Q1 2021 Lufax Holding Ltd Earnings Call
We'll have a question and answer session.
Please note this event is being recorded.
Now.
I'd like to hand, the conference over to your speaker host today, Mr. Yu Chen the Companys head of Board office and capital markets. Please go ahead Sir.
Thank you very much Hello, everyone and welcome to our first quarter 2021 earnings Conference call, our quarterly financial and operating results were released by our Newswire services earlier today on our currently available online.
Today, you will hear from our chairman Mr. Chico on home, who will start the call with updates on the impact of regulatory development development as well as our efforts in supporting the growth with small and micro businesses.
Our co CEO Mr. Greg <unk> will then provide a review of our progress and details on our development strategies in the quarter.
Afterwards, our CFO, Mr. James John will offer a closer look into our financials before we open up the call for questions.
In addition, Mr. Weiss chart on our co CEO, Mr. David <unk> CFO of our retail credit facilitation business will also be available during the question 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 will be discussed non <unk> measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the international financial reporting standard on our earnings release and filing.
As with the SEC.
With that I'm now pleased to turn over the call to Mr kick off on chairman of <unk>.
Yes.
Particularly from GAAP.
And the reasons are immune to publicly.
If you could shed non chocolate Baghdad cheerfully answer from me on the mineral user team. She can glad she soon.
From a new shaft.
Yes.
Xiaowei Chipotle and share Queensland.
Hello, everyone and thank you for joining our first quarter 2020 earnings call before we go through the detailed quarterly results I would like to provide some general updates on two aspects of our business first the recent regulatory developments and their impact on our business.
Our achievements in supporting small and micro businesses.
<unk> from the announced kinda on she soon.
Local net Michelle.
<unk> <unk> per se.
That's usually where mineral interest at $4 4 million sequential about gen growth to initiate total couldnt pin pads and Danielle <unk> from <unk>.
We'll try to really.
Timberland sales cycles on the attrition fantastic on the Chooser.
These are true change the jewelry, but could you soon on DIY channel.
<unk> for the June quarter on novel, Tim Glenn.
<unk> decided to that COVID-19 is changing channel two gene.
I'll take a channel how is the thought that figure flow on this new channel Qunar Keybanc. So you can see them.
Stock with their recent regulatory developments on the impact on Loopnet.
First with increased clarity on regulations in the first quarter, we have witnessed how regulatory authorities imposed various reform requirements on leading tech platforms.
We believe that the intention of the new regulation has threefold.
First our financial businesses must be routes the financing powered by technology.
Second our financial activities should be placed on the regulatory oversight.
Third the development of the sector must be built on the basis of compliance. These policy directions on largely in line with our previous expectations.
So from a free continues the whole routine so on.
Okay.
<unk> from its name, especially on a single channel Tor shielded the channel channel obtaining casino.
Regulatory compliance has always been a key focus for <unk>, although we will not directly affected by the recent announcements we have always upheld our commitments could provide socially responsible trustworthy on convenient financial services.
Pending sales from that.
<unk> talked about the machine that share back here on the on how the Chilean chapter Glenn DBM challenging that food cut sheet high yielding homes.
With a cohort of course, we'll share that at.
Geoscience hotel for a matter of fact client yield.
She had a hotel on <unk> had a shelter us from that so we are fully Shelly channel.
Since <unk> fab that physics, local GAAP thinks about shanda.
As soon as you're entering from here.
<unk> content.
J D power <unk> soon Ventura is you only vehicles, New Hampshire, Susan Topel likely simple sujit <unk> thinking organic Holly deals I ultra.
Yes financing.
Soil Liza retention actually heat, but with gene Cola Cola, So true she ended up pulling tubing.
Two thirds of <unk> share more frankly on finishing those out hopefully profile changing packaging, partially on <unk> tissue tension since in closing hopefully achieve the gaucho charge on currency.
Could you saw that she's from June Sheldon hopefully.
For our quarter retail credit facilitation business, we promote responsible lending practices and educate BARDA on restaurant barring these efforts help us.
Our credit services independent from other incompatible businesses and prevent the misleading customers with excess lending practices for borrowers who use of proceeds for our loans with different from most online consumer credit business as we focus on serving the small on macro business owners.
To support the development of China's real economy on our mission is fully aligns with national policies.
On data security, we have strictly adhere to the principle of compliance minimum on necessity.
First the data we collect that used for the purpose of risk assessment.
Ah preclude our payments information, which is strictly complying with the requirements listed in the regulation on the administration of credit scoring industry.
All data related to T. On group has customer consent and has been scrubber thoroughly to remove sensitivity.
Third August modeling analysis processes executed meaningful compliance with industry rules and regulations going forward, we will continue to abide by regulatory guidelines for the prudent innovation initial operational compliance prioritize protecting personal data and improved financial service efficiency and income.
Lucidness through technology.
That's helpful color from them on television show in Kansas on anyone else will say PTT attention sushi gotcha.
Are you essentially ammonia for suncor on any more champions, who need attempting to cover <unk>.
<unk> is a chunk of our put up on leap.
Selling debt Indian steel will continue this channel occupancies announcing fruitful while on a year with Gaslog Chamberlain about share.
For our wealth management business, we continue to one's down on our PTP products in response to regulatory requirements.
So our store operations on risk management capabilities PTP products now account for only 0.9% of our total client assets, we have achieved a smooth and confined transition process as we gradually phase out our peer to peer product, making our business more aligned with regulatory guidelines.
So on your last half on the Sanger moisture.
Income from Yang each hip hop Hobo hotel on could be.
We will maintain a tightened.
One is on target and in fact in Saudi and from that so I can't change on the funding sizzling, Jim glad she says false with Xiaomi.
First how many at Kansas Ciena patient Count Thomas Sheila.
<unk> really change our funding.
Hum.
From how we approach it a father.
Overall, we are fundamentally different from other leading platforms in terms of business model on target customer base on <unk>.
Regulatory compliance we have adhere to the principle of preemptive diagnosis and swift operational adjustments for timely optimal results.
Keep our operating in line with regulatory trends.
Policy trends become clear, we believe it will benefit industry leaders such as <unk> in the long term.
Tariff on the <unk>.
Susan Charlotte share Thats from growth.
<unk> outlook includes short term growth easily <unk>.
<unk> <unk> lenses on Chicago.
Throughput a chance on Shanghai, Guangzhou Moshe <unk> shall each year next I would like to provide an update on our achievements are supporting small on macro businesses.
First we help small and micro businesses to overcome the hurdles limited access to capital on high cost debt financing.
Second we leverage our unique offline to online model to provide better services to small business small and micro businesses.
These are truly changing for the channel strategy or just showers here into the Permian Shih-tzu alrighty, arguing a failure.
<unk> fully cover our E channel grew by over 400 accumulation Pankaj view, a tugboat, which hampered by E on and indeed.
<unk> free.
And so the cohort Hugo on the Opex from.
Okay, great from in <unk>.
<unk> will go on.
This is shang chuang on about shop, so with oil and gas Xinjiang tiered silver per minute chunky for free.
Free cash <unk> cancel routine growth chunky solid share that once it comes on.
<unk> has always been committed to promoting inclusive finance to.
To expand small and micro businesses access to financing blue factors provider credit facilitation services to more than 15 million customers as of March 2021 facilitated over 580 billion RMB of outstanding balance of loans and extended unsecured loans to nearly 4 million customers residing outside of tier one on tier two cities.
<unk>.
To improve financing affordability, we have adhere to regulatory guidelines and implemented an all in cost ceiling of 24% for all new loans since September 2020.
We will remain committed to exploring additional ways to lower the financing cost for small and micro businesses.
Hum.
Shan Shan Shan Caf income, Russia he couldn't.
Maybe on Charlotte Cincinnati challenged share that with Ctrip.
On the larger adult.
Through a machine shop shuttle tanker, if he's a friend to <unk>.
Assuming share Chinese change that shuttle tanker Coa element Cushing cohort so to redeem them from.
On the cohort thoughtfully challenge shifts from <unk> that she had.
Net fabulous Xiaomi camera on maybe share the full year on tableau Challis, Austria Honda opinion in percentage of seats on any timber while our share has hung in on a quarter affect climate Simpson.
<unk> Susanne Chishti glass <unk> de la Copa.
And it comes out in milk on title, which has not changed out loans had a full function currently on bypassed until that turns the channel Sheila let she China shell. So good on this.
Total tier two moving Susan yes, part of the issue there could you. Thank you.
And key challenge here Eagle <unk> ink product Ciena.
Deal cohort C&I exited other growth.
The Republic, <unk>, and Shanghai, Nanjing Fab that Chancellor Tyler T cell <unk>.
<unk> has no debt and ambulatory LNG product he got a contact Shelly.
Rely on.
It seems though Chad could you you have hospital, you'll hot yet lusinchi in full name change that one day should you choose them on the shelf.
Two facts unique offline to online business model and technology capabilities have enabled us to support the financing needs of small and micro businesses very effectively.
Currently we noted investor interest in the development of our offline sales team on.
I'd like to mention that our decision to establish an offline sales team was based on the key characteristics of our core customers.
Most of our core small and micro business owners have on average age of 39.
On the business has average annual revenue of less than 10 million RMB on average payer of less than 20 employees their borrower profiles make it difficult for them to qualify for traditional bank loans.
They also length of time of experienced offline loans on line was this in mind, we have a sales and service team of nearly 57000 representatives and over 380 cities.
Leveraging our proprietary technology applications. Our service team is able to provide professional convenient and flexible credit services.
For example, the verification of borrower background information has come back to automatically through artificial intelligence on line, thus significantly reducing manual efforts information gathering and decision, making substantially improving the efficiency of our lending process.
On the future growth plan to launch a series of new technology applications to further enhance our customer experience and empower our offline sales team and improve our operational efficiency.
So have any of that.
Moving on down Tc shining <unk> for clicking on value chain for weight loss.
Your windows Accumulative net chunghwa.
Liquidity is a clear Hirsch OE channel achievable.
PMT a culture around the channel.
Moving forward <unk> will continue to adhere to the nation's guidelines on green finance and inclusive finance by executing our mission of providing inclusive on compassionate financial services, we view it as our responsibility to provide individuals and small and micro business owners across China with easy access to timely convenient on high <unk>.
The financial services.
So it <unk> change on incentive pay higher consuming gaming income local non key channel each year timber and equal in Kinshasa won't tell them each review or slowdown in shop share, while net new chiefly attributable towards Athene Congo.
On the climate challenge on sheet involve genzyme. So don't quote me on the planet Sue <unk> Chief thing Geoff Hoon Chang from Clint on funding, Amit, Tony and finally, TGI funding <unk> Chapman finish up on negotiating power.
When campaigns on surgery cohort sigel, you'll window that cumulatively.
In conclusion, although recent regulatory developments have impacted the industry. Our business was not materially affected thanks to our preemptive interpersonal regulate regulatory intervention and proactive adjustments.
These efforts have also enabled us to achieve solid operating results in the first quarter.
Our management team will continue to embrace regulatory oversight, while maintaining an active dialogue with the authorities. We will also improve our capabilities and technology pricing and risk management to streamline our operations optimize our cost structure and enhance our operating efficiency. We are confident in our ability to maintain the stable growth of our business and <unk>.
<unk> to provide compassion financial services to our customers.
A key highlight gene cracker cheeky, probably happened to the share buyback.
I will now turn the call to Greg who will share our business update for the quarter.
Thank you <unk> before I begin. Please note that all numbers are in renminbi and all comparisons are on a year over year basis, unless otherwise stated.
In fact had a strong first quarter, we exceeded our guidance and delivered strong top and bottom line growth in the first quarter total income increased by 16, 9% to $15 3 billion and net profit increased by 18, 7% to $5 billion.
And exceeding our earlier guidance of $4 2 billion. Our net margin reached 32, 6% in the first quarter on 11% point improvement over the fourth quarter of 2020.
Four key trends underpinned, our first quarter performance.
First we experienced a significant rebound in our retail clinical utilization and unit economics, while keeping all in cost for new borrowers below 24%. The take rate based on loan balance was 10% in the first quarter of 2021 recovering from nine 1% in the fourth quarter of 2020.
Funding cost optimization and credit insurance premium reduction were key drivers of this improvement as insurance partners lowered the pricing on the basis of better credit and customer quality.
We also reduced our sales commissions in January and improved our operating efficiency as a result, our net margin on lending facilitation essentially returned to the levels. We saw prior to the price reductions in 2020.
As mentioned reduction in credit insurance premiums is closely linked to credit performance in the first quarter, our <unk> III flow rate for all loans facilitated was <unk>, 4% versus the COVID-19 peak of 1% in February 2020.
30 days plus past due delinquency rate for all loans facilitated stabilized at 2% as of March 31, 2021 on par with December 31 2029.
90, plus day past delinquency rate for total loans facilitated improved to one 1% as of March 31, 2021 from one 2% on December 31, 2020, all of the aforementioned operating metrics exclude our consumer finance subsidiary on legacy products, which represent less than 1% of our total.
On business.
Second we observed steady volume growth, while improving our business mix.
On the retail credit side, our new loans facilitated grew by 17, 3% to $172 4 billion in the first quarter largely in line with our expectations. We continue to focus on serving small business owners and improving the gross risk profile of our borrowers in the first quarter, excluding the consumer finance subsidiary 75.
7% of the new loans facilitated were dispersed to small business owners up from 60 65, 9% for the same period of 2020.
High quality borrowers defined as G. One to GSV borrowers by our own internal specification system contributed 65, 9% of new general unsecured loans facilitated in the first quarter compared to 58, 7% for the same period of 2020, the improved borrower quality.
Led to a sustainable decline from credit insurance premiums and expected credit loss levels.
On the wealth management side, our total client assets exceeded our guidance and reached $421 1 billion as of March 31 2021.
Focus on mass affluent customers, who invest more than 300000 revenue on the platform has paid off as the contribution to our total client assets reached 76, 3% as of March 31 of this year.
Third we continued to make progress on executing our plans for a more sustainable risk sharing business model it.
It is encouraging to see that our funding and insurance partners have remained supportive and are embracing the new risk sharing business model as of March 31, 2021 are outstanding balance of loans facilitated with guarantees from third party insurance partners decreased to 86, 8% from $95 one per cent a year previously Moreau.
<unk> new loans facilitated with guarantees from T. On P&C accounted for 78, 3% of new loans facilitated the first quarter down from 92, 5% a year ago, while our funding partners growing the risk for five five percentage of new loans facilitated in the first quarter.
Loans, where we bear the risk accounted for 12, 5% of new loans facilitated in the first quarter up from one 3% in the same quarter of 2020, the balance of loans, where we bear the risk was $45 7 billion as of March 31, 2021, representing around two times leverage of our life.
Since guarantee companies net assets of $19 2 billion.
These figures do not include our consumer finance subsidiary, we expect the net assets of our guarantee companies to continue to increase as our retained earnings growth, providing organic support for future business growth.
Under a 20% to 30% risk bearing business model and a 10 times leverage cap for our guaranty companies, we have ample room to grow our total loan guarantee balance without any additional capital injection. This year the existing capacity of our guarantee companies supports a doubling of the current business scale.
For our wealth management client assets and take rate remained stable despite accelerated PDP runoff and discontinuation of bank deposit products as of March 31, 2021, our total client assets increased by 18, 7% to 421 billion versus a year ago, Despite accelerated PDP runoff.
And the stimulation of bank deposit products.
First quarter revenues from wealth management business increased by 52, 8% year over year in the first quarter, we accelerated the run off of $15 4 billion in PDP products.
Of that March 31, 2021 legacy products accounted for just 9% of total client assets compared to 26% a year ago. We expect the run off of our remaining legacy products to be completed in the second quarter.
As a result of regulatory restrictions on bank deposit products deposit related client assets decreased $9 1 billion renminbi in the first quarter, our take rate for the wealth business was 28 basis points in the first quarter with some fluctuation due to decrease in deposit products.
Offset by continued development instead as wealth and insurance products.
Next our upgraded guidance for the first half we expect continued growth momentum in the second quarter with steady business development further cost optimization and strong credit performance. Therefore, we are increasing our first half of 2021 guidance for total income growth to be between 17.
On an 18% up from our previous guidance of 11% to 14%.
We are also increasing our first half of 2021 guidance for net profit growth to be between 19, and 22% effectively doubling our earlier guidance of 7% to 10%.
In the first half of this year, we expect growth that new loans facilitated to be between 12%, 15% growth down from our prior guidance of 20%. This is really due to a greater focus on improving product mix and margins. We plan to prioritize the growth of unsecured loans over secured loans is unsecured loans provide higher operating.
But with smaller ticket sizes.
We expect overall unit economics from our new loans this year to be largely in line with the average per day loans in 2020, our expectation is that wealth management client assets will growth, 9% to 12% in the first half from the same period of last year as we will continue to focus on higher margin asset management funds and insurance.
Products.
Finally, I do want to share our priorities for technology development.
Our focus is on four fronts first we continued to expand our use of legally compliant big data and AI capabilities to augment our strength in the end to end risk management for small business owners.
We are developing industry content and real time planning tools to better support the productivity of our unique both of our sales force.
Third we are integrating infrastructure and services.
Across our lending and wealth management customers to capture greater business synergies, we have already begun to integrate lending and wealth client sourcing with a third party channels. It will move to an integrated ADP for all services by the during the course of this year.
Fourth we are exporting our technology improvement online operating models by our cloud solutions to our banking partners in China, Hong Kong and Southeast Asia to extend our market reach and deepen these important ecosystem relationships.
We will measure our progress on technology deployment by our ability to increase customer sourcing and financial institution partnerships to enhance our auto sales per activity and to promote deeper product cross selling and finally to achieve greater operating efficiencies with ongoing changes in regulation, we believe that our ability to combine our DNA.
And prudent financial services with innovative technology will enhance our competitive differentiation and sustain our growth trajectory for the long run.
I will now turn the call over to James <unk>, our CFO to go through the financial details.
Thank you Greg I will now provide a closer look into our first quarter financial results.
Please note on all numbers are in RMB terms and all comparisons.
On a year over year basis, unless otherwise stated.
As Greg mentioned, we have experienced significant rebound in retail credit facilitation unit economics, driven by lower funding costs insurance premiums and optimization of operating expenses.
As a result, we have delivered strong financial results in the first quarter.
Our total income was $15 3 billion up 16, 9% year over year.
Our net profit increased by 18, 7% to five beginning in the first quarter.
And on the net margin for the expanded to 32, 6%.
Now, let's take a closer look into our Q1 numbers.
During the first quarter, our total income increased by 16, 9% driven by strong business volumes and increase the take rate.
On the back of this growth.
Our retail credit facilitation business is seeing a change in revenue mix as our business in Chile model evolves.
While our platform service fees decreased by nine 4% to $9 7 billion.
Our net interest income grew 111, 7% to $2 9 billion.
And our guaranteed income grew 597, 5% to $551 million.
In addition, other.
Net income.
That may lead to delivering services to our financial partners increased 241, 8% to 1 billion.
As a result, our retail credit facilitation platform service fees as a percentage of total revenue decreased to 63, 4% from 81, 8%.
As we continue to find more with consolidated trust plans, providing lower funding cost our net interest income as a percentage of revenue increased to 19, 1% from 10, 5% in previous year.
And as we see a more credit risk generating more guarantee income.
Our guaranteed income as a percentage of total revenue increased to three 6% from 046 percent.
Two expanding services to our credit enhancement partners in account management collections and other value added services.
Other income as a percentage of total revenue increased to six 8% from two 3%.
In wealth management on.
Platform transaction and service fees increased by 52, 8% to $675 million in the first quarter from.
$409 million in the same period of 2020.
The increase was mainly driven by an increase in fees generated from our current products and the revenue recognition arising from accelerated PTP runoff.
Now moving on to our expenses.
In the first quarter total cost grew by 17, 1% to $8 5 billion.
Total expenses, excluding credit impairment losses financing cost and other losses. However grew by only 10, 1% as a result of improved operating efficiencies in most cases.
Our sales and marketing expense, which includes borrower and investor acquisition expense and a general sales and marketing expense increased by five 5% to $4 2 billion during the first quarter.
Our borrower acquisition expense, which is a major component of overall sales and marketing expenses increased by only 2% to $2 6 billion from a year ago.
Mainly driven by further optimization in sales productivity and sales Commission.
Our investor acquisitions on vacation expense decreased in the first quarter versus the EBITDA before mostly driven by an improved acquisition efficiency as we leverage data achieved greater precision investor profiling and targeting.
Our general sales and marketing expense, which is mainly comprised of payroll and related expenses marketing personnel brand promotion costs.
<unk> been handling costs as well as other marketing and advertising cost increased by <unk>.
34, 8% to $1 5 billion in the first quarter from $1 2 billion a year ago.
This increase was mainly due to lower base in the first quarter of 2020, resulting from the postponement of certain marketing campaigns due to COVID-19 at that time.
Our general administrative expenses increased by 34, 1% to $854 million during the first quarter from $688 million a year ago.
This increase was mainly due to lower base in the first quarter of 2020 and a subsequent subsequent to head count expansion to support new business development, including the consumer finance business.
General administrative expenses as a percentage of revenue decreased to five 6% from seven 4% during the fourth quarter of 2020.
Consistent with the growth of our outstanding balance of loans facilitated and in turn the extended loan repayment volume.
Operation and servicing expenses increased by 17, 7% to $1 5 billion during the first quarter from $1 3 billion a year ago.
Our technology and analytics <unk> expense increased by eight 2% to $447 million during the first quarter as we continued to invest in technology research and development.
Our credit impairment losses increased by 109, 8% to $1 1 billion during the first quarter of 2021 from Pfizer on getting $2 million during the same period of last year.
This increase was due to increased <unk>.
<unk> related related risk exposure as our business model continuing to evolve.
Moving to higher credit impairment losses upfront.
Excluding the consumer finance subsidiary the proportion of loans for which would be added risk accounted for 12, 5% of new loans facilitated in the first quarter.
GAAP from.
One 3%.
From the same period of 2020.
It is worth noting that the increase in impairment losses is purely a function of the increase in the proportion of credit risks borne by us.
While the overall credit profile of our borrowers continue to improve.
High quality borrowers.
Defined as GE loans at G. III borrowers by our internal classification system contributed to 65, 9% of the new general unsecured loans facilitated in the first quarter of 2021 compared to 58, 7% for the same period last year.
In addition, our low quality indicators such as flow rate.
<unk> plus.
TBD 90, plus have stabilized and in some cases improved substantially from a year ago.
Yeah.
Our finance costs decreased by 36, 3% to $284 million in the first quarter from $446 million a year ago, mainly due to the decrease in interest cost.
Additionally, our effective cash tax rate decreased to 26% during the first quarter of 2021 from.
37% in same period of 2020.
Consequently.
Our net profit increased by 18, 7% to $5 billion during the first quarter from $4 2 billion in the same quarter of 2020.
Our basic and diluted earnings per ads were $2 during nine reminbi and at $1 96 women B in the first quarter of this year.
As of March 31, 2021, we had a cash balance of $34 5 billion.
<unk> to $34 2 billion as of December 31, 2020.
Now let me provide you with some guidance for the first half of 2021.
From the second quarter of 2021, as we prioritize improvements in our loan mix and good economics.
We expect our new loans facilitated to be in the range of 145 billion to 155 billion.
The well.
Client assets to be in the range of $410 billion to 420 billion.
As we have maintained our growth momentum and we continue to improve our operating efficiency.
We expect our total income to be in the range of $14 9 billion to $15 1 billion and a net profit in the range of $3 7 billion to $3 9 billion in the second quarter.
As indicated before our quarterly financial results are subject to seasonality and differentiation as a result of accounting treatment.
However, as I.
Our underlying unit economics improve our second quarter guidance translates into an estimated year over year net profit growth of 19% to 22% in the first half of 2021.
On level, which we believe should be sustainable for the remainder of the year.
These forecasts reflect our current and preliminary views on the market and operational conditions, which are subject to change.
This concludes our prepared remarks for today.
Later, we announced ready to take questions.
Certainly.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad your share.
Eric Cohen acknowledging your request if you are using a speaker phone. Please pick up your handset before pressing any key.
Jay Your question. Please press Star then two.
We'll pause for a moment as callers join the queue.
Your first question comes from when you will with Bank of America. Please go ahead.
Thank you very much for the opportunity and congratulations to move at a very good quarter, taking out and I.
I have two questions first regarding the guidance upgrades.
Compared to the guidance provided at the full year readout I think bottom line net.
For first half is now 11% higher than previous version, which is actually a quite significant upgrades.
So just wanted to see if management could elaborate on some of the two drivers and also the outlook for full year I think James just mentioned in fact that momentum to continue into second half so.
Hopefully.
On it.
The growth momentum will be maintained for a wrap up this year. So that's the price on that.
Hum drivers for earnings outweighed and potential based on outlook for second half of the day one.
And secondly is also back to regulate trade growth and.
I think channel nation to be a small debt on makes me clarity and I.
I think relative.
What kind of time that is encouraging.
Like you know.
Right.
With no guidance to reduce APR and what about some of the latest debt requirement on like <unk> like <unk> and we're talking about.
You have a credit Bureau license to provide the loan facilitation business. So.
Hopefully a second question if management can give us also some expectation.
In fact patient on it.
Hmm.
Requirement from glycolate regarding particularly on data and NPR from thank you very much.
Thanks, Willie I'll I'll take the first part and then turn on the regulatory question over to Travis Z on the second.
On the guidance upgrade really results.
From a number of improvements.
That really exceeded even our own expectations I think at the end of Q4 last year.
<unk> seen continued improvement in funding costs.
As we continue to improve the mix of our borrowers.
Credit insurance costs are coming down so those are two significant drivers.
Allowed the take rates to go back up to 10% in Q1 and.
These advantages that we're gaining on both the credit insurance costs should continue to actually continue to improve as we move through the rest of the year.
And then on our own operating cost we continued to see efficiencies.
Our.
Sales force our commissions are.
Our productivity.
So these are really the main drivers that allow us to really upgrade on.
Profitability and.
The net margin side of the business of course directly benefits from that and we are seeing very.
Very good recovery not only on the take rate line, but also on the net margin line.
These are things that we think will continue through the rest of the year. So.
James indicated.
We're projecting 19% to 22% profit growth for the first half and this is something that we think is a level can be sustained.
Of the year.
Synergy on the regulatory question.
Figure day requirement.
Canada.
Non-GAAP slowdown.
Early on from that you can share quarter on Ipi Kimball shutdown on the ultra on downward trend.
Sure we're moving.
On women's that goes from Tayo mailed a cheat sheet.
So on yards from a GAAP.
Gross up Pseudomonas, Arizona Chandra <unk> from <unk>.
Yes sure.
Sure. She on both on the shutdown performance synergies is a contract that more tenants from Russia, So hard with slingshot are true.
The challenge here, so on trend or shadow on system with trillions of Pandora for glass.
Nanticoke.
Continental in terms of the window guidance the first one on <unk>.
Further requirements to reduce.
Further so far based on our dialogues with our regulators.
We lost is there a specific number or target you'd like us to go through and we have not received any answer from the regulators apart from that on an industry leader you should continue to show or demonstrate a willingness to lower the financing cost, but there's no specific number mentioned.
Based on our own judgment, we think below 24%, where we are today is pretty safe at the moment.
On an LTM chamber movement, but our share.
So Sheila chigger share that kind of year to year, while maturity of interest that can change on loan parts of Africa.
Q4 on the new countries account on a sit on our team to have operating she knew can't say, both hydro coming available.
So of course, we understand that regulators will always want lower financing costs.
And we will continue to maintain our active dialogue with them in fact on final for Beijing. This afternoon to speak to a few of the authorities.
Xi'an, Shanghai and allows us to Dol rule.
<unk> concrete channel count some day, she had kind of a tender non attack figures Chicago sort of coming from but we are so critical.
Since when Collegium.
We we are loving our hosting the regulator to understand for our markets and.
And to develop healthy way all participants in the market needs to have enough room to maintain on growth your operation.
So from a downtick.
And then Shang ultra will share count DSO <unk>.
Show me a handful of 600000 sequencer silhouettes from you or challenging Jane Brian Youre still consistent how shall come out as a function.
On the API continues if they can filling countries. It goes down and Leslie during that process you will see the exit of many credit provider from the industry I personally don't think thats, what the regulator wants to see.
Certain Charles Shaver augment some good.
<unk> turned in Australia on the phone constantly on the Chico EG or momentum going into of course on on terms on the Charlotte the production on the share on balance they found the tendency towards some of that product strategy on the quota.
As we draw on lower funding.
Cost and lower credit on <unk> cost as a result of better risk management and lower operating costs.
He has already improved.
On efficiency improvement and efficiency.
We hope to pass on those cost savings to lower the overall cost ballparks filament towards these free or the tissue chunky.
If I may on attendance.
You can either.
Gross roadmap.
Yes.
On the nicely are you guys.
Got it.
Sure.
Moving out that way.
We do have our own roadmap in terms of lowering future cost of our borrowers as we optimize the aforementioned cost.
Thiago <unk> from <unk>.
<unk> per gallon.
On slide six debt guidance suggest or menu does for EBITDA.
You guys have assembled haidar on biodiesel on the past hour didactic had a shot at that.
Still on of Hydro one consistent EBITDA.
The price up.
In terms of the credit Bureau license of credit, scoring license, but I wanted to point out again that we have been using currently licensed entity, while <unk> has been using a microphone license variously licenses are quite different.
<unk> from September of the year on a more seasonal from a consulting that Singapore channel Susan.
On Monday.
<unk> is a tier two cities in the courtroom Yao from South Africa.
Province travel book.
Currently model has existed for many many years on in the process using the guidance the company to collect information and collect customer data in fact, Scott it's much smaller than what a smaller company would collect from will change or not hanmi of total Te from me on the we've got struggled with our quarter.
He says in the per Doc.
So far we have received no revenue guidance or any other communications from regulators on this front.
Our U S or shadow on that Youll see support for this exchange leather Yao chew on strategic outcome for them.
Of course, we'll be adhering to our strict data protection data privacy.
Simple chassis on history since the Kentucky Derby on if we do receive anything further will be likely everybody in Oregon.
Okay.
The next question comes from Piyush <unk> with Goldman Sachs. Please go ahead.
Thank you Greg.
For taking my question congratulations on a good set of numbers and I'll just take you through two particular questions. One is when you talk about the loan book growth that you saw in <unk>.
SME being a greater percentage could you take up true color on how that is playing out on that sort of growth rates. We can continue to expect into into the second quarter and I realize you mentioned began the second quarter to be also mentioned the day levels are sustainable for the rest of the year. So could you just take a step back and take us through where you think debt.
Growth from the loan book is going to come from.
And what the size of the loans as clean as possible and the second question has to do with from a better cost controls to be demonstrated in the quarter.
We are committed debt.
And you pointed out that it's lower sales.
Lower sales commissions that you're paying out for the quarter as well as better sales productivity could we just take a true these two aspects.
To look through the rest of the quarters.
This is the structural changes we're seeing in the business that we can model to new levels from.
Doug on marketing spend.
On a cruise.
Your lines a bit blurry connectors repeat on pressures to make for a repeat of that.
And then I think wireless will probably add in.
I think on the on the first question future asking is really about loan growth that we've seen in the first quarter and then is it sustainable for the balance of the year. Our view is that we're seeing quite good and strong demand from the market.
I think we've seen a number of indicators that say that.
SME owners SME businesses are increasingly using wanting to grow their businesses or not to repay debt.
So I think there's a healthy environment there for our customer base and so the.
But if there's one thing to point to when we look at growth on the second half we will be prioritizing more at the unsecured side, we see the greatest needs. There. We also see our greatest competitive advantage there.
So that's something that we will drive a bit more so that has the benefit of really maintaining the revenue growth in particular in the second half as we meet that demand.
On the.
On the cost control side.
Really is multi parts right. So at the top line level as I mentioned, we are seeing funding costs continue to come down we are seeing our credit insurance costs coming down and we expect those credit insurance cost to continue to be optimized.
As the new loan book growth as a percentage of the total than our overall customer mix will improve the second thing that goes with that as you may recall from.
When we first did the IPO is that.
As we move more and more to high quality SME owners, which now makes up 75%.
Total net loans.
The average ticket size of those loans increase.
And so that's where there's a range of of I believe about 10% to 15% increase which therefore allows us to reduce commissions at a proportionate level without reducing the absolute income of the direct sales. So if you take all that and then the ongoing efforts, we're really making on the technology side to really.
Power Rds more to bring more of an online engagement with those customers to deepen both on the lending side and other products. That's what allows us to reduce costs, while keeping the topline strong I don't know presenting the wires from I'm, sorry, if I had some more numbers.
From from January to share, we reduced our sales comes from by 50%.
Net sales since we reduced price much.
On a scale that increase accordingly second resort.
More income PA authentic taste on getting changed at all so debt monthly income you saw standard.
<unk> 8500 renminbi per months, so which is very stable.
And then how about mobile.
From a change.
If we compare fourth quarter to share with the same period last year, our progress in cost per month is very obvious.
Our expected cash decreased from I think about 29% for us.
And now it's about 22%, but at the same time funding cost decreased months is now close to about 6% previously about 7% and the feedback from that isolates debt. It was it was about 9% now setting.
6%, which day would indicate.
Our customer mix has been changing a lot since from reduced.
Dr highest HR and then you can take these phase III come since the change in our off price channel mechanics, and based on to our tools based on interest charge. So as on a net.
The results take rate is about 10%, which is almost index SNS one interval. So there is a light estimates confident about.
Second half.
First half overall the profit growth.
Okay.
Okay can I slip in a third question. Please its very quick.
Because if you don't mind.
One of the comments is the benefit the company board risk of $12 five per cent of new loans facilitated.
How does this compare to the 20% to 30% range you talked about.
As a percentage of the statistical.
Yes.
A question about our set of risk then push on it changed.
The fourth quarter.
Close to 60% based on the cash our March single most number our site risk taking portion is around 70%. So.
So we plan to complete we plan to reach about 20% debt.
We risk bearing portion.
Four years.
By the end of June or non age range lie debt is our commitment and discussion we've had with our regulator and debt at the same time.
The risk growing portion, which is from by non P&C CGI has been great gradually introducing is going down almost 70%.
Our total debt are taken by five average Knaus partners and then 17 parts of events. We have now 52 positive events and then out of pocket to partner that's already 17 banks. He joins a risk sharing model so going forward, you'll see that our site risk, taking Puerto Rico up to 20%.
And then <unk> we will.
We reported declining and then you'll see that a lot more risk with the Taipei taken by either bypass on events loss other reinsurance partners.
So much.
The next question kind of trying to Thomas Chong with Jefferies. Please go ahead.
Yes.
Thomas Chong your line is live.
Taking my questions.
Comment about the trend in terms of the above management take rates.
Income how should we think about.
Option how price.
Yes.
Products.
Brands products and non financial Advisory services.
Thanks Thomas.
We would expect the take rate on the wealth management side to improve as we move through the year.
And that improvement in.
The near term on the waterfront are combination of factors. So in the near term it is really about.
Continuing to increase our service to the higher end customer providing more qualified.
<unk> product.
On the fund side and the asset management side. So those are drivers in the near term, which are pulling upward. Our overall take rate and then if you go a slightly longer term. So if you look kind of more six to 12 months out from today, we would expect the.
Insurance business.
Insurance products that we have on the platform continues to grow at a more rapid pace and those carry attractive economics for the take rate.
And we will then over the longer term obviously, there as we're still in the process of looking at the financial Advisory license.
Once we have that we expect that there will be a.
A further lift from the mutual fund side.
So those are in the near term and in the longer term.
But generally we think you should see continued improvement as we move through the quarters of this year.
The next question comes from Han span with CLSA. Please go ahead.
Hi, Thank you very much for net.
You may ask questions I've got two questions here one is from a regulation.
Clearly that recently there is a lot of investigations from CD RSV.
Regarding the misuse of the consumption loans and pictures are also on banks for the purpose of property purchase.
Is it at a per ramps up.
Execution going on in center in Shanghai, and Beijing. So we're just wondering does that really helps on any implication on new facts and how do we use usually control and monitor their use of funds.
That's number one question.
And number two question is really on the other income in our financial statements.
In the first quarter or there's a notable increase in other income.
And just wanted to maybe can management elaborate regarding what's the key drivers of the other income here and can this be sustainable in the future. Thank you very much.
Okay, Let me take the first personal.
Thanks for your video percentage.
In our business model our partner banks.
The fund provider they take the final responsibility for this loan proposed management.
We do all we can do within our capacity.
From phase <unk>.
Vacation on delighting our collection in average stage of operation, We can house loans purpose management for example.
I think the execution process the customer to confirm the loan proposals and maintain to sign on the commitment level debt this debt.
Debt to loan proceeds and Delaware rail loan proceeds cannot going to pop a TR market loss per market.
And in the underwriting process during the low teens per deal we ask them on time, and we cash for largest state that we check that debt.
Interstate came on accounts, so EBITDA policy repeatedly used by multiple equity consistent with what we get on the lastly, close on process.
<unk> on three months of per room, we capture those reports on the AC solar court of new mortgage and you assume customer use our loan policies to buy a new house than ocwen per contract customer.
We pay as much as possible.
So this is why gasoline because we don't have accounts, but with our capacity we can do everything we can.
We do everything we can do.
And to better support our partner banks banks are paying also paid health efficiency. These loans proposed managing months, because they're taking financing possibilities.
All participants look price a little bit different from bank.
Hi, banks, some banks day, one tier one our powers tool from the types of accounts so that they can.
Golf courses.
And some guidance Dave on our interest partners to make all in <unk> for the customers.
On proposal filings filed violation case, so those we support book.
However, knowing that our exchange tanks at about 200000 D. So this is quite small case size.
Which can be used it can be used for the property purchase so we have to pay more attention to our our secured loan and then those actions we are taking to help our set and to help our partner base.
On the question of other income a couple of points one is it to actually directly tied.
To our to our core business and.
And what it involves is the services that we provide to our financial institution partners on account management and also to the extent that they outsource.
Services back to us such as collections.
So this is a number on other income, which will you will see continued to be strong at least through the balance of this year. It does also the reason you see it popping up a little bit is as we changed our overall pricing structure in September last year in terms of how we gather revenue from various partners you'll see this in.
This increase in other income, but for the purposes of understanding the overall impact on the economics at least for the balance. This year, you will see that level of performance in this line item.
Yeah.
Thank you much thank you.
Yeah.
The next question comes from Katherine Lei with J P. Morgan. Please go ahead.
Oh, hi, good morning from small.
Given me the opportunity to ask questions.
Two questions. The first one I would like to ask about the take rate, which is just now management mentioned a bad debt. We will pass on some of the benefit from lower incoming calls on insurance cost to the borrower. So.
Now I think they have improved back to the first Q2 thousand 20 level. So whether it's a target we'll kick right. How much financing do you expect that you will pass on to consumers and can you expect take rates within this year to stay operating level, while continuing to improve.
In light space in five years working.
It goes on.
So this is the first question I think part of my question is mainly on clarification questions asked.
We just keep on absolute so mainly on like the restructuring portion.
Four.
What the disclosure index.
Closure of debt about $12 five per tonne of new loans from this borrowing.
Gotcha.
This borrowing long time goes on so what is spot on that system on assisting stock of loans.
You have talked about that just happened on I've been trying to come from alliance.
Also with us for that portion of it.
Falling by third parties, whether it's the portions on balance.
Loans is down from you.
Can you just clarify something on based on that.
Okay about the take rate.
We expense now our take rate on new business.
We expect to about 10% level, which is which is <unk>.
Almost same as last year, and then going forward.
We try to deliver 10% take rate and then your confidence and that if we can further improve or optimize our cost lines like funding costs, while insurance premium while our power eppich on cost when we can't return on debt to our consumers. So we can be more price affordable and competitive.
My view is so we didnt vishal.
As long as we can keep 10% take rate we can as on as much as some other room, we can further reduce our <unk> costs by probably 1% or 2%, but it depends on our policy on how much we can save our operational cost and funding cost and then on insurance costs.
And then second gross about 30% risk failing.
To expand a full new loans and they know you on testing on from there.
About half of our balance.
So in terms of total balance because on our loans.
Three years three years of duration.
So.
Although yet taking more debt.
<unk> risk bearing portion of the 10%.
Greg will affect our overall portfolio. So in terms of important portfolio, our staff are safe risk weighted.
Portion is about eight 7%.
As of first quarter this year and therefore keen on TNT they take about 82%.
Thank you.
The next question comes from Jackie <unk> with China Renaissance. Please go ahead.
Thanks for taking my questions two questions.
Number one is a follow up on your take rates so.
Could you help us go through your economy.
For the <unk>.
In balance in Q1 and for new loans.
In Q1 operating in April that would be very helpful.
Second question is also related to regulation.
Regarding the unconventional.
As you plan on to parents, who moved their consumer credit.
Good day to apartments com.
And the day license.
Just wanted to tack on.
Whether we have.
Any change.
In terms of our consumer finance license.
No.
Just want to check on principally on our progress on our work is from finance.
Our company from <unk> and any change.
Yes.
Our business.
Regarding this to make sure I'm sorry with license. Thank you.
Okay.
Craig you want to go first.
So about take rate for both balance force.
Sure.
I will take a 10% 10%.
And then more importantly, if you look at it.
If you understand our take rate for new business.
Net debt at <unk>.
Our future profitability.
Right from the beginning in the fourth quarter is also 10%.
Despite.
The effective date is August with low debt over portfolio. So.
That means.
Going forward, 10% take rates on the Ctrip on unless we take.
Current change in terms of Ah trial.
Efficacy data. So we are constantly with 10% on take rate throughout this year.
And then from new business second quarter third quarter. So we.
We estimate about 10% take rate from the beginning without much change.
Gross cushman Cushman connect Kansas, moving on fitness and consumer financing.
And then maybe I'll comment on that and then why it couldn't kit could add.
I think we are answers come from historically, what they use mostly was.
Micro lending license.
<unk> lending.
Bank partners.
Now debt.
The entire industry has to take on more risk bearing.
Obviously at the same time looking for something that is.
As capital efficient as possible from a leverage perspective, so micro finance companies typically carry a cash leverage of three to five times theirs.
Some differences by geography, but it's roughly in that range.
<unk> and.
To use their consumer finance company that gives them the opportunity to bear risk at a 10 times leverage per capital.
I think Thats why you see ads on their various announcements moving their model more towards the consumer finance license.
Our risk bearing as chairman as you mentioned is really done through a guarantee companies.
It operates.
<unk> wise.
That guarantee company, where we're bearing the risk of up to 20% on on.
All the loans going forward operates at a 10 times leverage ratio. So for US we have already achieved what we think the market is kind of the best.
Efficiency in terms of bearing risk and then putting capital against it so given our business model is different right.
The answer is this model has been around traditionally those smaller ticket shorter duration loans that does fit well under a consumer finance license our business model, which is the focus on the small business owners larger tickets relatively speaking for longer duration is best suited by the use of the guarantee company.
So I think things that and are doing and versus what we do the different by different factors right per case.
We choose between.
Smaller license and the principal finance license, obviously components license, especially from simple leverage ratio and 18 months to a nationwide loan disbursement on more original indication from our case.
Please understand our powers. The average case size is way above from the 1001 many of them get.
On the 1000 and up to a $1 million for unsecured loans, but on Spanish license. It supports a lot of capesize lending from Exxon scale, you can do with it on a slide deck is true.
On the 1000, but actually on EBITDA Levered free our window guidance, I said hostage feet or 50000, or maybe to cotai, So which is not debt exit Lasalle has been smoother.
The result of that I think that the back part of your question is.
Today, the consumer finance balances.
<unk> total is less than 1% of our facilitated about it's a new business. It's got about 300000 borrowers as we move in the second half of this year to integrate more online services across wealth and lending. We believe the consumer finance license will be very helpful subsidiary, a lot of our wealth customer.
On some of their on this.
Some of their consumption needs. So.
So we would expect the business to continue to show healthy growth, but as a percentage of the total EBIT by the end of this year, it will still be probably less than 2%.
[laughter].
Yeah.
Okay.
The next question comes from Channel, Brian with Morgan Stanley. Please go ahead.
Alright, Thank you management congratulations on there on the corner.
Basically two questions first one day.
Related to the new economics on the loans.
We have provided a guarantee as we move closer to the 20% risk weighted so basically I want to ask how much on turns on the loan balance net where it can be a risk how much we can charge on the top line level and then how much can we get a charge in the <unk>.
Production costs in terms of an on balance that we aren't taking risk and the second question as it turns on the overall industry. So it is viewed the SME loans on the asset class I Wonder how does management think on appear on.
On the supply channel demand side on industry with all the regulatory changes and the changes on how do you see day supply of these assets on the demand for these average evolve overtime and Thats. My question. Thank you.
That's a full guarantee of course on 20% almost emphasize no matter you take 10% or 25%. It does not fundamentally change our flexibility is to take more credit risk. It comes with a risk premiums that can it can be a little more profitable by taking on more of it.
And then.
I spent for the whole portfolio now we have about eight 7%.
Risk, taking and therefore, new business about 70%.
Our interest in supply and demand demands assuring steady on or about about 63 on mortgage gain on demand.
The supply we see that.
Yeah on secure largest share side. These are pushed alone we don't see most competitors, we don't see any other companies providing similar services for smoothies on us.
The other day to like Colorado.
This is on win more bank debt getting to this market with Keytruda products. So test test. This principal debt would get on a secured a formalized book.
Our major business lines unsecured largest case has been suffering from debt symptomatic and supply from banks or other internet companies. So I think this matches pretty much secured debt competitive and then items income.
For others to get into this market is to add two mid table preconditions like offline channels on delighting motor and a collection infrastructure all of those things.
Okay.
This concludes the question and answer session and today's conference call you may.
Disconnect your lines. Thank you for participating and have a pleasant thing.
[noise].
[noise] [noise].
[noise].