Q2 2019 Earnings Call

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<unk> 2019 earnings conference call.

At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one telephone.

Please be advised that todays conference is being recorded.

Oh, no I attended hand conference over to your first speaker today Ms. Lydia Yu. Thank you. Please go ahead.

Thank you and welcome to <unk> second quarter 2019 earnings conference call todays coffee during the presentation by the founder Chairman and CEO , He and he alone.

Mr need our senior VP of corporate business development Mr. Dennis.

Our board of director and see our own someone's home.

Ms. Li IP off your credit so I see all the year and well go and live our CFO will join the presenters in acuity.

Before beginning we would like to remind you that discussions during this call contain forward looking statements made under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 95.

Such statements are conducted risks uncertainties and factors that can cause actual results to differ materially from those contained in any such thing.

Further information regarding potential risks and uncertainties are factors is included in your and I felt like the U.S. Securities and Exchange Commission.

And does not undertake any obligation to update any forward looking statements, except as required under applicable law.

During the call, we will be referring to several non-GAAP financial measures as supplemental measures review and assess our operating performance.

These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the U.S. GAAP.

More information about these non-GAAP measures the reconciliation to GAAP measures. Please refer to our earnings press release.

I will now has an I'm sorry, the only for opening remarks.

Thank you all for attending our second quarter 2019 earnings Conference call.

I'm pleased to announce that we have achieved another solid quarter of operation.

Yes, both credit and wealth management businesses.

In particular, we gained strong momentum in working with our bank partners to diversifying our funding sources.

This quarter.

On the credit side.

Quarter over quarter loan originations remain flat as we maintain our focus on asset quality.

As of September 2019, the line of credit we have obtained from our institutional partners.

<unk> increased from RMB 19, beating in Q1 2019 to close to RMB 30 period.

We are now working with approximately 10 partners, including leading join stock and city commercial banks.

We expect logged into nation funded by institutional partners to reach approximately 30% by the end of this year.

In addition, we have also started to gain access to PBF will see credit system. So our institutional funding partners, which will not only allow us to appear in vitro credit report on a real time basis to enhance our loan application and the writing efficiency, but will also significantly improved our delinquency management and collection efforts.

To further expand our institutional relationships, we have started to offer online lending solutions to our patent partners will help deliver our first online lending enabling solution to Banco names yeah.

Yeah, we're using our finpac expertise in online lending and risk management qualified customers can easily be applied for and obtain a loan online through the balance mobile app.

In the second half of 2019.

We will focus on high quality asset growth.

Expanding institutional partnerships as well as I wasn't buying our product portfolio to better serve the consumption needs of our borrowers.

Our wealth management.

I'm pleased to note that we've achieved significant milestones this quarter.

We launched our new brand you as well this July .

As part of our re branding campaign. We also released a detailed asset allocation guide.

For the mass affluent population of first in China.

The Guy is based on experience and knowledge that we've accumulated in the wealth management industry over the past 10 years.

This year, our top strategic initiative for US is driving G. M. B of non P to P products, including bank wealth management products mutual funds and insurance.

I'm pleased to note that in just the over 60 days our G. M. B book Bank wealth management products top RMB 100 million Mark.

For mutual funds, we newly launched the various mutual fund portfolios targeted for different your master need.

In the first half of 2019 compared to 2018, we noted a significant transition in the investment of money market funds to mutual fund portfolios.

In insurance, we have started to offer more one on one consultation and have noted an increase in longer term and the larger ticket size insurance products.

We expect to see further traction up our investors are you out into non P to P products.

Finally on regulatory update we have increased our registered capital to RMB, one baby to prepare ourselves for the potential upcoming regulatory trial program.

At the same time, we will also explore opportunities to strategically embarrassed or acquire financial licenses to hedge regulatory uncertainties.

Thank you all now I'll turn the call over to that is our senior VP of corporate development to review, our second quarter business results.

Sensing Hello, everyone on the credit business side total volume of loans nation for the quarter was renminbi 9.7 billion with about 35.9% of loan volume coming from repeat borrowers in terms of product mix about 97.9% of the loan sellers are unsecured consumer loans and the rest are secured loans and SMB lending.

The cumulative number of registered borrowers we served reached $83 million and cumulative number of borrowers served as close to 4.5 million as of June 32019.

On the institutional funding currently close to 20% of new loan origination are funded through bank partners and we expect that close to 30% of loans originated to be funded by on student partner by the end of the year.

Our wealth management business as of June 32019, we have sort of close to 2.2 million investors cumulatively total number of active investors in second quarter of 2019 was close to 680000 with total AOL, but you know well and remember the 43.6 million as of June 32019.

Average AUM hernia Mestre reached RMB 149000.

And average investment term for P to P product has increased to 15.1 months, indicating a highly speaking low your investor base, despite persistent industry uncertainties.

Were also seeing good traction was not P to P was mandiant products am up non PDP products was Rmbthree hundred 54 million in the second quarter of 2019 in the third quarter of 2019, we will launch a pilot telemarketing program to provide professional investment insurance and wealth management advisor to investors to further grow our non PDP business.

For our financial update I will focus on the key items up our business operation and financial performance and you can refer to the detailed financial results to our earning release.

Total net revenue or was it maybe 2.2 billion during the quarter net revenue take rate, which refers to total net revenue net off a lawrence for contra assets and 17.7% for second quarter 2019, as compared to 16.4%.

In the last quarter the increase in revenue take rate is mainly due to a product mix shift as well as some of the wealth management business were assumed through the Ocean acquisition.

This quarter, we maintain our contribution to the credit insurance program at 14% to ensure adequate coverage. Our credit assurance found is funded with a total balance of let me be 7 billion as of June 32019, which is equivalent to 13% of total performing loans covered by the credit assurance program.

On the balance sheet side as of June Thirtyth 2019, our cash and cash equivalents were maybe 2.7 billion the balance of the held to maturity investment, we're going to be $9.5 million and the balance available for sale investment were and then B 387 5 million.

As of June 32019, how useful cash maintain at a healthy level and then be 3.1 billion.

Our business outlook be uncertain industry environment make it difficult to provide an accurate outlook for laundry nation for the full year. However, we do expect loan origination to ramp up in the third and fourth quarter of 2019 as fusion to funding increase now I will pass onto one RCR and board of director for an update on our business risk business.

Since then.

On credit performance and risk management side, we are always saw flat any volatility in early delinquency this quarter due to industry environment as well as declining loan balance.

Although these data showed that the recent performance of new loans originated post for Q3 2018 continues to improve with MC past net charge off rate declining in the second half of 2018.

Opening harmonization of more stringent these policies.

In August of last year.

Full stabilized lease levels, we have been actively managing our product.

Folio fully deals this proposal and using more datasets, who lower portals wasn't that's it.

This quarter, we successfully used applications to collect back defaulted loans.

We also expect that our leasing performance will keep improving.

Well be using more institutional funding, which made plc credit Bureau data available for underwriting.

This concludes our prepared remarks.

We are ready for Callaway.

Ladies and gentlemen, we will now begin the question and answer session.

If you wish to ask a question today. Please press star one on your telephone and what's your name to be announced if you wish to cancel your request any time, please press the pound or hash Kay.

Your first question comes from the line of Joe issue from Morgan Stanley . Please go ahead.

If excuse me Joe Your line is now open. Please go ahead.

Hello.

Oh, Good morning management, and my first <unk> I have two questions. The first question can management share some more information on the online lending solution for winning shot bank like what kind of services are included in this package and a any other banks were negotiating at this moment, who regarding to this kind of business and so when does the management expect to see some meaningful revenue contribution from this business segment.

And my second question is on the regulatory front.

As I noted in a in a report.

That.

Oh, we have raised the registration capital to one billing and is there anything else, we need to do to to get prepared for registration.

And any other updates from the regulator.

Yeah any other updates from the regulator recently thank you.

Well, let me first address.

Regulatory.

MRM and.

Question.

Yes and.

We've increased our registered capital.

In preparation of four.

Upcoming.

Now is caught.

The trial program Yeah NAFTA.

Registration.

But it's a similar.

Meaning a regulatory system for.

Online lending.

Industry and we've been we believe we've been in full compliance.

Since.

Yes.

When the regulatory measures came out and.

We are ready for this trial program and we expect you know.

It will.

B.

Later, this year or next year.

And Paul.

That have moved up on me and when we met last call. We laid let's talk about the two customer lending business online and Lee.

The problem with us on to last for providing the whole package the turnkey solutions for led to release online.

Blending so are we providing the holes intensely oh, a underwriting capability.

And the whole lifecycle management capabilities to ethylene gap to ER online lending and the.

Somebody this online thing on anything yet and the after several miles off the testing in Q3 or the or they start to do more asking for this product and we see a significant capacity increase opera sales warrants in Chile.

This year.

And if they are both going back analysis. So the way we are.

The other one two or two mall maxing fall is polar and make it or something.

Customers are looking for that Florida customers and the company, we are because leases, although a new.

It is for US so we will take more time, focusing on optimize and improve our capabilities to cooperate with the bank. So I think we.

We are.

And that's on the you guys Oh.

The only bank partners class to providing these oh, yes.

So from a revenue contribution perspective, you know the collaboration with news has I think it's more strategic approach.

We will not look for revenue volume for this business, but rather buda relationships. So that we can bring a new shopping as our institutional funding partners. So the service itself I won't be a significant revenue contribution, but rather a potentially build a stronger strategic relationship with the banking institutions that will really help us when we expand our funding sources into these leading banks.

Okay. Thank you that's very helpful.

Just a reminder, ladies and gentlemen, if you wish to ask a question today. Please press star one thank you.

Your next question comes from the line of Alex <unk> from <unk>. Please go ahead.

Hi, good morning.

Thanks for taking my question. So I have been on the asset quality outlook. So we have seen a yesterday or maybe banks have commented that they are seeing an uptick in their credit card as a quality within the whole industry due to the increasing risk of a borrower ticking up multiple long from different fourth is so I'm wondering.

Is there any I mean, new chain that we have seen in India.

Bronx, and given many of our borrowers are probably share this oh, Stan crooked stick with those of the bank customers like they're also credit card holders. So I wonder if any any measure we can take to better control the asset quality and potential deterioration.

I think Chris.

Yes and.

I think it's a bit luckier, we ought to be see led or it might be some.

Do you feel the raising the industry you mom and so Ah interesting enough you know, we already start to take more speed and lead quite in control.

And so Oh, we do see that some are.

Am I correct and that.

More and more borrowers they are taking a much more loans from given a lender and the some bottles may go into traveling allowing that to Denise. So are we taking some more behind that.

Including we also accessing too early.

Ah National Internet Finance applications may have a better starting capital. We also taking these ah beat up long enough capital to.

Identified.

The.

The public Qualys coffee, the opera or the number of lonely or photos taken the lead in this one month before the summer.

Three months, so we will activity practically liggett's comparables will take too much longer and who makes.

Too many advocate at the different problems. So Ah that's why we do see some.

The improvement things closely and yeah, we see a b L. England rate based on Lincoln to data the delinquency rate at the infancy beta.

Ah Ah decreasing so let's give us more confidence that we can keep the our performance at all as a.

Quite a few Uh huh.

France, and the UK it can be even batting second half of this year.

Yes.

Okay. Thank you.

[noise].

Just another reminder, ladies and gentlemen, if you wish to ask a question today. Please press star one thank you.

There are no further questions at this time I would like to hand, the conference back to today's presenters. Please continue.

Hi, Thanks, everyone for joining us this concludes our call for today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.