X Financial (XYF), Management Q2 2022 Results – Earnings Call Transcript



Tanya Wen – Investor Relations

Kan Li – President

Frank Fuya Zheng – Chief Financial Officer


Mason Bourne – AWH Capital


We are pleased to welcome you to the X Financial Second Quarter 2022 Earnings conference phone call. All participants are invited to listen only. After today’s presentation, there will be an opportunity to ask questions. This event will also be recorded.

Tanya Wen would now like to take over the conference. Please continue.

Tanya Wen

Operator, thank you. Good morning to all, and thank you for being here today. The company’s results were released earlier today and are available on the company’s IR website at ir.xiaoyinggroup.com. Mr. Kan Li (President), and Mr. Frank Fuya Zheng (“Chairman Financial Officer”) will host today’s call at X Financial. After Mr. Li has given a brief overview of the company’s highlights and Mr. Zheng will talk about the financials. They will be available for any questions during the Q&A session.

As required by the Safe Harbor Provisions of the Private Securities Litigation Reform Act 1996, this call may contain forward-looking statements. These statements are based on management’s current expectations and current market and operating conditions. These statements are subject to unknown risks, uncertainties and other factors that are difficult to predict. These factors could cause actual results, performance, or achievements to differ materially from those in forward-looking statements.

Further information on these and other factors is available in the company’s filings with the U.S Securities and Exchange Commission. Forward-looking statements are not subject to revisions due to future events or new information.

It is my pleasure and honor to present Mr. Kan. You are welcome, Mr. Li.

Kan Li

Hello, everyone. We are pleased with the quarter’s performance. The severe economic slowdown in China, as well as the intensification in COVID-19 containment measures in China made this quarter difficult. We continue to scale up our loan facilitation volume while improving asset quality quarter-over-quarter.

On a quarterly and yearly basis, the total loan facilitation and provision saw steady increases. This was significantly higher than our expectations. We are proud of our high-quality borrower base and efficient risk management system. The quarter’s delinquency rates were lower than the previous quarter. We have shown our business resilience and ability to navigate difficult situations.

During the second quarter, our total loan amount facilitated provided reached RMB17 billion, representing an increase of 32% year-over-year and 11% quarter-over-quarter. The delinquency rates for all outstanding loans past due for 31 to 60 days was 0.93% as of June 30, 2022. This is a decrease of 1.31% from March 31, 2022. Asset quality has declined across the financial industry due to macro headwinds. Asset quality will improve as we improve our risk management. For the second half, asset quality should be stable.

In the past quarter, we increased our efforts in finding more qualified borrowers. The number of active borrowers grew by 22% on both a quarterly as well as an annual basis. We reached a record of RMB1million in the last quarter. We are pleased to see our products being well-received and embraced by a growing customer base. This is a testament to our [indiscernible] reliability, and provides a solid foundation of future growth. To meet the financial needs of small and medium-sized businesses in China, we will continue to grow and strengthen our partnership with institutional funding partners.

China Banking and Insurance Regulatory Commission published a July 15th 2022 notice regarding the strengthening management of Internet lending businesses by commercial banks in order to improve the quality and efficiency of financial services. These rules confirm the positive impact of internet loans and further refine and clarify the requirements for internet loan management. They also extended the grace period for internet loan operation rectification from July 2022 to June 2023. This is part of the government’s stimulus strategy to revive the economy that was affected by the pandemic. This initiative encourages the use of credit to increase consumption and investment. This will benefit the overall development of the financial sector and its growth. We can use the extended grace period to look at marketing opportunities, especially for financial services for micro- and small-sized businesses.

As the COVID-19 pandemic is over, and the macro-economy slowly recovering, we are optimistic about the future. Expect steady, sequential growth in the next quarters due to an increasingly accommodating environment.

Now, I’ll pass this call to Frank who will examine our financials.

Frank Fuya Zheng

Kan, we are grateful and warmly welcome everyone. On a quarterly basis, our top line saw a slight decrease. We are continuing to reduce the total borrowing cost of borrowers, and we have improved our bottom line in the last quarter. 2022’s second quarter net income was RMB186m. This is an increase of RMB140m from the previous quarter. Non-GAAP adjusted net profits for 2020 (ph) were RMB211m. This is a 37% increase quarter over quarter thanks to a stable micro-economy, and clear regulatory environment. We expect further improvements in financial performance.

In the second quarter, we began to implement our share-repurchase plan. To maximize shareholder returns, we will continue to monitor market dynamics and regularly revalue cash.

Let me briefly address the financial performance for the second quarter. All numbers are in RMB. All numbers are also rounded up. The total net revenue decreased by 12% to RMB824 million, compared to RMB932million for the same period in 2021. This was due to a lower average total borrower cost. This partially offsets the increase in total loan amounts provided and facilitated in this quarter as compared to 2021.

Origination and servicing cost increased by 2% to RMB333 million from RMB. I’m sorry. RMB533 million, an increase of RMB521 billions in the same period 2021. This is due to an increase of commission fees, which resulted in an increase on total loans facilitated and provided in this quarter. This is partially offset by a decrease in insurance fees paid to the insurance company.

RMB26 millions was the provision for accounts receivables under contracts assets. This compares to RMB25 million in the same period of 2021. This is due to the increase in accounts receivable under loans facilitation services in this quarter, compared to the same period in 2021. This is a significant increase from the RMD1million provision in 2021. The company received a higher number of loans due to the larger loan amount that was granted this quarter than in the same period of 2021.

RMB194 millions was the operating income, compared with RMB338 million in the same period 2021. RMB186million was net income, as compared to RMB223 million in the same period 2021. Non-GAAP adjusted net income was RMB211 million, compared with RMB242,000,000 for the same period in 2021. For more financial information, please refer to our earnings release.

Concerning our share purchase plans: We announced on March 30, 2022 that our Board had approved a plan for share-repurchase. The company can repurchase up to $50 million of its Class-A ordinary shares using ETFs. This plan will remain in effect until September 2023. As of June 2022, we had repurchased an average 174,000 ETFs.

Our business outlook predicts that the amount of loans provided and facilitated in the third quarter of 2022 will range from RMB19 billion to RMD20 trillion. For the whole of 2022, we expect a 25% increase on total loans facilitated or provided. Based on our current and preliminary views, this forecast will not be final. These forecasts are subject to changes.

Our prepared remarks are now closed. Operator, please.

Questions and answers Session


We are very grateful. We are grateful. [Operator Instructions]. Mason Bourne, AWH Capital, asks our first question. Please continue.

Mason Bourne

Good evening. We appreciate your time answering our questions. You comment and your outlook make it appear that you are more optimistic about regulatory background. Would you be able to talk about the driving forces behind these changes?


Yes, that’s it. This is more about how we assess the current environment and not regulatory changes. As you all know from the COVID-19 pandemic, it’s also about what the future holds. But, it’s more about China’s economic impact from the COVID-19 measures. There is great interest right now in loans being granted. Our premium client and clientele are a great asset. We are currently in a favorable position. We have been able to build up enough premium customers in the last three quarters and will be able reap the rewards of our investment for the second half. This is how we grow our scale.

Mason Bourne

Okay. This sounds like there’s a lot of demand. How about funding? What about the funding aspect? Is there a easing of conditions that allowed you to lower your funding rate?


There has been some reduction in funding rates. This is more, I believe. This will likely be temporary and only last for a short time, but it will continue at minimum for the second half. This is our basis for forecasting.

Mason Bourne

Okay, thanks. I’ll add that the tangible book value of your shares should be RMB11.40. What are your thoughts about the buyback? In the last quarter, you did some. This is a great opportunity to buy back attractively at this price.


Frank will answer this question.

Frank Fuya Zheng

Okay. In the last open window, we bought 174,000 shares. Because our shares trade little, we maximize the buyback order. We intend to continue this practice and we will explore other options for purchasing more shares, if any.

Mason Bourne

Great, thanks.


[Operator Instructions]. The question-and-answer session is over. Tanya Wen will take over the conference to make any closing remarks. Please continue.

Tanya Wen

We appreciate everyone’s participation in today’s call. Through our [indecipherable] contact, we are happy to answer your questions. We look forward to speaking with you again. We are very grateful.


The conference is over. We are grateful to you for attending today’s presentation. Now you can disconnect.