Q3 2023 Qifu Technology Inc Earnings Call
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Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Chipmos technologies third quarter.
Speaker 1: Ladies and gentlemen, thank you for standing by and welcome to the Qifu Technology third quarter 2023 news conference call. At this time, all participants are in a listen-only mode. After speaker's presentation, there will be a question and answer session, at which time, if you wish to ask questions, please press star 11 and wait for your name to be announced.
On this conference call at this time all parties.
After the speaker's presentation, there will be a question and answer session at which time if you wish to ask a question. Please press star one.
Yeah.
Speaker 1: This also notes today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Karen Gee, Senior Director of Capital Matters. Please go and hit 10.
Because of notes debate event is being recorded.
At this time I would like to turn the conference call over to MS guarantee senior Doctor.
After all capital market. Please go ahead Sir.
Thank you Hello, everyone and welcome to the Chi fluid technologies third quarter 223 earnings Conference call.
Speaker 2: Thank you Desmond. Hello everyone and welcome to Qifu Technology's 3rd Quarter 2023 earnings conference call. Our earnings release was distributed earlier today and is available on our IR Web site.
The earnings release was distributed earlier today and is available on our IR website.
Speaker 2: Joining me today are Mr. Wu Haisheng, our CEO , Mr. Alex Xu, our CFO , and Mr. Chen Yan, our CIO.
Joining me today on these two how should I see old mixture, Alex She was CFO and Mr. Alex Yao.
Oh.
Before we start I would like to refer you to our safe Harbor statement in the earnings press release.
Speaker 2: 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.
Which applies to this call as we will make certain forward looking statements.
Speaker 2: Also, this call includes discussions of certain non-GAAP financial measures.
Also this call includes discussions of certain non-GAAP financial measures.
Please refer to our earnings release, which accompany a reconciliation of non-GAAP financial measures to GAAP financial measures.
Speaker 2: Please refer to our earnings release, which contains a reconciliation of non-GAAP financial measures to GAAP financial measures.
Speaker 2: Also, please note that, unless otherwise stated, all figures mentioned in this call are in RMBT.
Also please note that.
Otherwise stated all figures nation English call Beacon.
Speaker 2: Before we start, please also note that today's prepared remarks from our CEO will be delivered in English using an AI-generated voice.
Before we start. Please also note that todays prepared remarks from our CEO will be delivered in English using AI generated voice.
Speaker 2: Now I will turn the call over to Mr. Wu Haixin. Please go ahead.
Now I will turn the call over to you Mr. White shirt. Please go ahead.
Hello, everyone.
Speaker 3: Hello, everyone. Thank you for joining our third quarter earnings conference.
Thank you for joining our third quarter earnings conference call.
Speaker 3: Since the start of the year, the momentum of China's macroeconomic recovery has softened after rebounding earlier in the year, with effective demand for consumer credit also coming in weaker than expected. We promptly adjusted our strategic approach to this new market environment by diversifying our customer acquisition channels and refining operations.
<unk> started the year the momentum of China's macroeconomic recovery softened after rebounding earlier in the year with effective demand for consumer credit also coming in weaker than expected. We promptly adjusted our strategic approach to this new market environment by diversifying our customer acquisition channels and refining operations.
Speaker 3: All with the clear goal of driving high quality growth and improving profitability. These efforts yielded solid results in Q3. By the end of the quarter, our platform empowered a total of 155 financial institutions and cumulatively served more than 49 million users with approved credit lines.
All with a clear goal of driving high quality growth and improving profitability.
These efforts yielded solid results in Q3.
By the end of the quarter our platform empowered a total of 155 financial institutions and cumulatively served more than 49 million users with approved credit lines total loan facilitation and origination volume on our platform reached RMB $123 1 billion up roughly 11% year over year.
Speaker 3: Total loan facilitation and origination volume on our platform reached RMB 123.1 billion, up roughly 11% year-over-year. With the quality of our earnings further improving, our non-GAAP net income for the quarter increased by approximately 14% year-over-year.
With the quality of our earnings further improving our non-GAAP net income for the quarter increased by approximately 14% year over year.
Speaker 3: today's complex macro environment, it is particularly important that we expand our safety cushion by improving profitability. To achieve this, we are optimizing resource allocation across customer acquisition, products, risk management, and asset distribution to boost operational efficiency and ultimately drive bottom-line growth.
In today's complex macro environment. It is particularly important that we expand our safety cushion by improving profitability to achieve this we are optimizing resource allocation across customer acquisition products risk management and asset distribution to boost operational efficiency.
And ultimately drive bottom line growth.
Now I'll walk you through some of the progress we've made in this regard during the quarter.
Speaker 3: Now, I'll walk you through some of the progress we made in this regard during the quarter.
Speaker 3: To start with, we continue to explore diversified customer acquisition channels and deploy innovative approaches to attract new customers, which not only improved customer acquisition efficiency, but also resulted in notably better quality of new users.
To start with we continue to explore diversified customer acquisition channels and deploy innovative approaches to attract new customers.
Which not only improved customer acquisition efficiency, but also resulted in notably better quality of new users.
In terms of optimizing our customer acquisition channels, we established a partnership with a leading short form video platform through our embedded finance business in the third quarter leveraging the platforms massive active user base and our ability to accurately profile users and identify risk we have consistently maintained a leader.
Speaker 3: In terms of optimizing our customer acquisition channels, we established a partnership with a leading short-form video platform through our embedded finance business in the third quarter, leveraging the platform's massive active user base and our ability to accurately profile users and identify risk. We have consistently maintained a leading market share on the platform since the start.
Market share on the platform since the start.
During the quarter, our embedded finance business generated an impressive 46% sequential increase in the number of new users with approved credit lines approximately 33% of total new users with approved credit lines. During the quarter were acquired through the embedded finance channel.
Speaker 3: During the quarter, our Embedded Finance business generated an impressive 46% sequential increase in the number of new users with approved credit lines. Approximately 33% of total new users with approved credit lines during the quarter were acquired through the Embedded Finance.
Speaker 3: We also intensified our marketing efforts through innovative marketing approaches during the quarter to attract high quality customers.
We also intensified our marketing efforts through innovative marketing approaches during the quarter to attract high quality customers.
Speaker 3: This was done by deploying more compelling ad placements to expand our customer reach.
This was done by deploying more compelling AD placements to expand our customer reach.
Speaker 3: Based on user profile analysis, users acquired through innovative marketing methods significantly outperformed those obtained through conventional methods in terms of educational background, mortgage and credit history.
Based on the user profile analysis users acquired through innovative marketing methods significantly outperformed those obtained through conventional methods in terms of educational background mortgage and credit history.
Speaker 3: They also clearly have better risk performance in terms of short-term delinquency rates as we observed during the first three months.
They also clearly have better risk performance in terms of short term delinquency rates as we observed during the first three months.
Speaker 3: with our innovative customer acquisition strategy firmly in place. The proportion of high-quality users increased by more than 4 percentage points from July to October . This not only directly complements our existing user base, but also contributes to the stability of our overall risk performance.
With our innovative customer acquisition strategy firmly in place the proportion of high quality users increased by more than four percentage points from July to October is not only directly complements our existing user base, but also contributes to the stability of our overall risk performance.
As a result of these initiatives.
Speaker 3: The number of new users with approved credit lines increased by 18% in Q3 sequentially, while unit customer acquisition costs increased only slightly.
The number of new users with improved credit lines increased by 18% in Q3 sequentially, while unit customer acquisition costs increased only slightly.
Speaker 3: Moving on to product design, we introduced a loyalty program to enhance engagement.
Moving on to product design, we introduced a loyalty program to enhance engagement of existing users by offering a wider range of value added services, we are effectively enhancing user engagement and retention, which increases our revenue and profit per user users who joined the loyalty program demonstrated higher engagement with a double digit <unk>.
Speaker 3: By offering a wider range of value-added services, we are effectively enhancing user engagement and retention, which increases our revenue and profit per user. Users who joined the loyalty program demonstrated higher engagement, with a double-digit increase in both the rate of drawdown and the number of loans borrowed over a certain period of time.
<unk> in both the rate of drawdown and the number of loans borrowed over a certain period of time.
Speaker 3: Turning to risk, we swiftly responded to the changing market environment.
Turning to risk we swiftly responded to the changing market environment in Q3, we gradually tightened credit standards and upgraded risk models in particular, we further enhanced the knowledge graph for our broadly defined SME segment.
Speaker 3: In Q3, we gradually tightened credit standards and upgraded risk models. In particular, we further enhanced the knowledge graph for our broadly defined SME segment. By closely analyzing relationships among individuals, businesses, and industries, we improved our ability to identify risks within this segment. It's worth noting that there are clear differences between our broadly defined SME segment and SMEs in the traditional sense. Ours are primarily younger enterprises acquired through online channels. When conducting risk...
Closely analyzing relationships among individuals businesses and industries, we improved our ability to identify risks within the segment. It's worth noting that there are clear differences between our broadly defined SME segment and Smes in the traditional sense as primarily younger enterprises acquired through online channels when conducting risk assessed.
Speaker 3: we place more emphasis on individual credit history and use business data as a secondary reference.
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We place more emphasis on individual credit history unused business data as a secondary reference.
Speaker 3: As a result, credit lines extended to our SME segment are usually smaller, making associated risk much more manageable. Compared to the consumer segment, the SME segment generates much more stable demand and stronger growth potential with similar risk performance.
As a result credit lines extended to our SME segment are usually smaller making associated risk much more manageable compared to the consumer segment. The SME segment generates much more stable demand and stronger growth potential with similar risk performances.
Speaker 3: Looking ahead, we are confident that there is significant room for growth and value generation over the long term for our broadly defined SME segment, driven by our accurate user identification and differentiated operations.
Looking ahead, we are confident that there is significant room for growth and value generation over the long term for our broadly defined SME segment, driven by our accurate user identification and differentiated operations.
Speaker 3: Lastly, we kept pricing at stable levels and leveraged our funding strengths to further optimise our economic market.
Lastly, we kept pricing at stable levels and leveraged our funding strengths to further optimize our economic model.
Speaker 3: with relatively ample liquidity in the financial system during the quarter.
We had a relatively ample liquidity in the financial system during the quarter.
Speaker 3: We further optimized our funding structure by increasing the proportion from larger banks, which reduced our funding costs by another 20 basis points.
We further optimize our funding structure by increasing the proportion from larger banks.
<unk> reduced our funding costs by another 20 basis points.
In terms of ABS, we secured ABS investments from multiple stay tuned and joint stock banks in TARP securities firms, leading to a 47 basis point decrease quarter over quarter and ABS issuance costs.
Speaker 3: In terms of ABS, we secured ABS investments from multiple state-owned and joint stock banks and top securities firms, leading to a 47 basis point decrease, quarter over quarter in ABS issuance costs.
Speaker 3: With the accuracy of user profiling and identification continuously improving, we also further expanded the range of our financial institution partners, strengthening our ability to serve various loan asset segments. With more financial partners coming on board under the ICE.
With the accuracy of user profiling and identification continuously improving we also further expanded the range of our financial institution partners strengthening our ability to serve various loan asset segments with more financial partners coming onboard under the ICD.
A referral model, which further mitigates risk.
Speaker 3: our ability to engage with the lower tier user segment has significantly improved. As we continue to optimize asset allocation efficiency, we expect our overall profitability to further improve going forward.
Our ability to engage with the lower tier user segment has significantly improved.
We continue to optimize asset allocation efficiency, we expect our overall profitability to further improve going forward.
Now, let me share with you the progress we made on the technology front.
Speaker 3: Now, let me share with you the progress we made on the technology.
Speaker 3: Our technology solutions business is making solid progress as we expand the array of solutions we offer to cover the entire world.
Our technology solutions business is making solid progress as we expand the array of solutions, we offer to cover the entire credit process.
Speaker 3: During the quarter, we entered into partnerships with three additional financial institutions, each from a different category, a joint stock, internet and private bank.
During the quarter, we entered into partnerships with three additional financial institutions each from a different category.
<unk> stock Internet and private bank.
Speaker 3: To cater to the diverse needs of our banking partners, we adopted various deployment models and are committed to providing them with end-to-end technology solutions as well.
To cater to the diverse needs of our banking partners. We adopted various deployment models and are committed to providing them with end to end technology solutions as well going forward.
We will extend our end to end technology solutions to more financial institution partners to scale up our client base in the long run we expect a steady increase in the take rate for our technology solutions business.
Speaker 3: We will extend our end-to-end technology solutions to more financial institution partners to scale up our client base. In the long run, we expect a steady increase in the take rate for our technology solutions.
Speaker 3: Additionally, we continue to invest in cutting-edge technologies such as artificial intelligence and large language models.
Additionally, we continued to invest in cutting edge technologies, such as artificial intelligence and launched language models.
Speaker 3: On September 18th, we partnered with the China Academy of Information and Communications Technology to officially unveil the first domestic standard for large language models in the financial sector.
On September 18th we partnered with the China Academy of information and Communications technology to officially unveiled the first domestic standard for large language models in the financial sector.
Speaker 3: The standard will serve as a crucial reference and benchmark for the design, development, application.
Standard will serve as a crucial reference and benchmark for the design development application and review of large language models and finance.
Speaker 3: At the same time, we purchased hundreds of graphics.
At the same time, we purchased hundreds of graphics cards and have been exploring the application of <unk> technology to improve efficiency throughout the entire credit process by conducting tests or implementing it in advertising telemarketing loan collection and quality control.
Speaker 3: have been exploring the application of AIGC technology to improve efficiency throughout the entire credit process.
Speaker 3: by conducting tests or implementing it in advertising, telemarketing.
For example, our telemarketing system is now able to conduct semantic analysis and extract valuable leads from each conversation improving our telemarketing conversion rate by more than 5%.
Speaker 3: For example, our telemarketing system is now able to conduct semantic analysis.
Speaker 3: and extract valuable leads from each conversation, improving our telemarketing conversion rate by more than 5%.
In addition around 70% of our image based marketing materials are currently generated by Aig's.
Speaker 3: Around 70% of our image-based marketing materials are currently generated by AI.
In the future we will use large language models to tagging right. These materials from multiple dimensions to optimize AD placements and boost marketing effectiveness.
Speaker 3: In the future, we will use large language models to tag and rate these materials from multiple dimensions to optimize ad placements and boost marketing effectiveness. Looking back at the past three quarters.
Looking back at the past three quarters despite.
The challenging macro environment, we remain.
Vigilant about market conditions and improved our earnings quality by further optimizing operations and fine tuning our business model.
Speaker 3: and improved our earnings quality by further optimizing operations and fine-tuning our
Speaker 3: Since Q3, certain macro indicators are showing marginal improvement as a result of multiple supporting policies.
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Certain macro indicators are showing margin improvement as a result of multiple supporting policies against this backdrop, we are confident in our ability to continuously make breakthroughs and create value for our shareholders with better results.
Speaker 3: Against this backdrop, we are confident in our ability to continuously make breakthroughs and create value for our shareholders.
With that I will now turn the call over to our CFO Alex Hu.
Speaker 3: With that, I will now turn the call over to our CFO , Alex Hsu, who will walk you through our financial results.
Who will walk you through our financial results for the quarter.
Speaker 4: OK. Thank you, Haisheng. Good morning and good evening, everyone. Welcome to our third quarter earnings call.
Okay. Thank you Hi, Shannon good morning, and good evening, everyone welcome to our third quarter earnings call.
Speaker 4: Facing slower-than-expected micro-recovery and worsening consumer sentiment, we proactively took actions in Q3 to optimize our product and service offerings.
So it's a slower than expected macro recovery and worsening consumer sentiment, we proactively took actions in Q3 to optimize our product and service offerings.
Speaker 4: relationship with users and key partners, aiming to drive long-term sustainable quality growth.
Strengthen our relationship with users and key partners aiming to drive long term sustainable quality growth.
Speaker 4: In Q3, we saw some volatility in asset quality and key leading risk metrics start to fluctuate from historical best levels achieved in previous quarters. Day 1 delinquency was 4.6% in Q3 versus 4.2% in Q2. The uptick in Day 1 delinquency mainly reflected borrowers' negative sentiment toward the ongoing micro uncertainty.
In Q3, we saw some volatility in asset quality and key leading risk metrics start to fluctuate from historical historical best levels achieved in previous quarters.
If anyone delinquency was four 6% in Q3 versus four 2% in Q2.
Taking day, one delinquency, mainly reflect borrowers negative sentiment towards the ongoing macro uncertainties.
Speaker 4: 30-day correction rate was 86.7% in Q3 versus 87.2% in Q2. This modest decline also was driven by micro weakness.
Certainly the collection rate was 86, 7% in Q3 versus 87, 2% in Q2.
This modest decline also was driven by macro weakness.
Speaker 4: Throughout Q3, we have proactively adjusted our risk management models and gradually applied more restrictive standards on incoming applications.
Throughout Q3, we have proactively adjust our risk management models and gradually applied more restrictive standards. Our incoming applications by late September we start to see stable credit quality among new borrowers.
Speaker 4: By late September , we start to see stable credit quality among new borrowers.
Speaker 4: As economic conditions remain challenging, we may continue to see some fluctuation of these metrics in the near future, although overall risk levels should still be manageable with our continued effort to proactively mitigate risk.
As economic conditions remain challenging we may continue to see some fluctuation of these metrics in the near future.
So overall risk level should still be manageable with our continued effort to proactively mitigate risks.
Speaker 4: Total net revenue for Q3 was $4.3 billion versus $3.9 billion in Q2 and $4.1 billion a year ago.
Total net revenue for Q3 was $4 3 billion versus $3 9 billion in Q2, and $4 1 billion a year ago.
Speaker 4: Revenue from credit-driven services, capital-heavy, was $3.1 billion in Q3 compared to $2.8 billion in Q2 and $2.9 billion a year ago. The year-on-year growth was mainly due to growth in unbalanced loans.
Revenue from credit driven service capital heavy was $3 1 billion in Q3 compared to $2 8 billion in Q2, and $2 9 billion a year ago. The year on year growth was mainly due to growth in on balance sheet loans.
Speaker 4: partially offset by decline in expected average tenure of the loan.
Partially offset by a decline in expected average tenor of the loans.
Speaker 4: The sequential increase reflected growth in loan balance as well as continued improvement in effective tenors.
The sequential increase reflected growth in loan balances as well as continued improvement in effective tenders.
Speaker 4: On balance sheet loans account for over 19% of total loan volume.
Our on balance sheet loans account for over 19% of total loan volume.
Speaker 4: overall funding cost further declined by roughly 20 bps with the help of our strong relationship with financial institution partners as well as additional insurance of ABS.
Overall funding cost further declined by roughly 20 bps with the help of our strong relationship with financial institution partners as well as additional additional issuance of ABS.
Speaker 4: Revenue from platform service, Capital Light, was $1.2 billion in Q3 compared to $1.1 billion in Q2 and $1.2 billion a year ago. The sequential growth was mainly due to continued improvement in overall effective tenure of the loans and strong contribution from ICE.
Revenue from platform service capital Light was $1 2 billion in Q3 compared to one 1 billion in Q2, and the $1 2 billion a year ago.
Sequential growth was mainly due to continued improvement in overall effective tenor of the loans and strong contribution from IC.
Substantially offsetting the decline in capital light loan facilitation volume.
Speaker 4: substantially offsetting the decline in capital light loan facilitation volume.
Speaker 4: For Q3, capitalized loan facilitation, ICE, and other tax solutions combined account for roughly 56% of the total loan volume, compared to roughly 58% in prior quarters.
For Q3 capitalized loan facilitation ICD and other tech solutions combined account for roughly 56% of the total loan volume compared to roughly 58% in prior quarter. We expect this ratio to be roughly stable around this level for the year, we will continue to.
Speaker 4: We expect this ratio to be roughly stable around this level for the year.
Speaker 4: We will continue to evaluate different components of our operation and seek a better mix between risk-bearing and non-risk-bearing solutions based on microenvironment and operational conditions.
Evaluate different components of our operation and seek a better mix between risk bearing and non risk bearing solutions based on macro environment and operational conditions.
In Q3, we saw continued sequential improvement in revenue take rate for both capped heavy and capitalize business as early repayment ratio gradually returned to normal levels and effective tenders congratulate extend it.
Speaker 4: In Q3, we saw continued sequential improvement in revenue take rate for both cap-heavy and cap-light business, as early repayment ratio gradually returned to normal levels and effective tenors gradually extended.
During the quarter average IRR of the loans, we originated and all facilitated remained stable Q on Q.
Speaker 4: During the quarter, average IRR of the loans we originated and or facilitated remain stable Q1Q, well within the regulatory rate cap requirement. Looking forward, we expect pricing to be fluctuating in a narrow band around this level for the coming quarters.
Well within the regulatory rate cap requirement looking forward, we expect pricing to be fluctuating in the narrow band around this level for the coming quarters.
Speaker 4: Sales and marketing expenses increased 21% Q1Q, but declined 15% year-on-year. We added over 1.7 million new credit line users in Q3, compared to 1.5 million in Q2. Unit cost to acquire new credit line user also increased modestly Q1Q to 306 from 296 in Q2.
Sales and marketing expenses increased 21% Q on Q, but declined 15% year on year.
We added over one 7 million new credit line users in Q3 compared to $1 5 million in Q2 unit cost to acquire new credit on user also increased modestly Q on Q to 306 from 296 in Q2.
Speaker 4: While we will continue to strive for efficiency in our operation, we may adjust the pace of our new user acquisition based on micro-conditions from time to time.
Well, we will continue to drive for efficiency in our operation we may adjust the pace of our new user acquisition based on macro conditions from time to time.
Speaker 4: As Haisheng mentioned, we have made noticeable progress in diversifying our user acquisition channels during the quarter. Meanwhile, we will continue to focus on re-energizing existing user base as repeat borrowers historically contribute vast majority of our business.
As Joe mentioned, we have made notable progress in diversifying our user acquisition channels during the quarter. Meanwhile, we will continue to focus on reenergizing existing user base as it repeat borrowers historically contribute vast majority of our business.
Speaker 4: As microuncertainties persist and credit quality fluctuates, we will continue to take a prudent approach to book provisions against potential credit losses.
As macro uncertainties persist and the credit quality of fluctuate we will continue to take a prudent approach to book provisions against potential credit losses.
Speaker 4: total new provision for risk-bearing loans in Q3 were approximately $2.1 billion.
Total new provision for risk bearing loans in Q3 or approximately $2 1 billion.
Speaker 4: and write-backs of previous provisions were approximately 600 million.
And write backs our previous provisions were approximately 600 million.
Speaker 4: provision coverage ratio, which is defined as total outstanding provision divided by total outstanding delinquent loan balance between 90 and 180 days or 534% in Q3 compared to 511% in Q2.
Provision coverage ratio, which is defined as total outstanding provision divided by total outstanding delinquent loan balance between 90, and 180 days or 534% in Q3 compared to 511% in Q2.
Speaker 4: non-GAAP net profit was $1.18 billion in Q3 compared to $1.15 billion in Q2.
non-GAAP net profit was $1, one 8 billion in Q3 compared to 1.15 billion in Q2.
Speaker 4: effective tax rate for Q3 was over 22% compared to our typical ETR of approximately 15%.
Effective tax rate for Q3 was over 22% compared to our typical ETR of approximately 15%.
Speaker 4: The higher ETR in Q3 was mainly due to additional withholding tax provision related to cash distribution from onshore to offshore for dividend payment and share repurchase programs. Please also note our second quarter earnings was helped by a tax rebate of approximately $160 million.
The higher ETR in Q3 was mainly due to additional withholding tax provision related to cash distribution from onshore to offshore for dividend payments and share repurchase programs. Please also note. Our second quarter earnings was helped by a tax rebate of approximately one one.
$160 million.
Speaker 4: Excluding the tax rebate, non-gap net income actually grew approximately 16 percent sequentially in Q3.
Excluding the tax rebate non-GAAP net income actually grew approximately 16% sequentially in Q3.
With solid operating results and stable contribution from capital light models, our leverage ratio, which is defined as risk bearing loan balance divided by shareholders equity was three five times in Q3 near historically low compared to soy.
Speaker 4: With solid operating results and stable contribution from cap-like models, our leverage ratio, which is defined as risk-bearing loan balance divided by shareholders' equity, was 3.5 times in Q3, near historical low, compared to 3.8 times a year ago. We expect to see the leverage ratio fluctuate around this level in the near future.
Three eight times a year ago.
We expect to see the leverage ratio fluctuate around this level in the near future.
Speaker 4: We generate approximately $1.2 billion cash from operations in Q3 compared to $1.8 billion in Q2.
We generate approximately $1 2 billion cash from operations in Q3 compared to $1 8 billion in Q2.
Speaker 4: The decline was mainly due to the change in working capital at the end of the quarter. Total cash and cash equivalent was $8.2 billion in Q3 compared to $8.5 billion in Q2.
The decline was mainly due to the change in working capital at the end of the quarter total cash and cash equivalent was $8 2 billion in Q3 compared to $8 5 billion in Q2 non restricted cash was approximately $4 9 billion in Q3 compared to $5.
Speaker 4: Non-restricted cash was approximately 4.9 billion in Q3 compared to 5.3 billion in Q2.
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Speaker 4: The sequential decline in cash position was mainly due to increased cash usage in our on-balance sheet lending.
The sequential decline in cash position was mainly due to increased cash usage in our on balance sheet lending.
Speaker 4: As we discussed earlier, we will continue to look for opportunities to deploy resources to launch new initiatives, develop new technologies, and expand services offerings.
As we discussed earlier, we will continue to look for opportunities to deploy resources to launch new initiatives developed new technologies and expand services offerings.
Speaker 4: As we continue to generate healthy cash flow from operations, we believe our current cash position is sufficient to support our business development and to return to our shareholders.
As we continue to generate healthy cash flow from operations. We believe our current cash position is sufficient to support our business development and to return to our shareholders. In June 20th 2023, we announced a share buyback program to repurchase up to $150 million.
Speaker 4: In June 20, 2023, we announced a shared buyback program to repurchase up to $150 million over a 12-month period.
Over a 12 months period.
Speaker 4: As of November 16, 2023, we have bought approximately $80 million worth of ADS in open market at an average price around $16.2 US dollars.
As of November 16, 2023, we have bought approximately $80 million worth of Avs in open market at an average price around 16 to U S. Dollar.
Speaker 4: We will continue to execute the buyback program in accordance with the related rules and regulations. With the fully execution of the repurchase program and the dividend plan, the combined payout ratio will exceed 50 percent.
We will continue to execute the buyback program in accordance with the related rules and regulations with a fully execution of the repurchase program and the dividend plan the combined payout ratio will exceed 50%.
Speaker 4: Going forward, we will continue to optimize our capital allocation plan and make primary adjustments to generate attractive returns to our shareholders. Finally, regarding our
Going forward, we will continue to optimize our capital allocation plan and make timely adjustments to generate attractive returns to our shareholders.
Regarding our outlook well.
Speaker 4: Will micro-recovery appear slower than expected?
While macro recovery appears slower than expected, we remain confident to achieve our operational targets for the year as such we now expect Q4 total loan volume to be between $116 billion and $126 billion and for the full year total.
Speaker 4: we remain confident to achieve our operational target for the year.
Speaker 4: As such, we now expect Q4 total loan volume to be between $116 billion and $126 billion, and for the full year, total loan volume to be between RMB 473 billion and RMB 483 billion, representing year-on-year growth of 15 to 17 percent.
Loan volume to be between RMB, 473 billion, and RMB 483 billion, representing year on year growth of 15% to 17%.
Speaker 4: As always, this forecast reflects the company's current and preliminary view, which is subject to material changes.
As always this forecast reflects the company's current and preliminary view, which is subject to material changes.
Speaker 1: With that, I would like to conclude our prepared remarks. Operator, we can now take some questions. Thank you. We will now begin the question and answer session. To ask a question on the phone, please press star 1 1 and wait for a name to be announced. If you'd like to cancel your request, you can press star 1 1.
With that I would like to conclude our prepared remarks, operator, we can now take some questions. Thank you.
We will now begin the question and answer session to ask a question on the phone. Please press star one one and wait for a deemed to be an issue.
If you'd like to cancel your request you can press star one again.
Speaker 1: For those who can speak Chinese, please 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. Thank you. One moment.
For those who can speak Chinese please.
Ask your question in Chinese first followed by English translation.
Sure.
In order to have enough time to address everyone on the call. Please keep it to one question and one follow up.
And to the acute and see more questions. Thank you.
So the first question.
Speaker 1: The first question comes from the line of Richard Xu from Morgan Stanley . Please go ahead.
The first question comes from the line of which achieved from Morgan Stanley. Please go ahead.
Hey, Doug.
Speaker 5: Thank you very much for giving me the opportunity to ask the first question. I have two questions. First, what is the trend of modern demand in the last few months? Wang Licheng also mentioned that a large part of the modern demand for consumption is in this area.
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Speaker 5: Fan Xiaowei. What are the differences between this kind of demand and pure consumption, and what is the difference in the strategic control of this area? Secondly, I would like to ask what is the level of the latest capital cost?
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Speaker 5: Given that interest rates have fallen, is there a possibility to further lower the interest rate in the next part?
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Speaker 5: I essentially have two questions. One is essentially what's the credit demand trend at the moment? Particularly, there's some demand for the consumption from the SME client base. What are the differences between the trends?
Essentially have two questions one is effectively what's the credit demand trends at the moment, particularly.
Some demand for the consumption from the SME.
Base, what are the differences between the trends from the typical consumption loan demand and also.
Speaker 6: from the typical consumption model demand and also any differences in strategy and risk management.
The different differences in strategy and risk management, secondly, what's the funding cost and whether there's further room to reduce funding costs in the future. Thanks.
Speaker 6: Secondly, is what's the funding cost and whether there's further room to reduce funding costs in the future. Thanks.
Hi.
Richard.
Mhm.
Speaker 5: First of all, I'd like to make a statement about the previous part of the presentation. I was asked by our large model team to help me train and improve my artificial intelligence. I still need to use Chinese for the following part of the question and answer, so I'll make a report for everyone. Then I'll talk about these two questions.
Okay.
Okay.
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Speaker 3: Lately, in terms of Q4, compared to Q3, we should say that
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Speaker 3: with a slight drop in stability. There should be some periodic factors here. Because there is a Golden Week in October every year, so it is relatively less than before. By November , it will be relatively stable. This is the overall trend.
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Speaker 3: In terms of Fan Xiaowei, we see that Fan Xiaowei's demand is slightly better than that of consumers.
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Speaker 3: At the same time, Fang Xiaowei in different industries also showed some structural differences.
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Speaker 5: For example, the sports industry, the entertainment industry, or the service industry, the service industry and the technical industry, their demand is obviously better than other industries.
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Speaker 5: So it has a structural characteristic compared to consumers.
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Speaker 5: Comparatively, Fan Xiaowei's customer base is more stable, and her demand is relatively higher, so her value is also higher than the customer base of Fan Xiaowei. Therefore, we also hope to improve the recognition ability of Fan Xiaowei's customer base in our overall customer base.
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Speaker 5: Because the needs of these clients are different, so they need to satisfy them with some differentiated products and services. Only by satisfying them can we improve their overall connectivity to our platform. Therefore, we do hope to increase the identification of clients and the differentiated service design.
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Speaker 5: We also need to emphasize that our Fan Xiaowei class is different from the traditional Xiaowei class. Because our class size is much smaller than the traditional Xiaowei class. The foundation of our risk modeling is based on individual portraits.
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Speaker 5: The operating data of the enterprise is just an auxiliary. As a result, the risk of anti-mugging will be much better.
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Speaker 2: Okay. Thank you, Richard. I want to highlight that the prepared remarks just now delivered was generated by our large language model team, but for Q&A part, I will still answer the question in Chinese.
Okay. Thank you I want to highlight that.
Early remarks, just now.
That was generated by our large language Margaret Keane.
But for our Purion part I'll still answer the question in Chinese.
Speaker 2: Regarding our question, stepping into Q4, we have observed the credit amount slightly trending down. In particular, credit amount was soft in October , mainly due to the seasonality factor during the national holiday. And after that, it maintained stable into November .
Regarding your question stepping into Q4, we have upset the credit demand slightly trending down in particular credit amount with soft in October.
Sure.
A key factor during the national holiday and after that it can maintain stable into November.
Speaker 2: From user segment's perspective, the credit amount from broadly defined SME segment is slightly better than our consumer segment.
The second lens perspective, the credit demand broadly defined as any segment.
Slightly better than our consumer sector, and we do see them.
Speaker 2: And we do see some divergence from industry perspective. For example, the service sector, like sports, entertainment, and also the technology sector are better than the others.
Diverging from industry perspective for example.
Okay.
Sports Entertainment and also the technology sector Applecare.
Yes.
Speaker 2: Compared to consumer segments, the broadly defined SME segment has more stable credit amounts and generates higher value. We expect to enhance our ability to identify the user group and use diversified products and services to improve our customers' experience and their sickness as well.
Compared to the consumer segment the broadly defined.
Segment has more stable credit along and generate higher value we expect to.
Our ability to identify the user group and a diversified product and to improve our customers' experience.
Yes.
Well.
Speaker 2: Here we would like to emphasize our broadly defined SME users are totally different from traditional SMEs as their ticket size is much smaller and our risk model are more based on individual profiles with the business data and supplementary information. And therefore, the risk performance of our broadly defined SME users are much better.
Here, we would like to emphasize our broadly defined.
I totally different from traditional.
As the ticket side.
Smaller and our risk models are more based on individual profiling with the business data as supplementary information.
Therefore, the risk performance of our broadly defined.
They are much better.
Speaker 2: And I would like to invite our CRO, Mr. Zhen Yan, to add on the risk part.
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Speaker 7: As Mr. Hai said, our risk management for Fan Xiaowei's customer group is different from the common risk management model that is based on enterprise operations. We are a dual-engine management model that is based on enterprise personal information and enterprise business information.
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Speaker 7: In the case of user authorization, we have introduced 11 unique data sources, such as tax, invoice, business information, post flow, bill, and other data. Combined with the trust of the platform's entrepreneurs, we will integrate these tax-based data into the algorithm to make more accurate risk assessments for small and medium-sized enterprises.
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Speaker 7: In terms of management of the amount of funds, we have a relatively large feature for some industries' funding needs. We usually match the seasonal balance of each industry with the balance of funds of the platform such as Double 11 and 618, to serve the various fund needs of small and medium-sized enterprises in all aspects.
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Speaker 2: Our risk-management mechanism for the broadly-defined SME segment is different from the traditional SME segment.
It's different from the traditional SME.
Got it.
Speaker 2: in the sense that our risk model is primarily based on personal data of the business owner with the enterprise data as a secondary layer of information input.
In the fact that our risk model is primarily based on personal data.
Okay.
Enterprise data secondary layer of information input.
Speaker 2: Upon user's approval, we integrate the personal credit data with the SME-specific data source, for example, the tax, invoice, cash flow, billings, et cetera, based on our sophisticated algorithm so we can better evaluate the creditworthiness of the SME borrowers.
Upon approval, we integrated the personal credit data.
Specific date has done.
For example, the tax invoice cash flow building et cetera based on our sophisticated algorithm. So we can better evaluate the credit worthiness of the SME broadly.
As this segment normally has urgent and higher credit demand. So we combined the fixed credit lines with additional temporary credit lines.
Speaker 2: As this segment normally has urgent and higher credit amounts, so we combined the fixed credit line with additional temporary credit lines in relation to certain seasonal events like Double Eleven Shopping Festival on June 16, et cetera, so we can better serve all kinds of needs of the SME users.
Relation to certain events like double 11 shopping festival on June 16, et cetera. So we can better serve our clients.
All of the SME.
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Speaker 3: From Jiangxi's perspective, the cost of driving financial institutions has dropped and has been transferred to the real economy. However, this year's environment is still quite complicated. We don't see enough flexibility.
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Speaker 5: This year, the cost of capital will continue to fall, and we think this is mainly due to the supply-demand relationship.
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Speaker 5: From the perspective of financial institutions, after the fall of the bond market, the financial sector's demand for consumer-type assets has increased significantly. And our asset scarcity is also very good. Therefore, we have driven a significant decline in the year-to-date bonding cost.
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Speaker 5: Since September this year, we have seen that the demand for government financing and the real estate industry will lead to a surge in funds from consumer assets.
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Speaker 5: We will prepare for this and see if it will affect our cost.
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Speaker 5: From the perspective of ABS, we will continue to maintain and even expand our ABS issuance rhythm. Our ABS issuance scale and issuance cost should be considered very good in the same industry. We hope to continue to maintain our issuance rhythm and our leadability.
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Speaker 5: Therefore, we need to maintain a relative advantage in terms of capital cost.
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Speaker 2: Regarding the funding cost, our coastal funding declined by 20 bps sequentially in Q3, with our ABS issuance cost down by 47 bps.
Regarding funding costs, our cost of funding declined by 20.
Sequentially in Q3, with our Aps issuance costs down by 47.
And our current funding cost is quite similar to the acuity level.
Speaker 2: And our current funding cost is quite similar to the Q3 level.
Speaker 2: From a rate-cutting perspective, theoretically, rate-cutting can drive down the funding cost of financial institutions and eventually benefit the real economy. However, due to the complex macro environment in this year, we didn't see it help that much.
From a rate cutting perspective.
Particularly a rate cutting can drive down the funding cost of financial institutions, and eventually benefit the real economy. However, due to the complex macro environment.
We didn't have that much.
Speaker 2: Our funding cost decline this year was mainly driven by the supply and demand dynamics in the market as the funding partners allocated more resources to consumer loan assets when the mortgage loan is underperforming this year. Given the scarcity of our assets, we managed to continue to optimize our funding cost in this year.
Finding cost decline this year was mainly driven by the supply and demand dynamics.
In the market as the founding partners allocated more resources to consumer loan assets when the market alone is underperforming.
Given the scarcity of our assay, we managed to continue to optimize our funding cost this year.
Speaker 2: However, since September , there is some other sectors, including government financing, property sectors, are also attracting funding flows, which may put pressure on the further reduction of our funding.
However in September there is some other sector, including government financing property sector also attracting found inflows, which may put pressure on that side.
The reduction of our funding cost.
Speaker 2: we will continue to, going forward, we will continue to optimize our funding structure and keep the pace, or even expand our ABS issuance to maintain our competitive advantage from the funding part, and maintain our funding.
We will continue to occur.
Going forward, we will continue to optimize our funding structure and keep the pace or even expand our ABS issuance to maintain our competitive advantage from their funding path.
And maintain our funding cost at a stable level.
Okay.
Our.
Speaker 5: Okay, thank you, Richa. You see, I didn't answer your question.
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Speaker 1: Thank you for the questions. I'll now move on to the next questions from Alex Year from UPS. Please go ahead.
Thank you for the questions.
Move on to the next questions from Alex Ye from UBS. Please go ahead.
Hi.
Speaker 8: I have two questions. First, can you give us more information about the quality of the assets?
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Speaker 8: In fact, our industry itself is facing some challenges, for example, in terms of recovery efficiency.
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Speaker 8: Is there any decline? And what is the trend of Q4 in the last two months?
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Speaker 8: The second question is about the price outlook. We can see that this year...
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Speaker 8: the government has reduced the interest burden of ordinary families and also reduced the interest rate of existing mortgages. In this context, of course, a decrease in interest rates can help reduce our capital costs, but will it also bring a certain pressure to the whole consumer loan industry?
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Speaker 8: My first question is about the accuracy outlook. Can you give us more color in terms of the recent causing of fluctuations in Q3?
First question is about the.
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Can you give us more color in terms of the.
Recent for closing the fluctuations in Q3.
Speaker 8: Is it more driven by the macro environment or some of the industry-specific reasons such as your collection efficiency? And what's the latest trend in Q4 in the most recent months? And the second question is on the long pricing outlook. So in September , we have seen China lowering the mortgage rate for the existing mortgages.
Is it more driven by the macro environment or some of the industry specific reasons, such as your collection efficiency.
And what's the latest trend in Q4 in the most recent boxes and the second question is on the non pricing outlook. So.
We have seen China lower in the mortgage rate.
It's the same mortgages.
Speaker 8: So under that kind of a backdrop.
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Speaker 7: Regarding the asset fluctuations in Q3, we think it is mainly due to two factors. One is the macro level. We also know that some major macro economic indicators are not as good as expected.
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Speaker 7: The second is that the investment itself has a certain seasonal characteristic. Generally speaking, the first half of the year is relatively strong, and the second half of the year will be relatively tight. So the consumption of new generation assets will fluctuate to a certain extent in Q3 and Q4.
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Speaker 7: In the end, these two factors will result in a decrease in the return rate. This is a problem that the entire industry may encounter. We expect that the liquidity of the overall market will return to a wider state in the first half of next year. This will help Q4's investment risk.
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Speaker 7: At the same time, we have made rapid adjustments since the beginning of the autumn mountains.
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Speaker 7: including optimizing the quality structure of new customers to match the risk format of the macro and the industry, tightening some transaction audit strategies, and reducing the number of customers.
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Speaker 7: From the FPC7 index, which is the early performance of new assets, we have seen a relative drop of 5% in September and August , and some performance in October . It is expected that the FPC7 index will be further optimized in September .
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Speaker 7: In terms of Q4, we will further strengthen the construction work of the risk tool upgrade, which will probably include three aspects.
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Speaker 7: We will bring in China-Taiwan large model teams and venture capitalists to do some joint modeling on the large scale. The second part is that our internal data will continue to be deep-dug and we will bring in a version of our conventional coins.
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Speaker 7: We will focus on a new round of deep-diving for APP buy-in data and human-to-air authentication data. We will use our series of algorithms to build a large-scale model of risk-indexing. This is expected to be completed by the end of November , and we will further enhance the ability to identify risks by integrating with conventional B?. The third piece is a proof of the upgrade of the mid-risk model. We will build a fast-responding B? screen.
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Speaker 7: This fast-response B-card is different from the standard B-card that requires a long-term sample stability. This fast-response B-card will be based on a more regular sample, then combine the latest data and algorithm results to quickly update the B-card score to quickly identify the risk of new increases. This work is expected to be completed in December .
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Speaker 7: I believe that with the advancement of our work, we will be able to push the risk even higher. I expect that the risk of asset increases in November and December will be stabilized.
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Speaker 2: Okay, I will do the translation. The fluctuation of our SI quality in Q3 was mainly a result of two factors adding together. The first is from macro perspective, the key macro indicators are below the.
The fluctuation of our asset quality in Q3 was mainly a result of just.
Adding together.
The first is from.
On a macro perspective, the key macro indicators at below that.
Speaker 2: The second reason is that the serenity of the credit industry in the sense that the liquidity is typically better in the first half than second half, which led to some fluctuation of our asset quality in Q3. However, we expect the situation, especially the liquidity situation, will improve in early next year, which may help improve the risk performance of our new loan issue.
Expectation the second lever is that's it.
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The risk performance of our new loan issued in Q4.
Speaker 2: At the same time, we swiftly adjusted our operations by upgrading our user base, tightening our credit assessment criteria, and reducing the exposure of our existing borrowers since Q3. Accordingly, our early risk indicators for new loans, say FPD7, improved by 5% sequentially in September , and we expect it to continue to improve in October .
At the same time, we do it.
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By 5% sequentially in September and we expect it to continue to improve in October.
Speaker 2: And in Q4, we have further strengthened our risk management tools from three aspects.
And in Q4, we have further strengthened our risk management tools from three aspects first we incorporated the scorecard data from the Internet platform and appeared joined model with dose I'll pass one second.
Speaker 2: First, we incorporated the scorecard data from three leading Internet platforms and built a joint model with those platforms. Second, we incorporated the scorecard data from three leading Internet platforms and built a joint model with those platforms. Third, we incorporated the scorecard data from three leading Internet platforms and
Speaker 2: We deep dive into our internal data and upgrade our regular B-score cards by further leveraging our app data and PBOC data, using sequence algorithms and large language models to construct risk sub-analysis, aiming for an integrated B-score card and further improved screening capability by the end of November .
We deep dive into our internal data and upgrade our regular b scorecard by further leveraging our app data and <unk> data.
D equals algorithm and a large model.
Larger language models.
With that I'd now like aiming for an integrated E scorecard and further improved screening capability by the end of November.
Third we will upgrade our post lending risk model and generate fast responding b scorecard rating system by end of December primarily based on vegan sample, which is more helpful.
Speaker 2: Third, we will upgrade our post-landing risk models and generate fast-responding B-scorecard rating systems by end of December , primarily based on recent samples, which is more helpful for us to identify new risks.
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Speaker 2: Putting together all these efforts, we expect the risk...
Putting together all of these efforts we expect the risks.
Speaker 2: performance of the neurons originated in November and December will stabilize.
Performance of the new loans are originated in November.
December will stay by.
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Speaker 5: I want to say, I should say, from a subjective point of view...
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Speaker 5: For example, we will take a better and lower price test for the higher-quality customers. This will improve our users' satisfaction.
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Speaker 5: to optimize the structure of our customer group. At the same time, we will also provide moderate body price to users who are at higher risk.
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Speaker 5: Therefore, in general, we believe that we can maintain a stable market price.
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Speaker 5: At the same time, from the perspective of macroeconomics, consumer finance is still one of the main means to stimulate our consumption.
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Speaker 5: In the current regulatory system, the country has formed a multilayered financial supply system.
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Speaker 5: We will set a price based on our own role and the supply-demand relationship of the market, and actively play a role in expanding consumption and assisting small and medium-sized enterprises.
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Speaker 2: Regarding pricing, I would say from our own intention perspective, we will conduct different pricing tests for varied customer groups to improve user stickiness and satisfaction.
Regarding pricing I would say from our intention perspective, we will conduct different pies intact for the calculus group.
Our user stickiness and satisfaction.
Speaker 2: Through more attractive pricing, we are also able to acquire quality new users to improve our user mix. Meanwhile, we will also raise our pricing for higher risk users. Combined, our average pricing will continue to keep stable.
More attractive pricing, we are also able to acquire quality new uses to improve our user needs.
Meanwhile, we will also raise our pricing for higher Vic needed.
Combined our average pricing will continue to keep stable.
Speaker 2: Under current macro environment, consumer finance is also one of the means to boost consumption and economy. Under the current regulatory system, this is a multi-layer supply system for the consumer credit industry.
And the current macro environment consumer finance is also one of the main concern.
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It's a multi layered supply system for the consumer credit industry.
Speaker 4: Based on that, we will also set price based on supply and demand dynamics and actively play our role to drive the consumption and help SME players.
Based on that we will also get price.
Client demand dynamics and actively play out.
To drive the consumption and helped SME.
Players.
Yeah.
Hi, Alex.
Thank you Alex.
Just another question.
One moment for the next question.
Speaker 1: Next question comes from the line of Emma Hsu of Bank of America Securities. Please go ahead.
Next question comes from the line of MRC of Bank of America.
Please go ahead.
Speaker 9: Thank you for giving me the opportunity to ask this question. I have a question here about the share return. We see that the company is still continuing to buy back until the latest issue has been repurchased for 80 million yuan. I would like to ask if there will be more repurchase at the current valuation level. After the repurchase is over, will there be more repurchase in the medium-to-long term?
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Wade.
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Okay.
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Speaker 9: ????????? So my question is about your shareholder capital return. It's really encouraging to see that you continue to buy back your shares at current level. And I just want to ask whether you will continue to do the buyback. And after the completion of the current buyback program, will you launch more buyback program in the future?
My question is about your.
Shareholder capital return.
Alright.
You continue to buyback shares.
At current level.
And I just wanted to ask whether you will continue to do the buyback and objects.
Completion of the current.
Buyback program.
It's more a buyback program in the future.
Okay.
Speaker 4: Okay, Emma, I will take this question. So, as you said, we already did 80 million repurchase since June 20th, well ahead of the timeline. And obviously, we'll continue to execute the current repurchase program throughout the remainder of the year and also into next year.
I will take this question.
As I said, we already did.
80 million repurchased since June 20th.
<unk> ahead.
Timeline.
And.
It will continue to execute the current repurchase program.
Throughout the remainder of the year.
And also in <unk> into next year.
Speaker 4: We already structured internally a very comprehensive system to periodically review our cash position as well as the deficient usage of the cash.
We already see.
Structured internally, a very kind of a comprehensive system.
To periodically review, our cash position as well as the use of the deficient usage of the cash.
Speaker 4: try to compare the expected return between the reinvestment in operations and the return generated from either the buyback or the dividend payment.
Tried to compare.
The expected return between the reinvestment in operations.
And the returns generated from either the buyback or the.
The dividend payment soon.
Speaker 4: Through this kind of a review, we will determine which is the best way to deploy additional cash or additional resource in the future. So after we complete the current buyback program, as well as this year's dividend
As soon as this kind of a review we will determine which is the best way to deploy additional cash or additional resource.
In the future so.
After we complete the current buyback program as well as the this year's dividend.
Speaker 4: plan, we will do a new review based on the cash position at that point.
Plan, we will do.
New review.
Based on the cash position at that point.
Speaker 4: and make necessary changes to the shareholder return program either through buyback or through a dividend or through some kind of a combination of the both.
And in the.
And make necessary changes to.
To the shareholder return program.
Either through buyback or through dividend or through some kind of a combination of the both.
Speaker 4: In summary, basically, the logic behind our future cache deployment is based on whichever method.
Summary, basically.
The logic behind our future cash deployment.
Based on whichever method.
Speaker 6: can generate the highest shareholder return, then we will use the cash to that direction. Thank you.
Can generate the highest shareholder return.
Then we will use our cash to that direction.
Thank you.
Yes.
Thank you.
To put the questions one moment for the next question.
Next question, we have to live from Cindy Wang from China Renaissance. Please go ahead.
Speaker 1: Next question, we have the line from Cindy Wang from China Renaissance. Please go ahead.
Speaker 10: Okay, thank you for giving me the opportunity to ask this question. I have a question here about the strategy of Managing City for Light Assets. Can you help us guess the current profit of Light Assets?
So that answers your question.
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Henry.
Speaker 10: Thank you for the opportunity. My question is about the management strategy for capital light and capital heavy assets.
Okay.
Davidson.
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Hello My question. Thanks.
This opportunity.
My question is about our bank loan strategy Paul capital light.
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Speaker 10: Can you help us break down the current profit margins of capital light and capital heavy loans? And how does the management view the proportion of capital light and capital heavy loans in the future? So compared with the growth of loan volume, will companies be more focused on the profitability in 2024? Thank you.
Capital light and the capital have you and how does the management deal the propulsion.
Davidson.
Capital.
Thanks, Chuck so compared with circle of long bottom.
I'll come back and being more focused on the profitability in 2024.
You.
Okay.
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Speaker 5: From the perspective of take rate, the profitability of these two assets should be said that we have tried to make these two assets basically balanced at a take rate of less than 3%, while heavy assets are slightly higher than 3%. We will also make the light assets close to 3% through our detailed operation and configuration.
So on the take rate ticket Chancellor can still unknown at the time.
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Speaker 5: So there's not much of a difference between them.
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Speaker 5: We should say that we do not see absolute proportion as our main goal. We should say that we are balancing our profitability and the long-term health of our entire asset class.
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Speaker 5: to achieve our ultimate goal of maintaining a relatively dynamic and balanced state.
How do you plan to determine that belief.
Speaker 5: From the perspective of the future liquidity and return on investment, we have the same logic. We don't consider the return on investment as our only priority, and we don't consider liquidity as our only priority.
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Speaker 5: Because if we take profit as the first consideration, then we can actually, like some platforms, do a lot of heavy assets, which is actually very good. It can give us a larger scale of profit.
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Speaker 5: But we still think that today's...
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Speaker 5: is the most beneficial state for the overall health of our asset-to-asset combination. Therefore, in the foreseeable future, we will still use dynamic balance to grasp the overall health. I don't think there will be too much fluctuation in this ratio today.
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Okay. Thanks Cindy.
Speaker 2: Okay. Thanks, Cindy. Regarding the probability of our capital-heavy and capital-light business model, I would say both capital-heavy and capital-light loan facilitation model generates a roughly 3% net take-away, with capital-heavy a little bit higher than 3% and capital-light a little bit lower, but pretty close to 3%.
Adding the profitability of our company.
It is a model I would say both cats are heavy and capitalized loan facilitation model generates a roughly 3%, let's take rate with capsule, Harry and it has been.
Higher than 3% and the capitalized a little bit lower but pretty close to 3%.
Speaker 2: In terms of the loan mix, we will balance profitability and the long-term healthiness of our loan portfolio and keep a dynamic balance between these two categories.
In terms of the loan mix, we were balance profitability and long term housing is of our loan portfolio and keep a dynamic.
Between these two categories.
Speaker 2: Regarding the importance of loan volume versus profitability, I would say it is not our priority to either pursue loan growth or pursue profitability improvement.
Regarding the importance of loan volume versus profitability I would say it is not our priority to either pursue loan growth our prestige profitability improvement.
Speaker 2: If we only pursue profitability, we can just all do as a heavy business like some other
We only pursue profitability, we can get or do you have a business like some other platforms.
Speaker 2: but our target is to balance profitability and the long-term healthiness and sustainability of our loan portfolio, so we expect LoanMix will maintain largely stable in the foreseeable future.
Our target is to balance profitability and the long term housing and the sustainability of our loan portfolio. So we expect loan mix will maintain largely stable in the foreseeable future.
Thank you.
Yes.
Speaker 4: Yeah, I probably want to add one little point here, is that this year, in 2023, because the macro factors and also because the first half of the year, we are facing a tough comp in terms of pricing versus last year. That's why you see the profitability growth is slower than the non-volume growth for 2023.
<unk>, probably want to add one.
Little point here is that.
This year in total.
'twenty three because the.
The macro factors and also because the first half of the year.
We're facing a tough comp in terms of pricing versus last year.
Why you see the productivity profitability grows.
Slower than the non volume growth for 2023.
Speaker 4: And I would say these kind of negative factors related to probability is already behind us. So in the future years, we will try to at least maintain the same pace in terms of between the volume and the probability. If anything, we try to also drive some additional operating leverages in the future.
And I would say this kind of negative factors related to probability.
It's already behind us so in the future years, we will try to at least maintain the same pace in terms of between the volume and the profitability. If anything we tried to also drive some additional operating leverages.
In the future.
Thank you Cindy.
The questions.
Our next question comes from the line of Lee from CIC. Please go ahead.
Speaker 1: Our next question comes from the line of Yada Lee from CICC. Please go ahead.
Speaker 11: Hello, management team. Thank you very much for giving me the opportunity to ask this question. I am Li Yadang from ZTE. Today, I have a question for the management team. I would like to ask further about the trend of the overall take rate in the future. What do you think about the series of factors, such as pricing, pre-payment, risk, capital cost, etc., which have a comprehensive impact on the overall take rate, and whether the overall take rate in the future will maintain a similar level to the current one? Thank you, management team.
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Speaker 11: Then I'll do my translation. Hello, management. Thanks for taking my question. This is Yada.
Then I'll do my translation Hello management. Thank you for taking my question.
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Speaker 2: Okay, because we understand your question, so we can go ahead and answer this question, okay.
And as Dan Your question. So we can go ahead answer this question okay.
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Yeah.
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Speaker 5: the risk will fluctuate, and the cost of capital will fluctuate.
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Speaker 5: Therefore, in all kinds of fluctuating factors,
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Speaker 5: In the midst of all these fluctuations, through our own efforts, for example, through the reduction and optimization of funding costs, and by investing in more research and development resources,
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Speaker 5: to reduce our various operating costs, such as cargo and risk.
Okay.
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Good day and time, but usually they go quicker if I may be useful to you beforehand.
Speaker 5: Based on our various technical drives, we try to reduce the impact of these three-way fluctuations to maintain a relatively stable take rate.
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Speaker 5: From the point of view of the three normals, our...
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Speaker 5: Through the investment of all kinds of sophisticated research and development resources, our costs have been reduced and efficiency has been improved.
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Go ahead gentlemen.
<unk> utilization.
Speaker 5: In addition, we provide more diversified services to our users to improve our overall profitability. In fact, our take-away revenue has increased in the third quarter. However, we also see that the scale of our third quarter revenue has actually increased. The peak of our third quarter revenue has also offset some of the taxes.
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Speaker 5: So, in the end, it looks like TGV is in a bad situation compared to the last quarter. But in fact, Q3 is a good time for TGV.
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Speaker 5: From a long-term perspective, we hope to continue to invest more in this kind of technical power to improve our overall operation efficiency. We are very hopeful that TechGrid will have a steady growth.
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See some fluctuation in terms of our credit costs in our funding costs. In this regard will further fine tune our operations optimize our funding structure and invest more resources into R&D to improve our operational efficiency and funding cost with dose.
Speaker 2: With those costs and efficiency improved, we will mitigate largely the fluctuation. So we will see the take rate maintain stable in the short term. Actually, if you look at our take rate in Q3, it's actually improved sequentially from Apple to Apple perspective with diversified services offered to our users and optimizing our asset allocation.
Cost and efficiency, we will mitigate larger Nate fluctuation. So we like you to takeaway maintain stable in the short term.
Actually if you look at it.
Our take rate in Q3.
Actually.
Sequentially from an Apple to Apple pay started with diversified services offered to our users and optimizing our asset allocation.
Speaker 2: But because we expanded our customer outreach in Q3 and adding on additional tax costs related to our dividend and the share buyback program, it looks like our take rate in Q3 maintained stable from last quarter.
<unk>.
We expanded our customer outreach in Q3 and are adding additional tax costs related to our dividend.
Share buyback program.
Looks like our takeaways.
Take rate in Q3 maintain stable from last quarter.
Speaker 2: So, from long-term perspective, we will further improve our operational efficiency, and we do hope to see a steady increase in our take-away.
From long term perspective, we will further improve our operational efficiency and we do hope to.
The increase in our take rate.
Yes.
Thank you.
Thank you I see no more questions from the phone line I would like to hand, the call back to management for closing remarks.
Speaker 1: Thank you. I see no more questions from the phone line. I would like to hand the call back to management for closing.
Speaker 4: Okay, thanks again for everyone to join us for the call. If you have additional questions, please feel free to contact us offline. Thank you, have a good day.
Okay. Thanks, again for everyone to join us for the call. If you have additional questions. Please feel free to contact us offline. Thank you have a good day.
Speaker 1: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect your line.
Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect your lines.
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[music].
Speaker 1: ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Ladies and gentlemen, thank you for standing by. And welcome to the Chifu Technology 3rd Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After speaker's presentation, there will be a question and answer session, at which time, if you wish to ask questions, please press star 11 and wait for your name to be announced.
[music].
Speaker 12: you you you
Speaker 1: Ladies and gentlemen, thank you for standing by and welcome to the Qifu Technology third quarter 2023 news conference call. At this time, all participants are in a listen-only mode. After speaker's presentation, there will be a question and answer session, at which time, if you wish to ask questions, please press star 11 and wait for your name to be announced.
Ladies and gentlemen, thank you for standing by and welcome to the Chipmos Technologies' third quarter, two I think that is true.
Based on these conference calls.
At this time all participants are in a listen only mode.
The presentation that will be a question and answer session.
Finally, if you wish to ask a question. Please press star one.
Speaker 1: Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Karen Chee, Senior Director of Capital Markets. Please go ahead, Karen.
Please also note today's event is being recorded.
At this time I would like to turn the conference call over to Ms currency.
All capital market. Please go with your tenants.
Thank you Desmond Hello, everyone and welcome to Chi fluid technologies third quarter 2023 earnings Conference call.
Our earnings release was distributed earlier today and is available on our IR website.
Joining me today are Mr. Watson CEO, Mr. Alex <unk>, our CFO and MS Jing Yang our CFO.
Speaker 2: Joining me today are Mr. Wu Haisheng, our CEO , Mr. Alex Xu, our CFO , and Mr. Zheng Yan, our CIO.
Speaker 2: Before we start, I would like to refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make certain forward-looking statements.
Before we start I would like to refer you to our safe Harbor statement in the earnings press release.
Applies to this call as we will make certain forward looking statements.
Also this call includes discussions of certain non-GAAP financial measures.
Speaker 2: Please refer to our earnings release, which contains a reconciliation of non-GAAP financial measures to GAAP financial measures.
Please refer to our earnings release, which contains a reconciliation of non-GAAP financial measures to GAAP financial measures.
Also please note that unless otherwise stated all figures mentioned in this call are in RMB term.
Speaker 2: Also, please note that unless otherwise stated, all figures mentioned in this call are in RMBK.
Before we start. Please also note that todays prepared remarks from our CEO will be delivered in English using AI generated voice now.
Speaker 2: Before we start, please also note that today's prepared remarks from our CEO will be delivered in English using an AI-generated voice.
Speaker 2: Now, I will turn the call over to Mr. Wu Haisheng, please go ahead.
Now I will turn the call over to Mr. Weissman. Please go ahead.
Speaker 3: Hello, everyone. Thank you for joining our third quarter earnings conference.
Hello, everyone.
Thank you for joining our third quarter earnings conference call.
Speaker 3: Since the start of the year, the momentum of China's macroeconomic recovery has softened after rebounding earlier in the year, with effective demand for consumer credit also coming in weaker than expected. We promptly adjusted our strategic approach to this new market environment by diversifying our customer acquisition channels and refining operations.
Since the start of the year.
And some of China's macroeconomic recovery softened after rebounding earlier in the year with effective demand for consumer credit also coming in weaker than expected. We promptly adjusted our strategic approach to this new market environment by diversifying our customer acquisition channels and refining operations.
All with a clear goal of driving high quality growth and improving profitability.
Speaker 3: All with the clear goal of driving high quality growth and improving profitability. These efforts yielded solid results in Q3. By the end of the quarter, our platform empowered a total of 155 financial institutions and cumulatively served more than 49 million users with approved credit lines.
Efforts yielded solid results in Q3.
At the end of the quarter our platform empowered a total of 155 financial institutions and cumulatively served more than 49 million users with improved credit lines total loan facilitation and origination volume on our platform reached RMB $123 1 billion up roughly 11% year over year.
Speaker 3: Total loan facilitation and origination volume on our platform reached RMB 123.1 billion, up roughly 11% year-over-year. With the quality of our earnings further improving, our non-GAAP net income for the quarter increased by approximately 14% year-over-year.
With the quality of our earnings further improving our non-GAAP net income for the quarter increased by approximately 14% year over year.
In today's complex macro environment. It is particularly important that we expand our safety cushion by improving profitability to achieve this we are optimizing resource allocation across customer acquisition products risk management and asset distribution to boost operational efficiency.
Speaker 3: today's complex macro environment, it is particularly important that we expand our safety cushion by improving profitability. To achieve this, we are optimizing resource allocation across customer acquisition, products, risk management, and asset distribution to boost operational efficiency and ultimately drive bottom-line growth.
And ultimately drive Bottomline growth.
Speaker 3: Now, I'll walk you through some of the progress we made in this regard during the quarter.
Now I'll walk you through some of the progress we made in this regard during the quarter.
Speaker 3: To start with, we continue to explore diversified customer acquisition channels and deploy innovative approaches to attract new customers, which not only improved customer acquisition efficiency, but also resulted in notably better quality of new users.
To start with we continue to explore diversified customer acquisition channels and deploy innovative approaches to attract new customers.
<unk> not only improved customer acquisition efficiency, but also resulted in notably better quality of new users.
Speaker 3: In terms of optimizing our customer acquisition channels, we established a partnership with a leading short-form video platform through our embedded finance business in the third quarter. Leveraging the platform's massive active user base and our ability to accurately profile users and identify risk, we have consistently maintained a leading market share on the platform since the start.
In terms of optimizing our customer acquisition channels, we established a partnership with a leading short form video platform through our embedded finance business in the third quarter.
Leveraging the platforms massive active user base and our ability to accurately profile users and identify risk we have consistently maintained our leading market share on the platform since the start.
Speaker 3: During the quarter, our Embedded Finance business generated an impressive 46% sequential increase in the number of new users with approved credit lines. Approximately 33% of total new users with approved credit lines during the quarter were acquired through the Embedded Finance.
During the quarter, our embedded finance business generated an impressive 46% sequential increase in the number of new users with approved credit lines approximately 33% of total new users with approved credit lines. During the quarter were acquired through the embedded finance channel.
We also intensified our marketing efforts through innovative marketing approaches during the quarter to attract high quality customers. This.
Speaker 3: We also intensified our marketing efforts through innovative marketing approaches during the quarter to attract high quality customers.
Speaker 3: This was done by deploying more compelling ad placements to expand our customer reach.
This was done by deploying more compelling AD placements to expand our customer reach.
Speaker 3: Based on user profile analysis, users acquired through innovative marketing methods significantly outperformed those obtained through conventional methods in terms of educational background, mortgage and credit history.
Based on user profile analysis uses acquired through innovative marketing methods significantly outperformed those obtained through conventional methods in terms of educational background mortgage and credit history.
Speaker 3: They also clearly have better risk performance in terms of short-term delinquency rates as we observed during the first three months.
They also clearly have better risk performance in terms of short term delinquency rates as we observed during the first three months.
Speaker 3: with our innovative customer acquisition strategy firmly in place. The proportion of high-quality users increased by more than four percentage points from July to October . This not only directly complements our existing user base, but also contributes to the stability of our overall risk performance.
With our innovative customer acquisition strategy firmly in place the proportion of high quality users increased by more than four percentage points from July to October is not only directly complements our existing user base, but also contributes to the stability of our overall risk performance.
As a result of these initiatives.
Speaker 3: The number of new users with approved credit lines increased by 18% in Q3 sequentially, while unit customer acquisition costs increased only slightly.
The number of new users with improved credit lines increased by 18% in Q3 sequentially, while unit customer acquisition cost increased only slightly.
Moving on to product design, we introduced a loyalty program to enhance engagement of existing users by offering a wider range of value added services, we are effectively enhancing user engagement and retention, which increases our revenue and profit per user users who joined the loyalty program demonstrated higher engagement with a double.
Speaker 3: Moving on to product design, we introduced a loyalty program to enhance engagement.
Speaker 3: By offering a wider range of value-added services, we are effectively enhancing user engagement and retention, which increases our revenue and profit per user. Users who joined the loyalty program demonstrated higher engagement, with a double-digit increase in both the rate of drawdown and the number of loans borrowed over a certain period of time.
Digit increase in both the rate of drawdown and the number of loans borrowed over a certain period of time.
Speaker 3: Turning to risk, we swiftly responded to the changing market environment.
Turning to risk we swiftly responded to the changing market environment in Q3, we gradually tightened credit standards and upgraded risk models in particular, we further enhanced the knowledge graph for our broadly defined SME segment by closely analyzing relationships among individuals businesses and industries.
Speaker 3: In Q3, we gradually tightened credit standards and upgraded risk models. In particular, we further enhanced the knowledge graph for our broadly defined SME segment. By closely analyzing relationships among individuals, businesses, and industries, we improved our ability to identify risks within this segment.
We improved our ability to identify risks within the segment, it's worth noting that there are clear differences between our broadly defined SME segment and Smes in the traditional sense as it primarily younger enterprises acquired through online channels when conducting risk assessments.
Speaker 3: worth noting that there are clear differences between our broadly defined SME segment and SMEs in the traditional sense. Ours are primarily younger enterprises acquired through online channels.
Speaker 3: we place more emphasis on individual credit history and use business data as a secondary reference.
And place more emphasis on individual credit history and use business data as a secondary reference.
Speaker 3: As a result, credit lines extended to our SME segment are usually smaller, making associated risk much more manageable. Compared to the consumer segment, the SME segment generates much more stable demand and stronger growth potential with similar risk performance.
As a result credit lines extended to our SME segment are usually smaller making associated risk much more manageable compared to the consumer segment. The SME segment generates much more stable demand and stronger growth potential with similar risk performances.
Looking ahead, we are confident that there is significant room for growth and value generation over the long term for our broadly defined SME segment, driven by our accurate user identification and differentiated operations.
Speaker 3: Looking ahead, we are confident that there is significant room for growth and value generation over the long term for our broadly defined SME segment, driven by our accurate user identification and differentiated operations.
Lastly, we kept pricing at stable levels and leveraged our funding strengths to further optimize our economic model.
Speaker 3: Lastly, we kept pricing at stable levels and leveraged our funding strengths to further optimise our economic model.
Speaker 3: with relatively ample liquidity in the financial system during the quarter.
We have a relatively ample liquidity in the financial system during the quarter.
We further optimize our funding structure by increasing the proportion from larger banks.
Speaker 3: We further optimized our funding structure by increasing the proportion from larger banks, which reduced our funding costs by another 20 basis points.
<unk> reduced our funding costs by another 20 basis points.
Speaker 3: In terms of ABS, we secured ABS investments from multiple state-owned and joint stock banks and top securities firms, leading to a 47 basis point decrease, quarter over quarter in ABS issuance costs.
In terms of ABS, we secured ABS investments from multiple stay tuned and joint stock banks in TARP Securities funds, leading to a 47 basis point decrease quarter over quarter and ABS issuance costs.
Speaker 3: With the accuracy of user profiling and identification continuously improving, we also further expanded the range of our financial institution partners, strengthening our ability to serve various loan asset segments, with more financial partners coming on board under the ICE.
With the accuracy of user profiling and identification continuously improving we also further expanded the range of our financial institution partners strengthening our ability to serve various loan asset segments with more financial partners coming on board under the ICD.
A referral model, which further mitigates risk our ability to engage with the lower tier user segment has significantly improved as we continued to optimize asset allocation efficiency, we expect our overall profitability to further improve going forward.
Speaker 3: our ability to engage with the lower tier user segment has significantly improved. As we continue to optimize asset allocation efficiency, we expect our overall profitability to further improve going forward.
Speaker 3: Now, let me share with you the progress we made on the technology front.
Now, let me share with you the progress we've made on the technology front.
Our technology solutions.