Q3 2021 X Financial Earnings Call
Hello, and welcome to the X financial third quarter 2021 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions.
I'll ask a question you May press Star then one on your Touchtone phone.
Withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Tania. One. Please go ahead.
Thank you operator.
Hello, everyone and thank you for joining us today, the company's reach all were released earlier today and a little on the company's IR website at IR.
They'll come.
On the call today is like Spanish.
Mr. Kennedy.
Yeah chip offices, well finish off the shelf.
So Lee with people a brief overview of the company's operation and highlighted what else, let me surgeon, who will go through the financials. They are although little all to answer your question in the Q&A session.
I remind you that this call may contain forward looking statements under the safe Harbor provisions of the private Securities Litigation Reform Arnold nothing might be fine.
They must not based on the company's current expectations and current market and operating conditions and the religious event not in well no no.
Arthur piece.
Oh these are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results performance or achievements to differ materially from those in the forward looking statement.
But their information regarding this and other Oh.
So busy and factors is included in the company in its filings with the U S with either a mission.
That's not taken any obligation to update any forward looking statement as a result, new eco mission, so sorry events or otherwise.
Well below.
It is now my pleasure to introduce Mr. Currently at least please go ahead.
Thank you.
Hello, everyone.
We are very pleased with our strategic execution in the third quarter. Both are known studied adhesion amount on the net income were in line with our guidance. The total loan facilitation alongside a new high for the second straight quarter.
Same time, increasing our net income has a demonstrated our ability to enhance profitability boost operational efficiency and reduced costs.
During the third quarter, we further adjusted our pricing structure to comply with the 24% internal rate of return.
Our regulatory cap.
We believe this is the government initiatives to support the real economy and stimulate the CLC girls SME and private consumption.
The proportion of our loan facilitation amount subject to the 24% IRR cap improved to approximated 30% of our total loan facilitation amount in September.
And we expect each to grow to between 40% and 50% by the end of this year.
Beyond the regulatory compliance requirements, we believe that in this initiative can show us a check more quality borrowers and the demand for personal financing solutions increases.
During the quarter, our total loan facilitation amount of Richard RMB 51 billion, an increase of 87, 9% year over year, and 17, 5% quarter over quarter.
This was mainly driven by the strong growth in the loan facilitation amount of shell in Cardinal which increased 110.
3% year over year, and 17%, 17% 17, 5% quarter over quarter.
As of September 30th 'twenty or 'twenty, one the total outstanding loan balance of showing Parnell reached RMB $24 4 billion, an increase of 19, 9% compared with the previous quarter in the fourth quarter, there will be a moderated decline or no volume due to our institutional funding partners.
Outstanding loan balance requirement.
We are continuing our efforts to improve our risk management capabilities as of September 30 countries in day, one the team in Missouri to for all outstanding knows that all past due for 30 31 to 30 or 60 days plus point, 96% compared with 77%.
At June 30, 2021 and one point of zero six as of September 32020.
Despite.
So quarter over quarter fluctuation, our asset quality is still within historical range, even though our operating history.
According to a new regulation loan facilitation platforms are restricted from submitting COVID-19 assessment and related personal data directly to a financial institution and such that I'll transfer must be conducted through a licensed credit agency.
In response, we have been working closely with the buyer around credit the second largest licensing individual credit to do on your China stimulus into the critical of the People's Bank of China <unk> to execute the plan to comply with the new regulation.
We have noticed that at 14 14 large companies on our regulators published for the rich deep vacation are either working on a plan or waiting for approval. We are getting ready and we were fully compliant with new regulation, we expect a minimal changes to our daily operating activities and the cost structure.
During the quarter, we continued our efforts to.
Diversify our service sorry.
Service offerings, our microcredit business are officially commenced the operation in the third quarter. We also made a solid progress in our services to a micro and small business and self employed to employ the individuals which are important targeted groups for our future growth.
We have a certain favorable policies for the schools and all adjusting and testing our systems to speed up the qualification and validation process we.
I believe we are on track towards our goals and all of these efforts are bearing fruit and helping us to drive long term sustainable growth in a fiercely competitive in Australia and regulatory industry.
Now I will turn the call to Frank who will go through our financials.
Thank you, Ken and Hello, everyone. We delivered delivered another set of a robust financial results for the third quarter in line with our expectation.
Total net revenue increased 72, 3% year over year to RMB $164 4 million.
Our bottom line also saw struggles with.
With our non-GAAP adjusted net income of RMB 277 million compared with a non-GAAP adjusted net.
Loss of RMB 111, 7 million in the same period of last year.
Moving ahead, we will identify and acquire more high quality borrowers took to adapt to our strategy in response to the 25 cap.
Improved asset quality by leveraging all the evolving data trades and technology empowered credit analysis capabilities.
We will also deepen cooperation with institutional funding partners to better so bottles needs well who wouldn't.
Track record demonstrates that we are capable of navigating some regulatory microeconomic challenges. We believe we are well positioned to capture the opportunities ahead.
More about EBITDA returns to our shareholders now.
Now I would like to at least seven financial performance for the third quarter. Please note that all numbers stated.
E D.
Total net revenue in the third quarter of 2021 increased by 72, 3% to RMB 964.4 million from RMB 550.
Nine 8 million in the same period of 'twenty 'twenty, primarily due to increase in the total loan facilitation amount I'll show you kind of loans this quarter compared with the same period of 2020.
Origination and servicing.
Servicing expenses in the field.
The quota on 2021 decreased by about 38% to RMB $483 8 million.
Our troops from RMB $561 2 million in the same period of 2020, primarily due to the decline.
Election expenses.
The decrease in delinquency rates and the decrease in interest expenses related to the decline in the average balances held by the company.
Offset by the increase in commission fees, resulting from the increased total loan facilitation amount this quarter compared with the same period of 2020.
Provision for accounts receivable and contract assets in the third quarter was RMB $15 2 million compared with RMB $24 3 million in the same period off tiny tiny primarily due to <unk>.
A decrease in the average default rate compared with the same period of 2020, and partially upset by I wouldn't place a country receivable from facilitation services as a result of an increase in total loan facilitation amount in the fourth quarter of 2021.
Yeah.
Provision for the loan receivable in the third quarter of 2020, where it was I'd be $10 2 million compared with RMB $58 1 million in the same period of 'twenty five primarily due to a decrease in the average estimate default rates compared with the same period of 2020.
Income from operations in the so called out for 'twenty kind of blend it wasn't.
<unk> $110 6 million compared with a loss on the operation.
101, 4 million in the same period of 2020.
Net income attributable to X financial shareholders, the silk without cutting in 'twenty one.
One was RMB $279 9 million compared with a net loss attributable to X financial shareholders.
<unk>.
$113 million in the same period 2020.
Non-GAAP adjusted net income attributable to the X financial shareholders in the third quarter of 2021 was RMB 277 million compared with it now gets just net loss attributable to X financial shareholders I'd be 111.
7 million in the same period of 2020.
Cash and cash equivalents was RMB 971.8 million as of September 32021, compared with RMB.
One of them in one building 183 million nine eight.
Sorry, 1 billion 183 point.
9 million adult student study trying to tell you what all of this outlook.
We expect total loan facilitation amount for the first quarter of 2021 to be between RMB 12 billion and RMB 13, 2 billion, which Mike makes total loan facility amount.
For the 2021 to be between 58 billion and RMB 15, 2 billion, we expect non-GAAP adjusted net income.
Attributable to the extra financial share of those for the fourth quarter of 2020, one to be no less than RMB $240 million, which makes non-GAAP adjusted net income attributable to X financial shareholders for 2020, one to be no less than RMB 970.
One minute.
Forecast reflects our current and preliminary views, which are subject to.
Two tranches now this concludes our prepared remarks, and then we would like to open the call.
Questions operator please.
We will now begin the question and answer session plus a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
The first question is from Boyd Hines Equinox capital. Please go ahead.
Hi, Thank you good evening I have three questions I'd like to start out with.
Could you just discuss and give us a little bit more color.
About why the your institutional funding partners.
Are reducing their loan balance requirements are at the yearend and then talk about your cost of capital in the quarter and then lastly, please to address our capital allocation.
And how youre thinking about share buybacks and perhaps at a management purchases of company stock.
Yeah.
Okay.
I think it's usually you know for the for the ballroom for the fourth quarter as compared with the.
Q3 is usually it's about flat a little bit of doubt that's the normal pattern for the past well always have for the past few years, except for the philosophy at last year. Its about one exception the full cost of steel at world.
I think we are in general.
Just back to the normal pattern you got into this you know.
Q2, and Cook to full volume.
For all of four those no founding Tom that working for us and they have some requirements are most of it that they are all doing fine.
You know they have finished up I think to finish it out Casey I called it so whatever.
So they have a you know.
Just.
You know just to have some some that balance the requirement to have happened that I you know for deeply the I don't know that so so if you compare it with all of our peers.
They even though they still you know.
In general public and the same patent the patent is which is of course, the Q4 call.
Gordon will be equal.
Equal or less than Q3 that that's that's where that's what I see okay.
I think there's a causal capital.
I I believe is what do you mean.
Is the funding cost of Oh, you know the phone when we get a phone well.
Funding pilot, we are round about.
Hello around the ball to you know a a a somewhat.
Between eight to Memphis that created a little bit of how you got that.
Yes, about you know 1.5% higher than that.
As you know as we move along you know are we are well you know starting from block like this no basically style from three quarter of this year, we starting at week 24.
20 folks tend to you know that that's the long and the overtime as we accumulative didn't know about at least six months six months down. The road. We can you know talk to our founding partner.
Got it.
That's come up risk profile. So far so we believe we will we will have a lower funding close to.
Some time, starting from middle of next year.
I have maybe around 1%.
Downtown P S.
And then you know Simpson you know next year.
Regarding to the.
Uh huh.
Sure hold a stock buyback or dividend policy.
You know, we we have some we have some loss last year. So so we are this year. We we we earn some money we accumulate some capital and I know you know I I know you know almost all of them all up here do you have that you know.
You now have some buyback plan and and and done that.
The share buyback or dividend policy in place, we we we definitely will consider.
Do that maybe sometime next year, but but.
But I must be very Frank with you.
You know this kind of a you know you know.
Part of that plan and dividend.
At least for now is not no help help and they are validation much but you know four hour stuff because the total quite a different story we are basically.
If the price is almost at all.
Most of you know where people went bankrupt in the you know.
Do you feel your time, you know there's kind of valuation. So so we lead you know.
Peter maybe know something we don't know, but you know so you know, it's quite frustrating for us, but but but are we not necessarily.
You know I believe.
You know.
So called dividend policy, all buyback plan will will will change that.
You know very quickly or in a dramatic fashion, so, but as I say, we will do well it definitely we will consider to do that sometime next year.
Okay. Thank you can you.
A dress or just discuss any kind of high level outlook for fiscal year 'twenty two.
You know it sounds like you're expecting continued growth.
In your alone originations, but anything you could sort of say two.
Talk about what you think about next fiscal year that would be helpful.
England.
No no.
2021 it is a great year for our industry. It's a it's a you know you know this.
You know Tumultuously you know for the for the for the last few years.
Regulation coming down are we are we think you know next year yeah.
Yeah.
Frank.
It will be up and running.
Really it will come but it will still have a chance to do like.
So using that 24% the requirement and so far so all.
And also you know are you know you either have a connector with our.
You know I'm in your utilization shifts.
What was the old Trumping Pago, so fast so but are we where do you think next year.
High level waste into next year would be would be okay, and we'd be OK still will have a close but not maybe not as good.
Fantastic.
You know that that's that's that's quite feel but but I think the I think the order player.
No when they reached the Q4, we did have a mark.
More clarity I haven't got more cholesterol regarding the next year. Thank you.
<unk>.
Yeah.
Okay, and what do you have a question. Please press Star then one.
Yeah.
There are no more questions at this time. This concludes our question and answer session I would like to turn the conference back over to Tania Wang for closing remarks.
Thank you everyone for joining us on our call today, if you haven't got a chance to Rachel's question, we will be pleased to answer them through follow up contract. We look forward to speaking with you again in the near efficient. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.