FinVolution Group

Ladies and gentlemen, thank you for participating in the second quarter 2024 earnings conference call for Zinvolution Group. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. I would now like to turn the call over to your host, Demetan. Head of Investor Relations for the company. Jimmy, please go ahead.

Thank you, Alison. Hello, everyone, and welcome to our second quarter 2024 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.finvigroup.com. Mr. Tianjin Li, 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 to 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 views expressed today. Further information regarding this and other risks and uncertainties are included in the company 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 the IR website providing details of our results for the quarter. I will now turn the call over to our CEO, Mr. Tianjun Li. Please go ahead, sir.

Thanks, Jamie. Hello, everyone. and thank you for joining our earnings call. This is Teo-Chun Li, CEO of Involution Group. We are happy to speak with you today. We ended the first half of 2024 on a positive note, driving progress growth in the China market while maintaining our rapid growth momentum internationally. So determine strong execution of our local excellence global outlook strategy of Simply Legal Strategy. We made great strides across our business in the markets in which we operate. Cumulatively, we have served around 31.5 million borrowers across China, Indonesia, and the Philippines as of June 30, 2024. During the first half of 2024, transaction volume for the China market reached 92.5 billion RMB up 6% year-over-year. Transaction volume for international market continued to grow rapidly, soaring to 4.5 billion RMB, up 32% year-over-year. In terms of outstanding balance, China reached 64.2 billion RMB, while our international market rose to 1.4 billion RMB, up 3% and 27% respectively year-over-year. This standard performance stands out as a testament to the effective execution of our legal strategy and the unwavering commitment of our team. Customer acquisition is a key element of our legal strategy. We view it as an ongoing investment that will ultimately lead to a higher percentage of better quality repeat borrowers and drive sustainable growth. During the second quarter, Our number of total new borrowers reached 823,000, up 22% year-over-year and 15% sequentially, validating our ability to grow our business across different countries, notably as we completed the transition to better quality borrowers in Indonesia and began to diversify our business model. The percentage of new international borrowers once again surpass the percentage of new China borrowers. Furthermore, our number of new borrowers in the Philippines continue to grow robustly in the second quarter, increasing by 198% year-over-year and 69% sequentially. Our effective social media strategy in the international markets also continue to yield positive As of the end of the second quarter, our followers on leading social media platforms such as Facebook, TikTok and Instagram had risen to approximately 1.3 million, 850,000 and 240,000, up 41%, 30% and 8% year over year respectively. Validating the strong brand awareness of deep localization we have created in our overseas market. As a fintech leader, technology is deeply engraved in our DNA. It remains the core of our business and our primary competitive edge. During the second quarter, we hosted an internal tech competition called Hexon. bringing together 60 R&D teams for a 36-hour session in a closed-door environment. Winning projects included Admin AI Bots, which can incorporate API function calls into large language models. Its framework can also be expanded to include multiple internal tools and support the management of different tools across platforms. Another standout, eSound. leverage AIGC to utilize fragmented time slots to increase productivity. We believe these projects demonstrate great implementation potential for enhancing our operations and overall efficiency. Next, I'd like to share some updates on our ESG progress. We recently published our 2023 ESG report, the sixth in our company's history. highlighting our dedication to transparency and sustainability. In 2023, we advanced our mission of leveraging innovative technologies to make financial service better, as well as our ESG strategy centered on technology, green principle, and kindness, in addition to giving back to society with innovative technologies. The evolution emphasizes integrity and compliance, low-carbon development, and harmonious relationships with employees, partners, and communities in its ESG management efforts. Moreover, we continue to support small business owners through the second quarter's challenges. During the second quarter of 2024, we cumulatively served around 415,000 small business owners and facilitate 14.2 billion RMB of loans to nurture their dreams. I also want to highlight our longstanding cooperation with the National Weightlifting Team and congratulate them on their recent wins at the Paris Olympics. We are proud to promote awareness of the sport alongside the team and leverage their public image to help small business owners increase their product sales. Our joint initiatives embody our shared embrace of the Olympic value of excellence, respect and friendship, helping to create a better society for all. We will continue to integrate ESG management throughout our business operations and partnerships, propelling sustainable development across the industry. Before we move on to our CFO's review of operational and financial metrics, I'd like to share that Finvolution celebrates its 17th anniversary during the second quarter, a milestone that inspires us to look towards our sustainable future. As such, we set our vision for 2030 to become an international fintech platform connecting borrowers and financial institutions across multiple global markets, and leading the industry in each of them. Vivuc remains dedicated to leveraging innovative technology to make financial services better and greener, sustainably propelling Finvolution's long-term growth. To summarize, despite China's ongoing macro challenges, we successfully deployed our leading technologies and operation capabilities to achieve solid progress in the second quarter across all the markets in which we operate. Going forward, as China's microenvironment improves, we are confident of resuming faster growth and delivering consistent returns across multiple metrics for all our stakeholders. With that, I will now turn the call over to our CFO, Jia Yuanxu, who will discuss our operational and financial results in great detail.

Thank you, Li, and hello everyone. Let's go through our key results for the second quarter. To be mindful of the length of our earnings call today, I encourage listeners to refer to our second quarter earnings press release for further details. Despite China's 5% GDP growth in the first half of 2024, uncertainty still persisted in microenvironment. Small ticket items and tourism-related activities remained the bright spot with the May holiday. 6-18 shopping festival and consumption-related index all showing signs of improvement. However, China's overall retail sales slowed to 2% gross year-over-year in June, which does not reflect an optimal recovery trajectory. China's manufacturing PMI index remained largely stable in July, with manufacturing PMI holding steady at 49.4 points. Concurrently, the manufacturing PMI and compensated PMI both reached 15.2 points, which is within the expansion range, indicating Chinese enterprise gradually production recovery. In short, Also, China's economy is recovering There are still pockets of tubers which we will need to navigate using our vast experience in the technological and operational process As Li mentioned, our performance in the first half of the year was solid with transaction volume growth in both China and the international markets landing within our guidance range This was supported by consistent excellence across numerous other areas, such as institutional funding, loan collection, and risk performance, among others. Let me walk you through some of the details. During the second quarter, our average borrowing rate in China remained stable at IR22.2%, validating our strong commitment to advancing financial inclusion. Given financial institutions' growing desire to obtain good quality borrowers for our platform, our funding costs improved significantly, shrinking another 90 bps during the quarter and recording a cumulative improvement of 114 bps in the first half of 2024, leading to consistent improvement in our take rate. Such a huge semi-annual improvement in funding costs and scores financial institutions deep trust in our credit risk assessment capabilities and our ongoing enhancement of the quality of our borrowers. Given the quality of our borrowers and the ample market liquidity, we are confident of achieving continued improvement in funding costs in the second half of the year. Regarding risk management, the recovery economy and our adjustment to our credit risk assessment models drove progressive improvement in our day one delinquency rate, which fell by 10 basis points, sequentially to reach 5.1% for the quarter. From a vintage perspective, we maintain our view that vintage delinquency will stabilize at around 2.5%. By referring our responsive payment deduction strategy, we have enhanced the efficiency of our loan collection process, resulting in an improvement in our loan collection recovery rate to 88%, up 200 basis points from the previous quarter. We expect this strong recovery momentum of loan collection will persist in the second half of the year. Furthermore, as we continue to optimize our operations We have strategically adjusted our business portfolio to adapt our partners' involving requirements. For the first half of 2024, transaction volume for our international market reached RMB 4.5 billion, up 32% year-over-year to reach the upper range of our guidance. Supported by the strong global microenvironment and our effective legal strategy, We believe our international business growth momentum is sustainable with further diversification among different business models. Moving on to our international expansion efforts, Indonesia, our first and the largest overseas market, has shown continued growth in its microeconomy throughout the first half of this year, with a recorded GDP growth of 5.05% for the second quarter and a targeted GDP growth of 5.2% for full year 2024. The Indonesia Consumer Confidence Index has remained high at above 120% for 18 months. The volume of motorbike sales increased 26% year over year and 17% sequestered to 599,000 as of July 2024, further illustrating the nation's heightened consumer optimism. Besides a moderate correction to 49.3% in July 2024, Indonesia's manufacturing PMI has remained above 15% since September 2021, reflecting nearly three consecutive years of sustained economic prosperity. The unemployment rate decreased for the year-over-year in March 2024 to 4.8% from 5.5% in the same period last year, further strengthening consumers' confidence. After two quarters of business adjustment towards better quality suppliers under the new pricing cap, we are proud to share that we have stabilized our operations in Indonesia and continue to gain recognition from local customers and other stakeholders. This recognition has attracted new funding partners, including a leading local digital bank. We are also steadily building and strengthening our relationships with larger and more reputable local financial institutions to diversify our funding sources, thereby optimizing funding costs. Next, our second international market, the Philippines. As of July 2014, its manufacturing PMI has remained above 15% for 11 consecutive months. The Philippines' labor market is also exhibiting positive momentum, with the unemployment rate dropping to 3.1% as of June 2024, from 4.5% compared to the same period last year. Furthermore, private consumption contributes 72.5% of the Philippines' nominal GDP in the second quarter of 2024 reflecting robust domestic demand that will further support the nation's rapid economic growth Notably, our Philippines operations continue to outperform expectations with transaction volume growing 140% year-over-year and 20% quarter-over-quarter to RMB $674 million in the second quarter, representing 29% of the international transaction volume. This outstanding performance reflects strong support from our local partners such as C-Bank, Union Bank, and Myer Bank, our latest founding partners who recently partnered with us on a US $47 million program. With sufficient funding in place, we believe we can maximize the benefits of our e-commerce cooperation with TikTok Shop, acquire additional new borrowers from diversified channels, and sustain continued high growth rates. Now, turning to our financial metrics. This quarter's operational excellence leads to better than expected financial results. Net revenue for the quarter reached RMB $3.17 billion, up 3% year-over-year. Our net income was RMB $551 million, a 4% increase quarter-over-quarter, underscoring our operational stability. Meanwhile, sales and marketing expenses increased by 5%, sequestered to RMB $473 million as we continue to invest in growth across all of our markets. As we restructured our business mix, our leverage ratio adjusted to 3.5 times, indicating opportunities for tremendous growth when the economy further recovers. Our balance sheet remained robust, with short-term liquidity maintaining a healthy level at RMB 8.1 billion, reflecting our strength and flexibility in executing our legal strategy to advance our international expansion and drive shareholders' return. Consistently, rewarding our shareholders remains a top priority for Fablution, both through business growth across different markets and our market-leading capital return program incorporating share repurchase and dividends. Our first share repurchase program began in March 2018, shortly after shortly after our IPO in November 2017, and has been widely embraced by our shareholders. Our buyback history indicates two repurchase programs with a total deployment of around U.S. $260 million. We are now conducting our third repurchase program of up to U.S. $115 million. Notably, in the second quarter, we deployed around U.S. $13 million and repurchased $6.1 million ADS. For the first half of 2024, we have deployed around $157 million for share repurchase. Our total cumulative share repurchase amount reached $337 million at the end of the second quarter. In addition, our dividends have steadily increased over the past four years. with the cumulative dividend amount reaching US $325 million. In total, our capital return program has returned US $662 million to our shareholders, with the payout ratio rising to 49% of net profit in 2023. Going forward, we will continue to strengthen our capital return program for our shareholders. In summary, Our solid second quarter results showcase our legal strategy's effectiveness, our nameable business model, and our technological advantages. We expect our Indonesia operations to become profitable in 2024 and our Philippines operations to contribute profits in 2025, boosting our confidence in deploying a more proactive international expansion strategy. as we capitalize on the massive opportunities in the international markets. We look forward to delivering sustainable growth and sharing our success with all our stakeholders. That concludes my prepared remarks. We will now open the call to questions. Operator, please continue.

Thank you. We will now begin the question and answer session. 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 key. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, we ask that you please kindly repeat your question in English. At this time, we will pause for a moment to assemble our roster. Our first question today will come from Cindy Wang of China Renaissance. Please go ahead.

Okay, thank you for giving me the opportunity to ask this question. I have two questions I would like to ask. The first question is about the Chinese market. 我们大概跟我们说一下就你们看到的可能第二季度这个借款人的一个需求的一个变化然后以及七月目前看到的一个状况是怎么样然后第二个问题的话呢想请问的是印尼的市场因为我们知道就是印尼市场这边的一个整体的APR已经调整到位了嘛那所以目前来看的话印尼现在的 Thank you, management, for taking my call. And I have two questions here. First question is could you give us some color on the trend of your China borrowers' loan demand in second quarter and also in July. And the second question is the Indonesia, your customer acquisition strategy after the APR meet the requirement and any updates on the regulation front of the interest rate requirement in 2025. Thank you. Okay, thank you, Cindy.

Let me answer the first question, and then the second question, please let us answer it. In terms of domestic demand, the figures seen from Hongguan are relatively consistent. Overall, it is relatively weak. It is still a little low. So in the second quarter, we saw that, for example, our old customer, the Japanese military's miscalculation amount, in fact, it is still a certain decline in the same ratio. It is about 6%. The confidence of consumers is still a little insufficient. And then after July, we recently observed that this data has been restored. It's about 6% to 7% restored. There is a rise in the average number. So in general, we think that our population, its characteristics are still in this, because the demand is mainly concentrated in daily consumption. So even though the whole red circle environment is a relatively fertile environment, there is still a certain resilience.

Hello Cindy, let me do the translation. Regarding China demand, during the second quarter, the trend of our borrowers' demand is largely in line with the weakness in residential credit demand. The daily application rate of repeat borrowers declined by a mid-single digit around 6% on an annual basis and quarterly comparison reflecting weak consumer confidence in July and August. We have observed that the application rate of our repeat borrowers has increased by mid-single digits, between 6% to 7% on a daily basis. The demand of our borrowers is concentrated in the area of daily necessity. Therefore, when the economy is weak, it will show more resilience, and we expect demand will gradually improve in the second half of the year.

Hi, Cindy. I would like to answer the question about the situation in Indonesia. From the red line, we see that the overall red line situation in Indonesia is relatively ideal. After the election, the political environment is relatively stable. We see that GDP, population consumption, consumer confidence index, PMI and other figures are relatively ideal. Next, about some of our business performance in Indonesia. Our trading volume in Indonesia is about 16.4 billion RMB, which is a 6.7% increase. The balance is about 1.1 billion RMB, which is a 4.3% increase. Our revenue is 4.3 billion RMB. In the second quarter, our number of borrowers reached 530,000, of which 200,000 were new customers, with a 9% increase in return. In addition, we have established a cooperation relationship with seven local financial institutions. Currently, we provide local financial support for credit funds in Indonesia. Regarding the price adjustment, we all know that under the policy requirements of Indonesia's regulatory policy at the beginning of this year, we have made some adjustments to the price of our business. We used about five months to complete a series of optimization for the population model and risk. Here are some of our results. Currently, our overall risk is about 28% better than last year's same period. We significantly minimized the price downturn, which has an impact on the take rate of the entire business. The current take rate in Indonesia is about 10% above the level of 23 years before the price adjustment. The business has entered a stable stage. Next, for us, the focus of Indonesia's development, I think there are several aspects. On the one hand, after the price adjustment, the Indonesian business will resume growth in the third quarter. We expect that the volume of business transactions in the third quarter will be innovative and high. In addition, in Indonesia, we will continue to optimize our online business in terms of risks, customers, and so on. While we are growing steadily, we have completed the 83.75% acquisition of local multi-faceted financial cards. In the future, we will actively explore online and offline Hello Cindy, let me do the translation.

From Indonesia market environment, it is presenting a much more positive trend. After the Indonesia election, political situation has normalized with an improving economy such as GDP increase. And let us concentrate on our performance in Indonesia. During the second quarter, transaction volume for Indonesia market reached 1.64 billion, up about 6% to 7% annually, with outstanding loan balance between 1.0 billion, up about 4%, Revenue for the quarter reached $430 million. Number of borrowers reached $530,000 up 4% sequentially and number of new borrowers reached $200,000 up 9% sequentially. We have cumulatively cooperated with seven financial institutions and all our funding is from local financial institutions now. Our intonation operations has completed its pricing transition in just five months. and we have made adjustments in borrowers' cohorts, modest iteration, and credit risk has improved by 28%, meaningfully offsetting the impact of interest rate reduction. Therefore, our take rate returned to 10%, reflecting our business entering a more stable state. For the second half of the year and for the third quarter, we expect international operations will resume growth of over 10%, with transaction volume potentially reaching new record high. Indonesia online operations will remain stable with credit risk, customer acquisitions improving consistently. For offline operations, we have completed the acquisitions of a multi-finance license with a controlling stake of 83.7%. Going forward, we will proactively explore both online and offline China's multi-products and buy-now-pay-later installments for different scenarios such as and electric bikes, etc. We will fully leverage our China expertise and leverage them in our Indonesia market to ensure future growth. Hello, Cindy. Any more questions from you?

No more questions from me.

Hello. Thank you.

Thank you. And our next question will come from Yada Li of CICC. Please go ahead.

Thank you for giving me the opportunity to ask this question. Today, I would like to ask if the company currently has a long-term growth plan and goals for domestic business payments. Then I will do the translation. Hello, management. Thank you for taking my questions. And I was wondering what's the plan and the growth target for the company's domestic business And I've noticed that the company has gained a slightly faster volume growth compared with the peers. And looking ahead, how likely the company can maintain such growth, and how does the company balance the volume growth and the profitability? That's all. Thank you.

Thank you, Yala. Let me answer this question. Yes, there have been some changes in the domestic market over the past few years, which are different from the previous few years. One is that the macroeconomic environment is relatively weak, and in the entire consumer financial market, the increase in scale is also slowing down, and the industry is entering a relatively mature stage. Especially in the second half of last year, there have been some periodic risk fluctuations in the industry. We also observed that everyone in the industry is also facing a decline in scale. So in such an uncertain environment, our strategy is to find an advantage in this uncertainty to maintain a sustainable development of our domestic business. This is our strategy for the development of domestic business. So in terms of specifics, I think there are several aspects. One is in terms of new customers. Because we have always had a certain advantage in terms of data and experience in terms of new customers, especially in terms of information. We continue to optimize the relevant models and algorithms to make a more accurate estimate of the value of our customers' whole life cycle. In this way, we can maintain a relatively stable rhythm in the entire investment of SYNC. In the first half of the year, the turnover of SYNC increased by 2% and there was a growth of 27% in the same ratio. So from these two years, In the same way, SYNC still has a sufficient location. Our trading ratio has been able to achieve a total of 12% to 15%, because SYNC can only maintain such a rhythm to maintain such a rhythm of growth in the future overall trading. At the same time, we can also do a relatively good cost control, a relatively healthy LTP level. In addition to the new system, we are also developing some new methods. For example, in the first half of this year, we are also cooperating with more than one level of platform users through these channels to achieve our sales. This number is also doubled. Then we also influence our customers more through our brand. For example, during the Olympics, we were an official partner of the Chinese weightlifting team. As you all know, the Chinese weightlifting team achieved a huge success during the Olympics. So while we were promoting positive energy for the Chinese Olympic Games, we also gained more than 100 million views and more than 20 million broadcasts. The second is that we are in the old customer management. This is also one of our advantages. Because we have 17 years of operating history, so we know our customers very well. Through this in-depth digging, the needs of the users are multi-layered, to meet their loan needs, and then based on the scene, trend and behavior, to provide them with the most suitable product, suitable pricing, and some related benefits. and provide high-value and personalized services for our users through sophisticated methods. In the second half of the year, the sales performance of our old customers increased by 36%, which also helped us to continue to increase the sales ratio among the old customers. The third is the overall health of our business. We have always had this advantage. In the case of risk fluctuation, we can basically maintain a stable risk level, and continue to optimize our take rate through capital costs. So in general, through the firm investment of new customers, deep old customers excavation, and maintaining a leading business health level, we can continue to achieve leading growth capabilities under the guarantee of high quality. Hello, Yada.

Let me do the translation for Alexis. As you know, China market has some changes this year and it is very different from the previous years. And currently, the scale of China consumer market has slowed down and entered into a stage of increased competition. After the fiscal risk fluctuation in the industry during the second half of 2023, Many players have experienced varying degree of volume reduction. Under the uncertain macro environment, we are searching for certainty that is beneficial for us and execute sustainable development in China. We have a few ways to achieve this. First of all, we have certainty for success on acquiring new borrowers through information feeds, leveraging on data and behavior. We continue to optimize the information feeds China and improve the algorithms and conduct joint modeling to enhance ROI. And we are able to increase the accuracy in determining the lifetime value of our customers and maintain stable customer acquisition strategy. Transaction volume contributed by new borrowers was up 2% and 27% year over year. Our percentage of new customers was between 12 to 15%. At the same time, we are able to have better cost control and a healthy LTV level. Apart from information feeds China, we are also actively diversifying our customer acquisition channels and have found multiple new internet platform partners to work with us. In addition, we are also leveraging on our brand to influence our borrowers. For example, during the Olympics period, our support for the national weightlifting teams has achieved tremendous success along with their wins at the Games. Along with promoting a positive image for China Olympics, we have also gained remarkable results of over 100 million views and over 20 million counts of video traffic transmission. And secondly, the management of repeat borrowers is a certainty for us and we have over 17 years of operating history and we are very familiar with our borrowers. Through deeply excavating their diversified multi-layers and differentiated requirements, We will then refer them with the most suitable products based on different scenarios such as user profiles and behavior characteristics. And all these have lead us to increase our users' promotion impact by 36% in the first half, which leads to a higher transaction volume for repeat borrowers. Thirdly, our business operations remain healthy with stable performance coupled with continuous improvement in funding costs, which leads to progressive improvement on multiple funds such as Tickrate. All these ensure our high-quality growth, which is above the industry and laid the cornerstone for our sustainable growth going forward.

Thank you, Ada.

Okay.

Again.

Thank you, Yada.

Thank you. And again, if you would like to ask a question, please press star, then one. And our next question today will come from Alexi of UBS. Please go ahead.

Hello, Mr. Guan. Thank you for the opportunity to ask me a question. My first question is about asset quality. We also know that the asset quality index has been continuously improving in the second quarter. May I ask what is the main driving force behind this? For example, what is the trend we have seen in July and August? Do we need to worry that the second half of the year will have a trend that is similar to that of the third quarter last year? So my first question is on asset quality. early indicators have claimed to improve in the second quarter. Just wondering what are the key drivers behind a recent trend? And should we be worrying about any potential uptake in NPR in second half, like in third quarter last year? And second question is on the sequential trend on the takeaway. What has been the key drivers behind? What's the outlook for second half? And is there any more improvement, more room for improvement for the final cut?

Thank you. Thank you, Axel. Let me come back to these two questions. First, about our entire asset quality. Actually, since last year, around the third quarter, there have been some risk fluctuations in the initial stage. we have some judgment. Because in fact, we have experienced a lot in this aspect. Such a cycle is very experienced. So there will be a prediction for this trend. Although there were not too many data performance at that time, but we even did a risk strategy for the people with high debt and high risk. And then for the people in the middle of those risks, a strategy of differentiation was also carried out. So in the early period of expected rise, we can quickly carry out a So, in the first quarter of this year, we successfully turned the whole trend of rising risk. It should be said that it is one of the platforms that can best control risk in the industry. Then in the second quarter, we will continue to make improvements. For example, we will carry out a rich revenue system under the overall framework. to give a better solution for different types of prices. So, in order to maintain the sales volume, and in case of a certain growth, the refined wind control can actually show the corresponding effect. I have also reported to you about the numbers before. The overall flow rate of our second quarter is stable at about 2.5. The risk indicators of each type in the early stage showed a good trend. Now we can see that the daily rate has dropped 10 bps to 5.1. The return rate has actually increased significantly to 88. The latest data shows that the trend is still in good shape. Will this similar situation happen in the second half of the year? We don't think so, because the overall trend is still in good shape. And then I can also share a little bit, because in the past, we actually have 17 years of business history. In fact, this kind of asset quality fluctuation has actually occurred many times. We have at least four times in the record. So this is actually a normal cycle performance in the business. In this kind of fluctuation, it usually lasts four or five months. The longest is seven months, the shortest is two months. So last year and the second half of the year, it was generally a medium-term change, which is relatively small. And then from our historical experience, it usually takes about four or five months to recover. So this time it's not a particularly special situation. And now we've seen signs of recovery. So we're not particularly worried about such a change. And we've been very successful in the past.

Hello Alex, let me do the translation. Regarding our overall asset quality, during the initial stage of the restoration last year, we leveraged on our years of experience and preemptively accurate predictions of the industry trends Titan approval rates for riskier bonds, higher debt, higher risk and exploit different strategies for medium risk groups and quickly adjust the boundary strategies during the early stages of delinquencies. In the first quarter, risk performance stabilised and we are one of the earliest platforms in the industry that are able to contain risk at a lower level. And during the second quarter, we further optimized, adjusted, and iterated on the overall credit limit and explored solutions for different types of users while maintaining growth in transaction volume and balancing risk. And we have also shared that during the second quarter, our vintage delinquency remained stable at 2.5%, while day one delinquency reduced by 10 basis points to 5.1%, and loan collection recovery rate improved to 88%. And we don't think this situation will happen in the second half as the overall environment is much more stable now. I would like to share more information with you. Over the past 17 years in our operating history, industry-wide fluctuations in asset qualities have occurred four times. And such fluctuations on average last around four to five months, with the longest lasting seven months and the shortest lasting two months. The fluctuation for this round is considered to be mid-term and the impact of fluctuation is smaller based on past recovery experience. The recovery process normally takes place at between the fourth to fifth months. Therefore, the fluctuation this time round is not unique and has already shown signs of recovery. And we are confident to handle any more of such fluctuations in the future based on our experience.

The second question is about the take rate. In the second quarter, let me summarize. In terms of pricing, we have maintained a stable price of 22.2%. In terms of capital cost, we had an improvement of 90 bps in a quarter. The risk is basically stable at 2.5%. So the overall take rate has been improved by about 3.1% compared to the previous quarter. In the next half of the year, we think that the price can still maintain a relatively stable price. And then the risk now has a good trend. And then the capital cost, you can see that in the upper half of the year, the overall optimization rate is still very large. But in the second half of the year, I don't think it will be so strong. But there is still a certain room for optimization. So we expect that the entire take rate should be able to stabilize at more than 3%. There is a certain room for rise. Let me highlight that in the first and second quarter of this year, the total investment capital has dropped by 140 bps. This is a very high level in history. Why did the investment capital drop? On the one hand, it is because our entire assets are still very popular in the market. Hello, Alex. Let me do the translation. Regarding takeaways,

During the second quarter, our average borrowing rates remain stable at 22.2%. Funding costs optimized by Medibibs in the second quarter while vintage delinquencies remain stable at 2.5% and take rate further improved to around 3.1%. For the second half of 2024, we expect average borrowing rates will remain stable and funding costs and vintage delinquencies to have further optimization. Our asset quality is popular in such environment and we are one of the few platforms that are able to maintain growth. This is the reason why we have more room to negotiate for better funding costs with our funding partners. Funding cost has cumulatively improved by 140 basis points in the first half and improved by 90 basis points sequentially. Going forward, we still believe it will have room for improvement based on what I have just said earlier.

Okay, thank you, Ed.

Okay, thank you. As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have any further questions, please feel free to contact Pimp Productions Group Investor Relations team. Thank you all and have a nice day.

This concludes this conference call. Thank you for joining. You may now disconnect your line.