CNFinance Holdings Ltd (CNF) 2023 Q3 法說會逐字稿

Good day, and welcome to the CNFinance Holdings Limited third-quarter of 2023 financial results conference call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to [Ms. Jane], Manager of Capital Marketing. Please go ahead.

Good morning and evening, and welcome to CNFinance third-quarter financial results conference call. In today's call our Director and Vice President, Mr. Qian Jun, will walk us through the operating results, followed by financial results from our acting CFO, Ms. Li, after that, we will have a Q&A session.

Before we start, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the US Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, believes, estimates, target, going forward, outlook, and similar statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding this and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law.

Now please welcome Mr. Jun Qian.

(spoken in Chinese)

(interpreted) Thank you for attending, for taking time to joining this conference call. We will discuss CNFinance third-quarter of 2023 operating and financial results and followed by a Q&A session.

(spoken in Chinese)

(interpreted) During the third quarter of 2023, the company focused on expanding business scales and improving asset quality and achieved year on year growth in all important indicators. During the quarter, the company's facilitating loans of RMB5.1 billion increased by 20% year-on-year and achieved a net income of RMB53 million, increased by 15% year on year. Furthermore, as a result of a [self] risk control mechanism, the company's recovery remains at remained at 110%.

The company's highlights for the quarter including the following.

(spoken in Chinese)

(interpreted) In order to expanding business scale. During the quarter, the company's total loan origination volume was RMB5.1 billion, representing a year-on-year increase of 20% and a 12% increase as compared to the second quarter of 2023. Amount of RMB5.1 billion loans facilitated, RMB3.9 billion was under trust lending model and RMB1.2 billion was under commercial bank partnership.

(spoken in Chinese)

(interpreted) Continuing to refine our service to sales partners and help ease their liquidity pressures. Due to our installment policy, sales partners liquidity has significantly improved. During the quarter a few historical defaulted sales partners was able to recommence their install payments. This has effectively reduced the risk exposure of the company.

(spoken in Chinese)

(interpreted) Optimizing products and helped making finance more inclusive. In third quarter of 2023, the company's average fundings and costs were slightly lower than that in the beginning of the year. And the company adjusted portions of the lower interest rate product in its product mix accordingly. By optimizing the product mix and lower customer interest rates, we were able to give real benefits to the MSE owners and lay a good foundation for serving the needs of borrowers with better credit history.

(spoken in Chinese)

(interpreted) In order to improve the asset quality, the company has been continuously refining the factors in its credit assessment and have fully leverage technology to improve the accuracy of the assessment of borrowers and collaterals. In addition, the company has drastically shift its business to core regions. During the quarter, loans facilitated in the first tier and new first tier cities has reached 80% of overall loan facilitation.

(spoken in Chinese)

(interpreted) Management believes that China's market is currently in a period of recovery and the price of real estate market is still fluctuating. At the same time, we believe that China will continue to introduce similar policies. And China's inclusive finance [industry] is still in the opportunity period. We will continue to adopt the guiding principles of high-quality development, which emphasize scale, quality, and compliance with the following specific objective in mind.

(spoken in Chinese)

(interpreted) Optimize the product mix, improve sales capabilities, refine the risk control system risk, reach to prospective borrowers with high quality collaterals as well as good credit records. In order to match this goal, the company needs to continuously broaden its financing channels, bring in new founders, and launch new loan products.

(spoken in Chinese)

(interpreted) Continue to promote the application of models, systems, and (inaudible) [in quality] approval. Make the whole process more standardized generative, systematize, and intelligence. To reduce human integration and improve overall efficiency.

(spoken in Chinese)

(interpreted) Continue the transition to the safer model by accelerating the disposal of nonperforming loans. We currently plan to transfer a bulk of deposit loans to a third party before the end of the year to recover cash and reduce the company's risk exposure.

(spoken in Chinese)

(interpreted) Now I'd like to hand the call over to Ms. Jing Li, and she will walk you through the third-party financials.

Thank you. Now we will go over the financials. Please note that the currency we use will be in RMB and all comparisons will be made on a year-on-year basis, unless otherwise stated.

For the third quarter of 2023, total interest and fees income was RMB425 million as compared to RMB445 million. Interest and financing service fees on loans was RMB388 million as compared to RMB413 million. The decrease was due to the decrease of weighted average interest rate of loans outstanding.

Interest income tied to sales partners was RMB32.7 million as compared to RMB33.5 million. Total interest and fees expenses decreased by 13% to RMB170 million as compared to RMB195 million. The decrease was mainly due to the lower funding cost of trust company partners as a result of recent regulatory developments.

Net interest and fees income increased slightly from RMB254 million to RMB255 million. Net revenue under the commercial bank partnership model was RMB27.6 million as compared to RMB0.4 million. The outstanding loan principal under the commercial bank partnership was RMB5 billion as of September 30, 2023, as compared to RMB0.6 billion at September 30, 2022.

Collaboration cost for sales partners was RMB87 million as compared to RMB85 million. Net interest and fees income after collaboration costs increased 15.5%, to RMB196 million from RMB170 million. Provision for credit losses decreased by 72% to RMB12 million from RMB41 million. In the third quarter of 2023, some sales partners who forfeited their Credit Risk Mitigation Positions due to the inability to fulfill their obligation to repurchase delinquent loans in last few quarters were able to recommence their payments, which had provided more protection to the loan.

Total operating expenses increased by 27% to RMB106 million from RMB83 million. Employee compensation and benefits was increased 15% to RMB58 million from RMB50 million due to an increase in the performance-based bonuses as a result of an increase in loan origination volume during the third quarter of 2023.

Other expenses increased by 71% to RMB35 million from RMB20 million, mainly due to the increase in fees paid to local channels, who are rewarded for referring sales partners to the company, and will also receive commissions of a certain percentage of loans recommended to the company by the sales partners they have referred. Net income increased by 15% to RMB53 million from RMB46 million.

Now we would like to start the Q&A session. Operator, please.

(Operator Instructions) William Gregozeski, Greenridge Global.

Hey, great quarter. With regard to the trust lending at RMB3.9 billion, that's up quite a bit from where it has been. Can you just talk about where the -- I guess the demand you saw for that growth came from. And if you expect that to continue going forward.

(spoken in Chinese)

(interpreted) As for the increase of loan originations under the trust lending model, I think the main reasons are twofold.

I think the first one is that in the beginning of the year, we have decided to shift our business more to on Tier 1, new Tier 1 cities.

And also, the second reason was because we kind of focus on our most competitive products, which is our large ticket size products with house with a higher value as the collateral.

I think those two are the other two main reasons that gave us the chance to grab the demands of the borrower in such -- with such uncertainties in the economy, as well as the fluctuation in property prices.

(spoken in Chinese)

(interpreted) Also, since we have been able to manage to decrease the overall financing cost, it allowed us to reach to customers with better collateral as well as better credit records, that also helped to broaden our customer reach as well.

Okay, great. As far as the originations, since we're getting close to 2024, do you guys have any forecast for where you're looking for that for next year on a total basis or broken out by trust and commercial?

(spoken in Chinese)

(interpreted) So based on the current uncertainty of the market, we have said that a rather realistic and also conservative goal for the year of 2024. So our protected loan origination for next year is RMB20 billion with loans under -- facilitated under the commercial bank model picking up 30% to 35%.

Okay. So roughly flat on a overall basis for this year?

(interpreted) Yes.

Okay. And last question is the, with the sales partners buying back into their position in the quarter. Is that, are you seeing your sales partners with more cash to be a little more flexible to not fall behind on payments? Or can you just kind of briefly talk about the health of the sales partners, financially?

(spoken in Chinese)

(interpreted) So on the first thing that helped to improve their liquidity is we can loosen the terms on their installment payments.

(spoken in Chinese)

(interpreted) And the second reason is that we have made our effort to help the sales partners to dispose their nonperforming loans. We have made our efforts to push the legal proceeding as well as the settlement with borrowers, which also helped the sales partners to get rid of the nonperforming assets and also recover cash.

Okay, great. Thank you.

There are no other questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Jane for closing remarks.

Thank you for joining us today. If you have any questions, feel free to contact us at ir@cashchina.cn. And thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.