FinVolution Group

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.

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.

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.