Earnings Call Transcript - JFIN Q4 2023

Operator, Operator

Good day ladies and gentlemen, thank you for standing by, and welcome to the Jiayin Group fourth quarter 2023 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.

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 fourth quarter and full year of 2023. We released our earnings results earlier today. A press release is available on the company’s website as well as on 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 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 corresponding English translations. Please go ahead, Mr. Yan.

Dinggui Yan, CEO

Hello everyone. Thank you for joining our fourth quarter and full year 2023 earnings conference call. The year of 2023 was a pivotal year for our company as the changing macroeconomic landscape presented challenges and unique opportunities for our group. We are excited to share that in the fourth quarter and throughout the year, we successfully executed our strategic initiatives, yielding impressive results in both financial and operational areas. These strategies will be fundamental to our company's future growth. Looking back at 2023, we noted that key themes in China's macroeconomic scenario included steady growth and structural adjustment. The overall economic recovery faced extended timelines and challenges due to the ongoing impacts of COVID and rising global geopolitical conflicts. Policy makers had to focus on maintaining steady growth while managing potential risks. In contrast, there was an increased emphasis on developing strategic and emerging industries and stimulating domestic demand. The need to adjust economic development structures and focus on transitioning and enhancing growth drivers became main topics of discussion. Particularly from the fourth quarter onward, the concept of new quality productive forces started to gain attention. Throughout 2023, we closely monitored significant shifts in the macroeconomic landscape, especially in financial and technology sectors. Our focus remained on our core strengths in technological innovation and risk management, which helped us increase our market share and improve operational precision, thereby achieving our business goals. In the fourth quarter, our loan facilitation volume was RMB 20.1 billion, up 6.3% year-over-year. For the full year, our total loan facilitation volume reached RMB 88.1 billion, representing a 58.7% increase from 2022, exceeding our earlier targets and hitting a new historical high. The company reported net revenue of RMB 1.6 billion in the fourth quarter, a 51.8% increase year-over-year. Annual net revenue was RMB 5.47 billion, up 67.1% year-over-year, demonstrating sustained growth momentum. The recovery of the macro economy is closely tied to credit services, and throughout 2023, the demand for consumer credit services in the Chinese market remained strong. Policies aimed at unleashing consumer spending potential and promoting sustainable consumption recovery, as well as efforts from regulatory bodies regarding financial support for consumption and development of inclusive finance, all contributed to the growth of the consumer credit service sector. Furthermore, new regulations were introduced at the national level to enhance the quality of service provided by financial institutions. By the end of 2023, the balance of all types of RMB loans from financial institutions reached RMB 237.59 trillion, a 10.6% year-over-year increase. During the year, RMB loans rose by RMB 22.75 trillion, marking an additional RMB 1.31 trillion compared to the previous year. With continuously rising market demand, we are committed to optimizing our customer base to achieve sustainable growth and scale. 2023 marked a transformative year for our company in technological empowerment, particularly in the development and application of AI technology. In the third quarter, we officially rebranded to Jiayin Technology, reflecting our strategic focus on technology. This aligns with the trend of integrating AI across various business applications. AI technology has enhanced our capabilities in areas such as anti-fraud monitoring, borrower acquisition models, and customer service quality inspections. These improvements have strengthened our risk control, increased borrower acquisition efficiency, and enhanced customer satisfaction and compliance. In the fourth quarter, we utilized large language models and AIGC technology to boost our innovation through the automated creation of high-quality images and videos. Internally, we are developing intelligent office tools utilizing open-source large language models to improve operational efficiency. By the end of 2023, we had established partnerships with 71 financial institutions and initiated discussions with an additional 36. Our collaborations with these institutions include operations, technology, risk management, and customer-wide protection, bolstering our market position. In the fourth quarter, we added one internet bank, two tier 1 city commercial banks, and several private banks as partners, diversifying our funding sources. As a result, we experienced significant growth in our loan facilitation business throughout the year. We believe that our expanding partner ecosystem will be crucial for our long-term growth. In the fourth quarter of 2023, we continued working on managing risk fluctuations and broadening our borrower base. We recognize the importance of optimizing our customer structure and ensuring asset quality amid changing market conditions. The delinquency rate for 61 to 90 days remained steady at 0.68%, which is manageable overall. Looking ahead, Jiayin will maintain conservative yet adaptable risk control strategies. For new borrower acquisition, we employed a careful strategy that focused on existing multi-channel metrics and achieved success in controlling costs, resulting in an 11.9% decline in Q4 2023 sales and marketing expenses compared to the same quarter last year. In borrower operations, refined management allowed us to explore the lifetime value of core assets more thoroughly, achieving a repeat borrowing rate of 72.9% with an average loan amount of RMB 9,944. Our international market expansion is progressing smoothly. In Nigeria, we remain aware of ongoing local currency fluctuations and market risks that could challenge further growth, and we will closely monitor the local business environment. In the promising pan-African market, we are actively seeking expansion opportunities, particularly in Tanzania, while also keeping an eye on Indonesia, which is another key market. By the end of 2023, Indonesian regulatory bodies had introduced new policies mandating lower rates and tighter market supervision, and we are monitoring these changes closely to support our partners in optimizing asset structures and targeting high-quality borrower segments. We also remain attentive to potential business development opportunities in Latin American markets, including Mexico. Throughout the fourth quarter and the entire year of 2023, consumer rights protection was a central priority for Jiayin's growth. We actively engaged in the customer rights protection initiative, championing consumer rights with commitment. Utilizing our advantages in digital technology, we implemented efficient internal operational strategies and established a strong consumer rights protection system. Externally, we empowered our business through technology, ensuring a robust anti-fraud security system to maintain a stable consumer environment. In the 2023 consumer rights protection white paper published in January, we highlighted our accomplishments and gained industry insights, including educating 26 million people about consumer rights and assisting 9,900 borrowers. Our exceptional performance earned us the Best Financial Consumer Rights Protection Award at the Financial Compliance Annual Awards. Reflecting on 2023, we are proud to report that we achieved high-quality growth, confirming the success of our strategies. As industry regulations enter a normalized phase, we anticipate a future environment more favorable to Jiayin's enduring development. We have also made significant progress in technology-enabled operations and in expanding our global presence. We are convinced that prioritizing technological innovation as a foundation for our long-term competitive strategy, along with our dedication to scaling our business, automating asset structures, and diligently managing risk, will ensure our stable growth in both the Chinese and international markets. We are optimistic about our company's performance in 2024, aiming for total loan facilitation between RMB 93 billion and RMB 98 billion for the year, with a target of RMB 22 billion for the first quarter. Finally, I want to discuss our efforts to enhance shareholder returns. Over the past nine months, we have paid two cash dividends to shareholders, totaling U.S. $0.80 per ADS, with the total dividend amount reaching US $42.7 million, constituting 25% of the company's net income after tax for the fiscal year 2022. Moving forward, we will adhere to our dividend policy of distributing cash dividends twice a year, with an annual total not less than 15% of the prior year’s net income after tax, contingent upon meeting relevant conditions. Regarding our share repurchase program, we have repurchased approximately US $10.6 million worth of our ADS, and with a current program limit of US $13 million, we are committed to creating value for our shareholders and reinforcing confidence in the company’s long-term growth through these actions. Now, I will turn the call over to our CFO, Mr. Fan Chunlin. Please go ahead.

Chunlin Fan, CFO

Thank you, Mr. Yan, and hello everyone. 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 renminbi and our percentage changes refer to year-over-year comparisons unless otherwise noted. As Mr. Yan mentioned earlier, we achieved growth momentum over the past year to achieve new milestones in the fourth quarter, notably our loan facilitation volume grew by 6.3% to RMB 20.1 billion. Our net revenue was about RMB 1.6 billion, up 51.8%. Moving onto costs, facilitation and servicing expenses were RMB 857.2 million, representing an increase of 329.1% from the same period of 2022, primarily due to increased loan facilitation volume and expenses related to financial guarantee services. Allowance for uncollectible receivables, contra-assets, loan receivables, and others was RMB 43.8 million, representing an increase of 190.1% from the same period of 2022, primarily due to the increased balances arising from our loan facilitation and guarantee services. Sales and marketing expense was RMB 329.5 million, a decrease of 11.9% from the same period of 2022 primarily due to lower commission expenses. G&A expenses were RMB 65.2 million, representing an increase of 9.9% from the same period of 2022, primarily driven by an increase in employee costs. R&D expenses were RMB 92.9 million, representing an increase of 44.3% from the same period of 2022 primarily due to higher employee compensation as a result of an increase in research and development department headcount. Consequently, our net income for the fourth quarter was RMB 367.6 million, representing a decrease of 31.1% from RMB 533.7 million in the same period of 2022. Our basic and diluted net income per share was RMB 1.72 compared to RMB 2.49 in the fourth quarter of 2022. Basic and diluted net income per ADS was RMB 6.88 compared to RMB 9.97 in the fourth quarter of 2022. We ended this quarter with RMB 370.2 million in cash and cash equivalents compared to RMB 180.3 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 your questions.

Operator, Operator

Thank you. We are now going to proceed with our first question, and the questions come from the line of a representative from Jinyu Asset. Please ask your question.

Unknown Analyst, Analyst

Hello management, I’m from Jinyu Asset. I have two questions. The first one is we have observed that the delinquency rates for the period of one to 30 days, 31 to 60 days, 61 to 90 days, 91 to 180 days, and over 180 days are all higher than the level during the same period in 2022. Could you please share what measures the company intends to take in the future to keep delinquency rates low? My second question is regarding shareholder returns. In 2023, the company initiated dividend distribution. What can we expect for the future dividend policy and payout ratio? Thank you.

Yinfang Xu, CRO

Hello Ms. Hua. Thank you for your focus on our delinquency rate as an investor. To follow up on what Mr. Yan mentioned, the overall domestic economic environment in 2023 has encountered multiple challenges and uncertainties, with the economic recovery remaining very slow. If you have been following our updates over the past several quarters, you would note that since the second quarter of 2023, we have proactively adjusted our risk management strategies in response to the economic cycles. Additionally, through a cautious decision-making approach, we have enhanced our analysis of how our borrower group is affected by external factors, expedited our internal strategy adjustments, and monitored risk indicators throughout the lifecycle of our borrowers. It's essential to highlight that in the post-facilitation stage, we've improved our repayment reminder and collection processes using technology and models in mediation and legal collection at various stages, while also optimizing risk indicators at each stage. All these measures are designed to enhance borrowers' operational experience and protect consumer rights amidst the economic cycle. Those are my responses to your first question, and I'll now pass it to our CFO, Mr. Fan Chunlin, for your second question.

Chunlin Fan, CFO

Thank you, Ms. Hua. It is true that the benefits to our shareholders are quite appealing. As Mr. Yan mentioned, thanks to our company's rapid growth and strong management in recent years, both our operational and financial performance have consistently improved. We have ample operating cash flow, and our balance sheet metrics are becoming increasingly robust. As a result, we have and will continue to reward our shareholders through share repurchase programs and dividends. Although we initiated our share repurchase plans two years ago, the current stock price is still relatively low. Given our company's solid fundamentals and strong profitability, we believe that the stock price does not accurately represent our internal value, indicating that we are undervalued. Consequently, our board recently approved an additional $20 million for the share repurchase program, increasing the limit to $30 million. Over the past year, we have issued two dividends totaling $0.80 per ADS. Based on yesterday's closing price of $6.90 per ADS, this results in a dividend yield of over 11.5%. Moving forward, we will continue to solidify our dividend policy and reward our shareholders with regular dividends. Thank you.

Operator, Operator

Thank you. We are now going to proceed with our next question. The questions come from the line of Yuxuan Chen from HTSC. Please ask your question, your line is open.

Yuxuan Chen, Analyst

The first question is about the adjustments made in customer acquisition channels and risk control due to uncertainty in the current macroeconomic environment. Could you also elaborate on whether the company has a detailed plan for future development based on these adjustments and progress? The second question addresses the significant decrease in net income in the fourth quarter of 2023 and the notable year-over-year increase in accounts receivable. What are the primary factors behind this, and what is the company's net income projection for this year?

Yinfang Xu, CRO

Okay Mr. Chen, I will address your first question. Firstly, over the past few years, the online credit industry has experienced consolidation, followed by a slowdown in economic recovery. During this time, we have effectively utilized our long-established data and user advantages. With record growth in facilitation volume, our risk control indicators have also performed well. Looking ahead, we will focus on sustainable long-term development, continuously empowering our financial partners in both domestic and international markets with our technological capabilities. We will carefully consider the healthy growth of the platform’s facilitation volume while maintaining controllable risk. Specifically, in terms of borrower acquisition channels, we will prioritize developing channels that mainly attract high-quality assets. From a service and operational strategy perspective, we will improve the management and retention of high-quality borrowers while enhancing our analysis of borrower behavior data to elevate borrower quality and asset portfolios. Regarding risk strategy, we will continue to introduce and test market data products, assess the impact of external risks on different borrower groups, and strategically optimize our models. We will manage different borrower groups distinctly, with varying approval rates, pricing, and credit limit management. Lastly, in post-facilitation, we will implement strategies aimed at optimizing risk indicators while ensuring a positive borrower experience and protecting consumer rights. Those are some thoughts on your first question, and for the second question, we’ll turn it over to Mr. Fan Chunlin.

Chunlin Fan, CFO

Thank you, Yuxuan, for your question. For the fourth quarter of 2023, the net income was RMB 368 million, showing a slight increase from RMB 324 million in the third quarter of 2023. However, this reflects a 31% decrease compared to RMB 534 million in the fourth quarter of 2022, and there are a few key reasons for this. Firstly, the net margin in the fourth quarter of 2022 was exceptionally high, around 51%, primarily because several of our core operating entities received high-tech enterprise qualification that adjusted the applicable income tax rate to 15%, retroactive to 2021. This resulted in a one-time financial adjustment for the tax benefit in the fourth quarter of 2022. Excluding this one-time adjustment and other non-recurring items, the net profit for the fourth quarter of 2022 would have been considerably lower. In our revenue breakdown for the fourth quarter of 2023, the share of guarantee income increased compared to the fourth quarter of 2022. The profit margin from this business is lower than that of our facilitation and risk control services. Moving forward, our listed company will continue to prioritize facilitation and risk control services while managing the balance of various business segments in our revenue. We aren’t providing specific guidance on the income statement today, but our facilitation volume this year is projected to be between RMB 93 billion and RMB 98 billion. Our net margin has seen fluctuations in certain quarters due to non-recurring items. Over the past three years, our net margins were 26.3%, 36.1%, and 23.7% respectively. In the future, we will maintain steady operations, keep a stable take rate, increase investments in R&D, and improve operational efficiency to ensure our overall margin remains healthy. While there is a difference in accounts receivables when comparing Q4 2023 to Q4 2022, the balance at the end of the fourth quarter was relatively flat and showed a slight decrease compared to the end of Q3. Our company's balance sheet will continue to strengthen. Thank you, Yuxuan, for your questions.

Operator, Operator

Thank you. Seeing no more questions now, I would like to return the call to Shawn for closing remarks. Please go ahead.

Shawn Zhang, Investor Relations

Okay, thank you, Operator, and thank you all for participating in today’s call. Thank you for your support. 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. Thank you.