OneConnect Financial Technology Co Ltd (OCFT) 2022 Q2 法說會逐字稿

Ladies and gentlemen, welcome to OneConnect earnings conference call for the second quarter and interim results 2022. (Operator Instructions) In addition, please be noted that this event is being recorded.

Now I would like to hand the conference over to your speaker host today, Ms. Danielle Gao, the company's Head of Investor Relations.

Thank you. Hello, everyone, and welcome to our earnings conference call for the second quarter and our interim results 2022. Our financial and operating results for the second quarter and the first half of the year were released earlier today and are currently available on our website at ir.ocft.com or hongkongir.ocft.com.

Today's participants include our newly appointed Chairman and CEO, Mr. Shen Chongfeng; CFO, Mr. Luo Yongtao; Board Secretary, Yiming Fei; and our CTO, Mr. [Li].

In today's meeting, you will hear from Mr. Shen Chongfeng, who will start the call with update of key achievements and business highlights. Afterwards our CFO Mr. Luo Yongtao will offer a closer look into our financials. In Q&A session, all management team will be available to answer your questions.

Before we continue, I would like to refer you to our safe harbor statement, in our earnings release press as we will be making forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that we may present both IFRS and non-IFRS financial measures. A discussion of the limitation of non-IFRS and its reconciliation to IFRS measures are included in the earnings press release.

For today's meeting we have both Mandarin and English channel. Our management team will stay in Mandarin channel and the interpretation will be provided in the English channel. If any discrepancy management statement in the original language will prevail. For today's meeting, we will offer webcast replay on our IR website.

With that, I'm pleased to pass the call to our Chairman and CEO, Mr. Shen Chongfeng.

Hi, everyone, I am Shen Chongfeng. Thank you for taking the time to join OneConnect Q2 and H1 earnings release. I would first like to announce a personnel change. On today's Board meeting this afternoon, the Board deliberated and approved with Dr. Ye Wangchun's resignation as the Chairman of the Board. The Board has trusted me to be appointed as Chairman and CEO. The Board would like to thank Dr. Ye for his contribution to the incubation of the company's innovative business model and product portfolio, expansion of target market and setting unique business model of technology plus business, which have paved the way for OneConnect Stage II growth strategy and long-term development. Dr. Ye will remain as our Executive Director in the future.

Growing complexities in the international landscape and relapses of COVID outbreaks, lock downs in places like Shanghai in the second quarter in particular, have reflected negatively on the macro economy. Despite these challenges, everyone at OneConnect did their best to overcome difficulties and achieve steady growth in the second quarter.

We completed our dual primary listing in both New York and Hong Kong as we officially listed on the Hong Kong stock exchange on July 4. This will cement our position as Mainland company with outreach to Hong Kong and Southeast Asia and boost our international reputation and competitive advantages. We have always valued Hong Kong as an important market.

OneConnect first established its Hong Kong subsidiary in 2018 to serve local financial institutions and regulators. Ping An OneConnect Bank, OneConnect wholly owned subsidiary, officially launched in 2020 as the first virtual bank focused on serving small and medium sized enterprises. We see good momentum in PAOBs development. The Asian banker included us into its global top 100 digital only banks ranking this June and awarded us the highest ranking among virtual banks in Hong Kong. We do hope that with our Hong Kong listing, more Asia Pacific based investors will take note of OneConnect and share with us the achievements of our rapid growth as we capitalize opportunities from digital transformation across the world.

Also an update on the share repurchase plan OneConnect announced on February 24. As of the end of June, the company has bought back 2.08 million shares of ADRs amounting to $11.17 million or 2.1% of total share capital. The company plans to use these shares as employee incentives. These efforts showed OneConnect and the management's commitment to long-term and healthy development in the capital market as well as our confidence in the OneConnect's prospects.

Of course, we do recognize the increasing uncertainties in China's economy caused by on and off COVID outbreaks. But we believe these are temporary influences. Over the long-term, the FinTech industry still enjoys enormous capital potential, evidenced by the various policies from regulators in support of the development of digital economy. As a part of the 15 5-year plan for the development of the digital economy, the State Council approved the establishing an inter-ministerial joint conference system on the development of the digital economy this June, lead by NDRC. The system consists of 20 departments, including the CBIRC and CRC and it will be responsible for implementing strategies to develop digital economy. As financial institutions become more digitalized, CRC estimates that by 2025, IT spending by financial institutions in China will total RMB 799.3 billion, representing a CAGR of 23.6% since 2020.

Looking forward, OneConnect will remain more committed to our vision, technology creates value through expertise. We will improve third-party revenue, recurring revenue and profitability with consistent productization, for us to create value for our customers and generate returns for our investors.

Next, I will brief you on OneConnect's business development in the first half and second quarter of 2022. You can go to our next slide and look at Page 3 and 4. As OneConnect is still in the second stage of customer upgrades, we continued our solid efforts in our one-body 2-wing strategy and achieved steady growth in our results.

Revenue up by 17.2% year-over-year, reached RMM 1.13 billion this quarter. Third-party revenue increased by nearly 10% to RMB 340 million. The number of premium plus customers grew from 113 to 134 or by 18.6%. Adjusted net loss ratio narrowed significantly to 18.6%, an improvement of 17.3 percentage points. This is no easy achievement as many industries are in a downturn due to macro impact from COVID outbreaks. OneConnect's performance is a result of effective execution of our Stage II strategy and enjoying efforts of everyone at OneConnect.

Please go to Page 3 and 4. You can see a map of our Stage II strategy. In this quarter, as a part of one-body 2-wing strategy, we have made some progress in digital banking, gamma platform and overseas, on which I will give you a more detailed introduction.

Please go to Page 5. In relatively mature division, commercial banking, we are more focused on improvements in our product functions and broader engagement with existing customers. In terms of products, we have established 3 mature solutions, namely Smart Marketing, Smart Retail Mid Platform and Smart Wealth Management.

Smart Marketing is the business development tool for relationship managers with 100% coverage of their everyday work, including existing customer operations and customer acquisitions.

Smart Retail Mid Platform includes 8 centers, for example, small customer and product centers, componentized, is configurable and with micro services. The Retail Mid Platform can make technology systems more flexible. Smart Wealth Management empowers digitalization in wealth management and with this coverage of wealth planning, portfolio, advisory, rebalancing, et cetera.

On broadening engagement with existing customers, we start with single modules to win customer recognition and continue to expand our corporation, which leads to usage of integrated products. 80% of premium plus customers from retail banking H1 are already our customers last year. Of these customers, we targeted a large bank to build reference cases for integrated products. For instance, with a trillion level AUM, City Commercial Bank, in Eastern China and 500 billion AUM, Rural Commercial Bank in Southern China. Our corporation with them started from retail digital transformation planning and smart marketing. Happy with our products, these customers expanded to Smart Mid Platform and Smart Wealth Management, which generated contract value over RMB 10 million in the first half of 2022 alone and are highly regarded by our customers.

Now please go to Page 6. Gamma platform integrated in the past few years, has rapidly increased market share. With OneConnect's unique business technology advantage, AI customer service combines rich expertise in financial scenarios with leading technology and offers applications in 3 business scenarios, namely smart customer service, from our loan collection and the smart marketing as well as a smart robot platform. This product incorporates 5 knowledge basis over 1,600 AI scenarios, over 200 QA models and over 2 million AI sales groups in the bottom layer, with AI adoption rate over 94%.

AI customer service is well received by the market. The number of customers nearly doubled compared with the first half of last year. At the same time, the product charge is based on volume, which means they're sustainable revenue. Half year results show that NER has already exceeded 80%.

Now please go to Page 7, which shows our business overseas. We have continued to make progress in Hong Kong and Southeast Asia, which are important parts to our one-body 2-wing strategy. Ping An OneConnect Bank is the first virtual bank to focus on SME services in Hong Kong. We are also the only one to use alternative data for modeling, which means simpler and more precise loan approvals for SMEs and recognition from Hong Kong MA and Hong Kong MC.

PAOB is committed to digital financial inclusion. Account opening can be done online and within 1 day. Of the customers we serve, 30% are first-timer loan applicants. Revenue growth in 2021 ran first among virtual banks in Hong Kong and revenue continued to show strong momentum in the first half of 2022, increasing by over 5x to RMB 45.7 million.

PAOB also enjoys great brand name in the industry, evidenced by awards from renowned financial media, including Asia Learning, the Asian Banker, Digital Banker. The bank ranked the 45th in the global top 100 digital-only banks ranking, top in Hong Kong.

Turning to Southeast Asia, we signed a strategic corporation agreement with Pismo, a core system provider in Brazil to explore SaaS core systems to small and medium size banking Southeast Asia and the Middle East. This is a strong complement to OneConnect's core system business development overseas. We are also working with CIMB Philippines to launch a cloud-deployed core banking system and mobile banking as well as the lending platform with full product coverage.

Now please go to Page 8. Technology product is our core competitiveness in the future. We further upgraded our product in H1, improving standardized functions and performance. The company updated over 40 product versions in the first 6 months. These iterations prioritized 2 things. Firstly, we aim at improving standard features to provide more comprehensive marketing and risk management, broader operation scenarios and smarter analysis in products.

The second thing is to make product structures more configurable and flexible through local development, process engine configuration and other product deployment and configuration are lighter, faster and easier. Despite pressure from COVID and the macro environment in Q2 and H1, with support and joint efforts from all sides, OneConnect has been on track to our Stage II growth strategy as we continue efforts in sales and product standardization, achieved steady growth revenue, narrowed losses and balanced business mix.

Next I will hand it over to Luo to introduce financial results in the second quarter and first half of the year. Luo, please.

Thank you, Mr. Shen. Good evening, everyone. Next, I will give you some update on our financial results in Q2 and the first half of 2022. Despite impact from COVID outbreak, OneConnect still managed to deliver solid financial performance.

Total revenue in Q2 reached RMB 1.13 billion compared with the RMB 970 million, the increase amounted to 7.2%. Third-party revenue grew by 9.6% year-over-year to RMB 340 million. At the end of Q2, premium plus customers or customers with revenue contribution over RMB 1 million was up by 18.6% to RMB 134 million. Excluding listing fees, net loss adjusted for listing fees reached RMB 210 million. Adjusted net loss ratio improved significantly by 18% from minus 36.1% in Q2 2021.

Page 11 is about the total revenue of OneConnect. Revenue grew by 17.2% in the second quarter. Whereas in the first 6 months, the top line increased by 20.4% to RMB 2.15 billion. I will give you more color on revenue growth drivers later.

Now let's turn to Page 12. Let's take a look at the revenue mix by customer type. Revenue by customer type remains stable this quarter. Contribution from third-party customers increased from RMB 340 million in the same period last year to RMB 344 million, up by 9.6%, accounting for 30.3% of our total revenue. AI customer service in Gamma platform, virtual bank business in Hong Kong were the main growth drivers for the third-party revenue.

COVID outbreak in Q2 remained a drag for the third-party implementation and risk management revenue, which includes auto insurance plans and off-line loan business. Growth will be better without these influences.

Contribution from Lufax grew by 19.9% year-over-year from RMB 90 million to RMB 107 million in Q2, representing 9.5% of total revenue. Growth mainly comes from cloud services platform and operation support business. COVID temporarily affected the revenue from loan business and implementation sales. Revenue from Ping An Group reached RMB 680 million in the second quarter, an increase of 20.9% year-over-year from RMB 560 million, representing 60.2% of total revenue.

Other than business origination, which was stayed by the COVID, other types of revenue all improved steadily. It's worth mentioning that in addition to cloud services platform, other types of revenue also experienced a steady growth, becoming equally important drivers of revenue growth for Ping An Group. We believe that as an important customer for OneConnect, Ping An Group will continue to work closely with us in operation support, risk management and cloud services platform.

Turn to Page 13. On revenue mix by business type, implementation revenue at 15.1% of total revenue increased by 7.2% year-over-year from RMB 159 million to RMB 171 million in Q2. Implementation revenues from Ping An Group and Lufax grew steadily, while third-party implementation revenue slipped slightly as a result of delayed delivery due to COVID. Business origination revenue declined by 11.1% year-over-year from RMB 118 million in last Q2 to RMB 105 million, accounting for 9.2% of total revenue. Off-line business interruption due to COVID was the main reason for the drop.

Risk Management revenue was down by 13.4% year-over-year from RMB 106 million to RMB 92 million this Q2. Its contribution to total revenue stood at 8.1%. As we mentioned in the last earnings call, risk management business is in a temporary decline as the result of stagnated off-line loan business and also insurance plan ecosystem.

Operation support revenue improved from RMB 274 million in the same period last year to RMB 317 million, an increase of 15.5% year-over-year, making up 28% of our total revenue. Operations support many charges from stock volume or usage, which may be less susceptible to COVID outbreaks. As a strategic focus, this type of revenue experienced growth from Ping An Group, Lufax as well as third-party customers.

Our contribution by product, the usage of AI customer services and remote services improved because of COVID. Cloud services platform remains the biggest part of total revenue, with revenue growing by 41% year-over-year from RMB 262 million to RMB 369 million in the second quarter, accounting for 32.6% of our total revenue. Revenue growth was mainly driven by Ping An and Lufax, as we continue to benefit from the group's strategy to deepen digital transformation.

Lufax, which will start a cloud services customer in the last Q2 also became an important contributor to growth this year. We will also draw your attention to the fact that third-party revenue in cloud services maintained the strong momentum seen in the fourth quarter. Despite this modest contribution to total revenue, progress in cloud services demonstrates OneConnects's capability to export cloud SaaS solution. As the bottom layer infrastructure, cloud services platform is an indispensable part of our solution.

Post implementation and other revenue was up from RMB 48 million to RMB 18 million and Y-o-Y increase of 56.2% or 7.1% of total revenue, benefiting from revenue growth from virtual bank business in Hong Kong. The virtual bank experienced the highest growth rate in 2021 among 8 virtual banks in Hong Kong and also saw revenue increasing by several folds in the first 6 months of this year.

Now let's turn to revenue mix by product type. As a strategic focus for innovation, Gamma platform was the biggest chunk of our revenue this third quarter, contributing 55% other than cloud services platform. AI customer service, the core banking system and other innovative business also presented a remarkable growth in Q2. On the other hand, the digital banking made up 25% of total revenue. Digital Insurance and the PAOB contributed 18% and 2% of total revenue, respectively.

On Page 15 is about our premium cloud customer. This quarter, we continue to implement our Stage II strategy where we focus on potential from premium plus customers. Building upon an increase of 15.6% year-over-year growth in Q1, the number of premium plus customers continued to grow this quarter by 21, bringing the total number to 134. Most of them being our existing customers, this increase also testifies our success in deepening engagement with the existing customers. New premium plus customers mainly came from Gamma platform and the digital insurance.

Page 16 is about our gross margin. Despite the blow from COVID, we are happy to know that the gross margin maintained a steady growth in Q2. IFRS gross margin improved from 34.1% by 2.1% to 36.2% this Q2. IFRS gross margin in H1 also grew from 34.1% in the same period last year to 35.2%, up to 1.3%. The improvement mainly comes from our efforts in sales and product standardization.

Sales standardization aims to improve the company's sales probabilities by guiding customers to purchase the standardized products and solutions. Product standardization is about improving product functions. As Mr. Shen mentioned, OneConnect released over 40 updated product versions in the first 6 months as we continue to improve standardization.

Non-IFRS gross margin in Q2 decreased by 2.3% from last year's 42.3% to 40%. As non-IFRS gross margin is unaffected by capitalization of R&D expenses, it is a better metric for comparison with our peers at 40%. Our non-IFRS gross margin outperformed the industrial average.

Page 17 is our expenses and profit and loss. Breaking even by mid-term has always been an important target for ourselves. We are pleased to report that in Q2, we are well on track to our midterm target as we made more progress in loss reduction. R&D expenses remain the key to our core competitiveness. The absolute amount of R&D expenses grew slightly compared with the same period last year from RMB 359 million to RMB 378 million, 5.2% increase. As top line growth, R&D expenses as a percentage of revenue dropped by 3.8% from last year to 37.1% to 33.3%. The company will continue to maintain our R&D investment level to keep our competitive advantages in products.

On S&M expenses, the company spent RMB 109 million on sales and marketing in Q2, accounting for 9.7% of revenue, an improvement of 3.3% versus the same period last year. As COVID outbreaks reduced sales and marketing efforts, bending on this aspect, a decrease in terms of absolute amount. In addition, thanks to economy of scale, as revenue grows, expenses as a percentage of revenue are also improving.

Regarding G&A expenses, general and administrative spending amounted to RMB 191 million in Q2, accounting for 16.8% of total revenue. Adjusted for one-off is increase of RMB 32 million. G&A stood at RMB 159 million, about 14% of revenue compared with 21.8% in the same period last year. The ratio improved by 5% and 7.8%, respectively. Based on this, we see that the operating loss narrowed significantly from RMB 395 million last Q2 to RMB 278 million this year. Adjusted net loss, on the other hand, further narrowed to RMB 246 million.

Operating margin experienced remarkably to 21.7%. And the loss was reduced from RMB 245 million. Adjusted operating loss was RMB 116 million. Adjusted net profit margin narrowed by 17.3% to minus 18.8%.

Page 18. You can find comparison of costs in the past 3 years and the last H1, which shows that we continue to work towards breaking even by midterm. Our current priority remains a steady growth in revenue and improvement in gross margin through sales and product standardization. Meanwhile, we will maintain strict cost discipline, implement a higher ROI requirement for R&D spending and the shutdown products falling short of our standards.

S&M spending is controlled with the improvement in sales capability and capital productivity. We also strive to curb the actual amount in G&A expenses. Based on this, we are very confident about breaking even by midterm.

Page 19. We have 3 focuses in the second half of 2022. The first is growth in third-party revenue. The second is sustainable growth in revenue. We will continue to update our products and services that charge on stock volume so as to generate stable and recurring growth in revenue. The third one is the cost discipline. We will improve our cost discipline and push ahead with the breaking even in the midterm. Nevertheless, we see strict pandemic control measures and slower-than-expected rebound in economy, which will put our operations in H2 under pressure. Therefore, we will take preemptive measures to cope with this impact.

For instance, more resources for operations and volume-based business promote remote delivery. In H2, OneConnect will continue to execute the Stage II strategy, where we will improve sales and product standardization as well as implement restricted cost discipline to overcome the impact from COVID and the macro environment.

In the last 2 pages, we summarized the key financial metrics in Q2 and H1. And adjustment in non-IFRS gross margin for reference. Thank you.

Thank you, Luo. Operator, we are ready for the Q&A session.

(Operator Instructions) Your first question comes from Morgan Stanley, Mr. Liu.

I have 2 questions. Firstly, I would like to ask about the outlook for the general environment. In Q2, we see measures of the COVID pandemic, and we also see risks from the property industry. So I would like to know what does the management think about the prospects of the banking industry?

My second question is about financials. We see a significant improvement in operating cash flow compared with Q1 and the same period last year. And we see very significant improvement. So I would like to know the reasons behind this improvement.

The first question will be answered by Shen Chong, the last will answer by Mr. Luo.

I will answer your first question concerning the macro economy and the expenditure effect. In the short run, we'll be more cautious about IT expenditure, especially as they focus more on reducing costs and improve efficiencies. In terms of IT, especially to -- which will not increase revenue in the short term, they will become more cautious. However, in the medium to long term, as regulators encourage digital transformation, we'll have higher demand for IT that can support their long-term business development.

The second aspect is that OneConnect has a unique business plus technology model with a very diversified business. Most of the revenue are actually booked in the business budget of financial institutions, such as in marketing, risk management and operating budget growth. As a result, when time is harsh, it presents an opportunity for OneConnect. You mentioned that the real estate sector is also affected by the macro economy. However, as the OneConnect serve SMEs and personal lending business, which are supported by the national policies. So overall although banks may be cautious about the IT expenditure in the short term, however when we look at business innovation and the development, they will increase their funding. This also perfectly fit with the OneConnect business plus technology model.

I will answer your second question. You mentioned that in mid-year we have a very sound cash position. We have RMB 2.45 billion cash position, including PAOBs and the subsidiaries under OneConnect. If we look at H1, we used around RMB 1 billion in PAOB. We used the RMB 260 million for other entities is around RMB 750 million. The usage of funds matches with our loss in H1. The loss stood at RMB 130 million. In Q1 because of volatilities n cash flow, if we compare cash flow with the P&L, we can witness some volatilities. However, if we expand the time horizon to look at the overall condition in H1, we can see they match with each other.

The basis for cash flow is operating profit and loss. This is our foundation. If we are to improve the cash flow, the priority will be reducing loss and breaking even as possible. This is the core for business operations of OneConnect. On top of it, cash flow management is also vital for us. In recent years, we have been very strict about cash flow management. For example, we have a higher requirement for recovery of funds. We will let the requirement to each be used under OneConnect and ask them to track how many days it takes for the funds to arrive. We also have KPIs that corresponds to the requirements.

If you look at the recovery of funds, you can find it takes fewer and fewer days for the funds to arrive on our accounts. This helps us to maintain very healthy cash flow for us. We will also track the ratio of receivables to revenue and maintain a very healthy proportion. And we see that the general trend of this ratio is dropping.

So by reducing loss and by actively managing cash flow, we are able to maintain a very healthy cash position of the company. Now we have ample funds to use. And there is no trouble being -- maintaining the daily operations of OneConnect.

(Operator Instructions) Your next question comes from Mr. Joe Tan from Dongfang Securities.

Congratulations to the management of the company for your solid performance in Q2. My first question is about your new products. We noticed that in the past few quarters, you disclosed progress in new products, for instance, for core banking system. So I want to know more about its momentum in the market and what are the competitive advantages?

My second question is about your business overseas. We noticed that for PAOBs, it experienced very rapid growth. In the future, was PAOB position strategy-wise and what's your outlook for the PAOBs business?

Your first question will be answered by our CTO, Yao Jun, and then Mr. Luo will answer your second question.

Let me answer your first question about the AI customer service and for banking system. First, AI customer service. If you look at the market potential and the target customers, medium and large financial institutions and regulators have a market of tens of billions. Although financial institutions have voice robots, but they lack scenario-based AI customer service. It will be the main growth point of AI customer service in the future. Compared with our competitors, OneConnect both technology plus model, plus business model, our AI customer service covers more than 2,000 banking, insurance and investment AI customer service scenarios, including telemarketing, loan collection and customer services as well as the profound experience in fine-tuning AI, financial scenarios.

And we have Ping An verify the business deployment processes. It can be widely replicated among financial institutions without much extra customization. The AI customer service also is highly recognized by the market as of the end of H1. The number of premium customers almost doubled compared with the same period last year. And the net expansion rate of value customers already surpassed 80% in 6 months' time. This is about AI customer service.

The second product is about core systems for banks. We have shifted from a single product to core systems, which are very hard to be replaced and will help us get higher customer stickiness.

In terms of competitiveness of the products, I think there are mainly 3. First, it is a cloud-based to digital banking system solution. It integrates with the front-end system of OneConnect seamlessly, which will better support online business as well as the information technology application and innovation hardware to improve for security level. It has modulized the design with comprehensive functions. We can configure these services at a single client level.

In terms of infrastructure, we use cloud-native micro service design. By leveraging the cloud computing, we can offer scalable core services for banks and provide them with a faster, more reliable and superior platform. We also use the homemade distributed infrastructure. We can make sure that the basic IT infrastructure used by banks are advanced, controllable and in line with the regulatory requirements.

In terms of the sales strategy, the upselling to existing clients works very well. If you look at our customers, most of them use our other products first before they use the core system.

In terms of market recognition, although it is a relatively newly launched product, core banking solution is widely recognized in the market. In H1, we have already acquired around 20 customers and third-party country revenue contribution increased by several folds from RMB 22 million in 2021 to RMB 78 million in the first half of 2022. The customer stickiness is also very high. The net expansion rate is over 100% in H1.

I'd like to respond to PAOB question. Among the 8 virtual banks in Hong Kong, PAOB is the only one that serve SMEs. Our goal is to leverage technology to provide SMEs with fast, convenient and cost-effective financial services. There are 3 features of our business. The first, that is the purely online process, the PAOB is the first of its kind to offer a purely online solution to SMEs. It only take 1 day for them to open account with us. PAOB is also the only one that use alternate data to do credit screening. Customers do not need to provide us their financial reports or collaterals to obtain a loan from us.

And the third feature is that we use the scenario-based customer acquisition and product development. The results are good. In 2021, the revenue growth ranked the first among all virtual banks in Hong Kong. In the first half of this year, the momentum was kept at 5.3x. In the future, we will stick to this development direction, which is to serve the SMEs. The market is huge. We only reached out to a small number of the business in need. We are very confident that we will maintain fast growth in the future.

(Operator Instructions) Your next question comes from Goldman Sachs.

Congratulations to Mr. Shen and Mr. Luo on solid financial performance in Q2. I have 2 questions. Firstly, I would like to know more about revenue growth in H2. Do you think revenue growth from third-party will outpace revenue from Lufax and the Ping An Group? And if we look at it by division, for instance, by digital insurance and digital banking, where do you see the opportunity for growth is?

My second question is about standardization. We talked a lot about standardization. And we see that it can bring improvements in gross margin. So I would like for the management to help me understand during product standardization, how will customers take ticket? And how do we reach balance between revenue growth and standardization? And will it make further contribution to our long-term growth?

Mr. Luo will answer your first question.

Let me answer your question about third-party revenue growth, the expectation. In the previous introduction, I mentioned that in Q2 and in H1 always poses impact on third-party revenue growth. Otherwise, in Q2 and H1, the third-party revenue, would have grew faster, especially in terms of implementation business origination and the risk management. These business lines were hit by COVID.

Third-party revenue growth remained a priority for us in 2022. The 3 keywords also mentioned third-party revenue growth. We have high hopes for third-party revenue growth. For example, in the banking business line and in the micro small and medium-sized enterprise loan platform, we continue to upgrade our products to meet their demands. However, because of COVID some off-line businesses were interrupted. And we hope in the second half, the COVID will be brought more under control and we will have higher revenue growth of third-party.

In terms of the Gamma platform, we mentioned a lot about the AI customer service, the growth in the number of customers and its recognition in the market. More core systems and data products are also developing gently. We hope that this will all contribute to third-party revenue growth in the second half of 2022.

Insurance product is one of the more sophisticated business line for us. The contribution is high, for example, the auto insurance vehicle system. And we hope that we can maintain the growth momentum. As the economy recovers, we will see better growth.

Another part is about our overseas business. PAOB was mentioned a lot. The business grew by 5.3x in H1. And we expect to maintain this momentum throughout 2022. PAOB is not only a virtual bank. It is also a benchmark for us in terms of technology and the system. It is embodiment of our advanced technology.

I believe these directions will all contribute to our revenue from third parties. Our medium-term target remains unchanged. We hope that the third party revenue will account for 50% of our total revenue in the future, and we are constantly working towards realizing this so.

The second question concerning standardization, will answer by Mr. Shen.

Let me answer this question. This year, the management to raise the 3 standardization, marketing, product and delivery, especially product standardization. In the past, the majority of products for banks are customized stuff, which makes it rather difficult to proceed this year because of COVID. Many banks started to control their IT expenditure. And they are willing to take testified business cases. So more and more banks accepted the standardized products now, and we are also building new benchmarks and to reach out actively with customers and make them understand that it is not only a server or IT infrastructure. It will help for their business to iterate and operate faster and bring better customer services. So that they are convinced that using standardized products is even better than customized versions. And we'll continue to guide our customers to accept more standardized products.

How we strive to balance between standardized and customized products? I think in the short term, we still need to use customized products. However, if we have existing standard products, we will reduce the need for customization. And in terms of -- and when there is no standard version, we will make the customer life version more replicable and more generic. In this way, we can include this customized version to our next standardized products. This is the principle for balance between standard and customized products.

Thank you, and that concludes our Q&A session. And I hand it back to the management.

Thank you, everyone, for joining the call today. This is the first earnings release after we got listed in Hong Kong. We appreciate your interest in following OneConnect and look forward to speaking with you again. If you have any questions, please contact our IR team, ocft_ir@ocft.com. Thank you.

That's all for today's meeting. Thank you for your participation and wish you a good day.

[Statements in English on this transcript were spoken by interpreters present on the live call.]