Q1 2022 X Financial Earnings Call
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Welcome to the X financial first quarter 2022 earnings conference call.
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Florida.
I would now like to turn the conference over to Todd You Juan. Please go ahead.
Thank you operator.
Hello, everyone and thank you for joining us today. The company's results were released earlier today and are available on the company's IR website at IR Kelly and good luck.
Oh.
On the call today by NATO, Kennedy, President and Mr Liang Chief Financial Officer.
Mr. Lee will give a brief overview of the company's business operations and highlights followed by Mr. Chen who will go through the financials. They are 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 Act of 1995.
Such statements are based on the maintenance of current expectations and current market and operating conditions and relate to events that you won't know unknown risks uncertainties and other factors. All of these are difficult to predict and many of which are beyond company's control, which may cause the company's are actual results performance or achievements to differ.
As you read from those in the forward looking statements.
But the information regarding these and other risks uncertainties and factors is included in the company's filings with the U S Securities and exchange.
[laughter] Commission.
Some of these does not undertake any obligation to update any forward looking statements as a result of new information future events or otherwise except as required under law.
It's now my pleasure actually introduced Mr. Kennedy, Italy. Please go ahead.
Hello, everyone.
Pleased to start two with a thought it was a Saturday the performance for the first quarter. Despite of multiple challenges from the resurgence of COVID-19, and the economic slowdown in China.
So total notional amount of facilitating and provided in the first quarter increased on both a yearly and quarterly basis. We also saw our asset quality remained stable during the quarter. However, given the uncertainty of the macroeconomics.
Why arent, we are cautious about the business outlook for the coming quarters.
We will continue to closely monitor the market dynamics and instead envision into any inefficiencies kind of issue.
Issues related to the pandemic in China.
During the first quarter, our total total number amount of facility and provided Richard RMB 15 billion up 40% year over year, and 17% quarter over quarter in line with our previous guidance the delinquency rate.
Outstanding on that I'll pass to 431% to 60 days as of March 31, 2022 decreased to 1.31% from 1.48% as of December 31st when do you think do you want.
We are pleased to see that our tightened the risk control measures have successfully stabilized our asset quality, Amy there's a complex environment and especially during the recent COVID-19 resurgence and lock it up.
In the meantime, we have been actively working with various partners to jointly explore new opportunities in the personal financing market in the fourth quarter of 'twenty or 'twenty one.
We became a Utah.
I reckon minority shareholder of the new I think the only.
Since the second quarter of 2022 we have started to provide the loan facilitation services to new upper back no. We are in active discussions with a newer bank jointly design and develop products and the programs that are catered to the financing needs of small and the micro business in line with the government of course will support the development of our small.
And media enterprises in China.
We look forward to deepening our cooperation with newer bank by leveraging our extensive experience in the personal financing market and our capabilities in cutting edge and to take or trading risk control and assessment.
We believe helping licensed financial institutions to grow their business will benefit both parties in the long run.
On the regulatory side, the Chinese government recently, highlighting the importance of promoting the healthy development of the platform economy in China.
We believe the more visible market with Korea, and standardized regulations will benefit all the market participants, including us with.
We are fully compliant with and supporting the government's initiative and our policy is to promote the long term development of the industry.
We have laid a strong foundation and I'm very confident of our expertise to capture growth opportunities Amy the healthy regulatory environment.
Recently, we were included in the list for the first year under the holding foreign companies accountable Act, which allows for the U S regulator to diligence companies if they fail to comply with up with American loaded standards for three consecutive years.
According to the foreign Ministry of China, The Chinese Securities regulator has the rig has regularly being in communicating.
With U S regulators in this regard whether is companies will be delisted or not from the U S stock exchange depends on the progress and the results of.
The China U S quality supervision cooperation, we hope and I look forward to the two governments, reaching an agreement in the near future in the meantime, we have been proactively exploring possible solutions to protect the interests of our stakeholders and to maintain our listing status on the New York stock exchange.
Now I will turn the call to Frank who will go through our financials.
Thank you, Ken and Hello, everyone.
We are pleased to see our top line increased 8% quarter over quarter sequentially in the first quarter.
As per the guidance guiding principles with the government. We are on track to further reduce the total borrowing cost over to Barbara in order to jointly promote.
Give me that economic growth will be.
Stepping up our efforts to acquire more high quality borrowers and securing a larger user basis for a long time.
Sustainable close this tragedy.
Strategy has put some pressure on our bottom line due to our increased use of user acquisition cost, but we believe that our solid foundation of our borrowers is critical to long term element of our business.
We'll continue to strength, our user acquisition why implement implementation disciplined cost control measures to deliver a balanced topline and bottom line growth.
Now I would like to brief some financial performance for the first quarter. Please note that all numbers stated state.
And Pete and the round it up.
Total net revenue decreased by 2% to RMB 800.
888 million from RMB 906 million in the same period of 2021, primarily due to a decrease in average of total borrowing costs of the boroughs.
And also.
Partially offset by an increase in the total loan amount facility and provide that this quarter compared with the same period of 2021.
Our origination and servicing expense decreased by 19% to RMB 465 million from RMB 573 million in the same period of 2021 primary due to a decrease in insurance fee paid to the insurance company.
General and administration expenses increased by 7% to RMB $45 million.
From RMB 43 million in the same period of 2021.
Primarily due to due to our increase in consulting and service fee expenses in the first quarter of 2022.
Provision for accounts receivable and contract asset.
Was RMB 26 million compared with RMB 717.
17 million in the same period of time.
On the win.
Primarily due to an increase in the accounts receivable will phone facility patient services as a result of the increase in the total loan facilitation amount in the first quarter of 'twenty to 'twenty, two compared with the same period of 2021.
Provision for loan receivable was RMB 33, or 34 million compared with RMB 27 billion in the same period of 2021.
Primarily due to an increase in the loan receivable held by the company as a result of increase in total loan amount facilitated and provided in the first quarter of 2022 compared with the same period of 2021.
Income from operations was RMB 314 million compared with RMB, two 251 million in the same period of 'twenty 'twenty. One net income what was the IMT.
140 million compared with RMB 189 million in the same period of 'twenty 'twenty to 'twenty one.
non-GAAP adjusted net income was RMB.
154 million compared with RMB.
212 million in the same period of 2021.
For the further financial information please refer to the earnings release other companies Oh Web site now for our business outlook. We expect total loan amount facilitated and provided for the second quarter of 2022 to be between RMB 15 billion and.
I N T 16 billing at the range of the incremental in total loan amount the study.
Haiti and provided for 12 years finally to Tobey Sommer.
15% to 25% this forecast reflects our current and preliminary views, which Ashford has to change.
Now this concludes our prepared remarks, and we'd like to open the call to questions operator. Please.
Thank you we will now begin the question and answer session.
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Your question. Please press Star then two once again that started in the water. If you have a question and we will pause momentarily to assemble our roster.
Yeah.
Today's first question comes from Boyd Hines, whereas capital. Please go ahead.
Hi, Thank you for taking my questions I have three at the moment.
What was your average interest rate in the quarter that you charge customers.
The second question is on the tax rate.
Why was it so high this quarter and in Q4 and what is your outlook for tax rate for the full fiscal year.
And the last question is can you provide us with any update on your share repurchase program.
Okay.
Regarding to your first question and.
We do not provide the.
Exactly number Oh, Oh Oh.
I'll, let Don give a little later, we charge for the borrower and then but you know.
But I would tell you in the general trend.
You know them you know it's.
Is it going down and in and we also can provide Ah you know regarding though like it.
Now the 24% borrowing rate for the long Ah is Ah is that it's about in the first quarter, but you know this year is about between 40% to 50%.
Rich so who we are.
On track are you know you know 222 to have a majority of all of our business will be based on 24% a rate you know going forward I think that that process will all the way to two and then this year okay.
Regarding the <unk>.
Regarding the regarding the tax rate.
You know for the last quarter or this quarter, especially this quarter, we have a one subsidiary you know in China.
It has a you know.
If the so called deferred tax.
Asset and the cigarettes that business. So that's.
That's basically that's a subsidiary.
It's a you know it would not be no generate enough.
Revenue in the future to offset those tax a deferred tax asset. So for example, this quarter, we have about 19 million RMB two.
Two to two <unk> in the line.
Tax line. So all of our you know, although our you know Oh, what tax rate are the textbook.
So it's a it's a it's a.
Relatively stable is around a.
Little bit of over 20%, but below it below are somewhere between 20 and 25% overall.
All of that and is that for.
For the first quarter of this the tax amount is so high is because the special not eaten 90 million something special charge that that's the second question regarding the share share buyback program.
You'll know.
The company used a share buyback.
I must do such subjects, who the insider trading rules specifically.
<unk> can be 510 be a so we will we will we will start in doing the stock buyback are you know starting this Friday, so that was we haven't.
Have any buyback, yes, so far so far Oh, you know up to this point, but because it's there's no no bad window allows us to do so we will start doing a stock.
Buying back our shares.
Turning this Friday.
Okay. Let me just follow up on the tax rate question.
I'm trying to understand what you're implying is it are you, saying that the tax rate is going to drop going forward. So that starting in second quarter, it should be closer to that 20% to 25% statutory rate.
No.
Try to say, it's been for the last quarter of last year.
But I did see the number on the tax line is a abnormal in the in the sense you know because because it would have a subsidiary of ads and they go all the way back you know you know like a 'twenty 'twenty. It will have a we have some losses. So we have as you know I have a tax credits available on that Chinese.
But.
Normally you you you will end up you'll have a you know if we have a you know.
The future you'll have an income in the genotype, Canada profit that you can offset those tax credits in the other two you know so so so that doesn't mean, you know that subsidiary business well well have a lower tax rate a zero tax rate for foreseeable for C foreseeable future.
But those tax credits, but because something happened are you know for that subsidiary at what we we do not have enough revenue to cover those post to that that's why we are prudently. We we took us back with took a charge of about 90 million in the first part of it is.
This one is so so so so that's so the quota for the quarter of this year. It is caught up this year that tax amount is abnormal and there will be a back to normal between the 20% to 25%.
Starting next quarter.
Great. Thank you My my last question is really to the management team had.
Have you considered taking this company private.
No.
And we understand the you know our our where our valuation is very low and that's P. B, it's well below the 1% and we are still a you know and a way out.
That's still making money were not losing money we are not in the you know except to like you know like a special year like a 'twenty 'twenty either.
Because the.
Covid situation, mainly in China with a normal year with where we are making money right. So it's.
It's a kind of a and a reason to why why we cannot make a reasonable valuation for the shareholder, but I believe Ah, we believe and that's normal in normal situation. This depressed valuation level, mainly due to uncertain regularly.
Environment right now in China as we gave you the script in a you know this quarter you know.
You know if you pay attention to Chinese womens and youth you will see we feel you know at this moment we will.
The Chinese government, maybe you will refrain to have a so called <unk> Ah regularly measure for this industry. So we will make.
Maybe we'll have a you know normal so called normal in the us.
But we have a normal a normal regulatory environment.
And you know in the future, but it doesn't mean they went off I have a new measure coming up we will still but without those smasher. We will believe is a is it is it is a normal stuff, it's like a consumer protection.
Uh huh.
So like every company is like it's like a you know it you know like any.
Country, you will expect to have the same kind of originally like a regulation come from those areas, but will not have a like a earthquake events you know for something like that for the last few years, you know and as you know that's kind of as saying so we believe both depressed valuation measure.
Like the P V O P will back to normal maybe well you know we believe we feel it went back to like and back to work you know maybe not reached the one maybe but it definitely is much higher than you know like we'd like to 0.23%. The P V rate right now so so we we we.
Still still under regular regulatory response, we seem to see we will turn around and we are still very I believe are the business that we are involved is a contributor to the consumer in China. We are we all will contribute to society and the world for the long term we will have.
Maybe you have a big role for us to play. So so maybe so on regulatory files, which is what we believe is the most ah because the facts to effect negative effect.
Not just the auto accounts.
The whole sector Oh, Okay. It's the same thing they will be back to normal, but we don't know how and when but in terms of the trend. We believe it will be back to normal.
Right well most of your competitors.
Initiated stock repurchase plans they have followed through.
So pay a dividend and some of them actually I've seen some of their top senior executives have purchased stock.
Instead of selling stock.
So if you believe.
That your shares are undervalued and they are not going to be delisted I would urge you to aggressively do all of that.
Oh, our management team to know about it.
I know, it's without any share certainly I myself I haven't sold any share yet, but my oh companies because the shareholders are adjusting charge testing.
That's very.
Very substantially.
So it's more like a 30% so so I I believe and I think with his amazing. He he did have some small purchase also and if you compare with the pizza holding you know at the end of last year, which is a disclosure in 20-F. He did is they had to buy some you know as you know.
He did buy some shares.
As you know, it's not a big one but a small one yes. They did it by it. So so I think I think the you know I, we will we haven't we.
We will work well, but for the share buyback share buyback program. We will we'll we'll do the ship at.
Every opportunity available for us and we will do the buybacks and we are you know.
How many there before are in the due time, we will you know we will not exclusively in terms of the dividend.
But let's see just shared I think look first cut and then you know maybe it will have something else, but there's no problem explore that.
I agree that share dividends don't make as much sense of share repurchases, but yeah could aggressively purchase repurchase 10% to 15% of the company right now for very little.
If if they allow us to do that and we will do that so you'll see what we put out the 15 million foot to doing that but definitely is there in terms of the current market cap of wheat is at about 15%, but you know can be a they allow you only by 25% of flow every day. So so you know.
Flow right now is very slow that that's you know you you know what I mean, so so we worry about every single.
Available for us to buy but are we still have followed that we still have to follow the rule.
Okay. Thank you I appreciate you answering my questions.
Thank you.
This concludes our question and answer session I'd like to turn the conference back over time your one for closing remarks.
Okay.
Thank you everyone for joining us on the call today.
Florida speaking with you again in your thinking.
Thank you.
Thank you and ladies and gentlemen. This concludes today's conference call. Thank you all for attending today's presentation.
Now disconnect your lines and have a wonderful day.