Q2 2022 FinVolution Group Earnings Call
Hello, Ladies and gentlemen, thank you for participating in the second quarter 2022 earnings conference call Fortune Volition grip.
At this time, all participants are in listen only mode.
After managements prepared remarks, there will be a question and answer session.
Today's conference call is being recorded.
I will now turn the call over to your host Jimmy Tan head of Investor Relations for the company Jimmy Please go ahead.
Hello, everyone and welcome to our second quarter 'twenty 'twenty earnings Conference call. The company results, what you shoot via Newswire services earlier today and I pushed online.
You can download the earnings release and sign up for the company.
By visiting the IR section of our website at IR <unk> com.
John Our Chief Executive Officer, and Mr. Jackson, Our Chief Financial Officer will start the call with your prepared remarks.
We have a Q&A session.
During this call we will be referring to several non-GAAP financial measures to review and assess our operating performance. These non-GAAP financial measures are not intended to because he did in isolation or as a substitute for the financial information.
And presented in accordance with U S GAAP.
For information about these non-GAAP measures and be considered here soon to GAAP measures. Please refer to our earnings press release.
Before we continue please note that todays discussion will contain forward looking statements made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 90 95.
Forward looking statements involve inherent risks and uncertainties as such the company results, making like you ready in terms of the recipe.
Information regarding these and other risks and uncertainties.
The company's filings with the U S Securities and Exchange Commission. The company does not assume any obligation to update any forward looking statements, except as required under applicable law.
Finally, we post a slide presentation on our IR website, providing Houston, South, Florida, I will now turn the call over to our CEO . Mr. Feng Zhang. Please go ahead.
So excuse me Hello, everyone and thank you for joining our earnings call.
The second quarter of 2022 was a challenging quarter with Shanghai on the Covid Lockdown until June 2022, and many other major cities also experienced varying degrees of Lockdown August stripped him mobility do you play in the quarter.
All of these unprecedented challenges significant affect the China's economic growth and such.
Additional pressure on certain aspects of our operations. However, we were able to navigate all of these challenges and achieve better than expected results. Thanks to the experience and insight we have accumulated during our 15th yes 15 years of operations.
Consistent investments throughout our chain of technologies enable to most of our employees to conduct their work from home during the lockdown minimizing disruptions to our operations also our stable and capable senior management team with pragmatic goes coupled with an in depth understanding of the industry.
Seamlessly execute our decisive strategy despite micro obstacles.
Further with the company's ongoing transition towards better quality borrowers in both domestic and international market, coupled with our long term goal of financial inclusion.
[noise] advantages further contributed to our growth momentum in these challenging quarter incurred.
Encouragingly, our total transaction volumes steadily increased for the ninth consecutive quarter to reach RMB $41 5 billion up 24% year over year and four 5% on a sequential basis.
Driven by our stable better quality borrower base, we achieved a solid set of operational metrics. Despite weak macroeconomic conditions. The total number of unique borrowers in the quarter remains stable at around $3 1 million. Additionally, our total outstanding loan balance for the extended it to RMB $56 4 billion as all.
As of June 32022, representing year over year growth of 44% and a sequential growth of 5%.
With respect to our strategic transition towards better quality borrowers our proportion of category, a and b borrowers in the domestic market, who meet our highest credit standards further expanded to 74% of our total borrowers in the second quarter compared to 68% in the previous quarter and from 54.
4% in the prior year period Accordingly, our average borrowing interest rate further decline to around 24, 2% in the second quarter.
Paul technological innovation is embedded in our DNA driving us to pursue a high quality innovation outcomes with the ultimate goal of serving their economy and accelerating the digital transformation process.
Would you a host of cutting edge proprietary technologies to maintain our growth momentum, while stabilizing our credit risk performance points to us.
Our santal platform automatically monetize our credit assessment process and risk control rules accurately tracks data fields and Swift Fei evaluates the performance of these data sources, leading to a 120% increase in operational efficiency working hand in hand with from cell platform, our meat mirror.
What protection system provides a visual network and fraud detection images, which can uncover up to 65% of immediate true immediate intermediate risk fraud doing the loan application process based on knowledge glass being there. He tries is complex network computing machine learning and a cap rate structure.
Ooh engine as well as all the 2000 and the models embedded with billions of operational data to effectively identify fraudulent activities. We have also implemented these technologies in our oversea markets validating our technology's flexibility and the transferability, while strengthening our foothold in those come.
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Supported by a prudent risk management framework with proven credit risk assessments and fraud detection technologies, we have maintained a stable risk level and overcome expected COVID-19 related issues, while preparing growth our day, one delinquency delinquency rates remain stable at a five 5% in the second quarter of 2000.
22, with a continuous stable churn into July our delinquency rate below 90 days showed signs of recovery failing to one four from 156% in the previous quarter.
Fishing as the impact of the COVID-19 resurgence became more manageable our second quarter vintage delinquency rate is expected to be around two 4%.
Binary sex to our loan collection teams impressive efforts as well as the easing of Lockdowns across China. We have also seen an improvement in our loan crashing to cover rate, 291% from 90% in the previous quarter.
While maintaining our solid growth momentum continued to diversify our funding sources and the input from the efficiency in the second quarter more encouragingly. Our overall funding costs have been on a gradual downward turn in line with our expectations, we significantly lowered our funding costs by 30 bps to around seven 5%.
During the quarter. Meanwhile, our capital light proportion remain stable at 17% in the second quarter compared to 13% a year ago. These results are a powerful testament to our effective business strategy and skillful exclusion.
We also remain committed to supporting small business owners. During this challenging period during the second quarter. We served over 500000 of small business owners across a variety of industries, such as wholesale retail and manufacturing and the others.
Presenting an increase of 23% from the same period of 2021 transaction volume for this segment further increased to 68% year over year to a new record high of RMB 10, 4 billion contributing 25% of total transaction volume in the second quarter.
Moving onto our international expansion our.
Our strategic transition towards better quality borrowers with enhanced technologies continued to deliver promising results transaction volume for the quarter increased to RMB nine.
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Representing a sequential increase of 6% not break the proportion of better quality borrowers for the second quarter have exhibited continuous improvement to 62% from 54% in the previous quarter with a larger number of better quality borrowers in our Indonesia business, our proportion of loans.
Founded by local institutional partner also increased to 39% from 14% in the previous quarter and from no institutional funding in the same period last year.
More excitingly outstanding loan balance for our international market increased to RMB 48 billion, representing a year over year increase of 60% and a 33% increase sequentially validating the tremendous opportunities in the international market.
Last but not least I'd like to provide an update on our ESG performance.
Evolution, upholding our long term commitments and responsibilities to our industry the environment and society is at the heart of our core values across operations, we continue to make strides in improving our ESG management practices and advancing our ESG initiatives during the quarter, our recent trade distribute it.
For our list and trade Distributional fourth annual ESG report, highlighting our ESG policies and accompanying accomplishments in 2021, and our membership into the United Nations Global compact reflects our ongoing endeavors.
Furthermore, as part of our ongoing efforts enhancing our data privacy and information security framework. We have obtained the ISO 27001 do certification of information Security management system issued by Dnb are well known international standards certification organization, we will continue to reinforce our yeah.
SG engagement on multiple levels, while leveraging the evolutions of innovative technology and differentiate us in ways that improve and sustain communities for generations to come.
In summary, our robust performance in the second quarter of 2022 is another powerful testament to our dynamic business model technological knowhow and the dedicated efforts of our incredible team entering into the second half of 2022 will remain focus on refining our risk assessment and management framework.
Our cutting edge technologies, engaging better quality borrowers and optimizing our product mix looking ahead, we remain confident in our resilience and our ability to skillfully navigate evolving market dynamics in a rapidly changing operational environment, while capturing new opportunities in a more sustainable.
No.
With that I will now turn the call over to our CFO John issue will discuss our financial results for the quarter.
Second of all and Hello, everyone.
Come to our second quarter, that's what it turned into a news Corp.
In the interest of time I will not go through all of the financial items on this call.
Please refer to our earnings release, hopefully the details.
Oh, the formation will encourage.
Multiple challenges in the sake of the culture, we still achieved the transaction volume goes for the ninth consecutive team culture, while maintaining our risk metrics at a relatively stable level.
We got what transaction toward Bachelor of quality borrowers, coupled with stress into relationships with floating partners and the consistent technological enhancement.
The loan approval rates for our funding partners, but also to around 80% in June compared with 16, 5% in the same period last year.
We have accumulatively cooperated with a relative to 70 licensed financial institutions and it will continue to foster a store and a robust pipeline of potential partners.
As a percentage of our better quality borrowers continue to increase.
We expect our founding cost to affect ongoing improvement during the next several quarters.
Driven by our consistent efforts in research and development, we have continuously enhanced our CIT off technologies throughout all operations, including customer acquisition brought a detaching creditor to risk assessment and the customer service among others.
Consistent improvements in numerous operational metrics across multiple market cycles.
Yeah, let's cheat the activities of our tech refinements.
Most of the Baidu searches our net revenues for the second quarter Rose to RMB, two 7 billion.
An increase of 12% year over year.
Even more encouragingly, we also delivered a strong non-GAAP operating profit of RMB, six country, and 82 million and to maintain.
Substantial balance sheet with RMB 11, 4 billion in total shareholders' equity as of June 32022.
During the second quarter, our average borrowing cost was 24, 2% compared with 20, 612% in the same period last year.
Of particular note all loans originated for our new borrowers.
A 24%.
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We maintained our take rate for the quarter at a stable pace of 238%.
Together with our partner support and our constant effort.
Optimizing funding cost we are confident that we can continue to deliver solid results going forward.
We ended the publishing of our capital light model stabilizing at around the 17% our leverage ratio, which is defined as risk bearing blown balance divided by shareholders equity remained stable at four one times.
Our unrestricted cash and short term liquidity position further increased to RMB 512 billion for an before one 9 billion in the same period last year.
Representing an increase of 6% year over year.
Further demonstrating the robustness of our balance sheet.
Yes.
During the second culture, we continued with our strategy of acquiring bad quality ball or seeing domestic and international markets with attractive borrowing rates.
With the preparation of better quality borrowers, increasing both domestically and internationally.
Personally know metrics have shown improvement on multiple fronts.
Going forward, we are confident in maintaining our growth momentum, while keeping our risk performance at a stable level.
But in general a ton eaten into and the July 20th turned into we deployed a wrong.
S D 27 million to buyback our shares in the public market.
Since we initiated our share repurchase program in 2018, we have cumulatively deployed USD 108, and a 58 million to buy back our shares on the public market.
Reflecting the companys commitment to returning value to shareholders on a long term basis.
Our board of Directors have also approved an addition of USD 80 million to our existing share repurchase program.
Spending the program to USD 100, and the 40 million.
We believe that the increase in our share repurchase program is an efficient use of all existing capital and to demonstrate our strong commitment to providing greater support while the shareholders amidst the challenging macro environment.
Before I conclude my remarks, let me provide some additional color our business outlook for the second half of 'twenty to 'twenty two.
With uncertainties in the involvement of COVID-19 situation.
Women are cautiously optimistic that our business operations will continue to gain momentum both domestically and internationally due to our E&S experience in the customer finance industry.
Our sophisticated technology expertise and our strong relationships with our partners.
Well also we are well prepared to capture both existing.
And the new opportunities in the market in which we operate it.
As a result, we now expect our total transaction volume so the culture to be in the range of RMB 44 billion to RMB 14 5 billion.
Representing an increase of between 16% to 18% year over year.
With that I will conclude my prepared remarks, we will now open the call to questions. Operator. Please continue.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using your phone please pickup your handset before pressing the keys.
To withdraw your question Press Star then two.
For the benefit of all participants on today's call. If you wish to ask your question to management in Chinese we ask that you. Please kindly repeat your question in English.
Once again that what Star then one to ask a question.
This time, we will pause momentarily to assemble our roster.
Okay.
Yeah.
Our first question will come from Frank Chen of Credit Suisse. Please go ahead.
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Thank you management for the opportunities. This is Frank Chen from credit Suisse.
Scratch relations on a good set of results. Despite the headwinds so I have two questions. The first one is on Onboarding. How does the company view volume grows in the second half based on our current guidance for the first three quarters volume is expected to reach around 125 to 126 billion on beef.
So is the progress to deliver the full year guidance of 175 billion to 180 bid asked you on track.
And the second question is more specifically our international market. How does the company view are the contribution from international market to volume and take rate.
And what is the company's outlook for international markets. Thank you very much.
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Okay. Let me do the translation for Axis first of all probably still maintain our full year guidance of 175 to 180 billion.
However, that's still for uncertainties because of Covid outbreaks still happening in many different cities and therefore, you were still adult a prudent approach we had accumulated.
Accumulated experience and technologies and refinements during this period and therefore, we asked you.
EBIT, who maintain a healthy and progressive growth in.
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Sure.
Our international business began transitioning to superior quality since the second half of 'twenty or 'twenty one.
And I really see that we can really say that we have complete the transaction. The transition for example in the second quarter, Although our transaction volume growth is only 6% of our outstanding loan balance has increased by 33% quarter on quarter.
And from a proportion of installment loans has also further increased to 85% from 54%, 55% in the previous quarter and from 120%.
In the same period last year.
And we have a larger number of superior quality borrowers in Asia. The proportion of loans funded by local business institutional partners increased to 39% compared to 14% in the previous quarter.
Our international business transition progress has been better than expected.
And in the third quarter, we expect transit transaction volume to be around $1 1 billion up 20% quarter over quarter and outstanding loan balance to increase about 40%.
At our international business has compete.
The shrimp ciabatta quality borrowers, we believe we will enter into a growth stage.
All right.
So that when he Ma.
Hmm.
Thank you Frank.
Yeah.
Yeah.
The next question comes from God of V C.
Please go ahead.
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The whole thing because once you are the first one is by the end of 'twenty. Two what are the average prices of our long products in both our existing and new Orange nation, respectively, and what is the proportion of our high interest rate ipads in the total outstanding balance of our loans.
Forward when can we expect to see Dee Ann pointed out the pricing adjustments and to see a relatively stable take rates.
This is the first one and the second one is what is the trend of our red screen indicators, such as Ah 90 day, delinquency and leading indicators and regarding the asset quality price or how we've seen the peak already.
And as for the underlying reasons for our improving asset.
I said the quality is.
Is it because of our active active changing in the customer acquisition operation and at risk control or Okay. We just don't view it as a natural response to the improvement of our micro economy and the recovery from the COVID-19, Thanks management.
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Yeah.
Hey, Yeah, let me do the translation for this question.
From the outstanding loan balance and transaction volume perspective, we believe it is similar because of our loan panel.
Relatively short at about eight months, plus and let me just remind you that in the fourth quarter of last year around 80% of the loans of our loans outright.
I at one 4%.
And in the second quarter of 2022, our average loan pricing is around four 2% in terms of transaction volume and also all new loans. All loans are made up of our new borrowers are really under 24% and we believe we are ready and have completed the pricing adjustment process.
This model is.
And we still expect growth to continue.
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Oh, Okay. Okay, sorry, sorry, let me just finished our translation.
And we believe that through more room for us to continue with our transaction to better quality borrowers.
The improvement in funding and also in our region.
Improvement, we estimate the average pricing in the quarter.
Would be around IR at 135, and we maintain a peak rate of around three 7%.
They move quick.
I don't want to just to be more specific to the question about when do we expect the price adjustment to be done and when.
When do we expect the takeaway to be a stable stabilize.
So the fact that we believe the regulatory environment for pricing a regulation.
We don't expect major changes.
In the foreseeable future and.
Given.
Our pricing is around 24%, we believe that the price of German adjustment work is our is mostly done now.
Now, we as we continue to move upscale our customer quality.
We do expect the price to very gradually.
Drop at the customer's quality improve because the better customers to enjoy lower price, but it's going to be very gradual and coupled with a.
Reduced the funding and.
Improved the risk of efficiency. So overall, we believe our take rate.
Going forward it will be stabilized at the current travel around diagnosis plus 7% as Alex It's just matching.
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Okay. Let me just do the translation for elective.
Just recap some of the risk metrics.
Our Q2 vintage is expected to be around two 4% and our loan collection.
Loan collection read from one to 30 days, but it improved to 19, 91% from 90%.
Our delinquency.
Rate peaked in April and May It has since returned to two 3% you can see that there are some fluctuations during the period. However, the penetration for us is very small.
It only increased by 0.1%.
And we believe that.
But for US our company is based in Shanghai and the impact for US is larger than a lot of companies because the vast majority of our call management and employees are headquartered in Shanghai, and we have been locked down with three three and a half months during the Shanghai Lockdown period.
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Okay. The reason why we can it can be to our determination in our transaction to better quality borrowers since two years ago and also our ability has been brewing our change of technology technologies from customer acquisition to fraud detection to allocation of funding etcetera, I would like to mention two of I would like to highlight.
Our notable technologies for our customer acquisition, we have the opposite smart acquisition platform.
And did a traditional account management one person can only handle arbitrary account by our October October platform enabled one person to handle over 30, plus accounts and increase our efficiency a lot and when stepping up apathy spent under the traditional matter.
Around three hours to set up 100 advertisement however, with the October Stephane, we only need about five minutes to set up 100 advertisement and we can save a lot of time.
<unk> and other technologies that we are using is the fraud detection is the mean me better fraud detection system.
Systems are able to leverage our knowledge graph and utilized complex network computing machine learning and over 2000 models and better with billions of relational data, we are able to uncover up to 60% 65% of intermediary front during the application process, all this technology and thereby enable.
Enable us to encounter challenges external challenges and uncertainties.
During the Covid situation.
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Yeah.
Yeah.
The next question comes from Alex <unk> of <unk>.
Yes. Please go ahead.
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So I'll translate for my question first one is on the funding cost outlook could you share with us how much more room do we expect for it to improve for the rest of this year and second question is on your car T. Could you also give us an update on the latest trend on your day, one delinquency say July .
Okay.
So is there any material differences between you know SME customers versus your overall portfolio and certainly on the.
Consumer credit demand the macro data has been weak and then.
From your perspective have you seen the application volume declined materially from same period last year and how has been the latest recovery trend. Thank you.
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So as you guys are considering information all weather.
Uh huh.
Okay, Alex let me do the translation for the first question.
In the second quarter versus the first quarter, our funding cost improved by 31% on a sequential basis.
During the period, our partners would be very concerned about the risk metrics fluctuation, but we give them confidence with our stable performance in the third quarter. We expect further improvement in our funding cost of between 20 to 30 bps.
In funding costs.
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Let me do the translation for question number two S round.
Our day, one delinquency rate is around five 5% in the second quarter and we have seen improvement since then.
And in the second quarter, we served over 500000 small business owners with over $10 billion in transaction volumes.
And before the pandemic the credit performance of our small business owner is around 10% better than our retail borrowers and during the lockdown period, we have seen the risk metrics of small business owner is slightly higher than our retail borrowers.
And in the second quarter, we have also observed at the REIT level for small business owners have returned to <unk>.
Leathers similar levels with WTO borrowers and.
And going forward, we expect our risk metrics of might be sizeable enough to fall below retail borrowers.
So how are you playing you turnkey the co Wuxi Chihuahua.
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Alex Let me do the translation for the last questioner Nashville regarding the customer demand the data from the overall.
Presumably that was rather complicated you will be affected by various factors example, the macro environment impact affecting consumer confidence the stimulus policy impact on liquidity and the post pandemic recovery impact on consumption.
If you take into consideration of all these factors overall.
Assume our consumption has been rather stable.
Traditionally we've been 1%, 2% our dealer counts will prove that the loan application demand has been relatively stable in the.
Second and third quarter.
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Uh-huh banking choices yeah. Thank you.
Akshay.
Okay.
Our next question comes from Thomas Chong of Jefferies. Please go ahead.
I'm talking about just like any time, you can show or if he was what they're going to be a luxury.
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I know you didn't ship back.
I think I'm trying to 4% while hold a high level, the jumbo cotton that well, but you can see how close it should triangle.
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Can.
You probably made that E a reputation.
Maybe you all will benefit from that.
I'll highlight domestic.
That's what I meant that consumer behavior that was a multi part it would be down.
Thanks management for taking my questions. My first question.
You saw a complication.
Now the pricing I guess I'm trying to trying to 4% and then going forward how should we think about our competition peers and traditional banks and my second question is about the international piece of that how should we think about.
And we ask that you can replicate on domestic to international and I'll be seeing any differences in behavior between the the ball is in these two.
Thank you.
Okay.
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Jim.
Okay.
Thomas Let me do the translation for you.
Okay. We can view competition from a few different perspective number one China market is large and still growing and number two compared with the traditional financial institutions. We are still not in the same segment.
SPF pricing is much lower if you think about these five seven.
7000, traditional financial institutions and number three the players in this market has been reducing a lot.
And in finance market. It is very different from the Internet segment, because it is not a winner take all situation.
And we feel that competition is still relatively okay, and we are we are still very confident of our future growth.
Yeah.
Hey, Thomas this is a phone let me take the second question Yeah. So with regard to our expansion internationally I think there are a lot of things, we can't and we are leveraging.
From our domestic experience I think the most important thing is.
Please remember that we have 50 years of operational experience in the China market.
So if I, if we think about the international market and we were mostly in the developing countries in particular in South East Asia region.
In terms of.
Our fintech.
Developing stage, probably somewhere around five to 15 years ago if.
If you compared to China.
In that period.
I think they have been an aspect, but I will say that I can on Indonesia is probably around kind of like in a similar too.
2014 2015 period.
The domestic China.
Hey, I think you know the credit infrastructure is still undergoing a pretty rapid improvement.
And the market is growing very fast.
And I think you know if we fall off another country, where operated in Philippine It is probably like in a few years.
Behind our Indonesia.
So I think.
The experience we have accumulated these years.
Very very very good about it and.
Valuable for our foreign expansion for our development in South East Asia market and.
Additional.
The future other developing countries.
I think it is on systems.
No house and on patents right. So you know we have a very experienced team.
For example, one of the things that I think is particularly relevant.
If we're thinking about building a valuable and sustainable business in Southeast Asia region.
It is our experience in China.
Transitioning are transforming our business from a high pricing.
Population strategy to a very healthy low pricing.
High quality customer base strategy.
Current stake.
With infrastructure situation credit infrastructure situations, SASSA Asia, South Asian market.
Inclusive finance the pricing is.
It is higher than.
With the domestic China market has which is normal I think matches.
The developing stage of those markets, but as we move forward, we're going to see a price drop both from regulatory requirements.
Our requirements perspective and from a.
The economic development and market competition perspective and.
That journey, we've done we've went through in China, and our team has the tons are experiencing that.
The kind of like and expand and why we had a.
<unk>.
Managing the transition in our Indonesian market.
For the last 20 year period, what we moved upscale.
Pretty good speed.
Alex has just mentioned so I think.
Those experiences are very about it and that makes us feel very confident coupled with.
If we think about Hey, you know in China like another 2014 2015.
We were very very optimistic about the growth prospect in those market and we think our experience is that.
He's going to help us.
Can become a leading player in those markets.
Thanks.
Thank you.
Yes.
This concludes.
A question and answer session I'd like to turn the call back over to the company for closing remarks.
Hello, everyone and thank you for joining <unk> second quarter earnings Conference call. If you have any further questions feel free to reach out to our Investor Relations team have a nice day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Okay.
Yes.
Yes.
[music].
Yes.