Q1 2023 FinVolution Group Earnings Call
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Speaker 2: Hello ladies and gentlemen. Thank you for participating in the first quarter 2023 earnings conference call for FinVolution Group.
Speaker 2: At this time all participants are in listen only mode.
Speaker 2: After management's prepared remarks, there will be a question and answer session.
Speaker 2: Today's conference call is being recorded.
Speaker 2: I will now turn the call over to your host Jimmy Tan, Head of Investor Relations for the company. Jimmy please go ahead.
Speaker 2: We'll now turn the call over to your host Jimmy Tan, Head of Investor Relations for the company. Jimmy, please go ahead.
Speaker 3: Hello everyone and welcome to our first quarter 2020 3 Earnings Conference call.
Speaker 3: The company results were issued via news wire services earlier today and are posted online. You can download the earnings release and sign up for the company email alerts by visiting the IR section of our website at IR.infigo.com. Mr. Tia-Jian Li, our Chief Executive Officer and Mr. Jia-Yuan Xu, our Chief Financial Officer.
Speaker 3: We'll start the call with prepared remarks and conclude with a Q&A session.
Speaker 3: During this call, we will be referring to several non-GAAP financial measures to review and assess our operating performance.
Speaker 3: These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with US GAAP. For information about these non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release.
Speaker 3: Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company results may be materially different from the views expressed today.
Speaker 3: Further information regarding these and other risks and uncertainties are included in the company file linked with the US Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Finally, we pose a slide presentation on our IR website providing details of our results for the quarter.
Speaker 3: I will now turn the call over to our CEO , Mr. Tia-Jung Lee. Please go ahead, sir. Hello, everyone. And thank you for joining our panel. This is Tia-Jung Lee, CEO of Zuozhen. We are happy to speak with you today. The first quarter of 2023 was a challenge one so much particularly given the complex.
Speaker 3: of 9.3%, year-over-year to reach RMB 43.4 billion.
Speaker 3: And the total outstanding loan balance up 15.8% year-over-year to reach RMB62.3 billion.
Speaker 3: We also steadily and successfully executed our local focus global outlook strategy throughout the Pan-Asian markets in which we operate expanding our border base to 28 million cumulatively across China, Indonesia and the Philippines.
Speaker 3: In line with our mission of leveraging innovative technologies to make financial services better,
Speaker 3: We have cumulatively invited over RMB to build in technology over the last five years.
Speaker 3: We remain committed to exploring areas such as data tools, natural language processing, and other AI technologies to improve our data analysis capabilities and drive the holistic digitization of consumer finance across multiple aspects.
Speaker 3: As such...
Speaker 3: We have integrated our natural language processing models into our chat box.
Speaker 3: And our AI team developed a real-time data platform combined with strong integrated computing capability to support their applications.
Speaker 3: These generative pre-trained models have created a tremendous opportunity for our business to improve user experience and operational efficiency.
Speaker 3: We are also pleased to share that FinVolution has officially launched plans to build an open source model platform.
Speaker 3: aiming to improve the efficiency and effectiveness of our intelligent marketing and customer service operations.
Speaker 3: We are confident that as we continue to refine and implement natural language processing and speech-related algorithms into our intelligent chatbots.
Speaker 3: They will greatly improve the conversation experience between fumilution and our customers.
Speaker 3: Specifically, we are currently prioritizing the application of ChatJPT and other language learning models in our CRM system and Smart Loan Collection system.
Speaker 3: further driving digitization process across all of our customer service metrics.
Speaker 3: Approximately 80% of our customer service inquiries are not solved through chatbots, leading an increase of over 50% in our CRM system efficiency.
Speaker 3: Supporting financial inclusion is another critical piece of our mission and another area where we can capitalize our cutting edge proprietary technologies to deliver outstanding results.
Speaker 3: Thanks to our October system for high quality borrower acquisition and our MagicCube for low matching.
Speaker 3: We further reduced our average borrowing rate in the fourth quarter to 22.7 percent.
Speaker 3: Furthermore, our Magic Mirror technology for credit risk assessment updated with revised algorithm improvements across our risk matrix.
Speaker 3: This accomplishment alongside our acquisition of higher quality borrowers, our efficient loan matching process with institutional partners and our consistent fruitful investment in technology.
Speaker 3: enabled us to gain recognition from our partners and achieve better than expected funding costs, which supported a stable take rate of 3.5% for the quarter.
Speaker 3: Before we move on to more operational and financial metrics, I would like to share a brief update on our ESG efforts.
Speaker 3: In addition to our ongoing endeavors to support financial inclusion.
Speaker 3: The recent data is based on the FIMOlution's consumer protection initiatives.
Speaker 3: guided by the high-level goals of be responsible and be compassionate.
Speaker 3: to help educate our borrowers on their personal finance management.
Speaker 3: This will gradually improve the quality of our borrowers as well as our customers' financial relief.
Speaker 3: We are benefiting our business by creating value for the society. We look forward to reporting more fully on our ESG achievements. This is our 2022 annual ESG reporting in the coming months.
Speaker 3: In short, we remain convinced that technological innovation will transform the future of consumer finance.
Speaker 3: Our local focus, global outlook strategy, will guide us as we move confidently through 2023, building on our technological capabilities to expand our customer base and leverage on our strong balance sheet.
Speaker 3: to accelerate the pace of our international expansion.
Speaker 3: With our mission firmly in mind, we will continue to invent and deploy creative technologies across all aspects of our operations, empowering rapid business growth while enhancing our customers' lives and delivering greater value to our shareholders. With that, I will now turn it over to the panelists.
Speaker 3: turn the call over to our CFO , Jiaxuan Xu, who will discuss our original financial results.
Speaker 3: who will discuss our operational financial results quarter.
Speaker 3: Thank you, Lee, and hello everyone.
Speaker 3: Welcome to our first quarter 2023 NSCORE. In the interest of time, I will not go through all of the financial items on this call.
Speaker 3: Please refer to our earnings release for further details.
Speaker 4: release for further details.
Speaker 4: The domestic macro environment continued to present challenges during the fourth quarter, despite the accurate acceleration in the recovery toward the end of the quarter.
Speaker 4: Reflected by improvements in the Purchasing Managers Index across a variety of
Speaker 4: industries such as retail, transportation, business service, dining and tourism.
Speaker 4: However, the index fell to 49.2 in April .
Speaker 4: Below the threshold, that separates construction from expansion, indicating that the economic recovery is too friendly and in an early stage.
Speaker 4: Sales of larger ticket items such as automobiles, telecommunication equipment, and the real estate also lag due to the slow recovery of computers.
Speaker 4: During the first quarter, the total social financing amount grew by RMB14.5 trillion. However, Apple's total social financing amount only grew by RMB1.2 trillion, which was way below market expectations.
Speaker 4: Although there are some near-term fluctuations in the microdata, the overall recovery trend remains positive.
Speaker 4: On a brighter note, during the first half of May, we also experienced a sequential increase in our user demand and loan application rate compared to the first quarter and the month of April . As such, our outlook remains cautiously optimistic.
Speaker 4: We will closely monitor the progress of recovery and expect the growth will accelerate in the second half of 2023.
Speaker 4: Domestically, our first quarter transaction volume rose year over year to RMB14.8 billion, representing an increase of 8%.
Speaker 4: Meanwhile, our total outstanding loan balance stands at RMB 16,1.3 billion, up 15% year-over-year.
Speaker 4: Given the lingering suction in parts of the domestic economy,
Speaker 4: We maintained our prudent approach to risk management during the first quarter and expect vintage delinquency to be around 2.3%.
Speaker 4: The reason today when delinquency in April also showed improvement to 5.3%, we are also pleased to share that we achieved a strong loan collection recovery rate of 90% in the first quarter.
Speaker 4: As we deepen our commitment towards financial inclusion through our transaction towards better quality borrowers and subsequent improvements in borrowing rates, we will continue to work on existing advice to your pharmacist.
Speaker 4: We significantly optimized our funding cost in the first quarter to 6.7% from 7.8% a year ago.
Speaker 4: We also grow our accumulated number of funding partners to 78 financial institutions while maintaining a stable average ticket size of around RMB 7900 with an average long tenure of 8.5 months.
Speaker 4: Going forward, with our pool of high-quality borrowers, we are confident that we are a threat, an area of potential ponders.
Speaker 4: On a related note, we have continued to support small business owners throughout the recent domestic economic downturn.
Speaker 4: As China's macroeconomy gradually recovered during the first quarter, we noted steady improvements in the segment's risk matrix.
Speaker 4: Hence, we maintained our momentum and served 425,000 small business owners during the quarter.
Speaker 4: with transaction volume accounting for around 24% of our total origination volume.
Speaker 4: Now I'd like to share some additional details on our international expansion.
Speaker 4: Indonesia, our largest overseas market, is still projecting GDP growth of 4.8% in 2023, despite a mild slowdown.
Speaker 4: The consumer confidence index is high at 100 points, and consumption activities have contributed more than 50% of GDP over the last 10 years.
Speaker 4: Coupled with cultural, fiscal and monetary policies from the central banks, we expect Indonesia's domestic consumption to remain strong.
Speaker 4: Let's read by the progress we have made in our overseas markets across multiple operational and financial metrics.
Speaker 4: Cumulatively, we served 3.7 million borrowers in our overseas market, while our unique number of borrowers for the quarter increased by 24%, year-over-year to 737,000.
Speaker 4: International low volume sold by 83% year-over-year during the first quarter to reach RMB 1.57 billion, while outstanding balance grew 164% year-over-year to RMB 0.95 billion.
Speaker 4: alongside a robust operational matrix.
Speaker 4: International revenue reached RMB $448 million and the increase of $160,000.
Speaker 4: six year-over-year and contribute around 15% of total revenue in the first quarter.
Speaker 4: We are encouraged by the pace of expansion in the international markets and expect its revenue contribution to increase to about 20% of revenue for 2023. In Indonesia, we continue to expand our local presence and strengthen relationships with local financial institutions.
Speaker 4: where our partnerships with Bank JAGO, Bank Pomata and OCBC are finishing.
Speaker 4: During this quarter, we also established a new cooperation with Z-Bank.
Speaker 4: An initiate tech-based banking company whose mission of bettering the lives of consumers and farmers in the region with technology that strongly aligns with our own.
Speaker 4: The driving relationships have empowered us to increase the proportion of loans funded by local banks in Indonesia to 64% in the first quarter of 2023, compared with just 15% in the same period last year. These achievements carry the facts that the effectiveness of our local...
Speaker 4: strategic shift toward serving better quality borrowers. Net revenues for the first quarters rose to 3.1 billion, up 25% year-over-year.
Speaker 4: First of all, giving our work outstanding operational efficiency as well as our prudent attitude towards credit risk assessment and the ride back of provision due to better expected credit risk performance.
Speaker 4: Net income for the fourth quarter reached RMB 690 million, 29% year-over-year and 24% sequentially.
Speaker 4: Meanwhile, diluted net profit per ADS was under 2.42, an increase of 34% in over year and 27% sequentially.
Speaker 4: Our leverage ratio, which is defined as risk-bearing loans divided by shareholders' equity, remained stable at 4.3 times.
Speaker 4: indicating the potential for further growth when the economic recovery accelerates during the second half of the year.
Speaker 4: During such times of uncertainty, our strong balance sheet and liquidity position continues to provide confidence to all our stakeholders.
Speaker 4: In particular, our cash position remains robust with over RMB 7.8 billion of cash and short-term liquidity as of the end of March 2023, representing an increase of 10% sequentially.
Speaker 4: Along with our fifth consecutive annual dividend, which we issued last quarter, we also continue to return value to our shareholders through share buybacks throughout the year.
Speaker 4: In the first quarter of 2023, we deployed around US$13.3 million to buy back our shares in the public market.
Speaker 4: As of March 31, 2023, the company has communicative deployed around US $196 million for its shared repurchase programs.
Speaker 4: In total, we have returned US 458 million to our shareholders in the form of dividend and the share of purchase programs.
Speaker 4: Before I conclude my remarks, let me provide some additional color on our business outlook for the second quarter of 2023.
Speaker 4: Given the unevenness of the domestic economic recovery, we plan to adhere to our optimistic yet prudent approach in the domestic market while pursuing a more aggressive strategy internationally.
Speaker 4: This applied some uncertainties in the microenvironment.
Speaker 4: despite some uncertainties in the microenvironment. Our willingness trajectory remains solid.
Speaker 4: The company will continue to closely monitor the situation and reassess our strategy accordingly.
Speaker 4: We see the World Health Organization declaring an end to COVID-19 global health emergency and China's rebounding economy.
Speaker 4: We are excited and optimistic about our prospects in both our domestic and international markets in the second half of the year.
Speaker 4: Going forward, we will focus on accelerating our international expansion and driving technological innovation to attract high-quality borrowers and lending partners alike.
Speaker 4: As a result, we expect our transaction volume in China for the second quarter of 2003 to be around RMB $45 billion, representing an increase of around 11% year-over-year.
Speaker 4: We also expect our transaction volume in international markets for the second quarter to be around 1.7 billion, representing an increase of around 87% year-over-year.
Speaker 4: With that, I will conclude my prepared remarks. We will now open the call to the press chief.
Speaker 2: Operator, please continue. Thank you. We will now begin the question and answer session. To ask a question you may press star then one on your touch tone phone. If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker 2: To withdraw your questions please press star then 2.
Speaker 2: For the benefit of all participants on todayís call, if you wish to ask your question to management in Chinese, we ask that you please kindly repeat your question in English.
Speaker 2: Your first question comes from Yada Lee with CICC. Please go ahead.
Speaker 2: Your first question comes from Yada Lee with CICC. Please go ahead.
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Speaker 5: Then I'll do the translation. Hello management, this is Yada from CICC and thanks for taking my question. The first one is about the loan pricing and I was wondering when the price will be relatively stable and from the regulation and the funding side, is there any pressure on for the decline on pricing lately?
Speaker 5: And the second question is, what is the trend of our vintage delinquency? And is there still room for significant improvement in the future? That's all. Thank you.
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Speaker 3: For the pricing, we have shared that in the previous quarter that all loans originated on our platform in China are already under 24%, which means fully compliant. In the first quarter, the average borrowing rate was 27% and 40%. In this category of better quality borrowers, there are multiple benefits.
Speaker 3: For example, our funding partners actually valued these high quality customers and there is actually a significant reduction in our funding costs. The funding cost in the first quarter was actually better than expectation.
Speaker 3: In the future, there are also opportunities to leverage on technologies such as CHAP-GPT, AI-GC to optimise the funding costs. Our intention is to provide the boardwalkers with more attractive pricing in order to attract higher quality boardwalkers who are able to have better credit risk performance.
Speaker 3: and they are able to have greater loyalty and have more stickiness on our platforms. This eventually leads to a positive cycle between the companies and the borrowers.
Speaker 3: and we expect the borrowing rates in the future is expected to be between the range of IRR 22% to 23%. In the first quarter, the take rate was stabilised at 3.5% and going forward, we expect take rate to be around the range of 3.3% to 3.5%.
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Speaker 3: Our vintage delinquency in the first quarter remains stable at 2.3 percent. And the current cohort and given the current stable macro situation, we are confident to maintain our vintage delinquency at this level.
Speaker 3: I would also like to share the performance of our vintage performance during the lockdown of last year. Looking back right now, we have realised that the performance of the vintage during the lockdown period was actually better than our expectation at below 2.3%.
Speaker 3: And over the last consecutive eight quarters, we have managed to keep our vintage delinquency low. And we have done a lot of work, such as optimizing various...
Speaker 3: of our operational in order to achieve this level. We can also say that this validates our prudent attitude towards credit risk assessment and also our proven capabilities to successfully navigate through different economic cycles.
Speaker 4: Okay, Kada, is that okay for you?
Speaker 3: Okay, is that okay for you?
Speaker 2: Thank you. Thank you. Your next question comes from Alex Yee with UBS. Please go ahead.
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Speaker 3: Okay, I'll translate for my question. The first question is on China's growth. So the Q1 long volume shows a current yield decline and a year-on-year growth of around 8%. So this appear to be checking behind of our full year guidance of 10 to 20% for domestic business. So would you say the recovery so far you have seen is below your expectation and...
Speaker 3: So is that coming from the rising contribution from overseas business? And third question is on international business. Can you give us some color about your funding partners? So how many funding partners you are cooperating and the combined credit line that have been granted to us? Thank you.
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Speaker 3: From the macro data, you can see that April data has the total social financing data for April has some fluctuations, but was very strong in Q1, and this data was actually slowed down in April . And we cannot see that there is some recovery in the consumer.
Speaker 3: confidence index but still below 100%. And according to the political bureau meeting, it also states that the economy recovery has projected a positive trend, the amount of
Speaker 3: and demand is still weak.
Speaker 3: From internal data perspective, comparing the Borrowed Demand data, we can see that the user application rate on a daily basis in the first quarter increased by 2% compared to the same period last year. Entering into the second quarter, user demand has also been increasing steadily with April 24.
Speaker 3: daily loan application rate increasing by 3% year over year. And in the first half of May, this metric further increased by 5.4% on a year over year basis. And all these improvements indicate a recovery of consumption loans and higher user demand. We can share that.
Speaker 4: The loan recovery will be weak in the first half but strong in the second half, which is in line with our guidance.
Speaker 4: Your understanding is correct. The take rate that we reported is 3.5 is only for our domestic take rate. The take rate for our international business will be much higher.
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Speaker 4: The next question is from Alex. Alex, let me do the translation for you for this question. With regards to our international funding partners.
Speaker 3: We have already cooperated with three banks, mainly OCBC, Bank Pomata and Bank Jungle. And the fourth partner, which is C-Bank, which is a well-known tech bank in the region. And you can see that as we have better quality borrowers, the proportion of loans facilitated by local banks have also increased.
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Speaker 4: Okay, actually, do you have any other questions?
Speaker 2: Thank you. Once again if you want to ask a question please press star 1 on your touch tone phone. Your next question comes from Frank Chen with Credit Suisse. Please go ahead.
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Speaker 3: Thank you management for taking my questions. I have two questions. The first one is on a follow up on the domestic long-volume growth. You mentioned it was due to the softer than expected credit demand.
Speaker 3: And I'm wondering from a supply perspective, was the relatively mild young year growth also due to the reduced risk appetite and also strengthen screening criteria on credit approval? And the second question was also a follow up on the tick rate of international markets.
Speaker 3: The top-line contribution was around 15%, but it only accounts for around 4% long-volume. So obviously it has a high take rate. Can you provide some more color on the sustainability of such high take rate in the long term in the future? Thank you.
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Speaker 3: So, you just, the, so that they deal with today, you know, with that. Hello, Frank. Let me do the translation for you. For our domestic risk strategies for our borrowers, we are maintaining a proven strategy. And you should know that it is related to pricing.
Speaker 3: And all loans for this year, since the beginning of this year, all loans are already priced under 24%. Under this strategy, our loan approval rate remains stable without much fluctuation.
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Speaker 3: Friends, let me do a translation. For our international take- Christy caffeine survey, it mainly depends on three factors of men husbands, monitor demographics,
Speaker 3: All these might have some fluctuations, but it is hard to determine right now because we are also in the process of shifting towards better quality borrowers. Takeaways can also be optimized when we have better quality borrowers, which in turn leads to better funding costs with better credit risk performance.
Speaker 3: We believe we are able to adjust accordingly to the situation and I would like to say remind that all our pricing right now in the international market is in line with regulations compliance. Okay friends, do you have any other follow-up questions?
Speaker 3: to adjust accordingly to the situation. And I would like to say, remind that all our pricing right now in the international market is in line with regulations compliance. OK, Frank, do you have any other follow-up questions? That's all. Thank you very much.
Speaker 2: Thank you. Thank you. As there are no further questions now, I'd like to turn the call back over to the company for closing remarks. Hello, thank you all for joining the call today. If you have any further questions, please feel free to contact our IR team. Thank you. This concludes this conference call.
Speaker 2: You may now disconnect your line. Thank you.
Speaker 1: We.