Earnings Call: Q2 2021

Aug 25, 2021

Earnings release

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Giant Group Second Quarter of 2021 Earnings Conference Call. Currently, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. I will now turn the call over to Ms. Zhu Wang, Director of The Blue Shard Group Asia. Ms. Wang, please proceed. Hello, everyone. Thank you all for joining us on today's conference call to discuss Jiayin Group's financial results for the Q2 of 2021. We released results earlier today. The press release is available on the company's website as well as from newswire services. On the call with me today are Mr. Yan Ding Hui, Chief Executive Officer Mr. Xu Yifang, Chief Risk Officer and Ms. Shelley Lai and Ms. Celia Chen, Co Chief Financial Officers. 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 actual results may be materially different from expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward looking statement except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese way. With that, let me now turn the call over to our CFO, Yanli Grace, Mr. Yan, who speaks in Chinese and then our Co CFO, Shadi Bai, will translate his comments to English. Go ahead, Mr. Yan. We delivered an outstanding quarter, achieving record breaking operational and financial results as loan origination volume progressively increased by 153% year over year with 100.9% growth in revenues. This results are strong testimonials to the success accomplished in implementing our key strategy, driving organic growth in China, while deepening partnerships with financial institutions through leveraging our sophisticated risk management systems and providing individual customized solutions. Notably, with the strong top line growth and outstanding execution in cost control policy, strong momentum in profitable growth continues. Net income grew a significant 208.5 percent year over year, reaching RMB126.8 million. This is a remarkable improvement and illustrates our ability to improve profitability through strong growth and outstanding execution. As shared with you in the last few quarters earnings calls, we are focusing on building integrated, highly automated platforms with great risk management intelligence to be an in replaceable, effective partner to our institutional funding partners. Our funding partners increased to 32 in Q2, and we are in discussion with another 35 institutions, which aims to further burden partnerships for diversifying our funding resources, while maintaining risk management excellency. Our ability to provide asset with qualified risk profile that meets risk requirements for respective funding partners lay a solid foundation for higher loan origination. In this quarter, we resumed the marketing and began attracting new borrowers at a more accelerated pace, with focus maintained for higher quality borrowers. A large portion of our loan volume continued to go to our existing borrowers with higher quality, with our repeated borrowing rate for this quarter at 72.4%. We believe serving higher quality borrowers will improve our credit risk profile and ensure the asset quality. We are very pleased with the progress and excellent financial results illustrate the strength in the consumer market and the growth trajectory of our business. We remain dedicated to controlling credit quality with our improved credit scoring system and advanced technology capabilities. In terms of the overseas markets, we are taking a more prudent approach with uncertainties brought by the surge of the delta variant as margin dilution by heightened competition. Nigeria, Indonesia and Mexico are our key overseas markets that present promising business potentials, with our progress in this market gradual and steady. We are striving for a good balance between the investments and the risks. We expect to have a better picture later this year depending on geopolitical changes, virus control and improvement and global monetary policy changes. Agility and prudency are both critical factors in our business strategy, which will enable us to emerge stronger and achieve more success in the evolving market environment. We continue the integration with BillNet this quarter. As you might be aware, the recent crackdown on bitcoin mining in China has affected the market sentiment and brought temporary challenges to immediate mining prospects. However, BillNet is primarily focused on blockchain related technologies and hardware solutions for decentralized applications. We provide our clients one stop solutions related to cloud storage, cloud computing, network bandwidth, content delivery networks and others. As blockchain based applications are developing rapidly, we are confident we can benefit from this growing market with our fosome mover advantages and technological abilities. In conclusion, we are excited over the resumed high growth in our domestic market with our record breaking operational and financial performance this quarter. We will continue to roll out initiatives and apply technology across our business to improve operational efficiency and create long term sustainable value for shareholders. With that, I will now turn the call over to our CFO, Sylvia Chen. Sylvia, please go ahead. Thank you, Mr. Yan and Charlie, and thank you, everyone, for joining our call today. As Mr. Yan mentioned, we achieved a milestone quarter and we grew our original volume by 153 percent to RMB5663 million with 100.9% growth in revenue and 2 100 and 8.5% in net income. This outstanding result came in well above the upper end of our guidance range on year over year basis, demonstrating the success of our business transformation as well as our speed and strong execution in enhancing our risk management and improving asset quality. Now let me go through our financial highlights for the quarter. Please note that unless stated otherwise, all numbers quoted are in RMB and percentage change refer to year over year comparisons. Net revenue was RMB492.2 million, up 100.9%. Revenue growth was primarily driven by the significant growth in loan origination volume, which increased 153%. Other revenue was RMB38.5 million, down 8.3%. This decrease was primarily due to reduced revenue from P2P related services as the company no longer supports the legacy P2P lending business, partially offset by increased revenues generated from our overseas business and VNET since the integration in May. Moving on to costs. We also had a substantial improvement in operating efficiencies, reflecting actions we took over the last 2 years to streamline our expense base. In the second quarter, total operating costs and expenses were RMB342.6 million, up 73.9 percent from RMB197 million last year. The increase was along with our top line growth. However, total operating costs and expenses as a percentage of revenue was 69.6% versus 80.4% in the same period last year, demonstrating our ability to contain expenses growth, which will enable our infrastructures to scale as we grew. Origination and servicing expenses were RMB83.2 million, up 63.5%, primarily due to the increase in credit assessment expense resulting from higher loan origination volume. In this quarter, we incurred a cost of sales of RMB5 1,000,000, which is equivalent to US0.8 million dollars compared with NIO from the same period of 2020. The increase was primarily due to the cost of hardware sold by Green Dot. Allowance for uncollectible receivables, contract assets, loan receivables and others were RMB13 1,000,000, up 21.5% from the same period of 2020. The increase was primarily due to an increase in loan principal and increase as a result of the higher loan origination volume from overseas business, partially offset by the decrease in the estimated default rate on the current business model since we no longer support the legacy P2P lending business. G and A expense was RMB35.2 million, down 3.8%, primarily due to the decrease in headcount, of which has been partially offset by the increase in personnel related costs allocating to general and administration departments. R and D expense was RMB31.9 million, down 6.5%. This was primarily due to the improved utilization of our facility allocating to research and development departments, of which has been partially offset by the increase in professional service expenses as the company continues to enhance the research and development capability. Sales and marketing expense were RMB174.2 million, up 169.7 percent, primarily due to our new online advertisement and marketing strategy, which has resulted in higher customer acquisition expenses. As we intend to continuously grow origination volumes, we began attracting new customers at a more accelerated pace with our superior marketing algorithm and translating them into our loyal customer base. We achieved a noteworthy profitability through our loan volume growth and improved operating efficiencies. We saw positive net income of RMB126.8 million, up 208.5 percent year over year. We ended this quarter with RMB141.4 million cash and cash equivalents compared with RMB 123,300,000 as of March 31, 2021. Moving to our guidance. We expect our loan origination volume of RMB 27,000,000,000 to RMB 30,000,000,000 for the full year 2021, representing 133% to 159% year over year growth. With that, we can open the call for questions. Mr. Yan, our Chief Risk Officer and Mr. Xu and I will answer questions. Operator, please go ahead. The first question comes from the line of Greg Irwin from Roth Capital Partners. Please go ahead. Hello and thank you for taking my questions. The most exciting number that you shared, I think, was the originate volume with more than RMB5.6 billion in the quarter. Can you talk a little bit about the contribution of customers, new customers added in the past couple of months and how quickly your funding partners contribute to these very high growth rates? Do we see a larger portion added on the front end as new partners are added or do the new partners tend to accelerate over time? This is Yi Fang. Thanks for your question. I will take a stab on suggesting your question. So yes, as you have seen in this Q2, we're seeing significant amount of volume increase over the time. As we have discussed in our notes early, the number of the funding partners we're working with has increased to 32. We are a lot more diverse in terms of the type of FIs that we are working with as well as the numbers are increasing as well. And we are seeing on both factors as impact is coming from bringing on new funding partners and deepening relationships with our existing previous payments that we have partners that we have since we brought on board last year also. So that we are managing our FI partnerships within a mixed several factors in translation that we have to take into consideration of the regulatory changes over the time. So diversification is one of the crucial important crucial component for us to managing that towards to be able to achieve a stable supply of the funds. Now we have added different aspects in terms of the geographical compatibility of our borrowers' profile, because we are seeing some local regional requirements in terms of the type of customers some of FIs are requiring and specifying. And lastly, which is also important is to continue to improve our overall economics and to achieve higher low competitive cost of funds. We have to manage to have a wide range of and also a good number of partners that we are working with to balance out in terms of our business terms. Hope that answers your question. Yes, it does. Thank you. So my next question is obviously directly related to your increased marketing spend to drive this accelerating origination volume. The marketing spend was up materially quarter over quarter. And it's amazing that you had such very quick results. I'm going to guess that there's more play between the market and the new loan origination with the customers captured. Can you please describe that process and maybe share some of the details of where you're spending these increased marketing money? And if you could also discuss how your budget on the total market spend, are you targeting 30% operating margins or are you targeting a particular expense level as you continue to scale the business? Yes. This is Yifeng again. I'm going to speaking to the first part of your question and then maybe Sylvia can chime on the last question. So that, yes, we are seeing that higher increase of our marketing expense, which is even on the per unit basis, we are maybe looking at higher sales and marketing per customers acquired. A couple of reasons going into why we are seeing a higher risk, higher cost on that item. One is we are continuing to really focusing on the better quality customers. And in the market that we are working on right now, the current market landscape, the cost of acquiring such customers is significant higher than compared to what we are seeing in probably 2019 or early 2020. So, China also has had significant change compared to the early years as well. So we today we no longer see the kind of low marks type of market practice. We are going to we are actually acquiring our customers through the direct channel a lot more, working with the major Internet companies to acquire through the what we call information stream to acquire customers directly. We are seeing almost, I would say, almost 100% growth in those new channels and the cost of in the new channels are higher, but the qualities are significantly better in terms of those approval rates as well as from the early risk readings we are seeing. So that's primarily we are seeing the channel mix is shifting to a higher cost channel and the our focus on better quality customers are also driving the per unit cost up. And I think from the planning perspective, we are still thinking that we are still considering this is a healthy organic growth, considering that we are planning for the future, especially considering the continued interest the trend on the interest rates was we are the setup requirements that we have seen from our financial institution partners, which is the loan interest rates we have to work with. And we are putting a stringent view on our risk spectrum to making sure that we are not compromising or being more tied on the gross marketing per unit cost, but in exchange for a higher future risk uncertainty. So we actually we are balancing that, trying to stay to keep our growth for our future, more healthy growth to target better risk quality customers. In trading, some cost increase at this point in the current cost point of view. So I think I talked a bit about higher growth in some of the high cost segment, channel segment. At the same time, we have seen that sales and marketing costs per unit costs are coming down, driving down in the Q3. We have pretty good line of sight of having probably 20% to 30% of efficiency improvement in the pipeline right now. And as we are seeing the continued growth on such high quality customer channels and our ability to managing that proper unit cost down, we are definitely in a good position in terms of the economics per ton of years. In terms of total budget, I'd like to ask Celia to comment on that. Yes. So this is Silvia. Thanks, Craig, for the question. I think compared yes, this quarter, sales and marketing expenses was the last quarter, we've seen like over 90% of the increase. I think it's to add more colors on this, I think it's mainly due to 2 reasons. The first is that the fee settlement way is different from previous, because in the traditional or in the previous way, this compared with the traditional way, this quarter, we started to launch the information speed advertisement. And for this new kind of development marketing strategy, the speed booking rate is totally different with the previous ways. In previous ways, we recorded speed based on the performance that is the CPD, cost per download or CPS, cost per sales. Before this information fee advertisement, we record the marketing expense upfront. That means we recorded in the CPC or CPM way, which is short for clicks for cost per click or cost per miller's way. So you will see that at the initial stage that we launched this kind of marketing strategy, there will be a bump or you will see an increase, significant increase in the sales and the marketing increase. That is probably the major reason that you see that our sales and marketing expense outpaced the loan origination volume growth pace. And the second, I think that is a basic like a new strategy, new marketing strategy launching logic is that we have started to partner with our channel providers and we co build the models with them and we do some trial runs to try some marketing strategy, then we get numbers from the channel partners and we go back to optimize our algorithm and improve our marketing strategy, launching strategy. So at the initial stage, I would say the cost per newly acquired customers will be inevitably higher than usual. So at an initial stage, I would say, especially this quarter, the Q1 that we launched this new marketing strategy, it's inevitably to see a significant rise in the sales and marketing expense. But in the future, I would say, we expect to see some room for the improvement in the cost effectiveness. I think in the future, as we there are so many like optimization of the marketing strategy right now going on. I'm not the expert in this, but I'm pretty sure our technology team spend a lot of great efforts on this to improve the cost per newly acquired customer, the data on this. So I would expect that in the next quarter or in a couple of few months, the cost effectiveness will be improved and cost per like newly acquired customer will be dragged down. Understood. I think because there are a lot of moving parts at this quarter, at this initial stage of launching this marketing strategy, we will not say that we will not set a specific number or like absolute number for the marketing and the sales expenses or to set the ratios of these expenses, the ratios of the total loan origination volumes. But we are confident that in the future, in the short term, we maybe it's not like that unlikely that these marketing sales expenses would outpace our loan origination volume growth a lot. That will be all. Thank you. Thank you. So can you share a little bit more detail around your international expansion and update on Indonesia and Mexico and whether or not you're other markets internationally at this time? Certainly. I will take on this question too. So as we said, we remain optimistic and consider that international strategy is one of our key components of our strategy. But we are taking a prudent approach in terms of how we're considering these the overall component of the international market expansion effort. So there are different set of risk factors and uncertainties to when we are managing the national market. As we have mentioned earlier, the surge of the delta variant is having bigger impact in the emerging markets, which are slightly different from what we are seeing in the Mainland China market. And the economic growth and the political or regulatory stability is also somewhat more factored compared to our Mainland China market. So without kind of managing those risk factors compared to the growth needs and economic needs from a business standpoint of view. But we're still happy to report in Mexico we maintain to be the top tier player in the market, in spite of we are seeing a proper influx and influx of new players coming into the market occasionally or in certain months we are seeing them driving the marketing costs up, which have some sort of impact have somewhat impact on our economics, but we are still maintained to be the top players in the market now. In the Nigeria, we have gone through the setting up phase of that market. We have obtained our money and lending license. So the next step is really for us to start to grow drive the growth in the market. In the initial market, we are seeing some recent regulatory changes related to how they're managing the license application process. We are seeing some and such change does have somewhat impact on us. We are still continue to try to sort that out, just continue to go in, but we are so dedicated to the Indonesia market. As far as newer markets, there are a couple of new markets. We are in investigation and in the early feasibility study phase. But I have to say that most recent political change that may have some impact on how our speed and our appetite in taking on new markets at this point. Thank you for the update and congratulations on the really strong growth and profitability in the quarter. Thank you. Thank you. Okay. Thank you, operator, and thank you all for participating on today's call and thank you for your support. We appreciate your interest and looking forward to reporting to you again next quarter on our progress. Thank you. That concludes our conference for today. Thank you for your participation. You may all disconnect your lines now. Thank you.