Q4 2022 FinVolution Group Earnings Call
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Speaker 2: Hello ladies and gentlemen. Thank you for participating in the fourth quarter and full year 2022 earnings conference call for Finn Follution Group. At this time, all participants are in a listen only mode. For more management feedback remarks, there will be a question and answer section.
Speaker 2: Today's conference call is being recorded. I'll now turn the call over to your host, Mr. Jimmy Tan, Head of Investor Relations for the company. Thank you, Jimmy. Please go ahead.
Speaker 3: Hello everyone and welcome to our fourth quarter and full year 2022 earnings conference call. The company results were issued via newswire services earlier today and are posted online. You can download the earnings release and sign up for the company email alerts by visiting the IRA section of our website at ira.nbgroup.com.
Speaker 3: Mr. Tia-Jian Li, our Chief Executive Officer, and Mr. Jia Yuan-shu, our Chief Financial Officer, will start the call with their prepared remarks and conclude with 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 be considered in isolation.
Speaker 3: statements made under the Safe Harbor provisions of the U.S. private securities litigation reform Act of 1995. Forward-looking statements involved in having risks and uncertainties as such. The company results may be materially different from the view expressed today. Further information regarding this and other risks and uncertainties are included in the findings with the U.S. Securities and
Speaker 3: Mr. Tien-Li, please go ahead, sir.
Speaker 3: Thanks, Jimmy. Hello, everyone, and thank you for joining our webinar call. I'm Tie Zheng, co-founder of the company and its supplier, and I speak with all of you today.
Speaker 3: I'm deeply honored to take on the role of Chief Executive Officer and excited to explore the great opportunities and prospects ahead for evolution.
Speaker 3: We are happy to speak with you today following the compilation of another equivalent year on a strong note.
Speaker 3: 2022 was a complicated year given the complex micro environment.
Speaker 3: The situation in the domestic market has been very challenging, with the pandemic resurgence throughout the year, leading to varying degrees of lockdown across multiple cities.
Speaker 3: The Shanghai lockdown was particularly difficult for us, as most of our call teams are based here.
Speaker 3: However, despite all these challenges, we continue to build on our priority technologies in industry-leading digital capabilities.
Speaker 3: Delivering resilient growth each quarter and ultimately producing another set of record-breaking operational and financial results to close out the year.
Speaker 3: We have invested wisely in the technologies throughout the year and are pleased to share that as of December 2022. We have successfully registered 212 software copyrights and filed 162 patents in FinTech-related areas. We are happy to share that we have successfully registered 212 patents in FinTech-related areas. We have successfully registered 212 patents in FinTech-related areas.
Speaker 3: For full year 2022, we achieved our total transaction volume target with RMB $175.4 billion in total transactions, representing a year-over-year increase of 28%. Our total transaction volume means the fourth quarter reached RMB $175.4 billion in total transactions.
Speaker 3: 48.6 billion, representing a year-over-year increase of 25%, and a sequential increase of 7%. Notably, our full-year domestic loan volume grew to RMB 171 billion, a year-over-year increase of 28%, and the fourth quarter volume rose to RMB
Speaker 3: 47 billion, a year-over-year increase of 24%, and a sequential increase of 6%.
Speaker 3: Thanks to our effective local focus, global outlook strategy, international loan volume for the full year also climbed to RMB 4.3 billion, representing a year-over-year increase of 16% while loan volume for the fourth quarter reached RMB 1.4 billion, representing an increase of 4.5 billion.
Speaker 3: 1% year-over-year.
Speaker 3: Concurrently, our total outstanding loan balance stands at RMB 64.6 billion a year-over-year increase of 28%. Our outstanding loan balance in China totals RMB 63.8 billion, an increase of 28% year-over-year.
Speaker 3: And in international markets, this number has soared to RMB 0.8, representing a year-over-year increase of 167%.
Speaker 3: Solid management experience as well as excellent, flexible execution throughout the year helped us to overcome the yearís challenge period. Leveraging our cutting edge technologies such as RTA for new borrowers acquisition, our thumbnail is
Speaker 3: of the creation of either the segment targeting high quality borrowers, our magic mirror for credit risk assessment and our mirror for fraud detection.
Speaker 3: We delivered robust operational and financial results.
Speaker 3: Followed by our prudent approach to risk management and our advanced credit risk assessment model, our vintage delinquency rate remained stable and healthy between 2.3% to 2.4% throughout 2022. In 2023, as China reopens, we expect further improvements in this metric.
Speaker 3: effects to acquire better quality borrowers, our proportion of category A and B borrowers in the domestic market further increased to 77 percent of our total borrowers in the fourth quarter from 63 percent in the same period last year. Coupled with a larger proportion of better quality borrowers.
Speaker 3: We have also completed our price transition. Our average borrowing rate was 23 percent in the fourth quarter, reaffirming our commitment to financial inclusion.
Speaker 3: posturing our compliance level and alignment with regulatory directives.
Speaker 3: Looking ahead, we expect borrowing rates to be in the range of 22% to 23% in 2023 due to the increase in the proportion of category A and B borrowers.
Speaker 3: Notably, the transition to better quality borrowers has also helped us to reduce our funding costs, which dipped below 7 percent in the fourth quarter of 2022 compared with 7.8 percent in the same period last year.
Speaker 3: We have cumulatively cooperated with 75 financial institutions and our pipeline of potential partners remains robust.
Speaker 3: Looking ahead, we are confident we can achieve progress improvements in our funding cost as our proportion of category A and B borrowers continue to rise.
Speaker 3: Moving on to our second growth driver, our international expansion.
Speaker 3: We are thrilled to report that during the fourth quarter, improvement across multiple operational fronts led to a revenue contribution of RMB 395 million from this segment, representing 13 percent.
Speaker 3: 13 percent contribution to total revenue, as well as an increase of 122 percent from the same period last year and a sequential increase of 13 percent from the previous year. For year 2022, revenue from the international segment was RMB 1.15 billion.
Speaker 3: Indonesia continues to be the major international market in 2022, although pandemic-related rules and restrictions have relaxed in many countries. We remain cautious and we'll adjust our strategy according to the local circumstances since 2021. We have been targeting better quality borrowers with attractive interest rates in Indonesia.
Speaker 3: And our efforts have been recognized by well-known local financial institutions such as Bank Jekyll, Bank Permit and OCBC NISP. Among others, growing fruitful collaboration with these local partners have led to a rapid increase in our proportion of loans funded by local banks.
Speaker 3: to 63% in the fourth quarter of 2022 compared to 48% in the previous quarter and merely 10% in the same period last year.
Speaker 3: Our success in Indonesian market is varying and has strengthened our confidence as we expand into additional countries. For example, our outstanding loan balance in the Philippines during the fourth quarter grew over 110% year over year.
Speaker 3: Going forward, we plan to accelerate our pace of penetration in Indonesia and the Philippines while evaluating other potential opportunities in the region. Based on our current assessment, we believe revenue contributions from the international markets will continue to climb in 2023, rising to between 15% to 20% in 2021.
Speaker 3: in 2022, providing a snapshot of our forward-looking thinking efforts and initiatives aimed at driving sustainability and enhancing value creation for our stakeholders.
Speaker 3: We also join the United Nations Global Compact Program, a voluntary initiative to implement universal sustainability practice, demonstrating our corporate value and a longstanding dedication of fulfilling our social responsibilities.
Speaker 3: Furthermore, we were proud to receive a low-risk ESG reading from theShield Ash
Speaker 3: Going forward, we will strive to promote our aspects of ESG in our operations, including corporate governance and behavior, data privacy and security, human capital development, element protection and corporate social responsibility.
Speaker 3: To ensure alignment with international best practice and enhance our holistic approach to ESG, we plan to expand to our cooperation with additional independent ESG rating platforms in 2023. In summary, our outstanding overall performance in 2022.
Speaker 3: and scores our strengths and stability, as well as our team's ability to overcome challenges.
Speaker 3: We have built a firm foundation that will empower us to drive long-term, sustainable quality growth. As we forge ahead in 2023, we will continue to embrace our local focus, global outlook strategy, building on our domestic strengths and successes with an effective and sustainableMarshall School portfolio with Great exited Class of 2018
Speaker 3: emphasis on serving better quality borrowers while evaluating more countries and regions to advance our global expansion. Meanwhile, we will remain dedicated to expanding our healthy customer base, optimizing our products mix and averaging our technological capabilities to further refine our risk assessment and management framework.
Speaker 3: I would like to say a few words about the management transition we announced today.
Speaker 3: One is stepping down as our CEO to pursue other interests after eight years with the company.
Speaker 3: I would like to take this opportunity to express my sincere gratitude to thanks for his outstanding contributions to the company throughout these years. Concurrently, the board has selected Mr. Yuxiang Wang to serve as the company's chief operating officer while retaining his current role as chief technology officer.
Speaker 3: A role which he has held since 2019. From June 2015 to March 2023, Ms. Wang also served as the chief product officer. Together with the rest of the board and the team, Ms. Wang and I look forward to propelling the company to even greater heights.
Speaker 3: With that, I will now turn the call over to our CFO , Jiaoyuan Xu, who will discard our financial results for the quarter.
Speaker 4: Thank you, Tianjin, and hello everyone.
Speaker 4: Welcome to our fourth quarter and the full year 2022 earnings call. In the interest of time, I will not go through all of the financial line items on this call. Please refer to our earnings release for further details.
Speaker 4: As Thiye Zhen mentioned, we are heartened at the strong financial results we achieved in 2022 despite the unique challenges we encountered.
Speaker 4: Even more encouraging, our second growth driver, the international segment continues to gain progressive momentum and contribute over 10% of our total revenue in 2022.
Speaker 4: Notably, net revenues in the fourth quarter reached around RMB3 billion, up 25% year-over-year with full-year net revenues exceeding the RMB10 billion mark for the first time to reach RMB11 billion, up 17% year-over-year thanks to our ongoing investment in research and non ego trading events.
Speaker 4: and maintain a solid balance sheet with RMB12 billion in total shareholders' equity.
Speaker 4: We are very comfortable with our balance sheet and liquidity position.
Speaker 4: In particular, our cash position remains strong with over RMB 7 billion of cash and short-term liquidity as of the year 2020.
Speaker 4: the end of December 2022, an increase of 26% year-over-year.
Speaker 4: Our leverage ratio, which we defined as risk-bearing loan balance divided by the shareholder's equity, remained stable at 4.5 times, indicating future growth potential.
Speaker 4: During these times of uncertainty, our strong capital and liquidity position, coupled with our low leverage ratio, is an important source of confidence for all our shareholders, including our employees, institutional partners, and suppliers.
Speaker 4: We also continue to return value to our shareholders through SharePix throughout the year.
Speaker 4: In full year 2022, we deployed around USD $0.01 to buy back our shares in the public market.
Speaker 4: As of December 31, 2022, the company has cumulatively deployed around USD 182 million for its shared repurchase programs.
Speaker 4: Our board has also declared a dividend for our shareholders of USD 0.215 per ADS, with the payout ratio increasing to 18.5% of net income after tax for fiscal year 2022.
Speaker 4: This is our fifth consecutive annual dividend declaration.
Speaker 4: which reaffirms our confidence in our core capabilities, business growth and long-term market potential.
Speaker 4: The historical trend of the company's average dividend payout ratio for fiscal year 2018-21 was about 15% of the company's net income of tax in the same period.
Speaker 4: Between 2018 and 2022, we cumulatively deployed around USD 263 million for dividend distributions.
Speaker 4: In total, we have returned USD 445 million to our shareholders and our share repurchase programs and dividend policy.
Speaker 4: Last but not least, I would like to thank our employees and partners for their tremendous efforts in keeping our company strong throughout the COVID breakouts of 2022.
Speaker 4: Last but not least, I would like to thank our employees and partners for their tremendous efforts in keeping our company strong throughout the COVID breakouts of 2022. Our culture is stronger than ever.
Speaker 4: And we will continue to innovate as we broadly grow our business, both domestically and internationally.
Speaker 4: Before I conclude my remarks, let me provide some additional color on our business outlook for 2023.
Speaker 4: Although we view the reversal of the zero COVID policy in China as a positive driver for 2023, we still plan to adopt and take a positive approach to the COVID-19 pandemic.
Speaker 4: optimistic yet prudent approach for the first half of the year in the domestic market.
Speaker 4: while pursuing a more aggressive strategy internationally.
Speaker 4: The company will continue to closely monitor the situation and assess our strategy accordingly.
Speaker 4: Despite the challenging macro environment, our business continues to grow and get the momentum as we focus on our efforts on strengthening our international initiatives.
Speaker 4: Preparing technological innovation and constant acquisition of high-quality borrowers.
Speaker 4: As a result, we expect our transaction volume in the China market for full year 2023 to be in the range of IMB100 and the 18.9 billion to IMB205 billion.
Speaker 4: Representing an increase of around 10% to 20% year-over-year.
Speaker 4: We also expect our transaction volume in the international market for full year 2023 to be around RMB 6.4 billion representing an increase of around 15%.
Speaker 4: We are excited about the progress we have made in 2022 and look forward to continued success in 2023.
Speaker 4: With that, I will conclude my prepared remarks. We will now open the call to the questions.
Speaker 2: Operator, please continue. Thank you. We will now begin the question and answer section. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To cancel your request, please press star, then 2.
Speaker 2: For the benefit of all participants on today's call, if you wish to ask your questions to management in Chinese, we ask that you please kindly repeat your questions in English. Your first question comes from Alex Ye from UBS. Please go ahead.
Speaker 5: Good morning, thanks for taking my question. So my first question is on your consumer credit demand trend so far in Q1. So how is the underlying demand you have been observing and how is the long-volume run rate you are doing in Q1?
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Speaker 4: and the Chinese government is also working on this. Okay, Alex, let me do the translation for Mr. Xu. The first question is actually related to user demand. At the end of last year, the macro environment has changed a lot due to the reopening. Before Chinese New Year, we have seen that demand has increased a lot up by around 10 to 20 percent. We have seen that demand has increased by around 10 to 20 percent.
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Speaker 4: We think that the demand is still growing and it is mostly due to a compensation recovery. Going forward, we believe that this trend will continue to grow.
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Speaker 4: During the reopening period, early indicators such as Day 1 delinquency increased rapidly, but it has fallen back to 5.3% right now. And also we have seen that...
Speaker 4: Day 1 to 30 collection recovery rate has some fluctuation as well, but right now it is back to 91%. We have also seen some...
Speaker 4: Vintage delinquency remains stable at 2.3%. Our existing loan books for those loans dispersed during the COVID reopening period has been optimised by 10% and the current loans dispersed is now below 2.2%.
Speaker 5: Okay, Ash, do you have any follow-up questions? That's all from me, thank you.
Speaker 4: Okay, Alex, do you have any follow-up questions? That's all from me. Thank you. Thank you, Alex.
Speaker 6: Thank you. Your name is actually coming from Yada Li from CICC. Please go ahead. Hello, management. This is Yada from CICC, and thanks for taking my question. My first question today is from the perspective of the choice of landing model.awk.com.
Speaker 6: What is the trend of capital light and capital heavy in the future? And will there be any plans to inject capital into the small loan license? During the COVID pandemic, the growth of our SME segment actually
Speaker 6: slowed down due to the microeconomic impact. And I was wondering about the positioning of SME business in our overall strategy in 2023 and 2024, and what is the proportion in the future? That's all. Thank you.
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Speaker 4: Let me do the translation for Mr. Xu. Your first question is on capital light versus capital heavy. chief tooh he incoming
Speaker 4: Let me do the translation for Mr. Xu. Your first question is on capital light versus capital heavy. And for the full year of 2019, the
Speaker 4: Under the Capital Light model, we're 16% and we have been making very good progress.
Speaker 4: The number of funding partners whom have cooperated with us under this business model has reached 17. This validates our capabilities to operate under the capital light model and also the trust our funding partners have in our credit risk assessment models. We will also monitor the attitude of the regulators towards the capital light as right now we have seen that. For more information, visit www.fema.gov
Speaker 4: Both models of capital heavy and light are acceptable to them. We will also consider the attitude of our funding partners and their needs.
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Speaker 4: Hi, let me do the translation for this question as well. Our focus is on individuals with business certificate or licence.
Speaker 4: The loans is for them for their daily necessities and during the pandemic the demand for small business owner loans have actually increased and from the data that we have seen during the pandemic period the delinquency rate is actually about 10% higher than our consumption loans and with the reopening of the pandemic
Speaker 4: The risk has resumed back to normal levels and with the gradual easing of the COVID policies, we believe the risk for this segment will be further improved and stabilised compared to our consumption loans. And going forward in 2023, we believe...
Speaker 4: Our focus on this segment will still be between 20% to 30% of our loan volume.
Speaker 4: Okay, Ada, do you have any follow-up questions?
Speaker 4: Okay, Ada, do you have any follow-up questions?
Speaker 2: Thank you. Once again, if you wish to ask a question, please press star 1 and wait for a name to be announced. Your next question comes from Thomas Chong from Jeffries. Please go ahead. Please press star 1 and wait for a name to be announced.
Speaker 4: Thank you for your attention. I would like to say that the international event is going to be held in the Philippines, and will be held in Indonesia, and the Philippines. The event is going to be held in the Philippines, and will be held in the Philippines.
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Speaker 4: And another question is on the spending in overseas business. How much more spending should we expect for this year, and with that I'll flag the bottom line. Thank you.
Speaker 4: Thank you, Thomas. I hope you enjoyed this presentation. If you did enjoy this presentation, please subscribe to our channel. See you soon.
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Speaker 4: In the next video, we will discuss the Philippines and its relationship with the Philippines. We will discuss the Philippines and its relationship with the Philippines.
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Speaker 4: Hello, Thomas. Let me do the explanation translation for Mr. Xu. We are actually expanding very fast in the international markets as you can see. In Indonesia, we have actually completed the transition to better quality borrowers and this is actually much faster than our expectation.
Speaker 4: After the transition completion, we have been growing. Our growth has actually resumed to above 20% Q over Q since the third quarter, and our outstanding loan balance has grown to 800 million RMB by the end of December , growing 167% year over year. This has also led to a larger revenue contribution. For example, it has...
Speaker 4: contributed 13% of total revenue in the fourth quarter, and for the full year of 2022, it has contributed more than 10%. Apart from Indonesia, we are also focusing our efforts in the Philippines, which is also growing very rapidly, and we believe we will continue to contribute more to our revenue and other operational metrics. In the meantime, we will continue to evaluate more Southeast Asia countries, and we believe we are able to duplicate our success.
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Speaker 4: Hi, Thomas. Let me translate for Mr. Lin. As you can see, international expansion is a long-term strategy for our company. We have started our investment in Indonesia five to six years ago, and you can see that all these international investments actually need some to bear fruit.
Speaker 4: And also, we will not sacrifice our short-term earnings for short-term gains, but also look for more longer-term investment. And we will constantly keep a balance between our earnings.
Speaker 4: investment and our earnings on a longer term basis.
Speaker 7: Thank you.
Speaker 4: Thank you.
Speaker 4: Thank you. As there are no further questions, now I would like to turn the call back over to the management team for closing remarks. Thank you all for joining our Q4 and 2010-22 earnings conference call. If you have any further questions, please feel free to reach out to the IR team at Simvolution. Thank you very much.
Speaker 2: This concludes this conference call. You may now disconnect your line, please. Thank you.
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