CNFinance Holdings Limited

Good day and welcome to the CN Finance announces second quarter and first half 2022 unaudited financial results. All participants will be in a 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 touchtone phone. And 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 Jay Jin, Manager of the Capital Market Department. Please go ahead.

Good morning and good evening, and welcome to CN Finance second quarter and the first half of 2022 Financial Results Conference call. In today's call, our Director and Vice President, Mr. Tian Jun, will walk us through the operating results followed by the financial results from our acting CFO, Ms. Li Jing. After that, we will have the Q&A section. Before we start, I would like to remind you that this conference call contains follow-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in U.S. Private Security Litigation Reform Act of 1995. This follow-looking statement can be identified by terminology such as real, expected, anticipate future intents, plans, beliefs, estimate, target going forward, outlook, and similar statements. Such statements are based upon management's current expectations and current markets and operating conditions and relate to events that involve known or unknown risks, 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 follow-up statement. Further information regarding this and other risks, uncertainties, or factors is included in the company's borrowing with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any follow-up statement as a result of new information, future events, or otherwise. except as required under law. Now, please welcome Mr. Qian Jun.

Thank you everyone for joining us in this conference call. On today's call,

We will introduce the company's financial and operational results in the second quarter and the first half of 2022, followed by a Q&A section.

In the second quarter of 2022, our business was continuously impacted by the pandemic prevention and control measures, but we were able to maintain stable business volumes.

During the quarter, we originated loans of $3.1 billion under our collaboration with trust companies and introduced loans of $200 million to the commercial banks. The interest revenue under the collaboration model for the second quarter was slightly higher than the same period of 2021, and the interest expense decreased marginally. As we adjusted our commission policy, our collaboration cost decreased significantly year-on-year, which draw up the company's gross profit margin. However, given the impacts of pandemic prevention and control policy, as well as the uncertainty of China's real estate market, we continue to be conservative in evaluating potential losses and recorded a provision for credit losses of $80 million for the second quarter. And this was the main reason for the net income to be lower in the same period of 2021. Now, I would like to give a more detailed introduction of the challenges we faced and the measures we have taken, and also share the management thoughts on our future developments.

Our business continues to be challenged by the pandemic prevention and control. A number of cities, including Shanghai, were locked down during the quarter.

and China's GDP fell by 2.6% as compared to the first quarter of 2022. At the same time, there were still uncertainties in China's real estate market. The economic downturn has negatively affected our business growth, and the increase in the liquidity rate has also affected the liquidity of our sales partners.

In this environment, companies focus on stabilizing their business volume and reducing capital costs. Under such conditions, we focus on stabilizing business waters, reducing financing costs, management risks, and empower our sales tunnel during the second quarter.

The work we have done are as follows. First, we focus on stabilizing business waters, reducing financing costs, management risks, and empowering our sales tunnel during the second quarter.

In order to better meet the demand of borrowers and assist small and medium-sized enterprises, the company began to cooperate with Zijin Sintor and Zhongliang Sintor in this period, and successfully released 39 million yuan. At the same time, under the premise of ensuring a comprehensive income rate, we have further adjusted the loan interest rate of Sintor products. Second, in order to expand the coverage of customers, the company continues to vigorously promote the bank mortgage model in this period, which is also a bank-recommended loan.

First, in order to better meet the needs of followers and help MSC owners, we started our cooperation with two new trust companies and successfully originated loans of $39 million during the quarter. We have lowered the interest rate of our loan products this quarter. We continue to promote our partnership with commercial banks and recommend loans of $200 million to them. We have also started to facilitate loans under our collaboration with PICC.

Second,

We maintain dialogue with major funding partners and have reached consensus on reducing financing costs and optimizing the repayment policy. The adjusted policy is expected to be adopted in the third quarter of 2022. 第三,控制风险方面,本季度有几家信托公司与我们所推荐的第三方风险投资机构签订的协议。

Third, risk control. In the second quarter, several trust companies have signed agreements with third-party subordinated unit subscribers, recommended by us.

allowing this institution to directly invest in the subordinate units of the trust plan. By growing these third-party investors, we further reduce the amount of our old funds needed and also lower our risk exposure.

Fourth, to reduce the burden of the partner, we have maintained the support for the loan partner this quarter. We will continue to allow the partner to continue to support the loan partner Force.

In terms of empowering sales partners, we continue to allow more sales partners to repatriate their income loans by instrument, with the company charging a certain fee based on the terms. We also plan to bring in an asset management company to provide our sales partners with post-loan management services, including bad debt collection, arbitration, and judicial proceedings. We hope that by collaborating with such asset management company, our sales partner could bear less risk and receive rather stable return on delinquent loans.

Last year, the same period was less than 4,042 billion yuan. This shows that the desire for corporate financing is not strong, and the actual economic demand is not rising. It also indicates that the company needs to make more efforts to ensure the growth of the business. But we also believe that the country will continue to strengthen the macroeconomic policy to stimulate the economy and support small and medium-sized enterprises. And this will make China's general financial industry continue to be in a strategic opportunity period. 在此大背景下,我们将会立足于增强销售能力,降低资金成本,提高处置效率,以实现公司业务的稳步增长,为更多的小微企业主提供优质便捷的金融服务。 我们的主要计划有。 We will be presented with both challenging opportunities in the future, according to the data recently released by the People's Bank of China.

July's new RMB loans were $679,000, following by $404.2 billion year-on-year. This indicates that the financing needs of both enterprises and customers have shrunk. This means we will need to put up more efforts to maintain growth. However, we believe our assets More micro policies to stimulate the economy and support MSCs take effect. There are still vast opportunities in China's exclusive financing industry. In order to seize such chance to expand our business and provide affordable and accessible financing services to more MSC owners, we will work on enhancing sales, reducing funding costs, and improve postal management.

Our plans are... First, with the change of the market conditions,

The company will focus more on the demand side and build a system that is sales-oriented. We will establish an all-around sales partner system based on the data collection and resource coordination and use technology as a tool to improve the overall efficiency. 第二,我们将会继续大力推动银行出债模式以及人保合作项目的发展。

Second, we will continue to promote our partnership with commercial banks

and with BICC. We believe such partnerships will be an important supplement to our collaboration with trust companies, as it could improve our product mix and the customer coverage. In the future, we will not only set promotion plans to incentivize the sales staff of the commercial banks with BICC, but also but also cooperate with third-party sales channels to jointly expand the customer base and increase the sales volume. Third, reducing financing costs will continue to be one of our long-term strategic goals. We will maintain dialogues with funding partners, mainly focused on addressing the mismatch between funding supply and loan applications. Our goal is to cut the overall cost of our loan products by reducing the balance of the idle funds.

Lastly, we will deepen our collaboration with third-party institutions

to accelerate the disposal of delinquent loans and recover cash. By doing that, we hope to release the liquidity of sales partners so that they can use more resources in the business expansion.

With that,

I would like to hand the call over to Ms. J. Lee, the acting CFO of the company. We welcome you to the second quarter and the first half of 2022 financials.

Thank you, Mr. Chen, and thanks again to everyone joining us today. I will wait for you for our second quarter and first half of 2022 financials. We believe year-over-year comparison is the best way to review our performance. Unless otherwise stated, or the percentage change I'm going to get will be on that basis. Also, unless otherwise stated, all numbers I'm going to get will be in RMB. We will walk you through the figures for second quarter of 2022 first, followed by that for the first half. As of June 13, 2022, the total outstanding loan principal decreased to $9.4 billion, compared to $10.4 billion RMB itself. December 31, 2021. The total loan origination volume was $3.1 billion, compared to $3.8 billion in the same period of 2021. Interest financial service fees on loans was $408 million, a decrease of 9%, primarily due to the decrease of average daily outstanding loan principles in the second quarter of 2012 as compared to the same period of 2001. The decrease in average daily outstanding loan principle was due to the lower loan facilitation volume in the second quarter, resulting from the lockdown due to the local outbreak of COVID-19 in multiple cities within China. Interest expense was $187 million compared to $195 million in 2021, partly due to the decrease in the principal of other borrowings. Collaboration costs for sales partners decreased to $77 million in the second quarter of 2022, compared to $107 million in the same quarter of 2021, partly due to the lower fee rate the company paid to the sales partner in the second quarter of 2022. Coefficient for credit losses was 18 million compared to 15 million in the same period of last year. The decrease was due to the increased economic uncertainty caused by lockdown and reaction to local outbreaks of COVID-19, as well as the downward pressure faced by China's real estate market. during the second quarter of this year. The total operating expense were $91 million, an increase of 5%, compared to $87 million in the same period of last year. Income tax expense was $3 million, a decrease from $8 million in the same period of 2021. Net income was $18 million, a decrease of $72 million from $65 million in the prior year. Now we are moving on our financials for the first half of 2022. The total loan origination warning was $5.4 billion compared to $6.7 billion in the same period of last year. Interest and financing service fees on loans was $833 million a decrease of 6%, partly due to the decrease of average daily use daily outstanding loan principal in the first half of 2022 as compared with the same period of last year. The decrease in the average daily outstanding loan principal was due to the lower presentation volume in the first half of this year, resulting from the lockdown due to the local outbreak of COVID-19 in multiple cities, including China. interest expense was $388 million compared to $351 million in the same period of last year due to the increase of funding costs from the trust company. Collaboration costs for sales partners increased to $156 million in the first half of this year compared to $205 million in the same period of last year Highly attributable to the increased loan balance under the collaboration model. Provision for credit losses was a provision of $112 million compared to the recovery of $3 million in the same period of 2021. The increase was due to the increasing economic uncertainties caused by the lockdown in reaction to the local outbreak of COVID-19, as well as the downward pressure faced by China's real estate market during the first half of 2022. Total operating expenses was $171 million, a decrease of 6%, compared with $182 million in the same period of 2021. Income tax expenses was $19 million compared to $38 million in the same period of last year, partly due to the increase in taxable income in the first half of 2022 as compared to the same period of last year. Net income was $61 million compared to $151 million in the same period of last year. As of June 13, 2021, the company has cash and cash equivalent of $1.4 billion, compared to $2.2 billion as of December 31, 2021. The delinquency ratio excluding loans held for sale for loan origination by the company decreased from 16.8% as of December 31, 2021, to 14.9% as of June 13, 2022. And the NPL ratio excluding the loan helper cell for loan originate by company decreased from 2.1% as of December 31, 2021 to 1.9% as of June 13, 2022. With that, We'd now like to open up the core for Q&A. Operator, please.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from William Gregosowski with Green Ridge Global. Please go ahead, sir.

Hi. You talked about trying to do different things to help the sales partners, and you obviously need the sales partners to grow the loan origination. You know, you talked about some of the, you know, bringing in asset management company. What's the financial health of your sales partners? Are they liquid enough to source new loans or are they just trying to manage what they have now?

Do you think they still have enough liquidity to support the release of funds? Or do you think they are more focused on dealing with the loan issue now?

Due to the impact of the policy of the entire foreign exchange market environment, the current liquidity pressure of the entire core is rising. It is mainly due to the rise in the expected rate of loans. Okay, so under the current condition,

The liquidity pressure of our sales partners has been higher than before. And I think that's mainly because of the increase of the delinquency ratio. Because under our collaboration with the sales partners, they will have to bear the obligations to repurchase the default loans. So that has put a lot of pressure on their liquidity. 因此我们在进入2020年以来呢,我们也加大了对合伙人的支持力度。

In addition to continuing to allow them to take the responsibility and responsibility of repurchasing in a split payment method, we have also increased the deadline for split repurchasing. At the same time, we are also preparing to introduce asset management agencies to help them deal with the loan that has been repurchased. We hope to do our best to help our partners reduce the pressure of traffic, so that they can invest their own resources

Ever since the beginning of 2022, we have remained very supportive to our sales partners. I think the first thing we did is to allow them to fulfill their repurchase obligations by installments. Also, entering the second quarter of 2022, we have been giving them extensions. so that they can pay smaller installment every month. And also, we have been negotiating with the third-party asset management companies to see if they could provide post-loan services for the sales partners, so that way they could have their cash recovered faster, and so that way they could also release their liquidity and spend them on the business expansions. Does that answer your question?

Yeah. Could you also just talk about the quantity of sales partners you have? I mean, are you seeing more interest or are sales partners shrinking down in, you know, the quantity they're trying to source?

You mean the quantity for?

Yeah. So the total number of sales partners you have, Is that number increasing or decreasing, and are you seeing them being more active or less active?

Okay. 目前是上升了。 It is still going up slightly. 我们整个2022年,我们目前累计区的合伙人数量是1933人。

And also in terms of the numbers I can give in numbers of sales funders, here's the data.

So the sales partners who have signed the collaboration agreements with us has went up slightly to 19,000 as of the end of the second quarter. And we have also seen a rising number of active sales partners, and that would be around 1,200 as of the end of the second quarter of 2022, which is a 9% as compared to the same quarter of 2021. So as for your question, the number has gone up as well as the number of active sales partners.

Okay, perfect. There's been a lot of news in the media about the real estate market from developers having cash shortfalls, the number of unfinished, unlived-in homes, the interest rate cuts How do you guys view the real estate market as a whole and how it impacts CNF going forward?

And what do you think the current situation of the real estate market has to do with the prosperity of finance?

To be objective, the Chinese real estate market has experienced a rapid growth in the past 18 years. In the past two years, it has faced greater difficulties and difficulties. To be precise, the Chinese real estate market has been in a relatively uncertain situation. It has also had a certain impact on our business. So, similar to the lack of cash flow on the opening, the event of the Nangwei Building, to a certain extent, it has affected the people's confidence in the entire housing market, the confidence of the market. So, for us, the impact, of course, must include the following points. First, the fluctuation of prices will inevitably affect the volume of business. Because, in my opinion, the positive development of the entire housing industry lies in the stability of the housing market price. Only the stable housing market price Taiwan China China China China China China China China China China China China But in terms of optimism, in my opinion, if we look at a series of policies introduced by the country one after another, the national level hopes that the real estate market will rise steadily and continue to move forward. Therefore, the country will continue to strengthen the release of measures to regulate the entire real estate market, So from the current point of view, the policies that the country has released are actively effective. So the current price of the real estate market can be said to be basically stable. At the same time, in some core areas, the price of our real estate can be seen to be deep in stability. And the financial sector has been rooted in this kind of special and one-line core city. So, compared to our bottom line, we are in the process of controlling the macroeconomic policy. Our capital should be in the process of controlling this kind of profit. It is the most reflected on such a group. So for this whole method, including our business, we will have further resistance to price fluctuations.

Okay, so after nearly 20 years of high-speed growth of China's real estate market, I think it seems like it went into a dead end. And I think that mainly affected people's, especially the consumer's, view towards the housing market. And as for us, like you mentioned, there are a number of factors problems in the real estate market, including the insufficient cash of the developers, as well as the unfinished homes and stuff. Particularly to us, I think first of all, the development of the home equity loans depends on the price of the properties, and that's for sure. And that mainly affects our business volume and stuff. And also, for us, if the liquidity of the houses went down and the housing market is less active, it might influence our efficiency of disposing delinquent loans and the collectorals. But we are still positive towards the future development of the real estate market because we believe that our government is going to put more micro measures to stimulate and control the real estate market in China. And in the long run, the price and the liquidity of houses will be more and more stable. And also, we have observed one thing. Even in the fluctuation of the real estate market, the houses in the major blocks in Tier 1 and Tier 2 cities remain rather stable in terms of prices and liquidity. And our collector are mainly located within such areas. So, we think our collector and our business is more resilient to the fluctuations of the capital of the real estate market.

Yeah. Can you just, you said most of the loans are in tier one, tier two cities. What percent of your portfolio is in tier one and tier two?

You just mentioned that most of your supplies are in the first and second-tier cities. I would like to ask what the composition of your products is like. What is the proportion of business volume in the first and second-tier cities?

We are very close to the risk and recognition capabilities that we have accumulated in the housing market for so many years. 90% of our assets are distributed in the first and second-tier cities. The distribution of the first-tier cities is 31%, and the distribution of the second-tier cities is 58.5%. So objectively speaking, of course, in terms of product distribution, our products in Singapore are still in the mainstream. Currently, basically, the composition of the entire first-tier city is about 28%, and the composition of the second-tier city is 58%. So our banking products, that is, our banking products plus the human resources products we will develop in the future, So we're lucky that because of our experience in the home equity loan industry, our collectors are mainly located in the major blocks in Tier 1 and Tier 2 cities. As for the detailed statistics,

percentages, over 90% of our collectorals are in Tier 1 and Tier 2 cities. In that, about 30% of the collectorals are in Tier 1 cities. That's in terms of the loan origination. That's under our collaboration with trust companies. I also want to give you the numbers that associated with our partnership with commercial banks. So that is rather the loans under the commercial bank partnership, which is located, which is around 7% that is facilitated in Tier 1 cities, which is rather lower than that of our partnership with trust companies. But there are around 70% of the collectibles that is located in Tier 2 cities under our partnership with commercial banks.

Okay, perfect. And last question is, you've talked in the past about some technology upgrades you wanted to make. Can you just outline where you are on that process? What's the focus for the remainder of this year and next year, and what's the cost going to be for that?

My last question is that you have mentioned that your company will increase its investment in technology. I just want to ask you how you are progressing in this regard, including the next few years in 2020 and the past few years. And I would also like to ask you to introduce the relevant costs and cost-effectiveness. What is it like? In the past three years of this business,

We will continue to increase the investment in technology in the next two to three years. We will continue to increase the investment in technology in the next two to three years. We will continue to increase the investment in technology in the next two to three years. uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, So in the past three years, under the, you know, the COVID-19 pandemic, we have seen that how important it is for a company could do their business online. And as our business volume keeps increasing,

kept going up, we have been investing more into the technology. I want to make one thing clear that to improve our technological capability is to support the sales by coordinating data so that we can provide better services to the sales partners and the borrowers. As of this moment, as of today, the cost was not very significant as the major project was done by our in-house staff. As for the future, we do not really have a certain plan for right now, but our thought is that to make the investment towards technology a certain percent of revenue. That means if the revenue goes up, the investment in the technology will also go up. And our long-term goal is to make CN Finance a company that could promote business both online and on-site.

Okay, perfect. Thank you.

Again, if you have a question, please press star, then 1. This will conclude our question and answer session as well as our conference call for today. You can view the company's information at ir.cashchina.cn. Thank you for attending today's presentation. You may now disconnect.