X Financial (XYF) 2021 Q1 法說會逐字稿

Good day, and welcome to the X Financial First Quarter 2021 Earnings Conference Call. (Operator Instructions)

Please 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 are 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. [Ken Lee], President; and Mr. Fuya Zheng, Chief Financial Officer. Mr. Lee 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 session.

I remind you that this call may contain forward-looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and the current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors 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 in the forward-looking statements For the information regarding this and other risks, uncertainties and factors is imported in the company's filings with the U.S. Securities and Exchange contrition.

The company does not 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. Ken Lee. Mr. Lee, please go ahead.

Hello, everyone. We are very pleased to report a strong start of the year, and our business is fully back on its growth trajectory, aiming subsiding coveting endemic time In the first quarter of 2021, both our operational and financial results continue to show progress against our strategic objectives. Our top line significantly improved on both a yearly and quarterly basis, in line with the substantial increase in our loan facilitation amount. We also managed to turn profitable with net income exceeding our guidance and outperforming compared with the fourth quarter of 2019, just before the COVID-19 pandemic. During the first quarter, our total loan facilitation amount reached RMB 10.9 billion, an increase of 59.1% year-over-year and 25.2% quarter-over-quarter, representing a record high in the last 2 years. This was mainly driven by the strong growth of non facilitation among the amount of [showing] car loan, which increased 14.4% year-over-year and 35.7% quarter-over-quarter.

Since last year, we have shifted our product focus to selling card loan, which accounted for 100% of total loan facilitation amount for the first quarter of 2021 compared with 92.2% in the previous quarter. Our focused product strategy has proven to be effective in gaining traction among borrowers and deliver profitable growth. As of the year of March 2021, total outstanding loan balance of Xiaoying Card Loan reached RMB 16.3 billion, an increase of 29.4% compared with the prior quarter. We will continue to enhance and focus on Xiaoying Card Loan products to address consumers' growing financing needs going forward.

In the meantime, we have been working to expand our service coverage by exploring more opportunities to diversified geographic reach will further enhance our business flexibility and help us the macroeconomic and expand our funding sources. This is one of our key business development strategies in 2021 and beyond.

In addition, we will further strengthen risk management by introducing more advanced and effective data analytics and further improve asset quality.

In May 2021, we received approval from the local financial regulatory Bureau of Shenzhen municipality to set up , Xiaoying Microcredit, which is a newly established entity as one of our VIEs for the purpose of operating a microcredit business. Xiaoying Microcredit is the first company of its kind to successfully transform from a P2P business to an online microcredit business. Such approval is a major milestone toward our fully regulatory compliance. It will also expand our services beyond consumer financing and provide more comprehensive financial services to the large pool of micro and small business and self-employed individuals in China, which are key drivers and contributors of Chinese economic growth.

The government is taking a series of active measures to promote the development of micro and small business and self-employed individuals. We will cooperate with other licensed financial institutions to meet their financial needs. This license will enhance our credibility and give us advantage when we cooperate with our other financial institutions, including the benefit of cutting intermediate costs. We are expecting to commence operations in the third quarter of 2021.

Moving forward, market demand for our products and service continues to grow, and we expect to maintain our current growth momentum throughout the year. China's consumer financing and micro and small business financing markets have great potential. We believe we are well positioned to capture opportunities that with our transit brand, full regulatory compliance and are deepening cooperation with financial institutions.

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

Thank you, Kan, and hello, everyone. We are pleased to have delivered a strong financial performance during the first quarter. Total net revenue increased 71.3% year-over-year and 26.5% quarter-over-quarter to RMB 906.3 million. Our net income for the quarter was RMB 192.8 million compared with a net loss of RMB 196.3 million in the same period of last year, and a net loss of RMB 655.5 million in the previous quarter. This significant improvement in our top line and the bottom line resulted mainly from the strong growth in our loan facilitation amounts, enhanced operational efficiency and intensive premium borrower base.

During the first quarter, the proportion of the loan amount we facilitated covered by third-party financial guarantee companies increased to 48.1% from 38.8% in the previous quarter. Our efforts to expand partnerships with the third-party financial guarantee companies to further optimize financing costs for borrowers, and will remain our agenda throughout the year.

In conclusion, the progress we have made this quarter has strengthened our position and the reputation in the market and improved our ability to expand and deepen cooperation with the financial institutions. We are entering a new chapter of journey as our core consumer financing business gets back on track, and we are ready to explore additional opportunities in the microcredit sector as well. we remain confident of the enormous potential of the industry and our capabilities to deliver long-term growth and return to our shareholders.

Now I would like to brief some financial performance. Total revenue in the first quarter of 2021 increased by 71.3% to RMB 906.3 million, USD 138.3 million, from RMB 529 million in the same period of 2020, primarily due to a change in the product mix with the increase in total loan facilitation amount of the Xiaoying Card Loan in this quarter when compared with that in the same period of 2020.

Origination and servicing expenses in the first quarter of 2021 increased by 28% to RMB 572.5 million, USD 87.45 period of 2020, primarily due to the increase in the commission fees and the insurance costs, resulting from the increased total loan facility amount in this quarter when compared with the same period of 2020.

Provisions for the accounts receivable and contract assets in the first quarter was RMB 17.3 million, USD 2.6 million, compared with RMB 82.1 million in the same period of 2020, primarily due to a decrease of the average estimated default rate compared with that in the same period of 2020, and partially offset by the increase in the accounts receivable from facilitation services as a result of an increase in total loan facilitation amount in the first quarter of 2021.

Provision for the loans receivable in the first quarter of 2020 was RMB 26.6 million, USD 4.1 million, compared with RMB 42.8 million in the same period of 2020, primarily due to a decrease of the average estimate default rate compared with that in the same period of 2020.

Income from operations in the first quarter of 2021 was RMB 251.2 million, USD 38.3 million, compared with the loss from the operation of RMB 130 million in the same period of 2020.

Net income attributable to X Financial shareholders in the first quarter of 2021 was RMB 192.8 million, USD 29.4 million compared with net loss attributable to X Financial shareholders of RMB 196.3 million in the same period of 2020.

Non-GAAP adjusted net income attributable to X Financial shareholders in the first quarter of 2021 was RMB 212 million, USD 32.4 million, compared with the non-GAAP adjusted net loss attributable to X Financial shareholders of RMB 159.9 million in the same period of 2020.

Cash and cash equivalents was RMB 799.8 million, USD 122.1 million, as of March 31, 2021 compared with RMB 646.4 million (sic) [RMB 746.4 million] as of December 31, 2020.

Now for our business outlook. For the second quarter of 2021, we raised the guidance for the total loan facilitations to be in the range of RMB 12.4 billion to RMB 13 billion, and the net income attributable to X Financial shareholders to be no less than RMB 220 million. This forecast reflects our current and preliminary views which are subject to changes.

Now this concludes our prepared remarks, and we would like to open the call to questions. Operator, please?

(Operator Instructions)

As there are no questions, this concludes our question-and-answer session. I would like to turn the conference back over to [Tanya Wen] for any closing remarks.

Thank you, everyone, for joining us on the call today. If you haven't bought the chance to raise your questions, we will be pleased to answer them to 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.