Jiayin Group Inc (JFIN) 2022 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Jiayin Group's Fourth Quarter 2022 Earnings Conference Call. (Operator Instructions) As a reminder, we are recording today's call. If you have any objection, you may disconnect at this time.

I will now like to turn the call over to Mr. Shawn Zhang from Investor Relations of Jiayin Group. Please proceed.

Good day, everyone. Thank you all for joining us on today's conference call to discuss Jiayin Group's financial results for the fourth quarter and full year of 2022. We released the results earlier today. The press release is available on the company's website as well as from newswire services.

On the call with me today are Mr. Yan Dinggui, Chief Executive Officer; Mr. Fan Chunlin, Chief Financial Officer; and Ms. Xu Yifang, Chief Risk Officer. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. For the information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese renminbi.

With that, let me now turn the call over to our CEO, Mr. Yan Dinggui. Mr. Yan will deliver his remarks in Chinese, and I will follow up with corresponding to English translations. Please go ahead, Mr. Yan.

(foreign language)

Hello, everyone. Thank you for joining our fourth quarter 2022 earnings conference call.

(foreign language)

2022 has proven to be both challenging and opportunistic for our company. During the year, we faced the strictest quarantine lockdowns in China followed by the lifting of almost all COVID restrictions in December. Looking back on the last 3 years now, we witnessed the COVID outbreaks that disrupted businesses worldwide. Policy changes that reshaped China's fintech industry and escalating geopolitical conflicts that further pressed the global economy.

Despite these macroeconomic disruptions and increasing uncertainties worldwide, we are proud to report that our execution of our growth strategy remains steadfast. Throughout 2022, we maintain our focus on strengthening our core competencies of technology innovation and risk management. We also improved our innovation capabilities and efficiency in refining our operations to better meet the evolving market demands. As a result of our solid execution, we delivered growth in line with our expectations and rewarded our shareholders long-term support with a strong and satisfactory performance in 2022.

(foreign language)

As we expand, our top priority remains ensuring full compliance with regulatory requirements, and we are actively collaborating with policymakers and partner institutions towards that goal.

In response to the PBoC's directive to stop direct data connections between Internet platforms and financial institutions, we have made significant progress and preparation. We are confident that we can work with our partner financial institutions to complete the system switchover within the required timeframe.

Encouragingly, we are also seeing positive regulatory development underway to support the healthy growth of China's Internet platform companies. For example, the CBIRC's interim measures for the management of commercial bank Internet loan have officially endorsed and regulated partnerships between banks and Internet platforms like ours, providing a solid foundation for our operations.

Additionally, regulatory authorities recently announced that ratification among major Internet platform companies is mostly completed and PBoC's financial market department has also pledged to promote healthy development of the platform economy. Overall, we believe that these regulatory developments indicate that Chinese policy regulation of Internet platforms is moving towards a period of normalization.

(foreign language)

In 2022, the Chinese market experienced a strong demand for consumer credit, driven by several factors. Firstly, the insurance of the 14th 5-year plan for promoting the development of small- and medium-sized enterprises by 19 government agencies and the joint release of the notice on strengthening financial services for new urban residents by CBIRC and PBoC have spurred the growth of fintech products and services for both individuals and SMEs.

Secondly, our financial institution partners have been able to provide abundant funding to meet the demand for loan facilitation services. In fact, PBoC reported an 11.1% year-over-year increase in the balance of our RMB loans by financial institutions in 2022 and the full year RMB loan volume increased by RMB 21.31 trillion, representing an additional RMB 1.36 trillion increase from 2021. However, rather than bluntly expanding our business scale, we choose to take this opportunity to improve the structure of our borrower base on our platform.

In terms of borrower operations, we focus on enhancing the quality and scale of our borrower acquisition capabilities, adding approximately 1.53 million new borrowers throughout the year, a 52.4% increase from the previous year. We also increased the proportion of loans by borrowers with a credit score of 60 or above from 68% to 88% in 2022.

Additionally, we concentrated on exploring borrowing lifetime value and refining our operations. For high-quality new borrowers, we match them with funding sources, offering lower interest rates promoting a year-over-year increase of 22.1% in the average borrowing amount. The average ratio of repeat borrowers for the 4 quarters in 2022 remains stable at about 67%. And the average borrowing amount reached about RMB 9,737, a 71.4% increase from the previous year.

(foreign language)

Such initiatives reflect our expertise in precisely and effectively leveraging our funding sources to better meet the financing needs of borrowers on our platform. This expertise is particularly valuable during industry-wide fluctuations in risk levels.

To prepare for current and future risk challenges, we have refined our borrower segmentation. As our business has scaled, our borrower base has consistently demonstrated healthy and sustainable characteristics.

Moving forward into 2023, we will continue to refine our borrower segmentation and adjust our borrower acquisition strategies based on market conditions. In the long term, we anticipate that new borrowers will make up 20% to 30% of our borrower base, allowing us to maintain stability and sustainability.

(foreign language)

As a result of these efforts, we established a solid foundation to achieve expected growth in 2022. In particular, our efforts in fine tuning our operations have resulted -- resulted in increased efficiency in funding allocation and consistent improvements in our revenue scale.

In 2022, our loan origination volume, net revenue and net income increased by approximately 153%, 84% and 152%, respectively. During the year, this exceptional growth demonstrated our solid progress in expanding funding sources, improving asset quality, enhancing risk management capabilities and refining our operations.

(foreign language)

On the funding front, the overall supply of funding in the market remains sufficient during 2022, and the funding cost has declined as well. As such, our credit costs are stabilizing while our business scale keeps expanding. Since we have already acquired relatively sufficient funding sources, we continue to expand and deepen our core operation with key funding partners to effectively leverage them fulfill the credit needs for high-quality borrowers on our platform.

As of December 31, 2022, we have partnered with 53 financial institutions, and we were currently in discussion with another 62. Notably, the funding sources without original limitations still contributed to the majority of our total loan origination volume in the fourth quarter.

(foreign language)

Moreover, we are empowering our partner financial institutions through our technology-enabled services to develop their own self-operated business models. As of 2022, we have already empowered 5 financial institutions to digitize their own online business, and we are now interfacing with another 2 financial institutions while actively negotiating with 6 more institutions to explore potential collaborations.

As the COVID control measures ease towards the end of the year, we will be able to further expand our business and improve our efficiency in engaging with new funding partners or implementing new partnership models.

(foreign language)

In late 2022, the whole industry experienced significant risk volatility, which affected our risk metrics to a certain extent. However, I'm pleased to report that our risk profiles have already stabilized as our 61- to 90-day delinquency rate has remained stable as of December 31, 2022.

The application of AI technology in fintech has been instrumental in quickly addressing challenges posed by market volatility. Going forward, we plan to continue our investments in fintech AI applications to further strengthen our risk management capabilities. Specifically, we will leverage voice and semantic regulation, user identification, asset quality control and anti-fraud AI modules to enhance our efficiency and risk management while improving users' experience.

(foreign language)

In addition to facilitating consumer loans for individuals, we also continue to expand the scale of our services for small and micro business owners. We all know that the COVID-19 pandemic has a severe impact on businesses around the world, particularly small and micro businesses.

In response, the People's Bank of China and other government agencies issued a number of policies calling for financial institutions to increase support for small businesses facing difficulties in production and operations.

Our extensive experience in fintech services and business operations enabled us to collaborate with financial institution partners to better serve micro and small business owners. As such, we actively responded to this call and expanded our specialized loan program to help small business owners overcome financial hardships.

Throughout 2022, we saw a steady increase in the [scope] and proportion of loan facilitation volume from small and micro business owners. Looking ahead, we remain fully committed to providing financial support and helping these businesses thrive in the face of challenges ultimately creating value for our borrowers and the society.

(foreign language)

Moreover, we also made excellent progress in our global expansion efforts. In Indonesia, we have continued our former investment and closely monitor the region's growth potential. In Nigeria, we have achieved significant business and revenue growth by boosting our loan origination capabilities in the local market.

Our revenue growth in Nigeria was substantially faster in this quarter year-over-year. We are pleased to note that our successful business operations and risk management capabilities have been replicated and validated on a global scale, enabling us to mitigate potential uncertainties in any local markets as we expand internationally.

Moving forward, we remain focused on enhancing the profitability of our overseas operations by developing innovative partnership models and accelerating our product development and penetration in local markets. By tapping into diverse business opportunities in these regions, we expect our global operations to become a meaningful driver of sustainable growth for our company in the long term.

(foreign language)

Last but not least, I'm glad to report on our recent strides in corporate social responsibility. Our commitment to empowering others through technological driven financial inclusion is at the core of our philosophy. In August 2022, we published our first environmental, social and governance report, which set the tone for incorporating social responsibility into our business operations.

Throughout 2022, we demonstrated our commitment to making a positive impact on society through various initiatives. In September, for example, we partnered with the Shanghai Soong Ching Ling Foundation to launch the "Let Children Smile" youth mental health care program. This program, in addition to our ongoing charity education campaign aim to provide comprehensive support to underprivileged children focusing on both their physical and mental well-being.

Later in December, we collaborated with local governments in [Vinnan] province to provide mental health care training to teachers and students. Furthermore, we donated school supplies to the central primary school in the town of [Sholtong] of (inaudible) province, including computers, books, and school uniforms to ensure that left behind children have access to better educational resources.

We also invited psychology experts to conduct mental health training for all teachers in Sholtong , enabling them to better attend to our psychological needs of their students while fulfilling their educational duties. Our unwavering commitment to ESG principles underscored our pledge to make a positive impact on society and we look forward to continuing our efforts in this direction.

(foreign language)

To conclude, we have achieved robust growth as we expected in 2022 as a result of our efforts in strengthening our partnership network, improving our risk management strategies, evaluating our technology capabilities and expediting our global business expansion.

Looking ahead, we remain resolute to -- in our pursuit of sustainable growth and margin expansion as the regulatory environment stabilize and the COVID pandemic becomes a thing of the past, we are confident that our proven strategies will continue to drive our success in the years to come.

In line with this expectation, we are pleased to forecast that our loan facilitation volume for the full year of 2023 will be around RMB 70 billion with RMB 19 billion from the first quarter of 2023.

(foreign language)

Based on this strong operational outlook, and our robust capital position, our Board of Directors has authorized and declared our first ever dividend policy. We expect to pay dividends twice a year in cash, subject to some conditions.

The annual total dividend distribution shall be no less than 15% of our net income after tax in the previous fiscal year. These declaration underscores our commitment to creating value for our shareholders and our confidence in the long-term growth prospects of Jiayin Group.

(foreign language)

With that, I will now turn the call over to our CFO, Mr. Fan Chunlin, please go ahead.

Thank you, Mr. Yan, and hello, everyone, for joining our call today. I will now review our financial highlights for this quarter. Please note that all numbers will be in RMB, and all percentage changes refer to year-over-year comparisons, unless otherwise noted.

As Mr. Yan mentioned, we delivered a record growth in 2022 particularly in the fourth quarter, our loan origination volume grew by 249.2% to RMB 18.9 billion as we refined our partnership operations and improved our funding efficiency. Our net revenue was RMB 1.1 billion, up 186.4% driven by 149.2% increase in our revenue from our loan facilitation services.

Other revenue grew significantly to RMB 154.7 million from RMB 7.1 million in the same period last year, mainly driven by incremental revenues from individual investor referral services and post facilitation services.

Moving on to costs. Origination and servicing expenses were RMB 195.1 million, up 130.1%, in line with our loan origination volume growth. Allowance for uncollectible receivables, contract assets, loans receivable and others reduced by 12.2% to RMB 15.1 million, compared to RMB 17.2 million in the same period last year.

Sales and marketing expenses increased by 138.4% to RMB 374 million, mainly reflecting higher borrower acquisition expenses. As a percentage of net revenue, SM expenses decreased to 35.5% from 42.6% in the same period last year. G&A expenses were RMB 59.3 million, up 26.7% primarily driven by an increase in staff costs in the quarter.

As a percentage of net revenue, G&A expenses reduced to 5.6% from 12.7% in the same period last year. R&D expenses were RMB 64.4 million compared to RMB 46.6 million in the same period last year. We recorded higher employee compensation and benefits as well as increased fees for professional services in the quarter.

As we prudently managed our expenses and grew our revenues at a much faster pace, we were able to further expand our [property] scale in the fourth quarter. Our net income for the fourth quarter increased to RMB 533.7 million from RMB 122.5 million in the same period last year. Our basic and diluted net income per share was RMB 2.49 compared to RMB 0.57 in the same period last year. Basic and diluted net income per ADS was RMB 9.97.

We ended this quarter with RMB 291 million in cash and cash equivalents, up from RMB 217.5 million as of September 30, 2022. As of December 31, 2022, we have repurchased approximately 1.5 million of our ADS's for USD 3.5 million and our USD 10 million share repurchase plan we announced in June 2022.

Before I wrap up, I will briefly review our full year financial highlights as well. In 2022, our loan volume grew by 153.4% to RMB 55.5 billion while our net revenue increased by 83.7% to RMB 3.3 billion. Net income grew by 152.3% to RMB 1.2 billion while net margin expanded to 36.1%. Net income per ordinary share and per ADS were RMB 5.48 and RMB 21.92 respectively.

With that, we can open the call for questions. Ms. Xu, our Chief Risk Officer, and I will answer your questions. Operator, please proceed.

(Operator Instructions) We will take our first question. Our first question comes from the line of [Lina from Sunu] Securities.

(foreign language) And I will do the translation for myself. I'm [Ling Yau] from (inaudible) Securities. My first question is about your first average dividend policy. Since you are buying back shares and paying dividends, does that mean you don't need that much cash? Would you be better off investing the cash to expand your borrower base and funding partnership network for stronger growth?

(foreign language)

Okay. This is Sean Zhang from the Investor Relations and I will do the corresponding translations in English. So thank you, Ling Yau for your question. And it is true that the company's current condition of operation is sound and stable. Probably, you can see that our performance shows a very fast growth in this year. And our operational and financial indicators are significantly improved.

And also, the company's operational cash flow is nice and solid and our balance sheet is pretty strong. But at the same time, you can see that the PE ratio of our companies is still very low, which is below 2x, yes. So the management believes that the current price of our company's ADS failed to reflect our inherent value or you may say that we are actually undervalued. In June 2022, the Board approved the 10 million repurchase plan. And in addition to that, our Board just approved our dividend policy in order to further protect the interest of our investors.

(foreign language)

Okay. So the -- as you know that cash is king -- the king nowadays. So the company will always consider the necessary cash reserves for our long-term development as our first priority. We made the USD 10 million repurchase plan and the dividend policy based on our precise cash flow measurement. The Board and the management have fully considered in the cash required for the company's operations and strategic development -- the strategic development and there is way enough room left after that.

(foreign language)

Okay. So Mr. Yan just gave out our yearly loan facilitation volume guidance of 2023 at a level of RMB 70 billion which made it pretty clear that the company will keep a sustainable growth in the long run and the management is very confident to that. Thank you.

(foreign language)

Again. I will do the translation for Mr. Yan.

(foreign language)

Okay. I will do the translation for Mr. Yan. So Mr. Yan just give out 2 -- probably 2 reasons. So the first reason is that we will definitely keep investing the new borrower acquisition, but we do have a plan for that. We all know that the new borrowers, if you compare with the repeat borrowers, there are more -- usually more uncertainties. We really need to avoid some risk of -- during this process.

So the second reason will be that we didn't really meet our -- the goal of 2023 at the probably based on the -- our goal of 2022. And we can see that this is a goal made very carefully. So the main reason is that we need to keep the asset quality at a very healthy level and to avoid probably some risk in it. So Mr. -- so Mr. Yau, can you please provide the translation of your questions, please? Sorry about that. Yes.

Yes, sure. The translation from my question is my second question is about the robust market demand throughout 2022 that CEO just mentioned. Are you expecting that to change in 2023? Your outlook only reflects 36% loan facilitation volume growth in 2023 compared to your 153% loan facilitation volume growth in 2022. Why are you forecasting such a deceleration in the growth?

Thank you for the translation. Yes.

Mr. Yau. This is Yifang Xu. I will just add on a little bit on your question -- to the answer to your question in addition to what Mr. Yan has provided so far.

On your first question -- on your first part of your question, CEO asked about overall outlook. As just Mr. Yan has mentioned in his opening remarks, there are several factors pointing us towards. We will remain positive and healthy expectation throughout 2023. These couple of factors, including on the regulatory front, we are seeing positive developments as well as the official endorsement towards the partnerships between Internet platforms like us and financial institutions.

This -- while such improvement warrants financial institutions to pursue further interest or deepen their partnership with us, therefore, to guarantee our healthy funding sources going into 2023 and forward. Similarly, on the consumer demand side, we are seeing the growth on the consumer loans on the nationwide as well as the request and standing resource supplies from the partners, from the institutions that we are already in partner with.

In addition to that, you asked about our adjusted percentage growth rate in 2023. But let's first go back looking at the absolute numbers, looking at these numbers in absolute terms. In 2021, overall transactions is around RMB 22 billion. In 2022, this number we just reported is RMB 55.5 billion. So with a little over RMB 30 billion growth primarily coming from Jiayin has been in this market for over 10 years. We have harvested a low-hanging fruits in 2022 by focusing on our repeated borrowers.

We're focused on exploring and maximizing their potential -- their borrowing needs and having their needs to match with competitive products offered through our platforms in partnership with our financial institutions. Going pretty much in the fourth quarter of 2022, we have changing gears into more of organic growth. As you probably have noticed, in Q4 2022, our total transactions around RMB 18 billion and our outlook for Q1 2023 is slightly improved to RMB 19 billion.

So we are focusing on organic growth at this point by introducing and -- introducing and higher quality -- credit quality customers through -- through a more competitive acquisition channels and bundled with more competitive product offerings through these channels to these new customers in helping that to grow our overall customer portfolios as well as to deliver a healthy risk is the -- risk factor of -- risk metrics.

So with that, then you were looking at our growth in '23 outlook. It's going to be from RMB 55 billion to RMB 70 billion so far. But as you can also notice that RMB 70 billion is relatively conservative view by considering the seasonality change and slightly uncertainties in the second half of 2023 regarding to the overall landscape in this industry, we are pretty -- we are pretty confident in developing such numbers, but we also have the flexibility to adjust them upwards when the time we saw is comfortable to do so.

(foreign language)

Hope we've answered your question.

Okay. So operator, I think we can move to the next participant who want to ask a question.

Your next question comes from the line of Sam Lee who is an individual investor.

(foreign language) I will translate for myself as well. My first question is that you have recorded a higher net margin in Q4 compared to some of your peers. Would you like to share some possible reasons for that?

(foreign language)

Okay. So this is Shawn Zhang, and I will do the translation in English. So thank you, Sam, for your question. So from the perspective of our performance and the financial indicators, Q4 is an excellent quarter with very nice profitability. And it is true that if you're looking into the margin, it is probably slightly higher than our peers.

So in Q4, our operating margin reached nearly 33% and for the full year of 2021, it is about 36.1%. And I think there will be 2 reasons for that. The first reason is that the scale effect generated by our rapid growth in the performance. And the second reason is probably because our fixed cost is stable, and our funding cost is stable. And at the same time, it is going down as well. At the same time, it is also a result of our refining operation, so.

(foreign language)

Okay. So the net margin is slightly higher. It is true. So our net margin of Q4 reached more than 50% which was higher than the operational margin, mainly because of the impact of some extraordinary reasons. For example, some of our core entities for our businesses just obtained the qualification of high-tech enterprises, which benefit us that our applicable income tax rate is now adjusted to 15%. And as you know that it is -- which can be traced back to 2021. And that will be one reason of that.

(foreign language)

So in the future, we will further cut down the take rate of our platform and we will also increase our R&D investment and to improve our efficiency and maintain the overall operational margin at a healthy level.

(foreign language)

(foreign language) My second question is about the vintage curve. While the loan volume accelerated and grew significantly, you have managed to keep your risk performance at an industry-leading level. If your loan growth decelerates as you have forecasted, can we expect your vintage rates to improve even further in 2023?

This is Yifang Xu. I'm going to take on your questions. First of all, I'll answer your question in English then will transfer myself in Chinese. So I -- first of all, that I will continue to focus on improving our risk metrics throughout 2022 and forward. Just as a -- ESG and as a company focusing on the lending business, having a good control over our risk metrics and practice prudent risk management philosophy is intrinsic inside within our company's philosophy and policy.

However, I will not connect the growth rate and the loss rate in the way you presented. So even we are -- the growth rate has increased in 2023 from 3-digit percentage growth rate to double-digit growth rate. We're still expecting a pretty significant growth from RMB 55 billion to over RMB 70 billion.

As we continue to grow our platform by over RMB 20 billion or almost RMB 20 billion throughout the course of 2023 of our cheap focus of the risk paths going to be primary focus on 2 firms, one from the new customer acquisitions. So as we continue to practice constraints on a number of new customers and new loan originations as part of our portfolio in our total new originations, we also want to focus on choosing the right acquisition channel mix and the product offering. So both the decisions on acquisition channel mix and the product offerings are solely based on focus to improve our overall customer credit risk profiles.

Going forward, as we have started probably over a year ago, we want to focus on improving our customers' credit risk profiles and we'll continue to do so by choosing acquisition channels that gave us a broader and greater access to better customers. Similarly, in the product offerings, we are going to match the product in terms -- specifically to the loan interest rates from our institution -- financial institution partners with higher -- lower interest rate products to our new customers in order to attract the right customer segments to our platforms. So that's on our new customer acquisition side, how we are going to continue to drive over -- drive RMB 20 billion overall growth and so continue to improve upon our interest rates.

So on a repeated customer borrowers -- our focus on will be enhancing the customer level risk modeling and decision in addition to what you see the typical on the loan level risk decision models and the decision framework. So that allow us to really focus on the high-value customers, making sure that we are extending our credits to them without overextending -- over expanding their risk appetite. So in addition to the modeling focus, we will be also exploring external third-party data along with our internal customer behavioral data through focusing such data mining on more complex complicated customer-level data will allow us to improve -- and improve upon the model or the models over the entire life cycle of the customers.

So next I'm going to just say my answers in Chinese.

(foreign language)

Hope this answered your questions.

Thank you. No more questions from me.

Thank you. We have reached the end of the call. I will return the call back to Shawn for closing remarks. Please go ahead.

Thank you, operator, and thank you all for participating on today's call, and thank you for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

This concludes today's conference call. Thank you for participating. You may now disconnect.