Q3 2022 Lufax Holding Ltd Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to dilute fixed holding limited's first quarter 2022 earnings call. At this time all participants are in a listen only mode. I've heard the management's prepared remarks, we will have a Q&A session. Please note. This event is being recorded now I'd like to hand, the conference over to.
Speaker 1: Ladies and gentlemen, thank you for standing by and welcome to the Lufex Holding Limited Third Quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will have a Q&A session. Please note this event is being recorded. Now I'd like to hand the conference over to your speaker host today, Ms. Liu Xinying, the company's head of board office and capital markets. Please go ahead,
I'll just sneak a host today misuse union the companies had a Ford office and capital market. Please go ahead ma'am.
Thank you very much Hello, everyone and welcome to our third quarter 2022 earnings conference call, our quarterly financial and operating results were released by our Newswire services earlier today and are currently available online today, you will hear from our chairman and CEO Mr. Why it's true.
Speaker 1: Thank you very much. Hello everyone and welcome to our third quarter 2022 earnings conference call. Our quarterly financial and operating results were released by our news wire services earlier today and are currently available online. Today you will hear from our Chairman and CEO , Mr. Y. S. Cho, who will provide an update of the macroeconomic and the COVID impacts. Our latest business strategy and the recent regulatory developments. Our Co-CEO, Mr. Greg Gipp, will then go through our third quarter results and provide more details on our business priorities. Afterwards, our CFO , Mr. David Choi, will offer a closer look into our financials before we open up the call for questions.
So who are providing an update of the macroeconomics and the COVID-19 impact our amicus of business strategy and the recent regulatory developments, our cozy OOO. Mr. Brodsky, well then go through our third quarter results and to provide a more detailed on our business priorities afterwards, our CFO.
It's a David Choi well offer a closer look into our financials before we open up the call for questions.
Before we continue I would like to refer you to our safe Harbor statement in our earnings press release, which also applies to this call as we will be making forward looking statements. Please also note that we will discuss non <unk> measures today, which are more thoroughly explained and reconciled to the most comparable match.
As reported under the international financial reporting standards in our earnings release, and our filings with the SEC with that and how cheap that you turn over the call to Mr. Why is Chou chairman and CEO of <unk>.
Thank you for joining the fourth quarter has been challenging alcohol smoothing into almost every month.
Which makes up 87% of all new laws. Unfortunately page eight excluding Cosmo financials has been significantly impacted by the deteriorating macro environment.
Speaker 2: segment which makes up 87% of our new loans facilitated, excluding customer finance loans, has been significantly impacted by the deteriorating macro environment in the third quarter.
The fourth quarter.
And curious all macroeconomic change small communities are typically the hardest to be impacted our head of consumer finance and auto lending.
Speaker 2: In periods of macroeconomic change, small businesses are typically the earliest to be impacted ahead of consumer finance and other lending.
As a result, our approach.
Stability has been negatively impacted due to rising credit impairment losses, and created and you had some other cost.
Speaker 2: As a result, our profitability has been negatively impacted due to rising credit impairment losses and credit enhancement costs.
Ongoing pandemic controls and slowing economic growth impact your credit quality in the fourth quarter.
Speaker 2: Ongoing pandemic controls and strong economic growth impacted credit quality in the third quarter.
Our lead indicator for credit quality.
The MTA, Rachel which estimates the ports infusion all along.
Speaker 2: Our lead indicator for credit quality, the C to M C ratio, which estimates the percentage of the amount of loans that will be non-performing at the end of three months.
Two laws that would be called nonperforming angle pretty much.
Decreased by <unk> increased by 21% quarter on quarter to <unk>, 8% this quarter.
Speaker 2: increased by 0.1%, quarter on quarter, to 0.8% this quarter.
Oh, Oh, Oh, yes.
Felicia.
Hello Hello.
Okay.
Our CTO MCT ratio stood at one 4% in the third quarter of 221.
Speaker 2: howhaani.
Speaker 2: Our C-tran3 ratio stood at 0.4% in the third quarter of 2021.
Indicating that credit quality has worsened considerably versus a year ago.
Speaker 2: indicating that credit quality has worsened considerably versus a year ago.
In the third quarter of 2022.
Data from market analysts suggest that GDP shelled futures.
Speaker 2: In the third quarter of 2022,
<unk> high and medium risk and controls.
Speaker 2: Data from market analysts suggest that GDP share of cities with high and medium risk pandemic controls
The increase versus the second quarter.
Which we believe is having a broader impact once smoked businesses, given the backdrop of declining business and consumer confidence.
Speaker 2: increase versus the second quarter.
Speaker 2: which we believe is having a broader impact on small communities.
Speaker 2: given a backdrop of declining business and consumer confidence.
While credit quality deterioration otherwise across the board.
Speaker 2: Why credit quality situation advanced across the board in the third quarter?
The fourth quarter.
If it.
Growing differentiation and economic resilience in various regions.
Speaker 2: We will take it growing differences in economic resilience in various regions.
Rich, let its significant typhoon in credit performance by region.
Shanghai for example.
Speaker 2: which led to significant divergence in credit performance by region.
C III Rachel for general each other laws spiked to two 3% in second quarter. This year.
Speaker 2: Taking Shanghai for example, the C to M3 ratio for general unsecured loss spiked to 2.3% in the second quarter this year.
Well, it's a short period of time.
Absolutely opening you clearly called out pretty locked down the level of <unk>, 5% in third quarter 2022, demonstrating strong resilience.
Speaker 2: Well, after a short period of time,
Speaker 2: after reopening quickly returned to pre-lockdown level of 0.5% in third quarter 2022, demonstrating strong resilience.
In comparison <unk> ratio for some other weakness in particular loss lower tier cities.
Speaker 2: In comparison, C2M is doing ratio for some other regions, in particular, lower-tier cities.
Got worse and it probably will take much longer to recover let.
Let me provide a sense of this by comparing credit quality for unsecured loans.
Speaker 2: were worse and probably will take much longer to recover.
Speaker 2: Let me provide a sense of this by comparing credit quality for unsecured loans.
On average the CPM three Rachel for top performing regions.
Speaker 2: On average, the C2M3 ratio for top performing regions
Which mainly consist of cities and regions with a strong economic foundation.
Speaker 2: which mainly consists of cities and regions with strong economic foundations.
Such as Beijing and Shanghai.
Improved by one basis points in the fourth quarter compared to second quarter.
Speaker 2: such as Beijing and Shanghai.
Speaker 2: included by one basis point in the first quarter compared to the second quarter.
Like a few Samson Rachel for average performing with us and less desirable performing regas deteriorated by Celgene and 20 basis points.
Speaker 2: Why the fit transfer ratio for average performing regions and less desirable performing regions deteriorated by 13 and 20 basis points?
Respectively during the.
The same period.
This geographic divergence is fundamentally reshaping the map pool are sustainable and it can be in Edwards.
Speaker 2: during the same period.
Speaker 2: This geographic divergence is fundamentally reshaping the map for where sustainable landings can be enabled mid-term.
Our call today.
Today about two thirds of our existing business in cities and regions, where we believe Ducommun Foundation is strong and likely to be more resilient in a recovery.
Speaker 2: Today, about two-thirds of our existing business is in cities and regions where we believe economic foundations are stronger and likely to be more resilient in recovery.
[laughter] smoothing.
<unk> contributed to 60% of GDP and 80% of job creation.
Speaker 2: Small businesses contribute to 60% of GDP and 80% of job creation, while receiving only 26% of financing as of 2021 year-end.
Why do we see that only 26% of financing and so 2021.
We believe long term demand will remain a subcutaneous <unk>.
It's a small business owner segment.
Speaker 2: We believe long-term demands will remain substantial, as the small business owner segment is expected to be agile and responsive.
Expect it to the Adi and wished hiseq.
When the macro environment improves.
Have you noticed that we are well positioned to whiskey when the timing is appropriate leveraging our existing strengths.
Speaker 2: when the macro environment improves.
Speaker 2: We are confident that we are well positioned to risk it when the time is appropriate.
Including extensive China.
And institutional partnerships and a strong capital position.
Speaker 2: leveraging our existing strengths.
Speaker 2: including extensive channels.
However.
Speaker 2: and institutional partnerships in a strong chapter position.
Medium term, we must first I'll, just I'll be some synergies.
Speaker 2: However, in medium-term, we must first adjust our business strategies by deepening our focus on well-weighted small business owners.
We are focused on where related small business owners.
And more resilient cities with the increased resilience will now direct sales force China.
In more resilion cities with increased regilions on our direct sales force channel.
Yeah.
The increased focus really jerking reduced gross revenue in Midtown.
But will improve the profitability and sustainability.
We must go through a period of digestion and credit losses on the <unk> vintages and theater on down.
Light building I'll be more sustainable and profitable new portfolio.
This process will likely jerky U shaped recovery pattern for our business.
In the near term we expect this I'll just hit some of everything we do.
Generating new loan facilitation volumes and approximately two thirds of the volumes we have generated in recent years.
You can take volumes will be determined by the overall timing of macro economy recovery, which remains uncertain at this moment.
Why do we hope that a recovery will come sooner.
Our immediate plans assume status quo in the car.
<unk> operating environment.
Our optimization of resources.
Including quarter post restructuring will be completed over the next several quarters.
During this time, we all assume that our credit impairment losses, and CGI, creating next month cost will remain at elevated levels.
Why.
The performing portion of existing reintroduce lockdown.
Clearly impacting properties.
Taking into account, we believe that timing for a notable improvement in our bottom line performance is more likely in 2020 full Dan in 2023.
This is clearly a challenge for us, but we are confident in our <unk>.
To execute.
We used this business lead.
Try our titration to continue to upgrade our technology.
Operations and their risk management with the objective of strengthening our long term market leadership in the small opinions on a settlement.
People always associated given out some excess strong balance sheets and long term partnerships with financial institutions, we haven't been necessarily advantages to navigate through this difficult period.
Okay.
While the operating environment demands change.
The regulatory environment is now stabilizing.
The four to nine with vacation process led by POC and <unk> has now transitioned to normalized regulation or oversight.
Without substantial outstanding issues for the company.
Our Thanksgiving model under which without 22, 5% credit risk on the outstanding balance overruns, we supposed to locate it.
Until the end of September is distinct from a lending plus mutations platform.
And in line with prevailing climates.
Looking forward, we expect a portion a portion of risk sharing with financial partners to increase to at least 40% over the next several quarters.
As I stated before the use of our guarantee company.
Also allows us to share data directly with funding partners.
Although public 20 Bips.
<unk> released a report regarding the P&C industry, well credit guarantee insurers of all components of our business model is left.
Playing a positive role in helping small businesses increased their funding availability.
Finally, I have update on changed 12 board.
In consideration of potential Hong Kong listing pilots and to improve our ESG standing we have added two new female directors, namely high.
Hi, Bob.
And Ms pushing it to the board.
We are pleased to welcome Mr. Cheap longhorn to join our board as a director again.
With three new that exists at Ping an executives.
Forming the ongoing support from our largest shareholder.
The new board structure continues to be made up of nine members with a forecast of independent directors to cause the company directors myself and Greg and the three new directors, who I'll Ping an executives.
Under the new structure, we are reducing what independent director and adding an additional director nominated by Ping an.
I will now turn the call over to Greg for more detailed well operations research and business priorities.
Thank you Lasse I will now provide more detail on results and our operational focus. Please note all figures are in RMB and all comparisons for the third quarter on a year over year basis, unless otherwise stated.
Third quarter results were negatively impacted by a deterioration in credit quality as a result third quarter profit was $1 4 billion declining 67% versus a year ago. As a result of progressively tightened credit standards, new loan volumes were 123 billion declining 27% versus a year.
Year ago credit impairment losses totaled 4 billion, increasing 137% year over year. Overall profitability has also been negatively impacted by higher insurance premiums total expenses, including credits impairment losses asset impairment losses finance costs and other losses decreased.
By 12, 7% as a result of tighter cost control.
Third quarter revenues declined by 17, 2% versus a year earlier to $13 2 billion and our outstanding balance of loans facilitated declined by one 3% versus a year earlier to 636 billion as of September 32022.
We have entered what we expect to be a U shaped profitability pattern driven by the credit quality issues that lie as detailed.
Our historical loan businesses are now experiencing higher credit losses, given the macro environment.
As a result of aggressive credit tightening new business initiated in the last couple of quarters as demonstrated better performance.
But we must now follow a path of continuing to strengthen our collection on existing businesses, while building up more sustainable and profitable new portfolio. While at the same time, we continue to refine our channel management through optimizing our direct sales force that we can be more nimble and efficient in our selected selecting and targeting a higher quality customer base with.
The most productive workforce.
This will mean reduced new business volumes and gross revenues in the medium term, but new business should be able to generate better results as compared to the historical loan vintages as a whole we believe bottomline profit recovery will be driven by three factors evolving credit performance of the historical vintages.
Run off speed of the historical vintages and growth rate of the prioritize new business.
At this stage, we can't accurately predict how long the historical vintages will see elevated credit impairment as the drivers are fundamentally macro in nature, but as wireless data timing for a notable improvement in our bottom line performance is more likely in 2020 for the 2023 as new business volumes replace vintage volumes and policy changes.
Potentially lead to improvement in the macro environment recently, we have witnessed positive signals around commitment by the banking system to support some key indices, including real estate.
We believe these developments could potentially bring positive impact to the macro environment and our business, although the exact timing impact as yet.
Difficult to predict.
As we navigate through the current downturn, we will continue to strengthen our operating capabilities and financial institution partnerships. We have recently launched our new small business owner ecosystem. Its intent is to engage potential customers at an earlier stage deepened our interaction with existing customers and create both new cross selling opportunities and a new.
Source of customer referrals.
As the first step we launched the testing version of our living at home App in October 2022, Louisiana home has an open platform designed and is being populated with digital operating tools and industry focused content for <unk> to operate their businesses more effectively.
<unk> builds a wechat moments like a social network connecting our direct sales force.
With existing and perspective.
And in helping these sps to better serve their existing and prospective customers to deliver more impactful marketing more frequent engagement and more direct feedback with their customers compared with other players. We believe that our extensive offline direct sales network would allow us to acquire users more efficiently.
And offer more differentiated value to users.
We are also continuing to develop <unk>, which helps banks with strong risk capabilities acquire borrowers directly through dispersed sourcing agents nationwide.
Under this model the company does not provide or participate in credit risk share year to date <unk> Tung provided online services to more than 10000 active agents and their efforts to facilitate loans to partner finance institutions.
Funding partners under our risk sharing model, we've increased 16, New bank partners compared to the same period last year, we continue to explore development of new data and technology solutions to share with our partner institutions in the areas of efficient customer matching risk analytics portfolio management and collection services our risk sharing.
22, 5% of the total portfolio as of September 32022.
The guarantee companies net capital stood at $47 8 billion at the end of the third quarter operating with a leverage ratio of two one times.
More broadly our net assets stood at 95 billion with 46 billion cash on hand figures, which provide confidence to our financial partners and this otherwise challenging environment.
Our current guidance for the full year of 2022 is total income 57% to 58 billion with net profit ranging eight five to $8 9 billion.
New loan sales for the full year are expected to reach 490 to 495 billion wealth management client assets are expected to end the year between 390 and 430 billion. These projections are below our previous estimates and reflects both the macroeconomic environment and our.
Strategy to be more selective in credit selection.
As forecast reflect our current views.
The market and operational conditions, which are subject to change.
Finally, we would like to thank our shareholders for their continued support to our business in October we distributed our first half 2022 dividends of 17 cents per ADR, and we will continue to deliver value to our shareholders.
We also continue to stay close with regulators and remain ready to initiate a Hong Kong listing plan as soon as permissible subject to regulatory approvals with that I would like to hand over to David to elaborate on our financial performance in greater detail.
Thanks, Greg.
I will now provide a closer look into our financials.
There is no SaaS all numbers I will rather being terms and all comparisons on a year on year basis, unless otherwise stated.
Our total income for the third quarter was $13 2 billion.
Well not probably was one 4 billion.
Total expenses for the first quarter grew by 11, 5%.
The increase in the total expenses was primarily driven by the increase in credit impairment causes.
While our operating related expenses actually decreased by 12, 7% due to operating efficiencies and optimizations.
Let's take a closer look at our revenue.
So as a whole our revenue was negatively impacted by economic environment, resulting in a <unk>.
17, 2% decrease in AR.
Top line this quarter.
As we are dedicated to build up a more sustainable business model. The total income mix of crappy retail credit, but sufficient business continue to evolve.
During this quarter, while technology platform based income decreased by 33% to $6 7 billion.
Our net interest income.
21, 5% to four 6 billion.
And our guarantee income grew by 44, 1% to one.
Got it.
As a result, our retail credit facilitation platform service fees as a percentage of the total income decreased to 47, 8% from 57, 1% a year ago.
And as the trust funding model provided lower funding cost for the use of asset backed securities.
We continued to utilize them more.
Funding mix.
As a result income from consolidated trust is recognized as net interest income.
Net interest income as a percentage of total income actually increased to.
35% from 30, 349% a year ago.
Moreover.
We continue to better utilize our guarantee companies abundant capital to Bam all credit risk ourselves.
Is that all through our P&C insurance partners.
As a result, we generated more guaranteed income.
14, 1% of total income.
February eight 1% a year ago.
In terms of wealth management.
That form Charles section of service fees decreased by 22, 1% to bring to 64 million in the first quarter. So 40 to 67 million in the same period of tool to water.
This decrease was primarily caused by the decline in fees generated from alternative products.
Partially offset by the increase in fees generated from telephone service.
Our other income.
Which mainly includes our current imagewear fee.
Collections and other value added service fees charged out crowd here at the hospital partners as part of the retail credit statistic facilitation process.
It was negative.
29 million in the third quarter 222.
Compared to.
$997 million in the same period of two to one.
Majority of the decreases were due to a refund of account management fees two hour prime that primary credit enhancement, partly as a result of western expected collection performance.
Now entitled Service scope.
Change a fee structure that we provided chalk well, primarily but you have some policies this quarter.
Turning to our expenses.
We continue to prudently manage our operational expenses.
Our total expenses, excluding asset impairment losses finance courses and other losses decreased by 12, 7%.
Year over year to $6 7 billion.
In the first quarter, our total expenses were two.
One 1 billion.
$9 9 billion a year ago.
This was primarily driven by an increase in credit impairment losses of $2 3 billion year over year.
Our total sales and marketing expenses, which mainly include expenses for borrowers and the effects of acquisition cost.
As well as shallow sales and marketing expenses decreased by 11, 7% to $4 1 billion the.
First quarter.
This decrease was driven by the decrease in the news those cells and the optimization of our commission based compensation structure.
In addition to that.
Continual optimization productivity of our direct sales force also provides us with flexibility in our cost structure.
Yes.
Our general and administrative expenses decreased by 36, 6% too.
592 million.
I had the first step in Minneapolis, St. Paul to talk thanks.
Thanks to our stringent cost control measures.
Our operation and services expenses decreased by three 6% to $1 6 billion in the first quarter from one 7 billion a year ago.
Mainly due to the decrease of <unk> 10 benefit expenses and our effective expense control measures.
Credit impairment losses increased by 137, 7% to $4 billion in the third quarter from $1 7 billion a year ago.
This was mainly driven by two factors.
Got it.
I appreciate it indemnity losses, driven by the increased risk exposure as we move towards a more balance this taking a lot of.
And second as <unk>.
Restaurants, the company, while risk on 22, 5% of its outstanding balance.
From 14, 8% as of September of 221.
Second the change in credit performance due to the impact of COVID-19, STRIX also contributed to the increase in credit dependent losses.
As a fellow losses decreased to 68 units in.
In the first quarter.
Quarter, and 10 million a year ago.
The number for the first quarter of tool to one was unusually high mainly due to impairment losses of intangible assets and goodwill.
Finance costs increased by.
82, 1%.
$6 million in the first quarter of two to two <unk>.
168 million people to water.
Mainly due to the increase in interest expense.
The losses were seven minutes in the first quarter compared to the Arctic Ingersoll for 6 million a year ago, mainly due to foreign exchange losses.
As a result of that in the decrease to one 4 billion through the third quarter from $4 1 billion to get the same quarter of two one.
Meanwhile, our basic and diluted earnings per <unk> during the first quarter with both.
There might be some place.
So far 55.
All Russell et cetera.
On the policy side.
Other than sheet remains strong and solid that's all.
Cash at Bank <unk> increased.
As of September 30th.
Two we had a cash balance of $45 8 billion in cash effect as comfort with.
Sure.
$44 7 billion as of December 31st two award to Us.
In addition, liquid assets maturing 90 days or less a month or $246 5 billion as of the end of September 2002.
As of the end of September 222 hour guarantee companies leverage is only at two one times.
While its regulatory requirements allow to us to leverage up to up to 10 times.
All of these provide strong support for the company to remain resilient in the face of economic downturn.
That concludes.
Our remarks for today.
Operator, we are now ready to take questions.
Thank you very much have you already far I have to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by two well referring to ask your question. Please ensure your phone is a mutual locally.
Okay.
We now have our first question from Alex Xie of UBS. Please go ahead.
Hi, Thanks for taking my questions I have two.
First one is on your asset quality.
Can you give us some color in terms of Avianca and peripheral late into the.
October and November that's why what's the outlook for the coming few quarters.
And this time that that could be substantial uncertainty around the macro from perhaps can you talk about.
How is it likely to evolve under different scenarios.
For example.
Assuming the current lockdown rolling lockdown across different city state as it is today.
And second perhaps assuming we have the material easing on.
Opening from Q2 of next year.
And second question is on your take rate outlook. So.
And then many of them have been tightening.
Uh huh.
So when shall we expect the take rate to bottom and start to improve.
There are different moving parts.
Equation for example, the C drive premium has increased a lot this quarter.
Given there could be some lagging effect on the CGI pricing. So should we expect further material uptick in Q4.
And in terms of your loan pricing, we have been declining for over one year and has been quite stable lately. So is there any room for us to maybe.
Rolled back some of the pricing cut.
Perhaps somehow offset the takeaway pressure thank you.
Okay.
Let me answer your question.
If I missed any please let me know later so the first question about asset quality in our system to net flow trends.
Our flow rate increased by 21% to points, 8% in the third quarter. This year from 7% in the second quarter.
And then considering that we still against the COVID-19, and then regional Lockdown recently the fluid in the in the near term.
Midterm.
We believe it is at a relatively high level.
Yes.
November number.
Eastern side is stable it just doesn't.
That has not changed much.
We believe the law.
Indication of Covid policy, and then reopening you will surely will stop consumption and investment for us.
Critical for the economy that is driven by confidence level and given the external forecast we understand a small boutiques are typically the earliest could be impacted our head of consumer finance and auto lending.
Downtown.
They are more sensitive, albeit control measures.
As shown in our seats empty and therefore colocation with Bud light.
Likewise, we believe the aircraft come from us really respond to the relocation of Covid control policies quickly. So.
Once policy that loosens.
And then we believe difficult for us.
Improved relatively quickly.
Okay.
And then the third question about.
The third question about.
Yeah.
Our take rate.
In relation with the CGI premium.
We hope we.
We hope.
Recovery will come.
Soon.
Hi.
Well, we experienced almost three months.
Consecutive locked out.
Our cost performance is.
One of the best almost 75 branches, we have so the original you're corny, but regional.
That the SCO.
Environment is now surely different but you know what.
We hope that this high the other reason can recover quickly.
The legacy relaxed pandemic control measures.
But we assume.
It's the only silicone scar surgeons, so we assume a status quo in the cons are thinking bottom and so.
In fourth quarter and all of 'twenty 'twenty three we also near our CCI Crazy next month course, we remain at high levels.
And then opex.
Our take rate for sure so to mitigate this impact on take rate.
We continuously optimize our.
Funding costs, which is now less than 6% and then also can you can see our operating cost to offset the impact from diabetes that course.
We believe the timing for multiple use case you shipped in two months.
Hey, great.
Inputs to the.
The release <unk> quality control policies and then if we still get actions then.
We believe we see more likely in 2024 and 2023 that is our debt out there explanation.
And the last question about was about loan pricing.
Our our corporate HR by loan balance.
It was in line with our policy guidelines and then it's now 21% in the third quarter, which is reduced from 21, 4% from the second quarter, but if you look at new noise is already less than 20%.
So by now we believe we strongly believe we are in full compliance with the regulations and window guidance from CIC regarding a shot and then we haven't received any further modification of our <unk> our <unk> product.
And in addition to comply with regulatory requirements and guidance. The decrease of APR is also driven by our own strategy to target higher quality segments.
In EMEA Tom.
We maintain a.
Wade.
Before we launch why do we focus more on high quality ethical segment.
In more economically resilient ridges.
And then okay.
Alex any any follow up question on that.
Thank you that's all for me.
Okay.
Thank you we now have our next question from I'm not sure of Bank of America. Please go ahead.
Thank you for taking my call.
I have three so the first one is about your third quarter and fourth quarter.
So we noticed that your third quarter result is much weaker than previous guidance and you also revised down towards your full year guidance and implied losses.
In fourth quarter, so could management explain a little more detailed one.
Two days a week our business performance in third quarter, and that's not a week for Q guidance.
And a weak fall Q guidance now and the second question is about the outlook for management, just say that you expect that recovery to happen more likely in 'twenty and plentiful land trying to 'twenty three but could you give us more.
Details for example, do you still expect base business continued to decline in 2023, and when do you expect it when do you expect that performance to button.
Yeah, and then the third question is about your share buyback.
We noticed that your share prices has dropped a lot base here, but it seems that the buyback activity has stopped in recent quarters. So can management tell us why the buyback activity stopped recently and related Oh related question.
But it doesn't stop them do you still think that you can montana stable dividend.
The P P F or if they are still room for you to increase the payout ratio and then maintained a relatively stable dividend. Yes. So this is my second question. Thank you.
Thanks, Thanks Sam.
Yeah, and you got your first question on <unk>.
Our third quarter results you see this is weaker than expected then our mace tuned is purely a macro.
Challenges on our <unk> set top.
Due to pandemic control and then macro uncertainties. The operating environment has been fundamentally reshaped our CTO Standbys and then this is also expected to continue in EMEA and then near to midterm, we think.
Probably the least soldiers resurgence in various cities.
Affected our operation in stages and collection.
Branches all kinds of centers.
And then a question of our confidence level remains low indicating overall.
Our market demand so basically we got.
Immediate that hit from the macro.
Oh.
Environments change and then having those in mind.
I'll, just keep our risk policy and growth plan focusing more on quality segments. So are better as a result decreased our use case volume recently then.
Then so what copy measures we have.
To deal with the situation, we will continue to prioritize quality over volume in the meantime, and a focus on those.
Cable profitability.
Meaning less K, but we go after profitable and sustainable said months and.
We tightened our credit standards policy and focus on customers with higher risk rating and then particularly cosmos in more developed regions.
Yes.
No pension metro.
<unk> target ratio and Theyre also Christmas in our better performing segments.
And then lastly, our channel wise, we will develop more direct sales channels, and then latest dependents without a chance because we see a higher quality from our own Dx Chaz.
Okay. That's two questions about the outlook.
On the outlook.
As we put forward this morning.
We do think it is a U shaped pattern. So, let's let me explain a little bit more how this plays out so the existing portfolio, which was acquired acquired as early as 2020, which is still in force. So we have 2020, 2021 'twenty, two which makes up.
Our existing portfolio over the last three quarters, we have progressively tightened our credit standards, but there is part of the portfolio, which was brought in to pre tightening that part of the portfolio is experiencing elevated levels of impairment and credit cost and that will.
Continue to play through over the next couple of quarters.
The business that we have acquired in the last couple of quarter as why it's outlined has been done at a much higher credit standard.
So that part of the business is performing better. So what you have to kind of visualize is that we have if you will the legacy book.
Gradually running off over the next 12 to 18 months and then the new book that we've been building up over the last couple of quarters as well will grow with a higher level of profitability.
But as.
As we have tightened our credit standards the absolute volume in the near term will be less so you can envision that the legacy running off that's one line and the building of the new book with New credit standards, increasing that's another life and when those two lines cross that will determine if you will the turning point.
You Shake Bottomline profit recovery.
Now the exact timing for that really depends a little bit on.
Whether there is real progress on policy change, including Covid, because we believe as soon as you have any policy change.
Small business owners will respond quite quickly and then two things will happen. The first is the quality of the legacy business. If you will the business initiated over the last couple of years should actually show.
Demonstrating the improvement that's number one number two is our willingness to accelerate new business growth to higher standards will also increase.
It's very hard to call right, now, which quarter is going to be the bottom, but if we think about this over the next year to 18 months, we know it's somewhere in that period.
And for US what is most important.
Is to make sure that if even if we assume the worst case, which is nothing changes for the next 12 months.
We're in a very good position in terms of our capital base in terms of our funding partners.
Terms of the network and how we're prioritizing our channels. So as soon as it does change we can step on the gas pedal yet and be very strong financially.
Fundamentally in our footprint and in our chosen segments. So we are doing a lot of preparation for that day that it cuts, where we have confidence that we can hit that bottom in the EU and it's really time to accelerate we do believe that if we look around the industry is that at that time, our competition will most likely be less and.
Relatively to shift in the market it will be intact.
Our ability to extend it should come at that time, so it's very hard to call as you do in a market bottom.
But we are relatively clear that it should be within the course of 2023.
Therefore, 2024 is really where you should see the notable improvement, but I really wanted to emphasize when we face an environment like this the first thing to do is to really make sure that you assume the worst and are going to not only survive, but prosper when it recovers and so that is the way, we prioritize who were selected to serve down.
How we're managing costs, where we're putting resources so in light of that to your to your follow up question.
On buybacks. So we have bought back over time now about 110 million shares.
It represents more than $800 million U S that we bought back progressively since being listed.
It is in the current environment, we believe we want to place obviously liquidity is number one obviously, we have a lot of it.
Which is important I think just giving confidence to our financial partners.
<unk>.
<unk> prioritize dividends.
And then three we would look at other ways to create value for shareholders in terms of dividends.
Obviously, our policy as a cap of 40%.
That's something we will we will look at it if needed.
Over time, though we will prioritize dividend over maybe other aspects in the near term.
How much does that answer your questions.
Yes that is fair.
Very helpful. Just one quick for just one quick follow up you mentioned that.
The U shaped recovery it depends on how could it depends on the running off of your legacy portfolio, which is extended before it's the tightening of credit policy. So could you tell us the percentage of the legacy portfolio in your existing portfolio.
We haven't disclosed those persons that those specifics, but I think why I gave a pretty good.
Acacia.
The following concept, which is EBITDA.
Even in our legacy portfolio, we have seen.
Greater regional differentiation and credit performance and so as we look across the existing book.
Even within the existing legacy book, we think about two thirds of it is placed in geographies, which are reasonably economic resilience.
Which means that of the existing book that was initiated back in 2020, 2021 is going to be in regions, which are poor performance.
Right. So that doesn't give you the exact number because we haven't disclosed it but it gives you a sense of magnitude right. So we're not saying the entire legacy book is that a lot of it is actually quite well positioned and.
And as we build the new book it is actually prioritizing those stronger geographies as well so if we've done our strategy right.
With the way we've tuned our credit policy the way, we're doing new business that should help us on the upside of the U as soon as the environment improves.
Okay.
Understood. Thank you.
Thank you we now have our next question from Yodlee.
Please go ahead.
Hello management, I am Yadav from TICC and thanks for taking my questions. So how two questions for today and the first one is regarding the cost side.
The growth of the low origination volume has been slowing down and how are you able to control the operational costs helped a large direct sales team in the future and Additionally, our looking forward what is the trend of our reinsurance cost specifically.
And the second one is about I'd say, you'll give us more color on the updates war and a potential timeline on the 8-K a secondary listing.
So much.
Well first the other sort of question Susan.
I guess, you mentioned about switching to the cost control operating costs and also about the CGI chatbot. So for simply put 40 cost control in particular, both PMT I think.
<unk> is to keep focused and be nimble and efficient.
We have to be placing increasing focus on optimizing and improving the cost of our direct sales team and we also observed a more significant improvements in our productivity 'cause it could be in regions, where we are successful in hiring high quality to the DST. So we can enable a decision as we are now getting more selective in kind of a high.
Our core customer base.
So in terms of the CGI percentage on the cost side.
Before.
Whilst we do hope we can.
Companies will come sooner, but at <unk>, we announced assuming a state of course, the status quo scenario, which.
In medium term.
We assume a credit enhancement cost will still remain at elevated levels and as Jeff said it would be a.
Pretty much the same level that we have right now.
Yes.
On the other question.
Potential Hong Kong listing.
Still see it as a very important thing to be ready for.
And.
The.
Getting ourselves ready, it's something that we have.
Focusing on.
In terms of the earliest timing we would have to do it off of the back of our 2022.
Financial results.
We're staying very close to.
Regulators in understanding.
Whether or not any other communications required before actually initiating the process.
I think that the as <unk> talked about the reputation completion, the fortunate and reputation completion I think has created greater certainty you have seen some other movement in the industry on this front and so as soon as this is a viable from both our financials being ready in terms of your financials.
We would not we would obviously prioritize.
Yes.
And so this concludes.
Operator any other questions.
Thank you. This concludes our Q&A session for today I'll now hand, the call over to our management for their closing remarks.
Okay. Thank you. This concludes today's call. Thank you for joining the conference call. If you have more questions. Please do not hesitate to contact the company team offline. Thanks again.
Thank you.
Thank you. This concludes today's call. Thank you everyone for joining and you may disconnect your lines now.
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Yes.
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