Good day, ladies and gentlemen. Thank you for standing by, and welcome to Jiayin Group Second Quarter 2023 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we'll 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 objections, you can disconnect at this time. I'll now turn the call over to Mr. Shawn Zhang from Jiayin Group Investor Relations. Please proceed.

Hello, everyone. Thank you all for joining us on today's conference call to discuss Jiayin Group's financial results for the second quarter of 2023. We released our earnings results earlier today. The press release is available on the Company's website as well as through Newswire services. On the call with me today are Mr. Yan Dinggui, Chief Executive Officer; Mr. Fan Chunlin, Chief Financial Officer; and Xu Yifang, Chief Risk Officer. Before we continue, let me quickly go through the safe harbor. 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 statements, except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese renminbi. I will now turn the call over to our CEO, Mr. Yan Dinggui. Mr. Yan will deliver his remarks in Chinese, and I will follow up with the corresponding English translation. Please go ahead, Mr. Yan.

Good day to all. I appreciate everyone for taking the time to join us for our second quarter 2023 earnings conference call. As I look back on the past quarter, I'm filled with pride at the exceptional performance. Our team has once again delivered excellent results, which is a testament to our focus on technological innovation and our continuous drive to enhance operational efficiency. I would like to highlight that our loan origination volume saw a remarkable increase of 77.8% and our net revenue experienced strong growth of 57.4% compared to the same period last year. More importantly, our commitment to cost optimization ensures that we continue to improve our bottom line as well. Reflecting upon the second quarter, the recovery of China's economy is still progressing. Zooming out to view the broader economic landscape, China's GDP expanded by 6.3% year-over-year for the quarter. Against this backdrop, the Chinese government rolled out multiple initiatives aimed at stimulating and encouraging consumer spending. This positions the consumer sector as one of the key potential drivers of China's economic revival and its onward growth trajectory. Additionally, statistics from the People's Bank of China revealed that new RMB loans for the first half of the year reached RMB15.73 trillion, marking a substantial year-over-year increase of RMB2 trillion. This relatively relaxed credit scale offers favorable safeguards for boosting consumption. Amidst the economic recovery trend, we have been steadfast in our mission to strengthen our funding channels to ensure our funding supply remains stable. Our strategy has centered around converting deeper ties with key financial institutions and enhancing our existing collaborations. This approach has not only fueled our loan volume growth for the quarter but has also fortified our reserves, positioning us to capitalize on upcoming opportunities. As of June 30, 2023, our fintech partnerships have grown to encompass 69 financial institutions, and we are actively engaging with another 70. Meanwhile, we are also refining our partnership metrics beyond our engagement with city commercial banks and rural commercial banks to include consumer finance firms, Internet banks, private banks, and even joint stock banks. It's worth noting that by the end of the second quarter, the credit line facilitated by regional constraints still constituted the majority of our total credit line for origination provided by our funding partners, demonstrating our prospects for sustained robust growth in our loan origination business across China going forward. Furthermore, our commitment to leveraging fintech capabilities has been primordial in assisting licensed financial institutions with the digital transformation of their in-house businesses. By the close of the second quarter, we have successfully added six financial institutions in transitioning their in-house operations to digital platforms and are in the process of collaborating with another five to empower their online self-operated business platforms. Additionally, we are currently in progressive discussions with three more institutions under this framework to explore avenues for potential collaborations. Importantly, whether we enable our partners to leverage our loan facilitation platform or empower their digital operations, we're strategically positioned to cultivate long-term, stable, and synergistic collaborations with our partners based on our leading fintech capabilities. As the market dynamics continue to evolve, we remain committed to enabling our partners, especially in areas such as targeting high-quality borrowers and managing risk volatilities. Here, I would like to highlight that applying AI technology has further strengthened our fintech abilities. Today, GPT business assistance has been deployed or is under development in three distinct use cases. Firstly, it aids in enhancing performance, efficiency, and the quality of our service representatives. By leveraging ChatGPT, we empowered various service aspects such as tag instruction, conversation summarization, customer complaint prediction, emotion detection, and deep conversation insights, all of which further refine our operations. Secondly, it facilitates real-time risk analysis and alerts by assisting in the extraction of signatures, text, and essential elements from credit contracts, thereby streamlining our business processes. Thirdly, within our firm, we have established the Jiayin GPT lab using the ChatGPT interface, encouraging our employees to actively explore the utilization of AI technology in business use cases to enhance efficiency and support intelligent operations. This will also pave the way for our future development of multi-scenario intelligent Q&A assistance, virtual avatars, marketing audio-visual generation, and other initiatives that drive end-to-end operational intelligence. Furthermore, since its update in May 2023, the Mingjian intelligent quality inspection system we developed through our subsidiary Geerong has achieved a remarkable feat by ensuring 100% coverage in our quality inspection processes. This has been made possible through the integration of cutting-edge AI technologies, which include voice recognition, natural language processing, and advanced big data analytics. The Mingjian system seamlessly integrates automated, AI-driven quality chat with human oversight, ensuring the storage and quality of both textual and auditory data. This synergy enabled a comprehensive and precise evaluation of our service representatives' performance metrics and preliminary resources. Since the system's launch, it has validated its efficacy and has been instrumental in improving quality and inspection capabilities, elevating customer service standards, and optimizing operational costs and risk profiles for us and our licensed financial institution partners. Now onto borrower base operations, we continue to refine our borrower structure in the second quarter, consistently increasing the proportion and overall number of high-quality borrowers. In our acquisition strategies, we focused on online channels this quarter, targeting a more high-quality borrower base. Alongside new borrower acquisition, we have been strengthening our service offerings to existing borrowers to maximize their full lifecycle value. Impressively, our repeat borrowing rate improved by 2.3 percentage points year-over-year, achieving a remarkable 70.1%, and the average borrowing amount per transaction reached RMB10,368, marking a 16% increase from the previous year. At the same time, as we optimize our borrower portfolio, we have also observed a reduction in the product rate levels offered by our partner financial institutions. This not only solidifies our future trajectory in asset quality but also underscores our ongoing efforts to boost consumption and drive economic recovery. In terms of risk management, our approach continues to prove effective despite the ongoing market volatility. Throughout the second quarter, we have successfully maintained our 61- to 90-day delinquency rate at a stable level of 0.66% as of June 30, 2023. We have also noted that in recent days, some emerging and external risk factors, such as illegal and disruptive financial activities, have had a certain impact on the normal operation of financial institutions and posed challenges to the personal information security and various legitimate rights and interests of borrowers. We want to mention that at the same time, as we're assisting funding partners to effectively deal with risk fluctuations, Jiayin also prioritizes the protection of consumer rights and interests. As our platform's borrower base continues to grow in both members and quality, our focus remains twofold: ensuring reliable risk management and elevating our service standards to users. Our mission is clear: to strike a balance between growth and sustainability, all while upholding the highest level of service and risk oversight. On the global stage, our Nigerian operations have demonstrated resilience, showcasing a consistent uptrend in profitability, even after navigating certain risk challenges. A testament to our commitment to the Nigerian market is our growing local workforce, which demonstrates our determination and confidence to develop in the local market for a long time. Besides that, Africa is a continent brimming with potential and remains a focal point in our overseas strategy. As we witness our steady progress in Nigeria, our sights are also set on identifying potential business opportunities in other parts of the continent. Shifting to Southeast Asia, we are increasingly committed to our investment in the Indonesian market. We have observed a rapid growth trend in the Indonesian market and anticipate swift evolutions in its mainstream fintech lending business models. We are primed and enthusiastic about forming partnerships with financial institutions in Indonesia, leveraging our deep-rooted experience in China's loan origination sector and a collective vision for charting a new path of development. Before I conclude, I would like to highlight the recent release of our second annual ESG report. The report illustrated our commitment to efficient operations throughout 2022 with significant achievements in areas such as technology empowerment, collaborative partnerships, employee growth, carbon-conscious operations, and community engagement. These accomplishments solidify the foundation for our sustainable growth. Going forward, our commitment to our ESG strategy remains at the forefront of our operations. Our corporate mission to realize dreams is not just a slogan, but a guiding principle that we bring to reality through our actions. Our focus is on fostering sustainable growth for the Company while upholding our social responsibilities in our pursuit to deliver safe, trustworthy, and high-quality products and services to all stakeholders. In summary, we once again demonstrated significant business expansion and showcased a solid financial risk profile in the second quarter of 2023. These achievements underscore the success of our group strategies in expanding our business scale, refining our borrower structure, strengthening our risk management, and penetrating international markets. We are confident that our concerted efforts will enable us to maintain a growth trajectory in the medium to long term and deliver satisfactory performance in the upcoming quarters. Given our current growth momentum and confidence in the strategic direction, we have decided to revise our annual business forecast upwards to RMB85 billion, with RMB24 billion coming from the third quarter of 2023.

Thank you, Mr. Yan, and hello, everyone, for joining our call today. I will now review our financial highlights for the quarter. Please note that all numbers will be in RMB and all percentage changes refer to year-over-year comparisons, unless otherwise noted. As Mr. Yan mentioned, we maintained our robust growth momentum in the second quarter. Our loan origination volume grew by 77.8% to RMB24 billion, meeting the top end of our previous guidance range. Our net revenue was about RMB1.28 billion, up 57.4%. The growth of our revenue from loan facilitation services moderated to 24.5% year-over-year as we adjusted our take rate to better serve our borrowers and refine our borrower base structure. However, other revenue grew significantly to RMB352.9 million from RMB69 million in the same period last year, mainly driven by incremental revenues from individual investor referrals and financial guarantee services. Moving on to costs, origination and servicing expenses were RMB355.8 million compared with RMB128.3 million for the same period of 2022, driven by the increased loan origination volume and post-loan service-related expenses. Allowance for receivables and contract assets grew by 97.1% to RMB13.8 million or 1.1% of net revenue compared to RMB7 million or 0.9% of net revenue in the same period last year. Sales and marketing expenses increased by 79% to RMB420.7 million, mainly reflecting higher borrower acquisition expenses. As a percentage of net revenue, S&M expenses increased to 32.9% from 29% in the same period last year as we continued our investments to attract and retain high-quality borrowers. G&A expenses were RMB50.1 million, up 17.6%, primarily driven by higher staff costs due to increased share-based compensation expenses in the quarter. As a percentage of net revenue, G&A expenses reduced to 3.9% from 5.2% in the same period last year. R&D expenses were RMB68.1 million, up by 25.9%, mainly due to higher employee compensation resulting from an increase in research and development headcount. As a percentage of net revenue, R&D expenses reduced to 5.3% from 6.7% in the same period last year. Consequently, our net income for the second quarter increased by 28.6% to RMB326.3 million from RMB253.8 million in the same period last year. Our basic and diluted net income per share were both RMB1.52 compared to RMB1.18 in the same period last year. Basic and diluted net income per ADS were both RMB6.1 compared to RMB4.72 in the same period last year. We ended this quarter with RMB288.9 million in cash and cash equivalents compared to RMB340.6 million at the end of the previous quarter. As of June 30, 2023, we have bought back approximately 1.8 million of our ADS for a total of $5.5 million on our $10 million share repurchase plan we announced in June 2020 and extended in June 2023. With that, we can open the call for questions.

Our first question comes from Lin Yao from Wafu Securities.

I'm Lin Yao from Wafu Securities. My first question is about the loan origination volume growth. Compared to the previous quarters, where your volume growth was generally over 100%, what are the key elements behind this lower loan origination volume growth in this quarter, and how should we expect your loan origination volume to trend going forward?

Our first question comes from Lin Yao from Wafu Securities. I'm Lin Yao from Wafu Securities. My first question is about the loan origination volume growth. Compared to the previous quarters, where your volume growth was generally over 100%, what are the key elements behind this lower loan origination volume growth in this quarter, and how should we expect your loan origination volume to trend going forward?

Okay. This is Shawn Zhang from Investor Relations, and I will do the translation for Ms. Xu. As you mentioned, our volume growth rate for this quarter is 77.8%, which looks lower than the over 100% rate in the previous quarters. Well, one of the reasons is that if you look at the absolute value in early 2022 and the whole year of 2021, our loan origination volume in absolute terms was relatively small. We would expect a relative slowdown in the growth rate of the origination volume in this quarter because the growth rate in the year of 2022 was very fast, which made it appear to slow down year-on-year for this quarter. But if you compare what we had in the last quarter, the growth rate is still quite impressive. Just as Mr. Yan mentioned, we revised our annual guidance upwards, which means that in the long run, we still want to pursue the growth of origination volume at a healthy level. As you know, the business logic of liquidity loans always includes the lack of risk cost. Therefore, we want to achieve growth in a controlled manner while pursuing sustainable and healthy expansion. I hope that answers your question, Ms. Lin.

Also, I will do the translation for myself. Considering the integration of operational costs or margin trends, what should we expect going forward in terms of any potential headwinds or tailwinds impacting the Company's profitability? Thanks.

The business logic of liquidity loans always includes the lack of risk cost. Therefore, we want to achieve growth in a controlled manner while pursuing sustainable and healthy expansion. I hope that answers your question. Also, I will do the translation for myself. Considering the integration of operational costs or margin trends, what should we expect going forward in terms of any potential headwinds or tailwinds impacting the Company's profitability? Thanks.

Okay. This is Shawn Zhang again, and I'll do the translation. On the basis of continuously optimizing the borrower base structure and improving the Company's overall operating efficiency, combined with the monetary policy of the central bank for a downward interest rate, the product pricing offered by our partner financial institutions will maintain a further steady downward trend in the medium- and long-term. At the same time, I think our take rate has room to further decline as well.

This is Shawn Zhang again, and I'll do the translation. We are continuously optimizing our borrower base structure and improving overall operating efficiency. With the central bank's monetary policy leading to lower interest rates, the product pricing from our partner financial institutions is expected to continue to decrease steadily in the medium- and long-term. Additionally, I believe there is potential for our take rate to decrease further as well.

The majority of the Company's revenue right now comes from loan facilitation services, including the acquisition of borrowers and risk control services. With the scale effect and the improvement of our overall operating efficiency, the margin of this part of the business will remain stable. If you look at our other revenue sector, you can see overseas business revenues and also the revenue from guaranteed business. The guarantee business has started to grow rapidly in the last two quarters. Currently, the margin of the guarantee business is still lower than that of loan facilitation services.

The acquisition of borrowers and risk control services, combined with our scale and improved overall operating efficiency, is expected to keep the margins for this part of the business stable. Our other revenue sector shows growth in overseas business revenues and revenue from the guaranteed business, which has seen rapid growth over the last two quarters. However, the margins for the guarantee business are still lower than those for loan facilitation services.

So you may say that facilitation services will remain the majority source of our revenue. We will balance different business segments in terms of the proportion of revenue. Our net profit margin in this quarter is 25.5%, which has a slight increase from the previous quarter.

The guarantee business has begun to grow significantly in the last two quarters. At this point, the margin for the guarantee business is still lower compared to loan facilitation services. You could say that facilitation services will continue to be our primary revenue source. We will balance the different business segments in terms of revenue proportions. Our net profit margin for this quarter is 25.5%, showing a slight increase from the previous quarter.

And just as what Mr. Yan mentioned, we will strengthen our AI applications and refine our operations. Our management team is confident that our net profit margin will be maintained at a healthy level of around 25%.

Our next question comes from the line of Martin Chen from Ten Asset.

This is Martin Chen from Ten Asset. Congratulations on a strong second quarter results and raised full-year guidance. I have two questions. First, I noticed that the Company's cash and cash equivalents have decreased compared to last quarter. What are the main factors behind this decrease? Also, I'd like to know the Company's strategy to manage liquidity and cash flow going forward?

This is Martin Chen from Ten Asset. Congratulations on a strong second quarter results and raised full-year guidance. I have two questions. First, I noticed that the Company's cash and cash equivalents have decreased compared to last quarter. What are the main factors behind this decrease? Also, I'd like to know the Company's strategy to manage liquidity and cash flow going forward?

Okay. As of June 30, 2023, our cash and equivalent balance was RMB289 million, which has seen a slight decrease from the end of the first quarter. I think there are two main reasons for that. Firstly, we had capital investments in our overseas businesses. We have increased strategic investment in our overseas business this year, and this still needs some time to achieve a breakeven or positive cash flow. Secondly, our guarantee business started to grow in the most recent quarter as well, and the payment of security deposits increased accordingly, which occupied part of the cash.

There has been a slight decrease since the end of the first quarter. I believe there are two main reasons for this. Firstly, we made capital investments in our overseas businesses. This year, we have increased our strategic investment in these operations, and it will take some time to reach breakeven or generate positive cash flow. Secondly, our guarantee business began to grow in the most recent quarter, leading to an increase in the payment of security deposits, which took up part of our cash.

Generally, we think the liquidity position right now for the Company is pretty good. For most of the assets, we see a majority of them coming from accounts receivable, and the recovery of our accounts receivable is favorable. We also have a cash balance needed for our overseas business.

The Company’s liquidity position is currently strong. Most of our assets are coming from accounts receivable, and we are seeing a positive recovery in that area. Additionally, we maintain a cash balance necessary for our overseas operations.

In the medium and long run, our liquidity management plans will include monitoring the recovery of our accounts receivable and strengthening the recovery process.

The liquidity position right now for the Company is pretty good. Most of the assets come from accounts receivable, and the recovery of our accounts receivable is favorable. We also have a cash balance needed for our overseas business. In the medium and long run, our liquidity management plans will include monitoring the recovery of our accounts receivable and strengthening the recovery process.

We will also further reduce the deposit payment ratio by negotiating with our partners to decrease the effect from the cash occupied by the guarantee business.

In the medium and long run, our liquidity management plans will include monitoring the recovery of our accounts receivable and strengthening the recovery process. We will also further reduce the deposit payment ratio by negotiating with our partners to decrease the effect from the cash occupied by the guarantee business.

To conclude, we will further strengthen refined operations and increase workforce efficiency while continuing to optimize the Company's utilization of operating cash. I hope that answers your question.

My second question is that the overall economic environment remained weak in the third quarter. Is Jiayin currently under pressure from the economic downturn? Can management share some preliminary information on the growth of loan facilitation over asset quality in early Q3 as well as the Company's estimate on the trend of these metrics throughout the quarter?

I hope that answers your question. My second question is that the overall economic environment remained weak in the third quarter. Is Jiayin currently under pressure from the economic downturn? Can management share some preliminary information on the growth of loan facilitation over asset quality in early Q3 as well as the Company's estimate on the trend of these metrics throughout the quarter?

Okay. I will do the translation for this part as well. Yes, Martin, we did experience some challenges. From Mr. Yan's comments, we know that China's GDP is still growing, and the consumer sector will probably play an important role in economic development in the future. However, we also observed that employment rate data has become somewhat uncertain and not very optimistic. At the same time, we find that the demand for credit loans is still very strong, and the debt-to-income ratio of the borrowers is rising. Furthermore, from the internal perspective, we can see some trend changes concerning inflow rates among certain subdivided borrower groups.

The consumer sector is likely to be significant for future economic growth. However, we have noticed that data regarding employment rates has become somewhat uncertain and lacks optimism. Additionally, the demand for credit loans remains robust, and the debt-to-income ratio for borrowers is increasing. From an internal viewpoint, we are also observing some shifts in inflow rates among specific borrower groups.

Regarding asset quality in early Q3, I want to emphasize that we want to pursue our goals in a stable, sustainable, and healthy manner. We will monitor some early indicators, which include the asset quality of our borrowers, their debt-to-income ratios, and short- to mid-term loan application situations.

Regarding asset quality in early Q3, I want to emphasize that we want to pursue our goals in a stable, sustainable, and healthy manner. We will monitor some early indicators, which include the asset quality of our borrowers, their debt-to-income ratios, and short- to mid-term loan application situations.

For Jiayin Group, we have gained considerable experience over the past few cycles, and we believe we have the capability to manage asset quality well. For the online credit market business, we're always employing a prudent approach while facing new risk factors and volatilities, and we hope to deliver another satisfactory business report in the future for all of our stakeholders.

Thank you. We have no more questions at this time. I will return the call back to Shawn for closing remarks. Please go ahead.

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.

This concludes today's conference call. Thank you for participating. You may now disconnect.