X Financial

Hello and welcome to the Ex-Finance Second Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask a question. Note, this event is being recorded. I would now like to turn the conference over to Tania Wen. Please go ahead.

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.tiaoyinggood.com. On the call today from X Financial are Mr. Ken Lee, President, and Mr. Van Voyagen, Chief Financial Officer. Mr. Lee will give a brief overview of the company's business operations and highlights, followed by Mr. Chen, 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-up looking statements under the State Harbor provisions of the Private Security Delegation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve non-honorary facilities 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 from the forward-looking statement. For the information regarding this and other authorities 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 other effects as required on the law. It is now my pleasure to introduce Mr. Ken Li. Mr. Li, please go ahead.

Hello, everyone. We are pleased with our performance this past quarter, given the great challenges brought by the significant economic slowdown amid the escalation of COVID-19 containment measures in China. We continue to scale up our loan facilitation volume while improving asset quality quarter-over-quarter. Total loan facilitated and provided during the past quarter maintained a steady growth on both a yearly and quarterly basis, exceeding the high end of our forecast thanks to our effective risk management system and premium borrower base. We saw a meaningful decrease in the democracy rate from the previous quarter. We have further demonstrated our business resilience and ability to navigate tough conditions. During the second quarter, our total loan amount facilitated and provided reached RMB 17 billion, representing an increase of 32% year-over-year and 11% quarter-over-quarter. The delinquency rate for all outstanding loans past due for 31 to 60 days as of June 30, 2022, decreased 2.93% from 1.31% as of March 31, 2022. While the asset quality of the financial industry as a whole deteriorated during the quarter due to the macro headwinds, we're managing to improve our asset quality as we continue to enhance our risk management system. We expect our asset quality to remain stable in the second half of the year. During the past quarter, we stepped up our efforts to acquire more high-quality borrowers as a result, Our number of active borrowers increased 72% on those yearly and quarterly basis and reached a high level of over 1 million in this quarter. We are pleased to see that our products and services have been well received by extensive and growing user base. This is a testament to our for reliability and it has laid a solid foundation for our future growth. Going forward, we will continue to expand and deepen our cooperation with our institutional funding partners to jointly serve the diverse financial needs of small and micro businesses and consumers in China. On the regulatory side, the China Banking and Insurance Regulatory Commission issued a notice on strengthening the management of commercial banks' internet known business to improve the quality and efficiency of financial services on July 15th. The new rules affirm the positive role of international further refine and clarify the requirements for international management and extend the grace period for the rectification of international operations to June 2023 from July 2022. This initiative aims to promote the stable and healthy development of the international business and it is part of the government's to stimulate strategy to revive the pandemic economy by encouraging more credit to stimulate investments and consumption. This is conductive to the overall development of the financial industry and the extended grace period also give us more time to explore marketing opportunities under the new regulation, especially financial services for small and micro businesses. Looking ahead, With the COVID-19 pandemic subsiding and the macroeconomy gradually rebounding, we are cautiously optimistic about our business in the second half of the year with an increasing accommodated environment. We expect to see steady sequential growth in upcoming quarters. Now, I will turn to the call to Frank, who will go through our financials.

Thank you, Ken, and hello, everyone. Although our top line saw a slight decrease on the quarterly basis, as we continue to reduce the total borrowing cost of the borrowers in line with the government guidance, we improved our bottom line from the previous quarter. Net income for the second quarter of 2022 improved to RMB 186 million from RMB 140 million in the previous quarter. And the non-GAAP adjusted net income for the second quarter of 2020 was RMB 211 million, representing an increase of 37% quarter-over-quarter, with a more stabilized microeconomy and a clear regulatory environment. We expect to see further improvement in financial performance in the future. During the second quarter, we started to execute our share repurchase program. Going forward, we will continue to keep a close eye on market dynamics, regularly revalue how to best use our cash in order to maximize return for our shareholders. Now I would like to brief some financial performance for the second quarter. Please note that all numbers stated are in RMB and are rounded up. Total net revenue decreased by 12% to RMB $824 million for RMB $932 million in the same period of 2021, primarily due to a decrease in average total borrowing cost of borrowers and also partially offset by an increase in the total loan amount of facilities and the providers this quarter compared with the same period of 2021. Origination and servicing expenses increased by 2% to RMB 533 million from RMB 521 million in the same period of 2021, primarily due to an increase in commission fees resulting from the increase in total loan amount facilitated and provided this quarter. partially offset by an increase in insurance fee paid to the insurance company. Provisions for accounts receivable under contract assets was RMB 26 million compared with RMB 25 million in the same period of 2021, primarily due to an increase in accounts receivable from facilitation services as a result of the increase in the total loan facilitation about this quarter compared with the same period of 2021. Provision for the loan receivable was $32 million compared with the reversal of the provision for the loan receivable of ID $1 million in the same period of 2021, primarily due to an increase in loans receivable held by the company as a result of the increase in total loan amount facilitated and provided this quarter compared with the same period of 2021. Income from operations was RMB 194 million compared with RMB 338 million in the same period of 2021. Net income was RMB 186 million compared with RMB 223 million in the same period of 2021. Non-GAAP adjusted net income was R&D 211 million compared with R&D 242 million in the same period of 2021. For further financial information, please refer to the earnings release on our website. Regarding our share purchase plan, on March 30, 2022, we announced that our board had approved a share purchase plan under which The company may repurchase up to US$50 million worth of its Class A honorary share in the form of ADS until September 2023. As of end of June 2022, we had repurchased an average about 174,000 ADS. Now for our business outlook. we expect total loan amount facilitated and provided for the third quarter of 2022 to be between R&D $19 billion and R&D $20 billion. For the full year of 2022, we expect increment in the total loan amount facilitated and provided to be no less than 25%. This forecast reflects our current and preliminary views, which are subject to change. Now this concludes our prepared remarks and we would like to open the call to questions. Operator, please.

Thank you. We will now begin the question and answer session. To ask a question, you may press the start and 1 on your touch-tone phone. If you're 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 the start and 2. At this time, we will pause momentarily to assemble our browser. Our first question. comes from Nathan Warren with AWH Capital. Please go ahead.

Good evening. Thanks for taking the questions. I guess to start, given your commentary and outlook, it seems like you're a little more positive about the regulatory backdrop. Could you talk about what's driving that?

Okay. I'll take this one. I think it's more. Turns out I'll take this one. I'll take the next one. Yes. I think it's probably more of our system of the current environment rather than the regulatory changes. As you know, because of the COVID-19 impact, I think it's more of the COVID-19 measures impact on the Chinese economy. And right now, there's just lots of demand for . So I think right now, we are just in a very good position to take advantage of our premium customer clientele. So during the past three quarters that we have accumulated enough premium customers. So in the second half of this year then we are going to benefit from our previous investment. That is why that we can increase our scale.

Okay, so it sounds like demand is strong. How about the funding side of things? Are you seeing maybe some easing of conditions that's allowed you to lower your funding rate?

We do see some lowering on the funding rate, and I think this is more, our assessment is that this probably will be temporary and short-term, but at least for the second half of the year, it's going to continue. That is, so our assessment is based on, our forecast is based on this assessment.

Okay, thanks. And then lastly, I think your tangible book value is around $11.40 per share. What are your thoughts on the buyback? I know you did some in the quarter, but do you view this as an opportunity to attractively buy back shares at a discount?

Yeah, one question I'm going to leave that to our CFO. Let's see here for Frank.

Okay. Last open window we bought, as we stated, I bought about 100, you know, 174,000 shares, something like that. Because, you know, our share is very thinly, so we actually, you know, maximize the order allowed, you know, and the relevant rules for the buyback. And we will continue to do that, and we will explore other ways to buy more share if the opportunities arise.

Great, thanks. Again, if you have a question, please spread star then one. Please hold.

This concludes our question and answer session. I would like to turn the conference back over to Tanya Wen for any closing remarks. Please go ahead.

Thank you, everyone, for joining us on the call today. 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. Thank you for attending today's presentation. You may now disconnect.