X Financial (XYF) 2022 Q2 法說會逐字稿

Hello, and welcome to the X Financial Second Quarter 2022 Earnings Conference Call. (Operator Instructions) Note, this event is being recorded. I would now like to turn the conference over to Tanya Wen. Please, go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. The company's results were released earlier today and are available on the company's IR website at ir.xiaoyinggroup.com. On the call today from X Financial are Mr. Kan Li, President; and Mr. Frank Zheng, Chief Financial Officer.

Mr. Li will give a brief overview of the company's business operations and highlights followed by Mr. Zheng, who will go through the financials. They are all available to answer your questions during the Q&A section. I remind you that this call may contain forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those -- from the forward-looking statements. Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not take -- undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law. It is now my pleasure to introduce Mr. Kan Li. Mr. Li, please go ahead.

Hello, everyone. We are pleased with our performance this quarter -- this past quarter, given the great challenges brought by the significant economic slowdown and due to the escalation of COVID-19 containment measures in China. We continue to scale up our loan facilitation volume while improving asset quality quarter-over-quarter.

Total loan facilitated and provided during the past quarter maintained a steady growth on both a yearly and quarterly basis, exceeding the high end of our forecast, thanks to our effective risk management system and premium borrower base. We saw a meaningful decrease in the delinquency rate from the previous quarter. We have further demonstrated our business resilience and ability to navigate in tough conditions.

During the second quarter, our total loan amount facilitated and provided reached RMB 17 billion, representing an increase of 32% year-over-year and 11% quarter-over-quarter. The delinquency rate for all outstanding loans past due for 31 to 60 days as of June 30, 2022, decreased to 0.93% from 1.31% as of March 31, 2022. While the asset quality of the financial industry as a whole, deteriorated during the quarter due to the macro headwinds, we managed to improve our asset quality as we continue to enhance our risk management system. We expect our asset quality to remain stable in the second half of the year.

During the past quarter, we stepped up our efforts to acquire more high-quality borrowers. As a result, our number of active borrowers increased 22% (sic) [28.2%] on both a yearly and quarterly basis and reached a high level of over 1 million in this quarter. We are pleased to see that our products and services have been well received by an extensive and growing user base. This is a testament to our reputation for reliability, and it has laid a solid foundation for our future growth.

Going forward, we will continuously expand and deepen our cooperation with our institutional funding partners to jointly serve the diverse financial needs of small and micro businesses and consumers in China. On the regulatory side, the China Banking and Insurance Regulatory Commission issued the Notice on Strengthening the Management of Commercial Banks' Internet Loan Business to Improve the Quality and Efficiency of Financial Services on July 15, 2022.

The new rules affirm the positive role of Internet loans further refine and clarify the requirements for Internet loan management and extend the grace period for the rectification of Internet loan operations to June 2023 from July 2022. This initiative aims to promote the stable and healthy development of the Internet loan business, and it is part of the government's stimulus strategy to revive the pandemic-hit economy by encouraging more credit to stimulate investment and consumption.

This is conductive to the overall development of the financial industry and the extended grace period also gives us more time to explore marketing opportunities under the new regulation, especially financial services for small and micro businesses. Looking ahead, with the COVID-19 pandemic subsiding and the macro economy gradually rebounding, we are cautiously optimistic about our business in the second half of the year. With an increasing accommodative environment, we expect to see steady sequential growth in upcoming quarters.

Now I will turn the call to Frank, who will go through our financials.

Thank you, Kan, and hello, everyone. Although our top line saw a slight decrease on a quarterly basis as we continue to reduce the total borrowing cost of the borrowers and in line with the government guidance, we improved our bottom line from the previous quarter. Net income for the second quarter of 2022 improved to RMB 186 million from RMB 140 million in the previous quarter and the non-GAAP adjusted net income for the second quarter of 2020 was RMB 211 million, representing an increase of 37% quarter-over-quarter with a more stabilized macro economy and a clearer regulatory environment. We expect to see further improvement in financial performance in the future.

During the second quarter, we started to execute our share repurchase program. Going forward, we will continue to keep a close eye on market dynamics regularly revaluate how to best use our cash in order to maximize returns for our shareholders. Now I would like to brief some financial performance for the second quarter. Please note that all the numbers stated are in RMB and are rounded up.

Total net revenue decreased by 12% to RMB 824 million from RMB 932 million in the same period of 2021, primarily due to a decrease in average total borrowing cost of borrowers and also partially offset by an increase in the total loan amount of facilitated and provided this quarter compared with the same period of 2021.

Origination and servicing expenses increased by 2% to RMB 333 million from -- I'm sorry, to RMB 533 million from RMB 521 million in the same period of 2021, primarily due to an increase in the commission fees resulting from the increase in total loan amount facilitated and provided this quarter, partially offset by an increase in insurance fee paid to the insurance company.

Provision for accounts receivable and the contract assets was RMB 26 million compared with RMB 25 million in the same period of 2021 primarily due to an increase in accounts receivable from a facilitation services as a result of the increase in the total loan facilitation amount this quarter compared with the same period of 2021.

Provision for the loans receivable was RMB 32 million compared with the reversal of provision for the loans receivable of RMB 1 million in the same period of 2021, primarily due to an increase in loans receivable held by the company as a result of the increase in total loan amount facilitated and provided this quarter compared with the same period of 2021.

Income from operations was RMB 194 million compared with RMB 338 million in the same period of 2021. Net income was RMB 186 million compared with RMB 223 million in the same period of 2021. Non-GAAP adjusted net income was RMB 211 million compared with RMB 242 million in the same period of 2021. For further financial information, please refer to the earnings release on our website.

Regarding our share purchase plan. On March 30, 2022, we announced that our Board had approved a share purchase plan, under which the company may repurchase up to USD 15 million worth of its Class A ordinary shares in the form of ADS until September 2023. As of end of June 2022, we had repurchased an average about 174,000 ADS.

Now for our business outlook. We expect total loan amount facilitated and provided for the third quarter of 2022 to be between RMB 19 billion and RMB 20 billion. For the full year of 2022, we expect the increment in the total loan amount facilitated and provided to be no less than 25%. This forecast reflects our current and preliminary views, which are subject to change. Now this concludes our prepared remarks, and we would like to open the call to questions. Operator, please?

(Operator Instructions) Our first question comes from Mason Bourne with AWH Capital.

I guess to start, given your commentary and outlook, it seems like you're a little more positive about the regulatory backdrop. Could you talk about what's driving that?

Okay. I'll take this. And I think it's more -- Frank, I'll take this one. I think it's probably more of our assessment of the current environment rather than the regulatory changes, as you know, because of the COVID-19 impact. I think it's more of the COVID-19 measures impact on the Chinese economy. And right now, there's just a lot of demand for granting loans. So I think right now, we are just in a very good position to take advantage of our premium customer client and clientele. So during the past 3 quarters that we have accumulated enough of premium customers, so in the second half of this year, that we are going to benefit from our previous investment. That is why that we can increase our scale.

Okay. So it sounds like demand is strong. How about the funding side of things? Are you seeing maybe easing of conditions that's allowed you to lower your funding rate?

We do see some lowering on the funding rates. And I think this is more -- we -- our assessment is that this probably will be temporary in the short term, but at least for the second half of the year, it's going to is going to continue where -- so our assessment is based on -- our forecast is based on this assessment.

Okay. And then lastly, I think your tangible book value is around [RMB 11.40] per share. What are your thoughts on the buyback? I know you did some in the quarter, but do you view this as an opportunity to attractively buyback shares at a discount?

That question I'm going to leave that to our CFO, Frank.

Okay. Last open window, we bought, as we stated, about 174,000 shares, something like that. Because of our shares are trading very thinly, so we actually maximized the order allowed under relevant rules for the buyback. And we will continue to do that, and we will explore other ways to buy more share if the opportunities arise.

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Tanya Wen for any closing remarks. Please go ahead.

Thank you, everyone, for joining us on the call today. If you haven't got a chance to raise your questions, we will be pleased to answer them through the follow-up contacts. We look forward to speaking with you again in the near future. Thank you.

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