Qudian Inc (QD) 2018 Q1 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for Qudian Inc.'s First Quarter 2018 Earnings Conference Call. (Operator Instructions)

I will now turn the call over to your host, Ms. Sissi Zhu, Director of Capital Markets for the company. Sissi, please go ahead.

Hello, everyone, and welcome to the first quarter 2018 earnings conference call for Qudian Inc. The company's results were issued via Newswire services earlier today and are posted online. You can download the earnings press release and sign up for the company's distribution list by visiting the IR section of our website at ir.qudian.com. Mr. Min Luo, our Founder, Chairman and Chief Executive Officer; and Mr. Carl Yeung, our Chief Financial Officer, will start the call with their prepared remarks.

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 results may be materially different from the views expressed today.

Further information regarding these and other risks and uncertainties is included in the company's prospectus as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Please also note that Qudian's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Qudian's press release contains a reconciliation of unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.

We also posted a slide presentation on our IR website providing details on our results in the quarter. We will reference those results in our prepared remarks, but will not refer to specific slides during our discussion.

I would now turn the call over to our CEO, Min Luo. Please go ahead.

Thank you, Sissi. We delivered solid results to start the year, and I'm very pleased with how our team navigated the evolving Chinese fintech industry during the quarter.

We experienced an industry-wide credit downturn in the consumer credit markets following the regulatory changes implemented last -- late last year, and we swiftly took proactive steps to manage our risk by temporarily tightening our credit standards. Those proactive steps impacted our transaction count in the quarter, but we successfully derisked our book and experienced only a small increase in delinquency rates, which we expect to be temporary.

Despite fewer transactions and a smaller number of credit drawdowns, our total loan book grow in the first quarter, which (inaudible) risk. We choose to optimize credit terms and credit size to our high-quality users that increased our credit term and actually made our product more affordable by reducing the required monthly repayment due from users. And our strategic decision to tighten credit of riskier borrowers while offering high-quality users broader options is further evidence of the value of our robust data analytics as we utilized our efficient platform to connect funding sources with qualified borrowers.

As the quarter progressed, we saw improving delinquency trends. And following Chinese New Year, we began to experience -- embrace robust consumer credit demand. While we continue to closely monitor delinquency trends, all signs currently point to a resumption of stable consumer credit growth.

Our car business is on solid footing, and I'm excited to share some details about Dabai Auto and the vehicle leasing volume we are driving on that side of our business. Since November of 2017, we have opened over 175 self-owned Dabai Auto showrooms across the nation and have quickly established ourselves as a significant player in China's automotive retail market. Capitalizing on our in-depth knowledge of our key demographic, China's young generation, we have had great success positioning Dabai Auto as the first-time car financing solution for young people, providing an access to affordable cars in a comfortable shopping environment. And serving qualified but underserved borrowers with a convenient financing solution has been an obvious point of differentiation for us in the market.

We have also worked to differentiate ourselves from other auto sellers by providing quick delivery of the consumer's desired vehicle. Our current average delivery occurs in about 15 days while it's average of over 60 days for some of our competitors. We can do that efficiently with our huge investments in inventory by using our robust data and proprietary analytics to better predict consumer preference and manage our inventory accordingly.

In addition, we recently entered into an agreement with a large OEM in China, which is key to securing a cost-efficient -- effective supply of vehicles. This agreement is an endorsement from an established industry player of how far we have gone over a short time. We anticipate learning from this established Chinese auto industry [player] in key areas such as branding, marketing and capital management.

At the same time, the OEM will benefit by using Dabai Auto's channels to further penetrate medium and small cities while leveraging our big data and analytics capabilities to better understand those underserved by traditional financing source in China, especially youth market and their car-buying needs and challenges. We are very excited about this cooperative agreement and the real synergies in -- it will unleash. Strong OEM relationships and continuous improvement in operation -- in operational efficiency will help us minimize delivery time, enhance revenue per staff and create a strong competitive advantage to other providers.

At the end of the first quarter, Dabai had leased over 6,600 vehicles since November, and to date, we have exceed 10,000 leased and delivered vehicles. Historically, retail car sales are slower in the first half of the year and pick up in the second half. So we have focused on optimizing calendar operating efficiency and exploring opportunities in the first half of the year, becoming well positioned for the busy season.

We have solid momentum in our business, and all signs point to an improving consumer credit market in China. We are well positioned to leverage our over 65 million registered users, deep data analytics expertise and growing foothold in the Chinese auto market to continue to grow our business in the quarters and years to come.

With that, I will now turn the call over to our CFO, Carl Yeung, who will discuss our key operating metrics and financial results.

Thank you, Min, and hello, everyone. First, I'd like to touch base on a couple of highlights for the quarter. We delivered solid results in the quarter with our number of registered users reaching 65.3 million and our number of users who have been approved for credit reaching 27.5 million, nearly double the number of users approved for credit as of March 31, 2017.

Additionally, the data collected from the credit downturn period provided significant enhancement to our data analytic capabilities, giving us further ability to distinguish high-quality borrowers from low-quality ones. This allowed us to start offering slightly larger ticket size and credit terms to our high-quality users, witnessed by average credit size increasing to RMB 1,400 and average credit term increasing to 5.1 months in the first quarter of 2018.

The increase of credit term actually reduced the average amount of monthly repayment due from our users, making our product more affordable. For example, the average amount of monthly repayments in the first quarter of 2018 would be about RMB 300 based on the average ticket size of RMB 1,400 and the average duration of 5.1 months and 36% APR, down from the average amount of monthly repayment in 2017 of about RMB 400 based on the average ticket size of RMB 960 and a duration of 2.5 months over a 36% APR.

Our proactive management of market-driven risk was swift and effective as we witnessed delinquency rates stabilized and then fall. The risk level was appropriate again by the end of the first quarter to have the loan book grow. Our loan book actually increased from RMB 11.2 billion at the end of 2017 to RMB 12.9 billion at the end of March 2018 and now has reached RMB 14.6 billion today. Overall, the steps we took to derisk our book of business positions us well as the consumption credit market stabilizes and transaction volume growth resumes.

We're also well positioned to continue to grow Dabai by leveraging our large customer base, proprietary data analytics and strategic collaboration with established OEMs to serve China's new car market. We continue to closely monitor credit trends and leverage our proprietary data to manage risk while cost-effectively making credit accessible to creditworthy but underserved consumers in China.

Now I'd like to walk you through the detailed financial results in the first quarter of 2018. Total revenue for the quarter increased by 106% to RMB 1.7 billion from RMB 835 million in the prior year period, primarily due to the increase in revenues from sales-type leases as a result of the ramp-up of our Dabai Auto business. Financing income totaled RMB 777 million for the quarter, increasing 12% from RMB 697 million for the quarter of 2017.

Loan facilitation income and others increased to RMB 278 million for the quarter, up 661% from the prior year period as a result of the substantial increase of off-balance-sheet transaction volume as well as the required adoption of new accounting treatment. Sales commission fees increased to RMB 111 million for the quarter, an 11% increase from the same period a year ago. Revenue from sales-type leases was RMB 546 million, representing revenue generation in the first full quarter since we launched Dabai Auto.

Total operating costs and expenses increased by 366% to RMB 1.4 billion for the quarter from RMB 299 million for the first quarter of 2017. Cost of revenues increased by 461% to RMB 686 million for the quarter, up from RMB 122 million for the quarter of 2017, primarily due to the cost of sales-type lease incurred by the Dabai Auto business.

Sales and marketing expenses increased by 127% to RMB 123 million for the quarter from RMB 54 million for the first quarter of 2017. This increase was primarily due to the higher compensation and travel expenses associated with the Dabai Auto business in the first quarter of 2018 compared with the first quarter of 2017. Excluding costs related to Dabai, sales and marketing expenses actually declined 11% year-over-year, primarily due to a significant increase of transactions directly on our owned apps.

General and administrative expenses increased by 36% to RMB 56 million for the quarter from RMB 41 million for the quarter of 2017. The increase was primarily attributable to the increase in administrative fees payable to trust companies as a result of increased use of trust funding in the first quarter of 2017 (sic) [2018] compared with the same quarter in 2017.

Research and development expenses increased by 74% from (sic) [to] RMB 44 million for the quarter from RMB 25 million for the first quarter of 2017. This increase was primarily due to an increase in technology service expenses.

Our provision for loan principals, financing service fees receivables and other receivables increased by 779% to RMB 444 million for the quarter, up from RMB 51 million for the first quarter of 2017. This increase was primarily due to an increase in the M1+ overdue loan principals and financing services fees receivables, which we intend to provide sufficient allowance to cover. We have cumulatively provided RMB 806 million allowances for principal and financing services fees receivables, more than covering the actual M1+ overdue loan balance. Our M1+ delinquency by vintage for the new credit transactions facilitated in 2017 stayed less than 1.7% as of March 31, 2018.

Income from operations for the quarter was RMB 326 million, representing a 42% decrease from RMB 558 million during the same period last year. Income tax expense totaled RMB 9 million for the quarter of 2018, down 91% from RMB 92 million for the first quarter of 2017, primarily due to the deferred tax treatment and increased tax refund.

Net income totaled RMB 316 million for the quarter, down 32% from RMB 465 million for the same quarter of 2017. Net income attributable to the company's shareholder per diluted share was RMB 0.95 compared to RMB 1.53 in the prior year period. Adjusted net income attributable to the company's shareholder, which excludes share-based compensation expenses, decreased by 30% to RMB 338 million from RMB 486 million in the prior year period. The adjusted net income attributable to the company's shareholders per diluted share decreased to RMB 1.02 from RMB 1.60 in the same period last year.

As of March 31, 2018, the company had cash and cash equivalents of RMB 5.7 billion compared with RMB 6.8 billion as of December 31, 2017. The company also had a restricted cash of RMB 538 million compared with RMB 2.253 million as of December 31, 2017. The restricted cash actually is mainly representing the cash in consolidated trust that can only be used to fund credit drawdowns or settle these trust obligations.

As of March 31, 2018, the company had short-term amounts due from related parties of RMB 517 million compared with short-term amounts due from related parties of RMB 551 million as of December 31, 2017. Such amount includes RMB 512 million and RMB 549 million deposited in our Alipay accounts as of March 31, 2018, and December 31, 2017, respectively. Such amount is unrestricted as to withdrawal and use and is readily available to the company on demand.

Net cash provided by operating activities for the first quarter of 2018 was RMB 488 million. Looking forward, for the full year 2018, we are reiterating and reaffirming our prior guidance and continue to expect adjusted net income to be more than RMB 2.5 billion and the number of vehicles leased to be more than 100,000 units. Now this outlook is based on the current market conditions and reflect the company's preliminary estimates of regulatory, market and operating conditions as well as customer demand, which are subject to change.

With that, this concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.

(Operator Instructions) The first question comes from Charles Zhou of Crédit Suisse.

(foreign language)

So my first question is we also note that the accumulated car leased by your Dabai Auto is over 6,000. We also note that your sales and marketing expense is more than -- I mean, around RMB 17 million. You also talked about your full year target of 100,000 number of cars. So it seems to me that you're still a little bit far away from your full year target. So when shall we expect the number of cars to be -- pick up? So this is my first question. My second question is also we note some of the companies that use the financial guarantee -- I mean, like they own the financial guarantee company, and they use the -- and also, they have a financial guarantee license. And they use this as part of the credit enhancement. So may I ask -- so as Qudian, do you also consider to buy maybe a financial guarantee license going forward? If yes or no -- I mean, I also ask your reasons as well. And my third question is I know that provisional expenses increased a lot in the first quarter of 2018. So was this attributable to the high delinquency ratio for loans in the fourth quarter last year? As delinquency ratio already stabilized, so how is your trend for provision?

Charles, this is Carl, and thank you very much for the questions. I will answer directly in English. First of all, regarding Dabai, as we all know, the auto leasing business is a complex and long value chain. We have just launched this for a few months. For the quarter, we are learning a lot about how to lease cars in a complex nationwide environment. So we have done a lot of work in the first quarter to optimize the workflow, conversion rates and delivery times. Specifically, you have seen a significant increase (sic) [decrease] in our delivery times to now just around 16 days from, when we started, well over 20-something days. So there's a lot of optimization going on. Secondly, the Chinese auto segment does see seasonality. Typically, the first half of the year tend to be slower, and then the second half of the year tend to be more robust in terms of demand and sales. So we do expect the second half is where really the volume should pick up. Right now, we're still looking at a 100,000-vehicle target. We're not moving away from that because we believe -- we have the confidence of doing that -- saying that because we believe, out of the 26 million-plus people with credit limits, majority of them do not draw down on the very small credit size, and they have some sort of auto need. So from a probability perspective, 100,000 units out of 26 million is not unachievable as long as we get the details right. So that's where we are. The CNY 17 million sales and marketing expenses that you back calculated from our sales and marketing is really mostly initial setup fees, our staff flying around the different cities setting up these stores. So it should be very stable. We don't -- we haven't actually deployed so-called mass marketing to push volumes yet. And if we had to -- if we need to, we can deploy those options to reach these targets. As of right now, we still actually expect Dabai Auto to be breakeven, if not actually generate a sizable profit for 2018. Secondly, regarding the guarantee, thank you for observing that. We are in the process of applying our own guarantor license from CBRC. That timetable is currently uncertain, but we hope to get that in the next couple of months. At the same time, we already have signed up various license guarantor companies as well as insurance companies to match what regulation 141 requires. So we are ready to go, and there's -- we intend to be fully compliant with what regulation 141 is required of. And then the third question, which is related to our provision expense in the first quarter of 2018, as you can see, the actual M1+ coverage is 1.01 versus previous quarters, which are usually at 1.3x. We do not intend to do any conservative or aggressive accounting. This is the way our provision numbers are calculated. They're calculated based on the roll rate model for various delinquencies that reach into -- that performs into the quarter. And we use these to calculate the expected percentage of loss for loans -- for credit that is originated in the quarter. The coverage ratio is lower in this quarter because there is a clear -- very clear recovery of delinquency by February and March. So the delinquency coverage ratio came down. So we believe, generally, the worst has passed as volumes -- as transaction volumes as well as the loan balance continue to grow as well as the -- actually, delinquency balance grow at a slower rate. We expect going forward, as we discussed in the prepared remarks, we should see a much lower so-called delinquency coverage ratio -- delinquency ratio by vintage.

The next question comes from Daphne Poon of Citi.

So first, actually, I have a follow-up on the Dabai business. So we note that actually, in addition to the 175 self-operated stores, that you have also been recently expanding into the franchised store model. So I'm just wondering how much of the full year like 100,000 sales target is expected to be driven by these franchised stores? And second is on the funding side. We see that, from our calculation, it seems the on-balance-sheet funding cost has been coming down quite a bit in the first quarter to around 7% from our calculation. So would you be able to comment on the reason behind and your outlook on the funding cost trend going forward? And lastly is about the change in accounting policy. Just wanted to clarify that. Does that only apply to the off-balance-sheet part, i.e., the loan facilitation service fee? But for the financing income, is this still recognized on a cash basis instead of on upfront basis? That's all my questions.

Thank you, Daphne. This is Carl again. I appreciate the 3 questions. So on Dabai Auto, beyond the 170 stores, our company is continuing to explore ways to better reach and service our users. So we have signed up with very fragmented, multi-brand, single stores around China, namely in the fourth to fifth tier cities, to explore a cost-effective way to reach these users. So we're collaborating with some of these stores. But this is a process. As we discussed before on the call and elsewhere, Dabai is very new to us. Selling auto is a complex value chain, so we continue to see ways to service these users and explore various methods and optimize this experience. So as regard to how much for the full year, of 100,000 units would come from our own stores versus some of these so-called service provider partners, we don't have a good estimate yet because there's still being -- optimization program going on. For example, if a specific location yields a significant demand and car to be delivered, it might make sense for us to not -- no longer work with these service providers and open our own stores. At the same time, for locations that doesn't make sense, we may close our own stores, too. So it is a process. But we are confident about the 100,000 units as of today, since we have the users. It's a matter of picking the right locations to service them. So this is where we are on Dabai. And then secondly, on the funding side, on the balance sheet, in fact, as of today, our external funding cost has remained pretty much similar as last year. So whether they are trust structures or off-balance-sheet funding from banks or consumer finance companies, the annualized rate they charge us is roughly still the same. The observation you saw regarding the overall decline in the funding cost for on-balance-sheet transactions was we deployed an increased amount of our own cash behind -- as investors behind the trust structures to better use our, basically, very large cash balance that is not generating better returns anywhere. So going forward, we'll see pretty much a stable funding environment with -- some increase in the overall interest rate environment, in the market, but the overall so-called funding costs should be stable. And then finally, the change in accounting policy or namely ASC 606 that we adopted as required by FASB was applied since January 1, 2018. This only applies to off-balance-sheet transactions, where we are a facilitator in the transaction. The on-balance-sheet component of our revenues still use the existing or previous accounting treatment, where the service fees are recognized over the service term of this user.

Okay. On the funding side, will you be able to give us a breakdown in terms of like how much of the funding is from your own capital and from off-balance sheet and also from the trust channel as of 1Q?

Sure. I think I'm happy to share that with the community and market. If you look at -- I'll give you the comparison as well. If you look at the loan book outstanding, on December 31, 2017, the deployment of own equity was 26.8%. And then institutional funding partners that's on balance sheet external-wise is 55%. And then the off-balance-sheet institution funding was 18.2%. If you bring that forward to March 31, the self-funding part was 29.1%, so increased by about 2.3% versus 3 months before that. And then the institutional funding partners, external, that's on balance sheet is 46.3%. Now that is replaced significantly by the off-balance-sheet arrangements from institutional funding partners externally, which increased from 18.2% on December 31 to now 24.5%. Does that help, Daphne?

So in terms of the -- yes, that's very helpful. So in terms of the -- going forward, the funding mix, do you expect the off-balance-sheet portion to continue to increase?

Yes. We are looking to see that happen because we are seeing increasing demand from licensed banks to participate in what we have to offer.

The next question comes from Richard Xu of Morgan Stanley.

I have 2 quick questions. First of all, given the continued increase in registered users, I do notice that the pace of increase has somewhat slowed. At the same time, MAU also probably has moderated somewhat. Just wondering -- obviously, the firm have not been spending some marketing dollars on the cash business for some time. Just wondering whether, given the competition, more and more other firms are competing in the lower-rating categories and whether there's a need to actually later on increase marketing dollars for the cash loan products to maintain the active user base, MAUs, and drive higher growth in registered user base in coming years and quarters. Secondly, I guess, on the auto business, given also more entrants in the market, whether -- I don't know, whether you're seeing more competition in, I guess, some of the targeted cities from some of these other competitors at the moment as well.

Richard, thank you for the questions. These are 2 really good questions. Again, this is Carl. For observing the registered users to actual transacting users, in the first quarter, you would have seen a rather sharp decrease because our company proactively increased the disapproval rate or really, increased the rejection rate specifically from December to January to February to really derisk from refinancing users, and we have done that very successfully. So the results do show that the delinquency has come down. Now to get back to you on the specific marketing dollar, you actually see the marketing spend in the first quarter, taking Dabai Auto out, actually declined from the same period last year by 11%. The company's strategy is really never to market our way into users because, while we serve an interesting product or credit, if you market to users, you're really asking users to come and borrow. We'd rather stay with these consumption scenarios where the credit is needed in a convenient way, at a reasonable cost, affordable cost, and we intend to continue to do that. So we have no intention to step up our marketing dollar to convert more users into borrowers. So I think right now, looking at 60 -- close to 65 million registered users, still a long way to go for us to service the right credit product to them. So that's kind of where we are. We still have a lot of things to do. Like you see, we have optimized our credit terms in the first quarter. Although on the -- visually, on the surface, you've seen the ticket size increase and average duration increase, we've actually lowered the per-month repayment for each transaction from approximately CNY 400 to now CNY 300. So we're making things more affordable. We got rid of products that didn't make sense. So we think these optimizations of our products and services will continue to drive user engagement or actual transactions going forward. Regarding Dabai Auto business, there is and has been an increased sort of level of competition in this space because, as everybody can tell, the demand and the need is there. We do expect to put some marketing dollars behind this effort, really not for generating more sales away from competitors but really to educate our potential users. The product we serve is actually something that we prefer in terms of a very low-risk model, where these are direct leases. These cars' titles are owned by our companies. And in the Chinese market, not all users prefer that. They would see actually counterparty risk on our company because they would keep repaying, but the car still belongs to us until the very, very last repayment. We like this because the users are very unlikely to defraud us, but it does take some education. So with the, again, large user base, the network of auto showrooms still need to be optimized. We think we are in a very good position to really open this market up. And if there were any sales and marketing dollars to be spent, we would spend it reasonably to really educate potential users only.

Just one follow-up, quick question. I understand -- totally understand the number of active borrowers as the firm tightened the credit standards, but just wondering whether management is a bit concerned on the average MAU year-on-year decline in the first quarter, given that, that would be impacted by the credit approval decision. So I don't know if there's any specific reason behind that or management expects a rebound in year-on-year growth in the MAU where, I guess, the active borrowers will come from.

Yes. Thank you, Richard. The actual MAU in the first quarter has declined from the fourth quarter by about 30%. That, I think, is really mainly due to the overall ecosystems. The large ecosystems in China have basically sort of tuned down various exposures because of regulatory movements. The demand is there. I don't -- we don't question that. The credit need for the underbanked is just so massive. So we hope and we believe that number should rebound somewhat. But let's still assume the so-called base-case scenario, where these MAU sticks and doesn't grow. Even at that situation, we're still looking at 20-plus million unique users that come and visit our app -- or across our own ecosystem every given month, which still means a very large and sizable opportunity for various credit products even, out of 20 million, we just served 4 million in the first quarter. So there's still a lot of things to do.

The next question comes from Jinjin Qian of Needham.

A couple, if I may. One is to follow up on the user base. Obviously, you've expanded the size of your loan ticket to about CNY 1,400. Just -- and you said you're trying to focus on a high quality of users among your registered user base. Can you help us get a sense of how many of the 65 million or 27 million would you consider to be eligible for this larger ticket size? And in terms of your future customer acquisition strategy, are we going to move towards a higher tier of customers, a little different from what we've been focused before? Or you're going to be still targeting the same user base but some will be maybe eligible for the smaller ticket size and then, as they grow, you'll kind of expand to the larger ticket size? So kind of on the high level, has the strategy kind of changed given all the industry change? So that's one question on the consumer credit. So second is on auto business. Can you help us understand, on the inventory side, what is the typical inventory internally you're seeing? How many vehicles do you have in your inventory right now? And sort of how much capital would you expect to be needed to reach your 100,000 target this year?

All right. Thank you very much, Jinjin Qian. And I'd like to help the community understand the size of loan ticket. I think we've mentioned just briefly that, actually, although you see the loan ticket average size increase to CNY 1,400 with a term of 5.1 months, the actual per-month repayment has been lowered to about CNY 300 versus CNY 400 last year. One of the things we have done behind this effort was we actually got rid of all the so-called weekly products, where a user will come and borrow on a bullet term this week and then repay next week. What we have found through the credit cycle -- credit downturn was this type of product was more associated -- correlated closer to refinancing users than anything. So we got rid of that product. And when that product is gone, when you don't have a lot of users borrowing on a weekly basis for RMB 300, RMB 400, RMB 500 a week, the average does go up. Secondly, because most players have shrunk their balance sheets in the first quarter -- well, most players who are responsible, they have shrunk their balance sheets in the first quarter, we have seen a group of users with very high-quality data and so-called expected low delinquency to come through to our platform. And for those users, with that strength in our data analytics, we believe we can serve them with a higher ticket size. But as of this moment, we do not still serve any users over RMB 10,000. That's kind of where our cap limit is. And for those RMB 10,000 credit limits, the terms are usually 12 months, which actually still make that transaction per month a small credit size of less than CNY 1,000 per month. So that's kind of where we want to stay at. So overall, we continue to want to focus on the really underserved, under credit -- under-access-to-credit users who's making RMB 3,000 to RMB 5000 a month, where our advantage is just superior to other competitors. So we don't have intention to venture into unsecured credit lending into, say, the CNY 50,000, CNY 100,000 category. So that's kind of where we are. Secondly, in terms of Dabai Auto, as of March 31, we actually had an inventory balance of slightly over 2,800 cars. And as of right now, we have 5,700 cars in inventory. We believe this is kind of right level of inventory to get to the growth we want to be. We actually carry out a smarter inventory sort of logic in growing Dabai Auto. Number one, we don't do a single-brand product. It's all multi-brand. So we ensure the vehicles that we want to carry inventory are hot-selling models. But for the long-tail demand, we try to pick them off dealer distributors where they have problems and slow -- but they have slow-moving inventory, too. So with the combined -- 2 together, we actually have a fairly flexible inventory model where we can get inventory at a lower cost, at a faster pace, and we can sell these cars nationwide. In terms of the capital required to get to, say, 100,000 cars this year, it should be somewhere around RMB 4 billion to RMB 5 billion, where we would finance roughly 500,000 units of cars -- 50,000 units of cars, sorry, 50,000 units of cars. And then the remaining 50,000 out of that 100,000 units, we'll find external ways to finance such.

The next question comes from Linda Sun-Mattison of Bernstein.

Carl, I have a question regarding general cash flow industry environment. The government -- the tightening from December, there was a timetable about cleaning up the cash flow industry by end of April, I think. Can you give us just general idea where the players are? Have you heard of any players being -- expanding or shrinking? I just want to get a sense how this is developing and whether we've seen the last of regulatory tightening. And then following on that, I'm looking at your Slide 8. In Q1, as a lot of questions were centered around it, we've seen big decline. I think probably very straightforward question is when are we going to see this rebound? You said there is enough demand. But how -- when do we see this come to your financial numbers and your KPIs?

Thank you very much, Linda. The first question, I'm not in a position to predict where government heads. I don't think anybody in the world can. But I can comment on the actions taken, and we can offer our view in terms of what these actions mean. So first of all, there was a lot of regulation issued throughout last year actually. And then regulation 141 came out December 1. The government, all in all, has really never put a so-called stop-all approach to this industry, but rather offered guidelines in how you should run the business to serve this underserved credit need. There were timetables attached to some of these regulations. The April one you mentioned was more towards the P2P registration process, which the government has actually moved the deadline back without giving a further deadline timetable. I think through the conversations we have with industry participants as well as associations, we have -- we believe the government also knows that the companies who do not charge exorbitant rates, who do not go out and hurt users are actually doing the industry good, right? Because if we are gone, if other players are gone, the demand is still there. Where do this demand go? They basically go offline to loan sharks, and ultimately, people get hurt. So as long as this industry operates with our own reasonable -- and we provide affordable credit, the government knows that this is an okay thing to do. So you have seen the move back of P2P deadlines. You have seen some of these deadlines regarding confirmation of various licenses, small loan license, for example, has really not been enforced or deadlines moved back. So overall, I think the environment, from regulatory perspective, is more relaxed, and it gives the quality players much more room to service these -- the credit demand. Secondly, on the second question, we are seeing substantial rebound. If you were to look at our first quarter, the rough -- I'm not -- I can't give you the detailed numbers, but the rough average loan balance all the way from -- throughout January and February and all the way through the most of March was around RMB 11 billion. The RMB 12 billion loan balance you saw at the very, very end of March was really just increased in the very last week or 2 of March. And I'd just mention our current loan balance is CNY 14.6 billion, but delinquency rate has actually come down. So everything you've seen in terms of declines in transaction volume, declines in loan balance, increase in delinquency rates by vintage will actually basically all reverse in the next quarter or so. So it's very, very clear to us where our rebound was. That's why we had the confidence to really reaffirm that RMB 2.3 billion of net income that we hope to do this throughout the full year.

Yes. Carl, can I just ask a quick follow-on question? You're still regulated -- are you still regulated under (inaudible), with the license issued by the (inaudible)? And currently, can you just clarify the kind of license situation? Is there any update basically to what we've heard from you during the Q4 briefing?

Okay, sure. I can help. So our company is really a truly fintech company. There is a tech component of it and there is a fin component of it. Now the tech component of it is nothing more than an Internet platform with apps and data analytics to -- and machines and connections with various financial institutions. That part carries an ICP license, which we have. Now we do also provide loans to our borrowers on our own equity. That part has to go through licensed financial institutions. For every loan that goes out our door, it is our company policy it has to go through a licensed financial institution. Now we also have a license -- or we actually have 2. We have 2 Internet micro lending license, and we still have those. They are under review by the (inaudible) or local financial office under the CBRC. As to the outcome of that, nobody knows yet. But our business, as usual. In fact, in the 20-F that we so-called submitted a month or so back, we have not been operating in that entity -- those 2 entities since December, and our business has not been interrupted because other entities, financial -- the license that we have, we work with all licensed financial institutions, and they've been basically -- we have been a facilitator for the transaction. So really, not much has changed.

The next question comes from Phil Yao (sic) [Zeyu Yao] of CICC.

(foreign language)

I have 2 questions. Firstly, we believe Dabai Auto sales will keep increasing as we have the capability for channel, capital, customer base and operation. However, are we already prepared for the alternative funding for this to support the increasing Dabai Auto sales? And secondly, what's the APR on average for our cash loans currently? And what number should we project in the mid and long term?

(technical difficulty)

So first of all, thank you for the 2 questions, Zeyu. And I'll answer directly in English, and appreciate the comments. First of all, regarding auto financing, so the financing support to grow this business is strategically intended to be driven by our own capital first and then we seek external funding. But we're not waiting for that full scale of external funding to be finished and then go out to get funding. In fact, in the first quarter, 2 major external funding partners, one is a bank, one is a licensed asset management company, a very large scale one, has already stepped in to provide partial funding to some of these auto transactions. So they are ready to go when that volume picks up. So the so-called -- basically, the infrastructure for funding is already set up and are ready to deploy. We have full confidence in bringing in more funding partners because this -- if you look at our portfolio of autos right now, we've leased up 6,600 vehicles in the first quarter with 0 M1 delinquency. And if you bring that number forward to now over 10,000 vehicles leased out, we have 5 M1+. This is an extremely high-performing asset. Plus, we are bringing some very interesting fintech elements to this portfolio for our asset buyers. In the traditional days, you buy an asset portfolio, you would just buy an asset portfolio. These days, for example, when you do this asset portfolio with us, we actually provide you a platform -- a tech platform behind, where you can track individually how many miles a car has driven, what locations where it's at because each of the vehicles are equipped with multiple tele-metrics. So that's kind of where funding is. So we already have people stepped in to -- and that process is already getting started. Regarding cash loan pricing, I believe the average actual APR in the first quarter is somewhere around 31% effectively. We don't intend to bring this pricing down because we don't see any competitors that can do this size of a transaction at near these rates right now in the market. In fact, we have full confidence we would actually be looking at a full 36% APR across all the product except for auto. Now actually, if you look at the per-month financing service fee or the interest on a monthly basis, 36% versus, say, 30% versus, say, 24%, the absolute difference in terms of renminbi, because each ticket is still very small on the monthly basis, is roughly a few renminbi difference. So there really is no actual impact that will drive -- or that would enhance or deteriorate user demand by changing pricing. So we have full pricing power. We intend to keep 36%. Thank you, Zeyu.

The next question comes from [Liyang Lu] of L Squared Management.

Carl, just have 2 questions. One is regarding the active users. I know you disclosed this number. Just wondering how many -- what percent of those users is actually new users, if you can disclose that.

Okay. [Liyang], thanks for asking that question. So out of the disclosed active user in the first quarter, roughly 500,000 in that quarter was new users. So out of 4.1 million, 500,000 were new users.

Okay, got you. And the other question is really about -- you talked about the reverse -- or substantial rebound across all the metrics. Just wondering whether we can have some ballpark numbers on those April numbers. And how -- where do you see the [sharp development] should come from, coming from the new users or just like more repeaters or like higher (inaudible)?

Okay. Thanks for that question. I won't mention specifically April. But you saw the loan balance at the end of March at CNY 12 billion -- just roughly slightly over CNY 12 billion. But that full quarter in the first quarter is really generated -- that net income is generated roughly around a RMB 11 billion loan balance. From CNY 12 billion by exiting March, we've been maintaining around CNY 14 billion throughout April to now, May. We are, right now, sitting on CNY 14.6 billion. So the rebound is very, very large. It's substantial. And we believe that the financial impact should be quite significant as we go into Q2. The confidence to really grow that is really we observed very closely minute changes in the market as well as the observed actual delinquency rates. The delinquency rates with -- effective risk management that we have implemented since December last year was effective. Our delinquency rate has come down. So we're confident to grow that loan volume. Now what's -- loan book. What's driving that loan book growth is really you won't see a substantial increase in the active borrowers because we've gotten rid of the -- a lot of the repeat financing users. So we've -- but our product is now exposing more and more to more new high-quality borrowers as a lot of platforms exit and we can pick and choose which people to serve. So you would see, as we venture into time, a slight increase in the overall ticket size as well as the duration, as we've seen in the first quarter.

Okay. Just one last housekeeping question. Regarding the share buyback, any update on the progress of it?

Well, the board did announce the $300 million. We do not disclose specifically how much we've bought back. We have bought back -- we're not like other company where they announce something and didn't move. We have bought back a large chunk of that throughout last year. Right now, because there is substantial demand in our business services as well as new ventures such as Dabai Auto, we intend to use that capital in driving business growth rather than just buying shares off the market.

As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact Qudian's Investor Relations department using the contact information provided on our website.

This concludes this conference call. You may now disconnect your line.