Earnings Call: Q4 2020

Feb 3, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the Lufex Holding Limited 4th Quarter's 2020 Earnings Call. At this time, all participants are in a listen only mode. After management's prepared remarks, we will have a and A session. Please note that 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, operator. Hello, everyone, and welcome to our Q4 2020 earnings conference call. Our Q4 2020 financial With updates on recent changes to copper governance structure as well as regulatory development. Our Co CEO, Mr. Greg Gibb, He will then provide a review of our business in the quarter and future strategies. Afterwards, our CFO, Mr. James Zheng will offer a closer look into our financials before we open up the call for questions. In addition, Mr. Yves Choi, our Co CEO and Mr. David Choi, CFO of our Retail Credit Participation business will also be available during the question and answer session. Before we continue, I would like to refer you to our Safe Harbor statements in our earnings press release, which also applies to this call as we will be making forward looking statements. Please also note that we'll discuss non IFRS measures today, which are more thoroughly explained. I reconcile to the most comparable measures reported Under the International Financial Reporting Standards, our earnings release and filings with the SEC. With that, I'm now pleased to turn over the call to Mr. Ji Guan Huang of Blue Facts. Hello, and thank you, everyone, for joining our Q4 2020 earnings call. Before discussing our quarterly results, I would like to provide updates on 3 different aspects of our business. 1st, changes to our corporate governance structure since becoming a U. S.-listed 2nd, our interpretation of recent regulatory development and third, our view of future regulatory trends as well as Starting with corporate governance, Mr. Ren Jie Li, Chairman of the Board, has submitted his retirement application as he reaches the golden age of 65. In strict adherence to U. S. Listing regulations, our Board held a meeting on January 29 and approved Chairman Li's retirement, Along with the resignation of 4 other shareholder directors and 1 independent director. As previous co Chairman of the Board, I will now assume the sole Role of Chairman of the Board, in addition to my role as Chairman of Rufeck's Executive Committee. We have also appointed Mr. Yunwei Tang and Mr. David 3 are Executive Directors, 5 are Independent Directors and 1 is a Shareholder Director. Additionally, our nomination and remuneration committee as well as our audit committee now solely consists of independent directors. Such changes have brought us into full compliance with the NYSE listing requirements For majority independent Board and for both of the aforementioned committees to solely consist of independent directors. As representative of a U. S. Listed Our new Board of Directors will remain dedicated to improving the company's corporate governance, protecting minority shareholders' interests In addition, after careful reviews and thorough discussions, our Board of Directors has decided to adopt a co CEO executive structure. As a result, Mr. Yung Suk Cho and Mr. Gregory Ding Yip will serve as the company's Co CEOs going forward, With Mr. Chow in charge of our retail credit facilitation business and Mr. Gibbs in charge of our wealth management business, we strongly believe that This new management structure is in the best interest of all stakeholders, enabling us to cultivate more synergies across business segments and better integrate our overall business resources. In addition, YS, In addition to his role as running the retail credit facilitation business, he will also assist me in managing the finance, planning And in addition to running the wealth management business, Greg will also assist me in managing the technology and IR functions of the company. Now turning to regulatory development. FinTech industry regulations continue to be tightened in China throughout 2020. At the end of 2020 beginning of 2021, for example, regulators introduced a series of new regulations, including The interim measures for the administration of online microfinance business, the antitrust guidelines for the platform economy industry, The interim measures for the administration of sales of wealth management products from wealth management subsidiaries of commercial banks and the notice on regulating commercial banks At a fundamental level, these regulations represent the government's desire to promote prudent innovation, Prohibit monopolistic practices, protect consumer interest and maintain financial stability and security. Facing increasingly stringent regulatory oversight, We have adopted an overarching strategy of embracing regulatory change, engaging in proactive dialogues with the regulators and forging collaborative and productive relationships with local authorities. While we do recognize that stricter and more standardized regulatory This may result in some short term pressure on the company. We also believe that such changes should foster more long term benefit for FinTech market leaders such as Loufax. Now allow me to elaborate on how these policies have impacted our own businesses. First, for our retail credit facilitation business, we seek to thoroughly understand the spirit of regulations and proactively communicate the value of our services to the regulatory authorities. Our understanding is that current policies intend to prevent excess consumer borrowing costs and overextension of consumption and credit limits by younger consumers. In respect to lending costs, the latest legal explanation from the Supreme People's Court of China stipulates that the 4 times LPI interest rate cap It's neither applicable to the lending businesses of financial institutions nor local financial organizations. Since September 2020, we have restricted our all in lending costs for facilitating all new loans to no more than 24%, which is in line with the latest requirements. What is noteworthy is that our loan facilitation services differ from other Internet consumer lending services In borrowers' use of loan proceeds, we primarily serve macro and small business owners and meet their operating needs. In doing so, we help the physical economy to grow and which is in full alignment with policy directions. Although we face temporary pressure from the uniform enforcement of regulations across the board, We are engaging in active and persistent dialogues with the regulatory authorities so that our business' mission and societal value are fully understood and appreciated. Secondly, for our wealth management business, we have stopped facilitating online deposits and shifted our focus to wealth management technology empowerment. In fact, Before the PBOC and the CBRC jointly issued the notice on regulating commercial banks to conduct personal deposits to business Through the Ethernet, on January 15, 2021, we had already ceased offering online deposit products. Since these products only represent a small portion of our We expect that the financial impact of these adjustments on our business will be both limited and manageable. Looking ahead, we will continue to promote standardized As a U. S.-listed company, Lufax will remain in compliance with the regulatory rules of both China and the United States. Moreover, to improve the compliance and transparency of our business operations, we'll also remain vigilant of relevant regulatory development. We believe that our unique hub and spoke model will enable us to enjoy sustainable growth even under strict regulatory oversight. Although the increased scrutiny towards certain companies may severely affect small and media sized platforms. We believe that stricter regulations will be more advantageous to Lufax in the long run. As an industry leader, Lufax poses advanced technology capability, sophisticated management know how, strong pricing power and versatile risk mitigation expertise, all of which should enable us to thrive in any environment. Finally, I would like to share our views on the future development of regulatory policies. As mentioned on our previous quarterly earnings call, we expect that regulations for retail credit facilitation will focus on 7 different areas, including interest rate cap, Capital requirements, bond of sales, geographic coverage restrictions, funding institution risk management, use of proceeds verification and consumer protection. We are actively preparing our businesses to maintain compliance in those 7 aforementioned areas. In addition to lowering our lending costs, we have also increased our overall risk Our overall risk taking rate to 20% for all new loans facilitated. Based on our analysis and forecast, we will have sufficient net assets to cover potential capital needs going forward. In regards to geographic coverage restrictions, in recent years, we have established branch offices in key cities across the country to ensure that our nationwide operations remain smooth and compliant. Furthermore, on the consumer protection front, we have upgraded our apps and processes, implementing more timely response protocols for customer complaints and providing our borrowers with more credit enhancement choices to better protect your interest. In conclusion, we believe that we are well prepared to navigate through the regulatory uncertainties As we engage in active communications with the regulatory authorities, we are confident that we will complete our business transition smoothly while maintaining regulatory compliance. With our refined operational processes, technology enabled cost optimization and risk matching pricing mechanism, we should be able to sustain our healthy and proper growth I will now give the floor to Greg who will share our business updates for the quarter. Thank you, Chairman Ji. Before I begin, Steve does that all the numbers are in R and D terms And all comparisons are on a year over year basis unless otherwise stated. In the face of regulatory uncertainties and With the overwhelming market noise, we upheld our commitment towards driving high quality and profitable business growth. As such, we exceeded our previous guidance, delivering solid financial Operating results in the Q4 of 2020. As of December 31, 2020, our balance of loans facilitated have grown 17.9% to $545,000,000,000 while our client assets and wealth management have also grown by 23% to 426,000,000,000 Moreover, for the full year of 2020, our total income grew by 8.8 percent to $52,000,000,000 while our non IFRS adjusted net profit grew by Underpinning these positive outcomes were several driving factors. First, we continue to observe improvement in our credit quality. The C to M3 flow rate, the leading indicator of risk performance on our lending continue to stabilize around its pre COVID-nineteen levels. In Q4 2020, our flow rate was 0.4% as compared to 0.4% in Q4 2nd, we received more clarity surrounding the interpretation of the application of interest rate caps. We're pleased to see, as Chairman Gee I mentioned the recent Supreme Court guidelines and local court cases providing additional clarity on the interest rate cap. These developments were largely in line with our And all of our loans from September 4 last year had been below 24%. We do not expect any further adjustments to our lending rates 3rd, in line with our plans, we continue to make good progress in establishing a more sustainable risk sharing business model. It's encouraging to see that our funding and insurance partners have remained supportive and embraced this new model. As of December 31, 2020, Our outstanding balance of loans facilitated with guarantees from 3rd party insurance partners decreased to 88.8% from 95.6% a year ago. Moreover, Ping An P&C accounted for 77.7 percent of new loans sold in the quarter, down from 93.2% a year ago, While our funding partners bore the risk for 6.7% of new loads in the 4th quarter. 4th, We further penetrated into our core and target segments customer segments. During the Q4, 72 point 7% of new loans facilitated were dispersed to our core segment of small business owners, up from 63.1% in the same period of 2019. In the wealth management business, the contribution from customers and investments of more than RMB300000 as a percentage of our total assets increased to 75.5 percent as of the 4th quarter versus 73.1% a year ago. Moreover, our 12 month investor retention rate remained high at 96.8% as compared with 93.3% in the same period in 2019. Lastly, we observed strong growth in our current product client assets in the Wealth Management business. Current product client assets grew by 7.2% year over year and thus accounted for 95.5% of our total client assets as of the quarter end. The remaining legacy client assets decreased to $19,400,000,000 or 4.5 percent of total client assets as of the quarter end. Next, let me provide some more context regarding new loan sales, take rate and pretax margin in the 4th quarter. In retail credit facilitation, our new loan sales for the quarter were $132,700,000,000 slightly ahead of our Prior guidance and representing a 3.2% year on year increase. We also observed stable credit demand from our small business owners in Q4, As well as a very strong start to the new year. In fact, for January 'twenty one, we just recorded our highest ever single month new loan sales, representing Year on year, a double digit increase. As a result of our adjustments to borrowing costs back in September 4th last year, Our revenue take rate did experience temporary pressure in the 4th quarter declining to 9.1% in Q4 From 10.3 percent a year ago. As these adjustments at the time occurred overnight, we believe this decline is temporary in nature. And nevertheless, we are now renegotiating with our partners to reduce our funding and credit costs as we continue to adjust our cost structure that will take some time. We believe our revenue take rate and net margin will improve in the future throughout the course of this year. I'm going to circle back on this in just a moment to explain to everyone How are we going to get there in 2021? For now, despite the regulatory uncertainty, we expect double digit top line And bottom line growth going forward through this year. As I mentioned, we've already had a very strong start for the year recording the highest ever single month new loan sales, While maintaining the full and steady backing of our insurance and funding partners, we also decreased our sales commission rate starting this January and we continue to Our funding costs and we started to enjoy lower CPI costs as insurance partners adjusted their pricing on the back of better credit and customer quality. All of these factors are leading to a recovery in pretax debt margin as compared to Q4 2020. As we expect this trend to continue throughout the remainder of 2021. Given the complex accounting treatment Revenue recognition for loans that we facilitate versus trust funded loans and the initial recognition of credit costs for our risk bearing loans, There will likely be some quarterly volatility in our net margins, which James will elaborate more on next. But in spite of this, Our strong performance in January has given us confidence in the health of momentum of new loan sales as well as our underlying unit economics. In fact, after overlooking the Italian treatment complexities, we believe that both, as here we're talking about take Priorities, we'll continue to monitor the new regulatory requirements and be prepared to adjust quickly when required, similar to how we have operated in the past. Now as we look ahead in retail credit facilitation, the stabilization of borrower rates and continued optimization of External and internal costs are expected to improve our underlying unit economics. We will also continue to execute our plans for the need risk sharing model, Diversify our funding channels, secure more funding partner support and enhance our deployment of technology. In wealth management, we will prioritize revenue The reason we have made this decision is in reflection of the Tightening regulations in some areas that we've seen such as the bank deposit distribution. But we expect revenue growth to be in line With our own expectations as we explore more qualified investor products and increase our focus on those insurance and equity related products capable of generating better returns for our business. Our 2 businesses will also be working together to And our technology enabled services in lending and wealth management to small bank partners. We expect this strategy to keep our ties with the partner banks and to generate additional revenue opportunities. I will now turn the call over to James Sheng, our CFO, to go through the financial details. Thank you, Greg. I will now provide a closer look into our Q4 financial results. Please note that all numbers Are in R and D terms and all comparisons on a year over year basis unless otherwise stated. We continue to deliver solid financial results in the Q4 of 2020. Our total income was RMB13.3 billion, up While our net profit margin further expanded to 21.4% from 19.6% in the same period of 2019. Before diving deeper into our Q4 numbers, I want to highlight 2 factors that create a mismatch between our revenue and earning growth and the These factors have impacted our 2020 Q4 results and will continue to impact our 1st, our increase in on balance sheet loan slows the pacing of revenue recognition in comparison to that of off balance sheet loans. Revenue and expenses are recognized over the life of the loan. The loans that will facilitate retail credit facilitation service fees are recognized under IFRS 15 And a great portion of the revenue is thus recognized in month 1, reflecting a larger portion of the service that is provided to the borrowers in month 1. We utilize trust as a funding channel. Certain trust funding loans for which we meet accounting consolidation requirements are recognized as on balance sheet lending and revenue for these type of loans is recognized as net interest income and IFRS 9. Recognition of monthly revenue and IFRS 9 is more evenly spread out across lifecycle of the loan. Furthermore, in IFRS 9, all revenue associated with these loans, whether facilitation, interest or guarantee in nature, It's all recorded as net interest income. Whether a loan is funded by a bank, therefore recognized under IFRS 915 All funded by a consolidated trust and therefore recognized under IFRS 9 makes little business difference as the overwhelming majority of loans are funded by third parties in any case. However, the accounting treatment differs greatly As on balance sheet revenue is recognized at a slower pace than off balance sheet revenue in month 1, therefore creating a temporary deviation between accounting results and the business performance. 2nd, self risk bearing loans front load loan credit costs. As we start to bear more risks, we expect to earn more margin over the life of a loan. As the margin previously earned by our insurance partners will now come to us. However, accounting standards Require us to record a provision determined by IFRS 9 for the month in which we take a new loss, while the revenue associated with billing that risk is recognized over the loan's entire life. This timing mismatch means that our net margin will also be under pressure during those periods in which we increased our own risk bearing balance. Nonetheless, once this stabilizes, We expect our net margin to return to its previous levels. These factors affected the pace of our recognition for revenue and expenses, creating a timing mismatch between our financial and business results and will likely result in more quarterly movement and volatility. With that, Now let's take a closer look into our Q4 numbers. During the Q4, our total income increased by 5 9%. While our revenue mix continue to change as a result of our business model's ongoing evolution, as discussed earlier, Such revenue mix change has slowed the pace of revenue recognition. Following our decision to increase funding Our net interest income and guarantee income grew significantly to RMB2.6 billion or 19 Total income in the same period of 2019. As a result, our retail credit facilitation service fee decreased by 9.9 percent to 9,300,000,000 or 69.9 percent of total income from 10,300,000,000 or 82.1 percent of total income in the same period of 2019. The annualized take rate for current products and services on our wealth management platform was 31.4 bps in Q4 as compared to 21.5 bps a year ago. We calculate the pick rate by dividing total wealth management transaction and service fees for current products by our average current product client assets. We are generating a greater portion of revenue from the service fees that are not directly linked to products. In light of this ongoing transition, we believe this take rate measurement better reflects our business and thus plan to continue using it going forward. Now moving on to our expenses. In the Q4 of 2020, our total expenses increased By 11.7 percent to RMB9.1 billion, driven by accounting factors related to early customer repayments and the credit cost from Self risk bearing loans, as I mentioned previously. Our sales and marketing expenses increased by 20.5 percent to RMB4.9 billion during the Q4 from RMB4.1 billion a year ago. Our borrower acquisition expenses, which A major component of our sales and marketing expenses increased by 22.3 percent to RMB2.8 billion from RMB2.3 billion a year ago, mainly due to the accelerated recognition of selling expenses that we recorded in the quarter as a result of customers' early repayment. Since we started to Change how we charge monthly fees in September 2020, the net impact of early customer repayments on revenue When a loan is repaid early, we are required to recognize all of the remaining sales and marketing costs that have not yet been amortized in the same month. Therefore, in a period of high early repayments, Sales marketing costs are likely to be inflated when compared to actual activity in the period. Meanwhile, our investor acquisition and retention expenses decreased by 17.5 percent to At the same time, Our general sales and marketing expenses, which are mainly comprised of payroll and related expenses for marketing personnel, brand promotion Consulting service fees, business revenue costs as well as other marketing and advertising costs increased by 24.9 percent to RMB1.8 billion in the 4th quarter from RMB1.5 billion a year ago. This increase was mainly due to our previous postponement of marketing campaigns and subsequent resumption in the quarter Our general and administrative expenses increased by 47.8 percent to RMB986 1,000,000 during the 4th quarter from $667,000,000 a year ago. The increase included employee social security payments for the first 3 quarters of 2020, which were previously delayed following the release of government policies made in response to the outbreak In addition, we also recorded a higher share based compensation expense for the 4th quarter. Consistent with the growth of our outstanding balance of loans facilitated, our operations and services expenses increased by 10.6 percent to RMB1.7 billion during the Q4 from RMB1.5 billion a year ago. While our outstanding balance of loans facilitated grew by 17.9 percent to RMB545,100,000,000 as of December 21, An increase in our loan repayment volume led to an increase in our payment processing expenses and the consolidated trust plan fees to trustees during the Q4. This increase was partially offset by our use of AI Our technology and analytics expense decreased by 17.4 percent to RMB461 1,000,000 during the 4th quarter from RMB558 1,000,000 a year ago as we continue to improve our efficiency. Our credit impairment losses increased by 1.4% to RMB985 1,000,000 during the 4th quarter from RMB971 1,000,000 during the same period of last year. This increase was primarily due to our higher loan related risk exposure as our business model continued to devops, causing us to start to bear more risks and record credit impairment losses upfront. The increase was also due to an increase in our loan related receivables, which was mostly driven due to the residual effects of Conversely, the increase in credit impairment losses was partially offset by the year over year decrease in our asset Our finance costs decreased by 17% To RMB326 1,000,000 in the 4th quarter from RMB393 1,000,000 a year ago, mainly due to the decrease in our borrowing costs during the period. Consequently, our net profit increased by 17.4 percent to RMB2.8 billion during the 4th quarter from RMB2.4 billion in Same period of 2019. Our basic and diluted earnings per ADS were both RMB1.25 as compared to RMB1.12 billion in the same period of 2019. As of December 31, 2020, we had RMB24.2 billion in cash advance compared to RMB7.4 billion as of December 31, 2019. Looking into 2021, because of the previously discussed accounting and the temporary business factors, we expect our margin in Q1 to be somewhat impacted, but profit growth to resume starting from Q2 and beyond. For Q1 2021, we expect the new loan sales to be in the range of RMB175 1,000,000,000 to RMB180 1,000,000,000, Client assets to be in the range of RMB385 1,000,000,000 to RMB295 1,000,000,000, total income to be in the range of RMB14.3 billion to RMB14.6 For the first half of twenty twenty one, we expect new loan sales to be in the range of RMB340 1,000,000,000 to RMB350 1,000,000,000, Total income to be in the range of RMB28.5 billion to RMB29.3 billion and the net profit to be in the range This concludes our prepared remarks for today. Operator, we are now ready to take questions. Your first question comes from the line of Elsie Chang from Goldman Sachs. Your line is open. Good morning, Ji Dong, Greg, Yuez and James. Congratulations on the solid quarter again and thank you for taking my questions. I have two questions here. First is on the RCF take rate. Understand that we're targeting to serve higher quality client cohort with lower interest rates However, given the recent clarification on applicability of 4 times LDR restriction, just Wondering can we expect some upside in RCF take rate for us now that we probably have more flexibility in interest rates as well as targeted client cohort? And my second question is really on the guidance. If my calculations are correct, our new loan sales in first half twenty twenty one is guided to At a very solid pace of 21% year on year at the midpoint. So can management share a little bit more color on the major drivers of the growth? And can we actually extrapolate this growth momentum into second half as well? Thank you. Thanks. So let me first explain the first question. So few of our unit economics. Q4 last year, our new loans, it came with lower take rate and then margin because We reduced borrowing costs, borrowing costs, CJS premium and our borrowing costs, they didn't drop at the same pace immediately. And Q4 new loans, it took about 25% of 2020 year end loan balance. So that's why we had lower take rate in Q4 last year. And also for 2019, we had more transformed and self CMT portion Those are the reasons. But if you look at January 2021, our last month's number, as Greg said, In January this year, we delivered record high new sales, almost close And then we are able to see that the funding cost, CGI premium and borrow sourcing cost Obviously drops and take rate as a result, take rate and margin are very much in line with our previous expectation. So in overall, expect 2020 overall take rate and NAND margin levels and we believe this will continue. We are very confident for full year 2021, Our take rate and net margin for ISF new business, we discussed change without much change. And the spin off HR, the Supreme Court they classified 4 times of It does not apply to financial lending institutions, including JL Companies And customer finance and smaller companies. However, we believe the general guidance from CBIC remain unchanged at 24%. So we don't have any plans to adjust our price. And then depending on the products of Funding cost, credit cost reduction and the operating cost optimization, we further want to reduce our borrowing cost gradually, Slowly, see more price affordable and competitive in this retail credit market, why we can maintain Current take rate and net margin level, so we don't have any real plans to Decreased price at this moment, but going forward in the long term, we still plan to gradually decrease our borrowing costs. So that's again for the first question. And second question is, yes, our sales volume growth, as I just mentioned, we already have approved. January This year, we delivered almost close to 100,000,000,000 sales, which is very strong sales momentum. And going forward, we believe sales growth, the market demand is plenty. And then our Salesforce product has increased its very obvious. For example, last year, without any increase of Salesforce headcount, We delivered 14.4 percent annual sales volume growth. So we are focused on more and more productivity improvement at the same time With AI appreciation such as AI VideoWon that we tried to attempt and develop new inbound channels So in the meantime, because in this Chinese Tech Credit market, our experiences for now, we do not see any other Online channels which can give us as good quality borrowers as offline channels such as our direct sales wildlife insurance agents with higher CSI and with borrower acquisition cost less than 3%. So in the meantime, our off We won't say it will continue with about 85% contribution ratio, but going forward, we are trying to develop Your next question comes from the line of Mei Yan from UBS. Your line is open. Thank you. Good morning. Thanks for giving me this opportunity to ask questions and congratulations on a very steady quarter again. Okay. My question, first one is related to situation, if I cannot ask Jisong So this question is related to PBOC's earlier Draft consultation paper on credit rating business and some people interpret this It may apply to loan facilitation business and loan facilitation companies will be required to have A credit rating licensing, is there something relevant to Lufax? Okay. And then second question, still on the take rate. As I understand that the take rates may be temporarily down in the 4th quarter, net take rate net Pre tax profit take rate 3.1 percent and revenue take rate 9.1% is that below So this year, you said it's going to be gradually recover To the range of 3.4% to 3.5% to 4% on the net take rate, what would be the path for that? And what is the recent CGI cost that you mentioned will be 6.7% in 4th quarter? And also on the funding partners' costs. And our loan size, the new loans All below 24% interest rate, are they size at the size of much larger than before? I remember in the Q3, you mentioned about 200 1,000 per loan, is it even higher than that as of now? And any guidance from the CBRC to increase the 20% credit risk exposure to be higher, maybe to 30% or so. Thank you. So in terms of the credit scoring business, we think the guidelines at the moment are reasonably early and preliminary. Business requirements and the shareholder requirements of credit scoring institutions, the rules on PBOC are not that clear as of yet. We do think it's probably That leading institutions specifically probably Hunter is part of the ratification plan. This is why this came out. Of course, new rules applying to a special case could be later on widely applied to the industry. In terms of loan facilitation business, We don't think it's currently directly involved. We don't think our business will be classified as a credit score institution at this stage. We are maintaining very smooth dialogues with the regulators. So in the future, if it does become the case, rest assured, we'll get enough So we can plan and position our business accordingly and early. In conclusion, we think it's early and preliminary stage. We need more clear requirements from the PBOC before we can react to it. So it may take another quarter for the news to be cleared. So that question is again about 4th quarter take rate 9.1%. And I explained that mainly Because the 4th quarter new loans can lead lower take place and then margin actually reduced our high quality cost, less than 24% from September last year. But this is the January number. I believe for the number James and maybe A may show you the presentation. January, our take rate and net margin already recovered back to our expected level. In overall, it's not less than Over 2020 level already. So we are in very good shape by now. And how we see to that point? There is an obvious funding course and the CZI Premium. CZI Premium, our interest partners, they also changed its charging method from The amount based loan amount based to balance based from mid January. So that as a result reduced Ctrip premium ratio. And we also decreased our borrower outsourcing cost. In January apart from January, we reduced our sales commission by 15%. So And the next question, KSI. KSI, we don't see much change in recent or few months. Before September 4, our average KPI was, if you remember, it was RMB160 1,000 And then since we reduced high borrowing costs and then switched to better cost segment From September 5th with low price, that increased KPI from RMB150,000 To 200,000 lumpiness. So this is CSA increased by about little more than 20% And this is the reason why we could reduce sales commission by 15%. And lastly, about Our self care portion 20%. As of December last year, for NUOS, our self care Portion increased to 13.6% and the NUEL to match it up to 20% In June, for Nuance, as part of discussion with our regulator, but further than 20%, we don't have any At this moment, a lot of things say, if regulators request more than 20%, more than 30%, For that, we have enough organic cash to support that the extra more debt guarantee portion. So we don't have much concern. Your next question comes from the I have Winnie Yu from Roux from Bank of America. Your line is open. Thank you very much for giving me this opportunity. Two questions, I guess. First, regarding, again, the regulation and our licenses. Since November last year, CBRC published the consultation paper for those online micro loan companies license. Have you started to communicate with the regulator regarding application for a national operation license? And is there any feedback from regulator On the outlook of when we will get clarity, certainty on getting this like national operational license. And also, we Lufax obtained the consumer finance license earlier last year. So what's the progress in using the consumer finance license? How much of The business, whether it's the loan facilitated or the outstanding balance is being done by this Consumer finance license and what's the plan there. So that's the first regarding those licenses. And second, James mentioned that the How much difference from booking loans online versus offline? I think by end of last year, roughly sorry, on balance sheet versus off balance sheet. As of end of last year, you have over slightly over 20% of the total loans outstanding on balance sheet. So what's the plan there? Do you see that Further increase to 30%, 40% or is that going to stabilize at around 20% level? So meaning, The related question is when we will see the normalization of or stabilization of The accounts booking for those like revenue and expenses, when will this like base effect be normalized? Thank you. Okay. Thanks for the question. The first question about 2 licenses, online micro loan licenses. We have 3 licenses in Chongqing, Henan and Shenzhen and the other 3, 2 are nationwide online micro lending licenses. But we haven't got Clarity and confirmation from regulatory about the next level development of those businesses. Those licenses are not in use at this moment. And then CS license, we got it in April last year, with Cartridge business from May last year. And then as of December Last year, we have we booked 6,500,000,000 neurons with about a little more than 2 200,000 new customers and the ending balance was about RMB3.5 billion. So we made a very good start And then this is very much different from our Google business. This is very complementary business So we believe this is an opportunity for us and then this can be a unique sign going forward. And talking about accounting method, that's agenda that is supplement. Online own balance sheet versus offline balance sheet. It depends on our funding mix. And then it's already stabilized, I think. But going forward, our funding mix will be scheduled With 70% from past 12 months and then 30% from trust. And I believe the mix will continue without much change. So as a Sorry, just to clarify, how about you taking more so okay. So this seventy-thirty between fines and trust is already stabilized. Is there any plan like, for example, growing The consumer finance business might mean that you will have more loans funded by yourself. Is that going to change the picture? That's correct. That's been correct. But if you think about our overscale, our Pohui loan balance As of today, it's almost RMB600 1,000,000,000, but consumer finance business is how much? It's only RMB3.5 billion. So No matter how quickly it grows, it does not take much portion out of our total loan balance sheet. So it will take some time. I think we can say with the stabilization in funding between bank and trust in terms of other on balance sheet will basically be driven by where we take the credit last year. And that is why I said our target would be to 20% by June. So it will be a little bit more at the time, but it's roughly stable. I think we only get 12.5%. Right. And so for the consumer finance license, it will be more contained to do a pretty Just for differentiated business line, which is sort of the unsecured consumer loan, what What's the average ticket size there and what's the landing rate? Is this significantly different from our traditional business? Yes. That is very much different from our personal ability to see. The Okunsu license this call, The CTSR is going to be more than 200,000, but actually This control is less than RMB50 1,000 and our CX balance is less than RMB20 Thank you. And how about the maturity? Are those like similar to the loans of Ant We Bank, which is only like a few months of maturity? Maturity is quite open, which is What's your 5 open business line of credit products? It's like a virtual credit card. So customer can choose whenever they spend and then select 8 per month repayment service, they can take 3 months, 6 months Your next question comes from the line of Thomas Chong from Jefferies. Your line is open. Hi. Thanks management for taking my questions. I have a question about the Can you provide us some updates about how we are using our technology in our automated portfolio strategy In Q4 and on the other hand, talking about the online deposit, how much does it contribute to our client asset mix. And then my second question is about the second half outlook. Given that we have a Q1 and the first half, how should we think about on a full year basis in terms of the top line and the bottom line? Thank you. Great. Thank you, Tom. This is Greg here. On the wealth management side in Q4, we basically Two things. So there is the existing portfolio management tools where we continue to use more and more market data Help provide a set diversified investment strategy for the clients and that has continued to progress in the 4th quarter as it has In the recent year, what we've also done is opened up the platform to allow other financial I3 providers to come on and basically providing more product, more service to The customers. And so this is an area that's continued to grow at a good pace. And we think it's going to become more important in the market as And we're continuing to drive more and more automation and more and more content sharing with customers in that line so they can get used to diversified investing. On the deposit On the deposit question, if you go to the end of last year of the total client assets, The deposits made up about 16% of the total, so about $660,000,000,000 revenue V. And that represented the revenue generated by that business was less than 0.4% of the total company. So as we Let those deposit products mature naturally, we will try and direct clients' money from those products into other areas On the platform as we've done in the past with the likes of P2P. So it will be an ongoing transition for that area. And then on the Q1, just a quick response. We do believe or rather in the first half For the full year, we do believe that we will see double digit top line and double digit bottom line growth. We're pretty confident of that certainly for the first half. We'll continue to monitor the regulatory situation as it goes. But overall, we do think that the outcome for 2021 will be double digit on both top and bottom line. Got it. Thank you. Your next question comes from the line of Hans Van from CLSA. Your line is open. Thank you for offering this opportunity to ask a question. This is Hans from CSA. I got two questions. The first one is on the wealth management side. So Craig just mentioned that the strong growth in AUM in Q4 last year. I'm looking to the guidance for first quarter and also first half this year. We look at the client assets, it's actually showing a Slowing down in terms of growth rates. So just wondering why we are prudent in the wealth management client assets outlook. And also related to the resin lighting side, we're wondering why the take rate for the covered products were actually down quarter on quarter. So what's the reason behind this? That's number 1. And number 2 is that, just wondering on the dividend side, We understand that management mentioned previously that there is no near term plan to pay out any dividends. Just wondering in terms of longer term, Once we are good at the capital front, do we have any intention to offer any dividends to investors? Thank you. Thanks Hans. On the wealth management question, we anticipate 2 things happening In the Q1 with regards to client assets, number 1 is as those deposits mature, that 16% of the Fine assets mature. They will actually mature reasonably quickly. The average duration of those products was about 6 to 9 months. And so that will have Some dampening effects on the CA growth. The other thing is that we continue to accelerate the final resolution of the P2P products In the Q1. And so we really are going to probably push both the deposits and the PPP portion down. And then we will be shifting client money to other areas. But the outlook, therefore, that we've taken at least in the first half for the wealth management is we will focus more on continue to optimize the product mix. That will allow us to continue to meet our revenue expectations for this business, but we'll take So a little bit off the accelerator on the client assets as we optimize the mix. So that is the focus for the near term, but we will update If that situation changes. On the take rate question, we actually did have very strong growth in the Q4 in CA before some of these changes like Deposits came into effect. The growth in the 4th quarter was a combination of bank asset management products and bank deposits. And so you Accelerated growth of the denominator, which brought the take rate down a little bit so that you had a 5% quarter on quarter, but a year on year increase of 10%. So as we look forward into this year, 2021, we expect Over the course of the next 3 or 4 quarters, we will continue to see improvement in take rate as we drive that mix In product on the platform. On the question of dividends, we have no immediate plans to issue Our intent is still very much to grow the business to deepen our use of technology. And in a later date, we could look at it, but Your final question comes from the line of Binnie Wong from HSBC. Your line is open. Hi, good morning. Thank you for taking my question here. So my question here actually, two questions. One is on the retail credit facilitation service fee. I think there is of course, we see the decline in the past two quarters. And then I guess consensus is also looking at this to decelerate, especially into the second half this year. What are some of The challenges that you might foresee that might not be able to yet see the inflection point or might delay the inflection point? And then with that also, can you have some color in terms of the service fee take rate as well? And then also one follow-up question on the regulation side is that, remember, earlier on since IPO, we talked about the interpretation, right, by different on the 4x 1 year loan rate and whether that also includes the credit guarantee fees. Interpretation as to different local calls, You also said there's different rulings. So just want to see any update on that. And I just have a very quick follow-up. Thank you. And I believe now we have clarity, so we don't care about this mix. So Price is less than 24%. We believe this is very much compliant and then this is fine within current labor environment. And the first question is about the IFRS fee. The overall effective HR will remain unchanged throughout 2021, we don't have any trend increase or decrease over borrowing costs. And I refer to January number, I said our take rate NN margin is already back to our 2020 level. We know our profitability comes from take rate net margin very much in line with our previous expectation and overall hedge to the HI Will it stay on changes or a little bit changes, numbers changes throughout 2021? Well, I think one part of the question The mix in the service fees versus other interest income as we also increase the risk sharing Turning to the sharing model. Yes, in terms of our fee mix, as we increase our share P and D portion to 20% For NUON by the end of June, so that will increase our fee mix. I think that will increase our density portion And then service fee, they will decrease while tariff increases. Maybe I can add a little bit. As I And in my portion, basically the revenue mix change is driven by 2 things. 1 is between online On balance sheet versus off balance sheet mix change because we have seen that the all balance sheet loan has increased From 10% by the end of 2019 up to 22% of 2020 as a result of we have consolidated more Trust loans, okay. So that's one change. 2nd change is we are taking more risks. The self guaranteed risk Has been risen from 2.2% by the end of 2019 up to 6.3%. So because of these two factors, It's changing the revenue mix so that you see the RCF kind of platform fees is coming down a little bit, But the revenue from the interest income from guaranteed income has substantially increased. And that's why At the beginning at the middle, we talked about because of these kind of business factor changes, it's reflected in our financial numbers. That concludes Q and A for today. I now turn the call back to management for closing remarks. I think so. I think we've had a chance to lay out the basic situation here on the call. But we certainly look forward to engaging with the analysts very deeply over the next day or 2 to answer all of the questions that are out there. And we thank you for your attention and support. Thanks very much. That concludes the call.