Yiren Digital Ltd.

Thank you for standing by and welcome to the Year in Digital first quarter 2023 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. I would now like to hand the conference over to Lydia Yu. Please go ahead. Thank you, operator.

Hello, everyone, and welcome to our first quarter 20.3 earnings conference call. Today's call features a pair of remarks by the founder, chairman, and CEO of Credit East, and our CEO, Mr. Ming Tang, and our CFO, Ms. Nan Ming. Mr. Edward Wong, head of our consumer finance, will join the presenters in a Q&A session. Before beginning, we would like to remind you that discussions during this call contain four looking statements made under the safe harbor position of U.S. Private Securities Litigation Reform Act of 1995. Florida's statements involve inherent risks and uncertainties. As such, the company results may be materially different than the views expressed today. Further information regarding future risks, uncertainties, or factors is included in our filings of the U.S. FCC. We do not undertake any obligations to update any Florida's statements as required under the relevant law. During this call, we will be referring to certain non-definitional measures and supplemental measures to review and assess our operating performance. These non-definitional measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and recommendations to GAAP measures, please refer to our earnings press release.

I will now pass it on to Ming, our CEO, for opening remarks.

Thank you all for joining our earnings conference call today. First, an update on our insurance brokerage business. Total growth premiums reached more than RMB 923 million, up 15% year over year, of which life and property insurance policies contributed 57% and 43%, respectively. The increase was mainly driven by life insurance policies, which increased 28% year over year, significantly outpacing China's life insurance industry premium growth of 8.9%. Our strategy to drive rapid business growth continues to be product innovation, customization, agent development, and digitization. We are invested in our agents, and have established programs to help them improve professional skills, to enable them to broaden their service scope, to cross-sell and up-sell products and services, matching customers' evolving needs throughout their entire lifecycle. We noted initial success this quarter, with a significant uptick in first-year life insurance premiums from existing property insurance policy holders. On property insurance, as mentioned on our last call, as part of China's Belt and Road Initiative, a global infrastructure development strategy, China's outbound investment and construction projects are expanding at a fast pace, bringing new scenarios for insurance protection, and coverage. Toi Xiang, leveraging its advantages in product development, professional risk management expertise, reinsurance qualifications, as well as partner is now providing reinsurance for overseas construction insurance policy. We estimate the potential market size for this insurance segment to be at least RMB 10 billion. In the first quarter, total premiums for this product segment moved close to 30% quarter over quarter, and we expect to see a continued increase over the rest of the year. Next, on the credit side, in the first quarter of 2023, Total loan volume was RMB 6.4 billion, representing a 39% increase year over year. Total number of borrowers in the quarter increased 71% from prior year to 872,000. The increase was primarily driven by our revolving loan product, Yixianghua. which actually saw volume increase 88% from prior year due to increasing demand. MAU on our Yixianghua platform is reaching close to 2.2 million users as of quarter end, increasing 8% from prior quarter. As our active user base on the platform continues to expand, We have also seen an uptick in our revenue from electronic commerce services, which we consider as risk-free revenue and include services like recharging online video and streaming accounts and popping up phone credits. These e-commerce services also present an opportunity to establish our own membership ecosystem. enhancing customer loyalty and engagement. On the funding front, as the number of our funding partners continue to grow and we continue to diversify our funding sources, we noted a 16% decrease in institutional funding costs this quarter from prior year. On asset quality, we maintained a conservative risk management policy this quarter, amid a slower than expected macro recovery. And we noted an improvement in delinquencies with SPD 30 class delinquency rates improving to a historic low of 0.6% compared to 0.7% last quarter. This quarter, we started to execute on our international expansion strategy in which we hope to leverage our extensive expertise in the consumer finance sector to promote greater financial inclusion. I'm very excited to report that we have completed establishing a wholly-owned subsidiary in the Philippines, which owns an online lending license and financing license from the nation's Securities and Exchange Commission. We recently beta-launched under the brand EasyPestle and have experienced a substantial surge in demand since then, already accumulating over 190,000 registered users on our APP. As of today, we have completed the facilitation of the first loan on the platform and is conservatively controlling our scale while focusing first on refining and enhancing our risk models. We see enormous demand for financial services in these underserved emerging markets, and we expect international markets to become a new growth driver for our business. Going forward, we plan to accelerate our pace of penetration in the Philippines while investing in operational flows to increase automation and enhance cost efficiency. At the same time, we will also start evaluating potential opportunities in other regions around the world. Recently, we've been witnessing the rise of chat GPT and the generative AI technology. And we believe that the application of generative AI can disrupt and bring sweeping changes to the financial industry. This quarter, we established an AI lab that will be focusing on utilizing ChatGPT, large language models, and the generative AI technologies to develop applications in each of our business sectors. For example, using personalized chatbots to provide 24 by 7 customer service for our borrowers or utilizing technology to help our agents increase cross-selling and upselling. With the launch of our AI lab, we aim to improve the efficiency and effectiveness of our operations, enhance user experience, and drive business growth. Lastly, I would like to say a few words about the management transition we have announced. George is stepping down as CRO and on behalf of the Board, I would like to express my sincere thanks to George for his outstanding contributions to the company throughout these years. Concurrently, the Board has selected Ms. Yangbin to serve as the company's Chief Human Resources Officer. Together, we are excited to propel the company to new levels of success. With that, I will now pass it to Na who will go through the financials for this quarter.

Thank you and hello everyone. On this call, I will only focus on the key financial highlights. Please refer to our earnings release and our desk for further details. In the first quarter of 2023, our total revenue reached RMB 986.3 million. representing a 14% increase year-over-year and a slight decrease of 9% from private culture. The culture-over-culture decline was mainly influenced by change in our loan volume. Our total facility discounter was RMB 6.4 billion, representing a 39% year-over-year growth and a 5% decline by private culture. The culture-over-culture change can be due to adjustments in product needs. Basically, we actively make adjustments to our small business loans while we plan ongoing growth in our small or rising low sectors. Insurance has become a key revenue driver, contributing close to 20% of our net revenue this quarter. And therefore, starting from this quarter onwards, will be disclosed separately total gross premiums and revenue from our resource broker business. In the first quarter this year, gross rating premiums reached $923.4 billion, representing a 15% increase year-over-year and a 31% decline from private quarter. The quarter-over-quarter decline was mainly attributable to a decline in policy renewal which impacted by timing of the first-year primers. Family fund-insured worker business, which rendered $196.4 billion for this quarter, representing an increase of 27% year-over-year, and remaining stable from prior quarters. As a portion of our first-year premium and life insurance policy were both higher this quarter, thereby, overall revenue peak rate of broker business increased accordingly. On the expense side, sales and marketing expense decreased 40% to only $106 million from the same period last year due to the optimization of our cost structure for our offline business and increased impulsion of our revolving load to existing customers. On the other hand, on-general and service costs increased to 31% year-over-year to then be $200 million, making drive the increase of organization and service costs related to our insurance broker business. Counter-over-counter, on-general and service expense and the percentage of revenue for the insurance sector has remained stable at 58%. Gen A decreased by 21% year-over-year, to RMB 93 million. Allowance for council assets and receivables was RMB 45 million for this quarter, remaining stable and profit 0.7% of loan facility. On to our bottom line, we continue to deliver a strong profit of RMB 425 million this quarter, increased 131% year-over-year, and representing a large income margin of 43%. The general profit is 390 million cash from operating in forced culture and increase of 40% from private culture. Our total cash and cash equivalent was 5.1 billion at the end of this quarter, compared to 4.3 billion as of the year end of last year. With the gradual recovery of our microeconomics, we will proactively seek our opportunities to allocate resources to new initiatives and strategy investments, proper technology innovation, and foster business growth. In the first quarter of 2023, we deployed around 2.5 million U.S. dollars to pay back our shares in the public market. As of March 31, 2023, the company has accumulated around close to 3 million U.S. dollars for our SHARE researchers program. This is our assessment of our business and marketing condition. This part of our total revenue in the second quarter of this year is to be 0.9 billion to 21 billion. This part of our margin is expected to remain stable. Of course, this requires our current and preliminary review, which is subject to change and uncertainty. With that, we conclude our course remarks. I will now open for questions. Thank you.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Bruce Oren from New Haven Fund. Please go ahead.

Thank you. First, I'd like to congratulate you on another outstanding quarter. I have two quick questions. Can you provide insight into whether the PRC government regards financial institutions like Urine Digital favorably or unfavorably in the current political and economic climate? And my second question is, are you considering offering a dividend to shareholders. Thank you.

Thank you for your question. Hello? Yeah, now please go ahead.

Okay. I think I can answer the second question. Go ahead. Go ahead, please. Okay. Okay. Thank you. I will answer the second question about our dividend and its line. Yes, you can see we have purchased our share of the purchase supply from the last December of last year. And by now, we have accumulated about $3 million to perform our share purchase. And by now, for our cash deposits, we're mostly focused on more opportunity to use our cash deposits. to serve our own business and hope our business has stable and healthy growth and also want to increase our fund return ratio for now. So by now, I can say the company has no deep supply currently. And so this question can tell me if any advantage to the question.

Okay, let me cover the first question. Thank you for your compliment, and we will continue to try our best, first of all. And regarding macro conditions, it's like you must know that the past several years, things have been... quite a dynamic yeah for this sector a lot of changes and but now things have become much more stabilized yeah and the economy is recovering from the pandemic And really, consumption is encouraged. Small business is encouraged. And so after the past few years of the dynamic period, we feel that recent macro environment is rather conducive. to what we are doing.

Yeah. Thank you.

Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. Your next question comes from Matthew Larson from Fincadia. Please go ahead.

Hi. Thanks for taking my call. Again, a terrific quarter. If I could give some advice to you all to bring greater recognition of your company. You're trading in essentially one times earnings. If you make 70 cents a quarter, we can do the arithmetic, that's 280 a year, and that's less, that's greater than what the stock is trading at, plus you have cash I see your balance grew north of over $700 million, and that's several times what your market cap is. So I've got a couple questions. I mean, first of all, the news really should have said earnings up 100%, you know, versus just reporting the earnings. I mean, that catches people's eyes. And then you mentioned in your report artificial intelligence initiative. If you would just say something like we've initiated an AI initiative and we expect it to expand our business significantly. That alone would come up on people's screens for U.S. investors as you know, a rationale to invest in your company. And if they did, if they computed the numbers and saw how undervalued you are versus your balance versus your book value and your cash balance, I think that could get it higher. I assume you want your stock to go higher. I mean, frankly, I worked at Morgan Stanley when you guys went public back in December, 2015. when you were a peer to peer lender and you exited that area because the government did not, uh, the PRC government frowned upon that and you've done a great job doing so and you're making plenty of money. So, uh, I think you got to get to the word out there and uh, being more detailed and frankly, um, A little more hyperbolic, you know, a little more, you know, animated in your news releases, I think, would gain attention. Let me ask this, though, after that, in detail. Because I've been an investor for a long time, and I'm frustrated. This stock should be, you know, $6 or $7 minimum, if not a lot higher. But... On June 30th, the PRC is going to be looking at companies that are capital light and are doing the lending as you do and maybe make some changes and what have you. Since you have so much capital and you have a small loan book, do you keep your loans on your balance sheet?

Yeah, I'll answer your question. Actually, for our lending business, we have two models. One model is use our guaranteed income. It's like the hiring model. For the hiring model, the loan value is in our balance sheet, as you know. The second model is hiring. It's like model. That means we just do the performance and the promotion and the reference as a self-channel to our funding partners. And we just got our consulting revenue from our partner. And we don't have any guarantee responsibility. And for this model, the loan value is now in our balance sheet. And now we have both two of this model. And so for the first model, if we take the guarantee responsibility, the loan value is in our balance sheet. Yeah.

All right, because I think that's really the issue. that to be licensed to make loans, one has to take some of the risk. And I'm seeing some of your former competitors or maybe competitors, whether it's XYF, QFIN, FINV, in particular is keeping more of the loans on a balance sheet besides just being capital life. Now, as far as having all that huge cash balance you have, I see that you had a lot of investment income. Was that just interest on your cash balance, which you should be getting these interest rates have risen, and that should be a large part of some of your income?

Hello? Are you taking these questions?

Yeah. I mean, you have a lot of cash, $700 million. What sort of interest are you earning on that?

Yeah. I'm sorry? Go ahead.

okay uh yeah you can see we have the uh we have about a five point to my billing uh attached deposit in our balance sheet uh for our policy uh for our tax uses that we have uh actually we have one uh the the the profit is we have to deposit and cooperate with our funding partner to make some uh financial products to earn the financial income the first income the second is actually we add uh from this year we also for our For example, we have calculated where our trust companies set up trust supply for our own product, Yi Xianghua. There are some figures for reference in the first quarter. Our own money set up the trust alone has already amounted to about $300 million for our loan volume. And the transaction amount is added to about $600 million by the end of the second quarter. So we can use our own money to service our own product and the profit from our own profile. Of course, we're still planning other investment initiatives, such as Tony mentioned in our script. We have an overseas strategy. We'll also use our own money to expand overseas opportunities. And there's some pre-expanded data on our overseas Go West business strategy. And also, we will use our cash to attach a part of the ontology in a way to expand it as Tom mentioned that we have set our AI life and I hope that we are more expenditure in the future as the technical. And also generally we have as a management, we have try our best to seek more opportunity to increase our fund return ratio and keep our stable profit.

Okay. Let me...

Let me add that it's really great to meet an old friend and the past few years have been not easy for us and all the stakeholders around, but I feel bad about, yeah, have not been able to, you know, produce great returns for some of the people who have trusted us. So we will continue to double our efforts to do a good job. Yeah, I take your advice on making things more eye-catching, so on. And we didn't so highlight the AI initiative because we've seen many people just use it as like a marketing slogan, but we hope to really utilize it in our daily work and achieve good, better numbers first. But yeah. Well, the point is, well, we'll be more proactive in terms of communicating. But let me say a few words, I mean, about, yeah, our strategy and how to win, you know, in the coming years, as you mentioned, like, yeah, the stock price and so on. I mean, the domestic lending business is high growth and profit generating, although it's not top, top scale. Yeah, but we are catching up. I believe in a few years' time, we will be able to largely catch up. But at the same time, we've been trying to do a very good job in insurance, yeah which we like and yeah we've built a very good foundation for insurance i think that will be a key differentiator another key world driver strategy for us is some folks have done some work outside of china with some progress. But we believe after the pandemic, the field is good for us to get in to do a good job outside of mainland China. And we've got started in the Philippines, but more to come. And so these are the building blocks, but we will try and do more. although we have no clear ideas other than utilizing AI as a tool to do the above things better. But we should have more ideas about how to really build the business. Thank you.

Okay, and thanks for that oversight. Literally, your stock should be a lot higher. I just think, like a lot of companies from the PRC, they fall below the radar because people in the U.S. become disenchanted with a lot of companies. But yours just trades well below your liquid assets. Now, you in the past mentioned a share buyback, which would be very accretive and It certainly would be helpful. I noticed that none were shares that look like were purchased in the first quarter. You obviously have the money to do so. I mean, you could easily buy back $10, $20, or $30 million worth of stock. It would reduce your float, but what do you have to lose because the stock is trapped in the $2 range? So do you expect to buy back any shares if you're not going to do a dividend this quarter?

Now you will take this question.

I believe we keep doing share buyback.

Yeah, as I mentioned before, we performed our share buyback from December last year after the bond occurred. And by now we have used about $3 million to prefer this portrait. Was that $3 million?

I'm sorry. Did you say $3 million?

By today we have used about $3 million to prefer this, yeah. And we will keep on our shelf payback program. Yeah. Because we have to approve the $20 million amount from our BOD approved. So we can use this approved amount step by step. Yeah. Yeah. Generally, we'll keep on our shelf payback until we use the rest amount. Yeah. I think we will keep on this program the rest of this year.

Okay. Because The stock price is so low. You don't even have to be that sensitive to stock price. I mean, you could pay up, you know, to three or $4 a share. If you just put a bid in the market for 5 million shares, it would, uh, not only alert the investment community that there's a serious buyer, but it would be very creative to use it since your book value is many times, where it's trading at. So it's a plus-plus. I mean, with all the money you have, I can't imagine there's too many better investments than your own stock.

Yeah, I know you're concerned, and I thank you for your comments. And I ask to make some more further information to you about why, how we perform our outside type offers. Because every day, the company can perform like this. Shelf amount is based on the U.S. rules regularity. So as we agreement with our broker, actually we have now, as you mentioned, seriously pay back. We have automatic about our shelf purchase. So as we communication with our broker, of course our broker performance shall pay back based on the regular top top yeah we have to pay the we have a purchase of the largest amount according to the listing room so you know we are not seriously to pay back just because we must comply the rule basis we have the limited amount every day we can purchase from the marketing yeah okay yeah I know you're constricted by volume but all right listen keep up the good work uh

I think you just got to get the message out to more investors because, um, uh, again, uh, AI is a marketing tool by many companies, but you guys have been using some form of AI for years. That's how you make your credit decisions, uh, you know, by using, uh, algorithms and things like that. Uh, so I think you should book, you should promote it because it's valid. and make it very clear that you've doubled your earnings year over year and that you have, you know, complete upside. And I think that a news release such as that would generate some interest here. So thank you for your time and keep up the good work.

Thank you for the advice.

Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.