Qfin Holdings, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Chief Food Technology's 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 cell 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 also note that today's event is being recorded. At this time, I'd like to turn the conference over to Ms. Karen Chee, Senior Director of Capital Markets. Please go ahead, Karen.

Thank you, Amblin. Hello, everyone, and welcome to Qifu Technologies' second 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 CIO. 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. Before we start, we would like you to know that 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. Despite the ongoing macroeconomic challenges since the start of 2024, We achieved a solid performance by adhering to our prudent execution and quality development strategy. By the end of Q2, our platform empowered a total of 160 financial institutions and served more than 53 million users with approved credit lines on a cumulative basis. During the quarter, we further solidified our business foundation and improved asset quality and operational efficiency, with a keen focus on the quality of loans. These efforts enabled us to significantly improve our risk performance and record the highest quarterly profit over the past 11 quarters, highlighting the strong resilience of our business. I would like to thank our entire team for their persistent drive for excellence and ongoing self-development, which has enabled us to navigate an ever-evolving market environment. At the same time, we are building a more open ecosystem and adopting a platform approach to create value for both users and financial institutions, aiming to further expanding the boundary of our business. In Q2, our revenue increased by 6.3% year-over-year to RMB 4.16 billion, with our net take rate increasing by over 1 percentage point year-over-year to roughly 4.4%. Non-GAAP net income increased by 23% year-over-year to RMB 1.41 billion, while non-GAAP net income per diluted ADS increased by 32% year-over-year to RMB 9.16%. Thanks to our outstanding operational results and efficient capital allocation, our ROE in Q2 continued to outperform industry peers, coming in at 25.4% during the quarter. Despite facing macroeconomic headwinds, our asset quality has steadily improved in Q2. Based on our keen insights into risk, we proactively tightened our overall credit standards over the past three quarters, iterating risk strategies across loan facilitation, credit operations, and post-credit processes to improve risk metrics. Risk indicators for new loans have started improving since November last year and stabilized in the first half of this year. For loan collection, we further optimised collection resources to boost efficiency as line control issues have been largely resolved. Asset quality of the overall loan portfolio steadily improved in Q2, with day one delinquency rate decreasing by 10 basis points, while 30-day collection rate increased by around 1.2 percentage points sequentially. This positive trend in risk performance continued into Q3. With the optimization of risk strategies already in place, we are confident in our ability to deliver on our operational and financial objectives for the second half of the year. During Q2, liquidity in the financial system was relatively ample and market interest rates remained in the downward trend. With robust asset quality, we maintained our negotiating leverage on the funding side to further drive down costs. We also maintained the pace of ABS issuance, with RMB 4.6 billion issued in Q2. ABS issuance during the first half of the year increased 30% compared to the same period last year. Overall funding costs in Q2 decreased by another 56 basis points sequentially, resulting in a total decrease of 132 basis points for the first half of the year. This notably improved the take rate for our capital-heavy business. For the second half of the year, we expect funding costs to maintain largely stable with potential to slightly decrease further. In terms of user acquisition, we focused on acquiring and retaining high value users, while further diversifying acquisition channels and boosting efficiency. In Q2, we adopted a relatively prudent customer acquisition approach with a reduction in marketing spending. Among new credit line users, unit acquisition costs remained flat sequentially, while the percentage of high value users increased by 6.8 percentage points. Our acquisition channels further diversified, with loan volume from our embedded finance business more than doubling year over year. The percentage of new credit line users from this channel increased from 36.4% in Q1 to 37.7% in Q2. We also partnered with a wider range of traffic platforms under the embedded finance model, including e-commerce, O2O and short-form videos. Leveraging our strong user profiling and risk management capabilities, we have empowered these platforms to better serve a diverse user base. Furthermore, we are proactively exploring collaborations with financial institutions under the embedded finance model. By jointly serving the existing users who are currently underserved by the financial institutions, we will create new avenues for user acquisition. So far, we have entered preliminary partnerships with a number of financial institutions. This collaborative model is expected to significantly enhance service efficiency for financial institutions, improve the user experience, and promote financial inclusion over the long term. We are also building a comprehensive credit tech service platform based on users' risk profiles and values. By empowering financial institutions with a diverse range of products, services and collaborative models, we aim to promote financial inclusion across the board. For financial institutions, we have improved underwriting efficiency by providing more precise user profiling and better fund asset matching tailored to different risk appetites and return preferences. For end users, we have expanded the breadth and depth of our services by introducing a more diverse range of financial institutions and a broader price spectrum. We have also enriched our user loyalty program with additional benefits and improved our long-term retention through differentiated user operations. By upgrading from a loan facilitation model to a platform model, we are expanding our total addressable market and extending the user lifecycle, enabling us to boost operational efficiency and long-term profitability while balancing risk. In Q2, we further optimized the structure of our business with a higher contribution from the capital light model. The percentage of loan volume under the ICE model increased slightly to 24.6%, with the revenue take rate as a percentage of loan volume increasing by 54 basis points from the same period last year. Our technology solutions business continued to make steady progress. During the first half, we established partnerships with seven additional financial institutions, bringing the total number of financial partners to 12. Our Chifu Digitech brand has won broad recognition across the banking industry and is now among the first tier players in the market. As of the end of June, our end-to-end technology solutions facilitated nearly RMB 2 billion in bank loans cumulatively, with outstanding balances exceeding RMB 1 billion. Loan volume compound monthly growth rate reached 14% during the first half of the year. Of the new financial partners we onboarded this year, our solutions will be deployed and launched with five of them between August and September, driving further growth for this business. Our technology solutions have achieved an 80% standardization rate, offering financial institutions digital enhancements in operations, risk management, and products based on hybrid deployment. We are also seeing growing synergies between our tech solutions and credit businesses. Through our integrated solutions covering technology empowerment, joint operations, loan facilitation and user referrals, we will further deepen our support for financial institutions and expand our customer reach. 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 enhance user experience and improve operational efficiency. We upgraded over 10 modules in our efficiency-focused AI co-pilot system, enhancing supervision, summarization, and analysis of collection teams' work to better support supervisors in managing both collection teams and cases. Currently in the testing phase, the upgraded system processes a 1,000-word call in just 5.3 seconds on average. Once rolled out in full scale, we expect the system to handle around 100,000 calls per day. We're also leveraging the large language model to enhance our chatbot's capabilities and communication efficiency and enrich the variety of scripts, increasing the average number of exchanges per call by over 10% and boosting script iteration efficiency by 40%. Additionally, we are also strengthening the copilot system's fundamental capabilities through ongoing upgrades to our automatic speech recognition technology. By integrating our proprietary QiFusion framework model, we have achieved a speech recognition accuracy rate of more than 93% and an intent recognition accuracy rate of more than 95% in a complex context. Qi Fusion has also set a new industry benchmark for the lowest character error rate, making us one of the top performers in China. Notably, this achievement was recognized by Interspeech 2024, a leading global conference on the science and technology of spoken language processing, Looking back at the first half of the year, we successfully navigated a challenging macro environment and made significant improvements in both asset quality and profitability. We also upgraded our business model and enhanced user engagement through differentiated strategies. Additionally, we strengthened synergies between our tech solutions and credit businesses, reinforcing our platform position. As we look into the second half of the year, we will maintain prudent operations to effectively manage risks while continuing to iterate products and services, expand strategic partnerships and build a sustainable growth engine. We believe many of our current initiatives will continue to generate positive results in the near future. Supported by the steady growth of our earnings, we have proactively optimized capital allocation and maintained a fast pace of share buyback so far this year. Our combined payout ratio leads the industry as well as the majority of Chinese ADRs. Moving forward, we will continue to create value for shareholders through substantial buybacks and dividends. With that, I will now turn the call over to Alex.