Jiayin Group Inc (JFIN) 2021 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Jiayin Group's First Quarter of 2021 Earnings Conference Call. (Operator Instructions)

As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time.

I will now turn the call over to Ms. Julia Qian, Managing Director of The Blueshirt Group Asia. Ms. Qian, please proceed.

Hello, everyone. Thank you all for joining us on today's conference call to discuss Jiayin Group's financial results for the first quarter of 2021. We released the results earlier today. The press release is available on the company's website as well as on newswire services. On the call with me today are Mr. Yan Dinggui, Chief Executive; Ms. Shelley Bai and Ms. Delia Chen, Co-Chief Financial Officers; and Mrs. Xu Yifang, Chief Risk Officer.

Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provision 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 expectations expressed today. Further information regarding this 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 the figures mentioned during the conference call are in Chinese RMB.

With that, let me now turn the call over to our CEO, Yan Dinggui. Mr. Yan will speak in Chinese, and then our Co-CFO, Shelley Bai, will translate his comments to English. Go ahead, Mr. Yan.

(foreign language)

[Interpreted] Hello, everyone. Thank you for joining our first quarter 2021 earnings conference call. We delivered solid business growth this quarter, leading us on a great start to the year.

(foreign language)

[Interpreted] Loan growth, driven by our successful integration and rapidly growing loans from institutional partners, reached RMB 4.2 billion, up 44% in year-over-year growth. Notably, net income come in at RMB 93.7 billion, a 137% year-over-year increase compared to RMB 39.5 million from the same period in 2020. This solid business and financial results are valid indicators of our strong business strategy and execution capabilities.

(foreign language)

[Interpreted] Now allow me to share our key strategies for 2021. First, we will continue to drive organic growth in China, deepening partnerships with financial institutions by leveraging our sophisticated risk management system and providing individual customized solutions. Thanks to our early development in process automation and similarly, system integration, our funding increased to 28 in Q1. We are in discussion with another 46 institutions, aiming to further broaden partnerships.

(foreign language)

[Interpreted] Our sophisticated credit assessment system produces behavioral drive analytics that steer our customer acquisition and rotation strategies, leading us to have the ability to select high-quality borrowers while maintaining current customers. This drove up our higher repeat borrowing rates of 74% in the first quarter of 2021 compared to the 70% in Q4 2020.

(foreign language)

[Interpreted] We also published our [sustainability report] this quarter, which have shown satisfactory improvement and maintained a good trend. We will continue to invest in technology, improve efficiency, drive growth as well as maintain asset quality at a good level for the rest of 2021.

(foreign language)

[Interpreted] Secondly, we are making prudent overseas expansions, analyzing and entering markets where our technology has a competitive edge and can make a significant difference. For Southeast Asia, we see Indonesia as a key market with huge potential. Indonesia is the world's fourth most populous country and has demonstrated steady consumption growth and increased individual net worth with a robust local stock market fueling incomes and tech innovation. Through established partnerships with local enterprises, customized risk management models and technology platforms, we are making great progress and are well positioned to lead accelerated growth once we receive the fintech online lending investments, which we expect within the next 1 or 2 quarters.

(foreign language)

[Interpreted] We are also entering the African markets, which present unique opportunities to easily build out our platform in a region continuously leapfrogging to the next generation of technology. We established our first African business in Nigeria after rigorous research and observing the successful operations of various early Chinese enterprises. Products and services will be rolled out with a consultative approach and gradually.

(foreign language)

[Interpreted] In addition, the South American market is yet another important market, and we are doing very well and maintaining our leadership position despite increased competition. We aim for quality growth, and we will continue optimizing strategic execution and operations.

(foreign language)

[Interpreted] Thirdly, we will continue to invest in financial technology development and actively participate in digital economic as a key player in the fintech evolution. Blockchains are built on principles for transparency, security and stability. The fintech evolution is at a crucial turning point where blockchain technology and digital currencies are expected to profoundly impact society.

As shared in our last earnings call, Bweenet is primarily focused on cryptocurrency-related technology, from mining hardware, design and distribution to mining management. There are limited downside risks as Bweenet itself does not mine cryptocurrency. With integration of finance and operation functions steadily progressing, we expect completion within this month.

(foreign language)

[Interpreted] Bweenet business development and operations will be under an independent separate team. With more institutional investments and more use cases in the financial sector, we believe growth potential is exceptionally significant. Our strategy is to be flexible and participate in financial technology development with limited downside risks and no impact on our current business operations.

(foreign language)

[Interpreted] In conclusion, 2021 will be a year of accelerated growth. We developed our top initiatives to execute the strategies I just outlined, and I am confident our team will be able to deliver outstanding results.

(foreign language)

[Interpreted] With that, I will now turn the call over to our Co-CFO, Delia Chen. Delia, please go ahead.

Thank you, Mr. Yan and Shelley , and thank you, everyone, for joining our call today. As Mr. Yan just mentioned, we kicked off 2021 on a strong note, with impressive financial growth and meaningful business progress, placing us firmly on track to achieve our growth targets.

Now let me go through our financial highlights for the quarter. Before I go into details, please note that all numbers presented are in RMB and are for the first quarter of 2021, unless stated otherwise. All percentage trends are on a year-over-year basis unless otherwise specified.

In the interest of time, I will not walk through each item by line on this call. I will just highlight some of the key points here.

Loan origination volume was RMB 4.2 billion, up 44.1% year-over-year and 35.1% sequentially. This was remarkable and was also the strongest growth since our IPO. This demonstrated the success of our rapid business transformation which is laying the good foundation for us to continue to achieve robust growth in the coming future.

Net revenue was RMB 343.1 million, up 9.4%. This increase was primarily due to the increased revenue from loan facilitation services, which grew by 24.7% year-over-year to RMB 320.9 million. Other business grew by 8.3% to RMB 22.2 million. The increase was primarily due to the development of our overseas business.

Moving on to costs. We continue to optimize our cost structure to further improve operating efficiency. In Q1, total operating expenses were RMB 229.3 million, down 12.6% from RMB 262.4 million last year. Origination and servicing expenses were RMB 64.1 million, up 0.3%, primarily due to the increase in credit assessment expense resulting from higher loan origination volumes, partially offset by reduced collection costs as the company no longer provides such services under its new business model. Allowance for uncollectible receivables, contract assets, loan receivables and others was RMB 8.0 million, down 73.7% from RMB 30.4 million in the same period of 2020. The decrease was primarily due to the relatively lower credit risk of our new business model.

G&A expense was RMB 37.8 million, down 1.3% primarily due to lower rental costs, partially offset by the increase in the other business-related expenses. R&D expenses was RMB 28.1 million, down 22.8%. This was mainly due to a more streamlined team in technology-related departments as we continue to improve our operating efficiency. Sales and marketing expenses were down 2.4% to RMB 91.2 million primarily due to a decrease in share-based compensation expense, partially offset by higher borrower acquisition expenses.

We achieved attractive profitability through our loan volume growth and improved operating efficiency. We posted net income of RMB 93.7 million, up 137.2% year-over-year and 15.5% sequentially. We ended this quarter with RMB 123.3 million cash and cash equivalents compared with RMB 117.3 million as of December 31, 2020.

Moving to our guidance. Given the recovery of Chinese economy and fast-growing consumer finance market, we expect our loan origination volume in second quarter 2021 will be over 150% growth year-over-year and 35% to 45% growth sequentially.

With that, we can open the call for questions. Mr. Yan, Mrs. Xu -- our Chief Risk Officer, Mrs. Xu, and I will answer questions. Operator, please go ahead.

(Operator Instructions) We have the first question. This is coming from the line of Andrew Scutt from ROTH Capital.

Congrats on the strong results. So the first question here that I have, the model is really showing the successful execution you guys are making with the transition to institutional partners, especially shown in the strong gross margins you had in the quarter. Can you just maybe talk about the efficiencies you're realizing and you discussed on the call that are helping driving the strong results?

Yes. So this is Delia, and I will take this question. So yes, Andrew, as you have mentioned, we have successfully exited the P2P business. So to the loan facilitation models. So in the first quarter, we have seen very strong increase in the loan facilitation volumes. And also, we have seen some cost savings under different expense items.

So as we mentioned in the commentary, given the recovery of Chinese economy and fast-growing consumer financial market, we actually have a very good confidence to grow and expand the book, as we did in the first quarter. So we expect that our loan origination volume will grow continuously in the remaining quarters of this year, and we will continue to improve our operation efficiency and to maintain a very profitable -- very good profitability. Yes. So...

Great. Sorry, I didn't want to cut you up there. Second question for me, if I may. R&D expenses looked like they were down substantially in the quarter. Can you kind of talk about your expectations there going forward?

Okay. So yes, the R&D expenses was down 22.7% year-over-year because we have successfully exited the P2P business. So we actually made some efforts to streamline our technology department, and we optimized the personnel scheduling and related human resources. So in that way, we have a more streamlined team in technologies. So going forward -- so we see some savings in the related salaries and compensations and also, yes, share-based compensation.

So going forward, we plan to improve our R&D investment to continuously improve our technological capabilities and efficiency to propel further growth for the company. And if you look at the absolute number, I think it's a very good indicator for the remaining quarters of this year. So I think we are going from this level, and we plan to improve the R&D investment level from here. I hope that -- yes.

Yes. That was very helpful. Next one, if I may.

I was very excited to see the credit quality numbers disclosed in the release this morning, and it definitely reflects the shift into institutional funding. So can you just kind of provide maybe some commentary on the numbers there and expectations going forward?

Sure. Thanks, Andrew, for your question. This is Yifang taking all your questions on the credit results, the risk results.

Yes. As we are shifting our business towards institution funding portfolio and we are facing a stronger desire from our partners to seek for better quality customers, this has been going on, our strategic intent, starting from the early last year 2020. If you recall, we're trying to position ourselves towards higher-quality customer in anticipating us partnering with institution funding partners. So as you can see, quite a number -- the risk numbers continue to improve over time.

We are attacking multiple fronts. One is customer acquisitions. We are trying to target better customers just from the credit risk point of view. Also, in addition, our existing portfolio customer strategy, we are focusing on the better spectrums of our long-term customers. In fact, as we learn more about our own customers, we are able to really focus on the customers who have a longer and a better credit outlook, risk outlook.

Just coupled with that, we also are -- on collection, transaction capabilities also improved. So as our overall external risk environment, as we have seen from our peer companies, has been improving over time, we are less -- our 30-day collection rate has pretty much reached the all-time high and had been able to stay there for almost over 2 quarters now. So that's something that we are happy to report.

So just about -- with all things that go in place, we're expecting our overall risk is going even better. Especially with our existing customers, repeat customers book continuing to grow in a significant -- at a significant pace, we're expecting our portfolio risk to become even better. That will be all.

Great. That was extremely helpful. Also, appreciate the update on the Bweenet acquisition that you provided on the call. Can you maybe just talk through some of the next steps you guys have moving forward to integrate the company? And anything else that needs to be done over the next few quarters?

Yes. This is Delia. So currently, we are in the middle of integrating the functions of finance, operations and other supporting functions. So we expect to complete this consolidation within this month, by the end of June. So -- and the net -- for the full year, we estimate that Bweenet would contribute additional 20% of net income if we can stick to the current business strategy.

And as we have been highlighting in the commentary earlier, Bweenet is primarily focused on pivotal currency-related technology, mining hardware, design and distributing to mining management. So actually, Bweenet doesn't directly engage in cryptocurrency issuance, mining or exchange, something like that. So from that point of view, currently, we are operating this business fully compliant with the regulatory requirements. And we will observe and watch very closely and make sure to adjust our business if necessary and keep our operations within the regulatory framework. So that is basically, yes, the status of our M&A deal.

And then last one, if I may. The 30% to 40% sequential loan origination growth was great here. That's very exciting for 2Q. Can you just talk through your expectations for year-end? And if you have a -- it looked like you acquired some new customers this quarter, so any commentary you could provide on adding people to the platform as well would be great.

This is Yifang again, and I'm going to take your question. Can you repeat the second half of your question again?

Yes. So the repeat borrower percentage was down sequentially. It looks like you successfully added new customers to the platform. So any commentary you have there would be great.

Sure. So we are disclosing our next quarter's outlook, which is at a range from 30%, 40% -- 30%-plus range from -- quarter-to-quarter growth, which is even better than what we have seen this quarter. So I don't -- we don't have a number for the overall yet, but I am definitely expecting a stronger growth for the second half of this year.

So we just want to take the numbers out a little bit, just looking at the Q1 of our growth. So the growth primarily coming from Q1 is, as we are transitioning -- really closed P2P book in November last year, we are seeing our institution partners have gained significant confidence and interest on our portfolio just because of our -- also given our past performance on the risk metrics. So we are seeing more traction from our institution partners coming onboard. And we are seeing pretty good growth from our number of institutions that we are funding today and the healthy pipeline going in place.

So with a strong funding supply that we are seeing, our loan originations are doing the similar traction as well. So in Q1, we are in full speed in terms of our repeat customers portfolio. As you can see, our repeat -- percentage of our repeat -- percentage of loans from the repeat customers have grown compared to last quarter.

And similarly, we are starting -- expanding our new acquisition portfolio in the middle of Q1. It's very likely that in Q2, we're going to see higher percentage of the book coming from our new origination customers mostly because we have -- that's a decision driven by the growth.

I'm going to talk about risk a little bit. So we are fully -- seeking growth on new acquisition, our new book. At the same time, with our repeat customer book, we are still looking for ways to grow that as well from several aspects, product diversification, by offering a right range of both rate as well as the product terms. And in our [channel-based] marketing capabilities, we are expanding to full spectrum of the customer life span. Lastly but more importantly is also the customer experience. We are getting into every details of how we are interacting with the customers, trying to improve -- further improve our customers' engagement rate.

So on the new customer acquisition front, as I said earlier, that Q1, starting mid -- mid of this Q1, we are starting gaining more traction from booking more new customers, and that has been dropping through for our 2Q throughout. So we are getting -- we are signing customers through full spectrum of some marketing channels, including information-based marketing or partnerships with other Internet-based platforms, et cetera. And we're all getting -- we're booking more and deeper customers throughout all spectrum.

So in the Q -- in the second half of this year, we're expecting that we're going to focus a little bit more on optimizing our acquisition cost from -- throughout these marketing channel metrics. So that even though we are booking -- as I said earlier, we are also on full speed Q2 in terms of new customer acquisition, we are taking pretty prudent view on how -- in terms of the portfolio risk management. And this has all been the core of our lending business, to take a very critical and slightly -- I would say, slightly conservative view. We all maintain a very healthy buffer for us in terms of our risk expectations. And so all the underwritings are changed and as such, more comprehensive portfolio and channel-specific deals, trying to make sure that we are gaining the growth but not at the cost of deteriorating credit risk.

So that's our overall view of what we are expecting from a lending perspective in terms of net volume. Hopefully, that will be fully supported by our continuous growth with our institution partners. In the second half of this year, we are definitely going to see a much stronger second half year compared to the first half year.

(Operator Instructions) Seeing no more questions, I will return the call to Ms. Qian. 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 the progress.

Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.