Qifu Technology, Inc

One moment. Thank you. Ladies and gentlemen, thank you for standing by and welcome to the Kifu Technology first quarter 2024 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 and 1 on your telephone. You will then hear an automated message advising your hand is raised. to withdraw your question, please press star 1 and 1 again. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Karen Gee, Senior Director of Capital Markets. Please go ahead, Karen.

Thank you, operator. Hello, everyone, and welcome to Qifu Technologies' third quarter 2024 earnings conference call. Our earnings release was distributed earlier today and is available on our IR website. Joining me today are Mr. Wu Haisheng, our CEO, Mr. Alex Xu, our CFO, and Mr. Zheng Yan, our CRO. Before we start, I would like to refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make certain forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP financial measures to GAAP financial measures. Also, please note that unless otherwise stated, all figures mentioned in this call are in RMB terms. Today's prepared remarks from our CEO will be delivered in English using an AI-generated voice. Now I will turn the call over to Mr. Wu Haisheng. Please go ahead.

Hello, everyone. Thank you for joining us today.

Starting in the second half of 2023, we have adjusted our business strategy in a timely manner, focusing on quality growth, and improving profitability as the company's primary goals. Over the past few quarters, we have strictly managed risks and enhanced profitability by adhering to a prudent business strategy. All these efforts have enabled us to demonstrate stronger resilience in today's challenging macro environment and deliver solid performance to the market. Over the past quarter, we continued to expand the coverage on both ends of our platform empowering 159 financial institutions to provide credit services to over 52 million credit line users on cumulative basis. In response to macroeconomic headwinds, we further tightened our credit standards and streamlined our business structure to enhance the overall health and sustainability of our operations. We also optimized our profitability models through refinements made to our product offerings, risk management, fund structure, user acquisition, and asset distribution capabilities. Revenue during the quarter increased by 15.4% year-over-year to RMB $4.2 billion, while our net take rate increased by 54 basis points to roughly 3.5%. Non-GAAP net income increased by 23.4% year-over-year to RMB 1.2 billion, and non-GAAP net income per diluted ADS increased by 28% year-over-year to RMB 7.58. ROE reached approximately 22% in the quarter, significantly outperforming the industry peers. Under more stringent credit standards, total loan facilitation and origination volume across our platform came in at RMB 99.2 billion in Q1, with further improvements to risk indicators for new loans. Now let's move on to our key initiatives and the progress we have made in this quarter. Our top priority in Q1 was improving our asset quality. As we tightened our overall credit standards, we further iterated risk strategies across the loan facilitation, credit operations, and post-credit processes to improve risk metrics. We also revamped our strategy framework to integrate risk segmentation and introduced external data sources from leading internet platforms for joint modeling and scoring, improving our ability to identify and intercept high-risk customer segments. With regard to loan collection, we actively expanded and optimized line resources to increase connection rates. By refining collection strategies and enhancing incentive schemes, we gradually boosted our overall collection efficiency. As a result of these measures, our expected vintage loss for new loans in Q1 decreased by roughly 15% sequentially. Additionally, D1 delinquency rate and 30-day collection rate of the overall loan portfolio improved by 14 basis points and 19 basis points, respectively. We expect to make further gradual improvements to our risk metrics in Q2. With ample liquidity in the financial system during the quarter, demand from financial institutions for consumer credit assets remained robust. Our industry leading risk management capabilities placed us in a competitive position in collaboration with financial institutions. Leveraging our stable asset performance, we stepped up ABS issuance efforts and actively worked with financial partners to reduce funding costs. During the quarter, we issued roughly RMB 5.3 billion worth of ABSs, representing an increase of 130% year over year, with issuance costs falling by roughly 150 basis points year on year. Notably, we issued the first domestic exchange-traded ABS with a AAA international rating valued at RMB 1 billion. The ABS program attracted subscriptions from global professional investors, which significantly expanded our funding channels globally. Driven by both a higher percentage of low-cost capital like ABS in our funding mix and a further reduction in funding costs for loan facilitation, our overall funding costs decreased by over 70 basis points sequentially during the quarter. We expect to maintain our advantage in funding costs throughout the remainder of the year. We also adopted a more prudent marketing strategy, further optimized customer acquisition channels, and bolster acquisition efficiency of major channels. In the quarter, our acquisition cost per credit line user decreased by roughly 12% sequentially. The percentage of new users with approved credit lines from our embedded finance business increased to 36.4% from 34.9% last quarter. We continue to maintain our edge across leading embedded finance channels in terms of user conversion rate and loan volume by leveraging our user identification and risk control capabilities. Through differentiated operations, we have continued to optimize risk and unit economic models. In Q1, the credit performance and operational efficiency of the embedded finance channel were further optimized, and the ROA of new loans from this channel increased by 115 basis points from Q4. As we improve the accuracy of user identification and profiling, we have been able to onboard a more diverse pool of financial institution partners, strengthening our ability to serve various loan asset segments. By aligning assets with the risk appetites of different institutions, we improved asset allocation efficiency and increased overall returns on our loan portfolio. Through a more precise match between loan assets and funding partners, we achieved better risk performance and overall profitability. During the quarter, the percentage of our on-balance sheet loan volume increased to 28%. while the percentage of our loan facilitated under the ICE model increased to 21%. Meanwhile, the take rate of ICE model increased by 76 basis points compared to the same period last year. Our extensive user base has always been the bedrock of our operations. To cater to users' diverse needs, we have offered differentiated value added services through a loyalty program to boost user retention and engagement. Going forward, we aim to further enrich the value propositions of our product offerings and will implement differentiated user operations to enhance user satisfaction and drive long-term growth in LTV. We continue to invest in cutting-edge technologies with a strong focus on expanding the application of AI and large language models in the fintech sector to elevate user experience and improve operational efficiency. We integrated large language models into our core capabilities and developed a standardized Qifu AI co-pilot system that has been deployed across key segments of our business, including risk management, telemarketing, loan collection, and customer service. The system enables intelligent human-computer interaction through automatic speech recognition technology, or ASR, it has currently achieved a recognition accuracy rate of 97% in our own collection scenarios, leading the financial industry standards. Additionally, through the use of voice print recognition capabilities, we have achieved a remarkable 95% accuracy rate in identifying blacklisted customers, helping us effectively prevent asset losses and malicious complaints. Finally, we also rolled out an AI development tool, UGAI, and applied it across various stages of our development cycle, including requirement communication, solution design, coding, and testing. With an adoption rate of 20% for AI-generated codes, we achieved a 30% improvement in development efficiency in the applied fields. Our technology solutions business continued to make steady progress. During the quarter, We entered into partnerships with two additional financial institutions, bringing the total number of financial partners for our end-to-end technology solutions to seven. These partnerships cover different categories, including internet, private and municipal banks, as well as consumer finance companies. Through our end-to-end tech solutions, daily average loan volume reached RMB 11 million in April 2024. As financial institutions take on an increasingly prominent role in the consumer credit market, we remain committed to assisting financial institutions in advancing digital transformation and sharing the benefits of their long-term growth. Moving on to the outlook. Despite the marginal improvements in our risk indicators and initial positive signs of a macroeconomic recovery during the quarter, We will remain patient and continue to prioritize risk performance and operational efficiency until we see clear signs of a recovery in credit demand. In the meantime, we also recognize the vast market potential there is, with a substantial base of unmet user needs and inefficient connections between financial institutions and end users. With more than 52 million cumulative users with credit lines, we have developed deep user insights and industry leading capabilities in online customer acquisition and profiling. Moving forward, we will actively explore a more open platform model. Starting with user needs, we aim to facilitate more efficient connections between users and financial institutions and work with financial partners to offer a broader spectrum of products that address user credit needs throughout the lifecycle. Since 2024, We have significantly optimized capital allocation by stepping up share buyback efforts while ensuring stable returns through a dividend policy. The U.S. $150 million share repurchase program announced in June 2023 was successfully completed at the end of March this year, three months ahead of schedule. Starting on April 1st, 2024, we have been actively executing our new share buyback plan of up to use $350 million. we have full confidence in the long-term development of our company. Through ongoing buybacks and dividends, we aim to further boost capital allocation efficiency, optimize shareholder structure, and enhance long-term shareholder returns.

With that, I will now turn the call over to Alex Xu.

Thank you, Haisheng. Good evening and good morning, everyone. Welcome to our first quarter earnings call. Despite the still uncertain microenvironment in the first quarter, we made good progress to optimize our operations and further train exposures to underperforming assets and deliver solid financial results. Total net revenue for Q1 was $4.15 billion versus $4.5 billion in Q4 and $3.6 billion a year ago. Revenue from credit-driven service, capital-heavy, was $3.0 billion in Q1 compared to $3.2 billion in Q4 and $2.6 billion a year ago. The year-on-year growth was mainly due to growth in unbalanced sheet loans and contribution from other value-added services, partially offset by declining in off-balance sheet loans. On-balance sheet loans account for around 28% of the total loan volume. Overall funding costs further declined over 70 basis points sequentially and over 100 basis points year-over-year, with the help of our strong relationship with financial institutions, partners, and record high ABS issuance. Revenue from platform service, Capital Light, was $1.1 billion in Q1 compared to 1.2 billion in Q4 and 969 million a year ago. The year-on-year growth was mainly due to strong contribution from ICE and other value-added services, substantially offsetting the decline in capitalized loan facilitation. As we try to strike an optimal mix between risk-bearing and non-risk-bearing assets in an uncertain microenvironment, We are also gradually cutting back loans that generate marginal returns. In Q1, we saw continued sequential improvement in revenue take rates for both cap-heavy and cap-light operations. During the quarter, average IRR of the loans we originated and facilitated was 21.5%, compared to 21.3% in prior quarter. Looking forward, we expect pricing to be fluctuating in a narrow band around this level for the coming quarters as we further optimize our loan portfolio in response to the micro uncertainties. Sales and marketing expenses decreased 25% Q1Q and 2% year-on-year as we intentionally control the pace of user acquisitions in the uncertain environment. we added approximately 1.45 million new credit line users in Q1 versus 1.7 million in Q4. Unit cost to acquire a new credit line users decreased significantly Q on Q to 285 from 326, mainly due to our more disciplined approach and the Chinese New Year seasonality. We will make timely adjustment to the pace of the new user acquisition based on micro-conditions from time to time and further diversify our user acquisition channels. Meanwhile, we will continue to focus on re-energizing existing user base as repeat borrowers historically contribute vast majority of our business. 1998 delinquency rate was 3.35% in Q1. This ratio was calculated by dividing outstanding balance of on and off balance sheet loans that was three months past due with the total outstanding balance of on and off balance sheet loans across our platform on March 31st. During the quarter, we purposely cut our exposure to certain risk-bearing assets. and reduced the total outstanding balance of on and off balance sheet loans by approximately 16.5% sequentially. As such, the 90-day delinquency rate was mathematically inflated by roughly 16.5%, which is somewhat misleading. Furthermore, as we always know, This metric is backward-looking in nature and provides little value to help investors understand our asset quality trend. We strongly recommend investors focus on key leading risk indicators, such as day one delinquency and 30-day collection rate. In fact, we start to see modest improvement in asset quality in Q1. Day one delinquency was 4.9% in Q1, versus 5.0 in Q4. 30-day collection rate was 85.1% in Q1 versus 84.9% in Q4. The improvement was more noticeable among new loans issued in Q1, as tightening risk management measures start to show benefit in the quarter. As Haisheng mentioned, expected vintage loss for new loans issued in Q1 declined by roughly 15% sequentially, and 30-day collection rate further recovered to nearly 86% in April. We have further optimized our risk management model and applied more restrictive standards on new applications to mitigate potential risks throughout the quarter. We also proactively adjust our business mix to further reduce our exposure to higher risk assets. Although economic conditions remain uncertain, we believe overall risk performance of the loan portfolio should gradually improve throughout 2024. As micro uncertainty persists and credit quality fluctuates, we will continue to take prudent approach to book provisions against potential credit loss. Total new provision for risk-bearing loans in Q1 were approximately $1.4 billion versus $2 billion in Q4, and the write-backs of the previous provisions were marginal in Q1. The significant sequential decrease in new provisions was mainly due to the substantial Q-on-Q decline in off-balance sheet capital-heavy loan volume, where the new provision booking ratio remain relatively stable. The decline in write-back was due to expected risk of existing loans remain stable and the micro uncertainties persist. Provision coverage ratio, which is defined as total outstanding provisions divided by total outstanding delinquent asset heavy loans, loan balance between 90 and 180 days, or 414% in Q1 compared to 481% in Q4. The provision coverage ratio was still well within our historical range. Non-GAAP net profit was $1.2 billion in Q1 compared to $1.15 billion in Q4. Effective tax rate for Q1 was 23.3%. compared to our typical ETR of approximately 15%. Net profit and ETR was negatively impacted by 130 million withholding tax provision related to significant tax distribution from onshore to offshore for dividend payment and share repurchase program during the quarter. With solid operating results and higher contribution from capitalized models, Our leverage ratio, which is defined as risk-bearing loan balance divided by shareholders' equity, was 2.8 times in Q1 at historical low. We expect to see leverage ratio fluctuate around this level in the near future. We generated approximately $1.96 billion cash from operations in Q1 compared to $2.35 billion in Q4. Total cash and cash equivalent was 8.3 billion in Q1 compared to 7.8 billion in Q4. Non-restricted cash was approximately 5.3 billion in Q1 compared to 4.2 billion in Q4. As we continue to generate a healthy cash flow from operations, we believe our current cash position is sufficient to support our business development and to return to our shareholders. On June 20, 2023, we announced a share buyback program to repurchase up to $150 million over a 12-month period. In Q1, we bought approximately $16 million worth of ADS in open market under the 2023 repurchase plan. As of March 28, 2024, we have completed substantially all of the $150 million 2023 share repurchase plan. On March 12, 2024, we announced a new share repurchase plan to purchase up to 350 million worth of ADS over a 12-month period starting April 1, 2024. As of May 17, 2024, we had, in aggregate, purchased approximately 3.4 million ADS in the open market for a total amount approximately $65 million, inclusive of commissions. at an average price of $19.3 per ABS under the 2024 Share Repurchase Plan. The pace of the repurchase is faster than time scheduled. The proactive execution of a Share Repurchase Plan further demonstrates management's confidence and commitment to the future of the company, and the management intends to consistently use Share Repurchase Plan to achieve additional EPS accretion in the long run. With the full execution of the new share repurchase program and the dividend plan, we are generating highest combined yield on the recurring basis among Chinese ADRs to our shareholders. Finally, regarding our business outlook, we will continue to focus on enhancing profitability and efficiency of our operation under current micro conditions. For the second quarter of 2024, the company expects to generate non-GAAP net income between RMB $1.22 billion and RMB $1.28 billion, representing a year-on-year growth between 6% to 12%. This outlook reflects the company's current and preliminary view, which is subject to material changes. With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.

Thank you. To ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 and 1 again. For those who can speak Chinese please start your question in Chinese followed by English translation. To allow enough time to address everyone on the call please keep it to one question and one follow-up and return to the queue if you have more questions. Thank you. We will now take our first question. This is from the line of Chiao Huang from Morgan Stanley. Please go ahead.

Thank you, Manager. I have two questions. First, what do you think about the increase in the loan amount this year? Especially considering the current needs and risks, our view is that there will be some changes compared to the beginning of the year. The second question is about the increase in the take rate this year. Then we see that the first quarter is indeed continuing to have a certain progress. So if we compare it with the beginning of the year, if we look at the whole year's take rate increase, is there any change in the outlook? I will simply translate it. So basically two questions. One is regarding the long volume outlook, especially given the demand and the risk situation we see right now. How is management view changing from the beginning of the year? And second question is on the outlook on take rate improvements. Just wondering how confident is management about improving take rate for the full year 2024 and has the view changed compared to beginning of the year? Thank you.

Well, since this year, since this year, the demand for consumer loans should say that there has been no recovery. It should be said that especially since the end of March, the demand overall is weaker than we expected. We will observe a starting rate of this called login users. If we don't consider the impact of the Spring Festival, we still have a relatively stable entry rate for users in the first four months of this year. But since March and April, it has been slightly lower. So if we compare it to the same period last year, we should say that the entry rate for users is lower than that of the same period last year. Then we also observed that our demand is relatively consistent with the data of the national red light of the whole country. We see that in the first quarter, there is a decline of 27.1 billion yuan in total consumer loan balance. Then in April, there is also a There is also a decline of 1,990 billion yuan. And this is the first time in the past two years that there has been a negative growth in yuan. So this also shows that the overall demand for new generation is still there. This is the demand level. Then we talk about this risk. The risk should be said that we In the past two seasons, we have done a lot of optimization work, including tightening the compatibility rate. We have also done a lot of optimization of the user's revenue. We have also done a certain shrinkage of the long-term assets of the 24-season. So on this basis, our risk performance should be said to have a continuous improvement. So the vintage loss of this quarter is expected to be about 15% better than the quarter last year. At the same time, we also saw the recovery of the big market and the 30-day recovery. In this quarter, there was also an improvement in the border. And this trend continues in the second quarter of April and May. So we should say that our risk optimization work is still in line with expectations. So we should continue to maintain the current standard of wind and air, and maintain a stable state overall. Regarding the amount of payments, I would like to talk about a point that we have been trying to express in the past few seasons. From last year, we started to adjust the company's development strategy to pursue the growth and profit of quality. So in this strategy, we will not put the overall gain of the amount of money as our primary goal, but the quality as our goal. For those ineffective or the trading volume that is recorded, even paid, we will optimize it. And for those with quality and healthy profit indicators, we will continue to invest and pursue a growth with quality. For example, we are still the focus of our growth this year in the direction of real estate finance. In the first quarter, Uh, uh, uh, uh, uh, uh, uh, It should be said that it will continue to further deepen and expand the investment in these natural channels, and put these models into more traffic platforms. Through this structural growth, our exchange rate may fluctuate, but our profit will get a very good steady improvement. Therefore, we should say that we are very confident in leading us in terms of our profits. In addition to our own work, I would also like to express that in terms of demand, we have also seen that the government has recently introduced a lot of very intensive policies, especially the real estate policy in Yilan. So I believe that real estate will definitely bring user confidence to the fundamental role of the entire economy, especially the gradual recovery of social employment. So we believe that these policies will gradually play a role. Okay, I will do the translation. We understand everyone is concerned about our credit needs, risk, and loan growth.

Since the beginning of 2024, consumer credit demand is still yet to recover, especially since late March, whereby demand has been weaker than we expected. This is reflected in the user initiation rate on our app. Excluding the impact of the Spring Festival, user initiation rate in the first four months of last year was relatively stable. However, the initiation rate in March and April this year is slightly lower than the previous two months. So the user credit demand is weaker than the same tier last year. The changes in our user demand are basically consistent with this year's macroeconomic trends. In the first quarter, CPI still maintained a relatively low growth rate, and the balance of household short-term consumer loans decreased by RMB 271 billion quarter-on-quarter. The social financing scale in April also decreased by RMB 199 billion sequentially, marking the first negative growth on a sequential basis in the past two years. This data also confirms that credit demand is yet to recover. In terms of credit risk, we have taken a lot of action in the past two quarters, including tightening the approval rate, optimizing credit limit, and contracting long-term assets of over 24 months. On this basis, the risk performance of our new loans has been continuously improving since November 2023, and the vintage loss in this quarter is expected to decline by about 15% compared to Q4. At the same time, it can be seen that day one delinquency rate and 30-day collection rate of our overall loan portfolio have also improved marginally in this quarter, and the momentum will continue in April and May. At present, the risk optimization work is on track, so we will maintain current credit standards, which will be largely stable going forward. Here, we would like to emphasize that since second half of 2023, we have been very clear that our company's strategy is to pursue quality growth. Under this strategy, we will now take the overall growth rate of our loan volume as the primary goal, but pursue quality growth as our goal. For ineffective loans or loans with negative or marginal returns, we will optimize those kind of loans. For business with healthy profits, will continue to invest for growth. For example, the embedded finance will continue to be a focus of our growth this year. The loan volume of the top two channels for embedded finance in Q1 increased by 8% and 12%, respectively, sequentially, which is far higher than the overall loan volume growth. At the same time, the ROA of our embedded finance model also improved by about one percentage point in Q1 sequentially. We will continue to deepen cooperation with the quality channels and replicate the embedded finance model to more traffic platforms. Through this structured growth, the loan volume will fluctuate. our profitability will be steadily enhanced, and we are confident in fulfilling our profit guidance. Recently, we have seen the government introduce a series of policies to support the real estate industry. We believe it will play a positive role in stabilizing the real economy, and it's also helpful to the gradual recovery of users' confidence. So we will continue to observe the trends of macroeconomy and user demand and adjust the loan pace in a timely manner.

Guan Yu, take a rate.

I would like to share a few points. Since last year, we adjusted our company's development strategy to the growth of quality and the profitability of quality. It should be said that we have achieved a good result. Take Rate increased from 3.2% in the fourth quarter to 3.5% in the first quarter. If we look at If we reduce the impact of the expected interest rate, the operating profit rate will be more obvious. Next, we expect that the take rate of Q2 will have room for further optimization. There are several factors to be promoted. The first is risk. What is risk? Through the search, we can see that the profitability of the entire asset report has been improved. The Vintage Loss of the first quarter is expected to be about 15% better than that of the fourth quarter. In addition, we continue to improve the efficiency of various optimizations in the later stages. um um The cost of this, this, this, this, this, this, this, this, this, this, this, this, this, this, this, this, the overall capital cost should be further reduced. Thirdly, in terms of our overall asset distribution, we can introduce more financial institutions and match different asset types according to their different risk and ability types to increase the transfer rate of our overall assets. At the same time, it can also improve our overall profitability. We can see that this quarter, we have a further increase in the amount of bonds of trust. At the same time, the take rate of our trust business has also optimized 76 BPs compared to the same period last year. I guess we can still maintain it at this level in the second quarter. We will further optimize it. At the same time, in the fourth aspect, we We also use AI technology to improve our business. For example, we use AI to help our engineering team improve the code writing efficiency. Today, we have 20% of the code written by AI. We should say that the efficiency of development has also been increased by 30%. In terms of business, we also use these large-model capabilities to replenish our customers' communication efficiency. For phone sales, we should say that there is also a comparable efficiency improvement. Okay.

Okay, I will do the translation. Regarding the take rate, I want to share some color with you. Since the second half of the last year, we have made adjustments to our business strategies, emphasizing more on the overall profitability of our business and have achieved good results. Our take rate has increased from 3.2% in Q4 to 3.5%. If we exclude the impact of the withholding tax on dividends and buybacks, the increase in the operating profit margin is even more. Next, we expect the takeaway in Q2 to be further optimized, with the main driving factors being the first one is the risk optimization. By cutting back business with lower or negative margins, we enhance the profitability of the overall loan portfolio. The vintage loss of new loans in Q1 is expected to be roughly 15% optimized compared to Q4. In addition, we will continue to improve the efficiency of the collection process, and we expect further optimization of the risk indicators in Q2. Second one is the funding cost. This year, market liquidity is due ample, and we have increased issuance of the APS This quarter, we issued 5.3 billion APS. At the same time, our funding cost for capital-heavy loan facilitation continues to decline. With these two factors combined, our funding costs in Q1 have decreased by about 70 biggest points sequentially. We expect to further reduce our funding costs by issuing more APS and optimizing our funding structures going forward. Third one is about asset distribution. By introducing more financial institutions and matching different assets according to their risk appetite to enhance the overall conversion rate while also improving our own profitability. This quarter, the loan volume of IDE has further increased and the take rate of IDE has also been optimized by 76 biggest points compared to the same period last year. It is expected to maintain at this level in future and going forward. We also empower the business through artificial intelligence, such as our AI development tools with a code adoption rate of 20%, which can improve our development efficiency by roughly 30%. We have also used large language models to empower our staff in the collection and telemarketing operations to improve the efficiency in user communication. We have seen some benefits in these testing areas and we will continue to invest in these directions in the future to continuously improve our operational efficiency. Based on the work we have been doing so far, we expect the take-away to be further optimized on the basis of 3.5% in the future. Thank you.

Thank you. We'll now take our next question.

Please stand by. This question is from the line of Emma Xu from Bank of America. Please go ahead.

Thank you for the opportunity to ask me this question. I have two questions here. The first question is about asset quality. We see that there are some leading indicators, such as Day One Delinquency Rate and 30-Day Collection Rate, which are all consistent in the first quarter. In the second quarter, can we maintain such a trend or see a more significant improvement? And just now, President Xu also talked about this, um um uh, uh, uh, uh, uh, uh, uh, So I have two questions. The first one is about your asset quality. So some of your leading risk indicators have already stabilized in first quarter. So can we continue to see such trend or even more significant improvement in the second quarter? And about the 90-day delinquency rate, you explained earlier that the significant increase is possibly driven by lower loan balance. However, even excluding these factors, the 90-day delinquency rate still increased quite significantly. So, when will we see the improvement in this metric? The second question is about your buyback. You mentioned earlier that you execute the share buyback plans at a pace faster than the time scheduled. So do you expect to continue to maintain at such a repurchase pace? Thanks.

Okay. Regarding the risk, Mr. Haisheng mentioned that the VL of Q1 will be 15% better than Q4 last year. In terms of the risk of saving the total assets, This year's QE 30-day cleaning rate, this indicator is related to the recovery rate of the road toll and the 30-day recovery rate. This cleaning rate is 100 times better than last year's QSAR. In the next four to five months, it will continue to be optimized. In May, we expect to have an optimization level of more than 8% on the basis of QE. So, to promote this early risk indicator optimization, there are mainly a few aspects to work on. The first one is the optimization of our own trading strategy and business strategy. Through joint modeling by the three parties, we have improved the performance of our risk model and identified some high-risk transactions. The second one is in terms of delivery and operation management. In March, we developed a new self-sufficiency basic law and the management method of institutional cooperation, and optimized the planning method and the commissioning assessment mechanism of various maximum and maximum. to promote cooperation with us and to invest in better recovery resources to increase the recovery rate in the front and back end. We expect that the 30-day recovery rate in April and May will be increased by 0.8% to 1% compared to Q1. The third one is the upgrade of the payment capability. We have done a lot of functional optimization in the front and the back. From the outside, we have expanded the new payment channels and payment methods. OK, I will do the translation.

As Taisheng just mentioned, the vintage loss has declined by roughly 15% in Q1 sequentially. As for the overall volume, the 30-day migration rate, or days past due, 30 plus, for Q1 has been a 4% reduction compared to Q4. With our continuous efforts in April and May, it is expected to be better optimized by more than 8% in May on the basis of Q1. The main work driving the optimization of our early risk indicators, including the following three aspects. First one, the risk strategy and the credit line optimization. By using the models in conjunction with the third parties, we have improved the performance of the risk models to identify high-risk transactions. Second, in the post-law operation, we established a new self-operating principles and procedures and a collection partner management method in March. We optimized the case collection algorithm and the commission mechanism for different collection teams. promoting the internal and external collection team to invest in higher quality collection resource to improve the collection rates for both front-end and back-end. It is expected that the 30-day collection rate will improve by 80 to 100 basis points in April and May, compared to 85.1% in Q1. Third, we're focusing on upgrading the post-loan repayment infrastructure. We have made lots of optimizations in both the front and back end, including externally expanding new deduction channels and the methods to improve the coverage and the success rate of the repayment deduction. And internally, we have also optimized the polling algorithm and the timeliness of the repayment deduction. In this way, we have ensured better collection efficiency while maintaining our customer experience.

In addition, we have also achieved good results in the post-production process, especially in the support and application expansion and application of faxing methods, especially in the support and application expansion and application of faxing methods. In this way, our post-production expected assets Compared to four months 23 years ago, the actual recovery amount was more than 1.7 billion yuan. This year, we will also further increase the investment in legal resources. Overall, I think that under a series of efforts, optimization, and ability construction, as well as some resource investment, the market quality of our Q2 will continue to maintain an improving trend.

Okay, in addition, we have also achieved a good result in backhand collection, especially in the application of legal collection methods, such as litigation, property preservation, and a lawsuit, which has resulted in an actual recovery amount of additional 170 million RMB in the first four months of this year compared to the same period last year. We have further increased investment in legal collection resources this year. Regarding the increase in the 90-plus overdue rate this quarter, the core reason is that in the process of de-risking, we will guide the tail end customers out, which leads to a 16.5% decrease in the denominator of the statistics. The decreasing of the denominator directly caused the ratio to jump up. Since the indicator is mismatched and delayed in time, it doesn't reflect the real-time trend of our risk performance, and we recommend that we can pay less attention to it. If we continue to do this action, it will lead to a further fluctuation in the denominator and the 90 plus overdue rate will fluctuate as well. But the actual result is we are doing the de-risking and our risk performance is improving. So we suggest focus more on indicators such as the day one delinquency rate 30-day collection rate and the 30-day migration rate that can truly reflect the current risk situation, which are all continuously improving.

Okay. And regarding the share buyback, as we mentioned in the prepared remarks, we are ahead of schedule. If you do the math, 350 million buyback program over 250 trading days for a year. which average about 1.6 million us per day per trading day. Uh, so far we're running at about one point close to 1.9 million, uh, us dollar per trading day. So about 20% ahead of a schedule, uh, right now. And, uh, the reason we, we do that more proactively is because, uh, we still view this as a very attractive valuation. Uh, we still believe this is a good, uh, investment for our cash. And at least for the time being, we will continue to maintain a relatively faster pace than the time schedule. Thanks. Next question, please.

Thank you. We'll now take our next question. This is from the line of Alex Yee from UBS. Please go ahead.

Thank you. I have two follow-up questions. The first one is about the capital cost. You mentioned that the second quarter is expected to have room for further decline. I would like to ask further questions, especially regarding the capital cost of the mortgage. we saw that the first quarter did not have a drop in GDP per annum. So, such a significant drop in capital investment is mainly due to the demand for financial institutions. So, I would like to ask, if we don't consider the issue of ABS issuance, let's just look at the cost of housing. In the second quarter, there may still be a drop in capital investment. Is the drop in capital investment so significant that it should be lower than the first quarter? The second question is about the refund rate. Last year, there was a significant increase in the first quarter. Due to the weak demand, I don't know if it will affect this area as well. My first question is on the funding cost outlook. So management has mentioned that there's room for improvement in the second quarter. So I'm just wondering in terms of the magnitude, how much should we expect the funding cost to improve in the second quarter? And then secondly, in terms of the Regarding capital investment, you mentioned some of them.

Because the overall market is still in need of this kind of consumer modern assets. So the demand is still very high. So the competition is still relatively fierce about this cost. At the same time, we will continue to fight for more on the ABS release. So if these two factors are added up, the overall capital cost still hopes to be able to further So today's crown should be better than the previous year's same period, in the case of the提前皇冠. For us, we have also done a lot of measures to control this kind of action. For example, for active users, we will also do some software control. We will also do some models to predict the users in advance, to see who will have more possible提前皇冠. We use this kind of prediction to manage the flow of users in advance. Therefore, if we look at the data, the early return rate of 7 days and 30 days in the first quarter of this year is basically the same as that of Q4 last year. It should be said that it has decreased by about 15% compared to the same period last year. We also think that it will maintain a relatively stable level later this year. Karen.

Okay, I will do the translation. First, it's about our funding cost As I discussed earlier, the demand for assets from financial institutions remains very strong this year, and we remain competitive as funding sites. We expect that the cost of funds in Q2 will continue to decline. Due to one hand, our funding cost for cap-heavy loan facilitation and ABS issues will continue to decrease. And on the other hand, the proportion of ABS in the fund will be further increased. Second is about early repayment. This year, the central bank has placed greater emphasis on guiding the balanced allocation of credit, enhancing the stability and sustainability of the overall growth of the credit. So the market environment has a better impact on the repayment than the same period last year. We have also taken many measures to control the early repayment ratio. First one, we control the issuance of turnover funds for active users in terms of our operations. Second, we also predict users' early repayment tendency based on our algorithm and enhance our product offering on a timely manner to manage the early repayment ratio. Therefore, the seven-day and 30-day repayment rate in Q1 this year are basically the same as the Q4 last year, but have decreased by approximately 15% compared to the same period last year. And we expect our early repayment ratio will maintain stable going forward. Thank you.

OK. Operator, let's take the final question for the day.

Thank you. One moment, please. Our final question is from the line of Yadan Li from CICC. Please go ahead.

Hello, Director. Thank you for giving me the opportunity to ask this question. Today, I would like to ask the Director about the choice of our future loan mode. At the end of this year and in the long term, the ratio of the real estate mortgage and ICE in the platform mode, as well as the ratio of the guarantee mortgage and self-employment mode in the credit-driven loan mode, Then I will do the translation. My question today is regarding the loan structure. By the end of this year and going forward, can you give us more color on the breakdown of volume percentage for Capital Light and ICE in platform services, and furthermore, how to view the exchange for guaranteed and self-funded model in credit-driven services, respectively? In addition, what are the causes for the potential change? And that's all. Thank you.

First of all, I would like to share with you a principle-based thinking about the proportion of real estate. Under the proportion of real estate today, we are no longer setting a specific goal for the company. to pursue a certain ratio, a certain asset ratio, but to define the target as a dynamic optimization structure to balance our risk and our profitability. At the same time, it will also increase our overall take rate through this action. Therefore, in different stages, in different market environments, We will choose different combinations. We currently maintain a relatively balanced structure. In general, we think it will be relatively healthy. Compared to companies that use 100% of their assets, our risk will be better. Compared to those companies that basically do all of their assets, our profitability will be better. As for this quarter, we have increased the amount of bills on the table. This is because we have issued more ABS. This quarter, we increased ABS by 130% compared to last year. The capital cost of ABS is significantly lower than the cost of the mortgage part. Therefore, the improvement of this part of the ratio will greatly help to improve our overall take rate. In addition, in the ISE mode, we should also have a significant increase in this quarter. Our main work is to introduce more financial institutions to optimize the efficiency of our overall asset distribution. Our ISE The take rate of the business income is also increased by 70%. Therefore, the increase in the proportion of our SE business is very positive for our overall profitability. In the future, we will continue to implement this strategy to improve the efficiency under different structures, and through dynamic

OK, I will do the translation. I want to share some of our considerations on the SM mix. Regarding the SM mix, we do not have a specific target. Instead, we want to balance our risk and profitability by optimizing the SM mix. At the same time, we want to enhance our takeaways by improving the efficiency of asset distribution. At a different stage and under different market conditions, we choose different asset portfolios Currently, we maintain a relatively balanced asset structure, which makes our business healthier, with better risk performance compared to the companies that are 100% asset-heavy, and better profitability compared to the companies that are completely asset-light. This quarter, we increased the proportion of unbalanced loans, mainly driven by more ABS issuance. Our ABS grew by 130% compared to the same period last year, and the cost of funds for ABS is significantly lower than the capital-heavy loan facilitation. Therefore, increasing the portion of unbalanced sheet loans is beneficial for improving our overall take rate. Additionally, our ICE model has also increased this quarter, mainly because we introduced more financial institutions and optimized the efficiency of asset allocation. Our take-away from ICE has increased by more than 70% year-on-year, so the increase in ICE proportions has a positive impact on our profitability. Going forward, we will continue this strategy for asset allocation, improving operational efficiency under different models, and a better balanced risk and return by dynamically adjusting the asset structure. Thank you.

OK, thank you everyone to join us for this conference call. And if you have additional questions, please contact us offline. Thank you very much. Have a good day.

Thank you. That does conclude the conference for today. Thank you for participating, and you may now disconnect.