Qfin Q1 Earnings Call Highlights

Key Points

• Qfin reported weaker Q1 2026 results as revenue fell to RMB 3.91 billion from RMB 4.09 billion in Q4 and profit declined, with non-GAAP net income down 11.6% sequentially to about RMB 950 million. Management said softer consumer credit demand and lower loan volumes pressured performance.
• Risk controls are showing early improvement even though some lagging metrics worsened. FPD7 dropped about 20% and the C2M2 ratio fell to 0.8%, while 90-day delinquencies rose to 3.5% from 2.71% because of elevated risk from late 2025.
• The company is prioritizing higher-quality borrowers and tighter capital management, increasing spending on better users while cutting weaker channels. It also reduced funding costs by about 10 basis points sequentially, boosted ABS issuance, and reaffirmed a cautious Q2 profit outlook of RMB 900 million to RMB 980 million.

Qfin NASDAQ: QFIN reported lower first-quarter 2026 revenue and profit as management described continued pressure across China’s consumer credit market, but said recent risk-control measures are beginning to show results.

CEO Haisheng Wu said China’s consumer credit industry has been undergoing “profound structural adjustments” since April 2025 under regulatory guidance. Entering the first quarter, he said consumer credit demand remained soft and asset quality faced broad pressure, with household short-term consumer loan balances declining for a fifth consecutive quarter by about RMB 470 billion, or 5% sequentially.

Against that backdrop, Wu said Qfin prioritized compliance, prudence and asset quality over scale. Total loan facilitation and origination volume on the company’s platform declined 7.5% sequentially to RMB 65 billion. Non-GAAP net income fell 11.6% sequentially to about RMB 950 million, while non-GAAP earnings per fully diluted ADS declined 6.4% to RMB 7.70.

Revenue and Profit Decline Amid Lower Loan Volume

CFO Zuoli Xu said total net revenue for the first quarter was RMB 3.91 billion, compared with RMB 4.09 billion in the fourth quarter and RMB 4.69 billion a year earlier.

Revenue from credit-driven services, described as the company’s capital-heavy business, was RMB 2.96 billion, down from RMB 3.43 billion in the previous quarter and RMB 3.11 billion a year earlier. Xu said the year-over-year decline was mainly due to a decrease in off-balance-sheet loan volume that more than offset an increase in on-balance-sheet loans. The sequential decline reflected lower overall capital-heavy loan volume and lower average loan pricing.

Platform services revenue, or the company’s capital-light business, was RMB 951.9 million, up from RMB 660 million in the fourth quarter but down from RMB 1.58 billion a year earlier. Xu said the annual decline was mainly tied to a significantly lower ICE contribution following regulatory changes, while the sequential increase reflected better ICE take rates due to improved risk.

The average internal rate of return on loans originated or facilitated by Qfin was 18.7% in the quarter, down from 19.5% in the prior quarter. Xu said pricing may fluctuate modestly as the company continues focusing on higher-quality users under the current regulatory framework.

Risk Metrics Improve, Though 90-Day Delinquencies Rise

Management emphasized that leading and near-term risk indicators improved during the quarter. Wu said the company’s FPD7 metric for new loans declined by about 20% from the fourth quarter, and the C2M2 ratio, which measures the outstanding delinquency rate after 30 days of collection, fell about 17% sequentially to 0.8%.

Xu said the 90-day delinquency rate rose to 3.5% from 2.71% in the fourth quarter, reflecting the elevated risk level near the end of 2025. However, he described the 90-day delinquency rate as a lagging indicator. Day-one delinquency declined to 5.7% from 6.1%, while the 30-day collection rate improved to 85.8% from 84.1%.

Chief Risk Officer Zheng Yan said, through a translation provided by Senior Director of Capital Markets Karen Ji, that risk metrics improved more than the company expected in the first quarter. Zheng said Qfin had been tightening risk standards since the second half of last year and continued upgrading its application and behavior scorecards to better distinguish high-quality users from higher-risk users.

Qfin booked approximately RMB 1.68 billion in new provisions for risk-bearing loans during the quarter, down from RMB 1.92 billion in the fourth quarter. Xu said the decline was mainly due to lower risk-bearing loan volume, partly offset by a higher provision booking ratio. The provision coverage ratio declined to 391% from 481%, which Xu said was temporary and driven by higher fourth-quarter risk levels feeding into delinquent balances in the first quarter.

Customer Acquisition Shifts Toward Higher-Quality Users

Wu said Qfin is shifting its customer acquisition strategy toward users with lower risk, higher utilization, steadier long-term demand and more repeat borrowing. Spending on high-quality users increased about 40% sequentially in the first quarter, while the company cut back on underperforming channels and regular customer segments.

Overall sales and marketing expenses declined 17% sequentially and 23% year over year. Qfin added about 1.19 million new credit line users in the first quarter, down from 1.45 million in the fourth quarter. Wu said the company is not focused solely on reducing acquisition cost, but instead evaluates payback period, lifetime value and return on investment for each yuan spent.

In response to an analyst question from Morgan Stanley’s Richard Xu, Wu said lower loan pricing reflected a deliberate effort to attract and retain higher-quality users. He said the company’s average pricing declined by 80 basis points sequentially and by 2.2 percentage points over the past two quarters as the user mix shifted.

Funding Costs Fall as ABS Issuance Rises

Qfin said overall funding costs declined by roughly 10 basis points sequentially as it increased the contribution from asset-backed securities. ABS issuance totaled RMB 2.9 billion in the first quarter, up 16% from the prior quarter.

Xu said the company intends to continue using ABS issuance windows and align issuance with on-balance-sheet loan origination demand. He said Qfin aims to maintain sufficient funding supply in a volatile market while keeping overall funding costs stable.

Qfin generated approximately RMB 2.1 billion in cash from operations during the quarter, compared with RMB 3.15 billion in the fourth quarter. Cash, cash equivalents and short-term investments totaled RMB 10.79 billion, roughly flat with RMB 10.72 billion at the end of the previous quarter.

The company also continued repurchasing its outstanding convertible bonds. As of May 26, 2026, Xu said Qfin had repurchased about $577 million in aggregate principal amount for $502 million in cash, leaving about $113 million outstanding.

AI, Technology Solutions and Overseas Expansion Remain Strategic Focuses

Wu said Qfin’s AI-powered credit decision engine and asset distribution platform had served 167 financial institutions and more than 64 million cumulative credit line users by the end of the quarter. Loan volume empowered by the company’s technology solutions business reached RMB 9.96 billion in the quarter, representing sevenfold year-over-year growth.

Wu said Qfin is working to become an “AI-native” organization by turning historical documents, strategy libraries and operating experience into structured data usable by large language models. He said 98.4% of technical personnel were using AI tokens as of May, with token usage showing a correlation with productivity gains.

On international expansion, Wu said Qfin launched operations in a new emerging market during the quarter and is continuing to develop local teams and risk models in markets where it is already active. In response to a question from CICC’s Yujie Jing, Wu identified the U.K. and a Latin American country launched in the first quarter as markets where the company is localizing risk models, while also evaluating regions such as Southeast Asia.

For the second quarter of 2026, Qfin expects non-GAAP net income of RMB 900 million to RMB 980 million, representing a year-over-year decline of 47% to 51%. Xu said the outlook reflects the company’s preliminary view and remains subject to material changes, while management continues to focus on risk control, efficiency improvements and cost cutting.

About Qfin NASDAQ: QFIN

360 DigiTech, Inc NASDAQ: QFIN is a China‐based fintech company that specializes in providing digital lending solutions to underserved consumer and small business markets. Leveraging proprietary credit assessment technologies and big data analytics, the company connects borrowers with a network of financial institutions and investors through its online platform. Its services encompass unsecured consumer loans, installment credit products, and working capital financing for micro and small enterprises.

The company's flagship platform offers an end‐to‐end digital lending experience, from application and credit evaluation to disbursement and repayment.

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