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spk01: Hello and welcome to the ex-financial second quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw a question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Tanya Wen. Please go ahead.
spk02: Thank you, operators. Hello, everyone, and thank you for joining us today. The company's results were released earlier today and are available on the company's IR website at ir.xiaoyingroup.com. On the call today from X Financial are Mr. Ken Lee, President, and Mr. Frank Sun, Financial Officer. Mr. Lee will give a brief overview of the company's business operations and highlights, followed by Mr. Jun, who will go through the financials. They are all available to answer your questions during the Q&A section. I remind you that this call may contain forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1935. Such statements are based on the company's current expectations and current market and operating conditions, and related to events that involve known or unknown risks, uncertainties, and other factors of which are difficult to predict, and many of which are beyond the company's control, which may cause the company's actual results, performance, or shapeless to differ materially from those in the forelooking statement. For the information regarding this and other risks, uncertainties and factors is included in the company's filing with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information due to events or otherwise effects as required under the law. It is now my pleasure to introduce Mr. Ken Lee. Mr. Lee, please go ahead.
spk04: Hello, everyone. We are very pleased to deliver another strong quarter of operational and financial results. In the second quarter, total non-facilitation amount is at a stark high since our inception, and our bottom line continues to maintain strong growth momentum on both the year-over-year and quarterly quarter basis, in line with our guidance. During the quarter, we reduced the fees we charge for our non-facilitation service which matches institutional funding partners with borrowers, as well as lower the weighted average total borrowing costs for our loan products to attract and retain borrowers. With the effective management of our cost control policy, we continue to maintain strong momentum of profitable growth. On the regulatory front, In April, the National People's Congress Standing Committee released a second draft of the Personal Information Protection Law for public comment, demonstrating that the Chinese government is determined to strengthen user data security and privacy protection. We have always placed a high value on user data protection and continue to improve our self-regulated internal mechanism. We continue to closely monitor regulatory developments. and adjust our strategy and services in compliance with government policies and evolving market trends. During the second quarter, our total loan facilitation amount reached RMB 12.8 billion, an increase of 108.6% year-over-year and 18.2% quarter-over-quarter. This was mainly driven by the strong growth in the loan facilitation amount of Shaoying Card Loan. which increased 180.1% year-over-year and 18.2% quarter-over-quarter. Xiao Ying car loan has contributed 100% of our total loan facilitation amount since the first quarter of 2021. As of June 30th, 2021, the total outstanding loan balance of Xiaoying Car Loan reached RMB 20.4 billion, an increase of 24.9% compared with previous quarters. Recently, the Chinese government has been gradually introducing guiding principles for lower lending rates to the market to stimulate economic growth, which is expected to put some pressure on our revenues. For the second half of the year, we will continue to be fully compliant, but will mitigate policy pressures by devising feasible solutions with our institutional funding partners. At the same time, we remain in active negotiations with existing funding partners to reduce funding costs, and our team continues to improve our risk management capabilities and taking proactive measures on cost control. In conclusion, we are encouraged by the solid progress we made during the first half of the year, and we'll continue to execute on our proven strategies to driving sustainable long-term growth. We expect to commence operation of our micro-credit business in the third quarter of 2021. Consumer confidence in China's economy has continued to trend upward, and we see rising demand for consumer finance solutions We are confident of leveraging our technology and service capability to capture the vast opportunities ahead and bring more valuable returns to our shareholders. Now I will turn the call to Frank, who will go through our financials.
spk03: Thank you, Ken, and hello, everyone. We continue to deliver strong financial performance during the second quarter. The total net revenue increased 140.4% year-over-year to IMB $932.4 million. With the combination of effect, cost control, and increased economic skill, our net income further improved to IMB $223.2 million from a net loss of IMB $343.6 million in the second period of the last year, and a net income of the IMB 192.8 million in the previous quarter. We continue to experience steady improvement in our asset quality. As of June 30, 2021, the delinquency rates for all outstanding loans that are past due for 30 to 60 days were 0.677% and a decrease from 0.82% as of March 31st. 2021 and 1.8% as of June 30, 2020. A clear demonstration of our risk management capabilities and the premier borrow base. We also continued to strengthen our cooperation with third party financial guarantee companies during the quarter, whereby the proportion of loan amount facility that was covered by those financial guarantee companies increased to 49.8% from 48.1% in the previous quarter. Moving forward, we will continue to invest in the development of technology capabilities, further improve operation efficiency, and expand the cooperation with more institution funding partners. We expect to maintain the growth momentum in our operational performance in the third quarter. I would like to brief some financial performance. Please note that all numbers stayed in RMB. The total net revenue in the second quarter of 2021 increased by 140.4% to RMB 932.4 million from RMB 387.9 million in the same period of 2020. primarily due to an increase in the total loan facilitation amount of the Shaolin car loan this quarter, compared with the same period of 2020. Origination and the servicing expenses in the second quarter of 2021 increased by 1.7% to RMB 520.9 million. from IMB 512.4 million in the same period of 2020, primarily due to the increase in commission fees resulting from the increased total loan facilitation amount in this quarter compared with the same period of 2020, and partially offset by the decline in the collection expenses resulting from the decrease in delinquency rate. Provision for accounts receivable and the contract assets in the second quarter was IMB 25.2 million compared with IMB 28.3 million in the same period of 2020, primarily to the decrease in average estimated default rates compared with the same period of 2020. and partially offset by the increase in the amount receivable from the facilitation services as a result of the increase in total loan facilitation amount in the second quarter of 2021. The reverse of a provision for the loan receivable in the second quarter of 2021 was RMB 1.1 million compared with the provision for the loans receivable of RMB 110.5 million in the same period of 2020, primarily due to an increase in the average estimate default rate compared with the same period of 2020. The income from operations in the second quarter of 2021 was RMB 337.7 million compared with loss from the operation of RMB 341.5 million in the same period of 2020. Net income attributable to ex-financial shareholders in the second quarter of 2021 was RMB 223.2 million, compared with the net loss attributed to ex-financial shareholders of RMB 343.7 million in the same period of 2020. Down gap adjusted net income attributed to ex-financial shareholders in the second quarter of 2021 was RMB $241.9 million compared with the non-GAAP adjusted net loss attributable to the ex-financial shareholders of IMB $325.9 million in the same period of 2020. Cash and cash equivalent was IMB $1,183.9 million as of June 30, 2021 compared with IMB $799.9 as of March 31, 2021. Now for our business outlook. For the third quarter of 2021, we expect total loan facilitation amount to be in the range of RMB 14.5 billion to RMB 15.5 billion, and the net income attributable to the ex-financial shareholders to be no less than 230 million. This forecast reflects our current and preliminary views, which are subject to changes. Now, this concludes our prepared remarks, and we would like to open the court to the questions. Operator, please.
spk01: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time that your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. And the first question comes from Mason Bourne with AWH Capital. Please go ahead.
spk00: Good morning. Thanks for taking questions. You mentioned that you plan to start using your new microcredit license in Q3. Could you describe the steps that you took to obtain that license and then maybe what opportunities that opens up for you?
spk04: Sure. Actually, this is a very long progress. I think we first submitted our application in the late 2019. The overall process has been fairly opaque, but finally we got it. And because there's really no fixed guidelines on how to obtain the license, but we are the first batch who was able to successfully repay all our P2P investors of their investment and got the license. You asked about opportunities. I think at this moment the opportunity is fairly difficult to evaluate. and the management team is still in the early process in determining what is the best strategy of utilizing that license. As of now, we just began to offer loans through the license.
spk00: Okay, thanks. And then I guess to follow up on that, your total loan facilitation volume, It was up over 100% year over year and now appears to be growing kind of high teens from Q1 and then also based on your guidance going forward. So with that, how large do you view your market opportunity and kind of what are the – I guess what's driving that growth?
spk04: I think it's difficult to compare our growth compared to the last year because of the COVID-19 situation in China, which is very different from the other countries around the world. Last year was the worst in terms of COVID-19, and since then we are basically in the recovering stage. And as a result, last year our loan volume has been severely withheld, largely due to our own choices. So right now, because the COVID-19 has, I would say, has since long passed with China, so the economy in the Chinese market has been fairly beneficial to our business. That is why we are able to maintain such a strong growth. It's very difficult to forecast what the growth in the future will be, but if you are following the Chinese market closely, you will notice that all the Supervisional Committee, that they have been gradually persuaded those people who are not qualified to exit the market. And as a leading company in the Chinese market, that we basically are able to maintain our continuous operations. So I think the opportunity is good. It really depends on the management team to take advantage of the opportunity.
spk00: Great. And then the last thing I had, so by my math now, book value per ADS is roughly $9.75. Shares are trading up a little bit this morning. But you have a $3.27 per ADS in cash now, and then an annual run rate of earnings based on your guidance is roughly $2.50 per ADS. So with that in mind, how do you think about capital allocation and potentially returning capital to shareholders or buying back shares?
spk03: I think we are still in the growth period, and You know, the micro license at this stage, actually in November, we need to put another $500 million into the capital. And I think we, but that is still lower than the temporary requirement. You know, the ruling is, you know, issues required for about, you know, $5 billion, you know, for the license. So we will, you know, use the, you know, use the, you know, put aside some capital for the case in case they need another funding for the license purpose also. So we have a, for the foreseeable future, we don't have a, you know, stock buyback or something like that kind of thing for the near future to answer your question directly. Okay.
spk00: So that would be going from, I guess that would just be allocated as a restricted cash balance then. I was just speaking more to the cash and equivalents, but you're saying that more of that cash will be tied up due to this new license. Am I understanding that correctly? Yes, yes. Okay. All right. Well, that's all I had. Thanks for taking my questions. I'll pass it on. Thank you.
spk01: As a reminder, if you have a question, please press star then 1 to be joined into the queue. This concludes our question and answer session. I would like to turn the conference back over to Tanya Nguyen for any closing remarks.
spk02: Thank you, everyone, for joining us today on the call. If you haven't got a chance to raise your questions, we will be pleased to answer them through follow-up contacts. We look forward to speaking with you again in the near future. Thank you. The conference has now concluded.
spk01: Thank you for attending today's presentation. You may now disconnect.
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