CNFinance Holdings Limited

Hello and welcome to the CN Finance first quarter of 2023 on audited financial results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 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 Matthew Liu, Investor Relations Manager. Please go ahead.

Thank you. Good morning and evening. Welcome to the CN Finance first quarter of 2023 financial results conference call. In today's call, our director, Vice President, Mr. Quanjun, will walk us through the operating results, followed by the financial results from our acting CFO, Mrs. 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 Exchange Act of 1934 as amended, and as defined in the U.S. Private Securities Navigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, believes, estimates, targets, 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, 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 these 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 any forward-looking statement as a result of new information, future events, or otherwise, except as required under law. Now, please welcome Mr. Tianjun.

Thank you for taking the time to Thanks, everyone, for taking your time and attending this conference call. Today, we will introduce CNS's efficient financial results in the first quarter of 2023 and followed by a Q&A session. In this quarter, the company has continued to develop steadily, and has achieved its growth on various important indicators. In this quarter, the company's deposit amount is about RMB 30 billion, which is about 48% of the total growth. Among them, the bank has issued a loan of RMB 1.2 billion under the mortgage model. The total net income is about RMB 21.5 million. This quarter, the total interest income is about RMB 4.5 billion, which is about 9% of the total growth. In the first quarter of 2023,

We have maintained our momentum and achieved year-on-year growth, key operational and financial indicators. In this quarter, loan origination volume increased 48% from the same period of 2022 to RMB 3.4 billion, including RMB 1.2 billion under commercial bank partnership. Net revenue under the commercial bank partnership model came in as RMB 21.5 million, for the fourth quarter of 2023. The total interest and fees income for Q1 2023 was RMB $450 million, representing an year-on-year increase of 9%. We've continued to provide installment services and funding support for sales partners who are obligated to repurchase delinquent loans and recorded an interest income charged to sales partners of RMB $37.5 million. The net income in Q1 2023 increased 14% year-on-year to RMB 49 million. In the first quarter of 2023, we have done the following works.

First, continue to promote the development of the bank loan model. The quality of the bank product's target borrowers is relatively high. At the same time, there are relatively few customers who have free funds. Since 2021, due to its lower interest rate, the bank loan model has gradually gained market share. In the first quarter of 2023, the bank loan model continued to develop. The bank loan amount has reached 35% of the total amount and has become a stable income contribution point. Based on this, the company introduced a loan partner in the bank loan model.

We continued to promote and refine commercial bank funderships. Targeted borrowers of commercial bank funderships have better credit ratings in general, and bank lending products require less own capital of the company. Since its launch in 2021, the commercial bank fundership model has gradually gained recognition from the market, and our partners, because of its low interest rate, After deepening cooperation with private banks, the origination volume of bank lending products began to increase quickly in the second half of 2022 and continued to grow in the first quarter of 2023. In Q1 2023, loan origination volume of bank lending products accounted for 35% of total loans originated by the company and has become one of the company's major revenue streams. In this quarter, we have brought sales partners into the commercial bank partnership and further reduced our risk exposure.

We have reduced the funding cost and diversified the financing mix.

As we have reached consensus with funding partners on reducing interest rates in the second half of 2022, our interest and fees expense Q1 2023 has decreased 8% year-on-year, RMB 180 million. In this quarter, we successfully established a couple of funds in third-party AMC and provided sufficient and consistent funding support for sales partners who needed to repurchase eviction loans. With that, Those partners' liquidity was improved and were more motivated to expand their business.

Third, to increase asset volume. In this quarter, the company has analyzed since 2002 and the investment situation in this quarter. For bad loans, we have analyzed the risk factors and analyzed the results. We continue to optimize the current audit model and move our business to the first line. We have improved the asset quality.

In this quarter, we analyzed historical originations and conducted risk factor analysis on defaulted loans. Based on the results, we refined our model for risk assessment. and shifted our prioritization to business operations, Tier 1, New Tier 1, and other major cities. As you know, the liquidity ratio at the end of Q1 of 2023 has decreased as compared to the end of Q2.

We still believe that the Chinese general financial industry will continue to be in a strategic opportunity, but at the same time, in the face of complicated and uncertain situations, We continue to be confident that China's inclusive financing industry is in its window period. At the same time, the uncertain environment has made it very important for us to pursue high-quality development.

We will continue to expand our business.

We will continue to expand our business. We will continue to expand our business. We will focus on increasing loan origination volume.

We will continue to take measures to better service high-quality sales partners and support their growth. We will keep promoting commercial bank partnership, refining trust lending model, and discovering opportunities to deepen our collaboration with influencers. We will adjust our products based on market conditions. We are looking forward to rolling out a new bank lending product that charges an annual interest rate less than 12% in the second quarter of 2023.

Secondly, we will upgrade the capital model. First of all, we will open up a structure to optimize the trust project with our trust partners. Secondly, we hope to increase the capital fund's capital cost.

So keep refining our funding model. First, we will maintain dialogues with trust company partners on adjusting the structure of trust. Second, we will negotiate with AMCs on reducing the interest rates they charge in order to further ease for sales possibilities.

Third, continue to increase the use of technology to develop and design. We will continue to analyze the data on the history of investment. Surrounding the asset design environment in the core city and core area, we will launch a new type of loan product to increase the market share. We will further improve the public market. Excuse me, this is the operator.

I'm sorry, we're getting a lot of noise. I'm going to see if we can reconnect. Just one moment, please. Excuse me, this is the operator. I've met you to resume. Thank you. Please go ahead.

All right. Welcome back. And we will just pick up from whenever we hang up. Now, please welcome again Mr. Qian Jun to give his remarks.

First, focus on growth and improve business headings. We will introduce more policies that support privileged partners, continue to achieve the bank loan model, and upgrade the bank loan model. Our future tasks include, first, we will focus on increasing our origination system. We will continue to take measures to better service high-quality sales partners and support their growth.

We will keep promoting commercial bank partnership, refining trust in the lending model, and discovering opportunities to deepen our collaboration with insurance companies. We will adjust our products based on market conditions. We are looking forward to rolling out a new bank lending product that charges an annual interest rate less than 12% in the second quarter of 2023.

Second, we will continue to optimize the capital model and upgrade it. Second, we will keep refining our funding model. First, we will maintain dialogue with trust company partners on adjusting the structure of trust plans.

Second, we will negotiate with AMCs on reducing the interest rates they charge in order to further ease the liquidity pressure of our sales partners.

Third, we will continue to increase our investment in technology and use the technology to further improve product design and air-conditioning models. We will continue to analyze the history of investment, and we will launch low-cost credit model loan products around the core city and core area. We will keep investing in technology and fully recognize the importance of technology in refining product design and risk assessment.

We will continue to analyze historical data of loans originated. We will tailor products or loans secured by collectibles in core areas of Tier 1 and new Tier 1 cities. We will also roll out trust lending products that charge lower interest to increase our market share. We will deepen analysis on different factors of collectibles and borrowers to help refine risk assessment model in order to improve asset quality and our resistance to market fluctuations.

Now, I would like to hand the call over to our Acting CFO, Mrs. Jay Li, who will walk you through the financial results of I-2023.

Thank you. Thank you, Mr. Chan. Now, let's go to the first quarter of 2013 financial results. Before we start, I want to remind you that unless otherwise stated, the currency we use will be an R&D. Also, unless otherwise stated, all comparison will be made on the year-over-year basis. The interest and financial service fee on loans increased by 5% to $412 million from $319 million, primarily attributable to the increase of average daily outstanding loan principal in the first quarter of 2023 as compared to the same period from charge to sales partner, representing the fee charge to sales partner who choose to repurchase default loans in installments, increased by 16% to $38 million from $33 million. This is primarily due to the fact that the company allows more sales partners to research in installments to help sales partners ease their pressure on sales. And fleet expands by 8% to $185 million, as compared to $2.5 million in last year. primarily due to a decrease in GDP, hours spent on the books, and as well as the funding costs from the trust companies. Net income and feed income increased by 44%, $625 million from 2020. Net revenue, Virtual Bank's market share was $22 million, The company has started to collaborate with commercial banks since 2021, and such collaboration grows and scales the commercial quota of 3.4 million. The outstanding loan principal under the commercial bank partnership is 3.4 million as of 31, 2023, and as compared with 26.4 million at the same period of last year. of our sales partner. This represents sales incentive paid to sales partners by 4% to $183 million, compared to $86 million last year. The primary attribute points to the income of our family outstanding loan principal in the first quarter of 2003, as compared to the same period. The position for credit losses, the position for credit losses under the Fox-Lennon model, and the effective credit losses guarantee under the commercial plan partnership model. In relation to the current financial guarantee arrangement, the company enters into a third-party guarantee system. who provide guaranteed service to the community plan partners. It was $79 million in the first quarter of 2016 as compared to a reversal of $14 million in the same period of 2032. The reversal in last year was widely due to the transfer of $10,000 per person per quarter to the party plans. The allowance of that amount was reversed.

Excuse me, this is the operator. I'd like to reintroduce Matthew once again. Please go ahead, sir.

Thank you. Thank you. Welcome again to this conference call. Sorry for the connection issue. Now I'd like to hand the call over and introduce our acting CFO, Mrs. Jay Lee, who will go over the financial results with you. of Q1 2023. Please go ahead.

Thank you all, and I'm sorry for the issues. Now we reconnected and we started. Now let's go for the first quarter of 2023 financials. Before we start, I want to remind you that unless otherwise the state, the currency we use would be in RMB, and also unless otherwise stated or comparison will be made on a year-over-year basis. Interest and financing service fees on loans increased by 5 percent to $412 million from $391 million. Partly attributable to the increase of average daily outstanding loan principal in the first quarter of 2023, as compared to the same period of 2022. Increased income charged to sales partner. Representing fees charged to sales partner who choose to repurchase default loans in installments increased by 16% to $38 million from $23 million, partly due to the fact that the company allows more sales partners to repurchase default loans in installments. to help those partners if they are pressed on cash flow. Interest and fees expense decreased by 8% to $185 million, as compared to $201 million. Finally, due to the decrease in daily average outstanding loan principal of other borrowers, as well as the falling costs from trust companies, Net interest and fees income increased by 24% to $269 million from $216 million. Net revenue under the commercial bank partnership model was $32 million. The company has started to collaborate with commercial banks since 2031, and such cooperation grows and scales in the second half of 2022. The outstanding loan principal under the commercial fund partnership was $3.4 billion as of March 31, 2023, and compared to $17.4 million as of the same period of last year. Collaboration costs for sales partners representing the sales incentives paid to sales partners increased by $400 4% to $83 million compared to $18 million in last year. This is primarily attributable to the increase of average daily outstanding loan principal in the first quarter of 2013 as compared with the same period of last year. Provision for credit losses representing provision for credit losses under the Trust Company Model and the expected credit loss of guarantee under the commercial bank partnership model in relation to the third financial guarantee arrangement that company entered into with a third-party guarantor. Who provides guarantee service to commercial bank partners? It was $79 million in the first quarter of 2003 as compared to a reversal of $14 million in the same period for last year. The reversal in last year was primarily due to the transfer of remaining loans under the traditional facilitation model to third parties, and the allowance of such loans was reversed. Operating expense remains stable at $18 million. The income tax expense was $18 million, compared with $15 in the same period of last year, primarily due to the increase in taxable income in the first quarter of this year. Net income increased by 14% to $49 million, compared to $43 million last year. As of March 31, 2033, the company has cash, cash equivalents, and received cash of $2.2 billion, compared to $1.8 billion as of December 31, 2032. The delinquency ratio for loans originated by the company decreased from 18.3% as of December 31, 2032 to 15.2% as of March 31, 2033. The MPL ratio for loans originated by the company was 1.8% of the March as compared to 1.1 as December 31, 2022. Now, we would like to go ahead and start the Q&A section. Please.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The next question or the first question comes from William Gregorzewski of Green Ridge Global. Please go ahead.

Thanks. The provision for credit losses bounced around the last few quarters. How should we look at that going forward for modeling purposes?

financial institutions' habits and industry standards. Because we introduced the partner model, and in the four-year operation, the partner provided us with a good guarantee of our assets. So we reduced our own risk threshold effectively.

So, we have always maintained a very consistent provision policy, and it's based on a model that is provided and supported by our auditors, as well as the peers in the financing industry. And since we introduced the collaboration model four years ago, and after four years of operation, We believe that the build partners are providing very good guarantee to the loan they are introduced.

And in this quarter, because of the partners, they provided a very good guarantee to our assets. And especially in this quarter, as the sales partners are providing guarantee and protection to the loans they introduced, our delinquency ratio is actually lower, has actually decreased.

And that's why based on the model, the provision model, we have occurred last provision.

And also...

As the pandemic control is over in China, and the macro economy has made a good turn. And that also impacts our forecast for the future. And that's another reason why the provision is lower in this quarter.

In the future, we think that the partner model, after many years of verification, the partner model can better guarantee the quality of our entire assets and everyone can better expand our entire scale. So in the future, we will continue to use this model. And in this quarter, our bank, So going forward, as we have recognized the advancement of the collaboration model, and more importantly, we have also brought sales partners into our business.

partnership with commercial banks. I think we will just hold on to this collaboration with sales partners in the future because not only does it help us to contain the risks, it also helps us to extend our scale. Does that answer your question?

Yeah, yeah, thank you. On the commercial lending side, you've talked in the past about that being around a third of origination. Do you think that'll stay around that level? Because that's where you're at now, given how fast the origination numbers are taking off for that and the new product you mentioned you're rolling out?

I didn't catch your first line. Could you repeat that?

Yeah, you guys have talked in the past about the commercial lending being about a third of origination. Do you think that'll get higher given how fast it's growing and the new product you're bringing out? Okay.

From the perspective of the entire first-generation investment, the current balance sheet of the entire banking product has reached 35%. According to our entire judgment and planning for the product investment in 2023, it has basically reached our ideal peak. Of course, in the future, in terms of the overall investment scale, in the case of constant expansion, So if you look back to the data in the first quarter, the loans originated under our collaboration with commercial banks actually accounted for 35%. And I think that's well above our estimation.

But I think that's the planned peak. So in the future, I think the origination volume of commercial bank partnership will just continue to grow. But as long as the overall loan originated keeps growing as well, I think the proportion of commercial bank partnership is going to be kept at 35% to 40%.

Of course, this is based on the conditions we have for existing banking products. We make a judgment If we say that in the beginning of the year, for the entire banking product pricing model, our idea and requirements, if we say that we hope that our banking products can continue to continue to reduce the interest rate of middle-class customers, if we say that we can reach our ideal 12% or less, we think that the possibility of further expansion and expansion is still very high.

And that proportion is based on our current expectations, just based on the current market conditions and our analysis. But if it is possible for us to, like we said, roll out the loan product under the commercial bank fundership, which charges the interest rate that's lower than 12% annually, I think the proportion of loan products facilitated under the commercial bank partnership will just grow as well. And it will just cut a higher share in our overall loan origination. Thank you.

Okay.

I guess you're kind of implying to them that the trust company origination will be increasing as well. Are you guys seeing more demand Now for those products you mentioned, you know, in the previous question that the macro economy is improving. Are you seeing more demand for kind of the traditional lending that you guys have done?

From the point of view of the whole social financing report of the entire first quarter, the entire demand for residential loans should be relatively stable. Compared with last year, it is relatively stable growth. Then for the whole second quarter, including the whole second half of the year, we still maintain a high level of confidence in the development of the entire Chinese economy. We think that the Chinese economy, after overcoming the first three years, has gone through a complete loophole of the first quarter. should face a stable and deep economic development. So based on such a big premise of judgment, our entire business scale should be said to be the development of the entire Hong Kong economy. It should be said that there is a space and possibility for further development, so for the development of the entire economy, of course, our entire topic of development this year is still to maintain high-performance development, that is, at the same time as the scale of development, we emphasize So based on the status and data released in the first quarter of 2023, I think the lending demand

is rather stable as compared to the same period of 2022. And looking forward to the second quarter and after, we remain confident in China's economy. And I think it is going to pick up gradually in the future. So there is still room for us to expand our business. But as we have said, we will... pursue high-quality development. So that means we will focus more on the asset quality as well as to operate in a more compliant way to build the compliance to operate fully in a compliance way. That's why I think we are going to keep our estimation for the year of total loan origination of $20 billion. Thank you.

Okay, great. Thank you. Thank you. See you guys next week.

Again, if you have a question, please press star then one. Seeing there are no further questions, this concludes our question and answer session. I would like to turn the conference back over to Matthew Liu for any closing remarks.

Thank you. And thank you guys again for attending this conference call and just apologize again for the connection issues. So this call will have a replay on our IR website at ir.catchchina.cn. If you have any questions, you can also contact us via ir.catchchina.com. Thank you. Thank you again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.