Q4 2022 X Financial Earnings Call
Speaker 1: That.
Speaker 2: Good day and welcome to the eX Financial Fourth Quarter 2022 Earnings Conference call.
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Speaker 2: I would now like to turn the conference over to Victoria Yoo. Please go ahead.
Speaker 2: Thank you, operator. Hello everyone and thank you for joining us today. The company's results were released earlier today and are available on the company's website at irdaoqiaoingroup.com. The results from the call today from exponential are Mr. Ken Lee's private...
Speaker 2: session.
Speaker 2: I remind you that this call may contain forward-looking statements under the Safe Cover provisions of the Private Securities Retrogation Reform Act of 1995. Such statements are based on the management's current expectations and current market and operations conditions and relate to events that are involved in known and unknown risks.
Speaker 2: uncertainties, and other factors. All of these were difficult to predict, and many of these are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking scheme.
Speaker 2: Further information regarding these and other uncertainties, factors, is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements. As a result of new information, future events are being conducted.
Speaker 2: or otherwise, except as required under law.
Speaker 2: It is now my pleasure to introduce Mr. Ken Li. Mr. Li, please go ahead.
Speaker 3: Hello everyone.
Speaker 4: We are very pleased to end the year with another solid quarter. The known facilitating amount in the fourth quarter of 2022 exceeded our guidance and our total net revenue grew rapidly increasing on both an annual and quarterly basis.
Speaker 4: Despite the very challenging environment in the midst of the COVID-19 resurgence throughout the year, we achieved a 42% increase in the non-facilitation amount in 2022 and maintained our asset quality at historically high levels.
Speaker 4: This further demonstrates the resilience of our business model, especially during the challenging times and confirms that we are on the right track for sustainable growth thanks to strong execution by our team and continuous optimization of our risk control system.
Speaker 4: In Q4, our total known amount facilitated and originated reached approximately RMB 22 units of 66% year-over-year and 9% quarter-over-quarter, bringing our total known amount for the full year to approximately RMB 74 billion.
Speaker 4: Our premium borrower base remains stable and we continue to improve asset quality by leveraging our data driving and technology to empower the risk control system.
Speaker 4: Our delinquency rate for all outstanding owns passed through for 31 to 60 days decreased to 1.02% as of the end of December 2092 from 1.48% a year ago.
Speaker 4: In addition, we have continued to strengthen collaborations with our institutional funding partners and with our grade line provided by them since Q4. We see further opportunities to optimizing our funding costs and improve operation efficiency.
Speaker 4: With the end of the strict COVID control policy and the reopening of China in December last year, the country's focus has shifted back to eliminating economic growth.
Speaker 4: We believe that the method consumption will play an important role in driving China's economy goals this year and so far in QY. We have seen a recovery in consumer sentiment.
Speaker 4: In addition, small and medium-sized enterprises are expected to receive more support from the government to derive their business recovery and the further growth.
Speaker 4: All of these factors will benefit the overall personal finance market in China, where our business is rooted.
Speaker 4: On the regulatory side, according to the central bank Ant Group and 13 other platforms companies have basically completed business with liquidification under the government's guidance and supervision. And the regulators will continue to promote the healthy development of the platform economy.
Speaker 4: While we believe that the overall regulatory environment will be brought to this table this year, we will close the monitoring and adapt quickly to any policy changes and ensure compliance in our operations.
Speaker 4: In conclusion, we are cautiously optimistic about the outlook for this year and expect continuous rapid growth in our non-faceted system amount and expansion in both our top and bottom lines. This is is the early'll Emergency Management Plan.
Speaker 4: Now, I will turn the call to Frank who will go through our financials.
Speaker 4: Thank you, Ken. Hello, everyone. We were pleased to do the open-air talk like this in Q4.
Speaker 5: Total net revenue was R&D $956 million, up 16% year-over-year, and 7% quarter-over-quarter. We have also significantly improved our bottom line on both annual and quarterly basis.
Speaker 5: Net income for the quarter was I&D, $275 million, 89% year-over-year, and 30% quarter-over-quarter. Despite Michael's havoc in 2022, we remained confident in our prospects and continued our efforts to reward our shareholders.
Speaker 5: So, expand the share folder and purchase program. We purchased the total approximately...
Speaker 5: 267,000 ADS and 46 million Class A ordinary shares in 2022.
Speaker 5: which will be a trigger to the earnings this year in 2023.
Speaker 5: as certain shares will be cancelled or hold as treasury shares during the year. In 2023, we will continue to execute our shares repurchase program, which will further enhance shareholders' value with sizable regulatory environment and to stabilize regulatory environment as a gradual.
Speaker 5: Post pandemic economic recovery, we expect revenue flows to accelerate and earnings to improve in line with top line growth.
Speaker 5: Looking ahead, we remain committed to returning value to our shareholders while maintaining sustainable business growth with healthy fundamentals, a proven strategy and strong execution capabilities. Now I would like to brief some financial performance for the first quarter.
Speaker 5: Please note that all numbers stated here are in RMB and rounded up.
Speaker 5: Total net revenue increased by 60% to RMB 956 million from RMB 823 million in the same period of 2021, primarily due to an increase in the total loan amount of facilities and originates this quarter compared with the same period of 2021.
Speaker 5: Origination and servicing expenses.
Speaker 5: increased by 53% to RMB, 589 million from RMB, 386 million in the same period of 2021, primarily due to an increase in commission fees resulting from an increase in commission fees.
Speaker 5: in total amount of facility and originated this quarter compared with the same period of 2021.
Speaker 5: provision for loan receivables was RMB 75 million and paired with RMB 40 million in the same period of 2021.
Speaker 5: an increase in loans receivable held by the company as a result of the increase in total loan amount the facility originated this quarter compared with the same period of 2021.
Speaker 5: Income from the operations was R&D $274 million compared with R&D $312 million in the same period of 2021. Night income was R&D $275 million compared with R&D $146 million in the same period of 2021.
Speaker 5: in the same period of 2021.
Speaker 5: non-GAAP adjusted my income with an IMD of 278 million compared with an IMD of 183 million in the same period of 2021.
Speaker 5: For further financial information, please refer to the earnings released on our RIR website. Regarding our Shared Recurchase Plan, in November 2022, we announced our board authorized to increase our Shared Recurchase Program to US$30 million from US$20 million effectively through September 2023.
Speaker 5: In Q3, we will purchase an aggregate of approximately 49,000 ADS and 18 million Class A ownership for a total consideration of approximately US ABC.
Speaker 5: Now for our business outlook. For Q1 this year, we expect the total loan amount facilitated and originated to be between RMB 23.8 billion to RMB 24.8 billion. Now this concludes our comparison model.
Speaker 5: and we would like to open the court to questions. Operator please.
Speaker 6: Thank you. We will now begin the question and answer session.
Speaker 6: To ask a question, you may press star, then one on your telephone keypad.
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Speaker 6: And at this time we will pause for a moment to assemble our roster.
Speaker 6: And our first question today will come from Boyd Hines of Equinox Capital. Please go ahead. Okay.
Speaker 7: Hi, good evening and thank you for taking my questions.
Speaker 7: The first couple of questions I have is about the current state of regulation.
Speaker 7: I have is about the current state of regulation. Can you just
Speaker 7: Tell us what what is your view of how do the regulators look at the capital light business model? I'm specifically Concerned about their view of your risk-taking Taking it seems that that was a concern that they had
Speaker 7: How much and you know how many of the loans that you have on your book are you considered to be at risk with? And just in general, you know, how do you feel about?
Speaker 4: the state of regulation right now in the country. Okay, I'll take that question. This is Kent. Thanks for your question. It's really difficult for me to tell one of the regular things in their heads I guess.
Speaker 4: But in terms of our business model, I think that one thing about our business model is that we've been in the market for several years already, and in terms of the competition, in terms of the quality, and our brand has been recognized by our institutional funding partners.
Speaker 4: So, no matter what the regulators think about the whole industry, the cooperation between us and our partners has been fairly smooth.
Speaker 4: So that is a very good thing for our business growth. In terms of our portfolio risk, because if you look at our portfolio closely, our average normal amount per client is really small.
Speaker 4: doesn't really factor into our overall portfolio risk. And I think that is one of the most important in our portfolio risk. So the management has been fairly confident in terms of our risk management skills. So we are not particularly concerned about how the external shock.
Speaker 4: will bring negative effects on our portfolio.
Speaker 4: And that being said, as a known business, our number one focus has always been risk management. So we have been investing a lot in terms of human capital in terms of our...
Speaker 4: in terms of other resources in order for us consumers to improve our risk management.
Speaker 5: This is Frank. I add on a few words. Regarding to your question, I think that it's not a direct answer for that, but we can infer for what Ligurator has been doing to answer your question. First of all, I think from Ligurator's perspective, they would like to know what
Speaker 5: so-called consumer loan, they were like the bank, whoever provided money for the loan, directly responsible for their stuff. So that's the whole thing for the last year or so.
Speaker 5: We in China kind of class as not pure financial institution. We're kind of a financial institution. Take example like finance. Because Jack Ma have a big mouth attack in Pudong and they stopped and financial.
Speaker 5: to go IPO the day before, a few days ago, because of that speech. But nobody ever talked about M Financial, that their portfolio, which is much, much bigger at a time, like over 2 trillion portfolio at a time, they never talk about you have a portfolio risk issue.
Speaker 5: What did they talk about if you do the financial, do the main business, but under the sky of a technology company, which is not allowed. So you have to have license.
Speaker 5: to do that business. Second of all, they set up a threshold that if you do join the loan, you have to put up the capital, your own money, at least 30%. So that's why for the last few years, so you know the M&N financials, they are business side.
Speaker 5: has been dramatically shrinked because even N Financial cannot put that much big capital to finance a facility that's the size of a loan. So that's what the thinking is.
Speaker 5: That's some area aspect to regulate the emphasis. You have license to do loan business. Nothing to do with your portfolio. Second of all, you have to join them.
Speaker 5: Even if you have a capability, manage your loan as big as $200,000.
Speaker 5: with very low manageable risk, but still whatever job you do is not that important. The problem is the loan should be issued by the...
Speaker 5: But the banks and the financial system with license and the private money for it. That's that's the best answer for you.
Speaker 5: Similar thinking goes for everybody else.
Speaker 7: Thank you both. That's very helpful. So as far as you know,
Speaker 7: exponential is fully compliant.
Speaker 7: that stands right now and your interpretation of it. And I assume you're in reasonably close contact.
Speaker 7: with those regulators at this point? Is that fair to say? Yeah, fair.
Speaker 7: Okay and in terms of the the loan ceiling of 24%, how is the company progressing towards meeting that goal and how much of the current loans on your book?
Speaker 7: of the the loan ceiling of 24%, how is the company progressing towards meeting that goal? And how much of the current loans on your book are
Speaker 5: above 24 percent? We would rather not disclose that kind of information, but we have made great progress in this area for the last year. But that's also the fact that we are not 100 percent...
Speaker 5: within 24% yet. And I don't think, once again, the loan rate as a current structure is not defined by us. As long as the banks or whoever provide the money for the loan.
Speaker 5: that they have a right to issue that kind of loan, we are just a facilitator. So strictly speaking, we are not legally determined at that kind of a loan rate.
Speaker 5: as well as health financial institutions with a license to issue those loans.
Speaker 5: their regulator is okay with that, that's okay with us.
Speaker 5: I think that that's the best way I can answer your question.
Speaker 5: answer your question.
Speaker 7: Now it appears that the country is returning to a more normalized period of economic activity.
Speaker 7: So can you just remind us you've given guidance for loan facilitation in the first quarter and that's sequentially above the fourth quarter But generally speaking is the first quarter
Speaker 7: in terms of seasonal impacts, is that
Speaker 7: a period of lower loan facilitation volume for you in terms of Q2, Q3, Q4.
Speaker 4: In terms of the volume that we normally will see the first half of the year has the higher volume. If you look at our 2022, we actually continue to grow from Q1 all the way to Q4. And I think this year, again, we are talking about the expectations forecast, which I'm not …
Speaker 7: in 2022, it appears that it began to normalize a little bit in the fourth quarter. Can you provide us with an outlook on what you think your tax rate is going to be in 2023?
Speaker 5: The reason is the tax you actually pay will eventually reflect on what the U.S. is doing.
Speaker 5: you know, the fact you see on the U.S. But there's 10 lakhs in about six months, you know, because Chinese have a different collection cycle and so forth and so on. But in terms of the number you see right now, we just applied to like 25%.
Speaker 5: but as we are more, because all our operation, all our entity, operational entity are based in China. So as those entity get more favorable treatment into effect tax rate, US effect tax rate will also follow.
Speaker 5: follow the downward trend. I can give you, because it's a little bit harder to project a forecast for that, but the overall trend is going down for this year, for 2023.
Speaker 7: I think there was some kind of change in the valuation allowance and that impacted
Speaker 7: the reported tax rate that you show on your income statement. So, fair to say that it's going to be about 20 to 25% this year instead of what it was last year. I think that there's two things. Once again, I think effect tax rate for 2023 would be be
Speaker 5: for all.
Speaker 5: for 2023. There's a few, you know, tune in our last 2021 Q4. There's a special item called Tax Item, which is a...
Speaker 5: a deferred tax allowance which is about 103. That is because for some reason the reason I already explained last year, so we couldn't use that deferred tax benefit so that would be add to the.
Speaker 5: to the last year. So actually last year, 2021, the extra tax rate should be that number, minus 103 million, okay? That's it.
Speaker 7: that is. Okay, so it appears that that specific issue will not be present in 2023, is that correct, that change in valuation allowance? Yes. Yes, if you see the...
Speaker 7: and then I'll drop back in queue for others to ask. You've done a very commendable job on your aggressive share repurchase and I just wanted to say that I appreciate that.
Speaker 5: I'm just curious, how much do you have left remaining on that share repurchase plan? About 9 million. So far we use up, for the 30 million we used up a little bit over 21 million. So we have 9 million left.
Speaker 7: About a little bit left around.
Speaker 7: to receive cash for his shares.
Speaker 7: Do you still have others, large domestic shareholders who are looking to sell or do you think that you might be able to repurchase more of the ADS as part of your repurchase plan?
Speaker 7: Is that a possible, I mean, do you still have others, large domestic shareholders who are looking to sell or do you think that you might be able to repurchase more of the ADS as part of your repurchase plan?
Speaker 5: The second largest shareholder, he sold his ordinary shares. He never even converted to ADS. He sold his ordinary shares back to us in Q3 last year. I think we don't want to step to the reason for that.
Speaker 5: Based on the current volume we have right now on a daily basis, we don't think we can buy a lot of shares back. Even last year, from the market we haven't bought much back because of the very low volume, almost low volume on our company trading volume.
Speaker 5: So we will have one month or two months to set up the phone entity in Hong Kong to make that operational. That will take a little bit more than six months. So we hope we can finish.
Speaker 5: that will make the entity to receive the dividend distribution from Chinese entity to that entity qualified maybe in end of April or May. Hopefully we are on next learning call in May.
Speaker 5: But we probably have to more rely on dividend instead of a shared map act starting this year.
Speaker 5: Definitely we will keep enough money for the operation purpose.
Speaker 8: First.
Speaker 7: Yes, no, I appreciate all the efforts that you're doing. Look, I mean the valuation here is...
Speaker 7: truly incredible and just based upon what you have been able to do. But you're not the only one and there are two or three others US listed.
Speaker 7: Chinese fintechs that are about the same size, you're all trading at multiples that do not reflect
Speaker 7: I think what your business has been capable of doing. The challenge is how do you attract international investors? How do you attract people of size willing to invest in your company? Because you don't have an institutional base of shareholders right now.
Speaker 7: That's your challenge. Yes.
Speaker 7: that's your challenge. Yes. So, I mean, how do you.
Speaker 7: how do you think you can expand that investor base?
Speaker 5: As the regulatory environment will stabilize this year, I probably will be starting doing also in the second half of this year. Definitely we'll do next year.
Speaker 5: We will start to the real show maybe end of the second half of this year. That's something we will try to do. But I think in terms of valuation is, as you point out, it is true that this issue can be addressed by one company alone.
Speaker 7: We will do what we can do, try the best and hope for the best luck. Well, good luck to you on your end. I appreciate all your efforts. Thank you. Thank you.
Speaker 6: Thank you very much. And again, if you would like to ask a question, please press star, then 1.
Speaker 6: Our next question will come from Mason Bourne of AWH Capital. Please go ahead.
Speaker 9: Hi guys, nice to see the company executing well. I guess I just wanted to dovetail off the last guy.
Speaker 9: It sounds like you're planning to do a dividend and some of your peers have done that. How do you think about that as far as the potential size of it? Would it be a quarterly dividend that would be variable depending on earnings or what is your outlook for that?
Speaker 5: It's a little bit premature for me to answer at this time because we haven't gone through the board approval, something like that. But most likely we will do like a one-time dividend once a year.
Speaker 9: one time when we hit stuff, something like that. Okay, and then I guess on valuation, I've got it. I've got your stock somewhere under two times earnings.
Speaker 9: and about 0.3 times book.
Speaker 9: And I hear what you're saying about the volume. That's an issue that we face just in the stock on the ADS.
Speaker 9: But could you do a tender where you could come to the market with a price and say, show confidence you think your stock is undervalued and maybe you get some people that offer up a million or 2 million ADS something like that or maybe even more.
Speaker 5: just if you put a price out in the market and say this is what we're willing to buy back at. Yes, I think as I answered your last time regarding this same question, I'm a little bit not familiar with this mechanism in terms of how to achieve that. And also, as I just pointed out, I don't see a whole lot of reddit streamers
Speaker 5: It's not the first priority for our guys. Our guys, our deal is the priority to run the business the best we could and we will do whatever we should do including trying to share all the value. And everybody else will, you know.
Speaker 5: we will fall into place.
Speaker 5: place in do that.
Speaker 9: Yeah, I get that. I just, I guess a tender can kind of serve the purpose where you get people that are looking to arbitrage the stock. So it doesn't necessarily have to be a huge bid, but if you're looking substantially above the current price, but just if it's a one or 2% spread, you can get people that kind of bring volume into the stock even without necessarily a Hershey average.
Speaker 5: I get that you try to buy back at the most accretive levels, but it just seems like maybe it's something potentially worth exploring in my opinion. Yes, yes. I definitely put it in consideration. I just said, so let me move my money in terms of from R&D into the US.
Speaker 5: will solve the valuation issue. I think the valuation issue is not our company specifically, it's actually the industry. But that definitely maybe will improve, from PV of 0.2% to maybe 0.6 or 0.5.
Speaker 5: If we can do that, if we can achieve that, why not? So we'll put that out in the consideration. Once again, let me focus on converting the RMB into the US dollar first, which will be done. You'll see the news, there's a big mutual fund based in...
Speaker 5: same, China has a capital control issue. So let me do that first. When we have money in the Hong Kong bank, we will consider.
Speaker 9: Okay, and on the Hong Kong piece, last thing for me, is there anything about a separate listing there or this is still just kind of more in trying to move currency? Just to move currency. At the Date we are using it, being more IFRS, to move carbon defense moreonge prices low,
Speaker 5: far from the Hong Kong listed requirement. So that's probably not going to be issued anytime soon.
Speaker 5: from the Hong Kong listed requirement. So that's probably not going to be issued anytime soon. Okay, that's all for me. Thank you.
Speaker 6: Thank you. And at this time, we will conclude the question-and-answer session. I would like to turn the conference back over to Victoria Yu for closing remarks. Thank you, everyone, for joining us on the call today. If you haven't got a chance to raise your question,
Speaker 6: We will be pleased to answer them through the follow-up contacts. We look forward to speaking with you again in the near future. Thank you. The conference is now concluded. We thank you for attending today's presentation. You may now disconnect your lines.