Q1 2022 Lexinfintech Holdings Ltd Earnings Call

May 31, 2022

Ladies and gentlemen, thank you for standing by and welcome to the Lexington, Fintech first quarter 2022 earnings conference call.

At this time all participants are in a listen only mode.

I must advise you that this conference is being recorded today.

I would now like to hand, the conference over to your first speaker today, Ms. Jamie Wang IR manager. Thank.

Please go ahead.

Thank you operator, Hello, everyone welcome to <unk> first quarter 2022 earnings call with US on the line today are our CEO Jay shell CFO , Sony soon and C. R O J D.

Before we get started I'd like to remind you that the Cowen presentation, continuing business outlook and forward looking statements, which are based on assumptions as of today actual results may differ materially and we undertake no obligation to update any forward looking statements.

Jay will first provide an update on our performance Tjaden will then discuss risk management and lastly, Sonya will then cover the financial results in more detail.

I'll now turn the call over to Jay his remark will be Chinese and English translation will follow Jay Please.

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Good morning, everyone. Once you 22 was a quarter full of uncertainty and challenges in China, a number of major cities like Shenzhen, Shanghai, and Beijing have had to deal with a resurgence of COVID-19.

The unpredictability of the pandemic has dented consumer confidence and led to a slowdown in economy.

Beyond China. The external environment is also highly volatile with high inflation in the U S. A federal reserve that is committed to further rate hike the squeezing liquidity volatility in our final U S relations and a conflict between Russia and Ukraine.

These factors combined have been clouding the performance of capital markets.

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They have also caused more uncertainty to our company and the whole sector.

It's difficult to predict how these factors will develop in the next few quarters and how they will affect our operations and the execution of our strategy.

From Covid alone the impact to the society and economy has surpassed that of 2020.

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We have always been proactively analyzing the situation how consumer behavior will change and how the changing capital markets will affect listed companies given deal.

Core economy pursuing scale at all costs, we will expose the company to more risk we will work on the following is that first.

First proactively responding to external change and adjusting operations and strategy to ensure asset quality.

Second further solidifying our foundation, increasing the operational efficiency.

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Staying committed to our strategy in order to improve the diversification and quality of revenue.

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The management are committed and confident that we can handle the challenge and continue to build up a solid foundation to achieve long term sustainable development. We have successfully navigated multiple policy changes in the past few years.

Since our inception, we have facilitated or RMB 702 billion of loans and a massive user base over a $171 million.

These are testament to our capability.

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In the first quarter the loan origination volume reached RMB $43 2 billion and outstanding loan balance RMB $83 8 billion to be honest, we're not pleased with our quarterly results. We have the potential to do more but on the other hand, it should not be a disappointment because we had already done our best and respond.

<unk> to change and adjusting the operations.

First we further manage risk and control the impact from COVID-19 by focusing on serving existing low risk users and reducing the high risk <unk> <unk>.

<unk> 2010 to 212 2020, all risks and profitability indicators were better this time round.

Second we have been broadening the founding channels natural wood partners already made up 76% of the total funding in the first quarter the mismatch in asset and liability due to the original policy restriction that we experienced from the end of 2021 is now being addressed.

We continue to invest in new growth opportunities, including the technology, driven and new consumption driven businesses.

It's our strategic go to further promote the revenue diversification and our risk management capability.

In the first quarter non credit driven services made up $47 seven of total revenue up by 10 percentage point year over year.

Fourth and compliance we have been making further progress in bringing down the APR in the first quarter. The APR went down to 25% the mix of assets with a 24, which is already 77, 8% lastly.

As a leading fintech platform.

It's fine are fully aligned with the regulatory priority, we have been providing credit support to Smes and sole proprietors facilitating the resumption of your operations in the first quarter loans to small and micro businesses amounted to RMB $4 24 billion up nine 5% quarter over quarter.

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As I explained earlier this year, we are committed to three strategic priorities.

Strengthening the management of existing customers, so as to increase the profitability, while insured insuring risk performance.

Enhancing the revenue structure to promote more diversification in service nature as a platform provider.

Third optimizing the management system to further increase operational efficiency.

Given the uncertainty of the macro and operational environment. It is challenging to achieve loan growth of 10%. This year, though we do expect Q2 loan origination volume to be higher than this quarter.

We will bring our best but business structure and risk performance matters more dense scale. We will also work towards the 24% policy go and keeping full year take rate at similar level to this quarter. The first quarter 2022, while trying our best to aim for three.

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In summary, the external environment and Covid situation remains highly fluid there will be both difficulties as well as opportunity we have been implementing mitigating measures and will continue to work towards our target.

On the policy from the authorities have been sending signals to support the economy driving credit demand and promoting market liquidity Mauro.

Moreover, the <unk> has also made positive comment on the industry ratification for Internet finance.

Policy retention and development of the sector is getting more mature. These are all steps in the drive direction.

In the second half of the year, we believe the domestic economy will gradually turnaround in the presence of stimulus policy.

And we are confident that we can ride out this cycle and continue to create more value for our shareholders.

Now I will pass it to Jason and he will discuss about our risk management Jason Please.

Thank you Jay Thank you Jamie.

Good morning, everyone. Let me elaborate more on what you're doing in response to Covid.

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Areas most hit by Covid marketing spending has been reduced.

Criteria revisit it in order to manage exposure to high risk users.

Dedicating more resources to existing relationships, where the visibility on credit performance, it's much higher.

Overall day, one delinquency has been going down every month this year.

And so second half of last year in response to the 24% loan pricing, we have variety of taking mitigating actions to reduce exposure to high risk users.

Customer structure is therefore are much stronger than a year ago. This has strengthened our defense against the search and cooperating this waste.

With the improvement in customer mix. They want delinquency. It's also better and is now 12% lower from the end of December last year.

30 day collection rate on the other hand recorded a modest decline in March and April we are seeing signs of stabilization with bank.

Two years ago, when the pandemic first started longhorn most of the collection located in the city and the operations suffered a major interruption.

After the incident, we have decentralized could present upgraded the system and revisiting the credit policy to make sure that we can respond more quickly.

Therefore in a significantly better position to cope with the situation at this time.

The increase in 90, plus delinquency, we think expectation.

The macro environment and the reduction of the outstanding loan balance.

Tens of increase is a better indicator of our ability to manage your asset quality.

And relative to some of the bigger player we have been able to show more of these units.

China is going through its unprecedented the visibility on the path to recovery is not the best.

We are constantly refining our strategies to enhance our risk models and analytics. The risk management team is also working more closely with marketing and business development teams to buttress customer acquisition as well.

In short we're much better prepared than two years ago. Thank you I will now pass it over to Sunny.

Yeah.

Thank you, Jason and thank you Jay Hello, everyone. It's my pleasure to speak to you again.

Our management team are dialing in from different locations today.

With widespread lockdown measures to contain the pandemic economic activities have faced different degrees of interruption or even complete shutdown.

In the first quarter, we made the decision to step up the provision. So we can have a stronger buffer to weather the turbulence.

Most of the increase was reflected in Dave on provision for new loan originations.

This is the main reason behind the drop in revenue.

Just to recap most of the provision for our contracts is recognized as deduction to revenue.

Further decline in loan pricing is another factor.

Loan pricing within 24% APR reached 78% of loan origination in the first quarter.

Up by 45% year over year, and 18, 5% quarter over quarter.

One of them did hold up well given the current environment.

Loan originations reached $43 2 billion RMB.

Only by less than 1% quarter over quarter.

The outstanding loan balance stood at $83 8 billion RMB, just a slight drop of two 5% quarter over quarter.

Consumer sentiment has become much more subdued.

And most of all we have also tightened credit assessment.

On the funding side about 76% of the funding in the first quarter came from nationwide funding partners.

Off by more than 10% from the fourth quarter.

Funding cost began to climb at the end of last year when regional financial institutions pulled back from cross border lending.

This shock led to a mismatch between assets and liabilities.

Which has since been gradually resolved.

The offline team has been effective in meeting the needs of our regional partners.

At the headquarter level.

We have also got more nationwide relationship.

Yes.

The off trend in funding costs has things reverse.

With now a dedicated sales team, we expect to bring on board more national partners.

The top line performance is always subject to external volatility.

From a regulatory to macro to COVID-19.

This is the nature of the credit business.

We're proud to see how quickly <unk> is able to adapt to new changes and how teams from across the company how quickly adjust our operations and support each other.

Now let me go through the expenses.

Sales and marketing expenses rose, 4% year over year to 360 million RMB.

A seasonal trend as we laid out the full year foundation in first quarter.

For the loan facilitation business, we did adjust the acquisition strategy and scale back advertising in areas affected mostly by Covid.

This was done in March.

There was also spending related to the expansion of technology, driven services and the new consumption driven services.

Research and development rose, 23% to 153 million RMB.

Selecting our continuous investment in technology to support business initiatives.

G&A expenses went down by 11% year over year to 170 million RMB.

It was a drop both year to year and quarter over quarter.

Demonstrating the continued improvement of our operational efficiency.

Net profit deep decline and went down to 81 million RMB in the first quarter.

But the business remained profitable.

Our cash reserve also remains solid.

Cash position stood at $5 6 billion RMB at the end of March.

9% above last year.

The increase in shareholders' equity was 30% in the same period to $8 2 billion RMB.

In these challenging times.

We remain focused on building our long term capabilities in order to stay compliant and resilient.

On the regulatory front, we maintain constant dialogue with regulators.

We have been reinforcing internal controls and processes and carrying out self examination based on the same requirement as the 13 platforms.

The priority is to ensure the stability of the credit driven business.

While broadening the reach into technology, driven and the new consumption driven services.

The contribution from non credit driven services increased by 10% year over year to 47, 7% of total operation operating revenue in the first quarter.

That illustrating the progress in diversification.

We have already built up a large base of individual users and insights into Chinese consumers, which we can leverage to generate more to be and <unk> opportunities.

And our relationships with to be in to us.

Also served to further enhance our interactions with <unk>.

The current environment is not easy.

Past quarter saw a sharp rise in COVID-19 numbers in a few regions and the government instituting lockdown and other restrictive measures.

Some of which are much more stringent than the previous outbreaks.

But this is not the first time that <unk> has to come from uncertainty.

The business fundamentals are more solid than two years ago.

When Covid first started.

We are at a stronger position to respond to change.

The recovery path will not be a straight line, but we believe both China and sourcing will come out of it stronger.

Thank you.

Operator, we're now open to taking some questions.

Thank you ladies and gentlemen, we will now begin the question and answer session.

If you'd like to ask a question. Please press star one on your telephone and wait for your name to be announced if you need to cancel your request. Please press the pound or hash key.

Once again Thats star one to ask a question.

Our first question will come from Alex <unk> at UBS. Please go ahead.

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So my first question is on the outlook for takeaway.

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The company will try to maintain your take rate for the full year.

Around the Q1 level around 3%.

If you could give us more color on how the.

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We assume your asset quality is sequentially improving.

Shouldnt, we expect takeaway to also improve.

Second question is on Europe .

Like percentage contribution in terms of loan volume.

Could you give us that.

Some color on the current percentage in Q1 and the plant ahead. Thank you.

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Well you can take down the take rate of <unk>.

So the first question regarding the take rate.

Understand the question is about.

How we can maintain to take rate at Q1 level, which is currently at two 7% and while we are.

Trying our best and strive to maintain the 3% take rate for the full year.

To start with as Jay and Jada myself outlined earlier, obviously, there are lot of uncertainties associated with the micro environment.

And if the Covid situation is not getting worse in China.

We believe that we'll be able to first of all.

May.

Maintaining a stable funding cost.

In Q4 and Q3 this year, our funding cost went up a little bit to above 8%.

But we have seen a very clear trend that he has been stabilized in Q4, and we believe that the funding cost will be stabilizing.

Stabilizing and will be.

Maintaining at between seven 5% to 8% this year.

Secondly, I think in terms of the.

The risk costs and the level of risk.

And Jason has also have also outlined first of all we will be focusing on managing the existing customers.

We have a lot of data about them, we understand their behavior.

And we also have.

Clear.

Digitalized our segmentation.

Analyzes regarding these existing customers.

Customers. Therefore, we feel that we'll be able to manage the risk.

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More controllable manner going forward.

And certainly I think in terms of the overall business performance.

Jay has outlined earlier.

The second quarter, our loan scale is expected to be slightly higher than Q1, and our revenue will continue to be stabilized.

So therefore, we feel that.

With all the efforts and the measures that were taken to contain the risk.

And also to maintain the funding cost.

Take rate should be able to be maintained at the Q1 level and of course, we will do our very best to.

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Okay.

Okay. The second question is regarding the.

Our profit sharing model.

We have not.

Deliberately maintained a percentage or a fixed percentage of the.

Profit sharing model because for us as we have repeatedly emphasized.

Focusing on controlling risk focusing on our profitability.

Our priority therefore.

The profit sharing model is a natural result.

<unk> us taking such measures.

But traditionally I mean, historically our profit sharing model has been maintained at about between 25% to 30% or so within our overall <unk>.

Loan origination.

Okay. Thank you very much.

Once again, if you'd like to ask a question. Please press star one on your telephone.

Our next question will come from <unk>.

<unk> Sheng at Morgan Stanley . Please go ahead.

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So my first question is about the full year loan growth any change at the plan given the current situation.

And any target and your targets and second question is about from the risk perspective, I'm wondering is there any color on the early indicators such as day, one et cetera, the management can share with us any quantitative.

Metrics on that probably by the end of last year by the end of the first quarter and the latest trends, we can kind of color on thank you.

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While China and then we'll go through it will be about.

So I'll answer the first question is for loan volume, we have not yet changed our guidance for the full year 2021, despite challenges, but we actually believe that economy will get better and we're still targeting and aiming for the 2022 guidance that we gave.

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For new issue loans.

So the strategy excuse me fourth quarter last year.

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3% down by 15% compared with the fourth.

Fourth quarter last year.

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You will see some impact from Covid.

We see a little bit of uptick, but the trend, but the new customer quality are better than existing one.

Overall asset quality.

<unk> is a protein cookie.

And thirdly, putting will be increased from Q4 last year. However, overall, the one thing I think.

Going down every month.

This year and is now 12% lower from the end of December last year.

The collection rate on the other hand.

We recorded a modest decline in March and April , but we are seeing signs of stabilization and better trends.

Some of the pressures include a further drop in the pricing financial institutions continue to step away from high risk users and also slowdown in backward economy.

It hasnt impacted employment and consumption.

Together with the Covid lockdown and restrictions.

We also see some different degrees of impact to our portfolio, but going forward we.

Elisa.

Risk performance will stabilize in the second quarter this year and continue to improve.

The rest of the year.

Thank you.

Thank you management.

Once again, if you'd like to ask a question. Please press star one on your telephone.

We have no further questions, but just a final call. Please press star one on your telephone.

Our next question will come from Ethan Wang at CLSA. Please go ahead.

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We continue to grow.

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I have two questions. The first one to follow up on the asset quality to understand that.

We're seeing bill pay.

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Borrowing rates.

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On the retail environment, Jamie also mentioned that.

Changing our pricing.

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Our.

Our strategy is.

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Any change in our strategy going forward for example, maybe we'll do more of that business. Thank.

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Political agenda.

Okay. So I will translate the first question first.

The first question about the asset quality for our current audience current customers on our old customers not that we did not too many that with customers.

Customers on our current assets are bad and the new ones are better.

Statistically speaking the new customers are actually varies with higher risk and the new the old customers are current more assets are actually more stable.

And our new customers actually get slower under APR and stability as we have more performance of them as we have more evaluations of them.

Our current target is focusing on managing our current asset exploring their potential.

As for our asset quality on our assets overall, it's not comparatively it is getting a little bit higher if compared to ourselves but.

Not as.

Is it still stable comparatively industry wide.

And as we mentioned earlier, we are seeing signs of that this quarter being second quarter being stabilized and we do expect the quality asset quality trend to get even better if the economy recovers from the Covid and also the macro economy gets better.

Okay.

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So Sanjay I can just tell you that.

Okay.

So this is noncore single financial but took us into a hardware content in Italy.

Okay. So I'll do the translation for the second one is for the <unk> business. Our offline team was currently on trial run in our main cities Tien Tsin, where our headquarter was.

It used to collaborate with brands and as well as real estate.

Offline.

But our App actually went online in the first quarter, helping offline brands to go online and manage helping them, reaching their traffic and it's been going well. The App also helped the offline brands and places to increase their sales volume.

We are now seeing in the first quarter over 100 October sorry over 1000 tickets per day.

And we are actually exploring more online platforms connecting with more online platforms into our apps.

Before COVID-19 it did affect our <unk> sales volume as well as the ticket sizes and ticket numbers because.

As you might know that Shenzhen actually went on lockdown for about a week or so in <unk>, which also had a short impact on our volume in this quarter.

But.

Are able to actually bring more than just buy now pay later functions and also value to our merchants. It was also capable of bringing our merchants more traffic and more customer retention and more ticket and bigger in ticket size.

I believe this is the future and the direction that we're going with that is in trend with the overall economy.

I hope that answers your question.

Okay. Thank you. Thank you Jay.

Thank you we have no further questions. So I will pass back to management for closing remarks. Thank you.

Thanks again, everyone for joining us today, if you have any more questions. Please contact us offline our contact information is available on our website. Thank you.

Thank you. This concludes today's conference call. Thank you all for joining you may now disconnect.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the lexicon Fintech first quarter 2022 earnings conference call.

At this time all participants are in a listen only mode.

I must advise you that this conference is being recorded today.

I would now like to hand, the conference over to your first speaker today Ms. Jamie Wang IR manager. Thank you. Please go ahead.

Thank you operator, Hello, everyone welcome to <unk> first quarter 2022 earnings call with US on the line today are our CEO , Jay shell CFO , Sunny Sun and C. R. O J D child before we get started I'd like to remind you that the corn presentation containing business outlook and forward looking statements, which are based on <unk>.

As of today, the actual results may differ materially and we undertake no obligation to update any forward looking statements.

Jay will first provide an update on our performance Jason will then discuss risk management and lastly, Tony will then cover the financial results in more detail.

I'll now turn the call over to Jay his remark will be Chinese and English translation will follow Jay Please.

So we got the whole.

GNC is if there was a tumor treating field cocoa they'll come back.

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Gotcha.

Thank you.

<unk> is an example that AT&T Cinderella Paul.

Shelby.

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So that's one of them.

What does Kelly.

What holds all the dodgy financial data entry gesture Youll know that <unk> told.

Tell me a bunch of the bottle water total.

So Santander Chile.

Yeah.

Good morning, everyone. Once you 22 was a quarter affordable uncertainty and challenges in China, a number of major cities like Shenzhen, Shanghai, and Beijing, <unk> had to deal with a resurgence of Covid.

The unpredictability of the pandemic has dented consumer confidence and led to a slowdown in economy B.

On China. The external environment is also highly volatile with high inflation in the U S. A federal reserve that is committed to further rate hike.

Squeezing liquidity volatility in a final U S relations and a conflict between Russia and Ukraine. These.

These factors combined have been clouding the performance of capital markets.

That's helpful Chad anything neutral to go through those.

<unk>.

Okay, I'll take off which had been a useful with or without <unk>.

Julian Badar Khan, who was on Tuesday is also changing.

Sorry.

Okay.

Well my guys two quick ones.

So I think you saw.

<unk> yeah.

They have also caused some more uncertainty to our company and the whole sector is.

It's difficult to predict how these factors will develop in the next few quarters and how they will affect our operations and the execution of our strategy.

From Covid alone the impact to the society and economy has surpassed that of 2020.

Well, maybe does that give you the things you heard from Johan <unk> Assembly.

Well, that's what vessels all this out.

Well one of the ways I think just to answer the assertion.

Thank you Rachel Green motors enzyme Colombian until about a potent.

Women than we thought.

We don't know.

Did you mean <unk> Tau <unk>.

To answer them.

Hi, Tien tsin, it's all vehicles he isn't quite so some pauses.

Incentive fees on sold will suggest you sold it.

We have always been proactively analyzing the situation how consumer behavior will change and how the changing capital markets will affect listed companies given the.

Core economy pursuing scale at all costs, we will expose the company to more risk we will work on the following <unk> first proactively responding to external change and adjusting operations and strategy to ensure asset quality.

Second further solidifying our foundation, increasing the operational efficiency.

Staying committed to our strategy in order to improve the diversification and quality of revenue.

Why do you say youre seeing it seems like you're seeing in this hotel.

Lewis and talent.

So in general it is positive.

<unk> also told US until we have a hotel so the goalposts and Eni is indeed, it wasn't to us either.

So I'll wait and see so yes, the women's soccer vanilla tissue.

Since our inception, we have facilitated or RMB 702 billion of loans and a massive user base over $171 million.

These are testament to our capability.

So you could also kind of space.

<unk> syndrome.

So as Bob said I view them as all one incentive fees people to supplement neither one will know what I'm, saying.

Please go ahead.

That's all from me.

Given the woman that going into it.

Okay.

Yes.

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You should all go to the total goes up sometimes it will be all continue through June .

Yes.

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<unk> and.

As a result.

Yes.

Oh, the auditing our union moat.

Turning to Susan <unk>.

Thanks <unk>.

Could you could you the Enzo CEO of Bancorp and.

This is cody that we on total total total also the total volume okay.

Yeah, well, it's done it will be up also.

Also in April .

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Toby It ends up I'm just wondering.

So I spoke with us EMEA also.

Sorry telcos all.

Digital APR.

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<unk> and <unk>.

The incentives could you.

<unk>.

We introduced our in terms of hotel wait so <unk> with <unk> Suisse.

For both water.

<unk>, Yes, you won't open versus others.

Finally in.

In the first quarter the loan origination volume reached RMB $43 2 billion and the outstanding loan balance RMB $83 8 billion to be honest, we're not pleased with our quarterly results. We have the potential to do more but on the other hand is should not be a disappointment because we had already done our best and responding to <unk>.

Change in adjusting the operations.

We further manage risk and control the impact from COVID-19 by focusing on serving existing low risk users and reducing the high risk tail.

Comparing the one to 2010 to 212 2020, all risks and profitability indicators were better this time round.

We continue to invest in new growth opportunities.

<unk>, the technology, driven and new consumption driven businesses.

Strategic go to further promote the revenue diversification in our risk management capability in.

In the first quarter non current drilling services made up 47, 7% of total revenue up by 10 percentage point year over year.

And compliance we have been making further progress in bringing down the APR in the first quarter. The APR went down to 25% the mix of assets with a <unk> 24, which is already 77, 8% last week.

As a leading fintech platform lifting its funds are fully aligned with our regulatory priorities, we have been providing credit support to Smes and sole proprietors facilitating the resumption of your operations in the first quarter loans to small and micro businesses amounted to RMB $4 24 billion up <unk>.

Nine 5% quarter over quarter.

<unk> also done so do you think about that.

<unk>, just got vanilla Coke, which are two of the larger phones, yet with <unk>.

And going to that you need.

Especially on the Soho jiggle the tilda.

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Trade also touch on <unk> third quarter financial ship without <unk>, although its issue.

Sure the Jamba to Sean.

<unk> sees opportunities in a similar time, especially in.

Kenya, Tim always ended up in this search teradata to other funds at Calgary.

Yes.

Women.

Waste solutions will be up we hit a peak.

Yes.

This was up <unk>.

In conjunction.

This was an easy decision.

So it's.

POS was evident.

Okay.

You won't go digital.

As I explained earlier this year, we're committed to three strategic priorities strengthening the management.

<unk> of existing customers, so as to increase the profitability, while insured insuring risk performance.

Enhancing the revenue structure to promote more diversification in service nature as a platform provider.

Optimizing the management system to further increase operational efficiency.

Whereby.

Each of the third quarter with Athens, with you than germanium, which weighed into.

The funding shop your way.

Also gone touch with you already have the choices in the future.

Therefore, you may see in China, and then we'll go.

EMEA to adopt into quarter one.

Thanks Duncan.

Sure.

<unk> syndrome.

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Cynthia Young shampoo, Codell Antinovel Hinton Gogo there.

How long of a center.

So far that you don't want to put ourselves.

<unk> is a global.

<unk> sensor data into South Dakota, while media attention. So let me answer the dose without funds are going to.

A lot of jobs.

On the policy from the authorities have been sending signals to support the economy driving credit demand and promoting market liquidity.

Moreover, the <unk> has also made positive comment on the industry ratification for Internet finance.

Policy retention and development of the sector is getting more mature these are all steps into drive direction.

In the second half of the year, we believe the domestic economy will gradually turnaround in the presence of stimulus policies.

And we are confident that we can ride out this cycle and continue to create more value for our shareholders.

Now I will pass it to Jason and he will discuss about our risk management Jason Please.

Thank you Jay Thank you Jamie Good morning, everyone. Let me elaborate more on what you're doing in response to Covid.

Okay.

Have tightened the entire production process.

Advertising.

Great.

Areas most hit by Covid marketing spending has been reduced.

Criteria revisited in order to manage this quarter to high risk users we.

We are dedicating more resources to existing relationships, where the visibility on credit performance, it's much higher.

Overall day, one delinquency has been going down every month this year.

And so second half of last year in response to the 24% loan pricing, we have variety of taking mitigating actions to reduce exposure to high risk users.

Customer structure is therefore are much stronger than a year ago.

This has strengthened our defense against the search incorporating this week.

With the improvement in customer mix. They want delinquencies also better and is now 12% lower from the end of December last year.

30 day collection rate on the other hand recorded a modest decline in March and April , but we are seeing signs of stabilization in the bank.

Back two years ago, when the pandemic first started longhorn.

Most of the collection cool located in the city and the operations suffered a major interruption.

After the incident, we have decentralized could present upgraded the system and revisiting the credit policy to make sure that we can respond more quickly.

Therefore in a significantly better position to cope with the situation at this time.

The increase in 90, plus delinquency, we think expectation given the macro environment and the reduction of the outstanding loan balance.

Tens of increase is a better indicator of our ability in managing asset quality.

And relative to some of the bigger players would have been able to show more units.

China is going through its unprecedented the visit.

Ability on the path to recovery is not the best.

We are constantly refining our strategies to enhance our risk models and I know that it's the risk management team is also working more closely with marketing and business development teams to buttress customer acquisition as well.

We're much better prepared than two years ago. Thank you I will now pass it over to Sunny.

Yeah.

Thank you, Jason and thank you Jay Hello, everyone. It's my pleasure to speak to you again.

The management team are dialing in from different locations today.

What's right lockdown measures to contain the pandemic economic activities.

Faced with different degrees of interruption or even complete shutdown.

In the first quarter, we made a decision to step up the provision. So we can have a stronger buffer to weather the turbulence.

Most of the increase was reflected in Dave on provision for new loan origination.

This is the main reason behind the drop in revenue.

Just to recap most of the provision for our contracts is recognized as deduction to revenue.

Further decline in loan pricing is another factor.

Loan pricing within 24% APR reached 78% of loan origination in the first quarter.

Up by 45% year over year, and 18, 5% quarter over quarter.

Volume did hold up well given the current environment.

Loan originations reached $43 2 billion RMB.

Only by less than 1% quarter over quarter.

The outstanding loan balance stood at $83 8 billion RMB, just a slight drop of two 5% quarter over quarter.

Consumer sentiment has become much more subdued.

And most of all we have also tightened credit assessment.

On the funding side about 76% of the funding in the first quarter came from nationwide funding partners.

Up by more than 10% from the fourth quarter.

Funding cost began to climb at the end of last year when regional financial institutions put back from cross border lending.

This shock led to a mismatch between assets and liabilities, which has since been gradually resolved.

Yeah.

The offline team has been effective in meeting the needs of our regional partners.

At the headquarter level.

We have also got more nationwide rainy season.

The uptrend in funding costs has since reversed.

With now a dedicated sales team, we expect to bring on board more national partners.

The topline performance is always subject to external volatility.

From a regulatory to macro to COVID-19.

This is the nature of the credit business.

We're proud to see how quickly lose team is able to adapt to new changes and how teams from across the company can quickly adjust our operations and support each other.

Now let me go through the expenses.

Sales and marketing expenses rose, 4% year over year to 360 million RMB.

A seasonal trend as we laid out the full year foundation in first quarter.

For the loan facilitation business.

We did adjust the acquisition strategy and scaled back advertising in areas affected mostly by Covid.

This was done in March.

There was also spending related to the expansion of technology, driven services and the new consumption driven services.

Research and development rose, 23% to 153 million RMB.

Reflecting our continuous investment in technology to support business initiatives.

G&A expenses went down by 11% year over year to 170 million RMB.

It was a drop both year to year and quarter over quarter.

Demonstrating the continued improvement of our operational efficiency.

Net profit deep decline and went down to 81 million RMB in the first quarter.

But the business remains profitable.

Our cash reserve also remains solid.

Cash position stood at $5 6 billion RMB at the end of March.

9% above last year.

The increase in shareholders' equity was 30% in the same period to $8 2 billion RMB.

In these challenging times, we remain focused on building our long term capabilities in order to stay compliant and resilient.

On the regulatory front, we maintain constant dialogue with regulators.

We have been reinforcing internal control and processes and carrying out self examination based on the same requirement as the 13 platforms.

The priority is to ensure the stability of the credit driven business.

While broadening the reach into technology, driven and a new consumption driven services.

The contribution from non credit driven services increased by 10% year over year to 47, 7% of total operation operating revenue in the first quarter.

That illustrating the progress in diversification.

We have already built up a large base of individual users and insights into Chinese consumers, which we can leverage to generate more to be an <unk> opportunity.

And our relationships with <unk> and to us.

Also served to further enhance our interactions with <unk>.

The current environment is not easy.

Past quarter saw a sharp rise in COVID-19 numbers in a few regions and the government instituting lockdown and other restrictive measures.

Some of which are much more stringent than the previous outbreaks.

But this is not the first time that <unk> has to come from uncertainty.

The business fundamentals are more solid than two years ago.

When Covid first guidance.

We are at a stronger position to respond to change.

The recovery path will not be a straight line, but we believe both China and sourcing will come out of it stronger.

Thank you.

Operator, we're now open to taking some questions.

Thank you ladies and gentlemen, we will now begin the question and answer session.

If you'd like to ask a question. Please press star one on your telephone and wait for your name to be announced if you need to cancel your request. Please press the pound or hash key.

Once again Thats star one to ask a question.

Our first question will come from Alex <unk> at UBS. Please go ahead.

Hum.

Just hold a few on <unk>.

Great.

Thanks, so much.

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Keith you talked about the signs already that stripping this out with you on that.

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Which is the whole thing you always have sequential growth.

Improvement.

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QED.

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I'll take that.

Remo <unk> CFO .

A few months.

So my first question is on the outlook for takeaway.

Just now.

The company will try to maintain your take rate for the full year.

Around the Q1 level around 3%. So I'm wondering if you could give us more color on how the.

Both the <unk> and your pricing cuts will have.

Impactful, we our outlook in the coming quarters.

In particular.

We assume your asset quality is sequentially improving from bromine Shouldnt. We expect you don't takeaway to also improve.

Second question is on your capital like percentage contribution in terms of loan volume.

You gave us that.

Some color on the current percentage in Q1 and the plant ahead. Thank you.

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Tony will then say Jordan good a solo.

Hi, good afternoon.

Welcome to <unk>.

Tumor <unk> requests.

Of course, you're out of our <unk>, England that Cy 'twenty quite Ita Hamas.

While you can head down the take rate that <unk> can help with <unk>. So the first question regarding the take rate.

And the question is about.

How we can maintain the take rate at Q1 level, which is currently at two 7% and why we are.

Trying our best and strive to maintain the 3% take rate for the full year.

To start with as Jay and Jason and myself outlined earlier.

<unk> there are a lot of uncertainties associated with the macro environment.

And if the Covid situation is not getting worse in China.

We believe that we'll be able to first of all.

<unk> maintained.

We maintained a stable funding cost.

In Q4, and Q3 this year, our funding costs went up a little bit to above 8%.

But we have seen a very clear trend that he has been stabilized in Q4, and we believe that the funding costs will be stable.

Stabilizing and will be.

Maintained at between seven 5% to 8% this year.

Secondly, I think in terms of the the.

The risk costs and the level of risk.

Jay and Jason has also have also outlined first of all we will be focusing on managing the existing customers.

We have a lot of data about them, we understand their behavior and we also have.

Clear.

Have digitalized segmentation.

Analyzes regarding these existing customers.

Customers. Therefore, we feel that we'll be able to manage the risk.

In our more controllable manner going forward.

And certainly I think in terms of the overall business performance.

Jay has outlined earlier.

The second quarter, our loan scale is expected to be slightly higher than Q1, and our revenue will continue to be stabilized.

So therefore, we feel that.

With all the efforts and the measures that were taken to contain the risk.

And also to contain the funding cost.

Take rate should be able to be maintained at the Q1 level and of course, we will do our very best to.

<unk>, 4% to 3%.

Okay.

Okay. The second question is regarding the.

Our profit sharing model.

We have not.

Deliberately maintained a percentage or a fixed percentage of the.

Profit sharing model because for us as we have repeatedly emphasized.

Focusing on controlling risk focusing on profitability.

Our priority therefore.

The profit sharing model is a natural result of.

US taking such.

<unk> measures.

But traditionally I mean, historically our profit sharing model has been maintained at about between 25% to 7% or so within our overall <unk>.

Origination.

Okay. Thank you very much.

Once again, if you'd like to ask a question. Please press star one on your telephone.

Our next question will come from.

<unk> Sheng at Morgan Stanley . Please go ahead.

Hi, Brian .

You bet.

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Using the <unk> <unk>.

And the <unk>.

Got it.

Go ahead John .

So it means people monthly data sovereignty.

It could be bubbles.

Okay.

So my first question is about the full year loan growth any change at the plant.

Given the current situation.

And any target new targets and second question is about from the risk perspective, I'm wondering is there any color on the early indicators such as day, one et cetera, the management can share with us any quantitative.

<unk>.

The metrics on that probably by the end of last year by the end of first quarter and the latest trends, we can kind of color on thank you.

Yes.

You're going to work with us.

Sure.

<unk>, China, then we'll go through genius Yoga Duncan.

Duncan.

And that's.

Well listen if you can get a hold of.

Yes.

A woman has a live auction you know mobile it shouldn't be about.

So I'll answer the first question escrow loan volume, we have not yet changed our guidance for the full year 2021, despite challenges, but we actually believe that the economy will get better and we're still targeting and aiming for the 2022 guidance that we gave.

No.

Okay.

Hello, Joe.

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<unk> tissue compared with Q2.

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For new issue loans.

Two the strategy excuse me fourth quarter last year.

For pricing policy already de risk indicators, such as a PD.

<unk> 30.

20th better quarter over quarter at <unk> 30 up to that point.

3% down by 15% compared with the.

Four quarter last year.

<unk> recently won two votes.

You will see some impact from Covid.

Hum.

We see a little bit of uptick from the trend.

New customer quality are better than Switzerland.

Overall asset quality.

Protein could be heard.

Year to date.

Increased from Q4 last year. However, overall the one thing he has been going down every month.

Mr and is now 12% lower by the end of December last year.

The collection rate on the other hand.

The modest decline in March and April , but we are seeing signs of stabilization and better trends.

Some of the pressures include a further drop in the pricing finish institutions continue to step away from high risk users and also slowdown in Baku economy.

Has impacted employment and consumption.

Together with the Covid lockdown and restrictions.

We also see some different degrees of impact to our portfolio, but going forward we.

Felipe.

Risk performance will stabilize in the second quarter this year and continue to improve.

The rest of the year.

Thank you.

Thank you Nathan.

Once again, if you'd like to ask a question. Please press star one on your telephone.

Yeah.

We have no further questions, but just a final call. Please press star one on your telephone.

Our next question will come from Ethan Wang at CLSA.

Please go ahead.

Okay.

You can see on our bonuses.

Zero.

Right.

And each issue.

All of them.

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So we're reducing how much you don't have just been.

Great. Thank you.

Ladies and gentlemen.

James Lewis.

Louis Berger.

Yes.

Okay.

Sure.

It's unfortunate.

Yes.

As we've mentioned several times a year ago.

This was just launched in Australia.

Acquisitions themselves.

Sure.

And then just one view.

Susan.

Good morning.

Did I Miss it.

So with that.

Thank you Jim.

Got it.

Thanks, Joe.

Right.

Think about it.

Alright, Thank you pointed to volunteer as long as we don't want to just quickly.

Jonathan.

The Google Samsung.

Thank you.

I have two questions. The first one to follow up on the asset quality.

Thanks for listening to us.

Customers.

Right.

Hi, good morning.

David also mentioned that.

Sure Tyson.

So for them.

New owners, they may be better in terms of asset quality performance, but just want to have going forward.

Our.

Our strategy is.

A strategy change.

Net expenses.

Looking at our existing borrowers and to talk about awards.

Sure.

Wholesale for example to match more domain to owners.

Louis.

Occupation. So that's the first question and secondly, just on the marine business overall.

Operator business.

Jeff were looking at a larger part of the exits for the offline.

The homeless situations here in China.

Any change in our strategy going forward for example, maybe we'll do more of that business.

Yes.

Got it.

Can you go into <unk>.

Unless you know youll for them so another words.

Colin.

The emphasis on women's and local protocols changing co efficiency.

Coleman called over to Elisa.

<unk>, Canada cohort.

There is another kind of unusual weather.

<unk> commenced timber.

<unk> barcode a function that Suzanne so don't feel quite late because the concept of us with data series.

A woman, but so niccolo schenker.

<unk> other than <unk> function total dose of Yanacocha Golar USA Schenker.

And therefore subject to change call it kind of slow down.

John .

Yes.

So I think I mentioned on one side and good day.

Jean Charles.

<unk>.

Women congratulatory.

Cohort a genius.

Women can come down.

<unk> sufficient liquidity.

We will be muscle woman.

So that way.

What is in EMEA.

<unk> woman and legal functions.

Door tusa.

Central is a hydrogel coke.

Gentlemen, sorry, I can tell you consider your delta womens attitude will meet and conduct the level is below what do you do isn't in there somewhere but India is I'm not so sure.

Definitely a woman.

So a little long here, so should shut down some of the political agenda. Okay.

Okay. So I will translate the first question first.

The first question about the asset quality for our current audience current customers or our old customers not that we did not too many that with.

Customers on our current assets are bad and the new ones are better.

Statistically speaking the new customers are actually varies with higher risk and the new the old customers are current more assets are actually more stable.

And our new customers actually get slower under APR and stability as we have more performance of them as we have more evaluations of them.

Our current target is focusing on managing our current asset exploring their potential.

As for our asset quality on our assets overall, it's not comparatively it is getting a little bit higher if compared to ourselves, but not as.

It is still stable comparatively industry wide.

Hello.

Well there is the argument.

Sure John .

Okay.

Women's essential because of severe autoimmune as I've seen this with you.

St Charles Thats incorrect.

<unk> financial our competitive so <unk> gone forward. So nothing is you do well in total.

Well, Mike <unk>, Joseph bundle exchange out of Empire.

Two questions on <unk>.

Thank you Jean <unk>.

So what does that tell you quite a lot.

Yes.

Has have you also need <unk>.

Thank you Nicole and negotiate in Jordan.

It's a bundle of Xinjiang local you're not enjoying solid momentum.

So the one with <unk>.

You got other attendees.

<unk> is a bigger market.

You might have some raw material consumption and time will tell it took a while most of <unk>.

Sorry for the non Soma so easy.

<unk> you didn't let me.

Thanks, Jonathan and good Ethernet users.

But as soon as the Athena easy doors in two years.

The agenda for Deutsche Bank, Samsung, So put into Tangier, so sorry.

Yes, I saw that you're getting.

So Tom did I kind of woman.

The strong growth in a year with us.

Alright.

So what kind of woman great. Thank you.

So a lot of change and hopefully to the chart that you bought.

This is tied to the yonker deal done we'll do that.

I can just tell you that <unk> got.

So tau Tau financial charge back to the initial hardware content in Italy.

Okay. So I'll do the translation for the second one as for the <unk> business. Our offline team was currently on trial run in our main cities Shenzhen, where our headquarter was.

It used to collaborate with brands and as well as real estate.

<unk>.

Our App actually went online in the first quarter, helping offline brands to go online and manage helping them, reaching their traffic and it's been going well. The App also helped the offline brands and places to increase their sales volume.

We are now seeing in the first quarter over 100, <unk> over 1000 tickets per day.

We are actually exploring more.

<unk> platforms connecting with more online platforms into our apps.

As for Covid, It did affect our <unk> sales volume as well as the ticket sizes and ticket numbers because.

As you might know that Shenzhen actually went on lockdown for about a week or so in one queue, which also had a short impact on our volume in this quarter.

But my.

Are able to actually bring more than just buy now pay later functions and also value to our merchant. It was also capable of bringing our merchants more traffic and more customer retention and more ticket and bigger in ticket size.

I believe this is the future and the.

Direction, there, we're going with that is in trend with the overall economy.

I hope that answers your question.

Thank you Bridget.

Thank you we have no further questions. So I will pass back to management for closing remarks. Thank you.

Thanks again, everyone for joining us today, if you have any more questions. Please contact us offline our contact information is available on our website. Thank you.

Thank you. This concludes today's conference call. Thank you all for joining you may now disconnect.

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