Earnings Call Transcript - FINV Q4 2020

Operator, Operator

Hello ladies and gentlemen. Thank you for participating in the Fourth Quarter and Full Year 2020 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.

Jimmy Tan, Head of Investor Relations

Hello everyone and welcome to our fourth quarter and full year 2020 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. Feng Zhang, 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 certain 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 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 U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company 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 post 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. Feng Zhang. Please go ahead sir.

Feng Zhang, CEO

Thank you, Jimmy. Hello everyone and thank you so much for joining us today. First of all, on behalf of FinVolution, I would like to express my sincere appreciation to our shareholders and stakeholders for all of their support over the past year. 2020 was an extremely unusual year with enormous challenges. However, despite the economic uncertainties created by the pandemic and the fast-evolving regulatory environment in which we operate, I'm proud to say we have done remarkably well. By strategically shifting to better quality borrowers, we delivered a solid financial performance over the past year. With the clearance of P2P balances and 2020 behind us, our focus for 2021 will be on resuming high-quality growth. After a strong recovery in the third quarter, we continued on our upward trend in the fourth quarter, helping us close the year on a strong note. For the fourth quarter, our average IRR was 26.4%, with loan origination volume increased by 24% from the previous quarter to RMB21 billion, exceeding the top end of our guidance range of RMB20 billion. We attribute these gains to our strong strategic execution, our industry-leading technological capabilities, and our sophisticated and prudent approach to risk management. We have successfully completed our strategic transition towards better quality borrowers, as evidenced by the significant improvement in our delinquency levels. Equipped with our framework for enhanced risk assessment and management, we were able to continue decreasing our funding costs while simultaneously increasing the number of institutional funding partners, allowing us to maintain ample, diversified, and stable funding sources on our platform. It is encouraging to see our strong growth momentum continue as we enter into 2021. Both supported by our prudent approach to risk management and our industry-leading risk management capability, we saw further improvement on multiple key risk metrics. For example, our day-one delinquency rate was 5.2% in February 2021 compared to 12.5% during December 2019 before the COVID-19 outbreak, primarily due to our transition towards high-quality borrowers and effective risk management capabilities. Our vintage delinquency rate is expected to fall below 3% in the fourth quarter compared to around 6% in the same period in 2019. Going forward, we expect our vintage delinquency rates to maintain similar levels in 2021. Notably, our 30-day loan collection recovery rate continued to stabilize at over 90%. Portfolio vertical delinquency rate for all outstanding loans on our platform is also at a new historical low. For example, delinquency rates that are 15 to 89 days past due improved to 1.38% compared to 5.6% in the same period last year. On the funding side, funding on our platform remains stable and ample with growing numbers of institutional funding partners. The number of our funding partners increased steadily to over 50 as we continue to attract new partners on board. Our quality assets have spurred strong demand from institutions to facilitate loans through our platform. With our strengthened risk management capabilities as well as better credit profiles of borrowers, we further lowered funding costs. The cost of funds on our platform fell to 7.5% in the fourth quarter compared with 10% in the same period last year. With regards to the CBIRC's notice on further regulating commercial banks' online lending business, the new restrictions are focusing on the joint lending model. We do not rely on the joint lending model to operate our business. Instead, we are empowering our financial institutional partners through a loan facilitation model in which funding partners provide 100% of funds for loans to borrowers. As our funding partner is highly diversified with a mix of internet banks, private banks, consumers finance companies, and trust companies, the new CBIRC regulations impact on our domestic online lending operation is minimal. Now I'd like to share a little more about our new strategic initiatives, specifically on how we plan to leverage our technological capabilities and the industry know-how to propel further growth for our company. Powered by our strong technological capabilities and the credit risk assessment framework, we have also diversified our loan business into the micro-enterprise segment. In 2020, we originated RMB3.7 billion in loans to over 220,000 micro-enterprises. This year we plan to extend such loan facilitation services to further cater to the operating needs of small businesses. We believe offering financial support for micro and small enterprises will help fuel the growth and prosperity of the overall economy, which is also in line with the regulatory guidance in China. In 2020, our micro-enterprise loan volume accounted for around 6% of our total loan volume, and we expect this portion of our business to account for about 20% of our loan origination volume in 2021. Our international expansion is progressing rapidly with the Indonesia market leading the growth. Our Indonesia operations, which today represent the majority of our overseas business, gained further traction with better-than-expected loan volume growth. Loan origination volume for Southeast Asia in the fourth quarter increased by 100% to RMB535 million compared to the previous quarter. Over the past two years, we have obtained a peer-to-peer lending license from the financial services authority of Indonesia and a capital market services license from the monetary authority of Singapore. These developments are significant for us as we believe that Southeast Asia will be a fast-growing market. We will continue to harness state-of-the-art technology as well as our deep industry expertise and experience to make financial services more accessible for users in the region. In light of evolving market dynamics, our business remains solid with strong loan recovery growth that started in the third quarter of 2020. The performance was supported by our technological capabilities and the effective execution of our plan and strategy. With a successful transition to higher quality borrowers, we now expect our loan volume to be in the range of RMB100 billion to RMB120 billion in 2021, representing an increase of 56% to 87% year-over-year. In summary, our resilient performance in 2020 lays a solid foundation for us to drive further growth. Looking ahead in 2021, we remain dedicated to controlling credit risk with our technological capabilities given our proven track record in technology innovation, prudent risk management, and responsive measures taken to navigate challenging economic and credit cycles. We are well-positioned to capture the immense potential in China's consumer and micro-enterprise markets as well as Southeast Asia's Fintech markets to deliver long-term value for our shareholders. With that, I will now turn the call over to Jiayuan Xu who will discuss our financial results for the quarter.

Jiayuan Xu, CFO

Thank you Feng, and hello everyone. In the fourth quarter, I made a recovering community environment in Mainland China. We delivered non-GAAP operating profit of RMB593 million, representing an increase of 34% year-over-year and further demonstrating the resilience of our core business model. Our balance sheet remains strong with RMB4.6 billion in unrestricted cash and short-term liquidity. Leveraging our strong technology capabilities, we look to capture new opportunities arising from consumer finance markets both in Mainland China and Southeast Asia as we continue to expand and deepen our relationships with business partners. Now turning to the financial results for the fourth quarter. In the interest of time, I will not walk through each item line by line on this call. Please refer to our earnings release for more details. Net revenue for the fourth quarter of 2020 increased by 50% to about RMB1.85 billion from RMB1.23 billion in the same period of 2019, primarily due to the adoption of ASC 326 at the beginning of the year and the increase in loan volume. Loan facilitation service fees increased by 19% to RMB643 million for the fourth quarter of 2020 from RMB539 million in the same period of 2019, primarily due to the increase in loan origination volume, which was partially offset by a decrease in the average rate of transaction fees. Post facilitation service fees decreased by 36% to RMB176 million for the fourth quarter of 2020 from RMB276 million in the same period of 2019, primarily due to the decline of any loans serviced by the company and the growing impact of the deferred transaction fees. Guarantee income was RMB667 million for the fourth quarter of 2020 due to the adoption of ASC 326. Net interest income decreased by 36% to RMB204 million for the fourth quarter of 2020 from RMB370 million in the same period of 2019, mainly due to the reduction in outstanding loan balance of consolidated charge. Other revenue increased by 60% to RMB162 million for the fourth quarter of 2020 from RMB101 million in the same period of 2019, mainly due to increased customer referral fees to third-party service providers. Non-GAAP adjusted operating profit, which excludes share-based compensation expenses before tax, was RMB630 million for the fourth quarter of 2020, representing an increase of 38% from RMB445 million in the same period of 2019. Net profit was RMB497 million for the fourth quarter of 2020, representing an increase of 21% compared to RMB413 million in the same period of 2019. Our core business model is based on the loan facilitation model whereby the institutional funding partners on our platform provide 100% of the funds for loans to borrowers, and our role is to provide value-added service to the funding partners as well as provide borrowers access to credit. We have a well-capitalized balance sheet and our leverage is conservative. If you divide the total of outstanding loans on our platform of RMB26 billion by our shareholders' equity, the leverage ratio across the business was only 3.2 times, and our liquidity position remains strong with about RMB4.6 billion of unrestricted cash and short-term investments at the end of December 2020. Our strong balance sheet enables us to be well-positioned in the current environment and gives us significant flexibility. We have continued to return value to our shareholders through dividends and share buybacks. In the first quarter, we have deployed $30 million to buy back our shares. As of December 2020, we have cumulatively deployed U.S. $129 million on buybacks. Our board has also announced a dividend of U.S. $0.17 per ADS for fiscal year 2020 for our shareholders. This is our third consecutive dividend declaration, which reaffirms our confidence in our business model, our core capabilities, and the long-term market potential. Since we began our share buyback and dividend initiatives in 2018, we have cumulatively deployed U.S. $272 million in this regard. With that, I will conclude my prepared remarks, and we will now open the call to questions. Operator, please continue.

Operator, Operator

We will now begin the question-and-answer session. The first question comes from Hanyang Wang with 86Research. Please go ahead.

Hanyang Wang, Analyst

Let me try to take my questions. My first question is regarding the Hong Kong release team. Any plan or timetable for that would be helpful. My second question is about the take rate. Will we continue to reduce the take rate in 2021? My last question pertains to our overseas business. How do we evaluate the timing in Southeast Asia, what will be the proportion of overseas business in terms of participation volume in the coming years, what is our primary business model, and how do we assess risk in that area considering the profiles may differ? Thank you.

Feng Zhang, CEO

Okay. We have made the requirements for secondary listing on the Hong Kong Stock Exchange, and the company is exploring the possibility as this is still in very early stages. We will only update the market when we have further updates from our side.

Hanyang Wang, Analyst

We have made the requirements for secondary listing on the Hong Kong Stock Exchange, and the company is exploring the possibility as this is still in very early stages. We will only update the market when we have further updates from our side.

Jiayuan Xu, CFO

Okay. Let me do the translation first. Okay, let us discuss some pricing. The four times LPR – product lending and it's not applicable for us since we are using the loan facilitation model. And from this perspective, we have the flexibility to adjust our pricing. However, the decision on my adjustments is dependent on several factors, such as the economic development, the level of customer satisfaction, and the level of rates, etc. We will need to consider all these factors before making any changes.

Hanyang Wang, Analyst

Let me do the translation first. Okay, let us discuss some pricing. The four times LPR – product lending is not applicable for us since we are using the loan facilitation model. From this perspective, we have the flexibility to adjust our pricing. However, my decisions on these adjustments depend on several factors, such as economic development, customer satisfaction, and interest rates. We will need to consider all these factors before making any changes.

Feng Zhang, CEO

Okay. Apart from pricing, we also need to consider other factors such as the REIT and our funding cost. For example, our market funding cost is expected to be below 7.5% and our REIT is expected to be below 3%. From the take rate point of view, we are confident to maintain the guaranteed rate at 4% as we have the capability to reduce funding costs and further improve delinquency rates.

Jiayuan Xu, CFO

I will just quickly add that the 4% number, if you do the exploration, if you do the math it is risk-adjusted, it is basically based on our content pricing which is between 26% to 27% and 7.5% funding cost and 3% cost. So it is based on these numbers. They come out with a take rate of about 4%. Now as Zhang has mentioned, the regulation has clarified that the four times LPI pricing gap doesn't apply to our business model. So in that case, we do have flexibility and we do have room to further adjust our pricing upwards or downwards, specifically on the take rate side.

Hanyang Wang, Analyst

The calculation is risk-adjusted and relies on our content pricing, which ranges from 26% to 27%, alongside a 7.5% funding cost and a 3% cost. Based on these figures, the take rate is around 4%. As Zhang noted, the regulation has clarified that the four times LPI pricing gap does not apply to our business model. Therefore, we have the flexibility to adjust our pricing both upwards and downwards, particularly regarding the take rate.

Feng Zhang, CEO

Okay. Let us recap on the situation in Southeast Asia. Our Indonesia market is leading the growth and we have also entered into other countries such as the Philippines and Singapore. We will continue to keep track of the local regulatory developments and keep our operations within the limits of the regulatory requirements. For example, we have obtained a P2P license in Indonesia, and our every loan tenure is between one to two months.

Hanyang Wang, Analyst

Let us recap on the situation in Southeast Asia. Our Indonesia market is leading the growth and we have also entered into other countries such as the Philippines and Singapore. We will continue to keep track of the local regulatory developments and keep our operations within the limits of the regulatory requirements. For example, we have obtained a P2P license in Indonesia, and our every loan tenure is between one to two months.

Feng Zhang, CEO

We will continue to expand our market share in Indonesia as we think there is a lot of potential in Indonesia. It is just like China from a few years ago.

Hanyang Wang, Analyst

So, who are the main competitors in the Southeast Asia market regarding the loan facilitation business model? Thank you.

Jiayuan Xu, CFO

Okay.

Hanyang Wang, Analyst

We will continue to expand our market share in Indonesia as we believe there is significant potential there. It resembles China from a few years back.

Feng Zhang, CEO

The Indonesia market is still in a very early stage, and we do have the confidence and capabilities to repeat our success in China over the Southeast Asia market. By the way, I just want to add that we are consistently among the top three fintech apps in the Indonesian market.

Hanyang Wang, Analyst

The Indonesia market is still in a very early stage, and we do have the confidence and capabilities to replicate our success in China in the Southeast Asia market. Additionally, I would like to mention that we consistently rank among the top three fintech apps in the Indonesian market.

Operator, Operator

Our next question is from Alex Ye from UBS. Please go ahead.

Alex Ye, Analyst

I will translate my question. I have three questions. The first is regarding the loan growth guidance of 120 billion, which indicates strong growth. I'm curious about how we plan to achieve that growth, especially since the momentum in acquiring new customers hasn't yet returned to a high level. Are there plans to activate our customers more and increase their contributions from higher to strong growth? My second question is about your MSE loan target. You intend to increase the MSE loan contribution to 20% in 2021. Could you provide details on that initiative? Additionally, how does the risk-adjusted return of those MSE loans compare to your consumer credit? Lastly, concerning your six-month appreciation cost, it has increased over the last three quarters, likely due to a strategy focused on higher quality customers. I'm wondering if this high cost associated with customer constraints is something we can expect to continue in the future. Thank you.

Feng Zhang, CEO

To achieve our target of between RMB100 billion to RMB120 billion, we need both new and existing customers. In the fourth quarter, we had about 370,000 new customers, which is a 50% increase compared to the third quarter and is at levels similar to the same period in 2019. Furthermore, in December, this number is growing rapidly, and we anticipate that the trend will continue into 2021.

Alex Ye, Analyst

To achieve our target of between RMB100 billion to RMB120 billion, we require both new and existing customers. For instance, in the fourth quarter, we acquired approximately 370,000 new customers, which marks a 50% increase from the third quarter and aligns with levels seen in the same period in 2019. Particularly in December, this growth has been rapid, and we anticipate this trend to persist into 2021.

Feng Zhang, CEO

Okay. The new customers are more receptive to our brand, as we realize that they are actually showing more registration actions from these new customers.

Alex Ye, Analyst

The new customers are more receptive to our brand, as we realize that they are showing more registration actions from these new customers.

Feng Zhang, CEO

We have also seen similar trends with our old customers, as we have noticed repeat borrowings actually increase.

Alex Ye, Analyst

The new customers are more receptive to our brand, as we realize that they are actually showing more registration actions from these new customers. We have also seen similar trends with our old customers, as we have noticed repeat borrowings actually increase.

Feng Zhang, CEO

Our growth in the past two years has been slow, but prior to 2018, we enjoyed very rapid growth. During the last two years, we have been occupied with the P2P exit and the transition to better quality borrowers. We have successfully achieved both of these targets, and now that these targets have been completed, we have the ability to resume high-quality growth in terms of loan origination volume.

Alex Ye, Analyst

Feng Zhang, CEO

We have been acquiring our new customers through diversified online and offline channels. For the online channels, we are acquiring them through information.

Alex Ye, Analyst

In the last two years, we have focused on the P2P exit and shifting towards higher quality borrowers. We have successfully accomplished these goals, and now that they’re completed, we can return to strong growth in loan origination volume. We have been attracting new customers through a variety of online and offline channels, using online sources to gather information.

Jiayuan Xu, CFO

Our customer acquisition cost in the fourth quarter, on a CPS basis, is 500 plus, similar to the level in Q3. But do remember that the fourth quarter was also impacted by the event.

Feng Zhang, CEO

Yes, and going forward, therefore, Q4's cost will be a little bit higher because of the e-commerce events that had a lot of advertisements due to the year-end events. We are confident that going forward, our CPS, our marketing costs will be controlled at a similar level given the better quality borrower base, lower loss rate, and lower funding cost. Such a CPS level we think is very healthy for our business model. So I will try to answer the second question. Yes, so our SME loan business targets customer profiles mostly like shop owners like in China, and our ticket size ranges from a few thousand to mostly around RMB50,000, with an average around 10,000. The risk-adjusted return is in the range of 18% to 27% and is slightly lower than our average borrower. We have seen better risk quality for these customers on average. We estimate the loss rate to be probably about 1% lower than our standard loans. So the profitability we expect, given the slightly lower price, their price is a little bit lower and also lower delinquency rates. We expect similar risk-adjusted margins and returns. So in terms of yes, I think that's probably all the things you are asking. Thank you.

Alex Ye, Analyst

Thanks. That's very clear. Thank you.

Feng Zhang, CEO

Thank you, Alex.

Operator, Operator

The next question is from Jacky Zuo with China Renaissance. Please go ahead.

Jacky Zuo, Analyst

Thank you for addressing my questions. I have two inquiries. First, I'd like to know about the borrowing demand. What trends are we observing from borrowers in the first quarter, and have you noticed an increase in borrowing demand from end users, especially since we've heard that some are experiencing cuts to their credit lines? My second question concerns the funding aspect. I've seen some of our competitors looking into profit-sharing models with their funding partners. Can you update us on our progress regarding the profit-sharing model? Thank you.

Jiayuan Xu, CFO

The demand is very strong based on our loan origination volume guidance for 2021, and our Q4 loan volume guidance also exceeded the upper limit of our guidance from Q3. This is attributed to the support from both our existing and new customers.

Jacky Zuo, Analyst

Okay, the demand is very strong based on our loan origination volume guidance in 2021, and also our Q4 loan volume guidance exceeded the top end of our guidance in Q3. This is due to the support from our old customers and our new customers.

Feng Zhang, CEO

We do not have 100% confirmed data if these users are from the internet-driven impact. We are able to indirectly estimate some of the overlaps with other players in the market, for example, we have conducted, with results reflecting that demand has not been fully satisfied.

Jacky Zuo, Analyst

We do not have 100% confirmed data if these users are from the internet-driven impact. We are able to indirectly estimate some of the overlaps with other players in the market; for example, we have conducted analyses that show demand has not been fully satisfied.

Feng Zhang, CEO

There is no specific guidance from the regulators regarding the risk-sharing model.

Jacky Zuo, Analyst

We do not have complete confirmation that these users are impacted by the internet. However, we can make indirect estimates about some overlaps with other market players. Our findings indicate that demand has not been fully met. There is currently no specific guidance from the regulators concerning the risk-sharing model.

Feng Zhang, CEO

From the company's perspective regarding the capital model, we need to consider several issues such as leverage ratio, cash position, and unique economics, etc.

Jacky Zuo, Analyst

There is no specific guidance from the regulators regarding the risk-sharing model. From the company's perspective regarding the capital model, we need to consider several issues such as leverage ratio, cash position, and unique economics, etc.

Feng Zhang, CEO

At this moment, the risk-bearing loan facilitation model is the most advantageous for us.

Jacky Zuo, Analyst

Jiayuan Xu, CFO

As you know, we already have over 60 institutional partners working with us, and most of these institutional partners operating under the risk-free model are also our institutional partners. This is why we believe that we have the fundamentals to support if we were to venture into the capital-light model with them.

Jacky Zuo, Analyst

At this moment, the risk-bearing loan facilitation model is the most advantageous for us. As you know, we already have over 60 institutional partners working with us, and most of these institutional partners operating under the risk-free model are also our institutional partners. This is why we believe that we have the fundamentals to support if we were to venture into the capital-light model with them.

Operator, Operator

The next question comes from Henry Liang with Golden Dragon. Please proceed, Henry Liang, your line is open.

Henry Liang, Analyst

Congratulations on the impressive metrics regarding volume and profitability. Can you explain the reasons behind the decline in transactions despite these positive metrics? Also, could you share some information about our key competitors? Thank you.

Jiayuan Xu, CFO

Okay. First of all, we have over 13 years of operating history, and if you take a look at two years ago, our business was actually growing very quickly. However, in the past two years, we have been focused on the P2P exit and upgrading to more qualified borrowers.

Henry Liang, Analyst

Okay. First of all, we have over 13 years of operating history, and if you take a look at two years ago, our business was actually growing very quickly. However, during the last two years, we have focused on the P2P exit and upgrading to higher quality borrowers.

Feng Zhang, CEO

We managed to transform because the team has the capabilities, the ability to execute swiftly, and the core capability in technological management. With all these capabilities, we are able to transform compared to most of our peers.

Henry Liang, Analyst

Jiayuan Xu, CFO

Hey Henry.

Henry Liang, Analyst

Feng Zhang, CEO

Our condition has basically come to a temporary spot, and now we have resumed our focus on resuming growth. Based on our past track records, we do have the capability to rapidly resume growth in the market.

Henry Liang, Analyst

Jiayuan Xu, CFO

We have also proved to the market that our capabilities and technologies are transferable, not only in China but also in the international market. This means that we can replicate our experience in China to the international markets.

Feng Zhang, CEO

Hey Henry, I won't add more color. I think there are a couple of things. One is that our company, I think, would set us apart from a lot of other players in the market. We have a really strong risk culture, and we put a lot of emphasis on keeping the risk at our target level, and we don't sacrifice our risk for growth. One thing that I can share is our President, our current President, was the Chief Risk Officer of the company before I joined in 2015, and I joined the company as Chief Risk Officer and now I am the CEO. So that kind of gives you an idea of how important risk is in our management's focus. And that's why, given a good risk track record, we have a very smooth transition from P2P to institutional funding models. We also emphasize a lot on technology. We continue to invest in technology, as we believe that is the key competitive advantage for long-term success in this fintech business. Finally, we have a very strong team. I think that's why you see that risk is good and growth comes. I think it really is the result of many years of hard work. We set our strategic goals of production for better quality borrowers and for the institutional facilitation model over two years ago. We are seeing the fruits of that today, and we believe we will see even better going forward. So it is really a combination of, we think, good strategic planning and execution.

Henry Liang, Analyst

Thank you for the insightful response. I have a quick follow-up. What is the total margin of funding cost that we can negotiate with the new funding partners in the current situation? Additionally, how much of this growth in our top-line volume can be converted into earnings?

Feng Zhang, CEO

Okay, Henry. We already have 10 to 15 partners in our pipeline, and we believe there is further room for improvement in the funding side.

Henry Liang, Analyst

So thanks for the very insightful response and just a very quick follow-up. What is the total margin of funding cost that we can negotiate with the new funding partners in the current situation, and secondly, how much of this growth in our top-line volume can be transitioned into earnings? Okay, Henry. The funding facts, we already have 10 to 15 partners in our pipeline, and we believe there is further room for improvement in the funding side.

Feng Zhang, CEO

However, funding cost is only one factor. We need to consider other issues, such as our funding partners' ability, the level of customers, and other factors. However, at the current moment, our priority is not to have the lowest funding cost, but to find the most appropriate partners to support our high-quality growth.

Henry Liang, Analyst

We already have 10 to 15 partners in our pipeline, and we believe there is further room for improvement in the funding side. However, funding cost is only one factor. We need to consider other issues, such as our funding partners' ability, the level of customers, and other factors. However, at the current moment, our priority is not to have the lowest funding cost, but to find the most appropriate partners to support our high-quality growth.

Feng Zhang, CEO

Okay, we have given our loan origination guidance and we have also provided our take rate guidance of around 4%, so if you accomplish that, you will have a sense of how much revenue we are going to generate.

Henry Liang, Analyst

Our priority right now is not to secure the lowest funding cost, but rather to identify the most suitable partners that can support our high-quality growth. We have provided our loan origination guidance and our take rate guidance of approximately 4%, so if you achieve that, you'll get an understanding of the revenue we expect to generate.

Jiayuan Xu, CFO

However, from top line to bottom line, there are several factors influencing these. For example, customer acquisition costs are one of them. We need to recognize this cost upfront.

Henry Liang, Analyst

We have provided our loan origination guidance and our take rate guidance of approximately 4%, so achieving this will give you an idea of the revenue we expect to generate. However, there are several factors affecting our results from top line to bottom line, one of which is customer acquisition costs. It's important to acknowledge this cost upfront.

Feng Zhang, CEO

New customer acquisition is not purely a cost for us. If you understand us, you know that acquiring new customers is required for growth. This is why we view new customer acquisition as a form of investment.

Henry Liang, Analyst

However, from top line to bottom line, there are several factors influencing these. For example, customer acquisition costs are one of them. We need to recognize this cost upfront. New customer acquisition is not purely a cost for us. If you understand us, you know that acquiring new customers is required for growth. This is why we view new customer acquisition as a form of investment.

Feng Zhang, CEO

We try to maximize the acquisition of new customers on our side.

Henry Liang, Analyst

Feng Zhang, CEO

Another factor influencing the bottom line is the accounting. Because of these two situations, from top line to bottom line there are many considerations.

Henry Liang, Analyst

We try to maximize the acquisition of new customers on our side. Another factor influencing the bottom line is the accounting. Because of these two situations, there are many considerations from top line to bottom line.

Feng Zhang, CEO

However, we are confident in maintaining a steady growth trend in the bottom line.

Jiayuan Xu, CFO

We try to maximize the acquisition of new customers on our side. Another factor influencing the bottom line is the accounting. Because of these two situations, from top line to bottom line there are many considerations. However, we are confident in maintaining a steady growth trend in the bottom line.

Operator, Operator

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

Jimmy Tan, Head of Investor Relations

Okay. Thank you everyone for joining our call tonight. If you have any further questions, feel free to reach out to the IR team. Good night.

Operator, Operator

This concludes the conference call. You may now disconnect your line. Thank you.