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spk04: Ladies and gentlemen, thank you for standing by and welcome to the GIAN group third quarter of 2020 earnings conference call. Currently, all participants are in listen-only mode. Later, we'll conduct a question and answer session and instructions you'll follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. I will now turn the call over to Ms. Julia Tam, Managing Director of the Blue Shirt Group Asia. Ms. Tam, please go ahead.
spk03: Hello, everyone. Thank you all for joining us on today's conference call to discuss Jain Group's financial results for the third quarter of 2020. We released the results early today. The press release is available on the company's website as well as from Newswire Services. On the call with me today are Mr. Yan Dinggui, Chief Executive Officer, Mr. Charlie Fang, Chief Financial Officer, and Mrs. Xu Yifang, Chief Risk Officer. Before we continue, please note that today's discussion will contain forward-looking statements made under Safe Harbor provision of the U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements involve high-risk and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filing with SEC. The company does not assume any obligation to update any forward-looking statement, except as required under PIPO law. Also, please note that unless otherwise stated, all the figures mentioned during the conference call are in Chinese R&B. With that, let me now turn the call over to our CEO, Yan Jinghui. Mr. Yan will speak in Chinese, then our IR Director, Shelly Bai, will translate his comments to English. Go ahead, Mr. Yan.
spk00: Hello, everyone. Thank you for participating in the third quarter of the financial phone conference in 2020. We are satisfied with the solid performance of this quarter. The company has made significant progress in promoting business transformation and cost structure optimization. The most important thing to note is that as of November 10, 2020, the P2P share has been completely cleared. This is a major milestone for Jiayin. Hello everyone, thank you for joining our third quarter 2020 earnings conference call.
spk02: We are pleased to report another solid quarter. We made significant progress in driving our business transformation, shifting funding sources to institutions, and optimizing our cost structure. Most notably, we are excited to have reached an important milestone. As of November 10, 2020, the outstanding loan balance of our legacy P2P lending business was reduced to zero. This signifies that we have successfully completed the transition to being a FinTech company with a platform fully funded by institutions. We did this by leveraging our technology, our advanced data algorithms, and our risk system. We facilitate and enable financial institutions to offer products and services to our large database of borrowers.
spk00: Just a year ago, we were a personal investor-oriented platform with more than 90% of the funding from individuals. To be able to achieve a comprehensive transformation in a short period of time, this fully demonstrates our rapid and outstanding execution capabilities. More importantly, by changing our business process, we can improve the functions of the platform, so that institutions can enter our platform more easily and integrate it, 我们的团队具有打造规模化金融科技公司的能力,凭借全新且坚实的业务基础以及有影响力的品牌知名度,我们有信心在未来几年内实现强劲增长。 The magnitude of this transition is remarkable. Just one year ago, our platform was over 90% funded by individuals. Being able to fit to complete institutional funding in just one year
spk02: demonstrates our agility and our outstanding execution capability. By transforming our business process, we were able to enable the functionality of our platform such that institutions can onboard and integrate easily. We built the team and the capabilities to scale and transform to a FinTech service company with a technology platform optimized to serve financial institutions. With a new solid foundation under our business, combined with strong brand recognition, we are confident that we can achieve robust growth for years to come. Despite market uncertainty and the incredible speed of our business transformation, we sustained attractive profitability throughout the process. We achieved healthy margins through vigilant cost control and better operating efficiency. Net income reached RMB88.4 million in quarter, up 8.1% year-over-year, and 115.1% sequentially, a remarkable improvement. 业务的成功转型让我们能够加快与机构伙伴的合作, 进一步分散资金来源并降低资金成本。 自11月10日宣布P2P清零后, 我们立即与三家机构达成合作, 目前平台已与19家机构实现合作, 另有36家机构正在协商准备中。 我们相信公司在不久的将来, With our successful business transition, we were able to accelerate collaboration with institutional partners to further diversify our funding resources and drive down our funding costs. Since announcing on November 10th that our Lexi P2P lending business was done, we immediately onboarded another three institutions. We now have 19 institutions on the platform, and have another 36 institutions in discussions and preparation. We believe we are well positioned to achieve greater progress in the near future.
spk00: For example, online customer or service, big data analysis or seal control, etc. We assist traditional financial institutions to create a more efficient process and enhance all aspects of the effect. We have maintained a good record in terms of legal and profit. As one of the leading financial technology companies, we maintain an optimistic attitude towards the future.
spk02: On the regulatory front, regulators have put in place policies and guidance associated with the development of fintech companies. The policies mainly cover micro-lending and co-lending, which have limited impact on our business model. We have fully involved into a fintech company providing platform services, We think government regulators recognize the values that fintech companies bring to the financial system, such as online customer acquisition and servicing, big data analysis, and risk management. We complement traditional financial institutions by creating more efficient processes that benefit everyone. This is all positive, and we think it's good news for us. We have a proven track record of being prudent, being agile, being fully compliant with involving policies, while maintaining attractive profitability. As one of the leading FinTech players, we are optimistic about the future. With our business model transition completed, we feel well positioned to reignite growth and benefit from the fast-growing consumer finance market in China.
spk00: With that,
spk02: I will now turn the call over to our CFO, Charlie. Charlie, please go ahead.
spk01: Thank you, Mr. Yan and Sherry. And thank you, everyone, for joining our call today. As Mr. Yan just mentioned, we ended Q3 on a strong note. Notably, as of November 10th, China is no longer a P2P lending company. As we close out our last individually funded loan, This quarter, we continued to operate conservatively while achieving attractive profitability. We stayed our focus on serving high-quality borrowers, which led to our repeat borrowing rate reaching 74.5%. Loans performed well, and investor confidence remained strong. This creates an outstanding foundation for future growth. Now let me briefly go over the financial results for the third quarter. Please note that, unless otherwise specified, all financial figures are in RMB. In the interest of time, I will not walk through each item by line on this call. Please refer to our earnings release for more details. I will just highlight some of the key points here. Loan origination volume was RMB 3.3 billion, down 29.4% year-over-year, but up 48.8% sequentially. This was impressive considering the state of our business transition and the current market conditions. Net revenue was RMB 401.3 million, down 21.4% year-over-year, but up 63.8% sequentially. The big sequential jump was due to the other revenue of RMB 77 million. The increase was primarily due to the variable consideration related to automated investment program recognized from loans previously facilitated under the P2P business. Since we have now exited P2P lending, our P2P-related revenues will continue to shrink and there will be no further P2P-related revenue starting from 2021. Moving on to costs. This year's cost-cutting efforts are bearing fruit. As you can see in our greatly reduced operating expenses this quarter, total operating expenses were RMB 251.3 million, down 41.2 percent year-over-year. Origination and servicing expenses were RMB 59.5 million, down 41.1 percent year-over-year, primarily due to decreased loan origination volume. Allowance for uncollectible receivables and accounts assets was RMB 15.8 million, down 76.7% from RMB 67.8 million in the same period of 2019. The decrease was primarily due to two factors. First, the overall decrease in facilitation volume, and second, the lower credit risk under the new business model. G&A expense and R&D expense fell to RMB 37.3 million and RMB 39.2 million, respectively. This was mainly due to decreased share-based compensation expense allocated to G&A and R&D expenses, as well as lower compensation and other business-related expenses. We continued to reduce our custom acquisition and advertising spending while still focusing on higher quality borrowers. This enabled us to effectively reduce the sales and the marketing expenses related to loan originations. Sales and the marketing expense was down 34.7% year over year to RMB 99.5 million. This quarter, our conservative basis We also had an RMB 34.6 million loss provision related to a short-term investment. We will closely monitor the process and take necessary actions to minimize the loss. We were able to achieve attractive profitability through tight cost control and improved operating efficiency. We posted a net income of RMB 88.4 million, up 8.1% year over year, and 115.1% sequentially. Turning to the balance sheet, we end the quarter with RMB 94.8 million in cash and equivalents, compared with 69.9 million as of June 30, 2020. Before I conclude, I want to mention that On September 30, we completed acquisition of a 35% equity interest in Kim Best Investments. The purchase price was HK$105 million, or approximately USD$17 million. This was settled by offsetting against the receivables held by the company from SmartPay. Kim Best has the internet micro-lending license in China. As the government has rolled out many policies to further regulate the micro-landing industry, we will remain alert to adjust our strategy and assess our investment according to these ever-evolving rules and policies. In summary, we are making steady progress in all regards. We are optimistic about the long-term promise of the fintech industry. With our optimized business structure, and a strong execution capability, we can navigate through any future policies, changes, and drive growth and profitability. With that, we can open the call for questions. Mr. Yan, our CEO, and Mr. Xu, our chief risk officer, will answer questions. Operator, please go ahead.
spk04: Thank you, ladies and gentlemen, for this question and answer session, and for your questions please press star and the number one and wait waiting to be announced. To cancel the request, it is the pounder hash key. For your questions, please press star one on your telephone keypad. This question is from the line of Andrew Scott of Ross Capital. Please go ahead.
spk05: Good morning, and thank you for taking my questions. Congrats on the quarter. Very strong results, and great to see the progress you guys are making. First question here, in regards to revenue and margin, so great quarter on the top line. Can you provide some extra information on the other revenue? I believe it was $77 million R&D. It was a big gain there quarter over quarter and year over year, so Some extra details on the other revenue and very strong margins this quarter. Looks like you guys are doing well with the cost controls. Is that something that will be able to stay steady over the next few quarters, these strong margins? Any color you can provide there would be great as well.
spk01: Yeah, sure, Andrew. Thanks for the question, and I will take this one. Another revenue was related to a decrease of the P2P-related outstanding loan balance. With a combination of reversal of the overestimate of the refund liability item and other factors, the revenue was generated. It's around like $77 million for this quarter. And actually, it's a non-recurring revenue. With the P2P running down to zero in November, we should have very little P2P-related revenue in Q4. And going forward, because our P2P, our signal balance has decreased to zero, so we're not seeing that item anymore, I mean, P2P-related revenue. That's the answer to your first question. And second one, you asked about our margin. And the margin driver, actually, of our business is very dynamic, which is the final outcome based on the scale of the business, the funding costs, the revenue tick rate, and the credit cost, and also the operational efficiency level. You can see some ups and downs of our profit margin historically affected by our compliance efforts and the regulation, the business transition, etc. Since now, we have fully executed the P2P business and 100% shifted to the institutional loan facilitation model. And J-FIN is now in a much better position than before to further lower the pricing to meet the requirement of the strictest funding partner. We can lower the funding cost by partnering with more financial institutions, lower the credit cost by acquiring better quality assets and improving our risk management capability. And we can also get a better margin by improving our operation efficiency by overall cost control. and integration of the advanced technology. And all in all, I think the management team is very confident that from a long-term perspective, our net profit margin will be maintained in a very stable and healthy double-digit level. Well, I hope that helps.
spk05: Yeah, great. That was very helpful and a good segue into my next question. So, can you just provide an update on your client take rate right now and the cost of acquisition, especially now that you guys have transitioned away from the P2P lending, and if you guys have kind of target marks there that you're working towards.
spk01: Yeah, our Q3 take rate actually is very similar to our Q2 because in Q3, 100% of our loan origination volume comes from the institutional funding, and it's around 7%. Actually, it's much lower if you compare that with our tick rate last year. Last year, our tick rate is above 10%. And we are seeing the revenue tick rate will keep at that level and probably will get lower once we lower our pricing and lower our funding cost and lower our credit cost. That's the trend trajectory we are preserving.
spk05: Great. Thank you. And then last question for me from now. Congrats on the acquisition. or the investment into key investment. Can you just kind of provide some more color around the strategy there, and if you guys have plans to make similar investments in the future?
spk01: I'm talking about our short-term investment. We made a provision of 34 million RMB this quarter.
spk05: Yeah, the... The acquisition of KeenVest Investment, the 35% stake you guys... Okay.
spk01: Yeah, right, right, right. Yeah, sure. Yeah, we acquired 35% of the shares of the company named KeenVest, right? And with the consideration of $105 million. And actually, the decision was made in the first quarter of this year And we consider this will be very beneficial to our overall business when the decision was made. And the share transfer agreement actually was signed in Q1 this year, and the deal was officially closed by the end of Q3. So if you look at our balance sheet at the end of Q3, the balance of the long-term investment line item increased, and the deal from related party balance decreased. So the rationale we made the decision is when we made the decision, Q1, we think the micro-landing business license would be very helpful and beneficial to our long-term business. So we made this decision. And now we all know that the regulation is kind of getting tightened because of the for the micro-landing business. But we are still assessing the value of this investment and we will see what we can do about this investment going forward. And I think everything is open. We are open-minded to this kind of investment, and we'll see what we can do about that.
spk05: Great. Thank you. That's all for me for now.
spk04: Thank you. Once again, for those who wish to ask a question, please press star and then number one and wait for your name to be announced. Once again, for your questions, please press star and the number one and the three names to be announced. And to cancel the request, it is the padded hash key. Thank you. And seeing no more questions in the queue, let me turn the call back to CFO, Mr. Charlie Fan, for closing remarks.
spk01: Thank you all again. This concludes the call. You may now disconnect. Thank you very much.
spk04: Thank you, ladies and gentlemen. This concludes the conference call for today and thank you for participating.
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