Q2 2024 LexinFintech Holdings Ltd Earnings Call
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Ms. Mandy: I would now like to hand, the conference over to your first speaker today, Ms. Mandy don't head of IR a blessing. Please go ahead.
Mandy: Thank you Andrew Good morning, and good evening, everyone. Welcome to Lewis <unk> second quarter 2024 earnings Conference call.
Speaker Change: Our results were issued earlier today and can be found on our IR website.
Speaker Change: Joining me today, our D O J shall.
Seattle, RV Ing Chao and our CFO James jump before.
Speaker Change: Before we get started I'd like to remind you of our safe Harbor statement in our earnings press release, which also applies to this call.
Speaker Change: During the call we may refer to the outlook and the forward looking statements, which are based on our current plans estimates and projections that.
The actual results may differ materially and we undertake no obligation to update any forward looking statements that unless otherwise stated all figures mentioned are in RMB.
Speaker Change: <unk> will first provide an update on our overall performance.
<unk>: <unk> will discuss risk management appetite lastly, James will cover the financial results in more details.
<unk>: I will now turn the call over to Jay Please kindly note deep.
<unk>: Different from the past Jay will give his whole remarks in Chinese.
<unk>: Then the English version will be delivered via <unk> AI based voice Jay go ahead. Please.
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Speaker Change: Yes.
Speaker Change: Good morning, and good evening, everyone. It is my pleasure to share with you our performance.
Speaker Change: Second quarter 2024.
Speaker Change: Amid the current macroeconomic environment and industry landscape.
We have adopted a prudent and steady business strategy.
Speaker Change: Turning to our two driven approach of risk management and data analytics.
Speaker Change: During the quarter, we proactively control the loan origination pace tightened credit standards and overall risk levels has been gradually improving with our profitability is steadily increasing.
Speaker Change: In the second quarter total GMB as loan origination reached $51 1 billion RMB managed loan balance stood at $115 2 billion RMB.
Speaker Change: Revenue was $3 64 billion RMB, an increase of 12, 3% quarter over quarter profit was $230 million, an increase of 12, 4% quarter over quarter.
Speaker Change: Based on the probability in the first half of the year.
Speaker Change: The directors.
Speaker Change: Cash dividend distribution of approximately 0.07 and $2 per <unk> continuing to return value to our shareholders.
Speaker Change: Let me elaborate on our business performance in the second quarter in terms of risk management managed to strike a fine balance between business growth and asset quality continuing to see resolved in Q.
Speaker Change: Assets and strengthen our ability.
Speaker Change: As a result.
Speaker Change: Optimized.
Speaker Change: Specifically for newly issued assets.
Speaker Change: As we implemented the effective low and grow strategy strictly control the quality of new assets and increase the proportion of high quality users.
Speaker Change: On one hand, we continuously optimize our T model and bidding strategy as a major acquisition channels, resulting in a more than 40% comparative increase in the proportion of high quality.
Speaker Change: Panels.
Speaker Change: On the other hand to the low end low strategy, we implemented a little credit line limit admissions and dynamically adjusted limits based on subsequent user performance.
Speaker Change: <unk> increased the approval rates, while maintaining risk exposures.
Speaker Change: We utilized differentiated pricing credit.
Speaker Change: I was looking for.
Speaker Change: Raimo risk levels at the credit approval stage to expand the volume of high quality new assets.
Speaker Change: Overall asset risk.
Speaker Change: As a result of these measures the approval rates for new customer credits.
Speaker Change: At least by 20% compared to Q1.
Speaker Change: Risk indicators SPD, seven new customer assets decreased by 23% compared to Q1, the proportion of high quality asset volume.
Kris: Kris by 8% compared to Q1.
Kris: And the payback periods for new customers further shortened.
Kris: Regarding the management of existing assets in the second quarter, we modestly enhanced refinements remind us optimize the overdue deduction strategy for users, resulting in a 7% decrease in the day one delinquency rate at the end of the second quarter compared to the beginning of the quarter for <unk> customers.
Speaker Change: Sometimes it measures such as transaction control and limit reduction to reduce.
Risk losses and improve profitability.
By applying negative FX clearance cobalts fully automated handling of higher risk users Israel was can generate disposal strategy suggestions within hours.
Speaker Change: Secondly, improving the efficiency and precision those handling high risk users.
Speaker Change: In terms of building management capabilities in the second quarter.
Speaker Change: Have you put in the off trade management system.
Speaker Change: You mentioned, some data models analysis and monitoring and strategies are.
Speaker Change: <unk> will provide a module.
Speaker Change: And in the next session was the measures taken in the management of newly issued assets existing assets and core capability building the risk of newly assets has gradually improved during the quarter, leading to a gradual drop in the overall asset risk from its peak by the end of the second quarter.
Speaker Change: <unk> ratio decreased by approximately 7% compared to the beginning of it.
Speaker Change: And the 30 day collection rate has increased by approximately one 5% compared to the beginning of the call.
Speaker Change: Blocking of the policy is risk management of the.
Speaker Change: The credit cycles within the loan Facilitation center.
Speaker Change: Began in the second half of last year has had a significant impact on the entire industry.
Speaker Change: Our previous risk management capabilities did not properly match the market changes. However, after the comprehensive upgrade of our risk management team and risk management system at the beginning of the year, we have seen a very noticeable improvement in our overall risk management capabilities.
Speaker Change: And business resilience.
Speaker Change: Our ability to navigate through.
Michael: Michael says.
Michael: Continuously centrally.
Speaker Change: Although achieving significant scale and profitability will require more time.
Speaker Change: It's foreseeable that the improvement and risk management capabilities will gradually.
Speaker Change: Activity in the future.
Speaker Change: Regarding our overseas business segment, the Mexican markets continuing to deliver a rapid growth in the second quarter.
Speaker Change: The loan origination volume increased by 61% and revenue grew by 113% on a quarter on quarter basis.
Funding costs during the quarter, our funding costs further dropped by 58 basis points from the fed.
Speaker Change: First quarter issue, a new record low in May and July we issued.
Speaker Change: The total scale of $600 million.
Speaker Change: Which were over subscribed by a great number of high quality investors.
Speaker Change: As domestic interest rates further go down we will engage and differentiate the collaborations.
Speaker Change: Financial institutions that have complementary.
Speaker Change: <unk> balancing risk and scale to enhance returns.
Speaker Change: In the second quarter, we invested $143 million and be in research and development further deepening the application of AI large models and telemarketing and loan collections. Yeah of course of real time in terms of recognition and the large model has significantly improved and.
Speaker Change: In the second quarter intense recognition accuracy of robust and telemarketing scenarios reached as high as 98% and then collections Sinatra It reached 91% for coda systems applications.
Speaker Change: Large model reviews by 100% of engineering staff in the second quarter.
Enhancing the efficiency and accuracy of programmers code, writing due to our innovative exploration.
Speaker Change: Large models vessel receives a technology it was from the Asian banker in the second quarter.
Speaker Change: In terms of consumer rights protection during the second quarter.
Speaker Change: Further digitization.
Speaker Change: Installation of customer service.
Speaker Change: Improving standards and verification system to.
To quickly identify and respond to customers' issues enhancing the consumer negotiation and communication mechanism.
Speaker Change: As well as customer service management systems, allowing frontline customer service representatives to be fully empowered to respond quickly and address customer concerns establishing a multi point tracking customer service process system.
Which includes the introduction of a series of management systems training programs and sales behavior tracking processes.
Speaker Change: These measures aimed to enhance the customer service experience.
Speaker Change: Beginning of the business process and does a perfect tumor right.
Speaker Change: Looking ahead to the second half of the year in light of the current external environment.
Speaker Change: We are continuing to adhere to the food and principles.
Speaker Change: This command.
Speaker Change: And focusing on the following key task.
While we will ensure to bring risks levels down to an industry.
Speaker Change: And we will promote steady growth and scale.
Speaker Change: The first half year, we have intensified our efforts and good and risk management capabilities and risk management system and refined operational system have gradually improved.
Speaker Change: Risk of newly issued assets has returned to a healthy and reasonable level.
Speaker Change: Moving forward, we will appropriately increase our customer acquisition efforts leverage our advantages and scenario based operations and gradually drive steady growth in scale.
Speaker Change: At the same time, we will continue to invest more resources into our credit line and pricing strategies conducting more refined operations by sequencing products and customer groups.
We are confident that the profitability will gradually return to the robust level as we have achieved in the past.
Speaker Change: Second we will leverage the highest frequency consumption scenarios.
Speaker Change: E Commerce business and lower costs.
Speaker Change: Both online and offline to enhance user stickiness and boost activity.
For the E Commerce business, we will also have a wider range of products tailored.
Speaker Change: Taylor to different users and coding purity products for premium customers and highly cost effective products for growing customer segments.
Speaker Change: So of course, we will enhance user activity on conversion rates among premium users by implementing a differentiated management system based on customer segmentation and expanding customer acquisition across different scenarios. Additionally, we will create an exclusive benefit system.
Speaker Change: Further boost overall user engagement and retention.
Speaker Change: Third we will actively pursue overseas market expansion after preliminary exploration.
Speaker Change: Mexico is currency, maintaining our rapid growth in the future, we will closely monitor more emerging market opportunities and actively engaged in exploration.
Leave that as the asset structure continues to optimize and overall risk level gradually trends better in the second half of the year, our profitability will steadily improve.
Seattle: Next I will hand, the floor over to Seattle. Thank you.
Seattle: Now turning to our Q2 function that's involved.
Jay Let me give an update regarding our risk performance in that quarter.
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Speaker Change: Due to seasonal year.
Speaker Change: Beyond where we shop, and nanchang tissue, Berkshire funds and shutdown tissue.
Speaker Change: In the second quarter, we continued to adhere to the strategic principles of risk management upgrades and profitability improvement consistently enhancing our risk management system and a risk commandment come about it.
Speaker Change: By strengthening our risk identification capability building, a full lifecycle management strategy system upgrading our risk monitoring and basically attacking capability.
Speaker Change: <unk> strategy of rollbacks to promptly handled with Canary and implementing refined risk management for new and existing customers as well as listing assets.
Speaker Change: We achieved a gradual reduction in risk levels for both newly issued and the total assets in Q2.
Speaker Change: Exactly.
Speaker Change: <unk> seven rate when you asked the second quarter.
Right.
Speaker Change: Okay.
Speaker Change: One 4% compared to the first quarter. They wanted the bankruptcy rate for our total assets at the end of the second quarter decreased by about 7% compared to the beginning of the quarter and 30 days collection rate has gradually improved.
Speaker Change: By about one five in absolute value from the start of the quarter.
Speaker Change: We anticipate that the downward trend in risk levels will continue in the second half of the year.
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Speaker Change: Let me elaborate on their magic, we have implemented in Q2 on the data front, we have intensified the introduction of high quality narrow beta data stored.
Speaker Change: <unk> got the mic in depth joint modeling, we have also faced out and replace ineffective third party data source, thereby laying a solid data foundation for risk management.
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Speaker Change: <unk> <unk> hundred Chile since your kitchen.
Frank of model becomes a bottleneck we have comparable.
Speaker Change: The migration and upgrade at risk assessment models for that.
This business line.
We continue to introduce new partners with proprietary ecosystem data.
Speaker Change: <unk> the underlying data that I mentioned.
Speaker Change: We consistently optimized sample by <unk> those that are more similar to our current customer base lease.
Speaker Change: This approach ensures sufficient coverage of different customer groups, while also enhancing our ability to identify the latest customer segment.
Speaker Change: We further increased the application of deep learning algorithms. These measures have led to significant improvement in the performance and the stability of our model.
Speaker Change: Additionally, there were more data introduction and algorithm innovation, we have upgraded and at a rate at various models, including <unk>.
Speaker Change: Fighting models response models and fraud detection model as.
Speaker Change: As a result.
Speaker Change: Its coverage and accuracy have continuously improved.
Speaker Change #100: The phone counselor to Syngenta Permian team with that because we see a north sea change of an <unk> tire Nonetheless turn to tender at June.
Speaker Change #101: Some of them do you plan to sell the phones and Brian.
Yeah.
Speaker Change #101: Admin strategy system developed quickly.
Speaker Change #102: We have further implemented a full lifecycle risk management system across various business lines.
Speaker Change #102: This allows for more targeted and effective risk management to our customers at their each page of lifecycle.
Speaker Change #103: That's all the time.
Speaker Change #104: Jim how are you doing Tanya arguable woman named our <unk> channel two timeframes, yet so don't shoot in Sudan. Nonetheless, you can see when the Cambodian sensible tuck <unk>.
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Sue Cheung: Sue Cheung hurtful.
Sue Cheung: On the grounds of risk monitoring and detection in the second quarter, we launched an automated asset risk inspection system from scratch based system can detect more segmented portfolio promptly identify and locate chang in risk a chance and not.
Molly: Molly respond and finally handle them quickly.
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Molly: Hum.
Speaker Change #109: Yeah, Laura <unk>, John Chandler function cohort, so don't Tonya Chin to truly me Crazy, our <unk> kitchen, Cook, which arent Richard He will continue to do.
Speaker Change #110: Brown of handedly high risk customers that disposal strategy railroad has been fully implemented across various business scenarios.
Speaker Change #111: This has strengthened our automated strategy come a bunch, who are managing high risk customers, enabling the generation of disposal strategy recommendation between OE and improving the efficiency and accuracy of handling such high risk asset.
Speaker Change #112: But I think our opinion granting from yet.
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Speaker Change #113: So once he yourself longer lasting costs I would see Houston with Atlanta from Samsung.
Speaker Change #113: Sure.
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Speaker Change #114: So we address in the <unk> cohort punching more plenty Moshe the chairman at Kimco.
Speaker Change #115: <unk> John Yung Kim.
Speaker Change #115: So similar pattern suddenly all wholesalers in cohort without <unk> would be our absolute PBT Changzhou Ut do we charge on the bathroom guard band So a huge cohort G like Hertz history Julien yes.
Speaker Change #116: You got your own product.
Speaker Change #117: In terms of risk management for new customer asset we have comprehensive they implemented the low and the grille risk management strategy across all new customer acquisition channels.
Speaker Change #117: This strategy represents a complete upgrade for our previous cat risk management approach for new customers.
Speaker Change #118: Hello, and grow with Mad men strategy employed and initial small amount as well.
Proved credit line and dynamically managing the correct line amount across the different stage of customer lifecycle.
Speaker Change #118: Effectively controlling the risky stronger after first time delinquency among new customers.
Speaker Change #118: At the same time for high quality customers transitioning to the next leg of lifecycle, we uplift their credit limits to promote scale growth, thereby increasing the proportion of high quality assets.
Speaker Change #118: With a comprehensive implementation of the new risk management strategy for new customers. The credit approval rate for new customer has increased by approximately 22 zero percent compared to the first quarter. Meanwhile, the early risk indicators at PB seven four new.
Speaker Change #118: <unk> has decreased by 23% compared to the first quarter.
Speaker Change #118: This lays a solid foundation for the commute mentioned a high quality customer and sustain this growth.
Glenn: Hello cohort apology and Glenn in your commentary.
Glenn: So Chris Young brand New idea go tight working down some of them yet.
Speaker Change #120: Thank God chunks, which I'm glad you from your car Congo.
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Speaker Change #122: <unk> La <unk> and the Archer.
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Speaker Change #123: Count per user cohort data to turn that into <unk>.
Jim: <unk>, Jim we've done.
Jim: Punctured <unk> two kind of cohorts.
Speaker Change #125: Blue shirt, our cohort data, we offer Lee due to some unusual adelphi.
Speaker Change #125: Tom you got dinged up I'm empowered diatonic good turnkey solution.
Amit: <unk> done Amit <unk> boot season.
Amit: In terms of risk management for a new asset existing customer of ours.
Speaker Change #127: Work in Q2 focused on three key areas.
High risk asset management second structural optimization.
Depreciated pricing.
Speaker Change #128: To screen to high risk asset management, we restructured the entry and the transaction stage.
Speaker Change #128: The entry stage, we manage risk through a differentiated product for different risk levels in the transaction stage, we produce real time transaction risk information, so agile decision, making resulting in a 22 zero percent decrease in risk level for existing customers.
Speaker Change #128: Compared to Q1.
Speaker Change #128: Additionally, we've reduced credit limit for <unk>.
Speaker Change #129: Mismatch, the credit profile, and Craig and IMF reclaiming their credit exposure and effectively helping to reduce long term risk.
Speaker Change #129: In terms of risk management products.
Speaker Change #129: Application of automated asset inspection and risk strategy robot accelerating the early alerts and disposal of medium to high risk asset.
Speaker Change #129: In terms of structure optimization, we increased credit limits for high quality customers based on our new house risk identification capabilities effectively increasing the proportion of high quality GMP.
Speaker Change #129: We also intensified and we offer FX for customers showing signs of customer churn and those who have already stopped using our product aiming to prevent churn and encourage return.
Speaker Change #129: In terms of differentiated pricing when made enhancements in the depreciated pricing capability across all product lines with the take rate of each product line, showing a steady increase compared to Q1.
Speaker Change #130: But for me on per ton routes, where you find them wanting some cartoon down where a tampon tackling forgot loop system controller, you wanting to use chat teaching currently what's the Sunbelt mountain cashing it sounds for sure she's a la Posada turns out so now at the time, who truly that ought to be.
Speaker Change #129: Gotcha.
Speaker Change #131: In terms of managing the collection efficiency for existing assets Q2, we've focused on three main areas.
Speaker Change #132: Including the coverage rate of third party debit transfer second optimizing Debbie track for strategy.
Speaker Change #132: Refining pre delinquency reminder, strategy.
Speaker Change #133: These measures have proven effective leading to a gradual improvement in the collection rate for existing assets.
Speaker Change #134: John one thing to the women's and Kid's shoes judge on function quantity there should be in the lead quality ships in a while some of them do some e-commerce shipping IPU Xinhua third engine from turnkey twin towns in the tier one in <unk>.
Speaker Change #134: Did you go Pennsylvania, George how are you currently do you go back to that kind of a function of moisture.
These robot downtime to booting them for Taco Tanya <unk> from Janssen team Tc Shandong <unk>, New Jersey clean water Thunder, Steve would tell you with proton Diego system utilization.
Speaker Change #134: Looking ahead to the third quarter, we will continue to strengthen our risk identification capabilities.
Speaker Change #134: Strategies, Eaton, and then calendar and risk management tool upgrades.
Additionally, we have further deepened the development of differentiated risk management, a couple of Bucks by segmenting based on various customer cohort products and scenarios.
Speaker Change #135: In terms of financial institution collaboration really enhanced partnership with Dell.
Speaker Change #135: Financial institutions, who have different and complementary risk preference and strategy. Our goal is to ensure that the risk level of both new and existing assets continue to decline in third quarter consistently promote the growth of high quality assets further optimize the assay.
Speaker Change #135: Spector and gradually improve profitability.
Speaker Change #135: Sure.
Jim <unk>: CFO, Jim <unk> engine block next I will hand over to our CFO James for financial update.
James: I will now give a more detailed update on our financial results. Please note that all figures are presented in RMB unless otherwise stated.
Jean: As Jean <unk> mentioned in the second quarter, the macroeconomic recovery remained sluggish.
James: Similar confidence continue to be at historic lows in this context, we maintained a cautious operating strategy controlling the pace of loan issuance and the further tightening credit standards.
James: This timing adjustment strategy not only brought us healthy financial results, but also laid a solid foundation for future growth.
James: The strong financial performance in the second quarter can be highlighted in the following four aspects.
James: First.
So it was an increase in revenue take rate.
James: This is the key highlight of the quarter the revenue take rate of credit business rose to 2.91%, an increase of 37 basis points quarter over quarter, and 54 basis points year over year.
Despite a 12% quarter over quarter decline and a 21% year over year decline in quarterly loan issuers, we achieved.
James: At 12, 3% quarter over quarter, and a 19, 1% year over year revenue growth.
James: The increase in take rate was primarily driven by record low funding costs.
James: Risk based differentiated pricing optimization, a slight refinement in early repayment ratio and a continued improvement in asset quality of new loans.
James: Oven has detailed the downward trend in risks of new assets and we are confident that we will see more improvement in the overall loan portfolio towards later this year.
James: Secondly.
James: Record low funding costs and more balanced funding channels in.
Speaker Change #139: In the second quarter funding costs further declined 252, 6% down 58 basis points quarter over quarter, and 131 basis point year over year.
Speaker Change #139: This significant drop in funding costs was due to <unk>.
Speaker Change #139: Relax monetary policy environment, and an increased market demand for high quality assets from a fall from our platform.
Speaker Change #140: And efficiency improvement abrupt by diversified funding sources.
Speaker Change #140: We successfully resumed ABS issuance in may after the break of more than two years and in July we issued our second ABS of this year with these.
Speaker Change #140: Funding costs for senior tranche as low as two 8%.
Speaker Change #140: Moving forward, we plan to issue ABS readily to further diversify our funding sources and reduce overall funding costs.
Speaker Change #140: The second quarter, we added two new financial institutions as funding partners. The maintained approximately 70% of our funding from national institutions.
Speaker Change #140: Yes.
Certainly.
Speaker Change #140: More increase in risk free new loans.
Speaker Change #140: New loans and the risk free segment as a percentage of total GMB in Chinese thermal Debbie increased from 23% in Q1, this year and 22, 8% in Q2 of last year to 27, 2% in Q2 this year.
Speaker Change #140: The risk free segment, mainly consists of new loans facilitated and the risk free profit sharing model as well as tech empowerment SaaS services to banking partners.
Speaker Change #140: Additionally, the revenue split proportion in profit sharing model, so oftentimes, leading Chinese increased by one percentage point.
Speaker Change #140: Quarter over quarter, and a four percentage points year over year.
These two increases effectively enhanced our risk fleet revenue quality and helped improve profitability.
Speaker Change #140: The increase in this year proportion was due to a growing demand for high quality assets in the financial market and the gradual improvement in our overall asset quality.
Speaker Change #140: This demonstrate that our risk management capabilities are increasingly recognized by <unk>.
Also as a side note in the portion of the risk free revenue. We're also exploring value added services offered to our customers to improve the user experience in.
Speaker Change #140: In the future we plan to continue to increase the proportion of risk free model to expand issuing volume and diversifying our business model, which in turn will better serve the needs of the financial partners with a different risk preferences.
Speaker Change #140: Okay.
Speaker Change #140: Fourth.
Speaker Change #140: So a recovery in e-commerce business in the second quarter E Commerce business revenue search to 437 billion renminbi up 88, 5% quarter over quarter.
Speaker Change #140: Gross profit in the E Commerce business rebounded from a loss in the first quarter to 14 million RMB in the second quarter.
Speaker Change #140: Total transaction volume in the E Commerce segment increased by three 3% quarter over quarter, indicating an improvement in the revenue take rate and the profitability.
Speaker Change #140: This turnaround was mainly due to the decisive decisive measures taken in previous quarters to reduce risk levels and upgrade to tightened risk management strategies.
Speaker Change #140: Despite short term disruptions in the first quarter, such as declines in transaction volume and gross profit.
Speaker Change #140: Business growth and profitability quickly recovered and returned to the growth trajectory a trend we expect to continue in the future.
Speaker Change #140: In addition to the above for operational highlights.
Speaker Change #141: I would like to add some details to some items on the income statement.
Speaker Change #141: First on revenue.
Speaker Change #141: Technology enabled services revenue grew to 535 million renminbi in the second quarter up 47, 9% quarter over quarter, driven mainly by increased the dnb in the risk free loans.
Speaker Change #141: Higher revenue share propulsion and other services.
Speaker Change #141: In the second quarter as mentioned earlier.
Speaker Change #141: Note issuance and the risk free profit split model accounted for 27% of the total loans.
Speaker Change #141: Up 4% from the first quarter of 2024.
Speaker Change #141: Moving forward, we plan to continue expanding the risk free portion of our business.
Speaker Change #141: Second our cost and expense items.
Speaker Change #141: First loan provision cost.
Speaker Change #141: Therefore.
Speaker Change #141: Provision line items in our income statement, including provisions for financing receivables and contract assets and achievable.
Speaker Change #141: Brief provision for contingent guarantee liabilities and <unk>.
Fair value change in financial guarantee derivatives and fair value loans.
Total provision costs in Q2 increased by 12, 6% quarter over quarter due to higher risk levels in the existing loan book. However, as Arvind mentioned during the second quarter, we saw an improving trend in the day, one delinquency rate, which peaked in April and have gradually come down from April to June.
Speaker Change #142: Additionally, the increase in the 90 day, plus delinquency rate was mainly due to a quarter over quarter decline in the loan balance driven by lower new originations and less of time.
Arvind: This is a mathematical cash sweep calculation due to lower denominator at the 90 plus day delinquency ratio only serves as a lagging indicator and provides when angle to read the risk performance amongst our array of risk metrics.
Speaker Change #144: While our risk profile for new loans has substantially improved the risk for the existing nodes has also been stabilized. However, the provision for the total portfolio will still have some lingering effects in the coming quarters.
Speaker Change #144: Second funding cost the all balance sheet loan amount and our funding costs remained relatively stable due to the flat side of this trust funding.
Speaker Change #144: Third processing and service costs.
Speaker Change #144: Increased by 11, 7% quarter over quarter due to a reduction in the loan issuers and facilitation volume in the second quarter.
Fourth.
Speaker Change #144: Sales and marketing expense increased by 12% quarter over quarter most of the incremental expenses were invested.
Speaker Change #145: <unk> invested in the expanding overseas markets as our business in Mexico is rapidly expanding therefore, dividing total sales and marketing expense by the number of newly approved users shows some increase in the customer acquisition cost.
Speaker Change #146: Actually the unit cost of the domestic customer acquisition has been relatively stable.
Speaker Change #146: Fifth.
Speaker Change #146: Net profit margin despite the challenging environment in the second quarter, our net profit margin remains stable compared to the first quarter.
Speaker Change #146: Apart from the above income statement items next on the balance sheet items in the second quarter, we strengthened our strong cash position to $4 6 billion renminbi.
Speaker Change #146: Through refined operational efficiency and maintain a solid shareholders equity of over 10 billion renminbi.
Speaker Change #146: Lastly, regarding the shareholders' return as Jay mentioned, we are committed to creating sustainable value for shareholders and have announced a cash dividend of 0.07 to U S dollars per ads for the first half of 2024 with a record date of September 16 2020.
Jay: Equivalent to approximately 20% of the total net profit for the first half of 2024.
Speaker Change #147: Based on our current share price.
Speaker Change #147: Our annualized cash dividend payout.
Speaker Change #147: The cash dividend yields reached about eight 7%.
Speaker Change #148: <unk>, which we believe is in the top range among the ADR companies.
Speaker Change #148: Looking ahead to the third quarter in.
In the context of a continued uncertainty among the macroeconomic recovery, we will continue to adhere to a prudent operating principle.
Speaker Change #148: Based on current forecast, which is subject to many general uptake, we expect a total loan issuance and the profit in the third quarter to remain at a similar levels compared to the second quarter.
Speaker Change #149: That concludes the financial settlement operator, we can now open the floor for questions.
Speaker Change #148: Thank you.
Speaker Change #150: We will now begin the question and answer session.
Speaker Change #151: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change #152: Please ask your questions in Chinese first and follow up with English translation. Please.
Please limit to two questions at a time and if you have follow up questions. Please request to rejoin the queue again.
<unk> Li: Our first question comes from the line of <unk> Li from C. ICC. Please ask your question Yada.
<unk> Li: Okay.
Speaker Change #154: Two quick ones here.
Speaker Change #155: Sounds great homes until you go through some of them I'm going to dump in <unk> how are you.
Speaker Change #155: So we have quite a bit.
Speaker Change #156: How can I put on the chip.
How about you when they'll go to fund me on <unk>.
Speaker Change #157: Gentlemen, do you actually downstream drug that money at home.
Speaker Change #158: Okay. She opens you do have some.
Speaker Change #158: That's really going to be all with genitalia second what kind of a social thing with <unk>.
Speaker Change #158: Yeah.
Speaker Change #159: Mobile comments, you just went through.
Speaker Change #160: We'll go to Shanghai.
Tony could you kind of look at BMO.
Speaker Change #161: And then I'll do the translation Hello management. Thank you for taking my questions.
Speaker Change #162: Mr. Jamie mentioned that the growth of the overseas business. This corner far outpace the overall business could you provide more details on the overseas expansion and when we extract the overseas business to scale up the volume and to make a profit.
Speaker Change #163: Second the management mentioned that the company continued our prudent strategy this quarter, but we noticed that sales and marketing expenses increased compared to the fourth quarter.
Speaker Change #163: Which means.
Speaker Change #165: Customer acquisition cost per active user also went up if we do the calculation could the management give more color around this oh, that's all thank you.
What else was there something else.
Speaker Change #166: The idea, though is a woman has a cellular <unk>.
Speaker Change #167: Like what are you was on the performance has to deal with when Tencent, San Antonio Houston and.
Speaker Change #168: Function Genuity Hershey relationship builder with what are you gonna be gotcha, and colorful frankly more centrally but what are your warmer weather year with future fatality Ocean shore Colombia.
Speaker Change #169: Following Doug vessels Bandidos lithium Buck.
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Speaker Change #170: Since Thats useful also suddenly you choose.
Speaker Change #171: The final one was co either essential that the assembly.
Speaker Change #171: Here's all the hydrocodone highlighted here within the U K Mod pizza and the thoughtful than that high school when I saw it in this again total quote unquote more so than that way more than that.
Speaker Change #171: Hey.
Speaker Change #172: So I think we will see a hard.
Speaker Change #172: Especially because it does highlight the need to.
Speaker Change #173: <unk> Hello.
Speaker Change #174: Our translator Jane in Q2, a major campaign macroeconomic recovery, we adopted a prudent and strategy in <unk>.
Speaker Change #174: Mackie market further tightening of risk approval standards and maintaining a healthy control at scale of originations compared to our domestic markets. Our overseas business has developed rapidly.
Speaker Change #175: Total loan origination in Q2 grew by 68% and the loan balance increased by 76 eight per kilo in Q far outpacing our outerwear business graph. Furthermore, the oversea business is accelerating growing speed of quarter by quarter.
Speaker Change #175: Q on Q growth in Q2 is a rapidly Q2 to three times of that in Q1.
Speaker Change #175: However, we'd like to also point out that at scale.
Speaker Change #175: The business is still relatively small compared to our domestic business scale, we anticipate that it still will take some time and require more investment to expand and subsequently make a profit in the future for the overseas business.
Speaker Change #175: Looking forward, we plan to step up our investment in oversea market and accelerated expansion.
Speaker Change #176: The other one in Connecticut.
Speaker Change #177: A woman comes out with a with a wealth of yogurt and listens a public lessor you had highlighted a total so it's just 10 minutes here.
Speaker Change #178: Hello, Walnut Husk Jose you got cultural cause other things on the tally with your thoughts sure whether total input to the Tollbooths I'm encouraged at what kind of sort of tight.
Speaker Change #179: So lots of good tangle Hawker timber some fairly.
Speaker Change #180: She is a woman controller has a rather than at the little So October mentally label without any kind of color, but you know what they call. It a poor credit Cynthia the feel essential telco core the forgotten but.
Speaker Change #181: <unk> can we touch with EBITDA went in the Eagle Ford.
Speaker Change #181: Well I mean, the dilutive today.
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Speaker Change #181: Oh <unk>.
Speaker Change #181: While mentioning cohort are correlated.
Speaker Change #181: We've been <unk> disorder, so retrofit a womans I call it that in good Eagle Ford Michelle you put on the Keystone Cushing syndrome, a shuffle realized well maybe sheets and good quality.
Speaker Change #181: Call It a focus number tayo.
Speaker Change #183: Good color.
Speaker Change #184: Well, thank you for Jay.
Speaker Change #184: Yes, and therefore question explain is sure a majority of the incremental sales and marketing expense comes from our investing in oversea market.
The market is still in its early stage of high growth space and it is quite requires significant investment. Therefore, if you just purely do the calculation based on our financial statement. It may appear to show that the customer acquisition cost per active user went up but that is misleading.
Speaker Change #184: Our detailed analysis, the total costs related to acquiring new customers in the domestic market and also if we see the unit cost of customer acquisition remain relatively stable compared to Q1 and that within our expectation.
Speaker Change #184: The other as we continue to improve our customer acquisition efficiency in domestic market in the future. We believe the quality of our cohort will improve and the payback period will shorten and unit costs per customer we are ready to go with that operator, and the answers to questions that we can do.
Speaker Change #185: Go ahead for the next question.
Speaker Change #184: Thank you.
Speaker Change #184: Our next question comes from Zoe Zhou from CLSA. Please go ahead Zoe.
Speaker Change #184: Okay.
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Speaker Change #186: Hi, I'm from Quad phone calls that we've got that one done for that sure sounds very cool.
Greg: Hey, Greg.
Speaker Change #188: Hum along and some of them go into that.
Speaker Change #188: Chris Welch once that they hold us youre going through it that.
Speaker Change #188: By way of languish over quite a robust research at Walmart.
Speaker Change #189: AGA ones you see on your CFO and don't see at all.
Speaker Change #189: So it seems from but I forgot them clean there's always got to keep it on the zinc from industrial gondola UC San Diego Austin, Yes.
Speaker Change #190: Any sense on what kind of things from that Ashish.
Speaker Change #190: Okay, Let me do the translation.
Speaker Change #192: First one I cant mention although ammonia volume decrease this quarter revenue increased quarter over quarter, which implies a significant rising the takeaway.
Speaker Change #193: The management elaborate on the driving factor behind this and provide an outlook on the future train up the revenue takeaway the second question.
Speaker Change #194: Our CEO and CFO mention a significant reduction in funding costs this quarter.
Speaker Change #195: You can elaborate on the specific measures taken to bring down funding costs.
Speaker Change #195: Management's outlook on the triangle funding costs for the third quarter and the rest of them.
Thank you.
Thank you Joey I will answer.
Speaker Change #196: Two questions. The first question basically in Q2 because of the slow recovery of the macroeconomic economy. We continue to adopt a prudent strategy basically the total loan originations declined by 12% and the loan balance dropped by about 5% quarter over quarter. However, because of our focus on improving the operational if.
Patiency and strengthen core capabilities the revenue take rate increased significantly from.
Speaker Change #196: 254% in Q1 to two point, 900% basically its a substantial rise of 37 basis points quarter over quarter and about 54 basis points, if you compare year over year.
This is really because of many reasons basically the first one is automation.
Speaker Change #196: Automation.
Speaker Change #196: Tightened risk standards boasted a continuous improvement in the quality of new loans. This quarter and also secondly, if you can hit.
Speaker Change #196: The reduction in the funding cost and thirdly, some further optimization of early repayment ratio a risk based differentiated pricing and more value added services.
Speaker Change #196: Looking ahead into the third quarter, we will continue to uphold the prudent operational strategy and we expected revenue take rate to maintain a slight uptick momentum in India.
Speaker Change #196: The near future.
Speaker Change #197: As for the second question related to funding cost basically this quarter. The funding cost reached a new record low stood at about 5% to 6% is a decreased by 58 basis points quarter over quarter.
Speaker Change #198: It is a really a big reduction really this is driven by many factors first is the overall liquidity in the market. It remains relatively ample and our quality of assets are in high demand amongst the training funding partners. So this reflects our continuously improving asset quality has gained more rare.
Speaker Change #198: Nation from our funding partners.
Speaker Change #198: It helps us to drive down the funding cost.
Speaker Change #198: Secondly, as for our profit sharing model the revenue split ratio increased by one percentage point quarter over quarter, and a four percentage point year over year.
Speaker Change #198: Again, this demonstrates the competitiveness of our assets and our strong bargaining power if you will.
Speaker Change #198: And the third point is the continuous ABS issuers as Jay and I both.
Jay: <unk> talked about in our script.
Jay: We issued two tranches of ABS with the senior tranche as low as two 8%.
Jay: Really significantly pulled down our funding cost and.
We plan to regulate issue ABS to further balance and diversified our funding channels.
Speaker Change #199: And in terms of funding structure in Q2, we added two more funding partners to our existing 160 partners network. So with the proportion will funds from national funding partners maintaining at about 70% also so.
Speaker Change #199: So looking ahead with the accelerating pace of the ABS issuance and continuous improvement in asset quality.
Speaker Change #199: <unk> liquidity remains sufficient in the financial market. We believe there is still considerable room for further reduction in funding costs.
Speaker Change #199: In the near future.
Speaker Change #199: So hopefully this answers your questions.
Speaker Change #200: Thank you okay.
Speaker Change #201: Our next question comes from the line of Alex Ye from UBS. Please ask your question Alex.
Great.
Alex Ye: You bet.
Alex Ye: Okay.
Speaker Change #203: Jump on it.
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Speaker Change #203: So young from ship finance.
Speaker Change #203: But the fact that only Chinese food.
Speaker Change #203: Okay.
Okay.
Speaker Change #204: Well then you go into a mandate.
Speaker Change #203: Yeah.
Speaker Change #205: No I cannot say that you do.
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Speaker Change #205: Okay.
Speaker Change #205: Thank God that you shipped some people with the show.
Speaker Change #205: Yeah.
Speaker Change #205: So does that.
Speaker Change #205: The indicators on yet.
Speaker Change #205: That's it.
Speaker Change #206: Thank you I was juggling.
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Neil: Hi, Neil.
Speaker Change #210: She leaves on melanoma.
Speaker Change #211: Got it got it okay.
Speaker Change #210: I'll take a nosedive.
Speaker Change #210: The third question is on <unk>.
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Speaker Change #212: Okay. So I have two question on that that corn futures.
Speaker Change #210:
Speaker Change #210: No.
Speaker Change #210: So.
Speaker Change #210: Absolutely we have seen some early signs that that's occurring in both new loans.
Speaker Change #210: Loans and portfolios of when do we expect.
Speaker Change #210: Did implement to be Oh, refract, and sometimes not more meaningfully in the future and second question regarding some of the recent indicators.
So number one the 90 days NPL ratio.
Speaker Change #210: Continue to edge up two 7% in Q2, so I'm wondering when do we.
Speaker Change #210: So we expect to see.
Speaker Change #213: And then also on yet.
Speaker Change #214: It seems to me.
We have noted the Q1.
Speaker Change #214: Q4 in the trajectory of the past few months.
Speaker Change #215: Just wondering when do we see an improvement to that okay.
Speaker Change #215: Okay.
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Speaker Change #216: Sure Hi, O tradeoff homes here you can see it.
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Speaker Change #219: <unk> I don't mean, the challenging with IP that you go to.
Okay.
Speaker Change #220: Well I'll, let her playful army as we continue to enhance risk management upgrading will further strengthen the risk identification capability advanced the construction of comprehensive lifecycle management strategy system improve recombined hurry and early alerting capability MTV.
Speaker Change #220: Viola in Paragon with go to such as we mentioned before the strategy around that we will continuously enhance the refined with good management for both new and existing customers well they will at the existing assets.
Speaker Change #221: Based on the above mentioned measures undertaken we anticipate that the proportion of new loan will gradually increase and the risk level of the existing assets will gradually come down leading to a gradual improvement in profitability in the future.
Speaker Change #221: That is to show at a gradual quarterly improvement overtime.
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Speaker Change #230: So I will add that GA Europe laundry there you go.
Speaker Change #231: So I will translate for adding as you mentioned 90 days.
Speaker Change #231: Right.
Speaker Change #232: More like lagging indicator here with Tony suggest that the market pay more attention to those leaving we've indicated that we actually monitor in the daily work of our rigs Commandments space for example.
Speaker Change #233: Michelle a few of them that PV server when you issued asset and Q2, we seek dropped by approximately 14, one 4% compared to Q1. The second lead indicator will be day, one delinquency rate for the total assets, you'll see in his job about 7% from the <unk>.
Speaker Change #234: Tying in April to June in the second quarter.
Speaker Change #234: Certainly the indicator we recognize.
Speaker Change #234: The next.
Speaker Change #234: This step and one collection rate, which gradually improved about approximately one five.
Speaker Change #236: In absolute value around the April to June so are all the risks improve mass in the new issued asset will gradually show in the 90 days gradually buying time.
Speaker Change #237: They require some time to well until we see the improvement in the 90 day delinquency rate second point I'd like to explain from the mathematical equation perspective to elaborate increase of 90 days delinquency rate.
Speaker Change #237: It is.
Speaker Change #239: The 90 day delinquency rate at the denominator is the loan balance.
We mentioned that we actively with strength our loan origination in Q2 that resulted in a decrease in loan balance. So there is a drop in the denominator when we calculate 90 days delinquency even naturally.
In naturally lead to a rise in the 90 days delinquency rate as all of the upgrades in the risk management work continues we expect to see the downward trend when the risk level will continue in the second half of the year.
Uh huh.
Speaker Change #240: Hope that a gradual question regarding the risk management space, operator, I think we are.
Speaker Change #241: If theres no more questions on the line I think we can close the call.
Speaker Change #242: Thank you I'm showing no further questions I'll now turn the conference back to the management team for closing comments.
Speaker Change #243: Well thank you.
Speaker Change #244: Every one for joining us today, if you have further questions. Please feel free to contact us via the contact information on our IR website. Thank you all have a good day and good night.
Speaker Change #245: Okay. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.