Q3 2019 Earnings Call

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The call, we won't be referring to several non-GAAP financial measures and supplemental measure to review and property.

non-GAAP financial measures are not intended to be considered in isolation or as a substitute financial information prepared and presented in accordance with you.

I didn't mention about because I'm sorry.

He has gotten better please refer to earnings.

Oh, no I'm sorry.

Okay.

Thank you all full attending our partner 2019 earnings conference call.

I'm pleased to announce that we have achieved another solid quarter.

Patients in both credit and wealth management businesses.

On the credit side.

Third quarter.

We are back into role smoke. After we have achieved stable credit performance based lot.

We expect these trends to continue.

We achieved improving profit and operating cash flow due to both obviously to the business volume and the backer operating efficiencies as we start to bear the food up the synergies realized from the business integration post our business realignment.

We are launching multiple business initiatives, leveraging our combined accretion.

Just to highlight one of our key operating efficiency initiatives.

Well pushing forward with our old too old program.

And have reached to over 60 seats.

Which repeat borrowers required acquired or do offline channels.

Now achieved 100% online application and approval process.

For new borrowers acquired through offline channels.

We aim to complete menu IDE application review.

Our two their first the branch visit to improve user experience and increased operating efficiency.

On product development front were working to directly access P.O. see quite each system to enhance our credit underwriting process.

Which should improve our credit performance as well.

Institution no partnerships, our total miles facilities from talk the ring banks have reached 35 billion RMB from 30 billion RMB last quarter.

As we have seen strong interest in our underlying asset.

From leading financial institutions.

In addition, our technology partnership listening shopping have shown impressive initial results.

Things product launch you made this year.

They're coming they did not lost has been zero and must be originations is expected to double in 2020.

We hope to replicate and expand this partnership model with other financial institutions.

Next we have achieved a notable results in our wealth management transformation to an asset allocation based online wealth management model.

Non P to P. I said under advisory I subsets.

Number 32019 has increased to RMB 629.6 meeting or are you at 80.

8.1 meeting.

78% from prior quarter.

The number of you masters in non P to P products in the third quarter of 2019 has increased to about 20000.

35% from prior quarter.

In September we rolled out our online financial Advisory services to you Masters with you exceeding RMB 200 filed it.

We know could that be RBC call time between a financial advisor and onion Baxter is five minutes, which is significantly higher than.

Telemarketing calls.

In July we launched for men mutual fund portfolio products.

Each aimed at targeting a different you massman style, which has been very well received.

Next on regulatory update.

We are expecting well the roll out of the P to P 12 program to take place.

However, the timing is cards they uncertain.

In the meantime, well adjusting our retail funding as part recollect requirement and diversifying our funding sources to grow our loan balance <unk> institutional funding.

I would like to highlight Oh, so a very positive regulatory update we choose that regulators are card loot pushing forward requiring all P to P data up to be submitted to PBL seat database.

Which will mark a very significant milestones for the industry.

Thank you all know I'll turn the call over to Danny's, our senior VP to review, our full quarter business results [noise].

Thanks name Hello, everyone.

On the credit business side total volume of launch nations for the quarter was Reminbi 10.5 billion with about 34% of loan volume coming from BP bars in terms of logs nation channel was approximately 45.7% up the loans are generally online while 54.3% our generate.

Like you know cored up 2019.

Accumulative numbers have registered bars, we served reached 85.4 million and accumulative number of borrowers cert, it's close to 4.6 minutes as of September 32019.

Institutional funding, we have increased a lion facilities from institutional founding partners to let me be 35 billion. This quarter up from the maybe 30 billion last quarter.

And we are also delighted to announce that the number up our bank partners has increased to 13 in the none in the third quarter 2019.

And we are expecting further gross institutional partners the met in the years to come.

Oh wealth management business as of September 32019, we have served over 2.2 million investors cumulatively total number of active investors in its a quarter of 2019 was close to 586000 was Toto AOMT P to P products for even wells at least maybe.

40.2 billion as of September 32, southern 19th.

Average you end up P to P products per investor remain stable, maybe a 152000.

I'll now P to P product.

Our sales volume was really be 767.2 million this quarter, representing an increase of 169.4% from 284.8 minutes as of last quarter.

Our our ending balance of Nok, usually product was 645.9 million as of September 32, Southern 19, showing the Iraqi grows up 80% from 358.6 billion that's doing thirtys.

For insurance product, we're pleased to it note the average effective insurance premium per Investor has increased from the maybe 2000 to over maybe 20000 as of September 32019, which significantly higher than the industry average of that maybe 5000, thanks to our highly effective insurance advisors, who will provide one.

No one customized service to our investors.

Mutual funds, we're launching new news her fans portfolios in July 2019, which has been very well received by younger investors. The average investment hurt investor in mutual fund portfolio has increased from minimum be 400 in April 2019 to over the maybe 30000 in September 2019.

For our financial update our focus on key items of our business operation and financial performance and you can refer the detailed financial results to our earnings release.

Total revenue was renminbi 2.1 billion during the quarter net revenue take rate, which refers to total net revenue net of Lawrenceville Contra acid is 16.3% for the quarter 2019, as compared to 17.7% in the last quarter. This quarter, we maintain our contribution to the credit.

Sure as program at 14% to ensure adequate coverage.

Credit insurance found remains adequately funded with total balance equivalent to elite, 11.5% Upto performing loans covered by the credits going as per well.

[noise] sales and marketing expenses in third quarter, 2019 was approximately 11.1% of loan volume as compared to 12.5% in the second quarter 2019, mainly due to increased the marketing efficiencies in highly higher sales team productivity, specifically all in cosmic acquisition cost this quarter was 4.9 per se.

End of loan volume as compared to 5.3% last quarter offline customer acquisition cost this quarter was 11.8% of loan volume as compared to 12.8% last quarter.

A large for contra asset as normalized in the third quarter 2019 to then maybe 345 minutes, which is equivalent to 3.3% of loan volume as compared to the maybe 500.

1 million last quarter, which equivalent to 5.2% long bottoms last quarter, we revised the future Collectability estimates for new launch nation as well as remaining loan balance.

On the balance sheet site as of September 32019, all cash and cash equivalents, where there may be 2.6 billion.

The balance of held to maturity investments was there maybe 8.1 million and balance up available for so investments where there maybe 426.3 been it made it.

As of September Thirtyth 2019 are useful cash maintain at a healthy level as renminbi 3 billion. In addition, net cash generated from operating activities would really be 808 million this quarter as compared to the maybe 336.4 million last quarter.

Indicating that we have a plausible and resilient this model.

Net cash used in investing activity, we're gonna maybe nine to 24 million this quarter, mainly due to that maybe 846 million paid out to quite easy for the quarters contingent consideration payment that's related to our business realignment that completed earlier this year.

Now I will pass on to the operator for today.

[noise].

Ladies and gentlemen, who will now thinking the question answer session.

If you'd like to ask your question. Please press star one on your telephone and see a name to be announced.

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[noise] outfits question comes from John Hi from Morgan Stanley . Please ask your question.

Hi, Good morning, Benjamin and thank you for taking my questions. So I'm, just oh, well into almost oh supposed to be on D. and say quality thing Oh by the insurance provision ratios remained high at 14% buddies seems to be on back to the growth.

Most so just wonder.

Oh sure you think about risk and growth going forward and the second question since about the take rate on changes just wonder if the since the take rates on a Q on Q basis declined sequentially from just one to what's the factors in addition to through to the provision.

The increase.

So my my third question Theres about the the regulatory update and.

You like off the current you know PDP registration uncertainty yeah.

Spend in the institutional fund didn't feel just wonder what's the current.

Draw down of institutional fund and we need to have any plans to acquire other license like consumer finance all online Michael my son's because that's the cone regulatory environment.

And finally on the contingent liabilities you seem so he was the clock on Q basis, just wonder if there's any revision of transmission always stress on the cash pay all your <unk>. Thank you very much.

So maybe I mean people lived out there on the regulatory front I know lessons you need and they'll covered the rest of the financial yes, Oh, we are expecting a that Ah Ah the P to P trial program or pilot.

Worldwide, a a show a yeah take place yeah, although the exact timeline is stu I'm certain yeah, and so our future strategy will be that Oh, we have.

Multi pole.

Funding sources for our borrowers or from a retail your masters of where I'm, a institutional investors and Ah Ah different types of institutional investors, including bank.

Trial, the companies or consumer finance companies micro credit.

Companies, so long yeah, so ah such a diverse funding source will help.

On our borrowers.

And ER.

We have learned a lesson so from the U.S. and other parts of the world that up.

The me to the funding source actually is a not helpful. So we continue to us strategically expand our funding source at the same time, Oh, we in a full compliance itself.

For the upcoming P to P a pilot.

<unk>.

Okay regarding the asset quality as we have mentioned we have been adjusting iris policy earlier this year to maintain a very conservative risk policy and we have seen the consistent results in the near term asset performance fun boasts a existing ovens.

And just as the well adds a new vintages that clear, we're reaching a comfortable baseline as Kathy indicated from Bose.

The overall the charge off of historical as well as the new Q1 2019 data we have demonstrated in our press release and also the 15 to 89 days delinquency rate has also showed a very healthy trends.

So that we have established a good risk performance our bears a product.

Ladies and channels that will feel comfortable.

In in terms of business gross.

So you see our Q3 is up from Q2.

And the we expect this to continue into the queue Q4, and the near term.

In terms of the reckoning.

Net revenue take rate, yes, it drops a little bit I think part as a socialist provision. The other part is those are the product mix as we integrate it with a more institutional findings we have a just a certain part up a pilot a portfolio mix that has some impacts on the over.

Overall revenue take rate, but no it's still a minor adjustment not significant in terms of overall revenue opportunities and.

Of course that also need to take in consideration of the alarm spoken facet impact.

And in terms of institution founding that's continued to be.

Strategic direction for us as we mentioned that we actually getting more and more interest from institutional partners in working with us I closely.

However, it does take a little bit longer time than what we expect a the reason being bad our long tend to be longer.

The reason not just ticket size and sometime or the answers. Your partners are taking a little bit longer time to evaluate the asset performance. They have their own internal process that we go through before we wrap up the volume so right now I think we're maintaining at the similar than level.

And in terms of a new loan origination where in the 10 or low teen percentage of a new long sales volume, but Oh. These partners. However, long term we have you stoppage at very deep working relationship and we expect this ramp up to continue and we shouldn't expect.

In a very stable funding sources from institutional partner coming coming in coming years, a in terms of contingent.

Ah consideration that's purely the the the cash payment I relate to the isn't realignment that we completed earlier this year. There's no other factors Ah that's purely on the cash payment that was paid out during the quarter as the.

How schedule, we have agreed with our parent.

Thank you very much that's really helpful.

Thank you once again, if youd like to ask a question. Please press star one on your telephone.

[laughter].

Our next question comes from he ran so from credit Suisse. Please ask your question.

Hi, Thank you management for taking my question I notice that the PDP loan volume on do you and I platform side seem to have picked up a in October .

About 2 billion RMB versus one thing.

So I wonder what's changed.

On the PDP funds.

Any changing regulatory guidance. Thank you.

Oh, I think Theres no guidance and in terms Oh, So our business policy working you know in compliance with Ah directly as or guidance I think a the guidance was more for the total ending balance to maintain that says level or a certain trends.

But in terms, our new gross out we're still below our average normalized you know run rate. If you were thinking about the loans being paid down and the new launch in it. So that's why we actually have a quite some room to grow even for the P to P side of the business.

Okay. Thank you.

Our next question comes from Alex <unk> from <unk>. Please ask your question.

Hi, good morning, Thanks for taking my country, So I suppose cousins phones. So.

Do you have in ideal like what's the revenue contribution from our non PDP I sent management for that.

And second the recruiting.

Rosenblum goes Oh look.

It looks like we have come with little to continue to.

<unk> vote Im going to Q on Q basis, a in Q4, so put them.

What was with.

I'm actually two we're looking at.

A.

So to.

Significantly grow a little modem.

Oh, you know to be cautious I didn't woman and also into it and Oh, Oh look into them next year.

And thirdly.

Recently, there has been.

Right and regulators besides oversight on the collection processes. So just wondering any new measures we have taken on their from things.

The last question I'm, sorry, there's some staff with the last question again, yes, you're sort of my last question I. Suppose recently, there has been increasing regulatory oversight on the loan collection practices, especially the third party or service provider. So.

A window.

We pick any measures on that from things.

Sure Yeah. So in terms of loan collection or you know we have as we communicate the early on we have a very professional collection teams and Ah Ah.

Service.

By the bank.

So we have a very you know good practice and though.

We do get certainly impacts.

To the you know some of the telecom you know or policy, but we haven't made adjustment to overcome those issues and we have always been.

Oh.

Ultimate with data.

We have never reached any all those issues. So we don't have C or Ah ha any impact in terms of collections in our business actually the adjustment we've gone through our collection policy actually help stabilize our risk policies recently.

In terms of me not piece will be part of business I revenue contribution are still small, but you really have to look at the moment.

If you look at the gross.

Oh, the Nokia to product, it's very respectful, even though it's off a small base, but Ah you know give us a few more quarters you will see a the significant that scalability of this business going forward and also I think the key is really looking at the number Oh investors best.

Our two.

Taking on the service something on people team.

That's actually also going we're hoping that usually would translate into a much better business go into future and and we have also noted I noticed that some of these non P to P. Pot investors are actually tend to be the larger AOMT customers actually.

I have a deeper pockets anything.

Take on more volume as we kind of.

Our eastern funding for me to it.

Right.

So from a gross or perspective, a near term we will.

You know maintain or even though it back into gross mode, but it will probably still more.

Or control.

Gross most.

Oh, that's the this is at risk business that you don't want to override and also we still expect certain volatilities in industry.

You know or some of the numbers are not qualified the P to P platform are being a phasing out so we're still cautious we still.

Outside.

Operations.

The gross but the growth.

But oh smoke.

Into next year, we don't have the guidance yet but.

Maybe one way or ARPU or.

Hi, more clarity.

For the first half.

How we see.

Our gross margin.

I got.

Yeah. Let me also added that to strategic coli, our wealth management business is as important as our lending business and a we've oh the parent company credit you.

Yeah.

And impressive Oh.

Serving high net worth the ultra high net worth seen bastards in China and on our this did a a company you didn't digital is leveraging the capabilities developed a through that process to better serve the mass affluent a investor.

Community in China, Yeah, I think a this is a highly differentiated.

Business model and a we oh strives to build a a leading wealth management business.

These uh huh.

Okay. Thanks.

Our next question comes from John <unk> from Morgan Stanley . Please go ahead.

Hi, Thank you for taking my questions again, so it's it's a very quick follow up was thing salty. There was one of the vision. There was the spin off from the company in Threeq you just wonder Oh, So should this anymore cetone So o'connor.

How about that the region. Thank you.

<unk>.

I think that's a very small business.

Yeah, it's very small business.

Yeah, it's a it's actually a historical business that we have that's only a stop extra stuff operation in 2016 Ah. So it would just that from the.

Transaction perspective that though.

Yeah. So so yes, there's there's there's various small business a recent news that has not been fully separate so we're just going back the separation in the quarter.

Thank you.

Yeah.

It's a discontinued business yeah, it's just that when we first complete the transaction business realignment. We had included some in but now given this is kind of business, so which is.

Totally separate yeah.

Got it.

Thanks.

It's just final call. If you would like to ask a question. Please press star one.

Yes, there are no set of questions I'll pass back to management for closing remarks.

Thanks, everyone for joining the call today. This concludes our third quarter Twain.

Oh.

Thank you ladies and gentlemen, this does conclude the call today. Thank you so much fear attendance.

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