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spk06: Good day, ladies and gentlemen. Thank you for standing by and welcome to the GI group second quarter of 2021 earnings conference call. Currently, all participants are in a legend only mode. Later, we will conduct a question and answer session and instructions will 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 Mr. Zivong. Director of the BlueShot Group Asia. Ms. Wong, please proceed.
spk04: Hello, everyone. Thank you all for joining us on today's conference call to discuss Giant Group's financial results for the second quarter of 2021. We released results earlier 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. Yanding Hui, Chief Executive Officer, Mr. Xu Yifang, Chief Risk Officer, and Ms. Shelley Rye and Ms. Celia Chen, co-chief financial officers. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks 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 findings with SEC. The company does not assume any obligation to update any forward-looking statement except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese language. With that, let me now turn the call over to our CTO, Yan Di Gui. Mr. Yan, we speak in Chinese. And then our host here, Shadi Bai, will translate his comments to English. Go ahead, Mr. Yen.
spk02: Hello, everyone. Thank you for attending the second quarter of 2021. Hello, everyone.
spk01: Thank you for joining our second quarter of 2021 earnings conference call.
spk02: We have seen a strong growth this quarter. We have created new records in operations and financial performance. We delivered an outstanding quarter, achieving record-breaking operational and financial results as loan origination volume
spk01: progressively increased by 153% year-over-year, with 100.9% growth in revenues. These results are strong testimonials to the success accomplished in implementing our key strategy, driving organic growth in China while deepening partnerships with financial institutions through leveraging our sophisticated risk management systems and providing individual customized solutions.
spk02: Notably, with the strong top-line growth and outstanding execution in cost control policy,
spk01: Momentum in profitable growth continues. Net income grew a significant 208.5% year-over-year, reaching RMB 126.8 million. This is a remarkable improvement and illustrates our ability to improve profitability through strong growth and outstanding execution.
spk02: This is what we have mentioned in our past financial reports. We have been focusing on optimizing our automated wind control management system. As shared with the last few quarters' earnings calls, we are focusing on building integrated
spk01: highly automated platforms with great risk management intelligence to be an irreplaceable, effective partner to our institutional funding partners. Our funding partners increased to 32 in Q2, and we are in discussion with another 45 institutions with aims to further broaden partnerships for diversifying our funding resources while maintaining risk management excellency.
spk02: We have always tried to be a financial partner. We believe that providing services for high-quality borrowers will effectively ensure the quality of our assets. Our ability to provide assets with qualified risk profile that meets risk requirements for respective funding partners lay a solid foundation for higher loan origination.
spk01: In this quarter, we resumed the marketing and began attracting new borrowers at a more accelerated pace, with focus maintained for higher quality borrowers. A large portion of our loan volume continued to go to our existing borrowers with higher quality, with our repeat borrowing rate for this quarter at 72.4%. We believe serving higher quality borrowers will improve our credit risk profile. and ensure the asset quality. We are very pleased with the progress, and the excellent financial results illustrate the strength in the consumer market and the growth trajectory of our business. We remain dedicated to controlling credit quality with our improved credit scoring system and advanced technology capabilities.
spk02: In the overseas market, due to the potential impact of the Delta variant virus and the increase in market competitiveness, Our market expansion and operation have taken a more cautious approach. Nigeria, Indonesia, and Mexico are our main overseas markets, with good business potential. Our progress in these markets is gradual and stable. Currently, we are looking for a balance between investment and risk. We expect that the situation will be better at the end of this year. This depends on geopolitical politics, virus control, and global monetary policy changes. Stability and prosperity are key factors in our business strategy.
spk01: In terms of the overseas markets, we are taking a more prudent approach with uncertainties brought by the surge of the Delta variant and the margin dilution by heightened occupations. Nigeria, Indonesia, and Mexico are our key overseas markets that present promising business potentials with our progress in this market gradual and steady. We are striving for a good balance between the investments and the risks. We expect to have a better picture later this year, depending on geopolitical changes, virus control and improvement, and global monetary policy changes. Agility and prudency are both critical factors in our business strategy, which will enable us to emerge stronger and achieve more success in the evolving market environment.
spk02: In this season, we have completed the integration with BOA. As you know, the recent state-run policy has announced a blow to Bitcoin mining, which has adversely affected the market sentiment and brought a temporary challenge to the current Bitcoin mining. However, BOA is mainly focused on the hardware solution of blockchain-related technology and decentralized applications. We provide customers with fast-paced solutions in related areas such as cloud storage, cloud computing, broadband, and CDN. As a result of the rapid development of blockchain applications, We are confident that we will be able to take advantage of our potential and technology from this market.
spk01: We will continue the integration with Bionet this quarter. As you might be aware, the recent crackdown on Bitcoin mining in China has affected the market sentiment and brought temporary challenges to immediate mining prospects. However, Bionet is primarily focused on blockchain-related technologies and hardware solutions for decentralized applications. We provide our clients one-stop solutions related to cloud storage, cloud computing, network bandwidth, content delivery networks, and others. As blockchain-based applications are developing rapidly, we are confident we can benefit from this growing market with our first mover advantages and technology capabilities.
spk02: In conclusion, we are excited over the resumed high growth in our domestic market with a record-breaking operational and financial performance this quarter. We will continue to roll out initiatives
spk01: and apply technology across our business to improve operational efficiency and create long-term sustainable value for shareholders. With that, I will now turn the call over to our co-chair for Celia Chen. Celia, please go ahead. Thank you, Mr. Yan. And thank you, everyone, for joining now. As Mr. Yan mentioned, We achieved a milestone quarter and grew original volume by 153% to 5,663 million RMB with 100.9% growth in revenue and 208.5% in net income. This outstanding result came in well above the upper end of our guidance range on year-over-year basis, demonstrating the success of our business transformation as well as our speed and strong execution in enhancing our risk management and improving asset quality. Now let me go through our financial highlights for the quarter. Please note that unless stated otherwise, all numbers quoted are in RMB and percentage change is referred to year-over-year comparison. Net revenue was 492.2 million RMB up 100.9%. Revenue growth was primarily driven by the significant growth in loan origination volume, which increased 153%. Other revenue was 38.5 million RMB, down 8.3%. This decrease was primarily due to reduced revenue from P2P related services as the company no longer supports P2P lending business. partially offset by increased revenues generated from our overseas business and green net since the integration in May. Moving on to cost, we also had a substantial improvement in operating efficiency, reflecting actions we took over the last two years to streamline our expense base. In the second quarter, total operating costs and expenses were 342.6 million RMB up 73.9% from 197 million RMB last year. The increase was along with our top line growth. However, total operating costs and expenses as percentage of revenue was 69.6% versus 80.4% in the same period last year, demonstrating our ability to contain expenses growth which will enable our infrastructures to scale as we grew. Origination and servicing expenses were 83.2 million RMB, up 63.5%, primarily due to the increase in credit assessment expense, resulting from higher loan origination volume. In this quarter, we incurred a cost of sales of 5 million RMB which is equivalent to 0.8 million U.S. dollars, compared with nil from the same period of 2020. The increase was primarily due to the cost of hardware sold by green apps. Allowance for uncollectible receivables, contract assets, loan receivables, and others were 13 million RMB, up 21.5% from the same period of 2020. The increase was primarily due to an increase in loan principal and increase as a result of the higher loan generation volume from overseas business, partially offset by the decrease in the estimated default rate on the current business model since we no longer support the legacy P2P lending business. G&A expense was 35.2 million RMB, down 3.8%. primarily due to the decrease in headcount, of which has been partially offset by the increase in personnel-related costs allocated to general and administration departments. R&D expense was 31.9 million RMB, down 6.5%. This was primarily due to the improved utilization of our facility allocating to research and development departments, of which has been partially offset by the increase in professional service expenses as the company continues to enhance the research and development capabilities. Sales and marketing expense were RMB, 174.2 million RMB, up 169.7%, primarily due to our new online advertisement, and marketing strategy, which has resulted in higher customer acquisition expenses. As we intend to continuously grow origination volumes, we began attracting new customers at a more accelerated pace with our superior marketing algorithm and translating them into our lawyer customer base. We achieved a noteworthy profitability for our long volume growth and improved operating efficiency, with a positive net income of 126.8 million RMB, up 208.5% year-over-year. We ended this quarter with 141.4 million RMB cash and cash equivalents, compared with 123.3 million RMB as of March 31st, 2021. Moving to our guidance, we expect our long origination volume of 27 billion RMB to 30 billion RMB for the full year 2021, representing 133% to 159% year-over-year growth. With that, we can open the call for questions. Mr. Yan, our Chief Risk Officer, Mr. Xu, and I will answer questions. Operator, please go ahead.
spk06: Certainly. Ladies and gentlemen, to ask a question, you will need to press star 1 on the telephone. To withdraw your question, please press the power hash key. Please stand by while we compile the Q&A, sir. Once again, to ask a question, it's star 1 on the telephone. The first question comes from the line of Greg Irwin from Roth Capital Partners. Please go ahead.
spk03: Hello and thank you for taking my questions. The most exciting number that you shared I think was the Origination Volume with more than 5.6 billion RMB in the quarter. Can you talk a little bit about the contribution of customers, new customers added in the past couple months and how quickly your funding partners contribute to these very high growth rates. Do we see a larger portion added on the front end as new partners are added or do the new partners tend to accelerate over time?
spk05: This is Yifan. Thanks, Greg, for your question. I'll take a stab at addressing your question. So, yes, as you have seen in this Q2, we're seeing significant amounts of volume increase over the time. As we have disclosed in our notes earlier, the number of the funding partners we're working with have increased to 32. We are a lot more diverse in terms of the type of FIs that we are working with, as well as the numbers are increasing as well. And we are seeing both factors have impact in coming from bringing on new funding partners and deepening relationships with our existing previous partners that we have previously brought on board last year also. So that we are managing our FI partnerships, you know, within a mixed several factors installation that we have to take into consideration of the regulatory changes over the time. So diversification is one of the crucial components for us to managing that. towards to be able to achieve a stable supply of the funds. Now we have added different aspects in terms of the geographical compatibility of our borrower's profile because we are seeing some local regional requirements in terms of the type of customers some of FIs are requiring and specifying. And the last thing that is also important is to continue to improve our overall economics and to achieve higher low competitive cost of funds. We have to manage to have a wide range of numbers and also a good number of partners that we are working with to balance out in terms of our business terms.
spk03: Hope that answers your question. Yes, it does. Thank you. So my next question is obviously directly related to your increased marketing spend to drive this accelerating origination volume. You know, the marketing spend was up materially quarter over quarter. And, you know, it's amazing that you had such very quick results I'm going to guess that there's more play between the market spend and the new loan originating with the customers captured. Can you please describe that process and maybe share some of the details of where you're spending these increased marketing money? And if you could also discuss how your budget and the total market spend Are you targeting 30% operating margins or are you targeting a particular expense level as you continue to scale the business?
spk05: Yes, this is Yifeng again. I'm going to speak into the first part of your question and then maybe Celia can chime on the last question. So that, yes, we are seeing that higher increase of our marketing expense, which is even on the per unit basis, we are maybe looking at higher sales and marketing per customers acquired. A couple of reasons going into why we are seeing a higher risk, higher cost on that item. One is we are continuing to really focusing on the better quality customers. And in the market that we are working on right now, the current market landscape, the cost of acquiring such customers is significantly higher than compared to what we are seeing in probably 2019 or early 2020. The channel also has had significant change compared to the early years as well. So today we no longer see the low mark type of market practice. We are actually acquiring our customers through the direct channel a lot more, working with the major Internet companies to acquire through what we call an information stream. to acquire customers directly. We are seeing almost 100% growth in those new channels and the cost in the new channels are higher. But the qualities are significantly better in terms of both approval rates as well as from the early risk readings we are seeing. So that's primary. We are seeing the channel mix is shifting to a higher cost channel and our focus on better quality customers are also driving the per unit costs up. And I think from the planning perspective, we are still thinking that we are still considering healthy, organic growth, considering that we are planning for the future, especially considering the trend on the interest rates, the type of requirements that we are seeing from our financial institution partners, which is the loan interest rates that we have to work with. putting a stringent view on our risk spectrum to making sure that we are not compromising or being more tied on the self-marketing per unit cost, but in exchange for a higher future risk uncertainty. So we actually are balancing that. So I'm trying to stay to keep our growth for our future more healthy growth to target the better risk quality customers in trading for some cost increase at this point in the current cost point of view. So I think I talked a little bit about higher growth in some of the high cost segments, channel segments. At the same time, we are seeing that sales and marketing costs per unit cost are coming down, driving down in the Q3. We have a pretty good line outside of having probably 20 to 30% of efficiency improvement being the pipeline right now. And as we are seeing the continued growth on such high-quality customer channels and our ability to managing that cost per unit cost down, we are thinking we are ready in terms of the economics program review. In terms of total budget, I'd like to ask Cecilia to comment on that.
spk01: Yeah, so this is Cecilia. Thanks, Craig, for the question. I think compared, yeah, this quarter in sales and marketing expenses with the last quarter, we've seen like over 90% of the increase. I think it's, to add more colors on this, I think it's mainly due to two reasons. The first is that The fee settlement way is different from previous because in the traditional or in the previous way, this compared with the traditional way, this quarter we started to launch the information feed advertisements. And for this new kind of development marketing strategy, the fee booking ways is totally different with the previous ways. In previous weeks, we recorded feeds based on the performance, that is the CPD, cost per download, or CPS, cost per sales. Before this information feed advertisement, we record the marketing expense upfront. That means we record it in the CPC or CPM way, which is short for cost per clicks, or cost per miller's way. So, you will see that the initial stage that we launch this kind of marketing strategy, there will be a bump where you will see an increase, significant increase in the sales and the marketing increase. That is probably the major reason that you see that our sales and marketing expands outpace the long ordination volume growth pace. And the second, I think, is that is a basic like a new strategy, new marketing strategy launching logic is that we started to partner with our channel providers and we co-build the models with them and we do some trial runs to try some marketing strategies and we get numbers from the channel partners and we go back to optimize our algorithm and So, at the initial stage, I would say the cost per newly acquired customers will be inevitably higher than usual. So, at the initial stage, I would say, especially this quarter, the first quarter that we launched this new product, the cost per new customer will be higher than usual. marketing strategy, it's inevitably to see a significant rise in the sales and marketing expense. But in the future, I would say we expect to see some room for the improvement in the cost effectiveness. I think in the future, there are so many optimizations of the marketing strategy. Right now, I'm not the expert in this, but I'm pretty sure our technology team spend a lot of great efforts on this to improve the cost per newly acquired customer, the data on this. So I would expect that in the next quarter or in a couple of few months, the cost effectiveness will be improved and the cost per newly acquired customer will be dragged down. I think because there are a lot of moving parts, at this quarter, at this initial stage of launching this marketing strategy, we will not say that, we will not set a specific number, like absolute number for the marketing MSL expenses, or to set the ratios of this expenses, the ratios of the total long origination volumes, but we are confident that in the future, in the short term, it's not that unlikely that these marking cells expenses would outpace our long origination volume growth a lot. That would be all.
spk03: Thank you, thank you. Can you share a little bit more detail around your international expansion and update on Indonesia and Mexico and whether or not you're comparing other markets internationally at this time?
spk05: Certainly. I will take on this question too. So as we said, we remain optimistic and optimistic. and consider that international strategy is one of our key components of our strategy. But we are taking a prudent approach in terms of how we're considering the overall component of the international market expansion effort. So there are different set of factors and certainties when we are managing the national market. As we have mentioned earlier, the surge of the Delta variant is having bigger impact in the emerging markets, which are slightly different from what we are seeing in the mainland China market. And the economic growth and the political or regulatory stability is also somewhat more fractured compared to our mainland China market. So without kind of managing those risk factors, compared to the growth needs and the economic needs from a business standpoint of view. But we're still happy to report in Mexico's maintain to be the top tier player in the market. In spite of we have seen a proper influx of new players coming into the market, occasionally In certain amounts, we have seen them driving the marketing costs up, which have some sort of impact, have somewhat impact on our economics. But we are still maintained to be the top player in the market now. In Nigeria, we have gone through the setting up phase of that market. We have obtained our monetary money lending license. For the next step, it's really for us to start to drive the growth in the market. In the initial market, we are seeing some recent regulatory changes related to how they're managing the license application process. We are seeing some, and such change does have somewhat impact on us. We are still continuing to try to sort that out, just continue to go in, but we are still dedicated to the Indonesia market. As far as newer markets, there are a couple of new markets. We are in investigation and in the early feasibility study phase. But I have to say that most recent political change that may have some impact on our speed and our appetite in taking on new markets at this point.
spk06: Thank you.
spk03: Thank you for the update and congratulations on the really strong growth and profitability in the quarter.
spk05: Thank you.
spk06: Thank you. Once again, ladies and gentlemen, to ask a question, please press star 1 on the telephone. Thank you.
spk01: Okay. Thank you, operator, and thank you all for participating on today's call, and thank you for your support. We appreciate your interest and are looking forward to reporting to you again next quarter on our progress.
spk06: Thank you. Thank you for your participation. You may all disconnect your lines now. Thank you.
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