Earnings Call Transcript - XYF Q1 2024

Operator, Operator

Hello, and welcome to the X Financial First Quarter 2024 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Victoria Yu. Please go ahead.

Victoria Yu, IR Representative

Thank you, operator. Hello, everyone, and thank you for joining us today. The company's results were released earlier today and are available on the company's IR website at ir.xiaoyinggroup.com. On the call today from X Financial is Mr. Frank Fuya Zheng, Chief Financial Officer. Mr. Zheng will give an overview of the company's business operations and highlights, go through the financials and then answer your questions during the Q&A session. I remind you that this call may contain forward-looking statements and the safe harbor provisions of Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding risks and other uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required in the law. It is now my pleasure to introduce Mr. Frank Fuya Zheng. Mr. Zheng, please go ahead.

Fuya Zheng, CFO

Hello, everyone. We are pleased to start 2024 with a solid financial performance in the first quarter. We continue to implement our strategy of proactively and dynamically adjusting loan volumes based on close monitoring of asset quality dynamics, and this again proved effective in securing our profitability. As a result, despite a year-over-year and quarter-over-quarter decline in loan volume, both our top and bottom line increased on a yearly and quarterly basis with notable improvements in profits. In the first quarter, the total loan amount facilitated originally decreased by 11% year-over-year and 18% quarter-over-quarter to RMB 22 billion, in line with our guidance. Our total outstanding loan balance was RMB 44 billion at the end of March 2024. Delinquency rates for outstanding loans past due for 31 to 60 days and 91 to 180 days were 1.61% and 4.37%, respectively, at the end of the quarter, compared with 1.05% and 2.4% a year ago. The increase in overdue loans as a percentage of total outstanding loans is primarily due to lower outstanding loan balances at this quarter end, as a result of proactive control of loan facilitation and origination that we initiated in the first quarter of last year. Excluding the impact of the reduced loan volume, asset quality began to stabilize during this quarter. We remain committed to closely monitoring borrowers through the entire credit cycle, continuing to streamline our risk control system, and taking all necessary measures to mitigate risks. In the first quarter, total net revenue was RMB 1.2 billion, up 20% year-over-year and 1% quarter-over-quarter despite the decline in loan volumes. Thanks to our strict risk controls and improved operational efficiency, net income increased by 28% year-over-year and 92% quarter-over-quarter to RMB 363 million. This once again demonstrates the effectiveness of our strategy, strong execution, and commitment to ensuring long-term profitability. Beginning this quarter, we combined the borrower acquisition costs from origination and service expenses, as well as indirect expenses from borrower acquisition with general administration expenses and sales and marketing expenses into borrower acquisition and marketing expenses with total operation costs and expenses to provide a clear breakdown of the company's expenses for investors. Going forward, we will continue to manage asset quality while being transparent about borrower acquisition costs to drive sustainable profitability. We are confident in our future profitable goals with stabilized asset quality. We have clear visibility on the loan borrowing for 2024 under our current strategy and expect the total loan amount facilitated and originated for the full year to be around RMB 100 billion. Our commitment to sustainable profitability and shareholder value creation is unwavering. Our Board of Directors has authorized a new program to repurchase up to $20 million worth of our shares, which will be effective from January 1, 2024, to November 30, 2025. We are confident in our position as a public company, and we will drive long-term returns for our shareholders. Now I would like to provide some financial performance for Q1. Please note that all the numbers stated are in RMB and are rounded. Total net revenue increased by 20% to RMB 1,208 million from RMB 1,005 million in the same period of 2023, primarily due to growth in various disaggregated revenue compared to the same period of 2023. Origination and servicing expenses increased by 15% to RMB 427 million from RMB 371 million in the same period of 2023, primarily due to the increase in collection expenses resulting from the cumulative effect of increased loan facility volume provided in the previous quarters compared to the same period of 2023. Borrower acquisition and marketing expenses decreased by 9% to RMB 248 million from RMB 272 million in the same period of 2023, primarily due to the decrease in borrower acquisition costs compared to the same period of 2023. Provision for loan receivable was RMB 62 million compared with RMB 20 million in the same period of 2023, primarily due to an increase in loan receivables held by the company as a result of the accumulated effect of increased volume of loan facilities provided in previous quarters compared to the same period of 2023. Income from operations was RMB 377 million compared with RMB 328 million in the same period of 2023. Net income was RMB 363 million compared with RMB 284 million in the same period of 2023. Non-GAAP adjusted net income was RMB 322 million compared with 307 million in the same period of 2023. For further financial information, please refer to the earnings release on our IR website. Now for our business outlook. For Q2 this year, we expect the total loan amount facilitated and originated to be between RMB 23 billion and RMB 24.5 billion. For the full year of 2024, we expect the total amount facilitated and originated to be between RMB 90 billion and RMB 110 billion. This concludes our prepared remarks, and we would like to open the call to questions. Operator, please.

Operator, Operator

Your first question today comes from Mason Bourne with AWH Capital.

Mason Bourne, Analyst

I hope you could talk about what you're seeing in the Chinese economy and how it's related to loan volumes and your outlook for the rest of the year?

Fuya Zheng, CFO

Overall, the Chinese economy is still facing some challenges. In contrast to the U.S., there is an inflation environment, while we are somewhat in a deflation environment. So overall, for the loan demand, it is stable or slightly declining. If you look at the first quarter financial reports from all the major Chinese banks, their loan volumes, income, and profits are all slightly down. We are in that kind of environment. However, our demand is primarily influenced by risk factors. We still maintain our overall loan portfolio at an elevated risk level. In the first quarter, we were able to stabilize that situation. Technically, there's been a slight improvement compared with the fourth quarter of last year, but still at elevated levels. This is, I believe, the main factor, rather than the economic environment, that is causing everyone in our sector to be cautious in expanding loan volume more aggressively. We are all under some pressure regarding loan quality. That's the main factor.

Mason Bourne, Analyst

And then I was hoping you could also talk about the regulatory environment and how you view that going forward.

Fuya Zheng, CFO

The regulatory environment hasn't seen much new development this quarter; it's basically a stable situation. There's not much news coming from the regulatory side.

Operator, Operator

It appears there are no further questions at this time. I'd like to turn the call back over to Victoria Yu for any closing remarks.

Victoria Yu, IR Representative

Thank you, everyone, for joining us on the call today. If you haven't had a chance to raise your questions, we will be pleased to answer them through follow-up contacts. We look forward to speaking with you again in the near future. Thank you.

Operator, Operator

The conference has now concluded. Thank you for today's presentation. You may now disconnect.