Thank you for standing by, and welcome to the Yiren Digital Q3 2022 earnings conference call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Keyao He, Investor Relations Officer. Please go ahead.
Thank you, operator. Good morning and good evening, everyone. Today's call features the presentation by the founder, chairman, and CEO of CreditEase, our CEO, Mr. Ning Tang, and our CFO, Ms. Na Mei, our SVP, Ms. Mei Zhao. Raymond Fang, COO of Yunxi Lab, will join the presenters in the Q&A session. Before beginning, we would like to remind you that discussions during this call contain forward-looking statements made under the Safe Harbor provisions for U.S. Private Securities Litigation Reform Act of 1995. Such statements accepted risks, uncertainties, and factors that can cause actual results to differ materially from those contained in any such statements. Certain information regarding potential risks, uncertainties or factors is included in our filings with the U.S. Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements as required under relevant law.
During the call, we will be referring to certain non-GAAP financial measures and supplemental measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the U.S. GAAP. For information for non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release. I will now pass it on to Ning for opening remarks.
Hi, everyone. Thank you for joining our conference call today. We are very pleased to deliver a resilient quarter with solid business recovery and continued improvement in profitability post our product restructuring and the pandemic resurgence in the first half of this year. As the macro environment gradually rebounds and our revenue structure continues to evolve and upgrade, we have full confidence to embrace an accelerated growth path in the quarters to come. First, an update on our holistic wealth management business. Our insurance brokerage business continues its strong momentum this quarter, becoming an essential revenue pillar. In the Q3 of 2022, total premiums reached RMB 1 billion, representing a 36% increase year-over-year, surpassing the industry average growth rate by over 6 times.
Revenue generated from Hexiang Insurance Brokerage Services reached RMB 189 million, accounting for more than 22% of total revenue, and we expect to see an accelerated double-digit growth in the Q4. The rapid expansion of our insurance brokerage business is fueled by Hexiang's outstanding capabilities in product customization and innovation. Distinguished from other insurance brokers, Hexiang excels in analyzing and exploring different client-specific needs in their life and working scenarios. Therefore, our products enjoy a strong advantage of exclusiveness in the market. For example, one of our whole life insurance products, tailor-made for high net worth clients called Yimai Xiangchuan, closed nearly RMB 60 million in premiums this quarter alone. Another example, our customized group insurance products targeting kids and teens with vision care services will hit the market soon, which is expected to contribute sizable premium in the coming quarters.
Our property insurance products also saw continued growth for the past 22 consecutive months, and that the demand remains strong as we expand into more fast developing areas, such as litigation preservation liability insurance business. Another highlight I would like to point out is that second year renewal rate for our long-term insurance products reached 96.6% as of the end of Q3 this year, much higher than the industry average of 85%, which has further proven the high quality of our services. Regarding the new regulation on online insurance sales, that's been a hot topic in the industry this year.
The actual impact on our business has been minimal due to the complexity and richness of our product matrix and our relatively low reliance on online channels. In the Q3 this year, the total number of insurance products offered exceeded 750, up from around 650 in the prior quarter. Looking ahead, the momentum remains strong for both our life and property insurance segments. Now, moving on to a bigger picture of our holistic wealth business. In the Q3 of 2022, total client assets reached RMB 22.8 billion, an increase of 31% year-over-year. Particularly on Yiren Select platform, which is the upgraded version of Yiren Wealth under our super app strategy.
Average client assets held by each client through our institutional partners reached more than RMB 350,000, representing a year-over-year growth of 36%. With the ongoing penetration of our Life Plus Finance initiatives and the balanced asset allocation investment educational concept. In the Q3 , the number of clients with client assets over RMB 1 million increased by 57% from prior year. A vivid reflection of the enhanced recognition for our improved serving capabilities. Before we move on to an update on credit, I want to mention that we have officially closed our online brokerage arm, China Glory, in the Q4 last year to be compliant with new regulations.
Going forward, we will focus our efforts on our core wealth business lines in creating a powerful flywheel effect that will help our loyal and growing member base with additional financial management solutions that match their needs for investment, savings, and insurance protections, while also increasing their lifetime value to us. Looking into the year of 2023, we expect to realize increasing synergies between each business line as Hexiang Insurance Brokerage continues to customize products and services that match the needs of our customers within the Yiren digital ecosystem. Our customer base is also expected to continue to expand with higher acquisition efficiencies as our consumption-driven businesses start to ramp up in scale and drive up overall customer engagement. Now, I will pass it to Mei, who will go through the highlights of our credit tech business for the Q3 .
Thanks, Ning. Hello, everyone. Before I provide an update on our credit tech business, I would like to reiterate our strategic product transition, and we would like to see a full recovery of the growth pace post of the restructuring. With the aim to improve our overall profitability and reduce the potential operational risk amid the pandemic resurgence, we started to proactively optimize our loan portfolio structure back to the second half of last year and scaled back our online secure loans business that burned higher operating costs and higher volatility and during the pandemic. We officially terminate this product in the Q1 of this year.
Now that our new loan portfolio enjoy a higher operating efficiency and lower borrowing cost, we believe the transition allows us to better sustain and scale with a healthy unique economics and higher flexibility and resilience to respond to any further market involvement. In the Q3 this year, the total loan volume reached RMB 6.3 billion, accounting for 66% of the total loans facilitated in the first half of this year and close to pre-transitioning level. Given the current strong demand for our loan facilitation services, especially for our small revolving loans, we project a further two-digit growth quarter-over-quarter in total loan volume in the Q4 this year.
Another notable highlight is that our MAU increased to 1.7 million at the end of the Q3 this year, representing a 24% increase compared to the end of the last quarter, and a 54% growth compared to the end of the Q3 last year due to our improved services and enhanced integration with our borrowers. Meanwhile, we see an increasing number of the users coming back for second loans as we continue to offer various value-add services and membership benefits such as discounts, tailored insurance products, and award credits. In the Q3 of 2022, the repeat borrowers account for 81% of the total borrowers for small revolving loan products, compared to 52% in the Q3 last year, translating into a decline acquisition cost per users.
Moreover, as our e-commerce platform continue to enjoy increasing popularity among our user and bring in a growing traffic, the average acquisition cost is expected to further decrease in the future. Just to echo what Ning mentioned earlier, our consumption-driven services from both our e-commerce platform and E-Renzhi that has helped build up a more dynamic and integrated ecosystem with including synergies between different business lines. On the funding front side, as we continue to increase and diversify our funding partners, we expected to see a continued decline in the funding cost in the coming quarters. Last but not least, the asset quality of the new loans shows a stability and improving the trends. Our SPP 30-plus delinquency rates in the Q3 reached 0.49%.
Still at its historical lows as a result of our continued efforts in customer segment optimization and risk control tightening. With that, I will now pass it on to Na, who will go through the financial for the Q3 this year.
Okay. Thank you, Mei. Hello, everyone. For this quarter's financial update, I will focus on key financial highlights only. Please refer to our earning release at IR Desk for further details. We delivered solid results this quarter with total revenue, which RMB 841 million, accounting for 56% of total revenue in the first half of this year, with an accelerated recovery from the temporary impact of our product restructure and the pandemic lockdown. As you may have noticed, we recognized our revenue segmentation in the Q3 last year to high e-commerce revenue as our strategy deployment in consumption driving service start to set off and leads to a multi-dimensional ecosystem, which enhance our customer engagement, activity, and long-term value.
Contribution from holistic wealth business reached RMB 294 million this Q3 . Accounting for 35% of the total revenue, up 8 percentage points compared with the same period last year. This is in line with our strategy proceeding as a personal financial management platform that distinguish us from our leading peers. On the credit side, our total facilities this quarter was RMB 6.3 billion. Realized double-digit growth quarter-over-quarter. Rebounding to restructure level of last year, driven by the rate of our small revolving loan. Revenue from credit tech service, which RMB 493 million this quarter, accounting for nearly 50% at outset of the first half of this year.
Our average borrowing cost has declined to 24.3% for all new loan facility October, reflecting our ongoing commitment to financial inclusion and align with regular directive. On the expense side, total operating expense was RMB 505 million this quarter, decreased by 38% compared with the Q3 last year. Sales and marketing expense decreased 66% to RMB 136 million from the same period last year, mainly driven by cost saving as we optimize our offline business, which Mei has touched on this briefly earlier. Origination and service expense increased 20% year-on-year to RMB 224 million, primarily due to the expansion of insurance brokerage business, as well as the increased spend on risk assessment service post heading our risk management policy early this year.
Allowance for counter assets receivable and others decreased by 58% year-over-year to RMB 35 billion due to higher provision book for our long-term secured loan business last year. We deliver a strong profit of RMB 270 million this quarter, reflecting a net income margin of 32.2%, up 16.2 percentage points year-over-year as we enjoy better unit economy post the planning, product restructure and continue to enhance our cost efficiency. Turning to our balance sheet, we're maintaining a substantial balance sheet with RMB 5.5 million in total shareholders' equity of September 13, 2022.
Increased by 15% compared to as of December 31st, last year. Meanwhile, we remain under strong cash position with usable cash, which RMB 4.7 billion reserves, serving buffer for our execution, our share repurchase plan, which we announced early this year, as well as provide enough funds for our any business or investment opportunity going forward. Now, based on our assessment of business and the market condition, this type of revenue in the Q4 this year is to be between RMB 0.9 billion-RMB 1.1 billion. With the net profit margin is planned to remain stable. With that, we conclude our closed remarks. Operator, we are now open for questions. Thank you.
Thank you. If you wish to ask a question, please press Star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press Star then two. If you are on a speaker phone, please pick up the handset to ask your question. The first question comes from Boyd Hines with Equinox Capital. Please go ahead.
Hi. Can you tell us, what was the size of the loan facilitation in Q2 of fiscal year 2022? In your previous press release, you just gave a first half number. I'm just kinda curious to see what was the sequential rate of growth in your online lending channel.
Can Mei and Na answer this question, please? Q2 loan volume.
Okay, this is Na. I will answer your question. In all of the Q3 , our loan volume is total about, it's CNY 4.6 million. Compared to the Q3 of the loan volume in our Q3 is increased about 20%-30%.
I'm sorry, That was Q2, it's increased, 20%-30%?
Yeah.
Okay. Can you talk a little bit about the strength of the demand, of those online loans? How much more growth can you expect to see in fiscal year 23?
We have positive outlook, but, Na, do you have detailed numbers or do we disclose that?
Yeah. We based on our current outlook for our 2023 forecast, we think that our loan will keep on stable and go back for trend. Based on our current forecast, we think that our loan will increase about 20%-30%. Yeah. At the least. We hope that there is a better performance. Yeah.
Your balance sheet is very strong. You have a lot of cash.
Yeah.
What kind of interest income are you generating from that cash, at this time? It seems like I don't see much that's been reported on the income statement.
Yeah. I think most of our cash is mostly, from the, our revenue from our customers, from the credit, segment and the holistic segment. Actually, there is a little interest income, as you mentioned, in your cash deposits. Yeah. It's most, from our customer revenue.
Right. I think you've done a great job of managing your expenses-
Yeah.
In a declining revenue environment. I'm just curious about your capital allocation. Given that you're not generating much interest income from the cash, is it possible that you could. You do have a $20 million U.S. buyback program in place. It doesn't appear to me that you have utilized any of that yet. It would appear to me that you should be much more aggressive about repurchasing your own shares going forward. Can you just comment a little bit about the status of your buyback program? Is it ready to be put into effect immediately?
We agree with you.
Yeah, we totally agree with you. Yeah, as you mentioned, we have announced a new shares repurchase supply in September. Now I think after we early release what's called our financial statement, then we'll restart our repurchase plan. I think our strong cash positioning will give us a firm buffer to execute our share purchasing future. Yeah, of course, we'll also keep on identifying other wise more business opportunity to use our capital, use our cash position and also enhance our capital income. Yeah, as you mentioned, we'll execute our repurchase plan and identify other wise more opportunity to use our cash position. Thank you. Thank you.
Sorry, I didn't mean to interrupt. Just to be clear.
Uh.
Looking at your Form 20-F, you did have.
Mm-hmm.
A previous $20 million U.S. buyback program authorized and in place, and yet you didn't utilize that during the year, and you canceled that and then put a new $20 million U.S. to replace it. Why did you do it that way? Why didn't you just, you know, utilize the existing repurchase program that had already been authorized?
Yeah. Yeah. As you mentioned, we knew our new repurchase plan in September. That's because that the old plan we announced many years ago. During the last several years, we have executed the repurchase plan. There is a little left. That's because we are shareholder. We hope that we need to renew our new purchase plan amount to $20 million and so that we can renew one, because the last one is a little rest. Yes. It's many years ago we announced it.
Right. I think what people are looking for is to see do you actually follow through with the repurchase.
Yeah.
I would urge you to do that. And, you know, it's important to show investors around the world that you also feel that the shares are undervalued and that, you know, you're gonna be in there supporting the ADR.
Mm-hmm.
Which seem to be extremely undervalued, even in a sector that is generally undervalued. I guess this question is also for the larger shareholders who are on the call. Have you considered taking this company private given the dramatic difference in what, you know, this company should be valued at and what it is trading at right now?
We have no such intention at this moment.
Okay.
Because-
Do you-
Because going global is our strategy. Yeah. This offshore listing position helps a lot with our global strategy.
I see. Would you consider going in and purchasing more shares at this level yourself individually?
You're talking about me?
Yes, you.
The program is there, and it's not finished. As you pointed out, we will, yeah, push forward with the-.
Right. I
-program.
I understand. The, you know, a lot of what can also be done in addition to that is if large insiders at the company are going in and purchasing stock themselves for their own accounts, it again.
Well-
just another way of signaling.
The stock. Yeah, the floating part is not that big. While we totally agree that the, yeah, share buyback is very helpful, we are also mindful that the float is not that big. If we buy back all the shares, then it's delisted.
Okay. I'll allow others to ask questions. Thank you.
Once again, if you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. There are no further questions at this time. If you have any further questions, you can feel free to contact the company's IR Team. That does also conclude our conference for today. Thank you for participating. You may now disconnect.