Q1 2024 Lufax Holding Ltd Earnings Call
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Lufax Hldg Ltd's first quarter 2024 earnings call. At this time, all participants are in a listen-only mode.
Ladies and gentlemen, thank you for standing by and welcome to loose X holding Ltd first quarter 'twenty 'twenty four earnings call.
At this time all participants are in a listen only mode. After.
Operator: After the management's prepared remarks, we will have a Q&A. Please note this event is being recorded. [inaudible] Now I'd like to hand the conference over to your speaker host today, Ms. Liu Xinyan, the company's Head of Board Office and Capital Marketing. Please go ahead.
After the managements prepared remarks, we will have a Q&A session.
Please note this event is being recorded.
Now I'd like to hand, the conference I bet, you'll speak a host today Ms, losing Yang the company's head of Board office in capital markets. Please go ahead Madam.
Losing Yang: Thank you very much operator, Hello, everyone and welcome to our first quarter 2024 earnings Conference call, our quarterly financial and operating results were released by our Newswire services earlier today and are currently available online today, you will hear from our chairman and CEO Mr Y S.
Xinyan Liu: conference call. Our quarterly financial and operating results were released by our Newswire services earlier today and are currently available online. Today, you will hear from our Chairman and CEO, Mr. Y. S. Cho, who will provide an update on the macroeconomic trend in the recent developments and strategies of our business. Our co-CEO, Mr. Greg Gibb, will then go through our first quarter results and provide more details on our business priorities. Afterward, our CFO, Mr. David Choi, will offer a closer look into our financials before we open up the call for questions.
Losing Yang: Joe who will provide an update of the macro economic trends and the recent developments and our strategy of our business.
Losing Yang: Our co CEO, Mr. Greg keep well then go through our first quarter results and provide more details on our business priorities afterwards, our CFO, Mr. David Detroit well also.
Greg: So look into our financials before we open up the call for questions before we continue I would like to refer you to our safe Harbor statement in our earnings press release, which also applies to this call as we will be making forward looking statements with that I'm now pleased to turn over the call to Mr. White as true.
Xinyan Liu: Before we continue, I would like to refer you to our Safe Harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. With that, I am now pleased to turn over the call to Mr. Y. S. Cho, Chairman and CEO of Lufax, please.
White: Chairman and the C O that please.
Yong Suk Cho: Thank you for joining today's course. In the first quarter, we witnessed improvements in our early risk indicators. However, high-quality loan demand from small business owners remained subdued. While our risk exposure steaming from our 100% guarantee model means we'll be prudent and patient in new business development, our emphasis continues to be on quality over quantity. Before diving into business performance, let's take a look at the macro environment. Overall, the macro environment showed signs of improvement during the first quarter. The Purchasing Managers' Index, or PMI, which measures prevailing trends in the manufacturing and service industries, both trended positively.
White: Thank you for joining today's call in the fourth quarter, we witnessed it implement early leading indicators, however high quality loan demand from small business owners remained subdued.
Mr. White: Why are we.
Mr. White: Or just any from a 100% yet to moderate.
Mr. White: Yes.
Mr. White: The prudence and patience and new business development.
Mr. White: Our emphasis.
Mr. White: Quality over quantity.
Mr. White: Before diving into the useful life, let's take a look at the macro environment or the environment showed signs of improvement during the fourth quarter.
Some managers' index, or PMI, which measures prevailing trends in the manufacturing and service industries.
Mr. White: First trended positively.
Yong Suk Cho: The index increased from 49 in December 2023 to 50.8 in March 2024, for manufacturing, while it is moving from 49.3 to 52.8 for services. Despite improvement in the macro environment, the SCBO segment recovered at a relatively slow pace. For example, the Estimated Development Index published by the China Association of Small and Medium Enterprises was 89.3 for the first quarter of 2024, compared to 89.1 for the fourth quarter of 2023 and 89.3 for the first quarter of 2023.
Mr. White: <unk> increased from 49 in December December 2023 to 58 in March of 'twenty 'twenty four for manufacturing.
Mr. White: Three pronged <unk> 49 to 52.
Mr. White: For services.
Mr. White: This <unk> environment.
Mr. White: Studio segment recovered at a relatively slow pace for example, the SME development Index published by the China Association of small and medium enterprises was $89 three for the fourth quarter of 2024 compared to 891.
Mr. White: For the fourth quarter of 2023 and $89 three for the fourth quarter of 2023.
Yong Suk Cho: Now regarding this development, As discussed in our 4th Quarter Earnings Call in 2023, we completed 5 major de-risking and diversification actions, including four mix changes and one BS model adjustment. Thus far, these actions have yielded signs of improvement in asset quality. We believe operational prudence remains critical to ensure long-term growth and sustainability. During the first quarter, total neuron sales decreased by 15.6% year-on-year, mainly due to weak-quality neuron demand from FCBOs and our own emphasis on prudent operations, as we shifted our focus from the SBO launch to a more diversified approach.
Regarding business development.
Mr. White: As discussed in our fourth quarter encore in 'twenty to 'twenty, three we completed five major derisking and diversification of excellence.
Mr. White: Including full mixed changes and one being some of the adjustment.
Mr. White: Thus far these excellent have yielded signs of improvement in asset quality, although we believe our operational put us remains critical to ensure long term growth and sustainability.
Mr. White: During the first quarter portal, new unsafe decreased by 15, 6% year on year, mainly due to weak loan demand from <unk>.
Mr. White: And our own emphasis on prudent operations.
Mr. White: As we shifted our focus from external noise to a more diversified approach.
Yong Suk Cho: New York sales of our consumer finance business grew to $20.3 billion in the first quarter, representing an increase of 46 percent year over year. On the other hand, New York sales of Puhi Business continued to face pressure from a lack of high-quality SBO loan demand and decreased by 35.5 percent year over year.
Mr. White: Sales of our principal finance fees grew to 23 billion in the first quarter, representing an increase of 46% year over year.
Mr. White: On the other hand, you on stage of business continued to face pressure from a lack of high quality of your loan demand.
Mr. White: And decreased by 35, 5% year over year.
Yong Suk Cho: As mentioned previously, we successfully completed the transition into our 100% Guaranteed Business Model for the 4th business by the end of 3rd quarter 2023. Starting from the fourth quarter of 2023, all the new loans were either granted by our consumer finance subsidiary as on-balance sheet loans or enabled by our guaranteed company under the 100% risk-bearing BNs model. As a result, our risk-bearing increased from 39.8% of the total outstanding balance as of the end of 2023 to 48.3% as of the end of the first quarter of 2024.
Mr. White: As mentioned previously we successfully completed the transition to our 100% guarantee based model for our pool business by the end of third quarter of 2023.
Mr. White: Starting from the fourth quarter of 2023, all the noise, what either created by our principal finance subsidiary as one ship loans, what enabled by our guarantee company.
Mr. White: Under the 100% risk bearing being smaller is it.
Mr. White: Our resort our risk bearing increased from 39, 8% of the outstanding balance as of the end of 2023 to.
Mr. White: 248, 3% as of the end of the first quarter 2024.
Yong Suk Cho: Why the switch to the 100% Guarantee Model will exert a positive impact on our take-away. As it alleviates the effect of elevated CGI premiums, our profitability will take a longer time to recover due to higher upfront provisioning. Now, let's turn to Esther's quality. After successful execution of our de-risking adjustments to the mix of segments and products, regions, channels, and industries, together with improvements in the macro environment and removal of short-term negative impacts caused by restructuring of our direct sales and branches, we witnessed improvements in our early risk indicators in the first quarter. The C2M slick flow rate for pool business decreased from 1.2% in the fourth quarter last year to 1%, or 1.0%, in the first quarter this year.
Mr. White: Like a switch to 100% guarantee motive will exert.
Mr. White: The impact on our take rate.
Mr. White: Is it.
Mr. White: Alleviate the federal elevated CGI premiums, our profitability will take longer time to recover due to higher upfront.
Mr. White: <unk>.
Mr. White: Nevertheless, as the quality.
Mr. White: After successful execution of our derisking or just much to the mix of segments and products region channel and industry together with improvement in the macro environment.
Mr. White: Remove or short term annuity relative impact.
Mr. White: By restructuring of all of that excess.
Mr. White: And branches.
Mr. White: Witnesses improvement all in these key indicators in the fourth quarter.
Mr. White: The <unk> rate for <unk> decreased by one 2% in the fourth quarter of last year to 1% one zero percent in the first quarter of this year.
Yong Suk Cho: The NPL ratio of our consumer finance launch also remained stable. While we are pleased with such improvements in the after-quarter team, we are taking a patient and prudent approach to ensure this success is sustainable. In terms of broader strategy, we are pleased to announce that we completed the acquisition of Ping'an One Connect Bank in early April as part of our strategy initiative to leverage on strong licenses. These licenses have the potential to underpin a more expanded set of service offerings, allowing us to provide more dynamic services and to further diversify our business.
Mr. White: The NPL ratio of our consumer finance loans also remained stable.
Mr. White: While we are pleased with such improvements in asset quality.
Mr. White: Taking a patient and prudent approach to ensure this success is sustainable.
Mr. White: In terms of broader strategy. We are pleased to announce that we completed equity shuttle King on one clinic bank.
Mr. White: Early April as.
Mr. White: As part of our strategic initiative to leverage on strong licenses.
Mr. White: These licenses have them.
Mr. White: Potential to underpin a more expanded set of service offerings.
Mr. White: US to provide more dynamic services and to further diversify our business.
Yong Suk Cho: I would also like to provide an update on the special dividend arrangement that we announced earlier. On March 21st, we announced a Special Dividend Plan of 2.42 USD per ADS or 1.21 USD per ordinary share. This Special Dividend remains subject to shareholder approval at the Annual General Meeting, or AGM, which will be held on May 30, 2024. The record date for the AGM is April 9, 2024. To sum up, in the fourth quarter, we encountered preliminary improvements in asset quality, which demonstrates that our de-risking and diversification initiatives are starting to bear fruit.
I also I would also like to provide an update on the special dividend arrangement that we announced earlier.
Mr. White: On March 21st we announced a special dividend plan of.
Mr. White: 242 X dollar Palais des.
Mr. White: $1 20, a startup for ordinary share this.
Mr. White: <unk> special dividend remains subject to shareholder approval at the annual General meeting AGM, which will be held on May 32024.
Mr. White: The record date for the annual General meeting is April nine 2024.
Mr. White: To sum up in the fourth quarter, we encountered preliminary improvements in asset quality, which demonstrate that our deal with king and diversification initiatives are starting to bear fruit.
Yong Suk Cho: Despite this, we remain prudent in our operations as we see continued weakness in high-quality exogelon demand. He has extensive experience in the finance industry, especially in audit and financial management. We look forward to his onboarding and future contributions. I will now turn the call over to Greg to share more details on our operating research.
Mr. White: Despite this we remain we maintain a prudent approach.
As we see continued weakness in high quality excellent demand.
Extensive experience in finance industry.
Mr. White: Especially in audit and financial management, we look forward to at least one boarding and future contributions.
Mr. White: I'll now turn the call it over to Greg to share more details on our operating results.
Gregory Dean Gibb: Thank you, YF. I will now provide more details on our first quarter 2024 results and our operational focus for this year. Please note all figures are in RMEB unless otherwise stated. I will begin with an overview of our first quarter performance. During the quarter, ongoing weakness and demand for high-quality loans from SBOs, small business owners, combined with our continued emphasis on operational prudence, weighed on new loan sales. New loan sales in the first quarter were $48.1 billion, representing a 15.6% year-on-year decline.
Greg: Thank you I will now provide more details on our first quarter 2024 results and our operational focus for this year. Please note all figures are in renminbi unless otherwise stated.
Let's begin with an overview of our first quarter performance during the quarter ongoing weakness in demand for high quality loans from spo small business owners.
Greg: Bind with our continued emphasis on operational prudence weighed on new loan sales new loan sales in the first quarter were $48 1 billion, representing a 15, 6% year on year decline.
Gregory Dean Gibb: Among the total new loan sales, 42% were contributed by our consumer finance business. This is up from approximately 24% in the same period last year. Revenue in the first quarter was $7 billion, a decrease of 30.9% year over year. The decline was mainly due to decreases in our new loan sales and outstanding loan balance, and was partially offset by our increased take rate, as more of our book comes from the 100% guarantee model. Our net loss for the first quarter was $830 million, mainly due to increased tax associated with the special dividend. However, on a pre-tax basis, Lufax was marginally profitable in the first quarter.
Greg: Among the total new loan sales, 42% were contributed by our consumer finance business. This is up from approximately 24% in the same period last year.
Revenue in the first quarter was <unk> 7 billion, a decrease of 39% year over year.
Greg: The decline was mainly due to the decreases in our new loan sales and outstanding loan balance and was partially offset by our increased take rate as more of our books comes from the 100% guarantee bottle.
Greg: Net loss for the first quarter was $830 million, mainly due to increased tax associated with the special dividend on a pre tax basis <unk> was marginally profitable in the first quarter earnings before tax were $447 million in the first quarter of 2024, which compares to $1 1 billion in the same period for last year.
Gregory Dean Gibb: Earnings before tax were $447 million in the first quarter of 2024, which compares to $1.1 billion in the same period of last year. For this quarter, pre-tax profitability remains relatively under pressure as a result of declining loan balances and new business being loss-making in the first 12 months due to upfront provisioning under the 100 percent guarantee model. Partially offsetting these pressures were continued improvements in the cost structure, a reduction in credit costs, and continued strength in our later stage recovery.
Greg: For this quarter pre tax profitability remains relatively under pressure as a result of declining loan balances and new business being loss, making in the first 12 months due to upfront provisioning under the 100% guarantee model.
Greg: Actually offsetting these pressures were continued improvements in cost structure reduction in credit costs and continued strength in our later stage recoveries.
Gregory Dean Gibb: As Wyeth mentioned earlier, we witnessed the impact of our de-risking and diversification initiatives on our asset quality during the first quarter of 2024. I will now walk through our operating metrics and how they've evolved in light of these strategic changes.
Speaker Change: That's why as mentioned earlier, we witnessed the impact of our de risking and diversification initiatives on our asset quality. During the first quarter of 2024, I will now walk through our operating metrics and how they've evolved in light of these strategic changes.
Gregory Dean Gibb: First, in terms of product mix, we saw our consumer finance segment continue to grow. In the first quarter, consumer finance sales accounted for 42 percent of new loan sales, up from 24 percent in the same period last year. Concurrently, the proportion of unsecured loans and secured loans decreased to 37 percent and 21 percent, respectively, from 48 percent and 28 percent last year. In light of these changes, we have seen a gradual ongoing shift in our balance mix.
Speaker Change: First in terms of product mix, we saw our consumer finance segment continued to grow in the first quarter consumer finance sales accounted for 42% of new loan sales up from 24% in the same period last year concurrently the proportion of unsecured loans and secured loans decreased to 37% and 21% respectively from.
Speaker Change: 48% and 28% last year.
Speaker Change: In light of these changes we have seen a gradual ongoing shift in our balanced mix consumer finance balances as a percentage of our total balance reached 14% as of March 2024, compared to 6% at the end of March 'twenty. Three Meanwhile, the proportion of unsecured loans decreased to 64% from 72% at the <unk>.
Gregory Dean Gibb: Consumer finance balances as a percentage of our total balance reached 14% as of March 2024, compared to 6% at the end of March 2023. Meanwhile, the proportion of unsecured loans decreased to 64% from 72% at the end of March 2023, while the proportion of secured loans has largely remained flat.
Speaker Change: March 2023.
Speaker Change: <unk> secured loans has largely remained flat in.
Gregory Dean Gibb: In terms of our business model, we continue to build up a roster of new loans under the 100% Guarantee Model. As we previously mentioned, this has reshaped our portfolio mix and increased our risk exposure. As of the end of the first quarter, 26% of Puhui's loan balance was enabled under our new 100% guarantee model, and our risk-bearing by balance has grown to 48.3% as of the end of the first quarter, up from 39.8% as of the end of the fourth quarter, 2023. We also kept our focus on prioritizing sales in more economically resilient regions.
Speaker Change: In terms of our business model, we continue to build up a roster of new loans under the 100% guarantee model as we previously mentioned this has reshaped our portfolio mix and increase our risk bearing.
Speaker Change: As of the end of the first quarter, 26% of <unk> loan balance was enabled under our new 100% guarantee model and our risk bearing by balance has grown to 48, 3% as of the end of the first quarter up from 39, 8% as of the end of the fourth quarter 2023.
Speaker Change: We also kept our focus on prioritizing sales and more economically resilient regions in terms of our channel we maintained our emphasis on excellence within the direct sales team, which continues to be our major sales channel and contribute to majority of our new loan sales.
Gregory Dean Gibb: In terms of our channel, we maintained our emphasis on excellence within the direct sales team, which continues to be our major sales channel and contributes to the majority of our new loan sales. Next, our asset quality. Our overall C2M3 improved to 1% from 1.2% in the fourth quarter of 2023. This was mainly due to an improvement in the macro environment, the removal of the temporary negative impact from our geographic and direct sales restructuring in the third quarter, and the vintage runoff as we build up a new book.
Speaker Change: Next our asset quality, our overall <unk> improved two 1% from one 2% in the fourth quarter of 2023. This was mainly due to improvement in the macro environment removal of temporary negative impact from our geographic and direct sales restructuring in the third quarter and the vintage runoff as we buildup.
Speaker Change: Our new book, while we observed improvement in <unk> ratio during the first quarter, we remain cautious about the future sustainability of this trend given this and considering our heightened risk exposure. We will continue our prudent strategy of prioritizing quality over quantity during 2024.
Gregory Dean Gibb: While we observed improvement in the C2M3 ratio during the first quarter, we remain cautious about the future sustainability of this trend. Given this and considering our heightened risk exposure, we will continue our prudent strategy of prioritizing quality over quantity during 2024. Now, let's take a more detailed look at our unit economics of the Puhui business. During the quarter, funding costs remained stable.
Let's take a more detailed look at our unit economics of the Portway business during the quarter funding cost remains stable. In addition, our overall APR decreased slightly to 19, 7% as we maintained our focus on higher quality customers. Our take rate based on loan balance has risen to 9% from seven 3%.
David Choi: In addition, our overall APR decreased slightly to 19.7% as we maintained our focus on higher-quality customers. Our take rate based on loan balance has risen to 9% from 7.3% for the first quarter, as loans under the 100% guarantee model comprise a slightly higher percentage of the total loan balance. While we anticipate that loans under the 100% Guarantee Model will be lifetime profitable, it is important to note that these loans may incur accounting losses in their first calendar year due to a standard but higher upfront set of provisions.
Speaker Change: For the first quarter as loans under the 100% guarantee model comprises a slightly higher percentage of the total loan balance while we anticipate that loans out of the 100% guarantee model will be lifetime profitable. It is important to note that these loans may incur accounting losses in their first calendar year due to a standard but.
Speaker Change: Higher upfront set of provisions.
Speaker Change: Under our projected business scale, we believe we have a strong balance sheet to support the business its operations capital and liquidity requirements at the end of the first quarter of 2020 for our Guaranty subsidiaries leverage ratio was two four times, mainly driven by the increase of our guarantee balance associated with our increased risk exposure and the decrease of debt.
Speaker Change: Assets to the distribution of the special dividend.
Speaker Change: Our consumer finance capital adequacy ratio stood at approximately 15, 1% well above the required 10, 5%.
David Choi: Under our projected business scale, we believe we have a strong balance sheet to support the business, its operations, capital, and liquidity requirements. At the end of the first quarter of 2024, our guaranteed subsidiaries' leverage ratio was 2.4 times, mainly driven by the increase of our guaranteed balance associated with our increased risk exposure and the decrease of net assets due to the distribution of the special dividend. Our consumer finance capital adequacy ratio stood at approximately 15.1%, well above the required 10.5%.
Speaker Change: As for our balance sheet, we hold that assets of $92 8 billion with our cash at bank balance amounting to $39 4 billion at the end of the quarter I'll now turn over the call to David our CFO for more details on our financial performance. Thank.
David: Thank you Greg.
David: I will now provide a closer look into our first quarter results. Please don't stats O&M was iron run maybe terms and all company all comparisons on a year over year basis, unless otherwise stated.
David: That's why I think <unk> mentioned, our performance was still impacted by broader economic conditions that have been exerting pressure on the small business sector throughout this period.
David Choi: As for our balance sheet, we hold debt assets of $92.8 billion, with our cash at bank balance amounting to $39.4 billion at the end of the quarter. I'll now turn over the call to David, our CFO, for more details on our financial performance. Thank you, Greg.
David: <unk> strategically shifting to a 100% guarantee model with higher take rate highest quality customer segments and more favorable geographical regions.
David: We opted to forego some of our business scale with the aim of enhancing the quality of our future loan portfolio, which we believe it is an important.
David: The long run for the company.
David: Our strategic transition.
David: Affordably led to continued declines in our average loan balance and total income.
David Choi: I will now provide a close look at our first quarter results. Please note that all numbers are in renminbi terms and all comparisons are on a year-over-year basis unless otherwise stated.
David: Meanwhile, the expected credit loss provisions, which must be a content for upfront on the first day amplify the accounting loss in the early stages of their product life cycle under the new business model.
David Choi: As Weiss and Gregg have mentioned, our performance was still impacted by the broader economic conditions that have been exerting pressure on the small business sector throughout this period. By strategically shifting to a 100% guaranteed model with higher tick rates, higher quality customer segments, and more favourable geographical regions, we opted to forego some of our business scale with the aim of enhancing the quality of our future loan portfolio, which we believe is important for the company.
David: In the first quarter of 202 for our total income was 7 billion, representing a decrease of 31, 9%.
David: During the quarter, our technology platform based income was $2 6 billion, representing a decrease of 49%.
David: Our net interest income was $2 8 billion a decrease of 50%.
David: And our guarantee income was $2 92 billion a decrease of 34, 7%.
David: All are basically in line with the decrease of outstanding loan balance.
David Choi: Our strategic transition unavoidably led to continued declines in our average loan balance and total income. Meanwhile, the expected credit loss provision, which must be accounted for upfront on the first day, amplified accounting loss in the early stages of the product life cycle under the new business model. In the first quarter of 2024, our total income was $7 billion, representing a decrease of 30.9%. During the quarter, our technology platform-based income was $2.6 billion, representing a decrease of 49%, our net interest income was $2.8 billion, a decrease of 50% and our guaranteed income was $2.92 billion, a decrease of 34.7% All are basically in line with the decrease of outstanding loan balance in which guaranteed income decreased by a lesser matter too due to the offsetting effect of an increase in risk borne by the company [inaudible] We remain committed to cost optimizations.
Each guarantee income decreased by less than <unk>, two due to the offsetting effects of an increase in response by the company.
David: Turning to our.
David: We remain committed to cost optimizations.
I want to highlight that our total expenses.
If excluding credit losses finance courses and other losses.
David: Increased by 37% year over year to $3 6 billion in this quarter as we continue to enhance operational efficiency.
David: This first half and magnitude of decrease in expense is greater than that of the 39% decline in the total income.
David: Last highlight just a few of the key expense items.
David: Our total sales and marketing expenses, which mainly include expenses for borrower acquisition costs as well as general sales and marketing expenses decreased by 50% to $1 5 billion in the first quarter.
David: The decrease was mainly due to a decrease in loan related expenses as a result of a decrease in new loan sales and decreased retention expenses. That's what I was referring expenses from our platform services attributable to the decrease transaction for that.
David Choi: I want to highlight that our total expenses, if excluding credit losses, finance causes, and other losses, decreased by 37% year-over-year to 3.6 billion this quarter as we continue to enhance operational efficiency. This 37.2% decrease in expenses is greater than that of the 30.9% decline in total income. Let's highlight just a few of the key expense items. Our total sales and marketing expenses, which mainly include expenses for borrower acquisition courses as well as general sales and marketing expenses, decreased by 50% to $1.5 billion in the first quarter.
Our credit impairment losses decreased by eight 6% to $2 9 billion in first quarter, primarily due to the decrease in focusing on the long term receivables as a result of the decrease of loan borrowers and the improved asset quality.
David: Finance costs decreased by $16 nine 3% to $58 million in the first quarter.
From $189 million in the same period of 200 to three mainly due to the decrease of interest expense as a result of the payment of Chevron com vertical promissory notes and other that's partially offset by the decrease of interest income from bank deposits.
David Choi: The decrease was mainly due to a decrease in loan-related expenses as a result of the decrease in new loan sales and decreased retention expenses, as well as referral expenses from platform services attributable to the decreased transaction volume. Our credit impairment losses decreased by 8.6% to $2.9 billion in the first quarter, primarily due to the decrease in the provision of loans and receivables as a result of the decrease in the loan balance and the improved asset quality.
David: Yes.
David: The key item in this quarter is really the income tax.
David: Clouds, we achieved pre profit pre tax profit of RMB $440 7 million in the first quarter.
David: Income tax expenses increased to $1 3 billion in the first quarter from $2 4 billion in the same period of two to three.
David: This is mainly due to the increase in withholding tax associated with one off dividends that were paid by our PRC subsidiaries.
In order to support <unk>.
Test with distribution of a special dividend, we announced on March 20 224.
David: As a result, NASA loss for the first quarter was $830 million compared with.
David Choi: Our finance costs decreased by 69.3% to 58 million in the first quarter from 189 million in the same period of 2023, mainly due to the decrease in interest expense as a result of repayment of CEDRAN, convertible promissory notes, and other debts, and partially offset by the decrease in interest income from bank deposits.
David: And that probably all of the $732 million in the same quarter of two to three.
David: Meanwhile, our basic and diluted loss per avs due in the first quarter of both RMB, one five to $2.
David: One five to one.
David: While U S dollar 21.
David: Turning now to our balance sheet.
David: As of March 30, 124, we have a nap and <unk>.
David Choi: The key item in this quarter is really income tax. Whilst we achieved a pre-tax profit of RMB447 million in the first quarter, our income tax expenses increased to RMB1.3 billion in the first quarter from RMB2.4 billion in the same period of 2023. This is mainly due to the increase in withholding tax associated with one-off dividends that were paid by PLC subsidiaries in order to support the potential distribution of the special dividend we announced on March 21, 2024.
David: $92 8 billion.
David: And a cash balance of 49 4 billion.
David: In terms of capital.
David: As of the end of March 'twenty two to four.
David: The two main operating entity.
David: Well capitalized.
David: <unk> leverage ratio increased to two four times, that's driven by the increase of our guarantee part is associated with our increased risk exposure.
David: And also the decrease of net assets due to the dividend upstream to the parent companies.
David: And our consumer Finance company capital adequacy ratio well stood at approximately 15, 1%.
David: And well above the required 10, 5% regulatory requirement.
David Choi: As a result, NAB's loss for the first quarter was $830 million, compared with a NAB profit of $732 million in the same quarter of 2-3. Meanwhile, our basic and diluted loss per ADS during the first quarter were both RMB1.52 yuan, or US$21.00.
David: All of these practices provide significant support for the company navigate through the evolving macro economic landscape and.
David: And the business transition period.
David: While laying the groundwork for us to continuously rewarding.
David: In the future.
Speaker Change: That concludes our prepared remarks for today operator, we are now ready to take questions.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session to ask a question you May. Please press Star then one on your telephone keypad.
Operator: Turning now to our part of the street. As of March 31st, 2024, we will have enough answers. In terms of capital, it has 92.8 billion and a cash balance of 39.4 billion. As of the end of March 22-24, the two main operating entities were well capitalized, our Guaranteed Subsidiary Selective Ratio increased to 2.4 times as driven by the increase in our Guaranteed Balance associated with our increased risk exposure and also the decrease in net assets due to the dividend upstream to the parent company, and our consumer finance company Capital Atmosphere Ratio stood at approximately 15.1%, and well above the required 10.5% regulatory requirement.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the case.
Speaker Change: Joe Your question. Please press Star then two and.
Speaker Change: In addition, I'd like to remind you to please mute yourself after stating your question.
Joe: Thank you.
Joe: Your first question comes from Ami <unk> with Bank of America Securities. Please go ahead.
Ami: Thank you for giving me the opportunity to ask the first question.
Ami: I have two actually so my first question is about.
Ami: The special dividend.
Ami: Could you give us more update on the progress of your special dividend. So please be incurred.
Ami: I guess Manny should have been offshore and whatsapp.
Ami: <unk> of the special dividend distribution and now.
Ami: In the longer term do you have any.
Ami: Midterm plan for your future shareholder returns after the special dividend.
Operator: All these factors provide significant support for the company to navigate through the evolving macroeconomic landscape and the business transition period while laying the groundwork for us to continuously reward our interests in the future. Operator, we are now ready to take questions.
Ami: And my second question is for your asset quality.
Speaker Change: I do notice that your flow rate in your.
Speaker Change: 30 day delinquency rate.
Speaker Change: <unk> achieved a notable decline in the first quarter.
Speaker Change: So do you think this improvement of the asset quality is the scan about into the coming quarters, and then which can also lead to lower <unk> losses.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. In addition, I'd like to remind you to please mute yourself after stating your question. Thank you. Your first question comes from Emma Xu with Bank of America Securities. Please go ahead.
Speaker Change: In the coming quarters. Thanks.
Speaker Change: Okay. Thank you. Thank you did your life speaking so your first question about a special dividend.
Our analysis of patients within plan on March 21.
Speaker Change: And we also announced on March 25th.
Speaker Change: The shareholders of record at the.
At the close of opportune for 'twenty 'twenty four will be tied to it to receive this special dividend.
Emma Xu: Thank you for giving me the opportunity to ask the first question. I have two, actually.
Speaker Change: But it is still subject to shareholder approval at the AGM annual General meeting, which will be held on May 30.
Emma Xu: So my first question is about your special dividend. Could you give us more updates on the progress of your special dividend? With the incurred tax, I guess the money should have been offshore.
Speaker Change: And then our long term dividend policy remains unchanged, which is about 20% to 40%.
Speaker Change: The annual net profit.
Speaker Change: And then answering the second question about asset quality improvement, yes, yes, we see that Ctrip see natural.
Emma Xu: And how is the progress of this special dividend distribution? And now, in the longer term, do you have any mid-term plans for your future shareholder returns after this special dividend? And my second question is about your asset quality. So I do notice that your flow rate and your 30-day delinquency rate did achieve a notable decline in the first quarter. So do you think this improvement in asset quality is sustainable into the coming quarters, and then it can also lead to lowered impoundment losses in the coming quarters? Thanks.
Speaker Change: Equally in fourth quarter down to one point, 12% from one 2% in the last quarter or.
Speaker Change: 2023.
Speaker Change: We believe our derisking at ports it taken in 2023.
Those gradually come into effect, such as credit policy tightening.
Speaker Change: Underwriting process, and then save clinical measures of strengthening.
Speaker Change: Segment mix optimization and cannot to migration and to force and also.
Speaker Change: Ed Greg explained because it's weighted impact from geography restructuring in the fourth quarter last year.
Speaker Change: That has been gradually fading away.
Yong Suk Cho: Thank you. This is Y speaking.
Speaker Change: Also our new portfolio, we beat from 'twenty to 'twenty three with better.
Yong Suk Cho: So your first question about special dividends, we announced a special dividend plan on March 21st, and we also announced on March 25th that shareholders of record at the close of June 4, 2024 will be entitled to receive this special dividend. But it is still subject to shareholder approval at the AGM, the Annual General Meeting, which will be held on May 13. And then our long-term dividend policy remains unchanged, which is about 20% to 40% of the annual net profit.
Speaker Change: Better quality readout with heightened on related party debt.
Speaker Change: That portion.
Speaker Change: Take gradually larger part of total loan Dennis So David further help us to improve going forward.
Speaker Change: While we absorb this improvement in the third.
Speaker Change: <unk> net flow in the fourth quarter.
Speaker Change: We still remain very cautious about the future sustainability of this trend and will continue to take a prudent.
Speaker Change: Action and approach considering our higher risk exposure and that is.
Speaker Change: 100% to moderate.
Speaker Change: Very clear. Thank you. Thank you so much.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Cheol Hwang. Please go ahead.
Yong Suk Cho: And then, answering your second question about asset quality improvement, yes, we see that C2M3 net flow improved in the first quarter down to 1.0% from 1.2% in the last quarter of 2023. We believe our de-risking efforts taken in 2023 will gradually come into effect, such as credit policy tightening, underwriting processes, and then sales control measures strengthening, segment mix optimization, and chain optimization, and so forth. However, while we observed this improvement in C2MC net flow in the first quarter, we still remain very cautious about the future sustainability of this trend, and we continue to take prudent action and approaches, considering our higher risk exposure under this 100% guarantee model.
Chiyao Huang: Hi, good morning.
Chiyao Huang: Thank you management this is <unk> from Morgan Stanley.
Chiyao Huang: Really happy to see some early improvement in on the risk indicator at the pre tax profitability in the quarter. So I have two question one is the.
Chiyao Huang: On the asset quality, we can see theres not improvement what's the.
Chiyao Huang: The view on the loan growth into the rest of the year.
Chiyao Huang: One in the.
Chiyao Huang: Second question just on the unit economics, and how do you manage the expected to evolve as we transition to one.
Chiyao Huang: 100% of our guarantee model could you.
Speaker Change: Now you can discuss this a little bit.
Speaker Change: The.
Speaker Change: Previous.
And could you give more color and more detailed color on the unit economics. Thank you.
Speaker Change: Thanks, Greg here responding so while we've seen the improvement is why us just outlined.
Emma Xu: Very clear. Thank you. Thank you so much.
Greg: Clearly good news.
Chiyao Huang: Your next question comes from Chiyao Huang. Please go ahead.
Speaker Change: In terms of demand.
Greg: By customers, particularly of the quality that we're targeting that demand is still to be honest somewhat subdued right. So when we when we look at the first quarter, we haven't seen an uptick a meaningful uptick.
Chiyao Huang: I'm really happy to see some early improvement on the risk indicator and pre-tax profitability in the quarter. So I have two questions.
Chiyao Huang: One is on asset quality; we can see there's some early improvement. What's the management view on loan growth into the rest of the year, this one? And the second question is about unit economics. How does management expect it to evolve as we transition to 100% of a guaranteed model? Could you, I know management discussed this a little bit during the previous talk, give more color, more detailed color on the unit economics? Thanks.
Greg: In the demand amongst strong borrowers so that is really.
Greg: To drive our.
Continued prudence, because we really want to see stronger demand before we would expand beyond where we are today in terms of volumes. Obviously given that we're now transitioning we have Christian transitioned all new business to 100% guarantee model and more and more of our total book will be that 100% guarantee BARDA, we do want to observe for a few quarters.
Greg: Sure everything is right as we are taking on more risk. So we stick to in terms of the guidance we've given for this year.
Gregory Dean Gibb: Thanks. Greg here responding.
Gregory Dean Gibb: So on the, well, we've seen the improvement as YS just outlined, which is clearly good news. But in terms of demand by customers, particularly of the quality that we're targeting, that demand is still, to be honest, somewhat subdued, right? So when we look at the first quarter, we haven't seen an uptick, a meaningful uptick, in the demand amongst strong borrowers.
Greg: New loan volume, we expect to be still a 190 to 220 billion, which at the end of the year would take us towards ending balance of about 200 to 230 billion. So that's the outlook.
Greg: Remains unchanged I guess since the last quarter, we gave guidance on this.
Gregory Dean Gibb: So that is really going to drive our continued prudence, because we really want to see stronger demand before we would expand beyond where we are today in terms of volumes. Obviously, given that we're now transitioning, you know, we have transitioned all new business to the 100% guarantee model, and more and more of our total book will be that 100% guarantee model, we do want to observe for a few quarters. We think it's right as we are taking on more risk.
Greg: In terms of <unk> I think this is really the most important trends also to watch now that we've shifted fully to the 100% guarantee model as we've said if.
Greg: If we look at our loan balance give.
Greg: Given that more and more is coming from the 100% guarantee model our take rate has increased now to 9%.
Gregory Dean Gibb: So we stick to, in terms of the guidance we've given for this year, new loan volume, we expect to be still $190 to $220 billion, which at the end of the year would take us to an ending balance of about $200 to $230 billion. So that's the outlook.
Greg: Seven three.
Percent.
Greg: And if you look at new business that is now being done under the 100% guarantee model. The gross take rate is approaching 14 percentage points right. So basically it is effectively a doubling from where we were a couple of quarters ago as we shift from the CGI model now too.
Gregory Dean Gibb: It remains unchanged, I guess, since the last quarter we gave guidance on this. In terms of the EU, I think this is really the most important trend to watch, now that we've shifted fully to the 100% guarantee model. As we've said, if we look at our loan balance, given that more and more is coming from the 100% guarantee model, our take rate has increased now to 9% from 7.3%. And if you look at new business that's now being done under the 100% guarantee model, the gross take rate is approaching 14 percentage points, right?
Greg: More and more under the guarantee model. So this is a trend that we will expect to continue so as we move throughout the course of this year such that more and more of the book is the 100% guarantee model you should see the overall take rate could converge up to about 14%.
Greg: And then from there it's a question of.
Greg: Our cost management and it's a question of continued improvement hopefully on the credit quality, which will then drive the bottom line, we haven't given guidance on that yet, but just to highlight that we know when we do new loans for example in 2024, new loans under the 100% guaranteed border we do expect.
Greg: To be lifetime profitable, but we also do expect that in the first calendar year due to upfront standard provisions. They will have a negative P&L contribution, but again lifetime profitable. So that's our outlook on the other unit economics side.
Gregory Dean Gibb: So basically, it's effectively a doubling from where we were a couple quarters ago as we shift from the CGI model now to more and more under the guarantee model. So this is a trend that we will expect to continue. So as we move throughout the course of this year, such that more and more of the book is the 100% guarantee model, you should see the overall take rate converge to about 14%.
Speaker Change: Thank you very much.
Speaker Change: Your next question comes from Yodlee with CIC. Please go ahead.
Speaker Change: Okay.
Yodlee: Hi management, Thanks for taking my questions. This is <unk> with CIBC.
Yodlee: First question is regarding the risk bearing percentage.
Gregory Dean Gibb: And then from there, it's a question of our cost management, and it's a question of, you know, continued improvement, hopefully, in credit quality, which will then drive the bottom line. We haven't given guidance on that yet, but just to highlight that when we do new loans, for example, in 2024, new loans under the 100% guarantee model, we do expect them to be lifetime profitable. But we also do expect that in the first calendar year, due to upfront standard provisions, they will have a negative P&L contribution, but again, lifetime profitable. So that's our outlook on the union economic side.
Yodlee: Last quarter. The company has completed the transition towards a 100% guarantee model and looking forward could you. Please give us more color on how to view the risk of bearing percentage at the end of this year and in future.
Speaker Change: Secondly, I was wondering if you could share more about the outlook for the bottom line.
Speaker Change: If possible can you elaborate more about once we have gone through the transition period, what is the expected margin or the profit take rate for the SME loans. That's all thank you.
Speaker Change: Thanks, John for your question, let me, let me tackle your first question and then I'll pass the second to grow too David.
Speaker Change: About 100, pushing guarantee model transition.
Yada Li: Hello, management. Thanks for taking my questions. This is Yada from CITC, and my first question is regarding the risk-bearing percentage.
Speaker Change: Their desktop hit from Scott hit from.
Speaker Change: Fourth quarter, the fourth quarter last year debt or neuro instead, we booked well granted by either by Crystal Finance company at <unk>.
Speaker Change: Balance sheet Ross law.
Yong Suk Cho: Thanks Yada for your question. Let me pick up your first question and then I will pass the second to David. The about 100% guarantee model transition, you know, that started from the fourth quarter of the fourth quarter last year, where all new loans that we booked were granted either by consumer finance companies as unbalanced loans or were granted by our guaranteed company under a 100 percent, risk-bearing business model. And then knowing that, as of the end of the first quarter this year, including safe business loans, the total loan balance for which we are bearing risk responsibility is 48.3 percent of the total loan balance, which is up from 39.8 percent from the previous quarter.
Speaker Change: Granted by our guarantee company.
Speaker Change: 100% risk bearing business model right.
Speaker Change: Alright, and then knowing that as of the end of fourth quarter. This year.
Speaker Change: Including Sip business launched the torture on balance for which we are failing.
Speaker Change: Risk responsibilities 48, 3% out of total loan balance and then which is up from 39, 8% from the previous quarter.
Speaker Change: And.
It is 26 personnel towards Clearone Belarus.
Speaker Change: <unk> enabled.
Speaker Change: Our new 100% guarantee modern and then going forward as shortly.
Speaker Change: This is our new model in place so EBIT gradually I mean.
Speaker Change: The portion of our risk bearing pellets, we gradually and continuously go up.
Yong Suk Cho: And it is 26% of the total pre-loan balance that was enabled under our new 100% guarantee model. And then, going forward, surely, because this is our new model in place, so the portion of our risk-bearing balance will gradually and continuously go up.
Speaker Change: Alright, so thanks for the question on this quarter net loss.
As we mentioned before we did achieve a pretax profit for this quarter.
Speaker Change: The key item actually affecting this quarter.
David Choi: All right, so Yada, thanks for your question on this quarter's net loss. I think, as we mentioned before, we did achieve pre-tax profits for this quarter. The key item actually affecting this quarter is really income tax. Our income tax expense has increased to $1.3 billion, as you know, in this quarter from $0.4 billion in the same period of 2023. This is really mainly due to the $1.05 billion withholding tax which is associated with our cross-border development upstream from the PRC operating entities to their immediate holding company offshore.
Speaker Change: On the income tax.
Income tax expenses increased to $1 3 billion and as you know in this quarter.
Speaker Change: From Silicon 4 billion in the same general tool to free. This is really mainly due to the 1.5 billion withholding tax associated with our cost for the dividend stream from our PRC operating entities too.
Speaker Change: Immediate holding company offshore.
Speaker Change: So as I mentioned this cross border dividend upstream arrangement.
Speaker Change: This is primarily to support the distribution of our specialty with Pan at Holdco level.
On March 21.
Speaker Change: Of course for the general liquidity arrangement <unk> offshore.
David Choi: So, as I mentioned, this cross-border dividend upstream arrangement is primarily to support the distribution of a special dividend plan at the HOCO level that we announced on March 21st, and, of course, for other general liquidity arrangement programs at offshore. That's my comment. Thank you.
Speaker Change: That's my comment was making.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Thank you that concludes our question and answer session for today I will now turn the call back over to our management for closing remarks.
Speaker Change: Thank you. This concludes today's call. Thank you for joining the conference call. If you have more questions. Please do not hesitate to contact the Companys IR team. Thanks again.
Operator: Thank you. That concludes our question and answer session for today. I will now turn the call back over to our management for closing remarks.
Speaker Change: Okay.
Speaker Change: This conference has now concluded you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Operator: Thank you. This concludes today's call. Thank you for joining the conference call. If you have more questions, please do not hesitate to contact the company's IR team. Thanks again.
Speaker Change: Yes.
Speaker Change: [music].
Operator: Thank you. This conference is now concluded. You may now disconnect.
Operator: [inaudible] Thanks for watching!