LexinFintech Holdings Ltd.

Good day and thank you for standing by. Welcome to Listening FinTech second quarter 2024 earnings conference call. At this time, all participants are in the 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 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. I'd now like to hand the conference over to your first speaker today, Ms. Mandy Dong, head of IR Policing. Please go ahead.

Thank you, Amber. Good morning and good evening, everyone. Welcome to Le Xin's second quarter 2024 earnings conference call. Our results were issued earlier today and can be found on our IR website. Joining me today are our CEO, Jay Hsiao, CRO, Arvin Chow, and CFO, James Zheng. Before we get started, I'd like to remind you of our safe harbor statement in our earnings press release, which also applies to this call. During the call, we may refer to this outlook and forward-looking statements, which are based on our current plans, estimates, and projections. The actual results may differ materially, and we undertake no obligation to update any forward-looking statements. Thus, unless otherwise stated, all figures mentioned are in RMB. Jay will first provide an update on our overall performance. Arvind will discuss risk management updates. Lastly, James will cover the financial results in more details. I will now turn the call over to Jay. Please kindly note, different from the past, Jay will give his whole remarks in Chinese. Then the English version will be delivered via Jay's AI-based voice. Jay, go ahead, please.

Hello, everyone. I am very happy to share with you the results of the second quarter of 2024. Under the current macroeconomic environment and industry situation, we adopt a safe and stable business strategy, insisting on both risk and data drive. In the quarter, the company actively controls the scale to improve review standards. The overall risk is gradually improved, and the company's profits are steadily rising. The second quarter transaction amount is 5.1 billion yuan, the management and delivery amount is 1,152 billion yuan, the revenue is 36.4 billion yuan, and the currency growth is 12.3%. The profit is 2.3 billion yuan, and the growth rate is 12.4%. Based on the financial situation in the first half of the year, the company will approve the 0.072 US dollars of ADS to send cash to shareholders. Next, I will introduce a specific business situation in the second quarter. In terms of risk, the company balanced the growth of risk and scale in the second quarter, and continued to reduce and increase the amount of risk assets. to strengthen the construction of the underlying energy. The asset quality and structure have been further optimized. Specifically, in terms of new assets, we have deepened the low-end growth strategy that was previously effective, monitoring the new asset quality, and improving the quality of the user ratio. On the one hand, we continue to optimize the RTM model and housing strategy of the main investment channels. The quality of the channels and the added user ratio have been relatively improved, exceeding 40%. On the other hand, Through the low-end growth strategy, we implement low-value accuracy. According to the number of users, we show the dynamic adjustment of the number of users. In order to increase the pass rate and control the risk. For users with different risk levels at the stage of受信, we fully utilize differential pricing, amount of money, and other tools. Increase the quantity of new and high-quality assets. Promote the downfall of the overall asset risk. Through the above measures, in the second quarter, the risk rate of new customers is increased by 20% compared to Q1. The new client's new asset early risk indicator, FPD7, decreased by 23% compared to Q1. The advantageous asset scale ratio increased by 8%. The new client's return cycle is further shortening. As for the management of stock assets, in the second quarter, we appropriately strengthened the repayment system, and optimized the user's期待扣策略. The full amount of assets decreased by 7% compared to the quarter end of the second quarter. As for the tail end of the client, to reduce long-term risk losses and increase profitability. Automated processing of high-risk users can be carried out by machines. Machines can produce strategies and suggestions for processing at the level of small and medium-sized companies, and further enhance the efficiency and efficiency of high-risk users' processing. In terms of wind control and energy construction, in the second quarter, from data modeling, analysis, monitoring, strategy, and so on, further deepening the entire risk management system. Specifically, our CIO will further introduce it to you in the following presentation. Through the addition of asset management, storage asset management, and the construction of underlying capabilities in three aspects, in the quarter, the company's added asset risk gradually improved, and the total asset risk gradually decreased from the high point. At the end of the second quarter, the return rate decreased by 7% from the beginning of the quarter, and the return rate of 30 days increased by 1.5% from the beginning of the quarter. Looking back at the situation of risk management in the past year, from the beginning of the second half of the year, this wave of risk cycle has had a great impact on the entire industry. In terms of popularity, our risk capacity did not change in time to match the market, but after the risk team and risk system were fully upgraded at the beginning of the year, we saw a very obvious increase in overall anti-risk capacity. The company's system-based risk cycle capacity is constantly improving. Although we want to achieve profit, and scale. Although it takes a little time to reach the obvious growth in scale and profit, what can be foreseen is that the increase in risk capacity will gradually increase the profit space of the company. In overseas business, the second quarter of the Mexican market continues to maintain a high rate of growth. The loan scale is 61% in the first quarter, and the revenue growth is 113% in the second quarter. In terms of capital costs, The company's capital cost in the quarter fell 58 bps in the first quarter. In May and July, the company issued two ABS projects respectively, with a total of 600 million yuan, and received a lot of high-quality fat. With the decline in domestic interest rates, we will cooperate with financial institutions with more risk models to balance risks and scale to increase revenue. In the second quarter, the company has invested 1.43 billion yuan in R&D. AI large model further deepens the application. In the application of telecom and after-sales management, the accuracy of large model real-time image recognition is further improved. In the second quarter, the accuracy of machine image recognition in telecom scene increases by 98%. In the after-sales management scene, the accuracy of image recognition reaches 91%. In the application of code support, in the second quarter, AI large model code support achieves the landing and use of 100% of technical personnel. comprehensive improvement in the efficiency and accuracy of programmer code writing, innovation and exploration on AI large models, and enthusiasm in the second quarter to obtain the annual single award of the Asia-Pacific Business Technology Award. In terms of consumer protection, the second quarter of the company further strengthens the digitalization and systematization of customer service, including the improvement of the standard check system, the rapid coordination of problems, response problems, to complete the consumer consultation communication mechanism and customer service management system, so that the first-tier customer service can be fully authorized to respond quickly and deal with customer demands, and to establish multiple customer tracking service processes, including a series of management systems, training, sales behavior tracking processes, etc., to improve customer service experience from the core of the business system, and to better protect consumer rights. Looking forward to the second half of the year, The current external environment, we continue to follow the principle of risk management priority. The focus is on the following points of work. In terms of the risk return to the normal range, we have begun to promote the growth of scale stability. In the past six months, we have increased the construction of risk capacity. The risk management system and the detailed operation of people are constantly improving. Added assets have returned to a healthy and reasonable level. Next, we will increase the strength of the four projects. The advantage of operating in the context of the company is to gradually promote the stable growth of scale At the same time, we continue to invest more resources in the price strategy and the price strategy, and we are confident that we will gradually return to the history of better profit and loss on the more detailed operation of the customer by dividing the product and the customer group. Second, to play a good e-commerce business. Some of the advantages of Lehua Card's online and offline high-end consumption scenarios are to strengthen user consistency and improve user activity. e-commerce business for different users to provide more product choices, including the selection of products for high-end customers, as well as products for growing customers and extremely cost-effective products. For Lehua Card, we will, through the diversified business system of the customer group and the expansion of customers in different scenarios, at the same time create a dedicated full-time system to further improve the active transformation of high-end users, and drive the entire process of high-end users. Third, we actively carry out the layout of overseas markets, Good morning and good evening everyone. It is my pleasure to share with you our performance of the second quarter of 2024, amid the current macroeconomic environment and industry landscape. We have adopted a prudent and steady business strategy, adhering to a dual-driven approach of risk management and data analytics. During the quarter, we proactively controlled our loan origination pace, tightened credit standards, and overall risk levels have been gradually improving, with our probabilities steadily increasing. In the second quarter, total GMB of loan origination reached 51.1 billion RMB. The managed loan balance stood at 115.2 billion RMB. Revenue was 3.64 billion RMB, an increase of 12.3% quarter-over-quarter. Its profit was 230 million yuan, an increase of 12.4% quarter-over-quarter. Based on the probability in the first half of the year, the director has the cash dividend distribution of approximately $0.072 per 80s continuing to return values to our shareholders. Next, let me elaborate on our business performance in the second quarter in terms of risk management. We managed to strike a fine balance between business growth and asset quality, continuously resolved and cleared existing assets, and strengthened profitability. As a result, asset quality was optimized specifically for newly issued assets. deeply implemented the effective low and growth strategy, strictly controlled the quality of new assets, and increased the proportion of high-quality users. On one hand, we continuously optimized RTA model and bidding strategy of major acquisition channels, resulting in a more than 40% comparative increase in the proportion of high-quality channels. On the other hand, through the low and low strategy, we implemented low credit line limit admissions and dynamically adjusted limits based on subsequent user performance. This approach increased the approval rate while maintaining risk exposures. We utilized differentiated pricing, credit level, and other tools for users with minimal risk levels at the credit approval stage to expand the volume of high-quality new assets down overall asset risk. As a result of these measures, the approval rate for new customer credits increased by 20% compared to Q1. The early risk indicators, SPD-7, for new customer assets decreased by 23% compared to Q1. The proportion of high-quality asset volume increased by 8% compared to Q1. And the payback period for new customers further shortened Regarding the management of existing assets in the second quarter, we moderately enhanced refinement reminders, optimized the overdue deduction strategy for users, resulting in a 7% decrease in the day one delinquency rate at the end of the second quarter compared to the beginning of the quarter. For tail end customers, we implemented measures such as transaction control and limit reduction to reduce risk losses and improve profitability. by applying negative assets clearance robots for the automated handling of higher-risk users, these robots can generate disposal strategy suggestions within hours, significantly improving the efficiency and precision of handling high-risk users. In terms of building core risk management capabilities, in the second quarter, we further deepen the upgraded management system of the dimensions of data, models, analysis, and monitoring and strategies. Our CRO will provide a more detailed introduction in the next session with the measures taken in the management of newly issued assets, existing assets, and core capability building. The risk of newly assets has gradually improved during the quarter, leading to a gradual drop in the overall asset risk from its peak. By the end of the second quarter, the day-one to month-week ratio had decreased by approximately 7 percent of the core, and the 30-day collection rate has decreased by approximately 1.5% compared to the beginning of the core. Reflecting on the past year's risk management work, the credit cycle within the loan facilitation sector that began in the second half of last year has had a significant impact on the entire industry. Our previous risk management capabilities did not properly match the market changes. However, After the comprehensive upgrade of our risk management team and risk management system at the beginning of the year, we have seen a very noticeable improvement in our overall risk management capabilities and business resilience. Our ability to navigate through credit cycles has been continuously strengthening, although achieving significant growth in scale and profitability will require more time It is foreseeable that the improvement in risk management capabilities will gradually enhance our probability in the future. Regarding our overseas business segment, the Mexican market continues to deliver a rapid growth in the second quarter. The loan origination volume increased by 61% and revenue grew by 113% on a quarter-on-quarter basis. Regarding funding costs, During the quarter, our funding costs further dropped by 58 basis points compared to the first quarter due to a new record low. In May and July, we issued to AB total scale of 600 million RMB, which were oversubscribed by a great number of high-quality investors. As domestic interest rates further go down, we will engage in differentiated collaborations is more financial institutions that have complementary risk preference balancing risk and scale to enhance returns. In the second quarter, we invested 143 million RMB in research and development, further deepening the application of AI large models. In telemarketing and loan collections, the accuracy of real-time intent recognition by the large model has significantly improved. In the second quarter, the intense recognition accuracy of robots in telemarketing scenarios reached as high as 98%, and in collection scenarios, it reached 91% for code assistance applications. The AI-Large model was used by 100% of engineer staff in the second quarter, significantly enhancing the efficiency and accuracy of programmers' code writing. Due to our innovative exploration in AI-Large models, Dessin received a Technology Award from the Asian Banker in the second quarter in terms of consumer rights protection during the second quarter. We further shaped digitization of customer service, including improving standards and verification systems to quickly identify and respond to customers' issues, enhancing the consumer negotiation and communication mechanism, as well as customer service management systems, allowing frontline customer service representatives to be fully empowered to respond quickly and address customer concerns, establishing a multi-point tracking customer service process system, which includes the introduction of a series of management systems, training programs, and sales behavior tracking processes. These measures aim to enhance the customer service experience from the very beginning of the business process and data protection human rights. Moving ahead to the second half of the year, in light of the current external environment, we will continue to adhere to the prudent principles of priority risk management and focusing on the following key tasks. First, while we will ensure to bring risks level down to an industry long range, we will promote steady growth in scale. Over the first half year, we have intensified our efforts in building risk management capabilities, and risk management system and refined operational system have gradually improved. The risk of newly issued assets has returned to a healthy and reasonable level. Moving forward, we will appropriately increase our customer acquisition efforts, leverage our advantages in scenario-based operations, and gradually drive steady growth in scale. At the same time, we will continue to invest more resources into our credit line limit and pricing strategies, conducting more refined operations by segmenting products and customer groups. We are confident that profitability will gradually return to the robust level as we have achieved in the past. We will leverage the high-frequency consumption scenarios of our e-commerce business and our card, both online and offline, to enhance user stickiness and boost user activity. For the e-commerce business, we will offer a wider range of products and portfolios tailored to different users, including QT products for premium customers and highly cost-effective products for growing customer segments. For Lenoir Card, we will enhance user activity and conversion rates among premium users by implementing a differentiated management system based on customer segmentation and expanding customer acquisition across different scenarios. Additionally, we will create an exclusive benefit system to further boost overall user engagement and retention. We will actively pursue overseas market expansion. After preliminary exploration, business in Mexico is currently maintaining a rapid growth. In the future, we will closely monitor more emerging market opportunities and actively engage in exploration. We believe that as the asset structure continues to optimize and overall risk level gradually turns better in the second half of the year, our profitability will steadily improve. Next, I will hand the floor over to our CRO. Thank you.