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spk05: Hello, and welcome to the ex-financial fourth quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your 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.
spk01: Thank you, Operator. 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.tiaoyingoods.com. On our call today for financial are Mr. Ken Lee, President, and Mr. Frank Royazan, Chief Financial Officer. Mr. Lee will give a brief overview of the company's business operations and highlights, followed by Mr. James. 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 follow-looking statements under the Safe Harbor provisions of the Private Security Litigation Reform Act of 1995. Such statements are based on the management's current expectations and current market and operating conditions and relate to events that involve known or unknown risk 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 achievements to differ materially from those in the forelooking statements. Further 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, future events, or otherwise effects as required on the law. It is now my pleasure to introduce Mr. Ken Lee. Mr. Lee, please go ahead.
spk00: Hello, everyone. We are very pleased to conclude 2021 with another solid quarter of financial results, delivering probability for the full year Both our top and bottom line for the fourth quarter significantly improved over the same period of 2020. Despite the challenging macroeconomy and the regulatory environment in 2021, we have successfully turned our business back on track and maintained a steady growth momentum compared with 2020. The total loan amount facilitated and provided in 2021 increased by 75% year over year to RMB $52 billion from RMB $30 billion. With a very focused product strategy and effective cost control initiatives, we turned profitable in 2021 and our bottom line outperformed the full year of 2019, the year before COVID-19 outbreak. During the fourth quarter, our total loan amount facilitated and provided reached RMB 13 billion, an increase of 51% year-over-year. As mentioned in our previous guidance, we saw a moderate sequential decline in the loan volume in the fourth quarter, which was mainly attributed to the year-end outstanding loan balance requirements of our institutional funding partners. In the first quarter of 2022, the level of available funds has resumed its normal pattern Since 2020, we have shifted our product focus to shell-in-card loan, which contributed 100% to the total loan amount facilitated and provided in 2021. With this focused and proven product strategy, we are confident in our ability to sustain steady growth in the loan facilitation business in 2022. Regarding asset quality, the delinquency rate for the all outstanding loans that are past due for 31 to 60 days as of December 31st, 2021 was 1.48%, higher than the 0.96% as of September 31st, 2021 and the 0.79% as of December 31st, 2020. This fluctuation is mainly attributed to the liquidity tightening in the fourth quarter of 2021. Since February 2022, we have seen our asset quality gradually improving as a result of ample liquidity in financial markets and our stricter risk management measures. In 2021, we officially commenced operation of our microcredit business in the third quarter after we received a regulator approval for our microcredit license. And during the fourth quarter, we're further increasing registered capital to RMB $1 billion in compliance with the regulations. We are on track with our microcredit business and look forward to creating more value for our shareholders. In the fourth quarter of 2021, we invested RMB $315 million and it became indirect minority shareholders of Newark Bank of Liaoning, a PRC company and a non-state-owned bank. We are exploring opportunities to cooperate with the Newark Bank to better serve SMEs, and we are confident that, based on our advantages in technology and risk management capabilities, the cooperation with Newark Bank would bring more possibilities to our business to jointly empower and support the development of the economy in China. Heading into 2022, we expect regulatory uncertainties to subside with clear guidance from authorities. The Chinese government has affirmed the value of fintech industry to address people's inclusive financial needs and support the development of SMEs. We remain cautiously optimistic about our business outlook while being prepared for any macro uncertainty that may emerge in 2022. In order to pass our confidence to the market and increase shareholders' value, our Board has been timely evaluating, based on our current market environment, regulatory policy and conditions of business operations, multiple ways of returning profits to our shareholders, including share repurchase as well as cash dividend distribution. Recently, our Board approved a U.S. $15 million share repurchase plan. which reflects our confidence in the company fundamentals, strategy, and a sustainable growth. We are looking forward to an increase of shareholders' value in the future. Now, I will turn the call to Frank, who will go through our financials.
spk03: Thank you, Ken, and hello, everyone. We are pleased to deliver solid financial results for both the fourth quarter and the full year of 2021. The total net revenue increased by 15% year-over-year to IMB $823 million in the first quarter. We saw a significant improvement in our bottom line with non-GAAP adjustment income improved to IMB $183 million from a loss of IMB $631 million in the same period of 2020. For the full year 2021, total revenue increased by 65% to IMB 3,626 million. Thanks to our relentless efforts at the cost management and total operation costs and expenses decreased by 36% to RMB 2,315 million. Non-GAAP adjusted net income improved to RMB 914 million in 2021. from a loss of RMB 1,228 million a year ago. In conclusion, we are gradually encouraged by the strong results we delivered in 2021, which fully demonstrate the resilience and the growth potential of our business. Going forward, we will continue to expand and deepen our cooperation with more institutional funding partners to meet the needs of consumers and SMEs, and execute our proven strategy to drive sustainable long-term growth and the returns for our partners and shareholders. Now, I would like to brief some financial performance for the first quarter. Please note that all numbers stated here are in RMB. Total net revenue in the first quarter increased by 15% to RMB 823.4 million from RMB 716.3 million in the same period of 2020, primarily due to an increase in the total loan amount facilitated and provided of Shaoying Carbon this quarter compared with the same period of 2020. Origination and servicing expenses in the fourth quarter decreased by 29.9% to RMB 385.8 million from RMB 550.7 million in the same period of 2020, primarily due to decline in the collection expenses resulting from the asset quality improvement and a decrease in insurance fee paid to the insurance company. Provisions for the accounts receivable and the contractual assets in the fourth quarter was RMB 19.5 million compared with the reverse of provision for accounts receivable and the contract assets of RMB 13.2 million in the same period of 2020, primarily due to an increase in accounts receivable from facilitation services as a result of increase in the total facilitation amount in the fourth quarter of 2021 compared with the same period of 2020. Provision for the loans receivable in the first quarter was RMB 40.3 million compared with RMB 33.7 million in the same period of 2020, primarily due to an increase in loans receivable held by the company as a result of increase in total loan amounts facilitated and provided in the first quarter of 2021 compared with the same period of 2020 increase from operations In the fourth quarter was RMB $311.6 million compared with the loss from operations of RMB $857.3 million in the same period of 2020. Net income attributable to ex-financial shareholders in the first quarter was RMB $145.5 million compared with the net loss attributed to ex-financial shareholders. of RMB 655.5 million in the same period of 2020. Non-GAAP adjusted net income contributed to ex-financial shareholders in the first quarter was RMB 183 million compared with non-GAAP adjusted net loss attributed to ex-financial shareholders of RMB 630.8 million in the same period of 2020. For further financial information, please refer to the earnings release on the company's RIA website. Now for our business outlook. We expect total loan facilitation amount for the first quarter of 2020 to be between $15 billion and RMB $15.4 billion, and the range of incremental in total loan amount facilitated and provided for 2020 to be from 15% to 25%. This forecast reflects our current employment views, which are subject to change. Now, this concludes our prepared remarks, and we'd like to open the call to questions. Operator, please.
spk05: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time 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. The first question comes from Mason Bourne of AWH Capital. Please go ahead.
spk04: Hi, thanks for taking questions. To start, I was hoping you could give more background on your investment in Nuup, why now, and your main goals.
spk03: Hi, Mason, and this is Frank. Thanks for your question. The New Upper Bank is one of seven banks owned privately. So it's not a state-owned bank. And the purpose is only one purpose only, as we try to, with this equity interest, we try to explore the opportunity, a new way to develop jointly, to develop our SME business. which is great courage by the government at current times. Okay, and then go ahead. So you will not see in terms of business volume or otherwise, it's more like a long-term strategic investment for us. Thank you.
spk04: And then on the SME side, How do you think about potential profitability of that segment compared to your current business?
spk03: That side is kind of tough. That market is different from us, but it has some overlap with the current business, with our current market that we serve. We are mainly right now serving the consumer market for the individual, mainly. you know, up to like 80% or whatever. The overlap is about, you know, somewhere, anywhere between 10 to 30%. So, but, you know, the bank is, they are, you know, especially for the small bank, they are, you know, mainly lack of, you know, lack of, you know, technology ability. to develop their SE market. They have their own market, but they have to kind of reach, you know, approach that market in a very traditional way. It's mainly by person, by, you know, way. So we, by this cooperation, we try to leverage each other's advantage from us. So we are mainly provided some maybe technical approach to their thing, and there you will maybe provide some other access marketplace for us. But I'll be cautious. Any outcome at this stage is very preliminary, which would not strongly advise anyone to not give any forecast or projections regarding the result about it.
spk04: Okay, great. And then on your guidance, you provided total loan volume expectations. How do you think about profitability in 2022?
spk03: So we are kind of, you know, not just us, our competitors, all kind of cautious in general for this year. we gave like a 15 to 24% increase in terms of volume for this year. And did not give the, you know, any earning forecast at this time. Mainly because even though regulatory side is, you know, we believe it will be in a quite stable situation in 2022. But, you know, from the economic side, it's quite uncertain, especially in the current right now is zero tolerance on COVID-19. Right now, you know, the biggest city, you know, the biggest city in China, like Shanghai, is right now in like a total lockdown. And not just Shanghai, you know, Many, many, many, many cities in the COVID situation is quite spread. Among the 27 provinces, many, many cities is kind of in semi, you know, they're doing the testing, the COVID test every day, you know, just, you know, otherwise, you know, just, you know. So there's a supply situation and some industry affects a lot, like a restaurant, travel, entertainment, you know, are greatly affected. A lot of people in those industries are kind of in furlough status, you know what I mean? But those employees in those industries, I think, is some kind of related to our Our business is the consumer. They are the people we serve. We serve the supermarket market, basically. You know what I mean? So we kind of all cautious. That's the main reason we did not give earnings at this time. But one thing we are pretty sure of, we will be profitable substantially this year, but maybe not as big as much as last year. But we are kind of reluctant to provide exactly figure at this time. Thank you. I can appreciate that.
spk04: And then lastly, it was good to see buyback put in place. Could you talk more about how you think about capital allocation going forward?
spk03: You know, just we, as we stated in the press release, we will do the back, you know, do the back from time to time. But we are not trying to so-called correct this so-called, you know, very severe undervalued share price situation that I think we are, not in position to correct that situation by us alone. It's an industry-wide situation. It's tied to many, many other things. But we definitely will do when we think it's very much out of line in terms of share price. So we will still use our mainly use our cash to exploit the new business opportunity and acquire more customers and grow our business, basically. Do you want to say something? That's our intention. Great. Thank you. Thank you.
spk05: The next question comes from Matthew Larson with National Securities. Please go ahead.
spk06: Okay, thanks for taking my call. You know, do you have an explanation why your company, plus some of your, I'll call them competitors, whether it's 360 or even... to a certain extent, YRD and FINV. You're trading at one or two times earnings, and yet your earnings are growing. You face the same headwinds that any lender has, uncertainty about the economy, delinquencies where your underwriting has to be strong. and regulatory issues. We've experienced those for years here with our lending companies, whether they're payday loan companies or peer-to-peer lenders. There's a company called Upstart, which trades probably 50 times or multiple. It seems to have a very similar business model. I think the share buyback is very smart because your volume is dried up and you know, you really could make a difference by putting a floor in the stock. And it's very, very accretive, of course, also to be buying your stock down here, and you could buy it even up quite a bit. Do you have any explanation why your industry groups trade at, you know, essentially some of them trade below cash on the balance sheet? I mean, is that just an anomaly because U.S. investors have lost interest, or is there something else out there?
spk03: Mr. Larsen, thank you for your question. I believe this is your first time joining our call. I think if we get a cash value for our share, we'll be very happy, actually. We are actually much lower than cash. The short answer for your question is because our industry right now There's no future, you know, for our industry, you know, because the regular environment that I will put up very bluntly.
spk00: I think what Frank is trying to say is that in some of the investors' eyes that this industry has no future. I think it's very difficult to comment on why other people think that this industry should be valued like this. And we as a management team, we certainly think our stock is undervalued. That is why that we put in this repurchase plan, as we just mentioned. And we think that at this moment, it's just a natural move for us to buy back some of our shares. I think in the end, it's really the risk, right? Different people associated with different industries with different risk levels. In our particular case, I think that one is this industry is still, I would say, even though with lots of governance, it's still not very clear how this industry is going to develop going forward. And another one, of course, is the relationship between China and the U.S. is not, I would say, it's not great, right? So I think that when investors are thinking about Chinese companies, that they then naturally put it where we put some discount on it. But I think that in the end, it's really nobody knows what is the correct evaluation is. You probably have a feeling of where it should be. And at this moment, we certainly think that we are lower than where we should be.
spk03: Well, I'd like to comment on that. Yes, I think there's two issues for this. All the Chinese companies listed in the U.S. is caught up in kind of a trade war between China and U.S., as you all know. So there's a PCAOV issue. I'm sure you're all aware of that. And that, you know, is it a question of whether all Chinese listed companies or Chinese companies could continue to be listed in the U.S.? It's in doubt right now. And we hope that will be solved sometime one way or another. But for our particular industry, I think another answer is very simple. The visibility is almost zero because all the regular environment and the regular uncertainties for our industry. The issue, I also believe you are all aware for our industry. I think that's the that's the answer for your question.
spk06: As a long-term investor, obviously I'm interested in growing my investment, and your company's done very well, and it's had a couple of runs at considerably higher prices, and, you know, hopefully that will occur again. But I guess I would say that the share buyback is very, very – It's a very good thing to do because it's a large enough buyback, you know, 7% or 8% of your market cap. And I don't know what percentage of the float. But I just would be very, for me, you know, just looking at, you know, how accretive it is and you have enough spare cash on the balance sheet to do such a thing. And, I mean, you could really put a bid in this stock and we could – Get not only this company and others to really you know see some upward trajectory after being Kind of just forgotten. You know they just they've been orphaned almost because investors kind of ignore stocks once they get down to the share price that your stock has been at two dollars or maybe three or four lucky and so I just hope you continue to see ways to not only continue to show good operating earnings and do well within your industry, but find a way to elevate your stock because you could easily trade it twice where it is now, which would give it still a small earnings multiple and a big discount to book. But you would bring in more investors if the stock were to get above, say, $5, which is a minimum for many investors. So that would be a goal to do it one way or another besides just the obvious, which is to continue to operate your business in a very profitable manner. So I look forward to you guys being aggressive with share buybacks, particularly at the price where it is now, where it's extremely attractive and accretive. I mean, you're trading at less than two times earnings, trailing earnings, you know, which is – you would never find that in the United States. So, uh, thank you for listening to me and, uh, congratulations for the quarter. And I like the guidance going forward.
spk03: Oh, thank you, Mr. Lawson. I understand your question. And, uh, and, uh, that's exactly, you know, regarding to the share, share buyback. That's exactly what it would try to do. We, uh, we, we, we try to basically, we try to set up a floor for the, for the, for the, for the share price. And, uh, and uh and but but as you know the flow is not that big so so i'm afraid we cover this nobility to uh uh you know uh you know by uh a lot of shares uh unless we we we check the price very big way is that you know that that's that's also that's done that's not something we want to do because uh uh you know we we are in the you know you know, that industry, everybody is trading below the, you know, five, five times, you know, PE, something like that. You know, we, we, we are, we are kind of very low, but we can improve a little bit, but we are definitely not deserve like a 10 time earning a PE earning trade at 10 times PE earning, you know, that's, that's kind of a thing. So we, we basically do something. And thank you for your question again.
spk06: All right. Thank you.
spk05: This concludes our question and answer session. I would like to turn the conference back over to Tanya Nguyen for any closing remarks.
spk02: Tanya Nguyen for joining us on the call today. If you haven't got the chance to raise your questions, you will be placed to the follow-up contact. We look forward to speaking with you again in the near future. Thank you.
spk05: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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