Earnings Call Transcript - FINV Q3 2025

Operator, Operator

Hello, ladies and gentlemen. Thank you for joining the third quarter 2025 earnings conference call for FinVolution Group. After management's prepared remarks, there will be a chance for questions. This conference call is being recorded. I will now hand the call over to your host, Yam Cheng, Head of Capital Markets for the company. Yam, please proceed.

Yam Cheng, Head of Capital Markets

Okay. Thank you. Before I start, thank you, everyone, for dialing in. I think the line today could be a bit choppy. So in case we get disconnected, we'll dial again. So bear with us. Okay. So welcome to the third 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. Mr. Tiezheng Li, our CEO; and Mr. Jiayuan Xu, our CFO, will start the call with 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 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'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. SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Finally, we have posted a slide presentation on our IR website providing details of our results for the quarter. I will now turn over the call to our CEO, Mr. Tiezheng Li. Tiezheng, please go ahead.

Tiezheng Li, CEO

Thanks, Yam. Hello, everyone. Welcome to our earnings call. In the third quarter of 2025, against a dynamic regulatory backdrop in China, we delivered another resilient result driven by robust growth in our international business. Total revenue grew 6.4% year-over-year to RMB 3.5 billion, and net profit came in at RMB 641 million, up 2.7% year-over-year. Our China business demonstrated stable revenue. Meanwhile, our international business continued to shine. Transaction volume was up 33% year-over-year, and revenue rose in line with volume, up 37% year-over-year. Our international segment continued to be an effective natural hedge to our China business, representing a record 25% of total revenue this quarter compared to 19% a year earlier. We made meaningful progress in our international expansion. Our borrower base now stands at a cumulative 10 million with new borrowers up 18% sequentially in the third quarter, reaching 1.3 million. Notably, our international new borrower count has exceeded China's for 6 straight quarters. In Indonesia, growth accelerated following the stable interest rate policy announced by the OJK in July 2025. We also succeeded in upgrading customer quality, which improved risk metrics and take rate. In the Philippines, we boosted transaction volume by 86% year-over-year to RMB 1.6 billion despite typhoon-related seasonal softness. Turning to the China regulatory landscape, a new consumer finance regulation framework took effect on October 1, 2025. As expected, we saw transitional effects across the industry in the third quarter. Our response was proactive and disciplined. We tightened credit standards to keep delinquency in check, prudently managed loan growth, and maintained close communication with our funding partners to ensure stable funding supply. Our funding costs improved slightly as a result. We anticipate that full implementation of this regulation in the fourth quarter could create short-term uncertainties over volume, revenue and risk metrics. But...

Operator, Operator

Pardon me, ladies and gentlemen. It seems we lost the main speaker line. Please hold while we reconnect. We have restored the speaker line, and we may continue.

Tiezheng Li, CEO

Okay. Sorry, we got disconnected. We will resume from where we start regarding the China regulatory landscape. Okay. Turning to the China regulatory landscape. A new consumer finance regulation framework took effect on October 1, 2025. As expected, we saw transitional effects across the industry in the third quarter. Our response was proactive and disciplined. We tightened credit standards to keep delinquency in check, prudently managed loan growth, and maintained close communication with our funding partners to ensure stable funding supply. Our funding costs improved slightly as a result. We anticipate that full implementation of these regulations in the fourth quarter could create short-term uncertainties over volume, revenue and risk metrics. But this is not new to us. As an industry pioneer with 18 years of proprietary data spanning diverse credit profiles and economic cycles, we have built a deeply resilient foundation. We continuously enhance our industry-leading risk assessment and pricing capabilities by leveraging big data analytics and AI to refine our models. Most importantly, we have the experience of actually adjusting our operations to dynamic regulatory shifts. We have successfully navigated through interest rate changes in China and other developing countries. And we are well prepared to adapt to this new environment. We also continue to lead on technology and AI. In the third quarter, we hosted our annual FinVolution Global Data Science Competition, which brought together top AI researchers, engineers and data scientists to develop tools to combat deep fake image detection. Over the past decade, the competition has attracted nearly 10,000 cumulative participants and covered frontier topics, including credit assessment, fraud detection, behavioral analytics, device recognition and voice authentication. The competition is winning growing recognition from academic institutions as well, including official tracks like IJCAI, International Joint Conference on Artificial Intelligence 2025, and the CIKM, Conference on Information and Knowledge Management 2025, showing the value we are bringing to the global ecosystem. On the ESG front, we adopted AI to improve fulfillment of customer service and enhance consumer rights protection. During the quarter, we introduced a new upgrade on customer service AI agent to more accurately identify customer intent and automated response to select inquiries based on the level of urgency. This upgrade simplifies the customer service journey, enabling more timely engagement with customers. During the quarter, the enhanced AI agent has successfully completed over 1 million service interactions. In summary, we delivered a resilient quarter, thanks to disciplined execution of our local excellence, global outlook strategy, and an experienced response to changing regulation. Our diverse portfolio was a key strength. We remain confident in the long-term fundamentals of our China business, where our international operations are gaining exciting momentum. I'm now turning the call over to our CFO, Jiayuan Xu, for a deeper look at the numbers.

Jiayuan Xu, CFO

Thank you, Tiezheng. Hello, everyone. Let me go through our key results for the third quarter. Please refer to our third quarter earnings press release for further details. Let's start with China. The economy remains in a moderate recovery model. Domestic demand is still relatively mild amid a complex external environment. The consumer confidence index trended up slightly in Q3. Against this softer environment, coupled with the early impact of the new regulation, liquidity has improved while funding cost has been on a downward trend, improving from 3.7% last quarter to 3.6% this quarter. Customer acquisition has also become more rational as competition for consumers eased. Looking ahead, we should continue to be diligent in managing our business risks. On the international front, we delivered robust growth this quarter, underscoring the strength of our regional strategy and the power of our scalable platform. On the timing, this regional performance is grounded in our core technological capability. We are systematically replicating our proven playbook, spanning technology, risk modeling and partnership frameworks into high-growth economies like those in Southeast Asia. The results speak for themselves. From the macro standpoint, we saw a touch of softness in the region. Typhoon season lowered the PMI to 49.9% in the Philippines, while consumer confidence remained similar in the third quarter in Indonesia. Against this economic climate, we delivered RMB 3.6 billion in total transaction volume, a 33% increase year-over-year. The growth was broad-based with Indonesia and the Philippines contributing 57% and 43% of volume, respectively. Our unique international borrower base also expanded to 3 million, surging 114% year-over-year, confirming the deep untapped demand across the region. Our regional strategy evened out the distinct local conditions and brought about diversification. For example, while our growth was moderated by the seasonal typhoon in the Philippines, we were encouraged by the stabilizing regulatory environment in Indonesia, allowing us to accelerate our user acquisition. This drove transaction volume to RMB 2.1 billion, up 14% year-over-year, and the loan balance to RMB 1.4 billion, up 21% year-over-year in Indonesia. Across the region, we continue to scale the platform with our operational know-how. We strategically upgraded our user quality in Indonesia to drive improved unit economics, as evidenced by longer loan tenure, healthy risk metrics and higher take rates. Furthermore, our partnerships with ecosystem partners continue to expand. Our growing credibility is unlocking premium funding sources and attracting new institutional bank partners to our franchise in the Philippines. Our e-commerce partnerships also continue to proliferate, accounting for 36% of volume in the Philippines, up from 20% a year ago. As a result, transaction volume was up 86% year-over-year to RMB 1.6 billion, and the loan balance surged 101% year-over-year to RMB 897 million in the country. Overall, strong operational execution this quarter produced resilient financial results despite modern external challenges. Group net revenue reached RMB 3.5 billion, up 6.4% year-over-year. Net income was RMB 641 million, up 2.7% year-over-year, but down 14.7% sequentially, partially due to one-off government subsidy impacts in Q2. Our balance sheet remains healthy with cash and short-term investments of RMB 7 billion and a historical low leverage ratio of 2.4x. We also maintained a prudent provision coverage ratio of 517%. Furthermore, we remain committed to shareholder returns in the third quarter. We repurchased a total of approximately USD 2.6 million. As of September 30, 2025, we have repurchased a total value of approximately USD 66.5 million, bringing cumulative share repurchase amount to USD 437 million since 2018. Since October, we further accelerated our buyback effort amid market price dislocation. In short, we continue to demonstrate strong execution of our local excellence global outlook strategy, while our financial performance for the first nine months ended September 30, 2025, remains generally in line with our revenue forecast for this period. The recent regulatory changes in China have introduced near-term uncertainties. We now expect full year 2025 total revenue guidance to be in the range of approximately RMB 13.1 billion to RMB 13.7 billion, representing year-over-year growth of approximately 0% to 5%. Thank you. Now let me hand over the call to the moderator. Operator, please continue.

Operator, Operator

Okay. We will now begin the question and answer session. For the benefit of all participants on today's call, if you wish to ask a question, please address your question to management in Chinese. We may ask that you kindly repeat your question in English. Our first question comes from Alex Ye with UBS.

Xiaoxiong Ye, Analyst

So I will translate my question. My first question is about the recent regulatory changes which have created some volatility in near-term risks and impairment charges, affecting our earnings. How should we expect our normalized take rate to settle over the next few quarters as asset quality is expected to stabilize? My second question is about our buyback plan. Can you remind us of the current unused quota we have in place? Given the current elevated uncertainties and the depressed share price, do you have any specific guidance on the pace and scale of the buyback plan for the next 12 months?

Jiayuan Xu, CFO

Okay. Thanks, Alex. I will take your questions. Your first question is about the normalized situation and the 24%. But our risk-bearing loan stays within 24%. In Q3, the average is around 22%. So following the 24% cap, there are several factors to consider. First, risk may fluctuate across cycles and is the most important factor in the current environment. Based on our experience in the previous cycles, it would be mostly back to the normal level. And on the funding side, subject to the demand and supply of liquidity, we are now seeing more liquidity changing after high-quality assets as there should be some room for the optimization of funding costs. So overall, for our risk-bearing portfolio, the take rate should likely track well towards during the normal period. However, the new regulation may impact some parts of our business, such as the traffic referral business. Some customers will no longer be served. Also, we expect the take rate for this service will narrow accordingly. It depends on factors like market liquidity, funding costs and the real appetite of our partners. Below the revenue take rate, we also need to factor in operational efficiency. On the user acquisition front, we have noticed that reduced competition in the market, and there should also be some room to optimize the acquisition costs. We will continue to adjust our acquisition pace dynamically based on price, funding availability and the risk strategy. As the business scales up and technology becomes more deeply embedded across our operations, we also see further potential to optimize the fixed cost. In the short term, we do anticipate some P&L impact from the risk. This uptick will tighten our new loan origination and impact the volume. At the same time, the historical cohort will likely perform when risk increases, resulting in the high provision cost. Both elements could reduce the near-term profit level. As the risk metrics are still volatile, it may be too early to say how risk may evolve, but we will continue to monitor this closely. And your second question is about shareholder return. On the buyback front, we have been actively repurchasing our shares. As of November 14, we have bought back USD 78.4 million worth of shares. Notably, the pace picked up in the fourth quarter. We did $12 million in Q4 so far, which is nearly 5x what we did in the third quarter. So given the momentum, we are on track for a full year total that looks a lot like last year. And for the dividends, in 2024, we paid out $0.277 per share, representing a 17% year-over-year increase, marking 5 straight years of growth. The average is an 80% CAGR. Looking ahead, our focus remains on delivering steady growth of our EPS. Let me reiterate our shareholder return strategies. Even with all the short-term fluctuations in the market, our core commitment to our shareholders remains solid. When we think about returning value, we will look at the whole picture, including dividends and the share buyback program. We will weigh the benefits of each. And right now, with our stock trading at just 0.6x of our net book value and only 1.5x of our short-term liquidity, in this situation, buying back our own shares is an effective way to create value for our shareholders. That's why we are ramping up our buyback activity. Okay.

Operator, Operator

And the next question comes from Cindy Wang with China Renaissance.

Yun-Yin Wang, Analyst

I have two questions. First, could you share your day 1 delinquency rate and the 30-day loan collection rate for the third quarter, considering the connection issues? Additionally, have you observed any stabilization in the early risk indicators since July for October and November, and how do you figure out the inflection point of credit risk? Second, looking ahead, do you expect growth in the overseas market to accelerate, and what are the main products contributing to growth in Indonesia and the Philippines?

Jiayuan Xu, CFO

Okay. Thank you, Cindy. Yes. Sorry for the connection issue, and hopefully, everything is good now. I will take your first question, and Tiezheng will take your second question. Your first question is about the risk in our domestic business. Well, the new regulation has tightened the industry-wide liquidity and increased credit risk. This was reflected in our Q3 results with the day 1 delinquency rate increasing by 30 bps quarter-over-quarter to 5% and the 30-day collection rate softened to 88%. This trend persisted in early October driven by the regulatory changes and the seasonal effect of the National Day holiday, with further upticks in risk seen in the first half of October. Now we have begun to see early signs of stabilization. By November, the day 1 delinquency rate decreased by 4% from its October peak, though it remains 8% above the Q3 average. While this is a positive development, we believe it's too early to draw a conclusion here. We see sustained improvement over two consecutive months, it could be a turning point. Our response to this cycle has been shifting and strategic. We focus on key risk management areas like risk underwriting and collection. We have proactively refined our risk models, leveraging insights from past downturns to simulate various scenarios to more precisely calibrate credit exposure. Furthermore, we are deploying advanced AI to enhance our early warning alert capabilities for individual borrower stress. This analytical approach has been translated into concrete measures. We have tightened underwriting standards, reduced exposure to high-risk profiles, and scaled back customer acquisition spending on lower-quality channels. On the collection front, we have adopted a more refined and dynamic strategy, customizing repayment reminders based on user categories and enhancing our communication approach. So the cumulative impact of this volume and risk management adjustment is that while overall risk levels remain high, the rate of increase has begun to moderate. As a market leader with consistent prudent risk culture and deep cycle experience, we are confident in our positioning. We maintain strong risk resilience supported by ample cash reserves and consecutive provision coverage ratio of 517%. This solid financial foundation positions us to not only withstand the current market fluctuations, but to emerge from this cycle in a strengthened competitive position. Okay.

Tiezheng Li, CEO

I will share some information about the growth and products in our international markets. Our international business is growing very fast right now. And from 2020 to 2024, the transaction volume grew at a CAGR of over 70%. In Indonesia, after increased rate cap adjustment, the business has bounced back and is now growing very quickly. The Philippine market has kept up high double-digit growth year-on-year. Looking ahead to 2025, we expect transaction volume for both markets to grow at the current trajectory, and profitability should also stay solid. From the product side, we have a diverse product to meet different consumption scenarios. In Indonesia, we are not just doing online cash loans; we've also been pushing into buy now, pay later in offline retail. We obtained most finance licenses last year, and we are rolling out installment finance for products like phones, e-bikes, appliances and furniture. We have built partnerships with leading electronic brands to attach our financing solutions to select 3C products in their stores. Right now, the buy now, pay later product still makes a small part of our overall business, but it is growing very fast, with a 6x increase in transaction volume year-over-year. In the Philippines, we built attractive e-commerce partnerships, which contributed 36% of the transaction volume. We started the digital partnership in February last year, and now the transaction volume is triple what it was a year earlier. This helped us reach a whole different kind of customer cohort with smaller take sizes, higher repurchase frequency, and a lot of them are female customers. We believe this user trend tends to be lower risk, balancing out our online loan portfolio. Building on this success, we are expanding similar solutions to daily consumption in broader industries. For example, we recently partnered with Smart, a local telecom provider in the Philippines, to provide consumers with buy now, pay later solutions. As we continue expanding into more offline scenarios, we'll be able to reach even more people who aren't active online. So we expect our customer base to keep broadening and improving in quality over time. Thank you, Cindy.

Dongping Zhou, Analyst

I will translate my question. With the current regulatory situation so uncertain, what measures has the company taken to address it? And what are the key priorities for future development?

Tiezheng Li, CEO

Thanks, Dongping. For over 18 years, FinVolution has successfully navigated multiple market cycles. In China, we have upgraded from a P2P model to a loan facilitation model, adapted to an evolving regulatory landscape, and managed through several interest rate cap adjustments. Our international business has similarly matured through its own cycle of regulatory change. This experience has made us a more resilient and stronger company. In China, we took preemptive action early this year in response to initial signs of market volatility and decisively prioritized quality over quantity. In recent months, we have proactively upgraded our borrower base and raised our underwriting standards to target higher quality customers. We also adjusted our user acquisition spend to maximize risk-reward efficiency from a lifetime value perspective. This strategy allowed us to reduce both near-term risk and user acquisition costs. As a direct result of these efforts, our sales and marketing expense decreased by 12% quarter-over-quarter. Looking forward, we remain vigilant in our risk management discipline. Turning to our international markets, since our expansion began in 2018, we have built one of the few scaled overseas platforms in our sector. We reached a significant milestone this quarter. Our international revenue contributed 25% of group revenue for the first time. Today, our international business has built a strong foundation. We have over 15 institutional funding partners, a diverse network of online and offline partnerships, flexible product offerings, and a complete licensing portfolio across multiple countries. So our playbook has proven successful in Southeast Asia, and we are well-positioned to replicate this model further. Looking ahead, the China market will continue to be a major bedrock of our business. We will focus on the right balance between risk and growth, solidifying the foundation for a profitable, long-term sustainable business. Our international operations are already profitable, and we will continue to enhance profitability as we scale. Our strategic target is to build a balanced portfolio with 50% of our business coming from international markets by 2030. Thank you.

Yam Cheng, Head of Capital Markets

Thank you once again for joining us today. Apologies for the disconnection of the call. If you have any further questions after this call, please feel free to let us know and contact the FinVolution IR team. Thank you so much.

Operator, Operator

This concludes the conference today. You may now disconnect your lines. Thank you.