Q4 2020 Lufax Holding Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the loss of ex holding Ltd fourth quarters 2020 earnings call. At this time, all participants are in a listen only mode.
After managements prepared remarks, we will have a Q&A session. Please note that this event is being recorded.
I'd like to hand, the conference over to your speaker of host today, Mr. Yu Chen the Companys head of.
Board Office and capital markets. Please go ahead Sir.
Thank you operator, Hello, everyone and welcome to our fourth quarter of 2020 earnings Conference call.
Our fourth quarter of 2020 financial and operating results were released by our Newswire services earlier today on the currently available online.
Today, you will hear from our chairman Mr. Qi, Guangdong, who will start the call with updates on our recent centers the corporate governance structure as well as vehicle the sort of development.
Our co CEO of make the cricket.
Ill provide a review of our business in the quarter on future strategies.
Afterwards, our CFO, Mr. James Jones will offer a closer look into our financials before we open up the call for questions.
The addition, Mr. Weiss, our co CEO and Mr. David Troy CFO of our retail credit for the patient business will also be available during the question and answer session.
Before we continue I would like to refer you to our safe Harbor statement in our earnings press release, which also applies to this call as we will be making forward looking statements. Please also note that we'll discuss non efforts and interest today, which are more thoroughly explained and reconciled to the most comparable measures reported under the international financial reporting standard GAAP earnings release and filings.
The SEC.
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And thank you everyone for joining our fourth quarter of 2020 earnings call before discussing our quarterly results I would like to provide updates on three different aspects of our business.
First changes to our corporate governance structure since becoming a U S listed company.
Second our interpretation of recent regulatory development.
Third our view of future regulatory trends as well as the steps we are taking to stay in front of these changes.
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Starting with corporate governance, Mr. Eventually chairman of the board has submitted his retirement of application as he reaches the Golden age of 65.
Adherence to U S listing regulations, our both how the meeting on January 29 on approved channel lease retirement, along with the resignation of for how the shareholder directors unwind independent director.
As previous co chairman of the Board I would now assumed the role.
Joe of Chairman of the Board. The addition to my role as Chairman of <unk> Executive Committee.
We have also appointed Mr Tong and Mr. David selling day, as our independent directors and Mr range as our shareholder director.
Following these changes our board now consists of non directors of MAU, whom III executive directors five independent directors and one of the shareholder director.
Additionally, our nomination Remuneration committee as well as our audit Committee now solely consists of the independent directors.
Such changes have brought us into full compliance with the NYSE listing requirements for the majority of independent board on for both of the aforementioned committees to solely consists of the independent directors.
As representative of U S list the company, our new board of directors will remain dedicated to improving the company's corporate governance protecting minority shareholders interest and establishing prudent corporate strategies and efficient manner.
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In addition, after a careful review of a thorough discussion our board of directors has decided to adopt a co CEO executive structure. As a result missed the use of coal and Mr. Gregory themed gift will serve as the company's co Ceos going forward with Mr. Cho in charge of our retail credit facilitation business and missed the getting charged of our wealth.
Management business.
We strongly believe that this new management structure is in the back of interest of all stakeholders, enabling us to Q2 of its more synergies across business segments and better integrate our overall business resources.
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Now turning to the regulatory developments Fintech industry regulations continue to the typhoon in China throughout 2020 at the end of 2020 at the beginning of 2021 for example, regulators introduced the series of new regulations, including the interim measures for the administration of online micro finance business the <unk>.
<unk> guidelines for the platform economy industry the.
The interim measures for the administration of cells of wealth management products from wealth management subsidiaries of the commercial banks on the notice on the regulated and commercial banks to come back personal deposit business through the Internet.
On a fundamental level. These regulations represent the government's desire to promote prudent innovation prohibit monopolistic practices protect consumer interest and maintain financial stability and security.
Facing increasingly stringent regulatory oversight, we have adopted an overarching strategy of the embracing regulatory change in the.
<unk> in proactive dialogue with the regulators and forging collaborative and productive relationships with local authorities.
While we do recognize that stricter and more standardized regulatory requirements made of resulted in some short term pressure on the company. We also believe that such changes should foster a more long term benefits for fintech market leaders such as <unk>.
Now allow me to elaborate on the how these policies have impacted our own businesses.
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First for our retail credit facilitation business, we seek to thoroughly understand the spirit of regulations and proactively communicate the value of our services to the regulatory authorities.
Our understanding of the current policies intend to prevent excess consumer borrowing costs and all the extension of consumption on credit limits by younger consumers in respect of lending costs. The latest legal explanation from the spring People's Court of China's stipulates that the four times. The LTI interest rate cap is neither of the capable to the lending businesses of financial institutions non.
The local financial and local financial organizations.
Since September 2020, we have restricted our all in London costs for facilitating on new loans to no more than 24%, which is in line with the latest requirements.
What is noteworthy is that our loan facilitation services differ from other internet consumer lending services empowers the use of loan proceeds we primarily serve macro on small business owners and meet their operating needs in the.
Doing so we hope the physical economy to grow and prosper, which is in full alignment with policy directions.
Although we faced temporary pressure from the uniform enforcement of regulations across the board we are engaging the axis on persistent dialogues with the regulatory authorities. So that our business is mission and societal value of fully understood and appreciated.
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That price of deposits business is through the Internet on January 15, 2021, we had already ceased offering on the deposit products.
Since these products only represent a small portion of our total income we expect that the financial impact of these adjustments on our business will be both limited and manageable looking.
Looking ahead, we will continue to promote the standardized product in structured products on our platform.
Propylene the growth of our business through superior product recommendations and user experience. We will also continue the work towards empowering small and medium sized commercial banks through advanced technology.
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As the U S list the company new facts, we remain in compliance with the lives of cargoes of both China on the United States. Moreover to improve the compliance and transparency of our business operations. We will also remain vigilant of relevant regulatory development. We believe that our unique hub and spoke model will enable us to enjoy the sustainable growth even on the strict regulatory oversight.
Although the increased scrutiny you towards the companies may severely affect the small and medium sized platforms. We believe that strictly of regulations will be more advantages to lose sight of the long run.
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Finally, I would like to share our views on the future development of regulatory policies as mentioned on our previous quarterly earnings call. We expect that regulations for retail credit facilitation will focus on seven different areas, including interest rate cap capital requirements.
Bundled sales geographic coverage restrictions on the institution of risk management use of proceeds of our applications and consumer protection.
We are actively prepare on our businesses to maintain compliance in those seven aforementioned areas.
Turning to lowering our lending costs. We have also increased our overall risk taking rate to six 3% as of December 31 2020.
By mid 2021, we intend to have increased our all of our risk taking Rick the 20% for all new loans facilitated.
Based on our analysis of forecast, we will have sufficient net assets to cover potential capital needs going forward.
In regards to geographic coverage restrictions in recent years, we have established branch offices in key cities across the country to ensure that our nationwide operations remained smooth on compliant.
Furthermore of the consumer protection front, we have upgraded our apps and processes implementing more timely response protocols with the customer complaints and providing our borrowers with more credit enhancement choices to better protect the interest.
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In conclusion, we believe that we are well prepared to navigate through the regulatory uncertainties as we engage in active communications with the regulatory authorities. We are confident that we will complete our business transition smoothly, while maintaining regulatory compliance with a refund operational processes technology enabled cost optimization and.
Risk matching pricing mechanism, which should be able to sustain a healthy and profit growth for the long run.
Half of the past seven finance side of the key headline on outlet chain, Greg Chi Chi puzzle of close to the change in cloud I will now give the floor to Greg who will share our business updates for the quarter.
Thank you <unk> before I begin. Please note that all of the numbers are in RMB terms and all comparisons are on a year over year basis, unless otherwise stated.
In the face of regulatory uncertainties in revenue market noise, we upheld our commitment towards driving high quality and profitable business growth.
Such we exceeded our previous guidance delivering solid financial and operating results of the fourth quarter of 2020 as of December 31, 2020, our balance of loans facilitated a growth of 17, 9% to 545 billion, while our client assets in the wealth management have also grown by 23% to 426 billion.
Moreover for the full year of 2020 total income grew by eight 8% to 52 billion, while our non <unk> adjusted net profit grew by two 1% to $13 6 billion.
Underpinning the positive outcomes with several driving factors.
First we continue to observe improvements in our credit quality the seem to entry slow rates of the leading indicator of risk performance on our lending platform continued to stabilize around its pre COVID-19 levels. In Q4 2020 are slow rate was 4% as compared to the 0.4% in Q4 2019. Additionally, our 30 day.
As pass through of plus further improved to 2% in the fourth quarter from two 2% in the third quarter of 2020, while our 90 day past due decreased to one 2% in the fourth quarter from <unk>.
One 3% in the third quarter.
Second we received more clarity surrounding the interpretation of the average application of interest rate caps were pleased to see as chairman as you just mentioned the recent Supreme Court guidelines and local court cases, providing additional clarity on the interest rate cap. These developments were largely in line with our expectations and all of our loans for the September.
All of last year had been below 24%, we do not expect any of further adjustments to our revenue rates in the short term.
Third in line with our science and the continued to make good progress of establishing a more sustainable Vishay business model is encourage you can see that our funding and the sales partners of remained supportive at of embraced this new model as of December 31, 2020 are extending the balance of loans facilitated with guarantees from third party insurance partners decreased to <unk> <unk>.
88, 8% from 95, 6% of year ago.
Moreover, Ping on P&C accounted for 77, 7% of new loans sold in the quarter down from 93, 2% a year ago, while our funding partners for the risk for six 7% of new loans.
On the fourth quarter.
Fourth we further penetrated into our core and target segments customer segments. During the fourth quarter, 77% of new loans facilitated the were disbursed to our core segment of small business owners up from 62, 1% in the same period of 2019.
In the wealth management business the contribution from customers of investments of more than 300000 renminbi as a percentage of our total platform client assets increased to 75, 5% as of the fourth quarter versus 73, what the side a year ago. Moreover, our 12 months of Investor retention rate remained high at 96, 8%.
As compared to 93, 3% in the same period of 2019.
Lastly, we observed strong growth in our current product client assets in the wealth management business current product client assets grew by 67, 2% year over year and thus the accounted for 95, 5% of our total client assets as of the quarter and the remaining legacy <unk> assets decreased to $19 4 billion.
Over the four 5% of total client assets as of the quarter ex.
Next let me provide us more context regarding new loans sales take rate and pre tax margin in the fourth quarter.
In retail credit facilitation of our loan.
Sales for the quarter were $132 7 billion slightly ahead of our prior guidance and representing a three 2% year on year increase.
We also observed stable credit demand some of our small business orders in Q4 as well as the very strong start to the new year. In fact for January of 'twenty. One we just recorded our highest ever single month loans sales, representing a year on year of double digit increase.
The result of our adjustments the borrowing costs back in September 4th last year, our revenue take rate experienced temporary pressure in the fourth quarter declining to nine 1% in Q4 from 10, 3% a year ago.
As these adjustments at the time of occurred overnight. We believe this decline is temporary in nature.
Nevertheless, we are now renegotiated with our partners to reduce our funding and credit costs as we continue to adjust our cost structure of it will take some time, we believe our revenue take rate of net margins will improve in the future throughout the course of this year under the circle back on this in just a moment to explain to everyone on how we're going to get there in 2021.
Now despite the regulatory uncertainty, we expect double digit topline and bottom line growth going forward through this year as I mentioned, we've already had a very strong start for the year recording the highest ever single monthly the sales while maintaining the full of steady backing of our insurance funding partners. We also decreased.
<unk> Commission rates, starting this January and we've continued to optimize our funding costs and we're starting to enjoy lower CPI clauses of the service partners' adjusted the pricing on the back of better credit and customer quality.
All of these factors are leading to a recovery in pretax net margin as compared to Q4 2020.
We expect this trend to continue throughout the remainder of 2021.
Due to the complex accounting treatment of revenue recognition for loans of the facilitate versus trust funded loans and the admission recognition of the credit costs for our risk bearing loans, there will likely be some quarterly volatility in our net margins, which James will elaborate more on next but in spite of this strong performance of January.
That's given us confidence of the health of the advent of of new loans sales as well as our underlying unit economics and facts.
After overlooking the accounting treatment of complexities, we believe the boat here.
Here, we're talking about take rate and economics of already bottomed out and will continue to improve throughout 2021.
For our 2021 business priorities, we will continue to monitor the deregulatory requirements and be prepared to address quickly when required similar to how we have operated in the past now.
Now as we look ahead and the.
Retail credit facilitation the ste.
<unk> of all of our rates and continued optimization of external and internal costs are expected to improve our underlying economics. We will also continue to execute our plans for the needs of sharing model diversify our funding channels secure more funding partner support and enhance our deployment of technology.
In wealth management, we will prioritize revenue optimization and product mix over client asset growth.
The reason we had made the decision.
In reflection of the tightening of regulations in some areas that we've seen such as the bank deposit of distribution, but we expect revenue growth to be in line with our own expectations as we explore more qualified investor products and increase our focus on those insurance of equity weighted related products capable of generating better returns of our.
This.
Our two businesses will also be working together to expand our technology enabled services and lending and wealth management, the small bank partners.
Expect the strategy to deepen our ties with the partner banks and to generate additional revenue opportunities I will now turn the call over to James <unk>, Our CFO to go through the financials of the tests.
Thank you Greg I will now provide a closer look into our fourth quarter financial results. Please note that all the numbers are in RMB terms and all comparisons on.
The year over year basis, unless otherwise stated.
We continue to deliver solid financial results in the fourth quarter of 2020, our total income was $13 3 billion up five 9% year over year.
More importantly, our net profit increased by 17, 4% to $2 8 billion in the fourth quarter.
One of our net profit margin sort of expanded to 21, 4% from 19, 3% in the same period of 2019.
Before diving deeper into our Q4 numbers I want to highlight two factors that create a mismatch between our revenue and earnings growth and the actual business growth.
These factors have impacted our 2020 Q4 results and we will continue to impact our <unk>.
2021 results.
First our increase in on balance sheet loan slows the pacing of the revenue recognition in comparison to that of off balance sheet loans.
Revenue and expenses are recognized over the life of the loan.
The loans that will facilitate retail credit system based on service fees are recognized on the ice.
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And a great portion of the revenue is recognized in month one.
Reflecting a larger portion of the service that is provided to the boroughs in month one.
We utilized at the funding channel.
On interest on loans for which we need accounting consolidation declining.
Recognized as on balance sheet lending and the revenue for these type of loans is recognized as net interest income and <unk> nine.
The recognition of monthly revenue and the <unk> nine is more evenly spread out across the lifecycle of the loan.
Furthermore, in Iff's line, all revenue associated with these loans, where the facilitation interest organic in nature is all recorded as net interest income.
With the alone it's funded by a bank therefore recognized and almost 915.
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Middle of business difference as the overwhelming majority of the loans are funded by third parties in any case.
However, the accounting treatment differs greatly as on balance sheet revenue is recognized at a slower pace than off balance sheet revenue in months line.
Therefore, creating a temporary deviation between accounting result on the business performance.
Second.
So with the daily loans, France note low credit costs.
As we start to be at more of risks, we expect to earn more margin over the life of a loan.
As the margin previously earned by our insurance partners will now come to us.
However, the accounting standards require us to record a provision the total.
And by <unk> nine for the month in which we take on a new loans why of the revenue associated with variant of that risk is recognized over the loans entire life.
This time the mismatch means that our net margin will also be under pressure during those periods in which we increased our all of this.
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Nonetheless, once the stabilizes, we expect our net margin to return to previous levels.
These factors affected the pace of our recognition of revenue and expenses.
Adding a timing mismatch between our financial and business results.
Kind of where Nike without even more quarterly movement and volatility.
With that now, let's take a closer look into our Q4 numbers.
During the fourth quarter, our total income increased by five 9%.
One of our revenue mix continues to change is the result of our business models ongoing evolution.
As discussed earlier such revenue mix change.
Note the pace of revenue recognition.
Following our decision to increase spending from those consolidated Chuck plant that offered lower funding costs and continue to increase the volume of loans for which was the credit risks.
Our net interest income in the guarantee income grew significantly to $2 6 billion.
95% of total income in the fourth quarter.
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Or eight 2% of total income in the same period of 2019.
As a result, our.
The retail credit specific cases of the speed decreased by nine 9% to $9 3 billion of.
69, 9% of total income from $10 3 billion or 82, 1% of total income in the same period of 2019.
The annualized the take rate for current products and services on the wealth management platform was $31 four bps in Q4 as compared to 21, five bps a year ago.
We calculate the take rate by dividing total wealth management transaction and the service fee for Covid products by our average current product client assets.
As we upgrade our business from product distribution to focus more on providing our partners with comprehensive technology enablement offerings.
We are generating a greater portion of revenue from the service fees that are not directly linked to product.
In light of the ongoing transition we believe this takeaway measurement.
It reflects our business and that plan to continue using it going forward.
Now moving on to our expenses in the fourth quarter of 2020, our total expenses increased by 11, 7% to nine 1 billion driven by external factors related to early customer repayments and the credit cost from southwest very known as I mentioned previously.
Our sales and marketing expenses increased by 25% to $4 9 billion during the fourth quarter from $4 1 billion a year ago.
Our borrower acquisition expenses, which are a major component of our sales and marketing expenses increased by 572, 3% to $2 8 billion from $2 3 billion a year ago, mainly due to the accelerated recognition of certain expenses that will recur.
In the quarter as the result of customers early repayment.
Since we started too.
Changed how we charged monthly fees in September 2020, the negative.
Pact of early couple of repayments on revenue has largely be minimized.
However.
Early customer repayment also the impact our sales and marketing expenses.
When the loans repaid early.
The required to recognize all of the remaining sales and marketing costs that have not yet the amortize in the sea.
Eight months.
Therefore in the period of high early repayment sales marketing costs on line.
Likely to be inflated when compared to actual activity in the period.
Meanwhile, our invest the acquisition invitation of expenses decreased by 17, 5% to $277 million in the fourth quarter from 275 million a year ago, mostly due to our improved invest the acquisition of efficiency as we leverage technology to.
<unk> greater precision in the investor profiling and the targeting.
At the same time, our general of sales and marketing expenses, which are mainly comprised of payroll and related expenses for marketing personnel brand promotion costs consulting service fees things development cost as well as other marketing and advertising costs.
Kris.
By 24, 9% to $1 8 billion in the fourth quarter from $1 5 billion a year ago.
This increase was mainly due to our Christmas.
The postponement of marketing campaign and the subsequent resumption in the quarter as dealers across the country restarting of the operations in the post pandemic period.
Our general and administrative expenses increased by 47, 8% to $986 million during the fourth quarter from 667 million a year ago.
The increase including the employee social security payments for the first three quarters of 2020, which were previously the delayed following the release of government policies made in response to the outbreak of COVID-19.
In addition, we also recorded a higher share based compensation expense for the fourth quarter.
Consistent with the growth of our outstanding balance of loans facilitated our operations in the servicing expenses increased by 10, 6% to $1 7 billion during the fourth quarter from $1 5 billion a year ago.
Our outstanding balance of both of the facility grew by 17, 9% to $545 1 billion as of December 31, 2020 from $462 2 billion as of December 31st 2019.
Meanwhile, an increase in our loan repayment volume net to an increase in our payment processing expenses and the consolidated top line fees to <unk> during the fourth quarter.
This increase was partially offset by our use of AI to improve the efficiency of our loan approval and the collection process, helping to reduce the related costs.
Q4.
Decreased by 17, 4% to 461 million during the fourth quarter from $558 million a year ago as we continued to improve our efficiency.
Our credit impairment losses increased by one 4% to $985 million during the fourth quarter from 971 million during the same period of last year.
This increase was primarily due to our higher loans with David This exposure as our business model continue to evolve, causing us to start to get more risks and record of credit impairment losses upfront.
The increase was also due to an increase in our loan related receivables, which was mostly driven due to the residual effects of COVID-19.
Conversely, the increase in credit impairment losses was partially offset by the year over year decrease as the management of impairment losses during the fourth quarter.
Our finance costs decreased by 17% to $326 million in the fourth quarter from $393 million a year ago, mainly due to the decrease in of our borrowing cost during the period.
Consequently, our net profit increased by 17, 4% to $2 8 billion during the fourth quarter from $2 4 billion in the same period of 2019.
Our basic and diluted earnings per Avs were both $1 five renminbi as compared to $1 went to women in the same period of 2019.
As of December 31, 2020, we had $24 2 billion in cash at bank.
Compared to $7 4 billion as of December 31, 2019.
Looking into 2031, the size of the previously discussed accounting and the temporary business factors, we expect our margin in Q1 to the somewhat impacted by the profit growth to resume starting from Q2 and beyond.
For Q1, 'twenty 'twenty, one we expect the new low sales to be in the range of one of the 75 billion to $1 80 billion.
Client assets to be in a range of $3 85 billion to 295 billion.
Other income to the in the range of $14 3 billion to $14 6 billion and net profit to be in the range of $4 billion to $4 2 billion.
For the first half of 'twenty 'twenty, one we expect new loans sales to be in the range of $340 billion to 350 billion of trial.
Assets to be in the range of 375 million to 385 million due to the stoppage of online bank deposits.
Total income to be in the range of $28 five $2 $79 3 billion.
And the net profit to be in the range of $7 8 billion to $8 billion.
This forecast reflects the company's current and preliminary views on the market in the operation of the conditions, which are subject to change.
This concludes our prepared remarks for today, operator, we're now ready to take questions.
Certainly at the time of you would like to ask a question as a reminder, please press star then the number one on your telephone can you kind of move.
We'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Elsie Cheng from Goldman Sachs. Your line is open.
Good morning, Greg.
Correct, yes.
Congratulations on the kind of quarter again, and thank you for taking my questions.
Two questions here first is on the ICF take rate understand that we're targeting to sort of higher quality clinical hard linking all of interest range.
Environment.
Given the recent the clarification on the applicability of our Gi restriction.
Just wondering can we expect some upside in our CEO of takeaway fly now that would probably have more flexibility on interest rate that's going on targeted clinical site and my second question is really on the guidance. If my calculations are correct. Our neural cells in first half 'twenty 'twenty. One is guided to grow at a very solid pace of <unk>.
The one present year on year at the midpoint, So can management share net debt more color on the major drivers of the growth.
And Kelly actually extrapolate this growth momentum into the second half of small thank you. Thanks.
Yeah.
So let me first explain.
So a few of our.
Our economy.
Fourth quarter last year.
Our new loans.
We can with lower take rate and the margin because.
We reduced borrowing costs.
On the cost feedback and our sourcing cost.
<unk> dropped at the fan case immediately.
And fourth quarter of needles.
About 75% of 2020 at year end loan balance.
So thats why we had.
Lower capex in the fourth quarter last year and most of August 2019, we had more towards funding the MTR portion.
Both of our head of the heads.
If you look at <unk>.
January 'twenty 'twenty, one last month number.
Great.
In January.
Michelle we deliver that for the high say all of them.
<unk> growth 100 billion USA is one line.
And then we.
We are able to sit at the funding of course, CGI PM and balance sourcing costs, obviously drops.
And take rate as a result of take rate on margin very much in line with our the expectation. So you know of or expect to of transit center of take rate of net margin level and the we believe this will continue they've got the confidence for full year expense, one our take rate and net margin.
As.
New business.
The first case without much change and the casino of API.
The Supreme Court of <unk> five.
Four times of HII does not apply if the house apply.
Our price to financial lending institutions.
Any kind of companies and consumer finance and small companies. However, we believe the <unk>.
100 items from <unk> remain unchanged at 24%.
So we.
We don't have any expenses of just our price.
And then depending on the product of the funding cost credit cost reduction in the operating cost optimization, we follow on to reduce.
Our borrowing costs gradually slowly the more price of affordable and competitive and distribution of creating market. Why we can maintain current take rate of net margin level.
So we don't have any <unk> of plan too.
The great price at the smaller box.
Going forward in the long term with tech transfer to the gradual decrease our borrowing costs.
S GAAP for the first question.
Second push on it.
Yes, our sales volume growth as I just mentioned.
The January this.
This year, we delivered almost close to 108 billion on case, which is very strong TEG momentum.
And going forward.
We believe the sales growth the market demand is the 10-K and then our sales force profit increase is the August will be half.
The last year without any increase of April's head count.
The legal 14, 4% annual skateboarding growth so a refocus on more and more profit to implement at the same time with our AI applications the ship.
On the debt side of Teng and.
And develop the inbound tariffs going forward, but as on any time in the kind of take rate market.
<unk> expenses.
For now we cannot see any other online channels, which can give us ex.
RFG.
Powers at full price channel, such as El Nio space, while adhesion of agents.
Our highest volume and the weak.
Our acquisition of course, we can hit.
So in the meantime, our offline Cleveland say this will continue with about 85% completion ratio of but of going forward the appliances together for the efficacy counts.
Got it that's very clear thank you.
Your next question comes from the line of Mei Yan from UBS. Your line is open.
Thank you good morning, Thanks for taking the opinion to ask the questions and congratulations on the earnings.
Debbie.
Accordingly, the again.
Okay. Mike My question on the Church management made the too.
Each of regulation, if I cannot ask.
Kingdom.
As of in Chinese.
The woman can vouch for sure.
Kimco on net change in the cycling quite each of Sydney.
On ebay is the tissue of any hanging on April <unk>.
I can assure you again and E of intellectual TJ manager two day, the Kiko Simona on social issues or items in the central.
The Argentine peso.
On line four.
And I can both Eric and choking point of quantity the John J D.
P J quite some kind of true cabinet, the Oakland I'll tell you what.
I'll take that jumped in the champion yet with the central attention so much of that.
So the question.
<unk> hundred 82 <unk> earlier.
Consultation.
Paper on.
Credit.
Maintain business.
And the people integrated.
They apply to loan facilitation business and loan facilitation.
And the companies that will be required to have a.
The 18th.
Licensing.
Is there something relevant to Luca.
Okay and then.
Second question.
Still on the take rate.
And if I understand that the the take rate maybe temporarily.
On the fourth quarter net take rates net pretax profit of 10% to 851% of revenue take rate nine one percentage.
<unk>.
So the previous expectation.
So this year. He said this is going to the grant gradually recover on <unk>.
The range of $3 four tools throughput type of 4% net take rate.
What we'll do.
It would be the path for that.
And what is the recent.
At Pgi content, you mentioned was the $6 7%.
The fourth quarter and also the on the on.
The funding partners cost.
And then our long side the new loans.
Our below 24% interest rate I day.
At the size of that not much larger than before I remember in the first quarter you mentioned about 200.
It sounds of promoting is it even higher than that.
As of now and any guidance on the CVR skew to increase the 20% kind of the rate exposure.
To the higher maybe 30% of yourself.
Thank you.
Tiger or Tanzania, Youll continue to yield the researching the residual.
The <unk> should come true I cannot go through the <unk>. The curtains of three applicable Shanxi no matter I think of thinking Chico CEO of the 100 triangle Chowdhry of Egypt, Chico the tissue greeting.
<unk> let.
Let me have predominantly of Azure blue gel.
EBITDA more for that while the other current loans moved chance of Qinghong, what youre kind of Hudson yards. The center it could be of the cohort of cheer wholesale on the slip by the should come on some items in the congrats on the GTO opposition on liquidity number.
GOP can play towards through the tax code.
In the R&D it sounds simple switching, though you didn't give us a prequel highlight.
We'll chairwoman of anyway.
The amount of two valuable surface, we just sort of thinking though on <unk>.
And help us to the mill.
Each of the Zika sofa type of work.
Kind of footage or maintenance of the second Gen level of my yoga fit on the hotel.
On the Google Global so of channel lag.
Bob or million value of because James on the filings were challenging well Mitsui.
So those of you going in the Yonder, which I'm, even some goods from kind of opposite of should.
On <unk>, what's your kind of shut ins again, Bob timber on the number comes out you'll sort of confusion channel was hydro the.
<unk>, which is actually at the housing growth.
So in terms of the credit scoring business.
Think of the guidelines at the moment of the reasonably early and preliminary.
Business requirements on the shareholder requirement of.
Critics growing institutions, the roots of on PV, Yossi and all of that clear as of yet we do think it's probably target of that.
The surgeon specifically probably on her as part of the record net of pension plan and this is why the came out of <unk>.
Of course, new rules applying to the special case could be later on on widely applied to the industry.
Some of the loan facilitation business we have.
We don't think its currently directly involved we don't think our business will be classified as.
The critics growing institution at the stage we are in.
And the training of our numerous dialogues with the regulators so in the future if it does become the case.
The rest assured we'll get enough pre volume so we can plan and position our business Accordingly and early.
In conclusion, we think it's early on preliminary stage, we need more clear requirements from the <unk> before we kind of ex wood.
We'll take the Shanxi kind of with that somebody on the Hill 50 government chips. The lineup will continue shelf that kind.
You can see bullish the challenges.
So it may take another quarter of for the proves to be cleared.
Good day.
On the second half of the west actually on.
I can get a simple question.
Pushing on.
So the question is talking about fourth quarter take rate of 19, 1%.
And I expect that many of the costs the fourth quarter minerals can week lower take rate and the market activities.
Highest quality of course collect the principal per cap from September of last year.
But.
The 50 <unk> annual number I did put the number changed in JV in Asia due to GAAP limitation.
On January our take rate of net margin on related to recover back to.
With respect to the level.
And overall net.
Net debt overall of printed Trenton networks already so we are operating.
During the ship sign up and how relative to that point.
As of August two hour funding of course, and the feedback Pmt's axiom.
Our interest partners. It was the change at Titan method from the amount of base load amongst base to balance day from mid January so on.
As a result the youth.
On the CGI from the ratio and we also decreased our <unk>.
All of sourcing cost in January of heart from January we reduced our provision by 15%. So as a result, the retail platform.
Ex which of course, the net net our take rate the module of the cohorts very nicely effects of ordinary level.
And so next question on <unk>.
Take that we don't see we don't see much change in leasing of PMI.
Yes.
Before setting the force our average check that was if you remember it was 116000 of MB and then since we use of high quality cost and then switched.
To better put the segment from September faced with lower price deck.
Net.
The <unk> from $106 90 to 200.
Element day so.
So this is accessed on increased by about little more than 20% and this is the reason why.
We could reduce the take commission by 50% and lastly, about our test the portion of 20%.
As of December last year for.
Our first cancer portion increased to 13, 6% and the north we make it.
Of the 20% in June for new loans.
Ex policies for some of the week our regulator.
For the then 10% you don't have any on our plan at this moment of lot of these days.
Yes.
The regulatory request more than 20% on kind of 30% for that we have enough organic texture to support the debt.
Ex more debt guarantee of portion so we don't have much concern.
Your next question comes from the line of of what are you from moving from Bank of America of your line is open.
Thank you very much containing the EBIT opportunity two questions I guess first the regarding <unk>.
Again, the regulation and our licenses.
On November last year to the ICU.
On the population of the consultation paper for the online micro loan companies license.
Have you start to communicate with the regulator regarding application for a national operating licenses and is there any feedback from regulators on.
Outlook of when we will get clarity certainty on getting this like national operational items and also we look at obtained at the consumer Finance license earlier last year. So what's the progress in using the consumer finance license how much of the the business, whether it's the loans facilitated or the other.
Standing balance is being done by the consumer finance license and what's the plan. There. So that's the first regarding those licenses and second James mentioned that the.
The accounting difference from booking loans online versus offline.
I think by end of last year, roughly I'd say on that.
The rest of the offer.
Balance sheet.
As of end of last year, you had over slightly over 20% of the total loans outstanding on balance sheet.
So what's the plan day or do you see that further increased to <unk>, 40% or is that going to stabilize at around 20% level so meaning.
The related question is when we will see the normalization of stabilization of the account.
The account booking for those like revenue and expenses.
It is like a base.
The normalized thank you.
Okay.
Okay.
Thanks for the question of phosphate of us.
The two licenses online micro loan on that basis, we have.
We have three licenses in 2010 non engine and the out of the floor.
Nationwide online micro lending licenses, but we havent got clarity on a couple of myself on regulator about the net stable development of those businesses.
Those licenses are not the used at this moment and then Jeff license. The carry in April of last year with positive beginning from May of last year, and then on agile as of December of last year, we have with growth.
$6 5 billion.
With about a little more than two on there.
The new customers and the ending balance was about $3 5 billion of engaged so we made of very good path and then this is very much of the pro form our our Covid business is a great complement to the business to sort of younger and prints on some borrowers. So we believe this is the opportunity.
And the interest can be on new baseline going forward.
And the focus of our accounting makes up.
Range.
All eyes on balance sheet versus of Fabulous shape.
Gains on our funding mix and then.
It's already stabilized AXT, Inc. The form.
For our funding mix will be scheduled with 70% from hardcore day and net profit per case from the trust and I believe kind of mix, we continue without much change so as a reserve on.
On balance sheet and of benefit business I think has already stabilized.
Sorry, just to clarify how about you taking more.
Okay. So the.
70, 30 between Bank and trust is already stabilized.
Any plan like for example, growing of the at the consumer Finance business might mean that you will have more loans funded by yourself is that going to change the picture.
Ex Craig his backpack.
Speaking of our overstated.
Our provision of loan balance as of today, it's almost it's almost of 600 billion.
On the planet fitness is ecommerce.
The eight 5 billion so moving.
How quickly that growth it does not take much portion out of our total loan balance day play to take some time. So I think we can say with the stabilization in funding between bank and trust in terms of other on balance sheet of basically will be driven by revenue take the credit rest of yet.
That is why I said, our target would be to 20% by June.
The a little bit more time, but it is roughly stable of efficacy already 35%.
Alright, and so for the consumer finance license it will be more content that simple.
Pretty.
Differentiator of the business line, which is the sort of the <unk>.
Two of the consumer loans.
What's the average ticket size, there and whats on the lending rate the cigna.
The difference from our traditional business.
Yes.
That is very positive of outpatient facility.
The option to license license.
This call.
To kick that cannot be more than 20000.
Yes.
Actually.
This control of that less than 50000 net outskirts of keeping full force.
Powers is less than 20000 of Mb.
Paolo.
And the average price less than 17% APR.
Thank you and how about the maturity on those.
Slide seven a lot of two of the loans and can we find which is the only like a few months of maturity.
But despite the open this line of credit products like the virtual credit costs so of customer.
So one of the day.
<unk> expense and game of equal.
The four monthly payments of 30.
The things like three months of six months.
The next payments and the clinical evidence.
Okay. Thank you.
Thank you very much.
Okay.
Your next question comes from the line of Thomas Chong from Jefferies. Your line is open.
Hi, Thanks management for taking.
My questions.
I asked the question about the wealth management first can you provide us some update about how we're using our technology in our automated our portfolio strategy.
In simple.
And on the dividend I'm talking about the online deposit.
How much does it sort of bill tool.
All of our client asset mix and then my second question.
He is about the.
The second half outlook, given kind of would be half of Q1 in the first half how should we think about on a full year basis in terms of the top line at the bottom line. Thank you.
Great. Thank you Thomas as Greg here on the wealth management side.
In Q4, we basically did two things so there was the.
The existing portfolio portfolio manage the tools.
We continue to use more and more market data to help provide a set.
The diversified.
And the strategy for the clients.
And that has continued to progress in the fourth quarter as it has in the recent year.
What we've also done.
Is.
Opened up the platform to allow other financial advisory providers to come on and.
Basically providing more and more product more service to the customers and so this is an area that continues to grow at a good pace.
We think as we become more important in the market as a whole.
And we're continuing to drive more and more automation and more and more content sharing.
With customers in that line. So they can get use of diversified investing.
On the.
The deposit question. If you go to the end of last year of the total client assets.
The deposits made up about 16%.
Of the total.
So about 660 billion renminbi.
And that represented the revenue generated by that business was less of <unk>, 4%.
Of the total company so as the.
Let the deposit products mature naturally we will play a direct clients.
Money for those products into other areas on the platform as we have done in the past with the likes of.
The PDP, so it'll be an ongoing transition for that area.
And then on the <unk>.
Q1, just a quick response, we do believe are rather of the first half of the for the full year. We do believe that we will see double digit top line and double digit bottom line growth.
We're we're pretty confident of that certainly for the first half we will continue to balance of the regulatory situations as it goes but overall, we do think the <unk>.
Outcome for 2021 will be double digit on both top and bottom line.
Got it thank you.
Your next question comes from the line of hard on trend from CLSA. Your line is open.
Thank you for offering is helping to ask question.
The Shanghai structure Okay.
I've got two questions.
First of all line is on the wealth management side.
So Craig just mentioned that the the.
The strong growth.
Loss in the fourth quarter last year, but looking to the guidance for first quarter on it also first half. This year, we look at the client assets is actually showing a slowing down in terms of growth rates. So just wondering why we are prudent in the.
Wealth management client assets outlook.
Also related to the rest of marketing sites were wondering why the take rate.
For the covered of trucks were actually down quarter on quarter.
So what's the reason behind it that's number one.
And number two is that it.
Just wondering on the dividend sites.
We understand that the management mentioned previously that there is no near term plans to pay out dividends.
I was just wondering in terms of longer term.
Once we are good at the catheter, France do we have any intention.
To offer any dividend to the investors. Thank you.
Thanks Hans.
Welcome as requested.
We anticipate two things happening in the first quarter with regards to client assets.
One is as those deposits reserve that 60% of the great assets, but they will actually matured reasonably quickly.
The average duration of both of those products was about six to nine months and so that will have some dampening effect on the <unk>.
<unk> growth the <unk>.
Other thing is that we continue to accelerate the final resolution of the.
The PDP products in the first quarter and so we really are going to probably push both of the deposits and the future.
The portion of the down.
And then we will be shifting quiet money for other areas, but the outlook. Therefore that we've taken at least of the first half for the wealth management as we will focus more on continue to optimize the product mix.
It will allow us to continue to meet our revenue expectations for this business, but we will take the the sort of a little bit off the accelerator on the slide assets as we optimize the mix.
That is the that is the focus for the near term, but we will update if that situation changes.
On the take rate question, we actually did have very strong.
Growth of the fourth quarter EBITDA before some of these changes like the deposits came into effect the growth in the fourth quarter was the combination of bank.
Asset management products and bank deposits and so you had accelerated growth of the of the.
Denominator.
The profit take rate down a little bit so that you had a 5% decline quarter on quarter, but year on year of increase of 10%. So as we look forward into this year of 2021, we expect.
Over the course of the next three or four quarters that we will continue to see improvement in take rate as we drive that mix and product on the platform.
On the specialty of dividends, we have no immediate plans the issue dividends.
Our intent is still very much to grow the business to deepen our use of technology.
And at a later date.
Look at it but it is not on the immediate.
Radar.
Thank you. Thank you.
Your final question comes from the line of Binnie Wong from HSBC. Your line is open.
Hi, Good morning, Thank you for taking my question here.
So my question actually two questions. One is on the retail chris's presentation of some of the thing.
I think there is of course, we've seen the decline in the past two quarters.
And then I guess consensus is also looking at the two new salary, especially on into the second half of this.
One of that some of the challenges that you might see that might not able to see the inflection point on might be made that inflection point and then with that also can you give some color in terms of the.
That type of thing typically as well.
And then also one follow up question on the definition of side effects of remember any of on the transaction. When we talk about the interpretation by Patterson on the four times one of the unknowns.
And where does that also include the kind of guarantee.
Yeah.
Interpretation is true.
And local currency also set the second wound. So I'm just wondering any update on that and then just for the final quick follow up thank you.
Now.
Now on.
There was legislation of four times a day of cost so many of them.
And on some of the muscle of recap.
Looking ahead of our highest price of eight 4% and then within that.
Exclude GAAP.
The creating an excellent fees such as the entities and <unk> premium all the way.
Price cap with increasing corporate fan.
And I believe now.
Clarity, so we don't care about Disney.
So.
It.
The Supreme Court day.
<unk> five <unk>.
<unk>, Pennsylvania cast on upside.
For financial lending institutions, the Cal against company.
Finance of our smaller companies in Mexico archived on clinical for Ken Silicone mix is starting to the net for economic over price the second from the corporate and with the FTC stainless component and the MPC fine we can kind of lay of free environment.
And the focus on about the ICI therapy.
The overall, we take the HR.
<unk> remained unchanged throughout 'twenty 'twenty, one 'twenty 'twenty. One you don't have any kind of increase loss decreased overall borrowing cost and in the fourth of January number.
Our take rate and the margin is related to our.
The 2020 level renewable our flexibility in terms of take rate net margin are very much in line with our previous expectations and over 50 of the HII will stay.
On changes, while really of the changes now much changes of throughout 2000 transport takeaway, whereas I think well put one part of the question maybe on the mix in the in the service fees versus the other interest income as we also increase the <unk>.
The sharing our changes of the sharing model the items of our fee mix.
As the increase our set of guaranteed portion of the thank you.
Firsthand.
For the us by.
By the end of option, so that the increase our fee mix.
<unk> increased our tentative portion and then.
We see data of decrease.
And with the decrease of why Kathy can create maybe I can add into the bit as I explained in my portion basically the.
On the revenue mix changes driven by two things one is the key online versus on balance sheet versus off balance sheet mix change because we have seen that the.
All balance sheet loans has increased from 10% by the end of 2019 up to 32% of 2020 as the result of we have the consolidated more.
Loans. Okay. So that's one change nothing changed is we are taking more risks the self guarantee of risks has been weakened from two 2% by the end of 2019 up to six 3%. So because of these two factors is changing the revenue mix so that we see the.
RPF kind of of platform fees is coming down a little bit but the revenue from the interest income from guaranteed income has substantially increased and thats why at the beginning at the EBITDA, we've talked about because of these kind of of business. The fact, the changes is reflective in our financial numbers.
That concludes Q&A for today I now turn the call back to management for closing remarks.
I think so I think we've had of test.
The lay out the the base the situation here on the call, but we certainly look forward to engaging.
With the analyst very.
We're deeply over the next day or two of the answer all of the questions that are out there.
Thank you for your attention and support thanks very much.
Thank you everyone that concludes the call.
That concludes today's conference call you may now disconnect. Thank you everybody for joining today.
Okay.
Okay.
Okay.