FinVolution Group

Hello, ladies and gentlemen. Thank you for participating in the second quarter 2025 earnings conference call to Finvolution 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 will now turn the call over to your host, Yam Cheng, head of capital markets for the company. Yam, please go ahead.

Thank you, Wilco. Hi, everyone. Welcome to our second quarter 2025 earnings conference call. The company's results were issued via Newswire Services earlier today and are posted online. You can download the earnings release and sign up for the company's email alerts by visiting the IR section of our website at ir.finvgroup.com. Mr. Tietzen Li, our Chief Executive Officer, and Mr. Jiayuan Xu, Our Chief Financial Officer will start the call with their prepared remarks and conclude with a Q&A section. 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 U.S. GAAP. For information about these non-GAAP measures and the cancellation of GAAP measures, please refer to our earnings press release. Before we continue, please note that today's discussion contains forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views 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 statement except as required under applicable laws. Finally, we posted a presentation on our IR website, providing further details of our results for the quarter. I will now turn the call over to our CEO, Mr. Taiten. Taiten, please go ahead.

Thanks, Yan. Hello, everyone. Welcome to our earnings call. Following a solid first quarter of 2025, I'm pleased to share that Revolution sustained its healthy momentum in the second quarter. Supported by our robust growth in our international business and steady performance in China, net revenue reached 3.6 billion RMB, up 13% year-over-year, driven by a 10% increase in transaction volume in China and a 39% surge in international transaction volume. Net income also showed solid growth, reaching 751 million RMB, representing an increase of 36% year-over-year and 2% quarter-over-quarter. Since our transition to institutional funding model in 2021, we have now delivered 18 consecutive quarters of year-over-year growth in both transaction volume and revenue, a strong testament to our resilient business fundamentals in today's fast-changing macro landscape. As discussed in last quarter's earnings call, regulation in China's consumer finance sector has been evolving. With the implementation of the new regulation of the internet loan facilitation business in October. We believe it may have implications to the loan mix and the risk profile of the assets in the industry. And we are closely monitoring the latest developments and the dynamics of the sector. We maintain active dialogue with our funding partners, which expanded from 114 to 119 in the second quarter. to maintain relatively stable funding supply and prepare in advance for the potential impacts on our transaction volumes and risk metrics. Our risk infrastructure tested across multiple economic and regulatory cycles positions us well to adapt swiftly and effectively to these changes. In the long run, we view that these measures will ultimately foster more sustainable growth across the sector and benefits the lending platform like ours. Part of our resilient business hinged on the international operations, which offer valuable diversification benefit and growth. In the second quarter, international transaction volume increased 39% year-over-year to 3.2 billion RMB, and loan balance rose 50% to 2.1 billion RMB. Notably, our international operations contribute 22% of net revenue, up from 18% in the same period last year. Understanding the growth is our expanding customer base. We onboarded 1.6 million new borrowers during the second quarter, a 96% year-over-year increase. This marked our first consecutive quarter surpassing 1 million new borrowers. Thanks to our effective AI-powered marketing strategy and the diverse user acquisition channels in China, the transaction volume from new borrowers reached 7.1 billion RMB of 20% year-over-year in our international markets. We attached 1.1 million new borrowers up 126% year-over-year. New Borough growth from our international markets also outpaced that in China for the fifth consecutive quarter. Shared by our diversified service we provide in the ecosystem through partnership with the leading e-commerce and technology platforms, we expect this trend to continue. On the technology front, we continue to leverage AI in our risk management. We have built effective defenses against sophisticated AI fraud like DeepFix, achieving 98.8% detection accuracy. Our proprietary visual AI analyzes by ground patterns, document and synthetic and the text-level anomalies, resulting in 95% detection of digital artifacts in forged images. We combine this with multi-layered verification, including dynamic facial recognition, randomized voice checks, and real-time video authentication. Looking ahead, we are evolving from single-mode to multi-mode detection that simultaneously analyze video and audio, keeping us ahead against the evolving financial fraud. ESG remains core to our long-term strategy. We published our seventh annual ESG report in July, and it's going our unwavering commitment to sustainable inclusive financial throughout 2024. We made substantial progress by combining technology innovation, process improvements, and ecosystem partnerships, particularly in enhancing our anti-fraud capabilities and optimizing service quality. These efforts have meaningful advanced consumer protection with our intelligent fraud prevention system, now detecting over seven thousand suspicious activities daily. In 2024, we blocked more than 26,000 fraud attempts, protecting financial institutions from potential losses over 300 million RMB while maintaining 98% user satisfaction rate. Also worth noting, Dreamolution Group secured two prestigious honors at the FinTech Financial Asia 2025 Award in June, the Best Strategic Initiatives Award for the Philippines, as well as the Most Innovative Use of Technology Award for Mainland China. This recognition affirms the positive value our fintech solutions has brought to financial institutions across multiple markets. Finally, an update on our capital market activity. We completed 150 million US dollars convertible bonds offering in June, the first capital market transaction since our IPO in 2017. The funding will support our strategic priorities, accelerating international expansion and lowering capital costs. The transaction also helped us diversify our investor base and deepen engagement with a broader group of investors. We are encouraged by the positive reception from the convertible bonds investors, as well as the improvements in our stock's liquidity following the transaction. In summary, our second quarter performance reflects outstanding execution of our local excellence. global outlook strategy. We are encouraged by the resilience of our China business and the strength of our international business. Both served by ongoing investment in technology, customer acquisition, and international expansion, we are well positioned to continue driving sustainable growth and delivering long-term value. Now, I will handle the call over to our CFO, Jia Yuanxu, for a closer look at our financials.

Thank you, Tiecheng. Hello, everyone. Let me go through our key results for the second quarter. I will begin with our performance in China. Despite global trade tension and macro uncertainty, China's economy demonstrated resilience that GDP expanded 5.2% year-over-year, exceeding market expectations. Also, consumer sentiment improved on the back of a 4.8% increase in overall spending in June. It is encouraging to see continued regulatory support to increase credit supply for consumer finance to boost the economy. Against this background, we delivered solid results in China. Our take rate remained stable at 3.4%, while the average loan tenure extended slightly to 8.3 months. Risk metrics stayed bodily stable, with day one delinquency rate rising 10 basis point quarter over quarter to 4.7%, while 13-day collection rate remaining steady at 8.4%. We maintained our prudent approach to provision, supported by a healthy provision coverage ratio of 543%. Turning to our international business, we job continued growth despite the spillover impact from Ramadan in early Q2. Domestic macro indicators in our key Southeast Asia markets were largely stable, while the underlying consumer demand for credit remained strong. Total international transaction volume grew 39% year-over-year and 6% quarter-over-quarter, surpassing RMB 3 billion for the second consecutive quarter, while outstanding loan balance rose to RMB 2.1 billion up 50% year-over-year and 30% sequentially. Unique Bowers sold by an impressive 122% year-over-year to reach $2.3 million, breaking the $2 million mark for the first time. As a result, revenue from international markets increased to $797 million, up 42% year-over-year. In Indonesia, while microeconomic conditions showed slightly moderation amid child tensions, our business demonstrated strong resilience. We maintained momentum by offering longer-term products to high-credit quality borrowers, which grew better as a quality and an improving take rate. We also continued to expand partnership with local platforms to acquire new borrowers. These initiatives delivered solid results. Loan volume grew 9% year-over-year, with outstanding loan balance increasing 25% to RMB $1.3 billion. One important and encouraging update on Indonesia, at the end of July, the OJK Indonesia's Financial Services Authority issued a new circular that keeps the daily fee cap for consumer funding unchanged from its 2024 level. This is a welcome development because it effectively replaced the previous policy, which would have required a 0.1 percent annual reduction in the fee cap through 2026. This decision provides much-needed stability. It addresses concerns that further fee cuts could pressure revenue and profitability, and it ensures a healthy, more sustainable environment for our business going forward. We see this as a strong vote of confidence in the industry and a positive step for our long-term goals in Indonesia. Our business in the Philippines continues to outperform this quarter. Business activity in the Philippines remained high nationwide, with an average PMI of 15.7. Thanks to ongoing regulatory support for digital finance innovation as well as our brand awareness through effective marketing strategy, our loan volume more than doubled year-over-year to $1.4 billion, accounting for 45% of our international business. Banlao Paylater products contributed 32% of volume, up from 30% in the same period of last year, driven by our collaboration with TikTok Shop and efforts to expand new platform partnerships. Moving forward, we are optimistic over the transaction volume growth in the Philippines as we deepen our market presence. broaden our funding partnerships and diversify our business offerings to capture emerging opportunities. Overall, our strong operational performance this quarter produced impressive financial results across the board. Net revenue reached $3.6 billion, reflecting robust year-over-year growth of 30% and a secretion increase of 3%. Net income also saw significant momentum, rising 36% year-over-year to RMB 751 million, and scoring our ability to drive possible growth. Our financial position remains solid, with RMB 7.9 billion in cash and short-term investments, providing ample liquidity to support our strategic priorities. We continue to maintain a prudent balance sheet with a leverage ratio of 2.6 times, defined as risk-bearing loans to shareholders' equity. Finally, we continue to return capital to shareholders and have repurchased U.S. 63.8 million of shares in the first half of 2025. including the purchase made in conjunction with the convertible bond issuance in June. The CB proceeds to fund our international business, will optimize capital costs and accelerate expansion. In short, we maintain our strong growth trajectory through disciplined execution of our local accents and global outlook strategy. We remain confident in our ability to adapt quickly to the regulated environment in China while driving growth in untapped international markets. We believe the new regulation may foster a healthy development of the industry and benefit leading players' market share in the long term. As such, We are reiterating our full-year 2025 revenue guidance of RMB 14.4 to 15 billion, or 10% to 15% year-over-year growth. With that, I will now open the call for questions. Operator, please continue.

Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad. If your question has been addressed and you'd like to remove yourself from queue, please press star then 2. 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.

Today's first question comes from Cindy Wong with China Renaissance. Please go ahead. How do we see the impact of the new loan on the overall business in the second half of the year? Will the new loan amount be reversed in the second half of the year to adjust the loan structure and ensure the value of this asset? The second question is the overseas market. In the second quarter, we see that the overall loan amount is still growing at a high speed. I don't know how the overall loan situation is in July and August. Thanks for taking my question and congrats for the good result in second quarter. So I have two questions here. First, regarding new regulation on loan facilitation in China, how do you see the impact to your business? Would you slow down new loan volume in second half to adjust loan structure and ensure asset quality? Second, the new loan volume in international market in second quarter maintain rapid growth. What is the current run rate in July and August? And is there any target customer profile change in Indonesia and the Philippines in second half? Thank you.

OK, thanks, Cindy. Yeah, I will take your questions. Your first question is about the new regulations in China. The new regulations on internet loan facilitation business were coming into effect on October 1st. We think it will provide more order to the industry and in the long run promote the consolidation. There might be some impact on the different types of assets right now. As for those high-priced assets, the funding supply has reduced. And the funding partners now become more cautious and selective on the cooperation with the platforms. They'd like to choose the platform which can bring the good economics or have the manageable risk-reward. And for those high-quality assets, where our core business is, liquidity and the funding costs remain stable. So, the targeting of the industry liquidity has introduced some challenges, but the overall impact to us remains manageable for two reasons. First, we have the know-how for acquiring and operating the high-quality assets We have not been focusing on the pricing, high-quality assets from the information fee channel. Now the funding market shifts to the high-quality assets, we should benefit. And second, as proven in the previous credit cycle, we have been disciplined on risk management Thanks to the efforts on the high-quality customer strategy and the continuously built competitive capabilities, we saw the delinquency rate standing at a reasonable and manageable range. We will continue to dynamically balance the risk exposure and the transaction volume as we step into the second half year. So we expect maybe the regulator will continue to weigh on the industry. Third, our international business continues to be a growth driver and more important, a source of diversification to our business. In the second quarter, its transaction volume increased by around 20% year-over-year, and the revenue contribution surpassed 22%. We also see a better profitability trajectory than expected in our international markets. This structural growth in China international markets provide a portion to the short-term volatility in China market. In conclusion, we expect maybe a low single-digit quarter-over-quarter decline in the transaction volume in the China market with a reasonable fluctuation in risk levels and the largely stable tick rate. We are maintaining our full-year revenue growth guidance of 10 to 15 percent, subject to the industry not significantly different in the coming quarters. Your second question is about our overseas business. Well, as we mentioned in the first half of 2025, our international market continues very strong momentum. The transaction volumes was up nearly 40 percent year-over-year and 11 percent quarter-over-quarter. And I'm very happy to share that this strong trend here is steady, running to the July and August. Based on our current trend, we are projecting both Indonesia and the Philippines to deliver the solid double-digit quarterly growth again in Q3. As for Indonesia, the most important update is on regulation. In the later July, the OJK confirmed its new interest rate policy. It will effectively maintain the interest rate cap as is, which we have been operating since the end of last year. The directive issued in 2023 was to reduce the interest rate cap gradually from 0.4% to 0.1% in 2026. With the data circular, the reduction is not revoked. This removal of uncertainty is a huge positive for the entire industry and allows us to plan for the long term with much greater clarity. And in terms of the business, we are continuing to deliver the diversified product offerings As for our online cash loan, we proactively launch the marketing initiatives to go after better quality customers in the first half year. For example, we offer the attractive terms and the repayment flexibility to those high quality customers to appear to customer base we are able to reach. For the offline front, we have acquired the multi-finance license last year. We are expanding into the offline installment scenarios like smartphones, motorbikes, and home appliances. We have partnered with the major Chinese electronic brands and the local brands to offer offline installment loan options at the point of sale. But this bin is still relatively small at the moment. We are quite confident it could be a market of very substantial potential. And for the Philippines, you know, it's our second largest overseas market. It has been consistently exceeding our expectations, and the microenvironment remains very favorable. For our Band Operator cooperation with the TikTok shop, it continued to be a very huge success. It's already contributed to 32% of Philippines' total transaction volume, and its product line has already become profitable. Building on this success, we have recently expanded partnerships with other local telecom operators to fund phone credits with Band Operator products. So with these partnerships, we aim to onboard a new customer base that we haven't served before. Looking forward, we continue to expand and diversify the consumption scenarios and the partners' ecosystems to build our financial product metrics that covers the wider user base to speed up the overseas business goals. So look ahead to the second half year. Although the Philippines might experience some typhoon-related seasonal impact in Q3, we will stay prudent in our customer acquisition strategies. But given the powerful momentum for our ecosystem partners and our expanding product offerings, we are very confident in maintaining the growth trajectory for the full year. Okay, thank you, Cindy.

Thank you, very clear. Thank you. And our next question today comes from Alex Yee with UBS.

Please go ahead. . China China China China China China China China Translate for my question. First question is about the asset quality. So can you give us more color on the drivers for the QMQ movement into your day one delinquency ratio and collection ratio? And how has been the trend you have seen in the July and August? So are you concerned about the potential spillover risk for your core customer base from the current regulatory uncertainty? Second question is about your overseas business. Can you walk us through how has been the development of your overseas business compared to a plan in the beginning of the year? In particular, given you have earlier, so how has that expected to contribute to your overseas growth in the coming quarters? Should we expect the overseas growth to further accelerate from here? Thank you.

Okay, thanks, Alex. Yeah, let me take your questions. Your first question is about the domestic business again, so let's go back to the domestic business. Well, overall risk level was largely in check in Q2. Although we observed a moderate uptrend in July and August, we started to see the early spillover of the risk from 36% asset to 24% asset. but it remained under control as we preemptively managed the loan portfolio. In Q2, our key risk metrics remained largely stable, as we mentioned. It also factored in the slightly long tenure of the portfolio in the quarter. The daily delinquency rate held steady at 4.7%. Our 30-day bone collection rate remained strong at 89 percent. The vintage delinquency rate was 2.5 percent. In July, we saw a bit of upward movement. Our daily delinquency rate ticked up slightly by 20 bps to 4.9 percent. We moved quickly to adjust our risk measurement strategies And by August, the day one delinquency rate had stabilized at 4.9 percent level. And our 30-day loan collection rate held firm at around 89 percent. In view of the uptrend of risk, we have proactively tightened our risk management in the following aspects. First, we reduce our exposure to the assets from those low-quality channels, which is historical, carries the high risk. And for those high-quality channels, maybe the information feed channel, we further adopt different credit strategy for our borrowers. For example, we reduce the credit limit to borrowers of the higher debt of the better terms to borrowers of better credit score and remove the credit limit that are not utilized. And in terms of the loan collection, we employed AI technology to identify and alert high-risk borrowers who are in the early stage of the past due and set up the collection effort accordingly. So look ahead. While we continue to be vigilant on risk for Q3 and Q4, we also have a risk buffer in place. Our provision coverage ratio has climbed to 543 percent, up significantly from 465 percent in Q1. So we will remain flexible and adapt to the market dynamics. We are confident to stay constructive over the long-term development of the industry and the position of the leading platforms. So that's for your first question. And your next question is about the overseas B&As and the impact of the convertible bonds. Well, our international performance As we mentioned, the first half of the year has played out very much as we expected. The transaction volume came to be $6.2 billion, up 38% from the last year. The outstanding balance grew to be $2.1 billion, a 50% increase, and the revenue reached $1.5 billion, up 30%. and are now making up 21% of the group's total revenue. The funding cost in the international market has held steady, and we are continuing to deepen relationships with more financial institutions. As we mentioned before, we are focused on attracting high-quality borrowers in Indonesia. Well, we have seen a 50 percent improvement in credit course, comparing to the start of the year. The credit course in the Philippines has held steady. This has given a steady improvement in our T-Crate. On top of that, the recent removal of the regulatory facility in Indonesia could normalize the liquidity and provide us a stable environment to execute the consistent customer acquisition. and our risk pricing strategy go forward. And for our new market, such as Pakistan, after we get the MBFC license last year, we just recently secured a bundle payday to license in July. And it can make us the first fintech platform that can operate both online and offline representing a powerful endorsement from the regulators. Now, our plan is to draw out more diversified consumer finance product offerings to serve our customers throughout their life cycles. Finally, I want to touch on how we are funding these goals. Our $115 million convertible bond insurance in June was a strategic move. We used around $16 million for concurrent buyback, and the rest is gradually deployed to fund our international business. Our average overseas funding cost is about 12%. Comparing to the 2.5% coupon from the CB, that's roughly 10% potential savings from the working capital management perspective. On top of that, this CB funding gives us more flexibility on funding cost when we engage with the local funding partners. All of this positive development to get the graduates of the CB funding led us to expect a better probability for our international business. We now expect the profit contribution from our international business of no less than U.S. dollar 15 million this year, up for our priority estimate of $10 million. Okay, thank you, Alex.

Thank you. The next question comes from Dongping Zhou with CICC. Please go ahead.

Thank you for the opportunity to ask a question. Congratulations to the company for achieving a good performance in the second quarter. I would like to know about the future of the company's shareholder return plan. I noticed that we have repurchased about 60 million dollars of shares in the first half of the year. Considering the return plan released at the beginning of the year, I would like to ask how the management is looking forward to the subsequent return process. In addition, the company has increased the share ratio of this year to 20% to 30%. Is there a more clear share ratio plan at the moment? And let me translate. And I would like to inquire about the company's future shareholder returns progress. We noticed that the company has repurchased about $50 million in shares during the third half of this year. And I wonder if you could give me some color on the future progress of the repurchase. And in addition, the company previously raised the year's dividend payout ratio to the range of 20% to 30%. Is there a more specific dividend ratio plan available for disclosure to the shareholders at present? And that's all. Thank you.

Okay. Thanks, Dongping. I will take your question. Well, you know, the same capital to our shareholders is always a very important strategy for us. We were the first in the our industry to launch the capital return program back in 2018. Since then, our commitment has been substantial. We have cumulatively returned $800 and $13 million to our shareholders, representing around 35% of our current market cap. Regarding the two pillars of the return, the dividends and the buyback, First, for the dividends, we are deeply committed to growing dividends. Our DPS reached 0.277 for 2024, up a strong 70% year-over-year. That actually marks our fifth consecutive year of growth with an impressive 80% case. This year in March, our board approved a significant upgrade to our dividend policy. moving from a minimum of 10% of net profit to a new range of 20% to 30% annually. Given this enhanced policy and our performance, we will track the DPS growth rate to ensure a sustainable dividend growth strategy. Second, for the share repurchase, we see the buybacks as a powerful and complementary tool We had $115 million buyback program in place until March 2017. In the first half of the year, we had repurchased $63.8 million, representing a 12% increase year-over-year. So we believe this new buyback and upgrade dividend policy sends a key message. We are committed to returning capital to our shareholders and a firm level of confidence in sustained growth, profit potential and expanding the international presence. Okay, thanks Dongping.

This concludes our question and answer session. I would now like to turn the call back over to management for closing remarks.

All right, thank you. Thank you once again for joining us today. If you have any further questions, feel free to contact our IELTS team. Thank you again for joining.

The conference has now concluded. Thank you for your participation. You may now disconnect your lines.