Jiayin Group Inc. Q4 FY2020 Earnings Call

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Jiayin Group Fourth Quarter and Full-Year of 2020 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. I will now turn the call over to Ms. Julia Qian, Managing Director of The Blueshirt Group Asia. Ms. Qian, please proceed.

Hello, everyone. Thank you all for joining us on today's conference call to discuss Jiayin Group's financial results for the fourth quarter and full year of 2020. We released the results early today. The press release is available on the company's website as well as on newswire services. On the call with me today are Mr. Yan Dinggui, Chief Executive Officer; Ms. Shelley Bai and Ms. Jin Chen, Co-Chief Financial Officer; and Ms. Xu Yifang, Chief Risk Officer. 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 actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Also, please note that unless otherwise stated, all figures noted during the conference call are in Chinese RMB. With that, let me now turn the call over to our CEO, Mr. Yan Dinggui.

Hello, everyone. Thank you for joining our fourth quarter and full-year 2020 earnings conference call. 2020 was an unusual but special year for us. Despite the economic uncertainties created by the pandemic and the ever-evolving regulatory environment, we achieved significant progress in our business transformation. Most importantly, we completed the shift of our funding sources from individuals to institutional funding partners. In November 2020, we cleared up all of the P2P balance. We did this in part by creating a similar process that simplifies institutional onboarding and by enhancing our platform to enable faster integration and better scalability. The number of our funding partners increased steadily to 25, and another 45 institutions are now in discussions and preparation. It was remarkable to accomplish this business transformation amid the challenges and uncertainties forced by the pandemic. This business transformation enabled us to further optimize our cost structure and improve operating efficiency. With the sophisticated risk management platform and a laser-like focus on driving our business transformation and improving our operating efficiency, we were able to generate better than expected results in the fourth quarter. In Q4, our net income grew by 259% year-over-year to RMB81.1 million. Our loan origination volume increased by 6.5% year-over-year to RMB3.1 billion. The repeat borrower rate reached 70.4%. These solid results demonstrate our ability to execute. With the P2P balance cleared, a scalable platform, superior risk management, and favorable economic recovery, our focus for 2021 will be to resume growth by further investing in technology and improving our services. First, we will leverage our technology and process expertise to expand into other geographies. Our international expansion into Mexico and Indonesia is growing rapidly, and we intend to target countries in Africa. We believe that our advanced risk management system, AI-based consumer behavior analytics, and operational experience can be easily utilized in other markets besides China. Second, as a leading finance technology company, we will not lose sight of future opportunities. We are prudently increasing our exposure to different economic aspects of an increasingly digital world. For example, Bitcoin is rapidly gaining acceptance due to the participation of a broad coalition of corporations, institutional investors, and retail investors. From Tesla, Grayscale, PayPal, millions of global users can buy, sell and hold cryptocurrencies to purchase goods. While blockchain-based and digital assets are developing rapidly, regulatory authorities warrant a more prudent and conservative approach. To pursue this opportunity, on April 5th, we announced the acquisition of Bweenet, which is engaged in the design of chips for cryptocurrency mining, such as semiconductor chips, mining hardware, and the management of mining farms and pools. Bweenet doesn’t directly mine cryptocurrencies; as they say in the gold rush, you want to sell the picks and shovels. Bweenet will be mentioned as a separate business unit until we can define products and services synergies with our core business. We do have a plan to consolidate the finance and general administrative functions to streamline the supporting functions. We are excited about this opportunity and will share more on our next call.

Thank you, Mr. Yan and Shelley, and thank you, everyone, for joining our call today. As Mr. Yan just mentioned, we generated encouraging results in the fourth quarter. We continue to operate conservatively and achieved outstanding bottom line growth. In Q4, our net income reached RMB81.1 million, up 258.8% year-over-year. The results fully reflect our relentless efforts to optimize our corporate structure and improve our operating efficiency. We also remained prudent in our operations with increased emphasis on risk management and credit assessment. We continue to focus on serving higher-quality repeat borrowers. You can see this in our repeat borrowing rate, which was 70.4% in Q4 versus 65% in the same period of 2019. For the full year 2020, our repeat borrower rate reached 75.3% compared with a repeat borrowing rate of 48% in 2019. The increase in repeat borrowing rates improved our credit risk profile and ensured the quality of our loan performance. We remain dedicated to controlling platform credit risk with our improved credit scoring system and advanced technology capabilities. Now, let me go through our financial highlights for the quarter. Before I go into details, please note that all numbers presented are in RMB and are for the fourth quarter of 2020, unless stated otherwise. All percentage changes are on a year-over-year basis, unless otherwise specified. Detailed analysis is contained in our earnings press release, which is available on our IR website. In the interest of time, I will not walk through each item line-by-line on this call. I will just highlight some of the key points. Loan origination volume was RMB3.1 billion, up 6.5%. This was impressive considering the state of our business transition and the unfavorable market conditions caused by the pandemic and the regulatory uncertainties. Net revenue was RMB340.3 million, down 3.5%. The decrease was primarily due to the lower outstanding loan balance. Revenue for loan facilitation services was RMB291.3 million, up 5.3%, in line with the growth of our loan origination volume. With the clearance of the P2P balance last November, we are glad to see resumed growth with high-quality borrowers and stable institutional funding sources. Notably, other revenue grew by 66.3%, reaching RMB45.4 million. The increase was primarily due to overseas business development. Moving on to costs, we continue to optimize our cost structure to further improve operating efficiency. This effort is reflected in our greatly reduced operating expenses. In Q4, total operating expenses were RMB287.4 million, down 24.6% from RMB381.3 million last year. Origination and servicing expenses were RMB64.9 million, down 17.1% primarily due to reduced collection costs. We no longer provided this service under our new business model. The allowance for uncollectible receivables was RMB20.3 million, down 63.8% from RMB56 million in the same period of 2019. The decrease was primarily due to two factors: First, the overall decrease in loan origination volume, and second, lower credit risk under the new business model. G&A expense was RMB42.9 million, down 43.5% primarily due to less share-based compensation expense being allocated to G&A expenses. R&D expenses were RMB41.9 million, up 8.5%. This was mainly due to higher salaries and personnel-related expenses allocated to research and development, as we continue to increase investment into technology development. Sales and marketing expenses were down 11.3% to RMB117.5 million, while we are still focusing on higher-quality borrowers, which enabled us to effectively reduce the sales and marketing expense. This quarter, we had a gain of RMB117 million, which was due to the waived contingent consideration payable related to the disposal of Shanghai Caiyin. To be conservative, we also booked RMB32.6 million in loss provisions related to short-term investments. The loss was primarily due to the estimated loss related to convertible notes issued by Cornerstone Management, Inc. held by the company. We achieved attractive profitability through tight cost control and improved operating efficiency. We posted a net income of RMB81.1 million, up 258.8%. Now, let me quickly provide some key financial metrics for the full year 2020. Revenue was RMB1300.2 million, down 41.7%. The decrease was primarily due to decreased loan origination volume and the shift to institutional funding partners. We remain vigilant on cost control to sustain margins and improve our operational efficiency. Total operating costs were RMB998.1 million compared to RMB1695.5 million last year. Looking at the balance sheet, as of December 31, 2020, we had cash equivalent of RMB117.3 million compared to RMB122.1 million as of December 31, 2019. Our sufficient cash balance positions us favorably in the current environment, giving us significant flexibility to make future investments. Last, as Mr. Yan just mentioned, on April 1, we entered into a framework acquisition agreement with Shanghai Bweenet and its shareholders for an aggregate consideration of RMB95 million. Jiayin Finance will own 95% of the equity of Shanghai Bweenet upon closing. We expect that the investment in Shanghai Bweenet will provide more business opportunities, benefit both sides, and facilitate our future growth. Moving to our guidance, given the recovery of the Chinese economy and the fast-growing consumer finance market, we expect our loan origination volume in Q1 2021 will be between 30% to 40% of growth year-over-year.

Okay, ladies and gentlemen, we will now start the question-and-answer session. We have a question from Andrew Scutt from ROTH Capital. Please go ahead.

Good morning and thank you for taking my questions, and congrats on the strong quarter. My first question is about the successful expansions into Mexico and Indonesia. I want to congratulate you on the hard work you've done there. You've kind of provided the outlook for the expansion in 2021, and maybe the vision for the company growing in international markets over the next couple of years.

Hi, Andrew. Thank you for the question. This is Yifang Xu, I'm going to take on that question. So far, we are not yet close to providing guidance on our financial outlooks for expansions in those two markets. But I want to further confirm international expansion is a key component of Jiayin's overall growth strategy. As you have noticed before, with years of proven track record in managing risks, we would like to further extend our sophisticated risk management capabilities towards our international market. So far, we are gathering our cloud-based technological capabilities to facilitate online lending and online micro loan origination and management in a variety of markets. Mexico is one of our leading markets. We are glad to report that we are one of the leading players in the Mexico market. We have started to see more of our peers from the Chinese market starting to enter that market. But so far, we are definitely taking a leading position there. Comparatively in the Indonesian market, as we reported over a year ago, we are in a trial period of operating an online lending license. We remain in that position and are hopefully looking for more progress on that front. As our status remains as trial, operating in trial mode, we expect our overall volume to take off as soon as we acquire our full license.

Great. Thank you. That was very helpful.

Thank you.

As a follow-up here on unrelated. So it looks like sales and marketing expenses were a little bit higher in the quarter than it has been across 2020. So, I was just wondering, if there's anything you guys were doing differently to attract new borrowers? Or if that was just extra noise in the quarter?

I will talk about our strategy for acquiring new customers, while Julia will elaborate on the significance of the changes in that metric. In 2020, we continue to focus on acquiring new customers online, mainly through partnerships with other Internet platforms and information feed channels. We consider these two channels to be our primary means of customer acquisition. I will let Julia provide the specific metric numbers.

In terms of customer acquisition costs, I agree with Yifang's points. It requires various initiatives to reduce our acquisition costs, such as collaborating with our channels to enhance efficiency and seeking more cost-effective ways to acquire customers. I anticipate that our sales and marketing expenses will align with our loan volume growth in 2021. However, this will ultimately depend on the results, and we will assess the outcomes at the end of the year. Overall, I expect it to correspond with our loan volume.

Great, thanks. That was very helpful. And one last question if I may. Just want to say congrats on the improved credit quality and increase in repeat borrowers. I was just wondering if there's a target number for the percentage, you guys are looking for repeat borrowers versus new borrowers in the long-term, as you guys try to weigh out for balance growth and strong credit quality.

Sure. This is Yifang again, I'm going to take on that question. We do have long-term risk levels that we are seeking to hold, as well as improving our overall credit profiles of our customers. But in regard to the percentage of our repeat borrowers portion of our overall business, we are going to play it flexibly to gear towards our growth needs. In 2020, we’re expecting much higher growth relative to our 2020 loan origination volume. As you can see, in Q1, we're seeing 25% to 40% of growth. We're expecting somewhat high growth for the rest of the year. As we work on improving our way of interacting with our existing customers by providing a better product experience, we are more likely shifting towards how we interact with customers to gain traction on our repeat customers portion of our volumes. At the same time, we are seeking a much higher growth for our new customers as part of our overall growth strategy. But overall, on top of our overall volume growth, we're still holding a high bar on our risk levels.

Thank you very much. Once again, congrats on the quarter and that's all for me.

We have no further questions at this moment. I would like to hand the conference back to our host. Please take over.

Thank you, operator, and thank you all for participating in today's call and thank you for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.