CNFinance Holdings Limited

Good day and welcome to the CN Finance Fourth Quarter and Fiscal Year 2022 Unaudited 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 run on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Ms. Jane, Manager of Capital Markets. Please go ahead.

Good morning and good evening, and welcome to CN Finance fourth quarter and fiscal year of Toitai 2 Financial Resource Conference call. In today's call, Our director and vice president, Mr. Chen Jun, will work us through the operating results, followed by the financial results from our acting CFO, Ms. Li. After that, we will have a Q&A session. 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 and Exchange Act of 1936. as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. This forward-looking statement can be identified by terminologies such as view, inspect, anticipate, feature, intend, plan, believe, estimate, 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 non-war, 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 forward-looking statements. Further information regarding this and other risks, uncertainties, or factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update the following 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 fourth quarter and fiscal year of 2022, followed by a Q&A section.

In 2022, the company's annual income will be about 1.7 billion RMB. Under the banking model, the service fee will be about 58 million RMB. The final net profit will be about 1.4 billion RMB, and the growth rate will be about 111% compared to the same period last year. The company generated interest income of RMB 1.7 billion and net revenue under the commercial bank partnership model of RMB 58 million for the fiscal year of Tai Tai 2.

ultimately achieving a net profit of RMB $140 million, an increase of 111% over the same period of last year. Using the strict pandemic prevention and control policies maintained in 2022, the company still achieved year-on-year growth in business growth as well as profitability mainly due to the accomplishment of the following.

First of all, we have strongly promoted new products and expanded the customer base. Since 2021, the bank loan model gradually gained the recognition of market and partner cooperatives. After deepening cooperation with private banks such as Sanxiang Bank and Yilin Bank this year, the bank loan model began to develop rapidly in the second half of 2022 and formed a certain scale at the end of the year. We rigorously promoted the new product and expanded our customer base through it. Since it launched in 2021,

the commercial bank partnership model has gradually gained recognition from the markets and our partners. After depending cooperation with private banks, including Shaanxiang Bank and Yilian Bank in 2022, the commercial bank partnership model began to grow rapidly in the second half of 2022 and took shape at the end of the year. In 2022, the company recommended a total of RMB 2.5 billion of loans to banks, meeting the target set at the beginning of the year. The net revenue under the commercial bank partnership model also increased.

Second, the management has made a judgment at the beginning of the year that the whole market situation this year will change. The funds will be relatively generous. We have reduced the funding cost. Management made a judgment at the beginning of the year that small conditions may change this year.

and that there would be a relative abundance of funds. The subsequent developments were in line with the management's expectations at the beginning of the year. And therefore, in order to take full advantage of the fee reduction by financial institutions, the company continued to negotiate with its 12 company partners through the year and reached an agreement to reduce funding costs in the second half of 2022.

At the beginning of this year, the company was more actively involved in the private market. In 2022, the company continued to vigorously promote the second wave and opened up a positive contact with foreign and domestic investors. Through contact, we feel that domestic and foreign investors still have a positive view of China's general finance industry and are closer to the company's confidence.

The company began to participate more actively in the capital market during the year. The company continued to push forward for secondary offerings in 2022 and actively engaged with domestic and international investors. Through this context, we feel that both domestic and international investors continue to have a positive view of China's inclusive financial industry. And this has reinforced the company's confidence.

In this situation, in 2022, the company will allow more partners to take a separate payment to fulfill their repurchase obligations. Fanhua, based on a certain proportion, has collected funding for it. This policy will certainly alleviate the pressure on partners and enrich the company's income structure. We also plan to continue to complete the separate repurchase policy in 2023 and further reduce the burden on partners.

Of course, while fully recognizing the achievement of our business, it is important to note that there is still room for improvement. Due to the impact of the pandemic prevention and control policy on followers' solvency as well as the overall efficiency of these posts, the MPLs our delinquent ratio has increased and the sales partner has been under greater pressure to repurchase default loans. Under the circumstances, the company allowed more partners to fulfill their repurchase obligation in 2022 using in-demand payments. With CN Finance charging a certain fee, this policy has eased the liquidity pressure of the partners and enriched the company's revenue mix We also plan to continue to refine our installment research policy in 2023 to further reduce the burden on sales partners. And I will elaborate the details later.

We believe that 2023 is still a year full of uncertainty. The recent government work report also mentioned that China's current development is facing many difficulties and challenges. For this reason, in the new year, the company will start from scale, efficiency, quality, We believe that 2023 will continue to be a year of uncertainty and recently released 2023 report on the work of government also mentioned that China current chief country

face many difficulties and challenges in its development. In 2023, the company will cooperate the development of the disk scale, efficiency, and quality, continue the transformation to a service platform in order to achieve high-quality development. Our specific work objectives include 1.

Constantly develop new products, upgrade new models, expand customer groups, and increase scale growth. We will continuously provide new products

upgrade our model, expand our customer base, and grow our scale. In this end, we will continue to deepen our cooperation with commercial banks. Other than negotiating with the current commercial bank partners on the ratio of the deposits and seeking cooperation with more banks, we also plan to introduce sales partners into the commercial bank partnership model. Our goal is to let South Corner provide credit enhancement for the commercial banks with BN Finance as a service provider.

Secondly, we are actively promoting the upgrade of the capital model. In the new year, in addition to continuing to reduce the cost of credit capital, we will actively negotiate with the risk investment institutions to use bad assets for debt financing. Through this special asset fund, keep upgrading the funding model.

In 2023, other than keep reducing the funding cost, we will actively negotiate with the venture capital institutions on refinancing with non-to-funding assets and use such capital to fill the repurchase of the sales partners. By doing that, We are hoping to allow more sales partners to fulfill their applications by instrument payment.

Third, continue to increase the investment in technology and promote digital transformation. The company plans to further increase the investment in technology in 2023 and promote the construction of smart wind control systems. We will collect data and add analysis through research to establish a smart audit model suitable for the company, and thus optimize the entire modern audit process.

We will continue to invest in technology and drive digital transformation. The company plans to further increase investment in technology in 2023 to promote the construction of an intelligent risk control system. We will collect data through risk research and analyze it to build a screening model suitable for the company. thereby empowering the business development by optimizing the entire loan approval process.

Fourth, we will focus more on asset volume and balance the relationship between growth and asset volume. First, we will optimize the current audit model. Second, we will use market data as a basis to properly adjust the area of professional assessment.

We will take more attention to asset quality by better cooperating growth and asset quality. Firstly, we will optimize our credit approval model. Secondly, we will use market data as the base to provide guidance on which region we should put more resources in. and therefore improve the quality of our profile. Our initial plan right now is to focus on expanding our business in Taiwan and new Taiwan cities.

Recently released in 2013, the government's work report once again emphasized that it encourages the growth of the private economy and private enterprises. It is important to support the development of enterprises and private companies, and it proves that the Chinese public finance proposed by the management level The industry will continue to be in the strategic opportunity period. This judgment is still in the current form. At the same time, the management team believes that with the adjustment of the epidemic prevention and control policy and the government will expand the area to determine the focus of this year's national economic development, China's economy may begin to warm up. We will also seize the opportunity to continue to deepen our own reform and provide more small and medium-sized enterprises with better financial services.

The recently released 2023 report on the work of government once again emphasized on encouraging and supporting the development and growth of the private economy and private enterprises and supporting the development of small, medium, and micro enterprises and individual enterprises. which proves the management's estimation of China's inclusive financial industry will continue to be in a period of strategic opportunity. It applies to the current situation. At the same time, the management believes that with the adjustment of the pandemic prevention and control policy and the government's effort to stimulate domestic demand as one important task for national economic development in 2023. China's economy has the potential to take up, and we will also seize the opportunity to continue to deepen our own reform, provide more micro and small business owners with better financing services, and also contribute our share to the cause of inclusive finance in China.

With that, I'd like to hand the call over to Ms. J. Li, Acting CFO of the company, who will work with you through the fourth quarter and fiscal year of 2022 financials. Thanks, Ms. Tian. And thanks again to everyone joining us today.

How were you through the

fourth quarter and fiscal year of 2022 financials. We believe year-over-year comparison is the best way to review our performance. Unless otherwise the state or percentage change I'm going to give will be on that basis. And also, unless otherwise the state or number I'm going to give will be an R&B. We will start with fourth quarter of 2022 first, and followed by the result of the fiscal year. During the first quarter of 2022, total loan origination volume was $3 billion, and the total volume of loans recommended to commercial banks was only $2 million. Total interest and fees income were $465 million. Interest income transferred to third partners. 33 million, which represents the fee charged to sales partner who choose to repurchase the default rate loans and installments. Collaboration course for sales partner represents the sales incentive paid to sales partner decreased to 18 million from the 120 million in the same period of last year. This primarily attributes to a lower average rate that commonly paid to a service partner in the first quarter of 2022 as compared with last year. The net revenue under the commercial bank partnership model representing fee charged to a commercial bank for service including introducing borrowers, initial credit assessment, facilitating loans from bank to borrower, and providing technical assessment to borrowers and banks. The net of fees paid to third-party insurance companies was $66 million. The company has started to collaborate with commercial banks since last year, and such collaborations grew and scaled in the second half of this year. The net income was $39 million. compared with a net loss of only $105 million in the same period of last year. And now let's move to the results for our fiscal year of 2022. The total interest rates and income was $1.7 billion, and the total interest rates and expense was $785 million. The interest income charge to sales partner represents Representing seed tracks the sales partner who choose to repurchase default loans in installment increased to $122 million from $33 million in the same period of last year. The collaboration course for sales partner representing the sales and down-to-date sales partner increased to $321 million from $436 million from the same period of 2021. Net revenue under the Commercial Bank Partnership Model. Representing fees charged to commercial banks for introducing borrowers, initial credit assessments, facilitating loans from the bank to borrowers, and providing technical assessments to the borrowers and banks. Net of fees paid to the third-party insurance company was $58 million in this year. The net interest fee income after collaboration course was $693 million, representing an increase of 11% as compared with $615 million in the same period of last year. And the position for project losses was $248 million for this year. and compared to a reversal of RMB 273 million in the same period of last year. The reversal in last year was primarily due to the fact that the company transferred loans under a traditional facilitation model to third parties in bulk during the fourth quarter of 2021, and a lot of such loans were reversed. The increase in pollution for quarter losses in this year was mainly due to the economic uncertainty caused by the COVID-19 pandemic and the relevant prevention and control measures, as well as the downward pressures faced by the China's real estate market during 2022. Net loss on sales of loans was $35 million for the fiscal year of 2022, compared to $451 million in the same period of last year, primarily attributable to the fact that the company transferred loans under the traditional facility model to third parties in block during the first quarter of last year. Such loans were all facilitated prior to 2019, and the majority of them were lost or due. net of $19 million compared with RMB$19 million in the same period of last year. This is primarily attributable to the increase of credit risk mitigation provision decisions for fixed-buy sales partners. Total operating expenses decreased by 11% to $339 million as compared to RMB$381 million for the same period last year. Net income increased by 111% to $138 million for the fiscal year of 2032, compared to $65 million for the same period last year. And the delinquency ratio, excluding loans held for sale for loans originated by companies, was 18.3%. as of December 31, 2031, or 2032, and the MPL ratio excluding loans held for sale for loans originated by company decrees from 2.1% as of December 31, 2031, to 1.1% as of December 31, 2032. With that, we now like to open up the court for Q&A.

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 are using a speakerphone, you will need to pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Once again, that was star then 1 to ask a question. And at this time, we will pause momentarily to assemble the roster. And our first question will come from William Grezozeski of Greenbridge Global. Please go ahead.

Hi, could you talk about your expectations for origination for the current year, especially between the split between trust and commercial because you did so much commercial origination in the fourth quarter? How, you know, what is that percentage going to look like across this current year? 您能不能介绍一下本年度的放款目标?

Especially in the comparison between the traditional new model and the banking model. Because you have a lot of bank models released this year.

After 2030, our overall investment target is about $2 billion. By 2022, we hope to have more than 40% growth. So our targeted total loan origination volume in 2023 is around 20 billion RMB, which is about 40% increase than that of 2022. And we're hoping 40% of that 20 billion

It's come from loans recommended to commercial banks.

Okay, great. And then given the general economic uncertainty and property market uncertainty, are you guys seeing any more sales partners coming to the platform because of the additional services you guys provide in terms of the risk management and the installment plan? compared to doing it on their own as they may have been doing before?

So in the face of the uncertainty of the current economic situation, do you see that there are more loan partners because you can provide better services, including better wind control and external institutional funds to join your platform, instead of being alone like before?

From the data, we are very happy to see that the number of active partners at the end of this year has increased nearly 100 compared to last year, with a 10% increase. In addition to the better wind control that you mentioned and the reasons for increasing leverage, I think there are two reasons why loan partners are willing to join Fanhua. Based on the data, we're happy to see that the number of active sales partners

as of the end of 2022 actually increased about 100, which is a 10% increase as compared to the end of 2021. Also, I want to mention that besides the better services we can provide them, the better risk management and external fundings, I think there are two major reasons why the sales partners are more willing to join our platform. The first thing is their confidence in how China's economy is going to pick up. And I think the second reason is that the repurchase by installment policy we rolled out in 2022. I think that really could help them ease their liquidity pressure and also help them to better manage their own risks.

Okay, great. As far as your current loan to value, do you guys have that ratio where it stood at the end of the year compared to the year ago period?

So at the end of 2022, the average LTV ratio is around 60%, which remained rather stable to the past three years. OK.

Given the, you know, you guys are now breaking out the income charge to sales partners for these installment loans, is this a number that you guys are expecting will rise over the course of the year or will it start to tail off as, you know, the economy and everything improves over the course of the year? How should we look at that line item?

Could you repeat the second part of the question, please?

Yeah, more just wanting to get an idea of, you know, where you guys see the interest charge to sales partners line item going over the course of 23. Is it going to increase throughout or increase and then start tailing off?

Okay. 这个问题是你们针对合伙人收取的分期服务费,你认为在2023年是会上升呢还是会下降呢?

Okay, so based on what we have seen how the economy is picking up and recovering,

I think the overall asset quality of the loans originated by us is going to be better and which is going to drive down the overall delinquency ratio. Therefore, I think the total scale of how much the sales partners have to repurchase is going to go down. Therefore, I think the interest income charge to our sales partners is going to remain rather stable in 2023 with a little going down.

Okay. And last question is more just general. You know, given the current environment, what do you guys see as the biggest risk for the company and biggest opportunity for the current environment?

At the moment, for FanHua, the biggest challenge is that after the end of the epidemic, it can quickly and effectively reduce the expected rate and improve the overall quality of assets. The entire specific action includes not only to clean up the entire industry area to the first line and the new line area, but also to gradually reduce the business ratio of two or three cities. In addition, it also needs to accelerate the recovery of technology. more economic review process, and better control of funds. As for the rest, first of all, with the adjustment of the entire epidemic prevention and control policy last year, we still look forward to the trend of the future of China's economy. Second, after two years of regulation and control over the entire real estate market, the current data shows that the exchange rate and unit price of the entire real estate market in the core area and core period have recovered. The company's business of more than 70% in 2022

OK, so I think the major challenge to CN Finance is whether we can contain the increase of the delinquency ratio given the adjustment post the adjustment of pandemic prevention and control policies. That means we have to focus more on the asset quality. So to address this challenge, we're going to take a couple measures, including we kind of want to focus more on expanding our businesses in Tier 1 and new Tier 1 cities, and just to lower the proportion we're doing in Tier 2 and Tier 3 cities. Also, we want to just use technology to refine the whole loan approval process and just to manage risks better. Also, I think the opportunities presented to us, including the first thing is how China's economy is going to pick up, going to recover post the adjustment to the pandemic provision and control. And also, the second thing is, so after the past two years, we have finally seen the trading volume and property price in core areas start to recover. And since the majority of our business was conducted in such regions, and I think that's another good news to us.

Okay, great. Thank you.

Thank you.

Once again, if you would like to ask a question, please press star, then 1. This concludes our question and answer session. I would like to turn the conference back over to Ms. Jane for any closing remarks.

Thank you for joining us today. If you have any questions, please feel free to contact us at iracastchina.cn. Thank you.

The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.