X Financial (XYF) 2025 Q4 法說會逐字稿

Hello and welcome to the X Financial fourth-quarter 2025 earnings conference call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Victoria Yu. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining today's call. Our financial results for the first quarter and the fiscal year ended December 31, 2025 were released earlier today and are available on the company's Investor Relations website at ir.Xiaoyinggroup.com.

On the call today from X Finanical are Mr. Kan Li, President; Mr. Frank Fuya Zheng, Chief Financial Officer; and Mr. Noah Kauffman, Chief Financial Strategy Officer. Mr. Lee will begin with an overview of our business performance and key operational developments. Mr. Kauffman will then discuss the regulatory environment and the fourth quarter financial performance, followed by Mr. Zheng who will review the full financial results, capital position, and outlook. After the prepared remarks, Mr. Li, Mr. Zheng, and Mr. Kauffman will be available to answer your questions during the Q&A session.

I remind you that this call may contain forward-looking statements and the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and involve known or unknown risks, uncertainties, and other factors. These factors are difficult to predict, and many are beyond the company's control, which may cause actual results, performance, or achievements to differ materially from those described in these statements.

Further information on leads and other risks can be found in our SEC filings. The company undertakes no obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required by law.

It is now my pleasure to introduce Mr. Kan Li.

Thank you, Victoria, and hello everyone. In the fourth quarter of 2025, we continue to operate with heightened discipline as the external environment became more demanding. Following a strong first class, we deliberately moderated activity in Q4 to remain aligned with evolving supervisory expectations and to prioritize greater quality and prudent risk management.

During the quarter, we facilitated and originated RMB22.77 billion in loans, representing a 29.5% decline year over year and a 32.3% decline sequentially from the previous quarter. This moderation was intentional, reflecting our focus on protecting portfolio health and maintaining long-term stability rather than pursuing near-term volume expansion.

For the four year 2025, we facilitated and originated RMB130.6 billion in loans, up 24.5% from RMB1,104.9 billion in 2024. This four-year performance reflects the scale we achieved earlier in the year and our ability to operate with the discipline and market and regulatory conditions involved.

During the quarter, we focused on strengthening the stability of our core operations through disciplining the channel management, tighter risk controls, and continued efficiency improvements. We increased the proportion of activity on internal operated platforms to enhance customer stability and reduce dependence on higher costs external traffic sources.

We also further tightened underwriting standards, strengthen the compliance processes, optimize operational workflows, and expanded automation across services and the collection functions to improve efficiency without increasing head count.

From an operational standpoint, borrower activity moderated meaningfully in the fourth quarter. We serve approximately 1.69 million active borrowers, down 20.2% from a year ago and down 30.7% sequentially. We facilitated approximately RMB2.47 million loans in the quarter, with an average loan amount per transaction of RMB9,226.

We ended the quarter with RMB50.5 billion in outstanding non-balance down 3.6% from the same period of 2024. Credit quality, we did observe continued credit pressure during the quarter consistent with broader market trends and a more cautious industry-wide risk posture.

As of December 31, our 31 to 60 day delinquency rate increased to 2.9% compared with 1.85% at the end of Q3 and 1.17% a year ago. Our 91 to 180 days delinquency rate increased to 6.31% compared with 3.52% at the end of Q3 and 2.48% a year ago.

These movements reflected rising repayment stress among certain segments as well as a more conservative approach to risk. In response, we tightened underwriting criteria, enhanced the collection strategies, and adjusted the capital deployment to preserve balance sheet resilience.

As credit costs increased, we chose to prioritize stability and risk management, which affected short-term earnings but strengthens the foundation of the business. We believe this more cautious stance is appropriate given current conditions. Our near term priorities remain clear safeguard the portfolio quality, preserve liquidity, and maintain discipline in operations.

With that, I will now turn the call to Noah, who will walk through fourth quarter financial performance and the profitability trends along with a brief regulatory update.

Thank you, Kan. Hello everyone. It's great to speak with you again. Kan covered the operational and credit picture for the quarter, so I'll focus on the financial performance and our profitability profile in Q4.

On the regulatory environment. The regulatory environment governing internet-based lending in China continued to evolve meaningfully during 2025, with authorities increasingly refining and strengthening oversight across the entire consumer credit chain. The most significant development was Notice 9 issued by the National Financial Regulatory Administration on April 1, 2025, which requires commercial banks to strictly control total borrowing costs.

While Notice 9 does not explicitly stipulate a hard cap in practice, a 24% annum ceiling on total borrowing costs for a single loan is generally being implemented and enforced across the industry. Importantly, 24% may not represent the outer boundary of that pricing pressure. Regulatory authorities have continued to tighten borrowing cost caps applicable to microcredit and consumer finance companies, and those entities may face de facto requirements set below that level.

The pace and manner of implementation across different institution types and jurisdictions remain highly uncertain, and we currently have no reliable basis on which to predict the ultimate scope or trajectory of these limitations. If current and emerging requirements are implemented as we currently understand them, our operating results will be adversely and materially affected relative to prior years.

The magnitude of that impact is subject to significant uncertainty, and investors should not assume our historical profitability levels are indicative of future performance, including the possibility of operating losses in future periods.

Notice 9 also requires commercial bank head offices to implement whitelist management systems for loan facilitation platform operators prohibiting cooperation with institutions not on those lists. This has introduced additional uncertainty around our funding relationships, and implementation practices vary across banking groups and their subsidiaries.

Future regulatory guidance could alter how those determinations are made in ways that affect our authorized funding relationships, and this is just one example of the broader unpredictability we are navigating.

Separately, payment institution rating measures issued by the People's Bank of China in December 2025 extend regulatory oversight further across the lending chain, adding to compliance burdens and operational costs for industry participants. We are closely monitoring all of these developments as they continue to evolve in 2026.

At this stage, management has limited visibility into the ultimate scope, pace, and direction of implementation, and the potential impact on our business, financial condition, and results of operations cannot be determined with any degree of certainty.

On fourth quarter financial performance. In the fourth quarter of 2025, total net revenue was RMB1.47 billion, or USD209.9 million, representing a 14.1% decrease year over year and 25.1% decrease sequentially from Q3. Total operating costs and expenses were RMB1.45 billion or USD207 million, down 9.5% sequentially, but up 22.3% year over year.

The year over year increase was driven primarily by materially higher credit related provisions, while operating expenses also reflected our continued efforts to align spending with a more measured pace of activity. Credit related provisions were the primary factor weighing on the fourth quarter results. Total provisions were RMB669.3 million, or USD95.7 million, reflecting higher expected credit losses and a more conservative provisioning in response to elevated risk indicators during the period.

We also continue to take a disciplined approach to discretionary spending. For example, borrower acquisition and marketing expense was RMB212.2 million, or USD30.3 million in Q4, reflecting a substantial reduction compared with both the prior quarter and the same period last year as we prioritized efficiency and risk discipline.

As a result, income from operations was RMB20.2 million or USD2.9 million, a 96.2% decrease year over year, and a 94.4% decrease sequentially. Operating margin decreased to 1.4% compared with 18.5% in Q3 and 30.7% in the same period last year. Below operating income, the quarter remained profitable, but at a level that underscores the degree of near term credit pressure.

Income before income taxes was RMB31.2 million, or USD4.5 million, reflecting the cumulative effect of lower revenue and elevated provisioning. Net income was RMB57.2 million, or USD8.2 million in Q4, compared with RMB421.2 million in Q3 and RMB385.6 million in Q4 of last year. Net profit margin was 3.9% compared with 21.5% in the prior quarter and 22.6% a year earlier. Return on equity decreased to 2.9%, reflecting substantially lower net income during the quarter.

Taken together, Q4 reflects a materially different earnings profile compared with earlier periods, driven primarily by higher credit costs and a more measured level of activity. We are managing through this phase with a conservative financial posture and maintaining flexibilities as conditions evolve.

With that, I'll now hand the call over to Fuya to discuss the full year financial results per ADS metrics, non-GAAP profitability, and our balance sheet in the liquidity position.

Thank you, Noah, and hello everyone. I will walk through our full year financial results and then discuss our balance sheet, liquidity and outlook and full-year financial highlights.

For the full year 2025, total net revenue was RMB7.64 billion or USD1.09 billion representing a 30.1% increase for RMB5.87 billion in 2024. Income from operations was RMB1.63 million or USD233.1 million compared with RMB1.7 billion in 2024. Our full year operation margin was at was 21.3% compared with 31.9% in the past year, reflecting a higher credit-related provisions and a more cautious operation posture in the second half.

Net income for the full year was RMB1.46 billion or USD209.4 million compared with RMB1.54 billion in 2024. Four-year GAAP net profit margin was 19.2% compared with 26.2% in 2024. On a non-GAAP basis, adjust net income with RMB1.56 billion or USD223 billion for the fiscal year 2025 compared with RMB1.54 billion in 2024.

Per ADF and the non-GAAP metric. On a per ADS basis for the full year net income per ADS was RMB36 or USD5.15 and the RMB35.22 or USD5.04 on a basic and diluted basis respectively compared with the RMB31.098 basic RMB $31.50 diluted in 2024. Now GAAP adjust income per ADS was RMB38.34, or USD5.48 and the RMB37.50 or USD5.36 on a basic and diluted basis respectively compared with RMB 31.98 basis and RMB31.44 diluted in 2024.

For additional Q2 count content. Non-GAAP adjust the income in the first quarter of was RMB31.3 million USD8.8 million non-GAAP adjust earnings per ADS was RMB1.56 or USD0.22 on both a basic and dilute basis. Balance sheet and liquidity. Our balance sheet remains solid as of December 31, 2025. Total assets were RMB14.667 billion or USD2.1 billion.

Total liability was RMB6.83 billion or USD976.5 million or total equities, total shareholder equities with RMB7.84 billion or USD1.12 billion. The end of the year with the RMB987.6 billion or USD141.2 billion in cash in the cash equivalent and the RMB1.115 billion USD133.9 billion in restricted cash and for total cash, including restrict cash of approximately RMB2.13 billion USD305.1 billion.

Capital return to shareholders as of March 15, 2026 under the company's. USD100 million share repurchase program. The company had repurchased an aggregate of approximately $3.79 million ADF, including approximately $3.37 million ADS and $2.53 million Class A ordinary shares for a total consideration of approximately USD53.85 million. The company now has approximately USD46.15 million remaining under the share repurchase program, which is effective through November 30, 2026.

This program underscores the company's confidence in its long-term growth outlook and its commitment to enhancing shareholder value. The purchase, the purchases and the program remain subject to market conditions and other factors, and it may be modified or suspended and the management not even discretion.

Business outlook, given involving regulatory developments and the limited visibility into the whole regional policy measures will be implemented across different jurisdictions. Our near term outlook remains cautious. The full impact of these changes on funding availability, pricing dynamics, and the overall industry activity is still uncerting, and it may take time to become clear.

We are asset quality, discipline, risk management, cost control, and the preservation of liquidity and operational flexibility. As the regulatory expectation continue to develop, we are adapting our operation approach to maintain compliance while safeguarding the long-term stability of the business. While we believe our platform is well positioned to navigate a more strained environment. Additional policy adjustments or implementation actions could further affect industry economics and the growth perspectives. We will continue to monitor developments closely and we'll update our outlook as greater clarity emerges. This concludes our prepared remarks, and we will now open the call for questions.

Operator, please go ahead.

We will now begin the question-and-answer session.(Operator Instructions)

At this time, we will pause momentarily to assemble our roster.

This concludes our question-and-answer session. I would like to turn the conference back over to Victoria Yu for any closing remarks.

Thank you everyone for joining us today. If you have additional questions, please reach out to our Investor Relations team directly. We appreciate your interest and look forward to speaking with you again soon. Operator, back to you.

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