Earnings Call: H1 2024

Aug 29, 2024

Summary

H1 revenue rose 6% to CNY 13.21bn, while adjusted net profit was CNY 197m. BaaS drove growth; management cited early recovery, continued AI investment and expansion into non-financial markets, alongside macro and insurance-sector risks.

Good morning, investors, participants, and everyone joining us online. My name is Sandy Xing. I would like to thank you and welcome you for joining us today. We released our interim results yesterday. We will report and share the company's 2024 interim operating results and answer your questions. The presentation will be divided into three parts. The first part is for the CEO to introduce the business progress and outlook. The second part is for the CFO to interpret the financial performance. Finally, there is going to be a Q&A session. Participants can ask questions online or through their telephone. If you are dialing in from mainland China, you can call 023-6362-3233 or 4080-63263. From Hong Kong, it is 30183602 or 800961505. For Chinese channel, password is 532157549. For English channel, password is 447012932. Management will answer your questions after the presentation. These results announcement contains forward-looking statements that reflect the company's current beliefs and expectations regarding the future. These statements contain words such as anticipate, believe, intend, estimate, expect, and words of similar meaning. All statements other than statements of historical facts contained in this meeting are forward-looking statements. These forward-looking statements reflect the views of the company's management as of the date hereof and are not guarantees of future performance. Neither the company, any member of the group, nor any of its relevant affiliates, and respective directors, officers, employees, consultants, representatives, undertake any obligation and expressly disclaims any obligation or undertaking to disseminate any forward-looking statements that are updated or revised. I would like to introduce you to management who are attending today's meeting. Mr. Zhang Shaofeng, Founder, Chairman of the Board, and CEO of Bairong. Executive Director, Senior Vice President, Chief Financial Officer, and Head of BaaS Insurance Cloud Bairong, Mr. Zheng Wei. Senior Vice President of Bairong and Head of MaaS and BaaS Financial Scenario, Mr. Duan Ying. Now, I would like to hand it over to the Founder, Chairman of the Board, and CEO of the company, Mr. Zhang Shaofeng, for his remarks on the business progress in the first half of 2024 of Bairong. Dear shareholders, investors, analysts, and friends from the media, good morning. Welcome to Bairong's 2024 interim results announcement meeting. I am very excited to share with you the new progress Bairong has made during this period and share with you our views on long-term development. First of all, let me briefly go over the company's introduction. We are one of the few generative AI technology companies in the industry that have achieved continuous and stable profitability. We have accumulated over 7,000 institutional clients, ranking us number one in vertical scenarios. There are many names that were household names that are our clients, including Alibaba, Baidu, ByteDance, Meituan, Xiaomi, JD, ICBC, BoCom, Ping An, China Life, China Taiping, Taikang, among others. Many of those KA accounts contribute tens of billions in revenue to Bairong. Our business primarily involves using AI technology to assist institutions in doing two things. First, we help them control risks, be it the risk in terms of lending or their preferences in terms of risk appetite. Second, we help those institutions improve revenue by conducting marketing and user operations. We enable users to improve in terms of their willingness to purchase more client product. Since 2014, Bairong has been using discriminant AI and machine learning algorithms to build intelligent risk control models and asset operation models. We initiated the development of multi-turn, multi-modal Voice GPT technology in 2017, at the beginning of this generative AI revolution. By 2021, we successfully applied generative AI to many scenarios for monetization. Our application now includes automotive leasing, recruitment, and many other scenarios. About one-third of our revenue today comes from machine learning algorithms that drive customer value through AI modeling. Two-thirds of the revenue comes from promoting transaction volume and facilitating transactions through generative AI. We provide MaaS for Model as a Service, which currently has a daily average usage of over 300 million times. At its peak, the number is even higher. For example, during major shopping festivals online, we have self-developed AI Voice GPT, which is able to help our clients achieve intelligent marketing and operations activities with daily conversation volume that is over 15 million. We call this business Business as a Service, or BaaS. This is where we are also a leader in the industry. We are very proud that in the first half of 2024, Bairong achieved an adjusted net profit margin of 15%, adjusted net profit of approximately CNY 200 million. Gross profit further increased by 1% point to 73%, showing our first mover and scale advantages, thanks to our investment in the BaaS business. Financial scenario driven by generative AI on the high base of last year, still achieved double-digit revenue growth with a year-over-year increase of 20%. This is much greater than the industry average. We are also seeing great growth, actually a triple-digit growth in terms of wealth management. BaaS inclusive finance for small and medium-sized companies also achieved double-digit growth. In June, I attended a class at Tsinghua University, where an economist from the Chinese Academy of Social Sciences mentioned that a large number of small businesses are dying because of this down cycle. The average life cycle of small businesses in China is just four years. I think the macro data all suggest pressure in terms of return on asset, return on capital for commercial banks, as well as other aspects of the economy. The environment is quite tough, but I think we have shown very resilient counter-cyclical capabilities. We achieved revenue growth and have continued our profitability. This is, I think, thanks to the strong support we have received from our shareholders, investors, and analysts. I would like to thank everyone for your support. I would like to expand a bit on our profit profile in the first half of the year. Over the last few years, Bairong has been one of the few AI companies in the market that has been profitable, and we continue to be a profitable firm. Our adjusted net profit for the first half of the year is CNY 197 million, a decrease of CNY 29 million compared with CNY 227 million in the same period last year. The main reason, though, is other income, which decreased by CNY 32 million due to impact of exchange fluctuations, government grants, et cetera. That is to say, if we exclude the impact of these income items, then our core net profit still saw an increase. Also, we increased share-based compensation, or SBC, by CNY 35 million in the first half of this year. This is a non-cash expense item. We think it is important that we continue to motivate our core staff and talent pool. This is a measure aiming for long-term development and does not affect our operating profit. The BaaS business, which at the moment accounts for two-thirds of the group's revenue, is still in the early stage of expansion and R&D. It is going to be a segment where we are going to see further scaling, and profit will also start to scale. It is great to see that the increase in non-performing loan ratio and the low efficiency of capital utilization at the beginning of the year have now begun to improve. This is quite consistent with the trend of data indicators released by the National Financial Regulatory Administration of the Chinese government. In the second quarter of this year, we saw stabilization in the net interest margin of the banking sector. At the beginning of the second quarter, non-performing loan ratio of commercial banks was 1.56%, a decrease of 0.3 basis points. Bairong also saw positive signs at the business level. Our revenue saw a significant increase both year-over-year and month-over-month, especially with our BaaS business. If the trend continues in the third and the fourth quarter of this year, then we think there is going to be good upside or turnaround opportunity. Looking into the long term, over the next three to five years, we are still very confident in maintaining profitable growth because of our capabilities in user acquisition, in the technologies that we can provide to our customers. I think AI-enabled technology is going to be very important for our clients, and especially in terms of long-term slowing economic growth in China. It is so important for our clients to leverage AI to better manage with their existing customers. Looking back over the past decade, I think if there is one thing that Bairong has done right, it is the foresight of trends in technology. We bet big on artificial intelligence, and we saw great results. When the transformer paper was first released, we initiated original research and development of generative AI, and voice AI as well. At the beginning, it was just a cost, but then, I think looking back, we definitely made the right decision, especially since the release of multimodal ChatGPT was released a couple of years back. Which is to say, we definitely chose the right direction, and we are ahead of the curve. We believe AI is going to be the most important technology in the next decade. Generative AI is going to see great expansion in terms of application scenarios, and we are going to take full advantage of this first-mover advantage. During the reporting period, we continued to achieve iteration in our LLM, or large language model. We are able to leverage LLM in a multimodal application as well as online robot. Through model quantization, distillation, and separated inference architecture technology, we have achieved great integration. We are able to reduce latency to within 500 milliseconds, which is more agile than the industry average of over one second for other large models. I think the user experience is dramatically different if you are able to save response time by well over a second. Our Voice GPT has further been developed to support emotional recognition. Our AI model is able to express emotion based on the tone of the conversation, including but not limited to happiness, anger, surprise, or sadness. I would like to play a sample recording that was generated by our AI model. The first clip is anger. That was anger. Let me see surprise. Third clip is happiness. If you look at the big tech companies, including BAT in China and OpenAI, they have been developing this feature only since 2024, while we started to develop this feature in 2023, and we are a leader in that regard if you do apple to apple comparison in terms of this particular feature. I think the AI system with emotion is able to resonate more with the user, and the user will be more convinced that he or she is talking to a real person rather than an AI model. It is going to be helpful in terms of achieving communication goals with the user and facilitating transaction with the user. We believe there is going to be even more diverse large model support. Combined with the hardware of a 3D persona, we believe the first commercial version is now being developed. We believe those physical AI model or robot can be used at bank reception or retail department, as well as other locations. Bairong's large models in terms of AI capabilities have also been widely recognized. In just the first half of this year, Bairong's large models have won three major awards. For example, our Voice GPT large model, BRLM, was jointly selected by Chinese Academy of Social Sciences and Internet Weekly monitors for the 2023 Annual Large Model Vitality List, among other large model products such as Pangu, Wenxin Yiyan, and Tongyi. BRLM was also awarded 2023 Product of the Year by the Chinese Academy of Social Sciences and eNet Research Institute. We were selected by the Information Research Center for Chinese Academy of Social Sciences and Chinese Academy of Sciences Internet Weekly Journal as 2024 China's Most Innovative AI Product and Solution Top 30. In addition, this year, we won the National High-Tech Enterprise certificate, jointly issued by the Beijing Municipal Science and Technology Commission and other Beijing agencies. This came after the first certificate that we obtained in 2020. We believe this is not only a strong recognition of our innovation R&D capabilities, but also will drive our long-term development. As of the end of this year, Bairong has obtained 262 patents and software copyrights, covering fields such as AI, machine learning, privacy computing, human-computer collaboration, and multimodality. Among them, we have obtained a national invention patent called A Method and Device for Generative Machine Learning Model of Code, which is a breakthrough achievement and will provide new solutions for improving development and deployment efficiency of machine learning models. As a leading service provider with deep understanding and extensive experience in vertical industry scenarios, we possess the leading advantage to be the first to drive artificial intelligence-enabled industrial digital upgrade. We believe that by combining advanced generative AI technology, Bairong is able to unlock vast space for imagination over the next decade. Our MaaS, or Model as a Service business, probably assists companies in making intelligent decisions based on machine learning modeling and output evaluation results regarding risk control, or customer life cycle management, as well as marketing operations. Our AI-driven MaaS cloud platform is secure and reliable with stability further improved to 99.99%, and the average daily query volume has exceeded 300 million. In terms of product portfolio, we have been exploring more types of data to enhance high-value added data products. We have expanded beyond financial scenarios, and our services have expanded to e-commerce, human resources, and other diverse fields. We are able to go to some of our key accounts in e-commerce to identify customers or prospective customers. We are able to help our clients to identify potential risks in their HR recruitment process. For example, Alibaba's Taobao and Tmall use Bairong's MaaS to assess customer qualifications and purchasing power to promote its e-commerce business. We are able to help key accounts as they do background check on new recruits. Our BaaS business primarily leverages generative AI technology to enhance transaction efficiency across various verticals, including marketing and sales. Again, BaaS stands for Business as a Service. Our AIGC technology continues to be developed in terms of interaction and multimodality. I played a couple auto clips for you. We call it the deep fake technology, and our AI bot can simulate human voice tones to smoothly conduct multi-turn dialogues. If you talk to our AI bot for 30 minutes, you will be surprised at how you cannot tell whether it is AI bot or a human operator. Every time I talk to our AI bot, I see improvements. This is definitely an iterative process. We continue to explore application scenarios in, for example, pharmaceutical industry, and we work with other customers, such as a large taxi operator in Beijing, as well as an automotive aftermarket listed company to expand their business scenario. We also work with a couple of other companies that, in particular, cater to the needs of senior citizens, and they leverage our AI bots to communicate with those target audience customers. I think there is going to be a lot of upside for us, especially on the back of the rich data reserves that we have built with the financial sector. I think we are able to keep hallucination at less than 0.5%. The stringent requirement of financial sector has definitely made it possible for us to have huge advantages as we expand to other industry verticals. We can also help non-financial clients such as Didi, Trip.com, Ximalaya, among others. We have definitely expanded beyond the verticals of finance. Next, I would like to touch upon ESG as well. We are a leader in the so-called data production factor industry. We take corporate social responsibility very seriously. We received international recognition in ESG. In the latest ESG rating report released by MSCI, Bairong sustained its high-quality performance and was rated double B with the government's overall rating doing particularly well, ranking first in the industry. In the first half of this year, we also won the Outstanding Enterprise in ESG Information Disclosure Award from Gelonghui. The jury mentioned that Bairong not only actively integrates ESG principles into business operations but also achieves or has achieved openness, transparency, comprehensiveness, accuracy, and timeliness in information disclosure, providing investors in all sectors of the field with comprehensive and accurate ESG data and report. In the first half of this year, we have increased our focus on ESG, adding the development, supervision, and management functions of ESG to corporate governance committee. This, I think, is reflective of the close attention we pay to ESG, and we work closely with various departments and teams to continue to improve and optimize the management indicators of ESG. In terms of energy saving and emissions reduction, we are committed to helping customers to achieve cost reduction and efficiency improvement. We help our customers to expand green development with the power of digitalization and technology. We have created full-process green financial solutions for institutions, helping them to integrate the identification, assessment, and management of environmental and social risks with the credit management process, building a one-stop green business system. We have made breakthrough as well in developing a large model called Retrieval-Augmented Generation technology, or our RAG model, in recognizing green investment, identifying green opportunities, and efficiently assist green operations. We work very closely with Huaxia Bank, and that particular project was selected as an excellent case by the Ministry of Industry and Information Technology, or MIIT. In addition, our physical workspace is also very, very green. Some investors have visited us, and you must know. We have also obtained Environmental Management System ISO 14001 certification and Internal Information System ISO 27001 certification. In terms of employee care, we further introduced high-end R&D talent, and per capita compensation increased by 15% to CNY 600,000 this year from CNY 520,000 last year. The 2023 algorithm competition we initiated attracted teams from universities, industries, AI practitioners, and a lot of talented individuals. There were a total of 180 teams participating in the competition this year. Some of those teams were actually robots, not humans. In particular, there is one team called Orca AutoML that we developed, that completed the competition process with no human intervention. In order to further enhance the awareness of employee safety risk and ability to respond to various emergencies, we have purchased CPR equipment and worked with Red Cross to host special training sessions of first aid knowledge and CPR application. We have worked very closely with the School of Economics and Management of Tsinghua University and have donated to Tsinghua University, Columbia University Business Analytics dual master's program for many years in a row to support academic development of high-end talent. Regarding corporate governance, we stepped up the internal control and anti-corruption. We have set up an internal control department and held a company-wide meeting for this matter. We have taken a multi-pronged approach to enhance the level of internal control through heightened attention from management, setting up systems and mechanisms, and employee training. I believe you might have noticed since the second half of last year, we began to seriously scrutinize ourselves. We successfully uncovered a case of power abuse and bribery in the first half of this year. In order to show the resolve of the senior management, I personally took the initiative to subject myself to a CNY 100,000 fine. Some people thought I was penalized by the authority. No, it is self-examination, self-scrutinization, and decided on my own that I want to pay a CNY 100,000 fine to show my resolve. We have also given out some rewards and incentives to our employees to encourage them to engage in internal control so as to ensure the healthy and stable development of the company. As for social responsibility, we have participated in the joint initiative for the development of responsible financial AIGC, jointly initiated by nearly 20 universities, research institutions, industry associations, and enterprises for the ethical governance of generative AI. We have been successfully selected in the Beijing Integrity Enterprise list announced by the Beijing Municipal Integrity Building Leading Group Office for the year 2023. We have also successfully won the Excellent Corporate Social Responsibility Award in the 2023 Technology Pinnacle List of Caijing.com, highlighting the company's continuous efforts in social responsibility, environmental protection, and corporate governance, which are widely recognized by all sectors. Finally, for the mid-to-long-term prospects. Since June this year, we have seen some clear signs of recovery. We hope this recovery is sustainable, and we are full of hopes for the second half of 2024. There is another plus, which is the increased possibility of Federal Reserve's rate cut. There is also the gradual stabilization of industry risks, which will bring opportunities for companies like Bairong. For the mid to long term, I am very optimistic because we are on the side of AI. We are able to see the opportunities. We have been preparing for this for a long time. If the current cycle is one of hibernation, those cycle typically last three years, and soon we will move beyond the cycle, and in the next three years, we will be reaping the fruit. So this three-year cycle, if this hibernation lasts three years, I think after maybe one or two years, we are going to tide over the rough patch and embrace a new chapter of bullish growth. No matter what the macro environment is like, we will maintain a positive attitude and look for opportunities and never just stand still. Look at NVIDIA. Before achieving today's great success, it was continuously beaten by AMD, Intel, and Qualcomm. NVIDIA had to shift to so-called zero billion-dollar market, which had not been yet developed. However, it was precisely because they faced difficulties head on and bided their time over two decades, they were able to seize the opportunity of deep learning and became a dominant player in this emerging market, which used to be a zero billion-dollar market. That is a great analogy for Bairong, and we are seeing the light at the end of the tunnel. We are in a unique vertical where we are uniquely positioned. At such times when the going gets tough, we have to adhere to long-termism. We have to insist on being customer-centric, start from customer's needs, adhere to customer trust. These are the principles we stick to. Leveraging digitalization and be a true practitioner of AI. We will adhere to the principle of focusing on technology and the long-term belief of being customer-centric. In the next decade, we will continue to increase our investment in the field of artificial intelligence, strengthen the attraction of talent, and fully explore opportunities for artificial intelligence in some new businesses and new fields, including new segments under finance, including wealth management and NPL, non-performing assets. In the past, all the non-performing assets are appraised manually. You have to set a price manually and go through all the legal procedures manually, but AI can do the job for us. 90% of it can be automated, and I believe AI will be able to do that. Beyond just financial service, we were surprised when this taxi platform in Beijing reached out to us. They said they spent a lot of money and hired a lot of human workers to hire taxi drivers, and there were a lot of errors and mistakes, but AI was the perfect solution for them. We will continue to expand along the demand chain of commercial organization, explore more possibilities of digitalization, and focus on applying generative AI to intelligent operations. We are now one of the top 3 vendors to a lot of the key players out there, ByteDance, Huawei, Ali. We are among the top 3 vendors for the products we offer. It is quite a feat. Through M&A, we want to branch off into areas that we are not yet familiar with. We want to make sure we have a closed-loop ecosystem for all verticals that we cover. We have already validated this dual driver model of BaaS plus MaaS with data accumulation, with algorithm improvement. Our solution will only get stronger and stronger. We want to provide more industry empowerment for more verticals. We hope to facilitate their transactions and then so we can charge a take rate based on the total transaction value. That is a quick overview of Bairong's interim results in 2024 and my outlook for the future. Once again, I would like to thank you all for taking the time to attend this meeting. Many of you are my old friends. Thank you for attending our interim results meeting today. Thank you. Thank you, Chairman Zhang Shaofeng, for your rich and profound explanation. Now I would like to invite Mr. Zheng Wei, Partner, CFO, and Senior Vice President of BaaS Insurance Cloud to give some remarks about the 2024 interim results and financial highlights. Thank you shareholders, investors, analysts, and friends from the media. Just now you listened to the remarks by our Chairman, who also talked about the future prospects. I believe you have seen our confidence in our future development. Now, I would like to give you more details about our first half performance in 2024 from a financial perspective. In order to more clearly and concisely reflect the essence of our business and core technologies, we reshaped the internal reporting structure in the middle of last year based on the difference in business model and underlying technologies. The group's business was divided into 2 parts, MaaS and BaaS. The structure of this interim report for 2024 is consistent with that of the interim report of 2023. Looking at the differences between the 2 parts from the perspective of the business model, the MaaS business charges based on the number of models and assessment results, while the BaaS business shares profit based on the scale of the client's transactions facilitated by Bairong. In the first half of this year, our revenue reached CNY 13.21 billion, up by 6% from last year's CNY 12.43 billion. Despite the overall macroeconomic downturn, Bairong outperformed its peers and the industry as a whole. Our gross profit reached CNY 9.67 billion, up by 8% from the same period last year, which was CNY 8.96 billion. The gross margin improved to 73%, mainly benefiting from the scalable AI cloud business model and economies of scale as an industry leader. Operating margin reached RMB 1.57 billion with an operating profit margin of 12%. Net profit reached RMB 1.43 billion with a net margin of 11%, thanks to continuous investment in technologies which boosted our overall management efficiency. Non-IFRS net profit reached RMB 1.97 billion with a non-IFRS net margin of 15%. Non-IFRS EBITDA reached RMB 2.43 billion with a non-net IFRS EBITDA profit margin of 18%. If you look at the structure of our revenue, the steady growth of revenue was mainly driven by generative AI-powered BaaS service, which increased by 11% year-on-year to RMB 9 billion, accounting for 68% of total revenue. Within the BaaS business, revenue from the financial sector grew by 20% year-on-year to RMB 5.89 billion, accounting for 65% of the BaaS revenue and 45% of the total revenue. The insurance cloud revenues slightly decreased by 3% year-on-year to RMB 3.11 billion, accounting for 35% of the BaaS revenue and 24% of the total revenue. Our other business, MaaS, dropped 2% year-on-year to RMB 4.21 billion, now accounting for 32% of the total revenue. Looking at our MaaS business line, our MaaS solutions, like Mr. Chairman told you earlier, assists institutional clients in decision making by providing models and assessment results. Its use cases cover banking, insurance, wealth management, e-commerce, leasing, recruitment, and other industry sectors. Thanks to the company's continued expansion of applications and enrichment of product portfolios in line with market demands and trends, we have maintained positive profitability. In the first half of 2024, our MaaS business had revenue of RMB 4.21 billion, 78% of which came from key accounts. The number of key accounts reached 165, up by 19 from last year's 146. The average revenue per key account customer during the first half was RMB 2 million. The company strives to continuously expand its customer base with a focus on core customers. This is achieved through the company's large existing customer base and the continuous improvements of its products and services. This gives us sufficient confidence to face the challenges in the market. Looking at our BaaS business line, our BaaS service is designed to enhance the efficiency of asset operation in vertical industries by integrating generative AI technology with large models. It enables scalable reuse across different vertical areas such as banking, insurance, wealth management, inclusive finance, et cetera. Currently, the BaaS service is primarily applied in two core scenarios: the financial scenario and the insurance scenario, and BaaS charges a technical service fee or take rate based on the scale of assets transaction facilitated. For the BaaS financial solutions, it assists institutions in conducting more efficient intelligent marketing and operation covering specific business scenarios such as retail credit, microcredit, wealth, and e-commerce leasing. The BaaS financial solutions charge a technical service fee based on the scale of asset transactions facilitated. In the first half of 2024, as a leader in the application of AIGC, our BaaS financial business revenue increased by 20% year-on-year to RMB 589 million. The scale expanded rapidly with the transaction facilitated reaching RMB 26.15 billion. This is attributable to the continuous growth of customer demand and deepening cooperation with customers, as well as the rapid growth of new business such as the BaaS wealth solutions, which doubled its revenue in the first half of this year, both in terms of revenue and also in terms of customer count. The technical service fee is 2.25%, a slight decrease of 0.06 percentage points from 2.31% in the same period last year. The future market space for the BaaS financial solution is enormous. We predict that addressable market size will grow by 30% annually, exceeding CNY 40 trillion by 2023. If you look at the insurance BaaS solutions, we operate nationwide through leading insurance brokers. Our discriminant AI provides comprehensive customer insights and accurately recommends insurance products, while our generative AI and offline insurance broker team engage in user operation for high-value policies. We collect commissions based on the policy premiums. In 2024, our insurance BaaS revenue was CNY 311 million. Looking at the revenue structure, revenue from new policies contributed CNY 255 million, a 6% decrease from CNY 270 million in the same period last year. Revenue from Policy renewal contributed CNY 56 million, a 13% increase from CNY 50 million in the same period last year. The total premium reached CNY 2.873 billion, an increase of 80% from CNY 1.597 billion in the same period last year. Looking at profit and losses, in the first half, our gross margin increased to 73%, mainly benefiting from the scalable AI cloud business model, which further saw the benefits of scale. R&D expenses reached CNY 226 million, up by 12% from the CNY 202 million in the same period last year, now at 17% of total revenue. The company continued to increase its investment in AIGC and large models to support product supply and the development of various technologies. During the reporting period, we successfully combined the lightweight Voice GPT vertical model with large model, compressing the interaction latency based entirely on large model to within 500 milliseconds, lower than our peers' performance of over one second. At the same time, through 100% in-house research, our Voice GPT large model has further iterated to support emotional recognition and emotional voice output. Sales and marketing expenses reached CNY 507 million, now at 37% of total revenue, slightly lower than that of last year. General and administrative expenses were CNY 140 million, an increase of 13% from CNY 124 million in the same period last year, now at 11% of total revenue. Net profit reached CNY 143 million, compared to CNY 207 million in the same period last year. The net margin reached 11%. Non-IFRS net profit reached CNY 197 million, with a non-IFRS net profit margin of 15%. Non-IFRS net profit decreased by CNY 29.37 million compared to last year's CNY 227 million, mainly due to a decrease in other income, which was a decrease of CNY 31.95 million. If you put that aside, if you exclude exchange gains and losses, government grants, and non-operating income, then our operating profit actually maintained positive growth. In the first half, our cash equivalents, and similar financial assets amounted to CNY 3.582 billion, a decrease of 11% compared to CNY 4.032 billion at the end of the previous year. This decrease was mainly due to increased efficiency of capital utilization by the company, as well as an increase in strategic investment and buybacks. Specifically, we have cash and cash equivalents of CNY 627 million, time deposits of CNY 2.226 billion, and current financial assets measured at fair value through profit and loss totaling CNY 729 million. Furthermore, the company is full of confidence in the long-term future and values shareholder returns. In the first half of 2024, the company bought back a total of 7.02 million Class B shares from the open market, amounting to a total of 70.05 million Hong Kong dollars. In the second half, we will continue to actively carry out share buybacks. As one of the few AI companies in China that has currently found applications for generative AI and achieved profitability, the company maintained superior revenue growth and sustained profitability compared to our peers in the first half. In the second half, we'll continue to strive for greater success. Thank you, everyone. Thank you for the wonderful remarks by the management. We'll move on to Q&A. If you have any questions, feel free to raise your hand. Let's give the microphone to Richard from Morgan Stanley. Thank you so much for your remarks and presentation. I have a question about AI. Generative AI has wide applications across different verticals, like you mentioned, including arts, creative sectors, and healthcare. Are there any other non-financial areas that are going to contribute a lot to your top line? Because previously, we primarily focused on finance. We want to learn more about non-finance applications of generative AI in your portfolio. AI is a general technology. We made a breakthrough in finance first for some reasons, because in the finance sector, most of the products are digitalized. Nothing tangible, all of them are virtual, and finance poses a high requirement for response time, for low level of hallucination. So it's a great opportunity for us to train our muscle. Luckily, as the financial sector goes into a downturn, we are seeing our business starting to boom in other segments. Like I said earlier, we are working with a big taxi platform in Beijing. They are in a shortage of drivers because their drivers also pick up orders from other Didi, other ride-hailing platforms. So they're trying to hire more taxi drivers. But they used to do recruitment on the ground. It was very demanding. They don't have enough recruitment agents, and all the process was manual because you have to validate their credentials, their IDs. There were a lot of errors and mistakes. So I got connected with the managers of that platform, the Chairman, actually. The Chairman brought the CTO and the Director of Sales to have a meeting with us, and we're already in talks with them. We finished our first meeting last week. It made me realize that this is different from what I thought. I thought the taxi industry is a very traditional industry. It's too traditional to adopt AI. But when it comes to having to hire human agents, you have limited capacity, and you're prone to errors and mistakes. But when it comes to AI never gets tired. AI barely makes errors. Another case in example is the pharmacy. For pharmacies, they can allow no mistakes. They also have to do follow-up visits. They previously relied fully on human labor. Now they can leverage AI as well. Another example would be Tuhu. It's an after-sales company for auto service. They relied a lot on human workers. Now they are trying to resort to AI to share some of the workload as well. Our strength lies in analyzing the quality of your experience in KYC, KYB, and also overall delivery. When you put all those strengths together, our solution is actually very universal, very generic. Now, as we enter different verticals, we have to analyze that industry vertical and learn insights. Obviously, the price we charge in non-finance industries won't be as high as what we charge for the finance industry. But as we spread out and enter more sectors, we can diversify our industry mix. We believe in the next three to five years, over 50% of our revenue will come from non-financial sectors. As the economy goes under pressure, a lot of companies are trying to save costs, and we don't find it sustainable in finance industry. You cannot grow your business while cutting cost. These two are antagonistic. So right now you have to do better with managing your existing customer base. Do you hire human agents or do you use AI? If you have KA accounts, obviously, you can hire human agents for that. But for the smaller customers, it's not economical to hire human account managers. So AI is something that you can use as something that is really handy. Some people are very pessimistic, but we see this as an opportunity. When people are pessimistic, they don't invest. But we are bullish, we continue to invest. We developed teams for different verticals. We bought more GPU, bought more servers. This is why we're able to pull ahead and be continuously ahead of our peers. Even though the macro economy is not in the perfect shape, the opportunities of AI is abundant. I recently visited the U.S. In China, companies only pay you if you help them make money. If you save cost, they are not buying it. But for the U.S. companies, they are very satisfied if you are able to save costs for them. I think that kind of mindset is going to take place sooner or later in China. Just some examples for your consideration. Okay, I will give the floor to the next person in line, second row. Thank you so much. I'm Li Chen from Guojin International. Just now we talked about the profitability numbers. You are still profitable, but given the pressure in the macro environment, do you have any updates for the revenue targets and profit targets for 2024? Any changes in the sales and R&D expenses? Thank you, Mr. Li Chenru from Guojin Securities. Well, thank you for your question. Like I said earlier in my opening remarks, in the first half of the year, the macro economy caused some pressure for our business. We'll have to face that squarely. Lower consumption and a smaller loan book, and some other regulatory changes. For the customers, they're trying to control risks, so they're trying to limit the scale of assets on their book. All those factors indirectly affected the growth momentum and the profitability performance of Bairong. But like the Chairman has said, we have certainties that we can use to fight against all the uncertainties externally. We will continue to strengthen our R&D and build an even larger technical and technological advantage. We'll do that by strengthening our core competitive edge and improve our managerial skills. If you look at our operating profit, it maintained positive growth in the first half. Despite the challenging environment in the first half, our R&D expenses was 60% of the whole year last year. We are continuing to stepping up our R&D despite economic downturn. As to the second half, like the Chairman said, he shared a lot of prospects of AI application in different industries. On the basis of existing budget, we're going to add 50 million new allocation to buying servers and other equipment to satisfy the needs of new growth in new segments. We continue to put our clients at the front and center, and we're responsive to market changes. Despite difficulties that we see out on the market, we continue to work towards the targets that we set at the beginning of the year. We will continue to mount offensive campaigns to develop technologies, and we believe R&D is going to help us cushion the risks. R&D will increase by about 5% as a percentage of our expenses. This will sustain our mid to long-term growth. Thank you. Thank you. Next question, please, from the meeting room. Thank you. Over there. Thank you, management. I'm from Anxin Securities. My name is Yang Yiran. My question is for Mr. Zhang. AI LLM has been a headline topic for quite some time, but monetization and real-life application remains scarce. I'm just wondering what's management's thought on that, and any progress that you've made. Thank you for your question. I think this is a question that is not only relevant for China but also the U.S. Last year, I think AI valuation as a market was at 200 billion. This year, people are saying it's already as big as 500 billion or half a trillion. But whether that is justified, I think we need to answer one question, which is what kind of features you can provide, especially to institutional clients. Of course, you have more mature technologies or features such as AI chatbot with individual users. For institutional clients, you need to think about what value you can bring to the table. Are you helping those customers create new revenue streams or expanding their existing revenue streams? The other thing is, what are some of the things that differentiate yourself from your competitors? Because if you're offering homogenous services, then there's going to be a lot of pressure on prices, especially in China. I think our focus is on transaction-enabled technologies. One example will be BaaS, which is to say we try to help create revenue streams for the customer. The other thing is, I think a lot of what we do is dependent on industry insights or industry know-how. The third thing is about developing a competitive moat. MaaS or discriminant AI is not often viewed as the holy grail, but actually, it's very important because by deploying discriminant AI, you're able to tell or gain more insights into customer profiles in terms of their willingness to purchase and their wallet size. This is something that's happening beneath the surface. And with discriminant AI, you are able to understand the customer better, and this can help us better communicate with the customer as well. So it is going to be helpful in our other businesses. So we need to really look at these technologies from a holistic perspective. And I think our understanding or our insights into the verticals are able to help us translate our technologies into points of differentiation. For example, we are at a better position to create revenue streams for institutional clients. This allows us to better monetize our technologies. And also, our discriminant AI is able to help us screen out customers and match the right customers. With Baichuan and other mainstream LLMs, response time can be as long as 1 or 2 seconds. This is something that is unbearable if you are trying to, for example, give a sales pitch, right? No one is that patient to wait for you. And so I think it is so important for us to achieve low response time. There are so many details that you can work on to differentiate yourself. So I think universal AI is not going to set you apart. I think we need to expand the definition of a product and customer fit by including technology in it. So it is going to be PIT, and these things need to fit together. They need to dovetail to create commercial value. I do not think there are many other companies that are capable of providing that fit. There are, I think, also various views on the future of AI. I think many of those views are misplaced, either overly optimistic or overly pessimistic. I think in the age of mobile internet, technology is not the barrier. It is not the ceiling. App development is something that can be done by many, many people. But I think for the age of AI, this is very different. Technology is going to be so important. It is going to be what allows us to stay ahead of the curve. We need to look into the next 12 months, 24 months. We need to continue to put money into R&D. If we stop doing R&D, or if we scale back on R&D, we can immediately generate over CNY 300 million of profit, but that is not what we are going to do. But this is, I think, not something that we are going to do because the industry, the AI business is different, and this is based on our experience dating back to 2017. Thank you so much for your insights. Next question, please. Thank you for giving me this opportunity. I am from CITIC Jiantou Securities. I know that BaaS business performance is dependent on new credit origination or new loan growth. We know that there was general weakness in terms of loan growth, and just wondering, can you expand a bit on the macro weakness and what is your outlook in the future, and also your BaaS business applications in particular? Thank you. Mr. Zhang, please. I think, first of all, you made a good point there because macro weakness is still here. I think for the BaaS business, there is an issue which is reverse selection, which is to say, the less money you have, the less willingness you have that you wanted to pay for these services. But I think we have already seen some recovery in recent months, not only of our MaaS business, but also our BaaS business. Whether that recovery is sustainable is something we will continue to watch. But I think, it's important to be able to identify good customers. I think there's a lot of cash that's waiting for places to invest where a lot of lending supply. But it's important for us to identify the right customers. Then there's also the other thing, which is interest rates were reduced by the regulator, which resulted in less demand on the liability side because the interest rates were subdued by regulatory actions in the first half of the year. So that had some pressure on the demand side. Still, the recovery that we've seen in the last few months is encouraging, and we hope to see sustained recovery in the second half of the year. Of course, we're not blindly optimistic. For us, it's really taking one step at a time. There are, again, varying views about the outlook. There are some folks who are particularly pessimistic, but that pessimism, I think, has seeped through into some of their actions, not only of consumers, but also of institutions, and they might act more cautiously than merited. Thank you so much. So I think now it's time for us to shift to our online meeting room. We have over 200 participants online. So now, next question from our online participants, please. From CIC, Li Yada. Your line is open. Thank you. Hello, everyone. Thank you very much for giving me this opportunity to ask a question. I am a researcher from CICC, Li Yada. Hi, my name is Li Yada. I'm from CICC. I just heard the management share about the BaaS service. I just heard the management share that the application scenarios for BaaS services are becoming richer and richer. I also want to ask, will the BaaS business in the second half of this year and in the next three to five years I am glad to hear that your BaaS business scenarios continue to expand. continue to expand. Will it return to a high growth trajectory? I am wondering what is your growth outlook for the second half of the year, and are we going to get back to the high growth trajectory? Thank you. Thank you. I will direct this question to Mr. Duan, who supervises or manages our MaaS and BaaS segments. Thank you so much, Li Yada, for your question. Our MaaS and BaaS serve to deliver results to our customers. We hope to improve customer operational efficiency and reduce their operational costs. Our clients include the banking sector, consumer finance companies, as well as other financial institutions. These institutions have a legitimate need to cut costs, and they can all benefit from our features, which allow them to cut costs. As such, I think there is significant upside for our services, and those institutions are very much motivated to continue to expand their business. We saw sustained growth and actually exponential growth in those business segments in recent years, and we expect that trend to continue moving forward. If we zoom in to the second half of the year, based on the latest data points in July and August, we think recovery is underway. Transaction volume is rapidly recovering. Daily transaction volume continued to break records in recent trading days. I think those data points are giving us confidence that we will do well in the second half of the year. Thank you. Next question from our online participants, please. Next question from Zhao Ge of Tianfeng. Thank you so much for giving me this opportunity to ask a question. Thank you for giving me the floor. I am from Tianfeng Securities. I want to ask a question about BaaS Insurance Cloud. How long are we going to be subject to the negative impact of the industry, and what is the trajectory of revenue and profitability in the next three to five years? I will direct your question to Mr. Zheng Wei, who manages this business line. Thank you for the question. Yes, indeed, insurance products is being negatively affected by the downturn in the industry, the repricing, downward adjustment of insurance price, and also the stifled willingness of purchase by customers. The whole insurance industry is under considerable stress. If you look at the insurance technology, the new policy of service integration will continue to have a drag on revenue growth. From my own perspective, this new regulation is supposed to help insurance companies improve cost structure and lower operating cost, improving operating efficiency. As the bridge between customers and insurance companies, so be it a technology company or insurance brokers, we are an important link in cost and fee control. This new policy of integrating credit with insurance is indeed creating a drag on the whole industry. But overall, I am still confident in the long-term development of the industry, because we believe there are still sound fundamentals for the healthy growth of the whole sector. The fundamentals are still there. Aging population, healthcare needs for senior citizens, elderly care, all those factors are still there. People continue to demand, and even more than before, high-quality elderly services and elderly insurance products. This is what makes insurance sector unique. For Bairong, BaaS solutions pays close attention to technology empowerment and per employee efficiency. That is why there is stable numbers for renewal and new contracts, new policies. The foundations we have laid will be our ballast for tiding over the rough patch. Even though there are some temporary pains and fluctuations, we still have hope for the long-term growth of the whole sector in the long run. This is also a positive if you look at it from another perspective. In previous eras, people were competing on the basis of price. Price war will be a word of the past. Companies who are here to rise and shine are companies like Bairong, who leverage our professional capabilities and robust products. We believe this new regulatory measure is actually in favor of Bairong, who really empowers insurance companies in the long term. In the future consulting, planning, and all those other services will be more in line with the customer's demand. Digital transformation are also going to become a core competitive edge. We will continue to invest where it is necessary and improve our internal strength. In the first half of the year, if you look at new insurance policy value and contract renewal value, the numbers are still great, and that is laying a foundation for the next chapter of growth for the company. Shortly, we are fully confident in our prospects. We will leverage this turning point and leapfrog to the winning position. We will give the floor to the next person in line online. Chen Yuxuan, you have the line. Thank you for giving me the opportunity to ask the question. I am from Huatai Securities. You talked about the growth of certain products. I want to ask you about BaaS wealth cloud and what is the latest progress in the first half. Got it. BaaS wealth solutions. I will give the floor to Mr. Duan Ying. In the first half, we are gradually breaking ground in the first half. Like Mr. Zhang Shaofeng mentioned, in the first half, we achieved growth for both revenue and customer count. We have already smoothened out the path and the connections with banking channels. As we know, banks have extremely strict approval process, and we have already figured out how to work with banks, and a model has been established for that. In just the first half alone, the total revenue for BaaS wealth solution is as much as the whole year last year. That is why we are confident for the whole year of 2024, BaaS wealth solutions will double in its revenue. But as we have already pointed out, we are noticeably feeling the pressure in the macroeconomy. Part of it is for the deposits due to interest rate cuts. This will generate more opportunities for wealth management. We're going to leverage the resources we have to seize opportunities to onboard quality customers. At the same time, we intend to expand our customer base from small banks to joint stock banks, to leading municipal commercial banks, to fund managers. All those customers are different in nature. For fund management, it requires higher level of operational capability and professional capabilities, more stable emotions, and higher compliance requirements. With Bairong's AI empowerment, we can help them improve the level of professionalism, emotional stability, so that they can also perform better. Next question. Next, we have Jiang Dan. Greetings. I'm from Zhongtai Securities. My name is Jiang Dan. Thank you for giving me the floor. I want to ask two questions about business and revenue growth. What's your expectation for the annual growth of MaaS? Do we have a ceiling for total revenue? Secondly, what are the drivers or tactics for delivering on the goals? Okay. MaaS annual growth and also ceiling for revenue. I'll give the floor to Mr. Zhang Shaofeng, our CEO. The MaaS business, like I said, it's a generic KYC. It enables merchants and financial institutions, but for now it's mostly financial institutions. We try to help them understand the risks and preferences of the customers. If we look at finance first, what we can benchmark ourselves against are the mature financial players in Europe and the U.S. Let's put insurance and wealth management aside. Credit alone, they spend 1% on assessing customer profile. New customers, existing customers, they spend 1% of the total credit book. Even if they only spend 0.5%, that's already a lot of budget for evaluating customers and assessing their background. Right now in China, companies are only spending 0.1%, 0.2%, which is a far cry from the U.S. and Europe's 1% standard for how much budget they're allocating for customer evaluation. In the past, the whole industry grew on the basis of new customer acquisition. That's why companies don't want to spend money on evaluating and assessing existing customers. In the U.S. and Europe, it's an even split. They would spend, let's say, 100% in total, but 0.5% will be for existing customer. The other 0.5% will be for appraising new customers. Right now, for the existing customer part, I guess it's less than 10% of the total KYC budget for Chinese institutions. So how much money you are willing to spend to gain insights about your customers? If the whole industry in China is only spending 0.1, 0.2 right now, the room for increase is tremendous, as much as fourfold or fivefold. The Chinese industry cannot sustainably continue to rely on new customer acquisition for growth. If you look at the financial statements of those companies, you will see that pattern. Within MaaS, we also have a lot of niche products, dozens of them. Some of those products have a low penetration. We have only penetrated 5% or 10% of industry customers. We can grow the revenue by CNY 2 billion, CNY 3 billion if we do better penetration. We realized that last year, that's why we stepped up R&D. For the same customer, we have 10 products to cross-sell, but they're only buying two or three. We are in a position to sell more products to them, maybe by improving our product quality, maybe by doing better cross-sells. Another driver for growth would be the volume of business in and of itself. How much business are there out there? In the first half, the demand took a nosedive. Consumers no longer need those products, though they can wait maybe till second half of the year, maybe till next year. This is a fundamental indicator. How many products do you have? How much demand is there? And then when a customer reaches out to a financial institution, they have a 20-item assessment process. Maybe Bairong only offers 2 to 3 out of the 20 items they are using to gauge the quality of customers. In the first half, the denominator is the difficulty, because a lot of those customers are not having that demand due to the market downturn. The ceiling is intertwined with many things. How much financial institutions are willing to spend on assessing their customers. How much they are willing to spend on existing customers. It is going to be at least tens of billions, or rather billions, or even over 10 billion. Doing new loans to offset the NPL you have done in the past, is that the strategy you want to follow? Are you identifying with the trend? I believe once we figure everything out and put everything together, then we have a ceiling that is billions or 10 billion. Now, how do you seize all those niche opportunities is the key. What we cannot sway is the natural demand, and sometimes the financial institutions, they have pay cuts, anti-corruption, so they are less willing to spend. Those things are beyond our control. What we can do, what we can influence is, can we deliver more products to improve the quality of our products and step up our marketing campaign to sell our products into the customers' companies? That is something in our control. The external factors are difficult for us to sway consumer sentiment and the willingness to pay among financial institutions. Even if you factor that into consideration, you still have billions of CNY worth of business. Great. Thank you so much. In the interest of time, one last question. This is an online question from CNBC, He Liming. The question is, we have seen improvement in the company's ability to use cash efficiently. Can management expand on some of the investment projects that you did in the first half of the year? Just wondering, what are your plans moving forward? Mr. Zheng Wei, please. Thank you so much. As previously reported, we've continued to expand our investment in R&D and in investment. We aim to create synergy. We invested in two companies with a value of $100 million and $56 million, respectively. First investee was an AI processing and intelligent processing company, and second company is more on the practical solution side. We hope to create synergy with these two investees. We'll share customer resources, continue to develop joint research projects, and also to continue to create new revenue streams. We also did over CNY 70 million of buyback in the first half of the year. Moving forward, we'll continue to invest in R&D, and this is a path that we're committed to taking moving forward. We're also looking at possibilities of M&A. We'll continue to drive synergy in our investment decision-making process. We see that there have been major changes to the market, and secondary market weakness is now reflected in primary markets as well. We'll take a prudent approach in our investment decisions. For companies that are advanced in technology but have not achieved commercialization, we'll consider investment as well to create synergy. We're flexible in terms of how much stake we want to take, be it controlling shareholder or minority shareholder. Important thing is for us to create synergy that is to achieve one plus one greater than two effect. Thank you so much. Thank you, Mr. Chen. In the interest of time, we will conclude today's interim results presentation. I'd like to thank everyone for joining us today. If you have any further questions, please log into ir.brgroup.com to send your inquiry, or you can send us an email at ir@brgroup.com. We also have a Bairong AI bot that can interact with you. We hope to see you again soon at our next interim results presentation.