Ladies and gentlemen, hello and thank you for participating in the First Quarter 2024 Earnings Conference Call for FinVolution Group. 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, Jimmy Tan, Head of Investor Relations for the company. Jimmy, please go ahead.

Hello, everyone, and welcome to our first quarter 2024 earnings conference call. The company results were issued via newswire services earlier today and are posted online. You can download the earnings release and sign up for the company's email alerts by visiting the IR section of our website at ir.finvgroup.com. Mr. Tiezheng Li, our Chief Executive Officer, and Mr. Jiayuan Xu, our Chief Financial Officer, will start the call with their prepared remarks and conclude with a Q&A session. During this call, we will be referring to several non-GAAP financial 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 US GAAP. For information about these non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US 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 are included in the company filings with the US Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Finally, we posted a slide presentation on our IR website providing details of our results for the quarter. I will now turn the call over to our CEO, Mr. Tiezheng Li. Please go ahead, sir.

Thanks, Jimmy. Hello, everyone, and thank you for joining our earnings call. This is Tiezheng Li, CEO of FinVolution Group. We are happy to speak with you today. We kicked off 2024 with continued strong execution of our Local Focus, Global Outlook strategy, in line with domestic and international macro trends. China's economic recovery is progressing gradually, while Indonesia and the Philippines are growing more rigorously. There has been a pickup in economic and consumption activities during China's recent holidays, but the M1 financial data in April turned negative year-over-year, sending mixed signals to the market. Barring such a situation in mind, we will continue to closely monitor the macro environment while leveraging our technologies to increase the efficiency of our operations. Driven by our Local Focus, Global Outlook strategy, we've served around 31 million borrowers across China, Indonesia, and the Philippines, as of the end of the first quarter of 2024. Our first quarter's performance highlights our strategy's effectiveness as well as its flexibility. Transaction volume in China reached RMB 46 billion, up 10% year-over-year, while outstanding loan balance increased RMB 64 billion, up 4.4% year-over-year. Notably, our ongoing investment in information feed advertising drove further expansion in the number of new borrowers in the China market, up 3% year-over-year, accounting for 20% of unique borrowers. Transition volume from new borrowers contributed around 15% of total transaction volume, reflecting potential for our continued progressive growth in the China market. Meanwhile, we leveraged our leading technologies, strategic agility, and deep experience to overcome the worst challenges facing our Indonesia operations since last quarter and delivered solid growth in our international markets. International transaction volume reached RMB 2.21 billion, up 41% year-over-year, while outstanding loan balance expanded to RMB 1.27 billion, up 34% year-over-year, demonstrating our ability to capture opportunities in different countries. Driven by our effective social media strategy, the number of our new borrowers in international markets increased by 13% year-over-year and represented 41% of unique borrowers. International business stands as our second growth driver and its revenue contribution has been increasing steadily. For the first quarter, revenue from international business reached RMB 595 million, up 33% from the same period last year and representing 19% of total revenue. Going forward, we believe this segment's contribution to revenue will continue to increase as we strengthen our existing markets and expand into new territories. We also continue to make and drive progress on the technology front in the first quarter of 2024. In February, our extensive collaboration with leading global academic institutions produced three papers, which were selected for the 38th Annual AAAI Conference on Artificial Intelligence, one of the world's top artificial intelligence conferences with an acceptance rate of just 24%. Through our ongoing investment in Large Language Models, we have self-developed a proprietary technology called code auto-correction technology. It increases our programmer's efficiencies through auto software bug detection and auto revision of frequently used codes, which greatly reduces human error. We have also utilized AIGC to streamline advertising costs and increase efficiency, producing more than 20% of video content with AI for vivid and precise advertising that resonates with our target borrowers while reducing market costs. On a related note, we leveraged our advertising, social media influence, and video content to expand our brand awareness in our international markets on popular channels, such as Facebook, TikTok, and Instagram. Our followers reached 1.1 million, 855,000, and 234,000 on those sites, respectively, during the first quarter of 2024, up 87%, 55%, and 10%, respectively, year-over-year. Before I wrap up, a brief update on our ESG efforts. In line with our core commitment to financial inclusion, we continue to support the backbone of the economy by facilitating loans for small business owners during the first quarter, bolstering the gradual recovery. We facilitated a total of RMB 13 billion of loans for small business owners, up 26% year-over-year. Furthermore, we made additional strides with our public welfare program aimed at improving farmers' livelihood through the live stream of agriculture products created in collaboration with China's national weightlifting team. This initiative has attracted over 2 million viewers and increased farmers' incomes with more than 2,000 online transactions. In summary, we made the most of the first quarter's positive flow leveraging our technologies and increasing efficiency. Firm execution of our Local Focus, Global Outlook strategy, ongoing tech innovation, and deep dedication to our vision of financial inclusion provide our steady progress and long-term sustainable growth. We will remain committed to fostering inclusion, accessibility, and technology as we create value for stakeholders and deliver better financial services to borrowers throughout the Pan-Asian region. With that, I will now turn the call to our CFO, Jiayuan Xu, who will discuss our operational and financial results.

Thank you, Li, and hello, everyone. Welcome to our first quarter 2024 earnings call. Let's go through our key results for the first quarter. To be mindful of the length of our earnings call today, I encourage our listeners to refer to our first quarter earnings press release for further details. As we mentioned, China's recent macro data coupled with the economic activities during the holidays reflect China's slower-than-expected economic recovery with a few bright spots that are outpacing the overall trend. China's GDP expanded by 5.3% in the first quarter compared to the same period last year and by 1.6% compared to the previous quarter. In March, China's manufacturing activity expanded for the first time in 6 months with the manufacturing PMI reaching 15.8 points, up 1.7 points month over month. Non-manufacturing PMI rose to 53 points, boosting Composite PMI to 52.7 points, up 1.6 and 1.8 points month over month, respectively. All three indices are within the expansion range, indicating an acceleration in enterprise production and operational activities. The Consumer Confidence Index improved to reach 89.4 points in March but still hovers at relatively low levels. As we mentioned, transaction volume in the China market grew 10% year-over-year with an annual increase in the number of new borrowers, reflecting our commitment towards progressive growth in China's small market. Our average borrowing rate in the first quarter remained stable at an internal rate of return of 22.3%, validating our commitment toward financial inclusion. Stabilizing our strong presence and reputation for reliability, we grew our cumulative number of funding partners to 102 institutions during the quarter. This broad base, coupled with China's recovering economy, boosted our funding partners' confidence in facilitating loans for better quality borrowers, improving our funding cost by an additional 50 basis points on a quarterly basis. Looking forward, we are confident in achieving continuous optimization in our funding costs throughout the rest of the year. Furthermore, we've made great strides in our ABS insurance initiative, which will further diversify our funding sources. Regarding risk, we expect our vintage delinquency to remain stable at 2.5% for the fourth quarter. Meanwhile, we drove an improvement in our recent April Day 1 delivery to 5.2% through a shift in our loan collection strategy. Loan collection recovery rate towards the end of the first quarter stood at a healthy range of 86%. Turning now to our international expansion. Our crucial second growth driver during the quarter, the cumulative number of borrowers for our international markets exceeded 5 million, reflecting our commitment to promoting financial inclusion across all the markets in which we operate. In our first international market in Indonesia, the economy remains robust with GDP growth of over 5% in 2023 and further increased to 5.1% in the first quarter of 2024, driven by resilient domestic consumption and increasing investment. Furthermore, Indonesia's PMI has consistently remained above 50 points for the past 2.5 years, indicating a strong position in the expansion zone. In March 2024, PMI increased by another 1.5 points to reach 54.2 points. Sales of motorcycles, a primary means of transportation in Indonesia increased 4.5% month over month in March to 584,000 units. We are also glad to share that by leveraging our well-proven experience and technologies in the transition to better quality borrowers in the China market, our operation in Indonesia has largely overcome the recent challenges posed by interest rate adjustments. We will continue to actively monitor regulatory developments and refine our operations accordingly. In the Philippines, our second international market, the government has forecast a GDP growth rate of between 6% to 7% for the full year 2024. As PMI index has remained in the expansion zone for 8 consecutive months and the unemployment rate remained low at 3.9% in March 2024. This further boosted consumption with growth in household consumption accelerating to 5.3% in the fourth quarter of 2023, up 5% in the previous quarter. All these positive macro metrics support our strong growth momentum in the Philippines market. Overall, our performance in international markets remained solid for the first quarter of 2024. Transaction volume for the international markets grew 41% year-over-year to RMB 2.21 billion, while outstanding loan balance grew 34% year-over-year to RMB 1.27 billion. The number of unique borrowers in international markets reached 849,000, up 15% year-over-year, while the number of new borrowers reached 344,000, up 13% year-over-year. These results highlight borrowers' stickiness on our platform as well as our ability to acquire additional new borrowers through diversified channels with general social media awareness. Notably, our Philippines operations continued to outperform expectations with transaction volume growing 194% year-over-year and 27% sequentially, contributing 25% of international transaction volume. This outstanding local performance has been widely recognized by regional financial institutions, attracting reputable local funding partners such as SeaBank and the Union Bank. Notably, we have entered into a strategic collaboration with SeaBank to facilitate loans in both our overseas markets. Our credit facility from these two partners in the Philippines alone totaled nearly PHP 650 million, greatly enhancing our presence in the country and facilitating our efforts to promote financial inclusion. Looking ahead, we are confident we will continue to attract reputable financial institutions to drive in the quest to advance financial inclusion in the country. As we strengthen our presence in the Philippines and gain greater recognition from our local partners and the regulators, we believe our Philippines operation will assume a bigger role in our international business. Now, turning to our financial metrics. Driven by strong execution of our Local Focus, Global Outlook strategy, total net revenues for the first quarter grew to RMB 3.17 billion, up 4% year-over-year. Our net income was RMB 532 million, an increase of 1% quarter-over-quarter, reflecting our increased operating efficiency. Meanwhile, sales and marketing expenses increased by 13% year-over-year to RMB 449 million, as we continued to strengthen efforts to acquire new borrowers in both our China and international markets. Furthermore, leveraging our unparalleled industry expertise and operational efficiency, we've achieved an above-industry return on assets of 3.2%. Our leverage ratio, defined as risk-bearing loans divided by shareholders' equity, remains stable at 4x, reflecting opportunities for growth when the macro economy normalizes. Our total liquidity position, consisting of cash and cash equivalents plus short-term investments, reached RMB 8.5 billion, up 10% from a year ago, reflecting a robust balance sheet that is well able to support our business growth, exploration of new opportunities, and consistently return value to our shareholders. Finally, a brief update on our capital return program. As part of our commitment to consistently return value to shareholders, we deployed over US$27 million in the first quarter of 2024 to repurchase our shares on the secondary market. Cumulatively, we have returned a total of US$632 million to our shareholders through our capital return program since 2018, demonstrating our consistent and sustainable commitment to our shareholders. The company reiterated its full-year 2024 transaction volume guidance for the China market in the range of RMB 195.7 billion to RMB 205 billion, representing year-over-year growth of around 5% to 10%. At the same time, the company expects its full-year transaction volume for its international market to be in the range of RMB 9.4 billion to RMB 11 billion, representing year-over-year growth of around 20% to 40%. That concludes my prepared remarks. We will now open the call to questions.

Thank you. Your first question comes from Yada Li from CICC. Please go ahead.

Hello, management. Thanks for taking my questions. I have two questions today. The first one is about the international branches. I was wondering how to view the regulation, market competition, and profit outlook in different regions, such as Indonesia and the Philippines going forward. Secondly, if we take the asset quality trend and profit and the potential profit overseas into consideration, how do you view the trend of take rate for this year and the future? That's all. Thank you.

Hi Yada, this is Jimmy. Let me summarize the international market situation for you. We have been operating in Indonesia for six years and in the Philippines for over four years, giving us more than ten years of experience in international operations. The international business has seen rapid growth, with a compound annual growth rate of over 100% in revenue over the past three years. Revenue from this segment now accounts for 19% of total revenue, and we have 26 million registered users, which is 14% of the total at the group level. Additionally, the cumulative number of borrowers has surpassed 5 million, representing 17% of the group level. This segment is now recognized as the group's second growth driver. Earlier this year, we adjusted the borrowing rates, and after five months of adjusting our operations, we've optimized our borrower group, model, and data strategy to achieve stable operations. The quality of our borrower cohort has improved, with an increase in average ticket size and repeat borrowing rates of 10% and 5.6%, respectively. The conversion rate for higher quality borrowers has also improved, with approved credit lines increasing by 23%, and our risk performance has improved by 23% sequentially. Our efforts have garnered recognition from local financial institutions, increasing our number of funding partners to six. In terms of customer acquisition, we’ve noticed that small and mid-sized platforms are scaling back their acquisitions, and we have successfully reduced our acquisition cost by 10%. Regarding our take rate, we are confident it will remain around 10% in 2024, similar to pre-adjustment levels. We anticipate that our business in Indonesia will become profitable in 2024. In the Philippines, we experienced significant growth in the first quarter, with transaction volume reaching RMB 560 million, reflecting a 194% year-over-year increase and a 27% sequential rise, making up 25% of total volume in the international market. Regulatory conditions in the Philippines are relatively stable, and we expect double-digit growth in the second quarter as well. We've attracted reputable financial institutions like SeaBank and Union Bank as funding partners for over PHP 650 million. Looking ahead, we are optimistic about maintaining our rapid growth in the Philippines.

Thank you. Your next question comes from Thomas Chong from Jefferies. Please go ahead.

Thanks management for taking my question. My question is about how technology can improve asset quality and operational efficiency? Thank you.

Hi, Thomas. Let me do the translation for our CEO. Technology is the core of FinVolution and we've remained committed to consistent investment in technology throughout the year. For example, we've consistently invested in R&D since our establishment, with a cumulative R&D investment of nearly RMB 3 billion since 2015. We have around 700 experts in R&D with 20% holding master's or doctoral degrees. Additionally, we've established long-term academic collaborations with seven leading universities. All these improvements in the aspect of operations and costs can be supported by our technologies. For example, in terms of customer acquisitions, we've invested over RMB 2 billion in our information feeds, and through the accumulation of billions of user data and strategies involving over 100,000 iterations, we have built a better algorithm for us. More than 20% of our video content is now generated by AI. This has reduced our video production costs by about 60%. Cost-wise, we've also been deploying technology to optimize our back-end operations, and during the first quarter alone, our revenue achieved a year-over-year growth of 4%, while G&A expenses as a percentage of revenue optimized to 2.6%. During the period from pre-COVID to COVID, our G&A expenses as a percentage of revenue was 7.3%. In terms of labor efficiency, during the first quarter of 2024, average revenue per employee increased to 8.4% year-over-year, and these are the benefits we've achieved through our tech investments.

Thank you. Your next question comes from Alex Ye from UBS. Please go ahead.

I observed that in the first quarter for our domestic business, we experienced a decrease in new customer numbers, repeat borrowers, and the commercial ratio compared to last year. I'm curious if this was primarily due to our pricing and liquidity approvals or a result of weakened credit demand. Additionally, what is your outlook going forward? How have credit demand trends been in April and May, and what does this mean for our full year target? Thank you.

Hello, Alex. This is Jimmy. Let me do the translation for the team. First of all, let us recap the China macro economy and the micro credit industry that we are in. China's economy presents a complex situation with GDP growth of 5.3% in the first quarter, along with rebounding exports and improvement in manufacturing PMI. However, I do note that there was also a rare contraction in social financing and M1, along with a decrease in social retail sales and consumer confidence. This presents rather mixed signals. For the industry in which we operate, we have also observed changes from the demand and risk environments. Overall, credit risk increased in the second half of 2023 and remained relatively stable in the first quarter, but recovery is still slightly below our expectations. Demand was relatively stable in the first quarter due to seasonal factors. As we entered the second quarter, this was validated by the data we've seen earlier. Under this complex macro environment, FinVolution has implemented various strategies to counter these challenges by enhancing our risk assessment models and approval rates to ensure the stability of our risk metrics. As earlier mentioned, our vintage delinquency has remained stable at 2.5% with Day 1 delinquency rate of 5.2%, while loan collection recovery rate was at 86%. Leveraging our dual strategy of technology and operational efficiencies, we've seen a sequential decline of 50 basis points in our funding costs and a year-over-year decline of 120 basis points. Customer acquisition costs were optimized by 17% compared to the last quarter, and G&A expenses also decreased by 7% year-over-year. All these measures enabled us to achieve a stable take rate of 3%. Our consistent investment in customer acquisitions, with an in-depth focus on repeat customers has led to stable business growth. For example, 30% of our borrowers have maintained their accounts with us for more than 3 years, and over 80% of loans facilitated were for repeat borrowers, effectively mitigating the impact of fluctuating demand and tightening approval rates. Looking ahead in 2024, China's economy poses some challenges, but there are also opportunities such as the stabilization of risk, funding cost improvements, and our enhanced efficiencies and focus on repeat borrowers. With these measures, we are still confident in maintaining a healthy level of growth amidst a challenging macro environment.

Thank you. Your next question comes from Hannah Han from Nomura. Please go ahead.

Could you give us more details on the current process regarding the share repurchase program? Also, does it indicate that you have a new plan to further increase shareholder value? For the second question, we observed an increase in cash in Q1. Could you provide more color on the future use of this cash? Additionally, how does the company plan to increase operating efficiency? Thank you.

Hello, Hannah. Let me do the translation. During the first quarter, we deployed US$27.2 million for share repurchases, which is an increase of around 1x compared to last year and represents about 28% of our quota. We still have US$93 million remaining for our buyback program. We've also completed our share dividend distribution of US$62 million, and coupled with our total share repurchase of around US$100 million for the year 2023, the total payout ratio was around 49% of net income. We've been consistent in our share purchases and dividend distributions for the last 6 years, returning around US$630 million to our shareholders. Moving forward, we will continue to create long-term value for our shareholders through high-quality growth and a leading capital return program combining dividends and buybacks. For our future cash use, we need to ensure sufficient liquidity for the development of our business, especially our rapidly growing international business. Our Indonesia business, after the cap adjustment, has maintained healthy take rates, while our Philippines market is also growing at a fast momentum. We have achieved significant progress in obtaining local licenses, and we will share more concrete information as it becomes available. Over the last 6 years, we have cumulatively returned US$630 million to our shareholders, which is around half of our current market cap, and we are confident in maintaining a healthy return to shareholders while delivering high-quality growth in our business. Thank you, Hannah.

Thank you. There are no further questions at this time. I'd like to turn the call back over to management for closing remarks.

Thank you once again for joining us on our conference call. If you have any further questions, please feel free to contact FinVolution Group's Investor Relations team. Thank you, everybody.

This does conclude our conference call for today. You may now disconnect your lines. Thank you.