X Financial

Hello and welcome to the ex-financial second quarter 2023 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 2. Please note this event is being recorded. I would now like to turn the conference over to Victoria Yu. Please go ahead.

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.xiaoyingroup.com. On the call today from X Financial are Mr. Ken Lee, President, and Mr. Frank Fu-Ya Zheng, Chief Financial Officer. Mr. Li will give a brief overview of the company's business operations and highlights, followed by Mr. Zheng, who will go through the financials. They are all available to answer your questions during the Q&A session. I remind you that this call may contain forward-looking statements under the safe harbor provisions of Private Securities Litigation 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 known or unknown risks, uncertainties, and other factors, all 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 forward-looking statements. Further information regarding leads and other risks, uncertainties, and factors is included in the company's filings 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, except as required and allowed. It is now my pleasure to introduce Mr. Ken Lee, Misa Li, please go ahead.

Hello, everyone. We are delighted to enter the first half of 2023 with outstanding operational and financial performance in the second quarter. We continue to execute our proven strategy and maintain our growth momentum. In the first half of the year, the total known facilitation and origination amount reached nearly RMB 50 billion, an impressive increase of over 55% year-over-year. Our top line improved by 30%, while our bottom line nearly doubled in the first half, underpinned by our proven business model, consistent asset quality, and optimized operational efficiency. Furthermore, our net income per basic ADS for the first half of the year grew more than 130% year-over-year, driven by our robust profitability and dedication to rewarding shareholders through our share repurchase program. During the second quarter, our total loan amount facilitated and originated increased by 53% year-over-year and 7% quarter-over-quarter to RMB 26 billion, in line with our expectations. With the total outstanding loan balance reaching RMB 45 billion at the end of June 2023, We continue to strengthen our risk management system to maintain healthy asset quality, with the democracy rate for all outstanding loans past due for 31 to 60 days remaining stable at 0.96 percent at the end of June 2023, and the democracy rate for all outstanding loan past due for 91 to 180 days at 2.5 percent, significantly improved from a year ago. We are proud of our consistent high-quality risk control and stable prime borrower space, which have been well received and recognized by our institutional funding partners. We will continue to work together to meet the financing needs of consumers and SMEs in support of China's economic recovery. On the regulatory side, with the recent settlement of fines imposed on some large financial platforms by the government, The market believes that the industry-wide ratification is expected to come to an end and a more stable regulatory environment is expected. Financial regulatory authorities are now shifting their focus towards regular supervision. As a highly responsible company, we always operate in full compliance with regulations and laws and will continue to prioritize financial consumer protection. Looking ahead to the second half of 2023, we are confident in our ability to achieve sustainable goals and enhance shareholder value. The normal regulatory environment provides a solid foundation of our continued goals and success. We remain committed to executing our share repurchase and dividend program to reward our valued shareholders. Now, I will turn to the Court of Frank, which will go through our financials.

Thank you, Ken. And hello, everyone. We are very pleased with our strong financial results for the second quarter. Total net revenue increased by 48% year-over-year and 21% quarter-over-quarter. To IMB, $1,220 billion. Our relentless focus on tightening cost control and improving operational efficiency enable us to deliver revenue growth that outpaced cost and expenses growth. As a result, net income for the Q2 surged by 97% year-over-year and 29% quarter-over-quarter. Reforming our commitment to delivering substantial profits, the positive impact of our ongoing share repurchase program further contributed to our achievements, resulting in a notable Improvement in net income per share, ADS, rising by 127% from RMB 3.36 in the same period last year to RMB 7.62. To maximize shareholder value, our Board of Directors has also improved a special dividend which is expected to be paid on October this year. Given the stabilized regulatory environment, we expect to achieve a steady growth in both operational and financial performance in the second half of the year, further solidifying our position in the market. Now I would like to brief some financial performance for Q2. Please note that all numbers stated in RMB and rounded up. Total net revenue increased by 48% to RMB $1,220 million from RMB $824 million in the same period of 2022, primarily due to an increase in the total loan amount facility and originating this quarter compared with the same period of 2022. Origination and servicing expenses increased by 26% to RMB $670 million from RMB $533 million in the same period of 2022, primarily due to the following factors. One, an increase in commission fee resulting from the increase in total loan amount facility and originator discord compared with the same period of 2022. And second, an increase in interest expenses as a result of an increase in payable to the institutional funding partners and the investors. Position for the loans receivable was RMB 55 million compared with RMB 32 million in the same period of 2022, primarily due to an increase in loans receivable held by the company as a result of the increase in total loan amount facilitated and originated this quarter compared with the same period of 2022. Income from operations was RMB $445 million compared with RMB $194 million in the same period of 2022. Net income was RMB $366 million compared with RMB $186 million in the same period of 2022. Non-GAAP adjusted net income was RMB 365 million compared with RMB 211 million in the same period of 2022. For further financial information, please refer to the earnings release on our website. Regarding our share repurchase plan, in Q2, we purchased approximately 406,000 ADS for a total consideration of U.S. $1.6 million. Under U.S. $30 million share repurchase plan announced last November, we have approximately U.S. $7.3 million remaining for the potential repurchases. Yesterday, our board approved the extension of the existing share repurchase program for an additional 12 months until the end of September 2024. Now, our business outlook. For Q3 this year, we expect the total loan amount facilitated and originated to be between RMB 28.5 billion and RMB 29.5 billion. For the fiscal year 2023, we expect the total loan amount facilitated and originated to be between RMB 105 billion and RMB When can any? This concludes our prepared remarks and we would like to open the call to the questions. Operator, please.

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'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 star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Boyd Hines with Equinox Capital. Please go ahead.

Hi, I wanted to ask some questions about the current trends that you're seeing among your active borrowers. Can you just talk a little bit about what the average loan size is and what the loan tenor is like among your active group in the second quarter?

Sure, I can answer that question. Our average known ticker size is roughly about RMB 10,000 to 15,000. It's roughly around that. The average tenure right now is, because we offer the known up to 12 months, and the majority of the consumers choose 12 months as their application tenure, so our average tenure actually is very close to 12 months.

Okay, so if I'm borrowing that amount, am I expected to have repaid that loan fully at the end of that 12-month term?

That is correct.

Okay, and so if I'm a repeat borrower, I'm not just rolling over a principal balance because I couldn't pay the full amount?

No, you can't. Actually, if you add an income to that loan, If you are delinquent, you will not remember your loan.

Okay. So in terms of the current state of the economy and possible pressures on your borrowers, have you started to adjust your loan provision rates at all? Are you seeing any signs of pullback among your borrowers? your consumer base in terms of the amount of loans that they might be wanting to take on?

Actually, the demand has been fairly high for a long time. I think that's why we can keep a momentum of growth. In terms of the provision that you just mentioned, that it is our company policy that always review our provision and to make sure that we are fully, that our provision is coming in line with our risks. So, I can't say exact how much that we are adjusting our provision, but our provision has been fairly robust for the past several years.

Okay. I appreciate that the dividend has been put in place and that you're continuing a fairly aggressive share repurchase. I think those are things that should absolutely continue, especially given where the stock is trading. And I wish you all the best for the rest of the year. Thank you.

Thank you.

Again, if you have a question, please press star then 1. Okay, seeing that there are no further questions, this concludes our question and answer session. I would like to turn the conference back over to Victoria Yu for any closing remarks.

Okay, thank you everyone for joining us on the call today. If you haven't got the 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.