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spk11: Good day and thank you for standing by. Welcome to the Lucent Fintech First Quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. And I'd like to hand the conference over to Ms. Jaming Wan, IR manager. Please go ahead, ma'am.
spk13: Thank you. Hello, everyone. Welcome to Lucent's first quarter 2023 earnings conference call. With us today on the line today are CEO Jay Chow, President Jared Wu, and CFO James Jones. Before we get started, I'd like to remind you that the call and presentation containing business outlook and forward-looking statements, which are based on assumptions as of today, the actual results might differ materially and we undertake no obligation to update any forward-looking statements. Jay will first provide an update on our overall performance. James will cover the financial results in more detail. And lastly, Jared will then discuss risk management. I'll now turn the call over to Jay. His remarks will be in Chinese and the English translation will follow. Say please.
spk04: Good
spk13: morning and evening, everyone. It's my pleasure to speak with all of you again. In the first quarter, with the gradual recovery of consumption post-pandemic and the continued improvement of the overall macro environment, consumer finance started its moderate growth. As we've maintained growth through a two-wheel drive strategy, risk upgrading and data-driven optimization, we achieved another quarter of strong results. 60.9 billion RMB in global region nations volume, up .5% year over year. Total outstanding balance at 107 billion RMB, up .0% year over year. Revenue at 2,980 million RMB, up .0% year over year. Net profit of 327 million RMB, an increase of .0% year over year. As demonstrated by the first quarter results, our profitability has continued to improve. With net profit margin rising to .0% from .8% in the first quarter of last year, and has grown steadily for the fourth consecutive quarters, and various operating indicators are moving in a positive direction. Let me elaborate in more detail. There were three major operational highlights in the first quarter. First, as we enhanced our user risk assessment capabilities, we accelerated our pace in reducing high-risk user segments, and therefore improved the overall asset quality. Second, we continued to refine operations and further optimized operational efficiency. Third, we have been implementing cost efficiency initiatives. As a result, our profitability has been steadily rebounding. First, in terms of asset quality, we further pushed ahead on overhauling our risk management system, focused on maintenance and operation of high-quality existing customers, and gradually eliminated more high-risk users. We have iterated and upgraded the user assessment system, the risk branding model, which automatically integrates a variety of risk models, along with the combination of multi-dimensional risk factors, into an overall user risk assessment scheme. These upgrades help us to conduct more comprehensive risk assessments, and therefore make more accurate decisions on users. After being put into use, the new loan volume in the first quarter, contributed by prime users, increased to .0% from .0% a year ago.
spk04: For some system groups, the profit after the model application has increased by 70%. Based on this, we have completed a few key strategic repairs. By downloading marketing strategies through the marketing platform, we have greatly improved the user activity. Under the new economic operation system, the efficiency of the first quarter's electricity consumption has significantly improved. The cost of the first quarter's electricity consumption has dropped significantly, compared to the 92% of the return on the growth rate. The cost of the first quarter's electricity consumption has dropped by 49%, with the cost of the first quarter's electricity consumption being reduced by 23%. In the case of half-discharge cost, the cost of the first quarter's electricity consumption has dropped by 15%, while the cost of the first quarter's electricity consumption has increased by 15%.
spk13: For some certain customer groups, the application of this new detailed separation of user segment model pushed up the operating profit of that specific customer group by 70.0%. On this basis, we sorted out a marketing strategy decision tree structure and lumped marketing strategies accordingly, which significantly boosted users' activities. Under this new optimized operational system, in the first quarter, our talent marketing capabilities have been significantly strengthened. And the loan volume contributed by the talent marketing trend grew by .0% sequentially. At the same time, the cost significantly decreased in the quarter, with talent marketing cost per sale fell 49% year over year, we expected to save .0% of the original annual talent marketing cost. In front of reactivating paid-off customers, the conversion rate increased .0% quarter over quarter. Loan volume from those converted customers grew .0% quarter over quarter. Additionally, this result was achieved with half of the marketing cost. Third, we have enhanced profitability attributing to our continuous efforts in cost optimization initiatives and a further reduction in financing costs. In the first quarter of 2003, GNA expenses stood at 97 million, a .0% decrease from a year ago. This is a clear indication of our improved operational efficiency.
spk04: The cost of funding has dropped to
spk13: 6.6%, which is .2% percentage point lower than last quarter and .6% percentage point lower from a year ago. It's worth noting that this is a historic low of funding costs during the past three years. In April, we successfully resumed our annual financial partners conference, which got suspended during the three-year pandemic period. In the conference, we were very honored to have over 100 financial institutional partners with whom we will surely strengthen our business cooperation in the future. We remain committed to investments in research and development as we firmly believe in technology is the core engine of our business growth. In the first quarter of 2023, research and development investment reached 130 million, maintaining one of the highest technology input levels amongst our peers.
spk04: On
spk13: the data front, we have put tremendous effort in data mining and analysis of our entire data. Accordingly, we were able to find links and correlations amongst various data sets. And links between low-level fundamental data sets and business models allowed us to establish a data-driven and intelligent decision-making approach. Furthermore, we developed a simulation predicting model, attribution model of normality, A-B testing platform, etc., all of which empowered management to steer business in a more data-driven and intelligent manner. We have been exploring the utilization of new technologies in optimizing operation efficiency and user experience. In the first quarter of 2023, we expanded the application of our AI large language model in our business at a faster pace. We saw a noticeable improvement in efficiency among the application areas, including coding assistant tools, initiatives of design, telemarketing, and smart customer services. For example, the application of this AI model in our telemarketing scenario pushed up credit line approval rates by 70% versus the technology service supplied by vendors, and also boosted order placing rates on the exact day that borrowers are granted with credit lines by 10%. Looking ahead, we'll also comprehensively apply the model to the areas of risk management, anti-fraud, and etc. In addition, we further enhanced our existing unique lexin ecosystem.
spk04: First,
spk13: e-commerce business reached 1.13 billion GMV, an increase of .0% from last year. Cumulative customers grew by .0% compared to last year. The robust growth of GMV and users in e-commerce business effectively filled the engine of lexin consumption ecosystem. Second, the technology impairment SaaS business achieved tangible progress directly from the recognition from various financial partners, including local commercial banks with AUM over trillion RMB, regional urban and rural banks. The technology impairment service facilitates our corporation with
spk12: financial partners and deepens our business relations.
spk13: Third, we plan to expand our offline sales team and leverage our expertise in direct sales channels in light of the gradual recovery of China's economic activity. Our offline acquisition channels bring more first-hand user information, hence more accurate credit assessments, and eventually creating a unique competitive advantage. The strong results in the first quarter were mainly attributable to our risk management capabilities upgrading in customer risk assessment and therefore the improvement in customer and asset quality. It is also due to our continued refining of operations and cost reduction initiatives. As for the second quarter, we understand the economic recovery and resuming consumption is a long process. We will continue to undertake a more proven approach. Based on our preliminary estimations, long volume in the second quarter is expected to reach 63 to 63.5 billion RMB, 80% to 29% growth year over year. Next, hand over the call to our CFO James to share more detailed financials. Thank you.
spk14: Thank you, Jay. I will now provide more details on our financial results. Please note that all numbers are in RMB unless otherwise stated. In the first quarter, we continued our fourth consecutive quarters of recovery, both in our overall business and in our financial numbers. We expected this trajectory of turnaround to continue in light of the rebound of China's economy and our dedicated efforts in optimizing operations. The strong performance in the first quarter was a result of the management's continuous efforts in overhauling our risk management, focusing on better quality user segments, upgrading our technology and operational capabilities, as well as our new cost restructuring initiatives. First, please let me explain at a high level what happened in the quarter as compared with the same quarter of 2022. The loan originations for the quarter reached 60.9 billion, an increase of 41% year over year, beating Q1 guidance we gave earlier. Revenue grew by .2% year over year to reach around 3.0 billion for the quarter, which was strengthened by the GMB growth and an increased loan balance, which reached 107 billion. The weighted average APR stood at approximately a little over 24% for the fifth quarter, close to around 1% points lower than a year ago. Loans with APR under 24% now make up more than 80% of all loans. Partially offsetting the negative impact from the lowered APRs on our loans was a decrease in our cost of funding from .2% a year ago to .6% in Q1. It's worth noting that this is a historical low of funding costs during the past three years. Loan tenors increased to 15.1 months versus 12.3 months a year ago. As we emphasized last quarter, overhauling risk management remains our top strategy for the year. We continue to focus on upgrading to better credit user segments and rebuilding the risk team, the systems and the process and the infrastructure. Jared will elaborate more on this shortly. The improved results from our efforts can be partially seen in our 30-day plus delinquency rate, which improved to .57% in the first quarter as compared to .62% in the fourth quarter of last year. The 90-day plus delinquency rate stood at 2.53%, basically remaining stable as compared to the previous quarter. This was due to 90-day plus delinquency rate metric is a more lagging indicator than 30-day plus metric. In Q1, we have been pushing ahead a series of cost restructuring initiatives that we launched last year. We have seen some further improvements to operating expenses. Total operating related costs and expenses including processing and serving costs, sales and marketing, R&D and G&A as a percentage of average loan balance stood at .16% versus .28% in Q1 of last year. This cost optimization happened despite of a slight pick up of sales marketing expenses, while G&A, R&D and processing and servicing costs all came down. We will remain committed to undertaking these cost restructuring initiatives and expect our efforts to bear more fruit in the long run. As a result of the affirmation, we are able to report net income of 327 million, an increase of 302% year over year. The net margin improved to 11% versus .8% in Q1 last year. This clearly presents a steady upward trajectory of our operation result with each quarter improving over a year ago. Apart from the above year over year analysis, I would also like to elaborate a little bit more on the progress achieved through quarterly comparisons. Total G&B was $60.9 billion, an increase of .7% quarter over quarter, as we grew the business with prudent approach and put risk management as a top priority. In the first quarter, we saw the G&B on our e-commerce platform came down slightly from boosted high level during single day shopping festival in Q4 last year. If we carve out the from e-commerce business, total Q1 revenue grew by .5% quarter over quarter. Considering the impact of e-commerce business seasonality, total revenue for the whole group stayed at about $3 billion, almost flat on quarter over quarter basis. Take weight fell slightly to .5% from .6% last quarter. The minor fluctuation in take weight is a blended result of the more booking of provision due to longer tenure loans and the continuous improvement in asset quality and the reduction in funding costs. Operating expenses stayed almost flat by a minor .6% increase quarter over quarter, attributing to pick up of sales marketing related costs in user growth. As a result of affirmation, we achieved a sequential growth in the net income of .7% and a boosted net margin to 11% from .9% in last quarter. To summarize, we have delivered a noticeable improvement during the first quarter from both a year over year and a quarter over quarter perspective. This marks the fourth consecutive quarter of V-shaped recovery, both in top line and bottom line, since we hit the operational results in Q1 last year. As we mentioned last quarter, although we are fully aware we have a long way ahead in our turnaround, the year of 2023 unfolds with a good start indicating we are well on track. Next, let's take a detailed look at the financials. As mentioned, our total operating revenue for the first quarter was $3 billion, representing a decrease of .2% quarter over quarter due to seasonality of e-commerce business and an increase of .2% year over year, mainly driven by the credit facilitation services and the e-commerce business. Revenue from credit facilitation service was approximately $2.1 billion, representing a .8% increase quarter over quarter and a 136% increase year over year, which is driven by the GMB growth. Revenue from tech empowerment service was $368 million, representing .9% decrease quarter over quarter and a 26% decrease year over year, which was primarily due to the change of mix among various tech empowerment services. Revenue from installment e-commerce platform service was $499 million, representing a decrease of .9% from the last quarter and an increase of .6% year over year, which is due to seasonality of e-commerce business. Moving on to the expense side of the quarter, sales and marketing expense increased by 4% quarter over quarter, which was mainly due to our stepped-up investment in acquiring better quality users. Our goal is to upgrade to better quality customer groups and obtain higher LTV. While we are taking a prudent new acquisition strategy now, we will keep on closely monitoring macro data as China's economy is gradually recovering and sees the growth opportunity when the right timing comes. Research and development expenses decreased by .5% quarter over quarter and a decrease .1% year over year to $129 million due to efficiency. G&A expenses stay almost flat on a quarterly basis and a decrease of 17% year over year to $97 million. It's a noticeable cost efficiency to each achievement that a G&A expense remained at almost the same level on a quarter over quarter basis while our top line GMB maintained an upward momentum due to a series of cost initiatives. Going forward, we plan to step up efforts in this regard. Net profit was approximately $327 million in the first quarter, an .7% increase quarter over quarter and a 302% increase year over year which beats high end of our initial expectations. At the end of the first quarter, the company had a cash position of around $6.5 billion on hand and a net equity position of $9 billion. Finally, I would like to discuss our outlook for the second quarter of 2023. As we know, economic and consumption recovery usually will take time. As evidenced by the ongoing current quarters modest growth, therefore, we remain cautious and are monitoring closely on the overall macro and consumption outlook. Based on the company's preliminary assessment of the current market conditions, total loan originations for the second quarter of 2023 are expected to be around $63 to $63.5 billion, representing an increase of 28 to 29% on a year over year basis. These estimates reflect the company's current expectation which is subject to change. The strong results of first quarter demonstrate clearly that our turnaround is well underway. In the long run, our dedicated efforts in risk management, cost initiatives, as well as new user acquisitions will establish solid foundations for our long-term goal of sustainable growth. With that, I would like to turn the call over to our president, Jared Wu, who will discuss our risk management. Jared, please go ahead.
spk06: Thank you, James. Good morning and
spk07: good evening, everyone. It's my pleasure to speak with all of you again.
spk06: Thank
spk11: you. Next, I'd like to elaborate a bit more regarding
spk13: our risk management measures and improvements for the past quarter. Ever since the beginning of the year 2023, we saw a gradual recovery of China's economy. Accordingly, at the company level, we continue to implement our unwavering focus on risk management and the continuation of a prudent risk management and customer acquisition approach. In addition, we have been allocating more resources and putting more effort to better serve and favor our client customers. In terms of our risk modeling, we have been continuously iterating our control models and enhancing our user risk assessment capability. In the first quarter of 2023, the day one delinquency continued to drop and overall asset quality got improved. With 30 plus day delinquency down five-fifths quarter over quarter at 4.57 percent and 90 plus day delinquency being the more lag indicator, standing on change sequentially at 2.53 percent as of the end of the first quarter. Currently, as business and daily life of people continue to normalize and consumer confidence being gradually restored, we will continue to hold risk management as one of the top priorities in business operations. And we expect the overall asset quality to continue to maintain a positive upward momentum.
spk06: Two, we focus on the coverage and strengthening of the human data and the deep excavation and application of the data. At the same time, we continue to introduce more core data sources, combined with the excavation and expansion of internal behavior and data, to ensure that we can further distinguish the attention of customers. Three, we continue to build up the model of user division of different groups of customers. The ability to identify the most customers has continued to improve. This is the most important support for our continued improvement of the
spk13: data. In the first quarter, increasing the proportion of prime customers remains our most crucial objective. Thus, we continue to work on upgrading our risk management system, including the following key initiatives. First, we continue to iterate and upgrade our risk management system under the business strategy of risk driving operations. It improves the granularity and the overall efficiency of risk management. Further refining our customer segments and increasing the depth and width of our user identification capabilities, while continuing to review high-risk customers and optimize our asset structure. Second, we put heavy emphasis on investing in the coverage of PBOC credit data and strengthen the utilization of credit data. In the meantime, we continue to introduce more compliant data sources, combined with the thorough usage of internal conceptual behavior data, to ensure that we can identify customer credit profile more accurately by further refining customer segmentation accordingly. Third, we continue to iterate and upgrade model matrix for different customer segments, and our ability to assess customer credit profile has also got further improved. We should be the most essential pillar for us to increase the proportion of prime customers and will be one of the most key projects in which we continue to invest. We believe that in the remainder of 2023, we will make more breakthroughs in our user identification capabilities. 2023 is a year of economic recovery in China. We are committed to upgrading our core risk management capabilities and accelerating the strengthening of our refined risk management system. As Jay and James mentioned earlier, we maintain a cautious view of the macroeconomic environment, adhering to the principle of risk-driven, monitor the market externally, and build capacity internally. Above all, we firmly believe that with a diverse vision in mind and a solid infrastructure, we can continuously generate sustainable long-term returns for all shareholders. Thank you. This concludes our prepared remarks. Operator, we're now ready to take questions.
spk11: Thank you. We will now begin the question and answer session. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Once again, let's start 1-1 for questions. Our first question comes from the line of Frank Chin from CreditSys. Please ask your question,
spk05: Frank. Thank you, management, for taking my questions. This is Frank from CreditSys. My first question is regarding the supply and demand dynamics most recently. In the first quarter and second quarter today, how would you describe the recovery of credit demand? And on the supply side, is there any change in terms of risk appetite? On the other hand, could the management provide some more color on the strategic or operational focus for the rest of the year? Thank you very much.
spk04: I believe that the value and potential of our customers will be gradually excavated as the number of customers continues to improve with our entire recognition and operational capabilities. In fact, from the current perspective, the second quarter has actually been a few months. So we have seen some data that is actually quite stable overall, but it is certain that the small peak after the Spring Festival is over. We see that from the current perspective, the demand is still a little bit slower, but it is still on the growth path. I think that in terms of demand, we have an extra different place here. We have a mall, we have a e-commerce, we have a consumer market. In fact, we can be able to sell our products in a way that is not so strong and has a strong demand, and we can through e-commerce marketing, through product sales, attract more customers to consume, and thus achieve a whole stimulus user to carry out a whole process of demand. So I think in the second quarter, you see, we have started preparing 618 recently. I think 618 is a good opportunity to stimulate more users to generate demand. So I think this is a place of happiness. So from the perspective of the entire funding side, I think that the funding is still relatively rich. Because the entire funding side in the country actually has relatively limited assets that can be invested today. So we have actually been in Le Xin for 10 years, and we have still been able to get the approval of the financial institutions. In the last quarter, we also held a joint partnership meeting. We invited more than 100 financial institutions to come to the site. In fact, we also expressed our desire to cooperate with them. So you can see that the capital cost in Q1 has also been significantly reduced. So I think the supply side of the funds is still very strong. And I think it's a bit sustainable.
spk09: Okay, so I'll do the translation.
spk13: Thank you, Frank. In terms of demand side, as you can see from our first quarter's results, our overall loan volume has increased, and we were able to better recognize customers to better serve the right customers and the good customers. In the sense that most of you already knew that we have a very large existing customer pool. With our improved risk assessment capabilities, we are able to better pick them out and better explore their value from the existing customers. And as of right now, in the second quarter of 2023, we are, as we can see the data right now, the trend is still stable. But after spring breaks by past, the demand has been slowing down a little bit, but the trend of increasing is still remaining relatively strong. And in that sense, we also have different products. We have our own system. We have the e-commerce, a very special consumption scenario. When the lending need is relatively not as strong as the previous quarter, we have another option to create demand, which is the product discount on products to attract our customers, whether it's new, whether it's the existing one, to make consumptions and to create demand. So the second quarter, as of right now, we are preparing the 618 Festival, which would be a great opportunity to generate more demand thanks to our unique ecosystem. But when it comes to the current situation right now, based on the current national situation right now from our funding partners, they have limited options to really invest in. And after 10 years, our risk level and our capabilities in risk management are recognized and approved by them. And also, as you might know already, we had this cooperation conference day with our funding partners. And all of them showed the willingness to make the cooperation deeper. And also, as you can see, our funding cost actually lowered in the first quarter, and the overall supply is still relatively strong. I hope that answers your question, Frank.
spk11: Thank you.
spk13: So one of our key strategies, there are four main ones. The first one is the risk management capability upgrading. We have been undergoing certain strategies to upgrade our infrastructure and to lower risk level. We are preparing the risk management 2.0 system, and when it's ready, it will be, we will get the upgrade in capabilities in risk management. Hence, we are actually doing -by-step to adjust and to operate when it's ready. Our capabilities in risk management and identifying in user risk will be significantly upgraded. And also, we continue to do the elimination of high-risk users, and we are in the progress of making it a common operational thing to do the routine elimination of the high-risk users. Secondly, we'll try to continue to differentiate ourselves from others in customer acquisition. Like I said earlier, we have different scenarios, like e-commerce scenario, and we have a very strong offline pool way team. These are the advantages that will help us to strengthen our own capabilities. And third, we'll continue to do the refine operations to further increase the customer's LTV as well as the operational efficiency. Fourth, we'll continue to go through, undergo the cost efficiency initiative. As you can see, in the first quarter, it shows some prominent results. The percentage of our operational costs over the outstanding loan balance actually decreased, and our net margin increased to 11%. And for the rest of the year, we aim to continue to increase our own profitability.
spk09: That answers your question, Frank.
spk11: Thank you. Our next question comes from the line of Alex Ye from UBS. Please go ahead, Alex.
spk05: So I'll translate for my question. First is on the low volume run rate in April and May. Could you share with us how has the sequential movement been so far, and how does the growth you have seen now compare to your previous expectations? The second question is on your asset quality trend. Could you share with us some of the early asset quality indicators, the trend in April and May? And do we expect further improvement from here? Thank you.
spk13: So as you heard already, for the second quarter, our guidance for the loan volume was 63.2 to 63.5 million. But I could share some month over month in the first quarter results with you. The numbers of application-wise, there was a minor peak in volume after the Chinese New Year. In the month of February, it showed an .0% increase quarter over quarter. For the month of March, it showed 2% month over month. And as of now, May, we are seeing a minor decrease in the month over month as the COVID passed, the need spike kind of slowed down a little bit. We're seeing a little bit of slowdown in demanding, a bit entering the second quarter, but it's still in line with our management team's expectations.
spk04: In the second quarter, we're seeing a lot of improvement from the early indicators. Another point of view is that the new asset structure is better. The new asset ratio is still rising, 6 to 8 is still falling. So I think the new asset structure is better. So I believe that as the new asset increases every month, we will continue to improve. There is still room for improvement in the future. In terms
spk13: of risk, we're seeing the first quarter's risk being stable, a stable decrease. And for the second quarter as of right now, certain early indicators are stable right now. But from the new loan perspective, the structure, the overall structure is actually better. What is the RR123, the percentage of R123 being increased, the RR6 to 8 percentage being decreased. From the new loan perspective, they are overall better. And with the monthly new loan structure being continually improved, our overall risk level will be improved in the future. And there are still some optimizations in rooms when it comes to the overall risk level.
spk09: Hope that answers your question, Alex.
spk11: Right, thank you. Our next question comes from the line of Yada Li from CICC. Please go ahead, Yada.
spk02: Then I'll do my translation. Hello, management. This is Yada from CICC. And my first question is regarding the choice of the lending model. And could you please give us more color on the trend of the credit facilitation and the risk sharing model or tech empowerment services in the future? And will there be any plans to increase the on-balance facilitation? Secondly, I was wondering about the recent updates and outlook of Fengxi Le and other new consumption business. That's all. Thank you.
spk14: So I will take a crack at the first part of the question, and Jay will answer the second part of your question. The first part of the question is related to risk taking and the profitability. Obviously, at the company level, we always try to achieve the balance. Obviously, it makes sense that if risk improves, then I want to do a little bit more so that I increase the profitability. If somehow the risk is worsening, obviously, I don't want to do more, right? I want to do less so that I can retain my profitability. So that has been our kind of attitude. Resulted out of this basically is reflected here in terms of the proportion of the business where we take risks. That is in the low facilitation business and in rare share business reflected in our tech empowerment part of the business. Right now, the rare share business, basically, we don't take much risks in this part. It accounts for roughly 26% or so. And in the last year, several quarters has been hovering between, say, 20% to 30% or so. So we are watching very closely of the overall macroeconomic data and our overall risk indicators. If the overall macro data continue to improve and our asset quality continue to improve, obviously, the overall credit situation is improving, then it doesn't preclude us from really taking a little bit more risk so that we increase the overall profitability for the company. So basically, that's our kind of thinking, if you want to run the business. Now, Jay, for the second part of the question.
spk04: 最利率的要求越來越高的這種情況下面, 其實給的我們電商有一個比較獨特的這種經營的空間。 那我想說這是第一點,第二點呢就是電商其實在我們整個 ,它未來將會在我們整個的過客,還有盤活存量 客戶的經營上面,它都還是有著跟我們的住宅和消費 金融業務有著很強的整個協同的效應。 我相信其實在未來大家可以看到這方面,我們也會有更多的一些進展。 那另外一個呢就是我們整個生態裏面,我想講就是我們普惠的這一塊業務。 我們普惠主要是靠線下的整個BG在線下去作業。 隨著整個經濟的恢復吧,我覺得在線下的這個團隊, ,從獲客的成本,再到它的整個的一個 所獲客戶的整個的風險上來看,我們都能看到它還是有一定的整個的優勢。 今天整個線上的流量其實是越來越稀缺的一個資源,而且越來越貴。 線下其實它可以幫助我們更好的,更全面的去評估每一個客戶。 可以更加精準地去識別每個用戶他的整個的意 願,他的整個償還能力。 ,我們在,尤其在今天這個存量競爭的這個時代吧, 我覺得我們能夠更了解客戶,更好的提供產品給客戶。 普惠將會是一個比較不錯的整個的這個優勢。 所以在前幾年來看,我覺得我們普惠也會逐步地開始加大最快的整個投入, 來形成樂興更加差異化的整個的一個獲客和經營的能力。 那我覺得另外一個呢就是講就是我們整個的經濟科技業務。 經濟科技業務呢,它其實就是樂興我們十年以來積累的這些標準化的整個的能力和經營的能力。 ,達成了比較好的合作,並且已經達成了一定的規模。 所以我們可以看到其實在這方面,它某種程度上相當於是樂興過去經濟人力的一個貨幣化的一個過程吧。 ,其實我們跟銀行提供數科的這種服務呢,反過來又可以加強資金。 資金方跟我們的整個合作來加深合作的關係。 所以我們現在看到跟我們數科合作的一些銀行,它們給我們的資金成本其實還是要低於我們今天整個平均的整個的一個資金的整個成本水平的。 所以說我覺得這個呢,其實還是一個樂興我們還是一個比較獨特的整個這個業務生態體系吧。 我相信未來我們各個業務之間它的整個協同的這種優勢也將會是樂興的一個差異化的整個的一個競爭力之一吧。
spk13: OK, so as you know we have our own Lushen ecosystem. E-commerce wise the overall
spk10: increase has been very strong, especially with other e-commerce peers or others in the industry being
spk13: in the very heavy competition. As you can, as I shared already, in the first quarter not only the volume in GMV increased year over year, but also the revenue as well as the customer, cumulative trading customers. They are only larger than our main business or other businesses within the company. They are exponentially actually larger than the overall increased speed in the industry. So the customers that we serve in our e-commerce areas are mostly customers with actually credit consumption needs. Under the current situation right now the overall macro economy and environment, the ATR requirements being a little bit higher, the requirements being a little bit higher actually gives the e-commerce sector a bit more opportunity to increase and expand a little. Furthermore, e-commerce could actually help us with the customer acquisition and as well as the customer retention with our main business which is a loan facilitation business in the future. Next is our offline Puyoi team. Our offline Puyoi team mainly relies on the offline BD operations, with the greenality economy being resumed, being in recovery. The team actually helps with customer acquisition costs as well as risk level. We can see there are a lot of advantages comparatively when the online traffic being more expensive as well as being more rare. The offline Puyoi team helps us to evaluate customers more accurately as well as gave us the capability to understand their willingness as well as to keep them in retention. Especially with the existing customer competition we get to know them better via Puyoi team and we will continue to increase the investment on our offline Puyoi team to help us to differentiate when it comes to customer acquisition front to better acquire better customers. In another business I'd like to mention is our tech empowerment business. It's pretty much an accumulated experience of 10 years of standardized capabilities. We already got into cooperation with a relatively sizable volume with five to six of our banking partners and our funding partners. It's pretty much a monetization of our past experience. We use our experiences and capabilities to help them and in return they strengthen the cooperation in our main business helping us with a relatively lower funding cost than the current average funding cost. So I think this is a very unique system that we have. We believe the cooperation between aforementioned business will be strengthened and will be more interrelatable in the future to help us to differentiate ourselves among our peers. Hope that answers your question Yara.
spk11: Thank you. I'm sure you know for the questions. I'd now like to turn the conference back to the management team for closing remarks.
spk13: Thank you again everyone for joining us. If you have further questions please contact us via our contact information available on our IR website. Thank you.
spk01: Thank you.
spk11: Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.
spk08: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank
spk11: you. Thank you. Thank you. Thank you for standing by. Welcome to the first quarter 2023 earnings conference call. At this time, all participants are in a 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 be advised that today's conference is being recorded. And I'd like to hand the conference over to Ms. Jamie Wang, IR manager. Please go ahead, ma'am. Thank
spk13: you. Hello, everyone. Welcome to the first quarter 2023 earnings conference call. With us today on the line today are CEO Jay Chow, President Jared Wu, and CFO James Jones. Before we get started, I'd like to remind you that the call and presentation containing business outlook and forward-looking statements, which are based on assumptions as of today. The actual results might differ materially, and we undertake no obligation to update any forward-looking statements. Jay will first provide an update on our overall performance, James will cover the financial results in more detail, and lastly, Jared will then discuss risk management. I'll now turn the call over to Jay. His remarks will be in Chinese, and the English translation will follow. Jay, please. Good morning and evening, everyone. It's my pleasure to speak with all of you again. In the first quarter, with the gradual recovery of consumption post pandemic and the continued improvement of the overall macro environment, consumer finance started its moderate growth. As we've maintained growth through a two-wheel drive strategy, risk upgrading and data-driven optimization, we achieved another quarter of strong results.
spk04: The macro balance is 1,071 billion, which is 28% increase. The annual income is 29.8 billion, which is 74%. The net profit is 3.3 billion, which is 302%. According to the data of the first quarter, our profit capacity continues to increase. The net profit rate increased from .8% in the first quarter of last year to 11%. The net profit rate has been steadily increasing for four consecutive quarters. All indicators are developing in a better direction.
spk13: The net profit of 3.9 billion RMB in Long-Origination volume, up .0% year over year. Total outstanding balance at 1.07 billion RMB, up .0% year over year. Revenue at 2,980 million RMB, up .0% year over year. Net profit of 327 million RMB, an increase of .0% year over year. As demonstrated by the first quarter results, our profitability has continued to improve. With net profit margin rising to .0% from .8% in the first quarter of last year, and has grown steadily for the fourth consecutive quarters, and various operating indicators are moving in a positive direction. Let me elaborate in more detail. There were three major operational highlights in the first quarter. First, as we enhanced our user risk assessment capabilities, we accelerated our pace in reducing high-risk user segments, and therefore improved the overall asset quality. Second, we continued to refine operations and further optimized operational efficiency. Third, we have been implementing cost efficiency initiatives. As a result, our profitability has been steadily rebounding. First, in terms of asset quality, we further pushed ahead on overhauling our risk management system, focused on maintenance and operation of high-quality existing customers, and gradually eliminated the risk of high-risk users. We have integrated and upgraded the risk rendering model, which automatically integrates a variety of risk models, along with the combination of multidimensional risk factors, into an overall user risk assessment scheme. These upgrades help us to conduct more comprehensive risk assessments, and therefore make more accurate decisions on users. After being put into use, the new loan volume in the first quarter, contributed by prime users, increased to .0% from .0% a year ago.
spk04: After being put into use, the new loan volume in the first quarter, contributed by prime users, increased to .0% a year ago.
spk13: Second, in terms of operational optimization, we upgraded our marketing system and segmented our users into more detailed and various categories. We then added a new marketing strategy, which was based on the underlying customer tagging system and over 10 evaluation models of users' borrowing willingness, marketing preferences, responsiveness, offer set expression, and etc. For some certain customer groups, the application of this new detailed separation of user segment model pushed up the operating profit of that specific customer group by 70.0%. On this basis, we sorted out a marketing strategy decision tree structure and lamped marketing strategies accordingly, which significantly boosted users' activities. Under this new optimized operational system, in the first quarter, our talent marketing capabilities have been significantly strengthened, and the loan volume contributed by the talent marketing trend grew by .0% sequentially. At the same time, the cost significantly decreased in the quarter, with talent marketing cost per sale fell 49% year over year. We expected to save .0% of the original annual talent marketing cost. On the front of reactivating paid off customers, the conversion rate increased .0% quarter over quarter. Loan volume from those converted customers grew .0% quarter over quarter. Additionally, this result was achieved with half of the marketing cost. Third, we have enhanced profitability attributing to our continuous efforts in cost optimization initiatives and a further reduction in financing costs.
spk04: In
spk13: the first quarter of 2023, GNA expenses stood at 97 million, a .0% decrease from a year ago. This is a clear indication of our improved operational efficiency.
spk04: More than 100 financial institutions and partners will participate in the project. In the future, we will further enhance cooperation.
spk13: We are committed to investing in research and development as we firmly believe that technology is the core engine of our business growth. In the first quarter of 2023, research and development is the key to our success. We have invested 130 million dollars, maintaining one of the highest technology input levels among our peers. On the data front, we have put tremendous effort in data mining and analysis of our entire data. Accordingly, we are able to find links and correlations among various data sets. And links between low-level fundamental data sets and business models are the foundation of launching data-driven and intelligent decision-making approach. Furthermore, we developed simulation predicting model, attribution model of normality, A-B testing platform, etc. All of which empowered management to steer business in a more data-driven and intelligent manner.
spk04: Lexin has been actively exploring and using new technologies to improve our work efficiency and customer experience. We have accelerated the application of AI model in Lexin. In the field of development and development support, design, creative development, and e-commerce and customer service automation, we have reached a significant increase in efficiency. In the past, we have used AI model as a long-term power supply. After using AI model, the conversion rate of the day was increased by 70% compared to the day before. The conversion rate of the day was increased by 10%. In the future, we will continue to promote AI model in the field of risk management and anti-corruption. We have
spk13: been continuously exploring the utilization of new technologies in optimizing operation efficiency and user experience. In the first quarter of 2023, we expanded the application of our AI large language model in our business at a faster pace. We saw a noticeable improvement in efficiency among the application areas including coding assistant tools, initiatives of design, telemarketing, and smart customer services. For example, the application of this AI model in our telemarketing scenario pushed up credit line approval rates by 70% versus the technology service supplied by vendors, and also boosted order placing rate on the exact day that borrowers are granted with credit line by 10%. Looking ahead, we will also comprehensively apply the model to the areas of risk management, anti-fraud, and etc.
spk04: Lexin's unique physical advantages have also been further enhanced.
spk13: In addition, we further enhanced our existing unique Lexin ecosystem.
spk04: First,
spk13: e-commerce business reached 1.13 billion GMV, an increase of .0% from last year. Cumulative customers grew by .0% compared to last year. The robust growth of GMV and users in e-commerce business effectively filled the engine of Lexin's consumption ecosystem. Second, the technology impairment SaaS business achieved tangible progress, therefore wound the recognition from various financial partners, including local commercial banks with AUM over trillion RMB, regional urban, and rural banks. The technology impairment service facilitates our cooperation
spk12: with financial partners and deepens our business relations.
spk13: Third, we plan to expand our offline sales team and leverage our expertise in direct sales channels in light of the gradual recovery of China's existing sales system. Our offline acquisition channels bring more first-hand user information, hence more accurate credit assessments, and eventually creating a unique competitive advantage.
spk04: The reason why we achieved good results in the first quarter is mainly due to our continuous improvement in customer recognition capabilities, and the continuous improvement of asset quality and customer groups, and the continuous
spk13: The strong results in the first quarter were mainly attributable to our risk management capabilities upgrading in customer risk assessment, and therefore the investment in China's online sales team was particularly effective. The second quarter is also due to our continued refining of operations and cost reduction initiatives. As for the second quarter, we understand that economic recovery and resuming consumption is a long process. We will continue to undertake a more proven approach. Based on our preliminary estimations, long volume in the second quarter is expected to reach 63.5 billion RMB, a 30% to 29% growth year over year.
spk04: Next,
spk13: I will hand over the call to our CFO James to share more detailed financials. Thank you.
spk14: We expected this trajectory of turnaround to continue in light of the rebound of China's economy and our dedicated efforts in optimizing operations. The strong performance in the first quarter was a result of the management's continuous efforts in overhauling our risk management, focusing on better quality user segments, upgrading our technology and operational capabilities, as well as our new cost restructuring initiatives. First, please let me explain at a high level what happened in the quarter as compared with the same quarter of 2022. The loan originations for the quarter reached 60.9 billion, an increase of 41% year over year, beating Q1 guidance we gave earlier. Revenue grew by .2% year over year to reach around 3.0 billion for the quarter, which was mainly seen by the GMB growth and an increased loan balance, which reached 107 billion. The weighted average APR stood at approximately a little over 24% for the fifth quarter, close to around 1% points lower than a year ago. Loans with APR under 24% now make up more than 80% of all loans. Partially offsetting the negative impact from the lowered APRs on our loans was a decrease in our cost of funding from .2% a year ago to .6% in Q1. It's worth noting that this is a historical low of funding costs during the past three years. Loan tenors increased to 15.1 months versus 12.3 months a year ago. As we emphasized last quarter, overhauling risk management remains our top strategy for the year. We continue to focus on upgrading to better credit user segments and rebuilding the risk team, the systems and the process and the infrastructure. Jared will elaborate more on this shortly. The improved results from our efforts can be partially seen in our 30-day plus delinquency rate, which improved to .57% in the first quarter as compared to .62% in the fourth quarter of last year. The 90-day plus delinquency rate stood at 2.53%, basically remaining stable as compared to the previous quarter. This was due to 90-day plus delinquency rate metric is a more lagging indicator than 30-day plus metric. In Q1, we have been pushing ahead a series of cost restructuring initiatives that we launched last year. We have seen some further improvements to operating expenses. Total operating related costs and expenses, including processing and serving costs, sales and marketing, R&D, and G&A, as a percentage of average loan balance stood at .16% versus 1.6%. This is the same as the previous quarter, which was .28% in Q1 of last year. This cost optimization happened despite of a slight pickup of sales marketing expenses, while G&A, R&D, and processing and servicing costs all came down. We will remain committed to undertaking these cost restructuring initiatives and expect our efforts to bear more fruit in the long run. As a result of the affirmation, we are able to report net income of 327 million, an increase of 302% year over year. The net margin improved to 11% versus .8% in Q1 last year. This clearly presents a steady upward trajectory of our operation result, with each quarter improving over a year ago. Apart from the above year over year analysis, I would also like to elaborate a little bit more on the progress achieved through quarterly comparisons. Total G&B was $60.9 billion, an increase of .7% quarter over quarter, as we grew the business with prudent approach and put risk management as a top priority. In the first quarter, we saw the G&B on our e-commerce platform came down slightly from boosted high level during single day shopping festival in Q4 last year. If we carve out the revenue from e-commerce business, total Q1 revenue grew by .5% quarter over quarter. Considering the impact of e-commerce business seasonality, total revenue for the whole group stayed at about $3 billion, almost flat on quarter over quarter basis. Take rate fell slightly to .5% from .6% last quarter. The minor fluctuation in take rate is a blended result of the more booking of provision due to longer tenor loans and the continuous improvement in asset quality and the reduction in funding costs. Operating expenses stayed almost flat by a minor .6% increase quarter over quarter. Contributing to pick up of sales marketing related costs in user growth, as a result of affirmation, we achieved a sequential growth in the net income of .7% and a boosted net margin to 11% from .9% in last quarter. To summarize, we have delivered a noticeable improvement during the first quarter from both a year over year and a quarter over quarter perspective. This marks the fourth consecutive quarter of V-shaped recovery, both in top line and bottom line, since we hit the lowest point of operational results in Q1 last year. As we mentioned last quarter, although we are fully aware we have a long way ahead in our turnaround, the year of 2023 unfolds with a good start indicating we are well on track. Next, let's take a detailed look at the financials. As mentioned, our total operating revenue for the first quarter was $3 billion, representing a decrease of .2% quarter over quarter due to the seasonality of e-commerce business and an increase of .2% year over year, mainly driven by the credit facilitation services and the e-commerce business. Revenue from credit facilitation services was approximately $2.1 billion, representing a .8% increase quarter over quarter and a 136% increase year over year, which is driven by the GMB growth. Revenue from tech empowerment services was $368 million, representing a .9% decrease quarter over quarter and a 26% decrease year over year, which was primarily due to the change of product mix among various tech empowerment services. Revenue from installment e-commerce platform service was $499 million, representing a decrease of .9% from the last quarter and an increase of .6% year over year, which is due to the seasonality of e-commerce business. Moving on to the expense side of the quarter, sales and marketing expense increased by 4% quarter over quarter, which was mainly due to our stepped-up investment in acquiring better quality users. Our goal is to upgrade to better quality customer groups and obtain higher LTV. While we're taking a prudent new acquisition strategy now, we will keep on closely monitoring macro data as China's economy is gradually recovering and it sees the growth opportunity when the right timing comes. Research and development expenses decreased by .5% quarter over quarter and a decrease .1% year over year to $129 million due to efficiency. G&A expense stayed almost flat on a quarterly basis and a decrease of 17% year over year to $97 million. It's a noticeable cost efficiency for each achievement that a G&A expense remained at almost the same level on a quarter over quarter basis, while our top line GMB maintained an upward momentum due to a series of cost initiatives. Going forward, we plan to step up efforts in this regard. Net profit was approximately $327 million in the first quarter, an .7% increase quarter over quarter, and a 302% increase year over year, which is at the high end of our initial expectations. At the end of the first quarter, the company had a cash position of around $6.5 billion on hand and a net equity position of $9 billion. Finally, I would like to discuss our outlook for the second quarter of 2023. As we know, economic and consumption recovery usually will take time, as evidenced by the ongoing current quarter's modest growth. Therefore, we remain cautious and are monitoring closely on the overall macro and consumption outlook. Based on the company's preliminary assessment of the current market conditions, total loan originations for the second quarter of 2023 are expected to be around $63 to $63.5 billion, representing an increase of 28% to 29% on a year over year basis. These estimates reflect the company's current expectation, which is subject to change. The strong results of the first quarter demonstrate clearly that our turnaround is well underway. In the long run, our dedicated efforts in risk management, cost initiatives, as well as new user acquisitions will establish solid foundations for our long-term goal of sustainable growth. With that, I would like to turn the call over to our President, Jared Wu, who will discuss our risk management. Jared, please go ahead.
spk07: Thank you, James. Good morning and good evening, everyone. It's my pleasure to speak with all of you again.
spk06: In this respect, we continue to carry out our firm and consistent strategy of turning risk management into our primary task. We continue to implement relatively stable risk management strategies and cautious FOC strategies. We continue to increase our attention on our top customers and our sales. In the first quarter, the rate of loss has continued to decline, and the quality of our assets continues to improve. As of the end of the first quarter, our expected expected rate of more than 30 days has improved to 4.57%. Compared to the previous quarter, the rate of loss has dropped by 5 points. As the expected rate of more than 90 days is a more significant risk indicator, the end of the quarter is still at a level of .53% as compared to the previous quarter. Currently, with the continuous recovery of domestic production and life, and the gradual repair of consumer confidence, we will continue to maintain the balance of the stock. The quality of our assets will continue
spk10: to improve.
spk13: We continue to implement our unwavering focus on risk management and the continuation of a prudent risk management and customer acquisition approach. In addition, we have been allocating more resources and putting more effort to better serve and favor our client customers. In terms of our requirements, we have been able to provide a more effective response to our customers. In terms of risk modeling, we have been continuously iterating our control models and enhancing our user risk assessment capabilities. In the first quarter of 2023, the day-one delinquency continued to drop, and overall asset quality got improved. With 30-plus day delinquencies down 5-fifths quarter over quarter at 4.57%, and 90-plus day delinquency being the more lag indicator, standing on change sequentially at .53% as of the end of the first quarter. Currently, as business and daily life of people continue to normalize and consumer confidence being gradually restored, we will continue to hold risk management as one of the top priorities in business operations. And we expect the overall asset quality to continue to maintain a positive upward momentum.
spk06: The following are the main goals. One is to keep the risk management system up and running, to enhance the overall efficiency of risk management, to further separate the customer group and increase the risk awareness of the client, and to continue to push the client with high risk and optimize the asset structure. Two, we focus on the coverage and strengthening of the data of the human data and the deep excavation and application of the data. At the same time, we continue to introduce more data sources, combined with the expansion of the excavation of internal behavior and data, to ensure that we can further separate the customer group and further optimize the risk awareness. Three, we continue to build up the model of user division of different customer groups. In
spk13: the first quarter, increasing the proportion of client customers remains our crucial objective. Thus, we continue to work on upgrading our risk management system, including the following key initiatives. First, we continue to iterate and upgrade our risk management system under the business strategy of risk driving operations. It improves the granularity and the overall efficiency of risk management. Further refining our customer segments and increasing the depth and width of our user identification capabilities, while continuing to review high risk customers and optimize our asset structure. Second, we put heavy emphasis on investing in the coverage of PBOT credit data and strengthen the utilization of credit data. In the meantime, we continue to introduce more compliant data sources, combined with the thorough usage of internal conceptual behavior data, to ensure that we can identify customer credit profile more accurately by further refining customer segmentation accordingly. Third, we continue to iterate and upgrade model matrix for different customer segments, and our ability to assess customer credit profile has also got further improved. We should be the most essential pillar for us to increase the proportion of client customers and will be one of the most key projects in which we continue to invest. We believe that in the remainder of 2023, we will make more breakthroughs in our user identification capabilities.
spk06: Thank
spk13: you. 2023 is the year of economic recovery in China. We are committed to upgrading our core risk management capabilities and accelerating the strengthening of our refined risk management system. As Jay and James mentioned earlier, we maintain a cautious view of the macroeconomic environment, adhering to the principle of risk driven, monitor the market externally, and build capacity internally. Above all, we firmly believe that with a versed vision in mind and a solid infrastructure, we can continuously generate sustainable long-term returns for all shareholders. Thank you. This concludes our prepared remarks. Operator, we're now ready to take questions.
spk11: Thank you. We will now begin the question and answer session. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Once again, let's start 1-1 for questions. Our first question comes from the line of Frank Chen from CreditSys. Please ask your question, Frank. Thank
spk05: you for the opportunity to ask a question. I'm a credit user, Zheng Hao. First, regarding the recent supply and demand situation in the market, what is the recovery situation in terms of consumer trust in the company in the first quarter and second quarter? In addition, what are the changes in the risk of capital at the shared end? In addition, I would like to ask the management in the following few seasons, what are the strategic focus or focus of work? Thank you. I will translate it for myself. On the other hand, could the management provide some more color on the strategic or operational focus for the rest of the year? Thank you very much.
spk04: Let me answer this question. First, regarding the supply and demand situation in the market, we have a certain amount of rebound in the first quarter. And I think the rebound in the first quarter comes from two important factors. The first factor is that after the outbreak, consumers are free. The second factor is that we have improved our own operational capabilities, especially the risk recognition, which helps us to identify better and worse customers. This has led to the need of our pure customers. As you know, the scale of the users in Le Xin is not small. I believe that the value and potential of our pure customers will be gradually excavated as we continue to improve our knowledge and operational capabilities. So far, the second quarter has been a few months. Some data we have seen is actually stable, but the peak after the Spring Festival is past. We see that the demand has slowed down a little bit, but it is still on the growth channel. This is the current situation with the demand. I think there is an extra difference in the demand. We have a mall, we have a store, we have a consumer market. We can reduce the demand for the whole loan, and we can attract more customers by the way of e-commerce marketing. We can increase the demand for the whole loan, and we can attract more customers by the way of e-commerce marketing. We have been preparing for the 618, and I think 618 is a good opportunity to attract more customers. This is a unique place in Le Xin. In terms of funds, I think the funds are still quite rich. The funds that the domestic banks can invest today are relatively limited. In fact, after 10 years, Le Xin has been recognized by the financial institutions. In the last quarter, we also held a joint partnership meeting and invited more than 100 financial institutions to come to the site. We also expressed our desire to further deepen the cooperation with Le Xin. As you can see, the capital cost of QE has also decreased significantly. So I think the supply of funds is still very strong. And I think it is a little bit sustainable.
spk13: I would like to talk about the rebound of the overall demand in the first quarter. It was mainly attributed by a couple of factors. The first one was the COVID and the lockdown quarantine being over. There was a spike in consumption needs and also the overall recovery. Second, it was mainly due to our refining operations, as well as the capabilities in risk assessment being increased. In the second quarter, we were able to better recognize customers, to better serve the right customers and the good existing customers. In the sense that most of you already knew that we have a very large existing customer pool. With our improved risk assessment capabilities, we are able to better pick them out and better explore their value from the existing customers. And as of right now, in the second quarter of 2023, as we can see the data right now, the trend is still stable. But after spring breaks by past, the demand has been slowing down a little bit, but the trend of increasing is still remaining relatively strong. And in that sense, we also have different products. We have our own system. We have the e-commerce, a very special consumption scenario. When the lending need is relatively not as strong as the previous quarter, we have another option to create demand, which is the product discount on products, to attract our customers, whether it's new, whether it's the existing one, to make consumptions and to create demand. So the second quarter as of right now, we are preparing the 618 Festival, which would be a great opportunity to generate more demand, thanks to our unique ecosystem. But when it comes to the funding cost side, I'd say the supply is still relatively strong and sufficient right now. Based on the current national situation right now, from our funding partners, they have limited options to really invest in. And after 10 years, our risk level and our capabilities in risk management are recognized and approved by them. And also, as you might know already, we had this cooperation conference day with our funding partners, and all of them showed the willingness to make the cooperation deeper. And also, as you can see, our funding cost actually lowered in the first quarter, and the overall supply is still relatively strong. I hope that answers your question, Frank.
spk11: Thank you.
spk04: We have a 2.0 system. After the system is uploaded, we will be able to improve our user recognition and risk management capabilities. So we will gradually start to adjust and operate the system. I believe that after this system is uploaded, our risk management capabilities will be improved. We will also be able to continue to improve our high-risk services. I believe that we will also be able to create a normal high-risk system, and improve our mechanism and system. The second thing I'd like to say is that we will continue to build our ability to diversify our customers. I believe that Lexin has the advantages of the commercial and the commercial environment, and we also have the advantages of the team. So we will strengthen our advantages in this area to create the ability to diversify our customers. The third thing is that we will continue to improve our user LTV and improve our overall efficiency. The fourth thing is that we will continue to improve our lower-cost services. The lower-cost services are still quite obvious. We can see that our entire operating, sales, research, management costs, and the overall balance of the debt, from .28% to .16% a year ago, the net profit rate has also increased from .8% to 11%. So I believe that we will continue to improve our company's profitability. This is one of our most important tasks this year.
spk13: Once it's ready, we will get the upgrade in capabilities in risk management. Hence, we are actually doing it -by-step to adjust and to operate when it's ready. Our capabilities in risk management and identifying in user risk will be significantly upgraded. And also, we continue to do the elimination of high-risk users, and we are in the progress of making it a common operational thing to do the routine elimination of the high-risk users. Secondly, we will try to continue to differentiate ourselves from others in customer acquisition. Like I said earlier, we have different scenarios, like e-commerce scenario, and we have a very strong offline Poo Hui team. These are the advantages that will help us to strengthen our own capabilities. And third, we will continue to do the refine operations to further increase the customer's LTV as well as the operational efficiency. Fourth, we will continue to undergo the cost efficiency initiative. As you can see, in the first quarter, it shows some prominent results. The percentage of our operational costs over the outstanding loan balance actually decreased, and our net margin increased to 11%. And for the rest of the year, we aim to continue to increase our own profitability.
spk09: That answers your question, Frank.
spk11: Great, thank you. Our next question comes from the line of Alex Ye from UBS. Please go ahead, Alex.
spk05: Good morning, Mr. Ye. My first question is about the situation of the loan balance in the second quarter of April and May. Could you share with us what is the current growth and what is the previous expected growth? And the second question is about the asset development. Could you share with us some of the previous asset development indicators? Is there any improvement in the situation in April and May? And because we are still continuing to improve our control capacity at night, I don't know how much progress will be made in the process of this asset development. So I'll translate for my question. First is on the low volume run rate in April and May. Could you share with us how has the sequential movement been so far, and how does the growth you have seen now compare to your previous expectations? The second question is on your asset quality trend. Could you share with us some of the early asset quality indicators in April and May? And do we expect further improvement from here? Thank you.
spk04: I'll read some numbers for you to think about. In fact, the data in February is 8% higher than in January, 2% higher in March, and 2% higher in April. So the overall growth rate is... The overall growth rate at the end of demand is... As the epidemic spreads, I think the demand is slowing down. But the whole expected rate is similar to the expected rate of our management. So we are giving a 630-635 billion. So
spk10: as you
spk13: heard already, for the second quarter, our guidance for the low volume was 63.5 billion. But I could share some month over month in the first quarter results with you. The numbers application-wise, there was a minor peak in volume after the Chinese New Year. In the month of February, it showed an .0% increase quarter over quarter. For the month of March, it showed 2% month over month. And as of now, May, we are seeing a minor decrease in the month over month as the COVID passed and the need spike kind of slowed down a little bit. We are seeing a little bit of slowdown in demand, a bit entering the second quarter, but it's still in line with our management team's expectation.
spk04: In terms of risk, I think we saw that in the first quarter, the overall risk was not bad. We kept a steady and stable process. In the second quarter, we have seen that the indicators were relatively stable. Another point of observation is that the new assets structure is better. The new assets we have added every month, whether it's -3% growth, it's still going up, and -8% growth is still going down. So I think the new assets structure is actually a better structure. So we believe that as the new assets continue to improve, there will be room for improvement in the future. It should continue to improve.
spk13: The overall structure is actually better. The percentage of R1-3 being increased, the -8% being decreased. From the new loan perspective, they are overall better. With the monthly new loan structure being continually improved, our overall risk level will be improved in the future. There are still some optimizations in the room when it comes to the overall risk level.
spk09: I hope that answers your question, Alex.
spk11: Thank you. Our next question comes from the line of Yada Li from CICC. Please go ahead, Yada.
spk02: Hello, Mr. Gua, thank you for this opportunity. I am Li Yada from the Chinese company. Today I would like to ask you about two questions. The first is about the future, about the option of the mortgage model. I would like to ask about the future, the percentage of the weight of assets and the outlook of the model ratio, and whether we will increase the scale of the loan in the future. The second question is whether the management can share in detail about the development of our branched-out malls and other new consumer businesses or products and the outlook on the future. Thank you very much. Then I will do my translation. Hello, management. This is Yada from CICC. My first question is regarding the choice of the lending model. Could you please give us more color on the trend of the credit facilitation and the risk sharing model or tech empowerment services in the future? Will there be any plans to increase the on-balance facilitation? Secondly, I was wondering about the recent updates and outlook of Fengxi Le and other new consumption businesses. That's all. Thank you.
spk14: So I will take a crack at the first part of the question, and Jay will answer the second part of your question. The first part of the question is related to risk taking and profitability. Obviously, at the company level, we always try to achieve the balance. Obviously, it makes sense that if risk improves, then I want to do a little bit more so that I increase the profitability. If somehow the risk is worsening, obviously, I don't want to do more, right? I want to do less so that I can retain my profitability. So that has been our kind of attitude. Resulted out of this basically is reflected here in terms of the proportion of the business where we take risks, that is, in the loan facilitation business and in rev share business reflected in our tech empowerment part of the business. Right now, the rev share business, basically, we don't take much risk in this part. It accounts for roughly 26% or so. And in the last year, several quarters has been hovering between, say, 20 to 30% also. So we are watching very closely of the overall macroeconomic data and our overall risk indicators. If the overall macro data continue to improve and our asset quality continue to improve, obviously, the overall credit situation is improving, then it doesn't preclude us from really taking a little bit more risks so that we increase the overall profitability for the company. So basically, that's our kind of thinking, if you will, to run the business. Now, Jay, for the second part of the question.
spk04: In terms of the growth in this field, we see that our growth is relatively strong. Especially in the domestic e-commerce, where there is still a relatively strong competition, in the first quarter, we can increase 69%. Our user growth is 71%, and the revenue growth is 57%. In fact, it's not only faster than our big-table growth, but I think it's even faster than the growth of the entire industry. In fact, this is a unique part of our e-commerce, that is, we are a trusted and driven e-commerce. So these people we serve, in fact, they all still have a trust and demand for consumption. I think that in the current environment of the country, especially in the case of big platforms, where the demand for profit is getting higher and higher, it actually gives our e-commerce a relatively unique operating space. I want to say that this is the first point. The second point is that e-commerce will have a very strong co-operative effect in our entire life, in our entire past and in the management of our current customers. So I believe that in the future, we will see more progress in this area. The other point is that in our entire ecosystem, I want to talk about the business we don't know how to do. We don't know how to do business offline, we rely on the BG to do business offline. With the recovery of the entire economy, I think that in the online team, the cost of the customer, and the risk of the customer, we can see that they still have a certain advantage. Today, the online traffic is actually becoming more and more scarce, and more and more expensive. Offline, it can help us to evaluate each customer more comprehensively. It can accurately identify the entire wish of each user, and the entire ability to pay back. Compared to the entire online model, especially in this era of pure competition, I think that we can understand customers better, and provide products to customers better. The Puyui will be a relatively good advantage. So in the future, I think that we will gradually increase the total investment in Puyui, to form a more diversified customer and business capacity. Another thing I would like to talk about is the entire financial technology industry. The financial technology industry has been very enthusiastic about the standardized capabilities and business capabilities we have accumulated over the past 10 years. We have already done a good job of working with five or six financial institutions, and we have achieved a certain scale. So we can see that in this respect, it is a process of monetization of the past capabilities. Secondly, we can strengthen the relationship between the bank and the funders, and the service provided by the bank and the funders. So we can see that the funds provided by the bank and the funders, are actually lower than the average cost of the funds we have today. So I think that this is a relatively unique business ecosystem. I believe that the advantages of our cooperation in various business industries in the future, will also be one of the competitive advantages of Lexin.
spk10: So we can see that the financial technology industry is a very competitive business. We have a very high number of customers in the industry, being in
spk13: a very heavy competition. As I shared already, in the first quarter, not only the volume in GMB increased year over year, but also the revenue, as well as the cumulative trading customers. They are only larger than our main business, or other businesses within the company. They are exponentially larger than the overall increased speed in the industry. So the customers that we serve in our e-commerce areas, are mostly customers with credit consumption needs. Under the current situation right now, the overall macro economy and environment, with APR requirements being a little bit higher, the requirements being a little bit higher, actually gives the e-commerce sector a bit more opportunity, including an expand a little. Furthermore, e-commerce could actually help us with the customer acquisition, and as well as the customer retention with our main business, which is a loan facilitation business in the future. Next is our offline Puyui team. Our offline Puyui team mainly relies on the offline BD operations, with right now the economy being resumed, being in recovery. The team actually helps with our customer acquisition costs, as well as risk levels. We can see there are a lot of advantages comparatively, when the online traffic being more expensive, as well as being more rare. The offline Puyui team helps us to evaluate customers more accurately, as well as give us the capability to understand their willingness, as well as to keep them in retention. Especially with the existing customer competition, we get to know them better via Puyui team, and we will continue to increase the investment on our offline Puyui team, to help us to differentiate when it comes to customer acquisition front, to better acquire better customers. And another business I'd like to mention is our tech empowerment SaaS business. It's pretty much an accumulated experience of 10 years of standardized capabilities. We already got into cooperation with a relatively sizable volume, with five to six of our banking partners and our funding partners. It's pretty much a monetization of our past experience. We use our experiences and capabilities to help them, and in return, they strengthen the cooperation in our main business, helping us with a relatively lower founding cost than the current average funding cost. So I think this is a very unique system that we have. We believe the cooperation between aforementioned business will be strengthened, and it will be more interrelatable in the future to help us to differentiate ourselves among our peers. Hope that answers your question,
spk09: Yara.
spk11: Thank you. I'm sure you know further questions. I'll now like to turn the conference back to the management team for closing remarks.
spk13: Thank you again, everyone, for joining us. If you have further questions, please contact us via our contact information available on our IR website. Thank you.
spk01: Thank you, everyone.
spk11: Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.
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