Q1 2023 Qifu Technology Inc Earnings Call

May 19, 2023

Speaker 1: Thanks for watching!

Speaker 1: I.

Speaker 1: You.

Speaker 2: Ladies and gentlemen, thank you for standing by and welcome to Tfue Technology's first quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session.

Speaker 2: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please open note today's event is being recorded.

Speaker 2: At this time, I'd like to turn the conference call over to Ms. Karen Gee, Senior Director of Capital Markets. Please go ahead, Karen.

Speaker 2: Thank you, operator. Hello everyone and welcome to Gifu Technologies first quarter 2023 earnings conference call. Our earnings release was distributed.

Speaker 2: Thank you.

Speaker 2: Ms. Alex Xu, our CFO , and Mr. Tien Yan, our CFO . Before we start, I would like to refer you to our safe harbor statement in the earnings price release, which applies to this call as we will make certain forward-looking statements.

Speaker 2: you on CFO and Mr. Tianyin, our CFO . Before we start, I would like to refer you to our safe harbor statements in the earnings press release, which applies to this call as we will make certain forward-looking statements. Also, this call includes discussion

Speaker 2: of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to GAAP measures.

Speaker 2: Also, please note that unless otherwise stated, all figures...

Speaker 2: Now, over to our CEO Mr Wuhan Qian, traffic efficiency instrumental. Okay.

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Speaker 2: over year and 4.7 percent total over quarters. The related number of users with approved credit lines increased 15.6 percent year over year. The growth was better than our initial expectation against the back of the rate recovery in China's macro economy.

Speaker 2: Since the beginning of this year, we have seen positive overall trends in our business, including credit demand from users, steadily increasing and continuous improvements across multiple risk indicators.

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Pricing remains stable during the quarter with our user base having been substantially optimized. At the same time, we continue to upgrade our risk management models, including the release of more than 1,000 version updates and iteration of over 30,000 strategic rules.

to our credit assessment models over the past 12 months. We also further upgraded our PBOC credit data assessment models. Since Q3 last year, we have started to incorporate PBOC credit data into our ongoing post-credit assessment process on a large scale. With over 20,000 derived data dimensions,

we are able to unlock the value of our existing users with enhanced product adjustment capabilities.

Supported by our constantly improving ability to accurately identify risks, our day-one delinquency rate in April 2023 decreased by 37 basis points from December 2022, while our M1 production rate decreased by 37 basis points from December 2022.

increased by 189 basis points for the same period.

With our risk performance having potentially reached our target, we are more confident in gradually ramping up investments in customer acquisition in the near term.

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The credit in the financial system will be made ample during the quarter with total social financing and the end-to-money supply increasing by 10% and 12.7% year-over-year respectively. This enables us to further diversify our funding sources and reduce our funding costs by 30 basis points sequentially. In addition, with our solid risk performance in the loan facilitation model, we have obtained

Our funding costs associated with ACS issues also decreased by 17 basis points sequentially, contributing to a further reduction in overall funding costs. Going forward, we will continue to deepen our partnerships with financial institutions and strengthen our competitive edge in terms of funding costs. We expect overall funding costs to remain in the range of $2.5 billion in the next few months.

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In terms of customer acquisition in Q1, we entered into an operation agreement with Bilibili during the portrait, becoming one of its first batch of Dintech marketing partners. We also launched precision marketing with the RTA model in the App Store.

is 20% lower than it had been in the traditional model. Within our embedded finance business, we connected with additional traffic platforms, which resulted in a month later!!"

is 20% lower than it had been in the traditional model. Within our embedded finance business, we connected with additional traffic platforms, which results of new users receiving credit lines.

In addition, we have been exploring innovative ways to acquire new customers.

The official live streaming account for our 360 digital product was launched on a short form video platform in April .

account for our 360 digital product was launched on a short form video platform in April . The marketing effect is better than our expectation.

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We further expanded our outreach to existing users and optimized operational strategies to boost user conversion and retention. In Q1, we introduced the Enterprise WeChat as a new channel for engaging with our existing users, which drives user conversion by offering a step-by-step guide through the loan application, drawdown, and submission process.

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As the macro economy gradually recurrence, we have noticed that demand has been rebounding fast among broadly defined SME borrowers. To capture this demand, we strategically strengthen our ability to identify and manage the specific segments.

We enhance our customer profiling capabilities by improving data dimensions such as credit history, invoice, e-commerce transactions, billing, industry data which allow us to accurately identify customers within the broadly defined SME segment which accounts for more than 40% of our current user base.

Our next step is to conduct pilot tests on a selected group of users aimed at developing differentiated products and fine-tuning risk management strategies for the broadly defined SME segment, which we believe has the potential to drive meaningful growth for our business industry.

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For our technology solution business, our focus in Q1 was on enhancing our product capabilities. Specifically, we extended the scope of our solutions beyond personal consumer loans to include individual business loans. Our diversified deployment method allows us to better...

of the unique needs of each financial institution we work with.

So far, we have developed standardized products based on our core technological capabilities and created 18 standardized modules covering every aspect of the credit business, including Motion Logic.

customer acquisition with management, operations, and accounting, etc. We also incorporated our extensive credit industry know-how into the modules, which empowered financial institutions and algorithms from the moment they onboard.

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Over the past few months, ChatDBT has been having significant impact on various industries since its release. We believe that generative AI technology has many natural aspects. For example, in areas such as intelligent customer service, telemarketing, and loan

CHES DPT can better understand user emotions and facilitate natural, smooth, and personalized interaction with users.

In risk management, it can derive useful information from credit reports and identify relevant factors for our risk management models. In April , we established a large language model department. This new statistical division is dedicated to developing various

deep learning algorithms and generative AI technologies specifically for applications in the financial sector.

We have already launched the first version of GPT for internal use, which is designed to perform semantic analysis in our loan collection and telemarketing process.

Through GPT analysis of user intention and labeling, we can see that the users of different labels have clear variations in the effectiveness of question and telemarketing.

Apart from applying AIGC to enhance the user experience and our operational efficiency, we also plan to gradually export such capabilities to our financial partners.

Apart from applying AIGC to enhance the user experience and our operational efficiency, we also plan to gradually export such capabilities to our financial partners. So, take a jump over there.

I hope you enjoyed the video. I hope you enjoyed the video. I hope you enjoyed the video.

Thank you very much for your attention.

On the regulatory front, we continue to make steady progress in gaining compliance with Banchilian Credit Agency Reform in Q1. We have substantially completed the required integration of systems with our financial partners according to the plan we submitted to the regulator.

So far, our long-facilitation progress through the Zantulian model has been very smooth. Given the current regulatory focus on promoting economic development, we believe the industry will be able to deliver healthy growth in a stable regulatory environment. Thank you.

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Working ahead, while the economic recovery is due in its early stage, but the trend for recovery is clear.

We believe that the macro economy environment will gradually improve throughout the remainder of the year. We are also confident in our ability to capitalize on the recovery momentum and deliver on our goals effectively. Thank you.

that the macroeconomic environment will gradually improve throughout the remainder of the year. We are also confident in our ability to capitalize on the recovery momentum and deliver on our goals effectively. Thank you very much.

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Finally, I have some news to share with you all. All the directors have just passed a resolution to increase our dividend payout ratio. As we continue to drive quality growth and create shareholder value, it is also important to listen to the market and share the benefits growth within our shareholders.

We believe this will enable us to enhance the value of our company. Alex will share more about this later. With that, I will now turn the call over to our CFO Alex, who will help us do with our financial results for the future.

Good morning and good evening. Welcome to our first quarter earnings call. First quarter store we will play aroundon doctors

recovery year. The improvement in many aspects of our operations. User activity levels continue to improve in recent months, aside from normal seasonality. Although we still want to call the recovery a modest one.

things are indeed trending a little bit better than we initially thought. As I discussed earlier, with micro-conditions improving throughout 2023, we intend to focus on effort and deploy our resources to drive vector growth while maintaining desirable asset quality. In Q1, Q1, our core doughnut, has maintained vital aspects and strategic benefits to edge campaigns for SAN moves. However, our main component, the

target high quality and low risk user base and drive further improvement in risk performance. Key limiting indicators in day one delinquency has been under the steady declining trend in recent quarters. It was 4.1% in Q1 versus 4.3% in Q4 and further declined to approximately 4% in April .

The continuing improvement in day one delinquency.

mainly reflect the micro improvement, as well as further optimization of our algorithm. 30-day collection rate was 86.2%

Q1 versus 84.7% in Q4.

This sharp rebound from the COVID-disrupted Q4 mainly reflected back to normal collection operations.

As economic recovery continues, we see further improvement in these metrics. By late April , 30-day correction rate already at near 87%.

Total net revenue for Q1 was $3.6 billion versus $3.9 billion in Q4 and $4.3 billion a year ago.

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and progress further adjustments to the existing long-term plan.

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spillover effect from mortgage early repayment momentum and oversupply of liquidity at the beginning of the year.

Looking ahead, we expect early repayment level to stabilize in Q2 as above-mentioned matters or factors gradually easing.

Our balance sheet loan continues to grow at a faster pace and accounts for nearly 20% of the total loan volume. We continue to drive for better utilization of our capital as well as our micro-landing life.

Revenue from platform service capital light was $969 million in Q1 compared to $1.1 billion in Q4 and $1.4 billion a year ago. The year-on-year and sequential decline was also mainly due to overall decline in expected average container of new loans.

as well as further adjustment to existing loans expected tenure. For Q1, cap-line loan facilitation, ICE, and other technology solution combined account for roughly 56 percent of the total loan volume, roughly flat versus the prior quarter.

We expect the risk ratio to be relatively stable throughout this year. In the long run, we'll continue to pursue tech-driven business model while seeking a balance among various forms of non-risk-bearing solutions based on microenvironments and operational conditions. During the quarter,

Average IRR prices of loans we originated and or facilitated remain stable Q on Q, well within the regulatory cap requirement, rate cap requirement. Looking forward, we expect pricing to be relatively stable for the coming quarters.

Sales and marketing expenses increased marginally Q1Q as recovery in our user activity was offset by seasonal impact of Chinese New Year. We added approximately 1.5 million new credit line users in Q1, flat versus Q4. Good.

acquire a new credit line user also increased marginally. Well, we will continue to drive for efficiency.

we may adjust the pace of new user acquisition as economic recovery continues throughout 2023. Meanwhile, we will continue to focus on re-energizing existing user base as repeat borrowers historically contribute the vast majority of our growth. Although we will continue to take a prudent approach to book provision against potential crisis.

And the write-backs of the previous provisions were approximately $411 million. Provision coverage ratio, which is defined as total outstanding provision divided by total outstanding delinquent loan balance between 90 and 180 days. Please see review 17ference

or 432% in Q1, compared to 456% in Q4. We started operating results and stable contribution from capital-like model. Our leverage ratio, which is defined as risk-bearing loan balance divided by shareholders' equity.

was at a historical low of 3.4 times in Q1 compared to 4.2 times a year ago.

a rather stable leverage ratio for the time being until non-respiring contribution resume growth.

We generate approximately 1.8 billion cash from operation in Q1, roughly flat Q on Q. Total cash and cash equivalent was $9 billion in Q1 compared to $10.9 billion in Q4.

non-restrict cash was approximately 5.1 billion Q1.

compared to 7.2 billion in Q4. The sequential decline in cash position was mainly due to increased cash usage in our balance and lending. As we discussed earlier, with economic condition improving, we may look for opportunities to deploy resources.

to launch new initiatives and develop new technologies and our service offerings.

non-GAAP net profit was $976 million in Q1 compared to $919 million in Q4. As we continue to generate healthy health cash flow from operations, we believe our current cash position is sufficient to support our business development and to return to our shareholders.

Since Q3 of 2021, we have paid out a total of 1.34 billion cash dividends to our shareholder in six consecutive quarters.

To generate high returns to our investors and to solidify and expand our long-term investor base, the company's board of directors approved a new dividend plan yesterday. The new plan increased our dividend payout ratio to 20-30% in 2020.

from previous 15 to 20 percent of net profit. Also, to reduce the transaction cost for our shareholders, the new plan approves a semi-annual dividend distribution schedule to replace the quarterly dividend schedule of the old plan.

The first semi-annual dividend payout will be declared in our Q2 earnings release.

Finally, regarding our outlook for 2023, where we start to see a gradual recovery of microeconomy and our business activities are also trending a bit better than previously thought and may still take extra time for consumers' confidence and behavior return to normal.

At this junction, we still see a modest recovery in consumer credit demand, with growth rate potentially accelerating throughout the year.

As such, we would like to maintain our full-year total loan volume target for 2023 at between RMB $455 billion and RMB $495 billion.

representing year-on-year growth of 10 to 20 percent. As always, this work has to reflect the company's current and the preliminary view, which is subject to material change.

With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.

Thank you. As a reminder, to ask a question, please press star 1 on your telephone and write for your name to be announced.

To withdraw your question, please press star 1-1 again. For those who can speak Chinese, kindly ask your question in Chinese first, followed by English translation. In addition, in order to have enough time, please press star 1 again.

To address everyone on the call, please keep it to one question and one follow up and return to the queue if you have more questions. Once again, that's Star 11 for questions.

Our first question comes from the line of Frank Chin from Credit Suisse. Please ask your question, Frank.

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Thank you management for taking my questions. This is Frank from Credit Suisse. I have two questions. The first one is on the strategic focus for the rest of the year. Could the management provide more color on measures, for instance, more aggressive client acquisition, optimization on existing clients?

and potentially further upgrade in client segments. And second question is on operating expenses. What are some of the measures the company is taking to be operating more efficiently? Thank you.

Thank you. Thank you Frank. I hope you enjoy the video. Thank you.

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Thanks, Frank. I will answer your first question and I will pass the second question to Alex.

First about the... Sorry.

For this year, we want to say the new customer and existing customers are equally important interests.

So in terms of the new customer acquisition, our efforts will be focused on two aspects. First, we will continue to expand our partnership with different channels and increase the depth of the partnership. For example, we have been carrying the like.

streaming on some short form video platforms and we innovatively utilized the RT model into our App Store marketing. The result is better than our initial expectation. And the second part...

We use the RTA model to increase our recognition about the users' willingness to borrow. So we can optimize our offer and increase our users' conversion ratio.

Therefore, we can increase the LTV of our users. We will increase our competitiveness in terms of customer acquisition. This is about the new customer acquisition part.

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Regarding our existing users, actually we have a very significant user base of our existing users. So it's very important for our press to increase efforts on existing users to improve the conversion effectiveness. For example, we have tried to use

enterprise WeChat to cover our existing users to increase effectiveness for us to outreach our existing users. And we refine our risk management models to better understand our users.

and identify different profiles of our users. For example, boards.

Thank you.

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So later we can optimize our offer and improve our user engagement process to better engage the existing users to improve their long-term value.

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So at this point into the moderate macro economy recovery environment, we believe it's very important for us to increase our efficiency at this stage. So we will increase our coverage in terms of the channel and the partnership.

so we can better improve our marketing efficiency. So we are actually enjoying the competitive in terms of these parts. And we believe we will further increase our user base when doing a micro-fooding.

Okay, hi Frank. So basically for the operating expenses trend going forward, there are a few aspects. Some of the operating expenses are variable cost, for example, the one we use to get credit scores.

cost and the one we do the transaction or sending the message for SM at the mass. Those variable costs, we have a long term relationship with those suppliers and every year you can always squeeze a little bit of.

from the cost base on the unit basis, but the room for that is not really that much. And then the other big part of the variable cost is really customer acquisition. I think we had this kind of discussion earlier or before.

Last year, our unit or per credit line user's customer appreciation cost was about 370 or 360 RMB per user. This year, we intend to lower that unit cost number to somewhere around 330.

The first quarter was only about 200, 280, less than 290. So the following quarters with the kind of increased pace of a customer acquisition, you may see some increase in the, in sales marketing spending, but overall on the four year basis, we will see a...

Right, thank you. Our next question comes from the line of Alex Yeh from UBS. Please ask your question, Alex.

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So my question is mainly on the loan pricing outlook. So firstly, in terms of the competitive landscape, we have seen the overall consumption recovery and consumer credit data has been quite moderate.

in April , so can you share some color in terms of what's the current trend you have seen regarding the capacity to pressure from different players and secondly would you would you consider lowering your loan pricing in order to stimulate some

long drawdown demand from your existing customer base. Thank you.

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Thank you Alex. From the competition perspective, we think for our industry, the competition industry that's working hard on erasing that

Recovery of the credit demand is more important for the competition. The impact from the recovery of user demand is more important from the impact of the competition.

I think that's all for now. Thank you very much for listening. We hope you enjoyed the video. Please like and subscribe. We hope you have a good time. We hope you have a good time. Thank you for watching. We hope you have a good time. We hope you have a good time. We hope you have a good time.

I would like to thank you for your support. Thank you for your support.

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On the other hand, we believe the segmentation of this industry is very clear at this stage. We are actually quite differentiated from the large banks and also the smaller players.

We target different target customers and the pricing segments. So there is limited over-lapping among the competitors.

On the other hand, for our service capabilities, we think we can have a wide coverage of different kinds of users. We can cover the lower pricing users and also the higher pricing users. We can further refine our risk.

risk management models to provide differentiated products and offerings to better serve our users. So theoretically, as long as our model is accurate enough, we can have very strong competitiveness.

to provide the differentiated products and offerings to better serve our users. So theoretically, as long as our model is accurate enough, we can have very strong competitiveness.

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Pricing perspective, actually we can try to reduce the pricing to better activate and engage some of our users. As long as our model is accurate enough, we can...

better serve them and at increased value from this sort of strategy. So from the overall pricing perspective, we think the future pricing will maintain a stable level compared to the current.

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All right, thank you. Our next question comes from the line of Richard Hsu from Morgan Stanley . Please go ahead, Richard.

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So essentially my question is on the loan demand, particularly on the sequential change now?

from the potential borrowers in recent months on any divergent trends among the different region groups of borrowers in terms of loan demand, income growth, and credit quality. Thank you.

in recent months on any divergent trends among different region groups of borrowers in terms of loan demand, income growth, and credit quality. Thank you.

Yes, I understand. I think the question is, and I think it's a bit difficult, but I think it's a good question. I think it's a good question. I think it's a good question.

I would like to thank all of you for your time. I hope you will enjoy the event. Thank you for your time. I hope you will enjoy the event. I hope you will enjoy the event. I hope you will enjoy the event. Thank you for your time.

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In terms of credit demand recovery, we have seen two trends. One is moderate recovery, the other is

divergence recovery. So in terms of the diversified recovery, we look at this problem in several aspects from a region perspective, Jiangsu, Shenzong, Shanghai, Hebei, those regions are recovering faster than other regions.

which is in line with the incremental social financing by region published by the government in Q1. From customer segment perspective, we have seen higher quality users recovering relatively faster with increasing credit size.

On the other hand, we have seen the Broadly Defined SME group recovering relatively faster, especially from the service industries.

And on the other hand, we have seen the Broadly Defined SME Group recovering relatively faster, especially for those from the service industries. Thank you.

Right, thank you. We have reached the end of the question and answer session. Thank you very much for all your questions. I'll now turn the conference back to the management team for closing remarks.

Okay, thank you. Thanks for everyone to join us. If you have additional questions, we can discuss offline. Thank you. Have a good day. Bye bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.

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first quarter 2023 earnings conference call. Our earnings release was distributed.

Thank you.

Alex Xu, our CFO , and Mr. Tien-Yin, our CFO . Before we start, I would like to refer you to our Safe Harbor statement in the earnings price release, which applies to this call as we will make certain forward-looking statements. Also, this call includes discussions of the earnings price and the earnings price.

of certain non-GAAP financial measures. Please refer to our earnings relief, which contains a reconciliation of the non-GAAP measures to GAAP measures.

Also please note that unless otherwise stated all figures were to our CEO Mr.attering please go ahead.

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and the leader of a Buddha sunshine from the fortune to go is that she's either she's either the this is the end of two one our platform cumulatively connected approximately 46 million users

with approved credit lines and a total of 150 financial institutions. Total loan facilitation and origination volume on our platform reached RMB 109.5 billion, up by 10.7% year-over-year and 4.7% total-over-quarter. The related number of users with approved credit lines increased 15.6% year-over-year.

The growth was better than our initial expectation against the back-to-back recovery in China's macro economy. Since the beginning of this year, we have seen positive overall trends in our business, including credit demand from users, steadily increasing and continuous improvements across multiple risk indicators. Thank you for your attention.

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We also further upgraded our PBOC credit data assessment models. Since Q3 last year, we have started to incorporate PBOC credit data into our ongoing post-credit assessment process on a large scale. With over 20,000 derived data dimensions and streaming techniques, PBOC has over 200,000

we are able to unlock the value of our existing users with enhanced credit assessment capabilities. Supported by our constantly improving ability to accurately identify risks, our day-one delinquency rate in April 2023 decreased by 37 basis points from December 2022, while our M1 production rate decreased by 37 basis points.

increased by 189 basis points for the same period. With our risk performance having substantially reached our target, we are more confident in gradually ramping up investments in customer acquisition in the near term.

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with our solid risk performance in the loan facilitation model, we have obtained more allocations from our financial institution partners for ATS issues, thereby accelerating our pace of issues. In Q1, we issued RMB 2.3 billion of ATS, a 77% yield a year.

while outpacing the growth of overall consumer loan ABS insurance in China. Our funding costs associated with ABS insurance also decreased by 17 basis points sequentially, contributing to a further reduction in overall funding costs. Going forward, we will continue to deepen our partnerships with financial institutions and screenshotting our projects in the 20th century.

competitive edge in terms of funding costs. We expect overall funding costs to remain generally stable over the next two quarters.

edge in terms of funding costs. We expect overall funding costs to remain generally stable over the next two cultures. Thank you very much.

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In terms of customer acquisition in Q1, we entered into a cooperation agreement with B2B during the portrait, becoming one of its first batch of in-tech marketing partners. We also launched precision marketing with the RTE model in the app store of major mobile form.

traffic platforms, which results in new users receiving credit lines. In addition, we have been exploring innovative ways to acquire new customers. The official live streaming account for our 360 data product was launched on a short form of a mobile device.

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We further expanded our outreach to existing users and optimized operational strategies to boost user experience.

and existing users. Furthermore, we also improve the user retention by optimizing our product offerings and user experience based on extensive surveys of our existing users. While China is growing worse than bye for now, it is still an apologising industry to share its wallet cos BLACKMdead

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As the macro economy gradually recurrence, we have noticed that demand has been rebounding fast among broadly defined SME borrowers. To cater to this demand, we strategically strengthen our ability to identify and manage the specific segments. We enhance our customer profiling capabilities by improving data dimensions.

such as credit history, invoice, e-commerce transactions, billing, industry data, which allow us to accurately identify customers within the broadly defined SME segment, which accounts for more than 40% of our current user base.

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For our technology solutions business, our focus in Q1 was on enhancing our product capabilities.

Specifically, we extended the scope of our solutions beyond the personal consumer loans to include individual business loans. Our diversified deployment method allows us to better serve the unique needs of each financial institution we work with.

So far, we have developed standardized products based on our core technological capabilities and created 18 standardized modules covering every aspect of the credit business including a dormitory,

with management, operations, and accounting, etc. We also incorporated our extensive credit industry know-how into the modules, which empowered financial institutions.

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and the industry is also very excited about this. We are very excited about this. Thank you. Over the past months, CHA-DPT has been having significant impact on various industries

We believe that generative AI technology has many natural aspects. For example, in areas such as intelligent customer service, telemarketing, and loan collection, Chia CPT can better understand user emotions and facilitate natural, smooth, and personalized interaction with users. In risk management, it can derive useful information from credit reports and identify relevant low- saving introducements that impact the user's ability to Eminence and

factors for our risk management models. In April , we established a large language model department. This new strategic division is dedicated to developing various deep learning algorithms and generative AI technologies specifically for applications in the financial sector.

We have already launched the first version of GPT for internal use, which is designed to perform semantic analysis in our loan collection and telemarketing process.

Through GPT analysis of user intention and labeling, we can see that the users of different labels have clear variations in the effectiveness of correction and telemarketing. Apart from applying AI-GC to enhance the user experience and our operational efficiency.

We also plan to gradually export such capabilities to our financial partners.

On the regulatory front, we continue to make steady progress in dealing compliance with the Breakdown Report.

promoting economic development, we believe the industry will be able to deliver healthy growth in a stable regulatory environment.

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Working ahead, while the economic recovery is due in its early stage, but the trend for recovery is clear. We believe that the macroeconomic environment will gradually improve throughout the next

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Therefore, Alex and I will continue to discuss the importance of the digital asset management. Finally, I have some news to share with you all. All the directors have just passed a resolution to increase our dividend payout ratio. As we continue to drive quality growth and create share with value.

it is also important to listen to the market and share the benefits within our shareholders. We believe this will enable us to enhance the value of our company. Alex will share more about this later. With that, I will now turn the call over to our CFO Alex, who will do what our financial results for the quarter. Thanks, Zhaohao Zhang. Good morning and good evening. Welcome to our first session.

a little bit better than we initially thought. As I discussed earlier, with micro-conditions improving throughout 2023, we intend to focus on effort and deploy our resources to drive vector growth while maintaining desirable asset quality. In Q1, we target high-quality and low-risk user base.

and drive further improvement in risk performance. Key limiting indicators in day one delinquency has been under the steady declining trend in recent quarters. It was 4.1% in Q1 versus 4.3% in Q4, and further declined to approximately 4% in April . The continuing improvement in day one delinquency has been under the steady declining trend in recent quarters.

mainly reflect the micro improvement, as well as further optimization of our algorithm. 30-day collection rate was 86.2% Q1 versus 84.7% in Q4. This sharp rebound from the COVID-disrupted Q4 mainly reflected back to normal collection operations.

As economic recovery continues, we see further improvement in these metrics. By late April , 30-day collection rate already at near 87%. Total net revenue for Q1 was $3.6 billion versus $3.9 billion in Q4 and $4.3 billion a year.

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Still over effect from mortgage early repayment momentum and oversupply of liquidity at the beginning of the year. Still under effect from mortgage early repayment momentum and oversupply of liquidity at the

Looking ahead, we expect early repayment level to stabilize in Q2 as above mentioned matters or factors gradually easing. On balance sheet loan continue to grow at a faster pace and account for nearly 20% of the total loan volume. We continue to drive for better utilization of our capital as well as our microlending license.

as well as further adjustment to existing loans expected tenure. For Q1, Cap-Life loan facilitation, ICE, and other technology solutions combined account for roughly 56% of the total loan volume, roughly flat versus the prior quarter. We expect the risk of the initial will be relatively stable throughout this year.

In the long run, we'll continue to pursue tech-driven business model while seeking a balance among various forms of non-risk-bearing solutions based on microenvironments and operational conditions.

During the quarter, average IRR prices of loans we originated and or facilitated remain stable Q on Q, well within the regulatory rate cap requirement.

Looking forward, we expect pricing to be relatively stable for the coming quarters. Sales and marketing expenses increased marginally Q1Q, as recovery in our user activity was offset by seasonal impact of Chinese New Year. We added approximately 1.5 million new credit line users to our new credit line.

throughout 2023. Meanwhile, we'll continue to focus on re-energizing existing user base, as repeat borrowers historically contribute vast majority of our growth.

Although we will continue to take prudent approach to book provision against potential credit loss, we should expect increasing write-backs from prior periods as overall risk profile of our loan portfolio gradually improves along with micro-conditions. Several new provisions for risk-bearing loans in Q1 was approximately 1.5% of the total

432% in Q1 compared to 456.

percent in Q4. We saw the operating results and stable contribution from capture-like model. Our leverage ratio, which is defined as risk-bearing loan balance divided by shareholders' equity, was at a historical low of 3.4 times in Q1 compared to 4.2 times a year ago.

A rather stable leverage ratio for the time being until long-respiring contribution resume growth in the future. We've come third, the point where we just got sort of rocking this out there is that

We generate approximately 1.8 billion cash from operation in Q1, roughly flat Q on Q. Total cash and cash equivalent was $9 billion in Q1, compared to $10.9 billion in Q4. Non-restricted cash was approximately $5.1 billion in Q1.

our service offerings. non-GAAP net profit was $976 million in Q1, compared to $919 million in Q4. As we continue to generate healthy health cash flow from operations, we believe our current cash position is sufficient.

to support our business development, and to return to our shareholders. Since Q3 of 2021, we have paid out a total of 1.34 billion cash dividends to our shareholder in six consecutive quarters. To generate high returns to our investors and to solidify and expand our long-term investor base, the company's board of directors has already fluffyed its liquidityput scoop to gauge a market Bab

approved a new dividend plan yesterday. The new plan increased our dividend payout ratio to 20% to 30% from previous 15% to 20% of net profit. Also, to reduce the transaction cost for our shareholders, the new plan approves a semiannual dividend distribution schedule to replace the quarterly dividend schedule of the old plan. The first semiannual dividend payout will be declared in our Q2 earnings release. Finally, regarding our outlook for 2023,

Well, we start to see a gradual recovery of micro economy and our business activities are also trending a bit better than previously thought. It may still take extra time for consumers confidence and behavior return to normal. At this junction, we still see a modest recovery in consumer credit demand with growth rate potentially accelerating throughout the year.

As such, we would like to maintain our full-year total loan volume target for 2023 at between RMB $455 billion and RMB $495 billion.

representing year-on-year growth of 10 to 20 percent. As always, this work has to reflect the company's current and the preliminary view, which is subject to material change.

With that, I would like to conclude our prepared remarks. Operator, we can now take some questions. Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and right for your name to be announced. To withdraw your question, please press star 1-1 again.

For those who can speak Chinese kindly ask your question in Chinese first, followed by English translation. In addition, in order to have enough time to address everyone on the call, please keep it to one question and one follow up and return to the queue if you have more questions. Once again, that's Star 11 for questions.

Our first question comes from the line of Frank Chen from Credit Suisse. Please ask your question, Frank. Hello, everyone. I'm Frank Chen from Credit Suisse. I'm a student at the University of Toronto.

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Thank you, management, for taking my questions. This is Frank from Credence Swiss. I have two questions. The first one is on the strategic focus for the rest of the year. Could the management provide more color on measures, for instance, more aggressive client acquisition, optimization on existing clients?

and potentially further upgrade in client segments. And second question is on operating expenses. What are some of the measures the company is taking to be operating more efficiently? Thank you.

Thanks Frank. Just wondering what this means. We have still a lot of Jin Oh being with Alex, as you can see in the video.

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Thanks, Frank. I will answer your first question and I will pass the second question to Alex.

Sorry, I will need to find you. But the. Thanks Frank and I will ask you answer your 1st questions and I'll pass the 2nd question to Alex. 1st, about the. Sorry.

For this year, we want to say the new customer and existing customers are equally important to us. So, in terms of the new customer acquisition, our efforts will be focused on two aspects. First, we will continue to expand our partnership with different channels and increase the depth of the partnership.

For example, we have been planning the live streaming on some short form video platforms and we innovatively utilized the RTE model into our App Store marketing. The result is better than our initial expectation. In the second part, we used the RTE model to increase the performance of our app.

our recognition about the users' willingness to borrow. So we can optimize our offer and increase our users' conversion ratio. Therefore, we can increase the LTV of our users. So we will increase our competitiveness in terms of customer acquisition.

This is about the new customer acquisition part.

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enterprise WeChat to cover our existing users to increase effectiveness for us to outreach our existing users. And we refine our risk management models to better understand our users and identify different profiles of our users. For example, wood.

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So at this point into the moderate macroeconomy recovery environment, we believe it's very important for us to increase our efficiency at this stage. So we will increase our coverage in terms of the channel and the partnership.

so we can better improve our marketing efficiency. So we are actually enjoying the competitive in terms of these parts. And we believe we will further increase our user base when do a macro fitting.

Okay, hi Frank. So basically for the operating expenses trend going forward, there are a few aspects. One, some of the operating expenses are variable cost. For example, the one we use to get credit scores cost and the one we do the transaction or sending the message for at the mass.

Those variable costs, we have a long-term relationship with those suppliers. And every year you can always squeeze a little bit from the cost base on a unit basis. But the room for that is not really that much. And then the other big part of the variable cost is really customer acquisition.

I think we had this kind of discussion earlier or before. Last year our unit or per credit line users customer acquisition cost was about 370 or 360 RMB per user. This year we intend to lower that unit cost number.

see some increase in sales marketing spending. But overall, on a four-year basis, we will see a lowered unit cost for per credit end users acquisition cost. Other back office-related fixed cost, we have a pretty tight internal control, including headcounts and also the IT spending there.

increase in sales marketing spending. But overall, on a four-year basis, we will see a lowered unit cost per credit and user's acquisition cost. Other back office-related fixed costs, we have a pretty tight internal control, including HEPP accounts and also the IT spending there. Thank you.

Right, thank you. Our next question comes from the line of Alex Ye from UBS. Please ask your question, Alex.

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different players and secondly would you would you consider lowering your loan pricing in order to stimulate some long drawdown demand from your existing customer base thank you okay

Secondly, would you consider lowering your loan pricing in order to stimulate some loan drawdown demand from your existing customer base? Thank you. Okay. Okay, Alex. Thank you for your hand Boo Nightie. Yep. Okay, thank you Alex.

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Thanks, Alex. From the competition perspective, we think for our industry, the recovery of the credit amount is more important for the competition. The impact from the recovery of user demand is more important from the impact of the competition.

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On the other hand, we believe the segmentation of this industry is very clear at this stage. We are actually quite differentiated from the large banks and also the smaller players.

For our service capabilities, we think we can have a wide coverage of different kinds of users.

We can cover the lower pricing users and also the higher pricing users. So we can further refine our risk management models to provide differentiated products and offerings to better serve our users. So theoretically, as long as our model is...

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Actually, we can try some reduced pricing to better activate and engage some of our users.

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at increased value from this sort of strategy. So from the overall pricing perspective, we think the future pricing will maintain at current level, will maintain a stable level compared to the current level.

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We would like to introduce a special guest. She is from community colleges and she is one of the hosts in our industry, but has a pa creature. Let's see her in a case interview. Let me if this is Brother PA. Next, HUN. linear

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First of all I would like to thank Professor Wang for his particularly interesting business. Everyone like this, thanks for watching. And finally I would like to thank Professor Wang for her amazing and interesting questions. Thank you very much.

In terms of credit demand recovery, we have seen two trends. One is moderate recovery. The other is divergent recovery. So in terms of the diversified recovery, we look at this problem in several aspects. From a regional perspective, Jiangsu, Shenzhen, Shanghai, Hebei, those regions are recovering faster than other regions.

which is in line with the incremental social financing by regions published by the government in Q1. From customer segment perspective, we have seen higher quality users recovering relatively faster with increasing credit size.

On the other hand, we have seen the broadly defined SME groups recovering relatively faster, especially from the service industries. Thank you. Right. Thank you. We have reached the end of the question and answer session.

Thank you very much for all your questions. I'll now turn the conference back to the management team for closing remarks. OK, thank you. Thanks for everyone to join us. If you have additional questions, we can discuss offline. Thank you. Have a good day. Bye bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.

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