Earnings Call: Q2 2021

Aug 10, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the Lufix Holdings Ltd. Second Quarter 2021 Earnings Call. At this time, all participants are in a listen only mode. After the management's prepared remarks, we will have a Q and A session. Please note this event is being recorded. Now I'd like to hand the conference over to your speaker host today, Mr. Yu Chen, the company's Head of Board, Office and Capital Markets. Please go ahead, sir. Thank you very much. Hello, everyone, and welcome to our Q2 2021 earnings conference call. Our quarterly financial and operating results were released by our newswire services earlier today are currently available online. Today, you will hear from our Chairman, Mr. Qi Guangheng, who will start the call with some general updates on our achievements, share our thoughts Our recent regulatory development and industry dynamics and provide our plans for future business. Our Co CEO, Mr. Greg Kidd, will then provide a review of our progress and details of our developments in the quarter. Afterwards, our CFO, Mr. James Zheng, will offer a closer look into our financials before we open the call for questions. In addition, Mr. Weiss, our Co CEO and Mr. David Choi, CFO of our Retail Credit Facilitation business, will also be available during the question answer session. Before we continue, I would like to refer you to our Safe Harbor statement in our earnings press release, which also applies to this call as we'll be making forward looking statements. Please also note that we will discuss non IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the International Hello, everyone, and thank you for joining our Q2 earnings call. I will start with some general updates on our achievements in the first half, then share our thoughts on recent regulatory developments and industry dynamics before providing our plans for future business. 1st, update in the first half. Generally speaking, although Chinese ADR stock prices have seen Increased volatility recently due to changes in macro policies and market conditions. At LUFAX, we managed to deliver improvements in our operating 1st, we achieved high quality growth in our core business. For the first half, our total income increased by 17% year over year and net profit increased by 33% year over year. Later in the call, Greg 2nd, we responded to regulatory calls by phasing out our peer to peer products in a smooth and compliant manner. In the Q2, we substantially completed the run off legacy peer to peer products and further strengthened our regulatory compliance. 3rd, we continue to enhance our corporate governance by restructuring our Board of Directors and establishing committees in key focus areas, including risk management, consumer protection and ESG. We are also actively advancing the development of our ESG system. 4th, on May 24, 2021, our company announced US300 $1,000,000 of share repurchase. As of June 30, 2021, We have substantially completed the repurchase. In addition, our senior management purchased US5 $1,000,000 worth of shares using their personal funds. While there are still uncertainties in the market, our stable profitability, strong operating cash flow, Abandoned cash reserves and the actions we took to pivot our business based on our understanding of regulatory requirements all give us strong confidence about our future prospects. As such, I'm pleased to announce a new share repurchase program of US700 $1,000,000 over the next 12 months, bringing our total price program to US1 $1,000,000,000 In addition, we are actively evaluating other options to return shareholder value going forward. 2nd, the analysis of regulatory development and market dynamics. Since our Q1 earnings announcement, the Chinese government has continuously tightened supervision of technology platform companies. These include The direct sharing of borrowing information by online loan facilitators and co lenders with financial institutions, mitigating an all in cost ceiling of 24% for consumer loans and publishing the draft version of the amended cybersecurity review measures for public consultation. Bluepac has always been closed and constant dialogue With regulators to fully grasp the latest regulatory trends, intentions and requirements and make sure relevant authorities are fully aware of our business model and I'm pleased to report that so far, we have maintained Open communication lines with all levels of regulators with satisfactory frequency and results. Despite recent influx of new regulations and policy and preparations, our business has not been materially Moreover, our business model operating results have remained resilient. Now I will address a number of questions that attracted recent attention. The first topic is sharing of forward data by law facilitators and co lenders directly with financial institutions. Recent media reports speculated that CBIC will prohibit online credit facilitation platforms from sending directly to their partner financial institutions' borrower data, Including personal information voluntary submitted by borrowers, data generated as part of the platform's process and other borrowing information provided by 3rd party vendors, Our interpretation is that it aims to regulate the consumer credit scoring process, emphasizing that credit assessment data from Ethernet platforms must be transmitted solely to licensed credit agencies. Blue Facts has been utilizing its licensed guarantee company to conduct Retail Credit Facilitation Business and performed credit assessment authorized by our partner banks. In full compliance with the Banking Sector Financial Institution and Financial Guarantee We refer potential clients to our banking partners, transmit the guaranteed company's approval results and share timely updates on post Origination repayment status. As such, every aspect of our business cooperation is done in accordance of the current And is that different from an unlicensed company's loan facilitation model? In the meantime, we have we will have constructive dialogues with the regulatory Sorry to seek their feedback and guidance. We are also prudently exploring the viability of applying for a credit scoring license or cooperating with 3rd party credit scoring companies. Because the mandatory completion of credit scoring reform is set at the end of 2022, there should be sufficient time for Based on currently available information, we believe whether to cooperate with 3rd party quarter scoring companies will not materially impact our business model or profitability. The second topic relates to consumer borrowing costs. At the end of July, some media reported that regulatory authorities would require financial institutions, including consumer finance companies and banks, to implement an all in cost ceiling of 24% for personal lending. From our perspective, we think that new requirement has crystallized the direction of loan pricing and eliminated potential uncertainties. Since September 2020, We have been preemptively implementing an all in cost ceiling of 24% for all new loans we facilitate. Going forward, we'll continue to follow regulatory direction, leverage technology to broaden smart macro business owners' access to cost effective financing and maintain our own profitability by improving our operating efficiency. The third topic I would like discuss cybersecurity. Since July, regulatory authorities have been conducting special orders on several Internet platforms in accordance with cybersecurity review measures, demonstrating the nation's heightened attention to cybersecurity and data safety. To ensure full regulatory compliance about data processing business operations, we promptly conducted debriefing seminars and performed internal reviews. Lumafax achieved the internationally accredited ISO 27,001 certification for information security management and The Level 3 registration certificate from the Ministry of Public Security of China. Going forward, we'll continue to strictly adhere to policy And into regulatory compliance in all key aspects of operations, such as network equipment and service procurement, critical data reviews and many others. The 4th topic is market development and competitive In recent years, a number of Internet platforms and traditional financial institutions have jumped into the foray of serving small macro business Some platforms have started to copy the overall business model that we pioneered. On the one hand, this validates The attractiveness of our business segments and the effectiveness of our overall model, on the other hand, intensifying competition challenges Over the past 16 years, we have built a highly effective My sales and service team, a comprehensive management system and a proven risk management model stress tested over multiple market cycles. Such combination serves as high barrier of entry and precludes peer replication within a short period of time. At the same time, increasing competition also motivates us to work 3rd area, development plans for the future. Based on our analysis of regulatory intentions industry dynamics, we believe competitive focus will gradually shift from volume growth to quality growth. Consequently, we are determined to uphold the following three principles to keep our operations fully compliant, to create value to society and to advance our technology. First, we shall keep our operations in full regulatory compliance and strict policy adherence. As an organization with financial DNA, we have always prioritized regulatory Regulatory requirements and operators in a compliant manner. Based on our principles of preemptive diagnosis and With operational adjustments for timely optimal results, we plan to continue enhancing our communication with regulatory authorities so that we can keep a close eye on the course of regulatory development and timely execute our policy requirements. 2nd, we shall keep creating value to the society by providing quality financial services to small and micro business owners as well as the middle class. As of June 30, 2021, Lufax has cumulatively provided credit facilitated services to more than 15,500,000 borrowers with an outstanding loan balance of more than RMB600 1,000,000,000. Over the past 5 years, we have effectively satisfied small micro business owners' financing needs by facilitating nearly RMB2.3 trillion was Recently, we launched special assistant plans for Small macro companies mainly aimed at supporting companies in labor intense industries such as retail, hospitality, restaurant and manufacturing, Creating a significant number of employment opportunities for small microagriculture businesses, we are working with the China Women's Development Foundation to distribute our farmers assistance funds to rural female entrepreneurs and cooperative leaders. As a result of this work, we are making meaningful contributions to the economy of Going forward, Grupoix will provide more products and services catering to the needs of smart micro business owners, leverage technology to reach Customers more effectively, simplify loan application process, improve efficiency in reviewing and approving online loan applications, Fulfill our commitment to financial inclusion and support the nation's economic development agenda. In our wealth management business, Blue Facts operates as an information and empowerment platform to help the Chinese middle class managed it well. Blue Box will continue to provide a variety of financial products, optimize product matrix composition, enhance customer experience, Thirdly, we shall empower our business development and quality improvement through technology. In adherence to our principal O2 integration, multi service offering and customized Solution. We have continuously advanced our technology in big data, artificial intelligence and others. In retail quarter facilitation, we have launched an AI Our smart loan solution named Xinyun. In wealth management, we are promoting an intelligent customer service solution aimed at improving user experience. All these solutions demonstrate our ability to enhance our financial services efficiency by leveraging technology. In conclusion, although our road ahead is not without challenges, we are confident that we will be able to lay our own unique path to long term sustainable success by maintaining operational compliance, generating social value and continuing technology advancement. With that, I will now turn the call over to Greg, who will share our business updates for the quarter. Thank you, Chairman G. Although the regulatory environment continues to transform and some uncertainties remain, our business performance is sound. Let me get straight into the key figures, noting that all numbers are in R and D and all comparisons are on a year on year basis unless otherwise stated. Our profits in the first half reached $9,700,000,000 up 33.4 percent versus a year ago. Our 2nd quarter profit was $4,700,000,000 up this year. Our 2nd quarter total operating expenses of $7,100,000,000 decreased by 1.7% for the same period. As a result, our net margin reached 31.9%, a 7.5 percentage point improvement over the 2nd quarter year, driven by ongoing improvements in operations and technology. We are confident that profit growth levels in the first half will be sustained throughout the balance of this year. On the back of this solid performance, it is important to note our strong balance sheet and cash position. As of June 30 this year, our net assets reached $91,100,000,000 of which approximately $42,000,000,000 are liquid Our net cash flow has increased by $9,600,000,000 in the last 12 months. This strong position allows us to do several things. First, it provides us with a resilient ability to meet any new capital requirements that may come from regulatory changes. We believe that in lending facilitation, All platforms, regardless of business model or customer segment, will ultimately be required to bear 20% to 30% of related credit risks, With a capital leverage of no more than 10x to the portion of shared risk. In the second quarter, excluding the consumer subsidiary, we bore credit risk on 16% of all new loans facilitated, and we have more than sufficient capital to be increased levels if needed. 2nd, our strong profitability provides multiple avenues to generate value for shareholders. Today, we announced that we will extend our corporate Buy Buy program initiating a new plan to repurchase $700,000,000 of shares over the next 12 months. We continue to explore other avenues to return more value to shareholders over time. 3rd, our resources allow us to continue to invest in and enhance our unique business model. For the sake of general understanding, I'd like to highlight Three aspects of our business model and the developments currently underway. First is our unique O2O direct sales force business model, which allows us to unlock and unmet borrowing fees for China's small and micro business owners. In the 2nd quarter, excluding the consumer finance subsidiary, 77.6 New loans facilitated, which is small business owner segment. We continue to find that our direct sales force of more than 58,600 professionals is the key to reaching the small business owners and building required levels of trust serve their larger and long term lending needs and being able to match an array of unsecured secured products to their diverse business and industry purposes. In the 2nd quarter, new loan sales reached $152,700,000,000 growing 11 point percent versus a year ago, in line with prior guidance. During the quarter, new loan sales from other channels slowed down However, the increased new loan volume from our own direct sales teams has offset the weakness in other channels, thus demonstrating the resilience and flexibility of our direct sales team as well as the strengths of our OTOO business model. Furthermore, with continued technology upgrades, we have greatly improved the productivity and efficiency of our direct sales team. In the Q2, 6.5 percent of new loans facilitated were in a new secured auto lending product, demonstrating the ability of our OTO Direct Sales to capitalize on changing market conditions and customer relationships. The productivity of our direct sales force increased 10% over the last 12 months. We continue to invest In new risk, data, industry insights and technology tools to further enable our unique O2O sales force to tap this hard to reach segment, which we believe not be efficiently served through a pure online model. A second unique aspect of our business model is how we deploy our licenses. This has become an increasingly important factor in the tightening environment to satisfy both regulatory and funding partner needs. All new loans that we facilitate today either flow through our guarantee companies or our consumer finance license. Our guarantee companies with operations all over the nation Tibet, Mingxia in Yunnan provinces allow us to share credit and process data flows with our more than 65 national and local funding partners under well established legal frameworks. The deployment of these licenses together with successful tapping of the ABS and interbank ABN market which helped the ongoing optimization of funding costs for the first half this year. We are now actively exploring new collaborations to meet expected credit Rating license features requirements will come into the effect by the end of next year. A third unique aspect of our business model is that we seek to serve our customers across a full range of financial services, not just lending. While our wealth management platform is a smaller contributor to total company revenues today, Currently, the China Wealth Management market is witnessing substantial new growth as customers and providers are adjusting to full implementation of the new asset management regulations and a new framework for cross border investing between China's Greater Bay and Hong Kong. Our domestic wealth of insurance serving primarily the affluent, the emerging affluent continues to grow with client assets of $421,100,000,000 as of June 30, 2021, Expanding 12.4% versus a year ago and expanding by 28.8% if excluding legacy PDP assets, which have now been substantially run off. Our platform in Hong Kong is currently entering new partnerships in preparation for the rollout of Greater Bay policies. In the 3rd quarter of this year, we will merge our online client interface for all borrowers and investors to deepen services to all customers across small business owner lending, Consumer finance, wealth management and protection and pension insurance. Company analysis suggests many of our small business owners are middle class and emerging affluent customers, And a notable portion of our wealth customers are small business owners. With the rapidly changing operating environment, we believe our capital Strength and unique business model combined with our deep financial credit experience and commitment to compliance will allow us to remain resilient. Before turning over to James To go through the detailed operating and financial performance and second half guidance, I would like to highlight one final figure. We have continued to make progress in bringing down APR to our borrowers with the 2nd quarter APR for the overall portfolio reaching 24% versus 26.7 percent a year ago. This reduction has been executed without negatively impacting our net margins. In the medium term, we will seek to lower our APRs, but keep our net margin steady by driving down relevant operating, credit insurance and funding expenses. I will now turn over the call to James Zhang, our CFO. Thank you, Greg. I will now provide a closer look into our Q2 operational and financial results. Before I begin, please let me remind everyone that all numbers are in RU terms and all comparisons are on a year over year basis unless otherwise stated. Our Q2 2021 results are characterized by strong business growth, continued operations improvement and extended profit margin. Our total income increased by 17.6% to CNY14.8 billion, while our core business income, excluding investment income, grew by 19.1%. Our net profit increased by 63.2% to RMB4.7 billion, exceeding our earlier guidance of RMB2.7 billion to RMB3.9 billion. Our net margin reached 31.9 percent in the second quarter, a 7.5 percentage point improvement from the Q2 of 2020. Worldwide, our continued growth and profitability are 4 key factors. 1st, we further optimize the unit economics in our retail credit facilitation business Even as we reduced our all in cost, our loan balance APR declined by 2.7 percentage points to 24% in the Q2 of 2021 from 26.7% in the Q2 of 2020. While our take rate based on loan balance improved to 9.7% from 9.5% And our net margin also expanded over the same period. This achievement is a result of 4 initiatives. First, We continue to increase our number of banking partners and diversify our funding sources, which has allowed us to obtain cheaper funding from partners with better asset quality. 2nd, the credit insurance premium on our loan portfolio has also been reduced As our insurance partners took the better credit and the cut in quality into consideration to lower their pricing and then without greater portion of the credit risk. 3rd, the early payoff effect decreased significantly because we have changed the way we 4th, we achieved significant efficiency gains in our sales and marketing as well as our operations. As a result, we are confident that even if we reduce our APR further into the future, we should be able to maintain the stability in our take rate and net margin in retail credit facilitation. 2nd, we maintained a strong pace of loan volume growth coupled with business mix improvement. On the regional credit side, we grew our new loan sales by 11.1 percent to RMB152.7 billion During the Q2 of 2021, in line with our previous guidance of RMB145 1,000,000,000 to RMB155 1,000,000,000. At the same time, we continue to focus on serving small business owners and improving the risk profile of our borrowers. High quality borrowers defined as G1 to G3 borrowers by our own internal application system Contributing 63.7 percent of the new general unsecured loans facilitated in the 2nd quarter compared to 59.4% for the same period of 2020. On the wealth management side, Our total client assets increased by 12.4 percent to RMB431.1 billion as of June 30, 2021, exceeding our previous guidance target of 12.1% growth for RMB420 1,000,000,000. As of June 30, 2021, up from 76.3% as of March 31, 2021. 3rd, we continue to make progress in executing our plans for a more sustainable risk here in this market. Loans where we get used accounted for 16% of the new loans facilitated in the 2nd quarter, up from 4.4% in the same period of 2020. New loans facilitated with guarantees from Ping 9 P&C accounts for 76.3 percent of new loans facilitated in the 2nd quarter, down from 89.1% a year ago. While our funding partners bore the risk for 4.8% of new loans facilitated in the 2nd quarter. As of June 30, 2021, our outstanding balance of loans facilitated with guarantees from third party credit enhancement partners has decreased to 84.3% from 94.3% a year ago. All LC aforementioned operating metrics exclude those of our consumer finance subsidiaries. Our C2M3 flow rate for all loans facilitated was 0.4% versus 0.5% a year ago. The 30 day past due delinquency rate for all loans facilitated was further improved to 1.9% as of June 30, 2021 from 2% as of March 31, 2020. The 90 day tax delinquency rate for the total loans facilitated stabilized at 1.1% as of June 30, 2021, on par with 1.1% as of March 31, 2021. All of the aforementioned operating metrics exclude those of our consumer finance history and the management products, which will represent roughly 1% of the total loan status. 4th, we substantially completed the run off of legacy P2P products in our Wealth Management business. During the quarter, client assets from legacy PDP products were reduced to RMB4 1,000,000,000 in the previous quarter, effectively completing our business transformation. Meanwhile, our fixed rate for the segment was 31.8 bps, increasing by 3 on 6 EPS from the previous quarter. These improvements were primarily driven by our continued development in Standard Wealth Insurance Products, offset by a decrease in deposit products. Now let's take a closer look into our Q2 financials. During the Q2, our total income increased by 17.3% and our core business income excluding investment income grew by 19.1%. On the back of this growth, our business and risk sharing model continue to evolve, driving a change in the revenue mix of our retail credit facilitation business. For example, during the quarter, while the platform service fee decreased by 8.8% to CNY9.2 billion. Our net interest income grew 98.7 percent to CNY3.2 billion And our guaranteed income grew by more than 800 percent to RMB 891,000,000. In addition, Other income, which is directly linked to delivering services to our financial partners, increased by 205.1 percent to RMB1.1 billion. As a result, our retail credit presentation platform service fees as a percentage of total revenue decreased to 60 2% from 79.8%. In addition, as we continue to utilize consolidated trust plans, which provides lower funding costs in our funding operations, our net interest income as a percentage of total revenue increased to 21.8% from 12.9% a year ago. Moreover, as we continue to bear more credit risk, We generated more guarantee income, causing our guarantee income as a percentage of total revenue to reach 6% as compared with 0.7% a year ago. By expanding our services to our credit enhancement partners in account management, collections and other value added services. Our other income as a percentage of total revenue increased to 7.2% from 2.8% a year ago. Our investment income decreased by 83.2 to RMB37 1,000,000 in the 2nd quarter from RMB220 1,000,000 in the same period of 2020, mainly due to losses from the change in fair value of assets. On the wealth management front, our platform transaction and service fees increased by 39.9 percent to RMB407 1,000,000 in the 2nd quarter from RMB291 1,000,000 in the same period of 2020. This increase was mainly driven by the increase in CDs generated from our current products and services. Now moving on to our expenses. In the 2nd quarter, total expenses grew by 2.2% RMB8.5 billion. However, excluding credit impairment losses, financial costs and other losses, total expenses actually decreased by 1.7% in the 2nd quarter, underscoring the steady improvement of our operating efficiencies across most business areas. Our sales and marketing expenses, which include expenses for borrowers and investor acquisition as well as general sales and marketing, decreased by 6.3 percent to RMB4.3 billion in the 2nd quarter. As a result of our efforts to further optimized our sales productivity and the sales commissions as well as the higher base in the Q2 of 2020 due to non recurring expenses. Our borrower acquisition expense, which are a major component of our total sales and marketing expense, decreased by 19.5 percent year over year to RMB2.6 billion. In addition, our investor acquisition and retention expenses also decreased in the Q2, mostly due to our optimization of investor acquisition channel costs. Our general sales and marketing expenses, which are mainly comprised of payroll and related expenses for marketing personnel, brand promotion costs, Consulting fees, business revenue costs as well as other marketing and advertising costs increased by 33.8% to RMB1.5 billion in the 2nd quarter from RMB1.1 billion a year ago. This year over year increase was largely due to The lower base in the Q2 of 2020, resulting from the social security relief during the COVID-nineteen outbreak in the same period. Our general and administrative expenses increased by 21.1 percent to RMB798 1,000,000 in the 2nd quarter from RMB659 1,000,000 a year ago. This increase was mainly due to the lower base in the Q2 of 2020 Headcount expansion in the Q2 of 2021 to support our new business development initiatives, including the development of our consumer finance business. Came to RMB1.48 billion in the 2nd quarter from RMB1.53 billion a year ago. This decrease was primarily due to a decrease in post automation management expenses, driven by our improvements in management collection efficiency and partially offset by the increase in the trust plan management expenses, resulting from increase in usage of consolidated trust plans. As we maintain our commitment to investing in Technology Research and Development. Our technology and analytics expense increased by 18.6% to RMB570 1,000,000 in the 2nd quarter. Additionally, our credit impairment losses increased by 133.5 percent to RMB1.4 billion in the 2nd quarter from RMB597 1,000,000 a year ago. This was due to the continuing evolution of our business model, which led to increased loan related risk exposure and higher upfront It is worth noting that the increase in impairment losses is purely a function of the increase in the proportion of the credit risks borne by us, while the overall credit profile of our borrowers has continued to improve as mentioned earlier. Our finance costs decreased by 37.4 percent to RMB276 1,000,000 in the 2nd quarter from $441,000,000 a year ago, mainly due to the decrease in our balance of convertible bonds, which led to lower borrowing costs and increase in interest expense resulting from the increase in deposits. As a result of foreign exchange rate gains, we booked RMB301 1,000,000 in other gains for the Q2 of 2021, while our effective tax rate decreased to 26% from 29% a year ago. Consequently, our net profit increased by 53.2 percent to CNY4.7 billion in the 2nd quarter from RMB2.1 billion a year ago. Meanwhile, our basic and diluted earnings per ADS were RMB2 and RMB1.9 respectively in the Q2 of 2021. As of June 30, 2021, we had a cash balance of CNY29 1,000,000,000 compared to CNY24 1,000,000,000 as of December 31, 2020. Net Cash flow from operating activities was CNY2.1 billion in the Q2 of 2021. Now turning to our guidance for the second half and the full year of 2021. For the second half of twenty twenty one, We expect our new loan facilitated to be in the range of RMB334 1,000,000,000 to RMB340 1,000,000,000 and the client assets to be in the range of RMB 450,000,000,000 to RMB 460,000,000,000. Meanwhile, as we maintain our growth momentum And we continue to improve our operating efficiency. We expect our total income to be in the range of RMB31 1,000,000,000 to RMB31.3 billion, our net profit to be in the range of RMB6.6 billion to RMB6.8 billion in the second half of 2021. This translates into a year over year net profit growth of 32% to 36% for the second of 2021 and a 33% to 34% for the full year 2021. These forecasts reflect our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks for today. Operator, we're now ready to take questions. Your first question comes from Hany Lu from Bank of America. Please go ahead. Thank you very much for giving me this opportunity and congratulations for a solid second quarter result. I guess two things. First, in terms of the Can you provide the latest number in terms of the effective APR in Q2 this year, both for the New business and also for the total outstanding loan balance, so the APR and then the breakdown of funding costs of GGI and EPO? 2nd question is related to what Chairman Hsu talked about on Information and credit license credit bureau, credit growing license, can you talk about Any progress, any application, if you are applying for the credit foreign license, Any expectation on that? And also with the new regulation restrictions on the usage of credit information, is that going to impact how much data, credit data LumenFacts is able to access or the scope of data that you're able to leverage on and that is that going to impact your credit scoring? Thank you very much. Thanks, Winnie. I think on your first question, what we have just disclosed for the Q2 on the overall portfolio is that the APR is 24%, and that's down from 26.7% a year ago. We don't disclose the Rate for the new loans. But what you can very clearly calculate is in order for us to go from 26.7 Down to 24%. That means that the new loans that we've been issuing, clearly, ones have all been below 24% and Yes, at least a couple of 100 basis points below 24% in order to get that overall average of And so this is something that we've been doing for some time, and we'll continue to execute on. Yes. Probably what I can add is, If you get this part of this number, if you look at our onc2 news, The regulation, clearly with our Chairman J, we met previously a few times. And then, Chu, we have probably have 2 questions. The first is, whether we need a credit license. Atmarbank, it's fully within, it's profitable within JMP Business approved score. So we think we don't need this credit license. If we need, we mean that all other companies or The company will have credit licenses going forward and this legislation becomes effective from And then I will show the new part there. So we're testing ready within first half next year. And then just in case we need to change the process, but it's not confirmed yet. We are watching it. But in terms of scope of data wise that we can access or we BTUs doesn't get impacted by this new structure. There is one small impact. How we collect data? There are 2 types of data. The first is personal information that we collect directly from borrowers. That is not change. And the second data is the previous data. The synthetic data from POC, it does not change. For Hi. Like other, the customer's financial asset data, insurance data, how we collect those personal asset data that we have to collect So it was wise, Charles, our Co CEO, responsible for Retail Credit Facilitation, Lenny, who just answered. Top of that, I just want to add that we are maintaining very active dialogue with the credit score and bureau of the PBOC, All the relevant key decision makers within the Bureau. So far, there's no material impact to our business model. And based on what they've indicated to There's no need for us to change. Now I think their key focus is on the data or the information you collected, whether you just Use it for yourself or do you actually pass it on to external parties or in some cases even monetize on that data? We believe that's their key focus. They are also asking us for our views whether we'd like to share our data with credit bureaus. And our response was, look, if there's a PBOC requirement that everybody is required to do that, we will comply. Again, their key focus is on whether we accumulate whether the data we accumulated or stored is Just for self use or will be passed on to third parties or even self work. Of course, that's something we'll never do. They also recognize that we run On a different business model by our guarantee company. So far, that's the communication we've all had. We don't need to make any changes right now. We'll Thank you. Your next question comes from Mei Yuen Yang from UBS. Please go ahead. Regulation. Yes. Let me ask comment on the question number 2 first, and then I will answer question number 3. The question number 3 is about loan rate be within 24% by June 2022, right? These requirements were given to sales companies. And to be very precise, what they said is total borrowing costs should be less than 24% for Nuance by June 20 2022. And the average API should be less than 20% within fewer times, meaning that by June 2024, That's what they said. And then we believe this will become like a standard regulation for all. And this is good for us because it brings no impact for us. If you look at our CF company, as of today, highest HII is less than 24% And average API is less than 90%. So we're already there. And then hopefully, highest API less than 24%. And as of July, Our API for new ones is only less than 20%. So basically, we see no impact from this new regulation. So we are in a very safe position. And the third question, sales growth portion. In other 6 months, Our sales strategy portion for Nuance will reach finally reach 20%, so we are done. In the next step, whether we want to further move up to a 30%. This we haven't decided yet. We are in discussion with a regulator. But once the And we have to go up to 30%, so we can do that very easily with time because Our joint company, we have already more than RMB22 1,000,000,000 net asset, which is more than enough to support Thank you. Your next Question comes from Thomas Chong from Jefferies. Please go ahead. Hi, good morning. Thanks management for taking my questions. I have a question regarding our wealth management strategies. I think we have talked a lot about the RCX side, How about the WAM side? I think we are about to talk about some of the upgrade in terms of the product features, Including integration with RCF in terms of the interface, can you talk about how we should think about Our long term goal for WM, in particular, the progress that are made with our automated AI portfolio As well as any competitive landscape or regulations that we need to bear in mind. I think that's my first question. And then a follow-up question is about the recent outbreak of COVID. Are we seeing any the Wealth Management business, as we summarize, through the first half of this year or as of June 30, The growth that we exclude the P2P portion was about 28%. And so this is a business we continue to want to As fast as we can. And we continue to see very good progress on our affluent customers, on our qualified investors across a range of higher end products, including ongoing development for portfolio services And automated matching, which we're doing here in China, but we're also looking into Hong Kong as that market starts to evolve as well. So this is an area that we will continue to invest. We'll continue to automate. We'll continue to apply more and more data to it to make sure that our middle class customers are generating good returns, particularly as the market shifts away from fixed income to more of a variable return product. And this is an area that we continue to invest in. In terms of the COVID impact, I would say up to now, we've not Any impact. It's really too early and very, very narrow. I know that there's more headlines about it, but it really hasn't been anything that we've seen in terms of frontline Got it. Thank you. Thank you. Your next question comes from Catherine Lane from JPMorgan. Please go ahead. Thank you. I think my peers have asked a lot about regulatory risk. And then I'm going to have a follow-up question on the I think just now management saying that like the way to maintain a stable profit margin is to control costs, right? So first, can you help to elaborate like what room does Fluent have to continue to cut costs so that the overall takeaway will be more stable? The second question that I have is on investors' return. There is already like RMB 1,000,000,000 of buyback being announced and executed as some of them have been executed so far. So what is the assets on the balance sheet that you believe is deployable for like buyback or maybe in the future dividend in general? Yext, do you want Steve, first about the cost optimization area. Okay. I think the team will share more data in the presentation, right? But if I give you a rough picture, for NIMO, for NIMO in the Q2 this year, our average APA was less than 23%. But net margin stays almost unchanged at around 4%. And then let me just look at our components, like funding cost, CGI premium and each impact, you see that Those three numbers are obviously improving, meaning decreasing. And then going forward, we believe we can further Product to mine by about 2%. So going forward, even if the overall HR goes out to close 20%, because we are confident our net margin will be protected at around 4%. Of course, I'm not saying that no matter how low HR growth, It can be about 4% in margin. I'm not saying that. But as soon as Airbus' price is around 3%, we are very confident that margin will not change. In terms of investor returns, as we noted on our balance sheet and cash $91,000,000,000 overall net assets, dollars 42,000,000,000 of relatively liquid assets within 90 days. So The share repurchase, the additional $700,000,000 taking us to $1,000,000,000 still represents a very small portion of our total capabilities. We will continue to explore other ways to generate returns for investors through all of these. And we're exploring those structures, and we'll certainly undertake them as soon as it makes sense to do so. But we certainly have a lot of room in which to play. As Greg mentioned, not only that we have a strong balance sheet, in addition, we have very strong profitability and cash generating capability. In terms of the question you asked, whether it's Buyback or dividend, I can say that we are considering again all means to return value to shareholder. Once there's a We will be making the right announcement. The USD10 1,000,000,000 which is roughly RMB7 1,000,000,000 of buyback is small compared to The gunpowder we have on our balance sheet. And let's not forget, by the end of the year, we would have generated another RMB10 1,000,000,000 plus of RMB profit and that will go also go into our cash reserves and balance sheet. Okay, thanks. Thank you. That does conclude our time for questions. I'll now hand back to management for closing remarks. Thank you for attending our call today. And as mentioned earlier, the results are available online. And we will be having number 1 on 1 sessions with the sell Analyst, which we will elaborate more on our messages. Please do have full confidence that we have a very hard working management And in the current environment where global capital markets view on China regulations, which caused a lot of volatility recently, rest assured not only that companies have heard that I believe the relevant regulators in China have also heard the market views. Some friends have Telling me that today, the biggest factors impacting Chinese ADR stock prices, number 1 is regulation, number 2 is industry. Company specific fundamentals come later. Rest assured, the regulators have heard that. And in the current environment, it is very prudent and is always in our