PPDAI Group Q2 2023 Earnings Report

PPDAI Group EPS Results

• Actual EPS: $0.28
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

PPDAI Group Revenue Results

• Actual Revenue: $424.16 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

PPDAI Group Announcement Details

• Quarter: Q2 2023
• Date: 8/28/2023
• Time: N/A
• Conference Call Date: Monday, August 28, 2023
• Conference Call Time: 8:30PM ET

PPDAI Group (NYSE:FINV) Inc. operates an online consumer finance marketplace that connects individual and institutional investors with personal and small-business borrowers. Through its digital platform, the company facilitates unsecured consumer loans, auto refinancing loans and small-business financing by leveraging proprietary credit assessment tools and big data analytics. Investors gain exposure to a diversified portfolio of retail credit assets, while borrowers benefit from streamlined application processes and competitive financing rates.

At the core of PPDAI’s offering is a multi-layered risk management framework that combines automated credit scoring, manual underwriting oversight and third-party data verification. The platform supports borrowers across a range of use cases—including personal consumption, auto purchase and working capital needs—enabling users to apply via web or mobile channels. PPDAI also offers value-added services such as credit-line management, loan insurance and borrower education, helping to promote responsible lending practices and enhance overall portfolio performance.

Headquartered in Shanghai and founded in 2007, PPDAI Group has grown to become one of China’s earliest and most prominent online consumer finance marketplaces. The company maintains research and development centers dedicated to artificial intelligence and fintech innovation, and it has established strategic partnerships with banks, insurance firms and payment providers to broaden its service reach. In 2017, PPDAI Group completed its initial public offering on the New York Stock Exchange under the ticker FINV. Its leadership team comprises seasoned professionals drawn from the consumer finance, technology and risk management sectors, all working to navigate China’s evolving regulatory landscape and to pursue disciplined growth in digital lending.

PPDAI Group Q2 2023 Earnings Call Transcript

Key Takeaways

• FinVolutions delivered solid growth in Q2 with total transaction volume rising to RMB47.3 billion and outstanding loan balance up 14% and 13% year-over-year to RMB63.7 billion, validating resilience against a challenging economy.
• International operations recorded a record quarter—transaction volume reached RMB1.8 billion and outstanding loans RMB1.1 billion (up 131% YoY), with international revenue more than doubling to RMB503 million and full-year overseas volume guidance raised to RMB7.7 billion (80% growth).
• Domestic macro headwinds persist as China’s manufacturing PMI stayed below 50 and July social financing growth missed forecasts; full-year China transaction guidance remains at RMB189–205 billion, implying cautious near-term outlook.
• Credit quality remained stable with a day-1 delinquency rate near 5.6%, vintage delinquency around 2.3% and loan collection recovery holding at approximately 90%, supported by robust fraud detection and automated processes.
• Balance sheet strength underpins shareholder returns: cash and short-term liquidity rose 58% YoY to RMB8.2 billion, leverage stayed at 4.3×, $491 million has been returned via dividends and buybacks, and a new $150 million repurchase program was approved.

Presentation

[Operator]

Hello, ladies and gentlemen. Thank you for participating in the Second Quarter 2023 Earnings Conference Call for FinVolution Group. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. I will now turn the call over to your host, Jimmy Tan, Head of Investor Relations for the company. Jimmy, please go ahead.

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Hello, everyone, and welcome to our second quarter 2023 earnings conference call. The company results were issued via Newswire Services earlier today and are posted online. You can download the earnings release and sign up for the company email alerts by visiting the IR section of our website at ir.finvgroup.com. Mr. Tiezheng Li, our Chief Executive Officer, and Mr. Jiayuan Xu, our Chief Financial Officer, will start the call with their prepared remarks and conclude with a Q&A session. During this call, we will be referring to several non-GAAP financial 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. For information about these non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release.

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

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 results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties are included in the company's filings with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Finally, we post a slide presentation on our IR website, providing details of our results for the quarter. I will now turn the call over to our CEO, Mr. Tiezheng Li. Please go ahead, sir.

[Tiezheng Li, CEO at FinVolution Group]

Thanks, Jimmy. Hello, everyone, and thank you for joining our earnings call. This is Tiezheng Li, CEO of FinVolution Group. We are happy to speak with you today. Since our expansion into the Indonesian market back in 2018, we have continued to execute our local focus, global outlook strategy in the Pan Asian region with unwavering determination. Today, we have cumulatively served over 28 million borrowers in China, Indonesia, and the Philippines. By integrating our local business focus with an international perspective, we are able to leverage our expertise and insights derived from diverse markets to drive growth and foster innovation within our organization. We expect this strategy to produce further benefits as we expand into additional countries and strengthen our presence in our existing markets.

[Tiezheng Li, CEO at FinVolution Group]

As China transitions into the post-COVID era, the recent July macroeconomic data continue to be challenging, with pockets of improvement in certain areas. However, macroeconomic data from the ASEAN markets in which we operate currently paints a more positive picture, reflecting growth across different operational metrics. Given these circumstances, we are adopting a strategy of progressive growth in the China market, while pursuing rapid growth in the international market. While we await the domestic microenvironment's recovery from the current challenges, we have been continuously investing in R&D. We have substantially enhanced our technology, enabling us to streamline our processes, upgrade our customer experience, and achieve improvements across the various markets in which we operate.

[Tiezheng Li, CEO at FinVolution Group]

We are pleased to share that FinVolution's total transaction volume in the second quarter increased to RMB 47.3 billion, while our outstanding loan balance reached RMB 63.7 billion, up 14% and 13% respectively year-over-year. This growth validates our company's ability to efficiently adapt to the challenging economic landscape. We are continuing to meet the needs of our customers across our markets in the Pan Asian region. Technological innovation continues to be the core of our mission and the primary source of our competitive advantage. In July, we hosted the eighth FinVolution Technology Cup Competition, our annual event, showcasing and cultivating technological talent and creativity.

[Tiezheng Li, CEO at FinVolution Group]

This year's event focused on the development of automatic speech recognition, ASR, to improve the technology's grips of Chinese dialects and the language, aiming to increase chatbots' efficiency and accuracy when communicating with customers from different regions. Our commitment to innovation was recently recognized at the 2023 World Artificial Intelligence Conference, where the thesis we developed in cooperation with Zhejiang University, DropMessage: Unifying Random Dropping for Graph Neural Networks, was nominated for the Outstanding Thesis Award. Our investment in AI and machine learning began years ago, with R&D spanning across different product categories, such as self-help services, chatbots, data analytics, and credit risk assessments. Over the past several years, we have been training our model utilizing billions of CNY of transaction data, steadily increasing their accuracy.

[Tiezheng Li, CEO at FinVolution Group]

We currently employ a fully automated loan approval process with all of our funding partners, and our automated chatbot resolves about 80% of customer inquiries on average. We consistently embrace new technologies and deploy them into our daily operation to deliver a more personalized, personalized and tailored experience for our users, along with the use of chatbots in customer service and to address early days delinquencies in the loan collection process. We have also upgraded to and streamlined user experience by automating self-app, self, self-help functions and providing instant response for our users. In addition, we have incorporated AIGC into our advertisement for our over- overseas business, increase our campaign's audience targeting accuracy, and achieving greater visibility on leading social media platforms such as Facebook, Instagram, and TikTok.

[Tiezheng Li, CEO at FinVolution Group]

As a result, during the month of July, our followers on TikTok grew to around 700,000, while followers on Facebook and Instagram reached 967,000 and 220,000, respectively. Furthermore, we strove to advance our commitment to promoting financial inclusion during the quarter, aligning our ESG efforts with this business goal through better borrowing rates. We further optimized our average borrowing rate in China to 22.3%, ensuring our service accessible and affordable for our borrowers. On a related note, I would like to share some updates on our ESG progress. We recently published our 2022 ESG report, the fifth in our company's history, demonstrating our dedication to transparency and sustainability.

[Tiezheng Li, CEO at FinVolution Group]

Responsible ESG reporting allows us to showcase our strong governance practices and our actions addressing the environmental and social issues affecting our industry, while also empowering us to design effective future initiatives. For instance, since the launch of our interest-free loan for eligible small business owners in China, we have cumulatively supported over 11,000 small business owners in pursuit of their dreams. Our subsidiaries in the Indonesian and Philippine markets are also proactively engaging in ESG work, such as conducting customer management workshops to educate borrowers and launching a large-scale mangrove tree planting project to improve people's livelihoods in their local communities, among other activities. We firmly believe that aligning our ESG and business goals will ultimately create long-term value for our stakeholders, while achieving a positive societal impact.

[Tiezheng Li, CEO at FinVolution Group]

Before we move on to additional operational and financial metrics with our CFO, I'd like to share that FinVolution celebrated its sixteenth anniversary during the second quarter, a milestone that affords us a glimpse of our future outlook as an enterprise with sustainable growth. As we have grown and built the business throughout the years, we have accumulated a suite of technologies, skill sets, and capabilities that enable us to navigate and succeed in all the markets in which we operate. We will remain committed to our vision of leveraging innovative technology to make financial services better, propelling FinVolution's long-term sustainable growth along the way. With that, I will now turn the call over to our CFO, Jiayuan Xu, who will discuss our operational and financial results for the year.

[Jiayuan Xu, CFO at FinVolution Group]

Thank you, Li, and hello, everyone. Welcome to our second quarter of 2023 earnings call. In the interest of time, I will not go through all of the financial line items on this call. Please refer to our earnings release for further details. As Li mentioned, the domestic microenvironment continued to be challenging with pockets of improvements in certain areas. The official Manufacturing Purchasing Managers' Index came in at 49.3 points in July, compared to 49 points in June and 48.8 points in May, according to data released by the National Bureau of Statistics on July 31, 2023. Meanwhile, total social financing data in July increased by just RMB 528 billion, below market expectation.... Total retail consumption in July only increased by 2.5% compared with the same period last year.

[Jiayuan Xu, CFO at FinVolution Group]

However, despite the challenging macro environment, we are encouraged by the strong operational and financial results we delivered in the second quarter of 2023. Driven by our stable and better quality borrower base, we achieved solid operational metrics in the second quarter in the China market. Cumulatively, we have served over 24 million borrowers in China, with the number of unique borrowers at around 2.3 million, up 5% sequentially. Additionally, our China transaction volume reached RMB 45.5 billion, while our outstanding loan balance reached RMB 62.6 billion as of June 30, 2023, both up 12% on a year-over-year basis. Mostly by our prudent approach to risk management with proven fraud detection technologies, we have maintained a stable risk level.

[Jiayuan Xu, CFO at FinVolution Group]

In the second quarter of 2023, our day one delinquency rate was around 5.6%, and vintage delinquency rate is expected to be around 2.3% for the quarter. Finally, thanks to our loan collection team's impressive efforts, our loan collection recovery rate maintained stable at around 90%. As we continue to flatten our strategy of serving better quality borrowers, our proportion of category A and B borrowers in the China market further expanded to 80% of our total borrowers in the second quarter, compared with 74% in the same period last year. Furthermore, our transaction to better quality borrowers helped us to further optimize our funding costs during the quarter. We have also expanded our number of cumulative funding partners to 82 financial institutions, and our pipeline of potential partners remains robust.

[Jiayuan Xu, CFO at FinVolution Group]

All these operational improvements enable us to maintain a healthy take rate of around 3.1% during the second quarter. As a company deeply committed to social responsibility, we continue to support small business owners during this challenging period. We have also noticed that our small business owners segment has been recovering at a healthy pace. Most of borrowers from this segment are focusing on wholesale, retail, food, and beverage industry. During the quarter, we served around 459,000 small business owners and facilitated RMB 11.5 billion of loans for them, representing an increase of around 11% compared with the same period last year, and up 12% sequentially. Now, I'd like to share some additional details on our international expansion efforts. Indonesia, our largest overseas market, recorded continued growth in its macro economy during the second quarter.

[Jiayuan Xu, CFO at FinVolution Group]

Notably, on a monthly basis, the Manufacturing PMI grew by 2.2 points to 52.5 points, and the business confidence index reached 99%. Indonesian economy continued to remain robust in the second quarter and has maintained growth of 5% over the past several quarters. Going forward, Indonesian economy is expected to maintain growth of around 5% in 2023. We anticipate that its domestic consumption will remain robust. We are excited about the progress we have made in our overseas markets across multiple operational and financial metrics. Cumulatively, we have served over 4 million borrowers in Indonesia and the Philippines, and continue to demonstrate significant growth in these countries. With the number of unique borrowers served during this quarter, reaching a new high at 786,000, up 22% from the same period last year.

[Jiayuan Xu, CFO at FinVolution Group]

International transaction volume sold by 100% year-over-year during the second quarter, reaching RMB 1.8 billion, while we set a new record in our outstanding loan balance at RMB 1.1 billion, up 113% year-over-year. Our operations in the Philippines have also exhibited stronger than expected growth across numerous operating metrics. On a year-over-year basis, the number of unique borrowers, transaction volume, and outstanding loan balance all grew by several times compared with the same period last year. Alongside these impressive operational metrics, international revenue maintained its robust growth trajectory, reaching RMB 503 million, an increase of 112% year-over-year, and it contribute around 16% of total revenue in the second quarter.

[Jiayuan Xu, CFO at FinVolution Group]

We have consistently strengthened our relationships with both local traditional financial institutions such as Bank Permata and OCBC Bank, as well as innovative internet banks such as Bank Jago and SeaBank. Thanks to these flourishing partnerships and our partners' validation of our technologies and operational capabilities, our percentage of loans in the second quarter facilitated by these institutions reached 65%, compared with 39% in the same period last year. Going forward, we will further deepen our relationships with these institutions to increase our proportion of facilitation by local institutions and expand our network of local partners in the region. Driven by our ongoing investments in technology and our strategy shift toward serving bad quality borrowers, our net revenues for the second quarter rose to RMB 3.1 billion, up 15% year-over-year.

[Jiayuan Xu, CFO at FinVolution Group]

Net income for the second quarter reached RMB 590 million, up 1% year-over-year. Our leverage ratio, which is defined as risk-bearing loans divided by shareholders' equity, remains stable at 4.3x. During these times of uncertainty, our strong balance sheet and liquidity position continue to provide confidence to all our stakeholders and support the business growth for all our markets. In particular, our cash position remains robust, with over RMB 8.2 billion of cash and short-term liquidity as of the end of June 2023, representing an increase of 58% year-over-year and 6% quarter-over-quarter. We also remain committed to optimizing shareholder value through our annual dividend policy and the share repurchase policy. We believe the current macro environment offers an attractive opportunity to return value to shareholders.

[Jiayuan Xu, CFO at FinVolution Group]

And as such, during the first half of the year, we deployed around $46 million to repurchase our stock from the secondary market. As of June 13, 2023, we have cumulatively returned $491 million to our shareholders through our dividend and stock repurchase programs. In addition, our board of directors has also approved a new share repurchase program of $150 million, reflecting our strong commitment to enhancing shareholder value. On a related note, our chairman, CEO, and other senior management have also expressed their confidence in the company through personal shares repurchase, totaling around 613,000 ADS in the first half of 2023.

[Jiayuan Xu, CFO at FinVolution Group]

Given favorable microeconomics conditions in our international markets and the progress we have made across numerous operational metrics for our international business, the company has increased its international transaction volume guidance for the full year of 2023 to RMB 7.7 billion, representing year-over-year growth of around 80%. Taking the current China macro environment into consideration, the company's 2023 guidance for its China market remains unchanged at between RMB 189 billion-RMB 205 billion, representing year-over-year growth of between 10% to 20%. Before I conclude my remarks, let me provide some additional color on our business outlook for the third quarter of 2023. Despite some uncertainties in the macro environment, our business trajectory remains solid.

[Jiayuan Xu, CFO at FinVolution Group]

We expect our transaction volume in China for the third quarter of 2023 to be around RMB 49 billion, representing an increase of around 10.4% year-over-year. We expect our transaction volume in international markets for the third quarter to be around RMB 1.9 billion, representing an increase of around 73% year-over-year. In summary, our outstanding performance in the second quarter of 2023 underscores our dynamic business model, technological know-how, and dedication to advancing our international initiatives. Entering into the second half of 2023, we remain focused on refining our risk assessment and management framework, expanding our healthy customer base, and optimizing our product mix.

[Jiayuan Xu, CFO at FinVolution Group]

Looking ahead, we believe that we are well positioned to capitalize on the massive opportunities in both China and the international markets, driving growth while creating greater value for our customers, shareholders, and all of our stakeholders. With that, I will conclude my prepared remarks. We will now open the call to the questions. Operator, please continue.

[Operator]

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, we ask that you please kindly repeat your question in English. At this time, we will pause momentarily to assemble our roster.

[Operator]

Our first question will come from Yada Li of CICC. Please go ahead.

[Yada Li, Equity Research Analyst at CICC]

[Foreign language] I'll` do my translation. Hello management, thanks for taking my question. This is Yada Li with CICC. My first question today is about asset quality trends. Considering the current macroeconomic condition, what is the latest trend of leading indicators like day one and vintage delinquency in July and August?

[Yada Li, Equity Research Analyst at CICC]

What can we expect going forward and how to affect our provision strategies? My second question is related to the international business. Could you please give us more color on the updates such as the progress of business expansion in new countries, business model and long-term strategic focus? Thanks.

[Jiayuan Xu, CFO at FinVolution Group]

[Foreign language]

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Yada, this is Jimmy. Let me do the translation for Alex Ye. Your first question is related to our risk assessment performance. As mentioned, our vintage delinquencies performance is around 2.3%, and it has always been around at 2.3% levels over the past few years. Our 30-day loan collection recovery rate is around 90%. Over the last few quarters, this metric has been relatively stable, and our vintage delinquencies is at 1.68%, which is also at a low level. From observation, the current macro environment is relatively weak, with recovery below expectation. From observation, the credit market is doing okay, and we expect that it is going to maintain stable going forward, with risk performance staying stable as well. We have been through multiple credit cycles, including the COVID and the lockdowns, and we have proved that throughout all these cycles, we have successfully navigate them and succeed at after all these cycles.

[Jiayuan Xu, CFO at FinVolution Group]

[Foreign language]

[Jiayuan Xu, CFO at FinVolution Group]

[Foreign language]

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Let me do the translation for Alex Ye. As you know, we are already in leading positions in the Indonesian and the Philippines markets. And apart from these two countries, we are also looking at opportunities in other countries in Southeast Asia and also looking for high growth opportunities in countries such as Africa and Latin America. Our business model is not only restricted to online lending, we are also looking at opportunities. For example, we are also looking at opportunities in Indonesia for offline consumption scenarios. And as you know, the population in Indonesia is young, and we are looking with leading mobile phone operators and brands in the Indonesian market to target these borrowers for offline mobile phone consumption. Okay, Yada, do you have any further questions? I'm sorry.

[Jiayuan Xu, CFO at FinVolution Group]

[Foreign language]

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

yeah, Yada, please wait, yeah.

[Tiezheng Li, CEO at FinVolution Group]

CEO would like to add a few more lines. [Foreign language]

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Yada, let me translate for Mr. Li. As you, as you know, FinVolution was established 16 years ago, and we are very experienced in different business models, such as online, offline, and have very good working relationships with different partners. Some of the business models might not work in China market, but these are very useful experience for us when we penetrate into other countries. As you know, we are also not the earliest company to venture into overseas market, but we are in leading positions in Indonesia and the Philippines because of our tech capabilities, our operational capabilities, and also we have a huge base of talent pools. And with these advantages, we are able to leverage these capabilities and success in our overseas market and going forward, we are confident further success in all these international markets.

[Tiezheng Li, CEO at FinVolution Group]

Okay, thanks, Yada, and the operator, please continue.

[Operator]

Our next question will come from Frank Zheng of Credit Suisse.

[Frank Zheng, Equity Research Analyst at Credit Suisse]

[Foreign language]

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Thank you very much for giving me the opportunity to ask questions. The first one is a follow up on the international market. From a medium term perspective, for example, one year's time, how would you foresee the profitability of international market operations? And the second question is on domestic market, do we have plans to further tap into, prime customers with APR less than 18% in order to further expand the volume as well as and improve the risk performance? Thank you.

[Jiayuan Xu, CFO at FinVolution Group]

[Foreign language]

[Jiayuan Xu, CFO at FinVolution Group]

[Foreign language]

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Let me do a translation for Alex Ye. OK, in the midterm, regarding our international market profitability, our international business is already profitable in the second quarter, but it is still relatively small compared to the China market. There are several reasons for this: number one, it is affected by the rapid growth for our international business as we need to invest continuously. For example, our percentage of new borrowers in the Indonesia market is around 37%. And also it is being affected by the deferred revenue, because all these loans are conducted in installment loans.

[Jiayuan Xu, CFO at FinVolution Group]

[Foreign language]

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Let me translate for Alex Ye for this question. In the second quarter, we further optimize our pricing to 22.3% from 22.7% in the first quarter. As you have seen, we are continually trying to explore to acquire better quality borrowers. Through our historical experience, lower pricing help us to attract better quality borrowers, and better quality borrowers will have a higher level of stickiness on our platform. If you, if you observe, we have also our ROA is also higher compared to the industry average, and in the second quarter, our ROA from our reported earnings was about 3.7%, and we have also optimized our funding cost structure by around 30 basis points, with funding with 30 basis points in the second quarter. Going forward, we will consider a balance between pricing and our ROA.

[Jiayuan Xu, CFO at FinVolution Group]

OK, Frank, do you have any other follow up questions?

[Frank Zheng, Equity Research Analyst at Credit Suisse]

No, that's all. Thank you very much.

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

OK, thanks。

[Operator]

The next question will come from Alex Ye of UBS.

[Alex Ye, Equity Research Analyst at UBS]

[Foreign language] So my question is on the shareholder return.

[Alex Ye, Equity Research Analyst at UBS]

So we are happy to see management announce $150 million share buyback plan, which showcases that management's focus on improving shareholder value. So if we look back to your track record on this buyback, how should we consider your pace on deploying such quota going forward? Should we consider the $150 million quota to be deployed over two-year horizon, as indicated by your authorization period? And also, is there any target payout ratio if we take into account both your dividends and buyback? Thank you.

[Jiayuan Xu, CFO at FinVolution Group]

[Foreign language]

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Hello, Alex, let me do the translation. Our share repurchase and buyback programs began in 2018, and we are already have a few years of track record. And cumulatively, we have returned about $260 million in the form of dividend to our shareholders, and $230 million for share repurchases. In total, it is about $500 million US dollars returned to our shareholders. And the payout ratio, if you calculate, is around 30%-40%. In terms of absolute amount, we are ahead of our peers. In the first half of 2023, our buyback amount is close to $50 million, and the payout ratio up for our annual dividend was 18.5%. So the payout ratio for 2023 is likely to be higher than our historical on our average historical years.

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

As long as the market conditions allows and is favor-favorable, we will continue to return value to our shareholders, as validated by our past historical performance.

[Jiayuan Xu, CFO at FinVolution Group]

OK, Alex, is it, is it OK for you?

[Alex Ye, Equity Research Analyst at UBS]

[Foreign language]

[Jiayuan Xu, CFO at FinVolution Group]

OK, thank you.

[Operator]

Our next question will come from Thomas Chong of Jefferies.

[Thomas Chong, Regional Head of Internet & Media at Jefferies]

Thanks, management, for taking my questions. My question is about the competitive landscape in overseas market. Can management share your thoughts about the future outlook and on marketing spending, given we talk about Facebook is one of our channel. Can you comment about the customer acquisition costs in overseas versus domestic market?

[Thomas Chong, Regional Head of Internet & Media at Jefferies]

Uh, thank you.

[Jiayuan Xu, CFO at FinVolution Group]

[Foreign language]

[Jiayuan Xu, CFO at FinVolution Group]

[Foreign language]

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Hello Thomas, let me do the translation. As you have known, our operations are mainly in the Indonesia and Philippines market, and the macro environment in these countries are relatively positive. For example, in Indonesia, the GDP growth has been growing at over 5% for the last seven quarters, and in 2023, the GDP growth is expected to maintain at around 5%. The Philippines market is slightly slower compared to the Indonesia market, but the GDP growth is still growing at around 4.3%. The reason why we are able to maintain our leading status positions in these countries are because we have deployed our technology capabilities and operational capabilities into these countries.

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

In the second quarter, our number of unique borrowers has also reached a new high at 786,000, and we are constantly among the top three players. In these markets, Indonesia and Philippines, are huge markets and are at early stages for us. So we will continue to invest and maintain leading positions into these countries as supported by our technologies and operational capabilities. Our efforts and capabilities has also been recognized by local financial institutions. For example, this can be validated by the increase in the proportion of loans funded by local partners from 65% in the second quarter, compared to only 39% in the same period last year. For sales and marketing, the amount we spend is around RMB 80 million has been invested into sales and marketing in the second quarter.

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Apart from Facebook, we are also investing into TikTok. We believe all these information feeds channels will be good channels for us to acquire our new borrowers going forward.

[Jiayuan Xu, CFO at FinVolution Group]

Do you have any other questions?

[Thomas Chong, Regional Head of Internet & Media at Jefferies]

[Foreign language] Thanks, management, for taking my second question.

[Thomas Chong, Regional Head of Internet & Media at Jefferies]

My question is about AI. In the prepared remarks we talk about we have been investing in AI for many years, and apply AI in different scenario. Given LLM research a hot topic in the internet sector these days, and people talk about LLM or industry LLM, just want to get some thoughts from management with regard to this area, whether we are thinking of developing our own LLM, or we are seeking a partnership with the top players? Thank you.

[Tiezheng Li, CEO at FinVolution Group]

[Foreign language]

[Tiezheng Li, CEO at FinVolution Group]

[Foreign language]

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Thomas. Let me do the translation from Mr. Li. Honestly, the generic big data model is not for a company of our size, as it needs to be at a country level where the huge resources are required for development. Our focus is on the implementation of AI models into our operations, into our daily operations in order in an attempt to increase our efficiency. And also, we will be looking at specific opportunities that are suitable for us for deployment into our business, where we can also consider to work with other partners to increase our efficiency.

[Jiayuan Xu, CFO at FinVolution Group]

[Foreign language]

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

OK. Yeah, thanks.

[Operator]

The next question will come from Cindy Wang of China Renaissance.

[Cindy Wang, Director at China Renaissance]

Thanks for taking my question, this is Cindy from China Renaissance. So I have two questions. The first question is related to the overseas institutional funding, so we've seen the institutional funding has been going up pretty quickly.

[Cindy Wang, Director at China Renaissance]

So in the midterm, what's the percentage contribution would be, contribute from the institutional funding? The second question is related to provisions, so, we see the asset quality has been improving in second quarter. However, the provisions compared to first quarter has been slightly up. So, can we talk about what's the difference between here and whether we have any write back in the second quarter? And how do we foresee the provision in the second half of this year? Thank you.

[Jiayuan Xu, CFO at FinVolution Group]

[Foreign language]

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Cindy, let me do the translation. So we have—as mentioned, we have around 65% of funds in, 65% of the loans in Q2 was funded by local Indonesian partners in the second quarter, and we expect this amount to be around 80% by the end of the year. Going forward, we still think that there is opportunity for us to further increase this proportion, but our next focus will be on the funding costs, where we need to do some optimization on our funding costs in for the international markets. Going to the next question. When we take a look at the provisions, we need to divide into domestic and international provisions. The main reason is because our international business is growing at a very rapid rate. This is the reason for the provisions levels to be higher.

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

In the first quarter, there was a write back, and now if we take a look at the domestic China recovery, the recovery is still weak, a bit slightly below expectations, so we don't have any plans for a write back at the moment. But all this will change when the economy is recovering at a faster pace, and there we believe there will be opportunities for write back going forward.

[Jiayuan Xu, CFO at FinVolution Group]

Okay, thanks, Cindy.

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Thank you, Cindy.

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Thank you.

[Operator]

At this time, I would like to turn the call back over to the company for closing remarks.

[Jimmy Tan, Head of Investor Relations at FinVolution Group]

Thank you once again for joining us today. If you have further questions, please feel free to contact me or my investor relations team. Thank you so much.

[Operator]

This concludes this conference call. You may now disconnect your line. Thank you.

Participants

Analysts

• Alex Ye, Equity Research Analyst at UBS
• Cindy Wang, Director at China Renaissance
• Frank Zheng, Equity Research Analyst at Credit Suisse
• Jiayuan Xu, CFO at FinVolution Group
• Jimmy Tan, Head of Investor Relations at FinVolution Group
• Thomas Chong, Regional Head of Internet & Media at Jefferies
• Tiezheng Li, CEO at FinVolution Group
• Yada Li, Equity Research Analyst at CICC