Q3 2024 Qifu Technology Inc Earnings Call
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Speaker Change: Note that todays event is also being recorded at this time I would like to turn the conference call over to MS. Karen Qi Senior director of capital markets. Please go ahead Karen.
Thank you operator.
Speaker Change: Hello, everyone and welcome to <unk> technology third quarter <unk> earnings Conference call.
Speaker Change: Our earnings release.
Speaker Change: This could be issued earlier today and is available on our IR website.
Speaker Change: Joining me today, Amit to Hudson.
Speaker Change: I'll, let Alex Chi.
Speaker Change: And the mix.
Speaker Change: Our Seattle before.
Speaker Change: Before we start I would like to refer you to our safe Harbor statement in the earnings press release, which applies to this call as we will.
Speaker Change: Make certain forward looking statements.
Speaker Change: Also this call includes discussions of certain non-GAAP financial measures.
Speaker Change: Please refer to our earnings release, which contains a reconciliation of non-GAAP financial measures to GAAP financial measures.
Speaker Change: Also please note that unless otherwise stated all figures mentioned in this call in RMB terms.
Speaker Change: Before we start we would like to let you know that today's prepared remarks from our from our CEO will be delivered in English using an AI generated a boy.
Speaker Change: Now I will turn the call over to mid to high <unk>. Please go ahead.
Speaker Change: Hello, everyone. Thank you for joining us today.
Speaker Change: Austin is a season of harvest and we are pleased to share that our hard work has yielded remarkable results this quarter.
Since the start of 2024, we have adhered to a strategy of prudent operations optimizing risk performance and boosting operational efficiency. These.
Speaker Change: These initiatives have led to substantial improvements in our risk metrics and record profitability in Q3.
Speaker Change: A solid business Foundation has provided us with a margin of safety to pursue moderate sequential growth.
Speaker Change: In Q3, our loan volume stabilizes and begins bottoming out.
Speaker Change: Meanwhile, we continue to iterate on our business model to build a more open ecosystem.
Speaker Change: Through our platform approach, we are creating value for both users and financial institutions broadening our business boundaries and strengthening our operational resilience.
Speaker Change: By the end of Q3, our platform had empowered a total of 162 financial institutions and served more than 55 million users with approved credit lines on accumulative basis.
Speaker Change: Excluding the contribution from risk management, SaaS services or <unk>.
Speaker Change: RM SaaS total loan facilitation and origination volume on our platform increased by 13, 1% sequentially.
Driven by further improvements in risk metrics and operational efficiency, our non-GAAP net income for the quarter reached an all time high of RMB 183 billion and.
Speaker Change: An increase of 29, 1% sequentially and 54, 5% year over year.
Speaker Change: Our ongoing share buyback is also contributing to improved non-GAAP net income per diluted ads, which increased 34, 8% sequentially and 71, 5% year over year to RMB 12 four.
Speaker Change: Coupled with the ongoing optimization of capital allocation, our OE in Q3 increased further to 32, 2% well ahead of most financial services and Internet companies in China.
Speaker Change: Despite macroeconomic headwinds we have consistently improved upon our past results and outperformed our market commitment through ongoing involvement and enhancements to our business now.
Speaker Change: Now I'll walk you through the progress we made this quarter.
Speaker Change: Asset quality further improved in Q3, as we continued to execute our rigorous risk strategy.
Speaker Change: Further optimized our product and service offerings for differentiated user groups.
Speaker Change: For low risk uses we tailored credit limits and pricing to offer more attractive terms boosting user engagement, while maintaining stable risk levels.
Speaker Change: Additionally, we optimized our funding structure by collaborating with financial institutions, whose risk management capabilities or appetite to complement our own further strengthening our overall asset quality.
Speaker Change: Within our post lending processes, we reinforced through payment reminders for borrowers.
Speaker Change: And refine the management of our partner institutions to improve collection efficiency.
Speaker Change: These initiatives resulted in a notable improvement in our risk metrics in Q3 with day, one delinquency rate falling by 0.2 percentage points sequentially and 30 day collection rates, increasing by one one percentage points to reach the highest level since 2022.
Speaker Change: With the optimization of risk strategies already in place.
Speaker Change: We expect our risk performance to remain relatively stable in the coming quarters.
Speaker Change: During Q3 liquidity in the financial system remains ample.
Averaging a robust asset quality and the long term trust that we have built with financial partners. We maintained our negotiating leverage on the funding side and reduced funding costs by 30 basis points sequentially. Additionally, we issued RMB three 5 billion in ABS as in the quarter with issuance costs falling by more than 50 base.
Speaker Change: Points sequentially as a result total ABS issuance for the first three quarters of 2024 reached RMB 13, 4 billion up by 23% year over year, furthering optimizing our funding structure.
Speaker Change: We also successfully issued our first asset backed note in the interbank market, which further expanded our funding channels and investor base by attracting international investors through China's bond connect scheme.
Speaker Change: Given the seasonally tighter funding environment in Q4, we expect our funding costs to remain stable at current levels.
Speaker Change: In terms of user acquisition, we further explore diversified channels to improve efficiency and moderately increased investment to acquire new users.
Speaker Change: In Q3, New credit line usage increased by 23, 8% sequentially, while average unit acquisition cost declined by seven 4%.
Speaker Change: Notably the proportion of new credit line users acquired through our embedded finance channels increased by roughly five percentage points with loan volume from this channel increasing by 85% year over year.
Speaker Change: With improved user profiling accuracy on partner platforms, both credit costs and operational efficiency of our embedded finance business improved in Q3 driving in our OE increase of approximately 60 basis points from the previous quarter.
Speaker Change: Furthermore, we continue to explore collaborations with financial institutions to engage their existing customer bases.
Speaker Change: Leveraging their proprietary traffic alongside our differentiated pricing and service capabilities to expand the breadth and depth of our user coverage.
Speaker Change: To date, we have partnered with five financial institutions across various categories under this model, including joint stock Bank Municipal Bank private bank and consumer finance companies.
Speaker Change: As these partnerships progress they will create new opportunities for us to empower financial institutions and further extend our reach to high value user segments.
Speaker Change: In terms of managing existing users, we adopted a differentiated operation strategy based on user segmentation by their value and risk profiles.
Speaker Change: This enables us to provide more targeted offers.
Speaker Change: Diving higher user engagement and conversion efficiency.
Speaker Change: We also strengthened the long term retention of high value users with the rollout of a VIP service strategy and enhanced engagement and insight analysis.
For dormant users seeking large ticket low interest loans beyond our core offerings, we referred them to our financial partners, which enhances our ability to serve users throughout their entire lifecycle.
Speaker Change: As a result of these initiatives are logging conversion rates increased by 11, 6% sequentially in Q3.
Speaker Change: The number of users with successful drawdown grew consistently each month with the monthly average increasing by approximately 12% from last quarter.
Speaker Change: After a year of refining and upgrading our business model our capital light segment has assumed a more prominent role in our business mix.
Speaker Change: Excluding contribution from our SaaS the capital Light segment contributed 55% of total loan facilitation and origination volume in Q3, an increase of approximately 10 percentage points from same period last year.
Speaker Change: From a long term perspective, we plan to dynamically adjust the mix of capital light in capital heavy segments to balance returns and risks.
Speaker Change: Transitioning from a loan facilitation model to a platform model. We are building a comprehensive credit Tech service platform that encompasses the entire user lifecycle and promotes financial inclusion under.
Speaker Change: Under the platform model, we prioritize long term user engagement.
Speaker Change: Based on real time insights into user needs and risk profiles, we have collaborated with a broad network of financial institutions under different models diversifying our product pricing options and funding sources. This approach enables us to address uses credit needs at different stages of their lifecycle, while achieving a better balance between scale risk and profit.
Speaker Change: The ability of our business.
Speaker Change: In today's uncertain macroeconomic environment, we believe that our long term value lies in our ability to better understand user needs respond more swiftly and provide consistent support throughout their financial journeys.
Speaker Change: Our total technology solution business has continued to make steady progress as we focus on building our chefoo Digitech brand, which offers end to end technology solutions to banks.
Speaker Change: Currently Chefoo Digitech was included on the IDC, China top 50 emerging Fintech list.
Speaker Change: Significantly enhancing our reputation and competitiveness in the industry.
Speaker Change: This year, we have partnered with an additional nine financial institutions, bringing the total number of financial partners for our total technology solutions to 14.
Speaker Change: Our solutions have already been deployed and launched with 10 of them comps.
Speaker Change: Compound monthly growth rates in loan volume powered by our solutions reached 14% during the first nine months of the year. Furthermore, our tech solutions are expanding beyond consumer credit services with the development of a proprietary solution tailored for SME lending.
Speaker Change: This solution features an integrated three tiered credit assessment system, which combine big data driven risk management use yourself verification and offline intelligent due diligence.
Speaker Change: We have already launched a pilot program for this solution with an institutional partner.
Speaker Change: We are also seeing growing synergies between our tech solutions and credit businesses.
Speaker Change: Through our integrated solutions covering technology empowerment joint operations loan facilitation and user referrals, we will further deepen our support for financial institutions and expand user reach.
Speaker Change: As a tech driven company, we are committed to leveraging AI and large language models to empower our business and improve both the user experience and operational efficiency.
Speaker Change: We upgraded our efficiency focused AI co pilot system, achieving a record rate of 96, 3% and an accuracy rate of 98, 8% and key information extraction for loan collection.
Speaker Change: This AI co pilot system has been deployed across various collection scenarios.
Speaker Change: Including user information identification in case tracking.
Speaker Change: Enabling our collection team to more effectively pinpoint critical information and promptly follow up on cases.
Speaker Change: This boosts, both the quality and efficiency of our collection efforts.
Speaker Change: Average daily use of the system by our collection team has more than doubled since it was deployed.
Speaker Change: Additionally, we also enhanced the chief's report interpretation system by integrating the Chefoo Lodge language model with traditional natural language processing models, allowing us to quickly gain deeper insights into the products of our SME borrowers.
Speaker Change: Combined with our financial knowledge graph.
Speaker Change: We can track operational changes for 30% of our SME borrowers, enabling us to offer more precise and customized financial services.
Speaker Change: Since Q3, the Chinese government has rolled out a range of monetary and fiscal policies to drive high quality economic growth.
Speaker Change: At the same time various levels of government has issued guidelines encouraging financial institutions to optimize credit products provide differentiated services and increased funding support for key consumption scenarios, while balancing risk and business sustainability. The guidelines also promote deeper integration of Consumptions.
Speaker Change: In oreos and consumer credit services to enhance the consumer experience boost confidence unleash consumption potential strengthened market vitality and drive consumption.
Speaker Change: Recently, one leading Fintech platform has made significant progress in its rectification process, indicating that regulators acknowledged the significant value of fintech industry and regulatory trends are largely stabilizing.
Speaker Change: After a year of optimization, our core business has become more robust bolstered by diversified business models and broader strategic partnerships.
Speaker Change: While we remain cautiously optimistic about the economic outlook.
Speaker Change: We are confident in our ability to achieve long term and high quality growth.
Speaker Change: This year, we further optimized capital allocation to enhance shareholder returns executing our share repurchase plan at a pace significantly ahead of market expectations. We anticipate that total shareholder returns in 2024 will approach 100% of our net income for 2023, one of the highest payout ratios among Chinese ADR is having.
Speaker Change: <unk> already completed the majority of our USD 350 million share repurchase plan. This year. The board has approved a new repurchase plan of USD 450 million set to start on January one 2025.
Speaker Change: We are confident about the future of our company and believe that our share price remains undervalued.
Speaker Change: As such we have decided to further scale up our share buyback efforts and continued to reduce our share count over the next two years going forward, we remain committed to efficient capital allocation and shareholder value creation through substantial repurchases and dividends.
With that I will now turn the call over to Alex.
Alex: Released in May.
Alex: Okay.
Alex: Yeah.
Alex: Please go ahead operator.
Alex: Okay, sorry the.
Alex: Lying issue there.
Alex: Let me start again, thank you good morning, and good evening everyone.
Alex: Welcome to our third quarter earnings call.
Alex: While macro environment was still challenging.
Alex: We start to see candidate indication of modest improvement in user activities.
Alex: It's more stimulus economic policies released it late in Q3.
Alex: However, it is still too early to call a sustainable recovery.
Alex: And we continue to focus on optimizing operations improve improving efficiency and managing risk exposure.
Alex: Total net revenue for Q3 was $12 7 billion versus $4. One 6 billion in Q2, and 4.28 billion a year ago.
Alex: Revenue from pilot driven service capital heavy.
Alex: Was $2 9 billion in Q3 compared to $2 91 billion in Q2 and <unk> seven.
Alex: $7 billion, a year ago the year on year decline was mainly due to significant decline in off balance sheet loan loans. Despite strong contribution from on balance sheet loans and other value added services.
Alex: Overall funding costs further declined over 30 basis points sequentially.
Alex: And over 150 basis point year on year with the help of ample supply of liquidity and additional ABS issuance.
Alex: Revenue from platform service capital Light was 147 billion in Q3 compared to 1.25 billion in Q2.
Alex: 121 billion a year ago.
Alex: The year on year growth was mainly due to strong contribution from ICD and other value added services.
Alex: More than offsetting the decline in capitalized loan facilitation.
Alex: Excluding other technology solutions segments.
Alex: Contribution from platforms service further increases.
Alex: We try to strike the optimal mix between risk bearing a non risk bearing assets in an uncertain microenvironment.
Alex: During the quarter average IRR of the loans, we originated and onto <unk> was 21, 4%.
Alex: Compared to 21, 6% in prior quarter.
Alex: Looking forward, we expect pricing to fluctuate around this level for.
Alex: For the coming quarters.
Alex: Sales and marketing expenses increased 15% Q on Q, but declined 21% year on year.
Alex: Though we saw modest sequential uptick in consumers customers activities, we maintain prudent pace of user acquisition in the still uncertain environment.
Alex: We added approximately 1.58 million new credit line users in Q3 versus 128 million in Q2.
Alex: Unit cost to acquire a new credit line users declined to 265 from 286 Q on Q.
Alex: We will continue to make timely adjustments to the pace of new user acquisition based on micro environment macro conditions from time to time and further diversified our user acquisition channels. Meanwhile, we will also continue to focus on re energizing. Additionally.
Alex: User base as repeat borrowers historically contribute vast majority of our business.
Alex: 90 day delinquency rate was two 7% in Q3 compared to three 4% in Q2.
Alex: Day, one delinquency rate was four 6% in Q3 versus four 8% in Q2.
Alex: 30 day collection rate was 87, 4% in Q3 versus 86, 3% in Q2.
Alex: After a few quarters, a proactive risk timing, we are comfortable with our current risk exposure and we expect to see relatively stable risk matches in the coming months.
Alex: On the current micro environment and geopolitical uncertainties, we continue to take a prudent approach to book provision against potential credit losses.
Alex: Total new permission for risk bearing loans in Q3, or approximately 1.63 billion versus 1.31 billion in Q2.
Alex: Write backs are curious provision or approximately $910 million in Q3.
Alex: It's $480 million in Q2.
Provision coverage ratio, which is defined as the total outstanding provision divided by total outstanding delinquency risk bearing loan balance between 90, and 180 days or 482% in Q3 compared to 421% in Q2.
Alex: non-GAAP net income was 183 billion in Q3 compared to 141 billion in Q2.
Alex: The significant improvement in profitability was mainly due to better asset quality and operational efficiency as well as favorable mix changed in recent quarters.
Alex: non-GAAP net income per fully diluted.
Alex: <unk> was 12 points three five in Q3 compared to 9.16 in Q2 and 720 a year ago.
Alex: As proactive ship repurchase created significant EPS accretion.
Alex: Accretion.
Alex: Effective tax rate for Q3 was 23, 4% compared to our typical ETR of approximately 15%.
Alex: The higher than normal ETR was mainly due to approximately 200 million withholding tax provision related to large sum of cash distribution from onshore to offshore for dividend payments and share repurchase programs during the quarter.
Alex: With a solid operating results and higher contribution from capitalized models, our leverage ratio, which is defined as risk bearing loan balance divided by shareholders equity was two points.
Alex: Times in Q3.
Alex: The historical low we expect to see leverage ratio fluctuated around this level in the near future.
Alex: We generated approximately $2 three 7 billion cash from operating in Q3 compared to $1 96 billion in Q2.
Alex: Total cash and cash equivalents and short term investments or 977 billion in Q3 compared to 878 billion in Q2 as.
Alex: As we continue to generate strong cash flow from operations. We believe our current cash position is sufficient to support our business development and to return to our shareholders.
Alex: On March 12, 2024, we announced a share repurchase plan to repurchase up to Sydney.
And many of our ABS over a 12 months period, starting April 1st 2024.
Alex: <unk>.
Alex: November 19, 2024, we had in aggregate purchase of approximately $13 7 million in Avs Logan moderate market.
Alex: For a total amount of approximately 298 million inclusive of commissions and the average price of 21 seven per avs under this share repurchase plan.
Alex: We intend to substantially complete the repurchase plan by the end of 2024 24.
More on November 19, 2021, our board of directors approved a new share repurchase plan to buyback up to $450 million worth of our eds over a 12 month period, starting January one 2025.
Alex: The proactive execution.
Alex: The existing share repurchase plan and the launch of the new trial further demonstrate management's confidence and commitment to the future of the company and.
Alex: And the management team.
Enhance to consistently use share repurchase to achieve additional EPS accretion.
Alex: Accretion in the long run.
Alex: In addition, we will continue to distribute cash dividend as under our current dividend policy and.
Alex: And aim to achieve gradual increase in dividend per avs.
On a annual semi semi annual basis.
Alex: With the full execution of our share repurchase plan and the dividend policy. We are generally in one of the highest combined yield on a recurring basis among Chinese ADR, so our shareholders.
Alex: Finally regarding our business outlook, well, we start to see some tentative signs of marginal improvements in user activity.
Alex: We will continue to take a prudent approach in business planning and a focus on enhancing efficiency of our operations for.
For the fourth quarter of 2024, the company expects to generate non-GAAP net income between RMB, one 8 billion and RMB, one 9 billion, representing a year on year growth between 57 and 65%.
Alex: This outlook reflects the company's current and preliminary view, which is subject to material changes.
Alex: With that I would like to conclude our prepared remarks.
Speaker Change: Operator, we can now take some questions. Thank you as a reminder to ask a question. Please press star one one and wait for a name to be announced for those who can speak Chinese. Please start your question in Chinese for the by English translation to allow enough time to address everyone on the call. Please keep it to one question and one follow.
Speaker Change: A return to the queue. If you have more questions. Thank you one moment for the first question.
Our first question comes from the lie of Richard's Chi from Morgan Stanley. Please go ahead.
Speaker Change: Yes.
Speaker Change: I don't know if you don't think fit out.
Speaker Change: Sanjay <unk> with.
Speaker Change: It sounds like you guys had type one gig technology mechanical rig.
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Speaker Change: Maria how would it go Shelby.
Speaker Change: Now, we'll look at that 3 million that you get that quite usual triple quake only disease here.
Speaker Change: Hi, Peter.
Speaker Change: <unk> Daniel <unk> Bob.
Speaker Change: So let me for my question in English first of all congratulations for the very first quarter.
Speaker Change: In a challenging environment.
Speaker Change: We noticed in third quarter loan volume increased four 4% sequentially.
Speaker Change: So what are the drivers given a lot of policy support recently to particularly to improve the.
Speaker Change: Consumption and market sentiment.
Speaker Change: Will the company consider more positive about loan volume.
Speaker Change: Next year, what are the remaining concerns and what are the outlook. Thank you very much.
Speaker Change: Okay.
Alicia: Thank you thank you Alicia.
Alicia: Let me answer your question about growth.
Alicia: Yes.
Alicia: We achieved good growth in the third quarter.
Alicia: And we.
Alicia: We have seen slightly recovery of customer demands.
Alicia: By the end of September.
Alicia: And.
Alicia: Our platform strategy had a positive effect.
Alicia: Serving more customer base.
Alicia: And.
Alicia: And then you know.
We have been operating our business model.
Alicia: Single loan service provider to a platform model.
Alicia: Under this model.
Alicia: Great.
Alicia: The various solutions to our financial institution.
Through all kinds of customer needs on our platform.
Alicia: Therefore, we have.
Better customer retention rate, and we can generate and higher lifetime value.
Alicia: And.
Alicia: And I'm wanting more loan volume.
Alicia: Our diversified customer channel.
Alicia: For example, the low loan volume from embedded final channel grew by 85% year over year.
Alicia: And looking forward there is still a lot of uncertainty.
Macroeconomic geopolitical and domestic policies.
And.
Alicia: It may be too early for us to say.
Alicia: We are optimistic or roughly about 295.
Alicia: At this point, we want to remain.
Speaker Change: Got it.
Speaker Change: <unk>.
Speaker Change: And.
Speaker Change: Our top priority will still be focused on healthy operations and execute our platform strategy.
Speaker Change: And then lastly, I want to say after February also fabric.
We have made significant improvement in all key capability.
Speaker Change: We have become stronger than in the past.
Speaker Change: Steve.
Speaker Change: More growth opportunities arise in the future.
Speaker Change: I believe we will be in a better position to seize this opportunity.
Speaker Change: And others.
Speaker Change: Thank you.
Speaker Change: Thank you for the questions.
Speaker Change: One moment for the next question.
Speaker Change: Our next question comes from the line of Alex Ye from UBS. Please go ahead.
Speaker Change: Yes.
Speaker Change: Go ahead, Brian says I get it all done.
Speaker Change: Yes, no it's Glen.
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Speaker Change: Thank you Lindsey.
Speaker Change: So quite a bit and John right that you're going to something like a hole in it that one way that you could see though Susan isolate sushi USA write backs.
Speaker Change: Yes.
Speaker Change: Children's day, Consequently, essential component, which is your capital call and until you've got maybe Elias Tanzania and I'm also sure.
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Speaker Change: So you guys might be enhancing sensitive bodily functions I think those subs the weight as it relates to that.
Speaker Change: When do you start.
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Speaker Change: <unk> Italia.
Speaker Change: So I will translate my question first one is on our AR write back amount over 900 million, which appear to be a sizable increase from last quarter and also the average quarter.
Speaker Change: <unk> average in the past few quarters. So I'm wondering what's the driver for the significant uptick in this way back in house and sustainability is that also we noticed that in the company's response to SASSA.
Speaker Change: Lasalle or appropriately.
Speaker Change: You have publicly disclosed a provision ratio for current period, new loans was running at 3% to 4% for you both on and off capital heavy loan models. So I'm wondering where are we in terms of those provision ratios.
Speaker Change: This quarter. The second question is on the competitive landscape.
Speaker Change: It's a bit longer term question. So can you discuss about it.
Speaker Change: The current landscape faced by <unk> from both the competition from banks and other larger and smaller if you can calculate.
Speaker Change: How has that changed this year and how are we going to.
How is that affecting our strategy. Thank you.
Speaker Change: Okay, Alex I'll take the first part and then the Hudson, we're working with the competition question. There. So as you know we have been adopting a very.
Speaker Change: <unk> policy in terms of booking provisions against the potential credit losses.
Speaker Change: Historically, the provision ratio that were booked are.
Speaker Change: In a meaningfully higher than the eventual kind of AR.
Speaker Change: Vintage losses, we are portfolio as opposed to half.
Speaker Change: For example in the in the third quarter.
Speaker Change: The new provision that I mentioned in prepared remarks, we posted about a $1 63 billion.
In new provision if you do the math.
Speaker Change: It's roughly four points 344% of the.
Speaker Change: The risk bearing loan volume for the quarter.
Speaker Change: So thats that.
Speaker Change: Net higher than last quarter for sure.
Speaker Change: And also obviously significantly higher than our normal kind of vintage loss ratio between two and half to swing a percent as you know there so.
Speaker Change: That's a.
Speaker Change: A very prudent kind of a provision booking policy risk.
Speaker Change: We start in.
Speaker Change: Always result in buybacks in.
Speaker Change: Most of the quarters.
Speaker Change: If you look at the history, although a quarter by quarter, maybe you see some very significant volatility in terms of write backs.
Speaker Change: Depending on that particular quarters kind of a micro environment and risk performance, but if you strip the timeline from annualized basis look at it.
Speaker Change: Almost in the last few years.
Speaker Change: Average each year, we have a close to 2 billion or somewhere around $2 billion write backs on the annual basis.
Speaker Change: This year in the first two quarters in Q1 and Q2.
Speaker Change: Total write backs is only less than 500 million.
Speaker Change: So.
Speaker Change: You use that annual average, meaning like for the second half, we still have more than $1 5 billion.
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Speaker Change: We need to be done.
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Speaker Change: That's kind of the average log.
Speaker Change: And also one of the fundamental drivers for the.
Speaker Change: The write backs obviously is.
Speaker Change: Really the risk performance.
Improvement in the in our operation since we started to take.
Speaker Change: More tightening risk standards late last year, we have showing very significant.
Speaker Change: <unk> in our risk metrics as you saw our reporting.
Speaker Change: Those improvement and risk metrics.
Speaker Change: Also also drive up.
Yes.
The write backs because it reduced.
Speaker Change: The actual loss of the portfolio there so that's the.
Speaker Change: Why we have this.
Speaker Change: Kind of a bigger than normal write backs in Q3, I think most likely you will still see a very sizeable write back in Q4.
As the reason I mentioned above from a more longer term perspective, we look at it.
Speaker Change: We will continue to take a very prudent approach in terms of booking new provisions.
Speaker Change: And with that you will probably continue to see.
Speaker Change: Write backs.
For the.
Speaker Change: On a going forward basis, but keep in mind as we gradually shifting from <unk> to have a capital light model the risk bearing assets or the size of the risk bearing assets.
Won't be.
Speaker Change: <unk> growing that much in some cases, maybe even shrinking ongoing forward basis.
Speaker Change: So which means that we no longer.
Speaker Change: Going forward basically will probably no longer need to.
Speaker Change: Book, a very large sum up provision even.
Speaker Change: Though we still maintain a very prudent.
Kind of a booking ratio.
Speaker Change: And so that's kind of a more longer term look there.
Speaker Change: Anyway, so that's the.
Speaker Change: The key point I want to say that write backs.
Speaker Change: We will continue.
Speaker Change: If you put the lie in the annual basis.
Speaker Change: It will be still very sizable write back at least in the foreseeable future.
Joe Joe: Hi, Joe.
Joe Joe: Okay.
Joe Joe: Alex Let me answer your question about competition.
Joe Joe: Im not competition.
The first thing I wanted to say.
Joe Joe: We are not in <unk>.
Joe Joe: Completely homogeneous markets differ.
Joe Joe: Difference playoff serve different customer groups.
Joe Joe: There is no one player that can succeed in every couple of group.
Joe Joe: Bob.
In the group that we are good at.
Joe Joe: We have a huge competitive advantage.
I believe you can transit points.
Joe Joe: And secondly, as I said before we have to upgrading our business model from a single loan service provider to a platform model.
This model.
Joe Joe: We have a better customer retention rates.
Joe Joe: The higher lifetime value.
Joe Joe:
Joe Joe: I'm very proud that after years of enrollment enrollment.
Joe Joe: Seafood is.
Joe Joe: No longer just a long service provider.
Joe Joe: <unk> has become a credit platform.
Joe Joe: We are more confident to deal with competition.
Joe Joe: We believe that the platform model has made us more robust and refilling.
Joe Joe: Then any single loan business model.
Speaker Change: Thank you.
Speaker Change: Thank you for the questions. Our next question comes from <unk> <unk> from Bank of America. Please go ahead.
Speaker Change: Hi, Joseph.
Speaker Change: Thank you Darren Thank you Hal.
Yes.
Speaker Change: Right.
Speaker Change: I guess on one hand.
At this time.
Speaker Change: Your lines will be 90 to 90.
Speaker Change: 91 <unk>.
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Speaker Change: Johan you put out.
Speaker Change: So Harrison on high yield at this and your answer to Tony Yonder that way from a woman.
Speaker Change: Just on <unk>.
Speaker Change: Congratulations on very good results.
Speaker Change: Have a question about asset quality.
Speaker Change: Major asset quality metrics continue to improve in the third quarter could you. Please provide your outlook for your asset quality in the meantime, many banks have 18.
Speaker Change: Our asset quality gradual EMEA retail and credit card business.
Speaker Change: What's your opinion about the improvement in asset quality.
Speaker Change: No.
Speaker Change: Great.
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Speaker Change: Go ahead.
Speaker Change: Okay.
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Speaker Change: The way to that senior leadership team.
Speaker Change: I think kind of a bummer for Asia.
Speaker Change: Okay, Let me do the translation.
Speaker Change: I think.
Speaker Change: Our risk management capabilities, I think I will.
Speaker Change: I'll take this question from two perspectives.
Speaker Change: Our company strategy cut back this year, we have adhered to a high quality development strategy focusing on quality instead of quantity. This is the underlying driver of the improvement in our risk indicators.
Speaker Change: We will probably one of the first company to tighten our credit standards with the strongest determination.
Speaker Change: And technical level.
Speaker Change: Comprehensive risk management system, we have built over the years can support us to quickly achieve our strategic goals specifically first of all.
Speaker Change: As a technology company, we continuously invested into research.
Speaker Change: Enhanced our risk management technology, and strengthen our core competence.
Speaker Change: In Q3, we significantly upgraded our risk model based on our cutting edge graph naturally sequence and the natural language processing algorithm, we have effectively improve the performance of our main transaction be caught model by more than three percentage points.
Speaker Change: In addition, we build models around pricing sensitivity credit limit sensitivity and a long term balance risk, which are related to our business strategy, giving us more chance to engage with high quality customer groups.
Speaker Change: Second we optimized the allocation and distribution model for medium and hybrid assets by selectively introducing financial product that can complement our capability our risk.
Speaker Change: Risk preferences.
Speaker Change: Furthermore, we introduced additional data to optimize risk identification model to reduce the risk level and our overall exposure to this customer group.
Speaker Change: So im towards lending management pick pack ship our collection process.
Speaker Change: <unk> also been canceled.
Speaker Change: By continuously optimizing AI as a reminder, the payment date, we have reduced our day one delinquency rate.
Speaker Change: Through our lab larger language models, we have improved the efficiency of our overdue case as islands.
Speaker Change: By dynamically adjusting our incentive schemes.
Speaker Change: And yesterday at catching and introducing high quality rock and that cash collection.
Speaker Change: We have increased our collection efficiency.
Speaker Change: At this junction.
Speaker Change: Largely achieved.
Speaker Change: Risk optimization.
Speaker Change: And expect to maintain a relatively stable.
Speaker Change: Around this level in the near future, assuming a muted macro environment.
Speaker Change: Okay.
Speaker Change: Thank you for the questions. Our next question comes from Cindy Wang from China Renaissance. Please go ahead.
Speaker Change: Hey, Glenn.
Speaker Change: Thank you.
Speaker Change: Gotcha.
Speaker Change: And to your question Bob.
Speaker Change: I'll come back to your idea that didn't go quite call that you had all your does stay down the Pike now count bottle rocket the autoimmune data <unk> Jason Wang.
Speaker Change: Hi Chi.
Speaker Change: Thank you Michael Jets. So now how do you think you're quite go to Jakob who else you ma'am. Thank you coby now.
Speaker Change: And as Howard <unk>.
Speaker Change: Thanks for taking my question. So my question is more about shareholder return.
Speaker Change: The pace of share buyback has been quite that this year and you also announced another $450 million share repurchase plan could you give us some color on the pace of buyback in 2025 and any consideration for the purchase price. Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you thank you sandy.
Speaker Change:
Yes.
Speaker Change: We have been very good Tony.
Speaker Change: Our current share repurchase program this year.
Speaker Change: When.
Speaker Change: To fully execute.
We have spent close to.
Speaker Change: 100% of last year's profit share buyback shares.
Speaker Change: And pay a cash dividend in 2024.
Speaker Change: This buyback go effectively reduced our share count.
Speaker Change: By about stroke bank.
Speaker Change: In the third quarter.
Speaker Change: We achieved.
Speaker Change: 71, 5% EBITDA growth year over year.
Speaker Change: We we are very confident about our strategy and execution.
Speaker Change: We believe our shares.
Speaker Change: We're significantly undervalued.
Speaker Change: So.
Speaker Change: We will continue through poor.
Speaker Change: Prioritize share buybacks.
Speaker Change: Our capital allocation tool.
Speaker Change: We believe.
Speaker Change: <unk>.
Speaker Change: And most efficient capital allocation strategy for now.
Speaker Change: Which will significantly further reduce our share count.
True.
Speaker Change: And.
Speaker Change: Maximize shareholders' return.
Speaker Change: Based on.
Speaker Change: The board of directors has approved.
Speaker Change: A new USD 450 million share buyback program.
Speaker Change: That is set to stop.
Speaker Change: <unk>.
Speaker Change: Can you quantify.
Speaker Change: We will carry out this plan firmly in the.
Speaker Change: Coming here.
Speaker Change: And Cindy I, just will add up a little bit.
Speaker Change: To your question and regarding the price.
Speaker Change: We're looking at.
Speaker Change: We don't have a really kind of a set price target for the repurchase.
Speaker Change: Even though our shares.
Speaker Change: Been moved positively in the last few months.
Speaker Change: But if you look at it on a forward p/e basis.
Speaker Change: As Stu.
Speaker Change: It's very attractive.
Speaker Change: Based on the current kind of estimate or probably looks like below.
Speaker Change: In terms of <unk>.
Speaker Change: To us that's still a.
Speaker Change: Very attractive valuation.
Speaker Change: So we will continue to proactively.
Speaker Change: But.
Speaker Change: In the market.
Speaker Change: For the 2025 plan.
Speaker Change: No.
The basic assumption is that as we execute the plan and the continued to deliver solid results the share price will reflect.
Speaker Change: That positive momentum so.
Speaker Change: So we most likely will continue to take a similar approach as we did in 2024, meaning like.
Speaker Change: <unk>.
Speaker Change: More effort on the upfront.
Speaker Change: Hopefully <unk>.
Speaker Change: By as much as we can win.
Speaker Change: When the valuations are still very very attractive.
Speaker Change: That's how we look at that.
Speaker Change: Next year's section. Thank you.
Speaker Change: Thank you for the questions.
Joseph time, we will now take the last question.
Speaker Change: Last question comes from the line of Jan <unk> from CIBC. Please go ahead.
Speaker Change: Great.
Answer to the mainland.
Speaker Change: Please go ahead with your <unk>.
Speaker Change: Conductivity to take rates.
Speaker Change: The diesel sounds from desktop to harder to go to New Orleans, where last year with vehicles lymphoma or <unk>.
Speaker Change: And take rates of Ohio will be on balance sheet aren't going to tell me otherwise homegoods would take rate, but we wait for that so we all Eagle Ford shale.
Speaker Change: Now I'll do the translation Hello management, Congrats to David annual results and thanks for taking my questions as well I noticed that the take rate continued to improve from four 4% last quarter. I was wondering what are the main factors that drove the increase.
Speaker Change: Wondering the potential improvement of credit cards in our funding cost do we expect to see a further increase uptake rate next year.
Looking forward how to view the long term sustainable take rate.
Thank you very much.
Speaker Change: Okay. Thank you.
I'll take this one.
Speaker Change: Yes, we did see a quite significant improvement in take rate in Q3.
Speaker Change: As you mentioned the main driver.
Speaker Change: Basically there are three main drivers first and foremost is really the continued meaningful improvement on the risk side, which basically reduce the overall credit cost on the P&L.
Speaker Change: Kind of a.
Speaker Change: Our financial statements.
Speaker Change: <unk> has shown up as the provision write backs as we mentioned or discussed earlier theres a significant write back in Q3 there.
Speaker Change: Then the second contribution to contributor to the take rate improvement is really the funding cost.
Speaker Change: With the macro environment and the ample supply of liquidity will continue to drive funding costs lower.
And so thats the second contribution contributor and a third one.
Speaker Change: It's really the mix change happened in the previous couple of quarters.
Speaker Change: That had the dip.
Speaker Change: Deferred impact on the Q3 and to a certain degree Q4 as well. So that's the three main reasons why you see a significant improvement on the.
Speaker Change: On the take rate improvement.
Speaker Change: Look at the Q4 based on the guidance we provided.
Speaker Change: You're probably looking at.
Speaker Change: Similar.
Speaker Change: Kind of the take rate versus Q3.
Speaker Change: And.
Speaker Change: The similar kind of a reason the risk the funding cost.
Speaker Change: And.
Speaker Change: And the deferred impact on the on the mix change.
Speaker Change: Putting on more longer term.
Speaker Change: I think the risk and the funding side.
Contribution.
Speaker Change: No.
Speaker Change: We remain.
Speaker Change: Meaning like we will probably maintain a pretty good risk performance.
Speaker Change: For next year.
Speaker Change: And finally, assuming the macro environment.
Speaker Change: Now.
Speaker Change: Yeah.
Speaker Change: It's not changing dramatically then javier upon the environment will probably still be relatively friendly. So those two factors will remaining but the third factor that mix change the deferred impact on the mix change.
Speaker Change: Gradually spacing.
Speaker Change: Calling off just because we are not expecting a very significant mix change.
Speaker Change: At least in the near term.
Speaker Change: So.
Speaker Change: But on a full year basis, if you do the math.
Speaker Change: This year, most likely on a full year basis will looking at above 5% ish kind of our overall take rate for the full year.
Speaker Change: <unk>.
Speaker Change: Based on that next year will probably will still see some improvement.
Speaker Change: Of the full year basis.
Speaker Change: Meaning like this year supply next year will probably.
Speaker Change: A bit over 5% in terms of the net take rate there. So that's how we look at 2025.
Speaker Change: Longer term, it's really depends on the how you projected the micro.
Speaker Change: <unk>.
Speaker Change: We start to see some kind of a sustainable recovery in macro economy in the long run.
Speaker Change: We definitely will benefit from that kind of the macro changes, but at this point as we mentioned earlier in the call, we're not calling for that recovery yet.
Speaker Change: We're still planning a relatively muted environment.
Speaker Change: For 2025, thank you.
Speaker Change: Thank you for the questions. We have no more questions at this time I would like to hand, the call back to management for closing.
Speaker Change: Okay. Thank you.
Speaker Change: Joining us if you have any additional questions feel free to contact us offline. Thank you.
Speaker Change: Okay.
Speaker Change: Okay that concludes today's conference call. Thank you for your participation you may now disconnect your lines.