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spk05: Ladies and gentlemen, thank you for standing by and welcome to the OneConnect first quarter 2023 earnings call. At this time, all participants are in this and only mode. After the management's prepared remarks, we will have a question and answer session. Please press star one to ask a question. Please note this event is being recorded. Now I'd like to hand over the conference to your speaker host today, Mr. Rick Chan, the company's head of investor relations. Please go ahead, Mr. Chan.
spk09: Hello everyone and welcome to our 2023 first quarter earning conference call. Our financial and operating results were released earlier today and currently available on our RR website. Today you'll hear from our chairman and CEO Mr. Shen Chongfeng who will give opening remarks and business highlights. Afterwards our CFO Mr. Luo Yongtao will offer a closer look into our financials And then in question and answer session, our management team will be available to you. We have our CTO, Mr. Li Jie, Head of Digital Banking, Ms. Ellen Jia, and Deputy General Manager of Strategy and Product Division, Ms. Jessie Chen, and Chief Executive of Hing An One Connect Bank, Mr. Michael Veit. In today's conference, Our management team will make statements in Mandarin or in English. For those in Mandarin, a consecutive translation will be provided. In case of any discrepancy between the Mandarin version and the English version, our statement in the original language should prevail. Let me quickly cover the safe harbor statement before we start. As we're making forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that we may present both IFRS and non-IFRS financial measures. With that, I'm now pleased to turn our call to our chairman and CEO, Mr. Shen Chongfeng. Mr. Shen, please.
spk10: Hello, everyone. This is Shen Chongfeng. I would like to thank all of you for attending the 1st quarter of the 2023 Business Development Conference. In the face of the complex situation of a hundred-year change and the overlap of the epidemic in the current century, the financial system is based on the 12-digit management concept focused on the optimization of the structure, the focus on the product, and the standardization of the product, the marketing standardization, and the delivery standardization. Hello, everyone.
spk03: I'm Shen Chongfeng. Thank you for taking the time to dial in OneConnect's 2023 Q1 earnings call. I guess complexity is brought by momentum changes never seen in the last 100 years and the pandemic of the century. OneConnect strives for progress while maintaining stability. remained innovative and delivered a solid performance under the guideline of increasing revenue, reducing costs, optimizing structure, improving products. We carried out key initiatives including product standardization, sales and marketing standardization, and delivery standardization to continue to execute our Stage 2 strategy of broadening customer engagement.
spk10: Our tax revenue is also reduced by 2.4 billion yuan, with a reduction of 67.5%. The net profit is also reduced by 2.1 billion yuan, with a reduction of 65.7%. The net profit is increased by 2.8% to 37.1%. Although we have seen a slight decline in our income, this is the result of our pursuit of high-quality development and active adjustment of the business structure. We continue to deepen our second-stage strategy to actively reduce the development of low-hungry and highly customized projects. For example, we have reduced the size of certain customer service products. Although these business structure adjustments will affect the overall income size of the company in a short time, it will definitely be of great benefit to the company's income quality and sustainability for the long term. It can maintain high-quality health development for the company and help the elderly.
spk03: In Q1, operating loss narrowed by 67.5%, or 240 million yuan. Net loss attributable to shareholders reduced by 65.7%, or 210 million yuan. While growth margin at 37.1%, so an improvement of 2.8 percentage points. As a result of our push for quality development and proactively adjusting business structure, revenue registered a small dip compared to Q1 2022. During our stage two development, we faced out low growth margin and high customization projects. For example, reducing the scale of some customer acquisition products. These business structure adjustments, despite their temporary top line impact, will no doubt benefit the quality and sustainability of our revenue over the long term, and build a solid foundation for OneConnect's sustainable, quality, and healthy development.
spk10: Next, I'll update you on OneConnect's business highlights this quarter.
spk03: Please go to page 3 and 4 of our slide.
spk10: 2023 remains a key year in our Stage 2 strategy of broadening customer engagement, where we focus on one body, two wings, that is, focusing on financial institutions
spk03: while expanding ecosystem and overseas. 大家看第五页。 Next, on page five.
spk10: 一季度,在客户深耕2.0战略指引下, 我们三大板块的客户基础持续扩大, 获得了更多的客户认可。 本季度,金融一让通与南非第一大受险综合金融公司, 席位保险公司,Old Mutual, 正式宣布签订全面战略合作协议。
spk03: This quarter saw continued customer-based expansion and improved customer recognition in three major segments as a part of our Stage 2 strategy. One announced its all-round strategic collaboration with the largest life insurer and comprehensive financial group in South Africa, Old Mutual POC, leading to faster cooperation in life insurance digital transformation. We kicked off our cooperation last year with an omni-channel Asian solution project, the first phase of which has been successfully delivered in 2022. In Q1, we completed the signing for Phase 2 projects and are now working on the delivery of Phase 2 and the landing of Phase 3. In addition, we also launched in-depth collaboration with the major state-owned bank, contributing to its push for self-control technology and empowering the bank in digital transformation and delicacy management. Next, on page six.
spk10: We continue product improvements in digital banking, digital insurance, and gamma platforms.
spk03: Digital lending product in the banking segment equipped with over 30 new plugins can better empower managers in six business scenarios and improve business development efficiency. Omni-channel agent solution in life insurance has been further updated and experienced significant improvement in standardization. AI customer service from Gamma platform has been tailored into seven smart sub-applications. With three AI middle platforms, the offering comes with over 50 operation services and over 4,000 financial scenario templates.
spk10: At the same time as the product upgrades, in order to show the results of the product upgrades in the final financial results, we have also strengthened the construction of internal operation management. Remember, we have released the delivery management standardization system 2.0 to further strengthen the control standards, control indicators, and control measures. At the same time, we released the company's operating service system for the first time, realized the standard operating service landing marketing contract, and assisted the company to continue to improve operating revenue. In addition, in order to strengthen the process of project management, timely warning and discussion, we based on the business goal to design a project dynamic management plan, all-round control of all projects, and improve organizational efficiency.
spk03: Aside from product improvements, to make sure our efforts will reflect on our financial results, we also strengthen internal operations and management. We released delivery management standardization framework 2.0 to improve standards, metrics, and measures for internal management. OneConnect's first operation and maintenance framework has been launched to issue standard operation and maintenance sales contracts. and improve revenue from operation and maintenance. On the other hand, to achieve better P&L management, timely warning and improvements for projects, we introduced a dynamic project P&L management plan based on operating targets, which gives us a clear insight into all of our projects and improves overall efficiency within our organization. Please go to the next page.
spk10: In the first quarter, the overseas business of financial technology has also maintained high-speed development. In the Hong Kong market, our PAOB virtual bank is the first virtual bank to participate in the financial management bureau commercial data. And we actively expand more cooperation partners and business scenarios. Pay attention to the growth of income by 51.6%. At the same time, EKYC and other light-weight financial technology products have also made some breakthroughs in the Hong Kong market and established cooperation relations with many banks.
spk03: Overseas business sustained its rapid growth into this quarter. In Hong Kong, PAOB is the first virtual bank to be involved into Hong Kong MA's Business Data Connect initiative. As we have been extending partnerships and business scenarios, revenue increased by 51.6% year-over-year in Q1. At the same time, lighter fintech products such as EKYC achieved breakthroughs in Hong Kong and established cooperation with multiple banks, which will enable local businesses to open accounts online. 下一页 Next, please go to page 8. 东南亚市场基于某家顶级数字银行的项目合作经验,我们达到了一款高度适配东南亚市场的数字银行解决方案。
spk10: This program covers products such as opening, storage, loan, marketing, customer service, virtual credit card, payment, and so on. And we have achieved a business cooperation model in which customers grow together and share business increases and profits. Under this model, we can not only collect real-time income from product delivery, but also product license income, and we can also get increase share according to the growth of customers' business.
spk03: Turning to Southeast Asia, we introduced a digital banking solution highly tailored for Southeast Asian markets. The offering stemming from our project with the Cobb Digital Bank. covers products including but not limited to onboarding, deposit, lending, marketing, customer service, virtual debit card, and payment. We have also fostered a new business collaboration model where we grow with our customers and share value added in their businesses. Which means we not only collect the implementation revenue, but also receive license fees share revenue from increased business volume, as well as charges operation and maintenance fees. This model ties OneConnect and our customers together and encourages win-win growth. Next, on page 9. 讲言港股上市要求,我们首次发布了2022年度环境社会及管制报告。
spk10: From supporting innovation, service to the real economy, promoting the digital transformation of finance, and combating small and medium-sized enterprises, the four aspects focus on the achievements and achievements of companies that have fully demonstrated their experience and achievements in the field of environmental, social, and company governance in 2022. As a commercial technology service provider facing financial institutions, Jinrong Yizhangtong continues to work hard to explore technology in the field of finance and long-term innovation applications.
spk03: We also published our first ESG report in 2022 under the leasing rules in Hong Kong, introducing OnConnect ESG practices and achievements in four areas, namely supporting self-control technology, serving real economy, accelerating digital transformation in financial industry and empowering small and medium-sized enterprises. As a commercial technology service provider for financial institutions, WellConnect is committed to innovative applications of technology in the industry, empowering digital transformation in financial industry with technology and supporting the development of free finance without practices. as well as achieving sustainable development for the industry and want to next.
spk10: 下一页 Next page.
spk03: This quarter, OneConnect and our products have been awarded by multiple institutions, including KPMG's 2022 Leading Fintechs Top 50, Zilong Caixin Leading Fintech Enterprises Top 50, and Best 2022 Fintech Supplier in China Award, to name just a few. 展望未来,挑战与机遇并存。
spk10: Whether it is domestic or international, the development trend of financial technology will not change. Financial institutions hope that through investment in technology, they can achieve income improvement, efficiency improvement, cost reduction, and risk reduction. Of course, in the short term, under the pressure of economic downturn and the large-scale recession, financial institutions will be more cautious about investment in technology. This has raised higher requirements and challenges for all financial technology service companies. Looking forward, challenges and opportunities come hand in hand.
spk03: Development of financial technology will undoubtedly remain relevant both at home and abroad, as financial institutions continue to aim for improved revenue and efficiency, reduced costs and risks. Understandably, they are now more prudent with their IT spending over the short term against downward economic pressure and narrow the net interest margin. For FinTech service providers, this means higher requirements for product value and bigger challenges. At OneConnect, we are fortunate enough to see this coming. Over the past several years, we continue to improve our products and introduce high-value offerings. We are confident that we will land our Stage 2 strategy of broadening customer engagement. where our customers grow more focused and our engagement with them continues to differ.
spk10: Next, let's have our CFO Luo Yonghao to brief you on our financial results.
spk03: Thank you.
spk09: Thank you, Mr. Shen. Next, our CFO Mr. Luo Yonghao will go through the financial results in more detail. Mr. Luo, please.
spk08: Okay, thank you. Good evening, everyone. Despite an uncertain macro environment, we recorded satisfactory first quarter results. Just as Mr. Shen said, we delivered revenue of 926 million RMB in the first quarter of 2023, decreased by 9.1% compared to the same period last year. Revenue generated from third-party customers decreased by 6.9% to 318 million in the first quarter. Revenue decline reflects our decision to adopt quality growth strategy and to reduce customized projects with low margin. We're encouraged to see that gross margin for the quarter improved by 2.8 percentage points year over year to 37.1%. because of this strategy, and non-FS gross margin increased 1.6 percentage points to 40.4%. Net loss attributable to shareholders was 109 million, and the corresponding net loss ratio to shareholders improved substantially by 19.4 percentage points on a year-over-year basis to negative 11.8%. Now let's turn to our revenue mix. In the first quarter, our revenue mix by customer type maintained relatively stable. Our third-party revenue decreased by 6.9% to $318 million compared to Q1 last year. contributing 34.3% of total revenue in Q1, 2023. The uncertain macro environment and the strategic adjustment did have an impact on our revenue, which mainly reflected in a decreased revenue from business origination services and risk management in the first quarter. Third-party revenue growth remains a key focus of our second strategy, second stage strategy. Once macro pressures subside and as we continue to advance our initiatives, we believe revenue from the third party will improve. We're also glad to see that our implementation and overseas business continued strong momentum in the first quarter. making up the shortfalls of temporary reduced demands for certain products and services. In the first quarter, revenue from LUFAX decreased 44.7% to 71 million and contributed 7.7% of the total revenue. The revenue decline from LUFAX was mainly due to LUFAX business operation optimization. resulting in lower demands for business origination services and risk management services. Revenue from PN Group decreased 2.2% to $537 million and contributed 58% of our total revenue. Revenue from PN Group was essentially stable. As always, Guancapt regards PN Group as our most important flagship client. The services provided to PN Group are core technology solutions, which have been deeply embedded into PN Group's daily operations. Our services to PN Group also have a proven record of success. Therefore, we expect our revenue from PN Group to maintain a steady momentum Moving on to revenue mix by business type. Implementation revenue increased by 22.3% on a year-over-year basis to $210 million, mainly due to expanding demands for insurance system products and gamma data middle platform system products in the first quarter. Revenue from business origination services decreased by 57.3% year-over-year to 49 million, primarily due to declined transaction volumes in channel marketing products and business origination modules under digital retail banking solutions. Revenue from risk management services decreased by 27.3% year-over-year to 78 million, mainly due to reduced transaction volume in lower risk analytics solutions because of lower than expected demands into the challenging market environment in the first quarter. Revenue from operation support services decreased by 12.8% on a year-over-year basis to 223 million. which was primarily caused by a reduced demand for customer services, operation products, and auto ecosystem services in the first quarter. Revenue from cloud services platform was 292 million, decreased by 1.2% on a year-over-year basis, and relatively stable compared with 296 million in the first quarter last year. reflecting the benefits of our continued transformation efforts. Revenue from cloud services platform continued taking up the biggest chunk of our revenue, and we believe that cloud services platform would see improved demand and continue a strong performance. Revenue from post-implementation support and other services decreased by 20.6% year-over-year to 42 million in the first quarter. The decline was primarily due to lower demand for auto ecosystem services. POB continued the strong growth momentum from our virtual banking business in Hong Kong in the first quarter 2023. Its revenue increased by 51.6% to 32 million as compared to the first quarter last year. We will continue to capture the growing overseas demand for digital transformation and see the opportunities that arise. As you can see, our businesses are diverse and we are developing more solutions around technology infrastructure. We will remain committed to diversifying our product mix and adopting a stable and a sustainable stock-based charging model. Let's turn to revenue mix by product sectors. Gamma platform sector, the focus of product innovation in recent years, contributed the biggest chunk of our revenue and recording 7.5% growth in the first quarter 2023, and accounting for 49.5% of our total revenue. Digital banking sector, which accounted for 27.9% of total revenue, reduced by 33.2% on a year-over-year basis. This was mainly caused by a reduction in transaction volume of our business origination services, and risk management services, which were related to our initiatives to phase out lower value products and the unfavorable macro circumstances. Digital insurance sector, which accounted for 19.1% of total revenue, decreased by 4% on a year-over-year basis, mainly because decreased demands in auto ecosystem services. In addition, our virtual banking sector, as I have just mentioned before, saw continued expansion, accounting for 3.5% of total revenue in the first quarter. Let's now take a look at customer numbers. The number of premium plus customers slightly decreased to 73 as compared with 74 for the same period last year. mainly due to macro pressures and our pursuance for a quality growth strategy, as aforementioned. We believe as we continue to advance our initiatives, we expect our customer base further expand and more Premium Plus customers using our products and services. Now let's take a look at the gross margin for the quarter. We are very glad to see Our gross profit reached 343 million in the first quarter, 2023. Gross margin improved 2.8 percentage points to 37.1%, supported by quality growth strategy and benefiting from product standardization. Our non-FR spaces gross margin was 40.4%, compared with 38.8% present in the prior year. As Mr. Shen mentioned, in the first quarter of 2023, the continued efforts in product integration and delivery efficiency, together with execution on quality growth, helped improve our gross profit margin. We will stick to the strategy and continue the endeavor of achieving profitability. Moving on to our expenses and net loss attributable to shareholders, you can see that we are well on track to our breakeven midterm target. First of all, our research and development expenses came down to $288 million from $363 million in the same period of last year. As a percentage of revenue, it decreased to 31.1% compared with 35.6% in the prior year. In the first quarter, we continued implementing our phase two strategy that focused on product integration. As our products were upgraded and integrated, we further improved our product delivery efficiency. Looking ahead, We will keep investing in research and development at a more measured and reasonable pace to enhance our product competitiveness in the market. Our sales and marketing expenses for Q1 decreased 41.2% to 64 million, compared with 109 million in the first quarter of 2022. As a percentage of revenue, sales and marketing expenses decreased to 6.9% from 10.7%. The improvement in sales and marketing expenses mainly benefited from enhanced sales capability and marketing efficiency. Our general and administrative expenses decreased 49.3% to $107 million. from $211 million in the prior year. As a percentage of revenue, it decreased to 11.6% from 20.7%. The decline in general and administrative expenses was due to lowered cost associated with operational efficiency improvements and ongoing transformation initiatives. It is worth mentioning again that under a challenging business environment, our net loss attributable to shareholders improved substantially to negative 109 million from negative 318 million in the same period last year. And the corresponding net loss ratio to shareholders improved significantly by 19.4 percentage points. from negative 31.2% to negative 11.8%. The next page demonstrates the trend of our net loss ratio to shareholders improvement in the past three years and the first quarter of 2023. From this page, you can see a clear trajectory of our path to profitability over the years. We will continue our product integration efforts and strive to improve operating efficiency and margin. We are confident about breakeven by midterm. Looking forward to the rest of the year, although we continue to see a degree of unpredictability in the market, our focus remains on improving third-party revenue. We will continue to enhance gross profit margin focus on cost control and improve operational efficiency to stay on our path to profitability. Next page, we listed key financial metrics of the first quarter 2023. Lastly, we summarized the adjustments in non-FR scores margin for reference. Thank you. Back to you, Li.
spk09: Thank you, Mr. Law. Operator, we are ready for questions. Please open the line.
spk05: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We will pause briefly to allow questions to register. Our first question comes from Timothy Hsiao from Goldman Sachs. Your line is open.
spk07: Thank you for accepting my question. I have two questions for the management. The first one is about the strategy to eliminate some low-profit products. I would like to ask the management to help us quantify this strategy for 2023. different product lines, including the impact of security and third-party income, how much will this difference be? In which quarter can we see a cleaner base to restore the growth of the overall income? The second question is that we see that the whole quarter has actually done a good job in terms of profits. Could you please share with the management team what is our direction in terms of operating costs and profits for the whole year? I will quickly translate my question. Thank you, Benjamin, for taking my question. I have two questions here. First is regarding your strategy to turn down the low-margin products. Just wondering if Benjamin can help quantify the impact on revenue for each product line and between the revenue from P&N and third parties, and from which quarter that we should be able to see a cleaner base to support a future revenue growth. And secondly, as we see a very good execution in reducing the operating loss for the first quarter this year. Just wondering if measurement can give any guidance on the full-year operating expenses, and any guidance on the profitability will be appreciated. Thank you.
spk08: Okay, let me answer this question and then I will translate it to the other side. In this question, our phase out strategy is mainly focused on low horsepower. on some products with poor technology add-on value. So each section should have its own design. In addition, we have some customized projects with relatively high requirements. If the subsequent sustainable income is not large, we will also adopt this strategy of giving up. Then it has some corresponding impact. It should be said that the growth rate of our first quarter is reflected in some
spk03: We mainly figure out low growth margin and low added technology value products. Examples can be found in all business segments. Projects with high customization, low potential, and unsustainable revenue will also shut down, the impact of which can be found in the slowdown growth in our first quarter.
spk08: Improving revenue quality and upgrading products are crucial initiatives in our Stage 2 strategy.
spk03: We have so far seen promising results. We will keep on this effort to continuously improve revenue quality and gross margin.
spk08: In terms of product upgrade and development, we will continue to increase the intensity to achieve a long-term upward trend for our entire income. In fact, in the first quarter, including our actual income, overseas income, as well as the income related to technology, infrastructure and facilities, we actually have a relatively good performance.
spk03: Some product upgrades and the development efforts to maintain upward revenue train over the long term. And you in Q1, you can see strong momentum and solid growth in revenue from implementation overseas and technology infrastructure.
spk08: The second question is about cost control. We should say that through the optimization of our personnel, the optimization of product structure, and the compression of costs, our costs and expenses have been greatly reduced. This is reflected in our research, development, sales, and management.
spk03: Sales and marketing and general and administrative expenses have been reduced by a big margin as a result of headcount optimization and cost reduction.
spk08: We will continue to implement a strict cost management policy. On the one hand, we will promote the efficiency of our resources and the production. On the other hand, we will prioritize the development of our resources. In this way, we will continue to develop and promote our products to ensure the competitiveness of our market.
spk03: Stringent cost control measures, mainly by firstly being more efficient with resources and improving ROI. Secondly, focusing on resources on R&D. Keep developing and upgrading products to make sure we remain competitive.
spk08: Home comes down to achieving sustainable business development, which means we will maintain effective use of our resources going forward. Thank you.
spk05: Thank you. As a reminder, if you'd like to ask any further questions, please press star 1 on your telephone feedback now. We now turn to Keith Tsang from DPS. Your line is open.
spk06: Thank you, Mr. Manager. I have two questions I would like to ask. First, how is the application progress of the company's financial statements? Another question, the second question is, where will the future company's third-party revenue increase be? So the first question is, when is the company's financial cloud license ready? And what's the progress for now? And the second question is, in the future, what's the company's third-party revenue growth potential? Thank you, Guanlin Chen.
spk09: Thank you for your question. The first question related to the financial cloud will be taken by Mr. Li Jie. And the second one, our third-party revenue, will be taken by Mr. Shen.
spk08: The first question is about the progress of the financial cloud. We are continuing to follow the process of the financial cloud. We are closely following up the financial cloud registration process. So far, the application is going well. We are cautiously optimistic about our application but can't commit to a clear timeline.
spk10: Next, your question regarding the growth drivers for our third-party revenue.
spk03: Firstly, we will remain committed to our Stage 2 strategy of broadening customer engagement and at the same time prioritize product integration and upgrades. We aim to deepen engagement and expand customer base by continuing to polish and cross-sell our products.
spk10: Thanks to the continuous innovation of Yizhangtong, the trend continues to improve, and there will be growth points in the future. For example, the insurance segment of the risk-saving products, the smart cash, the financial cloud, overseas, and the credit creation are also our opportunities.
spk03: Secondly, if we look at the growth drivers by segments, we noted promising trends thanks to our ongoing product innovation efforts. We expect to see growth drivers from all three segments, life insurance from digital insurance, AI customer service, and financial cloud from gamma platforms and overseas. In addition, developing self-controlled technology also shows a lot of potential.
spk05: Our next question comes from Laura Lee from CGS CIMB. Your line is open.
spk00: Hello, thank you for giving me the opportunity to ask this question. I have two questions that I'm most concerned about. First of all, in terms of cost control, what do you think are the costs of the other departments that will have more room for pressure in the summer this year? The second question is about the management of PAOB. Under the situation of the hyper-increase and the rise in the current share price, for a question.
spk09: And for the first question related to cost control, we'll take it by Luo Zhong. And the second one, would Michael please take the second question, please? And first of all, let's have Mr. Luo to answer the first question.
spk08: Okay. In terms of cost management, as I said, in the past year, we have significantly reduced our costs and expenses through the adjustment of personnel structure, product adjustment, and cost compression. Regarding to the question about the cost control method, as I've mentioned before, over the past year, the reduction mainly came from the optimization of our cap cap count
spk03: upgrading of our products, as well as expensive reduction. And as a result, our R&D, S&M, and G&A expenses have been lower significantly, which further contributed to the narrowing of our losses.
spk08: Thank you very much. We will continue to invest in resource investment. There are two main directions. The first is to improve the efficiency of resources. We will work hard to improve the production of resources. The second is to invest more resources in research and development. We will continue to invest in the development of new products and the upgrade of existing products to ensure a competitive market.
spk03: questions about the cost control measures looking forward. And we've been asking ourselves the same question. And I believe in the future, cost control can be done mainly by two aspects. Firstly, we will maintain a strict and stringent cost control discipline. And secondly, we will make sure that our resources are utilized more effectively And that's number one, being more efficient with our resources and improving ROI. And number two, focus our resources more on R&D expenses. That is to develop new products and upgrading our existing products to make sure we remain competitive.
spk08: Thank you.
spk03: control is only a handle for internal management and it ultimately comes down to contributing to the sustainable development of our business overall. Therefore, we will maintain the discipline going forward.
spk04: Okay, I will answer the question about PoB. Actually, you just asked three small questions. One is about our So I will take the next question, which is essentially three sub-questions. One is about the funding cost, the second is about the loan growth, and the third one is about the loan quality. In the past 12 months, the rising funding, the Fed rate increase, did have an impact on our funding cost. So we react from two aspects. On the one hand, we will pay close attention to the market situation. We will adjust our own deposit rate very quickly based on the market change. So first of all, we've worked very closely about the market development, and we make swift adjustments if there's any market development trend about our deposit rate. And we're using our deposits very effectively, efficiently, and maintain our loan-to-deposit ratio at an acceptable, optimized level. On the other hand, we also try to improve our loan pricing. Actually, the average loan interest rate in the first quarter compared with the last quarter will increase about 40 BTC. On the loan growth rate, given the impact of the Hong Kong economic slowdown as well as the impact of the slowdown, the loan growth in the first quarter did also slow down. To tackle the challenges, I think on one hand we introduced more new products. If you follow us, probably you will notice that in May, we actually launched a cooperation with Octopus. We will be able to use Octopus data for us to do alternative data credit assessments. And also, given the connection between the Hong Kong, the connection between Hong Kong and China, as well as the opening up of the Hong Kong market, I think we are cautiously optimistic about the growth outlook in Q2 and the following quarter. Considering we only launched our business in the third quarter of 2020 and we started a very small base, with high growth, I think it's natural for our MPLs to increase. Compared with our peers participating also in the SME banking business, we actually see a very good quality, a very good ratio compared with our peers. In addition to that, considering the fact that over 80% of our loan exposure is actually under the SFGS program which is the Hong Kong government SME lending guarantee program. So our actual loss ratio as of now is actually lower than 0.3%.
spk05: Our next question comes from Lydia Lin from Morgan Stanley. Your line is open.
spk01: Hello, Mr. Guan. My first question is So my first question is, how do we quantify the impact on the first quarter revenue from compressing the low margin product line? And then the second question is, how do we quantify the impact on the first quarter revenue from compressing the low margin product line? So my second question is, how is the pace of lowering the mix of low-margin products and lowering the OPEX in the next three quarters compared to the first quarter this year? Thank you.
spk09: I think both questions will be taken by Yizilong. Okay.
spk08: The first question is about low-power face-off products. I think our main principle is low-power face-off and high-value technology. In the case of a relatively low-end product, we will optimize it. In addition, if there is a high demand for customization, we will make some concessions to the subsequent delivery projects with low potential for continuous income contribution. From a quantitative point of view, we can see that the decline in our total and three-point revenue has reflected the effect of these measures.
spk03: So for the phasing out of low gross margin products, we mainly close the low gross margin and low tax value products. And these examples can be found in all of our business segments. In addition, projects with higher customization and low potential and unsustainable revenue will also phase out. And if we were to quantify the impact, we can observe that in the decrease in our top line as well as third-party revenue in Q1.
spk08: In the process of eliminating these businesses, we have seen some results of structural optimization. As mentioned earlier, our actual income is mainly from the acquisition of some of our new businesses, including the development of overseas businesses, as well as our technology-based infrastructure-related product income. In terms of the gamma platform, these incomes are This shows the potential of our business in the future and the effect of our structure optimization.
spk03: However, our business still demonstrates huge potential, and the Fading Out project also delivered promising results. To be specific, we noticed a pickup from delivery revenue, revenue from overseas, as well as the revenue from technology infrastructure, which is a product from our gamma platform.
spk08: Then the second question, including our net profit increase, including the reduction of costs, the reduction of losses, and so on. In fact, we have seen this trend in the past few years, including the first quarter. So our midterm goal is to Thank you.
spk03: question on the progress of gross margin and loss reduction initiative. As you may probably notice, we have been carrying out these efforts over the past several quarters. And this year, these initiatives will carry on full year. And the results have demonstrated that we are well on track to our mid-term target, that is to break even soon. which means that our loss reduction efforts will continue and the results will continue to reflect on our financial metrics.
spk05: This concludes our Q&A. I now hand back to Mr. Rick Chan for any final remarks.
spk09: Sorry that we overrun a little bit today. And thank you very much for joining the call today. If any questions, please feel free to contact our team. We appreciate your interest in following us and look forward to speaking with you again. Thank you.
spk05: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
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