Earnings Call: Q2 2021

Aug 19, 2021

Good day and thank you for standing by. Welcome to the Year End Digital Second Quarter of 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. And please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker for today, Ms. Lydia Yang. Please go ahead, ma'am. Thank you. Today's call features a presentation by the Thank you. Today's call features a presentation by the Founder, Chairman and CEO of CreditEase and our CEO, Ms. Minning Tang our S and team, Ms. Mei Zhao and our CFO, Ms. Na Mei. Before beginning, we would like to remind you that discussions during this call contain forward looking statements made under the specific harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties and factors that can cause actual results to differ materially from those contained in any of such statements. Further information regarding potential risks for these or factors is included in the company's filings with the U. S. Securities and Exchange Commission. We do not undertake any obligation to make forward looking statements as such as required under applicable law. During the call, we will be referring to several non GAAP financial measures and supplemental measures to review and assess our outlook for 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 U. S. GAAP. For information about these non sub measures and reconciliations to GAAP measures, please refer to our earnings press release. I'll now pass it on to Ning for opening remarks. Thank you all for joining us today. We are very pleased to deliver another solid quarter with continued improvement in profitability and increasingly diversified revenue mix as we further navigate Yiren Digital to become a leading user centric personal financial management platform. As we continue to strengthen our competitive edge and drive up our business scale, we have developed sophisticated strategies for both our wealth management and the credit businesses. For wealth management, we are further differentiating ourselves by upgrading our services and enriching our product offerings. For example, in the Q2, we started to offer retirement plans and services, partnering with the leading global investment management company, Principal, which received immediate popularity since launch. And as we further dive into the retirement financial market, our new products and services will help enhance our customers' LTV. Moreover, we are enhancing our capabilities to serve customers with higher investable assets and the number of users who invested more than RMB 500,000 in one single transaction on our platform this quarter increased by 126% compared with last quarter. Meanwhile, for our credit business, we are focusing on high quality growth and continue to take a proactive approach to transition our target borrower segment into higher credit quality borrowers, paving the way for the launch of our increasingly diversified products in the future. Secondly, we are deepening our deployment in small business markets in the second half of twenty twenty one and will further diversify product mix by increasing SME loans. Last but not least, as a user centric financial management platform, we are making continued efforts to integrate our different business lines and service scenarios, addressing the comprehensive financial needs of each customer. For example, we are offering suitable insurance products to our borrowers to better protect them and their families, which May will talk about later. Through the strategies and moves mentioned above, we believe that Eden Digital is well positioned to expand its business as a leading personal financial management platform. Now I will provide a business update on our wealth management side before passing it over to May to give an update on our credit business. Our wealth management business continues to see visible growth this quarter. Client assets for investment products reached RMB14.7 billion as of June 30, 2021, representing an increase of 37% quarter over quarter. Total number of active investors stood at 386 1,000 as of June 30, 2021, representing an increase of 26% from last quarter. Meanwhile, the average client assets per investor further increased by 17% quarter over quarter to close to RMB100000. And the number of investors who held more than 2 asset classes on our Yiren Wealth platform grew by 4 20% from prior year, reflecting a concrete improvement in our customers' overall LTV. On investor acquisition, we continue to invest in our brand to increase recognition and customer engagement. On May 28, our live anniversary program was joined by 20% of our active investors, which is a vivid reflection of our high customer engagement and loyalty. It's worth mentioning that our fund product became one of the key growth drivers this quarter. Specifically, our retirement fund to fund products enjoyed an immediate success right after its launch in June, which contributed RMB23 1,000,000 transaction volume since just in just 23 days. Moreover, our recently launched new version of Mubayin Fund Portfolio products that offer more flexible target returns were also well received among investors, with sales volume increasing by 80% compared with last quarter. Next to our insurance business, Hexiang Insurance Brokers, the business growth remains strong. In the Q2 of 2021, total premiums were approximately RMB570 1,000,000, up more than 130% quarter over quarter. For Hexiang, we are focused on growing through our closed loop to B2C strategy, in which post serving our corporate clients and fully fulfilling their insurance needs, we then leverage our insurance tax capabilities and provide customized and targeted insurance products to their clients and customers, transitioning our corporate customers into partner channels, helping them unlock a completely new revenue stream and at the same time finding new customers with unmet insurance needs. Lastly, our digital stock brokerage platform, China Glory Securities was officially launched this quarter, which is a meaningful milestone for us to establish a full spectrum wealth management product mix and to bring strong synergies into our wealth management ecosystem. The platform targets both mass affluent and high net worth customer segments and currently we offer both Hong Kong and the U. S. Stocks, ETFs and REITs with more services and products to hit the shelf soon. Meanwhile, we believe that investing in investor education is core to drive business growth. That's why we have created a variety of educational content with something suitable for investors at each stage of their investing journey, including daily and weekly live stream sessions to review market performance as well as trending topics and the daily financial news. On customer acquisition, in addition to strong support from our wealth management ecosystem, we are also focusing on 2B2C strategy with over 10 partner channels already in our pipeline. With that, I will now turn the call over to Mei who will highlight key updates for our credit business this quarter. Thanks, Ning. This is Mei Zhao. Hello, everyone. Now before I go through the operational highlights of our credit business, I would like to share our response to the recent regulatory development to echo what Ming just mentioned about our initiative in credit business strategies. As of the July, a window guidance came from came out from the local financial regulatory requiring the financial institution to cap the APR of the customer loans at 24%. We think that is a potential new requirement to beneficial for the industry as it's completely eliminates the market's long favoring the concern over APR and the pricing. In response, since last year, we have transitioned our target customer segment to higher credit quality borrowers through implementing a targeted credit products, including APR 18% to 24% as well as interest free loan products. In addition to ACCO government's focus on supporting Samora and the micro business, starting from the second half of this year, we will further expand our SME segment to better promote inclusive finance. Historically, we have been serving small business owner for years and have accumulated reach, experience and expertise in product design, customer acquisition and servicing. Coupled with our strong technology capabilities and efficient channel partners, we expect to see the meaningful growth in this segment. Now I will provide an update on our credit business for this quarter. We saw a stable business growth in the second quarter as we are making strategic transition aimed at regulatory change. Low volume and facilities model in the 2nd quarter reduced at RMB5.3 billion, representing an increase of 7% from last quarter of 2 45% from the same period last year. Total number of the borrowers served in the 2nd quarter reached more than $434,000 an increase of 25% quarter of the quarter and 300 percent or 4% year on year. Meanwhile, our product unit economics continue to improve as we enhance our operating efficiency. We continue to see decline trends in our acquisition costs as our repeat borrowing rates increase and as our product and services offering burden. Moreover, we have seen visible progress in cross selling insurance product to our borrower base. Total premium contributed by borrowers in the 2nd quarter saw a 55% increase compared with the last quarter and the demand remains strong. To our positioning as a user centric personal financial management platform, we provide customized services by user, not by loan, which means that we value each of our customers' comprehensive demand for financial services and dramatically explore their different needs and to serve them accordingly enhancing our customers' LTV. On funding side, we continue to focus on expanding our funding partners and we received additional RMB10 1,000,000,000 in credit line this quarter with another 20 financial institutions in our pipeline. Lastly, on risk of performance, we have seen a stable and improving asset quality. At the end of the joint twenty at the end of the June, the delinquency rates for loan originates that are past due for 15 to 29 days, 30 to 59 days and 60 to 89 days were 0.5%, 0.8% and 0.7%, respectively, remaining at our historical lowest level As we continue to upgrade our customer segment, we expect our asset quality continue to improve throughout the year. With that, I will now pass it to our CFO, Na, who will provide this quarter's financial update. Okay. Thank you, Mei. Hello, everyone. For financial update, I will focus on key items of business operation and the financial performance only. You can refer to the detailed financial results in our earnings release at our IR deck that has been posted on our website. Firstly, on our operating highlights for our Wealth Management business as of June 30, 2021, we have cumulatively sold more than 2,500,000 investors and the number of activity investors this quarter continued to grow to 385,536,536 increased by 26% from last quarter. Climate assets Investment Products climbed to RMB14.7 million as of June 30, 2021, representing a visible growth of 37% from last quarter. On the credit side, total loan facility in the 2nd quarter reached RMB5.3 billion, showing a 7 increase quarter over quarter. The number of borrowers served this quarter stood at 4134,153, representing an increase of 25% from last quarter. Now on to our financial. In the Q2, total revenue increased by 49 percent year on year to RMB1.1 billion of which 25% came from our wealth management business. Due to enhanced cost control and operating efficiency, total net income in the 2nd quarter grew by 10% quarter over quarter, refraining our health net income margin of 18%. Total operating expense decreased by 17% year on year to RMB0.8 billion. Sales and marketing expense decreased by 40% from prior year to RMB4.30 1,000,000, driven by improved customer acquisition efficiency. Our original and service expense increased 11 percent from prior year to RMB183 1,000,000, mainly due to the continued expansion of our insurance business. Allowance for counter assets with silver and others was RMB93 1,000,000,000 this quarter, equivalent to 1.8% of our loan volume as compared to 2.9% last quarter. The decline was largely driven by improved asset quality and the change in product mix. On the balance sheet side, our cash position remained strong with RMB2.2 billion of cash and cash equivalents as of June 13, 2021. Our strong balance sheet positions us well in the current operating environment and the products with sufficient resilience to continue to employ new initiatives and new opportunity and to meet any new capital environment that may come. This concludes our closing remarks. Operator, we are waiting for Q and A. Thank you. First question is from the line of Cindy Wang of DBS. Please go ahead. Your line is open. Hi, management. Congrats for the great quarter. I have three questions, if I may. My first question is related to Wealth Management. Since sales volume of investment product was slightly slowing down from Q1 this year. Could we know what's the reasoning behind it? Is that because of seasonal effect or listing product adjustment on the platform? Platform? Besides that, fee rate for wealth management product is also down sequentially. Is that because investors subscribe more lower fee rate of products on the platform or any other reasons behind it? So entering in second half of this year, how do we expect the trend of sales volume and the fee rate? My second question is related to insurance. Since lately regulators have issued an announcement related to the inspection on selling insurance products online, Any process you have taken? And is that going to impact your insurance sales in second half of this year? And the last question is related to consumer credit. Could we have the breakdown of auto loan and small revolving loan ratio? Since you highlighted that you will expand to the SME segment to better promote inclusive financing second half of this year. So do you have any loan mix target that you could share to us among the auto loan, SME loan and the small revolving loan? And besides that, since the take rate for consumer credit further came down in the second quarter, so I think it's mainly because you acquire better quality borrowers, which APR is lower. Since window guidance has been capped APR at 24%, How do we see take rate in second half of this year and going forward? Thank you. Thank you for your three questions. I will have our CFO, Na, answer the first question regarding wealth management business, fee rate and so on. And then our wealth management business ahead, Xiao, is also online, who can cover the second question regarding insurance regulatory update? And also if she may comment on wealth management? And then the third question will be covered by Meizhou. Please. Okay. Thank you. Okay. Thank you, Ning. For the first question, okay, I will answer the why the FAY rate for our wealth management is down compared to the last quarter. It's mainly due to the mix of the products, mainly due to the HeXian Baoqian. In the Q1 and the last Q4, the main product of insurance is from life insurance for the People Life. And so the channel commission from the insurance company is higher about January 17% or 18%. But in the Q2 of this year, the main insurance products is about the assets. So for the assets, insurance premise level is lower than the life. And generally, the commission channel is about 14% to 15% from the insurance company. So that is the reason why the fill rate is down for our welfare management. It's mainly due to the product mix. Thank you. And Xiao, you will talk about the insurance policy change? Hello? Okay. This is Na. Okay. Xiao is going on to the online. I will answer this question. And for this for the regulation about the insurance before that I will come for with our internal and our internal hour. And we think that the mailing insurance regulator is mainly about the online insurance service. But for our Hexion, it's also mainly offline. So from our measurement response, we don't think they have any new regular to our insurance business. Yes. Yes, I echo that. And we don't see any, yes, negative impact on how we do our insurance business. And Mei, can you please answer the third question? This is May. I think for the credit business, I think for the SME, we have been involved in the auto loan business for quite a year. And some of the customer, they do actually, they're just SME owner. So I think for our SME, we have a lot of over to customer, we treat them as a different product SME then to lower the product from the better customer performance. So I think the percentage is 22% to 30 percent. I think as we continue to expand our old customer segment, I think that percentage is including to 60%. So I think that's why our asset quality is better and better, I think. Thank you. As there are no further questions at this time, management, please continue. Thank you everyone for joining our call. This concludes our call for today. Thank you. Thank you. Thank you. Ladies and gentlemen, this concludes today's conference call and thank you for participating. You may now all disconnect.