Yiren Digital Q3 2023 Earnings Call Transcript

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November 21, 2023

There are 5 speakers on the call.

Operator

Thank you for standing by, and welcome to the Yirend Digital Third Quarter 2023 Earnings Conference Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Ms. Lydia Yu, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and welcome to our 3rd quarter 2023 earnings conference call. Today's call features prepared remarks by the Founder, Chairman and CEO of CreditEase and our CEO, Mr. Lin Tang and our CFO, Ms. Na Mei.

Speaker 1

Our SVP, Ms. Mei Zhao, will join the presenters in a Q and A session. Before beginning, we would like to remind you that discussions during this call contain forward looking statements made under the Safe Harbor provision of U. S. Private Securities Litigation Reform Act of 1995.

Speaker 1

Forward looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding future risks and certain factors is included in our filings with the U. S. SEC.

Speaker 1

We do not undertake any obligation to update any forward looking statements as required under development laws. During this call, we will be referring to certain non GAAP financial measures and supplemental measures to review and assess our operating performance. These non GAAP financial measures are not intended to be considered in isolation or as a replacement for the financial information prepared and presented in accordance with U. S. GAAP.

Speaker 1

For information about those non GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release. I will now pass it on to Ning, our CEO, for opening remarks.

Speaker 2

Thank you, Lydia. Hi, everyone. Thank you all for joining our earnings conference call today. As China transitions into the post COVID era, recent macroeconomic data shows economic recovery gaining traction with China reaching 4.9% year over year GDP growth in the 3rd quarter, beating market expectations, but still a decline on a year over year basis from the previous quarter. In the face of overarching challenges on the macroeconomic front, we have consistently directed our investments towards research and development, aiming to elevate customer experience and optimize operational efficiency.

Speaker 2

As a result, over the past few quarters, we have enhanced the quality of our earnings. Consistent improvement in our bottom line quarter over quarter. Strategic approach positions us to capitalize on growth opportunities once the economy rebounds. We reviewed our new corporate positioning as an AI and technology driven financial and lifestyle services platform that is anchored by 3 key pillars: financial services, insurance and consumption and lifestyle services. This quarter, we have started utilizing AI assisted marketing tools to increase our advertising targeting accuracy and achieve greater social media visibility.

Speaker 2

We are also in progress of upgrading our chatbots to assist in early stages of the loan collection process. Let's get into this quarter's business update. First, on financial services. In the Q3 of 2023, total loan volume was RMB 9 800,000,000, representing a 56% increase year over year. The total number of borrowers in the quarter increased 63% from prior year, 1,200,000.

Speaker 2

Dollars View on our Yixuanhua app continued to increase for the 6th consecutive quarter by 23% from prior quarter to 2,900,000 and the number of average transactions per user maintained stable at 3x, indicating high user stickiness and activeness. In terms of user distribution for Yixuanhua, approximately 30% are first time borrowers, while the remaining 70% are repeat borrowers. Borrower acquisition continue to explore new acquisition channels as well as optimize our acquisition methods to attract high quality new customers. During this quarter, we experimented with utilizing our WeChat digital reach. Additionally, we initiated collaboration with selected media partners to fine tune our acquisition model and enhance the accuracy of user targeting.

Speaker 2

Combined with utilizing AI assisted marketing tools, these new initiatives resulted in loans facilitated to new borrowers increasing by 49% this quarter from prior quarter. Our international expansion efforts have experienced significant growth in the Philippines market, with 3rd quarter results showing a remarkable increase of 172% compared to the previous quarter. We have also achieved notable improvement in risk management as we continue to join and fine tune our risk models tailored for the local market. To continue to pursue growth in international markets and are excited for this emerging as a substantial driver for future growth. Funding front.

Speaker 2

Continue to diversify our funding sources. We noted approximately 5% decrease in institutional funding costs this quarter as compared to last quarter. Asset quality remains stable with 15 to 89 days delinquency rate at 3% and M1 collections rate improved by 0.5 percentage point this quarter. Consumption and lifestyle services in continued rapid growth over the past few quarters, with total GMV generated this quarter increasing 42% from the 3rd quarter, RMB563,000,000. Number of active users this quarter also increased 22% from prior quarter to 2,960,000.

Speaker 2

The growth in our consumption and lifestyle services segment has also created synergies with our financial services segment, with active users further stimulating an increase in loan demand resulting in a mutually reinforced loop in our ecosystem. On our insurance brokerage business, gross premiums reached RMB1.4 billion in the Q1 of 2023, up 43% year over year and 7% quarter over quarter, which is significantly ahead of industry average. 2nd quarter was the peak for 1st year premiums due to the timing of the new pricing regulation capping future product returns at 3%. Breaking down, this quarter, 62% of total premiums were attributed to life insurance premiums, while property insurance premiums accounted for the remaining 38%. Highlighted on prior costs, our strategic emphasis on driving growth centers around 3 key areas: product innovation, agent development and digitization, a very important KPI for us is agent quality and productivity.

Speaker 2

I'm happy to note that with the establishment of our elite agent team, we have seen a notable 39% quarter over quarter increase in life insurance policy premiums surpassing RMB3 1,000,000 per policy as well as a 62% quarter over quarter increase in high margin property insurance policies. On property insurance, we continue to see continued growth in overseas construction policies with total premiums for this product segment increasing 19% quarter over quarter. On product innovation, I'm very excited to announce that we have a lineup of novel and tailored life insurance policies scheduled for release in the Q4, including a product significantly designed for inheritance. I'll share more details and initial results during our next quarter's call. I will now pass it to Na, who will go through the financials for this quarter.

Speaker 3

Okay. Thank you, Ying, and hello, everyone. On this call, I will only focus on our key financial highlights. Please refer to our earnings release and IR desk for further detail. In the Q3 of 2023, our total revenue reached RMB1.3 billion, representing 56% increase year over year.

Speaker 3

On financial service, we saw a health growth with total loan facilities in the quarter reaching RMB 9,800,000,000, representing 56% growth over prior year. On insurance, our gross ranging premise reached RMB 1,400,000,000, representing 43% increase year over year and a 7% increase from prior quarter. Revenue from our short spoke segment service reached RMB265 1,000,000 for this quarter, increased 14% year over year, but decreased 30% from prior quarter. The quarter over quarter variance was mainly due to the renewal primaries, which contributed 36% of the total primaries in the Q3 compared to just 17% in the Q2. Renewal primaries overall have a low commission rate as compared to the 1st year primaries and the shift was mainly a result of price change with insurance product returns being now capped to 3%.

Speaker 3

So we can sell a flattish of new 1st year policy for legacy products in the Q2, especially in June. On consumption and the live sales orders, the total GMW for the quarter reached RMB563 1,000,000, increased 42% from prior quarter. On the expense side, sales and marketing expense increased to 43% year over year to RMB196 1,000,000 mainly due to our increased marketing efforts as business volume expands. Research and development expense increased 17% year over year to RMB39 1,000,000 as which data U. S.

Speaker 3

Mainly AI and the cat innovation across our company. On general and the service costs increased 10% year over year to RMB235 1,000,000 mainly driven by an increase in our general and service costs relating to our insurance broker segment. G and A decreased 30% year over year to RMB54 billion as we continue to rise operating efficiency. Allowance for tangible assets under receivable was RMB84 1,000,000 for this quarter, remaining stable and about 0.9 percent of loan facility. On to our bottom line, we continue to deliver a strong profit of RMB554 1,000,000 this quarter, increased 105% from prior year, with generally about RMB645 1,000,000 net cash from operation in this quarter, an increase of 88% from prior year.

Speaker 3

On the balance sheet side, our balance sheet remains strong with total cash and cash equivalents of RMB5.4 billion by the end of this quarter. This quarter, we declined US2 $1,000,000 to pay back our shares in the marketing public marketing. As of the 3rd quarter end, the company has accumulated US5.5 dollars for our share repurchase program. We maintain confidence in the fundamental side of our company's business and the growth as per spec. Based on our size of our current business and the marketing condition, we spent our 2023 full year revenue stand between RMB4.3 billion to RMB4.9 billion, with net profit margin plan to remain stable.

Speaker 3

This reflects our current and preliminary review, which is subject to change and uncertainty. With that, we confirm our closing remarks. Operator, now we can open for questions. Thank you.

Operator

Thank The first question comes from the line of Matthew Larson with Synesthesia. Please go ahead.

Speaker 4

Good evening. Thanks for taking the call. Okay, I missed most of the conference call, but I read the report. Another great quarter. I mean, it's really unprecedented, the sort of financial returns you show on a quarterly basis.

Speaker 4

Your stock has gone up pretty sharply the last 2 days in advance of this call. But what are your plans to try and get a higher level of stock price? Because based on your run rate, you're trading at less than one times earnings, which is in my 41 year career pretty much unprecedented. In addition, you have probably at least 3 times the cash on the balance sheet that the value of your company is. And that's also unprecedented.

Speaker 4

Your company also used to be worth $50 a share like a few years ago. So down at the $2 or $3 range is unusual. But you're a Chinese stock from the PRC and people are distrustful. So with that being said, what plans do you have to broaden out investor awareness of your company, because this stock should be $10 minimum, not 2. Can you help me with that?

Speaker 2

Well, thank you. I'll provide my perspectives and then Na and other colleagues can do more. And so first of all, thank you for your, yes, kind remarks, recognition. And I think one is that as Na mentioned, we keep buying back our shares. And now we see the volume has gone up and that enables us to buy more shares.

Speaker 2

So we will continue to do that as much as we can. And so that's one. I hope there is a reinforcing positive loop. As stock price goes up, more room for buyback, price going up further, more room for buyback, so on. So this is 1.

Speaker 2

Secondly, quite interestingly, I've had some interactions with investors and other interested parties on the same issue. And so there are some interesting suggestions, which I found to be quite intriguing and probably they make good sense, okay. I'd love to get your thoughts as well, which is like 1 hour market cap was big, yes, much bigger. We attracted lots of institutional interest. But now, yes, today, the interest is more at the retail level.

Speaker 2

So if we keep doing the institutional communication mainly or solely, that is not good enough. Yes, we missed a big chunk of our, yes, investor interest. So we are thinking, yes, quite proactively, yes, to do more like retail side communications. Yes. And there's good work to be done on that front, while continuing to do good, better, I'd say, communication with institutional investors and other interested parties with more visibility like we have we are enjoying like business is getting, yes, better and better, consistency is very clear and prospects are great.

Speaker 2

So there will be more and more institutional coming back, while the retail side is something we will spend a lot of time on. Yes, so that's another point I'd like to make. Yes, and fundamentally, we will continue to do great business. Yes, my firm belief is that if we continue to deliver, yes, things will really get back to us.

Speaker 4

All right. That all sounds good. I know your share buyback is restricted by the volume. How many shares have you bought back this year? You were going to buy $20,000,000 worth, but that's pretty tough to do with the volume you're showing.

Speaker 4

Can you tell me how much you bought back so far?

Speaker 3

Yes. No, I

Speaker 2

mentioned this number, but please go to more detail.

Speaker 3

Yes. As I mentioned in my script, by the Q3, the end we have accumulated a call to US5.5 million dollars to perform our payback. Actually, by the end of this month, the latest amount is amount to US7 million dollars to perform our paper bag and we'll continue to perform our shares back with the VOD approach limitation at $20,000,000

Speaker 4

Got you. I'm sorry, as I said, I missed the first portion of the conference call. It took me a while to get on, but all right, dollars 7,000,000 which is fine. Have you thought about just tendering like at $4 for like 25% of the shares? I mean and this is part of the second question.

Speaker 4

Why don't you just take it private, okay? You have the money on the balance sheet. You make more money than the whole market capitalization of the company. I mean, you're trading at less than one times earnings, which is really it's very unusual. Why do you want to be a public company?

Speaker 4

Just take it private and pay a premium to people $5 okay and people will be happy to get out and you could spend less than the cash on your balance sheet. So has that or have you ever been approached by a third party who would like to participate in a buyout?

Speaker 2

Yes, we certainly see the math. But as I explained in previous call, yes, so it's very clear that our strategy to go global, to become a global Fintech leader. And so maintaining this listed company position gives us a lot of upside to do like going global. Yes. So and also we believe, yes, the market will recognize good performance, yes, consistent good performance.

Speaker 4

So are you saying that having a U. S. Listed stock has certain prestige attached to it. So you would rather be a publicly traded company because you think in the long run it will benefit you?

Speaker 2

Yes. For example, like we can do like acquisitions, yes, globally. We can reward our employees and the partners globally with the stock, so on. Yes. So it's very strategic.

Speaker 2

We have this vehicle, this platform.

Speaker 4

All right. But it wouldn't make sense to pay people in stock when your stock is still undervalued, you might as well pay cash, because you're planning cash. So if you're going to reward people

Speaker 2

with cash.

Speaker 4

Okay. Okay. Very well. All right. Listen, you're not the only firm that's the only company that's in your space.

Speaker 4

I like your company because you've broadened out your business model to include insurance and things like that. But other companies that are strictly lending platforms like QFIN or FINV, Finvolution, which reported last night. Another company reports tomorrow, which is X Financial. I'm familiar with all these companies because I worked at Morgan Stanley and we underwrote you guys. We were part of the initial public offering back in 20 162015.

Speaker 4

So I'm very familiar with your companies and I've just been frustrated that I haven't gotten I haven't made as much money as I'd like to because I've had to be patient. But I'll just leave it there. I mean, there's nothing else to say. Your stock should be worth a lot more as you're buying as many shares as the volume will allow. That's all I can ask.

Speaker 4

When is the window open for you to buy more shares? I mean, the volume spiked the last couple of days. When could you buy more shares after this earnings call?

Speaker 2

Yes. Once the window opens up, we will, yes,

Speaker 4

You'll go all in. When does that window open up, sir?

Speaker 3

Okay. I'll answer your question.

Speaker 2

Yes. Exact date?

Speaker 3

Yes. By today, yes.

Speaker 4

Okay. Last question. Some of your competitors do pay a dividend. Quiho, which is QFIN is the symbol, X, Y, F, and F, I, and V pay dividends, which not only returns some of your huge cash position to shareholders, but it makes shareholders more comfortable dealing with a company from a PRC that pays dividends, because if you pay dividends, then the money you have is actually there. So have you considered that?

Speaker 2

We have thought about that. As a matter of fact, we did it like a while ago for a while. And so there are different schools of thought. And so people say that what you just said is one school and some people say that which I tend to agree more is that once you pay dividend, you become a category of dividend paying companies as opposed to a high growth company. And if you are a high growth company, which we are, So we have like high growth, high quality growth opportunities for our cash.

Speaker 2

And so we should belong to that category. And so I firmly believe we are as we show the high growth rate, high quality growth, AI driven growth. So yes, so I understand dividend helps in terms of returning money to investors. So we do buyback aggressively and that's another way of returning alternative way of returning generating value for investors while sticking to being a high growth company, yes, putting cash in better use. That's our current thinking.

Speaker 4

I mean, the buybacks are good except for the stock price really hasn't moved. Let me just give you some advice. The 4 or 5 companies that came public 5 or 6 years ago that were peer to peer lenders like you used to be, but are in the same business space really that you all are that pay dividends, okay. One is Finvolution. I'm sure you're familiar with them.

Speaker 4

They trade at 4.5 times earnings and they pay a dividend, all right, of 4%. And then if you look at QFIN, which is Quihu, all right, Quifu, I'm sorry, Morgan Stanley follows them from a research point of view and it's got a $3,000,000,000 market cap, but they pay a dividend also and that trades at 5x earnings. So just paying a dividend could increase your stock market price to earnings multiple 3 or 4 or 5 times. So your stock could go up literally 4 or 5 times if you just pay a small dividend. So you might want to think about that because if you pay a dividend, certain investors will invest because they like the dividend, but it also gives them comfort that all this cash that you have on your balance sheet is actually there because you can't pay dividends unless you have money, all right.

Speaker 4

So if you pay it, it kind of proves to them that your very, very, very good financial position from a balance sheet point of view is valid. So your stock could go up 2 or 3 times just by paying a dividend. So that's my advice.

Speaker 2

Thank you. Noted. We will, yes, study further.

Speaker 4

Very well. Thank you for your

Operator

time. Thank you.

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Earnings Conference Call
Yiren Digital Q3 2023
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