Earnings Call Transcript - JFIN Q1 2022

Operator, Operator

Good day, ladies and gentlemen. Thank you for standing by. And welcome to the Jiayin Group's First Quarter 2022 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 proceed.

Shawn Zhang, Investor Relations

Good day, everyone. Thank you all for joining us on today's conference call to discuss Jiayin Group's financial results for the first quarter of 2022. 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; Mr. Fan Chun Lin, 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, 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 translations. Please go ahead, Mr. Yan.

Dinggui Yan, CEO

Hello, everyone. Thank you for joining our first quarter 2022 earnings conference call. In the first quarter, we experienced significant volatility due to the macro environment following the recent COVID-19 resurgence in certain areas of China. However, despite the economic slowdown induced by the pandemic, we continued to strengthen our core competencies by improving our risk management capabilities, attracting high-quality borrowers, and expanding our partnerships with licensed institutions. Notably, our loan origination volume increased by 95.4% year-over-year to RMB8,153 million in the first quarter. More importantly, we focused on achieving an ideal balance between business growth and profitability improvement. We further optimized our cost and expense structures by enhancing our operating efficiencies, which led to continued margin expansions. In the first quarter, our income from operations reached RMB182.5 million and our net income was RMB144.6 million. One of our strategic priorities during the quarter was to enhance the credit risk profiles of our borrowers to ensure the quality and sustainability of our strong portfolio growth. The success of our efforts can be seen in our 30-day delinquency rate reduction to 0.78% from 1.31% at the end of 2021. The 90-day delinquency rate also decreased to 0.53% from 0.72% at the end of last year, illustrating the consistent improvement in overall borrower credit quality. We also continued to optimize our borrower acquisition efforts this quarter. Our increased investments in targeted online marketing programs enabled us to improve our borrower acquisition efficiency and the quality of our borrower base. Moving forward, we will continue to invest in our online marketing initiatives to expand our borrower base with enhanced acquisition efficiency, while maintaining our borrowers' credit quality at a very healthy level. At the same time, we remain dedicated to expanding our partnerships with licensed financial institutions to diversify our funding sources. As of March 31, 2022, we have four partnerships with 40 financial institutions and are currently in discussions with another 45. More importantly, national financial institutions in our partnership network contributed to the majority of our total loan volume in the first quarter. Additionally, we are actively exploring new collaboration models by leveraging our integrated platform to empower our financial institution partnerships. Under the new partnership model, we provide specialized services, including borrower acquisition, risk analysis, and other operational services to help our partners digitize their operations. We have already implemented this model with four financial institutions and are in discussions with another three institutions to further expand our partnership network. Furthermore, we also fulfill our corporate responsibility to support small and micro business owners during the quarter through loan services, recognizing that small businesses have the hardest time adjusting to economic disruptions, and their financing needs remain largely unmet. Thus, we continue to develop our loan program for small business owners to help them recover from economic hardships. Finally, regarding our global expansion, we continue to roll out our tailored services and products in each regional market. We have also adopted a more cautious approach in response to the pandemic across different markets. However, we are still making solid progress in penetrating targeted markets. We are also actively developing new partnerships with local licensed financial institutions to strengthen our market share and fortify our leadership. Recently, on April 29, the Politburo of the Chinese Communist Party announced steps to support the healthy development of the platform economy. From our observation, the regulatory ratification process is nearing its final phase. We firmly believe that a better-regulated industry environment will continue to benefit leading fintech platforms like Jiayin Group. In conclusion, we remain committed to enhancing our risk management capabilities, growing our borrower base, and deepening our partnerships with licensed financial institutions. Our strong performance in the first quarter once again demonstrated our vitality and resilience, laying a solid foundation for improved profitability and asset quality to navigate any macro uncertainties in 2022. With that, I will now turn the call over to our CFO, Mr. Fan Chun Lin. Please go ahead.

Chun Lin Fan, CFO

Thank you, Shawn. Thank you, Mr. Yan. And thank you, everyone, for joining our call today. First of all, I'm glad to be back after my departure from Jiayin for more than a year. I'm pleased to review my role as CFO and meet investors and all the friends here. I also really appreciate the Jiayin team for their great work during my absence. As Mr. Yan mentioned earlier, we delivered robust financial results in the first quarter marked by strong top-line growth and margin improvements. During the quarter, we grew our loan origination volume by 95.4% and revenue by 49%. Importantly, our net income increased by 54.3% year-over-year, while net margin further expanded to 28.3% from 27.3% a year ago. Such achievements against the backdrop of increasing macroeconomic uncertainties and COVID-19 disruptions again demonstrated the effectiveness of our growth strategies. 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 RMB511.2 million, up 49%. Revenue growth was primarily driven by the significant growth in loan origination volume, which increased 95.4%. Other revenue increased to RMB64.7 million, driven by the increase in revenues from individual investor referral services. This increase was partially offset by a decrease in our revenues from overseas markets in the quarter. Moving on to costs. Origination and servicing expenses were RMB93.4 million, up 45.7%, largely in line with the increase in our loan origination volume. Allowance for uncollectible receivables and contract assets reduced by 50% to RMB4 million, mainly as a result of the decreased loan volume from our overseas business during the first quarter of 2022. G&A expenses were RMB40.7 million, up 7.7% due to higher professional service fees incurred this quarter. R&D expenses were RMB41.8 million, up 48.8%. We recorded higher employee compensation and benefit costs, as well as increased fees for professional services in the quarter. Sales and marketing expenses were RMB148.8 million, up 63.2%, reflecting higher borrower acquisition and credit assessment expenses in line with increased loan origination volume. Consequently, we reported a net income of RMB144.6 million compared to RMB93.7 million in the same period of last year. We ended this quarter with RMB170.3 million in cash and cash equivalents compared with RMB182.6 million as of December 31, 2021. Moving to our guidance. We expect our loan origination volume in the second quarter of 2022 to be between RMB11 billion and RMB12 billion, and our full-year guidance remains unchanged. With that, we can open the call for questions. Mr. Yan, our CEO; Mr. Xu, our Chief Risk Officer, and I will answer questions. Operator, please go ahead.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Your first question comes from Andrew Scott from ROTH Capital Partners. Please ask your question.

Andrew Scott, Analyst

Good morning. Congrats on the strong quarter. And thanks for taking my questions. My first question is about your international presence. Can you guys just maybe provide an update on the different international markets you are in? And can you comment on if you are going to start reporting any origination metrics around the international business?

Xu Yifang, Chief Risk Officer

Hello, Andrew. This is Yifang. I'm going to take on your questions about our international markets. In the early part of the call, we shared some overall views of our international performance. Now I'm just diving into a little bit of detail in each of our markets. In Mexico, as we have previously communicated, we have been a strong player in the market, and we are taking that leading position in terms of volume. In Q1 2022, our focus in Mexico has been on product offering expansion. We are starting to work on our strategy to move up to better, higher-quality customers and provide a product that has a longer term. Then moving on to our Nigeria market. Last quarter, we reported our aggressive high-volume growth, which is at a double-digit month-over-month growth rate in terms of volume. In Q1 2022, we are maintaining our growth but not at a higher double-digit rate. By the way, we are focusing on a bigger volume now, continuing to drive down the risk metrics, which we have been able to achieve both reasonable healthy growth while having better and improved risk performance. Going back to Indonesia, we are working on a re-launch of our presence in the Indonesian market. Compared to our operational model in 2021, we're exploring a more flexible strategy to allow Jiayin to continue to play in our Indonesia lending market. In terms of the reporting metrics, due to the operational setup, it’s slightly different from market to market. We are still working on what’s the best way to report on the exact operational metrics to provide our investors a better view on that. But I'm hoping what I have discussed above helps you understand a little bit about our overall strategy in international markets and what movements we are focusing on. That will be all...

Andrew Scott, Analyst

Thank you. That was very, very helpful. Thank you. Next question for me, very exciting guidance of, I believe it's RMB11 billion to RMB12 billion in originations next quarter. Can you kind of talk about what's driving that growth, whether it might be better acquisition of customers or the introduction of the small business loans? Just any commentary around that would be helpful.

Xu Yifang, Chief Risk Officer

Sure. This is Yifang again. I'm going to get a little bit more detail into your question about our loan growth. So I think if we're looking at 1.5 years back when we fully transitioned into the loan facilitation model in Q4 2020, I believe our performance over a year has proven to be welcomed and acknowledged by our institutional partners. As a result, our partnerships with licensed financial institutions have continued to grow, and we have seen significant growth in Q1 2022. As we have brought broader and deeper relationships with our institutional partners, we're happy that our overall loan growth was able to meet their needs. On the other side of our loan origination, with a long-term focus and investment in technology and lending capabilities, our operational teams have been able to meet the high demand for our loans and deliver healthy performance. In particular, we have been focusing on online marketing acquisitions, especially due to the COVID resurgence in various areas across China. Focusing on online marketing has benefited us to continue driving the growth while we are experiencing some uncertainties from the COVID situation in China. On the other hand, we continue focusing on our R&D and our risk management. Aside from technological investment, we also have pioneered the early risk metrics, both model implementation and model monitoring, which allow us to take an early peak at both our prospect risk profiles as well as our applicant-level risk profiles, in addition to our mature day one risk. So with that, we are able to drive high double-digit, even triple-digit growth in our portfolio. In the meantime, we are keeping our risk metrics at a healthy level, which is actually showing a meaningful downward trend. That will be my comment.

Andrew Scott, Analyst

Great. Thank you. I really appreciate all the detail. And then last one for me. Just my understanding, the government put out some notices on how to enhance the financial services market to spur economic growth during the ongoing pandemic issues. Can you kind of talk about how that impacts Jiayin moving forward, especially during the recent lockdowns that were put in place?

Chun Lin Fan, CFO

Okay. Andrew, I will take this one. So as you all know that Shanghai just underwent an all-site period, right? Officially, we don't call that a lockdown. So everybody is aware that China has been facing difficulties since March, and the challenge is very tough compared with the 2020 pandemic control. The central and local governments are fully aware that economic development, including GDP growth, employment data, and control of inflation is the foundation of China's overall development. Since the reopening of Shanghai, most of the employees are back to the office. The good thing about Jiayin is, number one, almost all our business could be conducted online. Number two, we are focused on consumer loan services. And number three, our facilitating business is nationwide, and Shanghai only accounts for a small portion of our core business. So fundamentally, the impact on our business is minimal compared with other industries. Certainly, given the current macro environment in China, we will keep a close eye on the evolving macro environment and our particular segments. The company is fully prepared to face any challenges resulting from the macro economy and the pandemic control. We are also happy to see that the nature of our business allows us to avoid any obvious deterioration in delinquency data; on the contrary, due to our better asset quality, the delinquency data has improved further. So all in all, despite all the challenges over the past two to three months in Shanghai, we have seen a lot of good news and measures coming out from the government as well, which gives us a lot of confidence. In short, we are optimistic about our future and the guidance we just provided is actually a pretty conservative view. Thanks, Andrew.

Andrew Scott, Analyst

Great, thank you very much for answering my questions, and once again, congrats on the strong quarter. That's all from me. Thanks.

Operator, Operator

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

Shawn Zhang, Investor Relations

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.

Operator, Operator

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