Earnings Call: Q1 2021

Jun 7, 2021

Earnings release

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Xi'an Group's Q1 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. Julia Chen, Managing Director of The Blueshirt Group Asia. Ms. Chen, please proceed. Hello, everyone. Thank you all for joining us on today's conference call to discuss Jiayin Group's financial results for the Q1 of 2021. We released the results early 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 Dingwei, Chief Executive Officer Mr. Sherry Bai and Ms. Celia Chen, Qum, Chief Financial Officer and Mr. Shiyi Fang, Chief Risk Officer. Before we continue, please note that today's discussion will contain forward looking statements made under the Safe Harborization 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 statements, except as required under typical law. Also, please note that unless otherwise stated, all the figures mentioned during the conference call are in Chinese R and D. With that, let me now turn the call over to our CEO, Yan Ding Gui. Mr. Yan will speak in Chinese and then our Co CFO, Shirley Bai, will translate his comments to English. Go ahead, Mr. Yan. Hello, everyone. Thank you for joining our Q1 2021 earnings conference call. We delivered solid business growth this quarter, leading us on a great start to the year. Loan growth driven by our successful integration and the rapidly growing demand from institutional partners, reached RMB4.2 billion, up 44% in year over year growth. Notably, net income come in at RMB93.7 million, a 137% year over year increase compared to RMB39.5 million from the same period 2020. This solid business and financial results are valid indicators of our strong business strategy and execution capabilities. Now allow me to share our key strategies for 2021. First, we will continue to drive organic growth in China, deepening partnerships with financial institutions by leveraging our sophisticated risk management system and providing individual customized solutions. Thanks to our early development in process automation and seamless system integration, our funding partners increased to 28 in Q1. We are in discussion with another forty 6 institutions aiming to further broaden partnerships. Our sophisticated credit assessment system produces behavioral drive analytics that steer our customer acquisition and retention strategies, leading us to have the ability to select high quality borrowers while maintaining current customers. This drove up a higher repeat borrowing rate of 74% in the Q4 of 2021 compared to the 70% in Q4 2020. We also published our delivery reviews in this quarter, which have shown satisfactory improvement and maintained a good trend. We will continue to invest in technology, improve efficiency, drive growth as well as maintain asset quality at a good level for the rest of 2021. Secondly, we are making prudent overseas expansion by analyzing and entering markets where our technology has a competitive edge and it can make significant difference. For Southeast Asia, we see Indonesia as a key market with huge potential. Indonesia is the world's 4th most popular country and has demonstrated steady consumption growth and increased individual networks with robust local stock market fueling income and tech innovation. Through established partnerships with local enterprises, customized risk management models and technology platforms, we are making great progress and are well positioned to lead accelerated growth once we receive the FinTech online lending license, which we expect within next 1 or 2 quarters. We are also entering the equity markets, which present unique opportunities to easily build out our platform in a region continuously leapfrogging to the next generation of technology. We established our 1st African business in Nigeria after rigorous research and obviously leading the successful operations of various early Chinese enterprises. Products and services will be rolled out with a conservative approach and gradual. In addition, the South American market is yet another important market, and we are doing very well in maintaining our leadership position despite increased competition. We aim for quality growth, and we will continue optimizing strategic execution and operations. Thirdly, we will continue to invest in financial technology development and actively participate in digital economic as a key player in the FinTech evolution. Blockchains are built on principles for transparency, security and stability. The fintech evolution is at a crucial turning point where blockchain technology and digital currencies are expected to profoundly impact society. As shared in our last earnings call, BillNet is primarily focused on cryptocurrency related technology from mining hardware design and distribution to mining management. There are limited downside risks as BioNet itself does not mine cryptocurrencies. With integration of finance and operation functions steadily progressing, we expect completion within this month. Beyond that's business development and operations will be under an independent separate team with more institutional investment and more use cases in the financial sector. We believe growth potential is especially significant. Our strategy is to be flexible and participate in financial technology development with limited downside risks and no impact on our current business operations. In conclusion, 2021 will be a year of accelerated growth. We developed our top initiatives to execute the strategies I just outlined, and I am confident our team will be able to deliver outstanding results. Thank you, Mr. Yan and Shirley, and thank you everyone for joining our call today. As Mr. Yan just mentioned, we kicked off 2021 on a strong note with impressive financial growth and a meaningful business progress, placing us firmly on track to achieve our growth target. Now let me go through our financial highlights for the quarter. Before I go into details, please note that all numbers presented are in RMB and are for the Q1 of 2021, unless stated otherwise. All percentage change are on a year over year basis, unless otherwise specified. In the interest of time, I will not walk through each item by line on this call. I will just highlight some of the key points here. Loan origination volume was RMB4.2 billion, up 44.1% year over year and 35.1% sequentially. This was remarkable and it was also the strongest growth since our IPO. This demonstrated the success of our rapid business transformation, which laying the good foundation for us to continue to achieve robust growth in the coming future. Net revenue was RMB343.1 million, up 9.4%. This increase was primarily due to the increased revenue from loan facilitation services, which grew by 24.7% year over year to RMB320.9 million. Other business grew by 8.3 percent to RMB22.2 million. The increase was primarily due to the development of our overseas business. Moving on to costs, we continued to optimize our cost structure to further improve operating efficiency. In Q1, total operating expenses were RMB229.3 million, down 12.6 percent from RMB262.4 million last year. Origination and servicing expenses were RMB64.1 million, up 0.3%, primarily due to the increase in credit assessment expense resulting from higher loan origination volume, partially offset by reduced collection costs as the company no longer provided such services under its new business model. Balance for uncollectible receivables, contract assets, loan receivables and others was RMB8.0 million, down 73.7 percent from RMB30.4 million in the same period of 2020. The decrease was primarily due to the relatively lower credit risk of the new business model. G and A expense was RMB37.8 million, down 1.3 percent primarily due to lower rental costs, partially offset by the increase in the other business related expenses. R and D expenses was RMB28.1 million down 22.8%. This was mainly due to a more streamlined team in technology related departments as we continue to improve our operating efficiencies. Sales and marketing expenses were down 2.4% to RMB91.2 million primarily due to a decrease in share based compensation expense, partially offset by higher borrower acquisition expenses. We achieved attractive profitability through our loan volume growth and improved operating efficiency. We posted net income of RMB93.7 million, up 137.2% year over year and 15.5% sequentially. We ended this quarter with RMB123.3 million cash and cash equivalents compared with RMB117.3 million as of December 31, 2020. Moving to our guidance, given the recovery of Chinese economy and the fast growing consumer finance market, we expect our loan origination volume in Q2 2021 will be over 150% growth year over year and 35% to 45% growth sequentially. With that, we can open the call for questions. Mr. Yan, Mr. Xu our Chief Risk Officer, Mr. Xu and I will answer questions. Operator, please go ahead. Certainly. Ladies and gentlemen, we will now begin the question and answer session. We have the first question. This is coming from the line of Andrew Scott from Roth Capital. Please go ahead. Hello. Congrats on the strong results and thanks for taking my questions. So the first question here that I have is the model is really showing the successful execution you guys are making with the transition to institutional partners, especially shown in the stronger gross margins you had in the quarter. Can you just maybe talk about the efficiencies you're realizing and you discussed on the call that are helping driving the strong results? Yes. This is Silvia and I will take this question. So yes, as Andrew hi Andrew. As you have mentioned, we have successfully exited the P2P business, so queue the loan facilitation model. So in the Q1, we have seen very strong increase in the loan facilitation volumes. And also we have seen some cost savings under different expense items. So as we mentioned in the commentary, given the recovery of Chinese economy and the fast growing consumer financial market, we actually have a very good confidence to grow and expand the book as we did in the Q1. So we expect that our loan origination volume will grow continuously in the remaining quarters of this year and we will continue to improve our operation efficiency and to maintain very profitable very good profitability. Yes. Great. Thanks very much. Sorry, I didn't want to cut you off there. Second question for me, if I may. R and D expenses look like they were down substantially in the quarter. Can you kind of talk about your expectations there going forward? Okay. So yes, the R and D expenses was down 22.7% year over year because we have successfully exited the P2P business. So we actually made some efforts to streamline our technology department and we optimized the personnel scheduling and related human resources. So in that way, we have a more streamlined team in technologies. So going forward, so we see some savings in the related salaries and compensations and also the share based compensation. So going forward, we plan to improve our R and D investment to continuously improve our technological capabilities and efficiency to propel further growth for the company. And if you look at the absolute number, I think it's a very good indicator for the remaining quarters of this year. So I think we are going from this level and we plan to improve the R and D investment level from here. Hope that's yes. Yes. Thank you. That was very helpful. Next one if I may, I was very excited to see the credit quality numbers and disclosed in the release this morning, and it definitely reflects the shift in institutional funding. So can you just kind of provide maybe some commentary on the numbers there and expectations going forward? Sure. Thanks, Andrew, for the question. This is from taking on your questions on the credit results, the risk outcome. Yes, as we are shifting our business towards institution funding portfolio and we are facing a stronger desire from our partners to seek for better quality customers. As we have seen going on, what our strategic intent starting from the early last year 2020, if you recall, that we're trying to position ourselves towards higher quality customers in anticipating us partnering with institution funding partners. So as you can see, the risk numbers continue to improve over time. We are tackling from multiple fronts, one from our customer acquisitions, we are trying to targeting better customers just from the credit risk point of view. In addition, our existing portfolio customers that we are focusing on the better spectrums of our long term customers. As in fact, as we learn more about our own customers and we are able to really focusing on the customers who have a longer and a better credit outlook risk outlook. Just coupled with that, we also our loan collection loan collection capabilities also improved as well as our overall external risk environment as we have seen from our peer companies have been improving over time. Our 30 day collection rate has pretty much reached an all time high and has been able to stay there for almost over 2 quarters now. So that's something that I'd be happy to report. So just about with all things that go in place, we're expecting our overall risk is going even better, especially with our existing customers, repeat customer book or continue to grow at a significant pace. We're expecting our portfolio risk is going to be even better. That'll be all. Great. Thank you. That was extremely helpful. Also appreciate the update on the WENET acquisition that you provided on the call. Can you maybe just talk through some of the next steps you guys have moving forward to integrate the company and anything else that needs to be done over the next few quarters? Yes, this is Celia. So currently, we are in the middle of integrating the function of finance operations and other supporting functions. So we expect to complete this consolidation within this month by the end of June. So in the network for the full year, we estimate that the V net would contribute additional 20% of net income if we can stick to the current business strategy. And as we have been highlighting in the commentary earlier, we now is primarily focused on cryptocurrency related technology, mining hardware design and distributing to mining management. So actually VNET doesn't directly engage in cryptocurrency issuance mining or exchanges something like that. So from that point of view currently we are operating this business fully compliant with the regulatory requirements and we will observe and watch very closely and make sure to adjust our business if necessary and keep our operations within the regulatory framework. So that is basically, yes, the status of our M and A deal. Thank you very much. And then last one, if I may. The 30% to 40% sequential loan origination growth was great to hear. That's very exciting for 2Q. Can you just talk through your expectations for year end? And if you have it looked like you just acquired some new customers this quarter. So any commentary you could provide on adding people to the platform as well would be great. This is Yifan again. Andrew, I'm going to take on the question. Can you repeat the second half of your question again? Yes. So the REIT forward percentage was down sequentially. It looks like you successfully added new customers to the platform. So any commentary you have there would be great. Sure. So we are disclosing our next quarter's outlook, which is at a range of from 30 credit plus range from quarter to quarter growth, which is even better than what we have seen this quarter. So we don't have a number for the overall yet, but I am definitely expecting a stronger growth for the second half of this year. So we just want to take the numbers out a little bit, just looking at the Q1 of our growth. So the growth is primarily coming from 2 fronts. One is, as we are transitioning very close to our P2P book in November last year, we are seeing our institution partners have gained significant confidence and interest on our portfolio just because of our also given our past performance on the risk metrics. So we are seeing more traction from our institution partners and to coming on board and we're seeing pretty good growth from our number of institutions that we are planning today and the healthy pipeline to go in place. So with a strong funding surprise that we are seeing our loan originations are doing the similar traction from. So in Q1, we are in the 4th speed in terms of our repeated customers portfolio. As you can see, our repeated percentage of our repeated percentage of the loans from the repeated customers have grown compared to last quarter. And similarly, we are starting expanding our new acquisition portfolio in the middle of Q1. It's very likely that in Q2, you are going to see higher percentage of the book coming from our new origination customers, not because that we have that's a decision driven by the growth. I'm going to talk about the listing a little bit. So we are fully there in the full speed to grow our news applications. We have saw our new book at the same time with our repeated customer book, we are still looking ways to grow that as well from several aspects from the product diversification by offering a right range of the book rate as well as the product plans. And in our triple based on marketing capabilities, we are expanding to a full spectrum of the attachment life span. Lastly, but more importantly, it's also the customer experience. We are getting into every details of how we are interacting with the customers and trying to improve and further improve our customers' engagement rate. So on the new customer acquisition front, as I said early that Q1 starting mid half of mid of this Q1, we are starting to gain more traction on certain more new customers and that has been still being true for our Q2 out. So we are getting we are trying customers through full spectrum of marketing channels, including information based marketing or partnerships with other Internet based platforms, etcetera. And we are getting we are booking more and deeper customers throughout all spectrum. So in the second half of this year, we're expecting that we're going to focus a little bit more on optimizing our acquisition cost from throughout the CIBC marking channel metrics. So that even though we are looking like I said earlier that we are going full speed on the Q2 in terms of new customer acquisition. We're taking pretty prudent view on how in terms of the portfolio risk management. And this has always been the core of our lending business, trying to take a very critical and slightly I would say slightly conservative view. We all maintain a very healthy buffer for us in terms of our risk expectations. And so all the underwriting are handled under such more comprehensive portfolio and channel specific deal. Trying to make sure that we are gaining the growth, but not on a cost of deteriorating credit risk. So that's our overall view of what we are expecting from the lending perspective in terms of the volume. Hopefully that will be fully supported by our continuous growth for our institution partners that in the second half of this year we are certainly going to see a much stronger second half year compared to the first half of the year. Great. Thanks very much. And once again, congratulations on the strong quarter. Thank you. Seeing no more questions, I will return the call to Ms. Chen. Please go ahead. Thank you, operator, and thank you all for participating on today's call and thank you for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.