FinVolution Group Q2 FY2025 Earnings Call

Hello, ladies and gentlemen. Thank you for participating in the Second Quarter 2025 Earnings Conference Call for FinVolution Group. Today's conference call is being recorded. I will now turn the call over to your host, Yam Cheng, Head of Capital Markets for the company. Yam, please go ahead.

Thank you, Rocco. Hi, everyone. Welcome to our Second Quarter 2025 Earnings Conference Call. The company's 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 e-mail 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 section. 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 U.S. GAAP. For information about these non-GAAP measures and reconciliation of 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 provision of the U.S. 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's filings with the U.S. 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 presentation on our IR website, providing further details of our results for the quarter. I will now turn the call over to our CEO, Mr. Tiezheng Li. Tiezheng, please go ahead.

Thanks, Yam. Hello, everyone. Welcome to our earnings call. Following a solid first quarter of 2025, I'm pleased to share that FinVolution sustained its healthy momentum in the second quarter. Supported by our robust growth in our international business and steady performance in China, net revenue reached RMB 3.6 billion, up 13% year-over-year, driven by a 10% increase in transaction volume in China and a 39% surge in international transaction volume. Net income also showed solid growth, reaching RMB 751 million, representing an increase of 36% year-over-year and 2% quarter-over-quarter. Since our transition to institutional funding model in 2021, we have now delivered 18 consecutive quarters of year-over-year growth in both transaction volume and revenue, a strong testament to our resilient business fundamentals in today's fast-changing macro landscape. As discussed in last quarter's earnings call, regulation in China's consumer finance sector has been evolving. With the implementation of the new regulation of the Internet loan facilitation business in October, we believe it may have implications for the loan mix and the risk profile of the assets in the industry, and we are closely monitoring the latest developments and dynamics of the sector. We maintain an active dialogue with our funding partners, which expanded from 114 to 119 in the second quarter to maintain a relatively stable funding supply and prepare in advance for the potential impacts on our transaction volumes and risk metrics. Our risk infrastructure tested across multiple economic and regulatory cycles positions us well to adapt swiftly and effectively to these changes. In the long run, we view that these measures will ultimately foster more sustainable growth across the sector and benefit lending platforms like ours. Part of our resilient business hinges on the international operations, which offer valuable diversification benefits and growth in the second quarter. International transaction volume increased 39% year-over-year to RMB 3.2 billion, and loan balance rose 50% to RMB 2.1 billion. Notably, our international operations contributed 22% of net revenue, up from 18% in the same period last year. Underpinning the growth is our expanding customer base. We onboarded 1.6 million new borrowers during the second quarter, a 96% year-over-year increase. This marked our fourth consecutive quarter of surpassing 1 million new borrowers. Thanks to our effective AI-powered marketing strategy and diverse user acquisition channels in China, the transaction volume from new borrowers reached RMB 7.1 billion, up 20% year-over-year in our international markets. We attracted 1.1 million new borrowers, up 126% year-over-year. New borrower growth from our international markets also outpaced that in China for the fifth consecutive quarter, curated by our diversified service we provide in the ecosystem through partnerships with leading e-commerce and technology platforms. We expect this trend to continue. On the technology front, we continue to leverage AI in our risk management. We have built effective defenses against sophisticated AI fraud like deepfakes, achieving 98.8% detection accuracy. Our proprietary visual AI analyzes background patterns, document integrity, and text level anomalies, resulting in 95% detection of digital artifacts in forged images. We combine this with multilayered verification, including dynamic facial recognition, randomized voice checks, and real-time video authentication. Looking ahead, we are evolving from single-mode to multimode detection that simultaneously analyzes video and audio, keeping us ahead against evolving financial fraud. ESG remains core to our long-term strategy. We published our Seventh Annual ESG Report in July, underscoring our unwavering commitment to sustainable and inclusive finance. Throughout 2024, we made substantial progress by combining technology innovation, process improvements, and ecosystem partnerships, particularly in enhancing our anti-fraud capabilities and optimizing service quality. These efforts have meaningfully advanced consumer protection with our intelligent fraud prevention system, now detecting over 7,000 suspicious activities daily. In 2024, we blocked more than 26,000 fraud attempts, protecting financial institutions from potential losses over RMB 300 million, while maintaining a 98% user satisfaction rate. Also worth noting, FinVolution Group secured 2 prestigious honors at the FinanceAsia 2025 Award in June: the Best Strategic Initiative award for the Philippines as well as the Most Innovative Use of Technology Award for Mainland China. This recognition affirms the positive value our fintech solutions have brought to financial institutions across multiple markets. Finally, an update on our capital market activity. We completed a USD 150 million convertible bonds offering in June, the first capital market transaction since our IPO in 2017. The funding will support our strategic priorities, accelerating international expansion and lowering capital costs. The transaction also helped us diversify our investor base and deepen engagement with a broader group of investors. We are encouraged by the positive reception from the convertible bond investors as well as the improvement in our stock liquidity following the transaction. In summary, our second-quarter performance reflects outstanding execution of our local excellence and global outlook strategy. We are encouraged by the resilience of our China business and the strengthening of our international business. Bolstered by ongoing investments in technology, customer acquisition, and international expansion, we are well positioned to continue driving sustainable growth and delivering long-term value. Now I will hand the call over to our CFO, Jiayuan Xu, for a closer look at our financials.

Thank you, Tiezheng. Hello, everyone. Let me go through our key results for the second quarter. I will begin with our performance in China. Despite global trade tension and macro uncertainty, China's economy demonstrated resilience as GDP expanded 5.2% year-over-year, exceeding market expectations. Also, consumer sentiment improved on the back of a 4.8% increase in overall spending in June. It is encouraging to see continued regulatory support to increase credit supply for consumer finance to boost the economy. Against this backdrop, we delivered solid results in China. Our take rate remained stable at 3.4%, while the average loan tenure extended slightly to 8.3 months. Risk metrics stayed broadly stable with the day 1 delinquency rate rising 10 basis points quarter-over-quarter to 4.7%, while the 30-day collection rate remained steady at 89%. We maintained our prudent approach to provisioning, supported by a healthy provision coverage ratio of 543%. Turning to our international business. We drove continued growth despite the spillover impact from Ramadan in early Q2. Domestic macro indicators in our key Southeast Asian markets were largely stable, while the underlying consumer demand for credit remained strong. Total international transaction volume grew 39% year-over-year and 6% quarter-over-quarter, surpassing RMB 3 billion for the second consecutive quarter, while outstanding loan balances rose to RMB 2.1 billion, up 50% year-over-year and 30% sequentially. Unique borrowers rose by an impressive 122% year-over-year to reach 2.3 million, breaking the 2 million mark for the first time. As a result, revenue from international markets increased to RMB 797 million, up 42% year-over-year. In Indonesia, while macroeconomic conditions showed slight moderation amid travel tensions, our business demonstrated strong resilience. We maintained the momentum by offering longer tenured products to high credit quality borrowers, which drove better asset quality and improving take rate. We also continue to expand partnership with local platforms to acquire new borrowers. These initiatives delivered solid results. Loan volume grew 9% year-over-year with outstanding loan balance increasing 25% to RMB 1.3 billion. One important and encouraging update on Indonesia, at the end of July, the OJK, Indonesia's Financial Services Authority, issued a new circular that keeps the daily fee cap for consumer funding unchanged from the 2024 level. This is a welcome development because it effectively replaced the previous policy, which would have required a 0.1% annual reduction in the fee cap through 2026. This decision provides much-needed stability, addresses concerns that further fee cuts could pressure revenue and profitability, and ensures a healthy, more sustainable environment for our business going forward. We see this as a strong vote of confidence in the industry and a positive step for our long-term growth in Indonesia. Our business in the Philippines continued to outperform this quarter. Business activity in the Philippines remained high nationwide with an average PMI of 50.7. Thanks to ongoing regulatory support for digital finance innovation as well as our brand awareness through an effective marketing strategy, our loan volume more than doubled year-over-year to RMB 1.4 billion, accounting for 45% of our international business. Buy Now, Pay Later products contributed 32% of volume, up from 30% in the same period last year, driven by our collaboration with TikTok Shop and efforts to expand new platform partnerships. Moving forward, we are optimistic about the transaction volume growth in the Philippines as we deepen our market presence, broaden our funding partnerships, and diversify our business offerings to capture emerging opportunities. Overall, our strong operational performance this quarter produced impressive financial results across the board. Net revenue reached RMB 3.6 billion, reflecting robust year-over-year growth of 30% and a sequential increase of 3%. Net income also saw significant momentum, rising 36% year-over-year to RMB 751 million, underscoring our ability to drive profitable growth. Our financial position remains solid with RMB 7.9 billion in cash and short-term investments, providing ample liquidity to support our strategic priorities. We continue to maintain a prudent balance sheet with a leverage ratio of 2.6x, defined as risk-bearing loans to shareholders' equity. Finally, we continued returning capital to shareholders and have repurchased USD 63.8 million of shares in the first half of 2025, including repurchase made in conjunction with the convertible bond issuance in June. The CB proceeds to fund our international business will optimize capital cost and accelerate expansion. In short, we maintain our strong growth trajectory through disciplined execution of our local excellence and global outlook strategy. We remain confident in our ability to adapt quickly to the evolving regulatory environment in China while driving growth in untapped international markets. We believe the new regulation may foster a healthy development of the industry and benefit leading players' market share in the long-term. As such, we are reiterating our full-year 2025 revenue guidance of RMB 14.4 billion to RMB 15 billion or 10% to 15% year-over-year growth. With that, I will now open the call for questions. Operator, please continue.

Today's first question comes from Cindy Wang with China Renaissance.

Congrats for the good result in the second quarter. So I have 2 questions here. First, regarding new regulation on loan facilitation in China, how do you see the impact on your business? Would you slow down new loan volume in the second half to adjust loan structure and ensure asset quality? Second, the new loan volume in the international market in the second quarter maintained rapid growth. What is the current run rate in July and August? And is there any target customer profile change in Indonesia and the Philippines in the second half?

Okay. Thanks, Cindy. Yes, I will take your questions. Your first question is about the new regulation in China. The new regulations on Internet loan facilitation business will come into effect on October 1st. We think it will provide more order to the industry and in the long run promote the consolidation. There might be some impact on the different types of assets right now. As for those high-priced assets, the funding supply has reduced. Funding partners have become more cautious and selective in cooperation with the platforms. They prefer to choose platforms that can bring good economics or have manageable risk-reward. For those high-quality assets, where our core business is, liquidity and funding costs remain stable. So the tightening of industry liquidity has introduced some challenges, but the overall impact on us remains manageable for three reasons. First, we have the know-how for acquiring and operating high-quality assets; we have long been focusing on sourcing and pricing high-quality assets from the information-fees channel. Now that the funding market is shifting to high-quality assets, we should benefit. Second, as proven in the previous credit cycle, we have been disciplined in risk management. Thanks to our efforts on high-quality customer strategy and continuously building competitive capabilities, we saw the delinquency rate staying in a reasonable and manageable range. We will continue to dynamically balance our risk exposure and transaction volume as we step into the second half of the year. We expect the regulatory uncertainty to continue to weigh on the industry. Third, our international business continues to be a growth driver and a more important source of diversification for our business. In the second quarter, as transaction volume increased by around 40% year-over-year and revenue contribution surpassed 22%. We also see a better profitability trajectory than expected in our international markets. This structural growing trend in international markets provides a cushion to the short-term volatility in the China market. In conclusion, we expect a low single-digit quarter-over-quarter decline in transaction volume in the China market, but with reasonable fluctuations in risk levels and largely stable take rates. Therefore, we are maintaining our full-year revenue growth guidance of 10% to 15%, subject to the industry not being significantly different in the coming quarters. As for your second question regarding our overseas business, well, as we mentioned in the first half of 2025, our international markets continued their very strong momentum. The transaction volumes were up nearly 40% year-over-year and 11% quarter-over-quarter. I am very happy to share that this strong trend has continued into July and August. Based on our current trend, we are projecting both Indonesia and the Philippines to deliver solid double-digit quarterly growth again in Q3. In Indonesia, the most important update is on regulation. In late July, the OJK confirmed its new interest rate policy, effectively maintaining the interest rate cap at which we have been operating since the end of last year. The directive issued in 2023 was to reduce the interest rate cap gradually from 0.4% to 0.1% by 2026. With the latest circular, the reduction is not revoked. This removal of uncertainty is a huge positive for the entire industry and allows us to plan for the long term with much greater clarity. Regarding the business, we are continuing to deliver diversified product offerings. For our online cash loan, we proactively launched marketing initiatives to target high-quality customers in the first half of the year. For example, we offered attractive terms and repayment flexibility to those high-quality customers to appeal to the customer base we can reach. For the offline front, we acquired the motor finance license last year, and we are expanding into offline installment scenarios like smartphones, motorbikes, and home appliances. We have partnered with major Chinese electronic brands and local brands to offer offline installment loan options at the point of sale. While this business is still relatively small at the moment, we are quite confident it could tap into a market of substantial potential. As for the Philippines, it's our second-largest overseas market. It has been consistently exceeding our expectations as the macro environment remains very favorable. Our Buy Now, Pay Later cooperation with TikTok Shop continues to be very successful. It has already contributed 32% of the Philippines' total transaction volume and its product line has already become profitable. Building on this success, we have recently expanded partnerships with other local telecom operators to fund phone credits with Buy Now, Pay Later products. With these partnerships, we aim to onboard a new customer base that we haven't served before. Looking forward, we continue to expand and diversify our consumption scenarios and partner ecosystems to build our financial product metrics that cover a wider user base to speed up the overseas business growth. Looking ahead to the second half of the year, although the Philippines might experience some typhoon-related seasonal impacts in Q3, we will stay prudent in our customer acquisition strategies. Given the powerful momentum from our ecosystem partners and our expanding product offerings, we are very confident in maintaining the growth trajectory for the full year.

Our next question today comes from Alex Ye with UBS.

I'll translate for my question. The first question is about asset quality. So can you give us more color on the drivers for the quarter-on-quarter movement in your day 1 delinquency ratio and collection ratio? And how has the trend been in July and August? So are you concerned about the potential spillover risk for your core customer base from the current regulatory uncertainty? Second question is about your overseas business. Can you walk us through how the development of your overseas business has compared to your plans at the beginning of the year? In particular, given you have issued convertible bonds earlier, how is that expected to contribute to your overseas growth in the coming quarters? Should we expect the overseas growth to further accelerate from here?

Okay. Thanks. Yes, let me take your questions. Your first question is about the domestic business again. Overall risk levels were largely in check in Q2, although we observed a moderate uptrend in July and August. We started to see early spillovers of the risk from 36% asset to 24% assets, but it remained under control as we proactively managed the loan portfolio. In Q2, our key risk metrics remained largely stable. As we mentioned, it also factored in the slightly longer tenure of the portfolio in the quarter. The day-1 delinquency rate held steady at 4.7%. Our 30-day loan collection rate remained strong at 89%. The vintage delinquency rate was 2.5%. In July, we saw a slight uptick, with our day-1 delinquency rate ticking up by 20 basis points to 4.9%. We acted swiftly to adjust our risk management strategies, and by August, the day-1 delinquency rate stabilized at 4.9% again, while our 30-day loan collection rate held firm at around 89%. In view of the uptrend in risk, we have proactively tightened our risk management in several aspects. First, we reduced our exposure to assets from low-quality channels, which historically carry high risks. For those high-quality channels, particularly the information feeds channel, we have further adopted different credit strategies for our borrowers. For example, we reduced the credit limit for borrowers with higher debt and better terms to borrowers with better credit scores and removed the credit limits that were not utilized. In terms of loan collection, we employed AI technology to identify and alert high-risk borrowers who are in the early stages of being past due and set up collection efforts accordingly. Looking ahead, while we continue to be vigilant about risk for Q3 and Q4, we also have a risk buffer in place. Our provision coverage ratio has climbed to 543%, a significant increase from 465% in Q1. We will remain flexible and adapt to market dynamics. We are confident in the long-term development of the industry and the position of leading platforms. Regarding your second question about the overseas business and the impact of convertible bonds, our international performance has played out as we expected in the first half of the year. The transaction volume hit RMB 6.2 billion, up 38% from last year. The outstanding balance grew to RMB 2.1 billion, a 50% increase, and revenue reached RMB 1.5 billion, up 30%, now making up 21% of the group's total revenue. The funding cost in international markets has held steady, and we have deepened relationships with more financial institutions. As we mentioned before, we focus on attracting high-quality borrowers in Indonesia, where we have seen a 50% improvement in credit cost compared to the beginning of the year. The credit cost in the Philippines has held steady, driving a steady improvement in our take rate. The recent removal of regulatory concerns in Indonesia could normalize liquidity and provide us with a stable environment to execute consistent customer acquisition and our risk pricing strategy going forward. For new markets such as Pakistan, after obtaining the NBFC license last year, we recently secured a Buy Now, Pay Later license in July, making us the first fintech platform that can operate both online and offline, representing a significant endorsement from regulators. Our plan is to roll out more diversified consumer finance product offerings to serve our customers throughout their life cycles. Finally, regarding how we are funding this growth, our $150 million convertible bond issuance in June was a strategic move. We used around $16 million for concurrent buyback and the remainder is gradually deployed to fund our international business. Our average overseas funding cost is about 12% compared to the 2.5% coupon from the convertible bonds, yielding approximately 10% potential savings from a working capital management perspective. Overall, this positive development and optimal use of the convertible bond funding lead us to expect better profitability from our international business. We now anticipate profit contributions from our international business of no less than USD 15 million this year, up from our prior estimate of $10 million.

The next question comes from an unidentified analyst with CICC.

And let me translate, and I would like to inquire about the company's future shareholders' returns progress. We noticed that the company has repurchased about $50 million in shares during the first half of this year. And I wonder if you could give me some color on the future progress of the repurchase. Additionally, the company has previously raised the year's dividend payout ratio to the range of 20% to 30%. Is there a more specific dividend ratio plan available for disclosure to the shareholder at present? And that's all.

Okay. Thanks. I will take your question. Well, returning capital to our shareholders is always a very important strategy for us. We were the first in the industry to launch the capital return program back in 2018. Since then, our commitment has been substantial. We have cumulatively returned $813 million to our shareholders, representing around 35% of our current market cap. Regarding the two pillars of returns, the dividend and the buyback: first, for the dividend, we are deeply committed to growing our dividend. Our DPS reached $0.277 for 2024, up a strong 70% year-over-year. That actually marks our fifth consecutive year of growth with an impressive 80% CAGR. This year, in March, our Board approved a significant upgrade to our dividend policy, moving from a minimum of 10% of net profit to a new range of 20% to 30% annually. Given this enhanced policy and our performance, we will track the DPS growth rate to ensure a sustainable dividend growth strategy. Second, as for share repurchases, we see buybacks as a powerful and complementary tool. We had our $115 million buyback program in place until March 2027. In the first half of the year, we have repurchased $63.8 million, representing a 12% increase year-over-year. We believe this new buyback and upgraded dividend policy send a clear message of our commitment to returning capital to our shareholders and reflects our confidence in sustained growth, profit potential, and expanding international presence.

This concludes our question-and-answer session. I would now like to turn the call back over to management for closing remarks.

All right. Thank you. Thank you once again for joining us today. If you have any further questions, feel free to contact our IR team. Thank you again for joining.

The conference has now concluded. Thank you for your participation. You may now disconnect your lines.