Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased by 12.3% quarter over quarter, reaching RMB3.64 billion.
- Net profit rose by 12.4% quarter over quarter to RMB230 million.
- The company declared a cash dividend of approximately $0.072 per ADS.
- Funding costs reached a record low, dropping by 58 basis points compared to the first quarter.
- The overseas business, particularly in Mexico, showed rapid growth with loan origination volume increasing by 61% and revenue growing by 113% quarter over quarter.
Negative Points
- Total loan origination declined by 12% quarter over quarter.
- The 90-days-plus delinquency rate increased to 3.7% in Q2.
- Sales and marketing expenses increased by 12% quarter over quarter, primarily due to investments in overseas markets.
- The macroeconomic recovery remained sluggish, with consumer confidence at historical lows.
- Provision costs increased by 12.6% quarter over quarter due to higher risk levels in the existing loan book.
Q & A Highlights
Q: Mr. Jay mentioned that the growth of the overseas business this quarter far outpaced overall business. Could you provide more details on the overseas expansion and when we expect the overseas business to scale up in volume and make a profit?
A: (Wenjie Xiao, CEO) In Q2, amid tepid macroeconomic recovery, we adopted a prudent strategy in the domestic market, further tightening our risk approval standards and maintaining a healthy controlled scale of loan origination. Compared to our domestic market, our overseas business has developed rapidly. Total loan origination in Q2 grew by 60.8%, and the loan balance increased by 76.8% Q-on-Q. However, the scale of our overseas business is still relatively small compared to our domestic business. We anticipate that it will take some time and require more investment to expand and subsequently make a profit in the future. We plan to step up our investment in overseas markets and accelerate the expansion.
Q: The management mentioned that the company continued a prudent strategy this quarter, but we noticed that sales and marketing expenses increased compared to the first quarter, which means the customer acquisition cost per active user also went up. Could management give more color on this?
A: (Wenjie Xiao, CEO) The majority of the incremental sales and marketing expense comes from our investment in overseas markets, which are still in their early stages of high growth and require significant investment. If you calculate based on the financial statement, it may appear that the customer acquisition cost per active user went up, but that is misleading. The total cost related to acquiring new customers in the domestic market remains relatively stable compared to Q1. As we continue to improve our customer acquisition efficiency in the domestic market, we believe the quality of our customer cohort will improve, the payback period will shorten, and the unit cost per customer will gradually go down.
Q: Although the loan volume decreased this quarter, revenue increased quarter over quarter, implying a significant rise in the revenue take rate. Could the management elaborate on the driving factor behind this and provide an outlook on the future trend of the revenue take rate?
A: (James Zheng, CFO) In Q2, the total loan origination declined by 12%, and the loan balance dropped by about 5% quarter over quarter. However, the revenue take rate increased significantly from 2.54% in Q1 to 2.91%, a rise of 37 basis points quarter over quarter. This was driven by tightened risk standards, a significant reduction in funding costs, optimizations of early repayment ratios, risk-based differentiated pricing, and more value-added services. Looking ahead, we expect the revenue take rate to maintain a slight uptick momentum in the near future.
Q: Both CEO and CFO mentioned a significant reduction in funding cost this quarter. Could you elaborate on the specific measures taken to bring down funding cost and share management's outlook on the trending of funding cost for the third quarter and the rest of 2024?
A: (James Zheng, CFO) The funding cost reached a new record low of 5.26%, decreasing by 58 basis points quarter over quarter. This was driven by ample market liquidity, high demand for our quality assets, improved asset quality, increased revenue split ratio in our profit-sharing model, and continuous ABS issuances. We plan to regularly issue ABS to further balance and diversify our funding channels. With the acceleration of ABS issuance and continuous improvement in asset quality, we believe there is still considerable room for further reduction in funding cost in the near future.
Q: After seeing early signs of asset quality improvement in both new loans and the overall portfolio, when do we expect this improvement to be reflected in the bottom line more meaningfully?
A: (Zhanwen Qiao, CRO) We anticipate that the proportion of new loans will gradually increase, and the risk level of existing assets will gradually come down, leading to a gradual improvement in profitability in the future. We expect this to show as a gradual quarterly improvement over time.
Q: The 90-days-plus NPL ratio has continued to edge up to 3.7% in Q2. When do we expect to see this kicking? Also, on the 30-days vintage curve, when do we see an improvement?
A: (Zhanwen Qiao, CRO) The 90-days delinquency rate is a lagging indicator. We recommend focusing on leading risk indicators such as the FPD7 for new issued assets, which dropped by approximately 14% compared to Q1, and the day one delinquency rate for total assets, which dropped about 7% from April to June. The M1 collection rate also improved by approximately 1.5%. The improvements in new issued assets will gradually show in the 90-days delinquency rate. The increase in the 90-days delinquency rate is partly due to a decrease in the loan balance, which affects the denominator in the calculation. We expect the downward trend in risk levels to continue in the second half of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
