017. After the launch of crayfish, it was never off shelf. We are just controlling the quantity because we don't have enough inventory. It is not because of the technology, but because of the inventory. Last year in the announcement, we've said that the way to assess whether we have good technology to produce the crayfish is whether we could launch the crayfish product by Spring Festival. We've told investors, if we could successfully launch the product before Spring Festival, then it means that we have breakthrough the technological barrier. In the beginning of 2018, we've already launched the crayfish products, and it is currently on the market. As for the feedback, we do have both ways. Most people liked our products. Therefore, today we also brought our products to let you have a bite. Maybe you can also provide us more feedback. We developed crayfish with a clear strategy that is to have small steps and have continued upgrades. People are wanting more and more because we are always improving on our recipe and the product. If you have tried our crayfish before, you can also have a bite on our crayfish today to compare them. We want to, through trials and errors, to find the best flavors that are the most welcomed by the investors. Next year, with our technological improvements, the next year we will even have better products. In terms of the sales, we think there will be several times growth comparing to that of 2017. Of course, it will depends on more feedback from the consumers, because only with more data can we understand the behavior of the consumers. We're still very confident about the crayfish market, because in China, crayfish is a much-loved product by the consumers, and it is also an industry much valued by the government. Currently in China, in many production bases, for example, in Jiangxi, Sichuan, and the Hunan provinces, local governments are valuing the crayfish market. When we start to harvest, when we harvested the first batch of crayfishes last year, with just a small amount of land, people have generated a revenue of several hundred thousand CNY. So it is an industry with huge profit potential. That is why people are so interested in it. We established a new fund, and we attach great importance to the capital of the investors. We think that we are not the expert in M&A, therefore, we want to cooperate with more professionals in order to make better moves. Therefore, we established the fund to cultivate the future business opportunities, and especially we would like to cultivate our talent. We want to be more responsible for our investors so that every bit of your money could generate returns. We do not hope that the investors' money will just go in vain. Thank you. UBS, next question. Morning management. I am from UBS, Peng Yanyan. Several financial questions. I would like to ask that in your selling and distribution expenses, what is the others category? Can you define the others category? Because the others category also recorded a significant increase comparing to last year. What are the drivers behind it? Question number two. Mr. Hao gave us a very good remark about your investment in big data and IT. A few more concrete questions. Number one, in the IT investment, what kind of investments have you made? So what kind of investments have you made in terms of big data, and how much have you spent on IT? Could you please share with us your expenditure in 2017 and your projection for the future? Because according to my understanding, IT costs a lot to invest. Secondly, is the contribution from members in 2017 and its projection for the future. I will answer your first question about the others category in selling and distribution expenses. We have defined several categories, including the advertisements. It increased a lot, and the online business and delivery services also recorded a growth. The others category was increased from 575 to 948 million CNY. It was mainly because of rental and salaries to people. We have over 1,000 stores in 2017, so we have a lot more rentals. Another thing is for the sales personnel, we employed a lot more employees in sales. That is why we also recorded a growth. They accounted for around one-third of the selling and distribution expenses. The growth rate is relatively higher than the growth rate of the revenue. It was mainly because we are opening many new stores, and in 2017, we opened over 300 new stores, and the net newly opened stores is around 200 stores. We still need some time for these companies to launch their full potential. But in the meantime, the increased rentals and the sales personnel salaries will need more expenses. I will answer the other two questions. For the IT investment, we do attach great importance to it. Currently, with the technological upgrade and the changes of consumer habits, we have to pay a lot more attention to informatization. Last year, we invested in the SAP software, and in the future, we will continue to invest more. SAP is just an infrastructure project. In order to channel the online and offline sales, we will need to invest. The other thing you mentioned, you have to spend a lot in informatization. Of course, we need to spend money, just like if we want to explore the crayfish market, we also need to invest much. How much will we spend? It is ever-changing. The cost is ever-changing. In China, we are experiencing the information boom. No matter for Alibaba and Tencent, they are always upgrading their technologies. So we cannot really give you an accurate prediction of the future. For our expenditure last year, I am not sure whether we have it in our previous disclosure. Secondly, on our membership part. From the time when we started our membership system, the repeat purchase rate recorded a double-digit growth. Last year, we invested more in memberships. In 2018, we will continue to invest more in the membership system. It is because we found that around 60%-70% or more of our consumers are the millennium generation. They have totally different economic styles comparing to those born after the 1980s or those born after the 1970s. So they like to spend money and they have different consumer behaviors. Therefore, in 2018, we will continue to invest in membership system and use the big data to calculate their priorities and preferences. As for the contribution from the members, it is a relatively high proportion. Lincoln from Goldman Sachs. Number one question, you mentioned you will continue to invest in membership system. Can you brief us more about the such investment? Because previously you have also spent a lot in the membership system. As a leisure food company, we have after this 8 or 10 million members in the future. In addition to getting feedback from the members, what other advantages can we generate from such a big number of members? Because we are always investing many resources in membership system construction. In the future, will we use more measures like giving more discounts to attract more members in the future? Second question is about the profitability, because last year the profit margin recorded a slight decrease. I know it is because of more investments in the marketing part, but in the long term, what is your projection for the profit margin? Especially currently, you see we saw a huge growth in the online platforms and delivery platforms. Will the net profit margin from these two segments be different from the overall rate? Last question is that we are opening many more stores in 2017 with more production facilities in place in 2018. What is our projection for 2018? We have a lot more members in 2017. We hope there will also be a double-digit growth in 2018. Of course, in 2017, most of the marketing campaigns are targeting the members, and in 2018, the same trend will sustain. You will find that for the growth of the profit margin, if we can ensure the stickiness of the consumers, we will be able to increase the net profit margin. We will continue to boost the repeat purchase rate of the members, and we are currently conducting a lot more marketing campaigns to target at the repeat purchase rate. With the new stores, we will explore new markets and invest more in these regions and markets in terms of the market and the membership system. With the new facilities, we will center on these facilities and open new stores around these facilities. Thank you. Kevin from JP Morgan. Two quick questions. Number one is a follow-up question. Your e-commerce sector accounts for 20% of the total revenue. What is the projection for the next year? Will it be 25% or 30%? Number two is for Chairman Zhou. If we only look at the future two years in terms of the new categories, will you explore new categories in the braised food sector, or will you explore the other kinds of foods or the other kinds of sales modes? Will it be correlated to Tiantu or just because of your own creations? What are our expectations for the future two years? Thank you. For the categories, we will cooperate with our partner, Tiantu, to select the products that our consumers may like. We will continue to deeply explore the crayfish market because it is just a newly launched product. Currently, the feedback we have received are well within our expectation. Targeting at different groups, we are making different estimations. For example, the crayfish we brought here today, it is specially designed for the female consumers. It is with the vegetable source. When we created the product, we are thinking of targeting at the young females. These consumers will see what kind of other products they will like. I'm not sure whether you have tried our little crayfish. In Zhou Hei Ya, we have a focus group to have numerous surveys to find. They found that when the consumers consume the crayfish, they also need some beverage. So we've also done related survey in the beverage part. We will continue to try to explore new opportunities for beverage to go with the crayfish products. In terms of e-commerce platforms, we will maintain the growth rate of 2017. Thank you. From Credit Suisse. I have two questions. Number one, about our pricing as ASP. We see that the pricing the second half is relatively similar to that of the first half. Is it a trend that in the future we will have stable ASP price, or you will have further discounts which will affect the ASP price? Number two question is that, in addition, except for the Central China part, we saw the price are dropping in terms of the other markets. In the future, with more production capability and with better product experience, will that be a different trend? Thank you for your question. For the pricing, we think in the future, we will maintain the current level. The other people also asked about our membership investment. We will invest a lot in the membership system. It will not only be limited to discounts, but we will also have the other campaigns. For example, we will create user communities who will have deep experience scenarios created for the consumers. Because according to our understanding, people buy Zhou Hei Ya products not only because of the taste, but rather because of the lifestyle promoted by the brand. Although it is a very vague word, we still need a lot more campaigns to create this kind of experience. For example, last year, we selected many members to have a Bali travel trip. Every year, we will have this kind of marketing campaigns to interact with our users. We will also invite our customers to come to our production facilities to have an experience tour. The focus group mentioned by Mr. Zhou was those groups that will go to the key regions to talk to our major customers and to know more about their appetites. Lastly, we would like to tell you that we are not hoping to offer more discounts, but rather adjusting the product portfolio in the future. But the trend is a stabilizing one. Secondly, about the same-store growth, I still want to say that we believe in the future, in addition to the current experience, we would like to tell you that except for buying the products, we will also sell the other extended services. It is actually quite confidential, but I still want to tell you that if you look at the Zhou Hei Ya stores, you need to see the polymer effect. You cannot only look at one single store. It is various in terms of the traffic of one single store, but if you have a look at the region formed by several stores with the polymer effect, you can see that it is rather more stable. I have talked about one curve. It is not a consecutive line, but rather it is going up for a period and stabilizing for a period. So we need to grow for some time and then consolidate our previous growth. Such consolidation will be achieved through our experience, our experience improvements, and our store details improvements. Details actually need some time to generate real results. So you will find that with our continued communications, we have always stressed a few keywords, and we are always doing the same things. I would like to call on all of you to give us more time and more of your patience to see the true results. Thank you. I want to add that the reason why we value our online businesses and our membership system is that we want to achieve an integration of both channels. We want to attract traffic both ways. We hope the two channels to bring more traffic to each other, and we want to break through the original model of only offline channels. We want the offline customers to place orders online. It suits the needs of the millennium generation well, because these consumers, previously, if they want to buy Zhou Hei Ya, they will go to the store. But currently, their need is to just order it online to get it instantly without going to the store by themselves. Therefore, we do recognize this trend. We encourage them to do both ways. We hope that they could choose by themselves and have better customer experience. Online path is just a traffic attraction way. It is just like WeChat. WeChat is an online community that can attract more people and attract people to use WeChat to pay their bills. For us, it is the same thing. We want the online channels to bring more traffic to the offline stores, while the offline stores will center on customer experience. Currently, the stores we are creating are called the warehouse-like stores. We hope the customers could purchase the products better in the offline channels. So our two channels are supplementary to each other. Thank you, management. Question one is about the pricing. In the second half, we saw a stabilizing trend in the price. I would like to ask that in 2017, we saw a decline in the price, 3% decline. How much of them are attributable to the increase of members, and how much of them are for the increasing stickiness of the consumers? Secondly, Mr. Hao mentioned that in the future, you will have more campaign ways instead of only offering the discounts. Can we understand that ASP will be stabilizing, but A&P will record a slight increase, right? Question number two, I saw in your annual report that your Guangdong facility will only be available in 2019. But previously, we understand that it will be open by the end of 2018. What is the reason for the delay? The third question is for the incentive for the management. Of course, we understand that you are looking at the long-term prospect of the company. Will you have stock options and the other incentives preparation for the management? The last question, you mentioned that you are building up a customer relations system. The CRM system. How would you manage the customers' relations in the future, and what have you done in this part? The Guangdong facility will be put into operation by the end of 2018, if it is quite smoothly operated. The delay is actually because our plan was made according to the normal situations, but we cannot control the government approval process. That is why we have such a delay. Secondly, in terms of option incentive, we think that stock option are just like cash. Without good option incentive, currently, we are using cash incentives. For our marketing department, we have large regions, and they will have competitions. We are investing in terms of such competition, and in order to have better talents, we are also eliminating those who are not capable enough. Mr. Hao will answer your other questions. You asked that there is a decline of 3%. How much of them are for the membership construction, and how much of them are for the marketing? I cannot really give you corresponding relations, but I will try to answer your questions. Based on your question, you ask whether we will have more investment in the marketing part. Of course, we will have more in this part because it is the right timing to do it. With the trend of new retail as one of the retail industry, we will need to invest more in marketing. The third question is about CRM system. The big data thing and the investment in the branding, all of them are what we need to do in the large customer relations management system, i.e., the CRM system. The system has both a broader and a narrower definition. Our focus is, in addition to focusing on the product quality, the other key area is the membership system construction. All of the marketing campaigns are centering on this focus. We will use the big system, CRM, to do this in the future. You will see that in the future, retail is not just about buying and selling things, but rather whether we can seize those behind, seize those reasons why consumers are willing to pay the money. We want to find the key reasons and then try to entertain the needs of the customers. Sales from Leon Securities. Today, many of you asked about membership system and the investment, as well as investment in new technologies. Have you thought about your internal targets? For example, how many members would you like to have eventually, and what is the customer habits of these people? I am not sure. Will that have a negative impact on the CapEx, the capital expenditure? We are always talking about member construction. How do we evaluate whether such investment are effective? The judging criteria is, one is the growth rate of the member size, the other thing is the repeat purchase rate of the members. For the accurate number, in terms of the planning, we do have a concrete number. For example, for the size, of course, we need a double-digit growth in the customer number. We think for the percentage part, we hope it will be around 30% increase, but we are not sure about the number. The other thing is to look at the repeat purchase ratio. Last year, we have 8 million to 9 million users. We hope that will be a double-digit growth in terms of the size. In the disclosure materials, we have provided the membership number. We have increased from 2 million in 2016 to 9 million by the end of 2017. So it is a very good performance. Thank you, management. Two questions. Number one, the core consumers. Those are consumers who have heavily repeat purchase rate. This means that they will buy our products every month and even every week. Or judging from the amount, those customers who can purchase over CNY 1,000 from our product, what is the number of these kind of core customers? Do you have 1 or 2 million of these users? For this kind of heavy consumption consumers, are they welcoming our new products? The second question is about industrial competition, because we see that in mainland China, we are seeing a lot of the leisure food companies listed in Asia group, in the Asian market and the A-share market. In addition to the flavor, what are the other ways are you adopting to compete with the others? Previously, we've done a lot of things. For example, the packaging, the promotional strategies centering on the younger groups. I think these strategies are easily replicable by the other competitors, and we are seeing such replication. What other ways could you adopt to increase the customer stickiness? Thank you. For the number one question, it is actually a commercial secret, and it's difficult to tell you. Actually, if we don't get listed, no one will know about where we generate the revenue. We still need to protect our trade secret, and I hope to keep all of this confidential here. For the industrial competition, I hope that there are a lot of companies in the industry, but our response is that we are valuing our quality part. We know that in the food industry, we must pay the largest importance to the quality part. We are just like carrying a vase, so we could never fall down. It is easy to copy the appearance, but it's difficult to copy the internal part. People have different perceptions of one company, but a company's performance will only be dependent on itself, on its internal performance. For us, with all these changes and development in the industry, our first priority will be placed on the improvement of the quality. This is an evergoing topic in the food industry. Two things, product and services. These two things are the most important things, and we are retaining our customers with the products and its superior quality. We are providing services by marketing campaigns, but discount will not be the only way to maintain the customers. We want to make our customers more satisfied, and we will try everything to make our customers more satisfied. But we cannot ensure that every one of our policy made are correct, but they are all intended to help us to do better in the future. Even just through trials and errors, we still want to make improvements. Last question. Morning management, Harris. Two questions. Number one, last year we launched new products including crayfish and braised beef in the non-spicy duck necks and duck wings. What are your planning? Because for Juewei, they have a lot of non-spicy products. What are your planning in this segment? The second question is about your big data system. As a consumer, and for Zhou Hei Ya, there are two demands. One is the purchasing scenario, for example, in the train or at the movie theater, and this kind of scenarios. But last year, for Zhou Hei Ya, we will be registered as a member when you purchase Zhou Hei Ya products. But for all the campaigns you carried out, we do not feel that is related to the purchasing behavior. What do you think the big data system can resolve in the end? For the flavor, we are always researching on it. We launched the non-spicy products in the beginning, and we will never let go one chance of providing better flavors for the consumers. From the current survey, consumers actually like the spicier products. They are more interested in those flavors. For the age group between 8 to 17 years old, we found that these children are. We checked whether they are interested in the non-spicy part. We will need to make surveys on different age groups and different consumer groups. For example, our target group is around 20 years old, those around 20 years old. We have to target at their favorite flavors. We will focus on the target groups instead of focusing only on the flavors. For the age group of between 8 to 17 years old, they are our future generation of consumers. For the members, once you became our member, although you think it's not related to the purchasing behavior, but it is totally different from our figures. I have always mentioned about the repeat purchase rate. With so many members, we will look at the repeat purchase rate. We want to make the members to feel more comfortable with our products and to buy our products in a more convenient way. We will have different marketing campaigns. Due to time constraints, this will be the end of the Zhou Hei Ya annual results announcement. Should you have further questions, please contact our investors relations team. We've also brought along the new crayfish products from Wuhan. 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