Qfin Holdings, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Kifu Technology fourth quarter and full year 2024 earnings conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Karen Ji, Senior Director of Capital Markets. Please go ahead, Karen.

Thank you, operator. Hello, everyone, and welcome to Qifu Technologies' Fourth 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 State 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 get financial measures. Also, please note that unless otherwise stated, all figures mentioned in this call are in RMC 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. 2024 was an exceptional year for our company. Despite the macroeconomic headwinds, we focused on driving high quality development and evolving our business, consistently hitting new quarterly milestones to close out the year on a strong note. As our business model gradually shifts to a platform model, our organizational capabilities have been upgraded alongside it. As we look to the future, we will adopt a more open and collaborative approach to engaging and empowering our users and partners, further enhancing the health and resilience of our business. By the end of 2024, our platform empowered a total of 162 financial institutions to serve more than 56 million users with approved credit lines on a cumulative basis. Throughout 2024, we maintained a disciplined approach, optimizing risk management and enhancing operational efficiency. In Q4, our C to M2 metric, representing the delinquency rate after 30-day collection for our overall loan portfolio declined further sequentially, reaching its lowest level of the year and approaching a historical best. With our risk metric stabilizing, we strengthened our ability to address user needs through differentiated risk and pricing strategies. Total loan facilitation and origination volume on our platform have grown for two consecutive quarters, with Q4 loan volume increasing by 9% sequentially to RMB 89.9 billion. Loan volume in the second half of the year regained positive growth, increasing by approximately 15% compared to the first half. With operational efficiency continuing to improve, Our Q4 profitability hit a new record high with non-GAAP net income increasing 71.5% year-over-year to RMB 1.97 billion and non-GAAP net income per diluted ADS surging 91.3% year-over-year to RMB 13.7. Despite macroeconomic headwinds, we have consistently improved upon our results over the year and outperformed our market commitments through the ongoing evolution of and enhancements to our business. In 2024, with our take rate continuing to improve, full-year non-GAAP net income rose 44% year over year to reach an all-time high of RMB 6.42 billion. Additionally, we successfully executed USD 410 million share repurchase, buying back approximately 12% of our share count at the beginning of the year. This also contributed to improved non-GAAP net income per diluted ADS for 2024, which increased 55.7% year-over-year to RMB 42.4. Coupled with ongoing improvements in profitability and capital allocation efficiency, our ROE for 2024 increased further to 27.9%, significantly outperforming most financial services and internet companies in China. Now I'll walk you through the progress we made in 2024. First, we remain committed to driving quality growth. We enhanced user acquisition efficiency by proactively diversifying acquisition channels. The number of new borrowers in 2024 increased by 16.2% year over year, while average acquisition cost per credit line user declined by 5.3%, reflecting a significant improvement in user acquisition efficiency. Notably, The addition of 18 new channels to our embedded finance business drove a 26% increase in new credit line users and a remarkable 98% increase in loan volume from the embedded finance channels, with users acquired through this segment now accounting for 41%. With improved user profiling accuracy on partner platforms, both credit costs and operational efficiency further improve. driving an ROA increase of approximately 2.48 percentage points from last year. Additionally, our embedded finance model further expanded its reach and now covers the majority of leading Internet traffic platforms in China, with penetration rates also increasing. Simultaneously, we deepened collaboration with financial institutions to engage with their existing customer bases, leveraging their proprietary traffic, and our precise user identification capabilities and differentiated risk strategies to extend our credit product offerings. As we expand into more channels and strengthen our presence across platforms, we expect loan volume from our embedded finance business to maintain rapid growth momentum in 2025. Additionally, we are developing our intelligent marketing capabilities. 74% of the graphics and 27% of the videos we deploy are now generated by AIGC technology, resulting in a 25.1% improvement in user outreach efficiency and an approximately 10% reduction in average cost per credit line user. Furthermore, with 40% of our ad placements now automated, we achieved a 9% improvement in ROI compared to manual placements. Second, Our asset quality improved significantly in 2024 following the decisive initiatives we implemented to optimize our loan portfolio and prioritize high quality growth. We upgraded our application scorecard or a scorecard by integrating AI to enhance credit data analysis. This allowed us to lower risk metrics back to target levels and establish a foundation for continuous improvements. Within our post lending processes, we enhanced overall collection efficiency by upgrading our collection scorecard, or C scorecard, with large language models for real-time analysis of user communication data and refining partner management and case assignment strategies. In the second half of the year, despite a moderate recovery in market demand, we maintained a disciplined risk strategy and focused on differentiated user operations, driving further improvements in our risk indicators. In Q4, our D1 delinquency rate decreased by 0.21 percentage points year over year, while 30-day collection rate increased by 3.23 percentage points. This robust asset quality has laid a solid foundation for our 2025 strategic planning, and with optimised risk strategies now firmly in place, we expect risk performance to remain stable in the coming quarters. Benefiting from a favorable interest rate environment and robust asset quality, we maintained our negotiating leverage on the funding side and drove a continuous decline in funding costs throughout the year. Our ABS issuance for the year increased by 21.6% to RMB 15.2 billion, further optimizing our funding structure. We also issued the first domestic exchange traded ABS with a AAA international rating which attracted subscriptions from multiple international institutional investors and expanded our funding channels globally. Our leadership in ABS issuance has given us a distinct competitive advantage in funding. In 2025, we plan to ramp up ABS issuance and increase the share of ABS in our funding mix. Although there has been a slight uptick in interest rate uncertainty this year, we are confident in our ability to drive a moderate decline in our funding costs in the coming year. The proportion of loan volume from our capital light segment increased by approximately 10 percentage points to 53% throughout 2024. We are the first mover to adopt this model and now boast the highest ratio when compared to our industry peers, a direct result of our strong asset quality and precise asset allocation capabilities. Our flexible asset structure ensures that our loan portfolio remains significantly more resilient during market cycles. Over the past year, by onboarding funding partners with more diverse risk appetites, we have strengthened our ability to serve various loan segments and further optimized our asset allocation strategy. This has driven continuous improvements in our ROA under the Capital Light model. Our technology solution business reached meaningful scale in 2024. We continued to enhance and upgrade our credit tech solution, Focus Pro, to meet the diverse needs of financial institutions. Over the year, we added 11 new partner institutions, bringing the total to 16, with 11 already live on our platform. Loan volume under the Focus Pro model grew at a compound monthly growth rate of 17% in 2024. By extensively engaging with our partners, we have seen strong demand from financial institutions for AI-driven solutions. In response, we plan to develop an AI plus bank agent platform to help banks address pain points in their core business processes and improve operational efficiency. We look forward to sharing more updates on this initiative in the coming quarters. AI is deeply embedded in our DNA, empowering every stage of our operations. Over the past year, AI has driven significant efficiency improvements across our business, from AI co-pilot models in loan collection and telemarketing to automating the development of marketing materials with AIGC technology and assisting developers with coding. As large language models increasingly mature and DeepSeq significantly improves inference efficiency, we will allocate more resources to the application of AI across credit scenarios going forward. First and foremost, risk management is the cornerstone of our business. We have gained valuable insights from over 200 million users, and developed more than 2,400 models with 590,000 data dimensions. In 2024 alone, we iterated our models more than 670 times. We believe DeepSeq will revolutionize how data is mined and analyzed in risk management, transitioning us from a single modal to a multimodal approach and driving exponential growth in data dimensions. Its powerful reasoning capabilities will enable us to further enhance user profiling and improve the accuracy of end-to-end risk identification. Second, we are fully committed to advancing our AI Plus strategy. We plan to build an agent platform that will empower core lending processes. Leveraging the memory, planning, and collaboration capabilities of AI agents, this platform will fundamentally reshape how we operate, boosting efficiency, while unlocking greater potential within our teams to drive even more business value. We have assembled a dedicated team to execute this strategy and expect one-third of our core business processes to be powered by this agent platform in the next one or two years. This initiative has already gained strong traction among our financial institution partners, and we believe AI plus Bank will become a key pillar of our technology solution business moving forward. In the second half of 2024, we saw marginal improvements in the macroeconomic environment and a modest recovery in credit demand. The 2025 government work report emphasized a commitment to supporting technological innovation, boosting consumption, and advancing the AI plus initiative, including the widespread adoption of large language models. We will continue to observe the impact these initiatives will have on our business. From a long-term perspective, our vision is to become a globally respected FinTech company. To achieve this vision, we are executing a one core, two wings strategy where our domestic credit business serves as the core and our technology solutions business and international expansion serve as the two wings. This strategy will allow us to continuously expand business boundaries and drive digital financial inclusion on a larger scale. Looking ahead to 2025, we remain cautiously optimistic and expect our core credit business to maintain high quality development while our technology solutions business will expand the depth and breadth of our partnerships with banks through our AI plus strategy. For international expansion, we will maintain a disciplined approach, focusing on markets with stable regulatory environments and solid infrastructure. We will start small, move quickly, and iterate continuously as we progress. We look forward to sharing more updates on our journey in the future. In 2024, we further optimized capital allocation to enhance shareholder returns, executing our share repurchase plan at a pace significantly ahead of market expectations. Our dividends and buybacks for 2024 amounted to USD 180 million and USD 410 million, respectively, with total shareholder returns reaching 100% of our 2023 gap net income. As of the end of 2024, we had repurchased a total of 24.5 million ADSs and have begun executing a new repurchase plan of up to USD 450 million in 2025. We are confident in the future of our company and remain dedicated to delivering long-term value to our shareholders. Moving forward, we will continue to prioritize efficient capital allocation and shareholder value creation through recurring share buybacks and dividends. With that, I will now turn the call over to Alex.