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spk08: Ladies and gentlemen, thank you for standing by and welcome to TV Food Technology fourth quarter and full year 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Karen Ji, Senior Director of Capital Markets. Please go ahead, Karen.
spk09: Thank you, Amberley. Hello, everyone, and welcome to Qifu Technologies' Fourth Quarter 2023 Earnings Conference Call. Our earnings release was distributed earlier today and is available on our IR website. Joining me today are Mr. Wu Haisheng, our CEO, Mr. Alex Xu, our CFO, and Mr. Zheng Yan, our CRO. Before we start, I would like to refer you to our safe harbor statement in earnings press release, which also applies to this call. During the call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the risk factors discussed in our most recent Form 20-F filed with SEC. Also, this call includes discussions of certain non-GAAP financial measures please refer to our earnings release, which contains a reconciliation of the non-GAAP financial measures to GAAP financial measures. Also, please note that unless otherwise stated, all figures mentioned in this call are in RMB terms. Today's prepared remarks from our CEO will be delivered in English using an AI-generated voice. Now I will turn the call over to Mr. Wu Haisheng. Please go ahead.
spk06: Hello, everyone. Thank you for joining us today.
spk03: During the quarter, our efforts in optimizing our top and bottom line performance started to bear fruit, capping off a solid 2023 for us. As we empowered more financial institutions, total loan facilitation and origination volume on our platform reached RMB 119 billion, up 13.8% year over year. With the ongoing business optimization, Our revenue increased 15.1% year-over-year to approximately RMB 4.5 billion, hitting a nine-quarter high. Our non-GAAP net income increased 25.1% year-over-year to roughly RMB 1.15 billion, representing the fastest growth seen over the past nine quarters. From an annual perspective, total loan facilitation and origination volume on our platform increased 15.4% year over year to a record RMB 475.8 billion. Non-GAAP net income increased approximately 6% from last year to roughly RMB 4.45 billion. In 2023, we promptly adjusted our strategies to navigate market challenges. which allowed us to not only meet the growth target set at the beginning of the year, but also achieve a notable improvement in profitability during the second half of the year. This robust performance underscores our operational resilience and sets a solid foundation for our high-quality development in 2024. The consumer credit industry entered the post-pandemic era in 2023 as China navigated a bumpy journey towards economic recovery consumers within the high-quality segment were becoming increasingly cautious about borrowing. Simultaneously, certain user segments started to face pressures on repayments amid elevated youth unemployment rates. The deceleration in the overall consumer credit market's momentum also led to a decline in the marginal efficiency of incremental growth. After thorough consideration by management, we have set quality growth and profitability as our primary objectives. and shifted our operational strategy to prioritize efficiency over scale. By refining every aspect of our operations, we aim to enhance the long-term healthiness and sustainability of our business. In 2023, we achieved substantial progress in terms of quality growth and profitability. Speaking of quality growth, we extended our market reach to target customers by further diversifying user acquisition channels. Starting in July, we began working with a leading short-form video platform as their only fintech partner through our embedded finance model. By leveraging our strong user profiling and risk identification capabilities, we quickly ramped up our user base and consistently maintained a leading market share on the platform. Additionally, we have actively pursued and engaged in similar collaborations with industry-leading platforms across other verticals. such as e-commerce, payment and mobile phone app stores. In 2023, the percentage of new users with approved credit lines through the embedded finance channel rose to 31%, with 82% increase in loan facilitation and origination volume. Through the ongoing refinement of our profit model, the ROA of our embedded finance business in Q4 increased by roughly 20% from the same period last year. The collaborative nature of this business model allows us to complement the platforms and capitalize on their rapid expansion to quickly achieve scalable profitability. We are optimistic about maintaining another strong growth performance in embedded finance this year. In 2023, we saw a notable improvement in our overall acquisition efficiency. While the number of total new users with approved credit lines increased 7% compared to 2022, our sales and marketing expenses decreased 12%, leading to an impressive 18% year-over-year decline in acquisition cost per credit line user. In 2023, we improved our profitability meaningfully while sustaining solid growth. Thanks to a stronger funding position, greater asset allocation efficiency, and our enhanced products and services, On the funding front, we further optimize our funding structure and reduce our annual funding costs by more than one percentage point year over year in 2023. We issued RMB 12.5 billion ABSs representing a year over year increase of 56%. Benefiting from the robust demand from state owned and joint stock banks, as well as major securities firms, our ABS issuance costs decreased 75 basis points. Additionally, we have secured the first ever AAA international rating for exchange-traded ABSs. This will help us attract more funding from reputable overseas institutions, allowing us to further boost issuance volume and optimize issuance costs. In terms of asset allocation, with the accuracy of user profiling and identification continuously improving, we onboarded a more diversified spectrum of financial institution partners. strengthening our ability to serve various loan asset segments. By aligning assets based on the risk appetites of different institutions, we optimized our asset allocation and increased overall returns on our loan portfolio. In 2023, our loan facilitation and origination volume under the ICE model steadily increased. The enhanced precision in asset allocation increased the underwriting efficiency from financial institution partners. resulting in a notable improvement in our take rate. In Q4, our revenue take rate as percentage of loan volume for ICE improved by 54% from the same period last year. On the product front, we launched a loyalty program catering to various user needs and improving the engagement of our existing users. By offering a wide range of value-added services, we improved our user retention. Going forward, we will continue to enrich our product offerings and implement differentiated strategies to create value for users, ultimately boosting our users' LTV. Risk management is the cornerstone of our business. In the second half of the year, we encountered notable volatility in our asset quality due to the broader macro headwinds. The stricter line controls by China's telecom carriers in Q4 added further pressure to our overall risk profile. In response to these challenges starting in Q3, we have gradually tightened our credit standards and iterated risk strategies across the loan facilitation, credit operation, and post-credit process to improve our risk metrics. First, we further enhanced our credit approval system. which allowed us to extend a greater proportion of credit lines to high-quality users. Second, we revamped our strategic framework for existing borrowers and introduced external data sources such as ByteDance, Tencent and Umang for joint modeling and scoring, thereby enhancing our ability to identify and intercept high-risk customer segments. Third, we fine-tuned our collection strategies and incentive schemes to increase our collection efficiency. With these measures in place, we began to see a steady improvement in risk metrics for new loans in November and onwards, and a gradual recovery in risk performance for overall loan portfolios starting in January and February of this year. As our historical loan assets gradually mature and new loans make up a higher percentage of our portfolio, we expect our overall risk performance to further improve this year. Our technology solutions business continued to make solid progress in 2023. We further optimised our product offerings and entered into partnerships with a number of financial institutions covering different categories, including joint stock, internet, private and municipal banks. We tailored our deployment models to cater to their specific needs and remain committed to providing them with end-to-end technology solutions. We expect more clients will be ready to deploy our solutions on a broader scale throughout this year, In 2023, we strategically allocated more resources to artificial intelligence and large language models and took the initiative in exploring applications of large language models in the financial sector. Our financial large language model outperforms all the open source financial large language models with comparable parameters in knowledge proficiency, according to open source benchmarks. Within our intelligent marketing, a total of 600 images and 100 videos are generated by AIGC per day. Based on performance testing over the past five months, our AIGC generated image placements have shown the potential to reduce unit acquisition costs by roughly 9%. Taking a longer term view, utilizing AIGC generated images along with automated placements will enable us to make quick updates and optimize placement strategies, significantly boosting marketing efficiency. We have also used our large language model to empower the telemarketing team. facilitating communication with approximately 13 million users to date. By providing lead refinement, semantic analysis, and suggested talking points, the drawdown per credit line user increased by roughly 5%. We are proud of what we have achieved in 2023. Looking ahead to 2024, as the macro uncertainties persist, we will continue to take a prudent approach in our execution. Our focus will be on pursuing quality growth by optimizing risk performance and operational efficiency to improve overall profitability. Meanwhile, we will consistently make strategic investments in long-term growth opportunities. This will involve broadening our strategic partnerships across various sectors to further the success of our embedded finance collaboration model and pursuing collaborative user management with our financial partners. Moreover, we will explore a more open platform model, leveraging our extensive industry know-how and user insights to enable more effective connections between users and financial institutions. Through our technology solutions business, we aim to facilitate the digital transformation of more financial institutions. In a word, We're widening the top of our funnel while keeping a watchful eye on its bottom. In 2023, our return on equity on a non-GAAP basis reached approximately 22%, outperforming most financial and internet companies. We returned substantial value to our shareholders by distributing USD 170 million in cash dividends for 2023, and repurchasing USD 132 million worth of shares since we launched the buyback program in June 2023. The aggregate amount accounted for 50% of our net income for the year, representing a significant boost in our shareholder returns. In 2024, we remain committed to further optimizing our capital allocation. After careful consideration from our board, we will maintain our current dividend policy for 2024. Additionally, starting in April 2024, we will implement a new share repurchase program. We are convinced that our company's shares are significantly undervalued and the current market valuation does not reflect the company's intrinsic value. We are confident about our future prospects and therefore have decided to substantially step up our share repurchase efforts. Later, our CFO will go through the plan in detail. With that, I will now turn the call over to Alex Hsu.
spk02: Thank you, Haisheng. Good morning and good evening, everyone. Welcome to our fourth quarter earnings call. While the fourth quarter was a fairly challenging period for our operation, as microeconomic recovery progressed slower than we hoped and the consumer sentiment remained muted, we still delivered another solid quarter of financial performance. During the quarter, we took proactive actions to fine-tune our product and service offerings, strengthen relationship with users and key partners, optimized business mixes, and trimmed exposures to underperforming assets. Total net revenue for Q4 was $4.5 billion versus $4.3 billion in Q3 and $3.9 billion a year ago. Revenue from credit-driven service capital heavy was $3.2 billion in Q4 compared to $3.1 billion in Q3 and $2.8 billion a year ago. The year-on-year growth was mainly due to longer effective duration growth in unbalanced sheet loans and contribution from other value-added services, partially offset by decline in off-balance sheet loans. The sequential increase reflects the growth in unbalanced sheet loans and contribution from other value-added services. Unbalanced sheet loans account for over 20% of the total loan volume in Q4. Overall funding costs further declined by roughly 20 bps sequentially and over 100 bps year-on-year, with the help of a strong relationship with financial institution partners and record-breaking ABS insurance. Revenue from platform service Capital Light was $1.2 billion in Q4 compared to $1.2 billion in Q3 and $1.1 billion a year ago. The year-on-year growth was mainly due to strong contribution from ICE and other value-added services, substantially offsetting the decline in Capital Light loan facilitation. For Q4, capitalized loan facilitation, ICE, and other tax solutions combined account for roughly 57% of the total loan volume, compared to roughly 56% in the prior quarter. We expect this ratio to be gradually trending up through 2024 as we try to strike an optimal mix between risk-bearing and non-risk-bearing assets in an uncertain microenvironment. In Q4, we saw continued sequential improvement in revenue take rate for both cap-heavy and cap-light business, mainly driven by better asset mix. During the quarter, average IRR of the loans we originated and or facilitated was 21.3% compared to 21.7% in the prior quarter, as we purposely trimmed our direct exposure to high-price, high-risk assets in response to the micro uncertainty. Looking forward, we expect pricing to be fluctuating in the narrow band around this level for the coming quarters. Sales and marketing expense increased 4% Q on Q and 33% year-on-year. Please note the year-on-year comp is somewhat misleading as sales marketing activities were severely depressed by the sudden outbreak of COVID cases in Q4 of 2022. We added approximately 1.7 million new credit line users in Q4, roughly flat Q on Q. Unit cost to acquire a new credit line user also increased modestly Q on Q to 326 from 306, mainly due to the seasonality. For full year 2023, unit CAC was approximately 304 compared to 369 in 2022. We will continue to adjust the pace of a new user acquisition based on the micro condition from time to time, Meanwhile, as I mentioned, we have made noticeable progress in diversifying our user acquisition channels during the quarter. Overall, we expect to see modest lower customer acquisition costs in 2024 with improving efficiency and controlled pace. Furthermore, we'll continue to focus on re-energizing existing user base as repeat borrowers historically contribute vast majority of our business. In Q4, We continue to experience the volatility in asset quality as key leading risk metrics worsened sequentially. Day one delinquency was 5.0% in Q4 versus 4.6 in Q3. The uptick in day one delinquency mainly reflects continued negative sentiment among the borrowers as they face more economic uncertainties. 30-day collection rate was 84.9% in Q4 versus 86.7% in Q3. In addition to micro-condition, 30-day collection rate was further impacted by unexpected line control by telecom carriers since November that resulted in industry-wide lower connection rates of outbound phone lines for collection operations. Although we have taken actions to find alternatives, and we believe that such line control issues can be resolved eventually, the impact to our Q4 risk metrics is still quite visible. We have further optimized our risk management model and apply even more restrictive standard on new applications to mitigate potential risks throughout the quarter. We also proactively adjust our business mix to further reduce our exposure to high risk assets. By January, we already start to see stable credit quality of overall portfolio as new loans quality improved and old loan gradually matured. Although economic conditions remain challenging, and we may continue to see some fluctuation of these metrics in the near future, we believe overall risk performance of the loan portfolio will be relatively stable in 2024 compared to the full-year performance of 2023. As micro uncertainties persist and credit quality fluctuate, we will continue to take a prudent approach to book provisions against potential credit loss. Total new provisions for risk barrier loans in Q4 were approximately $2.0 billion, and the writebacks of previous provisions were approximately 341 million. On a sequential basis, new provision booking ratio increased, while the writebacks declining, as expected risk of the assets moved higher. Provision coverage ratio, which is defined as total outstanding provision divided by total outstanding delinquent asset-heavy loans balanced between 90 and 180 days, or 481% in Q4, compared to 534% in Q3. The provision coverage ratio was still near the high end of our historical range. Non-GAAP net profit was $1.15 billion in Q4 compared to $1.18 billion in Q3. For full year 2023, non-GAAP net profit was $4.45 billion compared to $4.21 billion in 2022. Effective tax rate for 2023 was 18.5% compared to our typical ETR of approximately 15%. The higher ETR was mainly due to additional withholding tax provision related to cash distribution from onshore to offshore for dividend payment and share repurchase. With solid operating result and higher contribution from CapLite model, our leverage ratio, which defined as risk bearing loans balance divided by shareholders' equity, was 3.3x in Q4. at historical low, we expect to see leverage ratio fluctuated around this level in the near future. We generated approximately 2.4 billion cash from operation in Q4 compared to 1.2 billion in Q3. The record-breaking operating cash flow was in part due to the change in working capital related to the long national holiday at the beginning of the quarter. Total cash and cash equivalent was 7.8 billion in Q4 compared to 8.2 billion in Q3 Non-restricted cash was approximately $4.2 billion in Q4 compared to $4.9 billion in Q3. The sequential decline in cash position was mainly due to increased cash usage in our non-balanced lending. As we continue to generate healthy cash flow from operations, we believe our current cash position is sufficient to support our business development and to return to our shareholders. In accordance with our current dividend policy, our board has approved a dividend of U.S. dollar 29 cents per Class A ordinary share or U.S. dollar 58 cents per ADS for the second half of 2023 to holders of record of Class A ordinary share and ADS as of the close of the business on April 15, 2024, Hong Kong time and New York time, respectively. The aggregate amount of dividend distribution for fiscal year 2023 will be approximately US$170 million. On June 20, 2023, we announced a share repurchase plan to repurchase up to $150 million over a 12-month period. As of March 12, 2024, we have already bought approximately $132 million worth of our ADS in open market at the average price around 15.7 US dollar. We expect to fully execute the current share repurchase plan around the end of March, roughly three months ahead of initial schedule. To further enhance returns to our shareholders, our board has approved a new share repurchase plan to repurchase up to 350 million worth of our ADS over a 12-month period starting April 1st, 2024. By our estimate, the above-mentioned two share repurchase plans combined would repurchase nearly 20% of the company's total outstanding share upon full execution at the current share price. The share repurchase plan further demonstrates management's confidence and commitment to the future of the company, and the management intends to consistently use share repurchase plans to achieve additional EPS accretion in the long run. Meanwhile, our board also reaffirmed our current dividend policy, upon which we will continue to distribute 20% to 30% of our gap net income as cash dividends to shareholders on a semi-annual basis. With the fully execution of a new share repurchase program and a dividend plan, the combined payout ratio could well exceed 70% in 2024, and the combined yield based on current market cap will be over 70% at an extremely attractive investment by any measure. Now, regarding our business outlook. As microeconomic uncertainty reduces visibility into long-term trend, we want to maintain a prudent approach to strike a balance between long-volume growth and profitability. We have purposely trimmed our exposure to underperforming assets and improved overall ROA levels. With a change of asset mix and qualitative growth, the company does not view the growth in overall loan volume as appropriate indicator to reflect underlying drivers for its operating results. Therefore, the company will no longer provide loan volume guidance in its earnings release for the foreseeable future. Meanwhile, under the current market condition, the company will continue to focus on enhancing profitability and efficiency of its operation. We believe that an outlook of near-term profitability combined with detailed discussion of other key efficiency metrics in earnings conference call would be more appropriate to reflect management operational priority and execution efforts. And finally, numbers. For the first quarter of 2024, the company expect to generate non-GAAP net income between RMB 1.15 billion and RMB 1.2 billion. representing a year-on-year growth between 17% and 22%. This outlook reflects the company's current and preliminary view, which is subject to material changes. With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.
spk08: Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. For those who can speak Chinese, please kindly ask your question in Chinese first, followed by English translation. In addition, in order to have enough time to address everyone on the call, please keep it to one question and one follow-up, and return to the queue if you have more questions. Once again, that's star 114 questions. Our first question comes from the line of Richard Xu from Morgan Stanley. Please ask your question, Richard.
spk04: Okay. Thank you, President Hai. Thank you, President Xu, for your introduction. I just want to ask, it sounds like the management team is more cautious about this year's financial performance. What is the general goal of the annual increase in loans? There are some factors mentioned just now, but are there any other considerations? In terms of the environment of internal and external changes, what are the key changes that you are paying attention to? And what is the status of the increase in loan payments in the fourth quarter? Another question is, what is the current state of the quality of loans? And what is the proportion of loan payments this year? Two questions. First of all, you know, it sounds like management still has, you know, relatively conservative outlook for the year. So what's the expected loan growth for the full year? What are the key considerations? And also how the loans will be, you know, sort of like allocated through the different quarters. Secondly is what's the credit quality trends at the moment and outlook for the provisions? for the year.
spk03: Thank you. Thank you, Richard. Let me answer the first question. Yes, as you can see, in the first half of this year, we will take a relatively steady and cautious business strategy because we believe The current macroeconomic situation is still uncertain. Therefore, under this strategy, we will not set the overall growth rate as our primary goal. Instead, we will set the growth rate with quality and our profit efficiency as our main goal. Under this kind of management strategy, it may affect our volume to a certain extent. But what I want to say is that the part that we have reduced is mainly the business with relatively low editing efficiency, or even loss. Therefore, the impact of profit is positive. In terms of data, our risk performance is also improving gradually. So, there are still a lot of good changes. From your concern, in terms of the rhythm of the payment in each quarter, in the first quarter, because of the split factor, it has a certain level of performance. At the same time, we will also do a lot of Okay, thanks, Richard. As you can see, given the macro uncertainties at this stage, we will continue to maintain prudent approach in our operations, at least in the first half of 2024.
spk09: Therefore, the overall loan volume growth is not our primary goal. Instead, our primary goal will be the quality of our growth and the quality of earnings. Based on this strategy, I think to some extent will impact our overall loan volume growth. But as we trimmed our loan exposure to the assets with lower marginal profits or even loss-making assets, which we are actually making positive impact on our profitability. In terms of internal and external data we are looking at, so far we have seen positive trend in the macro data, such as the CPI has improved in February, and the first two months import and export data also increased by 8.7%. And our own risk matrix is also trending better which makes us more comfortable about the near-future trend. As for quarterly planning, Q1 is usually slack season for our business. Plus, we made a lot of efforts in optimizing our risk performance in this quarter. We expect our loan volume for Q1 will be the lowest level for this year, and then gradually ramp up in Q2 and Q3.
spk03: The second question is for our CRO, Dingyan.
spk00: Okay, let me talk about the current asset quality situation, and then I will ask Mr. Xu to talk about something related to the stock market. As for asset quality, in Q4 and Q1 of 2023, we have made more proactive adjustments to asset quality, mainly including the risk of optimizing the amount of new payments to increase the amount of new transactions, and we have narrowed the long-term transaction size to reduce some uncertainty. At the same time, it has also increased the speed of our daily strategy and model. From the performance point of view, Hai Zhengzhong also mentioned that we actually have some optimization. Specifically, in December 2023, the FPD30 of new transactions, the average level of Q3 has increased by about 13%. In January 2020, the stock price of January 30 has reached a relatively high performance limit. The FPD30 of these stocks has increased by about 10% in December. In addition, the long-term limit in the second half of last year was about 18%. In the next 24 years, we will reduce the debt to less than 10%. We will further reduce the debt to less than 10%. We will further reduce the debt to less than 10%. We will further reduce the debt to less than 10%. We will further reduce the debt to less than 10%. We will further reduce the debt to less than 10%. We will further reduce the debt to less than 10%. We will further reduce the debt to less than 10%.
spk09: Okay, I will do the translation. Regarding the asset quality, we made more proactive adjustments to improve asset quality in Q4 and Q1 through tightening our credit standards for new loans and cutting back longer duration loans to mitigate the uncertainty. Based on our observation, the SPD 30 delinquency rates of our new loans originated in December improved by 13% compared to Q3. And again, the SPD 30 delinquency rate of the new loans for early January further improved by 10% from December. In addition, longer duration loans accounted for 18% of our new loans in second half last year, while the contribution has been reduced to less than 10% so far in 2024 as we shortened the duration for those macro sensitive users. So far, we have seen improvements in the risk performance of our overall loan portfolio in January and February and expect to see further improvements throughout the year with the legacy loans gradually mature.
spk02: Regarding the provision booking, as you know, historically we have been on a pretty prudent approach to book the provision. As Zhengzhong mentioned, we are expecting the risks metrics will gradually improve throughout this year, but still we probably will take the similar kind of a booking ratio to book our provision just to be conservative. At the same time, please note that overall the capital heavy loan as a percentage of a total as well as the absolute volume for this year will most likely be lower than last year. As we mentioned, we are shifting towards more capped life segments. So the base for those provisions are getting lower for this year, which means the absolute provision amount will most likely drop versus last year. But the booking ratio will most likely be still the same on the conservative side.
spk04: Thank you, Richard.
spk08: Thank you for your question, Richard. Our next question comes from the line of Alex Yeh from UBS. Please ask your question, Alex.
spk01: Thank you for the question. I have two questions. The first one is about profitability. I remember that Mr. Guan mentioned in the last episode that our future goal may be... It is estimated that the profit margin will be faster than the loss margin. I don't know if this kind of guidance is still valid. And in the future, we can improve the profitability What are the main driving forces and how much confidence can we achieve? Because there are also a lot of downward risks, for example, from asset quality. And we just mentioned that this year we will clean up more debt to CapitaLight. I don't know if the profitability of these two will be different and will be weak. The second question is about asset quality. You mentioned that the challenge comes from the uncertainty of the red line, and there are also some short-term factors, including the interference of the telephone line. I would like to ask which of these factors you think are more important, and if we are to measure the impact, So I have two questions. First one is on the tech rate and profitability. So previously, management has guided that going forward, we should probably expect better earnings growth than long-volume growth. I'm wondering if that statement is still valid and how confident is management on this? Can you share with us some of the drivers given there are lots of moving parts and given we should know the downside risk from asset quality and your current strategy of shifting more to work from capital heavy to capital light model. Second question is on asset quality outlook. has just discussed about the factors from both macrofront and some temporary factors such as the co-op capacity. So I'm wondering which could be the dominant driver. And if we look at this from a vintage loss perspective, what's the expectation for 2024 vintage loss versus 2023? Thank you.
spk03: I'll answer the first question first, and then I'll ask Zhen Yan to answer the one about the central province. From the perspective of our growth and motivation this year, we have made a lot of strategic adjustments since the third quarter of last year. We have put more work into in terms of overall quality. In the last year's third quarter, these works have also begun to gradually show results. We believe that in the next 20 years, these results will be further reflected. There are several factors behind these results. The first is our optimization work on risk. Through this kind of compression of the risk to the editor and this kind of clear-cut business, we should say that the overall profitability of this asset report has been improved very well. This is a risk angle. The second is from the perspective of capital costs. You can see that we had a very big decline in capital costs last year. This year, we can see that the capital side is relatively relaxed. At the same time, we will also issue more ABS, so we will see a further drop in capital costs this year. The third drive is from the perspective of asset distribution. Last year, you can see that we improved our overall take rate through optimized distribution. This year, we will continue to introduce more financial institutions through optimized distribution. according to their different risk categories to match different assets. In this way, we can improve the overall rate of conversion and profitability of the results. In terms of products, we are also continuously providing better products to users to improve the flow of users. In this way, we can improve the LTV of our long-term users. Last year, we also achieved very good progress. From the fifth point of view, we believe that our investment in the development of new large model technology is gradually improving our business efficiency. What we can share here is that AIGC technology can optimize the image and video materials that we put in. The total cost of this part can be optimized by 9%. Through this technology, for our sales clues, including phone sales and traditional sales, we have a 9% increase in the number of users who have received this channel. Through AI programming, today in our entire company's code library, it has achieved a 15% change in programming. So all of these works It will gradually improve the overall efficiency of our business, which will ultimately improve our profitability. In general, we have seen some good trends in the red square this year. The work we have done so far is also gradually showing the effect. We are very confident about this year's goal. Regarding the asset value you mentioned, as the CIO said, we have made a lot of strategic adjustments to Q4 and Q1. The FPD30, our new version, has significantly improved in the past two months. In addition, there may be some steady trends in Hong Kong recently, so we think the overall asset value is still very reliable.
spk09: Okay, I will do the translation. Thanks, Alex. Regarding the drivers for profitability improvement, since the last Q3, we have made substantial efforts to improve our overall profitability, creating positive impact on our last Q3 and Q4. We expect the trend will continue in 2024. For this year, we believe our profit will increase as we continue to work on our risk funding, asset allocation, and product front. Number one, on the risk front, we will cut back the lower quality or lower efficiency assets to improve the ROA of our overall loan portfolio. Second, on funding side, last year we have seen substantial decline in our funding cost. Given the still ample market liquidity this year, we will continue to push more ABS issuance and reduce our funding costs further. Third, our asset allocation will collaborate with more financial institutions this year to match their risk appetite with appropriate assets to improve the asset allocation efficiency and our profitability as well. Fourth, on the product side, we will further enhance and differentiate differentiate our product offerings to increase users' stickiness and their long-term LTV. Sixth, we will improve our operational efficiency through large language model empowerment. For example, we applied AIGC-generated pictures to our intelligence marketing, which reduced our unit acquisition costs by roughly 9%. With large language model empowering our telemarketing team, our average drawdown per user increased by roughly 5%. Currently, AI programming has replaced 15% of our coding. And all these efforts, we believe, will eventually improve our efficiency in the near term and long run. In summary, we have seen some positive signs from the latest published macro data. And our continuous efforts in improving our profitability is also bearing fruit. At this time point, we are confident to achieve our goal to generating better profit growth than loan volume growth. Regarding the asset quality, as our CRO just mentioned, we fine-tuned our risk strategies in Q4 and Q1, leading to a better FPD30 delinquency rate performance of the new loans issued in the last two months. Considering the marginally better macro conditions, we believe our asset quality is also generally manageable.
spk03: The second question is for Zhen Ying.
spk00: Okay, I will continue to add to the risk part. Last year's Q3, Hongguan's performance was very good. It was indeed beyond many people's expectations. We can see that this trend continues to Q4. On the one hand, Hongguan's economic index is low. the liquidity of the current market is also at a certain level of tension. In addition, since November last year, some of the controls of the operation line have also had a certain impact on us, which has led to the overall risk of Q4 of mass assets to increase further. We believe that the uncertainty of the big red corner level, including the impact of the line issue, will indeed have a certain continuity. But in fact, some economic indicators from the beginning of the year and the performance of liquidity has also improved. Our line work has also made some progress. Yes, then from the performance of our assets, we have already achieved a large-scale optimization in terms of the addition and addition of funds. The performance of the total large-scale assets, i.e. pure assets, has also continued to decline from the peak in November. Okay, I will comment on the risk front.
spk09: The weaker-than-expected macro environment in Q3 continued its momentum in Q4. As a result of underperforming macro statistics, liquidity tension in credit markets, and the stricter line control by telecom carriers, our risk matrix for the overall loan portfolio were further trending up in Q4. In our view, the macro uncertainties as well as the line control issue may continue to put pressure on our risk management in this year. But we do see improvements in the latest economic data and the market liquidity. Our day one delinquency ratio has been consistently trending lower from the peak level in last November. From our business planning perspective, we will take a more prudent approach in terms of risk appetite. With all these efforts, we aim to lower our vintage loss for 2024 new loans by 10% to 15% compared to 2023.
spk06: Operator?
spk08: Thank you. Our next question comes from the line of Emma Xu from Bank of America Securities. Please ask your question, Emma.
spk07: Thank you for giving me the opportunity to ask this question. I have a small question about the shareholder return. We see that the management has set the share distribution rate for the new year at 20 to 30. At the same time, they have announced the return plan for the new period. The return amount has also increased to $3.5 billion. The management has also mentioned some follow-up considerations. So we noticed that you keep your dividend payout ratio at 20% to 30% and announced a new share buyback plan of $350 million. You mentioned some of the considerations behind. I'm just wondering if such shareholder return is sustainable in the long term. Could you share more considerations with us? Thank you.
spk02: Thanks, Emma. I think, as we mentioned in prepared remarks, we consider the combination of dividend and the share repurchase as a lasting kind of measures we're going to take to return to our shareholders. In terms of the mix between the two, from time to time, depending on the market condition, may change. But the intensity of this kind of a return program will probably be similar to what we see in 2024, which is announced. In other words, if we consistently doing the repurchase and the dividends for the next, say, three years, it could possible we see the shrink of total share count by roughly 30% or even more. based on current share price. So basically what we're trying to say is that we view, given our current cash flow position, we view that returning to shareholders is a very important long-term tool to the company. And so we'll continue to do that year by year.
spk06: Thank you. This is very encouraging. All right. Thank you.
spk08: All right. Thank you, Emma. Our next question comes from the line of Yada Lee from CICC. Please ask your question, Yada.
spk06: Hello, Mr. Guo. Thank you for giving me this opportunity to ask a question.
spk05: Today, I would like to ask you to look at it from the perspective of the amount of payments. If the company's future is compared from the point of view of self-sufficiency, insurance and real estate model, it is probably a change of trend. And then, in the current market environment, if you look at it from the perspective of financial institutions, financial institutions are generally more inclined to which kind of cooperation model. Then I will do my translation. First thing I was wondering, what are the percentage trends of different facilitation models, including the microcredit, the guaranteed model, and the capitalized model in the volume going forward? And considering the microenvironment, which one is preferred by the financial institutions? And secondly, I've noticed that there was a notable growth of the ICE, both in volume and percentage. And during this year, what can we expect regarding the ICE? That's all. Thank you.
spk03: Okay. These models, their ratio and trend, I want to say that In today's structure and proportion, we are no longer simply pursuing the proportion of a certain type of asset. We are more interested in improving the take rate of each model through the introduction of capital and the increase in the efficiency of distribution. At the same time, we will also improve the efficiency of the collection in different modes to optimize the cost of cooperation between us and the financial institutions. Therefore, in each mode, we hope that it can have a takeaway improvement. For example, if you pay attention to the confidence mode, in 2023, we will continue to introduce more financial institutions, and also optimize our strategy of distribution. So we can see that the take rate of this business has a 50% increase. Therefore, the increase in the share price of this business, coupled with the increase in the take rate of it, the influence of its profitability will be very positive. From this year's point of view, we should continue to implement this strategy to Thank you, Yada. Regarding your question about the loan mix, I think at this stage, basically, we won't set a target for our loan mix.
spk09: Instead, we target to diversify the funding partnership structure, adjust our loan mix and asset allocation strategy to improve our overall take rate. In the meantime, we strive to improve the asset matching and allocation efficiency, reduce the partnership cost, and boost our take rate for each of those categories. As you mentioned, let's take ICE for instance. We managed to diversify our funding partnership and optimize asset allocation under ICE in last year, which resulted in an overall 50% year-over-year increase in our revenue take rate for ICE in Q4 2023. So with ICE contributing more in the loan mix, our overall profitability is also improving. This year, we will continue to conduct this strategy to improve our operational efficiency in the different models and make dynamic adjustments to our loan mix to improve our overall take rates. Thank you.
spk06: Thank you, Yada.
spk08: We have reached the end of the question and answer session. Thank you very much for all your questions. I'd now like to turn the conference back to the management team for any additional closing comments.
spk02: Again, thanks again for joining us for the conference call. If you have any additional questions, please feel free to contact us offline. Thank you.
spk08: Thank you. That concludes today's conference call. Thank you for participating. you may now disconnect.
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