Yiren Digital Q1 2023 Earnings Call Transcript

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Provided by Quartr
June 9, 2023

There are 5 speakers on the call.

Operator

Thank you for standing by, and welcome to the Year End Digital First Quarter 2023 Earnings Conference Call. All participants are in a listen only mode. There will be a presentation followed by

Speaker 1

a question and answer session.

Operator

I would now like to hand the conference over to Lydia Yu. Please go ahead.

Speaker 2

Thank you, operator. Hello, everyone, and welcome to our Q1 2023 earnings conference call. Today's call features prepared remarks by the Founder, Chairman and CEO of CreditEase and our CEO, Mr. Ming Tang and our CFO, Ms. Nan Ning.

Speaker 2

Mr. Everett Wong, Head of our Consumer Finance will join the presenters in the Q and A session. Before beginning, we would like to remind you that discussions during this call contain forward looking statements made under the Safe Harbor provision of U. S. Private Securities Litigation Reform Act of 1995.

Speaker 2

4 of the statements involve inherent risks and uncertainties. As such, the company's results may be materially different than the views expressed today. Further information regarding future risks, uncertainties or factors is included in our filings with the U. S. SEC.

Speaker 2

We do not undertake any obligation to update any forward looking statements as required under the relevant law. During this call, we will be referring to certain non GAAP financial measures and supplemental measures to review and assess our operating performance. These non GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U. S. GAAP.

Speaker 2

Information about these non GAAP measures and reconciliations to GAAP measures, please refer to our earnings press release. I will now pass it on to Ming, our CEO, for opening remarks.

Speaker 3

Thank you all for joining our earnings conference call today. 1st, an update on our insurance brokerage business. Total gross premiums reached more than RMB323,000,000, up 15% year over year, of which life and property insurance policies contributed 57% and 43%, respectively. The increase was mainly driven by life insurance policies, which increased 28% year over year, significantly outpacing China's life insurance industry premium growth of 8.9%. Our strategy to drive rapid business growth continues to be product innovation, customization, agent development and digitization.

Speaker 3

We are invested in our agents and have established programs to help them improve professional skills, to enable them to broaden their service scope, to cross sell and upsell products and services, matching customers' evolving needs throughout their entire lifecycle. We noted initial success this quarter with a significant uptick in 1st year life insurance premiums from existing property insurance policyholders. On property insurance, as mentioned on our last call, as part of China's Belt and Road Initiative, a global infrastructure development strategy, China's outbound investment and construction projects are expanding at a fast pace, bringing new scenarios for insurance protection and coverage. Hexion leveraging its advantages in product development, professional risk management expertise, reinsurance qualifications as well as partner is now providing reinsurance for overseas construction insurance policy. We estimate the potential market size for this insurance segment to be at least RMB10 1,000,000,000.

Speaker 3

In the Q1, total premiums for this product segment moved close to 30% quarter over quarter, and we expect to see a continued increase over the rest of the year. Next, on the credit side, in the Q1 of 2023, total loan volume was RMB6.4 billion, representing a 39% increase year over year. The total number of borrowers in the quarter increased 71% from prior year to 872,000. The increase was primarily driven by our revolving loan product, Yixuanhua, which actually saw volume increase 88% from prior year due to increasing demand. MAU on our Yixuanhua platform is reaching close to 2,200,000 users as of quarterend, increasing 8% from prior quarter.

Speaker 3

As our active user base on the platform continues to expand, we have also seen an uptick in our revenue from electronic commerce services, which we consider as risk free revenue and include services like recharging online video and streaming accounts and topping up phone credits. These e commerce services also present an opportunity to establish our own membership ecosystem, enhancing customer loyalty and engagement. On the funding front, as the number of our funding partners continue to grow and we continue to diversify our funding sources, We noted a 16% decrease in institutional funding costs this quarter from prior year. On asset quality, we maintained a conservative risk management policy this quarter amid a slower than expected macro recovery. And we noted an improvement in delinquencies with FPD 30 plus delinquency rates improving to a historic low of 0.6% compared to 0.7% last quarter.

Speaker 3

This quarter, we started to execute on our international expansion strategy in which we hope to leverage our extensive expertise in the consumer finance sector to promote greater financial inclusion. I'm very excited to report that we have completed establishing a wholly owned subsidiary in the Philippines, which owns an online lending and financing license from the nation's Securities and Exchange Commission. We recently beta launched under the brand EZ Passo and have experienced a substantial surge in demand since then, already accumulating over 190,000 registered users on our APP. As of today, we have completed the facilitation of the 1st loan on the platform and is conservatively controlling our scale, while focusing first on refining and enhancing our risk models. We see enormous demand for financial services in these underserved emerging markets, and we expect international markets to become a new growth driver for our business.

Speaker 3

Going forward, we plan to accelerate our pace of penetration in the Philippines, while investing in operational flows to increase automation and enhance cost efficiency. At the same time, we will also start evaluating potential opportunities in other regions around the world. Recently, we've been witnessing the rise of Chegg GPT and generative AI technology. And we believe that the application of generative AI can disrupt and bring sweeping changes to the financial industry. This quarter, we established an AI lab that will be focusing on utilizing ChargeGPT, large language models and generative AI technologies to develop applications in each of our business sectors.

Speaker 3

For example, using personalized chatbots to provide 20 fourseven customer service for our borrowers or utilizing technology to help our agents increase cross selling and upselling. With the launch of our AI Lab, we aim to improve the efficiency and effectiveness of our operations, enhance user experience and drive business growth. Lastly, I would like to say a few words about the management transition we have announced. George is stepping down as CRO. And on behalf of the Board, I would like to express my sincere thanks to George for his outstanding contributions to the company throughout these years.

Speaker 3

Concurrently, the Board has selected Ms. Yangbin to serve as the company's Chief Human Resources Officer. Together, we are excited to propel the company to new levels of success. With that, I will now pass it to Nao, who will go through the financials for this quarter.

Speaker 1

Thanks, Ming, and hello, everyone. On this call, I will only focus on the key financial highlights. Please refer to our earnings release and our deck for further details. In the Q1 of 2023, our total revenue reached RMB986.3 million, representing a 14% increase year over year and a slight decrease of 9% from prior quarter. The quarter over quarter decline was mainly driven by change in our loan volume.

Speaker 1

Our total facility this quarter was RMB6.4 billion, representing a 39% year over year growth and a 5% decline by prior quarter. The quarter over quarter change can be due to adjustments in product needs. Basically, we actually make adjustments to our small business loans, while implies ongoing growth in our small mortgage loan sector. Insurance has become a key revenue driver, contributing close to 20% of our net revenue this quarter and therefore starting from this quarter awards will be disclosed as a total gross premiums and the revenue from our short broker business. In the Q1 this year, gross written premium reached RMB 923,400,000,000 representing a 50% increase year over year and a 31% decline from prior quarter.

Speaker 1

The quarter over quarter decline was mainly attributable to a decline in policy renewals, which impacted by timing of the 1st year primary. Revenue from insurance broker business reached RMB196.4 billion for this quarter, representing an increase of 27% year over year and remained stable from prior quarters. As a portion of our 1st year premium and the life insurance policy were both higher this quarter, thereby overall revenue taking rate of broker business increased accordingly. On the expense side, sales and marketing expense decreased 40% to RMB106 1,000,000 from the same period last year due to the optimization of our cost structure for our offline business and increase in portion of our revolving loan to existing customers. On the other hand, all general and service costs increased to 31% year over year to then be $200,000,000 mainly driven by the increased organization and the service costs related to our insurance broker business.

Speaker 1

Quarter over quarter, all general and service expense as a percentage of revenue for the insurance sector has remained stable at 58%. G and A decreased by 21% year over year to RMB93 1,000,000. Allowance for capital assets and the receivable was RMB45 1,000,000 for this quarter, remaining stable and profit 0.7% of loan facility. On to our bottom line, we continue to deliver a strong profit of RMB425 1,000,000 this quarter, increased 131 percent year over year and representing a net income margin of 33%. The general profit RMB390,000,000 cash from operating in the Q4, an increase of 40% from the prior quarter.

Speaker 1

Our total cash and cash equivalents was RMB5.1 billion at the end of this quarter, compared to RMB4.3 billion as of the year end of last year. With the gradual recovery of our macroeconomic, we also actively seek our opportunity to allocate resources to new initiatives and the strategy investments, proper technology innovation and the full service business growth. In the Q4 of 2023, we declared around US2.5 million dollars to pay back our shares in the public market. As As of March 31, 2023, the company has accumulated a run close to US3 $1,000,000,000 for our share repurchase program. Based on our assessment of our business and the marketing condition, despite our total run-in the second quarter of this year is to be RMB0.9 billion to RMB1 billion.

Speaker 1

It's part of profit margin is expected to remain stable. Of course, this is a surprise our current and the preliminary review, which is subject to change and uncertainty. With that, we conclude our closing remarks. Operator, we are now open for questions. Thank you.

Speaker 1

Thank

Operator

Your first question comes from Bruce Orrin from New Haven Fund. Please go ahead.

Speaker 4

Yes. Thank you. First, I'd like to congratulate you on another outstanding quarter. I have two quick questions. Can you provide insight into whether the PRC government regards financial institutions like Euron Digital favorably or unfavorably in the current political and economic climate?

Speaker 4

And my second question is, are you considering offering a dividend to shareholders? Thank you.

Speaker 3

Thank you for your questions. Hello? Yes, now please go ahead.

Speaker 1

Okay, Tong, I think I can answer the second question. So the first

Speaker 3

question Go

Speaker 1

ahead, please. Okay. Okay. Thank you. I will answer the second question about our dividend.

Speaker 1

I need to ask. Yes, you can see we have to purchase our share repurchase supply from the last December of last year. And by now we have accumulated about US3 $1,000,000 to perform our shares purchase. And by now for our management well for our cash deposits, we're mostly focused on seeking out more opportunity to use our cash deposits to serve our own business and hope our business has stable and the growth and has growth and also want to increase our fund return ratio for now. So by now I can say the company has no different supply currently.

Speaker 1

And for this question, can you tell me if any abandoned to the question?

Speaker 3

Okay. Let me cover the first question. Thank you for your compliment and we will continue to try our best, 1st of all. And regarding macro conditions, it's like you must know that the past several years, things have been quite dynamic for this sector, lots of changes. And but now things have become much more stabilized.

Speaker 3

Yes. And the economy is recovering from the pandemic and really consumption is encouraged, small business is encouraged. And so after after the past few years of Year? Yes, the dynamic period, we feel that recent macro environment is rather conducive to what we are doing. Yes.

Speaker 4

Thank you.

Operator

Thank you. Your next question comes from Matthew Larson from Fincadia. Please go ahead.

Speaker 4

Hi, thanks for taking my call and again a terrific quarter. If I could give some advice to you all to bring greater recognition of your company. You're trading in essentially one times earnings. If you make $0.70 a quarter, we can do the arithmetic that's $2.80 a year and that's less that's greater than what the stock is trading at plus you have cash. I see your balance grew north of over $700,000,000 and that's several times what your market cap is.

Speaker 4

So I've got a couple of questions. I mean, first of all, the news release should have said earnings up 100% versus just reporting the earnings. I mean that catches people's eyes. And then you mentioned in your report an artificial intelligence initiative. If you would just say something like we've initiated an AI initiative and we expect it to expand our business significantly.

Speaker 4

I mean, that alone would come up on people's screens for U. S. Investors as a rationale to invest in your company. And if they did if they computed the numbers and saw how undervalued you are versus your balance versus your book value and your cash balance, I think that could get it higher. I assume you want your stock to go higher.

Speaker 4

I mean, frankly, I worked at Morgan Stanley when you guys went public back in December 2015 when you were a peer to peer lender and you exited that area because the government did not the PRC government frowned upon that and you've done a great job doing so and you're making plenty of money. So I think you got to get the word out there and being more detailed and frankly, a little more hyperbolic, a little more animated in your news releases, I think, would gain attention. Let me ask this though after that in detail, because I've been an investor for a long time and I'm frustrated. This stock should be $6 or $7 minimum, if not a lot higher. But on June 30, the PRC is going to be and maybe make some changes and what have you.

Speaker 4

And maybe make some changes and what have you. Since you have so much capital and you have a small loan book, do you keep your loans on your balance sheet?

Speaker 1

Yes. I will answer your question. Yes. Actually, for our lending business, we have the 2 model. One model is use our guarantee income.

Speaker 1

It's a mix like the highway model. For the highway model, the loan borrower is in our balance sheet, as you know. Yes, the second model is highly and it's the like model that we decided we just do the performance and the promotion and the reference as a sales channel to our funding partner and we just doubt our consulting revenue from our funding partner and we don't have any guarantee responsibility. And for this model, the loan volume is now in our balance sheet And now we have both the 2 of this model. And so for the 1st model, if we take guarantee the responsibility, the loan will be in our our balance sheet.

Speaker 4

Because I think that's really the issue that to get a to be licensed to make loans, one has to take some of the risk. And I'm seeing some of your former competitors or maybe competitors, whether it's XYF, QFIN, FINV, in particular, is keeping more of the loans on the balance sheet besides just being capitalized. Now as far as having all that huge cash balance you have, I see that you had a lot of income, investment income. Was that just interest on your cash balance, which you should be getting these interest rates have risen and that should be a large part of some of your income?

Speaker 3

Hello? Are you taking these questions? Yes. I'm sorry about that.

Speaker 4

I mean, you have a lot of cash, dollars 700,000,000 What sort of interest are you earning on that?

Speaker 1

Okay. Yes, you can see we have about $5,900,000,000 at cash deposits in our balance sheet. For our balance sheet for our cash losses, we have actually we have 1 the profit is we capture deposits and cooperative with our funding partner to make some financial products on the financial income, the first income. The second is actually we're edge from this year, we're also for our cash usage. For example, we have corporate where our trusted companies to set up trusted clients for our own product, Xianhua.

Speaker 1

There are some figures for reference in the Q1. Our own money set up the trust alone has already landed about $300,000,000 for our loan volume and the transaction amount is tied to about $600,000,000 by the end of the Q2. So we can use our own money to service our own product and we'll profit from our own profile like the Xianhua. Of course, we're still planning other investment initiatives such as Tong mentioned in our script, we have overseas strategy. We also use our own money to expand overseas opportunity and there is some pre expenditure on our overseas go west as a business strategy.

Speaker 1

And also we will use our cash to attaching partners on technology, innovative strategy as Tom mentioned that we have set our AI live and I hope we were more penetrated in the future as technical. And also, generally, we have as a management, we have tried our best to seek mile opportunity to increase our foundry return ratio and keep our stable profit.

Speaker 3

Okay. Let me add that it's really great to meet an old friend. And the past few years has been not easy for us and all the stakeholders around, but I feel bad about yes, I have not been able to produce great returns for some of the people who have trusted us. So we will continue to double our effort to do a good job. Yes, I take your advice on making things more eye catching, so on.

Speaker 3

And we didn't so highlight the AI initiative because we've seen many people just use it as like a marketing slogan, but we hope to really, yes, utilize it in our daily work and achieve good, better numbers first. But yes, deploying is well taken. We'll be more proactive in terms of communicating. But let me say a few words, I mean, about our strategy and how to win in the I mean, the domestic lending business is high growth and profit generating, although it's not top, top scale. Yet, but we are catching up.

Speaker 3

I believe in a few years' time, we will be able to largely catch up. But at the same time, we've been trying to do a very good job in insurance, yes, which we like. And yes, we've built very good foundation for insurance. I think that will be a key differentiator. Another key growth driver strategy for us is some folks have done some work outside of China with some progress.

Speaker 3

But we believe after the pandemic, the field is good for us to get in to do a good job outside of Mainland China. And we've got started in the Philippines, but more to come. And so these are the building blocks but we will try and do more, although we have no clear ideas other than utilizing AI as a tool to do the above things better. But we should have, yes, more ideas about how to really, yes, build the business. Thank you.

Speaker 4

Okay. And thanks for that oversight. I mean, literally, your stock should be a lot higher. I just think like a lot of companies from the PRC, they fall below the radar because people in the U. S.

Speaker 4

Have become disenchanted with a lot of companies. But yours, which just trades well below your liquid assets. Now you would in the past mentioned a share buyback, which would be very accretive and certainly would be helpful. I noticed that none shares that look like were purchased in the Q1. You obviously have the money to do so.

Speaker 4

I mean, you could easily buy back $10,000,000 $20,000,000 or $30,000,000 worth of stock. It would reduce your float, but what do you have to lose because the stock is trapped in the $2 range. So do you expect to buy back any shares if you're not going to do a dividend this quarter?

Speaker 3

Ma, you will take this question. I believe we keep doing share buyback.

Speaker 1

Yes. As I mentioned before, we performed our shares tieback from the December last year after the Board approved. And by now, we have used about $3,000,000 to perform this purchase. And for the With that $3,000,000

Speaker 4

sorry, not

Speaker 1

By today, we have used about $3,000,000 to perform this. Yes. And we will keep on our share payback program. Yes, because we have to approve $20,000,000 amount from our BOD approval, so we can use this approval on the step by step. Yes, that's generally we'll keep on our shares to payback until we use the rest of the month.

Speaker 1

Yes, I think we'll keep on this price in the rest of this year.

Speaker 4

Okay. Because the stock price is so low, you don't even have to be that sensitive to stock price. I mean, you could pay up to $3 or $4 a share. If you just put a bid in the market for 5,000,000 shares, it would not only alert the investment community that there is a serious buyer, but it would be very accretive to you since your book value is many times where it's trading at. So it's a plus plus.

Speaker 4

I mean, with all the money you have, I can't imagine

Speaker 1

there's too

Speaker 4

many better investments than your own stock.

Speaker 1

Yes. I know you can, sir, and I thank you for your comments. And I ask some more further information to you about why how we perform our high purpose because every day the company has to perform the shares amount based on the U. S. Rules regularity.

Speaker 1

So as we agreement with our broker, actually we have now that as you mentioned, we're seriously paid back. We have automatic about our share purchase. So as we communicate with our broker, of course, our broker performance shall pay back based on the regular top. Yes, we have to pay the we have purchased the largest amount according to the listing room. So, we are not seriously to pay back just because we must comply the rule basic, so we have limited amount every day we can purchase from the marketing.

Speaker 1

Yes.

Speaker 4

Okay. Yes, I know you're constricted by volume, but all right, listen, keep up the good work. I think you just got to get the message out to more investors because, again, AI is a marketing tool by many companies, but you guys have been using some form of AI for years. That's how you make your credit decisions by using algorithms and things like that. So I think you should promote it because it's valid and make it very clear that you've doubled your earnings year over year and that you have complete upside.

Speaker 4

And I think that a news release such as that would generate some interest here. So thank you for your time and keep up the good work.

Speaker 3

Thank you. Thank you.

Operator

There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.

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Key Takeaways

  • Insurance brokerage gross premiums reached RMB323 million, up 15% year-over-year, with life insurance policies growing 28% YoY—significantly outpacing the industry’s 8.9% growth—driven by product innovation, agent development and digitization.
  • Consumer lending volume rose to RMB6.4 billion in Q1, a 39% YoY increase, led by the Yixuanhua revolving loan product which grew 88% YoY and now serves 2.2 million MAUs, while “risk-free” e-commerce services further diversify revenue.
  • The company launched its first overseas operation in the Philippines—brand “EZ Passo”—securing over 190,000 registered users and disbursing its first loan, as it refines risk models and targets emerging markets as a new growth driver.
  • An internal AI lab was established to leverage generative AI (e.g., ChatGPT and large language models) for 24/7 customer-service chatbots and enhanced agent cross-selling, aiming to boost operational efficiency and user experience.
  • Q1 financials showed revenue of RMB986.3 million, up 14% YoY, net income of RMB425.1 million (a 131% YoY increase) with a 33% margin, cash & equivalents of RMB5.1 billion, and an ongoing US$20 million share repurchase program.
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Earnings Conference Call
Yiren Digital Q1 2023
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