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Operator
Ladies and gentlemen, thank you for standing by and welcome to OneConnect second quarter 2023 earnings call. At this time, all participants are in listen-only mode. After the management's prepared remarks, we will have a question and answer session. Please press star followed by one to ask a question. Please note this event is being recorded. And I'd now like to hand the conference over to your host. Mr. Rick Chan, the company's head of investor relations. So please go ahead, Mr. Chan.
Rick Chan
Thank you, operator. Hello, everyone, and welcome to our 2023 second quarter earnings 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 are giving 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 will be available to you. We have our Chief Executive Ping An One Connect Bank, Mr. Michael Fei, our CTO, Mr. Li Jie, Head of Digital Banking, Ms. Ellen Jia, and Head of Strategy, Corporate Planning, and Product Management, 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, a statement in the original language should prevail. Let me quickly cover the safe harbor statement before we start. as we will be making forward-looking statements which will 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 am now pleased to turn our call to our Chairman and CEO, Mr. Shen Chongfeng. Mr. Shen, please. Hello, everyone. I am Shen Chongfeng. Hello, everyone. I'm Shen Chongfeng.
Shen Chongfeng
Thank you for dialing in OneConnect's 2023 Q2 and H1 earnings release. 2023 continues to feature accelerating changes unseen in a century. As our economy and society as a whole return to normal, China is now at a key junction of economic recovery and industry upgrades. While the macro environment is stabilizing and improving, it still has a lot to overcome before full recovery.
Rick Chan
Committed to the business philosophy of value, win-win cooperation and quality development,
Shen Chongfeng
OneConnect continues to proactively adjust business structure, focus on product upgrades, and execute our Stage 2 strategy of broadening customer engagement, which led to steady growth and strong momentum for improvement in the first six months of 2023, while we gear up for a crucial stage of growth. 上半年,我们仍然取得稳健的财务业绩,规模净利润同比减亏3.72亿,
Rick Chan
with a loss of 66.1% and a profit margin of 35.3%, with an increase of 1.4% to 36.7% in the same period. Although the profit and loss ratio decreased in the first half of the year, the main reason is that we have established value creation and actively adjusted the business structure, and withdrew some of the high-definition, low-sale, and non-high-value storage businesses. Although this has a certain impact on the overall income in the short term, But from the mid-term perspective, we can only clean up after we take down the burden. At the same time, under the continuous attention and effort of the company management, in the process of implementing the second stage of the strategy, the standardization of the company's products, the efficiency of delivery, the internal operation and management performance, etc. have been improved in all areas. This company has set a solid foundation in the long-term implementation of NQV.
Shen Chongfeng
We delivered a solid financial performance in the first half of 2023. Net loss attributable to shareholders narrowed significantly by 66.1% or 372 million yuan. Gross margin now at 36.7% was up by 1.4 percentage points from 35.3% in the same period last year. As we continue to pivot towards value creation and proactively adjust business structure by phasing out high customization and low gross margin business with limited value, revenue saw a small dip in the first six months. Admittedly, this means revenue will contract in the short term. We nevertheless remain confident that it is only when we lighten the load will we be able to travel faster and further over the medium to long term. At the same time, thanks to the management's consistent efforts and hard work, product standardization, implementation efficiency, and productivity of internal operations have all improved as we execute Stage 2 strategy. This has laid a solid foundation to turning profitable in the medium term. 接下来我为各位分享金融易藏通上半年业务发展情况。 Next, I'll share with you business highlights in the first half of 2023. 大家打开材料的第三页和第四页。 Now, if you could, please go to page three and four of our slides. 2023 is a crucial year during our Stage 2 strategy of broadening customer engagement, where we are devoted to one-body, two-wing business structure that is focusing on financial institutions while expanding ecosystem and overseas. 第五页 Next, please go to page 5.
Rick Chan
二季度,我们获得国内外送多大客户的青睐。 我们分别签约了SBF Old Mutual,
Shen Chongfeng
We successfully expanded customer coverage in this quarter, kicking off cooperation with financial institutions and regulators including SBF, Old Mutual, OCBC Wing Hong Bank, Office of Hong Kong Government CIO, and Zhejiang Mingtai Commercial Bank.
Rick Chan
To further execute deepening customer engagement strategy, we are also working closely with our existing partners
Shen Chongfeng
to cross-sell and initiate new projects. For instance, new deals are signed with Huaxia Bank, Postal Savings Bank of China, Dajia Insurance, and China Continent Insurance, to name just a few financial institutions' partners. OneConnect will continue to empower their digital transformation journey.
Rick Chan
First of all, in the digital sales scene, our product coverage has been further improved. The app has added AI voice, training, dual-track, and other intelligent scenarios, and has expanded the rich business marketing scene. The daily login rate of the app users has reached 96%. In the digital credit business scene, we have achieved 100% remote face-to-face self-referencing, and added more than 100 mature wind control label indicators. The loan accuracy has also exceeded 80%. In Q2, products in digital banking continue to see new upgrades.
Shen Chongfeng
Product coverage in retail business has been further expanded with new scenarios including AI customer service, training, and double recording, as well as rich enterprise marketing scenarios incorporated into our application. Daily login rate has averaged 96%. In digital credit, remote interview, which is 100% self-developed, added another 100 new mature risk indicators. Risky loan identification accuracy is over 80%. On top of higher product standardization, delivery efficiency also improves significantly. Implementation cycle for SaaS projects has shortened to two weeks, which has empowered banks to achieve speedy and effective improvements within their desired time frame. 二季度,我们还专门成立了交付变革小组,发布了交付变革管理办法, We established the Implementation Transformation Task Force this quarter and introduced guidelines to implementation transformation aimed to strengthen cost control, improve product growth margin, and enhance delivery efficiency so as to make us more competitive in the market. 第七頁 Next, please go to page 7.
Rick Chan
Next, please go to page 7. Also in banking segment, as we continue to land new projects in smart finance transformation, smart business analysis, and decision making.
Shen Chongfeng
OneConnect has incubated a series of products and solutions that can boost the efficacy of operation analysis and profitability in commercial banks. SuperBrain for digital management, for example, improves decision-making in banks by offering more frequent monthly and even daily operation reviews and tracking. This offering also leads the market with profitability forecast variance less than 3%. Regulatory fighting system has gone through more iterations to include new functions and adapt to self-control technology.
Rick Chan
第八页 Next on page 8 在保险板块,我们针对理赔核心系统的现有平台进行了持续升级迭代。 其中客户端采用VOLTE技术。 In digital insurance, claims core systems have been further upgraded
Shen Chongfeng
The customer end now utilizes VOLTE technology to enhance remote survey experiences. The operation end, on the other hand, is equipped with a brand new panel, which improves claims personnel efficiency by over 25%, cuts survey and operation costs by more than 30%. In addition, in the first half of this year, we also introduced remote operation platform module in digital insurance, enabling more to be done online and in a smarter manner.
Rick Chan
Next, on page 9. As a key work of the second phase of the strategy, we have made a series of breakthroughs in both the ecological and overseas sectors. We have worked with the Hong Kong Regional Government Information Technology Directorate Office, Xiamen City Local Financial Supervisory Bureau, and other institutions, to create a series of standard projects including Hong Kong Government Information Gatehouse Mobilization Reform, Xiamen Private Fund Report, and monitoring system. In the overseas part, in May 2023, we will further promote deepening cooperation with SBF to help SBF improve product delivery efficiency and reduce operating costs. This cooperation marks a significant milestone in the long-term close strategic cooperation relationship between the two parties. We also reached a series of cooperation with Huaxiao Yongheng Bank to establish an open online bank account, reduce opening costs, and optimize experience.
Shen Chongfeng
We achieved new breakthroughs in two wings, meaning expanding our ecosystem and overseas, which are also key initiatives of OneConnect's Stage 2 strategy. We launched cooperation with OGCIO and regulators like Xiamen Financial Regulatory Administration, jointly building flagship projects including IM Smart Mobile Information Portal and Private Equity Fund Reporting and Supervisory System. Turning to overseas, we launched cooperation with SB Finance this May to help them improve product delivery efficiency and cut operation costs. This project marks an important milestone in our long-term strategic relationship. We are also working with OCBC Wing Hong Bank to establish seamless online account opening, which lowers costs while enhances customer experience. Next, on page 10.
Rick Chan
OneConnect, as well as our products, have been awarded by many renowned institutions this quarter.
Shen Chongfeng
including 2023 National May Day Labor Award Certificate from the National Federation of Trade Union, KPMG China FinTech Excellence Award, Best SME Bank of Hong Kong from Asia Money to 2023, to name just a few.
Rick Chan
The country has also improved its digital transformation to a new level. In the beginning of this year, the State Council issued a General Plan for Digital China Construction to further accelerate the construction of Digital China, providing top-level design and strategic guidance. The demand for digital transformation in the entire banking industry is obvious. Accompanied by financial institutions, the digital transformation will be included in its strategic plan and continue to increase its investment. According to Xintongyuan's prediction, by 2025, China's digital economy is expected to exceed the RMB Looking forward, both challenges and opportunities abound. Across the world, integration of finance and technology has become one of the most relevant trends. And in China, digital transformation has become more strategically important than ever.
Shen Chongfeng
The Digital Development Plan issued by the State Council earlier this year maps out the overarching architecture and strategic guidance to accelerate building a digital China. We therefore see higher demands for digital transformation from the banking industry. As financial institutions embrace digital transformation in their strategic plans and ramp up investment, China's digital economy could exceed 60 trillion yuan or 8.84 trillion U.S. dollars by 2025, according to an estimate by the China Academy of Information and Communications Technology. It is fair to say that there are huge upside and potential in IT services for banks.
Rick Chan
Due to the post-recovery effect of business recovery, in the short term, we still suffered from the pressure from the income section in the first half of the year. But we also noticed that with the red-line economic indicators, to present a positive change in the warm-up and recovery, keeping our business expectations for the second half of the year optimistic.
Shen Chongfeng
Considering our business recovery trailed behind the macro environment, revenue in the first six months was still under pressure. But we did pick up positive signs amid a mild macroeconomic recovery, which makes us cautiously optimistic about our business outlook.
Rick Chan
In the second half of the year, we will continue to take advantage of our own advantages and grasp the strategic opportunity of bank digital transformation, and continue to upgrade and build high-value products, and continue to expand the size of external contracts. I believe that in the future, our customers will focus more on customer year-on-year and deep cooperation, and will continue to strengthen the second-stage development strategy of real customer deepening.
Shen Chongfeng
In the following months, we will continue to leverage our unique edge, see strategic opportunities brought by digital transformation in banks, introduce high-value offerings, and expand contract values with third-party customers. We are confident that with more targeted customer groups, customer thickness and engagement will also improve, and we will be able to land OneConnect's Stage 2 strategy of broadening customer engagement. 我们相信唯有坚持高质量发展方能行稳致远,进而有为。 We are committed that only quality development will bring us further and better, and ultimately help us achieve our vision.
Rick Chan
接下来,有请罗总为大家介绍公司具体的财务表现,谢谢。 Next, I'll hand it over to Luo Zong to brief you on our financials. Okay, thank you. Good evening, everyone.
Luo Zong
we achieved a strong second quarter, showing our resilience in the operational outcomes. Just as Ms. Chen said, we delivered revenue of 973 million RMB in the second quarter of 2023, decreased by 14.1 percent compared to the same period last year, primarily due to a decline in transaction-based and supported revenue. Revenue generated from third party customers decreased by 7.1% to 319 million in the second quarter. The number of premium plus customers decreased year over year to 121 from 134 for the same period in 2022. primarily caused by fewer customers in digital banking segments due to slower than expected recovery of banking activities. We are thrilled to see that net loss attributable to shareholders was 82 million at an all-time low level and the corresponding net loss ratio to shareholders improved greatly by 13.2 percentage points on year-over-year basis to negative 8.4%. Now let's turn to our revenue mix by customer. In the second quarter, our third-party revenue decreased by 7.1% to $319 million compared to Q2 last year, contributing 32.8% of total revenue in Q2 2023. It's a key focus of our second stage strategy. Once macro further improves and as we continue to advance our initiatives, we believe revenue from third party will improve. In the second quarter, revenue from LUFAX decreased 31.9% to 73 million and contributed 7.5% of our total revenue. The revenue decline from LUFAX was mainly due to LUFAX business operation optimization, resulting in lower demands for operation support and risk management services. Revenue from PN Group decreased 14.9% to $581 million and contributed 59.7% of total revenue. Revenue decline from PN Group was primarily due to a decline in transaction volume as overall recovery of financial institutions takes a bit of time. One Connect 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. We observed some macro-level recovery that leave us cautiously optimistic. In the first half of 2023, revenue from third-party customers decreased 7%. Revenue from LUFAX decreased 38.9%, and revenue from PN Group dropped by 9.2% for the corresponding periods in 2022. Moving on to revenue mix by business type, let's take a look at our Q2 results first. Implementation revenue increased by 36.4% on a year-over-year basis to $220,000. 32 million, mainly contributed by projects from new customers as well as consistent delivery efforts on existing contracts, especially expanding customer demand for digitalized management products in the second quarter. Revenue from business origination services decreased by 60%. 69.4% year-over-year to 32 million, primarily due to declined transaction volumes in China marketing products. Revenue from risk management services decreased by 20.7% year-over-year to 73 million, mainly due to reduced transaction volume in banking-related risk analytics solutions. because of lower than expected recovery of banking activities in the second quarter. Revenue from operation support services decreased by 21.4% toward 49 million, which was primarily caused by reduced demand on banking customer service products and auto ecosystem services in the second quarter. Revenue from cloud services platform was 322 million, decreased by 12.7% on a year-over-year basis, mainly due to reduced transaction volume of the usage. Revenue from cloud services platform continued taking up the biggest chunk of our total revenue, and it remains our development focus going forward. Revenue from post-implementation support and other services decreased by 46.2% year-over-year to $30 million in the second quarter. The decline was primarily due to lower demand for auto ecosystem services. Revenue from POV, our virtual banking business in Hong Kong, increased by 39.7% to $34 million as compared to the second quarter last year. If we look at first half of 2023, implementation revenue increased 29.3%. Revenue from business origination dropped 63%. Risk management revenue decreased 24.3%. Revenue from operations support declined 17.6%. Cloud services platform revenue decreased 7.6%. Revenue from post-implementation and other services dropped 33.7%. And POB increased 42.3%. As you can see, we developed more solutions around technology infrastructure. We will remain committed to diversifying our product mix and adopting a stable and sustainable stock-based charging model. Meanwhile, we strive to expand our business by acquiring more new customers and projects. 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. declined 6.6% in second quarter of 2023 to 513 million and accounted for 52.7% of total revenue. The decline was mainly caused by reduced transaction volume of cloud services usage. Digital banking sector, which accounted for 24.2% of total revenue reduced by 53.9% on a year-over-year basis to $235 million. That was mainly caused by reduction in transaction volume of our business origination and risk management services, which were related to our initiatives to phase out lower-value products and unfavorable macro circumstances. Digital insurance sector, which accounted for 19.6% of total revenue, decreased by 6.4% to 191 million in the second quarter of 2023, primarily due to reduced demand in the auto ecosystem services. In each sector, we faced out products with low margins, products with low technological value added as well as those with limited potential for revenue growth or product standardization. In addition, our visual banking sector, as I just mentioned before, saw continued expansion accounting for 3.5% of total revenue in the second quarter. Let's now take a look at customer numbers. In the first half of 2023, the number of Premium Plus customers decreased to 121 as compared with 134 for the same period last year, primarily caused by fewer customers in digital banking sector due to slower than expected recovery of banking activities. We believe as we continue to advance our initiatives, we expect our customer base further expand and more premium plus customers will use our products and services. Now let's take a look at the gross margin. We are very glad to see our gross profit reached 353 million in the second quarter of 2023. Gross margin remained stable at 36.2% as we continue our product integration and deepening engagement with Premium Plus customers. On non-AFAX basis, gross margin was 39.3%. In the first half of this year, our gross margin improved 1.4 percentage points to 36.7% and non-AFAX gross margin was 39.8%. As Mr. Shen mentioned, in the second 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 that strategy and continue the endeavor of achieving profitability. Moving on to our expenses and the net loss attributable to shareholders, you can see that we are well on track to our mid-term breakeven target. First of all, our research and development expenses came down 36.5% to $214 million from $378 million in the same period of last year. As a percentage of revenue, it decreased to 24.7% compared with 33.3% in the prior year. In the second 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 Q2 decreased 40.4% to 65 million, compared with 109 million in the second quarter of 2022. As percentage of revenue sales and marketing expenses decreased to 6.7% from 9.7%. The improvement in sales and marketing expenses mainly benefited from our continued efficiency improving efforts and decrease in marketing and advertisement activities. Our general and administrative expenses decreased 29.3% to $135 million from $191 million in the prior year. As a percentage of revenue, it decreased to 13.9% from 16.8%. The decline in general and administrative expenses was primarily due to stringent cost control measures. and a reduced labor cost of employee benefits expenses. It's worth mentioning again that under challenging business environment, our net loss attributable to shareholders improved substantially to negative 82 million from negative 245 million in the same period last year. and the corresponding net margin to shareholders improved significantly by 13.2 percentage points from negative 21.6% to negative 8.4%. The next page demonstrates the trend of our net margin improvements to shareholders in the past three and a half years. From this page, you can see a clear trajectory of our path to profitability over the years, our first half year results reflect that the efforts of our disciplined execution of cost control accompanied by improved operational efficiency marking another milestone in the path to breakeven. In the second half of 2023, we will continue our product integration efforts and strive to improve operating efficiency and business margin. Looking ahead to the rest of the year, although we continue to see a degree of unpredictability at macro level, our focus remains on improving third-party revenue. We will continue to enhance gross profit margin, focus on cost control and operational efficiency improvement to stay well on track to profitability. Next page, we list key financial metrics of the second quarter and the first half of 2023. Lastly, we summarized the adjustments in IFRS gross margin for reference. Thank you.
Rick Chan
Thank you, Mr. Shen. Thank you, Mr. Law. Operator, we are ready for questions.
Operator
Thank you. If anyone would like to register a question, please press star followed by one on your telephone keypad. When preparing to ask your question, please ensure you are unmuted locally. And if you would like to withdraw your question, please press star followed by two. So that's star followed by one on your telephone keypad to register a question. Our first question today comes from Timothy Zhao from Goldman Sachs. Timothy, please go ahead. Your line is open.
Timothy Zhao
Hello, I'm Timothy Zhao from Goldman Sachs. Thank you for accepting my question. My question is, can the management company handle the situation of IT spending for our financial institutions in the second quarter and July and August? The second question is, what is the company's expectation and outlook for the next half of the year's three-way income? I will quickly translate for myself. Could management share some color on IT spending recovery in the financial industry in the second quarter and also July to mid-August? My second question is, could management share the outlook for third-party revenue in second half 2023 and also some key drivers by product? Thank you.
Rick Chan
Thank you for your question. For the first question, the question will be taken by Mr. Shen. Mr. Shen, please. Okay, let me answer these two questions. Regarding the financial institutions, in the second half of 2023, the recovery speed and development, in the short term, the banks may be more cautious, but in the long term, the banking IT industry is going well. In the short term, some financial institutions are seeking to reduce the cost-effectiveness, and IT needs may be slightly reduced. But in the long term, supervision and direction are also encouraged to increase IT investment. In February 2023, the State Council also issued a digitalization and digitalization of China's overall layout and planning, so the demand for digital transformation is relatively obvious.
Shen Chongfeng
On your first question about IT spending recovery in the second half of 2023, well, banks are more prudent with IT spending in the short run, but over the medium to longer span, IT demands from banks are on the rise. In the short term, some financial institutions prioritize lower costs and higher efficiency, which means reduced IT spending. But the regulators provide solid support over the medium to long term, especially the statement the State Council wrote out the digital development plan this February. So we see clear demands for digital transformation.
Rick Chan
Digital transformation will focus on the following aspects in the future, which won't connect offerings readily matched. Overall, banks value self-controlled risk management capabilities in technology applications
Shen Chongfeng
and digital operations, data security, and whether solutions use home-developed technology or not. These are also banking and segment products that we invest most heavily on. Self-controlled technology is another key area with increasing investments. We have noticed that the financial institutions are increasing their IT budget to satisfy requirements for home-developed technology.
Rick Chan
Okay, let me answer the second question, which is related to the third-party income growth. What are the main products that we contribute? In the first half of the year, we signed several major deals. We will continue to carry out the second stage of strategic customer growth and pay attention to the integration and promotion of products. By continuously cleaning up our products, cross-selling, Next on your question about growth drivers and product growth drivers for third party revenue in the second half of 2023.
Shen Chongfeng
So we landed several high value contracts in the first half of 2023. We will continue to execute stage two strategy of deepening customer engagement and focus on product integration and upgrade by improving products, cross-selling new products, and deepening customer relationship, upgrading new functionalities, as well as expanding customer coverage.
Rick Chan
At the platform level, we have been able to continuously innovate our new products. The trend continues to improve, and there will be new products in the future. By segment, thanks to consistent product innovations, we see good momentum and growth drivers from all segments. Life insurance and digital insurance
Shen Chongfeng
New engines for overseas and gamma platforms are expected to drive growth. By business volume, digital credit and digital retail banking, as well as digital insurance, remain to be our solid foundation.
Rick Chan
From the point of view of growth, in the short term, the main growth points of three-way income are banks and overseas. Secondly, it is gamma and insurance. In the long term, we have peace of mind, advanced technology,
Shen Chongfeng
For our growth drivers, in the short term, growth in third-party revenue primarily comes from banking and overseas, seconded by gamma and digital insurance. Over the longer run, with rich P&G experiences, advanced technologies, We see growth drivers from all segments. That includes integration in banking, digital insurance, life insurance, and overseas replication of our previous cases. We're all likely to drive our growth.
Rick Chan
Thank you.
Shen Chongfeng
Thank you.
Operator
As a reminder, if anyone would like to register a question, please press star followed by one on your telephone keypad. Our next question is from Lydia Lin from Morgan Stanley. Lydia, please go ahead. Your line is open.
Lydia Lin
Hello, Ms. Guan. I have two questions. Actually, the first one is a bit similar to the previous one. The first one is that we also see that the company's um um okay so i'm gonna translate it to english so First question is, we understand that cost control is the major priority for the company at current stage, but we are also curious on how will the company manage to expand the customer base and to improve the output when cutting the sales and marketing expenses significantly? And second question is, whether the company is providing or increasing the effort in providing products that can help the small business banks to improve their sales. Thank you.
Rick Chan
Thank you for your question. The first question will be taken by Jessie, and the second one will be taken by Ms. Shen. Jessie, please.
Jessie
Hello. How to improve the problem of ARP? Looking forward to the second half of 2023, we will continue to accelerate the innovation of products, and the second stage strategy of deepening the customer base. Through the following two aspects, we will achieve the improvement of ARP. First, we will continue to polish and upgrade products, and strengthen the core competitiveness of products, to achieve the improvement of the price of single products.
Shen Chongfeng
So on your first question about how to increase our R pool, for the following six months of 2003, we will continue to execute product upgrades as well as our Stage 2 strategy of deepening customer engagement. So our first effort will be to upgrade our products improve our product functionality so as to increase product premium for our customers. Our second effort will be to add more modules to our products. For instance, we will improve our output by cross-selling more products. For instance, when we sell cloud platform from our gamma platform, we will also try to cross-sell products from banking segments and other segments.
Laura Lee
Thank you. Thank you.
Rick Chan
Mr. Shen, may we take a second question, please? Okay. In our digital retail banking segment, we offer an offering named Smart Banker.
Shen Chongfeng
This app mainly serves relationship managers for retail branches to help them better improve their services to customers.
Rick Chan
这也是助力银行零售转型的非常有效的一个产品和解决方案。 The smart banker is also a very effective role in the digital transformation of retail banking. 好,谢谢。 Thank you.
spk04
Thank you.
Operator
As a reminder, if anyone would like to register a question, please press star followed by one on your telephone keypad. Our next question is from Laura Lee from CGS CIMB. Laura, your line is open. Please go ahead.
Laura Lee
Thank you for giving me this opportunity to ask a question. I have two questions. Let me translate my questions. First question, I want to know about the current status of cost-controlling program. Which specific area will be the primary focus for cost-controlling efforts moving forward? Second question is about the third party revenue. What is the key competitive advantage to ensure the third party revenue currently? That's my question.
Rick Chan
Thank you for your question, Lora. The first question will be taken by Mr. Luo, and the second one taken by Mr. Shen. Let me answer the first question.
Luo Zong
First of all, the effect of cost control is very obvious. Whether it is through the optimization of the structure of the personnel, or the compression of the technology cost, Firstly, we are happy to report that we have achieved significant success in cost reduction. As you can see by Mark's
Shen Chongfeng
loss reduction progress in the first half of this year. So, by optimizing headcount and reducing cost, our operating expenses have decreased by a big margin.
Luo Zong
So, with the professional control at this stage, our principle should be to continue to For our next stage, we will firstly maintain prudent cost discipline to save more costs.
Shen Chongfeng
Whereas for resource allocation, our priorities will be about improving productivity and return on investment that can better enhance our business development.
Luo Zong
In short, we will make proactive, reasonable, and selective investments in the field of research and development resources investment to ensure that we maintain advantages in the field of product and technology competition.
Shen Chongfeng
To be more specific, in terms of R&D expenses, we will make more deliberate and reasonable choices to skew our resources on the development and research of products with higher quality. As for self-marketing expenses, we will ensure enough resources are provided to ensure healthy and sustainable growth of our business. Thank you.
Rick Chan
Okay, let me answer the question about the competitive advantage of third-party income. Compared to competitors, Yizhangtong has the competitive advantage of technology plus business. In addition, Next, I'll answer your questions on our competitive edge over our peers.
Shen Chongfeng
So compared to our competitors, we provide technology plus business services and reach optimized AI-powered financial scenario experiences. which include AI customer service, collection, and the marketing.
Rick Chan
We also have mature products and solutions, such as retail, corporate control platform, digital security, and other products. We also have a safe business deployment process, which is also very affordable for financial institutions. The level of additional customized development is relatively low, and the market recognition is relatively high. We also have a wide range of applications within and outside financial institutions.
Shen Chongfeng
We also offer mature products and solutions, for instance, risk management platform for retail and wholesale banking and data security. Our business workflow has been proven by Ping An Group and can be readily replicated to other financial institutions with limited customization and high market recognition. These have been widely used by Ping An Group internally and by external financial institutions. In addition to making sure our own offerings satisfy requirements for home-developed technologies, through consulting plus implementation model, OneConnect has also involved itself in the shift for self-control technology in many banks.
Rick Chan
Also to add to comment more on the previous question raised by another analyst, OneConnect not only helps banks lower their costs and improve their efficiency,
Shen Chongfeng
We can also empower banks to expand their business in retail, credit, and risk management.
Rick Chan
Thank you.
spk04
Thank you.
Operator
We will now conclude today's call here, so I will hand back to Rick for any closing remarks.
Rick Chan
Thank you very much, operator. Thank you, everyone, for joining us for the call today. Time's running out. If any questions, feel free to contact our RL team, and we appreciate your interest in following us and look forward to speaking with you again.
spk04
Thank you, everyone, for joining today's call. You may now disconnect your lines and have a lovely day. Thank you everyone for joining today's call. You may now disconnect.
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