Earnings Call: Q2 2021

Aug 24, 2021

Hello, ladies and gentlemen. Thank you for standing by for Kudian Inc's 2nd Quarter 2021 Earnings Conference Call. At this time, all participants are in listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. I will now turn the call over to your host from Qudian. Please go ahead. Hello, everyone, and welcome to Qudian's Q2 2021 earnings conference call. The company's results were issued via newswire services earlier today and were posted online. You can download the earnings press release and sign up for the company's distribution list by visiting our website at ir.qidian.com. Mr. Ming Luo, our Founder, Chairman and Chief Executive Officer and Mr. Czhu, our VP of Investor Relations, will start the call with prepared remarks, and then we will open the call to Q and A. Before we continue, please note that today's discussion will contain forward looking statements made under the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's 20 F as filed with the U. S. Securities and Exchange Commission. The company does not assume any obligation to update any forward looking statements except as required under applicable law. Please also note that Qijian's earnings press release and this conference call includes discussion of unaudited GAAP financial information as well as unaudited non GAAP financial measures. Xidian's press release contains a reconciliation of the unaudited non GAAP measures to the unaudited most directly comparable GAAP measure. We also posted a slide presentation on our IR website providing details on our results in the quarter. We will reference those results in our prepared remarks, but we will not refer to specific slides during our discussion. I will now turn the call over to our CEO, Min Luo. Please go ahead. Hello, everyone. I would like to thank you all for joining us on today's call. In the Q2 of 2021, We continued to operate prudently across our cash credit business line, maintaining asset quality at a healthy level. We generated approximately RMB 3.9 1, 000, 000, 000 in transactions for our loan book business with an on balance sheet loan balance of RMB 3, 500, 000, 000. Our timely efforts to maintain a robust balance sheet ensure our ability to safeguard the interest of our shareholders while providing us sufficient funding to propel the development of our curricular activities business, Wani Muki. We are pleased with Wani Muqis' steady program. We successfully opened 2 new centers recently, 1 in Suzhou City in Zhanji Province and the other in Xiamen. Furthermore, we have signed this agreement for another 37 Wani Mu Kit Centers, of which 24 centers are under renovation. As we further expand our footprint, we believe our 1st mover advantages in-depth, entrepreneurs, expertise and strong digitalization capabilities strong digitalization capabilities will fuel the ongoing growth of Guanimu Kid. Now I would like to turn the call over to Cixin for more details on our results. Thank you, Ming, and good morning and good evening, everyone. Amid complex online lending market dynamics, we maintained our cautious and conservative approach in our loan business by rigorously assessing credit risk in new transactions. The transaction volume for our loan book business was RMB 3, 900, 000, 000 this quarter. Our asset quality continues to improve with a D1 delinquency rate below 5% at the end of the quarter, and our M1 plus delinquency coverage ratio remained high at 2.5x. Echoing me with respect to our extracurricular enrichment business, our vision for Wanimoki is to help children joyfully explore their talents and potential in sports, arts, music and other extracurricular activities. We believe this goal is aligned with the core principle of China's new regulatory framework, which aims to promote students all around development. With our existing 3 centers, as well as 37 new centers in the pipeline, we're confident to replicate the success of our flagship center and tap into opportunities in China's fast growing extracurricular enrichment market. Together with the opening of new centers, we will incur more operation expenses relating to staff compensation, sales and marketing, rental expenses, etcetera, which would affect our profitability in the Q3. Looking ahead, we will continue to closely monitor the evolving regulatory environment and proactively respond to policy changes. We believe that with our thoughtful operating strategy in the loan business, along with the Manimu Ki's steady progress, we are well positioned to deliver long term value to all stakeholders. Now let me share with you some key financial results. In the interest of time, I will not go over them line by line. For a more detailed discussion of our Q2 2021 results, please refer to our earnings press release. Our total revenues were RMB 412 point 1, 000, 000, representing a decrease of 64.7 percent from RMB1.2 billion for the Q2 of 2020. Our financing income totaled rmb311.8 million, representing a decrease of 46 point 3 percent from RMB580.9 million from the Q2 of 2020 as a result of the decrease in the average on balance sheet loan balance. Our loan facilitation income and other related income decreased by 95% to rmb12.6 million from rmb255 1, 000, 000 for the Q2 last year as a result of the reduction in transaction volume of all balance sheet loans during this quarter. Total operating costs and expenses decreased by 90.9 percent to CNY 89, 300, 000 from the Q2 last year. Cost of revenues decreased by 82.3 percent to RMB64.9 million from RMB366.4 million for the Q2 of 20 20, primarily due to the decrease in costs associated with the loan book business and the decrease in cost of goods sold related to the Wanimu e commerce platform. Sales and marketing expenses decreased by 81.4 to rmb29.1 million from rmb156.8 million for the 2nd quarter of 2020, primarily due to the decrease in marketing promotional expenses. General and administrative expenses increased by 44.8 percent to RMB109 point 1, 000, 000 from RMB75.3 million for the Q2 of 2020 as a result of the increase in staff salaries, primarily relating to Wailimoku's business. Research and development expenses decreased by 30.3% to RMB39.2 million from RMB56.3 million for the Q2 of 2020 as a result of the decrease in staff salaries. Provision for receivables and other assets was a reversal of RMB97.4 million compared to a loss of RMB519 1, 000, 000 for the Q2 last year, mainly due to the decrease in past due on balance sheet outstanding principal receivables compared to the Q2 last year. Our net income attributable to Chilien's shareholders was RMB269.9 million or RMB1.03 per diluted ADS. Non GAAP net income attributable to GDS shareholders was RMB282.5 million or RMB 1.07 per diluted ADS. With that, I will conclude my prepared remarks. We will now open the call to the management in Chinese, please immediately repeat your question in English. As there are no questions at this point of time, I would like to turn the call back to the company for closing remarks. Thank you. Hey, Ajay. I actually heard from our investors that there might be some technical glitches over the phone that they can't hear us clearly. Is there a sound line that you can get connected to? Or we do the sound check again? Pardon the interruption. Am I not audible to you, ma'am? Hello? Hello? This is the operator. Yes. Am I audible to you? Yes, loud and clear. Okay. We have our first question from the line of Hanen Han from Welcome International. Please go ahead. Thank you for taking my questions. I have 2 questions. The first 1 is, what do you think about the 24% cap that is window guidance by some cities, customer financial companies? The second 1 is, could you give us more color about your new initiative for your education program and how it's going to develop forward? Thank you. Thank you, Hannah, for these 2 brilliant questions. Let me address it 1 by 1. So regarding the 24 interest rate cap, per outstanding, is we know guidance from the that is mainly relevant to licensed financial institutions. And local regulators have very different implementation details and timelines on this issue, given the fact that our profitability will be negatively affected if our interest rate gets capped at 24%. So before any concrete interest rate restrictions get enforced on our proprietary lending activities, we will choose to maintain our status quo, that is, we charge at less than 36%. We don't have plans to boost the growth of our credit business before the regulations turn to the promising side. Nevertheless, we will embrace the regulatory changes and promote an orderly and healthy lending market together. With regard to your second question for our Wanimu Kids business, we are happy to say that we have successfully opened 3 centers so far and 37 other centers with signed long term lease contracts in the pipeline. Customers are quite satisfied with our superior service offering. The cool thing is we spent quite some efforts and money in designing and renovating the centers, which in turn become 1 of our competitive advantage and entry barriers. As a matter of fact, building swimming pools and sports venues indoor require lots of detailed designing, calculation advanced construction techniques. To give the investor community more confidence, our first center, which opened in January this year, already passed our internal test of monthly breakeven points, outperforming our expectation if we take our trial programs and associated flow areas from the calculation. As for the business as a whole, financial numbers are still very small and immaterial as opposed to our core lending business, although customer satisfaction is very good. We will certainly be more than happy to disclose the numbers when they become material. Thank you, Hannah. Hope I answered your questions. Yes, that's very clear. Thank you. Thank you. Thank you. Thank you. Thank you, operator. So we're happy to meet everyone on the line today. And if you have any further questions, please don't hesitate to contact our IR team. You can also find our press release and relevant PowerPoint on our IR website. Thank you very much again. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect your line. Thank you.