Yiren Digital Ltd.

Thank you for standing by and welcome to the year-end digital fourth quarter and fiscal year 2022 earnings conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. At this time, I'd like to turn the conference call over to Keao, Investor Relations Officer. Please go ahead.

Thank you, Rebecca. Good morning and good evening, everyone. Today's call features the presentation by the founder, chairman, and CEO of Credit East, our CEO, Ms. Ming Tang, and our CFO, Ms. Na Mei, our FTP, Ms. Mei Zhao. Meanwhile, our FTP, Ms. Xiao Shang, and our head of consumer finance business, Edward Wong, will join the presenters in the Q&A session. Before beginning, we would like to remind you The discussions during this call contain forward-looking statements made under the Safe Harbor Provision for U.S. Private Securities Litigation Reform Act of 1995. Such statements accepted risks, uncertainties, and factors that encode actual results to differ materially from those contained in any such statement. Further information regarding particular risks, uncertainties, or factors is included in our filings with U.S. Exchange and with the U.S. Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements as required under this 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 measures and reconciliations to GAAP measures, please refer to our earnings press release. I will now pass it to me for opening remarks.

Thank you all for joining our conference call today. We are pleased to deliver an impressive quarter with robust growth in both revenue and profitability, making the full success of our business restructuring and product optimization. despite the volatility of external environment amid the COVID resurgence. Now, as the macroeconomy starts to recover post-COVID and the industry is heading to a more positive direction, we are looking to an accelerated growth of our business. First, an update on our holistic wealth business. As we previously projected, our insurance brokerage business continued in strong momentum in the fourth quarter, 2022. Total premium reached more than RMB 1.3 billion, representing 34% increase quarter over quarter and over 50% growth year on year. For the full year of 2022, Our total premium increased by 61% to approximately RMB 4 billion, significantly outperforming the industry average of 4.6% annual growth rate. What's behind this rapid growth is our strategy in product innovation and customization, as well as operational upgrades. on product innovation. He Xiang has been strengthening cooperation with corporate partners and insurers, and making great efforts to better serve individual and institutional clients through a growing number of diversified products. For example, in order to meet our clients' needs for better financial protection as well as higher investment returns, We started to work with the only mutualized insurance company in China and launched the three tailor-made products for our high network clients months ago, which are rarely seen in the Chinese market with limited penetration. The products have been proven an immediate success right after our launch. In the fourth quarter alone, those three products contributed more than RMB 200 million premium, and the number is still growing. Also, as for our customized exclusive whole life insurance product, Yi Mai Xiang Chuan, that we mentioned last quarter, the premium saw a quarterly increase of 68% to close to RMB 100 million, reflecting its high popularity among our clients. Another example from our property insurance products. As China's outbound investment and construction businesses expand at a fast pace, the demand for relevant insurance protection is on the rise. Leveraging our advantages in product development and rich resources within our business ecosystem, Hejiang started to offer overseas construction insurance services. in the third quarter last year, which had brought in approximately RMB 40 million premium with large ticket size policies as of the end of last year and is expected to post continued solid growth in the year of 2023. As of December 31st, 2022, He Xiang Insurance Brokers had established approximately 40 offline branches nationwide and offered over 840 insurance products from more than 100 insurers. Some of our well-known partners include Taichung Life Insurance, AIA, Aviva, Costco, Life Insurance, et cetera, just to name a few. Moreover, on operational upgrades, we have been improving our service quality and building up our elite agent team since last year. Currently, 10% of our agents in Hejiang are members of MDRT, an independent association of the world's leading life insurance and financial services professionals. And the proportion is much higher than the industry average of 0.2% in China. In October and November last year, the financial regulators issued new rules on life insurance industry, including the regulated cap on commission fee rate and investment returns. The actual impact on our business is manageable, and we have already optimized our product offerings and selections. in response to the regulatory directions to ensure 100% compliance. So due to the product mix adjustment, our revenue generated from insurance business in the fourth quarter showed a slower growth compared to the quick run-up of our premiums. We believe that the new regulation benefits us in the market competition, given He Xiang's rich and diversified product lines that cover both life and property insurance and both 2B and 2C businesses. Now, moving on to our super app wealth platform, Yiren Select. In order to better serve our mass affluent clients in a comprehensive manner, Yiren Select has put more effort to provide customized products and services in the areas of healthcare and beauty, education and study, lifestyle and luxury, which enhance our client engagement and help drive up our new client acquisition efficiencies. In the year 2022, the number of our clients who made a transaction on event select or through our institutional partners saw an increase of 88% year on year. Looking into our holistic wealth business, total client assets reached more than RMB 23 billion as of December 31st, 2022, representing an increase of 21% compared to the end of 2021. Going forward, we expect to continue our high-quality growth with competitive profitability as we continue to optimize our products and operations, focusing more efforts on our core business with higher values and seizing new market opportunities. Meanwhile, as the synergies within Eden Digital's different business lines keep growing, operational efficiencies are expected to further improve. With the macro economy recovering and the domestic consumption rebounding, we expect a healthier business expansion in the year 2023. Now, I will pass it to Mayne, who will go through the highlights of our credit tech business for the fourth quarter.

Thanks, Ming, and hello, everyone. Now, I will give you an update on our credit tech business. In the fourth quarter of 2022, Our two total loan volume reached the RMB 6.8 billion, representing an 8% increase quarter over quarter despite the COVID surgery and the inflection peak post-op reopening in November and December. The momentum is mainly driven by our consumer loan business, i.e., our small revolving loan product, Yixianghua, In this quarter, our small revolving loan took close to 80% of our total loan volume, compared to 65% in the same period of the 2021, reflecting a vivid transition of our product mix upon the completion of the business structure. Loan facilitation of our small revolving loan products reached the RMB 5.3 billion this quarter, showing a 15% quarter increase and 32% annual growth. As our domestic consumption starts to recover, we expect the momentum to continue in the coming quarters. One highlight I would like to mention regarding this rapid growth in our strategy to optimize customer acquisition and traffic operation. Instead of relying on our traffic platform partners, we have been expanding our own traffic channels and consistently accumulate our traffic tools. In our fourth quarter of the 2022, nearly 90% of the new customer traffic comes from our own channels, either via our social media platforms, application markets or our online campaigns. Meanwhile, we have also set up a membership system with exclusive and diversified benefits to increase our customer's thickness and engagement. Through our continued efforts, the number our borrowers served in the fourth quarter enjoying an increase of 39% year-on-year, and MAU raised $2 million on our Yixianghua platform. Consequently, our acquisition costs per user see a visible declining trend, translating into a healthier UE. As for our SME loan business, We're tightening our risk control policies and proactively constrained in the growth of the maintenance, the overall product mix, and access quality with the proper level and current macro situation. Meanwhile, we also note that a sizable proportion of our existing clients on Yi Xianghua platform as more or meaning business owners with high quality credit records. Therefore, we start to offer those customers with the fastest track online loan facilitation services to Yixianghua since December last year. Which further help to cut down our acquisition cost. We will adjust our product mix dynamically, dramatically in accordance to a recovered piece of the business activities. On the funding front, as the number of our funding partners continue to grow and the liquidity in the market improves, we expect a further decline in our funding costs in the year of 2023. Last, but not least, On the assets quality, due to the COVID situation, our delinquency rate showed a slight volatility in the fourth quarter with the FTB 30-plus delinquency rate reaching 0.67% before recovering to a historical low level in February 2023. Early indicators have shown our assets' quality continues to improve as our collection ratio increases and the borrower's capability of repayment recovers. With that, I will now pass it on to Na, who will go through the financials for this quarter.

Thanks, Mei, and hello, everyone. For the first quarter of 2022, were able to deliver a strong quarter with both top and bottom lines, realizing a true digital growth and is a year strong. Now, I will focus on key financial highlights, and please refer to our earnings list and IR desk for detailed further. In the first quarter of 2022, total revenue reached RMB 1.1 billion, representing a 29% increase quarter-over-quarter and a 7% year-over-year. due to our rapid growth in scale. Revenue for holistic wealth management increased by 9% quarter to $320 million, accounting for about 29% of our total revenue, presenting a balanced and stable revenue structure. On the quality side, total loan facilities this quarter was $6.8 billion, showing a 10% annual growth joined by our green power base and a strong demand of our small and early loan products as may just touch on. Revenue from credit tax storage stood under RMB $639 million this quarter, increased by about 30% quarter-over-quarter and 4% year-over-year. To realize our mission of financial inclusion and in line with regular directives, currently our average borrow rate is kept around 24%. Given the current momentum of our credit tax business, This portrays a further two-digit growth in low facilitation in the year of 2023. On its past set, we are pleased to see a concrete decline trend quarter by quarter as we finish business transition and continue to optimize our cost structure. Our total operating expense was RMB 456 million this quarter, decreased by 34% compared with the fourth quarter last year. Sales and marketing expense decreased by 56% to RMB $103 million from the sale period last year, due to our optimization of our offline business and the improvement of acquisition efficiency. Our service and other operating costs decreased by 2% year-over-year to RMB $212 million, which largely remains stable. G&A expense decreased by 29% year-over-year to RMB $85 million, As we continue in our entire digital operation, which lies to the cost savings for our supporting departments, despite the rate of loan volume, allowances for our cultural assets receivable and others slightly increased by only 7% year-over-year to RMB 59 million due to our organization or our product needs. Going on to our bottom line, we deliver a strong profit of RMB 485 million this quarter. increased by a significant 49.7% year-over-year and 18% quarter-over-quarter. In the full year 2022, total net profit reached RMB 1.2 billion, making an increase of 16% compared to the profit year despite the impact from the close of offline business line that leads to a deepening full-year revenue. Now, profit margin climbed to 35% in 2022 from 23% in 2021. A widely refraction of our full efforts optimize our unit income where business transition and the control cost. Turning to our balance sheet, we're making a substantial balance sheet with RMB 6 million in total shareholders' equity as of December 31st, 2022, increased by 25% compared to as of December 31st, 2021. Meanwhile, our cash position grew stronger with useful cash, which will be 5.2 billion an 11% increase compared to the end of last quarter. It is a solid foundation for us to expand our business and set up new opportunities in our future. Looking forward, based on the assessment of our business and marketing conditions, we expect our 2023 full-year revenue to stand between RMB 6.3 billion to RMB 4 billion, with net profit margin expected to remain stable. This is the company's current and preliminary bill, which is subject to change and uncertainty. With that, we conclude our close remarks. Operator, we are now open for questions. Thank you.

Ladies and gentlemen, at this time, we'll begin the question and answer session. If you wish to ask a question, please press star and 1 on your telephones and wait for your name to be announced. If you wish to cancel your request, you may press star and 2. If you are on a speakerphone, we do ask you to please pick up the handset to ask your questions. Our first question today comes from Matthew Larson from Fincahia. Please go ahead with your question.

Okay, hey, good evening. Thanks for taking my call. Good quarter, as you've been doing, you know, very well over the last two years. Got a couple questions. You've reiterated in previous conference calls the intention to buy back up to $20 million worth of stock, but I don't see a reduction in the outstanding share count. Have you bought back any stock yet based on your goal to do so? No.

Okay, I'll ask you a question about Shell's purchase price. Yes, as we mentioned in our last preliminary ER calling, we'll perform our Shell's buyback, and after the conference, we'll perform our supply. And until now, we have used about 400 million US dollars to perform our Shell purchase price, and we'll still continue to do this in this opening window. Hope my answer can answer your question. Thank you.

I'm not sure. Yeah, I'm missing something here. So you did buy back shares since last quarter?

Yeah.

You did. All right. And you said 400 million RMB?

Yeah.

That would be about $5 or $6 million. I'm sorry, no. I'm sorry, can you just... How many shares did you buy back, I guess, is a better question.

Okay. Totally, we were used to about $400 to $500 million to do our share purchase feedback. And for the detailed number of the shares, we can collect numbers and zoom our... Our Lydia will send you later. Okay. We'll summary our total product shelf purchase.

Okay. I guess I'm misunderstanding you because, again, I'm looking at the share count. Share's outstanding.

Sorry. Sorry. Excuse me. Sorry. I'll correct my number. Our user color is now the $400 million. It's $4 million. Yeah.

4 million. Okay. So you bought back what? 2 million shares or, uh, you know, so you bought back 4 million of the 20 million that you plan to. Okay. So, uh, all right. So you did buy back a few. Okay. 4 million. Um, because your book value must be, uh, uh, book value has got to be above $9 now and you have a lot of, you know, a lot of cash. What sort of, uh, interest have you been earning? on the cash. I haven't really looked over the quarter. I just looked at the news release. With interest rates higher, most places around the world, that could be a very good source of income. What sort of return are you getting on that cash?

Yeah, we have strong cash deposits, and we use our cash to perform our share of feedback plan. And now all of the banks consider the risk and the liquidity purpose where the bank deposits and our interest is about 3% to 4% annualized. Of course, as you mentioned, we have the strong cash position, and we also want to use our cash efficient to assess other any opportunity to improve the new business opportunity and to hope to get the higher cash deposits around your rate in terms.

Okay, so you're getting 3% to 4%, which is very good on the amount that you have, $600 million plus. It was a very good quarter, so congratulations. Your stock, though, remains... extremely undervalued by any measure. It's one times cash flow from what I can see and a little over one times earnings. What plans do you have to, I guess, get greater recognition by more people about your company so that you could generate greater investor interest in it? Have you thought about getting some research coverage or some public relations people who can put the word out about how well you're doing? So if you could address that, I appreciate it.

Yeah, thank you for your suggestion. And yeah, we will try our best to attract the Maui Westerns to recognize our contribution to our company. and to recognize our marketing value. Thank you. We'll talk more.

Okay. To the investor community.

You are talking more with the investor community?

We'll try to do better. Yeah, okay.

I mean, I do remember, frankly, I remember when you went public through Morgan Stanley. back in December of 2015 and I bought on the IPO and of course your stock was quite a bit higher over the years before some of the regulatory changes made peer-to-peer lending a business that was not recognized and you've been able to pivot uh, quite well, uh, so that your business is a lot more diversified, not just loans, but of course the insurance and things like that, the wealth management. And so you're doing a very good job. Uh, it would be nice to see the stock reflect that. I think it should be worth several times where it is. And so it would be worth your while to try and get some research coverage, or go to some conferences or what have you to get greater awareness of it.

Thank you again for your trust many years ago and today. And with COVID over us, we'll do more travel.

Yeah, indeed.

Okay, thanks for your time.

Thank you. And ladies and gentlemen, once again, if you would like to ask a question, please press star and 1. To withdraw your questions, you may press star and 2. Once again, that is star and then 1 to join the question queue. And we do have an additional question. This comes from Ethan Yu from First Trust China. Please go ahead with your question.

Thanks for taking my question. Congratulations on your outstanding quarterly performance, especially with your strong margins. Thanks for the previous investment. The answer to one of my questions is about your stock repatriation program. And I have another kind of question that I'm interested in knowing. how your ODC business development is progressing. Thank you.

It's about our overseas business development, right?

Yes, your ODC business development.

Yes, and yes, And last quarter, we started to do business in Southeast Asia, to be specific, in the Philippines. It's in early stage of business operations. But we do see it become a bigger and bigger portion of our credit tax business revenue. And we will go from the Philippines to other countries, other markets in Southeast Asia and potentially other parts of the world, leveraging our FinTech capabilities established in home market. It's still in early days, but we are very hopeful that it will become a key part of our business and it's very strategic for us to do this capability expansion right.

We have a team in the Philippines and we did our first loans, yeah, last quarter in the Philippines. Great, great, great. Thank you. Thank you. No more questions.

And ladies and gentlemen, in showing no additional questions, We'll conclude today's question and answer session as well as today's conference call. We thank you for attending today's presentation. You may now disconnect your lines.