Qifu Technology, Inc

Ladies and gentlemen, thank you for standing by and welcome to the Kifu Technology First Quarter 2025 earnings conference call. All participants are in a listen-only mode. If you wish to ask a question, you'll need to press the star key followed by the number one on your telephone keypad. 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, Darcy. Hello, everyone, and welcome to Kifu Technology's First Quarter 2025 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 R&B 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. In the first quarter of 2025, China's economy showed early signs of a mild recovery under the guiding principles of stabilizing growth, optimizing structure, and managing risks. Meanwhile, the global economy is undergoing profound technological transformation and structural changes. In an increasingly complex and volatile environment, we upheld prudent operations, leveraged AI to reshape the credit value chain, and achieved high-quality growth, delivering results that surpassed our expectations. By the end of the quarter, our AI-powered credit decision engine and asset distribution platform empowered a total of 163 financial institutions and served more than 58 million users with approved credit lines on a cumulative basis. Total loan facilitation and origination volume on our platform increased by .8% year over year. With operational efficiency continuing to improve, our tick rate for the quarter reached 5.7%, up .2% year over year. Nungap net income increased by .9% year over year to RMB 1.93 billion, while Nungap EPADS, on a fully diluted basis, rose by .5% to RMB 13.5. Despite macroeconomic headwinds, we have consistently improved upon our past results and outperformed our market commitments through ongoing involvement and enhancements to our business. At the start of this year, we began rolling out our AI Plus Credit Strategy at scale, aimed at building the industry's first AI agent platform to empower core credit processes. We plan to recruit an additional 100 algorithm engineers by the end of the year and accelerate our transformation into an AI native organization. We have also established our Deep Bank Division, which is driving the research and development of our AI Plus Bank agent products to support the intelligent upgrade of financial institutions. In April, we introduced an internal AI agent platform and by May deployed five digital employees across key functions such as data analytics, operations, compliance, risk management strategy, and financial reconciliation. Our AI agent, ChatBI, is now deeply integrated into our intelligent decision-making and business analysis workflows. This agent provides real-time data insights and attribution analysis, empowering us to dynamically optimize our strategy and enhance decision efficiency. Risk management has always been a cornerstone of our business. This quarter, we allocated a small portion of our traffic to pilot an -to-end risk management framework powered by large language models. By training on historical decision logs using DeepSeq, we achieved a notable improvement in AUC area under curve to 0.64, a metric that measures risk tiering ability. We also upgraded our data mining capabilities by incorporating video and other multimodal inputs, enabling richer and more diverse feature representations. On top of that, we developed a user profiling agent that performs consistency checks on user features with over 95% accuracy, supporting differentiate credit lines and pricing based on user profiles. In terms of risk strategy, we maintained a differentiated approach in user operations, driving moderate loan growth while preserving ample risk buffers. With our own volume increasing by .8% year over year during the quarter, our C to M2 metric, which measures delinquency rates after 30-day collections, remained largely stable at 0.6%. In Q1, we made further upgrades to our intelligent asset distribution platform to improve the precision of our fund asset matching. This helped us boost underwriting efficiency and strike a better balance between risk and return of our loan portfolio. Benefiting from our robust asset quality, we maintained our negotiating leverage on the funding side, resulting in a consistent decline in funding costs. In Q1, we issued RMB 6.6 billion in ABS, a year over year increase of approximately 25%. With the proportion of ABS in our funding mix growing further, our overall funding costs decreased by an additional 30 basis points sequentially. We expect funding costs for the coming quarters to decrease slightly from Q1 levels. In terms of user acquisition, we have modestly increased our spending and are actively exploring a broader range of channels. In Q1, we added 1.54 million new credit line users, up 6% year over year, with new borrowers increasing approximately 41% year over year to 1.13 million. Our marketing-focused AI agent leverages multimodal recognition technology to analyze user intent in real time, integrate campaign management across multiple channels, and enable real-time strategy adjustments. This has significantly improved our user profiling accuracy across channels, with the conversion rate of new credit line users to new borrowers increasing by 33% from the same period last year. Our embedded finance business remains a key strategic focus as we continue to expand both the breadth and depth of our channel coverage. In Q1, we added seven new channels, spanning from leading internet platforms and various small and mid-size platforms to banks in multiple regions. We are also in the midst of onboarding two additional strategic platforms, signaling broader collaboration with leading internet traffic platforms and unlocking meaningful and incremental growth potential going forward. During the quarter, our new credit line users from the embedded finance channels grew 36% year over year, while loan volume surged by roughly 106%. The overall ROA of these channels improved by 20% on a sequential basis. Regarding our technology solutions business, we established partnerships with three additional mid- to large-sized municipal banks in Q1, driving loan volume from this segment to grow by roughly 144% year over year. Powered by our Focus Pro credit tech platform, our proprietary solution for SME lending, which is built on a three-tiered credit assessment system, gained meaningful scale in loan facilitation volume and delivered better than expected risk performance in Q1. This success has created new opportunities for our market expansion and growth in 2025. We have already received a wide range of inquiries from multiple banks about our AI Plus Bank agent products and recently entered into strategic partnerships with several of them. As a key component of these partnerships, we will help banks deploy AI agents across a broad range of applications, including marketing and customer acquisition, risk management and loan approval, decision analytics, growth operations, compliance reviews, multimodal recognition, remote banking, and digital employees facilitating their digital and intelligent transformation. In April, China's National Financial Regulatory Administration issued a notice on strengthening the management of the Internet loan facilitation business of commercial banks to enhance the quality and efficiency of financial services. The notice provides clearer guidance for Internet-based lending practices, emphasizing that commercial banks should establish equal, mutually beneficial partnerships with platform operators and credit enhancement providers, sharing risk responsibilities and adopting a long-term perspective. We view these guidelines as strong regulatory recognition of the value the loan facilitation model provides. By setting clearer industry standards, the notice is expected to improve the overall health and sustainability of the sector. We will continue to engage in proactive and constructive discussions with regulators, regularly reviewing our practices, and upholding prudence and compliance in our operations. The increasingly complex international landscape has added uncertainty to the pace of China's economic recovery. That said, we believe the economy will remain fundamentally resilient over the long run, supported by China's technological innovation, supply chain upgrades, and government measures to boost domestic demand. At the press conference held on May 7 this year, the State Council Information Office announced a package of financial policies aimed at stabilizing markets and managing expectations, including guidance for financial institutions to increase support for key consumption verticals. More recently, we are seeing encouraging progress in U.S.-China trade talks. Overall, the macroeconomic and policy landscape is showing signs of stabilization, which will provide a favorable environment for the steady development of the consumer credit industry. As we progress through 2025, we remain cautiously optimistic. In the near term, our focus will be on enhancing operational efficiency, optimizing capital allocation, and enhancing shareholder returns. Over the long term, we will continue executing our -two-win strategy. We expect our core loan facilitation business to sustain high-quality growth, while our technology solutions business will continue to empower financial institutions to accelerate their intelligent transformation through our AI Plus strategy. Internationally, we will focus on near-prime segments in markets with relatively stable regulatory environments, leveraging our leading fintech capabilities to build a strong competitive edge. In Q1, we issued USD 690 million in convertible senior notes, further expanding our international funding channels and improving capital allocation efficiency. 100% of the proceeds from this issuance will be allocated to share buybacks. Adopting a cash-part settlement structure allows us to significantly reduce the potential dilution to existing shareholders. On the 25th of March pricing date, we concurrently completed a USD 227 million share repurchase, resulting in an immediate .6% reduction in our share count. Combined with our USD 450 million share repurchase program that took effect on the 1st of January, we expect our total repurchases this year to be no less than USD 680 million. Based on the current share price, we estimate our total share count will decrease by approximately 11% when compared to the beginning of the year. 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.

Thank you, Haisheng. Good morning and good evening everyone. Welcome to our first quarter earnings call. We started 2025 with a solid Q1 as overall user activities were stronger than normal seasonality. While micro environment appeared stabilizing early in the year impacts from trade war added uncertainty recently, we will continue to focus on efforts to optimize operations and manage risk exposures in the uncertain market. Total revenue for Q1 was 4.69 billion versus 4.48 billion in Q4 and 4.15 billion a year ago. Revenue from credit driven service capital heavy was 3.11 billion in Q1 compared to 2.89 billion in Q4 and 3.02 billion a year ago. The sequential growth was mainly due to increases in unbalanced loans and lower early repayment. This overall funding costs further declined modestly to on Q as a BS contribute a larger portion of our total funding into one. Revenue from platform for a patent service. Capital light was 1.58 billion in Q1 compared to 1.59 billion in Q4 and 1.14 billion a year ago. The year on year growth was mainly due to strong contribution from IC and other value added service more than offsetting the decline in capital light loan facilitation. Platform service account for roughly 56% of quarter ending loan balance. We expect the ratio to be roughly stable in the near term. During the quarter, average IRR of the loans we originated and or facilitated was .4% compared to .3% in prior quarter. Looking forward, we expect pricing to be fluctuated around this level for the coming quarters. Sales and marketing expenses increased 13% Q on Q and 42% year on year. The sequential and year on year increase were mainly due to larger volume contribution from API channels in both new and existing users. We added approximately 1.54 million new credit line users in Q1 versus 1.69 million in Q4. We will make primary adjustment to the pace of the new user acquisition in the coming months, given the volatile micro condition and further optimize our user acquisition channels and improve user engagement and retention. 90 day delinquency rate was .02% in Q1 compared to .09% in Q4. Day one delinquency was .0% in Q1 versus .8% in Q4. 30 day collection rate was .1% in Q1, essentially flat Q on Q. Another key risk metrics, C-M2, which represent the outstanding delinquency rate after the 30 day collection, increased modestly Q on Q to 0.6%, still within our comfortable range. We will remain vigilant to manage overall risk exposure, particularly given the latest micro uncertainty, and try to maintain relatively stable risk metrics in the coming quarters. At the same time, we continue to take conservative approach to book provisions against potential credit losses. Total new provision for risk bearing loans in Q1 were approximately 2.23 billion versus 2.07 billion in Q4. The increase in new provision was mainly due to increases in risk bearing loan volume, Q on Q, and higher provision booking ratio. Write backs of previous provisions were approximately 1.14 billion in Q1 versus 1.02 billion in Q4. Provision coverage ratio, which is defined as a total outstanding provision divided by total outstanding delinquent risk bearing loan balance between 90 and 180 days, or 666% in Q1, a historical high compared to 617% in Q4. Non-gap net profit was 1.93 billion in Q1 compared to 1.97 billion in Q4. Non-gap net income per fully diluted ADS was 13.53 in Q1 compared to 13.66 in Q4 and 7.58 a year ago, as strong earning growth and proactive share repurchase created significant EPS ADS equation. At the end of Q1, total outstanding ADS share count was approximately 134.5 million compared to 142 million at the end of Q4 and 155 million a year ago. Effective tax rate for Q1 was 18% compared to our typical ETR of approximately 15%. The higher than normal ETR was mainly due to withholding tax provision related to cash distribution from onshore to offshore. With higher contribution from capital heavy models, our leverage ratio, which is defined as risk bearing loan balance divided by shareholders equity, was 2.7 times in Q1, still near the low end of historical rich. We expect to see the leverage ratio fluctuated around this level in the near future. We generate approximately 2.81 billion cash from operation in Q1 compared to 3.05 billion in Q4. Total cash and cash equivalent and short term investment was 14.03 billion in Q1 compared to 10.36 billion in Q4. The increase in cash was mainly due to the net proceeds from our 690 million US dollar CB issuance. As we continue to generate strong cash flow from operation, we will further optimize our capital allocation to support our business initiatives and to return to our shareholders. We start to execute the 450 million share repurchase plan on January 1st. As of May 19, 2025, we had in aggregate purchased approximately 4.4 million ADS in the open market for a total amount approximately US dollar 178 million, inclusive of commissions, at the average price of US dollar 40.2 per ADS, ahead of the time schedule. In addition, on March 25, we successfully priced our 690 million US CB offering and repurchased approximately 5.1 million ADS concurrently with the aggregate value of approximately US dollar 227 million. The concurrent buyback and the net share settlement mechanism make the CB immediately accreted to EPADS as issuance. Altogether, so far in 2025, we brought back approximately 9.6 million ADS for a total amount of US$405 million, including commissions, at an average price of 42.3 per ADS. The accelerated pace of share repurchase further demonstrates management confidence and commitment to the future of the company, and the management intends to further use share repurchase to achieve actual EPADS equation. Finally, regarding our business outlook, while we observed some tentative signs of marginal improvement in user activity early in the year, micro uncertainties persist. We will continue to take a prudent approach in business planning for 2025 and focus on enhancing efficiency of our operation. For the second quarter of 2025, the company expects to generate non-GAAP net income between RMB 1.75 billion and RMB 1.85 billion, representing a -on-year growth between 24 and 31%. 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. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. 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. Your first question comes from Richard Zhu from Morgan Stanley. Please go ahead.

Thank

you, Mr. Guan, for giving me the first chance to ask a question. I have two questions. First, I would like to ask about the overall impact of the new rules on the industry and company in October. Second, what is the current trend of asset quality? After all, the national security system has been worried and fluctuating recently. So, what is the current situation compared to the second half of 2022 or second half of 2023? Will the current risk situation affect the growth of the debt in the whole year? Will the debt be the same as in the beginning of the year? So, I'll just do a translation. There are two questions. What kind of impact of changes do we expect once the new loan facilitation rules come into effect in October 2025? Secondly, what's the latest trends Qfin is seeing on the credit quality, other than compared to the second half of 2022 and 2023, when Qfin started to tighten credit risks? Will that impact the total expected loan growth for the year? Thank you.

Okay, Richard. Thank you. Let me take your first question and Sarah will answer your second question. In terms of regulation, in our genome, the new rules released in April is a positive signal in the sense that the regulator recognizes the value of loan facilitation platforms. The regulator's intention is to promote a more orderly and healthy development of the industry, setting principles and gradually sequencing out the long-term platforms, which are less capable of complying with the industry standards and meets regulatory requirements. At the same time, the new rules recognize the value of leading loan facilitation platforms and encourage banks to adopt a wide-leased approach, set clear entry standards, and build equal long-term and mutually beneficial partnerships based on risk sharing. In conclusion, with the implementation of the new rules, the industry will become more organized, which will enhance the overall health and sustainability of the loan facilitation sector. As a leading industry player, we believe we will benefit from the less competitive market environment. We will continue to engage in proactive and constructive discussions with regulators, review our practices, and operate with prudence and in compliance. And for your second question, Zhen Yan, can you answer it?

The company's current asset value trend is relatively stable. Our C-M2 index is in the narrow area of the small-difference fluctuation, which is in line with our expectations. First of all, we believe that the risk situation is incomparable to the second half of the second and third years. In the second half of the second year, C-M2 is 0.64, and in the second half of the second and third years, it is on average 0.69. In the second half of the second year, in addition to the uncertainty of the macro level, there are also some problems with the route. In the second half of the second year, C-M2 is 0.6, which is better than the second half of the second year and the second half of the third year. And then it will be a relatively stable trend. In addition, the current risk is completely controllable. We do not need to adjust the policy of control in large areas. So the amount of money spent in the previous year is mainly dependent on the change in demand itself. In Q1 this year, we see that the demand for modern and warm and warm returns are showing a steady trend. But the current international situation has increased some uncertainties in the macro environment. So although the recent Sino-US dialogue has made a rapid progress, but the subsequent progress and the impact on the macro economy still need further observation. We will continue to maintain the safe management strategy. Finally, I want to say that our business model is still more diversified. We can completely balance growth and risk by adjusting the asset distribution strategy. So as of the current situation, the amount of money spent in the previous year is not much different from the expected year.

Okay, let me do the translation for Mr. Zheng. First of all, I want to say that so far our asset quality has remained largely stable. Our C2M2 ratio, which measures the delinquency rate after 30-day collections, has fluctuated within a narrow band, which is in line with our expectations. First, we believe that the current situation is completely incomparable to that in the second half of 2022 and 2023. Our average C2M2 ratio was .64% in the second half of 2022 and .69% in the second half of 2023. The volatility in the second half of 2023 was partially due to the macro uncertainties and some line controls by China's telecom careers. In Q1, our C2M2 ratio came in at 0.6%, which is significantly better than the second half of 2022 and 2023. And we expect this matrix to remain largely stable going forward. Right now, our risk levels remain well under control, and we don't see a need to make any major adjustments to our risk policies. Therefore, as for the loan volume growth on a full-year basis, it will largely depend on the consumer's credit demand. In Q1, we saw early signs of a mild recovery in credit demand, and overall trends also seem to be stabilizing. However, the consistently changing global trade environment has increased macro uncertainties. While recent U.S.-China talks have shown some encouraging progress, we still need to monitor how things will develop and what kind of impact that will have on China's economy. So we will stay prudent in our operation at this moment. Last, I want to say that our business model is quite diversified, meaning that we can easily shift between asset-heavy and asset-light. That gives us the flexibility to adjust our asset allocation and the balance between growth and risk. Based on what we've seen now, our outlook for full-year loan volume growth is largely unchanged from what we expected at the early start of the year. Thank you.

Thank you. Your next question comes from Alex Yee from UBS. Please go ahead.

Thank you, Mr. Guan. Thank you for the opportunity to ask this question. I have two questions. First, I would like to ask about asset quality. We saw a continuous rise in day one of the G2 ratio in the past two seasons. This season reached .0% and also led C2M to 0.60%. What is the main reason for this? And what is the future trend of asset indexes? The second question is about the demand for new debt. We've seen a lot of red flags and some external environmental disturbances since May. I would like to see the trend of asset demand in the past two months compared to the trend in March. Thank you. I will do a translation. My first question is about the asset quality indicators. Specifically, we saw day one delinquents ratio was up by M2 consecutive quarter and now reaching .0% in the quarter and then also bringing C2M2 ratio to 0.60%. Can you share with us more on the reasons behind and how do you expect this indicator to trend going forward? The second question is on the credit demand trends in the last two months since we have seen more noises coming from the external environment. So I'm just wondering how has been the Q&Q trend in terms of

credit demand. Thank you. Okay,

let me answer the risk first. C2M2 small-scale fluctuations are in line with the company's expectations and within the target range set by our control. The previous question was also false and shared the situation of the second and third year. Currently, our asset quality is still at a relatively good level in history. Let me explain the first change. The yield increase is mainly due to structural changes. There are two structural changes. One is the amount of return on Q1 API. The return ratio is 31%. The yield increase of the API business is higher than that of the APPH business. The structural changes will cause a change in day one. The second change is that the amount of return on Q1 API is not increasing. This will cause the early return on the early day one to drop. The day one is relatively low. So after this drop, the day one will have a slight rise in return. So these two structures are both affecting the green rise in day one. In terms of the return rate, the previous CFO also said that the season is still at a relatively stable level. In April, due to some uncertainty about the tax return, we have reduced the control standards. The current risk indicators for April and May seem to be relatively stable. We will also adjust the control later. If the macro environment does not change significantly, we estimate that the C-M2 can be controlled below 0.63.

The Q1 API is also a little bit more stable than the APPH business. The Q1 API is also a little bit more stable than the APPH business. The Q1 API is also a little bit more stable than the APPH business. The Q1 API is also a little bit more stable than the APPH business. The Q1 API is also a little bit more stable than the APPH business. Also, our overall loan volume was roughly flat, Q&Q, leading to a smaller portion of early-stage loans, which usually have a lower day one delinquency rate. These two structural changes have led to a slight increase in our day one delinquency rate. And our collection rate is very stable, as our CFO just mentioned in his prepared remarks. In April, given the uncertainty around tariff impact, we slightly tightened our credit standards. Since then, our risk indicators have remained stable through both April and May. Moving forward, we will continue to adjust our risk strategy on a dynamic basis. We expect our C to M2 ratio for the full year to remain largely stable around 0.6 level, based on the assumption that the macro environment doesn't change dramatically. Thank you.

And in terms of the credit demand, Alice, for the average daily loan volume, April was roughly in line with March. We did see some fluctuation in borrow activities due to the impact of US-China trade tensions. But we proactively expand our customer reach through partnership with diversified channels, which would be able to mitigate the potential credit demand. In May, credit demand slightly decreased sequentially, partly due to the May day holiday. But this is just normal seasonality. Based on what we are seeing now, we expect loan volume in Q2 will be largely on track as we planned at the start of the year. Thank

you.

Thank you. Your next question comes from Emma Zhu from Bank of America

Securities. Please go ahead.

So how do you assess the potential impact of the tariff tensions in the future? And will you tighten lending standards? And my second question is, what strategy is management currently adopting regarding potential ADR listing risk? Will you consider a dual primary listing in Hong Kong? Will you take measures to improve the liquidity of

your Hong Kong ticker?

Okay. Hi Emma. In terms of tariffs, we believe the direct impact of tariffs on our business is quite limited. First, the vast majority of our loan volume is in consumer lending. Second, we've reviewed the industries of our users are involved in. In Q1, those related to experts accounted for just around 4% of our total loan volume. Among them, only about 1% were in sectors likely to be significantly impacted by US tariffs. For these users, we have already adjusted our transaction and asset allocation strategies to mitigate potential impacts from tariffs. On the policy side, US-China tribes talks have achieved some encouraging progress, and we view that as a positive for both credit demand and asset quality. However, the global trade landscape has been shifting quite a bit this year, and this has added uncertainty to China's macro environment and may affect people's consumption sentiment. Picker experts could put pressure on areas such as capex and household consumption. So in April, out of caution, we slightly tightened our risk strategy. So far, overall risk levels have remained largely stable. We will continue to monitor how the tariff situation impacts risk performance and dynamically adjust our strategy as needed. In addition, our diversified business model also makes us more flexible to react to the potential challenges. For your second question, you can answer it.

Sure, Emma. As you know, this ADR deletion basically resurfaces every few years, depending on the US side of political need. Given that in early May, the US and China entered into at least a tentative kind of agreement on the tariffs, compared to early April, I think the deletion risk clearly kind of reduced by quite a bit. But with that said, we have been carefully evaluated the potential risk of deletion. I think we are well prepared and we have a very clear plan to respond to what if kind of scenario. As you know, in November 2022, we completed a secondary listing in Hong Kong. This basically gave our shareholders more flexibility. They can choose to continue trading in the US or move to the Hong Kong market. So even in the worst case scenario, when our ADRs are forced to delist, investors would still be able to trade on our shares seamlessly in Hong Kong. As for liquidity, currently about 99% of trading volume is in the US market. In Hong Kong, obviously, it's very, very light. This is mainly because US trading offers investors more flexibility and relatively low transaction costs. However, if a forced delist were to happen, all the trading would probably naturally shift from the US to Hong Kong. Accordingly, the liquidity in Hong Kong will for sure improve significantly. At that point, our Hong Kong listing would automatically convert from a secondary listing to a primary listing in accordance with the Hong Kong exchange rules. We only need to file some additional documents after that conversion or secondary to primary conversion happening after providing the document support. Therefore, we believe the secondary listing that we already have already provides sufficient protection for our shareholders. We will continue to monitor as the situation evolves and take correct measures based on our ongoing assessment on this matter.

Thank you.

Thank you. Your next question comes from Cindy Wang from China Renaissance. Please go ahead.

There is a small question here about the issue of the stock market. First, we see that this quarter, the number of new credit users has actually decreased by 9%. However, the unit's credit cost has increased by 23%. Can you explain to us what the reason behind this? Secondly, because the potential loan demand brought by the trade war since April may be delayed. In the first quarter, the number of new users with approved credit was down 9% sequentially, but the CAC up 23%. What is the reasoning behind it? Since April, the trade war caused a potential slowdown in loan demand. Has it affected the quality of new borrowers? And have you adjusted customer acquisition strategy? How do you expect the customer acquisition cost in the second quarter? Thank you.

First, the increase in unit customer acquisition costs in Q1 was mainly driven by change. In our business mix, about 30% of our sales expenses came from API channels in the quarter. Unlike other channels, we pay channel fees for both new borrowers and repeat borrowers for API. But when we calculate cost for users, we only count new users, not repeat runs. So when API channels contribute a higher percentage of loan volume, it pushes up our unit acquisition costs. However, the API channels are generating incremental loan volume for the company, and the acquisition cost per loan through API is much lower than in-feed marketing. We are able to recover the cost with just the first loan insurance. In addition, we increased spending on in-feed marketing this quarter to reach higher quality users. Although these channels usually have higher acquisition costs compared to others, such as App Store or data-driven marketing, users from these channels tend to deliver stronger and better value. In the medium to long term, we have also tried new strategies in this space, tailoring our approach to different pricing segments and applying different operations across a four-year journey. Furthermore, I want to say that we pay more attention to the efficiency of customer acquisition. As we optimize the entire acquisition journey, the -to-end approach has made our targeting more accurate in terms of both user quality and intent. This in turn boosts our overall lending efficiency for new users. This quarter, our conversion rate from new credit line users to new borrowers reached 74 percent, up from around 55 percent in the same period last year. That is to say that our -to-end customer acquisition efficiency remains very healthy. Since the start of Q2, users' credit needs have been affected by the ongoing trade tension, which in turn will also have a certain impact on our customer acquisition efficiency. Going forward, we will continue to closely monitor change in the macro environment and the competitive landscape and adjust our acquisition pace accordingly. We will also carefully evaluate our acquisition costs against the LTV of new users and further optimize our channels to improve efficiency.

Thank

you.

Thank you. Your next question

comes from Yada Li from CICC. Please go ahead.

Then I will do the translation. My question is given the policy stimulus to promote domestic consumption, looking ahead, how to view the trend of loan demand, funding liquidity from bank partners, and the company's loan strategy. A, is there a need to increase the amount of debt that the company is currently receiving? B, is there a need to increase the amount of debt that the recovery environment can expect that the company can maintain a low funding cost in the long run and may adopt a more

proactive loan strategy in the future? That's all. Thank you. Okay, Yada.

Since the start of the year, China has rolled out a range of supportive policies aimed at boosting consumption, such as trading subsidies and guidelines for stronger support to consumer lending. These measures have made a positive impact, as we can see in the Q1 macro data. Retail sales were up .6% year over year, beating market expectations. Credit demand on our platform was also slightly better than typical seasonal trends. On the funding side, the government announced cuts to both the interest rate and the reserve ratio in May, so we expect the funding environment to remain relatively supportive this year, with some room for a further decrease in funding costs. In addition, we plan to further expand our structure. Overall, we expect our funding costs for 2025 to decrease slightly from Q1 levels. Finally, about our lending strategy, I think it really depends on the risk outlook and the customer demand. Although our risk indicators remain largely stable at the moment, there is no risk of a potential impact on the macro environment. Therefore, we will continue to maintain a prudent strategy, pursuing high quality and sustainable growth. That's all. Thank you.

Yeah, Yada. I just want to add one little point here. So as you know, we are very much focused on the take rate of our portfolio. In our previous discussion with the market, we communicate that we continue to see from a full year basis, we'll continue to see improvements this year, 2025 versus 2024, in terms of the net take rate, assuming there's no dramatic micro changes from now to the year end. I think that's still the assumption we're looking at, and

I think that's still on target. Thank you.

Thank

you. There are no further questions at this time. I'll now hand back to management for closing remarks.

Okay. Thank you, everyone,

again, to join us for this conference call. If you have any additional questions, feel

free to contact us offline. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.