Earnings Call: Q1 2021

Apr 27, 2021

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to Lussacs Holdings Limited First 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 question and answer 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 Q1 2021 earnings conference call. Our quarterly financial and operating results were released by our newswire Earlier today and are currently available online. Today, you will hear from our Chairman, Mr. Ji Guangheng, who will start the call with updates On the impact of regulatory developments as well as our efforts in supporting the growth of the smaller macro businesses. Our Co CEO, Mr. Greg Gibb, We'll then provide a review of our progress and details our development strategies in the quarter. Afterwards, our CFO, Mr. James Zheng, will offer a Looking to our financials before we open up the call for questions. In addition, Mr. Weiss Choi, our Co CEO And Mr. David Choi, CFO of our GreatCall Credit Facilitation business will also be available during the question and 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 will 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 Financial Reporting Standards in our earnings release and filings with the SEC. With that, I'm now pleased to turn over the call to Mr. Ji Guan Huang, Chairman of Lufax. Hello, everyone, and thank you for joining our Q1 2021 earnings call. Before we go through the detailed quarterly results, I would like to provide some general updates on 2 aspects of our business. First, the recent regulatory developments and their impact on our business and second, our achievements in supporting small and macro businesses. Let's start with the recent regulatory development and the impact on Lufax. First, with increased clarity on regulations in the Q1, we have witnessed How regulatory authorities impose various reform requirements on leading tech platforms. We believe that the intention of the new regulation has 3 goals. First, all financial businesses must be rooted in financing powered by technology. 2nd, all financial activities should be placed under regulatory oversight. 3rd, the development of the sector must be built on the basis of compliance. These policy directions are largely in line with our previous expectations. Regulatory compliance has always Although we were not directly affected by the recent announcement, we have always upheld our commitment to provide socially For our credit retail credit facilitation business, we promote responsible lending practices and educate borrowers on rational borrowing. These efforts help us keep our credit services independent from other incompatible businesses and prevent the misleading Customers with excess lending practices. For borrowers who use the proceeds for our loans, we are different from most online consumer credit business as we focus on serving the small and macro business We support the development of China's real economy and our mission is fully aligned with national policies. On That used for the purpose of risk assessment are for proof of payment information, which is strictly compliant with the requirements listed in the regulation on the administration of credit 2nd, all data related to Ping An Group has customer consent and has been scribbled thoroughly to remove sensitivity. 3rd, all risk modeling and analysis processes are executed in full compliance with industry rules and regulations. Going forward, we'll continue to abide by Regulatory guidelines foster prudent innovation, ensure operational compliance, prioritize protective personal data and improve financial service efficiency on Inclusiveness Through Technology. For our wealth management business, we continue to one step our P2P products in response to regulatory requirements. Thanks to our strong operations and risk management capabilities, P2P products now account for only 0.9% of our total client assets. We have achieved a smooth and compliant transition process as we gradually phase out our peer to peer products, making our business more aligned with regulatory guidelines. Overall, we are fundamentally different from other leading platforms in terms of business model and target customer base. On regulatory compliance, we have adhered to the principle of preemptive diagnosis and swift operational adjustments for timely optimal results to keep our operations in line with regulatory trends. As policy trends become clearer, we believe it will benefit industry leaders such as Lufax in the long term. Next, I would like to provide an update on our achievements in supporting small and macro businesses. First, we help Small macro businesses to overcome the hurdles of limited access to capital and high cost refinancing. 2nd, we leveraged our unique off line to online model to provide better services to small business small macro businesses. Bluefast has always been committed to promoting inclusive finance. To expand small and macro businesses access to finance, Bluefast has provided credit facilitation services to more than 15,000,000 customers as of March 2021 facilitated over RMB580 1,000,000,000 of outstanding balance of loans and extended unsecured loans to nearly 4,000,000 customers residing outside of Tier 1 and Tier 2 cities. To improve financing affordability, we have adhered to regulatory guidelines and implemented an all in cost ceiling of 24 percent for all new loans since September 2020. We will remain committed to exploring additional ways to lower the financing cost for small macro businesses. BluFi's unique offline to online business model and technology capabilities enabled us to support the financing needs of small and macro businesses very effectively. Recently, we noted investor interest in the development of our offline sales team. I would like to mention that our decision to establish an offline sales team was based on the key characteristics of our core customers. Most of our core small and micro business owners have an average age of 39. The business has average annual revenue of less than RMB10 1,000,000, an average payer of less than 20 employees. Their borrower profiles make it difficult for them to qualify for traditional bank loans. They also lack the time or experience of loans online. With this in mind, we have a sales and service team of nearly 57,000 representatives in over 280 cities. By leveraging our proprietary technology applications, our service team is able to provide professional, convenient and Flexible Credit Services. For example, the verification of borrower background information is conducted automatically through artificial intelligence online that significantly reducing manual efforts in information gathering and decision making, substantially improving the efficiency of our lending process. In the future, we plan to launch a series of new technology applications to further enhance our customer experience, empower our offline sales team and improve Moving forward, Bluefast will continue to adhere to the nation's guidelines on Green Finance and Inclusive Finance By executing our mission of providing inclusive and compassionate financial services, we view it as our responsibility to provide individuals and small and micro business owners across China with easy access to timely, convenient and high quality financial services. In conclusion, although recent regulatory developments have impacted the industry, our business was not materially affected, Thanks to our preemptive integration of regulatory intentions and proactive adjustment. These efforts have also enabled us to achieve solid Our management team will continue to embrace regulatory oversight while maintaining active dialogue with the authorities. We will also improve our capabilities in technology, pricing and risk management to streamline our operations, optimize our cost structure and enhance our operating efficiency. We are confident in our ability to maintain the stable growth of our business and continue to provide compassionate financial services to our customers. I will now turn the call to Greg, who will share our business update for the quarter. Thank you, Chairman Ji. Before I begin, please note that all numbers are in renminbi And all comparisons are on a year over year basis unless otherwise stated. Blue Fox had a strong first quarter. We exceeded our guidance and delivered strong top and bottom line growth. In the Q1, total income increased by 16.9% to $15,300,000,000 and net profit increased by 18.7 percent to 5,000,000,000 This is exceeding our earlier guidance of $4,200,000,000 Our net margin reached 32.6% in the first quarter, An 11% to this point improvement over the Q4 of 2020. Four key trends underpinned our Q1 performance. First, we experienced a significant rebound in our retail credit utilization unit economics. While keeping all in costs for new borrowers below 24%, The take rate based on loan balance was 10% in the Q1 of 2021 recovering from 9.1% in the Q4 of 2020. Funding cost optimization and credit insurance premium reduction were key drivers of this improvement as insurance partners lowered their pricing on the basis Better credit and customer quality. We also reduced our sales commissions in January and improved our operating efficiency. As a result, our net margin essentially returned to the levels we saw prior to price reductions in 2020. As mentioned, reduction in credit insurance Premiums is closely linked to credit performance. In the Q1, our C2M3 flow rate for all loans facilitated was 0.4% versus the COVID peak of 1% in February 2020. The 30 days plus past due delinquency rate for all loans facilitated stabilized at 2% as of March 31, 2021, on par with December 31, 2020. The 90 plus day Rate for total loans facilitated improved to 1.1% as of March 31, 2021 from 1.2% on December 30 2020. All of the aforementioned operating metrics exclude our consumer finance subsidiary of legacy products, which represent less than 1% of our total loan business. 2nd, we observed steady volume growth while improving our business mix. On the retail credit side, We continue to focus on serving small business owners and improving the risk profile of our borrowers. In the Q1 excluding the consumer finance subsidiary, 75.7 percent of the new loans associated were dispersed to small business owners, up from 65.9 percent for the same period of 2020. High quality borrowers defined as G1 to G3 borrowers by our own internal classification system contributed 65.9 percent of new general unsecured loans associated in the Q1 compared to 58 point 7% for the same period of 2020. The improved borrower quality led to a sustainable decline in credit insurance premiums and expected credit loss levels. On the wealth management side, our total client assets exceeded our guidance and reached $421,100,000,000 as of March 31, 2021. Our focus on NASA fluent customers who invest more than RMB300,000 beyond the platform has paid off as the contribution to our total client assets reached 76.3% as of March 31 this year. 3rd, we continue to make progress on executing our plans for a more sustainable risk sharing business model. It is encouraging to see that our funding and insurance partners have remained supportive and are embracing the new risk sharing business model. As of March 31, 2021, Our outstanding balance of loans facilitated with guarantees from 3rd party insurance partners decreased to 86.8% from 95.1 percent a year previously. Moreover, new loans facilitated with guarantees from Ping An P&C accounted for 78.3% of new loans facilitated in the Q1 down from 92.5 percent a year ago, while our funding partners borne the risk for 5.5 in the Q1. Loans where we bear the risk accounted for 12.5% of new loans facilitated in the Q1, up from 1.3% in the same quarter of 2020. The balance of loans where we bear the risk was $45,700,000,000 as of March 31, representing around 2 times leverage of our licensed guarantee company's net assets of 19,200,000,000 Again, these figures do not include our consumer finance subsidiary. We expect the net assets of our guarantee companies to continue to increase is our retained earnings growth providing organic support to future business growth. Under a 20% to 30% risk bearing model and a 10 times leverage capital for our guarantee companies, we have ample room to grow our total loan guarantee balance without Any additional capital injection this year. The existing capacity of our guarantee company supports a doubling of the current business scale. 4th, Our wealth management client assets and take rate remained stable despite accelerated P2P run off and discontinuation As of March 31, 2021, our total client assets increased by 18.7 percent to 421,000,000,000 versus a year ago despite accelerated P2P runoff and the stimulation of bank deposit products. 1st quarter revenues from wealth management business increased by 52.8 percent year over year. In the Q1, we accelerated the runoff of $15,400,000,000 in P2P products. Of that, March 31, 2021, legacy products accounted for just 0.9% of total client assets compared to 20.6% a year ago. We expect the runoff of our remaining legacy products to be completed in the Q2. As a result of regulatory restrictions on bank deposit products, Deposit related client assets decreased RMB9.1 billion in the Q1. Our take rate for the wealth Business was 28 basis points in the Q1 with some fluctuation due to decrease in deposit products offset by continued development in Standard Wealth and Insurance Products. Next, our upgraded guidance for the first half. We expect continued growth momentum in the 2nd quarter with steady business development, further cost optimization and strong credit performance. Therefore, we are increasing our first half of twenty twenty one guidance for total income growth to be between 17% 18%, up from our previous guidance of 11% to 14%. We are also increasing our first half of 2019 guidance for net profit growth to be between 19% 22%, effectively doubling our earlier guidance of 7% to 10%. In the first half of this year, we expect growth in new loans facilitated to be between 12% and 15% growth, down from our Prior guidance of 20%. This is really due to our greater focus on improving product mix and margins. We plan to prioritize The growth of unsecured loans over secured loans as unsecured loans provide higher operating margins, but with smaller ticket sizes. We expect overall unit economics for new loans this year to be largely in line with the average for new loans in 2020. Our expectation is that wealth management client This will grow 9% to 12% in the first half from the same period of last year as we will continue to focus on Higher Margin Asset Management Funds and Insurance Products. Finally, I do want to share our priorities for technology development. Our focus is on 4 fronts. 1st, we continue to expand our use of legally compliant big data and AI capabilities to augment our strengths in the end to end risk management for small business owners. 2nd, we are developing industry content and real time to better support the productivity of our unique O2O sales force. 3rd, we are integrating infrastructure and services Across our lending and wealth management customers to capture greater business synergies. We've already begun to integrate lending and wealth client sourcing with the 3rd party channels And we'll move to the integrated APP for all services by the during the course of this year. 4th, we are exporting our technology and proven online offering models via cloud solutions to our banking partners in China, Hong Kong and Southeast Asia to extend our market reach and deepen these important ecosystem relationships. We will measure our progress in technology deployment by our ability to increase customer sourcing And Financial Institution Partnerships to enhance our O2O sales productivity and to promote deeper Product cross selling and finally to achieve greater operating efficiencies. With ongoing changes in regulation, we believe that our ability to combine our DNA And prudent financial services with innovative technology will enhance our competitive differentiation and sustain our growth trajectory for the long run. I will now turn the call over to James Jug, our CFO, to go through the financial details. Thank you, Greg. I will now provide a closer look into our Q1 financial results. Please note that all numbers are in R and D terms and all comparisons are on a year over year basis unless otherwise stated. As Greg mentioned, We have experienced significant rebound in retail credit facilitation unit economics, driven by lower funding costs, insurance premiums and Optimization of Operating Expenses. As a result, we have delivered strong financial results in the Q1. Our total income was RMB15.3 billion, up 16.9% year over year. Our net profit increased by 18.7 percent to RMB5 1,000,000,000 in the Q1 and our net margin further expanded to 32.6%. Now let's take a closer look into our Q1 numbers. During the Q1, our total income increased by 16.9%, driven by strong business volumes and increased take rate. On the back of this growth, our retail credit facilitation business is seeing a change in revenue mix As our business and risk tiering model evolves, while platform service fees decreased by 9.4% to RMB9.7 billion, our net interest income grew 111.7 percent to RMB2.9 billion and our guaranteed income grew 597.5 percent to RMB551 1,000,000. In addition, other income directly linked to delivering services to our financial partners increased 241.8 percent to RMB1 1,000,000,000. As a result, our retail credit facilitation platform service fees as a percentage of total revenues decreased to 63.4% from 81.8%. As we continue to fund more with consolidated trust plans providing lower funding costs, our net interest income as a percentage of revenue increased to 19.1% from 10.5% in the previous year. And as we share more credit risks generating more guarantee income, our guarantee income as a percentage of total revenue increased to 3.6% from 0.6%. Through expanded 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 6.8% from 2.3%. In Wealth Management, our platform transaction and service fees increased by 52.8% to $625,000,000 in the Q1 from $409,000,000 in the same period of 2020. The increase was mainly driven by the increase in fees generated from our current products and the revenue recognition arising from accelerated P2P runoff. Now moving on to our expenses. In the Q1, total costs grew by 17.1 percent to 8,500,000,000. Total expenses excluding credit impairment losses, financial costs and other losses, however, grew by only 10.1 percent and result of improved operating efficiencies in most cases. Our sales and marketing expense, which includes borrower and investor acquisition expense and general sales and marketing expense, increased by 5.5 percent to RMB4.2 billion during the Q1. Our borrower acquisition expense, which is a major component of overall sales and marketing increased by only 0.2 percent to RMB2.6 billion from a year ago, mainly driven by Further optimization in sales productivity and sales commission. Our investor acquisition and retention expense decreased in the first Quarter versus the year before, mostly driven by the improved acquisition efficiency as we leverage data to achieve greater precision in investor profiling and targeting. Our general sales and marketing expense, which is mainly comprised of payroll and related expenses for marketing personnel, brand promotion costs, Consulting fees, development costs as well as other marketing and advertising costs increased by 24.8 percent to RMB1.5 billion in the first quarter from RMB1.2 billion a year ago. This increase Mainly due to lower base in Q1 of 2020, resulting from the postponement of certain marketing campaigns due to COVID-nineteen at that time. Our general and administrative expenses increased by 24.1 percent to 854,000,000 during the Q1 from $688,000,000 a year ago. This increase was mainly due to lower base in the Q1 of 2020 and a subsequent headcount expansion to support new business development, including the consumer finance business. General and administrative expenses as a percentage of revenue decreased to 5.6% from 7.4% during the Q4 of 2020. Consistent with the growth of our outstanding balance of loans facilitated And in turn, the expanded loan repayment volume on operation and the servicing expenses increased by 17.7% to RMB1.5 billion during the Q1 from RMB1.3 billion a year ago. Our technology and analytics expense increased by 8.2% to RMB447 1,000,000 During the Q1, as we continued to invest in technology research and development, Our credit impairment losses increased by 109.8 percent to RMB1.1 billion during the Q1 of 2021 from $502,000,000 during the same period of last year. This increase was due to increased No related risk exposure as our business model continue to evolve, leading to higher credit impairment losses upfront. Excluding the consumer finance subsidiary, the proportion of loans for which we bear the risk accounted for 12.5% of new loans facilitated in the 1st quarter, up from 1.3% from the same period of 2020. It is worth noting that the increase in impairment loss risk is purely a function of the increase in the proportion of credit risk borne by us, while the overall credit profile of our borrowers continue to improve. High quality borrowers defined as G1 to G3 borrowers by our internal classification system contributed to 65.9 percent of the new general unsecured loans participated in the Q1 of 2021 compared to 58.7 percent for the same period of last year. In addition, our low quality indicators such as flow rate, PPD 30 plus PPD 90 plus have stabilized and in some cases improved substantially from a year ago. Our finance costs decreased by 36.3 percent to $284,000,000 in the first quarter from RMB446,000,000 a year ago, mainly due to the decrease in interest costs. Additionally, our effective tax rate decreased to 26% during the Q1 of 2021 from 27% in the same period of 2020. Consequently, our net profit increased by 18.7 percent to RMB5 1,000,000,000 during the first quarter from RMB4.2 billion in the same quarter of 2020. Our basic and diluted earnings per ADS were RMB2.09 and RMB1.96 in the Q1 of this year. As of March 31, 2021, we had a cash balance of $34,500,000,000 compared to RMB24,200,000,000 as of December 31, 2020. Now let me provide you with some guidance for the first half of twenty twenty one. For the Q2 of 2021, as we prioritize improvements in our loan mix and unit economics, We expect our new loan facilitated to be in the range of RMB 145,000,000,000 to RMB 155,000,000,000. The wealth Client's assets to be in the range of RMB410,000,000,000 to RMB420,000,000,000. 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 $14,900,000,000 to $15,100,000,000 and a net profit in the range of RMB3.7 billion to RMB3.9 billion in the 2nd quarter. As indicated before, our quarterly financial results are subject to seasonality and fluctuation as a result of accounting treatment. However, as our underlying unit economics improve, our 2nd quarter guidance translates into an estimated year over year net profit growth of 90% to 22% in the first half of twenty twenty one, a level which we believe should be sustainable for the remainder of the year. These forecasts reflect our current and preliminary views on the market and operational positions, which are subject to change. This concludes our prepared remarks for today. Operator, we are now ready to take questions. Certainly. We will now begin the question and answer session. The first question comes from Winnie Wu with Bank of America. Please go ahead. Thank you very much for this opportunity and congratulations to Lufek for a very good Q1 result. And I have two questions. First, regarding the guidance upgrade. Compared to the guidance provided at the full year result, I think bottom line number for first half is now 11% higher than previous version, which is actually a quite significant upgrade. So just want to see if management could elaborate on some of the key drivers and also the outlook for full year. I James just mentioned expect that momentum to continue into second half. So hopefully, it means the strong growth momentum will be maintained for the rest of this year. So that's first on the key drivers for the earnings upgrade and potentially some outlook for second half of this year as well. 2nd is also Back to the regulatory front, I think Chairman mentioned that there is more regulatory clarity, And I think investors are still concerned regarding stuff like will there be further window guidance to reduce APR? And what about some of the latest requirements like And we're talking about they need to have a credit bureau license to provide the loan facilitation business. So hopefully second question If management can give us also some expectation if it's for the requirement from regulators regarding particularly on data and APR front? Thank you very much. Thanks, Winnie. I'll take the first part and then turn the regulatory question over to Chairman Gee in a second. The guidance upgrade Really results from a number of improvements that really exceeded even our own expectations, I think, at the end of Q4 last We've seen continued improvement in funding costs. As we continue to improve the mix of our borrowers, The credit insurance costs are coming down. So those are 2 significant drivers that allowed the take rate to go back up to 10% in Q1. And these advantages that we're gaining on both the credit insurance costs Should continue to actually continue to improve as we move through the rest of the year. And then on our own operating costs, we continue to see efficiencies In our sales force, our commissions, our productivity, and so these are really the main drivers that allow us to Not only in the take rate line, but also in the net margin line. And these are things that we think will continue for the rest of the year. So As James indicated, we're projecting 19% to 22% profit growth for the first half. And this is something that we think at the level could be sustained for the balance of the year. Chairman Ji on the In terms of window guidance, the first one on any further requirements to reduce Thank you, Xia. Further, so far based on our dialogues with the regulators, we've asked, is there a specific number of targets you'd like us to go through? And we have not received any answer from the regulators. Apart from that, as industry leader, you should continue to show or demonstrate your willingness to lower the financing cost. But there's no specific number mentioned. Based on our own judgment, we think below 24% where we are today is pretty safe at the moment. So of course, we understand the regulators will always want lower financing costs, and we will continue to maintain very active dialogues with them. In fact, I'm flying So we are helping or we are hoping the regulator understand for Our markets to exist and to develop in a healthy way, all participants in the market needs to have enough room to maintain and grow their operations. If the APR continues if the APR ceiling continues to go down endlessly during that process, you will see The exit of many credit providers in the industry. I personally don't think that's what the regulator wants to see. As we enjoy lower funding cost And lower credit and CGI costs as a result of better risk management and lower operating costs as a result of improved inefficiency, Improvement in efficiency. We hope to pass on those cost savings to lower the overall cost of our borrowers. So we do have our own roadmap in terms of lowering future costs for our borrowers as we optimize the aforementioned cost. In terms of the credit bureau license or credit scoring license, I want to point out again that we have been using a guaranteed license as the main entity The guarantee model has existed for many, many years. And in the process, using the guarantee company to Collect information and collect customer data. In fact, the scope is much smaller than what a smaller company would collect. So far, we have received no window guidance or And of The next Question comes from Piyush Mubayi with Goldman Sachs. Please go ahead. Thank you, Greg and David, James for taking Congratulations on a good set of numbers. Can I just take you through a few particular questions? One is when you talk about the loan growth, if you saw and So with SMEs being a greater percentage, could you take us through color on how that is playing out, the sort of growth rates we can continue to expect Into the Q2. And I realize you mentioned the guidance of Q2, but you also mentioned that the levels are sustainable for the rest of the year. So could you just take a step back and Take us through where you can disclose the loan book is going to come from and what the size of the loans we think is possible. And the second question has to do with the far better cost Controls that you demonstrated in the quarter were clear that and you pointed out that it's lower sales Commissions that you're paying out for the quarter as well as better sales productivity, can you just take us through these two aspects and to look through the rest of the quarters And whether this is a structural change that we're seeing in the business and you can model the new levels of 1,000,000 items. Thank you. Okay. Chris, your lines are a bit blurry. Can I just repeat our questions to make sure we I'll repeat that As I go and then I think YS will probably add in? I think on the first question, Pete, you're asking is really about loan So we've seen in the Q1 and then See a number of indicators that say that SME, owners SME businesses are increasingly using, wanting to grow their businesses and not to repay debt. And so I think there's a healthy environment there for our customer base. And so the one if there's one thing to point to When we look at growth on the second half, we will be prioritizing more on the unsecured side. We see the greatest There we also see our greatest competitive advantage there. And so that's something that we will drive a bit more. So that has the benefit Of really maintaining the revenue growth in particular into the second half as we meet that demand. On the cost control side, it really is multi parts, right. So at the top line level, as I mentioned, we are seeing funding costs continue to come down. We are seeing our credit insurance costs coming down and we expect those credit insurance costs to continue to be optimized Because as the new loan book grows as a percentage of the total, then our overall customer mix will improve. The second thing that goes with that, as you may recall from when we first did the IPO, is that As we move more and more to high quality SME owners, which now makes up 75% of total new loans, The average ticket size of those loans increase. And so that's a rate of I believe about 10% to 15% increase, Which therefore allows us to reduce commissions at a proportionate level without reducing the absolute income Of the direct sales. So if you take all that and then the ongoing efforts we're really making on the technology side To really empower our DS more to bring more of an online engagement with those customers to deepen both on the lending side and other products, That's what allows us to reduce costs while keeping the top line strong. I don't know if you're getting the bias on that. If I add some more numbers. From January this year, we reduced our sales consumption by 50%. But as Greg said, since we reduced price much, Our Qsas increased accordingly. So as we heard, the annual income per direct days didn't change at all. So that monthly income is staying around RMB8500 per month, so which is very stable. And then explain about more about You need to confirm the change. If you compare Q1 this year with the same period last year, Our progress in cost improvement is very obvious. Our expected API decreased from, I think, about 29% for New York And now it's about 23%. But at the same time, funding cost decreased much, it's now close to about 6%, Previously about 7%. And then CJS Premium, as I said, it was about 9%. Now it's getting 4 6%, which very, very indicates our customer mix has been changing a lot since we reduced the highest And then each impact is basically gone since we changed our price charging mechanism based on to our tools based on balance charge. So as I mentioned, as a result, pay grade is about 10%, which is almost exactly the same as 1 year ago. So that is why the customer is concerned about the second half the first half, the overall profit growth. Can I ask you on the 3rd question, please? It's very quick. If I could, if you don't mind. One of the comments is about the company bore risk of 12.5% of new loans facilitated. How does this compare to the 20% to 30% range you talked about as a percentage of risk that you take on? Yes. So the question about our set risk bearing portion, the change, The Q1 is about close to 50%. But if you look at our March single month number, our sales risk Taking portion is around 70%. So we plan to complete we plan to reach about 20% sales risk bearing portion For NUANCE, by the end of June or no later than July. That is our commitment and discussion we had with the regulator. At the same time, the risk bearing portion, which is done by Ping An P&C CGI has been gradually reducing. It's going down almost 70% by now. So the rest are taken by 5 other insurance And then 17 partner events. We have now 52 partner events. And then out of 52 partner events, already 17 banks, They joined our risk sharing model. So going forward, we see that our sales risk taking portion will go up to 20% Then Ping An P and C will be further declining. And then you see that a lot more risk will be directly taken by either by The next question comes from Thomas Chong with Jefferies. Please go ahead. Can you comment about the trend in terms of the wealth management takeaways in the long term? How should we think about investors' adoption for prior NAV products, insurance products and financial advisory Thanks, Thomas. We would expect the take rate On the wealth management side to improve as we move through the year. And that improvement in the near And the longer term are a combination of factors. So in the near term, it is really about continuing to increase our service to the higher end Customer providing more qualified investor product on the fund side And the asset management side. So those are drivers in the near term which are pulling upward overall take rate. And then if you go out slightly longer term, so if you move kind of more 6 to 12 months out from today, we would expect the insurance Business, the insurance products that we have on the platform continue to grow at a more rapid pace and those carry Attractive economics for the take rate. And we will then over the longer term, obviously there is we're still in the A process of looking at the financial advisory license and once we have that we expect that there would be a further lift from the mutual fund side. So those are in the near term and in the longer term. But generally, we think you should see continued improvement as we move through the quarters of this year. The next question comes from Hans Van with CLSA. Please go ahead. Hi. Thank you very much for letting me ask questions. I got two questions here. One is about the regulation. Clearly that recently there's a lot of investigations from CDIC Regarding the misuse of the consumption loans and business loans from banks for the purpose of property purchase, there's a lot of Investigation going on in Shenzhen, Shanghai and Beijing. So we're just wondering does that really have some any implication on Lufax? And how do we usually control and monitor the user's funds? That's number one question. And number 2 question is really on the other income in the financial statements because in the Q1, there's no further increase in the other income. And just want to maybe can management just elaborate regarding what's the key drivers of the other income Here and can this be sustainable in the future? Thank you very much. Okay. Then let me take the first question, Hans. Thanks for your very tough question. In this model, our partner bank as a refund provider, They take the final responsibility for this loan purpose management. However, we do all we can do within our capacity From sales, application, underwriting collection, in every stage of operation, we pay attention to loan purpose management. For example, During the execution process, the customer needs to confirm the loan purpose and then to sign on the commitment letter That said that the loan proceeds are very aware. Loan proceeds cannot go into top tier market And during underwriting process, during the new interview, we ask one more time and we check for large data, we check That's associated payment account. So if that account is repeatedly used by multiple applicants, maybe we do reject. And then lastly, during question process, after loan, 3 months after loan, we check Pito's report and then if we sell record of new mortgage, then we To customer use our loan proceeds to buy a new house, then according to a contract, customer must repay as soon as possible. So this is what we are doing because we don't have account, but with our capacity we can do everything we can we do everything we can do. And to better support our partner banks, banks are paying also great attention to this loan purpose management because they are taking final responsibility. And our part of the request are a little bit different from banks by banks. Some banks, They want our borrowers to open their types of accounts so that they can monitor our loan proceeds. And sometimes they want our insurance partners to make all indemnity for the customers or loan proposed violation case. So those we support. But however, knowing that our case size is about So this is quite small case size, which can be used for the property purchase. So we are paying more attention to our secured loan and then those actions we are taking to help our set and to help our partner banks. Hans, on the question of other income, a couple of points. One is it's actually directly tied to our core business. And what it involves Is the services that we provide to our financial institution partners on account management and also to the extent that they outsource Services back to us such as collections. And so this is a number on other income, which we will see continue to be strong At least through the balance of this year. It does also the reason you see it popping up a little bit is as we changed our overall pricing structure In September last year, in terms of how we gather revenue from various partners, you see This increase in other income, but for the purposes of understanding the overall impact on the economics at least for the balance of this year you will see that level of performance in this line item. The next question comes from Catherine Lane with JPMorgan. Please go ahead. Hi, good morning. Thanks for giving me the opportunity to ask this question. I mainly have two questions. The first one, I would like to ask about the take rate because just now management mentioned about that you will pass on some of the benefits of lowering funding costs and insurance costs to the borrowers, right? So now I think the rate has improved back to the 1st Q 2020 level. So what is your target to take rate? How much benefits do you expect that you will pass on to consumers. And do you expect take rate within this year to stay at this level or continue to improve? And then within like, say, 3, 5 years, where do you see the takeaway goes? So this is the first question. 2nd part of my question is mainly on clarifications of questions asked previously by my peers. So mainly on like the risk taking portion, because For the disclosure, in disclosure that about 12.5% of new loans, The risk bearing is LUVAX is a risk bearing loan by LUVAX. So what is that on existing stock off loans? Maybe you have talked about What is the portion on the stock off loans in the alternate loans? Can you just clarify a few numbers on that? Thank you. Okay. About the take rate, which stands now our take rate for new business is back to about 10% level, which is almost same as last year. And then going forward, We try to deliver 10% take rate and then we are confident. And then if we can further improve, further optimize Our cost lines like funding costs or insurance premium or our bioequation costs, then we can return a debt to our So we can be more price affordable and competitive. But my view is, so we didn't be sure. As soon as we can take 10% take rate, we can as soon as we have a room, we can further reduce our overall API by probably 1% or 2%. Well, it depends on our progress on how much we can further save our operational cost and the funding cost and then our insurance cost. And the second question about the 20% risk bearing. So you explained the full nuance and then now you want to understand about our balance. So in terms of total balance, because our loans are 3 years duration. So Although we are taking more set risk bearing portion of the 20%, this gradually affects our overall So in terms of portfolio, our SAIC risk weighted portion is about 8.7% as of Q1 this year. And therefore, P9 P and C, they take about 8% to 2%. Thank you. The next question comes from Jackie Zuo with China Renaissance. Please go ahead. I have two questions to ask. Number 1 is a follow-up on your take rates. So could you help us go through your unique economics for the Balance in Q1 and for new loans in Q1 probably in April, that would be very helpful. And second question is also related to regulation. So regarding the Ant Financial replication plan, They plan to move their consumer credit, iHuawei and Qigae to consumer finance company under that license. So I just want to check whether we have any change In terms of our consumer finance license, and I just want to check firstly our Regarding this financial sorry, this license? Thank you. Okay. On take rate, do you want to go first, Lars? Sure. So about take rate for whole balance, 4th fiscal year, Our take rate is 10%. And then more importantly, if you look at if you understand our take rate for new business, That will affect our future flexibility. Take rate for new business in the Q4 is also 10%. Despite The effective rate is others below them over portfolio. So that means Going forward, 10% take rate in the future, unless we take significant change in terms of our effective API. So we are confident with 10% take rate throughout this year. And then for new business, Q2, Q3, so as we estimate about 10% take rate for new business without much change. Maybe I'll comment on that and then Wyatt can add. I think where Ant has come from historically What they used mostly was micro lending license and co lending with bank partners. And now that the entire industry has to take on more risk bearing, they are obviously At the same time looking for something that is as capital efficient as possible from a leverage perspective. So microfinance companies Typically carry a cap leverage of 3 to 5 times. There are some differences by geography, but it's roughly in that range. For Ant to use their consumer finance company that gives them the opportunity to bear risk at a 10x leverage for capital. So I think that's why you see ANT and their various advancements moving their model more towards a consumer finance license. Our risk bearing, as Chairman Ji mentioned, is really done through a guarantee company that operates nationwide. And That guarantee company where we're bearing the risk above the 20% on all the loans going forward operates at a 10 times Leverage ratio. So for us, we have already achieved what we think in the market is kind of the best Efficiency in terms of bearing risk and then putting capital against it. So given our business model is different, Right. The ANT business model has been around traditionally those smaller ticket, shorter duration loans that does fit well under a consumer finance license. Our business model, which has been focused on the small business owners, larger tickets, relatively speaking, for longer duration is best suited By the use of the guarantee company. So I think things that ANZ are doing and versus what we do, they're driven by different factors. Right. Very quick. So if we choose Between small loan license and the consumer finance license, are your student finance license is better in terms of the leverage ratio? And then you can also do a nationwide loan disbursement, right? No regional limitation. For our case, we need to understand our borrowers, the average case size It's way above 200,000. Yes, many of them get 300,000 and up to 1,000,000 for entry to launch. For the consumer finance license, it does not support a large case size lending. The maximum ticket you can do with this consumer finance license is 200,000. So actually with regulatory window guidance, it has exceeded 50,000 RMB 60, So we should not get active to resolve this model. So I think the result of that, I think that the back part of your question is, Today, the consumer finance balances as a percentage of total is less than 1% of our facilitated amount. It's a new business. It's got about 300,000 borrowers. As we move in the second half of this year to integrate more our online Services across wealth and lending. We believe the consumer finance license will be very helpful to serving a lot of our wealth customers On some of their consumption needs. So we would expect the business to continue to show healthy growth. But as a percentage of the total, Even by the end of this year, it will still be probably less than 2%. Thanks, guys. The next question comes from Qiu Huang with Morgan Stanley. Please go ahead. Hi, thanks management. Congratulations on the solid quarter. I have basically two questions. The first one is related to the loan economics of the loans that we are providing guarantees as we move closer to the 20% risk taking. So basically, I want to ask how much in terms of the loan balance that we're taking risk, how much we could charge on the top line level and then how much we could charge in the Production costs in terms of the loan balance that we are taking with. And the second question is in terms of the overall industry. So if you view the SME loans as asset class, I wonder how does management think of the supply and demand side of this industry with All these regulatory changes and the changes of players, how do you see the supply of this asset and the demand for this asset evolve over time? And that's my question. Thank you. Yes. For Get On Q portion 20%, I don't emphasize. No matter you take 20% or 25% or 30%. It does not fundamentally change our flexibility. If you take more credit risk, it comes with risk We can be a little bit more profitable by taking more risk. And then ice cream for the full portfolio now, we have about 8.7% risk taking and therefore new business about 70%. Key about industry, Supply and demand. Demand are shoes that we own about $60,000,000,000 more than $60,000,000,000 of demand. On supply, we see that the unsecured largest trade size fees are loan. We don't see much competitors. We don't see any other companies that are providing similar services for small business owners. Either they do like other banks. We see that more and more banks, they are getting to this market with secured products. So that's the potential that we get on our secured product lines. Both our major business lines unsecured large asset base operation loan. That means there is no surprise from banks For other Internet finance companies. So I think this market is pretty much secure, very competitive. And then I don't think it's easy for others to get into this market.