Earnings Call Transcript - JFIN Q2 2024

Operator, Operator

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Jiayin Group Second Quarter 2024 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

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 second quarter of 2024. We released our earnings result 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; Ms. 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 Security 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. 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

Hello, everyone. Thank you for joining our second quarter 2024 earnings conference call. Reflecting on the second quarter, this was a time of change in the external environment and significant adjustment in domestic industries and consumption. China's macroeconomic situation is progressing under pressure with cautious consumer credit demand. After a period of risk volatility, various risk indicators have improved. However, it remains to be seen whether the changes in market risk levels will maintain this trend in the second half of this year, which requires further observation and analysis. During this challenging time, the company's risk control and technological capabilities were tested, but we continued to assist financial institution clients in maintaining a strong first line of defense. In the context of improving risk levels, our team successfully achieved our strategic goals with innovation and firm execution. In the second quarter, the company facilitated loans totaling RMB24 billion, a further increase from the previous quarter. Additionally, we reported net revenue of RMB1.476 billion, a 15.5% year-over-year increase, continuing our healthy growth momentum. In terms of technology, we have actively advanced our technological transformation, exploring the use of AI technology in business scenarios. In the second quarter, we built upon our existing capabilities and integrated AI into several areas, including customer services, internal communications, decision support, production monitoring, predictive maintenance, and personalized marketing. By leveraging our strong in-house research capabilities, we launched several innovative products in the second quarter, including the intelligent recommendation system and the Lingxi AI Agent platform. These advances are part of our commitment to using technological innovation as a driving force to inject digital power into our business development. We have also continued to build a high-quality and sustainable network of cooperative financial institutions. As of June 30th, we have established partnerships with 69 financial institutions and are in discussions with an additional 35. Overall, our plans to deepen cooperation with key partners are progressing well, and we are gradually implementing deeper cooperation across credit reporting scenarios, traffic cooperation, and other business areas. As an example of our achievements in the second quarter, we assisted a private bank in connecting with targeted asset acquisition channels, successfully implementing a joint operation project based on the designated traffic channel model. As part of our deepening cooperation with institutions, we are also exploring expanding service boundaries and various new businesses, including car loan matching services. We are continuously striving for high-quality synchronous development with institutions through these and other cooperation models. At the same time, we increased our investment in borrower acquisition. Alongside optimizing existing channels, we have partnered with several top-tier platforms. This occurred as we continued exploring different types of touchpoints, innovating borrower acquisition scenarios, and meeting the diverse needs of borrowers. Simultaneously, we adjusted our borrower identification strategy and enhanced it with a comprehensive marketing system, resulting in a broader borrower base. With these measures in place, the number of new borrowers this quarter reached 680,000, reflecting a 32.9% year-over-year growth and injecting strong momentum into our future development. As our new borrower acquisition figures and capabilities continue to strengthen, we have focused on conversion efficiency. Through targeted operations and ongoing product iterations, we have consistently improved user retention. This quarter, our repeat borrowing rate remained stable at 67.1%. Looking ahead, our focus will be on optimizing the balance between new and existing borrowers while fully leveraging the lifetime value of our user base, which will be central to our long-term strategic objectives. Risk management remains a key focus of our strategic planning and business operations. By the end of the second quarter, our 61 to 90 days delinquency rate was at 0.67%, showing clear improvement in asset quality. We also continue to work on consumer rights protection, implementing systematic and refined operations in this area. In the first half of this year, we identified and blocked fraudulent borrowers over 1.59 million times, successfully identifying and intercepting 160,000 malicious attackers. We have leveraged technological innovation to build a strong protective shield for safeguarding consumer rights. International business remains a key focus for our future development, with healthy and stable growth in this area during the second quarter. In the international market, we are closely monitoring changes in local regulatory requirements. Meanwhile, our local partner optimized its entire business chain, achieving significant results. In the second quarter, the loan size of our Indonesian partner increased by 25% compared to the previous quarter. Overall performance and business conditions exceeded early-year expectations. We also acknowledge that our local partner is in ongoing discussions with five local financial institutions to expand our partnership network. In the Mexican market, we continue to focus on improving various business infrastructures and exploring long-term products. In the Nigerian market, against the backdrop of stable risk indicators in the second quarter, our business scale further increased compared to the previous quarter. Some local regulations are also being implemented to govern the listing of financial loan applications. We believe that these regulatory norms will help the industry develop in a compliant, healthy, and sustainable direction. We adhere to the concept of sustainable development and have integrated ESG practices into all aspects of cooperative management. In early August, we released our 2023 ESG report. Our company actively pursues technological empowerment for small and macro enterprises, employee care, environmental protection, and social welfare, resulting in fruitful outcomes. Notably, we emphasize empowering technology and supporting data elements, improving the coverage and accuracy of our inclusive finance initiatives. While focusing on high-quality development in our core businesses, we remain committed to promoting social welfare through ongoing efforts in educational support, youth mental health care, and volunteer services. Looking ahead, we plan to continue taking on social responsibilities and promote sustainable and high-quality development for the company. Based on our overall assessment of the market, we are confident in the company's growth for the second half of the year and in achieving our annual targets. Therefore, we have decided to set the guidance for the loan facilitation volume in the third quarter at approximately RMB25 billion. Additionally, we are focused on enhancing shareholder value and reinforcing investor confidence. Recently, we announced the specific distribution plan for the first dividend of this year, which is $0.5 per ADS, totaling approximately $26.6 million. With the market gradually improving, we look forward to rewarding investors who care about the company's development in various ways and strive to share the benefits of our progress with both the company and our investors. I will now turn the call over to our CFO, Mr. Fan Chunlin.

Chunlin Fan, CFO

Thank you, Mr. Yan. Hello, everyone, and thank you 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, our company remains strong and adaptable, maintaining stable performance despite shifts in the microenvironment. Notably, our loan facilitation volume reached RMB24 billion, exceeding our previous guidance of RMB23 billion. Our net revenue was about RMB1.48 billion, up 15.5%. The growth of our revenue from loan facilitation services moderated to 2.8%, primarily driven by the service fee optimization within our loan facilitation operations. Moving on to costs, facilitation and servicing expense was RMB608.2 million, representing an increase of 70.9% from the same period of 2023, primarily due to the increase of guaranteed costs incurred. The reversal of uncollectible receivables, country assets, loans receivable, and others represented a reversal of RMB3.3 million, compared with an allowance of RMB13.8 million in the same period of 2023. This was primarily due to the net impact of the current period provision and recovery of certain receivables written off in the prior year. Sales and marketing expense was RMB486.6 million, representing an increase of 15.7% from the same period of 2023, primarily due to an increase in borrower acquisition expenses. General and administrative expenses were RMB65 million, representing an increase of 29.8% from the same period of 2023, primarily driven by an increase in payroll expenses and share-based compensation. Research and development expenses were RMB92.8 million, representing an increase of 36.3% from the same period of 2023, primarily due to high employee compensation benefit expenses. Consequently, our net income for the second quarter was RMB238.3 million, representing a decrease of 27% from RMB326.3 million in the same period of 2023. Our basic and diluted net income per share were both RMB1.12 compared with RMB1.52 in the second quarter of 2023. Basic and diluted net income per ADS were both RMB4.48 compared with RMB6.08 in the second quarter of 2023. We are pleased to report that our cash position significantly improved this quarter. As of June 30, 2024, our cash and cash equivalents reached RMB880.2 million, a potential increase from RMB568.2 million at the end of the previous quarter. This growth reflects our continued emphasis on financial discipline and operational optimization. With that, we can open the call for questions. Ms. Xu, our Chief Risk Officer, and I will answer your questions.

Operator, Operator

Thank you. We will now take the first question from Chen Yuxuan from Huatai Securities. Please go ahead.

Yuxuan Chen, Analyst

Okay. Let me do the translation. Here is Yuxuan Chen from Huatai Securities. The first question is, considering that the net revenue this quarter increased by 15.5% year-over-year, but the net income decreased by 27%. And the operating cost and the sales and marketing expenses also increased, how does the management expect the take rate and the net margin to change in the future? The second question is, we noticed that the company's second quarter loan facilitation volume was RMB24 billion year-over-year and up RMB6.7 million quarter-over-quarter. Do you expect this growth rate to continue in the coming quarters, or is there potential for it to accelerate in the future? At the same time, will the management be confident about the future growth? The second quarter guidance of RMB25 billion seems relatively conservative. Could you please elaborate on the considerations behind it? Thanks.

Chunlin Fan, CFO

Thank you, Yuxuan. I am Fan Chunlin, the CFO of the company, and I will address your first question. As you mentioned, the company's revenue for the second quarter has grown year-over-year by 15.5%, but net income has declined. The primary reasons for this are twofold. First, there is a structural difference in revenue, mainly due to the share of our guarantee business, which has a much lower margin compared to loan facilitation services. In the second quarter of 2024, revenue from guarantee services was RMB424 million, significantly up from RMB197 million in the same quarter last year. This shift has reduced our overall margin and net income for the quarter. Looking at our business development strategy, the listed entity will continue to prioritize loan facilitation services while managing the balance of different business segments in terms of revenue. The guarantee business has been steadily decreasing, and we expect this to greatly enhance our overall margin in the second half of 2024. The second reason for the decline in net income is our increased strategic investments in acquiring borrowers and research and development. This decision aligns with our relatively healthy profitability and cash flow situation. We have seen a notable increase in borrower acquisition costs and credit costs this quarter, with new borrowers making up about 33% of our total in the second quarter. Moving forward, we will focus on sustainable and healthy business growth. Our R&D expenses grew by more than 36% year-over-year, with significant investments in AI technologies that will benefit our long-term business development. As Mr. Yan mentioned, we have set our guidance for the third quarter at RMB24 billion. The company is focused on high-quality growth, stable pricing, continual optimization of capital costs, and improvement in asset quality, which supports maintaining our current take rate with potential for future enhancement. With the ongoing optimization of our revenue structure and the outcomes of our strategic investments, we are confident that profit margins will improve in the second half of the year. For the second question, I will now hand it over to Ms. Xu Yifang.

Yifang Xu, Chief Risk Officer

This is Xu Yifang, and thank you for your question. I will discuss our guidance. We aim to further reduce risks and grow to approximately RMB25 billion in the third quarter of this year. This goal presents a challenge for us, but our team is confident we can achieve it. The guidance reflects the direction and goals established by the company’s management, taking into account the overall economic environment, borrower needs, market competition, and our strategic position. As Mr. Yan mentioned earlier, we remain cautiously optimistic about the economic climate. There is a strong demand for credit products in the third quarter, and we've noticed an increase in the number of borrowers applying for multiple products. However, as a credit service provider, we must balance the sustainability of this demand with a robust approval process and management of applications during risk management. The competitive landscape in the loan facilitation market is stable but dynamic. Industry participants, including our licensed financial institution partners, are prudently considering how to support the healthy development of the consumer credit market over the long term while managing skills and risk indicators. I can assure you that neither we nor our peers are in a rush to achieve rapid growth in the short term. Overall, our business strategy will continue to focus on maintaining a stable and slightly rising long-term approach. Regarding your question about whether our guidance or growth rate will increase in the future, we will need to assess the overall environment moving forward. That concludes my response to your inquiry about our third quarter guidance.

Operator, Operator

Thank you. We will now take the next question from the line of Hua Rong from Jinyu Asset. Please go ahead.

Rong Hua, Analyst

Hello, management, I have two questions. First, the repeat borrowing rate this quarter decreased from 70.1% last year to 67.1%, while sales and management expenses increased by 15.7% year-over-year. With the average borrowing amount per transaction and customer loyalty declining, does this suggest difficulties in acquiring and retaining borrowers in the current market? What specific strategies has management put in place to keep existing borrowers, attract new ones, and optimize marketing spending to minimize ineffective advertising? My second question is, at the end of this quarter, the company's cash and cash equivalents totaled around RMB818 million, a notable rise from the previous quarter. How did the company achieve cash flow growth during this period of microeconomic challenges? What are the primary drivers of this growth? What are the company's plans for utilizing cash flow in the upcoming quarters? Thank you.

Yifang Xu, Chief Risk Officer

Mr. Hua, hello. I'm Xu Yifang, and I will address your first question regarding the repeat borrowing rate and the average borrowing amount per transaction. I appreciate your attention to our key business indicators. These indicators align with our overall business strategy and reflect our decision-making outcomes. In summary, they indicate that we have intensified our efforts to acquire new borrowers while reducing the credit limit for each borrower. Following the market's silent period at the beginning of this year, we have observed an improvement in risks, particularly in post-loan indicators throughout the industry. There are optimistic expectations for the economy in 2024, and the demand for borrower credit remains strong. Thus, it's a favorable time to invest more resources in acquiring new borrowers. To clarify, our sales and marketing expenses have increased by 15.7% year-over-year, while the number of new borrowers has grown by 32.9%. Additionally, we have made structural adjustments and set tailored business goals for different borrower groups, leading to a decrease in borrowing amounts. Overall, we aim to keep our facilitation volume stable, with potential increases this year. Our goal is to ensure operating profits while expanding our borrower base, allowing flexible adaptation to future market changes. I will now turn over to Mr. Fan for your second question.

Chunlin Fan, CFO

Thank you, Hua. The company's cash flow continues to rise, increasing by approximately RMB312 million by the end of the second quarter compared to the end of the first quarter. This growth can be attributed to two main factors. First, the company's profitability and operating cash flow have performed exceptionally well, particularly as our growth has shifted from ultra-high-speed growth before 2023 to a focus on high-quality growth. The pace of increase in accounts receivable has slowed, and the recovery rate has improved, resulting in a stronger correlation between net operating cash inflow and profits. The second factor relates to our optimization of the business model through a strategic reduction of the guarantee business and enhancements to related commercial terms, which has freed up funds previously tied up in security deposits. Looking ahead, we expect further optimization of our cash flow situation, establishing a solid foundation for the sustainable long-term development of our business, including our international expansion. If our policy allows, we will continue to uphold our existing dividend policy and share repurchase plan to provide value to our shareholders. As Mr. Yan mentioned earlier, on August 16th, our board approved the first cash dividend of this year, set at $0.5 per ADS, with dividends expected to be received by ADS holders on September 6th. That concludes my responses to your questions. Thank you.

Operator, Operator

Thank you. I would now like to turn the conference back to Shawn Zhang for closing remarks.

Shawn Zhang, 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

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