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spk04: Good day, ladies and gentlemen. Thank you for standing by and welcome to the Giant Group's third quarter of 2021 earnings conference call. Currently, all participants are in a listen-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 Ms. Susie Wang, Director of the Blue Shirt Group Asia. Ms. Wang, please proceed.
spk03: Hello, everyone. Thank you all for joining us on today's conference call to discuss Xia Ying Group's financial results for the third quarter of 2021. We released the 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. Yan Dinggui, Chief Executive Officer, Mr. Xi Fang, Chief Risk Officer, and Ms. Celia Chen, Coach Financial Officer. Before we continue, please note that today's discussion will contain forward-looking statements made on the safe harbor provisions of the U.S. Private Security Litigation Reform Act 1995. Forward-looking statements involve inherent risks and certainties. 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 filings with SEC. The company does not assume any obligation to update any forward-looking statements except as required on the applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese. Let me be with that. Let me now turn the call over to our CEO, Yanling Gui. Go ahead.
spk00: Hello, everyone. Thank you for joining our third quarter 2021 Earnings Conference Call. We delivered another outstanding quarter with impressive financial results, reflecting the success of our growth strategy execution. As we continue to diversify our funding resources and burden our collaborations with our institutional partners, our loan organization volume has doubled from last year to surpass U.S. dollar one beginning with a 43.8% increase in our lead revenue. We believe we are on the right track for our next stage of growth. Leveraged by our continuously effort in expanding our funding resource via maintaining risk management excellence, in quarter three, our funding partners increased to 36%. with another 42 institutions in discussion. We are confident we will have continued top-line growth and capture massive opportunities in the growing consumer market. In this quarter, we resumed our marketing program and began acquiring new customers at a more accelerated pace that is focused on higher credit quality customers. We have maintained an increase rate by sustaining rapid portfolio growth. We started a long program for small business owners. Small businesses are the backbone of our country's economic development and common prosperity initiatives. The act of the option for accessing capital to growth presents a greater maturity for us. However, We are very cautious about what we are offering and the use of loan credit and repayment capabilities. We are gradually rolling out this program and will gather more data and develop differentiated risk on writing criteria and tools to ensure our loans are for borrowers of quality and a good credit. Today, a large portion of our loan volume continues to go to our existing borrowers with higher quality, with our repeat borrowing rate for this quarter at 69.1%. We believe serving higher quality borrowers will improve our credit risk profile and ensure exact quality. We remain dedicated to controlling credit quality with our improved credit scoring system and advanced technology capabilities. Last, I want to mention our efforts in corporate social responsibility, or CSR, which is one of the most important aspects of our corporate culture. Since China was founded, we have been dedicated to creating value for society, adhering to charity, spirit of the in help others, you help yourself. One of our main grants are for the school's program designed for providing better school environments for the children in need. So far, China has made donations to 40 schools across the country, including donations of the school supplies, books, cash awards, and more. In addition to the A4 mission, we also organized various of the events in order to serve more people's lives and contribute better health. We remain committed to launch more initiatives and continuously promoting CSR awareness by organizing and participating in a wide variety of the social and public events. In conclusion, we achieved yet another solid quarter with impressive financial growth. We will continue to advance our technological capabilities and solidify our operation in China and in overseas markets, while working with our institutional partners to further explore our opportunities that will enable us to diversify our business model. We are confident to maintain healthy growth in the quarter ahead and resume robust, consistent, and long-term growth. With that, I will now turn the call over to our CFO, Senior Chen. Senior, please go ahead.
spk01: Thank you, Mr. Yan, and thank you, everyone, for joining our call today. As Mr. Yan mentioned, we ended another great quarter on a strong note. Total loan origination volume maintained a strong growth trajectory, reaching 6.7 billion RMB, representing an increase of 100.2% year-over-year and 17.7% sequentially. Net income came in at 124.8 million RMB, a 41.2% year-over-year increase compared to 88.4 million RMB in the same period last year. With the clearance of P2P balance and the diverse financial institutional partners, we are able to continue our upward trend in this quarter and we are confident to resume high-quality growth in the years ahead. 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 changes refer to year-over-year comparisons. Net revenue was 577.1 million RMB, up 43.8%. Revenue growth was primarily driven by the significant growth in loan origination volume, which increased to 100.2%. Other revenue was 40.3 million RMB, down 47.7%. This decrease was primarily due to reduced revenue from P2P-related services, as the company no longer supports a legacy P2P lending. partially offset by the sales of hardware by Shanghai BlueNet since the integration in May. Moving on to cost, we have stepped up the overall spending on customer acquisition since last quarter. In the third quarter, our total operating costs and expenses increased 68.4% year-over-year, reaching 423.2 million RMB. The increase was along with our top-line growth, as well as the significant increase of spending on sales and marketing, as we began to attract new customers at a more accelerated pace. Total operating costs and expenses as percentage of revenue was 73.3% versus 62.6% in the same period last year. Origination and servicing expenses were 88.3 million RMB, up 48.4%, primarily due to the increase in credit assessment expense resulting from higher loan origination volumes. We incurred a cost of sales of 9.4 million RMB compared with nil from the same period of 2020. The increase was primarily due to the cost of hardware sold by GreenNet. Allowance for uncollectible receivables, contract assets, loans receivables, and others were 6.2 million RMB, down 60.8% from the same period of 2020. The decrease was primarily due to the decrease in the estimated default rate under current business model, since we no longer support the legacy P2P lending business. G and A expense were 45.3 million RMB, up 21.4%, primarily due to increased expenditures in employees' benefits and the professional service fees. RMB expense were 37.1 million RMB, down 4.5%. This was primarily due to the input utilization and the productivity of our facility. and our employees allocated to the research and development department, of which has been partially offset by the increase in professional services expenses as the company continued to enhance research and development capabilities. Sales and marketing expenses were 236.9 million RMB, up 138.1%, primarily due to our new online advertising 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 loyal customer base. We achieved another attractive profitability through our long volume growth with the posting net income of 124.8 million RMB, up 41.2% year-over-year. We ended this quarter with 178.5 million RMB cash and cash equivalents compared with 141.4 million RMB as of June 13, 30, 2021. Our improved cash position gave us greater flexibility while enabling us to invest in initiatives that will drive long-term growth. Moving to our guidance, due to the slower than expected growth from our long orientation volume, our full-year 2021 long orientation volume is revised downward to the range between 20 billion RMB to 23 billion RMB, representing 72% to 98% year-over-year growth. As we follow and achieve our long-term growth objectives, we are still confident in our business model and our ability to bounce back strongly. With that, we can open the call for questions. Mr. Yen, our Chief Risk Officer, Ms. Xu, and I will answer questions. Operator, please go ahead.
spk04: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Once again, to ask a question, it's star and the number one on your telephone keypad. Your first question comes from the line, of Andrew Scott of Roth Capital Partner. Please ask your question.
spk05: Good evening and congrats on the strong profitability. My first question revolves around your increased acquisition of new borrowers. It looks like you guys are making strong traction on the sales and marketing spend you guys have made in the last few quarters. So can you just kind of talk to the success you've seen in the new online advertising?
spk01: Yeah, so this is Celia. I will take this question. So yeah, so sales and marketing expense were, yeah, 236.9 million RMB. So if you compared it to the last year, I think it's primarily due to the increase in loan facilitation amount. But if we look at the last quarter's number, this quarter represents a 36% increase. So amount is a 36% increase. I think roughly half is the marketing fee, and the remaining half is driven by the marketing initiatives and the strategy that we launched. So as we mentioned in the last quarter, I think the second quarter is the quarter that we scale launching those information feed advertisements. So compared with the last quarter, we are pretty happy to see great improvements in the cost-effective ratio of this initiative. So in terms of the cost per new borrowers and the cost per facilitation amounts, they are both edging downwards. And we've also seen the great breakthrough at the end of September that the cost of this initiative are comparable to their existing marketing channels. So if we look at the total sales and the marketing expenses at this moment, I would say there are lots of moving pieces and the results will be affected by different customer mix, I mean the repeat borrowers or the newly onboard borrowers and the channels mix. But as the numbers and the performance come in, this quarter, we are pretty confident to see that this new initiative will help bring the target customer in a more effective, economic, and efficient way. So there will be room for efficiency gains as long as our volume grows, and we will continue to work to optimize this cost. So hopefully it will clarify the change that we are seeing now.
spk05: Great. Thank you for the information. It's great to hear the efficiency and the initiative is improving. So my second question revolves around the new product you guys have for small businesses. It's exciting to hear you guys are rolling that out. Can you maybe provide some details on maybe the size of the loans, what type of businesses you guys are targeting, and any other detail you could provide the IRB group?
spk02: This is . I'm going to take your question. Thank you, . So according to SME, we started to focus on SME still primarily focusing on acquiring these customers through our online acquisition channels. So we stay where we are familiar with and where we are highly cost-effective with channel-wise. In terms of the type of customer we're acquiring are really micro to small businesses. As part of the acquisition process, we are asking these potential customers to submitting their business licenses as well as their personal credential, which helps us to evaluating their credit worthiness. At this point, we have both targeting the existing customer pools to identify the customers who are part of giant customers, but also our small business owners. In addition, as I said before, we also are acquiring through our online new customer acquisition channels. In terms of loan size-wise, It's staying a little bit on the loan price. It's a little bit higher than what we are having now. It's about 20% to 30% higher in terms of average credit lines.
spk05: Awesome. Thank you. That was very helpful. My next question has to do with the international expansion. Last time we spoke, you guys were still seeing great progress Mexico is a top three lender and you just recently received your lending since the 9th. So just wondering if you guys have any updates on the various markets you guys are entering into.
spk02: It's Yvonne again. I'm going to take on your questions on the market expansion. As what we have shared last time, we're making solid progress in our international markets. For the Mexico market, we're seeing... newcomers into the Mexico microlending business, but we remain as the leading position in Mexico. Our total volumes may not have increased dramatically, but we are making solid progress in terms of preparing ourselves towards product proliferation. In terms of Nigeria, I believe we shared that we obtained the lending license. We are now trying to achieve our scalability. And reporting back on Indonesia, we are still in the process of trying to solidify our positions in terms of our lending license.
spk05: Great, thank you. Next from me, if I may, on your credit costs, your charge for allowance of uncollectible receivables as a percentage of loans funded has dropped substantially. Is there kind of a level that you guys see it normalizing? And do you guys feel comfortable with the average credit quality of the customer you guys are funding today?
spk02: We're not able to catch a question. Can you say it again, Andrew?
spk05: Yes, sorry. Just on credit costs, your charges for uncollectible accounts per loan funded has dropped substantially. So can you just talk to where you see credit costs going and how you feel about the average credit quality of the standard customer today?
spk02: I will talk about the general directions The reason for the drop of the credit costs on the uncollected loans is primarily driven by our improvement on the credit quality.
spk01: Because last year we've changed our business model substantially, so most of the uncollectible allowance for this quarter due to the related party. I mean, it's our financial institutions that we provide a service to. So most of them are licensed credit financial institutions, so they have pretty good, like, credit. So we basically, you can see the remaining parts on the unselectable allowance are from the previous business, the remaining on the book.
spk05: Awesome, thank you. And last one, if I may. Looks like you guys are beginning to generate some revenues from Buynet. Can you just speak to how the integration is going and how you see that business working over the next few quarters? Thanks, and that's all from me.
spk01: Yeah, right. So this is Sylvia again. So because of the recent crackdown on the blockchain and Bitcoin mining, brought market sentiment and a lot of challenges to the business segment. So as a result, at this moment, we just started this segment operations in mainland China, but we are actively seeking opportunity to move it to the overseas. We will be closely monitoring the regulation change and remain alert to adjust our plan. At this moment, we are assessing this investment according to this ever-evolving policy, and we will update the market when there is progress.
spk05: Great. Thank you for the responses, and once again, congrats on the strong quarter.
spk01: Thank you, Andrew.
spk04: Once again, if you wish to ask a question, please press star and the number one on your telephone keypad. Seeing no more questions, I will turn the call to Ms. Shen. Please go ahead.
spk01: Thank you, operator, and thank you all for participating on today's call, and thank you for your support. We appreciate your interest. And I look forward to reporting to you again next quarter on our program.
spk04: This concludes today's conference call. Thank you for participating.
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