Qifu Technology Q1 2025 Earnings Report

Qifu Technology EPS Results

• Actual EPS: $1.74
• Consensus EPS: $1.72
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Qifu Technology Revenue Results

• Actual Revenue: $646.19 million
• Expected Revenue: $4.61 billion
• Beat/Miss: Missed by -$3.96 billion
• YoY Revenue Growth: N/A

Qifu Technology Announcement Details

• Quarter: Q1 2025
• Date: 5/19/2025
• Time: After Market Closes
• Conference Call Date: Monday, May 19, 2025
• Conference Call Time: 8:30PM ET

Qifu Technology (NASDAQ:QFIN) Group Co., Ltd. (NASDAQ: QFIN) is a leading financial technology company focused on providing digital lending and wealth management solutions to consumers and small businesses in China. Leveraging a cloud-based platform and data-driven credit risk management tools, Qifu Technology offers a suite of online loan products, including unsecured personal loans, small-business credit lines, and supply chain financing. The company’s platform integrates advanced analytics, machine learning models and third-party data sources to underwrite credit efficiently and tailor financing options to meet diverse customer needs.

In addition to its core lending business, Qifu Technology has expanded into the wealth management space, offering investment products designed to deliver competitive yields while managing risk through diversified portfolios. The company provides users with an intuitive mobile app and web interface, enabling seamless account opening, transaction tracking and real-time customer support. By automating key processes such as credit approval, loan disbursement and repayment collection, Qifu Technology seeks to drive operational efficiency and enhance the overall user experience.

Founded in 2015 and headquartered in Beijing, Qifu Technology has rapidly grown its market presence across more than 200 cities in China. The company’s digital ecosystem connects individual borrowers, enterprise clients and investment partners through a centralized platform, facilitating scalable and compliant financial services. Over the years, Qifu Technology has established strategic partnerships with banks, insurance firms and fintech service providers to broaden its product offerings and strengthen its regulatory compliance framework.

Qifu Technology’s leadership team comprises seasoned professionals with extensive backgrounds in finance, technology and risk management. Guided by a co-founder and a management group that has held senior roles at top global financial institutions, the company places strong emphasis on innovation, responsible lending practices and corporate governance. As it continues to invest in research and development, Qifu Technology aims to enhance its platform capabilities and expand into adjacent financial services markets.

Qifu Technology Q1 2025 Earnings Call Transcript

Key Takeaways

• Strong Q1 Results: Non-GAAP net income rose 59.9% YoY to RMB1.93 billion with EPADS up 78.5% to RMB13.5 and take rate improving 2.2 pp to 5.7%.
• Lower Funding Costs: Q1 funding costs fell 30 bps sequentially as ABS issuance grew 25% YoY to RMB6.6 billion, with further declines expected.
• Aggressive Share Buybacks: Issued USD690 million of convertible notes funding share repurchases, buying back ~$405 million ADSs YTD and cutting share count by ~11%.
• AI-Driven Credit Strategy: Rolled out an AI agent platform and Deepbank division, adding five digital “employees” and 100 planned engineers to boost risk management AUC to 0.64.
• Guidance & Outlook: Q2 non-GAAP net income is guided at RMB1.75–1.85 billion (24–31% YoY growth), with a cautious stance amid macro uncertainties.

Presentation

[Operator]

Call. Also note today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Karen Gee, Senior Director of Capital Markets. Please go ahead, Karen.

[Karen Ji, Senior Director of Capital Markets at Qifu Technology]

Thank you, Dessie. Hello, everyone, and welcome to Qifu Technologies first quarter twenty twenty five earnings conference call. Our earnings release was distributed earlier today and is available on our IR website. Joining me today are Mr. Huai Shen, our CEO Mr. Alex Xu, our CFO and Mr. Zheng Yan, our CRO. Before we start, I would like to refer you to our Safe Harbor statement in the earnings press release, which applies to this call as we will make certain forward looking statements. Also, this call includes discussions of certain non GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non GAAP financial measures to GAAP financial measures.

[Karen Ji, Senior Director of Capital Markets at Qifu Technology]

Also, please note that unless otherwise stated, all figures mentioned in this call are in RMB terms. Before we start, we would like to let you know that today's prepared remarks from our CEO will be delivered in English using an AI generated voice. Now I will turn the call over to Mr. Wu Haisheng. Please go ahead.

[Haisheng Wu, CEO & Director at Qifu Technology]

Hello, everyone. Thank you for joining us today. In the first quarter of twenty twenty five, China's economy showed early signs of a mild recovery under the guiding principles of stabilizing growth, optimizing structure, and managing risks. Meanwhile, the global economy is undergoing profound technological transformation, and structural changes. In an increasingly complex and volatile environment, we upheld prudent operations, leveraged AI to reshape the credit value chain, and achieved high quality growth, delivering results that surpassed our expectations.

[Haisheng Wu, CEO & Director at Qifu Technology]

By the end of the quarter, our AI powered credit decision engine distribution platform empowered a total of 163 financial institutions, and served more than 58,000,000 users with approved credit lines a cumulative basis. Total loan facilitation and origination volume on our platform increased by 15.8% year over year. With operational efficiency continuing to improve, our take rate for the quarter reached 5.7%, up 2.2 percentage points year over year. Non GAAP net income increased by 59.9 percent year over year to RMB1.93 billion, while non GAAP EPADS on a fully diluted basis rose by 78.5% to RMB13.5. Despite macroeconomic headwinds, we have consistently improved upon our past results, and outperformed our market commitments through ongoing evolvement and enhancements to our business.

[Haisheng Wu, CEO & Director at Qifu Technology]

At the start of this year, we began rolling out our AI plus credit strategy at scale, aimed at building the industry's first AI agent platform to empower core credit processes. We plan to recruit an additional 100 algorithm engineers by the end of the year, and accelerate our transformation into an AI native organization. We have also established our Deepbank division, which is driving the research and development of our AI plus bank agent products, to support the intelligent upgrade of financial institutions. In April, we introduced an internal AI agent platform, and by May, deployed five digital employees across key functions, such as data analytics, operations, compliance, risk management strategy, and financial reconciliation, our AI agent ChatBI is now deeply integrated into our intelligent decision making and business analysis workflows. This agent provides real time data insights and attribution analysis, empowering us to dynamically optimize our strategy and enhance decision efficiency.

[Haisheng Wu, CEO & Director at Qifu Technology]

Risk management has always been a cornerstone of our business. This quarter, we allocated a small portion of our traffic to pilot an end to end risk management framework powered by large language models. By training on historical decision logs using DeepSeq, we achieved a notable improvement in AUC to 0.64, a metric that measures risk tiering ability. We also upgraded our data mining capabilities by incorporating video and other multimodal inputs, enabling richer and more diverse feature representations. On top of that, we developed a user profiling agent that performs consistency checks on user features with over 95% accuracy, supporting differentiated credit lines and pricing based on user profiles.

[Haisheng Wu, CEO & Director at Qifu Technology]

In terms of risk strategy, we maintained a differentiated approach in user operations, driving moderate loan growth while preserving ample risk buffers. With loan volume increasing by 15.8% year over year during the quarter, our C:M2 metric, which measures delinquency rates after thirty day collections, remained largely stable at 0.6%. In Q1, we made further upgrades to our intelligent asset distribution platform to improve the precision of fund asset matching. This helped us boost underwriting efficiency, and strike a better balance between risk and return of our loan portfolio. Benefiting from our robust asset quality, we maintained our negotiating leverage on the funding side, resulting in a consistent decline in funding costs.

[Haisheng Wu, CEO & Director at Qifu Technology]

In Q1, we issued RMB6.6 billion in ABS, a year over year increase of approximately 25%. With the proportion of ABS in our funding mix growing further, our overall funding costs decreased by an additional 30 basis points sequentially. We expect funding costs for the coming quarters to decrease slightly from Q1 levels. In terms of user acquisition, we have modestly increased our spending, and are actively exploring a broader range of channels. In Q1, we added 1,540,000 new credit line users, up 6% year over year, with new borrowers increasing approximately 41% year over year to 1,130,000.

[Haisheng Wu, CEO & Director at Qifu Technology]

Our marketing focused AI agent leverages multimodal recognition technology to analyze user intent in real time, integrate campaign management across multiple channels, and enable real time strategy adjustments. This has significantly improved our user profiling accuracy across channels with the conversion rate of new credit line users to new borrowers increasing by 33 from the same period last year. Our embedded finance business remains a key strategic focus, as we continue to expand both the breadth and depth of our channel coverage. In Q1, we added seven new channels, spanning from leading Internet platforms and various small and mid sized platforms to banks in multiple regions. We are also in the midst of onboarding two additional strategic platforms, signaling broader collaboration with leading internet traffic platforms, and unlocking meaningful and incremental growth potential going forward.

[Haisheng Wu, CEO & Director at Qifu Technology]

During the quarter, our new credit line users from the embedded finance channels grew 36 year over year, while loan volume surged by roughly 106%. The overall ROA of these channels improved by 20% on a sequential basis. Regarding our technology solutions business, we established partnerships with three additional mid- large sized municipal banks in Q1, driving loan volume from this segment to grow by roughly 144% year over year. Powered by our FocusPro Credit Tech platform, our proprietary solution for SME lending, which is built on a three tiered credit assessment system, gained meaningful scale in loan facilitation volume, and delivered better than expected risk performance in Q1. This success has created new opportunities for our market expansion and growth in 2025.

[Haisheng Wu, CEO & Director at Qifu Technology]

We have already received a wide range of inquiries from multiple banks about our AI plus bank agent products, and recently entered into strategic partnerships with several of them. As a key component of these partnerships, we will help banks deploy AI agents across a broad range of applications, including marketing and customer acquisition, risk management and loan approval, decision analytics, growth operations, compliance reviews, multimodal recognition, remote banking, and digital employees, facilitating their digital and intelligent transformation. In April, China's National Financial Regulatory Administration issued a notice on strengthening the management of the Internet loan facilitation business of commercial banks to enhance the quality and efficiency of financial services. The Notice provides clearer guidance for Internet based lending practices, emphasizing that commercial banks should establish equal, mutually beneficial partnerships with platform operators and credit enhancement providers, sharing risk responsibilities and adopting a long term perspective. We view these guidelines as strong regulatory recognition of the value the loan facilitation model provides.

[Haisheng Wu, CEO & Director at Qifu Technology]

By setting clearer industry standards, the notice is expected to improve the overall health and sustainability of the sector. We will continue to engage in proactive and constructive discussions with regulators, regularly reviewing our practices, and upholding prudence and compliance in our operations. The increasingly complex international landscape has added uncertainty to the pace of China's economic recovery. That said, we believe the economy will remain fundamentally resilient over the long run, supported by China's technological innovation, supply chain upgrades, and government measures to boost domestic demand. At the press conference held on May, the State Council Information Office announced a package of financial policies aimed at stabilizing markets and managing expectations, including guidance for financial institutions to increase support for key consumption verticals.

[Haisheng Wu, CEO & Director at Qifu Technology]

More recently, we are seeing encouraging progress in US China trade talks. Overall, the macroeconomic and policy landscape is showing signs of stabilization, which will provide a favorable environment for the steady development of the consumer credit industry. As we progress through 2025, we remain cautiously optimistic. In the near term, our focus will be on enhancing operational efficiency, optimizing capital allocation, and enhancing shareholder returns. Over the long term, we will continue executing our One Core Two Wins strategy.

[Haisheng Wu, CEO & Director at Qifu Technology]

We expect our core loan facilitation business to sustain high quality growth, while our technology solutions business will continue to empower financial institutions to accelerate their intelligent transformation through our Internationally, we will focus on near prime segments in markets with relatively stable regulatory environments, leveraging our leading fintech capabilities to build a strong competitive edge. In Q1, we issued USD690 million in convertible senior notes, further expanding our international funding channels, and improving capital allocation efficiency. 100% of the proceeds from this issuance will be allocated to share buybacks. Adopting a cash par settlement structure allows us to significantly reduce the potential dilution to existing shareholders. On the March 25 pricing date, we concurrently completed a USD227 million share repurchase, resulting in an immediate 3.6% reduction in our share count.

[Haisheng Wu, CEO & Director at Qifu Technology]

Combined with our USD $450,000,000 share repurchase program that took effect on January 1, we expect our total repurchases this year to be no less than USD $680,000,000. Based on the current share price, we estimate our total share count will decrease by approximately 11% when compared to the beginning of the year. We are confident in the future of our company, and remain dedicated to delivering long term value to our shareholders. Moving forward, we will continue to prioritize efficient capital allocation and shareholder value creation through recurring share buybacks and dividends. With that, I will now turn the call over to Alex.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

Thank you, Haisheng. Good morning and good evening, everyone. Welcome to our first quarter earnings call. We started 2025 with a solid Q1 as overall user activities was stronger than normal seasonality. While macro environment appears stabilizing early in the year, impacts from trade war added uncertainty recently.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

We will continue to focus on efforts to optimize operations and manage risk exposures in an uncertain market. Total revenue for Q1 was $4,690,000,000 versus $4,480,000,000 in Q4 and $4,150,000,000 a year ago. Revenue from credit driven service, capital heavy, was $3,110,000,000 in Q1 compared to $2,890,000,000 in Q4 and $3,020,000,000 a year ago. The sequential growth was mainly due to increases in on balance sheet loans and lower early repayment discount. Overall funding costs further declined modestly Q on Q as ABS contribute a larger portion of our total funding in Q1.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

Revenue from platform for platform service, Capital Light was 1,580,000,000.00 in q one compared to 1,590,000,000.00 in q four and 1,140,000,000.00 a year ago. The year on year growth was mainly due to strong contribution from ICE and other value added service, more than offsetting the decline in capital light loan facilitation. Platform service account for roughly 56% of quarter ending loan balance. We expect the ratio to be roughly stable in the near term. During the quarter, average IRR of the loans we originated and or facilitated was 21.4% compared to 21.3% in prior quarter.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

Looking forward, we expect pricing to be fluctuated around this level for the coming quarters. Sales and marketing expenses increased 13% Q on Q and 42% year on year. The sequential and year on year increase were mainly due to larger volume contribution from API channels in both new and existing users. We added approximately 1,540,000 new credit line users in q one versus 1,690,000 in q four. We will make primary adjustment to the pace of a new user acquisition in the coming months, given the volatile macro condition and further optimize our user acquisition channels and improve user engagement and retention.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

Ninety day delinquency rate was two point o 2% in q one compared to two point o 9% in q four. Day one delinquency was 5% in Q1 versus 4.8% in Q4. '30 day collection rate was 88.1% in Q1, essentially flat Q on Q. Another key risk metrics C dash M two, which represent the outstanding delinquency rate after the thirty day collection increased modestly Q on Q to zero point six percent, still within our comfortable range. We will remain vigilant to manage overall risk exposure, particularly given the latest micro uncertainty and try to maintain relatively stable risk metrics in the coming quarters.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

At the same time, we continue to take conservative approach to book provisions against potential credit losses. Total new provision for risk bearing loans in Q1 were approximately 2,230,000,000.00 versus 2,070,000,000.00 in Q4. The increase in new provision was mainly due to increases in risk bearing loan volume Q on Q and higher provision booking ratio. Write backs of previous provisions were approximately 1,140,000,000.00 in Q1 versus 1,020,000,000.00 in Q4. Provision coverage ratio, which is defined as a total outstanding provisions divided by total outstanding delinquent risk bearing loan balance between ninety and one hundred and eighty days or 666% in Q1, a historical high compared to 617% in Q4.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

Non GAAP net profit was 1,930,000,000 in Q1 compared to 1,970,000,000.00 in Q4. Non GAAP net income per fully diluted ADS were 13.53 in Q1 compared to 13.66 in Q4 and 7.58 a year ago, as strong earning growth and the proactive share repurchase created significant EP ADS accretion. At the end of Q1, total outstanding ADS share count was approximately 134,500,000.0 compared to 142,000,000 at the end of Q4 and 155,000,000 a year ago. Effective tax rate for Q1 was 18% compared to our typical ETR of approximately 15%. The higher than normal ETR was mainly due to withholding tax provision related to cash distribution from onshore to offshore.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

With higher contribution from capital heavy models, our leverage ratio, which is defined as risk bearing loan balance divided by shareholders equity was 2.7 times in Q1, still near the low end of historical rich. We expect to see the leverage ratio fluctuated around this level in the near future. We generate approximately 2,810,000,000.00 cash from operation in Q1, compared to 3,050,000,000.00 in Q4. Total cash and cash equivalents and short term investments was 14,030,000,000.00 in Q1 compared to 10,360,000,000.00 in Q4. The increase in cash was mainly due to the net proceeds from the our $690,000,000 CB issuance.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

As we continue to generate strong cash flow from operation, we will further optimize our capital allocation to support our business initiatives and to return to our shareholders. We start to execute the $450,000,000 share repurchase plan on January 1. As of 05/19/2025, we had in aggregate purchased approximately 4,400,000.0 ADS in the open market for a total amount approximately US 178,000,000, inclusive of commissions. At the average price of US 40.2 per ADS, ahead of the time schedule. In addition, on March 25, we successfully priced our $690,000,000 US CB offering and the repurchase approximately 5,100,000.0 ADSs concurrently with the aggregate value of approximately US $227,000,000 The concurrent buyback and the next year settlement mechanism make the CV immediately accretive to EP ADS at issuance.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

Altogether so far in 2025, we brought back approximately 9,600,000.0 ADS for a total amount of $4.00 5,000,000 US dollar, including commissions at an average price of 42.3 per ADS. The accelerated pace of share repurchase further demonstrate management confidence and commitment to the future of the company. And the management intend to further use share repurchase to achieve actual EPAD ADS accretion. Finally, regarding our business outlook, where we observed some tentative sign of marginal improvement in user activity early in the year, micro uncertainties persist. We will continue to take a prudent approach in business planning for 2025 and focus on enhancing efficiency of our operation.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

For the second quarter of twenty twenty five, the company expect to generate non GAAP net income between RMB 1,750,000,000.00 and RMB 1,850,000,000.00, representing a year on year growth between 2431%. This outlook reflects the company's current and preliminary view, which is subject to material changes. With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.

[Operator]

Thank you. If you're on a speakerphone, please pick up the handset to ask your question. For those who can speak Chinese, please start your question in Chinese followed by English translation. To allow enough time to address everyone on the call, please keep it to one question and one follow-up, and return to the queue if you have more questions. Thank you.

[Operator]

Your first question comes from Richard Zhu from Morgan Stanley. Please go ahead.

[Richard Xu, Managing Director at Morgan Stanley]

So I'll just do a translation. There's two questions. What kind of impact of changes do we expect once the new loan facilitation rules come into effect in October 2025? Secondly is what's the latest trends QFIN is seeing on the credit quality? How does it compare to second half of twenty twenty two and 2023 when QFIN was started to tighten credit risks?

[Richard Xu, Managing Director at Morgan Stanley]

And will that impact the total expected loan growth for the year? Thank you.

[Haisheng Wu, CEO & Director at Qifu Technology]

Okay, Richard. Thank you. I can let me take your first question and CEO will answer your second question. In terms of regulation, in our genome, the new rules released in April is a positive signal in the sense that regulators recognize the value of loan facilitation platforms. The regulators' intention is to promote a more orderly and healthy development of the industry, setting principles and gradually sequencing out the long tail platforms, which are less capable of complying with industry standards and meet regulatory requirements.

[Haisheng Wu, CEO & Director at Qifu Technology]

At the same time, the new rules recognize the value of leading loan facilitation platforms, and encourage banks to adopt a wide list approach, set clear entry standards, and build equal, long term and mutually beneficial partnerships based on risk sharing. In conclusion, with the implementation of the new rules, the industry will become more organized, which will enhance the overall health and sustainability of the loan facilitation sector. As a leading industry player, we believe we will benefit from the less competitive market environment. We will continue to engage in proactive and constructive discussions with regulators, review our practices and operate with prudence and in compliance. And for your second question, Zhen Yan, can you answer it?

[Moderator]

Okay. Let me do the translation for Mr. Zhen. First of all, I want to say that so far, asset quality has remained largely stable. Our C2M2 ratio, which measures the delinquency rate after thirty day collections, has fluctuated within a narrow band, which is in line with our expectations.

[Moderator]

First, we believe that current situation is completely incomparable to that in the second half of twenty twenty two and 2023. Our average C2M2 ratio was 0.64% in the second half of twenty twenty two and zero point six nine percent in the second half of twenty twenty three. The volatility in the second half of twenty twenty three was partially due to the macro uncertainties and some line controls by China's telecom carriers. In Q1, our C2M2 ratio came in at 0.6%, which is significantly better than the second half of twenty twenty two and 2023, and we expect this to remain largely stable going forward. Right now, our risk levels remain well under control, and we don't see a need to make any major adjustment to our risk policies.

[Moderator]

Therefore, as for the loan volume growth on a full year basis, it will largely depend on the consumers' credit demand. In Q1, we saw early signs of a mild recovery in credit demand and overall trend also seem to be stabilizing. However, the consistently changing global trade environment has increased macro uncertainties. While recent U. S.-China talks have shown some encouraging progress, we still need to monitor how things will develop and what kind of impact that will have on China's economy.

[Moderator]

So we will stay prudent in our operation at this moment. Last, I want to say that our business model is quite diversified, meaning that we can easily shift between asset heavy and asset light. That gives us the flexibility to adjust our asset allocation and the balance between growth and the risk. Based on what we've seen now, our outlook for full year loan volume growth is largely unchanged from what we expected at the early start of the year. You.

[Operator]

Thank you. Your next question comes from Alex Yee from UBS. Please go ahead.

[Alex Ye, Research Analyst at UBS Group]

I'll do a translation. So my first question is about the asset quality indicators. Specifically, we saw day one delinquency ratio was up by two consecutive quarter and now reaching 5% in the quarter and then also bringing C2M2 ratio to 0.6%. So can you share with some more color on the reasons behind? And how do you expect this indicator to trend going forward?

[Alex Ye, Research Analyst at UBS Group]

The second question is on the credit demand trends in the last two months since we are seeing more noises coming from the external environment. So just wondering how has been the Q on Q trend in terms of pretty much? Thank you.

[Moderator]

Okay. First of all, I want to say that, the slight fluctuation in our C2M2 ratio were in line with our expectations and also well within the target range we have set for our risk performance. Overall speaking, our asset quality is at a healthy level compared to historical trends. As for the increase in the day one delinquency rate, it was mainly driven by the change in our loan mix. In Q1, the percentage of loan volume from our embedded finance channel increased by 31% from last quarter, And this business line usually has a higher day one delinquency rate compared to our app based or H5 based business.

[Moderator]

Also, our overall loan volume was roughly flat Q on Q, leading to a smaller portion of early stage loans, which usually have a lower day one delinquency rate. These two structural change has led to a slight increase in our day one delinquency rate. And our collection rate is very stable, as our CFO just mentioned in his prepared remarks. In April, given the uncertainty around tariff impact, we slightly tightened our credit standards. Since then, our risk indicators have remained stable through both April and May.

[Moderator]

Moving forward, we will continue to adjust our risk strategy on a dynamic basis. We expect our C2M2 ratio for the full year to remain largely stable around 0.6 level based on the assumption that the macro environment doesn't change dramatically. Thank you.

[Haisheng Wu, CEO & Director at Qifu Technology]

And in terms of the credit demand balance, for the average daily loan volume, April was roughly in line with March. We did see some fluctuation in borrower activities due to the impact of US China trade tensions. But we proactively expand our customer reach through partnership with diversified channels. We should be able to mitigate the potential decline in credit demand. In May, credit demand slightly decreased sequentially, partly due to the May Day holiday.

[Haisheng Wu, CEO & Director at Qifu Technology]

But this is just normal seasonality. Based on what we are seeing now, we expect loan volume in Q2 will be largely on track as we planned at the start of the year. Thank you.

[Operator]

Thank you. Your next question comes from Emma Xu from Bank of America Securities. Please go ahead.

[Emma Xu, Analyst at Bank of America]

So with recent China U. S. Trade escalation, how do you assess the potential impact of the tariff tensions in the future? And will you tighten lending standards? And my second question is, what strategy is management currently adopting regarding potential ADR delisting risk?

[Emma Xu, Analyst at Bank of America]

Will you consider a dual primary listing in Hong Kong, where you take measures to improve the liquidity of your Hong Kong ticker?

[Haisheng Wu, CEO & Director at Qifu Technology]

Hi, Emma. In terms of tariffs, we believe the direct impact of tariffs on our business is quite limited. First, the vast majority of our loan volume is in consumer lending. Second, we reviewed the industries of our users are involved in. In Q1, those related to exports accounted for just around 4% of our total loan volume.

[Haisheng Wu, CEO & Director at Qifu Technology]

Among them, only about 1% were in sectors likely to be significantly impacted by US tariffs. For these users, we have already adjusted our transaction and asset allocation strategies to mitigate potential impact from tariffs. On the policy side, US China tariff talks have achieved some encouraging progress, and we view that as a positive for both credit demand and asset quality. However, the global trade landscape has been shifting quite a bit this year. And this has added uncertainty to China's macro environment and may affect people's consumption sentiment.

[Haisheng Wu, CEO & Director at Qifu Technology]

Clicker experts could put pressure on areas such as CapEx and household consumption. So in April, out of caution, we slightly tightened our risk strategy. So far, overall risk levels have remained largely stable. We will continue to monitor how the tariff situation impacts risk performance and dynamically adjust our strategy as needed. In addition, our diversified business model also makes us more flexible to react to the potential challenges.

[Haisheng Wu, CEO & Director at Qifu Technology]

And then for your second question, CFO, if you can answer it.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

Sure, Emma. As you know, this ADR delisting basically resurface every few years, depending on The US side of a political need. Given that, know, in early May, the US and China entered into at least a tentative kind of agreement on the tariff. So, you know, compared to early April, I think the delisting risk clearly kind of reduced by quite a bit. But with that said, we have been carefully evaluate the potential risk of the delisting.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

I think we're prepared and we have a very clear plan to response what if kind of a scenario. As you know, in November 2022, we complete the secondary listing Hong Kong. This basically have given our shareholders more flexibility, they can choose to continue trading US or move to Hong Kong market. So even in the worst case scenario where when our ADS are forced to delist, investor would still be able to trade on our shares seamlessly in Hong Kong. As for liquidity, currently about 99% of our trading volume is in The US market.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

And in Hong Kong, obviously, it's a very, very light. This mainly because US trading offer investors more flexibility and the relatively low transaction costs. However, if a force of the list were to happen, all the tradings would probably naturally shift from The US to Hong Kong. And accordingly, the liquidity in Hong Kong will, you know, for sure, significantly. At that point, and our Hong Kong listing would automatically convert from a secondary listing to a primary listing in accordance with the Hong Kong exchange rules.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

Okay? And we only need to file some additional document after that conversion or I mean, secondary to primary convert happening as a option providing the document support. Therefore, we believe the seminar listing that we already have already provides sufficient protection for our shareholders. We will continue to obviously monitor as the situation evolves and take, you know, correct measures based on our ongoing assessment on this matter. Thank you.

[Operator]

Thank you. Your next question comes from Cindy Wang from China Renaissance. Please go ahead.

[Cindy Wang, Director at China Renaissance]

Thanks for taking my question. So in first quarter, the number of new users with approved credit was down 9% sequentially, but CAC up 22%. So what is the reasoning behind it? And since April, the trade war may cause a potential slowdown in loan demand. Has it affected the quality of new borrowers?

[Cindy Wang, Director at China Renaissance]

And have you adjusted customer acquisition strategy? So how do you expect the customer acquisition cost in second quarter? Thank you.

[Haisheng Wu, CEO & Director at Qifu Technology]

Okay, Cindy. First, the increase in unit customer acquisition cost in Q1 was mainly driven by a change in our business mix. About 30% of our sales expenses came from API channels in the quarter. Unlike other channels, we pay channel fees for both new borrowers and repeat borrowers for API. But when we calculate cost per user, we only count new users, not repeat runs.

[Haisheng Wu, CEO & Director at Qifu Technology]

So, when API channels contribute to a higher percentage of loan volume, it pushes up our unit acquisition cost. However, the API channels are generating incremental loan volume for the company, and the acquisition cost per loan through API is much lower than in feed marketing. We are able to recover the cost with just the first loan issuance. In addition, we increased spending on in feed marketing this quarter to reach higher quality users. Although these channels usually have higher acquisition costs compared to others, such as App Store or data driven marketing, users from these channels tend to deliver stronger and healthier value in the medium to long term.

[Haisheng Wu, CEO & Director at Qifu Technology]

We have also tried new strategies in this space, tailoring our approach to different pricing segments and applying different operations across the full year journey. Furthermore, I want to say that we pay more attention to the efficiency of customer acquisition, rather than the cost of customer acquisition. As we optimize the entire acquisition journey, the end to end approach has made our targeting more accurate in terms of both user quality and intent. This in turn boosts our overall lending efficiency for new users. This quarter, our conversion rate from new credit line users to new borrowers reached 74%, up from around 55 in the same period last year.

[Haisheng Wu, CEO & Director at Qifu Technology]

That is to say that our land to end customer acquisition efficiency remains very healthy. Since the start of Q2, users' credit needs have been affected by the ongoing trade tension, which in turn will also have a certain impact on our customer acquisition efficiency. Going forward, we will continue to closely monitor change in the macro environment and competitive landscape, and adjust our acquisition pace accordingly. We will also carefully evaluate our acquisition costs against the LTV of new users, and further optimize our channels to improve efficiency. Thank you.

[Operator]

Thank you. Your next question comes from Yada Li from CICC. Please go ahead.

[Yada Li, Non-bank Financials & Global Fintech Equity Research at China International Capital Corporation (CICC)]

Then I'll do the translation. My question is, given the policy stimulus to promote domestic consumption, looking ahead, how to view the trend of loan demand, funding liquidity from bank partners and the company's loan strategy. Aiming this recovery environment, can we expect that the company can maintain a low funding cost in the long run, and may adopt a more proactive loan strategy in the future? That's all. Thank you.

[Haisheng Wu, CEO & Director at Qifu Technology]

Okay, Yada. Since the start of the year, China has rolled out a range of supporting policies aimed at boosting consumption, such as trading subsidies and guidelines for stronger support to consumer lending. These measures have made a positive impact, as we can see in the Q1 macro data. Retail sales were up 4.6% year over year, beating market expectations. Credit demand on our platform was also slightly better than typical seasonal trends.

[Haisheng Wu, CEO & Director at Qifu Technology]

On the funding side, the government announced cuts to both the interest rate and the reserve ratio in May, so we expect the funding environment to remain relatively supportive this year, with some room for a further decrease in funding costs. In addition, we plan to further expand our ABS issuance and optimize our funding structure. Overall, we expect our funding cost for 2025 to decrease slightly from Q1 levels. And finally, about our lending strategy, I think it really depends on the risk outlook and customer demand. Although our risk indicators remain largely stable at the moment, there is still some uncertainty in the broader macro environment.

[Haisheng Wu, CEO & Director at Qifu Technology]

Therefore, we will continue to maintain a prudent strategy, pursuing high quality and sustainable growth. That's all. Thank you.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

Ed, I just want to add one little point here. So as you know, we are very much focused on the take rate of our portfolio. And as in our previous discussion with the market, we communicate that we continue to see from a full year basis, we'll continue to see improvement this year '25 versus '24 in terms of the net take rate, assuming there's no dramatic macro changes from now to the year end. I think that's still the assumption we're looking at, and I think that's still on target. Thank you.

[Operator]

Thank you. There are no further questions at this time. I'll now hand back to management for closing remarks.

[Alex Xu, Chief Financial Officer & Director at Qifu Technology]

Okay. Thank you, everyone, again, to join us for this conference call. If you have any additional question, feel free to contact us offline. Thank you.

[Operator]

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.

Participants

Executives

• Karen Ji, Senior Director of Capital Markets
• Haisheng Wu, CEO & Director
• Alex Xu, Chief Financial Officer & Director

Analysts

• Richard Xu, Managing Director at Morgan Stanley
• Moderator
• Alex Ye, Research Analyst at UBS Group
• Emma Xu, Analyst at Bank of America
• Cindy Wang, Director at China Renaissance
• Yada Li, Non-bank Financials & Global Fintech Equity Research at China International Capital Corporation (CICC)