FinVolution Group Q3 2023 Earnings Call Transcript

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November 20, 2023

There are 7 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for participating in the Q3 2023 Earnings Conference Call for Finvolutions Group.

Speaker 1

At this

Operator

time, all participants are in listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. I'll now turn the call over to your host, Jimmy Tan, Head of Investor Relations for the company. Please go ahead.

Speaker 2

Hello, everyone. Welcome to our Q3 2023 earnings conference call. The company results were issued via newswire services earlier Our website at ir. Bnbgroup.com. Mr.

Speaker 2

Tianjin Li, our Chief Executive Officer and Mr. Jiawen Xu, our Chief Financial Officer will start Call with their prepared remarks and conclude with a Q and 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 intended to be considered isolation or as a substitute for the financial information prepared and presented in accordance with US GAAP. For information about these non GAAP measures and reconciliation of the GAAP measures, Please refer to our earnings press release.

Speaker 2

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.

Speaker 2

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, this was a presentation on our IR website providing details of our results for the quarter.

Speaker 2

I will now turn the call over to our CEO, Mr. Tianzieng Li. Please go ahead, sir.

Speaker 1

Thanks, Jimmy. Hello, everyone, And thank you for joining our earnings call. This is Tien Tseng Li, CEO of Finvolutions Group. We are happy to speak with you today. During the Q3, we steadily executed our local corporate global outlook strategy.

Speaker 1

We are strengthening our efforts To build our business throughout the Pan Asian region, cumulatively, we are proud to have served over $29,000,000 As we continue to expand our presence in this context, We have tapped more deeply into our leading results and are now successfully deploying them 1 of our regional funding partners Can now support our loan facilitation operations across different countries, currently improving our capability to sell more borrowers in our markets. We plan to leverage and replicate this success As we expand into additional countries, while strengthening our presence in existing markets. China's post COVID economic recovery continued to progress gradually during the Q3, with micro data reflecting uneven improvement in different areas. For instance, in September, Consumer Confidence Index came up slightly to 87 points, but is still hovering at relatively low levels. Also according to data from the National Statistical Bureau, our employment rate Officially peaked at 5.3% in July, before trending down to 5% in September.

Speaker 1

Although there has been some moderate recovery in the consumption market, the bulk of the recovery has been in children's education, sports, Medical, healthcare, domestic travel and other offline activities. Purchase intention for big ticket items such as property, cars and luxury goods remain relatively big. Meanwhile, the overall macro environment in Indonesia, our largest overseas market, remained robust as the region is in a faster stage of development. For instance, Indonesia's consumer confidence index From August through October remained high at about 120 points, a positive indicator for increasing consumer spending. Its unemployment rate in September Also declined to 5.3% compared with 5.9% in the same period last year, its lowest level since the Q1 of 2020.

Speaker 1

Thus far, our tactical approach of maintaining prudent Progressive growth in China market, while pursuing rapid growth in the international markets has proven very effective under the current and even macro conditions we have observed. We are waiting for China's economy to recover at a faster rate. We have been constantly investing in R and D to further streamline our processes, enhance customer experience and achieve operational efficiency improvements. Since 2018, we have deployed around RMB2.4 billion to Developed cutting edge technologies and implement them throughout our business operations. In particular, We made notable progress with Blue, BLU, our AI powered chatbot, which now supports operations in 6 different countries with 5 language options: Chinese, English, Tagalog, Bahasa and Spanish.

Speaker 1

Furthermore, By integrating Blue with our human loan collection personnel for divined reminder costs, we have achieved cost saving of up to 80%, While maintaining our certain cost efficiency levels, Blue's effectiveness once again showcases our R and D, powers as well as our ability to improve operational efficiency It's a pragmatic yet innovative effect that can be seamlessly applied in our operation across different markets. Speaking of AI, we continue to leverage AIGC to boost social media engagement for our overseas business, Increasing our campaign's audience targeting accuracy and achieving greater visibility on landing our leading social media platform. Thanks to our engaging AIGC driven ad rate Our followers on Facebook surpassed the 1,000,000 milestone, Well, our followers on TikTok grew to around 740,000. As always, We continue to promote financial inclusion, a mission that reflects our commitment to social responsibility And it supports our business goals. Our average borrowing rate in China maintained stable sequentially, Making our products and services accessible to even more borrowers.

Speaker 1

I'm pleased to report that Despite all the macro uncertainties, Finvolutions Group's total transaction volume for the Q3 grew to RMB51 1,000,000,000, while our outstanding loan balance grew to RMB66 RMB66 billion, representing year over year increase of 13% and 9%, respectively. These results clearly demonstrate that our local focus, global outlook strategy is not only variable, but it is also scalable, which is a critical factor for our future growth. On a related note, I would like to share a brief update on our recent ESG initiatives. Our dedication to sustainability and giving back to society remains at the heart of our corporate values and forms a core part of our identity. Over the last couple of years, the company has made several charitable trips to the Chuanzaliao Mountains area.

Speaker 1

This year, we donated 350 Renewable Energy Stream Labs to improve infrastructure for the local villagers. We also organized a unique schooling event For children at Finvolutions kindergarten, another of our long standing community projects in the area. Going forward, we will continue to align our ESG and business goals to maximize our positive societal impact We are creating value for all of our stakeholders. To summarize, the Q3 of 2023 was not without challenges, but our firm and focused execution of our local focus, global outlook Strategic alongside tech innovation empowered our steady progress and strengthened our foundation Supporting long term sustainable growth. We will continue to embrace inclusion, accessibility and technology as we seek to serve borrowers throughout the Pan Asian regions with better financial services.

Speaker 1

With that, I will now turn the call over to our CFO, Xiaoyan Xu,

Speaker 3

who will

Speaker 1

discuss our operational and financial results.

Speaker 3

Thank you, Li, and hello, everyone. Welcome to our Q3 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 Lee mentioned, the domestic macro recovery has been gradually and reflects uneven improvements in certain areas.

Speaker 3

For instance, the Official Manufacturing Purchasing Managers' Index PMI from August through October fluctuated between 49.7, 15.2 and 49.5 points according to data released by the National Bureau of Statistics on October 31, 2023. Meanwhile, total social Financing data in October increased to RMB1.8 trillion, up 9% from the same period last year. Total retail consumption in October increased to RMB4.3 trillion, up 7.6 percent compared with the same period last year. Our stable and better quality borrower base empowered us to maintain Stay fast and resilient operational metrics domestically in the Q3 despite the uneven macro environment. Cumulatively, we have served around 25,000,000 borrowers in China, with the number of unique borrowers remaining stable at around 2,300,000.

Speaker 3

Additionally, our domestic transaction volume Reached RMB49 1,000,000,000 up 11% year over year and 8% sequentially. Meanwhile, our outstanding loan balance reached RMB64.6 billion as of September 30, 2023, up 8% year over year and 3% sequentially. All these achievements demonstrate Our solid standing in the China market and also highlight our unwavering commitment to serving our customers. We continue to employ prudent risk management tactics and effective fraud detection technologies, resulting in only minor fluctuations in our risk levels during the quarter. They won delinquency rate was 5.7%, while vintage delinquency rate is expected to be around 2.4% to 2.5% for the quarter.

Speaker 3

Going forward, We will continue to monitor the credit risk performance closely and make timely adjustments when necessary. Finally, boosted by the AI powered chat booths Lee mentioned earlier, our loan collection team kept the loan collection Cover rate at around 89%. Furthermore, we continue to add new funding partners, Bringing our cumulative number to 88 financial institutions with a strong pipeline of potential future partners in place. These operational achievements enabled us to maintain a healthy take rate of around 3.1% during the Q3. Recognizing the critical role that small business play in our economy, We also upheld our commitment to small BNS owners with unwavering support during this bumping recovery period.

Speaker 3

During the Q3, we served around 448,000 small business owners and facilitated RMB12.3 billion of loans for them, representing an increase of 9% compared with the same period last year and 7% sequentially. Now let me move on to our international expansion efforts. As Lee shared, Indonesia, our largest overseas market enjoyed ongoing growth in its macroeconomy during the Q3. Sales of motorcycles, the most popular Model of transportation in Indonesia has also accelerated. During the 1st 9 months of 2023, Motorbike sales were up 31% compared with the same period of 2022, reaching around 4,700,000 units, a positive indication of growing customer spending.

Speaker 3

Given these promising trends and the data points, we We were pleased to record another quarter of significant improvement in our overseas market across multiple operational and financial metrics. Cumulatively, we have served over 4,000,000 borrowers in Indonesia and the Philippines And continue to rapidly attract new borrowers in these regions. The number of unique borrowers So during the quarter, we reached another new high at $928,000 up 27% year over year and 18% sequentially. Furthermore, we continue to increase the population of institutional funding in Indonesia, as we strengthened our local presence and broadened our local network. For the Q3, The percentage of loan facilitated from our local financial institutions reached 74% compared with 55% for the same period last year.

Speaker 3

As a result, international transaction volume surged by 99% year over year and 21% sequentially to RMB2.2 billion for the 3rd quarter. We also set new records in outstanding loan balance at RMB1.3 billion, up 102% year over year and 16% sequentially as well as revenue contribution of RMB585 1,000,000, up 67% year over year and representing around 18% of total revenue. Leveraging our experience of shifting to better quality borrowers in China, we also take a proactive approach to Better quality borrowers in the Indonesian market. Apart from the online lending business, We are also pilot testing an offline business model with different consumption scenarios to provide more holistic service for our borrowers. In addition, we are also actively exploring the acquisition of Additional license to better support our global operations.

Speaker 3

Driven by our Dedication to R and D innovation as well as our successful execution of our local focus global outlook strategy. Net revenues for the Q3 grew to RMB3.2 billion, up 8% year over year and a sequential increase of 4%. Sales and marketing expense increased by 13% sequentially to RMB530 1,000,000 as we increase our efforts to acquire better quality borrowers through diversified channels. Number of new borrowers in the China market increased by 7% year over year and 12% sequentially to 406,000. Notably, the number of new borrowers in the international market increased by 27% year over year and 36% sequentially to 423,000.

Speaker 3

In total, We acquired around 829,000 new borrowers during the Q3, up 16% year over year and 23% sequentially. Net income for the Q3 was RMB575 1,000,000, a sequential decrease of 2.6%. Our leverage ratio, which is defined as risk bearing loans divided by shareholders' equity, remained stable at 4.1x, indicating future growth potential as the overall macro economy recurves to a healthier state. Our strong balance sheet and the liquidity position continues to enhance shareholders' confidence while providing as optimal flexibility to execute our strategy. In particular, our Cash position remains robust with over RMB8.5 billion of cash and short term liquidity as of the end of September 2023, representing an increase of 58% year over year and 4% quarter over quarter.

Speaker 3

We believe our current cash position is sufficient to support our business expansion and return value to our shareholders. Before I conclude, let me briefly update you on our share repurchase program. For the 1st 9 months of the year, we have deployed around $66,000,000 to repurchase our shares in the market. As of September 30, 2023, we have cumulatively returned US511 million dollars to our shareholders in the form of share purchase and dividend distribution, reflecting our strong commitment to enhancing shareholder value. In summary, our solid results for the Q3 are testament to the effectiveness of our local focus Global Outlook Strategy as well as our NIBORM business model and the technological advantages.

Speaker 3

We have used our time wisely during China's uneven post COVID recovery and are poised to be at 4 points of the industry when the recovery accelerates. Looking ahead, we will remain focused On developing and implementing cutting edge technology while expanding our healthy customer base, Driving growth and creating greater value by making financial service better. With that, I will conclude my prepared remarks. We will now open the call to questions. Operator, please continue.

Operator

We'll now begin the question and answer session. This time we'll pause momentarily to assemble the roster. For the benefits of all participants on today's call, If you wish to ask questions to management in Chinese, we ask that you kindly repeat your question in English. First question will be from Alex Yee of UBS. Please go ahead.

Speaker 4

So I'm asking about the equity outlook for both domestic and international markets. So For the China's market, we have seen your 31 delinquency pick up a bit in Q3. Could you share more color on Drivers and outlook for the coming 1 to 2 quarters. Also similar question for your Indonesia market. Any color on the equity trend and outlook?

Speaker 4

Thank you.

Speaker 2

Hello Alex, this is Jimmy. Let me translate for Alexis. The overall economy in China such as the PMI Total social financing are recovering very slowly and being affected by these factors our risk metrics have some fluctuations during the Q3. For example during the Q3 day 1 delinquency was around 5.7% and day 1 to 30 days loan collection recovery was around 80%, 89% while 90 days particular delinquency was around 1.67%. And we have actually done several things such as increasing the accuracy and updated model of our pre loan models Such as through the accurate positioning of data mining, data analyzing and user behavior analyzing, we have increased We have enhanced the credit limit accuracy and we have also accessed the user repayment willingness and probability Of default rates, for post loan models we have deployed different tools such as WeChat, Push, IVR and automated loan collection robots to design a combination of reminder strategy.

Speaker 2

Such combination strategies have proven to be effective With a deduction in delinquency rate of up to 0.5% in absolute amount. And for borrowers with probability of missing payments due to We will also remind them in advance. Leveraging on our collection scores, we segment borrowers into different categories such as repayment behavior, Remaining of loan balances and changes in debt borrowers debt levels and using all these strategies Our repayment rate actually increased by around 2%. The slow recovery in economy And slow recovery in consumer confidence is still weak and thus risk is an important metric for us. And based on all these strategies that we have deployed, our day 1 metrics in the 4th quarter has also remained at similar level with the 3rd quarter.

Speaker 2

Hello, Alex. Let me do the translation for Alexis. Indonesia overall macro economy is much more robust than the China market in terms of Employment rate, consumer confidence index, etcetera. And the risk metrics for our Indonesian market has been stable over the last one year. In the Q3, I believe you have also noticed that we have acquired many new borrowers to maintain rapid growth.

Speaker 2

And this is the reason why we are having more flexibility for our risk metrics. And we also segment our borrowers into different segments in order to achieve a better and more accurate risk profiling. And also the U. S. Interest rate increase is ending soon and which will be very beneficial for our international business.

Speaker 2

Hello Alex, let me do the translation for team. As Alex's suspension earlier China economy is slowly and past have some fluctuation in the risk metrics and in Q3 there is sort of a small mini credit cycle ongoing and going forward in In 2024 we believe the credit risk will be better and for Finvolutions all along our credit our asset quality has been better than most of which we believe will be very beneficial for us when the economy recovers.

Speaker 3

Okay. Thank you, Alex. Operator, please continue.

Operator

Thank you. Next question will be from Yara Lee of CICC. Please go ahead.

Speaker 5

Then I'll do the translation. Hello, management. Thank you for taking my questions. This is Yada with CICC. And my first question is regarding the loan demand.

Speaker 5

During 4Q 'twenty three, we are observing kind of recovery of user demand and looking forward to the end of next year. I was wondering how to view the overall growth trend and what are the circumstances that we may have accelerated or slow down the pace And the second question is about international business. What will be the volume revenue and profit contribution from the overseas branches this year and next year and will Indonesia maintain the high growth trend and how to view the profitability and the

Speaker 2

Hello, Yada, let me do the translate for Alexis. Okay. From internal, we think that the demand is fine as we continue to invest in the acquisition of new borrowers and concurrently working to reactivate the Inactive repeat borrowers, we can share a few data from internal demand right, The application rate for repeat borrowers has maintained a steady growth of around 3% and for new sorry And from new borrowers the application rate also showed an increase of between 4% to 7%. We think that consumers do recognize our brand and is much more active. Based on the current weakness on the recovery of the macro environment, we need to have a certain judgment.

Speaker 2

And we need to balance the growth in demand and also our risk metrics and we believe we need to have more patients In the overall recovery as risk is our top priority metrics right now and we would balance the risk metrics Together with the loan demand of the consumers in order to achieve high quality growth. Yeah, let me do the translation for the second question. The macro environment of Indonesia and the Philippines is much more robust when compared to our China markets and all these positive macro environment factors actually support our rapid development in these countries. You can see that our transaction volume during the Q3 was about CNY2.21 billion, While our outstanding loan balance was about CNY1.29 billion, outstanding balance was up 102% year over year and transaction volume was up 99% year over year and the number of new borrowers also reached a Record high of 423,000 up 27% year over year and 36% quarter over quarter. Please also note that This is the first time where the number of international new borrowers exceed the number of new borrowers in China.

Speaker 2

We still think that there is a huge market potential. In the Indonesian market, there are over 100 P2P players and we are currently ranked number 3 in terms of outstanding loan balance with a market share of around 6%. Let me briefly touch on the Philippines market. We believe Philippines has very strong growth potential and the transaction volume for this year is expected to grow around 3 And Indonesia, right, I forgot to mention just now that Indonesia Total debt ratio is way below those of the developed countries and there's a lot of potentials. Regarding profitability, we are in a stage of rapid development with healthy LTV and our main priority now is to grow rapidly and increase Market share, increasing the market share is of a much more important priority for us now.

Speaker 2

Profit is being affected by Many factors such as our continued investment in customer acquisitions and the time difference created by accounting principles. We believe that as long as we are able to maintain healthy Development. Profits will be a natural result of our operations.

Speaker 3

Okay. Thank you, Yada.

Operator

Next question will be from Sydney Wang of China Renaissance. Please go ahead.

Speaker 6

Thank you for taking my question. I have two questions. First question is related to Indonesia. So as one of your competitor has been restricted by now pay later services in Indonesia, so any opportunity to Further gain market shares from here. And do you have any color in terms of like new to long term for the intermission The second question is regarding to marketing expenses.

Speaker 6

As we see the marketing expenses Approximately sequentially, what's the reasoning behind it? And also can you break down the domestic and National customer acquisition cost, how do you expect the customer acquisition cost going forward? Thank you.

Speaker 2

Hello Cindy, let me translate the question. Okay. Indonesia, right, has a huge opportunity to grow from multiple different aspects. As regulation tighten, the players will be But we believe the market will consolidate with to the better quality players. From the company perspective right Sorry, I was saying that the entry barrier will also increase when regulations tighten.

Speaker 2

For example, the registered capital for new players increased to RMB25 1,000,000,000 IP from just RMB1 1,000,000,000 and we can share what we are currently doing. Apart From online information feeds we are also doing offline customer acquisitions, multi Product installment loans, electronics, installments and buy now pay later coupled with multiple scenarios such as mobile phone, electric bike, Home Electronics and Furniture to read the borrowers. Indonesia has this trend of young population of large young population and they tend to change Mobile phones whenever there is a new release, plus we have also begun operation with OPPO, a well known mobile phone manufacturer to provide such Hello Cindy, let me do the translation. For S and M cost, right, about 70% of them are for China, while about 20% to 30% is for the International Markets. From the CPS perspective in the Q3, China market optimized about the overall CPS optimized about 6% while China market optimized about 7%.

Speaker 2

International CPS maintained stable. Going forward Depending on the macro environment and the company owned strategy we believe our sales and marketing cost will remain stable And we true out the company's strategies of upgrading the models on customer acquisition on orders, we believe all these will all these costs will be further optimized.

Operator

Thank you. There are no further questions. We'll conclude our question and answer Session now and turn the call back over to management for closing remarks. Thank you.

Speaker 2

Thank you all for joining the call. If you have any other further

Operator

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
FinVolution Group Q3 2023
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