Jiayin Group Inc. Q4 FY2021 Earnings Call

Good day, ladies and gentlemen, thank you for standing by. And welcome to the Jiayin Group's Fourth Quarter 2021 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 Mr. Shawn Zhang from Investor Relations of Jiayin Group. Please go ahead.

Good day, 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 2021. We released the results earlier today. The press release is available on the Company's website, as well as from newswire services. On the call with me today are Mr. Yan Dinggui, Chief Executive Officer; Celia 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 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 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 statement, except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese renminbi. With that, let me now turn the call over to our CEO Mr. Yan Dinggui. Please go ahead, sir.

Hello, everyone. Thank you for joining our fourth quarter 2021 earnings conference call. In 2021, we continued to navigate a volatile macro environment by remaining committed to building upon our core competitive advantages. After we shifted our funding sources from individuals to institutional funding partners in 2020, we prioritized forging partnerships with financial institutions, diversifying our funding sources, strengthening our risk management systems, and enhancing the credit profile of our borrowers, which improved our asset quality. We have observed multiple policy changes in 2021 including the cap on loan pricing at 24%. We actively responded to the new policies and aligned our pricing strategy in accordance with the regulatory requirements of our funding partners. As a result, despite intensifying regulatory oversight and macro uncertainties, we steadied at the forefront of the fintech space and delivered solid financial and operating results in 2021. Notably, loan origination volume increased by 89.7% year-over-year to RMB21.91 billion from RMB11.55 billion in 2020, while our revenue grew by 36.9% to RMB1.78 billion. As we sustain our rapid portfolio growth, we also maintain a manageable delinquency rate by improving the overall credit risk profile of borrowers on our platform. Our 30-day delinquency rate finished at 1.31% compared to 1.34% at the end of September. The 90-day delinquency rate increased slightly to 0.72% from 0.6% at the end of September, but we are still ahead of the industry average. In the fourth quarter, as we continued to expand our borrower base, we refined our marketing programs to prioritize acquiring new customers with a high credit quality. By improving the accuracy of our marketing programs, we are able to reach our target customers more efficiently. Consequently, the number of borrowers with above-average credit profiles continued to rise, which in turn enabled us to increase our platform's overall credit quality while expanding our borrower base. We also continued to invest in the development of our integrated, highly automated platforms with industry-leading risk management capabilities to serve as ideal partners for financial institutions. By the end of 2021, we forged partnerships with 38 financial institutions, and we are currently in discussions with another 46 institutions to further expand our partnerships and diversify our funding sources. As of now, most of our existing institutional funding partners are commercial banks. We are actively developing collaborations with national banks and consumer financing service providers to address certain challenges we faced in regional markets with our existing partnership structure. Meanwhile, we remain focused on empowering our partner financial institutions through our full suite of service offerings that span from borrower acquisition to loan facilitation services. We are constantly optimizing these services to help our partners better execute their business initiatives by improving their operating efficiency and decision-making processes. Going forward, we plan to explore more innovative ways to cooperate with our funding partners. In addition to deepening our collaboration with financial institutions, we will also continue to optimize our product portfolio during the quarter. For example, we launched a loan program for small business owners in the fourth quarter. Small business owners are one of the most marginalized and underserved groups in terms of loan accessibility, even though small and medium-sized businesses contribute 50% of the taxes, 60% of the Chinese GDP, and 70% of the technical innovation, accounting for 80% of all companies in the country. To better serve the backbone of our country's economic development and common prosperity initiatives, we will continue to increase investments in product offerings for SMEs. In terms of our global expansion, we manage our growth strategy for each region based on the current stage of our business development. The Mexican market, in particular, achieved robust growth momentum, and we are also on track to develop new partnerships with additional licensed financial institutions in Mexico to further expand our local operations and fortify our market leadership. Loan volume there continues to grow, and we have already obtained the necessary financial service license. We continue to accelerate our business expansion. We are regularly developing and upgrading our products and services in the region, which enables us to continue to improve regional profit margins. Looking forward, we plan to penetrate other promising international markets, especially emerging markets in Southeast Asia to build a diversified global business model. Looking back on 2021, we saw major changes in the regulatory front and unprecedented disruptions due to COVID-19, along with increased uncertainties in the macro environment. However, we remain undeterred by these challenges as we achieved steady business growth, improved our credit risk profiles, expanded our borrower base, and optimized our product portfolio. As evidence of our success in these efforts, we recorded RMB21.91 billion in loan origination volume for the full year of 2021, nearing the higher end of our previous guidance. For 2022, we are confident that our market leadership will enable us to carry through our growth momentum to achieve loan origination of RMB36 billion. With that, I will now turn the call over to our Co-CFO, Celia Chen. Celia, please go ahead.

Thank you, Mr. Yan. And thank you, everyone, for joining our call today. As Mr. Yan mentioned, we achieved robust financial performance in the fourth quarter and full year of 2021. In the first full year after our business transformation, we grew our loan origination volume by 89.7%, revenue by 36.9%, and net income by 87.1% year-over-year. This solid growth further demonstrated the effectiveness of our strategies in diversifying our funding sources, strengthening our risk management, and improving asset quality. Now let me go through our financial highlights for the quarter. Please note that unless stated otherwise, all numbers quoted are in RMB, and percentage changes refer to year-over-year comparisons. Net revenue was RMB368.2 million, up 8.2%. Revenue growth was primarily driven by the significant growth in loan origination volume, which increased 75.3%. Other revenue was RMB7.1 million, down 84.4%. This decrease was mainly due to a change in the consolidation of our overseas entities. Moving on to costs, origination and servicing expenses were RMB84.8 million, up 30.7%, primarily due to the increase in credit assessment expenses, which were in line with the increase in our loan origination volume. The allowance for uncollectible receivables, contract assets, loans receivables, and others stood at RMB17.2 million, down 15.3% as the outstanding loan balance of our legacy P2P lending business was reduced to zero in November 2020. G&A expenses were RMB46.8 million, up 9.1% as we continued to enhance our talent pool to support our business expansion. R&D expenses reached RMB46.6 million, up 11.2%. We recorded higher employee compensation and benefit costs, along with increased investment in developing our IT infrastructure during the quarter. Sales and marketing expenses totaled RMB156.9 million, up 33.5%, which aligns with the growth of our loan origination volume. Consequently, we reported a net income of RMB122.5 million, compared to RMB81.1 million in the same period of last year. We ended this quarter with RMB182.6 million in cash and cash equivalents, compared with RMB117.3 million as of December 31, 2020. Now for our guidance, we expect our loan origination volume in the first quarter of 2022 to achieve year-over-year growth of over 78% and a sequential growth of over 37%. With that, we can open the call for questions. Mr. Yan, our Chief Risk Officer, Mr. Xu, and I will answer questions. Operator, please go ahead.

Thank you. We have a question coming from the line of Andrew Scott from ROTH Capital. Your line is open.

Good morning. Thank you for taking my questions. My first question is about the recent COVID lockdowns in China. I was wondering just how that will affect origination growth, particularly in the first half of the year? Any color you can provide there would be great?

Hi, Andrew. This is Yifang. I'm going to take on your first question. Thank you for your insights about our lockdown situation in Shanghai. We are pleased to report that the current lockdown situation hasn't had any impact on our Q1 growth at all. In fact, we are expecting a pretty decent, probably better than we had projected earlier for Q1 total lending volumes. We are actually seeing some expected higher rates in terms of our collection volumes that have gone up by a few percent in terms of the number of calls collected by our customer service. At the same time, our investment in our IT infrastructure has enabled us to collaborate effectively, even when we are working remotely. So that I hope that answers your question. Thanks.

Yes. Thank you very much for the details. My second question here is about your operations in international markets. I know you guys have one of the top players in Mexico, and we're looking to expand in Nigeria. So I was just looking for an update on how origination growth is going over there if you plan on entering any new markets and if you might start sharing metrics in these other countries?

So Andrew, this is Yifang again. Let me take on your question about the international expansion. As mentioned earlier about our international market, yes, we are going to give a little bit more color for each individual market. So in Mexico, as you said, we remain a top player in the market in terms of volume and total number of customers and transactions. The numbers are quite stable. What we'll be focusing on in Mexico is really to improve our risk metrics there. Moving on to Nigeria, as we discussed last time in Q3, we secured our official lending licenses to operate in online lending in Nigeria. So the Q4 for Jiayin has to really be focusing on ramping up acquisition volumes at a faster pace. To give you a bit more detail on our growth, the transaction volumes we are seeing month-over-month are in the high double-digit range for the entire Q4 period. As we further train our fraud detection models and risk assessment models, the size of loans we are expanding in this market is also seeing growth. We are looking at a 20-plus percentage growth in terms of loan sizes, as we are targeting healthier customers and seeing improvements on our risk metrics. However, we are facing some uncertainties in these foreign markets, one being the impact of COVID. The collection operations still heavily rely on call center employees. The COVID situation has impacted operations there, but we are employing AI support, so the voice service is helping us navigate through the downturn. We are currently transitioning back to the office operating in a steady state again. On the customer acquisition side, we are expanding our customer acquisition channels, including some major online marketplaces, and we're also exploring partnerships with smaller players. Overall, we are beginning to accumulate repeat borrowers, so we're seeing volumes in the Nigerian market grow as well as risk metrics stabilize and improve. That's the update on our major international markets, improving in the last 2021. In 2022, we are evaluating several potential markets. However, due to the COVID situation, we are taking a prudent approach regarding entering new markets at this point. I hope that answers your question.

Yeah, that was very, very helpful. Thank you very much. Last one for me, with you as an online platform and China now putting new cybersecurity regulations in place. Do you believe you'll need to be reviewed? Do you believe this may impact shareholders in the U.S.? Can you just provide some background there?

Regarding that question, we don't have much to report on, but we expect that the SCRIPT Standard will be released for public companies. At this point, as a technology company, we are confident that we're meeting all the standards. As a result, we don't foresee any material risks.

That is good news. Thank you very much for your answers. That's all for me for now.

Thank you. And I'm showing no further questions at this time. I will now turn the call back over to management for any closing remarks.

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.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.