X Financial Q2 2024 Earnings Report

X Financial EPS Results

• Actual EPS: $1.00
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

X Financial Revenue Results

• Actual Revenue: $188.88 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

X Financial Announcement Details

• Quarter: Q2 2024
• Date: 8/21/2024
• Time: N/A
• Conference Call Date: Thursday, August 22, 2024
• Conference Call Time: 7:00AM ET

X Financial (NYSE:XYF) (NYSE:XYF) is a Beijing-based online credit marketplace focused on providing diversified financing solutions to individuals and small- and medium-sized enterprises (SMEs) in China. The company was established in 2014 and completed its initial public offering on the New York Stock Exchange in 2016. Since inception, X Financial has built a technology-driven platform that connects borrowers with a network of institutional investors, banks and other funding sources, aiming to streamline access to credit and improve lending efficiency.

The company’s core offerings include consumer loans, SME loans, real estate-secured financing and wealth management products. Through its proprietary credit-scoring and risk-management systems, X Financial assesses borrower profiles and matches them with appropriate funding partners. This end-to-end digital approach spans loan origination, underwriting, servicing and collections, enabling the company to support a wide range of credit needs from personal installment financing to working‐capital loans for businesses.

Serving clients across major urban centers and second-tier cities throughout China, X Financial emphasizes strong compliance with local regulations and prudent risk controls. The company’s leadership team comprises executives with deep experience in finance, technology and regulatory affairs, overseeing ongoing platform enhancements and geographic expansion initiatives. By leveraging data analytics and strategic partnerships, X Financial continues to scale its credit marketplace with the goal of addressing underserved lending segments in the Chinese market.

X Financial Q2 2024 Earnings Call Transcript

Key Takeaways

• Record net income: Net income grew 13% year-on-year and 14% sequentially to a record RMB450 million, reflecting strong profitability improvements.
• Revenue growth and cost control: Total net revenue rose 12.5% year-on-year to RMB1.4 billion, while origination and service expenses were managed tightly and marketing costs declined.
• Improved asset quality: Delinquency rates for loans 31–60 days past due fell to 1.29% (from 1.61%), driven by refined risk management and enhanced credit modeling.
• Loan origination dynamics: Total loan volume declined 12% year-on-year but rose 6% sequentially to RMB23.1 billion, and Q3 guidance targets RMB26–27.5 billion as risk controls ease and new channels contribute.
• Capital returns: Initiated a tender offer for 2 million ADS under a new 20 million share repurchase program and declared a semi-annual dividend of US$0.17 per ADS.

Presentation

[Operator]

Hello, and welcome to the X Financial second quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Victoria Yu. Please go ahead.

[Victoria Yu, Head of Investor Relations at X Financial]

Thank you, operator. Hello, everyone, and thank you for joining us today. The company's results were released early today and are available on the company's IR website at ir.xiaoyinggroup.com. On the call today from X Financial are Mr. Kan Li, President, and Mr. Frank Fuya Zheng, Chief Financial Officer. Mr. Li will give a brief overview of the company's business operations and highlights, followed by Mr. Zheng, who will go through the financials. They are all available to answer your questions during the Q&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.

[Victoria Yu, Head of Investor Relations at X Financial]

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 these and other factors, 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 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. Kan Li. Mr. Li, please go ahead.

[Kan Li, President at X Financial]

Hello, everyone. We are very pleased to report another solid quarter as we made further progress in improving our profitability. Our proactive management of loan volumes based on asset quality dynamics continued to bear fruit in the second quarter. As a result, while loan volume declined year over year, our net income for the quarter grew significantly and reached a record high. The total loan amount facilitated and originated decreased by 12% year over year, but increased 6% sequentially to RMB 23 billion. Our total outstanding loan balance was RMB 42 billion at the end of June 2024.

[Kan Li, President at X Financial]

Delinquency rates for outstanding loans past due for 31-60 days and 91-180 days were 1.29% and 4.38% respectively at the end of the quarter, compared to 1.61% and 4.37% a quarter ago, and 0.96% and 2.5% a year ago. As we have seen an improvement in our asset quality, we have decided to ease our strict controls on loan volumes, and we expect our loan volumes to gradually recover on a year-over-year basis in the second half of the year. Meanwhile, we will continue to strengthen and refine our risk management system to improve asset quality.

[Kan Li, President at X Financial]

Our focus remains on sustainable profitability, and we employ flexible tactics to adapt to evolving market conditions to achieve this, and as always, to increase shareholder value. Now, I will turn the call to Frank, who will go through our financials.

[Frank Fuya Zheng, CFO at X Financial]

Thank you, Kan, and hello, everyone. We delivered strong financial results this quarter. The total net revenue was RMB 1.4 billion, up 12.5% year on year and 14% sequentially. We continued to focus on cost control and improve asset quality, and as a result, our net income grew 13% year on year and 14% sequentially to RMB 415 million, a record high in our history. In May 2024, we announced a new 20 million share repurchase program. In June 2024, we initiated a tender offer to purchase 2 million ADSs, which was completed in July 2024.

[Frank Fuya Zheng, CFO at X Financial]

We are pleased to have executed this ADSs buyback, which will provide a liquidity to shareholders seeking an exit at a premium price, and at the same time, increase remaining shareholders' stakes in the company. We are committed to profitable growth by exploring various avenues to further increase returns for our shareholders. Now, I would like to brief some financial performance for Q2. Please note that all numbers stated here are in RMB and are rounded up. Total net revenue increased by 12% to RMB 1,373 million, from RMB 1,220 million in the same period of 2023, primarily due to growth in various aggregate revenue items compared with the same period of 2023.... Please refer to the analysis of this aggregate allocation of the revenue.

[Frank Fuya Zheng, CFO at X Financial]

Origination and service expenses increased by 19% to RMB 450 million, from RMB 349 million in the same period of 2023. Primarily, due to the increase in collection expenses, resulting from the cumulative effect of the increased volume of loans facilitated and provided in the previous quarters, compared with the same period of 2023. Borrower acquisitions and marketing expenses decreased by 3% to RMB 324 million, from RMB 332 million in the same period of 2023. Provision for loans receivable was RMB 96 million, compared with RMB 55 million in the same period of 2023.

[Frank Fuya Zheng, CFO at X Financial]

Primarily, due to an increase in loans receivable held by the company as a result of the cumulative effect of the increased volume of the loans facilitated and provided in the previous quarters, compared with the same period of 2023. Income from operations was RMB 463 million, compared with RMB 445 million in the same period of 2023. Net income was RMB 450 million, compared with RMB 366 million in the same period of 2023. Non-GAAP Adjusted Net Income was RMB 375 million, compared with RMB 365 million in the same period of 2023. For further financial information, please refer to the earnings release on our website. With respect to our dividends, we provided a semi-annual dividend policy in March.

[Frank Fuya Zheng, CFO at X Financial]

Pursuant to this policy, our board has authorized the declaration and the payment of the semi-annual dividend of $0.17 per ADS for the first half of 2024. For specific dividend payment dates and the instructions, please refer to our earnings release. Now, on our business outlook. For Q3 this year, we expect the total loan amount facilitated and originated to be between RMB 26 billion and RMB 27.5 billion. This concludes our prepared remarks, and we'd like to open the call to questions. Operator, please.

[Operator]

Thank you. If you would like to ask a question, please press star then one on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Once again, that's star then one if you have a question. And today's first question comes from Mason Bourne, with AWH Capital. Please go ahead.

[Mason Bourne, Equity Analyst at AWH Capital]

Hi, thanks for taking the question. I guess to start, you provided pretty substantial guidance about increase in loan volumes for Q3. I wondered what you're seeing that gives you confidence for that growth?

[Frank Fuya Zheng, CFO at X Financial]

Well, this is mostly due to the, I think, because of the environment. The reason that you see a fairly low volume for the first two quarters is really because we have a very restrictive risk management system in place. That is why our overall approval rate has been kept fairly low. But with the current environment, especially the much better delinquency performance that we have, we have optimized our approval policy. So as a result, we will see a significantly increase, significant increase in our approval rate. That being said, there's also some other channels where we are able to successfully connect in the first two quarters, and they will contribute to some other new customers.

[Frank Fuya Zheng, CFO at X Financial]

Both combined, that we are fairly confident with our volume forecast.

[Mason Bourne, Equity Analyst at AWH Capital]

Could you talk about customer acquisition costs and what you're seeing there? Maybe how that's changed.

[Frank Fuya Zheng, CFO at X Financial]

I think overall, our customer acquisition costs in terms of the rate, it has been kept fairly constant. That is why when the approval rate... When you think about it, when the approval rate is low, our overall spending is also kept low, and that is translated into the lower loan volume. Now, because our approval rate is a little bit higher and so our overall spending will be higher in the Q3, and which will translate into the higher volume that we forecasted.

[Mason Bourne, Equity Analyst at AWH Capital]

So are you seeing improving consumer health, or what is it that's really allowing your approval rates to go higher and delinquencies to improve? I just wondered if maybe you're seeing a turn in the overall economy.

[Frank Fuya Zheng, CFO at X Financial]

Yeah, I don't think I really see the overall economy has been turning into the much better situation than before. But what happens usually in this time of dynamics is that some of the customers that they used to be okay customers, and now they have exited the market because they cannot be the okay customer anymore. And our model will be able to separate those.

[Kan Li, President at X Financial]

... marginal customers with the much better customers. I think that's the number one situation as our overall learning machine learning system is in place, it will automatically analyze all the data. So as time goes by, even with the bad economic situation, that our overall risk management efficiency will be higher. That is, that is the reason number one. The second one is, as I mentioned, is that we are able to get some good customers from some specific channels. Those channels before weren't open to us, but now they are able to accept us, and we are able to get some good customer from them, which will also increase our overall customer quality. So combining the two forces, we're able to see that our overall performance will be better than before.

[Mason Bourne, Equity Analyst at AWH Capital]

Okay, last one from me. It seems like your number of active borrowers is up substantially, while loan volumes were down year over year. What's driving? I assume that means the average loan size is significantly smaller. Is that correct? And what's driving that? Is that, you know, something that you're doing or is that, you know, just a function of the market?

[Kan Li, President at X Financial]

Your observation is absolutely correct, and our overall loan size has been decreased significantly. This is also another risk management control that we have in place, which, besides the approval rate that I mentioned before, the average loan size is another very, very important tool that we implement in our risk management. When the environment is not good, we will intentionally lower the average loan size. As you can infer from this, as the economy or as the overall environment is improving, our average loan size will also grow, which will be another contributor to our overall loan volume.

[Mason Bourne, Equity Analyst at AWH Capital]

Okay, thank you.

[Operator]

Thank you. And as a reminder, if you'd like to ask a question, please press star then one at this time. We'll pause for just a moment to assemble our roster. And this concludes our question and answer session. I'd like to turn the conference back over to Victoria Yu for the closing remarks.

[Victoria Yu, Head of Investor Relations at X Financial]

Thank you, everyone, for joining us on the call today. If you haven't got the 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]

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

[Kan Li, President at X Financial]

Thank you.

Participants

Executives

• Kan Li, President
• Frank Fuya Zheng, CFO
• Victoria Yu, Head of Investor Relations

Analysts

• Mason Bourne, Equity Analyst at AWH Capital