Q3 2019 Earnings Call - Second Call
The conference call you see recorded I would know tend to pull that the host Mr. Benjamin see actually said for the company bad fiscally heat.
And what countries should have the quarterly Investor update conference call. The company's third quarter results was issued via Newswire services on November 18, and looked at online you can download the earnings press release and sign up with a company. This distribution list by visiting our website at <unk> Dot should yen dot com.
It's a call young our chief financial Officer will start to call with piece prepared remarks.
Before we continue please note that today's discussion will contain forward looking statements made under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.
Forward looking statements involve inherent risks and uncertainties as such the company's results may be materially different from the views expressed today further information regarding these and other risks and uncertainties is included in the company's 20-F as filed with the U.S. Securities and Exchange Commission.
The company does not assume I mean any obligation to update any forward looking statements, except as required under applicable.
Please also note that shoot <unk> earnings press release, and this conference call include discussions of an audit got financially inflammation.
<unk>, an audit Nongaap financial measures should yes press release contains a reconciliation of the an UN audited non-GAAP measures to the UN audited most most directly comparable GAAP measures.
We also posted a slide presentation on our website providing details.
I'm most <unk> most recent operating and financial metrics, we will reference those results ill prepared remarks, but we're not referred to specific flight doing all the presentation.
I'll now turn the call over told CFO call. Please go ahead.
Thank you Ben.
I want to first thank all the investors analyst and media, we have taken an interest to join todays call.
Since we released our third quarter 2019 financials on November 18th.
We have observed unreasonable volatility you know HDR trading prices.
The purpose of this call it to be opened the accessible to the market, which is part of our continuous effort to be transparent.
In the past few days, we've summarized the key issues of concern and hope to use this opportunity to get markets further clarity in how we are addressing the immense market opportunity Indeed, Chinese consumer credit space and more importantly put the inaccurate interpretations.
Rumors to rest.
Key area as we hope to cover todays call includes risk management and asset quality.
Open platforms business model and its sustainability.
Guidance.
How we remain highly competitive to drive consistently better bottom line results.
On risk management and delinquency.
Risk management is de top priority in the operations.
The full most focused on risk management is play specifically on regulatory compliance.
This ultimately ensures the business to be sustainable overtime.
We have proven time and time again, we are the most complaint upgrade so in our sector.
These are the facts.
In 2016, and 17, we upgraded our business under two proper internet micro lending licenses.
In 2017, we put on they system level restriction such that no credit products generate over 36% are.
Yes, that's our bar.
Because we do not take fees up front.
And products on a simple repayment with declining balance on each payment.
I Oh converting to a typical ATP our definition.
Seeing all interest and fees divided by the principal received by the borrower on the annualized basis translates to around 20.6% on a 12 month tend to them.
The fact is really effective <unk> in the third quarter of 2019.
And for the first nine months of 2019 was around 20.5%.
From 2017, we made a decision to completely avoid the PDP business model and took on a 100% license regulated institutional fund that model.
And look at where the sector is today.
We are 12 to 20 months ahead of the leading players in adopting a regulatory compliant business model.
The open platform business expanded through 2019 will be focused only on the technology enhancements and cost efficiency for financial institutions.
This model is what we believe to be the final and long term viable form of Fintech in China.
We have demonstrated what we know history, we lead in regulatory compliance.
Focusing on this is the only path to deliver sustainable results and therefore long term leadership.
On asset quality.
The company has taking a conservative approach to deliver optimized risk return at a principle.
As previously discussed.
The fact is Chinese economy, it's slowing to new normal rates of both.
The fact is there has been significantly more players exiting the online lending space in the second half of 2019 because of heightened regulatory scrutiny.
Which does reduce followers liquidity.
But the fact is also true that the Chinese consumer credit industry is massive with over 400 million potential users and largely underserved by traditional advice.
The fact is average real consumer leverage its low it's still low.
It is growing but still have significant more room for growth.
In addition, there was high confidence.
<unk> unemployment rate will remain stable in China due to highly efficient policy deployment.
And wages for the working class, we will see steady and healthy increases from the current low base.
These all point toward a big and safer consumer credit market for players that our regulatory compliant to consolidate the market share.
We are sold well positioned to capture this market opportunity because of our lower than peers leverage.
This key risk management tool allows our company to absorbed any imaginable.
Even unimaginable potential risk, while giving us more room for growth if we choose to.
We understand the market is dynamic and evolving so we take extra efforts to be transferred to investors. So everyone can have a better understanding of what makes sense.
I encourage investors.
And most importantly, some sell side analysts to scrutinize such data with care and take views in the holistic impartial way and compare numbers Apple to apple across the sector.
No we have seen de one do you think Quincy increase quicker in the third quarter of 2019 into the 10 to 12 presented zone.
The result was we did active they are large dormant customer base Heidi effectively.
As we have completed the custom activation programs in the third quarter. These loan terms will roll off in the one to eight months life and therefore, it is clear that the increase in D., one is well expected to stabilize into Q4 and we should expect.
Correct. The CE marked improvements in the first half of 2020.
In addition.
Lease do not interpret de one as a measure of losses.
Our am one plus or 30 days plus vintage delinquency rate, it's below 3.4%, while our highest m. six plus vintage charge off rate is below 1.6% at the end of third quarter.
Entirely reasonable and comfortable rates across the leading players.
Now, we do maintain a significantly smaller hold whole loan book exposure at Renminbi 26 billion.
And we operate this at a lower leverage of 2.2 X.
While the after risk adjusted net income.
Bottom line is the highest among the leading players.
This translates no less to a better business model.
We have a safer capital structure.
Less total risk exposure.
That's a at handling even a remote risk occurrence.
Bottom line is we are competitive the more profitable at the same risk level than all other place.
This we think is a much more holistic and reasonable view of what makes sense on asset quality.
Now move on to the core strategy of open platform and the sustainability.
Diligently interpreting regulatory directions.
We made a calculate the decision to stay away from the PDP business model from 2017.
With the same diligence.
We believe the future of Fintech in China is not about risk taking.
The existence of Fintech, it's about putting together technologies that help license regulated five do what they are supposed to do into first place.
Namely lending money and taking risk on it.
We want to be clear, we do not take risk or provide any implicit guarantees on open platform.
And open platform is not simply referring customers to banks.
Here is what we really do.
We provide a total solution using technologies, we have developed on one.
User engagement and activation.
To.
New loan performance centric analytics backed by over driven B 250 billion worth of transactions.
Three hi position real time processing on micro syndication.
Full risk tools engines set up for our funding partners. So they can plug into our open platform for high speed credit decisions for these partners.
Five funding distribution using cash this infrastructure.
Six billing and customer services call Center.
Evan repayment processing and building on late payments.
Eight repayment clearing with high precision across multiple funding partners from a single borrower.
Number nine our compliant collection services.
This is a total complete technology solution serves all together a large cost saving tools for five looking to enter the real consumer credit markets.
And really compared to what advice would pay to a simple.
Borrowers sourcing service at a market rate of roughly 30% of gross fees, what we charge entirely reasonable.
At the same time apples to apples our funding partners do make higher risk adjusted returns on open platform that loan facilitation.
We help our lending partners grow a loan balance from zero to 12 billion renminbi and still growing.
It is just a one year old business, but its achievements on nothing short of incredible.
The number of borrowers on open platform increase from the January of 16000.
To end of September to over 1 million.
The number of funding partners increased from one to four to 11 in the third quarter and the number as of today is 17.
The stickiness of customer as well over 70% and growing.
These are all facts that points towards to the immense value, we are bringing to both the lenders and the borrows.
We do post these achievements and progress in detail and now presentations update please do look at that.
On sustainability.
The key question lies in how far it can go.
And how can we maintain this take rate.
Rather than taking a qualitative and subjective guesswork, here's what's real.
Our partners have provided requirements on risks and customer profile.
Over 21 million existing registered users on our database match such profile and it's still growing.
We are at 1 million today.
And again, we grew from zero to 1 million in 12 months. There is a long runway ahead.
On the topic of risk management on the open platform.
Open platform made breakthroughs in how a qualified micro loan can be syndicated to multiple lenders.
Each.
Bringing their own risk engines.
Allowing every funding partner to find a customized cohort users at their full control.
With syndication.
Instead of just one lender assessing risk.
Multiple banks.
Our running independent risk models with the loan being approval not transparent across all parties.
This allows the collective blending consortium that ability by means of cross checks to locate the highest quality borrowers.
Significantly reducing risks for every one.
Translating to more economics to share and yields better risk adjusted returns for my partners than long facilitation.
And precisely because we do not take first loss.
Every player that is lending is much more careful in their own risk assessment, resulting a much lower delinquency rates.
When you attach syndication to it.
It's the core of open platform business model.
The fact is am one plus delinquency is below 2.7%.
Roughly 50% lower than our loan book.
The net charge off rate on a loan balance basis, eight core parameter when banks measure risk is just a fraction of the 2.7% and one plus delinquency.
Providing ample room to move into the risk curve as more borrowers come onto the open platform.
Yes.
Okay, great in the second quarter and third quarter on origination volume was approximately 9%.
Again that translates to about 20% higher than advise would have paid in the market at roughly 30% for only loan origination from a sourcing agent.
This premium is again backed by the complete package of technology based services.
We provide while syndication lower risk for everyone.
When the fully competitive day comes and only then.
We would expect I'll take rate to come down to about 5% to 8%.
Before then.
Ill carbon take rates are sustainable as we are the first mover in the space here.
It should take maybe.
Maybe 12 to 24 months again for appears to catch up if they can.
And then the market may become more competitive.
On guidance.
Facts are we provide the first guidance of Reminbi 3.5 billion in November of 2018.
By June of 2019, we were far ahead of our target loan balance.
With over 2 billion of net income already achieved.
And with the upward trajectory of open platform. It was clear Renminbi 3.5 billion no longer made sense. That's why we revised up to renminbi 4.5 billion in June with confidence to still achieve beyond that.
Given the control user activations drove delinquency up and more importantly that heightened regulatory scrutiny. We have observed against other players in the recent past few months, we wish to move in to be more conservative and B.
Just in case, if other aggressive players have issues down the road.
The us.
On the conservative basis, we have to adjust our guidance to $4 billion.
This still represents 57% growth.
On 2018 at a large prophesies.
We do appreciate how the market reacted to lowered guidance, but we hope to market also appreciate we are doing the right things.
To avoid any potential risk even if they may never come.
This sets up a better foundation for delivery of a sustainable business overtime.
Lastly, the company is committed to delivering long term shareholder value.
We upheld the promise and we have fully completed.
Yes, dollar 195 million forward share repurchase program in October .
And the board of directors of the company have approved and we have today fully completed the cancellation of 26.169 million 241 shares repurchase under that program.
The cancellation of the 26 million shares stand for approximately 10% about total shares.
Standing for the company.
Since our inception in 2016.
We have gone through stages of business and regulatory compliance upgrades from license based lending to loan facilitation for financial institutions to now becoming a technology based feature of impactful.
We take regulatory compliance as the number one priority and is highly conservative on risk taking.
We know we have found a better way through open platform to address the market massive market opportunity from the emerging Chinese consumption credit offering.
Yes, and vicious about next come out accompanies next stage of growth.
And we are forever grateful for the support.
Investors and analysts.
We will continue to maintain the most transparent communication and disclosure standards in the industry.
And we are confident exceptional returns will be delivered in our.
Hi.
This concludes our prepared remarks, we'd like to open the call for any questions.
Operator, Thank you very much. Please go ahead.
Ladies and gentlemen.
Question. Please press star one on Japan is fun and thanks for tuning and now.
So your request.
Hello.
Yes.
This question's comes from done like John shy from Morgan Stanley . Please ask your question.
Hi.
Thank you management I think in mind.
So.
Okay.
Thanks.
Loans.
Please.
The reasons.
And cobbles credit squeeze.
As mentioned.
So.
Company.
Divisions.
The second quarter, but I remember that.
I guess any second.
Just wonder.
This includes a 19.
Result in them.
For the deterioration as compared to previous.
Okay.
Yes.
Yes.
Specifically.
Yes.
Okay.
Hi, John Thank you for the question as and thank you for being.
Long term followers of our development and being very diligent.
First of all we have done this ever since 2018 as a normal course of conducting our user activation efforts.
The second quarter 2019 cohorts are recent news shows more tendency of high delinquency has to do with the overall industry liquidity must have declined.
This you don't have to I don't have it's how you you know that most recently there has been a law the scrutiny on those PDP players.
Data driven kind of risk management providers.
Even collection companies and a lot of companies have exited because of this and when that happens when equity decreased the the higher risk cohorts that were generated from the second quarter 2019 tend to have less ability to refund that borrowings to refinance at borrowings and that's why.
You would see higher uptake.
Given that we have observed these situations.
In terms of regular scrutiny in the last few months, we have made the right decision we believe too.
Risk off Fodor and Thats why you see this this guidance and we know that the loans.
Given the testing cohorts the loan life are between anywhere from one to eight months.
Issue well roll off.
By the first quarter, if not the latest by the second quarter of 2020, so with that we're quite.
Comfortable that the risk curve will stabilize in Q4, and then it will roll back off in Q1 Q2.
Things.
Total.
Cause thing.
Hello.
Antibodies.
Speed.
Yes.
Uses.
Yes.
So.
Yes.
What was called it.
Hello.
Oh.
Oh.
And then.
Yes.
Suppose.
Maybe.
Thank you.
Thank you John .
What we've done is on a carefully calculated basis.
This approach, it's still low cheaper on use acquisition, then combining sales and marketing costs with a potential loss attached to those housing market as users.
But we as we've proven ourselves we are dynamic company that knows how to navigate the changing landscape.
So we have tools.
The buying traffic is nothing new to us we can buy that traffic just like everyone knows and we have more margins.
And more cash to too so.
And the better balance sheet to do so.
And other players so rest assured we have that tool.
Rest assure that on top of that we are building.
Our ecosystem of partners. We now have seven eight app partners that have or HTML five technology embedded into apps, so thats another way too.
Get users.
And we would do a pay as you go approach instead of sort of by line.
Sales and market its way to acquire traffic. So we have all these two set up not just one but another two more sort of total directions that we can follow but right now as far as we can see into 2020, there is no urgent need.
To acquire traffic, but still provide a fairly substantial net income size.
Relative to our current valuation.
So we're not by the urgency to buy traffic right now, let the regulatory scrutiny that had been very heavy in the last two months settle.
Let the PDP guys be put to rest.
We will be on user acquisition position.
Thank you.
So as I just.
So.
Thing.
The industry.
Women.
Seems to be.
<unk> expenses.
Yes, when the risk arise.
On the grows.
The guidance revision.
Going forward to retake the more conservative approach.
Hello.
Taking a securities.
So.
Just because some of them.
Operator.
Yes.
Sorry.
So.
Since.
Thank you.
Yes, Thank you John .
I think the best way to address this question is for the current moments we are more focus on the highest quality borrowers. So open platform and we found the best business model and all that package solution that we tried to bank makes sense and that the banks help us help each other as a consortium.
Build better risks engines together right, we have a value add they all have out so when we do that Ria, we're focusing on the highest quality borrowers when this credit cycle rose was over.
We have better balance sheet, we have a much better balance sheet that any of our peers to leverage up right. If I met already 10 Twentys times leverage.
How much more leverage can I go right I'm at 2.2 X leverage if the risk.
Cycles right when the vis comes back down I can go five times I can go five times, the catch up with my views right.
There's no doubt about how much room there is for us.
So when we have more firepower at acquiring uses and we now even have a business better business model. So right now that's focused on the best quality users or we may not be growing our user base aggressively but we do believe it's the absolute best thing to do right now and still deliver better than peers earnings.
Dollar to dollar.
Thank you very much.
Thank you John .
Thank you.
Next question comes from the line of metal lessons from National Securities. Please ask your question.
Hi, Thanks for taking my call.
Your stock dropped sharply.
After the earnings.
Presumably because of the rollback of your guidance.
But it was already trading at extremely low multiple as we're a number of your peers. So that there was.
A lot of.
I guess, a caution built into the market for the prospect of of maybe delinquencies rising so it's not as if your stock was trading at 10, or 15 times earnings and growing at a 30 or 40% and now you're grosses cutback fractionally in fact in Europe .
Multiple was quite low you don't have perceptible debts, and Youre trading well below book. So at this juncture. So it seems to me it was already.
Just at a cautionary level. So it must have been surprising to see its pull back on heavy volume and I think the question that anybody has in here and maybe the previous those.
Color, let's touching on it is.
You are going to make.
Yes.
Between five and $600 million this year it sounds like.
She for.
Yes.
Yes, and then can we expect growth next year can you give us any sort of guidance for 2020 based on the things you're looking at right now the short term cycle in the rolling off of some of these loans that have been affected because of the liquidity withdrawal.
Yes, Thank you, Matt Matthew we we have perplexed.
First of all on how the market reacted.
We think a threed unreasonable as we stated in the in the conference call. Just now and we are always in that position to try to add shareholder value actually up up from the from the life of the company being a public company.
We have no less bought back more than 570 million just to holders of shares of which all of them cancelled.
All of my Kenzo as much as in the Treasury. So we believe in the longer term prospects are great.
We are investing in the better business model in the technologies in a regulatory compliant way to do things for the long term.
Right now we are not in that position to provide next year's guidance yet.
We believe.
Still under the open platform approach that should be more growth odd and this year from what we have achieved so far.
That's all I can say unfortunately, I would like to give you more.
But we did honestly.
Hi that maybe the guidance last year too early so that it was way to the overall and then we had to adjust it and we probably don't want to do that.
All right and.
And then I guess.
Investors should look at me.
The positives that you are it's an open ended type of growth industry, Iran. As long as its managed properly, but you all went public of essentially two years ago in issue I'm rounding maybe 38 million shares at $24 and you bought back more than that adds.
Below $7 I.
I mean, that's to me one of the greatest trades ever where you go public at 24, you buy back not only from Coon line and also in the open market.
At an aggregate average price of six unchanged and your growth probably is as good or better than anybody would have thought when you went public that's at least my assessment because I've followed your company since you did go public.
And.
So I you know as long as one can be comfortable that youre going to see more growth next year, even if it's smaller hopefully large then it seems to me that there is a floor in the stock because people just want to be sure that.
The profits don't turn into losses, which is the issue. When one is dealing with financial companies. You know moved it wasn't too long ago that we had a financial crisis.
And I did over here that you that are.
You also said that you expect 4 billion or more.
For this year, okay. So a there is a chance that you beat that new estimate it sounds like.
And finally.
You had mentioned previously that you might use most of the proceeds from the convertible to maybe buy back shares you've only use 195 million of it or are you in a position do consider further buybacks going forward.
Oh, Thank you Matthew for the observation and following us for a.
If history as a public company Oh, we have I think worked very hard to deliver to write business model.
And you have seen our results have been no less than you know great compared to a lot appears even across other sectors. It is.
Yes, a dynamic and new environments in China from.
Thats very perspective, so I do appreciate that could be some.
Concerns about the stability of things, but we are best equipped.
Oh best equipped off them at management DNA to adapt to all these changes and we have proven time and.
So I.
I wouldn't I wouldn't comment whether there's a floor or not this is a market that we respect.
But we have.
From our company's view there was a pretty large disconnect between the fundamentals in the and the value of the company. So.
We've been consistently buying back.
When we raised the convertible bond, we we told our investors there that will use a majority of the proceeds to bought buyback shares and we have done that.
Done that and all those years are now council.
There is another about a $100 million left under a we want to continue to assess the market situation Oh, we have done that in the past with Bob action in the past no doubt about that and we'll use neutralizer right tools.
To add more value to our shareholders.
Okay, Alright, Thats two I'll, let somebody else ask a question. Thank you.
Thank you Matthew.
Thank you.
Your next question comes from the line of Destiny plans from Stifel. Please ask your question.
Hi.
Taking my question. So I just wanted to understand Thats about the.
Shifting your Nonperformers and I guess.
Open pass on so you mentioned that because you see.
Continuing with the is rising and your statutory rates and shift towards open panel business, but as it is more like the rising MPL. If it is a more systematic macro Jason.
With that shouldn't that also have sensed that performance I'll feel a lot.
Wow.
In that sense that if the banks all Wilson and partners see the rise in delinquency rates on your own book sit and they also become more cautious about the open platform business. So.
Although like I guess suite yourself to open platform has been going fan size, but.
You have any kind of sun a body.
Oh really on the assisting a bit that it's the delinquency late next.
Thank you for the high level.
Sure.
Thank you down the very smart questions as usual so first of all our let's put numbers in the context of this question.
Right now the M delinquency on I'm doing this by vintage on the open platform is less than 2.7% at the highest vintage although it's a young vintage that's a transparent about that but as you know as you cover a lot of banks as well you know that banks actually look at charge off rates on the balance.
Basis.
Given that the balance is growing very fast open platform the charge off rate on a small fraction of that and one.
Obviously, nothing to do a bus or we don't really care.
It's nothing that we take the risk right, but we do care that the overall quality has to remain stable.
And there's still room, there's a lot of room for that the growth I think the cut off points are somewhere around 5%.
Charge off the balance.
For a bank to sort of really take a deeper review of at this business is viable enough for them. So I think we're still far from that kind of hurdle.
Right now we see the banks are coming in by masses revenue went from one to four to 11 now 17.
We have good confidence by the end of this year will close 20 that we'll be working with what comes out so that this definitely room to grow your structural view, we cannot completely agree with you more it absolutely right, but the absolute.
Numeric number right now is low and that low.
Given by the reason that it's not a simple referral business. We don't just do that there's no value.
Every bank that participate adding to the risk assessment and when you have many banks, who has got capable who got capable of escaped capabilities, putting all the heads together to look at this risk a better business model than just a fintech companies doing this so we found the better business model negative.
I look for a few more quarters office he more normalized rates of growth I think 150% growth from Q to Q4 is.
As just early stage, but when we get to more normalized rates of growth and the vintage kind of more normalized I can answer your question.
A lot better numbers, but right now I think this from a lot more room.
Okay.
Thanks.
Thank you Daphne.
Thank you.
Next question comes from the line.
Joe from Credit Suisse. Please ask your question.
Okay your call.
Just a follow up question on John's question on.
You mentioned over 21 million registered.
Matching the profiles provided by the lending partners.
Right.
Okay.
Im side, and how does that compare with.
Traditional.
Hi.
So can you provide an update on any acquisitions.
Okay.
Hi.
Ecosystem.
How many olson.
Hi.
The ecosystem.
Hi.
Thank you.
Okay.
So thank you and let me check one number and now I'll answer your question directly.
I think this number could add a law the value in terms of.
And the potential opportunity here.
Oh.
So first of all its.
It's over 21 million people.
Whom our partners.
Theme, there are capable of suitable for them to underwrite risk.
We're now seeing one a 1 million people to have lenders do this.
You know a in the past 12 months actually with only.
Allow we've only allowed 5.5 million all of the 21 million people.
Access to open platform, we haven't opened in hot open platform to our borrowing base.
This is so that we don't get a two large they flow that one of the key I'm sort of value add foot platform is to balance risk sort of obviously risk, but oh supply and demand. So that things are in check out there is no oversupply over the mass or that this growth.
The reasonable pace, so only 5.5 million people on the 21 million people access on open platform that ought to criticize right now.
We will slowly and show the open up to more eventually to all that's when you when people and by the way.
21 million people there has been approved it's still growing.
At the top of the funnel.
We have been consistently growing 2 million new registered users quarter after quarter with no sales and marketing.
Which we would probably then to about one third of them.
So that will be a continuous traffic flow that would drive that total basis.
Well I think we're in a fairly good position that this through a deep pockets for open platform.
And Ah I think that that that's quite obvious to us I'm, sorry that they may not have been apparent to the market yet, but it will be overtime.
And then there's a question about our ecosystem that Weve building.
We haven't switched engines on because we have such and overcome Matt.
And given the macro situation, we don't want to take more focus right now.
So we are in I think last time about eight app ecosystem.
All of them have over a 10 to 20 million monthly active user base, we set up to 18 cents, namely in the form of HTML five based technology. So that users do not have to the that app.
But control a loan directly in those apps.
It's a model than forcing users to call.
All in the last kind of the most unwanted model that we in our business sort of strategy is to buy traffic.
Because what happens in our business. Okay, you, an internet business when the e-commerce and gains whatever you know, we're all well trained those resort will come from those backgrounds, either thing spend money by traffic and conversion rate that the business done growth right.
Everybody understands.
In our business no.
If you spend 500 million 800 million a quota.
Hi end users you know what happens is if that user comes and you don't lend to them that's all some.
So what happens is you become forced to land.
In our business you never ever want to be forced him.
You want to switch on the lights and switch them off.
On your own risk appetite. So those are all set up right. We've got a deep pockets, we got the app ecosystem, we have insist on and finally, we have more cash we have more profits that can drive.
More use acquisition, if we want so I.
I don't think we're in a hard.
Let our bottom line better than everybody in the margin was an absolute dollar wise overtime.
Is that helpful Ya.
Yep Yep helpful. Thank you very much thank you.
Thank you.
Your next question comes from the line of Jackie Chan from China.
Please ask your question.
Hi call. Thanks folks are providing up to update.
It's very helpful.
Just one follow ups on the open platform regarding to be a loan products we offer.
So so from my understanding or so basically.
Borrowers opens up all have to provide their like if things stay man up social insurance proof.
Are you all their full our bank partners to provide their independent assessment and probably take like 10 minutes. After this I mean, all the all the document.
For them to costs as the <unk> you did the de risk assessment and up to provide the funding to borrowers. So just comparing with the called the offer by our peers things. They can basically all for somebody side, though.
So oh.
With like a guardians Hong like within seconds. So just.
Once gets her comments about the.
The competitiveness of the bump brought on our overcome and any room for pause between preferred.
Thank you Jackie these are very very keen observations and appreciate you for.
Really taking the time to use a product a and b diligent about things.
Really respect your professionalism there. So there is a time sort of area because we.
We really do not provide in because the guarantee that's the fact, that's why my bank partners have to be more careful.
And Ah right now we're at really stage one of them happen deployment in terms of system level, a risk approval for my Bank partners.
It would it will get better and better and better. These banks are driven to enter the consumer finance space. They are growing they are learning also I think overtime. These will improve to more compare levels. If we were to underwrite we'll put that on the loan book and it really to underwrite that approval process will literally take seconds.
But unfortunately, we want to be a really do not provide because it guarantee so it does take a longer period.
To the user there is some inconvenience, but the key question is a for a user I think for open platform. All these users tend to get scrutinized I'm very carefully for my bank partners that day.
Don't have loans outstanding on other platforms in order for them to get this credit.
So I think that over time you know.
They will get a better approval a bigger loan size and as we improve on the timing of known dispersion odd that competitive.
And this will continue to a yield a better and better customers, taking a again first of all customer stickiness is already oh, well over 70%.
Thats, what 12 months, we offered.
So are these numbers look good but we definitely still have a lot of room to improve.
Okay.
Got it thank you Carl.
Thank you Jackie.
Once again you said these to ask questions. Please press star, one Patterson and but.
No.
Your next question comes from done a lot of yes. There are some bang. Please ask your question.
Hi.
Thanks for the funds just wanted to know.
Hello loans that going back in off balance sheet at engine.
Hi, how yes. Thank you for the question, obviously disclose that as they complete loan book a vintage delinquency on the one on it and one m. six both on our current.
And pothole potential risk a independent patient online. So if you look at our total loan book I actually encouraged communities, who not differentiate on and off bottoms because the risk is the same it's just who's providing the funding.
So we'd like to disclose the full picture so that the you on right now is in his own of 10% to 12% while the M. One on a vintage basis. That's then.
Five I could around 5% and then on the end fixed charge off it's less than 1.7%. So these are current sort of loss rate.
[noise]. Thanks.
Thank you Melissa.
Thank you.
Two questions comes from the line B B from Topeka. Please ask your question.
Hi.
Chung from its peak somebody's.
Apologies if I missed this at the beginning but I just had a question on insurance.
One of the concerns.
Could you just comment on.
New platform loans, what proportion of products require would have insurance.
Treated and how the regulatory.
Okay.
Will affect stock prices going forward.
Thank you for the question be on the apps and the answer is actually simple it's zero.
The two then takes regulatory compliance as a the for most important risks that we work with you know we've avoided PDP again, a we've done a 36% Oh I wish for translates specific to a 20% <unk> product, which is works well with the regulators.
And we do not.
Currently we do not have any fees or interest structures they involve insurance companies.
No.
Okay. Thank you.
Thank you.
Thank you.
Next question comes from doesn't line up and then Quanticel allocated capital. Please ask your question.
[noise].
Hi, Alan.
Hi, Alan calling your line is open.
Hi, sorry.
I think.
I'm sorry.
Sorry.
Hi, Thanks for taking my question.
Yeah.
You have about 17 funding.
Well now looking at about three more reach.
Yeah.
That's almost double the number of funding.
Thank you.
Rich.
Okay.
<unk>.
No.
A question.
Who is calling slowing the pace of growth.
Oh platform.
That sounds look like.
Qualified borrowers.
Oil.
Platform by the locals pacing.
That.
Funding constraints or.
Hi, this is slowing down.
Growth expectation, perhaps given decent the and low hotel.
And stuff.
<unk>.
Of course.
I guess the question.
I'm curious who is.
Hey control.
Yeah.
So Alan.
The answer is I'll be very transparent as usual the control pay is absolutely under all funding partners.
Reason being a we don't underwrite risk so is there risk appetite it's their funding size.
That's why it's critical it's actually critical that we grow a vast base of multiple funding partners. So that all economics I kept.
So that the growth of this business is healthy.
Now you alluded to sort of where Q4 as pointed as you can see from the guidance that you could take out the absolute dollars on the income we've made in the first three quarters <unk> is a conservative number that conservatism is built around that the open platform.
The first few partners that have grown has grown to you know.
Much larger balances and when they get to the large balances they need to take time to be and in the fourth quarter right. We've made them a lot of money already let them take a breath.
We have added from four partners to 11, but the net add partners does take a long time to the says for the systems to integrate and for the trials to run. These are banks. These are guys who cannot tolerate even one cents of difference. So it's not us it takes them too.
The systems I'll be helping them. So I don't think the majority of the new partners, we signed up would contribute directly into Q4 yet.
It's more into next year, that's why we will always setting up for longer or sort of future. So a I think Q4 is a we'll probably look at good loan balance growth, but on loan origination could be around flat from Q3, because Q3 was a big step up awesome.
It's early stage for open platform, it's more of a.
Step function of growth rather than as being a function for growth when we get a lot of new partners to come in a window. When the ecosystem becomes 20 plus partners then you're seeing more of a normalized linear quarter to quarter situation.
So how elemetal yeah that's helpful.
That's a whole lot of questions.
Okay.
Oh, Geez 17 funding position has.
Likes what kind of batch things had a consumer finance companies and more importantly.
Watson's yourself in 17.
Thanks answer that.
I wish it looks like symbols coalition more does I believe is almost apply this will be there was kinda she looks beads previously on the business model.
Yeah. So first of all there are.
Three licensed direct back that our GAAP Internet license to do this and we work in a very deep way with them because they got the technology. They got to this model is running so they're the four runners and Internet lending and then you've got the next set of.
10 to 12, a consumer finance company.
And then there's a couple of Internet micro lending license.
All of them have to be a qualified as it license lender and it takes time takes longer time for the consumer finance companies to go the technology around I'll open platform to go the risk models to work on this and then the second part of question relates to a I think 90% of them.
A more what on the for loan facilitation before.
They got attracted to open platform because number one it's the final form it's a final shape and form of how fintech companies can work with banks a regulatory compliance is a party dollar profit dollar profit they would take over powerful.
And one point here right now it's simple open platform helps them generate better risk adjusted returns.
On low facilitation to return that you know they aren't getting its around 995%.
The open platform return.
18, plus.
So why not [laughter] are the key is it that's why there is some competitive advantage you all company. If we had the PDP model will be somewhat slow at this company must move onto a loan facilitation first to get the systems set up right a and then they would get comfortable that the pie.
Decision accounting and the transfer as in the funding clearing a as safe as reliable your user cohorts of something that except then do consider moving to open package I think overall overtime next three to five years, you see everybody helping us.
Just as they've done on loan facilities in the past two years.
I see I understood that's quite helpful and weren't very last question.
Accounting questions I'm pretty open platform.
I understood that the.
Revenue from the open platform is actually read.
Oh I don't recall these clay.
Okay.
[laughter] monthly or quarterly, but total revenues book upsides.
Right.
It seems like <unk> <unk>.
Over why you guys have stick.
I'll practice.
Yes. Thank you.
Yes, Thank you Alan actually to make.
You know how come the wants to be transparent as much as possible because it's dynamic right. So.
In all online presentation off of my earnings in the Appendix. There is a page dedicated on let's see page like on page 33, highlighting what every line of revenue means and what our revenue recognition policy is okay.
So for the sake of everybody else. Please look at pace on 33 on up and patient. It all we want to be very tens parents as a company second the out to answer your question sorry about that directly is at the yes. The.
Total fees over the life of the site a alone is a recognized on day one.
It's recognized on day, one and then the fees are paid to us in terms of a cash flow over the course of the loan lifecycle now as a management team, we actually don't want to recognize this on day, one because it does create unnecessary earnings volatility.
As everybody, who know right because if the volume God drops off this thing goes to very low if the volume picks up it just grows very very fast. So we don't like this but unfortunately, our we have to fully respect SCC accounting guidelines.
And because the way the contracts are structured a the this is the only acceptable accounting standard we can the though so we have to follow this.
I see.
Thanks for the on site.
Thank you Alan.
Thank you.
The next question comes from the line John Chan from Morgan Stanley . Please go ahead.
Hi, Thanks for taking my questions again, I'm, so basically it's a steel about the.
Oh, I'm quite the environment or anything.
I understand the switch on and off limits to the rates go up we slowed down a little bit but is there anyway we.
Can greedy use the volatility of our portfolio and then a media equity where we'd people just diversified so.
As mentioned that we could be targeting more high quality borrowers into future and dilute should we expect sudden probably lower pricing for higher quality borrowers.
I mean, I mean I'd be positivity, because if you can keep the high quality borrowers you feel and appliances incremental profit so.
Just just what's really comes thoughts about how to reduce the volatility of our portfolio. Thank you.
Thank you John Yeah. Unfortunately, the market doesn't like volatility and I I appreciate that and that's why we're building inside the business model on the open platform. What we do have a portfolio of high quality borrowers, where we can generate a consistent fee on this give us some time we are.
Hard at work at doing this now and to answer your question in a.
Another way another way to reduce volatility for the near term it's very simple.
We just keep piling on loan balance [laughter], it's a very this the oldest chicken the book right you just how on more new loans, so that youre going into the football is getting a new loan and delinquency doesn't seem to be a problem, but when it becomes a problem you will be in big trouble.
So we'd rather do things right, we've got to think that having a low leverage in a emerging kind of unsecured credit environment is the most conservative risk.
Management tool that you should deploy a and then diversify into a higher credit dollar leveraging what the banks do best on risk management together is a better business model. So we are deploying into active up we're going to the higher criticized but we don't take any of that risk.
And yes, we are developing lower our products.
But I don't think there's much room to be honest. If you think about the difference I'm just dollars adult okay. The different on the 36% I, our our versus a 26%.
On a 10000 Reminbi zone over 12 months 12 months repayment.
You know that difference of interest on the month, you know how public that since defences, it's less than 50, even be is approximately 40 of them and be per month difference in interest and again the loan principal was 10000. So I don't think that's a big difference when you grow into 20000 30000 category, then that sort of low.
I will make a lot of it.
But right now I think it's a direction we're headed.
To diversify that portfolio in a responsible way.
Thank you guys go I'm just.
For the last questions.
Do you come to you know because we obviously in the risk these stabilize and but.
That's an outside the masters and that is are we on a GAAP served them. So is there anyway. We can we can be able to track. These numbers on the most frequent basis. Thank you.
Yeah, I'm, we tried to be as transparent as we possibly can that's why we're disclosing all kinds of metrics from.
The one and one m. six charge off and both and one in M. six on both the total receivable at risk and current receivable at risk. So I think the kind of exposure maximum you should look at and I think that's what really you should look at four if fintech company with a short or long duration in the unsecured market is.
Total receive <unk> Louis we've been disclosing that from day, one we became a public company. So I think those are all good ways to look at things and de one is more of the really view real real time, how can we be more frequent I don't want to you know I'm happy to community trackers on the day to day basis.
Give us some room, a we want to be a transparent we already leading the industry in transparency I think so whether we can do more let let us give us sometime we think about how we can be better at this this obviously still much work to do.
But I think we already disclosed the highest ended in terms of disclosure.
Yes, yes, those that that's great. Thank you very much. Thank you John .
Thank you.
Ask questions comes from the line Oh, yes, they are seeing some.
Please ask your question.
Hi, Thank you for this was.
But.
I wanted to understand.
What did you just idea misunderstood your sage and digital instantly on balance sheet.
Sure.
The risk till you are.
On on your on your books.
Secondly, the question is.
Given that you're still pushing going forward you wouldn't be focusing more on the open platform and that business. How do you see on in November .
Turning next year.
Okay.
Thank you yes.
So whether it's on an off balance sheet. It's.
Dependent on a risk appetite.
The risk appetite is not about borrow within couldn't see.
Partially it is we are optimizing because off balance sheet, a kind of funding requires a interest payments. This financing costs involved. So it's a slightly less profitable business then on balance sheet, but because of the additional leverage you provide you get you actually earn a greater absolute dollar in terms of total net income so.
Balancing that all the time of the overall, if if things go really well on open platform, we expect to the leverage completely a away from any leverage.
And that's where we want to be just a on balance sheet only.
Ah business, where we see these loans as an investment a full cash optimization.
Yes, that's kind of how we want to be on in the context of open platform, yet we will not let market opportunity escape us.
We are constantly in a process to optimize risk adjusted returns.
If the total macro risk environment becomes a suitable for more leverage we would do so to earn that profit and activate more users, but as a guidance. We do not want to take on more than three X luggage. This is a company.
The internal risk control that we have so that we can kind of absorbed any imaginable or unimaginable risk.
All right. So thank you skin can you expect your on and off balance sheet alluded to the ministry to seems in terms of leverage so just 2.3 times.
In fact, where right now going into lower a we went from 2.3 acts in the second quarter two points you a in the third quarter and we will go lower go lower into the fourth quarter.
And it's a good open platform can generate you know similar if not better fees or because the risk is lower for everyone and we can deliver still fairly sizable earnings relative to a valuation enough book value, we would do that for us.
Alright. Thanks.
Thank you that's.
Hi already.
I think it's well past the hour.
So I think that's called that today, a rob if there any questions from investors Oh, we would love to hear from you Oh, a contacts for our Investor Relations team is available on the web <unk>, we would tie all very bad or two I.
Trust each of your questions with tender.
Transparency.
With respect thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.