CNFinance Holdings Limited

Q2 2021 Earnings Conference Call

8/23/2021

speaker
Operator
Good day and welcome to the CN Finance second quarter and first half of 2021 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Jen Jay. Please go ahead.
speaker
Jen Jay
Good morning and good evening, and welcome to CS Finance second quarter 2021 financial results conference call. In today's call, our CEO, Mr. Jai, will walk us through the operating results followed by the financial results from our Vice President of Capital Market Department, Ms. Lee. After that, we will have a Q&A section. Before we start, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21 of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Dedication Reform Act of 1995. This forward-looking statement can be identified by terminology such as real, exact, anticipated, future, intents, plans, beliefs, estimates, targets, going forward, outlooks, and similar statements. Such statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve loan or loan risk, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control. which may cause the company's actual results, performance, or achievements to differ materially from those in the following statements. Further information regarding this and other risks, uncertainties, or factors is included in the company's filing with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any following statements as a result of new information, future events, or otherwise. is as required under law. Now, please welcome our CEO, Mr. Zhai.
speaker
Jai
Thank you, Operator.
speaker
Jen Jay
and thank you everyone for joining us in the conference call. On today's call, we will introduce the company's financial and operational results of the second quarter at the first half of 2021, followed by a Q&A section.
speaker
Jai
The company's loan amount has again achieved rapid growth in the first quarter. This quarter, 4,050,000 yuan has been significantly increased
speaker
Jen Jay
following a good first quarter, the loan facilitation volume increased again in second quarter. After adding another RMB 3.8 billion of originating LOC in the second quarter, the total loan facilitation reached RMB 6.6 billion in the first half of 2021, representing an increase of 100% and 113% respectively to the same period of last year. The net income in the second quarter and the first half of the year was RMB 55 million and RMB 150 million respectively. Both increased significantly, comparing to a net profit of RMB 25 million and a net loss of RMB 40.5 million in the same period last year. 公司在第二季度以及上半年能够起的较为令人满意的经营成果, We not only deliver solid operational results in the second quarter, but also in the first six months of 2021. The loan facilitation volume even reached a new high since the inception of collaboration model. The reasons of our success are threefold.
speaker
Jai
One, The market demand of the real estate industry is huge. In the second quarter, China's 7.9% TPP index, followed by more than 80 million small and medium-sized enterprises at the lowest level, also showed their vitality. The demand for financing continued to rise. Due to the spread of small and medium-sized enterprises in the region, and the small and medium-sized enterprises are small in size, the cash flow of self-managed enterprises is unstable. The huge demand for home equity loans in the second quarter
speaker
Jen Jay
As China's GDP grew 7.9%, the vital business operations of over 80 million grassroots micro and small enterprises in China led to a huge demand for working capital. However, MSEs in China are usually scattered with small scale and stable cash flow. These characters of MSEs made them difficult to meet the loan approval criteria at banks. Their demand for working capital cannot be satisfied by traditional financial institutions. In this market environment, we call ourselves the last might courier to build a network of an inclusive financial system in China. In the past two years, we have ordered loan services to over 40,000 MSCs in China. 另一方面,自去年下半年以来,
speaker
Jai
On the other hand, home equity loan is still one of the best interest-bearing assets in the market. As we witnessed the sufficient increase of property price in major cities since the second half of 2020, Secondly, we have established more than 60 service networks in 40 cities across the country, with more than 2,000 partners from all over the country. This makes us more in-depth and sensitive to the financial needs of small and medium-sized enterprises. After the pandemic, they can quickly seize the opportunity. In the first half of 2021, the company's share of 66.6 billion yuan increased by 118% from last year's 30.5 billion yuan.
speaker
Jen Jay
Since the inception of collaboration model, we have built a national worldwide consistent of 50 branches and 40 cities by collaborating with over 2,000 sales partners across China. With this network, we are able to establish a wide market coverage and serve MSE owners financing needs in a timely manner. In the first half of 2021, we facilitated loans with a total amount of RMB 6.66 billion, representing a year-on-year growth of 118% from RMB 3.05 billion. The company's growth is back on a fast track.
speaker
Jai
Third, after two years of hammering and growing, the partner service platform model has been The collaboration model has been well recognized by the market as we kept refining the operation in the past two years.
speaker
Jen Jay
To secure our partners' loyalty to our platform, we have been optimizing our service providers' buy.
speaker
Jai
First, we have been consistently adding talent to our professional management team. We also offer training programs for our staff partners to help their team members
speaker
Jen Jay
gain deep understanding of the products and risk control criteria of the trust company partners, so that they could serve MSC owners efficiently.
speaker
Jai
Second, we optimize the data processing and storage of our online system to make it more efficient and visible to users. We hope to serve MSD owners in time and cut our old costs at the same time.
speaker
Jen Jay
The drastic increase in loan origination volume was the proof to the capacity and efficiency of our loan process system. Based on our internal assessments, our current system is capable to support an annual capability of RMB 30 to 50 billion in the loan origination volume.
speaker
Jai
We delivered strong results in the past two quarters. But at the same time, we also noticed some challenges to our future growth, including... ...and capital supply pressure. Funding pressure.
speaker
Jen Jay
We are highly dependent on trust companies as funding partners. Since the beginning of 2021, the regulation on trust companies' loan products were tightened. As a result, trust companies reduced our funding quota. We also suffer from a subsequent rise of financing costs. We do not expect this regulation to loosen up in the rest of 2021, and therefore, Our long alternation will possibly be affected.
speaker
Jai
Second, the price of real estate and the fluctuation of liquidity. Due to the repeated outbreak of the COVID-19 pandemic in many parts of China and the government's strict control over the real estate market in China, the price of real estate and liquidity may fluctuate. We have noticed that since 2021, the Chinese government has shown its unprecedented determination to control the price of real estate. We have noted the uncertainties of property price and liquidity due to the government policies in controlling property prices and impacts from the COVID-19 pandemic.
speaker
Jen Jay
In 2021, the government actively initiated measures to control property price, including announcing suggested prices to second-hand property in multiple cities, as well as tightened mortgages to slow down property transactions. The management believes that such uncertainties will negatively affect the loan origination volume and NPL disposal.
speaker
Jai
Third, the current bond partner model. In essence, it is the partner who takes the risk of assets. But due to the arrangement of the transaction structure and the legal form, the company as an after-sales investor is reflected in the trust plan, resulting in the risk of assets still reflected in the financial report. The business model of the company is still a position model of heavy assets, unable to reflect the service model assets of green assets. Due to the high responsibility of the company's assets, the company's further development of the fund
speaker
Jen Jay
Under the collaboration model, sales partners bear risks. However, due to the business structure agreed upon with the trust companies, we are the holder of subordinate units in the trust plan. As a result, we have to consolidate the assets on our financial statements. We seem like a company with heavy assets where our revenue is generated from interest spreads. The balance sheet cannot represent our true business model, which is in fact an asset-light load alteration platform. In the meantime, the look of the balance sheet is also constant when we reach out to new farming partners. 为了应对变化的市场环境,不断扩大公司业务规模,以便更好地服务于广大小规企业组。
speaker
Jai
In order to consistently grow our business and serve MSG owners in the changing markets, we plan to further refine the current platform model and introduce a new asset line service platform.
speaker
Jen Jay
by taking the following measures.
speaker
Jai
Transferring all assets and risk to any investor with preferences in high risk and high return asset backed by property.
speaker
Jen Jay
Our company will focus on online and offline loan automation and post-loan management service.
speaker
Jai
The company has reached a cooperation agreement with several top banks, including Guangda Bank, Nanhai Bank and Huaxia Bank, and is actively promoting the launch of the ABS process. We believe that a broader funding channel will help us to design more diversified loan products and provide more financing options for small and medium-sized enterprises of different levels.
speaker
Jen Jay
Collaborating with different types of funding partners to serve MSC owners with different credit ratings. Other than strengthening our collaboration with trust companies, we have so actively reached out to various financial institutions. We hope by introducing more diversified loan products, MSCs could enjoy the benefits of more affordable loans. We have signed collaboration agreement with commercial banks, including Everprice Bank, Blue Ocean Bank, and Huaxia Bank, with a possibility to issue ABS. We believe that creating a broadened financial channel will help us bring diversification of our loan products and offer more choices to MSC owners. 第三,公司将会继续提升
speaker
Jai
to serve small and medium-sized enterprises. First of all, we will continue to expand the national layout of more than 60 branch institutions in 40 cities to achieve a more comprehensive coverage of small and medium-sized enterprises. Not only that, we will also pay more attention to the technology construction of the company, while improving the basic capabilities of the online loan management system data, reduce the overall control process, reduce the number of companies operating, and improve the efficiency of service to small and medium-sized enterprises.
speaker
Jen Jay
We will continue to improve our service to MSC owners. First, we will further expand our service network nationwide. The current network has 50 branches scattered across 40 cities, penetrating into markets and discovering the financing needs of MSC owners. Other than that, we will prioritize technology development to improve the loan measurement system capability in storing data, and to increase the efficiency in the overall process to satisfying the financial needs of MSD owners, also with the goal to reduce the operating cost of our company.
speaker
Jai
In the future, we will actively respond to the call of the country to develop general To achieve our mission of make finance more human and follow the government's policy,
speaker
Jen Jay
of developing an inclusive finance system. We will leverage our advantage gained from years of dedicated work in the industry and build a service platform that is asset-wise turnover high and scale large. We will proactively work with funding partners to push out diversified loan products, consistently provide MSD owners with affordable, accessible, and efficient financial services.
speaker
Jai
Finally, we announced today that CFO Lin Ning will leave the company in November. Here, I would like to thank Mr. Lin for his years of hard work. Mr. Lin has been a CFO of Shanghai Financial since 2010. In the past 11 years, he has made a significant contribution to the development of the service provider in China. At last, today, we announced our CFO Mr. Li Ning
speaker
Jen Jay
would step down from CFO position in November. I want to take the time to thank Mr. Li's years of hard work. Mr. Li has served as a company CFO since 2010. In the past 11 years, he made significant contribution in leading CN Finance to become a leading home equity loan service provider in China and put dedicated work in transformation from a privately held company into an NYSE listed company. On behalf of all of us here in CN Finance, I would like to thank Mr. Li Ning for his leadership, dedication, and professionalism. I wish him best of luck with his future endeavors. We have already commenced the search for a new CFO.
speaker
Jai
Now, I will hand over the floor to our Capital Market Department, Ms. Li Jing, and she will introduce the company