This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good day and thank you for standing by. Welcome to the year-end digital third quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised this conference has been recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to our first speaker today, Ms. Kai Wu-Hee. Please go ahead. Thank you.
spk04: Thank you, operator. Good evening, everyone. Today's call features a presentation by the founder, chairman, and CEO of CreditEase, and our CEO, Ms. Lin Chang, and our CFO, Ms. Lan Mei, Ms. Xiao Sheng, our SVP, Ms. George Liu, our CRO, and Mr. Raymond Fung, CEO of Yearwell. We'll also join the presenters in the Q&A section. If we're beginning, we'd like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Security Delegation Reform Act of 1995. Such statements accept the risks, uncertainties, and factors that can cause actual results to differ materially from those contained in any such statement. Certain information regarding potential risks, uncertainties, or factors is included in our filing with the U.S. Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements as required under relevant law. During the call, we will be referring to certain non-GAAP financial measures and supplemental measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the U.S. GAAP. For information about those non-GAAP-type financial measures or reconciliation to GAAP measures, please refer to our earnings press release. I will now pass it over to Ning for opening remarks.
spk05: Hello, everyone. Thank you for joining us today. We are delighted to announce a solid quarter with visible increase in profitability and a healthy growth in business scale amid a muted macro environment. At the beginning, I would like to reiterate our strategic positionings as a user-centric personal digital financial management platform as our business models continue to integrate and expand. In the third quarter, we saw growing interactions and synergies between business lines. For example, the total number of investors who purchased He Xiang's long-term insurance products on Yiren Wealth platform this quarter increased by 37% compared with the second quarter this year, while the number of borrowers cumulatively served with our insurance products as of September 30th grew 33% compared with the end of last quarter. So by personal digital financial management, we mean to serve our customers in the long run and meet their comprehensive financial management needs including liquidity management, income generation, financial protection, and value enhancement, which corresponds to our credit tax and wealth management services. Now, I will go through our business updates on wealth management first. As of September 30th, 2021, total client assets exceeded RMB 17.4 billion, representing a 19% growth from last quarter and about 250% growth from prior year. Total number of active investors grew 11% quarterly to about 428,000. More specifically, on Eden Wealth Platform, we saw accelerated growth in both new investors as well as average client assets. due to our precise targeting acquisition strategy and optimize the services and products. In the third quarter, the number of new investors on the platform reached nearly 10,000, representing a 33% increase quarter over quarter, excluding insurance products. Average client assets per investor reached RMB 259,000 representing a 125% annual growth. Particularly, the number of investors with client assets over RMB 500,000 grew almost three times compared with last year, and the trend continues going into the fourth quarter, a clear reflection of our enhanced capabilities to serve a higher segment of our investor spectrum. Moreover, As our investor education further penetrates and the concept of balanced asset allocation is becoming increasingly accepted, the number of investors holding at least two different asset classes on Eden Wealth platform grew 168% year over year. Talking about precise targeting acquisition strategy, our Finance Plus Life initiative is worth mentioning. Through years of operation, we found common needs in our investors in four specific scenarios, namely health and sports, study and self-improvement, lifestyle and leisure, child education, and parenting. To better serve our investors and target these common needs, we recently started to offer selective live services and products tailor-made to investors. These non-financial services are proven effective to both attract new investors and to enhance our existing users' LTV. Through finance-plus-life strategies, we are building up a broader even wealth community consisted of high-quality users who have the common pursuit for better wealth, better self, and a more positive life spirit, which is translating into comprehensive growth in Yiren Wealth, and we expect more promising results to come in the following quarters. Next, onto our Hejiang Insurance Brokerage business. We are pleased to deliver a better than expected growth this quarter. Hejiang contributed RMB 735 million in total premiums, up 29% quarter over quarter, and its commission revenue reached RMB 199 million, up 31% compared with last quarter and up 95% from prior year. In the beginning of November, He Xiang had already completed our full year internal target in both premium and revenue. He Xiang is positioned as a national comprehensive customized insurance service provider and it stands out in its strong capabilities in product innovation and customization. For instance, this innovative annuity product launched in May enjoyed an immediate popularity with premium of RMB 285 million as of end of third quarter. Moreover, He Xiang's high standard services also gained market recognition. In the third quarter, long-term insurance renewal rate stood at 98%, much higher than the common industry standard of 85%. Moreover, He Xiang's unique 2B2C business model has proven effective in market expansion. By working with 2B channels with a considerable customer base, He Xiang has embedded their tailor-made insurance products into these 2B platforms and scenarios. This is a win-win solution for both He Xiang and our channel partners. For He Xiang, we have effectively acquired consumers at minimal cost, while for business channel partners, we help them realize additional revenue streams and enhance their customers' LTV. He Xiang is currently operating with over 100 insurers and brokers nationwide, offering more than 510 products. With new products going to hit the shelf in the coming days, we expect a further growth in the quarters to come. Now, I will outline some highlights for our credit business. In the third quarter, our total loan facilitation volume maintained a strong growth trajectory, reaching R&B $6.8 billion for the quarter, representing an increase of 30% quarter over quarter and 117% year over year. Total number of borrowers served this quarter was 548,000, increasing 26% from prior quarter. On loan products, Yixianghua, our small revolving loan products, witnessed a continued rapid growth and a clear increase in borrower base due to our enhanced digital operating capabilities and improved servicing standards. In the third quarter, loan volume of Yixianghua stood at RMB 3.4 billion, accounting for close to 50% of total loan volume and representing almost five times growth compared with prior year. Meanwhile, Monthly active users on our Yixianghua app reached 1.1 million as of September 30th, jumping 82% quarter over quarter. Further increase in customer activity is expected as we start to embed more diversified consumption scenarios on the platform and scale up our own traffic pool. Moreover, As our repeat borrowing rate continues to rise and our consumption traffic base starts to convert into new loans, sales, we have managed to keep our customer acquisition costs at a low level, translating into healthy product unit economics. Furthermore, I want to share with you our progress on SME loans. which we started to focus on in the second half of this year. We are pleased to see robust growth in SME loan business, with its volume increasing by over 400% quarter over quarter, now accounting for 25% of total loan volume. It's worth mentioning that small and medium enterprise loans are priced under 24% APR. And as we are on the full swing to dive into this SME market, we expect the SME loan volume continues to grow in the coming quarters, further optimizing our product mix and paving the way for us to accomplish compliance transition. And talking about compliance, APR cap requirement, we have been executing three concrete strategies to ensure effective transitioning while maintaining profitability. First, like I just mentioned above, we are scaling up SME loans to better support real economy and to respond to regulatory direction. Second, we have been proactively offering lower price revolving loans to our existing customers with higher credit quality. Thirdly, we have been improving our customer mix and acquiring new customers with better credit performance through our diversified online conception scenarios. Through the combination of these three efficient strategies, we are very confident to be able to complete our progressive adjustment by the second quarter next year. Moreover, for the new guidelines related to credit scoring, we have been in close communication with regulators and are exploring different options to ensure our compliance. So far, we have already signed an agreement with the licensed credit rating agency and we are in the stage of testing detailed cooperation models which will take some time due to the complexities surrounding operational flow as well as tech capabilities. We expect to finish the connection within the guided space grace period and the relevant costs will be manageable. We will continue to pay close attention to regulatory guidance as well as industry standards, and make timely adjustments as needed. Last but not least, as we refine our risk management systems and enhance our asset quality, our 15 to 89 days delinquency rate remained low at 2.4%, and we expect our credit performance to remain stable during the transition. and to experience an overall improvement in the long run as we continue to optimize our customer mix. Going forward, we will continue our efforts to drive up our business scale and create stronger synergies, not only within our wealth management ecosystem, but also within the whole year-end digital ecosystem. Meanwhile, as our investors are showing growing demand for higher investable amounts, we will serve them with more diversified products with bigger ticket size, further driving up our profitability. Additionally, as our credit tax business continues to move toward higher quality customer segments, there will be growing synergies and overlap between credit and wealth management businesses in the long run. Now, I will pass it on to Nas. who will provide this quarter's financial update.
spk03: Thank you, Ning. Dear analysts and investors, good evening. For this quarter's financial update, I will focus on key financial highlights only. For further details for our financial performers, you can refer to the detailed financial results in our earnings release and desk that has been posted on our IR website. I'm very happy to share with you another solid quarter. with strong growth achieved gross revenue, profit, and a transaction volume on a year-on-year basis. As we continue this strong consumer demand for our financial management service, total revenue in the third quarter was RMB 1.2 billion, increased 20% year-over-year. This quarter, revenue from wealth management service accounted for close to 30% of our total revenue, becoming a significant revenue driver. On the credit side, Total loan facility this quarter was RMB 6.8 million, up 117% year-over-year, and the revenue from loan facilitation service increased 48% from prior year accordingly. Loan facilitation revenue take rate declined year-on-year due to shifts to the shorter-lanter loan products as well as due to price cuts as we adjust our loan portfolio to below APR 24%. Q3. Operating expense decreased by 10% year-on-year to RMB 0.8 million. Sales and marketing expense decreased by 15% from private year to RMB 407 million, joined by increased consumer acquisition efficiency. Our original and service expense decreased 22% from private year to RMB 187 million, mainly due to the input collection efficiency. Allowance will come to assets receivable and others with RMB 83.6 million this quarter, equivalent to 1.2% of loan volume as compared to 1.8% last quarter. The decline was largely joined by improved assets quality as the change of products makes. Net income grew three times year-on-year to RMB 0.3 billion, reflecting a net income margin of 26%. mainly due to our continued efforts across control and increasing operating efficiency. Despite planning APR costs in our loan pricing, we also have confidence in being able to maintain health growth and profitability in the transitional year of 2022 and resume to a more robust profitability growth upwards. Turning to our balance sheet, we ended the quarter with RMB 2.3 billion cash and cash equivalent, up 6% from prior quarter. leave us with sufficient resilience to seize any new opportunity. This concludes our close remarks. Operator, now we are open for questions.
spk04: Hello, operator. We are open for Q&A session, please. Thank you.
spk00: Certainly. Participants who wish to ask a question please press star 1 on your telephone and wait for your name to be announced. If you would like to withdraw a question, please press the pound or hash key. It's star followed by 1 to ask your question. Thank you. Your first question comes from the line of Boyd Hinge from Equinox Capital. Please go ahead.
spk01: Hi. Thank you for taking my questions. Good evening and a very nice quarter. I have a number of questions. What was the APR for loans initiated in the quarter, and what was the average loan tenor?
spk03: Hello, this is Ma. I will ask you a question. Our average, the tenor of the loan is about 20 months. But we suppose, in line with our product, the tenor will be sheltered to about 10 to 12 months by the year of the end. And our total, the 24% APR account found about 30% in the quarter, this quarter, and we're supposed to about 50% by the year of the end.
spk01: Okay, and can you discuss how your business has been progressing so far in the fourth quarter? I see that you did not provide much guidance for that. You did say that the economy has been muted. So if you could discuss that, that would be great. Thanks.
spk03: Yeah, as you mentioned, there's no, for our regulation cap, this is not the timeline of this year. But as you mentioned, our CEO input script you can notice that our SME loan is increased very significant. In last year, there's only below the 1% for the SME loan, but for this quarter, it will come for about 24%. And actually, for all of our SME loan, its price is below the 24%, even below the 18%. So we think that in line with the portion of the SME loan increased, the APR is much lower and lower by the end. And another reason is that we think our purpose is to pay attention to our client quality. I think that will much collect the more risk assessment. And I think that with our risk better, we should activity to lower our price to collect more risk clients. So we think that we can increase our APR 2014 potential. But as I mentioned, the regular dollar is the best year. So we will focus on the regulation improvement and we'll adjust our strategy plan if that's that. So that's all, yeah.
spk01: So given that the competition for higher quality borrowers is increasing, can you, and also with the interest rate cap kicking in additionally, can you talk about what your outlook is for pre-tax or operating margins given those pressures?
spk03: Yeah, for our current cost revenue, it's about 20%. And our acquisition cost is 2% or 3%. Our operating cost is 1% to 3%. And we hope that all our operating costs will be decreased about 1% or 2% in our first quarter. And we will also enhance our cost efficiency in the next year. I think this is another driver for our profitability.
spk01: Just last question, and this is about a possible share repurchase or dividend. Do you have cash that's offshore that could be used right now to repurchase shares, given that the ADS is trading well below book value and at very, very low valuations? It must be... It just would seem to make a lot of sense here to start aggressively repurchasing shares. Thank you.
spk03: Yeah, I can suggest something, and if there's something as a supplementation, we can for our CEO. Yeah, as you mentioned, we have kept the deposits about 2.3 billion on hand. However, our marketing value is much lower than our catch, so as common sense, we should repurchase our share. Actually, in the second quarter after our year, we have a performance on a little more repurchase share in the marketing. But for considering our future business strategy, I think there is still many uncertainty for our business. We should keep some of the enough cash back on our hands for our future business development. Of course, as you mentioned, we're still in internal discuss about any other strategies such as the report on our share or pay the dividend. But I think that the first of our to keep our strategy and pick our performance to development. So I think, considering the uncertainty, we think we have to keep our efficient tax deposits. But we have some plans about your suggestions. Thank you.
spk01: Okay, great. Thank you very much, and good luck in the coming year.
spk00: Thank you. Once again, participants, if you wish to ask a question, please press star 1 on your telephone. Your next question comes from the line of Alan Young from GoldDragon. Please go ahead.
spk02: Thanks, and congratulations on the good results. We've discussed the topic about the shift to lower pricing earlier. Can you elaborate a little bit more on the pace of pricing shift towards 2024 in 2022? I know we're targeting around 50%. 24% loans by the year end. And the second question is, what is the tick rate outlook in 2022 as we complete the shift of pricing? And how do we arrive at such tick rates, for example, credit, funding? Yeah, thanks.
spk03: Yeah, thank you. This will now answer your question. For the first question, the piece of lower APR pricing, actually, as I mentioned in the previous question, we're performing some reclamation from the current pricing to the 24%. You also mentioned that currently our gross revenue is about 20%. And for the 24-price capital, we still have confidence in our product probability, considering the better asset quality, lower fund cost, lower acquisition cost, coupon operating cost savings. For example, compared to the 20% gross revenue currently, 24% capitalized gross revenue rating will increase about 4% to 5%. But to also impact the risk, the funding cost and our acquisition cost will decrease to 3%, 1%, and 1% respectively. So that we still have the confidence that the net revenue margin will still keep the stable, yeah, compared now, yeah. Can I answer your question?
spk05: Yes, thanks very much. Yes, and this is Ning. I'd like to add that, you know, our business model, is quite differentiated. Yeah, we have a credit tax business. We also have insurance and the wealth management business, which is a significant part of our revenue and, yeah, value. And my sense is it's really like a much safer business model. We talked about regulatory uncertainty and so on. My view is the monoline business is very risky in such an uncertain environment. But you can think of us as a kind of three pillars. So much more stable. And the good thing is... As far as I can see, each business line represents a very big market opportunity growing very fast with high quality. So I think that's a really differentiated strategy. And we don't do these three things just for the sake of doing more things. It's because there is strong synergy among the businesses, yeah, between credit tech and wealth management and insurance. So as I highlighted in the first part of my presentation, yeah, this synergy is becoming more and more obvious. Yeah. Uh, all that makes our customer acquisition cost, uh, relatively speaking, uh, probably, you know, the lowest. Yeah. And, um, the RTB, uh, the highest. Yeah. I think, um, uh, that's how, uh, my colleagues and I, uh, look at, uh, our business.
spk02: Thank you. Thank you so much for this comprehensive, um, insight. And, uh, uh, One more question is on the funding side about our funding strategy as we shift to lower APR. What will be that about funding sources?
spk05: We continue to work with the institutions. Yeah, knock and please. Yeah.
spk03: Okay, sorry. Yeah, I think, as I mentioned that, I think with our climb, the quality is better for the 24%. We think that there's still significant space for our funding to decrease. In 2021, our main funding partner is including banking, trust, microfinance companies, and financial aid companies. And with the polls, we will get more relationship with our funding pastor. And with the polls, there were about one or two at least percent to lower for our funding. Yeah.
spk02: Thanks very much. That's all from my side. Thanks.
spk00: Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone. If there are no further questions at this point of time, this concludes our conference for today. Thank you all for participating. You may all disconnect now. Thank you, everybody joining.
Disclaimer