Kosmos Energy Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 21, 2023

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Lufex Holding Limited Second Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the management's prepared remarks, we will have a Q and A session. Please note this event is being recorded. Now, I would like to hand the conference over to your speaker host today, Ms.

Operator

Liu Xian Yan, the company's Head of Board Office and Capital Markets. Please go ahead, ma'am.

Speaker 1

Thank you very much. Hello, everyone, and welcome to our Q2 earnings conference call. Our quarterly financial and operating results Were released by our Newswire services earlier today and are currently available online. Today, you will hear from our Chairman and CEO, Mr. Y.

Speaker 1

S. Cho, who will provide an update of our latest business strategies, the macroeconomic trend and the recent developments of our business. Our Co CEO, Mr. Greg Deep, will then go through our second quarter results and provide more details on our business priorities. Afterwards, our CFO, Mr.

Speaker 1

David Troy, We'll offer a closer look into our financials before we open up the call for questions. Before we continue, I would like to refer you to our Safe Harbor statement in our earnings press release, which also applies to this call as we will be making forward looking statements. With that, I am now pleased to turn over the call to Mr. Y. S.

Speaker 1

Cho, Chairman and CEO of Louvax. Please.

Speaker 2

Thank you for joining today's call. During a complicated macro environment that has been particularly challenging for small businesses, We have doubled down on our efforts to optimize cost and adjust our strategy to achieve our U shaped recovery. While we continue to make progress towards this recovery, we have also been embracing new initiatives to achieve long term stability. In the Q2, we were able to improve our bottom line sequentially and advance our efforts To attain higher quality new loans we enabled, we also drew closer to our goal of Transitioning into a 100% guarantee model and continued our strategies to mitigate risk and diversified business. Let me provide some updates for the Q2.

Speaker 2

First, China's macroeconomy still Charting is passed to recovery and landscape remains complex. In the second quarter, China's GDP demonstrated a year over year growth of 6.3%, indicating progress Towards the country's annual growth target of 5%. However, the performance of producer price index And consumer price index as well as some other economic indicators such as importexport statistics Signal a complicated situation, we continue to closely monitor market dynamics as we navigate China's evolving macroeconomic environment. Meanwhile, SBUs remain under pressure and continue to face difficulties in the current environment. The SME Business Conditions Index published by The Chunghong Graduate School of Business, which considers factors including sales outlook, profit outlook And the finance environment declined from 58.9% in March to 50.2% in June.

Speaker 2

The Small and Medium Enterprises Development Index and Macroeconomic Perception Self Index, which reflects enterprise confidence Published by the China Association of Small and Medium Enterprises were also below the critical threshold of 100 in the Q2. This indicates that operational environment for SCUs remains challenging in the 2nd quarter, And it may take more time for the SEO segment to recover. On the regulatory front, The overall regulatory environment remains stable. Government authorities have indicated that their priority is to employ policies There will be favorable to economic growth and the private sector. This will hopefully provide a stronger foundation for private enterprises And platform economy.

Speaker 2

Next, let's get into the impact of these factors on our business. Because of changing macroeconomic environment for the SVO segments, our U shaped recovery has been progressing slower than we had anticipated. New loan sales in the Q2 declined sequentially due to weakened high quality loan demand from SCBOs as well as our continued emphasis on operational prudence. As we have discussed over the past several quarters, Our goal is to prioritize asset quality over quantity, which the goal to improve our overall asset quality for long term, Healthy and sustainable growth. We continue to see progress on this front.

Speaker 2

Our system sales ratio stabilized in the Q2, so it remained elevated from historical levels, partially due to decreased outstanding balance. Moreover, we are pleased to observe that asset quality of neurons is in line with our expectations. Early risk indicators suggest that asset quality of new loans enabled as to retighten credit standards It's better than that of the vintages enabled during the past 3 years, although it has not yet fully recovered to the pre COVID levels seen in 2019. Meanwhile, Our customer finance business continues to witness healthy growth. Customer finance loans as a percentage of total new loan sales Increased during the Q2 and comprised over 1 third of new loans enabled during this period.

Speaker 2

Total outstanding balance of consumer finance loans was up as well. In addition, The NPL of our consumer finance business decreased from 2.4% in the Q4 to 2.2% in the 2nd quarter. In light of challenging macroeconomic environment encountered by the SCO segments and the relatively long period Time it may take for this segment to recover. We expect our consumer finance business will become an increasingly important part of our portfolio over the next 12 to 18 months. On the financial side, our revenue decreased in tandem with our outstanding balance.

Speaker 2

In response to this anticipated top line pressure, we maintained our discipline with regards to expenses. Continuous optimization efforts enabled us to shrink our operating cost at a greater rate than the decrease in income. Together with the stabilized asset quality, our bottom line improved over the last quarter. The events of the past several quarters have highlighted the importance of mitigating risk in regards to the long term health of our business. As such, risk minimization and business diversification will be the key component of our medium term Strategic Initiatives.

Speaker 2

Recognizing this, we have devised a multilayered approach, which we expect will help us achieve long term stability. This approach involves maximizing the utility of our guarantee and Customer finance licenses continuing our operational shift towards high performing regions, Maintaining strength in direct sales channels and further enhancing our risk control mechanisms. We intend to make full use of our guarantee license to focus on growth in better performing Economically resilient regions. We continue to transition towards the business model Under which our guaranteed subsidiary will provide 100% of credit enhancement. This approach will allow us To more completely utilize the benefits of our guarantee license and leverage our strong capital position And resulting in a better profitability in midterm, currently, our insurance company credit enhancement partners Are charging elevated insurance premiums, which puts pressure on our take rates.

Speaker 2

Switching to the 100 percent guarantee model will resolve this and will improve our take rate and profitability. In addition, 100 percent generative model without CGI partner is simpler. This means easier compliance with the regulation and a better process for borrowers. We have discussed our transition towards This is 100% guaranteed mode before. And now I'm pleased to report that we continued to make good progress.

Speaker 2

At present, we have already secured a sufficient credit line from our funding partners to be able to Support this model for 2023 and beyond. During the second half of this year, we plan to continue to increase The proportion of the loans enabled under this model. As a result, we expect our risk bearing percentage We further increased in the coming quarters. Our ability to do this is based in part on the strength of our capital position. At the end of Q2, the leverage ratio of our guaranteed subsidiary was 1.6x as compared So maximum regulatory limit of 10 times.

Speaker 2

In addition to transitioning towards the 100% guarantee model, We also plan to further expand our consumer finance business. This decision is motivated by a number of factors. First, under the current macroeconomic environment, consumer finance loans with smaller ticket sizes and shorter durations Compliments our SPO loan in every month business, which is more heavily impacted by the macro conditions. By providing consumer consumption loans, we can provide a more comprehensive product line to our customers To satisfy their consumption needs, expanding our consumer finance business also opens up opportunities For synergy with our Puhu loan platform by leveraging our risk control capabilities and existing customer base. Furthermore, our customer finance license allows us to operate the customer finance business in full compliance with the regulations.

Speaker 2

With this money lending license, we are able to provide customer loans directly to our customers On the simple and straightforward business model, which improves customer experience. As we undertake these efforts, We intend to continue our strategy of focusing on strong regions, enhancing direct sales channel productivity And bolstering risk control mechanisms in our operations, we have focused and will continue to focus on establishing Scaled operations in more economically resilient regions. We have previously seen better credit Performance from customers in these regions. In the Q2 of 2023, 74% of our direct sales were deployed in top third and mid third regions, up from 71% during the same period a year ago. Meanwhile, We also concentrate on boosting the productivity of our direct sales channel.

Speaker 2

Average productivity for direct sales team Increased by 10% sequentially in the Q2. Risk control will also take the form of more stringent vetting process. We continue to prioritize quality over quantity and only offset borrowers that meet our tightened credit standards. This will keep us on track to improve overall loan quality in the long term. At the same time, we'll continue to improve our risk control model.

Speaker 2

We have developed a new AI plus expert model, which integrates our AI capabilities To meet the extensive data requirements of our dual KYC and KYB approach, By leveraging AI tools, we can conduct borrower interviews, collect data and identify potential risks within a short timeframe. Our risk assessment experts, they leverage the information provided by AI combined with their own Personal experience to make well informed decisions. This model strikes a balance between efficiency and accuracy in risk management. In addition to these enhancements, we have also upgraded our credit loss forecast model, which now considers a wider range of macro factors. As a result of our focus, we expect that our near term loan growth will remain prudent and somewhat limited.

Speaker 2

And as we transition to the 100 percent guarantee model, the increase in risk bearing will lead to higher take rate and higher upfront provision. This will suppress our bottom line performance for the near term. However, we are taking long term perspectives with these decisions. We are confident that our approach will build a foundation from which we can achieve healthy and sustainable future profitability. I will now turn the call over to Greg for more details on our operating results.

Speaker 3

Thank you, YS. I will now provide more details on our Q2 results and our operational focus for this year. Please note all figures are renminbi unless otherwise stated. During the Q2 of 2023, our performance was negatively impacted by the challenging macro environment faced by SVOs. Our total income was $9,300,000,000 representing a decrease of 8% compared with the Q1 of 2023.

Speaker 3

This was mainly due to a decline in loan balance as well as reduced new loans enabled and continued pricing pressure from our credit insurance partners. Despite the challenges on our top line performance, we increased net profit to $1,000,000,000 this quarter, up from $700,000,000 in the first quarter, primarily resulting from our ongoing cost optimization. Now let's dive into the details of our performance. In the Q2 of 2023, our new loans enabled were 53 point $5,000,000,000 representing a sequential decrease of 6.1%. Our outstanding balance of new loans enabled decreased by 13.9% during the same period.

Speaker 3

These declines were mainly due to a weaker high quality demand for loans, coupled with our prudent business strategy of employing tightened credit standards on new loans enabled. Though new loan sales remained under pressure, our direct sales productivity bottomed out in the Q1 and began to show signs of rebound in the second quarter. Average productivity for the direct sales team increased by 10% sequentially in the Q2. During the Q2, 61% of new loans enabled came from the direct sales team compared to 56% in the Q1. In addition, we're confident that we are on the right path to prioritize higher quality Customer segments concentrated in more economically resilient geographies.

Speaker 3

As Wyeth mentioned, early indicators of new loans enabled after we Our credit standards have demonstrated improved asset quality compared with the vintages enabled in the past 3 years. Our C2M3 ratio, for instance, stood at 1% in the second quarter, which improved when compared to historical levels, but remained flat as compared With the Q1 of 2023, despite that our outstanding balance of loans decreased by 14%. If we neutralize for the impact of decreasing balances in the 2nd quarter, an adjusted C2M3 flow rate shows gradual improvement. As we focus on better quality borrowers, average ticket size has also naturally increased. Average ticket size of unsecured loans for the Q1 of 2023 Increased to RMB285,000 from RMB 270,000 for the last quarter.

Speaker 3

Our consumer finance business saw healthy growth during the 2nd quarter Despite the challenges faced by our retail credit enablement business, the total outstanding of balance for consumer finance loans As of the end of the second quarter, it was $33,000,000,000 up 31% year over year and 11% up sequentially. The NPL ratio improved to 2.2% in the 2nd quarter compared with 2.4% in the 1st quarter. We further diversified our product offerings As the contribution from our consumer finance business continued to grow, consumer loans accounted for 33.5% of new loans enabled during the Q2, Compared to 24.4 percent in the Q1 of 2023. Next, let's look at our take rate. During the Q2, our overall pricing stood at 20.3%, flat as compared to 20.4% in the Q1.

Speaker 3

While funding costs was stable, the take rate remained compressed at 7% As our credit insurance partners continue to charge elevated premiums despite improved asset quality of new loans. To address this issue, we've continued to advance towards the 100 percent guarantee model. We have secured sufficient credit line and funding partners to support our 100 percent guarantee model. As of mid July, 46 out of 84 funding partners have agreed to extend loans under the business model where we provide 100% guarantee With sufficient credit line for 2023 and beyond. Excluding consumer finance, our risk bearing by new loan sales in the second quarter increased 2% as compared to 22.6% in the Q1.

Speaker 3

Our risk bearing by balance of the overall portfolio as of the end of the second quarter also increased 27.5 percent from 24.5 percent in the Q1. At this rate, we expect our risk bearing balance will exceed 40% by the end of this year. Our strong capital position has a solid foundation for our transition towards this 100 percent guarantee model. As Wyeth mentioned, the leverage ratio of our guarantee company stood at 1 point 6 times at the end of the second quarter, which leaves us with sufficient room to grow when appropriate. Next, let's go into the details of our bottom line drivers.

Speaker 3

Our persistent cost optimization efforts have been the primary driver of our bottom line's continued improvement. As a result of these initiatives, operating the costs decreased by 14% sequentially, dropping to $4,900,000,000 in the Q2 of 2023 from $5,700,000,000 in the Q1. Credit impairment losses also decreased slightly from $3,100,000,000 in the Q1 to $3,000,000,000 in the Q2 of 2023, mainly due to a decrease in provisions due to lower loan balance. Furthermore, in unsecured lending, When there is a large spike in credit costs driven by macro factors as we've seen in the last couple of years, market participants often witness higher levels of late stage recovery between 20,021,010. Consistent with this general observation, our absolute amount of recoveries in the first half of twenty twenty three increased by 45% as compared to the same period last year.

Speaker 3

Finally, as Wyeth mentioned, our strategy to derisk And diversified by fully leveraging our licenses to achieve growth in greater or better performing regions, while simultaneously retaining With strong loan channels and creating solid risk control mechanisms, I'd like to discuss the impact of our approach that we will have on our business. The recovery of new loan sales will depend mainly on the recovery of macro demand. We do not expect a rapid macro recovery in the near term for SVOs. In combination with our strategy of prioritizing quality over quantity in light of the increased risk exposure when we transition to our 100% guarantee model, We do not anticipate significant growth in new loan sales in the coming months. Going forward, our new loan sales mix will likely shift As consumer finance loans will account for a greater portion of new loans enabled new sales enabled, this increase in consumer finance loans Will help offset some of the decrease in SPO loans.

Speaker 3

As a result of the aforementioned factors, we expect our total new loan sales For the full year of 2023 to be in the range of $190,000,000,000 to 210,000,000,000 The drop in new loan sales and outstanding balance will continue to weigh on our revenues in the second half. This will be partially offset by the improvement in our take rate As we remove the impact caused by the elevated CGI premiums in transitioning to the 100% guarantee model, which is expected to result in a take rate of 13% to 14% for all new loans by the 4th quarter. We will maintain diligence with regards to the bottom line. At present, impairment costs are expected to remain at an elevated level, roughly $3,000,000,000 per quarter through the remainder of 2023. However, starting in the second half, the driver of impairment expenses will gradually shift from past portfolio charge offs to Provisions for new loans under the 100 percent guarantee model.

Speaker 3

Under the 100 percent guarantee model, a significant portion of provisions for all new loans are Front loaded in our accounting, while revenue is recognized throughout the loans lifetime. As such, our bottom line will be suppressed in the second half as we accelerate the transition to the 100 percent guarantee model. However, this shift is expected to result in higher margins And support our U shaped recovery once the majority of the portfolio is supported by the 100% guarantee model. In the meantime, we continue to emphasize efficiency and expect operating costs will continue to decrease year over year. I will now turn the call over to David, our CFO, for more details on our financial performance.

Speaker 4

Thank you, Greg. I will now provide a close look into our Q2 results. Please note that all numbers are in renminbi terms and all comparisons are on a year over year basis unless otherwise stated. In the Q2, our total income was RMB 9,300,000,000, while total expenses decreased by 27.2 percent to RMB8 1,000,000,000. The decrease in total expenses was primarily due to the decrease in new sales In sales and marketing expenses, as a result, our net profit was RMB1 1,000,000,000 in the Q2 of 2023.

Speaker 4

Thanks. Let's look at our total income. As YS and Greg mentioned before, our performance was impacted By the complex macroeconomic situation affecting the FCO segment, this resulted in a 39.4% decrease In the second quarter, our technology platform base income was RMB4.1 billion, Representing a decrease of 44.8 percent. Our net interest income was RMB3.4 billion, a decrease of 32.8 percent And our currency income was RMB1.1 billion, a decrease of 40.7%. As a result, Our technology platform based income service fees as a percentage of total income declined to 44% from 48.3% A year ago.

Speaker 4

In addition, due to the increase of income from our consumer finance business, Our net interest income as a percentage of total income actually increased to 36.3% from 32.8 percent a year ago. Furthermore, due to the decline in loan balance and a lower fee rate, Guarantee income was RMB1.1 billion as compared to RMB1.9 billion a year ago. Our other income, which mainly includes accounts management fees, collections and other value added services charged to our credit enhancement partners As part of the retail credit enabling process was RMB310 1,000,000 in the same quarter of 2023 Compared to RMB 532,000,000 in the same period of 2022. The change was mainly due to the change in the fee structure that we charge Turning to our expenses, we have maintained our commitment To cause optimization, our total expenses excluding credit and asset impairment losses, finance losses and other losses Decreased by 21.6 percent year over year to RMB5.0 billion this quarter. As we continue to enhance our operational efficiency, in the same quarter, our total expenses decreased by 27.2 percent to RMB8 1,000,000,000 from RMB10.9 billion a year ago.

Speaker 4

This decrease Was primarily due to the decrease in sales and marketing expenses. Our total sales and marketing expenses, which mainly include expenses for borrowers and investor acquisition costs as well as general sales and marketing expenses decreased by 27.3 percent to RMB2.5 billion in the Q2. This decrease What's attributable to 3 factors: 1st, the decrease in new sales and corresponding reductions in commissions Secondly, the decrease in the investor acquisition expenses from platform services fee as a result of decreased transition volume In our well mentioned business, adversely, decrease in general sales and marketing expenses as a result of the optimization of our sales force. Our general and administrative expenses decreased by 35.3 percent to RMB493 1,000,000 in the same quarter, mainly due to our expense control measures and decrease of taxes and charges. Our operation and sourcing expenses Decreased by 0.3 percent to RMB1.6 billion in the 2nd quarter, mainly due to our efforts in expense control and decrease of loan balance.

Speaker 4

Our credit impairment losses decreased by 14.7 percent to RMB3 1,000,000,000 in the 2nd quarter, Primarily due to the decrease in provisions of loans and receivables as a result of decreased loan balance, our finance force decreased by 38.7 percent to RMB136 1,000,000 in the 2nd quarter from RMB221 1,000,000 in the same period of 2022, Mainly due to the increase of interest income from bank losses and the decrease in interest resulting from early repayment of the Comparable promissory notes are partially offset by the increase in the interest expense driven by increased interest rates. As a result, net profit for the same quarter was RMB1 1,000,000,000 compared to net profit of RMB2.9 billion in the same quarter of 2022. Meanwhile, our base and diluted earnings per ADS during the Q2 were both RMB2.42 or Turning now to our balance sheet. Our balance sheet remains strong And solid as our cash and cash balance has increased since the end of our last fiscal year. As of June Earlier, 2023, we had a cash balance of RMB46.9 billion in cash at bank as compared to RMB43.9 billion as of last year end.

Speaker 4

In addition, liquid assets maturing in 9 days or less amounted to RMB38.2 billion as of the end of June. As of the end of June, Our guaranteed substitution leverage ratio is only 1.6 times as compared to a maximum breakthrough All of these factors offer substantial backing for the company to navigate the changing That concludes our remarks for today. Operator, we are now ready to take questions.

Operator

Thank We now have our first question from Alex Xie of UBS. Please go ahead.

Speaker 5

Hi, management. Thanks for I have two questions on the loan demand side. So in the past few months, have you noticed Any change in terms of your SME loan demand, for example, the application volume? And Have you seen any sign of a sequential recovery or is it actually weakening? 2nd, I'm wondering if you have done any On the ground survey on your existing SME customer base regarding what is holding back your demand or what could potentially make them more positive?

Speaker 5

And in particular, I'm wondering if you think the current property downturn has anything to do with the weak Demand from the high quality borrowers, for example, maybe they will suffer from the negative loss effect or maybe they think the The property price is declining, so which make them less willing to risk their assets. That's up here. Thank you.

Speaker 2

Thanks, Alex. This is YS answering your question. If you look at other market data such as total social financing or So, Ben Korn, you can see that the market demand is not in a good shape. It's quite weak. And then likewise, Our high purchase balloon demand was weak indeed.

Speaker 2

While we believe The recovery of China's economy in the long term, but we believe it will take some time, especially for our SCO segments to recover that underpins our loan demand. Mostly our loan demand is driven by borrowers' willingness to borrow, which in return is mostly affected by How they see the investment opportunity and then how they see near term economy for their business, right? So knowing that, we believe it is to take a while until we see the turnaround of loan demand from

Operator

Thank you. We now have our next question from Emma Xu of Bank of America. Please go ahead.

Speaker 6

Thank you for taking my questions. I have 2. The first one is about your loan growth outlook. So we do notice that the management has already guide down to your full year loan growth to RMB290 1,000,000,000 compared to around RMB300 1,000,000,000 previously. So could you tell us more What drove you to lower your full year loan growth plan?

Speaker 6

And further, could you tell us a little more about the loan mix Of your new loan growth plan, as you mentioned earlier, you want to grow more of your consumer loan considering the weak demand on your SBO segment. And the second question is about the asset quality trend. So we do notice that your flow rate stayed flat sequentially in Q2, partly due to the contracting loan balance. How But how is the underlying trend of your legacy loan book? So from a vintage perspective, Do they continue to improve?

Speaker 6

And what's your expectation of the asset quality trend in rest of the year? Thank you.

Speaker 2

Thanks, Emma. Just before Greg provide our new guidance on New sales for this year, right, which is from in the range of RMB190 1,000,000,000 To RMB 210,000,000,000 for this year. The reason is the reason of adjustment is the recovery of new sales Will may depends on the recovery of macro demand. And then as I said in answering that previous question, We do not expect a quick turnaround of this demand side or recovery of macro economy near term, Especially for the segments. So that's why we adjust our new loan sales guidance.

Speaker 2

But at the same time, we As also Greg said, we expedite our customer finance business growth. So it will take more and more part of our new sales. Our strategy is mainly to prioritize quality over quantity, Note that we are bearing increased risk with 100% self guarantee model, But we believe this will eventually build a good foundation for long term for our sustainable profitability. Regarding asset quality, if you look at our net flow ratio, overseas to M3 net flow ratio, It didn't change from the last quarter and then it still remains elevated from historical levels. As you said, it's mostly because our declining new loan sales does decline loan balance.

Speaker 2

But if you look at if you want to have a different look, free from this balance change, Therefore, Neurons generating 2023 this year, we can see obvious improvement in their The asset quality as compared with all the vintages, although, it's August better than last year or 2 years ago, but it has not fully recovered back to before pre COVID-nineteen pre COVID level In 2019, so in conclusion, in short, the asset quality for Nios are just improving. But As a whole portfolio, we cannot see the improvement of net flow because of declining balance.

Operator

Thank you. We now have our next question from Qiyaw Huang of Morgan Stanley. Please go ahead.

Speaker 7

Thank you, management. I have two questions. One is, could you just give me Give us a little bit more color on the latest progress on the transition to 100% self guarantee, especially with the arrangement within The founding partners, what kind of what type of institutions have been signing up for the new guarantee model? And what's the new credit line given And by those founding partners, how does that compare to previous CGI model? And second question is, could you elaborate a little bit more on Your new product strategy and client strategy, because we're obviously transitioned to a higher Quality or lower risk borrowers, but we're still targeting around 20% loan pricing.

Speaker 7

So I guess I'm just wondering what's the strategy to achieve that And while meeting a similar pricing. Thank you.

Speaker 3

Sure. Greg here answering your questions. On the Transition to the 100 percent guarantee model, we are very much in good shape that if we want By the Q4 of this year, 100% of all new business can be done under this model. And that is what we will probably shoot to achieve. We've got out of our Funding partners is an ongoing process.

Speaker 3

So with 84 funding partners, 46 have already agreed to extend and out of this 46, a number have already Starting to operate and cooperate with us under this model. This cuts across all types of funding partners, so be it Large banks, mid banks, smaller sized banks and other trust related cooperation, that is across the board. So there isn't a Fred, it's just small banks signing up for the new model. It is really all types. In terms of Credit line that we were able to achieve with our funding partners under having the credit insurance versus now the guarantee, It is a transition process.

Speaker 3

Roughly, if you look at the line, I mean, some give actually more, some give less. But on average, we're probably seeing A reduction of about 40% 40% to 50%. But in the context of our focus on higher quality customers And being more selective on regions. In terms of the new business volume that we expect to generate this year and into next year, We have more than enough capacity with what we've got in place. The new guarantee model, based on our experience even in the past with CGI, Once an institution cooperates with you on a model, they're comfortable with the performance, the chance to increase credit lines going forward is always there.

Speaker 3

So I think from a funding availability under the new model, really no issues at all. And in fact, given that all banks right now are being very tight on their own loan extensions, Given their own views of the macro environment, being able to work with us where we do have the 100% guarantee, our assets are extremely attracted to them. And so we do see increasing competition amongst our funding partners to try and get more business from us, right? So really no issue in terms of how It affects funding and the model will be very much complete, as I said, by the Q4. In terms of the Mix, right.

Speaker 3

I mean, obviously, our focus is really on achieving that credit quality, really ensuring that the new business we do It's getting back to as close to 2019 levels as possible. So I'd like to highlight that this is There's really 4 things at play here, right. There's 4 areas where we're changing mix and emphasis to get the kind of growth we want And the credit quality one. So on the customer side, clearly, what we're doing is we're prioritizing more what we call strong small business owners. And these are small business owners whose companies have a clear legal structure, have a longer operating history, operate more in industries with A stabler capital position and stronger long term distribution networks of their own business.

Speaker 3

And these strong SVOs, if you look over the last 18 months, have performed significantly better Then the rest of the portfolio, these strong business owners make up about 56% of our ENR today. So that is the number one shift. Our mix will increasingly be focused on the non consumer finance portion To these customers and even for the consumer finance portion, we will also try and serve these customers' individual needs. So there's a change in mix on customer. The second is really Greater emphasis on the more resilient economic regions.

Speaker 3

Historically, we have covered a large number of cities. Here, we're being more selective in terms of where we view new business growth based on our view of their ability to recover in a difficult environment and to Be in reasonably good standing over the next couple of years perhaps compared to weaker geographies. Then on layering on top of that shift in Region, you have the shift in mix on product, where there's more emphasis on the consumer finance side. And then we have our shift in channel, where if you remember historically, we had 40% of the business, 40 More of the business coming from cooperation with 3rd party channels. Here, we're putting placing much greater emphasis on our direct sales They make up now a greater proportion of our new business because they have tighter control, understanding the customer and in creating a more complete service Bundle for the customer across now, guarantee products and consumer finance products as well as being able to detect better fraud where it may exist.

Speaker 3

So all of these shifts, when you add them up, it does mean that we are operating off of a narrower scope, Right. Historically, in terms of our focus of customers. But within this prioritized scope, we believe that we can then achieve the new business At the credit call that we want, with regard to pricing, because we have a mix here of a secured product, unsecured product, Consumer finance product, what we're finding is that our ability, once we've got these good customers to provide them with the ticket size that they're looking for, To provide them with the duration they're looking for, there isn't as much price sensitivity, to be honest. So we think that Keeping kind of a 20% APR and then keeping within our focus is a way to Obviously, not grow very quickly, right. We're still going for prudence, but to serve business that will give us the right Top line take rates and the right bottom line results as we look out over the next 12 months.

Speaker 3

So a lot of that transition, A lot of those changes in mix are really now underway for 6 to 9 months, and we'll continue to push in that direction.

Operator

Thank you. Our next question comes from Yada Lee of CICC. Please go ahead.

Speaker 7

Hello, management. Thanks for taking my question. This is Yada with CICC. And I just have one quick question for today. Could you please share more color on the F123 outlook of the top line and bottom line?

Speaker 7

And how to understand it in the current macroeconomic environment? And that's all. Thank you.

Speaker 4

All right. Thanks, Jiala, for your questions. I think we did have a statement on our full year new loans I'll talk in our earnings release. Please do to refer

Speaker 2

it again.

Speaker 4

Here, I'd like to comment First, on the top line, inequitably, the top line will be affected by the decrease of the Lelung sales As a result of our more stringent credit acceptance criteria that we mentioned earlier, of course, the decrease in the new sales we returned affects the average loan balance. Thus, we also have an impact to the revenue. These two impacts will be mitigated But improve when you take rate when we transition to the 100% guarantee model. For the bottom line, I think we've mentioned Before, when our new business model moved towards the 100% guarantee model, a significant portion of our Expected credit loss provisions of new loans will be front loaded In day 1, from accounting perspective, of course, there will be don't have any impact on the cash profit in that sense. While the revenue is recognized throughout the loan's life cycle, as such, our bottom line will be suppressed in the second half As we accelerate the transition to the 100% guaranteed mode, however, let me reemphasize one more time.

Speaker 4

This shift, we expect to have positive results in the longer term and support our U shape recovery

Operator

Thank you. That concludes our question and answer session for today. I will now turn the call back over to our management for closing remarks. Thank you.

Speaker 1

Okay. Thank you, operator. This concludes today's call. Thank you all for joining the conference call. If you have more questions, please do not hesitate to contact the company's IR team.

Speaker 1

Thanks again.

Operator

Thank you. That concludes the call today. Thank you everyone for attending. You may now

Powered by Quartr
Earnings Conference Call
Kosmos Energy Q2 2023
00:00 / 00:00