Q1 2025 Qifu Technology Inc Earnings Call
I ran a listen only mode. If you wish to ask a question you will need to press the star key followed by the number one on your telephone keypad.
Please also note today's event is being recorded.
Speaker Change: At this time I would like to turn the conference call over to MS. Karen G Senior director of capital markets. Please go ahead Karen.
Karen G: Thank you Jesse Hello, everyone and welcome to <unk> technologies first quarter 2025 earnings Conference call.
Karen G: Our earnings release was distributed earlier today and is available on our IR website.
Karen G: Joining me today are Mr. <unk>, our CEO, Mr. Alex <unk>, our CFO and Mr. Jin Yan our Seattle.
Before we start I would like to refer you to our safe Harbor statement in the earnings press release, which applies to this call as we will make certain forward looking statements.
Karen G: Also this call includes discussions of certain non-GAAP financial measures.
Karen G: Please refer to our earnings release, which contains a reconciliation of the non-GAAP financial measures to GAAP financial measures.
Karen G: So please note that unless otherwise stated all figures mentioned in this call are in RMB terms.
Speaker Change: We've always thought that we would like to let you know that today's prepared remarks from our CEO will be delivered in English using an AI generated voice now I will turn the call over to Mr. <unk>. Please go ahead.
Speaker Change: Hello, everyone.
Speaker Change: For joining us today.
Speaker Change: In the first quarter of 2025, China's economy showed early signs of a mild recovery under the guiding principles of stabilizing growth optimizing structure and managing risks.
Speaker Change: Meanwhile, the global economy is.
Speaker Change: Undergoing profound technological transformation.
Speaker Change: The structural changes.
Speaker Change: In an increasingly complex and volatile environment.
Speaker Change: Upheld the prudent operations leveraged AI to reshape the credit value chain and achieved high quality growth.
Speaker Change: <unk> results that surpassed our expectations.
Speaker Change: By the end of the quarter.
Speaker Change: Our AI powered to credit decision engine and asset distribution platform empowered a total of 163 financial institutions.
Speaker Change: And serve the more than 58 million users with approved credit lines.
Speaker Change: On accumulative basis.
Speaker Change: Total loan facilitation and origination volume on our platform increased by 15, 8% year over year.
Speaker Change: With operational efficiency continuing to improve our take rate for the quarter reached five 7% up two two percentage points year over year.
Speaker Change: non-GAAP net income increased by 59, 9% year over year to RMB, one point to 93 billion, while non-GAAP EPS.
Speaker Change: On a fully diluted basis rose by 78, 5% to RMB 13 five.
Speaker Change: Despite macroeconomic headwinds we have consistently improved upon our past results and outperformed our market commitments through ongoing involvement and enhancements to our business.
Speaker Change: At the start of this year, we began rolling out our AI plus credit strategy at a scale aimed at building the industry's first AI agent platform to empower our core credit processes.
Speaker Change: We plan to recruit an additional 100 algorithm engineers by the end of the year and accelerate our transformation into an AI native organization we.
Speaker Change: We have also established our deep Bank Division, which is driving the research and development of our AI plus bank agent products to support the intelligent upgrade of financial institutions and.
Speaker Change: In April we introduced our internal AI agent platform and by May deploy five digital employees across key functions, such as data analytics operations compliance risk management strategy.
Speaker Change: Financial reconciliation.
Speaker Change: Our AI agent chat is now deeply integrated into our intelligent decision, making and business analysis workflows.
Speaker Change: This agent provides real time data insights and attribution analysis.
Speaker Change: Empowering us to dynamically optimize our strategy and enhance decision efficiency.
Speaker Change: Risk management has always been a cornerstone of our business.
Speaker Change: This quarter, we allocated a small portion of our traffic to pilot an end to end risk management framework powered by large language models.
Speaker Change: By training all historical decision logs using deep seek we achieved a notable improvement in AUC or area under the curve to 0.6 for a metric that measures risked hearing ability.
We also upgraded our data mining capabilities by incorporating video and other multimodal inputs, enabling richer and more diverse feature representations on top of that we developed a user profiling agent that performance consistency checks on user features with over one.
95% accuracy supporting differentiated credit lines and pricing based on user profiles.
Speaker Change: In terms of risk strategy, we maintained a differentiated approach and use our operations driving moderate loan growth, while preserving ample risk buffers.
Speaker Change: With loan volume, increasing by 15, 8% year over year during the quarter, our seed to M. Two metric, which measures delinquency rates after 30 day collections.
Unknown Executive: Prince Cole All participants are in a listen-only mode. If you wish to ask a question, you'll need to press the star key followed by the number 1 on your telephone keypad. Please also note today's event is being recorded.
Speaker Change: <unk> largely stable at 0.6%.
In Q1, we.
Speaker Change: We made further upgrades to our intelligent asset distribution platform to improve the precision of fund asset matching this.
Karen Ji: At this time, I'd like to turn the conference call over to Ms Karen Ji, Senior Director of Capital Markets. Please go ahead, Karen. Thank you, Jessie.
Speaker Change: This helped us boost underwriting efficiency and strike a better balance between risk and return of our loan portfolio.
Karen Ji: Hello, everyone, and welcome to Qifu Technologies First Quarter 2025 Earnings Conference Call. Our earnings release was distributed earlier today and is available on our IR website. Joining me today are Mr. Wu Haisheng, our CEO, Mr. Alex Xu, our CFO, and Mr. Zhen Yan, our CIO.
Speaker Change: Benefiting from our robust asset quality, we maintained our negotiating leverage on the funding side, resulting in a consistent decline in funding costs.
Speaker Change: In Q1, we issued RMB, six 6 billion and a B S.
Speaker Change: Year over year increase of approximately 25% was the proportion of ABS in the funding mix growing further our overall funding costs decreased by an additional 30 basis points sequentially.
Karen Ji: Before we start, I would like to refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make certain forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP financial measures to GAAP financial measures. Also, please note that unless otherwise stated, all figures mentioned in this call are in RMB.
Speaker Change: We expect funding costs for the coming quarters to decrease slightly from Q1 levels.
Speaker Change: In terms of user acquisition, we have modestly increased our spending.
Speaker Change: And are actively exploring a broader range of channels in.
Speaker Change: In Q1, we added 1.54 million new credit line users.
Speaker Change: Up 6% year over year, with new borrowers, increasing approximately 41% year over year to 1.13 million.
Karen Ji: Before we start, we would like to let you know that today's prepared remarks from our CEO will be delivered in English using an AI-generated voice.
Speaker Change: Or marketing focused AI agent Leverages multimodal recognition technology to analyze user intent in real time integrated campaign management across multiple channels.
Haisheng Wu: Now I will turn the call over to Mr. Wu Haisheng. Please go ahead. Hello everyone. Thank you for joining us today. In the first quarter of 2025, China's economy showed early signs of a mild recovery under the guiding principles of stabilizing growth, optimizing structure, and managing risk. Meanwhile, the global economy is undergoing profound technological transformation and structural changes. In an increasingly complex and volatile environment, we upheld prudent operations, leveraged AI to reshape the credit value chain, and achieved high quality growth. delivering results that surpassed our expectations. By the end of the quarter, our AI-powered credit decision engine and asset distribution platform Empowered a total of 163 financial and served more than 58 million users with approved credit lines.
Speaker Change: And enable real time strategy adjustments.
Speaker Change: This has significantly improved our user profiling accuracy across channels with a conversion rate of new credit line users to new borrowers increasing by 33% from the same period last year, our embedded finance business remains a key strategic focus as we continue to expand both.
Speaker Change: The breadth and depth of our channel coverage.
In Q1, we added seven new channels spanning from leading internet platforms, and various small and mid sized platforms two banks in multiple regions.
Speaker Change: We are also in the midst of Onboarding two additional strategic platforms signaling broader collaboration with leading internet traffic platforms, and unlocking meaningful and incremental growth potential going forward during the quarter, our new credit line users from the embedded finance channels grew 30.
Haisheng Wu: on a cumulative basis. Total loan facilitation and origination volume on our platform increased by 15.8% year-over-year. With operational efficiency continuing to improve, our take rate for the quarter reached 5.7%, up 2.2% year-over-year. year-over-year. Non-GAAP net income increased by 59.9% year-over-year to RMB 1.93 billion, while non-GAAP EPADS on a fully diluted basis rose by 78.5% to RMB 13.5. SPI Macroeconomic Headway We have consistently improved upon our past results and outperformed our market commitments through ongoing evolvement and enhancements to our business. At the start of this year, we began rolling out our AI plus credit strategy at scale aimed at building the industry's first AI agent platform to empower core credit process.
Speaker Change: 6% a year over year, while loan volume surged by roughly 106%.
Speaker Change: The overall ROA of these channels improved by 20% on a sequential basis.
Speaker Change: Regarding our technology solutions business, we established partnerships with three additional mid to large sized municipal banks in Q1 driving loan volume from this segment to grow by roughly 144% year over year.
Speaker Change: Powered by our focused pro credit Tech platform, our proprietary solution for SME lending, which is built on a three tiered credit assessment system gain meaningful scale in loan facilitation volume and delivered better than expected risk performance and.
Speaker Change: Q1.
Speaker Change: This success has created new opportunities for our market expansion and growth in 2025.
Speaker Change: We have already received a wide range of inquiries from multiple banks about our AI plus bank agent products and recently entered into strategic partnerships with several of them as a key component of these partnerships, we will help banks deploy agents across a broad range of applications.
Haisheng Wu: We plan to recruit an additional 100 algorithm engineers by the end of the year and accelerate our transformation into an AI native organization. We have also established our deep bank division, which is driving the research and development of our AI plus bank agent products to support the intelligent upgrade of financial institutions. In April, we introduced an internal AI agent platform, and by May, deployed five digital employees. ADR Class A ADR Class A such as data analytics, operations, compliance, risk management strategy. and Financial Reconciliation. Our AI agent ChatBI is now deeply integrated into our intelligent decision making and business analysis workflows.
Speaker Change: Including marketing and customer acquisition risk management and loan approval decision analytics growth operations compliance reviews.
Speaker Change: Multimodal recognition.
Speaker Change: Remote banking and digital employees.
Speaker Change: Facilitating their digital and intelligent transformation.
Speaker Change: In April.
Speaker Change: China's National financial regulatory administration.
Speaker Change: Issued a notice on strengthening the management of the Internet loan facilitation business of commercial banks to enhance the quality and the efficiency of financial services.
Haisheng Wu: This agent provides real-time data insights and attribution analysis. empowering us to dynamically optimize our strategy and enhance decision efficiency. Risk management has always been a cornerstone of our business. This quarter, we allocated a small portion of our traffic to pilot an end-to-end risk management framework powered by large language models. By training on historical decision logs using DeepSeq, we achieved a notable improvement in AUC area under curve to 0.64, a metric that measures risk tiering ability. We also upgraded our data mining capabilities by incorporating video and other multimodal inputs, enabling richer and more diverse feature representation.
Speaker Change: The notice provides clearer guidance for internet based lending practices, emphasizing that commercial banks should establish equal mutually beneficial partnerships with platform operators and credit enhancement providers sharing risk responsibilities and adopting a long term perspective.
Speaker Change: We view these guidelines as strong regulatory recognition of the value of the loan facilitation model provides bi.
Speaker Change: By setting clearer industry standards.
Speaker Change: Notice is expected to improve the overall house and the sustainability of the sector. We will continue to engage in proactive and constructive discussions with regulators.
Speaker Change: Regularly reviewing our practices and upholding prudent and compliance in our operations.
Speaker Change: The increasingly complex international landscape has added uncertainty to the pace of China's economic recovery.
Haisheng Wu: On top of that, we developed a user profiling agent that performs consistency checks on user features with over 95% accuracy. Supporting Differentiate Credit Lines and Pricing Based on User Profiles In terms of risk strategy, we maintain a differentiated approach in user operations, driving moderate loan growth while preserving ample risk buffer. With loan volume increasing by 15.8% year-over-year during the quarter, our C to M2 metric which measures delinquency rates after 30-day collection. remained largely stable at 0.6. in Q1. We made further upgrades to our Intelligent Asset Distribution platform. IMPROVE THE PRECISION OF FUND ASSET MATCHING This helped us boost underwriting efficiency.
Speaker Change: That said, we believe the economy will remain fundamentally resilient over the long run.
Speaker Change: Supported by China's technological innovation supply chain upgrades and the government measures to boost domestic demand.
Speaker Change: The press conference held on May seven of this year. The State Council information office announced a package of financial policies aimed at stabilizing markets and managing expectations.
Speaker Change: Including guidance for financial institutions to increase support for key consumption verticals.
Speaker Change: More recently, we're seeing encouraging progress in the U S. China trade talks overall.
Speaker Change: Overall, the macro economic and policy landscape is showing signs of stabilization, which will provide a favorable environment for the steady development of the consumer credit industry.
Haisheng Wu: Strike a Better Balance Between Risk and Return of Our Long-Term Investment. Benefiting from our robust asset quality, we maintained our negotiating leverage on the funding side, resulting in a consistent decline in funding costs. In Q1, we issued RMB 6.6 billion in ABS. year-over-year increase of approximately 25%. With the proportion of ABS in our funding mix growing further, our overall funding costs decreased by an additional 30 basis points sequentially. We expect funding costs for the coming quarters to decrease slightly from Q1 level. In terms of user acquisition, we have modestly increased our spending and are actively exploring a broader range of In Q1, we added 1.54 million new credit line users.
Speaker Change: As we progress through 2025, we remain cautiously optimistic in.
Speaker Change: In the near term.
Speaker Change: Focus will be on enhancing operational efficiency.
Speaker Change: Optimizing capital allocation and enhancing shareholder returns.
Speaker Change: Over the long term, we will continue executing our one core tubing strategy.
Speaker Change: We expect our core loan facilitation business to sustain high quality growth, while our technology solutions business will continue to empower financial institutions to accelerate their intelligent transformation through our AI plus strategy.
Speaker Change: Internationally, we will focus on near prime segments in markets with relatively stable regulatory environment.
Speaker Change: Leveraging our leading fintech capabilities to build a strong competitive edge.
Speaker Change: In Q1.
Speaker Change: We issued USD $619 million in convertible senior notes further expanding our international funding channels and improving capital allocation efficiency.
Haisheng Wu: Up 6% year-over-year, with new borrowers increasing approximately 41% year-over-year to $1.13 million. Our marketing focused AI agent leverages multimodal recognition technology to analyze user intent in real time, integrate campaign management across multiple channels. and Enable Real-Time Strategy Adjustment. This has significantly improved our user profiling accuracy across channels with a conversion rate of new credit line users to new borrowers increasing by 33% from the same period last year. Our embedded finance business remains a key strategic focus as we continue to expand both the breadth and depth of our channel coverage. In Q1, we added 7 new channels, spanning from leading internet platforms and various small and mid-sized platforms to banks in multiple regions.
Speaker Change: 100% of the proceeds from this issuance will be allocated to share buybacks.
Speaker Change: Adopting a caspar settlement structure allows us to significantly reduce the potential dilution to existing shareholders.
On the 25th of much pricing date, we concurrently completed a USD 227 million share repurchase resulting in an immediate three 6% reduction in our share count combined.
Speaker Change: Combined with our USD 450 million share repurchase program that took effect on the first of January.
Speaker Change: We expect our total repurchases this year to be no less than USD $680 million.
Speaker Change: Based on the current share price, we estimate our total share count will decrease by approximately 11% when compared to the beginning of the year.
Haisheng Wu: We are also in the midst of onboarding two additional strategic platforms. Signaling broader collaboration with leading internet traffic platforms and unlocking meaningful and incremental growth potential going forward. During the quarter, our new credit line users from the embedded finance channels grew 36% year-over-year, while loan volumes surged by roughly 160%. The overall ROA of these channels improved by 20% on a sequential basis. Regarding our technology solutions business We established partnerships with three additional mid- to large-sized municipal banks in Q1, driving loan volume from this segment to grow by roughly 144% year-over-year. Powered by our Focus Pro credit tech platform.
Speaker Change: We are confident in the future of our company and remain dedicated to delivering long term value to our shareholders.
Alex: Moving forward, we will continue to prioritize efficient capital allocation and the shareholder value creation through recurring share buybacks and dividends with that I will now turn the call over to Alex.
Alex: Thank you hi, good morning, and good evening, everyone. Welcome to our first quarter earnings call. We started 2025 with a solid Q1 overall user activities or stronger than normal seasonality.
Alex: Well my environment appears stabilizing early in the year impacts from trade war and at a certain date reasonably.
Alex: We will continue to focus on efforts to optimize operations and manage risk exposures and the uncertain market.
Haisheng Wu: Our proprietary solution for SME lending, which is built on a three-tiered credit assessment system, gained meaningful scale in loan facilitation volume, and delivered better than expected risk performance in Q1. This success has created new opportunities for our market expansion and growth in 2025. We have already received a wide range of inquiries from multiple banks about our AI plus bank agent products and recently entered into strategic partnerships with several as a key component of this partnership. We will help banks deploy agents across a broad range of including Marketing and Customer Acquisition, Risk Management and Loan Approval, Decision Analysis.
Alex: Total revenue for Q1 was 4.69 billion versus $4 four 8 billion in Q4, and 4.15 billion a year ago.
Alex: Revenue from credit driven service capital heavy was 3.11 billion in Q1 compared to 2.89 billion in Q4.
3.02 billion a year ago.
Alex: Sequential growth was mainly due to increases in our own balance sheet laws.
Alex: Lower early repayment desktop.
Alex: Overall funding costs further declined modestly Q on Q as ABS contribute a larger portion of our total funding in Q1.
Alex: Revenue from content for a platform.
Alex: Surveys.
Alex: Our capital Light was 158 billion in Q1 compared to 159 billion in Q4, and one point of one 4 billion a year ago a year on year growth was mainly due to strong contribution from IC and other value added services more than offsetting the decline in cap.
Haisheng Wu: Growth Operation Compliance Reviews, Multimodal Recognition. Remote Banking and Digital Employees. Facilitating their Digital and Intelligent Transformation.
Haisheng Wu: In April, China's National Financial Regulatory Administration issued the Notice on Strengthening the Management of the Internet Loan Facilitation Business of Commercial Banks to enhance the quality and efficiency of financial services. The notice provides clearer guidance for internet-based lending practices. Emphasizing that commercial banks should establish equal, mutually beneficial partnerships with platform operators and credit enhancement providers. Sharing Risk Responsibilities and Adopting a Long-Term Perspective We view these guidelines as strong regulatory recognition of the value the loan facilitation model provides. By setting clearer industry standards, the notice is expected to improve the overall health and sustainability of the sector.
Life long facilitation.
Alex: Platform services account for roughly 56% of quarter ending loan balance we expect the ratio to be roughly stable in the near term.
Alex: During the quarter average IRR of the loans, we originated and all facilitated was 21, 4% compared to 21, 3% in prior quarter.
Alex: Looking forward, we expect pricing to be fluctuated around this level for the coming quarters.
Alex: Marketing expenses increased 13% Q on Q, and 42% year on year with sequential and year on year increase were mainly due to larger volume contribution from API channels in both new and existing users.
Alex: We added approximately one 4 million new users in Q1 versus 169 million in Q4.
Haisheng Wu: We will continue to engage in proactive and constructive discussions with regulators. regularly reviewing our practices and upholding prudence and compliance in our operation. The increasingly complex international landscape has added uncertainty to the pace of China's economic recovery. That said, we believe the economy will remain fundamentally resilient over the long run, supported by China's technological innovation. Supply Chain Upgrades and Government Measures to Boost Domestic Demand at the press conference held on May 7th. State Council Information Office announced a package of financial policies aimed at stabilizing markets and managing expectations. including guidance for financial institutions to increase support for key consumption verticals.
Alex: We will make adjustments to the pace of the new user acquisition in the coming months, given the volatile macro condition and further optimize our user acquisition channels and improve user engagement and retention.
90 day delinquency rate was two 2% in Q1 compared to two 9% in Q4 paywall delinquency was five <unk> percent in Chihuahua versus four 8% in Q4.
30 day production rate was 88, 1% in Q1, essentially flat Q on Q.
Alex: Another key risk metrics feedback and to which represent the outstanding delinquency rate. After the 30 day collection increased modestly Q on Q2, 0.6% still within our comfortable range, we will remain vigilant to manage overall risk exposure, particularly.
Haisheng Wu: More recently, we are seeing encouraging progress in US-China trade talks. Overall, the macroeconomic and policy landscape is showing signs of stabilization. which will provide a favorable environment for the steady development of the consumer credit industry. As we progress through 2025, we remain cautiously optimistic. In the near term, our focus will be on enhancing operational efficiency. Optimizing Capital Allocation and Enhancing Shareholder Returns Over the long term, we will continue executing our One Core Two Wings strategy. We expect our core loan facilitation business to sustain high quality growth, while our technology solutions business will continue to empower financial institutions to accelerate their intelligent transformation through our AI plus strategy.
Alex: Given the latest micro uncertainty and tried to maintain graduates have a stable risk vouchers in the coming quarters.
Alex: At the same time, we continue to take conservative approach to book provision against potential credit losses.
Although new provision for risk bearing loans in Q1 or approximately two point choose 3 billion versus 2.07 billion in Q4.
Alex: The increase in new provision was mainly due to increases in risk bearing loan volume Q on Q and higher provision booking ratio.
Alex: Write backs of previous provisions or approximately 1.14 billion in Q1 versus one <unk> in Q4 provision coverage ratio, which is defined as the total outstanding provision, thereby.
Haisheng Wu: Internationally, we will focus on near prime segments in markets with relatively stable regulatory environment. Leveraging our leading fintech capabilities to build a strong competitive edge. In Q1, we issued USD 690 million in convertible senior notes, further expanding our international funding chain. and Improving Capital Allocation Efficient 100% of the proceeds from this issuance will be allocated to share buyback. Adopting a cash par settlement structure allows us to significantly reduce the potential dilution to existing shareholdings. On the 25th of March pricing date, we concurrently completed a USD 227 million share repurchase. Resulting in an immediate 3.6% reduction in our share Combined with our USD 450 million share repurchase program that took effect on the 1st of January.
Alex: <unk> by total outstanding delinquency risk bearing loan balance between 90 and 180 days.
Alex: 666% in Q1, our historical high.
Alex: <unk>, 617% in Q4.
Alex: non-GAAP net profit was $1 nine 3 billion in Q1 compared to $1 97 billion in Q4.
Alex: non-GAAP net income per fully diluted avs or 13.53 in Q1 compared to $13 666 in Q4.
Alex: 758, a year ago as strong earnings growth and the proactive share repurchase created significant <unk> equation.
Alex: At the end of Q1 total outstanding share count was approximately $134 5 million.
Haisheng Wu: We expect our total repurchases this year to be no less than USD 680 million. based on the current share price. We estimate our total share count will decrease by approximately 11% when compared to the beginning of the year. We are confident in the future of our company and remain dedicated to delivering long-term value to our shareholders. Moving forward, we will continue to prioritize efficient capital allocation and shareholder value creation through recurring share buybacks and dividends.
Alex: <unk> 242 minutes at the end of Q4, and 155 million a year ago.
Alex: The effective tax rate for Q1 was 18% compared to our typical ETR of approximately 15% the higher than normal ETR was mainly due to withholding tax provision related to cash distribution from onshore to offshore.
Alex: With higher contribution from capital having models, our leverage ratio, which is defined as risk bearing loan balance divided by shareholders equity was two seven times in Q1 still near the low end of historical rich, we expect to see the leverage ratio fluctuated around.
Alex Xu: With that, I will now turn the call over to Alex. Thank you, Haisheng. Good morning and good evening, everyone. Welcome to our first quarter earnings call. We started 2025 with a solid Q1 as overall user activities were stronger than normal seasonality. While microenvironment appears stabilizing early in the year, impacts from trade war added uncertainty recently. We will continue to focus on efforts to optimize operations and manage risk exposures in an uncertain market.
Alex: This level in the near future.
Alex: We generated approximately $2 eight 1 billion cash from operation in Q1 compared to three point <unk> 5 billion in Q4, total cash and cash equivalents and short term investments was $14 three.
Alex: <unk> 3 billion in Q1 compared to 10.3 dollars 6 billion in Q4, the increase in cash was mainly due to the net proceeds from the our 690 million U S dollars CB issuance.
Alex Xu: Total revenue for Q1 was $4.69 billion versus $4.48 billion in Q4 and $4.15 billion a year ago. Revenue from credit-driven service Capital Heavy was $3.11 billion in Q1 compared to $2.89 billion in Q4 and $3.02 billion a year ago. The sequential growth was mainly due to increases in unbalanced and lower early repayment discount. Overall funding costs further declined modestly two-on-two as ABS contributed a larger portion of our total funding in Q1.
Alex: So we're continuing to generate strong cash flow from operation, we will further optimize our capital allocation to support our business initiatives and to return to our shareholders. We start to execute the $450 million share repurchase plan on January one as of May 19, 2025, we had in <unk>.
Alex: Aggregate purchase of approximately $4 4 million ABS in the open market for a total amount approximate the U S. Dollar 178 million inclusive of commissions at the average price of U S. Dollar 40 point to her avs.
Alex Xu: Revenue from patent for patent surveys. Capital Light was $1.58 billion in Q1 compared to $1.59 billion in Q4 and $1.14 billion a year ago. The year-on-year growth was mainly due to strong contribution from ICE and other value-added services, more than offsetting the decline in Capital Light loan facilitation. platform service accounts for roughly 56% of quarter-ending loan balance. We expect the ratio to be roughly stable in the near term. During the quarter, average IRR of the loans we originated and all facilitated was 21.4%, compared to 21.3% in prior quarter. Looking forward, we expect pricing to be fluctuated around this level for the coming quarter.
Alex: The time schedule.
Alex: In addition on March 25, we successfully priced our 690 million U S CB offering and the repurchase of approximately $5 1 million Avs is.
Alex: Currently with the aggregate value of approximately U S dollar $227 million.
Alex: Concurrent buyback and the net share settlement magnesium make us <unk> immediately accretive to EPS.
At issuance.
Alex: Altogether, so far in 2025, we bought back approximately nine 6 million for a total amount of 405 million U S dollar, including commissions at an average price of $42 three her avs the accelerated pace of share repurchase.
Alex Xu: Sales and marketing expenses increased 13% queue-on-queue and 42% year-on-year. The sequential and year-on-year increase were mainly due to larger volume contribution from API channels in both new and existing users. We added approximately 1.54 million new credit line users in Q1 versus 1.69 million in Q4. We will make timely adjustments to the pace of a new user acquisition in the coming months, given the volatile macro condition, and further optimize our user acquisition channels and improve user engagement and retention. 90-day delinquency rate was 2.02% in Q1 compared to 2.09% in Q4. Bay 1 delinquency was 5.0% in Q1 versus 4.8% in Q4.
Alex: Further demonstrate management's confidence and commitment to the future of the company.
Alex: The management intend to further use share repurchase to achieve actual EPA D.
Alex: Accretion.
Alex: Finally regarding our business outlook, well, we observed some tentative signs of marginal improvement in user activity early in the year.
Michael: Michael uncertainties persist.
Michael: We will continue to take a prudent approach and business planning for 2025, and a focus on enhancing the efficiency of our operation for the second quarter of 'twenty quantified the company expects to generate non-GAAP net income between RMB 175 billion and RMB 185 billion.
Michael: A year on year growth between 24 and 31%.
Michael: This outlook reflects the Companys current and preliminary view, which is subject to material changes.
Alex Xu: 30-day collection rate was 88.1% in Q1, essentially flat Q1-Q. Another key risk metric, C-M2, which represents the outstanding delinquency rate after the 30-day collection, increased modestly Q1Q to 0.6%, still within our comfortable range. We will remain vigilant to manage overall risk exposure, particularly given the latest micro uncertainty, and try to maintain relatively stable risk metrics in the coming quarters. At the same time, we continue to take a conservative approach to book provisions against potential credit loss. total new provision for risk-bearing loans in Q1 were approximately $2.23 billion versus $2.07 billion in Q4. The increase in new provision was mainly due to increases in risk-bearing loan volume Q1-Q2 and higher provision booking ratio.
Michael: With that I would like to conclude our prepared remarks, operator, we can now take some questions.
Michael: If you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.
Michael: If you wish to cancel your request please press star two.
Michael: On a speakerphone please pick up the handset to ask your question.
So those who can speak Chinese please start your question in Chinese followed by English translation.
Michael: To allow enough time to address everyone on the call and please keep it to one question and one follow up and return to the queue. If you have more questions.
Speaker Change: Thank you. Your first question comes from Richard Xu from Morgan Stanley. Please go ahead.
Speaker Change: Okay, Great sounds good when you go to you that even Joanna the only guarantee so San Jose, California.
Speaker Change: Could you dig a chef and Jacob in greater Asia, you're going into the year.
Speaker Change: Duncan I kind of I'm not saying.
Speaker Change: Darren or Joe sure Mackenzie potentially on attrition.
Speaker Change: And in particular <unk> Mclaughlin you always you think your proposal number Tim Dugan are in Asia.
Alex Xu: Writebacks of previous provisions were approximately $1.14 billion in Q1 versus $1.02 billion in Q4. Provision coverage ratio, which is defined as a total outstanding provision divided by total outstanding delinquent risk-bearing loan balance between 90 and 180 days, was 666% in Q1, a historical high, compared to 617% in Q4.
Speaker Change: Yes.
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Speaker Change: Mckenna.
Speaker Change: <unk> found that now some jaw crusher and intuitive Sunday Appalachian prescriptive.
Speaker Change: So I'll just do a translation theres two questions what kind of impact of changes can we expect once the new loan facilitation rules come.
Speaker Change: Into effect in October 2025.
Speaker Change: And what's the latest trends to finish seeing on the credit quality, how does it compare to second half of 2022 and 2023.
Alex Xu: non-GAAP net profit was $1.93 billion in Q1 compared to $1.97 billion in Q4. Non-GAAP net income per fully diluted ADS was $13.53 billion in Q1 compared to $13.66 billion in Q4 and $7.58 billion a year as strong earning growth and proactive share repurchase created significant EP ADS equation. At the end of Q1, total outstanding ADS share count was approximately $134.5 million compared to $142 million at the end of Q4 and $155 million a year ago. Effective tax rate for Q1 was 18% compared to our typical ETR of approximately 15%. The higher than normal ETR was mainly due to withholding tax provision related to cash distribution from onshore to offshore.
Speaker Change: When <unk> was.
Speaker Change: Starting to tighten credit risks and will that impact the total expectation.
Speaker Change: We expected the loan growth for the year. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: To your first question.
Speaker Change: Oh, sorry, I'm sorry, your second question.
Speaker Change: In terms of regulation.
Speaker Change: And now she knew the new rules for lift in April.
Speaker Change: It's a positive signal in the sense that the regulator recognized the value of loan facilitation platform.
Speaker Change: The regulator's intention is to promote a more orderly and healthy development.
Speaker Change: The industry.
Speaker Change: Certain principles and gradually screening out the long term platforms, which are less capable of complying with the industry standards.
Speaker Change: In midst of regulatory requirements.
Speaker Change: At the same time.
Speaker Change: New rules recognized the value of leading loan facilitation platforms.
Alex Xu: With higher contribution from capital-heavy models, our leverage ratio, which is defined as risk-bearing loan balance divided by shareholders' equity, was 2.7 times in Q1, still near the low end of historical reach. We expect to see the leverage ratio fluctuate around this level in the near future. we generate approximately $2.81 billion cash from operation in Q1 compared to $3.05 billion in Q4. Total cash and cash equivalent and short-term investment was $14.03 billion in Q1 compared to $10.36 billion in Q4. The increase in cash was mainly due to the net proceeds from our $690 U.S. dollar CB issuance.
Speaker Change: And to encourage banks to adopt or wireless approach.
Speaker Change: With clear entries tenders.
Speaker Change: And the beauty equal long term and mutually beneficial partnerships.
Speaker Change: Just on the risk sharing.
Speaker Change: In conclusion with the implementation of the new rules.
Speaker Change: The industry, we have become more organized.
Speaker Change: Which will enhance the overall health and the ability of the loan facility.
Speaker Change: Sanitation sector.
Speaker Change: As a leading industry player.
Speaker Change: We believe we will benefit from the less competitive market environment.
Speaker Change: Maybe I'll continue to engage in proactive and.
Constructive discussions with regulators.
Speaker Change: To review, our practices and upgrade with Prudence.
Speaker Change: And in compliance.
Alex Xu: As we continue to generate a strong cash flow from our operation, we will further optimize our capital allocation to support our business initiatives and to return to our shareholders.
Tim: And for a second question, Tim can you answer it.
Tim: No <unk> seen kind of lymphoma.
Alex Xu: We start to execute the 450 million share repurchase plan on January 1st. As of May 19, 2025, we had in aggregate purchased approximately 4.4 million ADS in the open market for a total amount approximately US dollar 178 million, inclusive of commissions, at the average price of US dollar 40.2 per ADS, ahead of the time schedule. In addition, on March 25, we successfully priced our $690 million U.S. CB offering and repurchased approximately 5.1 million ADSes concurrently with the aggregate value of approximately U.S. $227 million. The concurrent buyback and the net share settlement maximum make the CB immediately equated to EP ADS as issued.
Tim: Thank.
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Alex Xu: All together, so far in 2025, we brought back approximately 9.6 million ADS for a total amount of $405 million, including commissions, at an average price of $42.3 per ADS. The accelerated pace of share repurchase further demonstrates management confidence and commitment to the actual EPA ADS equation.
Tim: <unk> shipments in the demo.
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Speaker Change: Houston Assistant Haynesville Chu and the GCI doesn't.
Tim: It doesn't look.
Speaker Change: This issue has.
Speaker Change: Has it been Jonathan.
Speaker Change: But should easy.
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Alex Xu: Finally, regarding our business outlook, where we observed some tentative sign of marginal improvement in user activity early in the year, micro uncertainties persist. We will continue to take a prudent approach in business planning for 2025 and focus on enhancing efficiency of our operation. For the second quarter of 2025, the company expects to generate non-gap net income between RMB 1.75 billion and RMB 1.85 billion, representing a year-on-year growth between 24 and 31 percent. This outlook reflects the company's current and preliminary view, which is subject to material changes.
Speaker Change: No one has really not just as well Linda yield moisture ICP outdoor product.
Speaker Change: <unk>, just happens naturally Latina and Sundar.
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Speaker Change: Okay, Let me do the translation.
Speaker Change: First of all I want to say that so far our asset quality has remained largely stable, our CTO and MTO ratio, which measures. The delinquency rates. After 30 day collection has fluctuated within a narrow band which is in line with our expectations first we believe that current.
Speaker Change: <unk> is completely comparable to that in the second half of 2022 'twenty three our average feature and two ratio was six 4% in second half of 2022 and zero point.
Alex Xu: With that, I would like to conclude our prepared remarks.
Unknown Executive: Operator, we can now take some questions. Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question.
Speaker Change: Six 9% in the second half of 2023, the volatility in the second half of 2023 was partially due to the macro uncertainty and some line culture by China Telecom carriers.
Unknown Executive: For those who can speak Chinese, please start your question in Chinese, followed by English translation. To allow enough time to address everyone on the call, please keep it to one question and one follow-up and return to the queue if you have more questions. Thank you.
Speaker Change: In Q1, our CTO and two ratio came in at seven 6%, which is significantly better than the second half of 2002 and attendant, Tennessee and we expect this matrix to remain largely stable going forward.
Richard Xu: Your first question comes from Richard Xu from Morgan Stanley. Please go ahead. Thank you, Guan Yicheng, for giving me the first chance to ask a question. I have two questions. First, I'd like to ask, in October, what will be the impact on the industry and the company's business in general? Second, what is the trend of the current quality of assets? After all, there may be some worries and fluctuations in the macroeconomic situation recently. Now, compared with the second half of 2022 or the second half of 2023, how is the situation? Will the current risk situation affect the growth of the amount of loans in the whole year?
Speaker Change: Right now our risk levels.
Speaker Change: Well under control and we don't see any to make any major adjustments to our risk policy therefore as for the loan volume.
Speaker Change: A full year basis, it will largely depend on the consumer credit demand.
Speaker Change: In Q1, we saw early signs of a recovery.
Speaker Change: <unk> and <unk> also seems to be stabilizing.
Speaker Change: However, the consistently changing global trade environment has increased macro uncertainty.
Richard Xu: Is it consistent with the loan release at the beginning of the year? So, I'll just do a translation. There's two questions.
Speaker Change: While recent U S. China talks have shown some encouraging progress we still need to monitor how things will develop and what kind of impact that will have on China.
Haisheng Wu: What kind of impact of changes do we expect once the new loan facilitation rules come into effect in October 2025? Secondly, is what's the latest trends QFIN is seeing on the credit quality? How does it compare to second half of 2022 and 2023 when QFIN was started to tighten credit risks? Will that impact the total expected loan growth for the year? Thank you. Okay, Richard, thank you.
Speaker Change: <unk>.
Speaker Change: So we will stay prudent in our operation at this moment.
Speaker Change: Last I want to say that our business model is quite diversified meaning that we can easily shift to pitching at the heavy and light that gives us the flexibility to adjust our asset allocation and the balance between growth and risk based on what we what we've seen at now.
Haisheng Wu: I can let you take your first question and I will answer your second question. In terms of regulation In our opinion, the new rules released in April is a positive signal in the sense that regulators recognize the value of loan facilitation platforms. The regulators' intention is to promote a more orderly and healthy development. of the Industry. Setting principles and gradually sequencing out the long-tail platforms which are less capable of complying with the industry standards. and meets regulatory requirements. At the same time, the new rules recognize the value of leading loan facilitation platforms. and encourage banks to adopt a whitelist approach.
Speaker Change: Our outlook for full year loan volume.
Speaker Change: Largely unchanged from what we expected at that.
Speaker Change: So out of the year.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question comes from Alex <unk> from UBS. Please go ahead.
Speaker Change: According to Hawkeye G Tijuana Tijuana once again Glenn.
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Speaker Change: Glen can you take all of them are kind of saying that they want that includes ratio closer to 22.
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Speaker Change: So you wanted to.
Speaker Change: So how does it get.
Speaker Change: To someone else. Thank you Omar.
Omar: Sure. So your client is it sometime devotes Savannah juices.
Haisheng Wu: Set Clear Entry Standards and Build Equal, Long-Term and Mutually Beneficial Partners. based on risk sharing. In conclusion, with the implementation of the new rules The industry will become more organized. which will enhance the overall health and sustainability of the loan facilitation sector. as a leading industry player. We believe we will benefit from the less competitive market environment. We will continue to engage in proactive and constructive discussions with regulators. Review our practices and operate with prudence and in compliance.
Speaker Change: Wow.
Speaker Change: The other one is when you see that Ashish Jose Johnson sounds in timeshare.
Speaker Change: So they just cannot.
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Speaker Change: How does a LIBOR, Indonesia, Don Marchand Peninsula indefinitely.
Speaker Change: So I think that's you're talking about you said that you've got you've got some.
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Speaker Change: I'll do the translation. So my first question is about the asset quality and you can.
Speaker Change: Heaters. It specifically, we saw our day, one delinquency ratio was up by two consecutive quarters now reaching five ponzu.
Speaker Change: <unk>.
Speaker Change: And then also bringing AUM to ratio stood at <unk>, 6%. So can you share with them all.
Speaker Change: The reason behind and how do you expect this indicator too to try and going forward and then second question is on the demand trends in the two months since we have seen more noise coming from the external environment. So just wondering how has been the Q on Q.
Zhen Yan: And for your second question, Zhengyan, can you answer it?
Zhen Yan: Okay, I will answer in Chinese, and then Karen will help to discuss it later. Regarding the quality of the assets, we think that the current quality of the company's assets is relatively stable. Our C-M-R index is fluctuating in a small range in a very short period of time, which is in line with our expectations. First of all, we think that the risk situation is completely incomparable with the second half of the second and third years. In the second half of the second year, the C-M-R index was 0.64, and in the second half of the third year, the C-M-R index averaged 0.69.
Speaker Change: Trend in terms of printing my thank you.
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Speaker Change: Jana essentially on our son, Uva digger to quantum would sell them until.
Zhen Yan: In the second half of the third year, in addition to the uncertainty of the macro level, there were also some inflationary problems. In the second half of the fifth year, the C-M-R index was 0.6, which was better than the second half of the second and third years. In the second half of the third year, the C-M-R index was 0.6, which was better than the second half of the third year. Second, the current risk is completely controllable. We do not need to adjust the control strategy in a large-scale manner. So the amount of money released in the previous year mainly depends on the change in demand itself.
Speaker Change: Until then Sandeep <unk> from <unk>.
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Zhen Yan: This year, in Q1, we saw that the current demand has returned to normal. The whole trend is showing signs of stability. But the current international situation still increases some uncertainty in the macro environment. Although the recent Sino-US dialogue has made positive progress, the subsequent progress and the impact on the macro economy still need to be further observed. We will continue to maintain a sound business strategy.
Speaker Change: In Q1.
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Zhen Yan: Finally, I would like to say that our business model is still more diversified. We can completely balance growth and risk by adjusting the asset distribution strategy. So based on the current situation, the amount of money released in the previous year is not much different from the expected amount at the beginning of the year.
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Zhen Yan: Okay, let me do the translation, Mr. Zheng. First of all, I want to say that so far, our asset quality has remained largely stable. Our C2M2 ratio, which measures the delinquency rate after 30-day collections, has fluctuated within a narrow band, which is in line with our expectations. First, we believe that the current situation is completely incomparable to that in the second half of 2022 and 2023. Our average C2M2 ratio was 0.64% in the second half of 2022 and 0.69% in the second half of 2023. The volatility in the second half of 2023 was partially due to macro uncertainties and some line controls by China's telecom careers.
Speaker Change: That's up from <unk> <unk> with Hudson.
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Speaker Change: Okay.
Speaker Change: First of all I want to say that.
Speaker Change: Fluctuation in our CTO MTO ratio in line with our expectations and also well within the target range. We have set for our risk performance overall speaking our asset quality is at a healthy level compared to your historical trends.
Speaker Change: As for the increase in the day, one delinquency rate. It was mainly driven by the change in our loan mix in Q1, the percentage of loan volume from our embedded finance channel increased by 31% from last quarter and this business line, usually has a higher delinquency rates.
Zhen Yan: In Q1, our C2M2 ratio came in at 0.6%, which is significantly better than the second half of 2022 and 2023. And we expect this matrix to remain largely stable going forward. Right now, our risk levels remain well under control and we don't see a need to make any major adjustment to our risk policies. Therefore, as for the loan volume growth on a full-year basis, it will largely depend on the consumer's credit amount. In Q1, we saw early signs of a mild recovery in credit amount and overall trend also seemed to be stabilizing. However, the consistently changing global trade environment has increased macro uncertainty.
Speaker Change: Compared to our App based.
Speaker Change: H five base type business.
Speaker Change: Our overall loan volume was roughly flat Q on Q, leading to a smaller portion of early stage loans, which usually have a lower delinquency rate. If Q structural change has led to a slight increase in our day, one delinquency rate and our cash burn rate.
Speaker Change: He is very stable as our CFO just mentioned in Q.
Speaker Change: <unk> remarks.
Speaker Change: April given the uncertainty around tariff impact.
Speaker Change: We slightly tightened our credit standards. Since then our risk indicators have remained stable.
Speaker Change: April and May moving forward, we will continue to adjust our risk strategy.
Zhen Yan: While recent U.S.-China talks have shown some encouraging progress, we still need to monitor how things will develop and what kind of impact that will have on China's economy. So we will stay prudent in our operation at this moment.
Speaker Change: Unlike basis, we expect our CTO and two ratio throughout the full year to remain largely stable around that 0.6 level based on the assumption that the latter Matt.
Speaker Change: The macro environment.
Speaker Change: Doesn't change dramatically.
Speaker Change: Thank you.
Zhen Yan: Last, I want to say that our business model is quite diversified, meaning that we can easily shift between asset-heavy and asset-light. That gives us the flexibility to adjust our asset allocation and the balance between growth and risk. Based on what we've seen now, our outlook for full-year loan volume growth is largely unchanged from what we expected at the early start of the year. Thank you.
Speaker Change: Thomas.
Speaker Change: Credit demand.
Speaker Change: For the average daily loan volume.
Speaker Change: Apparel was roughly in line with March.
Speaker Change: We did see some fluctuation in bordereau activities due to the impact of U S. China trade engine.
Speaker Change: But we proactively expand our customer reach through partnership with diversified channels.
Speaker Change: We should be able to mitigate the potential decline in credit demand.
Speaker Change: In may.
Alex Yu: Your next question comes from Alex Yu from UBS. Please go ahead. Hello, Mr. Guan. Thank you for giving me this opportunity to ask questions. I have two questions here. The first one is about the quality of the assets. I would like to ask you about Day One's rate. In the past two quarters, there has been a continuous rise, and this quarter has reached 5.0%, and at the same time, the C2M2 has reached 0.60%. May I ask what the main reason is?
Speaker Change: Credit demand slightly decreased sequentially.
Speaker Change: Due to the May day holiday.
Speaker Change: But this is just normal seasonality.
Speaker Change: Based on what we are seeing now we expect loan volume in Q2 will be largely on track as we planned at the start of the year.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question comes from Amazon from Bank of America Securities. Please go ahead.
Alex Yu: 可能预期后续这一块的这些资产 请教一下最新的东西是什么样的,愣是要如何去检查资产指标的趋势,要如何去展望,让第二个问题是关于现在需求的这一块。主要是想请教一下4到5月以来,我们也看到很多宏观或者是外部环境的一些扰动。想看看说,近2个月来,这个资产现在需求的趋势的一个情况和3月份情况相比对吧 Company expansion, which was expected to cause some disruptions in the environment, to the expansion of the environment I will do a translation. So, my first question is about the asset quality indicators. Specifically, we saw Day 1 delinquency ratio was up by two consecutive quarters and now reaching 5.0% in the quarter and then also bringing C2M2 ratio to 0.60%. So, can you share with us more color on the reasons behind and how do you expect this indicator to trend going forward? The second question is on the credit demand trends in the last two months, since we are seeing more noises coming from the external environment.
Speaker Change: Yes.
Speaker Change: Thank you. So good luck to you in Nigeria with Jimmy Youre now Glenn T. D guys, you hired on Delhi patches anytime soon.
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Speaker Change: Let me hand, the ADR question will change the titration.
Speaker Change: Adi. Please you can that tells you the phones, yes, we'll deal with it.
Speaker Change: Jason.
Speaker Change: You guys have gone through the Shanghai Auto show.
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Speaker Change: Thanks, and good luck on GBM.
Speaker Change: Are we seeing with Amazon.
Speaker Change: So with recent China U S trade escalation.
Speaker Change: Do you assess the potential impact of the tariff tensions in the future and where you tightened lending standards and my second question is.
Speaker Change: Our strategy is management commentary adopting regarding potential ADR debating best kept secret.
Speaker Change: I do a primary listing in Hong Kong, where you would take measures to improve the liquidity of your Hong Kong ticker.
Zhen Yan: So, just wondering how has been the Q&Q trend in terms of credit demand? Thank you.
Speaker Change: Okay.
Irma: Hi, Irma.
Speaker Change: In terms of tariffs.
We believe the direct impact of tariffs on our business is quite limited.
Zhen Yan: First of all, I would like to answer the question about the risk. The small-scale fluctuation of SIGAR-M2 is in line with the company's expectations and is within the target range set by our Risk Control. As I said before, we have shared the situation for the past two or three years. At present, our capital quality is still at a relatively good level in history compared to before. Let me explain the first fluctuation. The increase in the leakage rate is mainly due to structural changes. There are two structural factors. One is the relative ratio of Q1 API channels, which is 31% higher than before.
Speaker Change: First the vast majority of our loan volume in consumer lending.
Speaker Change: Second we reviewed the industry of the resilience of our users are involved in in Q1 those related to expert accounted for just around the 4% of our total loan volume.
Speaker Change: Among them all even bound to 1% were in sectors likely to be significantly impacted by U S tariff.
Speaker Change: For these users we have already adjusted our transaction and asset allocation strategies.
Speaker Change: Mitigate potential impact from tariffs.
Speaker Change: On the policy side U S China talks.
Zhen Yan: The leakage rate of API business is higher than that of APTX business. This structural change itself will lead to the change of day one. The second structure is that there is not much growth compared to the amount of Q1 release. This will lead to a drop in the early release ratio in the business structure. The early release of day one is relatively low. So after this ratio drops, it will also lead to a slight rise in day one. So these two structures together affect the rise in day one. As for the recovery rate, as CFO mentioned earlier, this quarter has maintained a relatively stable level.
Speaker Change: Have achieved with some encouraging progress.
Speaker Change: And we view that as a positive for both credit demand and asset quality.
Speaker Change: However.
Speaker Change: The global threat landscape hasn't been shifting quite a little quite a bit this year.
Speaker Change: And this has added uncertainty to China's macro environment and may affect people's consumption sentiment.
Speaker Change: <unk>.
Speaker Change: Weaker experts could put pressure on area.
Speaker Change: Such as Capex and household consumption.
Speaker Change: So in April.
Speaker Change: After a question, we slightly tightened our risk strategy. So.
Speaker Change: Far overall risk levels have remained largely stable.
Zhen Yan: In April, due to some uncertainties related to tariffs, we narrowed down the control standards. At present, the risk indicators for April and May are relatively stable. Later, we will also adjust the control dynamically. Assuming that the macroeconomic environment does not change significantly, we estimate that the whole year's SIGRM2 can be controlled below 0.63.
Speaker Change: We will continue to monitor how the tariff situation impacts risk performance.
Speaker Change: And dynamically adjust our strategy as needed.
Speaker Change: In addition, our diversified business model also mixed modular flexible to react to the potential challenges.
Speaker Change: Okay.
Speaker Change: And then for a second question Stefan.
Zhen Yan: Okay. First of all, I want to say that the slight fluctuation in our C2M2 ratio were in line with our expectations and also well within the target range we have set for our risk performance. Overall speaking, our asset quality is at a healthy level compared to historical trends. As for the increase in the Day 1 delinquency rate, it was mainly driven by the change in our loan mix. In Q1, the percentage of loan volume from our embedded finance channel increased by 31% from last quarter. And this business line usually has a higher Day 1 delinquency rate compared to our app-based or H5-based business.
Speaker Change: I'm sorry.
Speaker Change: Sure.
Speaker Change: As you know this ADR the list of things.
Speaker Change: Basically near surface.
Speaker Change: Every few years depending on the.
Speaker Change: The U S side of the political need.
Speaker Change: Given that you know in early May the U S.
Speaker Change: US and China entered into at least a tentative kind of awkward agreements on.
Speaker Change: The terrorists.
Speaker Change: So compared to early April I think that the delisting risk.
Speaker Change: Clearly.
Speaker Change: Kind of a.
Speaker Change: It is to buy quite a bit.
But with that said, we have been carefully evaluate the potential risk of the listing I think we're well prepared.
Zhen Yan: Also, our overall loan volume was roughly flat, queue on queue, leading to a smaller portion of early-stage loans, which usually have a lower Day 1 delinquency rate. These two structural changes have led to a slight increase in our Day 1 delinquency rate. And our collection rate is very stable, as our CFO just mentioned in his prepared remarks. In April, given the uncertainty around tariff impact, we slightly tightened our credit standards. Since then, our risk indicators have remained stable through both April and May. Moving forward, we will continue to adjust our risk strategy on a dynamic basis.
Speaker Change: We have a very clear.
Speaker Change: Pat.
Speaker Change: Mitch.
Speaker Change: It's kind of a scenario.
Speaker Change: As you know.
Speaker Change: In November 2022.
Speaker Change: We completed a secondary listing in Hong Kong.
Speaker Change: This basically have will give our shareholders more flexibility they can choose to continue trading U S or moved in Hong Kong market.
Speaker Change: So even in a worst case scenario, where when our ABS are forced to de list investor would still be able to trade on our shares seamlessly in Hong Kong.
Speaker Change: As for liquidity.
Speaker Change: Currently about 99% of our trading volume in the U S market.
Speaker Change: And then Hong Kong, obviously, it's a very very light.
Zhen Yan: We expect our C2M2 ratio for the full year to remain largely stable around 0.6 level based on the assumption that the macro environment doesn't change dramatically. In terms of the credit demand balance for the average daily loan volume. April was roughly in line with March. We did see some fluctuation in borrower activity. Due to the impact of U.S.-China trade tension, But we proactively expand our customer reach through partnership with diversified channels. We should be able to mitigate the potential decline in credit demand. In May, credit demand slightly decreased sequentially. Partly due to the May Day holiday.
Speaker Change: This mainly because U S trading.
Speaker Change: Breaking last year's more Dr Authority, and relatively low transaction costs.
Speaker Change: Never if of course with the list of what they have.
Speaker Change: All the trainings, probably naturally shipped from the U S to Hong Kong and accordingly, the liquidity in Hong Kong will.
Speaker Change: For sure.
Speaker Change: Improved significantly.
Speaker Change: At that point.
Speaker Change: In our Hong Kong listing would automatically convert from a secondary listing to a primary listing in accordance with the Hong Kong exchange rules, and we only need to file some additional document after that.
Speaker Change: Hum conversion or secondary to primary convert happening.
Speaker Change: A option.
Speaker Change: Providing the document support.
Speaker Change: Therefore, we believe the secondary listing that we already have.
Zhen Yan: But this is just normal seasonality.
Speaker Change: Already provides sufficient protection for our shareholders.
Zhen Yan: Based on what we are seeing now, we expect loan volume in Q2 will be largely on track as we planned at the start of the year. Thank you.
Speaker Change: We will continue to obviously monitoring.
Speaker Change: The situation evolves and take.
Speaker Change: Correct measures.
Speaker Change: Based on our ongoing assessment on this matter.
Speaker Change: Thank you.
Emma Xu: Your next question comes from Emma Xu from Bank of America Securities. Please go ahead. Thank you for giving me the opportunity to ask questions. I have two questions. The first one is that I would like to ask how the management is evaluating the potential impact of the tariff conflict and whether it will tighten the investment of loans in the future. The second question I would like to ask is what kind of countermeasures will the management take for the risk of ADR withdrawal and potential withdrawal? Will they consider doing a double major listing in Hong Kong and what are their thoughts on improving the liquidity of Hong Kong stocks?
Speaker Change: Thank you. Your next question comes from Cindy Wang from China Renaissance. Please go ahead.
Speaker Change: Hi, guys, just a cornerstone jealous of Epsilon that Dave Mcelroy with any other Salon Pizza final question.
Speaker Change: Snacking is on Macondo Jones show up until towards that I've seen from Shanghai.
Speaker Change: Just one please just touch on that.
Speaker Change: Donlin to consulting Sam Thank you Glenn.
Speaker Change: Now can you comment that that cash flow can you talk a bit harder than just simple math now how do you all got a fragile Shaw.
Good morning.
Speaker Change: Got it that confusion will commence upon flattened out now to follow your income for women for that simple.
Emma Xu: So with recent China-U.S. trade escalation, how do you assess the potential impact of the tariff tensions in the future and will you tighten lending standards? And my second question is what strategy is management currently adopting regarding potential ADR delisting risk? Will you consider a dual primary listing in Hong Kong? Will you take measures to improve the liquidity of your Hong Kong ticker?
Speaker Change: Yeah, No that's helpful to us fulltime Sean.
Jonathan Thank accounts.
Speaker Change: And I hope I can come to the VIP to take off work right now.
Speaker Change: Thanks for taking my question. So in first quarter the number of medium sour spreads approved there was down 9% sequentially.
Speaker Change: CIC uptime and 30% so far based on reasoning behind it.
Speaker Change: Thanks, Paul that Taiwan may cause a potential slowdown in loan demand I think affected by policy.
Haisheng Wu: and in terms of tariff We believe the direct impact of tariffs on our business is quite limited. First, the vast majority of our loan volume is in consumer lending. Second, we reviewed the industries of users, of how users are involved in Q1, those related to experts accounted for just around 4% of our total loan volume. Among them, only about 1% were in sectors likely to be significantly impacted by U.S. tariffs. For these users, we have already adjusted our transaction and asset allocation strategies to mitigate potential impact from tariffs. On the policy side, U.S.-China tribal talks have achieved some encouraging progress.
Speaker Change: And adjusted customer acquisition strategy. So how do you expect the customer acquisition cost in the second quarter. Thank you.
Speaker Change: Okay Cindy.
Speaker Change: First the increase in units customer acquisition cost in Q1.
Speaker Change: With many driven by a change in our business mix.
Speaker Change: About 30% of our Fairfield extensive.
Speaker Change: Come from API channel in the quarter.
Speaker Change: Unlike other channels, we pay channel fees for both new ballroom and the repeat borrowers for API.
Speaker Change: But when we calculate cost for user be only accounts new users.
Speaker Change: Repeated runs.
Speaker Change: So ran HR channels contribute to a higher percentage of loan volume.
Haisheng Wu: and we view that as a positive for both credit demand and asset quality. However, The global trade landscape has been shifting quite a bit this year. And this has added uncertainty to China's macro environment and may affect people's consumption sentiment. Speaker expert could put pressure on an area such as capex and household consumption. So in April, out of caution, we slightly tightened our risk strategy. So far, overall risk levels have remained largely stable. We will continue to monitor how the tariff situation impacts risk performance. and dynamically adjust our strategy as needed. In addition, our diversified business model also makes us more flexible to react to the potential challenges.
Speaker Change: It pushes up our union to acquisition cost.
Speaker Change: However, the API.
Speaker Change: Are generating incremental loan volume for the company.
Speaker Change: And the acquisition cost per loan through API, it's much lower than in feed marketing.
Speaker Change: We are able to recover the cost of the cost with just the first low insurance.
Speaker Change: In addition, we increased spending on it.
Speaker Change: Marketing this quarter to reach higher quality users.
Speaker Change: Although this channel generally have.
Speaker Change: Higher acquisition cost compared to others.
Speaker Change: Such as App store or data driven marketing.
Speaker Change: Users from this generally tend to deliver stronger and healthier value.
Speaker Change: In the medium to long term.
Speaker Change: We have also tried new strategy.
Speaker Change: Yes.
Speaker Change: Tailoring our approach to a different depressing segments.
Xiaofeng: And for your second question, Xiaofeng, you can answer it. Sure, Emma. As you know, this ADR delisting basically resurfaced every few years, depending on the U.S. side of a political need. Given that, you know, in early May, the US and China entered into at least a tentative kind of a green agreement on the tariff. So, you know, compared to early April, I think the delisting risk clearly kind of reduced by quite a bit. But with that said, we have been carefully evaluating the potential risk of the delisting. I think we're well prepared and we have a very clear plan to respond to what is kind of a scenario.
Speaker Change: Applying different operations across our four year journey.
Speaker Change: Furthermore, I want to say that.
Speaker Change: We pay more attention to the efficiency of customer acquisition.
Speaker Change: Rather than the cost of customer acquisition.
Speaker Change: As we optimize the entire acquisition journey. The end to end approach has made our targeting more accurate in terms of both user quality and intent.
Speaker Change: This in turn boosts, our overall lending or efficiency for new users.
Speaker Change: This quarter.
Speaker Change: Our conversion rate from new credit line users to new borrower reached 74% up from around 55% in the same period last year.
Speaker Change: That is to say that our end to end customer acquisition efficiency remains very healthy.
Speaker Change: Since the start of Q2 users credit new have been affected by the ongoing trade tension.
Xiaofeng: As you know, in November 2022, we complete the secondary listing in Hong Kong. This basically will give our shareholders more flexibility. They can choose to continue trading in the U.S. or move to the Hong Kong market. So even in the worst case scenario where when our ADS are forced to delist, investors would still be able to trade on our shares seamlessly in Hong Kong. As for liquidity, currently about 99 percent of our trading volume is in the U.S. market. And in Hong Kong, obviously, it's very, very light. This is mainly because U.S. trading offers investors more flexibility and relatively low transaction costs.
Speaker Change: Which has been too we also have a certain impact on our customer acquisition efficiency.
Speaker Change: Going forward.
Speaker Change: We will continue to closely monitor changes in the macro environment and competitive landscape.
Speaker Change: And then just our acquisition pace accordingly.
Speaker Change: We will also carefully evaluate our provision costs against the <unk>.
Speaker Change: TV after new users.
Speaker Change: And to further optimize our channels to improve efficiency.
Speaker Change: Thank you.
Xiaofeng: However, if a forced delist were to happen, all the trading would probably naturally shift from the U.S. to Hong Kong. And accordingly, the liquidity in Hong Kong will, for sure, improve significantly. At that point, our Hong Kong listing would automatically convert from a secondary listing to a primary listing in accordance with the Hong Kong exchange rules. And we only need to file some additional documents after that secondary to primary convert happening after providing the document support. Therefore, we believe the secondary listing that we already have already provides sufficient protection for our shareholders. We will continue to obviously monitor as the situation evolves and take correct measures based on our ongoing assessment on this matter.
Speaker Change: Thank you. Your next question comes from Yodlee from CIC. Please go ahead.
Speaker Change: Okay.
Speaker Change: 200 <unk>.
Speaker Change: In downtown Denver.
Speaker Change: When it was elevated.
Speaker Change: To put that kind of gets out and we'll go to Tom won't realize future.
Speaker Change: Thank you.
Speaker Change: Between the two.
Speaker Change: Thanks.
Speaker Change: Related to sort of bandwidth as I told the team for sure we will get you to.
Speaker Change: So to the incumbent Huntsville tape outs that you've got until delivery view you deserve okay.
Speaker Change: We will consider portfolio I'll characterize it weighs out.
Speaker Change: Then I'll do the translation and my question is given the policy stimulus to promo to domestic consumption. Looking ahead, how do you view the trend of ammonia demand funding any liquidity from bank partners and the Companys loan strategy.
Speaker Change: Amy this recovering environment can we expect that a company can maintain our low funding costs in the long run and EMEA adopt a more proactive nimble and strategy in the future. That's all thank you.
Speaker Change: Okay.
Speaker Change: Since the start of the year, China has rolled out a range of supportive policies aimed at boosting consumption.
Unknown Executive: Thank you.
Cindy Wong: Your next question comes from Cindy Wong from China Renaissance. Please go ahead.
Speaker Change: Project trading subsidies and the guidelines for stronger support for consumer lending.
Cindy Wong: 好的,謝謝管理層給我這個提問的機會,然後我這裡有個小問題是關於貨客這一段,那第一個我們看到就是說本季度這個新受信用戶的數量其實環比是下降了9%,但單位的這個受信成本是環比有上升了23%,那可以跟我們大概展開說明這個背後的原因是什麼嗎,然後第二個的話就是說,因為4月以來這個貿易戰帶來的一些潛在的貸款需求可能是放緩的, 那是否有影響到我們這個新貨客的一個質量,然後在貨客手段上有沒有做怎麼樣的一個調整,然後管理層怎麼看這個第二季度的一個貨客成本,那我很快地翻譯一下我的問題。 So how do you expect the customer acquisition cost in second quarter? Thank you. First, the increase in unit customer acquisition costs in Q1 was mainly driven by changes in our business mix. About 30% of our sales expenses. came from API channel in the quarter. Unlike other channels, we pay channel fees for both new borrowers and repeat borrowers for API. But when we calculate cost for users, we only count new users, not repeat runs. So when API channels contribute to a higher percentage of loan volume It pushes up our unit acquisition cost. However, the API channels are generating incremental loan volume for the company.
Speaker Change: This measures.
Speaker Change: A positive impact.
Speaker Change: As we can see in the quarter and the Q1 macro data.
Retail sales were up four 6% year over year.
Speaker Change: The market is expecting.
Speaker Change: Credit demand on our platform or the other.
Speaker Change: Slightly better than typical seasonal trend.
Speaker Change: On the funding side.
Speaker Change: Government announced cuts to both of the interest rates and the reserve ratio.
Speaker Change: In may.
So we expect the funding environment to remain relatively supportive of this year.
Speaker Change: With some room for further decrease in funding cost.
Speaker Change: In addition, we plan to further expand our ABS issuance.
Speaker Change: And optimized our funding structure.
Speaker Change: Overall, we expect our funding cost for 2025 through decreased slightly from Q1 levels.
Speaker Change: And finally.
Speaker Change: Our lending strategy I think it's really depends on the risk I look and the customer demand.
Speaker Change: Although our risk indicators.
Speaker Change: We remain largely stable.
Speaker Change: At the moment.
Speaker Change: There is still some uncertainty in the broader macro environment. Therefore.
Speaker Change: We will continue to maintain a prudent strategy.
Speaker Change: First of all in high quality and sustainable growth.
Speaker Change: That's right. Thank you.
Speaker Change: Yeah.
Speaker Change: I just wanted to add one little point here. So as you know we are very much focused on.
Speaker Change: The.
Speaker Change: The take rate out of our portfolio.
Speaker Change: And as in our previous discussion with the market.
Speaker Change: We communicated that we continue to see from a full year basis.
Speaker Change: We will continue to see improvement this year 25 versus 24.
Speaker Change: In terms of the net take rate assuming theres no dramatic macro changes from now to the year and I think that's still the assumption.
Haisheng Wu: and the acquisition cost per loan through API is much lower than in-phase marketing. We are able to recover the cost of the cost with just the first loan issue. In addition, we increased spending on in-feed marketing this quarter to reach higher quality users. Although these channels usually have higher acquisition costs compared to others. such as App Store or data-driven marketing. Users from these channels tend to deliver stronger and healthier value. and a medium to long term. We have also tried new strategies in this space, tailoring our approach to different pricing segments and applying different operations across the four-year journey.
Speaker Change: Looking at and I think thats still on target.
Speaker Change: Thank you.
Speaker Change: Thank you there are no further questions at this time I'll now hand back to management for closing remarks.
Speaker Change: Okay.
Speaker Change: Everyone.
Speaker Change: Again to join US for this conference call. If you have any additional question.
Speaker Change: Feel free to contact us offline. Thank you.
Speaker Change: Thank you that does conclude our conference for today.
Speaker Change: Can you for participating you may now disconnect.
Haisheng Wu: Furthermore, I want to say that we pay more attention to the efficiency of customer acquisition rather than the cost of customer acquisition. As we optimize the entire acquisition journey, the end-to-end approach has made our targeting more accurate in terms of both user quality and intent. This in turn boosts our overall lending efficiency for new users. This quarter. Our conversion rate from new credit line users to new borrowers reached 74%, up from around 55% in the same period last year. That is to say that our end-to-end customer acquisition efficiency remains very healthy. Since the start of Q2, users' credit needs have been affected by the ongoing trade tension.
Haisheng Wu: which in turn will also have a certain impact on our customer acquisition efficiency. Going forward, we will continue to closely monitor change in the macro environment and competitive landscape. and adjust our acquisition pace accordingly. We will also carefully evaluate our acquisition cost against the LTV of new users. and further optimize our channels to improve efficiency. Thank you.
Yada Li: Your next question comes from Yada Li from CICC. Please go ahead. Hello, Guan Yicong. Thank you for giving me the opportunity to ask you a question.
Yada Li: Today, I would like to ask you how to look at the future demands and the degree of abundance of bank funds and some changes in the future company loan strategy. In this case, can we look forward to the long-term cost of the company's funds being kept at a lower level and can we look forward to a more active loan strategy in the future? Thank you very much, Guan Yicong. Then I will do a translation. My question is, given the policy stimulus to promote domestic consumption, looking ahead, how to view the trend of loan demand, funding liquidity from bank partners and the company's loan strategy?
Haisheng Wu: In this recovery environment, can we expect that the company can maintain a low funding cost in the long run and may adopt a more proactive loan strategy in the future? That's all. Thank you. Okay, that's all. Okay, Yada. Since the start of the year, China has rolled out a range of supportive policies aimed at boosting consumption. such as trading subsidies and guidelines for stronger support to consumer lending. These measures have made a positive impact. As we can see in the quarter, in the Q1 macro data. Retail sales were up 4.6% year-over-year, beating market expectations. Credit demand on our platform was also slightly better than typical seasonal trends.
Haisheng Wu: On the funny side The government announced cuts to both the interest rate and the reserve ratio. in May. So we expect the funding environment to remain relatively supportive this year. with some room for a further decrease in funding costs. In addition, we plan to further expand our ABS issuance. and optimize our funding structure. Overall, we expect our funding cost for 2025 to decrease slightly from Q1 levels.
Haisheng Wu: And finally, about our lending strategy, I think it really depends on the risk outlook and the customer demand. Although our risk indicators remain largely stable. at the moment. There is still some uncertainty in a broader macro environment. Therefore, we will continue to maintain a prudent strategy. pursuing high quality and sustainable growth. That's all. Thank you.
Haisheng Wu: Yeah, and I just want to add one little point here. So as you know, we are very much focused on the take rate of our portfolio. And as in our previous discussion with the market, you know, we communicated that we continue to see from a four-year basis, we'll continue to improvement this year, 25 versus 24 in terms of the net take rate, assuming there's no dramatic micro changes from now to the year end. I think that's still the assumption we're looking at. And I think that's still on target. Thank you.
Unknown Executive: There are no further questions at this time.
Unknown Executive: I'll now hand back to management for closing remarks. Okay. Thank you, everyone, again, to join us for this conference call. If you have any additional questions, feel free to contact us offline. Thank you.
Unknown Executive: That does conclude our conference for today. Thank you for participating.
Unknown Executive: You may now disconnect.