Jiayin Group Inc. Q1 FY2024 Earnings Call

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Jiayin Group's First Quarter 2024 Earnings Conference Call. Currently, all participants are in 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 proceed.

Thank you, operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss Jiayin Group's financial results for the first quarter of 2024. We released our earnings 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; Mr. Fan Chunlin, 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 US 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 on our 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, Mr. Yan will deliver his remarks in Chinese and I will follow up with corresponding English translation. Please go ahead, Mr. Yan.

Hello, everyone. Thank you for joining our first quarter 2024 earnings conference call. For our company, 2024 is a year dedicated to comprehensively strengthen development that is both led by technology and driven by new momentum. The Chinese economy is currently showing signs of gradual recovery, but there are challenges on the demand side. Risk factors such as the stage of recovery in residents' willingness to take up loans for consumption still need to be considered. Against the backdrop of these risks and opportunities, we successfully achieved our strategic goals in the first quarter. Through its own remitting efforts, the company made solid achievements in financial performance and business expansion, enhancing the confidence we have in the operation for the whole year of 2024. In the first quarter, we focused on a number of important market factors, such as the fluctuation of the market risk levels that emerged last year, the decrease in market interest rates, and changes in overseas regulatory requirements. We continue to enhance the company's ability to empower partners with big data and artificial intelligence, continuously improving the company's core competitiveness. Both refinements in internal management and external business expansion contributed to our strong results. Our loan facilitation volume for the three months ended March 31st reached RMB22.5 billion, a year-over-year increase of 13.6%, exceeding the previously set target guidance. During this period, we achieved net revenue of RMB1.475 billion, a year-over-year increase of 31.5%, continuing a trend of healthy growth. From the beginning of 2024, we comprehensively implemented technology empowerment, deepened the development and application of AI technology, and continuously improved the level of business intelligence. These technological achievements are constantly emerging. In the relatively mature field of AI commercial services, the company has fully integrated and applied core capabilities in various business scenarios and unified the design, implementation, and delivery of AI technology applications. At the same time, the company's technical team is gradually maturing in terms of the validation management and application capabilities of popular large language models in the market. The application scenarios of large language models are also gradually expanding from task-intensive scenarios such as telemarketing, customer services, and post-loan impairments to expert knowledge-intensive scenarios, including intelligent search and intelligent recommendation. The extensive and in-depth application of AI technology has significantly improved the company's operational efficiency. We are full of confidence in further achieving data-driven developments in the future. We have gradually formed a diverse and long-term stable network of institutional partnerships. As of the end of the first quarter, we have established partnerships with 70 financial institutions and are in discussions with an additional 32 financial institutions. At the same time, we are beginning to explore cooperation with foreign banks as our overseas business development is in progress. In addition, we have deepened our cooperation with financial institutions in operations, technology, risk management, and consumer rights protection. These comprehensive collaborations are further empowering the financial institutions' business processes through technology, leading to complementary win-win outcomes for our company and our institutional partners. Further, we are also exploring core operations on borrower acquisition to further optimize costs. Continuously optimizing the risk performance of borrowers is the cornerstone for the company's long-term and stable development. Although we have observed some improvements among some early risk indicators in the first quarter, we will still continue to prioritize risk factors while pursuing growth to balance the speed and quality of development and achieve sustainable development of scale and efficiency. The 61 to 90 days delinquency rate remained at 0.68%, meeting expectations, thanks to our ability to identify high-quality borrower groups and our more refined risk control strategy. The proportion of new borrowers reached 27% in this quarter, maintaining a relatively stable level. In addition, the average borrowing amount per borrower in the first quarter was RMB10,570, representing a year-on-year increase of 60.6%. In addition to deepening our original borrower acquisition channel metrics, we have also continuously increased the proportion of borrower acquisition through the mini apps on leading Internet platforms. We focus on the innovative model with good risk performance and continuously optimize costs, striving to raise more target users and maintain the growth of vitality. Our overseas business achieved favorable results in the first quarter. In the Indonesian market, the number of newly registered users through our partner local business entity increased 37% quarter-on-quarter. We are actively optimizing product structure in response to new local regulatory requirements. We have learned that our Indonesian business partner was in discussions with five local licensed financial institutions in the first quarter, aiming to further expand the volume of loan facilitation business in Indonesia in the future. The business performance in Nigeria showed steady progress with an increase in the amount of borrowing loan volume and new borrowers. At the same time, the local exchange rates gradually stabilized towards the end of this quarter, providing favorable conditions for our further market expansions in the region. In the Mexican market, the lending scale of the local business entity we invested in also grew rapidly in this quarter. In addition, we are actively exploring opportunities to expand to more overseas regions, and overseas business will also be one of the key focuses of the group's future development. We will further increase our investments in overseas businesses. We always place great emphasis on consumer rights protection and anti-fraud efforts in financial services. Our white paper on consumer rights protection in 2023, released at the beginning of this year, elaborates on the company's achievements in the systematic and responding operation of consumer protection, including building anti-fraud firewalls, improving customer service quality and efficiency, strengthening external cooperation, and innovating consumer protection education. In terms of anti-fraud, the company's fraud prevention and control report for the first quarter reveals that we have cumulatively identified and blocked 65,000 malicious attacks from illicit industry and manually investigated and disposed of 20,400 applications from potentially high-risk borrowers in the first quarter. Additionally, the company has jointly conducted anti-fraud lectures with law enforcement departments and collaborated to establish a cooperation mechanism, effectively combating financial gray and black industries as well as illegal intermediaries. Leveraging technological innovation, the company has built a solid anti-fraud defense line to safeguard the financial security of borrowers and continuously contribute to profiling the financial market environment. Based on our confidence in the company's sustained future growth and the company's ample cash reserves, I am pleased to announce the company's plan for the first tranche of dividend distribution for 2024. The company plans to distribute a cash dividend of US$0.50 per ADS. Further details and relevant dates regarding this dividend payout will be announced separately after further confirmation by the Board of Directors. With regard to the share repurchase plan, in the previous quarter, the Board of Directors approved raising the upper limit of the current share repurchase plan to US$30 million and recently further approved extending the validity period of the repurchase plan to June 12, 2025. In the future, we will continue to reward our shareholders, enhance the sense of gain among investors, and boost their long-term confidence in the company's development. Finally, considering the level of market risk and the demand for business growth, we have decided to set the guidance of loan facilitation volume for the second quarter of 2024 at RMB23 billion. With that, I will now turn the call over to our CFO, Mr. Fan Chunlin. Please go ahead.

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 earlier, our company successfully achieved its strategic targets in the first quarter. We have also recorded solid financial results. Notably, our loan facilitation volume grew by 13.6% to RMB22.5 billion. Our net revenue was about RMB1.48 billion, up 31.5%, as our other revenue dropped to RMB119.8 million from RMB126.9 million in the same period last year. Moving on to costs. Facilitation and service expenses were RMB667 million, representing an increase of 143.3% from the same period of 2023, primarily due to the increase of guarantee costs incurred and increased loan facilitation volume. The allowance for uncollectible receivables, contract assets, loans receivable, and others was RMB2.6 million, compared with RMB6.7 million in the first quarter of 2023. Sales and marketing expenses were RMB359.8 million, representing a decrease of 5.5% from the same period of 2023, primarily due to lower commission expenses. G&A expense was RMB46.2 million, compared with RMB46.4 million in the first quarter of 2023. R&D expense was RMB83.3 million, representing an increase of 28.5% from the same period of 2023, primarily due to higher employee compensation benefits as the number of our research and development employees increased. Consequently, our net income for the first quarter was RMB273.1 million, representing a decrease of 2.4% from RMB279.7 million in the same period of 2023. Our basic and diluted net income per share was RMB1.29 compared to RMB1.31 in the first quarter of 2023. Basic and diluted net income per ADS were both RMB5.16 compared to RMB5.24 in the first quarter of 2023. We are pleased to report a significant improvement in our cash position this quarter. As of March 31st, 2024, our cash and cash equivalents reached RMB568.2 million, a substantial increase from RMB370.2 million at the end of December 31st, 2023. This growth highlights our strong financial discipline and operational efficiency. With that, we can open the call for questions. Ms. Xu, our Chief Risk Officer, and I will answer your questions. Operator, please proceed.

Thank you. We will now take our first question. Please standby. The first question is from Hua Rong from Jinyu Asset. Please go ahead.

Hello management. I'm Hua Rong from Jinyu Asset and I have two questions. The first one is regarding the company's loan facilitation volume, which increased by 13.6% in the first quarter of this year compared to the previous period of rapid growth. Could you explain the main reasons for the slowdown in growth? What will be the primary focus for borrower acquisition channels moving forward? My second question is regarding the revenue in the first quarter of this year, which decreased compared to the fourth quarter of 2023. The cash position increased by nearly RMB200 million by the end of the fourth quarter. Could you clarify the reason for this? That's all. Thank you.

Hello Hua Rong. I'm Xu Yifang. Thank you for your question and for your long-term support. Since 2019, our exclusive growth in recent years following our transformation can be attributed to over a decade of dedication in the industry, which includes two main factors. First, we have developed our operational and risk management capabilities. Second, we have grown our market clients, users, and borrowers through in-depth industry development and growth. With the steady advancement of the industry's regulatory framework, orderly market development, and a dynamically stable competitive landscape, we have achieved a relatively solid performance this quarter with a 13.6% growth. This growth stems from cautious and systematic business operations that take into account market and credit risk assessments. While the macroeconomic environment continues to show positive trends, we maintain a cautiously optimistic outlook regarding its levels. The growth we are seeing comes from acquiring borrowers. We continue to actively pursue upstream forces in the market, focusing on expanding and developing high-quality borrower segments. At the same time, we are dedicated to prudent and rational risk management with our current borrower base. We are exploring differentiated and diverse products and services that incorporate risk considerations, aiming for further breakthroughs in attracting and retaining high-quality borrower groups. It is also essential to focus on our current borrowers, as they are crucial. We will seek potential growth by considering both risk and profit. In discussing risk, we are exploring differentiated products and services aimed at our high-quality borrower groups. This aligns with our ongoing strategy to enhance our capabilities in managing high-quality borrower operations. This answers your first question. For your second question, Mr. Fan can provide that answer.

In the first quarter of 2024, the revenue was RMB1.475 billion, decreasing from RMB1.6 billion in Q4 2023. This decline can be attributed to a change in revenue structure, with a higher proportion now coming from loan origination services and a lower proportion from guarantee services, a trend expected to persist. As previously mentioned, the profit margin for guarantee income is lower, so optimizing the revenue structure has improved the company's operating profit margin. Jiayin's income from operations in the first quarter was approximately RMB316 million, an increase of over 36% compared to RMB232 million in the fourth quarter of the previous year. There has also been a significant increase in operating cash flow. Furthermore, our accounts receivable recovery is performing well, with funds tied up in margins being continuously released. It's also important to note that in the first quarter, the company paid cash dividends of about RMB152 million, which would further increase the cash balance. The ongoing optimization of the company's cash flow will provide a solid foundation for long-term sustainable development and better returns for shareholders moving forward. As our Chairman, Mr. Yan, stated earlier, we will continue to pay dividends and adhere to our dividend policy. The Board of Directors has also approved extending the validity period of the share repurchase plan to June 12, 2025. We remain committed to rewarding our shareholders more effectively. Thank you.

Thank you. We will now take our next question. This is from the line of Yuxuan Chen from Huatai Securities. Please go ahead.

Okay. Let me do the translation. This is Yuxuan Chen from Huatai Securities. I have two questions. First, our facilitation volume and revenue both increased year-over-year in the first quarter of 2024, but net income slightly declined. Could you please explain why that happened and provide more insight on the future trend of the company's net margin? My second question is regarding the Indonesian market, which is a key target for the company's overseas business. What are the company's views on the regulatory requirements in Indonesia for interest rate reduction? Does the company have effective contract measures for that? Thank you.

In the first quarter of 2024, our loan facilitation volume rose by 13.6% year-over-year, and revenue grew by 31.5% year-over-year. However, net profit saw a slight decrease of 2.4% year-over-year. The primary reasons for this are as follows. First, there was a shift in our revenue structure during 2023, particularly in the latter half. Revenue from guarantee services grew rapidly, but its profit margin is lower than that of our loan facilitation services. Excluding this factor, both our sales and marketing and general and administrative expenses decreased slightly in absolute terms year-over-year due to improved operational efficiency. Research and development expenses increased year-over-year as we continue to invest in technology and research development. The second reason is the decline in our take rate. Despite the increase in loan facilitation volume year-over-year for the first quarter of 2024, the overall take rate for our loan facilitation services actually decreased year-over-year. Regarding the future trend of our profit margins, I want to share some additional information. Firstly, during the declining interest rate cycle, we anticipate our pricing and take rate will remain relatively stable, though there may be some decreases to benefit our borrowers. Secondly, the proportion of revenue from guarantee services is expected to decrease, as previously mentioned, which should positively affect overall profit margins. Thirdly, we foresee stable growth and continued operational efficiency. With significant growth in scale and ongoing improvements in operational efficiency, we expect cost-effectiveness to enhance further, benefiting our profit margins. Our future focus will be on balancing growth while managing risk factors to ensure sustainable development. Additionally, regarding your second question about our overseas business, I will let Ms. Xu provide an answer.

Thank you, Mr. Fan. Regarding the Indonesian market, while the reduction in interest rates presents challenges for industry operators, we view it as a recognition from regulators of the industry's long-term potential. It also highlights their management approach and the effectiveness of policies aimed at continuously fostering and protecting long-term development in the sector. With the rapid growth of the Fintech industry, regulatory policies and frameworks are becoming more organized, and we anticipate ongoing iterations and adjustments. This change reflects various aspects of the industry, particularly from clients who demand high-quality products and services. As for the challenges mentioned, the interest rate reduction will benefit two types of companies in overcoming these challenges. The first are established platforms that have been committed to the market for a long time, providing them with more flexibility and room for error due to their data and user accumulation. The second type consists of companies with excellent risk management and refined operational capabilities that can quickly adapt to new market requirements through their technical expertise. Concerning Jiayin Group, we have been operating in Indonesia for a while now, which, although not extensive, has allowed us to gain valuable understanding, knowledge, and experience. Our long-term expertise in risk management and streamlined operations enables us to respond and adjust swiftly to new interest rate requirements. In the first half of this year, we have observed rapid and positive improvements across various business indicators in the Indonesian market under the new interest rate framework. Looking ahead, we are optimistic about achieving breakthroughs and further expanding our business scale in this market. Ultimately, we are committed to long-term growth in Indonesia. That concludes my comments on our business in the Indonesian market.

Thank you. Seeing no more questions, I will return the call 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.

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