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Operator
Ladies and gentlemen, thank you for participating in the fourth quarter and full year 2022 earnings conference call for Finvolution Group. At this time, all participants are in a listen-only mode. After management CPL remarks, there will be a question and answer section. Today's conference call is being recorded. I'll now turn the call over to your host, Mr. Jimmy Tan, Head of Investor Relations for the company. Thank you, Jimmy. Please go ahead.
Jimmy Tan
Hello everyone and welcome to our fourth quarter and full year 2022 earnings conference call. The company results were issued via newswire services earlier today and are posted online. You can download the earnings release and sign up for the company email alerts by visiting the IRR section of our website at irr.fimpigroup.com. Mr. Tie-Cheng Lee, our Chief Executive Officer and Mr. Jia Yuan Xu, our Chief Financial Officer will start the call with their prepared remarks and conclude with a Q&A session. During this call, we will be referring to several non-GAAP financial measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with US GAAP. For information about these non-GAAP measures and reconciliation of GAAP measures, please refer to our earnings press release. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involved inherent risks and uncertainties. As such, the company results may be materially different from the view expressed today. Further information regarding these and other risks and uncertainties are included in the company's filings with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Finally, we post a slide presentation on our IR website, providing details of our results for the quarter. I will now turn the call over to our CEO, Mr. Tianzhen Li, B-School Head Sir.
Tie - Cheng Lee
Thanks, Jamie. Hello, everyone, and thank you for joining our B-School. I'm Tianzhen Li, co-founder of the company, and a supplier to B-School, and speak with all of you today. I'm deeply honored to take on the role of Chief Executive Officer and accept excited to explore the great opportunities and the prospects ahead for evolution. We are happy to speak with you today following the compilation of another turbulent year on a strong note. 2022 was a complicated year given the complex microenvironment. The situation in the domestic market has been very challenging with the pandemic resurgence throughout the year. leading to varying degrees of lockdown across multiple cities. The Shanghai lockdown was particularly difficult for us, as most of our core teams are based here. However, despite all these challenges, we continue to build on our priority technologies in industry-leading digital capabilities, delivering resilient growth each quarter and ultimately producing another set of record-breaking operational and financial results to close out the year. We have invested vastly in the technologies throughout the year and are pleased to share that as of December 2022. We have successfully registered 212 software copyrights and filed 162 patents in fintech-related areas. For full year 2022, we achieved our total transaction volume target with RMB $175.4 billion in the in total transactions, representing a year-over-year increase of 28%. Our total transaction volume in the fourth quarter reached RMB 48.6 billion, representing a year-over-year increase of 25% and a sequential increase of 7%. Notably, our full-year domestic loan volume grew to RMB 171 billion, a year-over-year increase of 28%, and the fourth quarter volume rose to RMB 47 billion, a year-over-year increase of 24%, and a sequential increase of 6%. Thanks to our effective local focus, global outlook strategy, international loan volume for the full year also climbed to RMB 4.3 billion, representing a year-over-year increase of 16% while loan volume for the fourth quarter reached RMB 1.4 billion, representing an increase of 41% year-over-year. Concurrently, our total outstanding loan balance stands at RMB 64.6 billion, a year-over-year increase of 28%. Our outstanding loan finance in China totals RMB 63.8 billion, an increase of 28% year-over-year. And the international markets, this number has soared to RMB 0.8 billion, representing a year-over-year increase of 167%. Solid management experience as well as excellent flexible execution throughout the year helped us to overcome the year's challenging period. leveraging our cutting-edge technologies such as RTA for new borrowers' acquisition, our October system for auto-creation of advertisements targeting high-quality borrowers, our magic mirror for credit risk assessment, and our mean mirror for fraud detection. We delivered robust operational and financial results. Fostered by our prudent approach to risk management and our advanced credit risk assessment model, Our vintage delinquency rate remained stable and healthy between 2.3% to 2.4% throughout 2022. In 2023, as China reopens, we expect further improvements in this metric. We also maintained a strong loan collection recovery rate of approximately 90% in the first quarter, even aimed some turbulence surrounding the easing of zero COVID policy in December 2022. With our ongoing effects to acquire better quality borrowers, our proportion of category A and B borrowers in the domestic market further increased to 77% of our total borrowers in the first quarter from 63% in the same period last year. Coupled with a larger proportion of better quality borrowers, we have also completed our price transition. Average borrowing rate was 23% in the fourth quarter, reaffirming our commitment to financial inclusion while bolstering our compliance level and alignment with regulatory directives. Looking ahead, we expect borrowing rates to be in the range of 22% to 23% in 2023 due to the increase in the proportion of category A and B borrowers. Notably, the transition to better quality borrowers has also helped us to reduce our funding costs, which dipped below 7 percent in the fourth quarter of 2022, compared with 7.8 percent in the same period last year. We have cumulatively cooperated with 75 financial institutions, and our pipeline of potential partners remains robust, looking ahead We are confident we can achieve progressive improvements in our funding cost as our proportion of category A and B borrowers continue to rise. Moving on to our second growth driver, our international expansion. We are thrilled to report that during the fourth quarter, improvement across multiple operational fronts led to a revenue contribution of RMB 395 million from this segment, representing a 13 percent 13 percent contribution to total revenue, as well as an increase of 122 percent from the same period last year, and a sequential increase of 13 percent from the previous year quarter. For full year 2022, revenue from the international segment was RMB 1.15 billion, or 10.3 percent of total revenue. A remarkable accomplishment given the international contribution to total revenue just reached a double-digit level for the first time in the third quarter. Indonesia continued to be the major international market in 2022, although pandemic-related rules and restrictions have relaxed in many countries. We remain cautious and will adjust our strategy according to suit local circumstances Since 2021, we have been targeting better quality borrowers with attractive interest rates in Indonesia. And our efforts have been recognized by well-known local financial institutions such as Bank Jago, Bank Permit, and OCBC NISP. Among others, growing fruitful collaboration with these local partners have led to a rapid increase in our proportion of loans funded by local banks. to 63% in the fourth quarter of 2022 compared to 48% in the previous quarter and merely 10% in the same period last year. Our success in Indonesian market is varying and has strengthened our confidence as we expand into additional countries. For example, our outstanding loan balance in the Philippines during the fourth quarter grew over 110% year over year. Going forward, we plan to accelerate our pace of penetration in Indonesia and the Philippines while evaluating other potential opportunities in the region. Based on our current assessment, we believe revenue contributions from the international markets will continue to climb in 2023, rising to between 15% to 20% of total revenue, further diversifying our revenue source. Last but not least, I'd like to briefly update you on our ESG performance. We published our fourth annual ESG report in 2022, providing a snapshot of our forward-looking thinking efforts and initiatives aimed at driving sustainability and enhancing value creation for our stakeholders. We also joined the United Nations Global Compact Program, a voluntary initiative to implement implement universal sustainability practice, demonstrating our corporate value and our longstanding dedication of fulfilling our social responsibilities. Furthermore, we were proud to receive a low-risk ESG rating from Sustenlix for the second consecutive year, a powerful testament to our vision for the future of ESG as well as our current sustainability policies and practices. Going forward, we will strive to promote our aspects of ESG in our operations, including corporate governance and behavior, data privacy and security, human capital development, environment protection, and corporate social responsibility. To ensure alignment with international best practice and enhance our holistic approach to ESG, we plan to expand to our cooperation with additional independent ESG rating platforms in 2023. In summary, our outstanding overall performance in 2022 underscores our strengths and stability, as well as our team's ability to overcome challenges. We have built a firm foundation that will empower us to drive long-term sustainable quality growth as we forge ahead in 2023 we will continue to embrace our local focus, global outlook strategy, building on our domestic strengths and successes with an emphasis on serving better quality borrowers while evaluating more countries and regions to advance our global expansion. Meanwhile, we will remain dedicated to expanding our healthy customer base, optimizing our product mix, and leveraging our technological capabilities to further refine our risk assessment and management framework. With these advantages, we believe that we are well situated to capitalize on the massive opportunities that lie behind and create greater value for our customers, shareholders, and all of our stakeholders. Next, I would like to say a few words about the management transition we announced today. I'm always stepping down as our CEO to pursue other interests. After eight years with the company, on behalf of the board, I would like to take this opportunity to express my sincere gratitude to Sanfeng for his outstanding contributions to the company throughout these years. Concurrently, the board has selected Mr. Yuxiang Wang to serve as the company's Chief Operating Officer while retaining his current role as Chief Technology Officer. a role which he has held since 2019. From June 2015 to March 2023, Ms. Wang also served as the chief product officer. Together with the rest of the board and the team, Ms. Wang and I look forward to propelling the company to even greater heights. With that, I will now turn the call over to our CFO, Jia Yuanxu, who will discuss our financial results for the quarter.
Jamie
Thank you, Tezhen, and hello, everyone. Welcome to our fourth quarter and the full year 2022 earnings call. In the interest of time, I will not go through all of the financial items on this call. Please refer to our earnings release for further details. As Tezhen mentioned, we are heartened by the strong financial results we achieved in 2022, despite the unique challenges we encountered. Even more encouragingly, our second growth driver, the international segment, continued to gain progressive momentum and contribute over 10 percent of our total revenue in 2022. Notably, net revenues in the fourth quarter reached around RMB 3 billion, up 25 percent year-over-year with full-year net revenues exceeding the RMB 10 billion mark for the first time to reach RMB 11 billion, up 17 percent year-over-year thanks to our ongoing investment in research and development, skillful deployment of our technological capabilities across business, and the robust execution of our overall strategy. We also delivered a healthy non-gap operating profit of RMB $638 million in the fourth quarter and maintained a solid balance sheet with RMB $12 million billion in total shareholders' equity. We are very comfortable with our balance sheet and the liquidity position. In particular, our cash position remains strong with over RMB $7 billion of cash and short-term liquidity as of the end of December 2022, an increase of 26% year-over-year. Our leverage ratio, which is defined as risk-bearing loan balance divided by the shareholders' equity, remained stable at 4.5 times, indicating future growth potential. During these times of uncertainty, our strong capital and liquidity position coupled with our low leverage ratio is an important source of confidence for all our shareholders, including our employees, institutional partners, and suppliers. We also continue to return value to our shareholders through share buybacks throughout the year. In full year 2022, we deployed around USD 21 million to buy back our shares in the public market. As of December 31, 2022, the company has cumulatively deployed around USD 182 million for its share repurchase programs. Our board has also declared a dividend for our shareholders of USD 0.215 per ADS with the payout ratio increasing to 18.5% of net income up tax for fiscal year 2022. This is our fifth consecutive annual dividend declaration, which reaffirms our confidence in our core capabilities business growth, and long-term market potential. The historical trend of the company's average dividend payout ratio for fiscal year 2018 to 2021 was about 15 percent of the company's net income after tax in the same period. Between 2018 and 2022, we cumulatively deployed around USD $263 million for dividend distributions. In total, we have returned USD 445 million to our shareholders and our share repurchase programs and dividend policy. Last but not least, I would like to thank our employees and partners for their tremendous efforts in keeping our company strong throughout the COVID breakout of 2022. Our culture is stronger than ever. and we will continue to innovate as we boldly grow our business both domestically and internationally. Before I conclude my remarks, let me provide some additional color on our business outlook for 2023. Although we view the reversal of the zero-COVID policy in China as a positive driver for 2023, we still plan to adopt and optimistic yet prudent approach for the first half of the year in the domestic market while pursuing a more aggressive strategy internationally. The company will continue to closely monitor the situation and assess our strategy accordingly. Despite the challenging macro environment, our business continues to grow and get the momentum as we focus on our efforts on stressing our international initiatives, preparing technological innovation and the constant acquisition of high-quality borrowers. As a result, we expect our transaction volume in the China market for full year 2023 to be in the range of RMB $189 billion to RMB $205 billion, representing an increase of around 10% to 20% year-over-year. We also expect our transaction volume in international market for full year 2023 to be around 6.4 billion, representing an increase of around 15%. We are excited about the progress we have made in 2022 and look forward to continued success in 2023. With that, I will conclude my prepared remarks. We will now open the call to the questions. Operator, please continue.
Operator
Thank you. We will now begin the question and answer section. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To cancel your request, please press star then 2. For the benefit of all participants on today's call, if you wish to ask your questions to management in Chinese, we ask that you please kindly repeat your questions in English. Your first question comes from Alex Yee from UBS. Please go ahead.
Alex Yee
Good morning. Thanks for taking my question. So my first question is on your consumer credit demand trend so far in Q1. So how is the underlying demand you have been observing? And how is the long volume run rate you are doing in Q1 versus, say, last quarter? Secondly, on the asset quality trend, could you give us an update about the early asset quality indicators in recent months, February and March? How does it compare to your historical level? Thank you.
Jamie
Thank you, Axel. Let me answer these two questions. The first one is related to user demand. From the second half of last year to now, there has been a big change in the external environment. In terms of our internal demand, there has been a few fluctuations. In the period of the outbreak of the epidemic last year, the demand of the entire user has decreased significantly. Then, before the Spring Festival, after the outbreak of the epidemic, with the reopening of China, the demand of the entire customer has also been significantly restored. We can see that there is a growth of about 10% to 20% compared to the previous year. After the spring, we observed that the demand of the users has also changed. In fact, compared to the previous year, such a growth has actually fallen back, but the overall trend is still good. So from the data we see internally, Okay Alex, let me do the translation for Mr. Xu. The first question is actually related to user demand.
Jimmy Tan
At the end of last year, the macro environment has changed a lot due to the reopening. Before Chinese New Year, the period before Chinese New Year, we have seen that demand has increased a lot, up by around 10% to 20% on a year-over-year basis. And after Chinese New Year, we have seen the trend declining, but the overall trend is still positive. We think that the demand is still growing, and it is mostly due to a compensation recovery. And going forward, we believe that this trend will continue to grow.
Jamie
The second question is about risk. Risk, I think, is a bit similar to demand. It is also a fluctuating situation. Last year, in December, the lockdown was lifted. The outbreak of the epidemic was a stage. We saw that the short-term risk was quite high. But soon, in January, as the epidemic situation eased, we saw that the various indicators of risk, especially the early indicators, were significantly improved. The expected rate of Daewon has dropped to about 5.3%. The return rate of 1 to 30 days has also returned to more than 90%. We have reached 91% recently. So from the current data, I think the final expected rate for a private institution is about 2.3%. Secondly, we also noticed that the risk expectation ratio of our historical存量 compared to the previous estimate also has a very obvious optimization. What I mean is that in the second year, in this epidemic stage, we judged the expectation ratio. We now estimate that there is about 10% optimization result. The third one is the loan we just issued.
Jimmy Tan
Okay, Alex, let me do the translation for the risk as well. The risk trend is actually similar to the demand trend. Both have some fluctuations. During the reopening period, early indicators such as day one delinquency increased rapidly, but it has fallen back to 5.3% right now. And also, we have seen that Day 1 to 30 collection recovery rate has some fluctuation as well, but right now it is back to 91%. And we have also seen some vintage delinquency remaining stable at 2.3%. Our existing loan books for those loans disbursed during the COVID reopening period has been optimized by 10%, and the current loans disbursed is now below 2.2%.
Jamie
Okay, Ash, do you have any follow-up questions?
Alex Yee
That's all for me. Thank you. Thank you, Alex.
Operator
Thank you. We have a question from Yada Lee from CICC. Please go ahead.
Yada Lee
Hello, management. This is Yada from CICC, and thanks for taking my question. My first question today is, from the perspective of the choice of lending model, what is the trend of capital light and capital heavy in the future? And will there be any plans to inject capital into the small loan license? My second question is, during the COVID pandemic, the growth of our SME segment actually slowed down due to the microeconomic impact. And I was wondering about the positioning of SME business in our overall strategy in 2023 and 2024. And what is the proportion in the future? That's all. Thank you.
Jamie
Thank you, Yada. Let me answer these two questions. The first one is about the model of the real estate model. In the past two years, we have had a very significant progress in the capital light model. In the past two years, our capital light sales ratio is about 16%. And then the number of financial institutions we have cooperated with under this model has also reached 17. So this shows that we have completely run through this model. And our financial institutions trust us. So this is already a very mature product model for us. In the future, our attitude towards this model is actually the same as before. First of all, we will be very concerned about the attitude of the supervisor towards these two models. So far, we think that for the supervisor, this is a model that can be accepted. This is a mature product model. The second is that we will combine our own business development and the needs of our partners to determine the situation of such a match. Now, because our capital is very rich, and our leverage is also at a very healthy level, we expect that in 2023, we will still focus on the capital-heavy model. And then, we will focus more on our own healthy leverage level, and maintain a higher quality growth on such a level. 所以预计在23年我们在Capital Light这上面大概也是在去年这样的一个,保持去年这样的一个水平吧。
Jimmy Tan
under the capital light model was 16% and we have been making very good progress. The number of funding partners who have cooperated with us under this business model has reached 17. This validates our capabilities to operate under the capital light model and also the trust our funding partners have in our credit risk assessment models. We will also monitor the attitude of the regulators towards the capital lights as right now we have seen that Both models of capital heavy and light are acceptable to them. We will also consider the attitude of our funding partners and their needs.
Jamie
The second one is about small business. Our small business is mainly aimed at small business companies that have the personal consumption loan provided by small businesses. The feature of our product is that the ratio is relatively smaller. And then the main thing is to help them in this life, consumption, and some of the purposes of using it to provide such a financial service. Indeed, in the epidemic stage, we also see that the fluctuations in small and medium-sized enterprises will be relatively larger than our average such an online financial loan. This can also be understood because small and medium-sized enterprises are actually more affected by the epidemic stage. Then we also see some data from this risk performance to see ah, Xiao Wei in ah, the rapid development of this epidemic, it is compared to our ah, the average level of the whole market, ah, there will probably be this 10% to 20% of such a higher risk of a performance, ah, that with the end of the whole epidemic now, ah, then we also noticed that this is the risk of Xiao Wei, in fact, ah, this is also very obvious that there is a decline, ah, that has now fallen back to We believe that this year should be better for small and medium-sized enterprises, so the volatility of the risk should be much better than last year. And as the entire consumption recovers in the future, even small and medium-sized enterprises can still return to the low average level before the epidemic. So in our entire 23-year plan, we will Hi, let me do a translation for this question as well. Our focus is on individuals with business certificate or license.
Jimmy Tan
is for them for their daily necessities. And during the pandemic, the demand for small business owner loans have actually increased. And from the data that we have seen, during the pandemic period, the delinquency rate is actually about 10% higher than our consumption loans. And with the reopening of the pandemic, the risk has resumed back to normal levels. And with the gradual easing of the COVID policies, we believe the risk for this segment will be further improved and stabilised. compared to our consumption loans. And going forward in 2023, we believe our focus on this segment will still be between 20% to 30% of our loan volume.
Jamie
Okay, Ada, do you have any follow-up questions?
Yada Lee
Thank you. Okay, thank you.
Operator
Once again, if you wish to ask a question, please press star 1 and wait for a name to be announced. Your next question comes from Thomas Chong from Sheffield. Please go ahead.
Thomas Chong
早上好,謝謝管理層接受我的提問。 我的問題是關於 international 那邊的。 管理層剛剛也分享了我們在 Indonesia 還有 Philippines 那邊的進展。 I would like to ask, in the future, which countries will we discuss the opportunity to enter? In addition, from an investment or spending perspective, will we invest more in international in 2023? Thanks, management, for taking my questions. My question is about our international business. Given the progress that we are making in Indonesia and the Philippines, which other countries should we expect we are going to further explore the opportunities into the future? Another question is on the spending in overseas business. How much more spending should we expect for this year, and would that affect the bottom line? Thank you.
Jamie
Thank you, Thomas. Let me answer the first question first. The second question is related to the future of company resources. I will ask our CEO, Tie Zhen, to answer it. Yes, our overseas business has been developing very fast in the past two years. Last year, we also introduced that in 2022, we should have achieved a very significant progress. One is that in the first half of the year, we completed a strategy of crowdfunding mainly in the Indonesian market. This is significantly faster than our original expectations. Then in the second half of last year, Um, In addition, there is a significant increase in our financial contribution. In the fourth quarter, our international income ratio has reached 13%, and the international income ratio for the whole year has reached 10%. In addition to Indonesia, the market in the Philippines is growing very fast. Of course, the total volume of the Philippines is relatively small, so we have not disclosed more data. But we can expect that we will play a more important role in the Philippines in the future. In addition to these two countries, we are now actively exploring some new opportunities for Southeast Asian countries. Of course, this will take time. I believe that in the future, we will apply this very successful experience in Indonesia to other countries.
Jimmy Tan
Hello, Thomas. Let me do the translation for Mr. Xu. We are actually expanding very fast in the international market, as you can see. In Indonesia, we have actually completed the transition to better quality borrowers, and this is actually much faster than our expectation. And after the transition completion, we have been growing. Our growth has actually resumed to above 20% Q over Q since the third quarter, and our outstanding loan balance has grown to RM800 million by the end of December, growing 167% year over year. And this has actually led to a larger revenue contribution. For example, it has contributed 13% of total revenue in the fourth quarter, and for the full year of 2022, it has contributed more than 10%. Apart from Indonesia, we are also focusing our efforts in the Philippines which is also growing very rapidly and we believe we will continue to contribute more to our revenue and other operational metrics. In the meantime, we will continue to evaluate more Southeast Asia countries and we believe we are able to duplicate our successful Indonesia business model into more countries.
Tie - Cheng Lee
Thank you, Thomas. The second question is about overseas investment. What impact will it have on the company's resources and financial performance? Let me answer this question. I think overseas investment is an important long-term strategy for our company. And we believe that for any country, we hope to enter and grow for a long time. So if you look back at our development in Indonesia and the Philippines, we were actually in the Indian market in 2017-18, and entered the Philippine market in 2019. So after about five to six years of development, we achieved such a result today. So in this process, we believe that for any overseas investment and development in the new business market, it takes a period of time. On the other hand, in this process, we will balance the investment and the return. Just like in the past, in the development of Indonesia and the Philippines, we did not sacrifice the profit and loss of large-scale companies. But at the same time, we did not pursue the business of Indonesia and the Philippines too quickly to make it profitable as soon as possible, because we saw a longer market opportunity in the future. So back to your question, we will continue Hi Thomas, let me translate for Mr. Lee.
Jimmy Tan
As you can see, international expansion is a long-term strategy for our company. We have started our investment in Indonesia five to six years ago, and you can see that we all these international investments actually need time to bear fruit. And also, we will not sacrifice our short-term earnings for short-term gains, but also look for more longer-term investment. And we will constantly keep a balance between our investment and our earnings on a longer-term basis.
Jamie
Thank you. Okay, well, Thomas, yeah, okay. Is that all for you? Okay. Thank you. Thank you.
Jimmy Tan
Thank you, Thomas.
Operator
Thank you. As there are no further questions, now I would like to turn the call back over to the management team for closing remarks.
Jimmy Tan
Thank you all for joining our Q4 and 2022 earnings conference call. If you have any further questions, please feel free to reach out to the IR team at Simvolution. Thank you very much.
Operator
Please conclude this conference call. You may now disconnect your line. Please. Thank you.
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