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spk06: Ladies and gentlemen, thank you for standing by and welcome to the 360 Digitech first quarter 2020 earnings conference call. Please also note today's event is being recorded. At this time, I would like to turn the conference call over to Ms. Mandy Dong, IR Director. Please go ahead, Mandy.
spk04: Thank you. Hello, everyone, and welcome to our first quarter 2022 earnings conference call. Our results were issued earlier today and can be found on our IR website. Joining me today are Mr. Wu Haisheng, our CEO and director, Mr. Alex Xu, our CFO and director, and Mr. Zheng Yan, our CIO. Before we begin the proposed remarks, I'd like to remind you of our safe harbor statement in our earnings press release, which also applies to this call. We may refer to forward-looking statements based on our current plans, estimates, and projections. Also, this call includes discussions of certain non-GAAP measures. Please refer to our earnings release for our conciliation between non-GAAP and GAAP-1. Last, unless otherwise stated, all figures mentioned are in RMB. I will now turn the call over to our CEO, Mr. Wu Haisheng.
spk03: Hello, everyone. I am very happy to share with you the performance of our first quarter. In the second year of the first quarter, we reached 9.88 billion yuan in total, which increased by 33% and increased by 2%. We reached 14.67 billion yuan in the second quarter, which increased by 44% and decreased by 3%. Hello, everyone. I'm very happy to report a strong start to 2022. In Q1, total loan origination and facilitation volume reached RMB 98.8 billion,
spk04: up 33% year-on-year and 2% Q-on-Q. Outstanding loan balance reached RMB 146.7 billion, up 44% year-on-year and 3% Q-on-Q. Despite the seasonal impact from the Chinese New Year and the macro and COVID headwinds, our solid performance continued to demonstrate the resilience and flexibility of our operations?
spk03: I think the pandemic is probably one of the most important issues for everyone, so let's talk about this first. In the face of the pandemic, we should say that we have done a very good job in terms of tactics. We will be able to limit the impact within the most controllable range. during the Wuhan epidemic in 2020. It should be said that our response was relatively successful at that time. In Q1, we faced the epidemic situation of multi-point development across the country. Our team used the fastest speed and response, and launched one or two well-prepared response measures. We also had a variety of predictions for the epidemic situation in various cities and cities. The machine that spreads faster in response to the epidemic affects larger industries, such as such as culture, entertainment, hotel participation, and other industries, as well as some high-risk U.S. customers, we have carried out a strategic collection. At the same time, we have communicated with major financial institutions in advance. For customers who have been affected by the pandemic and are unable to repay their loans in time or have problems with repaying their loans in a short period of time, we have allowed customer groups to sign up for a long-term loan application. For cities that are more affected by the pandemic, our offline groups I reckon the major concern to the market right now is the COVID outbreaks. To deal with the situation,
spk04: we created precautionary plans to take rapid response measures to make the impact on our business under control. Such an effective response derived from our successful experience handling the pandemic that hit Wuhan back in 2020. Back then, our response was seen as very timely and effective in the industry. As the COVID resurgence in Q1 In a number of Chinese cities, our team moved fast and implemented a range of preemptive countermeasures. For example, we launched a multi-tiered pandemic alert system for the cities that are key to our business. In addition, we strategically scaled back our business for high-risk customers in the industry who are hit by the outbreaks, such as recreation, and hospitality. Meanwhile, we proactively communicated with major funding partners about potential extension for loan repayment. For borrowers who were unable to make repayments on time or lost the capacity to repay in the near term due to COVID, our customer service team stepped in and helped them to apply for repayment extension. In the cities severely affected by the lockdown, it was very difficult for our offline team to acquire new customers. In such cases, we quickly shifted our team's focus from offline customer acquisition to serving existing customers. This allowed us to uphold the moral and sustain business performance.
spk03: After this period, and effective monitoring measures. Combined with our overall customer base this year, we have successfully controlled the impact of our asset value in a very controllable way. In the first half of this year, we have increased the share of customer resources overall, including the increase in the share of high-quality customers during the acquisition stage, as well as the clean-up of resources for high-quality customers during the customer management stage, as well as the clean-up of our tail customers. After this series of actions, The share price of A-class customers has increased significantly. The FTP32 of new transactions has decreased significantly compared to Q4 last year. On the other hand, we have upgraded our Cloud Bank system, which has significantly decreased the risk of real estate in terms of the risk of online and digital assets. As for our mid-term, it has decreased from 2.83% in Q4 to 2.4% to 2.7% in March. In the future,
spk04: Thanks to the effective measures to mitigate impacts from COVID and our strategy to optimize customer base, we successfully keep the impact to our asset quality under control. In the first half of this year, we are working to upgrade our customer base. This includes to acquire more high-quality users pivoting resource to better serve high-quality users and reducing exposure to high-risk borrowers. With these measures in place, the percentage of our Category A users, those with the best credit profiles, greatly increased from budgeted level. Our first payment default rate 30 days, which represents the percentage of our first payment default for 30 days. for new loan ordination also dropped Q and Q. At the same time, we upgraded our cloud bank system, which connects consumer demand with institutional offering through smart matching, meaningfully improved asset quality of online loan facilitation segments. For example, expected vintage loss rate decreased to 2.4% to 2.7% recently from 2.83% in Q4 last year. We believe that the future will improve further.
spk03: But the stock market will indeed be affected by the epidemic and fluctuate. Overall, it is in a controllable range. Currently, the interest rate of the stock market is 4.97%. Compared to last year, it has improved, and it is also in a historical low. But the recovery rate has also dropped, especially in areas such as Shanghai and Jilin. The recovery rate is still relatively obvious. However, we also see that in May, the recovery rate of these areas has stabilized. The credit quality of our new customers in Q1 was better than any of our previous quarters. Even with the impact of COVID, risk performance was significantly better
spk04: than last year, and we believe it will continue to improve. Although there was some fluctuations for the quality of our existing loan book due to COVID, the overall impact is still within the control. Currently, the day one delinquency rate of existing loan book is 4.97%, better than last year and at a relatively low level on records. Our collection rate dropped in Q1 with significant drop in the lockdown cities such as Shanghai and Jilin. However, we noticed that by May, the collection rate had stabilized in this region and it started to improve national wide. As our user base continues to optimize, our risk performance will keep improving gradually.
spk03: QA implemented the blockade of the area, such as Jilin, affected by the blockade of offline activities. Our offline customers have shown a certain degree of decline. The overall impact of online customers is still controllable, although the customer consumption has dropped a little. For example, during the blockade, Jilin, which has a longer blockage period, also has a certain degree of decline. But we can see that with the increase in the number of people in Shanghai,
spk04: In Q1, our offline operation was restricted in some cities under COVID lockdown, such as Jilin. The lockdown temporarily put some pressure on offline user acquisition. The overall impact on our online user base was limited. although we do notice some users were less willing to spend in the challenging environment. Even in Jilin, with its relatively long lockdown, our total transaction volume only showed a small decrease compared to the pre-lockdown level. Currently, most municipal districts in Shanghai have reached zero COVID at the community level, and businesses are expected to resume operations in the near future As such, our operations in this region are likely to gradually return to normal.
spk03: In the face of this year, the uncertainty brought by the epidemic is still there. But we believe that we have been accumulating solutions to the epidemic in real time. We are constantly working to increase our response capacity. We are confident that we will continue to control the impact of the epidemic within the range of control.
spk04: Although COVID-related uncertainties are likely to persist throughout this year, with the set of counter-solutions we have deployed over time and our enhanced ability to effectively respond to new outbreaks, we are confident that we will continue to keep the impact of the pandemic to a manageable level. 关于这个行业的这个今晚的方面的一些政策, 我也 做一些分享。 Next, let me provide an update on industry policies which the market follows closely.
spk03: The central bank and the trade union have also held a special meeting to implement the spirit of the meeting. At the beginning, it is necessary to complete the financial business direction of platform companies, implement routine monitoring, support to promote platform economy, regulate health development, and mark that the financial monitoring work is nearing completion. The relevant platforms will complete the monitoring under the guidance of the financial monitoring department, and then enter the routine monitoring stage. After more than a year of monitoring, the relevant platform
spk04: We have seen positive top-down policy developments for the industry. On April 29th, a political bureau meeting pledged support for healthy development of platform economy and to complete special rectification measures for the platform economy. PBOC and CBIRC made similar comments at following special meetings. Those regulators vowed to complete rectification of financial operation of platform companies, implement normalized supervision, and support healthy development of the platform economy. This signals that the current rectification of the industry is close to an end. Related internet platform company will complete rectification process under the guidance of financial regulator and will be under regular supervision afterwards. After over a year-long rectification, these companies will be the first in the industry to be fully compliant and will be well positioned to develop in a healthier and more sustainable framework.
spk03: In terms of the policy of the industry, in early April, the Central Bank and the Ministry of Foreign Affairs jointly issued a notice on the prevention and control of the epidemic and the development of social economic and financial services. It mentions the active role of platform enterprises and financial services on the basis of promoting platform economy and network financial business regulations. I think this is a very important issue
spk04: At the industry policy level, in early April this year, PBOC and SAFE jointly issued the notice to enhance financial service to support pandemic control and economy and social development. The document mentioned Leveraging the benefits of financial service provided by Internet platform companies while promoting the discipline and healthy development of such services. This is a recognition by the financial regulator of the positive role Internet platform companies play in financial services.
spk03: On the business front, our strategy focus this year is to structural optimization of our user base and funding sources.
spk04: to enhance user lifetime value and increase the sustainable contribution of high-quality funding. Therefore, further improves our operational resilience. In Q1, we achieved a noticeable progress in some key areas.
spk03: At the financial level, we continue to optimize the financial structure. Even if we continue to The supply of sufficient funds has ensured the growth of the business, and it has continuously optimized the business conditions of our capital capital costs and division of assets. In the current market situation, our high-quality assets are still under the pressure of the institutions. Thirdly, continuous interconnection has added five-fifths of large-scale rural and rural industries, and there are fewer land restrictions. Fund supply capabilities are even stronger in the cooperation institutions. On the funding front, we continued to optimize our funding structure.
spk04: we ensured a sufficient funding supply to support business growth. Second, we continuously optimized the funding costs and the contractual terms with our funding partners, as our high-quality assets are in high demand by financial institutions. Third, we expanded funding partnerships with joint stock banks and the major urban and rural commercial banks, which have broader regional coverage and a strong funding supply. Such expansion will prepare us to better serve business growth and deal with economy uncertainty. So far, we have connected with approximately 70% of national-wide financial institutions We will soon add three more national joint banks or private banks into our partnership and have another seven in the pipeline.
spk03: At the product level, we actively respond to this kind of contract guidance from the market supervision department to implement the solution. From April, all our self-managed product prices will fall below IR24 and complete the supervision target in advance. At the product front, we have followed the regulatory guidance closely. Specifically, starting in April, the IRR of all loans originated through our platform,
spk04: is within 24% ahead of the regulatory timeline. Regarding credit agency reform, we act proactively and have defined a workbook structure with credit agency. We intend to gradually implement this procedure.
spk03: We have adjusted the structure of the credit agency reform. We are constantly improving the success rate of the payment. As we continue to involve the national stock market in large-scale investments, we also consider large-scale investments in low-risk assets, as well as the risk fluctuation and increase of the current technology. We have acquired the existing asset distribution engine, and we will configure the risk factors of actual assets based on the risk factors of individual institutions, and introduce institutional revenue dynamics as a adjustment mechanism. In addition, we have also adjusted product offerings to align with our optimized funding structure, reflecting the asset preference of new national funding sources
spk04: This allowed us to improve our loan-approved rates. In Q1, we connected with more national joint stock banks. Meanwhile, given the preference of big banks for higher-quality assets and the increased risk of near-crime borrowers in the current macro environment, we restructured our asset distribution engine to optimize the matching between loans and funding institutions. We also introduced a dynamic adjustment mechanism for the returns of financial institutions. The mechanism allows banks to get a fine loan that aligns with their preference while ensuring their expected returns. The loan approval rate of our partner banks rose about 75% in Q1 from roughly 77-0 last December.
spk03: Uh, uh, uh, uh, uh,
spk04: As for our users, our key strategy this year is to improve the quality of user base. So far, we have achieved very noticeable progress. Specifically, we leveraged a combination of newly developed pre-A models, RTA, real-time API, technology, and the capacity expansion to effectively optimize the quality of user acquisition. Among the customers that applied CreditLine into one, 13% received the highest rating from the financial institutions for their low risk of credit profile. Multiple key indicators of user quality continued to improve, such as ratio of users with fewer multi-platform CreditLines, user with mortgage and car loans, user with a stable income, and user with tangible assets. The improvement of this indicator showed that we have greatly enhanced the resilience of our business and increased user time value.
spk03: The external environment brought a lot of challenges to our business in Q1. However, our team once again met the challenge and delivered solid results. Given the ongoing uncertainties,
spk04: related to the COVID. We will continue to stay vigilant on potential risks and maintain prudent operations in order to accomplish our strategy objectives in this transitional year.
spk03: the impact of the pandemic on business risk. But I believe that the three biggest external impact variables are changing in the right direction, especially at the policy level. We even gained some knowledge. In terms of the epidemic, our trading assets are relatively resilient. Compared to the data we had in Wuhan in 2020, we are very confident today. The domestic epidemic has basically quickly recovered. The business activity we see is also gradually returning to normal. The upgrade of the customer group and fund structure we made this year will allow us to be in a better competitive position in the industry. Whether it's a C-end user or a B-end bank, we see that we should be more needed. This is where our value lies. We will continue to invest in more technology and innovation to improve the operating efficiency of our platform. This will allow us to accumulate more and more competitive players on this wide and thick track.
spk04: 2022 will be a quite challenging year for both our company and the industry. There is pressure from the Sino-US relations on ADRs, regulatory developments for industry, and impact from the pandemic. Nonetheless, we believe these factors are gradually turning around, especially with recent positive policy signals. In addition, our consumer loan assets demonstrated very strong resilience during the pandemic. Looking at our current data compared to the time in the pandemic in 2020, we are quite confident from business prospects. As the most recent wave of COVID outbreak gradually subsides in China, we expect to see business activities return to normal. The structural upgrades we have made this year on our user base and the funding network will put us in a more competitive position. We have seen greater demand for our service, both from end users and from financial institutions, and that precisely reflects our growing value. Going forward, we'll invest more in technology to boost our operation efficiency. This will enable us to continually build up our competitive advantages. in our market of great skill and magnitude.
spk03: Next, I will turn to our CFO, Alex.
spk07: Okay. Thank you, Haisheng. Good morning and good evening, everyone. Welcome to our first quarter earnings call. As I discussed earlier, we had a pretty solid quarter in a rather rough period of time from a microeconomic perspective. Consumers' demand for credit came in more or less consistent with normal seasonality in Q1. While we did experience some impacts from the resurgence of COVID in some regions in China, overall asset quality was actually modestly improved during the quarter. as optimization of our risk model and the contribution from high quality new borrowers more than offsetting COVID related fluctuation among existing borrowers. Of the two leading indicators of asset quality, overall day one delinquency improved to 5.2% from 5.4% Q and Q. More importantly, Day one delinquency for new borrowers in Q1 came in well below 4%, indicating clearly better quality versus existing borrowers. Overall 30-day collection rate declined modestly to 86% from 87% Q on Q, mainly because we have to make necessary adjustments to our collection operation in regions being significantly impacted by COVID. Again, we see clear deviation between new borrowers and existing borrowers. For new borrowers, 30-day collection rate remain above 90% in Q1. These risk metrics further validate the effectiveness of our user acquisition strategy, which focus on high-quality segments of the market. Total net revenue for Q1 was 4.3 billion versus 4.4 billion in Q4 and 3.6 billion a year ago. Revenue from credit driven service capital heavy was 2.9 billion compared to 2.7 billion in Q4 and 2.5 billion a year ago. The year on year and sequential increase was mainly due to longer average tenor of the loans, growth in unbalanced loans, as well as the releasing guaranteed liability on previous loan balance, more than offsetting the negative impact from decline in average prices of the loans. Capital heavy facilitation revenue take rate actually improved modestly versus Q4, also due to longer loan tenor. Revenue from platform service, Capital Light, was $1.4 billion, compared to $1.7 billion in Q4 and $1.1 billion a year ago. The year-on-year growth was mainly driven by a significant increase in Capital Light loan balance. The sequential decline was due to a decrease in Capital Light loan volume, along with the decline in Capital Light revenue take rate in Q1. During the quarter, CapLight and other technology solutions contribute roughly 54% of the total loan volume. As we discussed in previous calls, we expect CapLight and other tech solutions percentage contribution to our total volume to remain fluctuating around current level throughout this year. Longer term though, We will continue to pursue tech driven business model and expect CapLight to become a larger portion of our business in the long run. During the quarter, average prices of our loan portfolio dropped by 50 basis points and were below 24%. In fact, all new CapHeavy and CapLight loans are already priced below 24% at this point in time. We are very confident to achieve the rate cap requirement ahead of the regulatory deadline. During the quarter, sales and marketing expense declined approximately 12% queue on queue, mainly because the Chinese New Year holiday, as well as our prudent control of the pace of our user acquisition. On a blended basis, average cost per user with proof credit line was 417 compared to 319 in Q4. Again, this blended calculation evenly spread sales marketing expenses among users with high credit line of between 100 to 200,000 RMB, as well as those regular users with credit line between 10 to 20,000 RMB. Logically, unit cost to acquire those high ticket size users should be justifiably much higher than the regular users. Therefore, making the comparison of blended user acquisition cost become neither relevant nor reliable. So on an Apple to Apple basis, excluding large ticket size users, average cost per approved credit line of regular users was approximately 322 in Q1 compared to 246 in Q4. More importantly, average cost per dollar amount credit line remain relatively stable Q on Q for regular users. As always, we will continue to use lifecycle ROI and LTV as key metrics to determine the pace and the scope of our user acquisition strategy to ensure the sustainability and the profitability of our operations. Although overall risk profile of our loan portfolio modestly improved in Q1 due to the contribution from high quality new users, the impacts from micro uncertainty and COVID resurgence were still noticeable among existing users. we continued to take a prudent approach in booking provisions against potential credit loss. New provision for contingent liability for loans originated in the quarter was approximately $1.4 billion. Meanwhile, approximately $440 million of provisions for contingent liability of previous period loans was written back as actual performance of those loans was better than expected. With strong operating results and stable contribution from CapLight model, our leverage ratio, which is defined as a risk-bearing loan balance divided by shareholders' equity, was at historically low at 4.2 times in Q1, compared to 5.4 times a year ago. We expect to see rather stable leverage ratio for the time being until capital light contribution resume growth in the future. We generate approximately 1.4 billion cash from operation in Q1 compared to 2 billion in Q4. The decline in operating cash flow was mainly due to some COVID related timing issue. As Shanghai being locked down late in Q1, We were unable to complete some administrative procedures that normally are required near the end of a quarter to collect receivables from some financial institutional partners. As such, approximately 400 million Q1 receivable are pushed into Q2 to collect, assuming the lockdown in Shanghai gradually easing. Total cash and cash equivalent was 9.8 billion in Q1 compared to 9.6 billion in Q4. Non-restricted cash was approximately 6.2 billion in Q1 versus 6.1 billion in Q4. As always, a significant portion of our cash would normally be allocated to support the security deposit and other usage in our normal business course. As we continue to generate healthy cash flow from operations, we believe our current cash position is sufficient to support the growth of our business, to invest in key technologies, to satisfy potential regulatory requirements, and to return to our shareholders. With the dividend policy approved by our board last year, we declared another dividend of US dollar 22 cents per ADS for Q1. The cash dividends represent approximately 20% of our Q1 earnings. Finally, regarding our outlook for 2022, as we communicate to the market previously, We believe 2022 will be a transitional year for the industry as the participants are adjusting to the new regulatory settings. Meanwhile, the unexpected outbreak of COVID, as well as associated measures to control the outbreak, create additional micro uncertainties. Therefore, we want to maintain a prudent approach to plan our business and then mitigate potential risks. At this point in time, we would like to keep our full year long volume guidance of between RMB $410 billion and RMB $450 billion unchanged, representing year-on-year growth of 15% to 26%. We view this transitional year as the opportunity for us to optimize our operations, strengthen our technology platform, and upgrading our customer base. to build an even stronger foundation for our future growth. As always, this forecast reflects the company's current and preliminary view, which is subject to material change. With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.
spk06: Thank you, management. We now begin the Q&A section. If you have any questions, please write 01 on your telephone keypad and 02 to cancel. For those who can speak Chinese, please kindly ask your question in Chinese first, followed by English translations. In addition, in order to have enough time to address everyone on the call, please keep it to one question and one follow-up, and return the call if you have more questions. So once again, 014 questions. Our first question is Liada Li, CICC. Liada Li, CICC.
spk05: Then I'll do the translation part. So the first one is about we have made a capital injection last year for our microloan license. And could you please elaborate more about how we plan to use it. Is it just a preparation for applying for the national license, or are we actually starting using it as an alternative funding source, maybe in the very near future? And the second one is considering the resurgence of the COVID-19 and the uncertainties in the economy, there will be some challenges, especially in the loan collection and in the offline business development. So to be more specific, how are we going to dealing with the situation thanks um
spk03: This 51, on the one hand, can be used as a capital fund itself. In addition, it can also be used as a joint loan form through ABS. In terms of the current use, there is one, for example, a consumer loan, a small business loan, can be issued as an ABS. In addition, if it is a joint loan, it can also be used as a 3.7% joint loan. In other words, Yes, we are using the small bank account. This is the first question. The second question is about the online collection. In our business, there is no online collection. Everything is done through online calls. So the impact of the epidemic is more of a high-profile impact on the online market. In the epidemic area, This kind of sales performance has not been affected. But our online phone reception should not have been affected at all. Of course, we will also make some adjustments to the epidemic. For example, we will make some purchases in the bank for the user's long-term application due to the epidemic. We will also make some long-term payment preparations for them.
spk04: Hi, for two of your questions. For the first one, yes, you are right. For the $5 billion capital that we used to inject into the micro-lending license, on the other hand, we also leveraged the capital as the funding resource through the channel of ABS or joint lending products, both of which can improve our leverage ratio. For your second question, First of all, we do not do the post-collection through offline. The pandemic impacts us only through the offline customer acquisition. All of our long-collection processes are conducted through online, and they affect us very, very limited from pandemic.
spk03: Thank you for your question.
spk04: Hope this clarifies all your questions.
spk06: The next question is Thomas Chong, Jefferies.
spk08: 早上好,谢谢管理层接受我的提问。 我的问题是关于我们的服役那个传联的一个guidance的。 想问一下就是如果我们看到从现在7月份到5月份的话呢, 我们的business trend呢,可不可以分享一下, 然后我们是一个assumption是这个recovery, 或者是那个反弹是在一个什么时候会比较一个meaningful反弹, 这个可以分享一下吗? 另外的话呢,就是关于我们一线城市跟... business trend. Thanks management for taking my questions. I have a question regarding our business trend on a month-for-month basis starting in April and how should we think about the low end and the high end of the guidance and our assumption about the recovery trend in the coming quarters and how should we think about the recovery in terms of the consumer sentiment in coming quarters? My second question is about how are we seeing the business trend in top and lower tier cities, given the pandemic impact more on the tier one cities? Thank you.
spk07: Okay. Uh, hi Thomas. Uh, thanks for your question. So, uh, from the, uh, overall business trend, uh, we look at our current assumption is that, uh, as you know, that Shanghai will be gradually, uh, sort of reopen, uh, you know, starting from maybe June. And so we are assuming a certain level of activity return, um, to Shanghai, um, maybe starting next month. And, you know, we don't expect a sort of a V-shaped turnaround right away. I don't think that's built in our model. We are expecting a rather, compared to say 2020 when the Wuhan pandemic happened, it was a V-shaped turnaround. But this time, we're expecting a rather slower, gradual kind of recovery after the COVID. So that's what we are building in our forecast. In terms of Tier 1 cities, again, the Shanghai situation is well-publicized. And like I said, at least according to the official media, it is gradually reopening. And we expect to get some kind of a return of normal operation starting from June. For other cities like Beijing, for one, operational-wise, we probably don't have much large exposure in Beijing. For two, the Beijing situation is slightly different from Shanghai, or I would say quite different from Shanghai, meaning like a significant portion of the normal life in the city is still remaining. And yes, there are certain kind of community lockdowns and so on. But the situation is much better than it was in Shanghai at the peak of the pandemic last month. And so we are, again, for this kind of situation, We obviously were closely monitoring the development in Beijing, but I don't think it will be anywhere near the Shanghai situation in terms of impact to our business or anything.
spk08: Thank you.
spk11: Thank you.
spk06: The next question is Alexi from UBS.
spk10: Good morning, Mr. Guan. Thank you for accepting my question. My first question is about asset quality. I would like to ask if you can give us some color about, for example, since the second quarter, in April and May, some of our recent day one situations and the trend of M1 collection and QED, how much has changed? And do you expect our Q2 6D will remain stable or will there be a certain deterioration? And then I just mentioned that the expected loss will be from 2.8 to 2.4 to 2.7. I just want to make sure if this refers to the entire long book or just new customers. The second question is about the APR. I mentioned that we are now below the overall cap of 24. How much is the current Q1 average? Since we are already below 24, then in the future, will it continue to go down? This entire tech wave outlook is expected to be at the bottom of Q1 or Q2. Another small problem is that our new customers may have better assets, but their interest rates may be lower. From an upper risk perspective, their entire interest rate from Okay, I will translate for my question. First one is on asset quality. Again, give us some color on your latest trend on day one and M1 collection rates. Do you expect them to remain stable or some deterioration in Q2? And also just want to clarify that the manager mentioned the expected venture loss will improve from 2.8%. to 2.4% to 2.7% just want to confirm whether that refers to the total loan book. And second question is on take rate and APR. So I'm wondering what's your average APR now and what's the current plan from now to Q2 to expect it to further decline and do you expect your take rate to bottom in Q1 or may continue to edge down? And then for your new users that have a bit lower risk I'm assuming they will also have a lower APR. So from a risk-adjusted perspective, how does their return compare to the existing users? Thank you.
spk03: Okay. Thank you. Please answer the first and second questions. Okay.
spk02: First of all, the mid-term loss refers to the mid-term loss of new transactions. Among them, The annual loss of the new customer's new transaction may be even lower, because our new customer's overall quality is now relatively obvious. This is one of the problems. The second part is our loss rate. What we are talking about now is the loss rate of the whole amount of assets. In April and May, it was actually a process that continued to decline, and the BQE continued to deteriorate. If you want to look at the new trade, it will be lower. It will be around 3% of the rate of return. If we look at the recovery rate, we can see that in May, in addition to Shanghai, Beijing and Henan, these three places, the rest of them have been better than in April. Until today, we have seen such a phenomenon. Thank you for your question. Regarding the vintage loss, it indicates the new transactions drawdown in the first quarter.
spk01: And for the new customers we acquired in the first quarter, actually the performance will be better than the new transactions in the first quarter because we have seen the quality of our new customers have been improved. For your first question, the delinquency rate also refers to the existing loans on book. And we have seen that it has been decreased in April and May. And if you check the new transactions, it will be decreased to 3%. Regarding to the recovery or collection rate, and apart from regions like Shanghai, Beijing, and Henan, for other regions, the recovery rate is better than April. So we foresee that the overall risk performance or recovery rate will be better in the second quarter. Hope this can clarify your questions.
spk03: Yes, starting in April, the IRR of loan products facilitated and originated through our platform is about 22%.
spk04: In the near term, we expect this rate to remain relatively stable. We do not expect to see big drop on APR rate.
spk03: Compared to the past, its short-term revenue will be lower. But from the data we have from the beginning, its long-term life cycle that can be served will become longer. In fact, it is much longer. So now we are using a user's life cycle to evaluate. From that perspective, the value of our new users is actually more than before.
spk04: For the new customers we acquire in the first quarter, if we only look at the short-term return, yes, compared to previous user base, it's relatively lower. However, we value more on the whole lifetime value that the new group users contribute a lot, much better than the previous user group.
spk10: Okay, thank you very much. Thank you.
spk06: As a reminder, please press 01 for questions.
spk07: Operator, we probably have time to take one more, if any.
spk06: Our next question is Ethan Wong from CLSA.
spk11: I'd like to quickly follow up on the take-away question. We know that take-away is also related to funding calls. As Haisheng mentioned, Just a quick follow-up question on the tick rate, because we know tick rate is also affected by funding costs. Just wondering in the cold environment, whether the bands we are cropping will have some pressure on us in reducing the . Just want to see if management can offer more color on there. Thank you.
spk03: OK. In the cold, From the cost side, we can see a gradual decline. But last year, the decline was relatively large. So, you can see the trend this year, but the decline is not a particularly big one at the moment. The main thing is that we are now mainly promoting our division business. So, in the division business, funding costs may not be a major factor.
spk04: Yes. Ethan, to answer your question, first we do notice we have sufficient funding supply this year. We notice the funding cost declining trend. We feel that we do not see noticeable decline actually happen. This is because in last year, 2021, we have already brought down a lot on our funding cost. The next point is we focus more on our tech business, for example, Capital Light, which is less impacted by funding costs.
spk07: I just want to add a quick point there. So basically, the action means that as we expand into the large national banks, that's actually our focus job for this year. Along the way, there will be modest drop in funding costs, but not as significant as we did in the last year or previous couple years. Because at 7%, actually, we are already probably one of the best funding costs among our peers. Thanks.
spk11: Thank you.
spk06: And this is the end of the Q&A session. Now I hand back to management for closing remarks. Thank you.
spk07: Okay. Thank you again for everyone to join our conference call. If you have additional questions, please contact us offline. Thank you.
spk06: This concludes our conference call. You may disconnect now. Goodbye.
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