Q4 2021 X Financial Earnings Call
Hello, and welcome to the X financial fourth quarter 2021 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to 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.
Please go ahead.
Thank you.
Thank you operator.
Everyone and thank you for joining us today.
These results were released earlier today and are available on the company's IR website at IR.
Hum.
Our call today, Paul if I may.
So when Lee.
And Mr Liang Chief Financial Officer.
Mr. Li who will give a brief overview of the company's business operations and highlights followed by Mr. Zhang who will go.
Through the financial.
They are all available to answer your questions during the Q&A section.
I remind you that this call may contain forward looking statements under the safe Harbor provisions of the private Securities Litigation Reform.
1995.
Such statements are based on the amendment, the current expectation and current lucky and operating conditions and relate to events that involve known and unknown risks and uncertainties.
All the sectors.
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 statements.
Further information regarding this and other reasons. So that these factors is included in the company's filings with the U S Securities and Exchange Commission.
The company does not want to undertake any obligation to update any forward looking statements.
Result of new information future events or otherwise.
As required under law.
Now.
It is now my pleasure to introduce Mr. Ken Lee, Italy. Please go ahead.
Yeah.
Hello, everyone.
Oh, well very pleased to conclude the 2021 with another solid quarter of financial results.
Levering profitability for the full year, both our top and bottom line for the fourth quarter significantly improved over the same period.
To guarantee.
The challenging macro economy, and the regulatory environment in 2021, we have successfully turned our business back on track and to maintain a steady growth momentum compared with 2020.
The total nominal amount facilitated and provided in 2021, an increase of 575% year over year to RMB 52 billion from RMB 30 billion.
With a very focused product strategy and effective cost control initiatives, we turned profitable in 2021 and our bottomline outperform the full year of 2019, the year before COVID-19 outbreak.
During the fourth quarter, our total loan amount of facility and provided reached RMB 13 billion, an increase of 51% year over year as mentioned in our previous guidance. We saw a moderate sequential decline in the loan volume in the fourth quarter, which was mainly attributed to the yearend outstanding on that.
The requirement of our institutional funding partners.
In the first quarter of 2022 the level of available funds has resumed its normal pattern. Since 2020, we have shifted our product focus to shell in Cardinal which contributed 100% to the total number amount facilities, providing anti PD one.
With this focus on the program product strategy, we are confident in our ability to sustain steady growth in the loan facilitation business in 2022.
Regarding asset quality, the delinquency rate for all outstanding loans that are past due for 31 to 68 days as of December 31, 291, plus one 8% higher than the point.
Born to 19, 96% as of September 32 days until FERC 291, and the point to 79% as of December 31 2020.
This fluctuation these amendment.
Due to the liquidity tightening in the fourth quarter of <unk>. Since February 2022, we have seen our asset quality gradually improving as a result of ample liquidity in financial markets and our strict risk management measures.
In 291, we officially commenced operation of our microcredit business in the third quarter. After we received a regulator approval for our micro micro credit license and during the fourth quarter, we further increasing reduced capital to RMB 1 billion in compliance with the regulations well I'm sure.
Checked with our Mac microcredit business and I look forward to creating more value for our shareholders.
In the fourth quarter of 2021 we invested RMB.
315 million and it become a indirectly a minority shareholder solve new up and cover the only PRC company and a non state owned bank, we are exploring opportunities to cooperate with the need.
To better balance our Smes and we are confident that based on mero advantages in technology and risk management capabilities.
Operating with a new <unk> bank with green more possibilities to our business, which we want to really empower and supported the development of the economy in China.
Heading into 2022 we expect to achieve regulatory uncertainty to subs to satisfy site with clearer guidance from authorities. The Chinese government has affirmed who value our fintech industry to address People's inclusive financial needs and it supported the development of SMB.
We remain cautiously optimistic about our business outlook, while being prepared for any macro uncertainty that emerged in 2022.
In order to pass our confidence to the market and increase shareholders value. Our board has been time and evaluate them based on our current market environment regulatory policy admin conditions, our business operation multiple ways of returning profits to our shareholders, including share repurchase as well as cash dividend disc.
<unk> recently.
Recently, our board approved our U S 15 million share repurchase plan.
Which reflects our confidence in the company and fundamental strategy on a sustainable growth.
We are looking forward to our increase our shareholders' value in the future.
Now I will turn the call to Frac, who will go through our financials.
Thank you, Ken and Hello, everyone.
We are pleased to deliver solid financial results for both the fourth quarter ended the full year of 2021. The total net revenue increased by 15% year over year to RMB $823 million in the fourth quarter, we saw a significant improvement in our bottom line with non-GAAP .
Adjusted net income improved to RMB $183 million from a loss of RMB.
631 million in the same period of 2020.
For the full year 2021, total revenue increased by 65% to RMB 3620 $6 million.
Thanks to our relentless efforts on our cost management and total operation costs and expenses decreased by 36% to RMB 2000 $315 million.
non-GAAP adjusted net income improved to RMB $914 million in plenty of time, they went from a loss.
RMB 1220 $8 million.
A year ago.
In conclusion.
We are gradually encouraged by the strong results we.
Delivered in 2020 was which is solely demonstrate the resilience and the growth potential.
The business going forward, we will continue to expand and deepen our cooperation with more institutional funding partners to meet the needs of consumers and SME.
And to execute our proven strategy to drive sustainable long term growth and returns for our partners and the shareholders now I would like to brief some financial.
Performance for the fourth quarter. Please note that all numbers stated here are in RMB.
Total net revenue in the first quarter increased by 15% to RMB 800, 2023 4 million from RMB.
RMB $716 3 million in the same period of 2020, primarily due to an increase in the total loan amount facility in Katy and provided of shell card one this quarter compared with the state of period of 2020.
Oh regulation in the southern Sea expenses in the fourth quarter increased by 29, 9% to RMB $385 8 million.
RMB 557 million in the same period of 2020, primarily due to declines in the collection expenses, resulting from the asset quality improvement and the.
And the decrease in insurance fee paid to the insurance company.
Provision for accounts receivable and contract assets in the fourth quarter was RMB $19 5 million compared with Lewis.
Provision for accounts receivable and contract assets RMB $13 2 million in the same period of <unk>, primarily due to an increase in accounts receivable from facilitation services as a result of increase in the total facilitation amount in the fourth.
2021, compared with the same period of 2020.
Yes.
Provision for the loan receivable in the fourth quarter was RMB 43 million compared with RMB 33, 7 billion in the same period of 2020, primarily due to an increase in loans receivable held.
Vote by the company as a result of increase in total loan facilitated and provided in the first quarter about 2020, when compared with the same period of 2022.
Increase from operations in the fourth quarter was RMB $311 6 million compared with a loss from operations of RMB $857 3 million in the same period of 2020.
Net income attributable to X financial shareholders in the first quarter was RMB $145 5 million compared with a net loss attributed to X financial shareholders.
Of the $655 5 million in the same period of 2020.
Now GAAP adjusted.
Net income.
The X financial shareholders in the fourth quarter was RMB $183 million compared with a non-GAAP adjusted net loss attributable to X financial shareholders.
RMB $638 million in the same period of 2020.
For further financial information please refer to the earnings release on the company's website now for our business outlook.
We expect total loan facilitation amount for the first quarter of 2020 to be between $15 billion.
<unk> 15 for building and the branch of a Inc. Increased incremental in total amount of facility provided for 2020 to be some 15%.
225%. This forecast reflects our current and preliminary views, which are subject to change now. This concludes our prepared remarks, and we'd like to open the call to questions operator. Please.
We will now begin the question and answer session.
To ask a question Hugh.
You May press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed.
And you would like to withdraw your question.
Please press Star then two.
At this time, we will pause momentarily.
To assemble our roster.
The first question comes from Mason born.
AWH capital.
Please go ahead.
Okay.
Alright, thanks for taking questions to.
To start I was hoping you could give more background on your investment in new IP.
Why now and your main goals.
Hi, Jason This is Frank Thanks for your question.
The new up a bank is one of our seven <unk>.
Bank owned by.
On privately.
It's not a one.
So it's not state owned banks.
The purpose is only one purpose only as we try to do.
This equity interest we tried to explore the opportunity and the new way to develop a jointly.
To the ramp of our S E business.
Which is a great coverage by the government.
At the current times.
So and then go ahead.
So not so.
Yeah.
You will now see in terms of the business or otherwise.
As much it is.
More of like a long term strategic investment.
Thank you.
Okay.
Yeah.
And then.
On the SME side.
How do you think about potential profitability of that segment compared to your current business.
That is kind of a tough.
That market is a is a quite different from us, but they have some overlap with the current business with our current at the market that we serve.
Yeah.
Mainly right now so you know consumer market that for the individual mainly.
Up to like 80%.
Santa or whatever.
The overlap is about that you know of.
Somewhere anywhere between 10% to 30%.
So, but you know the bank is yeah, especially for the small bank. They are you know.
Mainly lack lack of.
Lack of Tetra Tech.
<unk>.
Our ability to develop the CE mark.
They have their own market.
That kind of reach you know approach that market.
Very traditional way, it's mainly it's a bad person right.
So we are by this cooperation we try to leverage our each other.
Dish in E E.
So we are mainly paradis them, maybe technical approach.
But to that.
Yeah.
And then maybe pull out of some other you know market access marketplace for us.
But I'd be cautious.
Any outcome at this place is very preliminary.
Not strongly advised everyone should know okay.
Forecast of projections.
The result about it.
Okay great.
And then.
On your guidance you provided total loan volume expectations.
How do you think about profitability in 2022.
So we are kind of.
Not just us.
Our competitors all kind of a cautious in general.
That's all from.
For this year.
We gave like a 15% to 20% of increase in terms of the volume for this year and it did not give the.
Any learnings are earning a forecast at this time.
Mainly because even though.
Regulatory regulatory side.
You know it's a.
We believe it's a is it will be then a quite stable situation in 2022.
But you know what that found the economics no economic side is quite uncertain, especially in the current right now is zero.
Zero tolerance.
19, right now you know.
The biggest city you know the biggest they paid in China like Shanghai its right now in like a total lockdown and the largest Shanghai.
Mainly mainly many many cities in the COVID-19 situations that prevent us.
Quite spread among.
The 27 provinces. Many many you know.
City, it's a kind of a in semi.
You know theyre doing the testing they'll pull the test every day you know I just just otherwise you know just you know.
So there's a.
Supply situation and.
Some industry affects a lot lots of restaurant travel.
Entertainment Oh.
Factors people a lot a lot of people in those industry.
And over eating are in furlough status, you know what I mean.
So those.
Employers in those industry I think there is some kind of relief related to our Oh, no our business as it is.
Yeah. The other people, we are well, whereas people right. So we are we are so that they know.
You know our Super Prime market that basically you know you know what I mean, so we we we kind of are we kind of all cautious did not give up gave us. That's the main reason we can okay Ernie.
At this time, but but but what I'm, saying, but at least what I'm, saying we are pretty sure.
We will be.
Yeah.
Profitable substantially this year, but not not maybe not as as.
As big as it.
As much as last year, but we are kind of reluctant to provide that exactly.
At this time.
Okay.
I can appreciate that and then.
Lastly, it's good to see buyback put in place.
Could you talk more about how you think about capital allocation going forward.
Just a wee.
We stayed in this in the press release, we will do the the back.
Back to.
From time to time.
And but we are not try to so Paul are correct that the so called this.
Very severe and Nevada, who share price situations I think we are now not.
Not in position.
Correct that situation by us along as they say industrial why situation. It's a it's a time when many other things, but but but we definitely are.
Well, where we are.
When we think it's very much bottom line in terms of the share price. So.
We will still use our mainly.
They use our our cash to true to exploit the new business opportunity and ER and ER and acquire more has come out.
And the gross.
Our business basically.
E systems and whatnot.
That's our intention.
Great. Thank you.
Thank you.
The next question comes from Matthew Larson with National Securities. Please go ahead.
Okay. Thanks for taking my call.
You know.
Or do you have an explanation why your company plus some of your <unk>.
I'll call them competitors, whether it's $3 60.
Or.
Even.
To a certain extent why our D and.
Uh huh.
You're trading at one or two times earnings and yet your earnings are growing you faced the same headwinds that any lender house, you know uncertainty about the economy delinquencies, where youre underwriting has to be.
Strong.
And regulatory issues, we've experienced for years here with with our lending companies, whether the payday loan companies or peer to peer lenders.
You know, there's a company called upstart, which trades at probably you know 50 times your multiple it seems to have a very similar business model.
I think of share buyback.
It is very smart because.
Your volume is dried up and.
You know you really could make a difference by putting a floor on the stock and it's very very accretive of course also to be buying your stock down here and you could buy it even up quite a bit.
Do you have any explanation why.
Your industry groups trade.
Essentially some of them trade below cash on the balance sheet. I mean is that just an anomaly because U S investors have lost interest or.
Or is there something else out there.
So Mr. Lars and thank you for your question I believe it is this is your first kind of drawing Oh I'll call and.
I think.
If we.
Our cash balance our share at all.
We've been very happy actually I, though we are actually much lower than cash okay.
But you know.
The short answer for your question is because our industry right now.
The future for our industry.
Just a regular environment that that's I will put it very bluntly.
And then.
I think what a friend trying to say is that you are in some of the investors is that this is industrial has no future right.
I think it's very difficult to comment on why other people think of that as this industry should be valued like these and we as a management team and we certainly think our stock is under is undervalued and that is why we're putting this.
Purchase plan.
We just mentioned and we think of that at this moment.
Just a natural move for us to to buybacks MLR of our shares.
I think in the end.
It's really the risk or different people associated with different industries with different risk levels.
In our particular case I think why don't you use this industry steel.
To say, even though we could also for governance.
Multiple governance is still not very clear how this industry will be called in.
Holly this is something that we've been developing going forward and another one of course is the relationship between China and the U S. It's not I wouldn't say, it's not quite right. So I think the point, where investors are thinking about Chinese company that is naturally put it may all be put some discount on it but I think that in the end dates.
Nobody knows what is the correct valuation is you probably have a feeling of where it should be and at this moment that we certainly think that we are lower than where we should be.
Well, yes, I can comment on that.
Okay.
Issue for this is the order or the Chinese company listed in the U S. As a cloud they put you can tie that.
You know trade war between China and U S.
Oh no.
You know there's a there's a.
P C. L V issue I'm sure, you're all aware of that and and.
And that.
Is it a question of whether the all Chinese listed company all Chinese could be continue to be listed in the U S. It's in doubt right now and we.
Hope that will be solved.
Sometimes one way or another but it's all what particular industry I seem to another answer is very simple it's a it's a.
The visibility is that.
That's almost a zero because the all the regular.
Environment and are regularly in silicone pace.
Our industry. The issue you I also believe you are all.
Or wherever you are.
For our industry.
I think that's the.
Uh huh.
So for your question.
Well I, if I could just I'm, sorry, I just had a couple more moments here because it's a frustration for investors.
Because.
You know I don't look at the your your industry is a value trap it's been.
Where.
Some of your competitors. We're underwriting this is excuse me Sir this is the operator, others an interruption the speaker location disconnected just a moment please.
Sure. Thank you.
[music].
Excuse me I have reconnected the speaker location. Thank you.
Hello.
Hello, Yes, Mr. Larson was asking another question.
Yes, okay.
Uh Huh, that's a long term investor obviously I'm interested in growing my investment.
And your company has done very well.
And it's got a couple of runs at considerably higher prices.
Hopefully that'll occur again.
But I guess I would say that the share buyback is very very it's a very good thing to do.
Because it's a large enough buyback you know seven or 8% of your market cap and I don't know what percentage of the float.
But I just would be very easy for me.
Looking at.
How accretive it is and you have enough spare oh cash on the balance sheet to do such a thing and.
I mean, you could really put a bid in the stock and we could oh.
Get not only this company and others.
To really see some upward trajectory after being Cai.
Kind of just forgot.
They've been orphaned almost because investors are kind of ignore stocks and once they get down to the share price that your stock has been at $2 or maybe three or four lucky.
And.
So I just hope you continue to see ways to not only.
You do show good operating earnings.
And you.
You're well within your industry.
But find a way to elevate your stock because it could easily traded twice where it is now.
Which would give it still a small earnings multiple and a big discount to book, but you would bring in more investors. If the stock were to get above say $5, which is a minimum for many of our.
Investors, so that would be a goal to do it one way or another besides just the obvious which is to continue to operate your business in a very profitable manner.
So.
I look forward to you guys being aggressive with share buybacks.
Particularly at the price where it is now where it's extremely attractive and accretive I mean, you're trading at less than two times earnings so trailing earnings.
Which is you would never find out in the United States. So thank you for listening to me and congratulations for the quarter and I liked the guidance going forward.
Thank you Mr. Larson and thank you for your question.
That's exactly it.
Adding to the share buyback and that's exactly what it would trade.
We try to basically we try to set a floor. So that's sort of.
For the share price.
And and but.
The flow is not that big so I'm afraid we probably.
There's no ability to Ah.
No.
A lot of share.
We get to the pipes, a very big way.
That's that's that's done that.
Because.
We are in there.
We know that that industry, everybody is traded below five five times something like that you know we we are we have kind of very low, but we can't get approval later, where we are.
Definitely not.
Okay.
I think trade at 10 times earnings.
That's kind of the same so they basically.
Do something.
Uh huh.
Thank you for your question again.
Alright, thank you.
Okay.
Okay. This concludes our question and answer session I would like to turn the conference back over to Tania win for any closing remarks.
Okay.
Joining us on the call today.
Gorbachev Rachel question it'll be placed Pennsylvania.
I'll come back and look forward to speaking with you again.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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Okay.
Yeah.
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Yeah.
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