FinVolution Group

Hello, ladies and gentlemen. Thank you for participating in the third quarter 2025 earnings conference call for Finvolution Group. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be an opportunity to ask questions. 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.

Okay, thank you. Before I start, thank you everyone for dialing in. I think the line today could be a bit choppy, so in case we get disconnected, we'll dial back in. So bear with us. Okay, so welcome to the third quarter 2025 earnings conference call. The companies we saw were issued via newswire services earlier today and are posted online. You can download the earning release and sign up for the company's email alerts by visiting the IR section of our website. Mr. Tie Zhenli, our CEO, and Mr. Jia Yuanxu, our CFO, will start the call with their 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 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 US Private Securities Delegation Reform Act of 1995, forward-looking statements involved 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 US SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Finally, we have posted a slide presentation on our IR websites, providing details of our results for the quarter. I will now turn over the call to our CEO, Mr. Ketan Lee. Ketan, please go ahead.

Thank you. Hello, everyone. Welcome to our earnings call. In the third quarter of 2025, against a dynamic regulatory backdrop in China, we delivered another resilient result driven by robust growth in our international business. Total revenue grew 6.4% year over year to 3.5 billion RMB and net profit came in at 641 million RMB, up 2.7% year over year. Our China business demonstrated stable revenue. Meanwhile, our international business continued to shine. Transaction volume was up 33% year-over-year, and revenue rose in line with volume up 37% year-over-year. Our international segment continued to be an effective natural hedge to our China business, representing a record 25% of total revenue this quarter, comparing to 19% a year earlier. They made meaningful progress in our international expansion. Our borrower base now stands at a cumulative 10 million, with new borrowers up 18% sequentially in the third quarter, reaching 1.3 million. Notably, our international new borrower count has exceeded China's for six straight quarters. In Indonesia, growth accelerated following the stable interest rates policy announced by the OGK in July, 2025. We also succeeded in upgrading customer's quality, which improved risk metrics and take rate. In the Philippines, we boosted transaction volume by 86% year over year to 1.6 billion RMB. despite typhoon-related seasonal softness. Turning to China regulatory landscape, a new consumer finance regulation framework took effect on October 1, 2025. As expected, we saw transitional effects across the industry in the third quarter. Our response was proactive and disciplined. We tightened credit standards to keep delinquency in check managed loan growth and maintained close communication with our funding partners to ensure stable funding supply. Our funding costs improved slightly as a result. We anticipate that full implementation of these regulations in the first quarter could create short-term uncertainties over volume, revenue, and risk metrics.

Oh, pardon me, ladies and gentlemen. We have appeared to lose the main speaker line. Please stand by while we reconnect. And it appears we brought the speaker line back in. We may proceed.

Okay. Sorry. We got disconnected. We will resume from where we start regarding the China regulatory landscape.

Okay. Turning to China regulatory landscape, a new consumer finance regulation framework took effect on October 1, 2025. As expected, we saw transitional effects across industry in the third quarter. Our response was proactive and disciplined. We tightened credit standards to keep delinquency in track, prudently managed loan growth, and maintained close communication with our funding partners. to ensure stable funding supply. Our funding costs improved slightly as a result. We anticipate that full implementation of these regulations in the fourth quarter could create short-term uncertainties over volume, revenue, and risk metrics. But this is not new to us. As an industry pioneer with 18 years of proprietary data spanning diverse credit profiles, and economic cycles, we have built a deeply resilient foundation. We continuously enhance our industry leading risk assessment and pricing capabilities by leveraging big data analytics and the AI to refine our models. Most importantly, we have the experience of adjusting our operations to dynamic regulatory shifts. we have successfully navigated through interest rate change in China and other developing countries. And we are well prepared to adapt to this new environment. We also continue to lead on the technology and the AI. In the third quarter, we hosted our annual Fimolution Global Data Science Competition, which brought together top AI researchers, engineers, and the data scientists to develop tools to combat deep fake image detection. Over the past decade, the competition has attracted nearly 10,000 cumulative participants and covered frontier topics, including credit assessment, fraud detection, behavioral analytics, dialect recognition, and voice authentication. The competition is a winning growing recognition from academic institutions as well, including official strikes at IGCAI, International Joint Conference on Artificial Intelligence, 2025, and CIKM, Conference on Information and Knowledge Management, 2025. And showing the value we are bringing to the global AI ecosystem. On the ESG front, We adopted AI to improve fulfillment of customer service and enhance consumer rights protection. During the quarter, we introduced a new upgrade on customer service AI agent to more accurately identify customer intent and automated response to select inquiries based on the level of urgency. This upgrade simplifies the customer service journey enabling more timely engagement with customers. During the quarter, the enhanced AI agency has successfully completed over 1 million times of service interaction. In summary, we deliver a resilient quarter thanks to disciplined execution of our local excellence, global outlook strategy, and an experienced response to changing regulations. Our diverse portfolio was a key strength. We remain confident in the long-term fundamental of our China business, where our international operations are gaining exciting momentum. I'm now turn the call over to our CFO, Zhang Yixu, for a deeper look at the numbers.

Thank you, Jie Zhen. Hello, everyone. Let me go through our key results for the third quarter. Please refer to our third quarter earnings press release for further details. Let's start with China. The economy remains in moderate recovery model. Domestic demand is still relatively mild amid a complex external environment. Consumer confidence index trended up slightly in Q3. Against this softer environment coupled with the early impact of the new regulation, We saw Mike. liquidity has improved while funding course has been on a downward trend, improving from 3.7% last quarter to 3.6% this quarter. Customer acquisition has also become more rational as competition for consumer eased. Looking ahead, we should continue to be vigilant on risk as we manage our business. On the international front, we delivered a robust growth this quarter, underscoring the strength of our original strategy and the power of our scalable platform. Understanding that this regional performance is our core technological capability, We are systematically replicating our proven playbook, spanning technology, risk monitoring, and the partnership frameworks into high-growth economies like those in Southeast Asia. The results speak for themselves. From the macro standpoint, we saw a clash of subtleties in the region. Typhoon season lowered PMI to 49.9 in the Philippines, while consumer confidence remained similar in the third quarter in Indonesia. Against this economic climate, we delivered RMB 3.6 billion in total transaction volume, a 33% increase year-over-year. The growth was broad-based, with Indonesia and the Philippines contributing 57% and 43% of volume respectively. Our unique international borrower base also expands to 3 million, surging 114% year-over-year, confirming the deep untapped demand across the region. Our regional strategy even out the distinct local conditions and brought about diversification. For example, While our growth was moderated by the seasonal typhoon in the Philippines, we were encouraged by the stabilizing regulator environment in Indonesia, allowing us to accelerate our user acquisition. This drove transaction volume to RMB 2.1 billion, up 14% year-over-year, and the loan balance to RMB 1.4 billion, up 21% year-over-year in Indonesia. Across the region, we continue to scale the platform with our operational know-hows. We strategically upgraded our user quality in Indonesia to drive improved unit economics, as evidenced by longer loan tenure, healthy risk metrics, and higher take rates. Furthermore, our partnerships with ecosystem partners continue to expand. Our growing credibility is unlocking premium funding sources and attracted a new institutional bank partners to our franchise in the Philippines. Our e-commerce partnerships also continue to proliferate, forming 36% of volume in the Philippines, up from 20% a year ago. As a result, transaction volume was up 86% year-over-year to RMB $1.6 billion, and the loan balance surged 101% year-over-year to $897 million in the country. Overall, strong operational execution this quarter produced resilient financial results despite modest external challenges. Group net revenue reached $3.5 billion, up 6.4% year-over-year. Net income was RMB 641 million, up 2.7% year-over-year, but down 14.7% sequentially, partially due to wind-off government procedures in Q2. Our balance sheet remains healthy, with cash and short-term investments of RMB 7 billion and a historical low leverage ratio of 2.4 times. We also maintained a prudent provision coverage ratio of 517%. Furthermore, we remain committed to shareholder return. In the third quarter, we repurchased a total of approximately US 2.6 million. As of September 30, 2025, we have repurchased a total value of approximately US 66.5 million. bringing cumulative share repurchase amount to US$437 million since 2018. Since October, we further accelerated our buyback effort amid market price dislocation. In short, we continue to demonstrate strong execution of our local access global outlook strategy while our financial performance for the first nine months ended September 30, 2025, remains generally in line with our revenue forecast for this period. The recent regulatory changes in China have introduced near-term uncertainties. We now expect full year 2025 total revenue guidance to be in the range of approximately RMB $13.1 billion to RMB $13.7 billion, representing year-over-year growth of approximately 0% to 5%. Thank you. Now, let me hand over the call to the moderator. Aubrey, can you continue?

Okay. We will now begin the question and answer session. To ask a question, you may press star, then 1 on a touch-tone phone. If you are using a speakerphone, please pick up the line before pressing any keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. For the benefit of all participants on today's call, if you wish to ask a question, please ask your question to management in Chinese. we may ask that you kindly repeat your question in English. Our first question comes from Alex Yee with UBS. Please go ahead.

Thank you for giving me the opportunity to ask this question. I have two questions. The first one is about under the current financial management environment, there will be some risk fluctuations and impact on profits in the short term. But if after a few future seasons, the risk is stabilized, I don't know what level we can reach in the future. The second question is about the arrangement of repurchase. Can you remind us of the current situation? So I will translate my question. My first question is regarding, given the current regulatory changes, This has introduced some volatility in the near-term risk as well as impairment charges, which impact our earnings as well. So I'm just wondering how should we expect our normalized take rate, net take rate to settle in the next few quarters after assuming the asset quality gradually stabilized? So the second question is regarding our buyback plan. So can you remind us what are the current unused quotas? that we have in place, and given the current elevated uncertainties and the pressure, do you have any more specific guidance in terms of the pace and scale that you're going to implement those in the next two months? Thank you.

Okay, thanks, guys. I will take your questions. Your first question is about the normalized situation under 24%. But, you know, our risk-bearing loan stays within 24%. In Q3, the average rate is around 22%. So, following the 24% cap, there are several factors to consider. First, risk may fluctuate across cycles and is the most important factor in the current environment. Based on our experience in the previous cycles, it would be mostly back to the normal level. And on the funding side, as subject to the demand and supply of liquidity, now we are seeing more liquidity changing after high-quality assets, and there should be some room for the optimization of funding costs. So overall, for our risk-bearing portfolio, the take-risk should likely track well towards during the normal period. However, the new regulation may impact some parts of our business, such as the traffic referral business. Some customers will no longer be served. Also, we expect the take rate for this service should narrow accordingly. It depends on the factors like the market liquidity, funding costs, and the risk appetite of our partners. Below the revenue take rate, we also need to factor in operation efficiency. On the user acquisition front, we have noticed that a reduced competition in the market. There should also be some room to optimize the acquisition costs. We will continue to adjust our acquisition pace dynamically based on price, funding availability, and the risk strategy. As the business scales up and the technology becomes more deeply embedded across our operations, we also see further potential to optimize the fixed cost. In short term, we do anticipate some P&L impacts from the RISC. RISC uptake will tighten our new loan generation and impact the volume. At the same time, the historical cohort will likely perform when risk increase. It's resolving the high provision cost. Both the elements could reduce the near-term profit level. As the risk metrics are still volatile, it may be too early to say how risk may evolve, but we will continue to monitor it closely. And your second question is about the shareholder return. On the buyback front, we have been actively repurchasing our shares. As of November 14th, we have bought back $178.4 million worth of shares. Notably, the pace picked up in the fourth quarter. We did $12 million in the Q4 so far. which is nearly five times what we did in the third quarter. So given the momentum, we are on track for a full year total that looks a lot like last year. And for the dividends, in 2004, we paid out 0.277 per share, representing 17% year-over-year increase. And it marks five straight years of growth Our average is an 80% CAGR, and looking ahead, our focus remains on delivering the steady growth of our DPS. Let me reiterate our shareholder return strategies. Even with all the short-term fluctuations in the market, our core commitment to our shareholders remains solid. When we think about the returning value, we'll look at the whole picture, including the dividend and the share buyback program. We will weigh the benefits of each. And right now, with our stock trading at just 0.6 times of our net book value and only 1.5 times of our short-term liquidity, in this situation, buyback of our own shares is an effective way to create the value for our shareholders. That's why we are wrapping up our buyback activity. Okay.

And the next question comes from Cindy Wang with China Renaissance. 那第一个的话可以给我们一下,因为刚才那个线路好像有点断掉,可以给我们一下那个目前看到的一些早期风险指标,比如说像dividing frequency 30天的一个long collection rate。 And then since July, we may have seen some changes in the early risk indicators on the month. In recent months, in November and November, this risk has seen a situation of gradually recalling. How can we judge the turning point of this risk? The second one is that we see that overseas market growth is very strong. 那往后看的话,我们看这个冰冻力道是否会在逐步的一个加速。 那目前印尼和菲律宾这边主要拉动增速的一个产品维和。 那我很快翻译一下我的问题。 Thanks for taking my call, and I have two questions here. First one, due to the connection issues, so could you tell us what your day one delinquency rate and also the 30-day long collection rate in the quarter is? And based on the early risk indicators in July, have you seen a stabilization in October and November? And how do you determine the infraction point of credit risk? Second, looking ahead, will the growth momentum in overseas market accelerate? And what are the main product driving growth in Indonesia and the Philippines? Thank you.

Okay, thank you, Cindy. Yeah, sorry for the connection issue, and I hope everything is good now. I will take your first question, and the team will take your second question. And your first question is about the risk in what domestic business. Well, the new regulation has tightened the industry-wide liquidity and increased the credit risk, and this was reflected in our Q3 results. with the day one delinquency rate increasing by 30 bps quarter-over-quarter to 5%, and the 13-day collection rate something to 88%. This trend persisted in the early October. Driven by the regulator changes and the seasonal effects upon the national day holiday, we saw a further uptake on risk in the first half of October. Now, we have begun to see early signs of stabilization. By November, the daily delinquency rate decreased by 4% from its October peak, though it remains by 8% above the Q3 average. While this is a positive development, we believe it's too early to draw a conclusion here. And if we see If we can see the sustained improvement over two consecutive months, it could then be a turning point. Our response to this cycle has been shift in the strategy. We focus on the key risk measurement areas like risk underwriting, collection, We have proactively refined our risk models, leveraging the insights from past downturns to simulate various scenarios to more precisely calibrate credit exposure. Furthermore, we are deploying advanced AI to enhance our early warning alert capabilities for individual borrow stress. This analytical approach has been translating to concrete measures. We have tightened underwriting standards, reduced exposure to high-risk profiles, and scaled back customer acquisition spending on lower-quality channels. On the collection front, we have adopted a more refined and dynamic strategy, customizing repayment reminders based on use categories and enhancing our communication approach. So the cumulative impact of this volume and risk measurement adjustment is that while overall risk levels remain on a higher level, the rate of increase has begun to moderate. As a market leader with a consistent and prudent risk culture and a deep cycle experience, We are confident in our positioning. We maintain strong risk of resilience supported by ample cash reserves and our consecutive provision coverage ratio of 570%. This solid financial foundation positions us to not only withstand the current market fluctuations, but to emerge from this cycle in a strengthened competitive position. Okay.

I will share some information about the growth and the products on our international markets. Our international business are growing very fast right now. And since from 2020 to 2024, the transaction volume grew at a CAGR of over 70%. And in Indonesia, after increased rate cap adjustments, The business has bounced back and is now growing very quick. And the Philippine market has kept up high double-digit growth year on year. Looking ahead to 2025, we expect transition volume for both markets to grow at current trajectory, and profitability should also stay solid. And from product side, we have a diverse product to meet different consumption scenarios. And in Indonesia, we are not just doing online cash loans. We also been pushing into buy now, pay later in offline retail. And we got multi-finance license last year, and we are rolling out installment finance for products like phones and e-bikes and appliances and furnitures. And we have built partnership with leading electronic brands to attach our financing solutions to select 3C products in their store. Right now, these buy now, pay later products still make a small part of our overall business, but they are growing very fast. It's six times in transaction volume year over year. And in Philippines, we'll build attractive e-commerce partnerships It's contributed 36% of the transaction volume. We started the TikTok partnership in February last year, and now the transaction volume was triple of what it was a year earlier. This helped us reach a whole different kind of customer cohort. Smaller tick size, higher repurchase frequency, and a lot of them are female customers. And we think these users tend to be lower risk, and it will balance out our online loan portfolio. Building on the success, we are expanding similar solutions to daily consumption in broader industry. For example, we recently partnered with Smart. Philippine local telecom provider provide consumer with band operator solutions. As we keep expanding into more offline scenarios, we'll be able to reach even more people who aren't active online. So we expect our customer base to keep getting broader and higher quality over time. Thank you, Cindy.

And the next question comes from Jiang Zhu with CICC. Please go ahead.

感谢管理层给我这个提问的机会。 我是来自中间公司的杰里杰。 有一个问题想请教一下管理层, 就是在当前这种监管形势非常不明朗的情况下, 公司有哪些应对举措, 以及我们去展望未来的话, 有哪些重点的发展方向呢? Thank you for giving me this opportunity to ask a question, and I will translate my question. With the current regulatory situation so uncertain, what measures have the companies taken to address it, and what are the key priorities for the future development? Thank you.

Thanks, Dongping. For over 18 years, Finvolution has successfully navigated multiple market cycles. In China, we have upgraded from a P2P model to a loan facilitation model, adapted to an evolving regulatory landscape, and managed through a civil interest rate cap adjustment. Our international business has similarly matured through its own cycle of regulatory change. This experience made us a more resilient and stronger company. In China, we took preemptive action early this year in response to initial signs of market volatility and decisively prioritized quality over quantity. In recent months, we have proactively upgraded our power base and we raised our underwriting standard to target higher quality customers. And we also adjust our user acquisition spending to maximize risk reward efficiency from a lifetime value perspective. This strategy allowed us to reduce both near-term risk and the user acquisition cost. As a direct result of these efforts, our sales and marketing expense decreased by 12% quarter over quarter. Looking forward, we remain vigilant in our risk management discipline. And turning to our international markets, since our expansion began in 2018, we have built one of the few scaled overseas platform in our sector. We reached a significant milestone this quarter, and as our international revenue contributes 25% of group revenue for the first time. our international business has built a strong foundation. We have over 15 institutional funding partners, a diverse network of online and offline partnerships, flexible product offerings, and a complete licensing portfolio across multi-countries. So our playbook has proven successful in Southeast Asia, and we are well-positioned to replicate this model further. And looking high, the China market will continue to be a major bedrock of our business. We will focus on the right balance between risk and the growth, solidifying the foundation for profitable, long-term sustainable business. And our international operations are already profitable, and we will continue to enhance the profitability as we scale. Our strategic target is to build a balanced portfolio with 50% of our business coming from international markets by 2030. Thank you.

As there are no further questions, I'd like to turn the call back over to management for any closing remarks.

Thank you once again for joining us today. Apology for the disconnection over the call. If you have any further questions after this call, please feel free to email and contact the fin pollution IR team. Thank you so much.

This concludes the conference today. You may now disconnect your line. Thank you.