X Financial

Hello and welcome to the ex-financial fourth quarter 2024 earnings conference call. All participants will be in 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 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 Victoria Yu. Please go ahead.

Thank you, Operator. Hello, everyone, and thank you for joining today's call. The company's financial results were released earlier today and are available on our Investor Relations website at ir.shouyingroup.com. On the call today from X Financial are Mr. Kent Lee, President and Mr. Frank Suyajian, Chief Financial Officer. Additionally, we are delighted to welcome Mr. Noah Kaufman to our company. He brings 20 years of experience in growth strategies, corporate and financial transactions, as well as financial and operational improvements in the global financial markets. Before joining X Financial, he served as Head of Strategic Financial Planning and Analysis at the Intercontinental Exchange, where he played a key role in capital allocation and global business strategies. Mr. Kaufman will be responsible for leading our engagement with the U.S. capital markets, including investor relations and strategic financing initiatives. Mr. Lee will provide a brief overview of our operations and business highlights. followed by Mr. Jin, who will review the financial results. Afterwards, Mr. Lee, Mr. Jin, and Mr. Kaufman will be 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 These are management's current expectations and involve knowing and unknowing risks, uncertainties, and other factors. These factors are difficult to predict, and many are beyond the company's control, which may cause actual results, performance, or achievements to differ materially from those described in these statements. Further information on these and other risks can be found in our SEC findings. The company undertakes no obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required by law. It's now my pleasure to introduce Mr. Kent Li.

Thank you, Victoria, and hello everyone. We are very pleased to conclude the year with outstanding operational and financial results in the fourth quarter. Total loan volumes exceeded our guidance with RMB 32 billion facilitated in Q4 amounts, a 24% year-over-year increase for the quarter. For the full year, total loan volumes reached RMB 104.9 billion, reflecting a stable performance compared to 2023. This growth was fueled by disciplined underwriting, strengthened asset quality, positive macroeconomic tailwinds that supported borrower demand and lower funding costs. In the second half of 2024, China's government implemented monetary and fiscal stimulus measures aimed at stabilizing core economic sectors, notably real estate, and enhancing market liquidity. These policies lowered the funding costs and fostered healthy borrower demand in the personal finance market. As a result, we saw meaningful revenue and profitability growth, with Q4 net income more than doubling year over year. Strong asset quality performance. Asset quality continued to strengthen significantly throughout the year. At the end of Q4, the delinquency rate for loans overdue by 31 to 60 days improved to 1.17%. from 1.57% a year ago. The 91 to 108 days overdue delinquency rate declined to 2.48% from 3.12% last year. These improvements reflect the effective risk management practices and the discipline underwriting standards. 2025 outlook and growth strategy. Looking ahead into 2025, The Chinese government has reiterated the importance of the private sector as a key driver of economic innovation and sustainable growth. Recent regulatory guidance from the National Financial Regulatory Administration, NFRA, further reinforces this stance, with policies aimed at expanding access to consumer credit, lowering borrowing costs, and supporting consumption-driven economic growth. While this development created a more accommodative environment for financial institutions, our primary focus remains on leveraging technology to enhance financial services efficiency. Through AI-powered risk analytics, automated underwriting models, and embedded FinTech solutions, we continue to empower our financial institutional partners in optimizing loan origination, creative risk management, and borrower engagement. ensuring they can navigate this involving regulatory landscape with precision and agility. Accordingly, we expect total loan volumes to increase by approximately 30% for the full year of 2025, supported by both organic demand and a more stable regulatory environment. Despite the usual seasonal impact of the Chinese New Year, We anticipate sequential growth in total loan volume in Q1, 2025, as digital financial solutions become increasingly integral to expanding responsible credit access while maintaining discipline in risk management. Strategic AI investments. At Xfinancial, we continue to expand our strategic investments in AI, leveraging cutting-edge models such as DeepSeek, Alibaba's Tongyi Qianwen, and the bystands across our operations. AI now powers advanced customer service robots, intelligent agent assistance, targeted marketing campaigns, including AI-generated short videos for platforms like TikTok, streamlined early-stage collection efforts, significantly enhanced efficiency and customer engagement. In software development, we have implemented AI-driven auto-coding tools, such as Cursor, accelerating development and system optimization. Additionally, our multi-model AI risk management system delivers over 95% accuracy through sophisticated contextual analysis and advanced image recognition technologies to identify early indicators of credit risk. Looking ahead, we remain committed to further integrate AI into our strategic decision-making process, particularly in risk modeling and credit policy. to continue enhancing operational effectiveness and customer experience. With that, I will now pass the call to our CFO, Frank Jin, for detailed financial results.

Thank you, Ken. Good morning, everyone. We are pleased to report strong financial results for the fourth quarter. The total net revenue increased 43% year-over-year to RMB $1.7 billion. The net income grew 104% year-over-year to RMB 386 million. Throughout the year, our top and bottom lines expanded quarter-over-quarter, bringing full-year total net revenue to a record RMB 5.9 billion, full-year net income to RMB 1.5 billion, strong balance sheet and capital returns. Our balance sheet remains strong, with total shareholder equity at the year end increased by 19% year over year. Leveraging this solid financial foundation, we returned approximately US $76 million to shareholders in 2024, including US $6.5 million in cash dividends, US $9.2 million in our tender offer, and US 50.3 million invested in share repurchase. Dividend announcements. Additionally, our Board of Directors has approved the evacuation and payment of a semi-annual dividend of US $0.25 per ADS. Reinforce our commitment to delivering shareholder value. Share repurchase program. In Q4, we repurchased 38.4 million Class A ordinary shares, while the current 6.4 million ADS for U.S. 49 million. For full year 2024, total repurchase reached 52.2 million shares with 50.5 million in ADS form, amounting to U.S. 59.4 million. As of today, our previous U.S. $30 million and U.S. $20 million repurchase plans are fully utilized. We have U.S. $15.9 million remaining in our U.S. $15 million repurchase program, effectively through June 30, 2026. 2025 outlook. Looking ahead, we remain optimistic about our growth For the first quarter of 2025, we expect the total loan amount facilitated and originated to be between RMB $33.5 billion and RMB $34.5 billion. These positions position us to achieve a full-year total loan amount facilitated and originated between RMB $134.4 billion and RMB 138.4 billion. Closing remarks. As we progress to 2025, we remain confident in our strategic direction supported by robust underwriting standards, disciplined risk management, operational efficiency improvements with a strong financial foundation, disciplined capital allocation, and a clear commitment to enhancing Shareholder value, we are well positioned for sustainable and profitable growth. Thank you for our shareholders, partners, and especially our dedicated employees at X Financial. We appreciate your trust and support as we execute on our strategy and driving long-term value creation. We look forward to delivering continued growth and success in the quarters ahead.

Okay, operator, we can transfer to the Q&A session now. Thank you. 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 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Renzi Manner with Blackbird Capital. Please go ahead.

Hello. Congratulations, guys, on a great quarter and happy to be a shareholder. My question is, during the fourth quarter, the company repurchased approximately 6.4 million ADSs on December 16th. However, the share count on the financial report as of December 31st does not fully reflect the reduction. So I'm not sure if this is an accounting discrepancy, and if you could clarify that, that would just be better for me. Thank you.

I'd be happy to answer your question. Since we bought that share back in the last quarter of 2024, but the share count calculation is based on weight average. So, you know, say you own that share in 2024, amount 300 days, you know, out of this 365 days, so that share count is still, you know, will be count for 300 days. So the share count calculation is way average. That is why you do not see that big reduction in the year end, because it's way average. So in 25, you will see those shares totally disappear from the share count. I hope I answered your question.

Absolutely. Thank you. Yes.

The next question is from Mason Byrne with AWS Capital. Please go ahead.

Hi, thanks for taking the questions. I guess just to start, it sounds like you have someone new who's joined the company who's on the call. Could you just talk about that a little bit, please, in his role?

Well, why don't we ask Noah to tell you himself?

Yes, Noah, could you answer that question by yourself?

Yeah, sure. Yeah, good morning and evening, everyone, and thanks, Mason, for the question. Yeah, I'm excited to be here and to officially join X Financial. I'd also like to thank Victoria for the introduction and express appreciation to Ken and Frank for their entire leadership. From my early conversations with the team, I was deeply impressed with the strategic vision of the team and the foundation they built. Ex-financial sustained profitability and growth speak for themselves, and I look forward to playing a role in strengthening that. My focus is going to be on deepening our engagement with U.S. capital markets. I'm sure, Mason, I'll be speaking to you in the near future, and enhancing investor relations, driving strategic financial initiatives, and I'll be working closely with the leadership team to optimize the financial strategy and capital allocation and ensuring the continued delivering of long-term value for shareholders.

Great. Well, welcome to the company. I had a couple more. Just to start, it sounds like pretty strong loan volume growth is expected for 2025. Could you just talk about drivers behind that and how you expect that to impact profitability this year?

Sure, I'll take that question. The reason that we forecast a 30% increase in terms of the known volume really is coming from the two strengths that we are creating in the past year. The first one is the way that we are able to reach better and more customers by ourselves. This obviously has always been the key focus of our acquisition strategy. The second part is that also in 2024 and actually continuing into 2025, that we are able to partner with more partners, more platforms, that based on our track record, they are more willing to cooperate with us, so basically open a new acquisition channel for the company. That's why combined with the two strengths that we foresee a fairly good increase in our loan volume.

Mason, did I ask you another question? If I'm missing some part, if you repeat that, I will answer for you.

Oh, yeah, just the last part of it. I was asking how you expect the loan volume growth to translate to profitability this year, if there's any large items to think about.

Yes, I will mention that. Even though that we don't give the forecast of the profitability, but for our company as a whole, that we always focus, I think our number one focus has always been the profit. So, not guaranteeing anything, but we think that our profit will be increasing at the same pace as our volume.

Mason, if you're looking And our basically have almost the same volume as 24 and 23, just also a little bit down, a few billion or something like that. But our profit increase is almost 300 million RMB net income. And the reason is mainly just by two factors. One is, if you remember back in 2004, and the beginning of 2004, the risk level for our sector, our industry, is at the highest level. We are managing from that risk level, on a quarterly basis, always manage to lower that critical risk. That's why we have more profitable than originally much thought. Another big factor is the funding cost. If the funding cost is down on a yearly basis in 24, it's down more than 2%. Looking to 2025, the trend is more or less the same. The funding cost probably not going to lower, but more or less remain in the low level as current, not right now. And the risk-effect profile also more or less remains the same. But also, visibility may be short, maybe one quarter or two quarter. We cannot guarantee the full year, but that's basically the situation right now. So as far as the situation based on current situation, we are very confident in which very meaningful growth both in volume and probability in 2025. Thank you.

That's very helpful. Thank you. Last thing from me, really appreciate the capital return to shareholders both through dividends and buybacks. You're still fairly low on the dividend even after the raise as a portion of net income, but I know you're returning a lot through buyback activity. Just wondered how you think about capital allocation priorities going forward, whether you continue to expect more on the buyback or if you would maybe lean into the dividend more. That's all, thanks.

Yeah, Mason, I thought you would ask this question. I'm ready for you. You see, you know, when we introduced the dividend, like, you know, 70 cents, 70 annually and 34 cents a year, At that time, our stock had been around about three, four dollar range for several years. We paid like 34 cents for less than four dollar stock price. Basically, we tried to tell all the investors and potential investors, say, if you buy our stock, we pay you more than you can get from short-term U.S. Treasuries. And we definitely don't know when the stock price will appreciate. But in case you start appreciating, you will have a double gain and double sweep, something like that. But since last end of September, because Chinese government policy change, and the stock price basically from around $5 to up to $8. Then after the major event happened, excited by deep sea, and the whole Chinese asset, especially technology, all revalued at the time. suddenly, for no particular reason besides the deep sea, now all the concern of the main issue, which are kept our Chinese stock at a very low level, are all being blown away. I don't know, but that's what happened. Based on this situation change, we want to give the stock Since last September, our stock is up almost more than 2%. We want to give them extra kick, which means we want to put more weight on stock buyback, a little less on dividend payout. You see, in 2024, in combination of the both, we pay out 76 million US. and we hope we can accomplish even more percentage. 34% is about, you know, over 30% payout for economic earning, economic percent of earnings for 2024. And 25, we hope we have a bigger payout, you know, combination of both, but more weight on shared assets. And I think I think even though our stock has been appreciated 200%, our stock still is very, very cheap. I just give you one number, and you see on 24, our earning per share in US dollar is $4.83, and our stock is based right now, what, $0.30 or $13, something like that, and you can challenge anyone who have around $4, $5 range earning per share, you're not going to find much stock in the U.S. for all sectors below 100. We believe our stock still has a long way to go, so we will have more emphasized share shared by that in 2025. I hope I answered your question.

Thank you. That's great. Thank you.

Again, if you have a question, please press star and 1. 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 today. If you have additional questions, please reach out to our investor relations team directly. We appreciate your interest and look forward to speaking with you again. Operator, back to you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.