X Financial

Hello and welcome to the ex-financial third quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on the touch-tone phone. 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 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 conference and our website at ir.xiaoyingroup.com. On the call today from exponential are Mr. Ken Lee, president, and Mr. Frank Puyat-Zheng, chief financial officer. Ms. Li will give a brief overview of the company's business operations and highlights, followed by Ms. 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 the 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 risk uncertainties or 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 these 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 statement as a result of new information, future events, or otherwise, except as required under law. It is now my pleasure to introduce Mr. Kent Lee. Mr. Lee, please go ahead.

Hello, everyone. We are pleased to report another strong quarter with loan volume exceeding our forecast and a significant sequential improvement in asset quality. In the third quarter, we continued to promptly adjust loan volumes based on risk level. As asset quality improved, we further intensified our borrower acquisition efforts, which have yielded very positive results. Both the top and the bottom line continue to grow year over year. Non-GAAP-adjusted net income reached a new record high. Specifically, on the operational front, our total known amount facilitated and originated was down 4% year on year, but up 25% sequentially to RMB 28 billion, above the high end of our guidance. The iniquity rates for all outstanding loan past due for 31 to 60 days and 91 to 180 days were 1.02% and 3.22% respectively at the end of the quarter, compared to 1.29% and 4.38% a quarter ago, and 1.11% and 2.50% a year ago. We are pleased with this improvement in asset quality and will continue to optimize our risk management system through advanced technology. In September this year, the Chinese government unveiled a comprehensive stimulus package aimed at improving liquidity, boosting the property market, stabilizing financial markets, and stimulating consumption. We expect this will provide a meaningful boost to the microeconomic recovery. as an integral part of the economy, the personal finance market we serve should benefit from this upturn. We have already observed a positive sign in the market and are committed to adjusting loan volumes in line with the risk levels. As a result of this favorable environment, we are raising our guidance and expect our monthly loan volume to exceed RMB 10 billion in the fourth quarter, setting a new record. Now, I will turn the call to Frank, who will go through our financials.

Thank you, Ken, and hello everyone. I'm pleased to report that our strategy of a balanced business growth and profitability continue to pay off. Total net revenue was RMB $1.6 billion, up 13% year-on-year and 15% sequentially. Our non-GAAP adjusted net income reached a record high of RMB 434 million, up 60% year-on-year and sequentially. As we continue to deliver strong profitability and execute our proven strategy, we have full confidence in our future. We will continue to execute our semi-annual dividend policy and explore opportunities in our share purchase the purchase program to return more value to our shareholders over the long term. Now I would like to brief some financial performance for Q3. Please note that all numbers stated in IMB and rounded up. Total net revenue increased by 30% to IMB $1,582 million from IMB $1,397 million in the same period of 2023, primarily due to growth in the various aggregate revenue items compared with the same period of 2023. Origination and servicing expenses increased by 14 percent to RMB 458 million from RMB 403 million in the same period of 2023, primarily due to the increase in collection expenses resulting from the cumulative effect of increased volume of the loans facilitated and originated in the previous quarters, compared with the same period of 2023. Borrowed acquisition and the marketing expenses increased by 21% to RMB 507 million from RMB 420 million in the same period of 2023, primarily due to intensified efforts in border acquisitions compared with the same period of 2023. Income from operations was RMB 509 million compared with RMB 435 million in the same period of 2023. Net income was RMB 376 million compared with RMB 347 million in the same period of 2023. Non-GAAP adjusted net income with RMB $434 million compared with RMB $375 million in the same period of 2023. For further financial information, please refer to the earning release on our RR website. Regarding our share repurchase plan, in September 2024, we further extended the period of US $30 million share repurchase program until the end of March In Q3, we repurchased approximately 282,000 ABS. For a total consideration of U.S. $1.3 million, we have approximately U.S. $4.1 million remaining for the potential repurchase and our current U.S. $30 million share repurchase plan. Additionally, in May 2024, we announced a U.S. $20 million share repurchase plan effective until November 30, 2025. Following a tender offer completed in July 2024, four approximately U.S. $9.2 million and U.S. $10.8 million remain available under this plan. Together, these two share repurchase plan programs reflect our commitment to enhancing shareholder value. Now on our business outlook. For Q4 this year, we expect the total loan amount facilitated and originated to be between RMB $30 billion and RMB $31 billion, bringing the total loan amount facilitated and originated for 2024 to be between RMB $102.6 billion and RMB $103.6 billion. 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 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 your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Ramzi Baliktas with Blackbird Capital. Please go ahead.

Hi there. I was wondering if you can update us on the capital return program and if there is a plan as to what it would be relative to the net income of the company, and as well if you could update us on the regulatory landscape. Thank you.

Yeah, we have two repurchase programs, have about 15 million remaining in place, and we are working with one or two big investors regarding the shares repurchase program. If the current program is not enough, we will have a new purchase plan in place to add. Between the two methods, giving the return and the share of the purchase, based on our current share price, we much prefer our share repurchase. That's our plan. But we will continue to do semi-annual dividend payout on a continued basis. That's our plan. I hope by the end of the year you will see, even though we do not give out in terms of percentage out, to return the capital, but at the end of this year, I hope you will see we will do beyond normally the percentage in terms of the capital return. Thank you. I'll attempt to answer the first question.

In terms of the regulatory environment, it is our management view that there is Right now, the regulation has been fairly stable. Normally, the end of the year is not the time for the government to issue some new rules or regulations. At this moment, I would say the environment is fairly stable and we do not expect any significant regulations in our industry. That being said, we have seen that the Chinese government has been fairly active in trying to stimulate the economy to push up the development rate. And we think that will in turn sort of benefit our industry as a whole and basically as we are in this industry. So that's why that we expect that our volume will continue to grow from at this moment.

That's it. Thank you. Thank you.

As a reminder, if you would like to ask a question, please press star then 1 to enter the question queue. The next question comes from Mason Bourne with AWH Capital. Please go ahead.

It's good to see the strong results and appreciate the return of capital. Frank, I think you started sort of alluding to it on the dividend, but I just wanted to Follow up on that. I mean, the stock is trading on this quarter's results. If you annualize them 1.3 times earnings, you're paying out about six and a half percent of your earnings per share as a dividend. It seems like that could be potentially significantly higher. I know you said you're not looking at it as a setting a percentage of income, but if you look at your peers, they're paying somewhere in the low twenties as a percentage. So, you know, it seems like you could pay a lot more and not affect your business. I was just kind of hoping that you would consider that. Do you have any thoughts on that?

You know, we did this year the public buyback, you know, and at least we did a public buyback. You know, we were only able to collect just over about 2 million ADS. We definitely have more money available to do more, except the technical currency exchange issue, but that's not an excuse. We would like to do more in terms of the share of the purchase. Hopefully, you know, lately, you know, whatever, you know, with prices since end of September, the prices from like below $5 up to right now almost $7 will, you know, attract more attention and hopefully there will be more available shares for us to buy back. But we will... In terms of our dividend yield, we will continue, as I told you before, we will continue to pay above the industry and yield. Things like right now, it's after two federal rate cuts, it will be around about 4.5%. We will keep the yield around above 6%. Even as the stock price go up, we will adjust that accordingly. Other than that, I don't know. Public buyback offering, what else we can do? Again, we will continue to do dividend payout at an attractive rate, yield, and also we will do every possible available share buyback. We will do that. And hopefully, in terms of the valuation or whatever, I think that over time it will address by itself. We will continue to focus on the operations. Thank you.

just if I could follow up on that, I, I think that, you know, your peers, I think when you first instituted your dividend, it was about a 10% yield. And now you're right. It's a, it's around five. Um, the difference though, is that your peers, some of them trade at three, four or five times earnings and you're trading at just over one times earnings. And so, uh, yeah, if you can get the buyback done there and you're trading it about a third of your tangible book value, You can get the buyback done. That's great. I just know you've had limits on that in the past. And so maybe the dividend increase could be a way that you sort of help the shares re-rate is that you increase that and then eventually it gets to a 5% dividend deal from share price appreciation. But just some thoughts there. I know that you guys are focused on returning capital and that's been a real positive over the past year. So I'm not knocking it, just having discussions.

You know, just one more thing. You know, in terms of the only, you know, the major issue we face in challenges is our volume is very low, and so we hope with this volume, you know, went up for the last month, so we could do more direct during the open period. That's another thing we definitely will do, and, you know, That's what I say. In every possible way, we will do the maximum in terms of the yield and the share buybacks. And hopefully we will address just the low valuation issue in a short period of time. But we're not willing to talk too much, like our peer, regarding you know, something like next year, so something like that. Because first of all, in terms of operation, we are, for the last year, two or so years, in general, we are kind of in small operation. Nothing, you know, we can point out like a turnaround or big change. You know, as we always do, you know, mainly base our based our operation mainly on the risk level, or definitely on Chinese environment, whether we'll do our best regarding that. But, you know, something else I think, once again, nothing I can say other than just advice for the patient. I think, you know, at least for the last two years, you know, our stock appreciation is, you know, Maybe there's much more, but still going up. I think when I was on board this company, the stock is around $2. Right now it's almost $7. And let's see what's going to be. But we definitely hope the stock price reflects the true value of this company, and we believe eventually it will. Thank you. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Victoria Yu for any closing remarks.

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 is now concluded. Thank you for attending today's presentation. You may now disconnect.