X Financial Q3 2024 Earnings Call Transcript

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November 27, 2024

There are 6 speakers on the call.

Operator

Hello and welcome to the X Financial Third Quarter 20 24 Earnings Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Victoria Yu. Please go ahead.

Speaker 1

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.shaoyingroup.com. On the call today from X Financial are Mr. Ken Li, President and Mr.

Speaker 1

Frank Pouya Zheng, Chief Financial Officer. Mr. Li will give a brief overview of the company's business operations and highlights, followed by Lisa Zheng, who will go through the financials. They are all available to answer your questions during the Q and A session. I remind you that this call may contain forward looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker 1

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 or other factors, outlasts 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 these and other risks, 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 statements as a result of new information, future events or otherwise, except as required under law.

Speaker 1

It is now my pleasure to introduce Mr. Ken Li. Mr. Li, please go ahead.

Speaker 2

Hello, everyone. We are pleased to report another strong quarter with loan volumes exceeding our forecast and a significant sequential improvement in asset quality. In the Q3, we continued to properly adjust loan volumes based on risk levels. As asset quality improved, we further intensified our borrower acquisition efforts, which have yielded very positive results. Both the top and the bottom line continue to grow year over year.

Speaker 2

Non GAAP adjusted net income reached a new record high. Specifically, on the operational front, our total loan amount facilitated and originated was down 4% year on year, but up 25% sequentially to RMB28 1,000,000,000 above the high end of our guidance. Delinquency rates for all outstanding non past due for 31 to 60 days and 91 to 180 days were 1.02% and 3.22%, respectively, at the end of the quarter, compared to 1.29% and 4.38% a quarter ago and 1.11% and 2.50 percent a year ago. We are pleased with this improvement in asset quality and will continue to optimize our risk management system through advanced technology. In September this year, the Chinese government unveiled a comprehensive stimulus package aimed at improving liquidity, boosting the property market, stabilizing financial markets and stimulating consumption.

Speaker 2

We expect this will provide a meaningful boost to the macroeconomic recovery. As an integral part of the economy, the personal finance market we serve should benefit from this upturn. We have already observed positive signs in the market and are committed to adjust loan volumes in line with the risk level. As a result of this favorable environment, we are raising our guidance and expect our non signal volume to exceed RMB10 1,000,000,000 in the 4th quarter, setting a new record. Now I will turn the call to Frank, who will go through our financials.

Speaker 3

Thank you, Ken, and hello, everyone. I'm pleased to report that our strategy of balanced business growth and profitability continue to pay off. Total net revenue was RMB1.6 billion, up 13% year on year and 15% sequentially, while our non GAAP adjusted net income reached a record high of RMB434 1,000,000, up 60% year on year and sequentially. As we continue to deliver strong profitability and execute on our proven strategy, we have full confidence in our future. We will continue to execute our semi annual dividend policy and explore opportunities and our share repurchase program to return more value to our shareholders over the long term.

Speaker 3

Now I would like to brief certain financial performance for Q3. Please note that all numbers stated are in RMB and rounded up. Total net revenue increased by 30% to RMB1.582 million from RMB1397 1,000,000 in the same period of 2023, primarily due to growth in the various disaggregated revenue items compared with the same period of 2023. Origination and servicing expenses increased by 14% to RMB458 1,000,000 from RMB403 1,000,000 in the same period of 2023, primarily due to the increase in collection expenses, resulting from the cumulative effect of increased volume of the loans facilitated and originated in the previous quarters compared with the same period of 2023. Borrower acquisition and marketing expenses increased by 21 percent to RMB507 1,000,000 from RMB420 1,000,000 in the same period of 2023, primarily due to intensified efforts in borrower acquisitions compared with the same period of 2023.

Speaker 3

Income from operations was RMB509 1,000,000 compared with RMB435 1,000,000 in the same period of 2023. Net income was RMB376 1,000,000 compared with RMB347 1,000,000 in the same period of 2023. Non GAAP adjusted net income was RMB434 1,000,000 compared with RMB375 1,000,000 in the same period of 2023. For further financial information, please refer to the earnings release on our IR website. Regarding our share repurchase plan, in September 2024, we further extended the period of US30 million dollars share repurchase program until the end of March 2026.

Speaker 3

In Q3, we repurchased approximately

Speaker 2

2,82,000

Speaker 3

ADS for a total consideration of US1.3 million dollars We have approximately US4.1 million dollars remaining for the potential repurchase in our current US30 million dollars share repurchase plan. Additionally, in May 2024, we announced a US20 1,000,000 share repurchase plan effectively until November 30, 2025, following a tender offer completed in July 2024 for approximately $9,200,000 and $10,800,000 remain available under this plan. Together, these 2 share repurchase programs reflect our commitment to enhancing shareholder value. Now, our business outlook. For Q4 this year, we expect the total loan amount facilitated and originated to be between RMB30 1,000,000,000 and RMB31 1,000,000,000, bringing the total loan amount facilitated and originated for 2024 to be between RMB100 and RMB102.6 billion and RMB103.6 billion.

Speaker 3

This concludes our prepared remarks, and we would like to open the call to questions. Operator, please?

Speaker 1

Thank you. We will now

Operator

begin the question and answer session. The first question today comes from Ramsey Ballastava with Blackbird Capital. Please go ahead.

Speaker 4

Hi there. I was wondering if you can update us on the capital return program and if there is a plan as to what it would be relative to the net income of the company and as well if you could update us on the regulatory landscape. Thank you.

Speaker 3

Yuan? Yes. We have 2 repurchase programs, have about $15,000,000 remaining in place. And if we are have a talk working with 1 or 2 big investors regarding the shares repurchase program, If those programs, the current program is not enough to, we will have an initial to have a new repurchase plan in place to add. We between the two methods, dividend return and the share repurchase, based on our current share price, we much prefer our share repurchase.

Speaker 3

That's our stand. But we will continue to do semi annual dividend payout on a continued basis. That's our plan. I hope by end of the year, you will see even though we do not give out in terms of percentage out to return the capital. But at end of this year, I hope you will see we will do beyond normally the percentage in terms of the capital return.

Speaker 3

Thank you. I'll ask Ken to answer the first question.

Speaker 2

In terms of the regulatory environment, it is our management view that there's right now the regulation has been fairly stable. And normally, the end of the year is not the time for the government to issue some new rules or regulations. So at this moment, I would say the environment is fairly stable and we do not expect any significant regulations in our industry. And that being said, we have seen that the Chinese government has been fairly active in trying to stimulate the economy to push up the development rate. And we think that will in turn sort of benefit our industry as a whole.

Speaker 2

And basically as we are in this industry, so that's why that we expect our volume will continue to grow from at this moment.

Speaker 4

That's it. Thank you. Thank you.

Operator

The next question comes from Nathan Born with AWH Capital. Please go ahead.

Speaker 5

Hi. It's good to see the strong results and appreciate the return of capital. Frank, I think you started sort of alluding to it on the dividend, but I just wanted to follow-up on that. I mean the stock is trading on this quarter's results if you annualize on 1.3 times earnings. You're paying out about 6.5% of your earnings per share as a dividend.

Speaker 5

It seems like that could be potentially significantly higher. I know you said you're not looking at setting a percentage of income, but if you look at your peers, they're paying somewhere in the low 20s as a percentage. So it seems like you could pay a lot more and not affect your business. I was just kind of hoping that you would consider that. Do you have any thoughts on that?

Speaker 3

I may say, we did this year the public buybacks. And at least that we did a public buyback, we're only able to we were only able to collect about just over about 2,000,000 ADS. So we definitely, yes, have more money available to do more except the technical currency exchange issue, but that's not an excuse. But we yes, yes, for you. And we would like to do more in terms of the share repurchase.

Speaker 3

Hopefully, lately, whatever, with prices since end of September, the prices are from like below $5 up to right now almost $7 will attract more attention and hopefully, there will be more available share for us to buyback. But we will our in terms of our dividend yield, we will continue as I told you before, we will continue to pay above the industry and yield. It's over since like right now, it's after 2 dividend federal rate cuts, they would be like around about 4.5%. We will keep the yield around above 6%. Even as we stock price go up, we will adjust that accordingly.

Speaker 3

Other than that, I don't know, public buyback offering, what else we can do, which is to the I guess, again, we will continue to do dividend payout at attractive rate yield. And also, we will do every possible available share buyback. We will do that. And hopefully and in terms of valuation or whatever, I think that over time, it will address by itself. We will continue to focus on the operations.

Speaker 3

Thank you.

Speaker 5

Just if I could follow-up on that. I think that your peers I think when you first instituted your dividend, it was about a 10% yield. And now you're right, it's around 5. The difference though is that your peers, some of them trade at 3, 4, 5 times earnings and you're trading at just over 1 times earnings. And so, yes, if you can get the buyback done there and you're trading at about a third of

Speaker 2

your tangible book value, you can get the buyback done, that's great. I just know

Speaker 5

you've had limits on value, you can get the buyback done, that's great. I just know you've had limits on that in the past. And so maybe the dividend increase could be a way that you sort of help the shares rerate is that you increase that and then eventually it gets to a 5% dividend yield from share price appreciation. But just some thoughts there. I know that you guys are focused on returning capital and that's been a real positive over the past year.

Speaker 5

So I'm not knocking it, just having discussion.

Speaker 3

Just one more thing. In terms of the only the major issue we face in challenges is our volumes very low.

Speaker 4

And

Speaker 3

so we hope this volume went up for the last months or so. We could do more buybacks during the open period. That's another thing we will definitely will that's what I say. In every possible way, we will to the maximum in terms of the yield and the share buyback. And hopefully, we will address just a low valuation issue in a short period of time.

Speaker 3

But we

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Key Takeaways

  • Q3 total loan origination rose 25% sequentially to RMB28.1 billion—above the high end of guidance—despite a 4% year-on-year decline.
  • Asset quality improved, with 31–60-day and 91–180-day delinquency rates falling to 1.02% and 3.22% from 1.29% and 4.38% in Q2.
  • Non-GAAP adjusted net income reached a record high of RMB434 million (up 60% year-on-year and sequentially) on net revenue of RMB1.582 billion (up 13% year-on-year).
  • Management raised Q4 guidance, expecting total loan origination of RMB30–31 billion and full-year 2024 volumes of RMB100–102.6 billion, setting new records.
  • The company extended its US$30 million and US$20 million share repurchase programs (with ~US$14.9 million remaining) and will maintain a semi-annual dividend yield above 6% to return capital to shareholders.
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Earnings Conference Call
X Financial Q3 2024
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