Qifu Technology, Inc

Ladies and gentlemen, thank you for standing by. Welcome to Qifu Technology third 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, please press star 11 on your telephone, then hear an automated message advising your hand is raised. Please note that today's event is also being recorded. At this time, I would like to turn the conference call over to Ms. Karen Chee, 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 statements 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 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 to let you 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. Autumn is a season of harvest, and we are pleased to share that our hard work has yielded remarkable results this quarter. Since the start of 2024, we have adhered to a strategy of prudent operations optimizing risk performance and boosting operational efficiency. These initiatives have led to substantial improvements in our risk metrics and record profitability in Q3. Our solid business foundation has provided us with a margin of safety to pursue moderate sequential growth. In Q3, our loan volume stabilizes and begins bottoming out. Meanwhile, We continue to iterate on our business model to build a more open ecosystem. Through a platform approach, we are creating value for both users and financial institutions, broadening our business boundaries and strengthening our operational resilience. By the end of Q3, our platform had empowered a total of 162 financial institutions and served more than 55 million users with approved credit lines on a cumulative basis. Excluding the contribution from risk management SaaS services, or RM SaaS, total loan facilitation and origination volume on our platform increased by 13.1% sequentially. Driven by further improvements in risk metrics and operational efficiency, our non-GAAP net income for the quarter reached an all-time high of RMB 1.83 billion, an increase of 29.1% sequentially and 54.5% year-over-year. Our ongoing share buyback is also contributing to improved non-GAAP net income per diluted ADS, which increased 34.8% sequentially and 71.5% year-over-year to RMB 12.4. Coupled with the ongoing optimization of capital allocation, our ROE in Q3 increased further to 32.2%, well ahead of most financial services and internet companies in China. Despite macroeconomic headwinds, we have consistently improved upon our past results and outperformed our market commitments through ongoing involvement and enhancements to our business. Now I'll walk you through the progress we made this quarter. Asset quality further improved in Q3 as we continued to execute our rigorous risk strategy. We further optimized our product and service offerings for differentiated user groups. For low-risk users, we tailored credit limits and pricing to offer more attractive terms, boosting user engagement while maintaining stable risk levels. Additionally, we optimized our funding structure by collaborating with financial institutions whose risk management capabilities or appetites complement our own, further strengthening our overall asset quality. Within our post-lending processes, we reinforced repayment reminders for borrowers and refined the management of our partner institutions to improve collection efficiency. These initiatives resulted in a notable improvement in our risk metrics in Q3, with D1 delinquency rate falling by 0.2 percentage points sequentially and 30-day collection rate increasing by 1.1 percentage points to reach the highest level since 2022. With the optimization of risk strategies already in place, we expect our risk performance to remain relatively stable in the coming quarters. During Q3, liquidity in the financial system remained ample. Leveraging our robust asset quality and the long-term trust that we have built with financial partners, we maintained our negotiating leverage on the funding side and reduced funding costs by 30 basis points sequentially. Additionally, we issued RMB 3.5 billion in ABSs in the quarter, with issuance costs falling by more than 50 basis points sequentially. As a result, total ABS issuance for the first three quarters of 2024 reached RMB 13.4 billion, up by 23% year-over-year, furthering optimizing our funding structure. We also successfully issued our first asset-backed note in the interbank market, which further expanded our funding channels and investor base by attracting international investors through China's Bond Connect scheme. Given the seasonally tighter funding environment in Q4, we expect our funding costs to remain stable at current levels. In terms of user acquisition, we further explored diversified channels to improve efficiency and moderately increased investment to acquire new users. In Q3, new credit line users increased by 23.8% sequentially, while average unit acquisition cost declined by 7.4%. Notably, the proportion of new credit line users acquired through our embedded finance channels increased by roughly 5 percentage points. with loan volume from this channel increasing by 85% year over year. With improved user profiling accuracy on partner platforms, both credit costs and operational efficiency of our embedded finance business improved in Q3, driving an ROA increase of approximately 60 basis points from the previous quarter. Furthermore, we continued to explore collaborations with financial institutions to engage their existing customer bases. leveraging their proprietary traffic alongside our differentiated pricing and service capabilities to expand the breadth and depth of our user coverage. To date, we have partnered with five financial institutions across various categories under this model, including joint stock bank, municipal bank, private bank, and consumer finance companies. As these partnerships progress, they will create new opportunities for us to empower financial institutions and further extend our reach to high value user segments. In terms of managing existing users, we adopted a differentiated operation strategy based on user segmentation by their value and risk profiles. This enables us to provide more targeted offers, driving higher user engagement and conversion efficiency. We also strengthened the long-term retention of high value users with the rollout of a VIP service strategy and enhanced engagement and insight analysis. For dormant users seeking large ticket, low interest loans beyond our core offerings, we referred them to our financial partners, which enhances our ability to serve users throughout their entire lifecycle. As a result of these initiatives, our login conversion rate increased by 11.6% sequentially in Q3. The number of users with successful drawdown grew consistently each month, with the monthly average increasing by approximately 12% from last quarter. After a year of refining and upgrading our business model, our capital light segment has assumed a more prominent role in our business mix. Excluding contribution from RM SaaS, the capital light segment contributed 55% of total loan facilitation and origination volume in Q3, an increase of approximately 10 percentage points from same period last year. From a long-term perspective, we plan to dynamically adjust the mix of capital light and capital heavy segments to balance returns and risks. By transitioning from a loan facilitation model to a platform model, we are building a comprehensive credit tech service platform that encompasses the entire user lifecycle and promotes financial inclusion. Under the platform model, we prioritize long-term user engagement. Based on real-time insights into user needs and risk profiles, we have collaborated with a broad network of financial institutions under different models, diversifying our products, pricing options, and funding sources. This approach enables us to address users' credit needs at different stages of their lifecycle, while achieving a better balance between scale, risk, and profitability of our business. In today's uncertain macroeconomic environment, we believe that our long-term value lies in our ability to better understand user needs, respond more swiftly, and provide consistent support throughout their financial journeys. Our total technology solution business has continued to make steady progress as we focus on building our Chifu Digitech brand, which offers end-to-end technology solutions to banks. Recently, Qifu Digitech was included on the IDC China Top 50 Emerging FinTech list, significantly enhancing our reputation and competitiveness in the industry. This year, we have partnered with an additional nine financial institutions, bringing the total number of financial partners for our total technology solutions to 14. Our solutions have already been deployed and launched with 10 of them. Compound monthly growth rate in loan volume powered by our solutions reached 14% during the first nine months of the year. Furthermore, our tech solutions are expanding beyond consumer credit services with the development of a proprietary solution tailored for SME lending. This solution features an integrated three-tiered credit assessment system, which combines big data-driven risk management, user self-verification, and offline intelligent due diligence. We have already launched a pilot program for this solution with an institutional partner. 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 user reach. As a tech driven company, we are committed to leveraging AI and large language models to empower our business and improve both the user experience and operational efficiency. We upgraded our efficiency focused AI copilot system achieving a recall rate of 96.3% and an accuracy rate of 98.8% in key information extraction for loan collection. This AI co-pilot system has been deployed across various collection scenarios, including user information identification and case tracking, enabling our collection team to more effectively pinpoint critical information and promptly follow up on cases. This boosts both the quality and efficiency of our collection efforts. Average daily use of the system by our collection team has more than doubled since it was deployed. Additionally, We also enhance the Qifu report interpretation system by integrating the Qifu large language model with traditional natural language processing models, allowing us to quickly gain deeper insights into the products of our SME borrowers. Combined with our financial knowledge graph, we can track operational changes for 30% of our SME borrowers, enabling us to offer more precise and customized financial services. Since Q3, the Chinese government has rolled out a range of monetary and fiscal policies to drive high-quality economic growth. At the same time, various levels of government have issued guidelines encouraging financial institutions to optimize credit products, provide differentiated services, and increase funding support for key consumption scenarios, while balancing risk and business sustainability. The guidelines also promote deeper integration of consumption scenarios and consumer credit services to enhance the consumer experience, boost confidence, unleash consumption potential, strengthen market vitality, and drive consumption. Recently, one leading fintech platform has made significant progress in its rectification process, indicating that regulators acknowledge the significant value of fintech industry and that regulatory trends are largely stabilizing. After a year of optimization, our core business has become more robust, bolstered by diversified business models and broader strategic partnerships. While we remain cautiously optimistic about the economic outlook, we are confident in our ability to achieve long-term and high-quality growth. This year, we further optimize capital allocation to enhance shareholder returns, executing our share repurchase plan at a pace significantly ahead of market expectations. We anticipate that total shareholder returns in 2024 will approach 100% of our net income for 2023, one of the highest payout ratios among Chinese ADRs. Having already completed the majority of our USD 350 million share repurchase plan this year, the Board has approved a new repurchase plan of USD 450 million set to start on January 1, 2025. We are confident about the future of our company and believe that our share price remains undervalued As such, we have decided to further scale up our share buyback efforts and continue to reduce our share count over the next two years. Going forward, we remain committed to efficient capital allocation and shareholder value creation through substantial repurchases and dividends. With that, I will now turn the call over to Alex.