Earnings Call Transcript - JFIN Q2 2025

Operator, Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Jiayin Group's Second Quarter 2025 Earnings Conference Call. 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. Sam Lee from Investor Relations of Jiayin Group. Please proceed.

Sam Lee, Investor Relations

Thank you, operator. Hello, everyone. Thank you all for joining us today on today's conference call to discuss Jiayin Group's financial results for the second quarter of 2025. 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 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, this call includes discussion of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP financial measures to GAAP financial measures. Please note, unless otherwise stated, all figures mentioned during the conference call are in Chinese renminbi. With that, let me 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.

Dinggui Yan, CEO

Good afternoon, everyone. Thank you for joining Jiayin Group's Second Quarter 2025 Earnings Conference Call. In the first half of this year, China has vigorously advanced its special initiatives to boost consumption, with total retail sales of consumer goods rising by 5% year-on-year. Additionally, six government departments jointly issued guiding opinions on financial support for enhancing and expanding consumption, aiming to further increase financial supply in this sector. Against this backdrop, the company has seized market opportunities, leveraged its core strengths, accelerated the alignment of consumer credit supply and demand, and supported the release of household consumption potential. In the second quarter, the company achieved loan facilitation volume of RMB 37.1 billion, representing a year-on-year increase of approximately 54.6%, setting a new record. Non-GAAP income from operations reached RMB 738 million, up approximately 182% year-on-year, while net income reached RMB 519 million, marking a year-on-year increase of approximately 117.8%. While ensuring compliant operations, the company has successfully met its established operational targets and maintained a positive development momentum. During the reporting period, the company sustained in-depth cooperation with 70 financial institutions, with another 58 under active negotiation. We have also been included in the extensive list of loan facilitation partners by multiple institutions, which not only recognizes our compliance capabilities, technological strength, and brand influence but also helps enhance the sustainability and diversity of funding supply, providing long-term support for stable operations. Meanwhile, the company is also jointly exploring new business development paths under the new regulatory framework with funding partners. Examples include launching joint operation projects to assist financial institutions in connecting with targeted traffic channels, achieving resource integration and complementary advantages through refined scenario engagement and risk control modeling. To date, we have collaborated with over 10 banks and consumer finance companies with a number and scale of projects continuing to grow, effectively empowering institutional partners and significantly strengthening ecosystem synergies. In the second quarter, we enhanced our asset generation and risk pricing capability. By using precise borrower segmentation strategies and offering more competitive credit limits, the average borrowing amount per repeat borrower increased by 4.8% compared to the previous quarter. Additionally, the share of loan facilitation volume increased from 71.9% to 75.6%, which has effectively improved borrower loyalty. We also expanded our borrower outreach through a variety of acquisition channels and a diversified partnership ecosystem. The number of borrowers this quarter reached 908,000, reflecting a year-on-year increase of about 33.5%, demonstrating balanced growth between new and repeat borrowers, which contributes to the company's growth resilience. In terms of risk management, we have continued to increase investment in technology and adhere to a data-driven risk control framework. Key efforts have been focused on building a multimodal anti-fraud system. By extracting voice prints from tens of millions of calls, we have established our own voice print database, which has been applied in multiple business processes such as identifying black and gray market activities and preventing fraud. Through multidimensional data cross-verification and real-time dynamic intelligent recognition, we blocked approximately 320,000 malicious fraud applications in the first half of 2025 and cumulatively identified and intercepted over 460,000 high-risk habitual fraud applications. To address market fluctuations, we customized risk models to assess high-volatility, high-risk users, enhancing risk prediction capabilities. As of the end of the second quarter, the 90-day plus delinquency ratio remained stable at 1.12%. To continuously strengthen the value of AI technology and empower our business, the company has focused on building foundational capabilities and scenario-based applications, expanding the breadth and depth of business intelligence. In the second quarter, we launched a data intelligence assistant with three key agents, effectively reducing the threshold for business R&D and improving data R&D efficiency. In the agent intelligence domain, we have gradually replaced some commercial large language models with post-train self-optimized models, resulting in significant cost reductions and efficiency improvements. For example, in agent assistance scenarios, the cost of AI-generated conversation summaries decreased by approximately 80% year-on-year. In terms of infrastructure development, our models optimized through reinforcement learning ranked fifth on the internationally authorized BIRD evaluation leaderboard, securing the top position among models with the same amount of parameters with a generation accuracy rate reaching 71%. This lays a solid foundation for the subsequent implementation in loan facilitation scenarios and the construction of our core competitiveness in data engineering. Meanwhile, the company has built a one-stop self-service R&D platform that supports various business departments in developing and deploying exclusive AI agents as needed. Within just one month, over 200 such agents have been deployed, strengthening internal empowerment and systematically advancing the in-depth implementation of AI across the business ecosystem. Overseas markets remain a critical component of the company's long-term strategic layout. In the second quarter, our Indonesian partners experienced significant business growth, with loan disbursements increasing by over 200% year-on-year and registered users growing by about 170%. While ensuring compliance, we continue to improve user acquisition and operational efficiency. In Mexico, loan disbursement and registered users both rose by nearly 40% quarter-on-quarter, focusing on product innovation and enhancing risk control systems. Guided by a collaborative and mutually beneficial philosophy, we will keep working with local partners to unlock the potential of overseas markets. Recently, we released our 2024 ESG report, which highlights substantial progress in sustainable development. At the corporate governance level, we focus on leveraging technological innovation to advance inclusive finance. In terms of social responsibility, we have implemented several public welfare initiatives targeting educational support and mental health care for environmental protection. We have achieved reductions in energy intensity and carbon emissions through improved energy and emission management. We have thoroughly integrated ESG practices into our business operations, promoting a positive cycle among economic returns, social value, and low-carbon operations. Regarding shareholder returns, in July of this year, the company distributed its annual cash dividend. The Board of Directors approved a cash dividend of USD 0.8 per ADS, totaling approximately USD 41.1 million, which is over 50% higher than last year. In terms of share repurchases, the Board approved extending the current repurchase program's validity to June 12, 2026. In August, we increased the existing share repurchase plan by an additional USD 50 million. We will adjust our cash dividend and share repurchase policies flexibly to share development achievements with shareholders and promote mutual value creation. Looking ahead to the second half of the year, as new loan facilitation regulations are gradually implemented, the policy environment in the Internet finance sector is becoming clearer. We will adhere to the principle of compliance as the foundation and prudent operations, dynamically adjusting our operational pace. The company expects its third quarter 2025 loan facilitation volume guidance to be RMB 32 billion to RMB 34 billion, with non-GAAP income from operation guidance set at RMB 0.49 billion to RMB 0.56 billion. Moving forward, we will take compliance as our cornerstone and innovation as our wing, accelerate the building of differentiated competitive barriers and ensure sustainable and steady growth for the company.

Chunlin Fan, CFO

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 noted earlier, we maintained robust growth momentum throughout the second quarter, setting a new record high in business scale. Loan facilitation volume was RMB 37.1 billion, representing an increase of 54.6% from the same period of 2024. Our net revenue was RMB 1,886.2 million, representing an increase of 27.8% from the same period of 2024. Moving on to costs. Facilitation and servicing expense was RMB 285.1 million representing a decrease of 53.1% from the same period of 2024. This was primarily due to decreased expenses related to financial guarantee services. Allowance for credible assets, loans receivable and others were RMB 32.5 million compared with RMB 3.3 million reversal in the second quarter of 2024, primarily due to the additional cap of overseas guarantees, which the company provided for loan facilitation business conducted by the company's investee in the second quarter of 2025. Sales and marketing expense was RMB 710.5 million, representing an increase of 46% from the same period of 2024, primarily due to an increase in borrower acquisition expenses and commission expenses. G&A expense was RMB 110.5 million, representing an increase of 70% from the same period of 2024, primarily driven by an increase in payroll expenses and share-based compensation. R&D expense was RMB 108.4 million, representing an increase of 16.8% from the same period of 2024, primarily due to higher share-based compensation as well as increased professional service fees. Non-GAAP income from operations was RMB 737.6 million compared with RMB 261.6 million in the same period of 2024. Consequently, our net income for the second quarter was RMB 519.1 million, representing an increase of 117.8% from RMB 238.3 million in the same period of 2024. Our basic and diluted net income per share was RMB 2.46 compared with RMB 1.12 in the second quarter of 2024. Basic and diluted net income per ADS was RMB 9.84 compared with RMB 4.48 in the second quarter of 2024. We ended this quarter with RMB 316.2 million in cash and cash equivalents compared with RMB 190.3 million at the end of the previous quarter. With that, we can open the call for questions. Ms. Xu, our Chief Risk Officer, and I will answer questions.

Unidentified Analyst, Analyst

I have two questions. The first is about the company's loan facilitation business, which has experienced significant growth. How does management anticipate the new regulations will affect the business going forward? My second question is regarding management's plans for shareholder returns.

Yifang Xu, CRO

Thank you for your question. We achieved strong growth this quarter, demonstrating our ongoing investment and focus on the digitalization and credit technology of our company. Looking ahead, we will continue to enhance our operational capabilities through data and AI empowerment, helping financial institutions leverage our expertise for sustainable and quality growth. Speaking of the new regulation, the specific implementation will probably become clearer in the fourth quarter. Currently, not just for us but for the entire industry, licensed financial institutions appear to be taking a more cautious approach to funding supply. Additionally, the decisions regarding which platforms to partner with are being made with greater consideration. In terms of the wide list of institutional partners, earlier, Mr. Yan referenced it but we're proactively ensuring that these requirements don't impact our existing loan facilitation business. On the business model side, we're actively preparing multiple contingency and product plans so that in the next couple of months, we can quickly respond to product model requirements of our institutional partners related to the new regulation. The company's operational and management focus will continue to be on strengthening our capabilities in credit technology, data, risk management, and operations. Regardless of how the product and cooperation models evolve under the new regulations, these capabilities are our core competitive advantages in the loan facilitation and credit tech industry. This is what makes us appealing to our partners. As the new regulations become clearer and fully implemented, we expect this to drive long-term healthy industry development and ensure fair competition. For established players like us in the industry, this is a positive signal. For the second question, Mr. Fan will respond to your inquiry.

Chunlin Fan, CFO

For dividends, Mr. Yan mentioned earlier that the company will maintain an annual dividend policy with the total amount being approximately 30% of the previous year's net income after tax. In July of this year, the company distributed a cash dividend of USD 0.8 per ADS, which is a 60% increase compared to last year's USD 0.5 per ADS. For share repurchase, at the recent Board meeting in August, an additional USD 50 million was approved for the share repurchase plan, bringing the total authorized repurchase amount to USD 80 million. As of August 2025, the total repurchase amount is approximately USD 30.4 million. To summarize, we will continue to share the results of the company's development with our shareholders and seek to provide excellent returns to our investors.

Yuxuan Chen, Analyst

Okay. Let me do the translation. I'm Chen Yuxuan from Huatai Securities. I have two questions. First, we've observed an improvement in the company's profitability over the last two quarters. Considering the new regulations, what is your outlook on profit margins moving forward? Second, we've noted a continued improvement in risk performance this quarter. What are the main factors driving this, and how has risk performance progressed in the third quarter? Additionally, some funding partners have become more cautious with lending, leading to tighter market liquidity. Could this introduce volatility in asset quality, and what actions has management taken in response?

Chunlin Fan, CFO

Thank you, Yuxuan, for your question. I will answer the first question, and Ms. Xu will answer the second question. In the second quarter of 2025, the company's non-GAAP income from operations reached RMB 738 million, exceeding our guidance range of RMB 660 million to RMB 730 million. The net income reached RMB 519 million, marking a year-on-year increase of 117.8%. The net income margin was 27.5%, significantly up from 16.1% during the same period last year. The strong profit margin over the past two quarters can be attributed to several key factors. First, there's a significant increase in the company's loan facilitation volume. In Q2 of 2025, the loan facilitation volume reached RMB 37.1 billion, a year-on-year increase of almost 55%, marking a new record since the company listing. So the economies of scale have really helped improve the profit margin. The second factor is the ongoing optimization of the company's revenue mix. This is the key point we have consistently highlighted to our investors. The quality growth in loan facilitation service revenue and the substantial decrease in the share of guaranteed service revenue have effectively enhanced our profit margin. With the rapid year-on-year growth in facilitation transaction volume in Q2, the company's facilitation service revenue reached RMB 1.609 billion, representing about a 70% increase compared to the previous year. In terms of revenue contribution, the share of facilitation service revenue of the total revenue rose from 64% in Q2 last year to 85% in Q2 this year. Correspondingly, the share of lower-margin guarantee-related service revenue fell from about 29% in Q2 2024 to less than 7% in Q2 2025. The ongoing optimization of the revenue mix has significantly boosted the company's profit margin. The company's continued strategic investment in AI technology and R&D has led to significant improvements in operational efficiency. Our ongoing investment, combined with the implementation of AI applications across various operational processes, has established a solid foundation for sustained improvements in operational efficiency for Q2 and in the long run. The implementation of the new regulations, as mentioned earlier, will require institutions to adjust their strategies, pricing strategies, and cooperation models in the short term. However, in the long term, these regulations will benefit the entire industry by fostering healthier, more compliant, and more sustainable development. As the new regulations are implemented, Jiayin will further strengthen our long-term advantages since the details of the new facilitation regulations are still being clarified. We're taking a cautious approach in providing the Q3 loan facilitation volume guidance of RMB 32 billion to RMB 34 billion. For Q3, the non-GAAP income from operation guidance is RMB 490 million to RMB 560 million. For the full year, we're maintaining our guidance at RMB 137 billion to RMB 142 billion for the loan facilitation volume.

Yifang Xu, CRO

The second question regarding risk performance. This quarter, our risk performance has continued to improve, primarily due to several factors. First, our ongoing investment in risk data and models, which focuses on the changes in characteristics during the risk cycle. We are automating the monitoring of leading risk indicators and trends and responding quickly with appropriate risk strategies, frameworks, and solutions. The second reason is that our loan volume has continued to increase rapidly. So that's another contributing factor. The third reason is technological. We've increased our investment in forward-looking research on risk cycles. Starting at the end of Q1 and into early Q2 of this year, we've commenced research and quantification on sensitive borrower segments. Given the cautious funding supply, we expect short-term adjustments and fluctuations, particularly among cyclical sensitive borrowers and those with tail-end pricing. As liquidity decreases, we anticipate a decline in performance for these borrower groups. For repeat borrowers, we are actively managing our exposure and transaction criteria. For new borrowers, we are concentrating on sensitive borrower segments in our acquisition channels and making adjustments to the scale, proportion, volume, and structure of these channels. Throughout this credit cycle, we will continue to monitor and analyze the characteristics of customer segments and refine our credit and operational strategies for our top-tier, high-quality borrowers to ensure a healthy risk profile in the context of the broader industry environment.

Operator, Operator

Thank you. Seeing no more questions, I'll return the call to Sam for closing remarks. Please go ahead.

Sam Lee, Investor Relations

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

Operator, Operator

Thank you all again. This concludes the call. You may now disconnect.