CNFinance Holdings Limited

Q3 2022 Earnings Conference Call


spk00: Good day, and welcome to the CN Finance third quarter of 2022 Unaudited Financial Results conference call. All participants will be in a listen-only mode. Should you need any assistance during the call, 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 a question, please press star, then two. Please note that this event is being recorded today. I would now like to turn the conference over to Matt Liu, IR specialist. Please go ahead.
spk04: Thank you. Good morning and evening, and welcome to the CN Finance third quarter of 2022 financial results conference call. In today's call, our director and vice president, Mr. Chen Jun, will walk us through the operating results, followed by the financial results from our acting CFO, Mr. Li. And 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 21E of the Securities Exchange Act of 1934, as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as real, expects, anticipates, intents, plans, beliefs, estimates, target, going forward, outlook, and similar statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainty, and other factors, all of which are difficult to predict and may and may 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 forward-looking segment. Further information regarding these 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 forward-looking statements as a result of new information, future events, or otherwise, except as required under law. Now, please welcome Mr. Qian Jun. 我们将会回答大家的问题。 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 third quarter of 2022, followed by a Q&A session.
spk02: The bank introduced a loan of 400 million yuan. The company's income is richer, mainly due to the service fee of the bank model and the rise in the amount of rebate fees collected from partners. At the same time, due to the decline in financing costs and the initiative management of partners' bonus costs, the company's net profit is higher than last year. When the company adopted a more cautious policy, In the third quarter of 2022, has China's economy made a turn to the better?
spk04: Our business volume has increased as well. We facilitated loans of over $3.8 billion under our collaboration with the trust companies and introduced loans of $400 million to the commercial banks. Our revenue stream was more diversified as service fee associated with the commercial bank partnership and the interest income charged to sales partners both increased. The company's gross profit margin was also higher than that of same period of last year due to the decrease of collaboration costs and funding costs. We continued to be conservative in evaluating potential losses and recorded a provision for credit losses of 42 million during the quarter. As the result, we recorded a net income of 46 million, which was 27 million higher than the same period of last year. I would like to give a more detailed introduction of the work we have done and also share the management thoughts on our future development.
spk02: This quarter, China's economy is steadily growing. The GDP of the third quarter increased by 3.9% compared to the previous quarter. In this context, the company's business volume has risen. The amount of loans under the new model and the amount of loans introduced by the bank have all achieved the same growth. In this big environment, During the quarter, China's economy made a turn to the better, and its GDP increased by 3.9% from the second quarter of 2022. As for the company,
spk04: Both of the loans facilitated under the Trust Lending Model and the loans introduced to commercial banks increased on a year-on-year basis. During the quarter, we mainly focused on building and empowering the sales system, reducing funding costs, and promoting our partnership with commercial banks. The works we have done include, 第一,继续着力建设销售体系,并以科技为其赋能。
spk02: This quarter, the company is committed to building a multi-dimensional sales system, starting to introduce sales partners who can connect more customer resources, and through the company platform to maintain their wealth. In addition, the company has launched a managerial management system this quarter, so that the company's front and back can actually get customers, channels, products, funds, and other information at the same time, and through comprehensive arrangements for advanced business, thus increasing the efficiency of work.
spk04: First, building the sales system and using technology to empower it. This quarter, we worked on diversifying our sales system by establishing collaboration with channeling partners and empower them using our platform. We launched a mobile app this quarter, allowing our service team to timely interact with sales and application reviewers about the status of borrower, channel information, loan product, and funding information. and therefore increased the overall efficiency as the full process can be timely coordinated. Second, the management made an estimation at the beginning of 2022 that the market condition will take a turn this year, and there will be adequate fundings. In order to take this opportunity, we proactively initiated dialogues with our trust company partners on reducing funding costs and reached agreements, which has driven down our funding costs as compared to the same period of last year.
spk02: Third, after a few months of searching, the bank's housing model has gone out of scale. The company introduced a loan of more than 600 million yuan to the bank in the first three seasons of 2022. As of the end of the third season, the loan amount was about 6.4 billion yuan. In particular, our cooperation with private banks has shown good results. First of all, our cooperation with three banks has continued to expand. As of the end of this season, the loan amount recommended by three banks has exceeded 150 million yuan.
spk04: Third, as a result of the work we have done in the past few quarters, our partnership with commercial banks has started to scale. In the first nine months of 2022, we have introduced loans of over $600 million to commercial banks. And the outstanding loan principal under the commercial bank partnership was approximately $640 million as of September 30, 2022. Our partnership with private banks was showing particularly good momentums. First, our partnership with Bank of Xinjiang continued to scale, and the outstanding loan principal has reached $150 million as of September 30, 2022. Besides, we have started collaboration with Yilin Bank this quarter and have already introduced loans of over $80 million for it.
spk02: In the 20th report, it was proposed to support the development of small and medium-sized enterprises. This has once again confirmed the judgment of the management level since then, that China's general financial industry will continue to be in a strategic opportunity period. Under this great background, we will be committed to building a sales system, reducing financing costs, and increasing the growth of business in technology and energy companies.
spk04: Report to the 20th National Congress of the Communist Party of China stressed that we will support the development of micro, small, and medium enterprises, which is a proof of the correctness of management's estimation that there are huge opportunities in China's inclusive financing industry. To embrace such opportunities, we will continue to work on building our sales system, reducing funding costs, and leveraging technology to stimulate the business growth. Our goal is to provide affordable and accessible financing services to more MSA owners in China. Our plans are... First, besides servicing the current sales partners, we will put more resources to promote collaboration with channeling partners who have access to broader customers and empower them by providing them with refined services and management. We will use our platform and system to empower those channeling partners and help them to form scale.
spk02: Second, to grasp the opportunity to continue to introduce low-cost credit funds. In addition to credit funds, we will continue to expand the cooperation scale with the bank, and expand its ratio in corporate assets. At the same time, we will use bad assets to negotiate with the risk investment institutions for reinvestment. We will try to make the special asset fund go out of scale next year. We will start from the inside and enhance the overall arrangement of funds.
spk04: Second, we will continue to raise low-cost capital from trust companies. We will also continue to expand our cooperation with commercial banks and make it a bigger part in our product mix. In addition, we will also negotiate with subordinated units investors about refinancing NPLs. and make this refinancing to reach a certain scale by the end of next year. We will also refine our own process to better coordinate loan application and fundraising, and better manage edu-cash, and therefore further cut the interest rate on our loan products so that the MSC owners can receive the infusions.
spk02: Third, we will continue to use technology as a service to further improve the simplicity and effectiveness of our products. Third, we will continue to empower our business with technology and make our products simpler and more efficient. Within 2023,
spk04: We will register and maintain an official public account and use this account to send notice to borrowers, answer customer inquiries, and deal with complaints. We hope such official account could enrich our toolkits in terms of developing customer loyalty and further harness the value of our products.
spk02: Fourth, we will plan to actively participate in the capital market. In addition to continuing to promote F3 land donation, Fourth, we'll participate more proactively in the capital market.
spk04: Other than keep pushing a secondary offering, we're also seeking chances for an acquisition by exchanging shares using the treasury shares we have repurchased. We will pay attention to the elite fintech startups for that purpose.
spk02: 最后我想要代表公司和董事会欢迎杨格先生加入公司和董事会并担任读董。 杨格董事本科就读于南开大学国际金融学专业,之后又获得了清华大学MBA以及美国Saturn Hall University的会计学硕士学位。 On behalf of the company and the board of directors,
spk04: I would like to welcome Mr. Yang Ge to join the board as an independent director. Mr. Yang holds a bachelor's degree from Nankai University majoring in international finance. He also holds an MBA degree from Tsinghua University and an MS in accounting from Central Hall University. Mr. Yang has over 30 years of experiences in corporate finance, non-bank financial institutions, and wealth and asset management. He has worked with public companies listed in Shanghai, New York, and Hong Kong. Mr. Yang has worked experience both in China and overseas, including Europe and the U.S. Currently based in New York, he is expected to, together with other board members, explore further opportunities for the company to continue growth in the capital market and create more values to our shareholders.
spk02: I would like to hand the call over to Ms.
spk04: Jane Li, the acting CFO of the company, who will walk you through the third quarter 2022 financials.
spk03: Thanks, Mr. Tian, and thanks again to everyone joining us today. I will wait for you for our third quarter of 2022 financials, we believe year-over-year comparison is the best way to review our performance. Unless otherwise stated, all 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. As of September 13, 2022, total outstanding loan principal was 10.5 billion as compared to 10.4 billion RMB as of December 31, 2021. The total origination volume was a possibility 3.9 billion in the third quarter of 2022 compared to RMB 3.1 billion in the same period of 2021. Interest and financial service fee on loan decreased to 9% to $413 million for the first quarter of 2022 from $455 million in the same period of last year. Finally, attributable to a decrease in the balance of average daily outstanding loan principal. Such decrease was mainly as a result of the company's transfer of loan under the transitional facility model to third party in block during the fourth quarter of last year, which was partially offset by an increase in the total outstanding loan principle under the collaboration model. Interest expense decreased to 11% to $195 million for the first quarter of 2022. compared to $219 million in the same period of last year, primarily due to the decrease in principal of other borrowings and lower interest rates charged by trust companies. Interest-income-charged-to-sales partners, representing the fee-charged-to-sales partners who choose to repurchase default loans and instruments, increased by 213% to $34 million in the third quarter of 2022 from $11 million in the same period of last year. Timely attributable to the increase in the delinquent loans that were repurchased by sales partners in installments. Collaboration costs for sales partners decreased to $85 million for the first quarter of 2022 from IMB $102 million Finally, attributable to the lower average fee rate, the company paid to sales partner in the third quarter of 2022, as compared with the same period of last year. The fee rate under collaboration model where it's based on different collaboration model time and the terms of the loan. Co-visions for credit loss is increased by 30% to 42 million in the third quarter of 2022 from The increase was due to the heightened economic uncertainty caused by the COVID-19 pandemic and the relevant prevention and control measures, as well as the downturn pressures faced by China's real estate market during the first quarter of 2022. The total of operating expenses decreased by just 11% to $183 million for the first quarter of 2022 from the $193 million. Income tax expense increased by 153% to $17 million for the first quarter of 2022 from $7 million. primarily due to an increase in the amount of capital income. Net income increased by 142% to $46 million for the third quarter of 2022 from $19 million in the same period of last year. As of December 30, 2022 and December 31, 2021, the company has cash and cash equivalents and restricted cash of $1.4 billion and $2.2 billion. The delinquency ratio for loans originated by the company decreased from 34.1% as of December 31 to 32.9% as of September 13, 2022. The delinquency ratio excluding loans held for sale for loan origination by the company decreased from 16.2% as of December 31, 2021 to 13% as of September 30, 2022. The MPL ratio for loans to originate by company increased from 9.4% as of last December 31, 2031 to 10.8 as of December 13, 2032. And the MPL ratio excluding loan helper sales for loan originated by the company decreased from 2.1% as of December 32, 2032 to 1.5 as of September 13, 2032.
spk04: We would like to open the Q&A section with that. Operator, please.
spk00: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, please press star, then 2. At this time, we will pause just momentarily to assemble a roster. And our first question here will come from William Gregorzewski with Green Ridge Global. Please go ahead, sir.
spk05: Hi, guys. Great quarter. Can you provide an update on the number of active sales partners and give some kind of indication on how their liquidity is?
spk04: First of all, congratulations on this quarter. Can you tell us about the number of active partners and introduce their mobility?
spk02: This quarter, the number of active partners is 1,267, which is 100 more than in the same period last year. According to the last quarter, there were about 30 more. This quarter, we observed that the mobility of the partners has improved a little in the previous two quarters. So at the end of this quarter, the number of active sales partners is about 1,267.
spk04: which is about 100 more than Q2 2021 and 30 more than at the end of Q2 2022. As of the liquidity, they actually made a turn to the better, which can be observed in two aspects. The first is the increase in the loan origination volume, which means they now have liquidity to expand their business. And the second aspect is that they can now fulfill their obligation associated with defaulted loans because we are seeing fewer confiscation of credit risk mitigation positions. Thank you.
spk05: Okay, great. Can you talk about the commercial lending? You know, it was about 10% of total origination. Is that where you guys want to be at this point? And how do you see that continue to grow?
spk02: We hope that the entire bank loan model will be able to expand the amount. At present, the total investment amount is about 400 million. But we hope that by the end of 2023, the total investment amount of the bank's loan amount will be about 25% to 35% of the amount.
spk04: So the loans introduced to commercial banks in this quarter was about $400 million, which is not quite there yet. But we are hoping the loans we introduced to commercial banks continue to cut bigger shares in our portfolio. And our goal in 2023 for loans introduced to commercial banks is to make it about 20, 25% to 35% of the total loans originated, including the loans under the trust lending model, which is about 500 to 600 million every month.
spk05: Okay, great, great. And then can you just give an update on the demand you're seeing from the SME borrowers in terms of, you know, having a lot of demand, if there's a lot of demand and if they have good collateral with that.
spk02: including the uncertainty of the social demand brought by the economic and practical education system. Compared to the same period last year, the demand for small and medium-sized enterprises' loans is still reduced. However, compared to the second quarter of this year, there is a rebound. According to the data of the social financing demand announced by the People's Bank in the third quarter, the RMB loan increased by 6,152 billion yuan in October.
spk04: Okay, so because of the uncertainties raised associated with the pandemic prevention and control, as well as the downward pressure of the economy, so we're actually seeing less demand as compared to the same period of 2021. However, it's getting better. if you compare it to the first half. And also, from a data released by PPC, at the end of October, the new RMB loans is about $615 billion, which is $211 billion lower from the same period of 2021. So you can see that.
spk03: As for the collateral, you can see that both of the delinquency ratio and the NPR ratio has decreased.
spk04: at the end of the third quarter. So that means the quality of collateral is still within our control.
spk05: Okay, perfect. And last question is, you guys mentioned looking to do some acquisitions. Is there anything, you know, in that FinTech space specifically you're looking for, or just anything that might be, you know, complementary to what you guys offer?
spk04: The last question is, you just mentioned a possible acquisition plan. I want to ask, is there a specific goal now? Or is it just a relatively complimentary thing? Currently, there is no specific goal. It's just a thing that we want to do in the private market. There is not a particular target at this moment. It's just something we want to achieve in the capital market.
spk05: Okay. All right. Thank you.
spk00: Again, if you have a question, please press star 11. And with no further questions, we will conclude our question and answer session. I'd like to turn the conference back over to Matt Liu for closing remarks.
spk04: Thank you. And thank you again just for going out tonight or on this morning. If you have any further questions, you can always view our official website at Also, you can send us an email. Thank you. Thank you again.
spk00: The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.