CNFinance Holdings Limited (CNF) Earnings Call Transcript & Summary

Hello, and welcome to the CNFinance First Quarter of 2023 Unaudited Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matthew Lou, Investor Relations Manager. Please go ahead.

Thank you. Good morning and evening. Welcome to the CNFinance First Quarter of 2023 Financial Results Conference Call. In today's call, our Director, Vice President, Mr. Jun Qian, will walk us through the operating results, followed by the financial results from our acting CFO, Mr. Li. After that, we will have a Q&A session. Before we start, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, believes, estimates, targets, going forward, outlook and similar statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law. Now please welcome Mr. Jun Qian.

[Foreign Language]

[Interpreted] Thanks, everyone. For taking your time and attend this conference call. Today, we will introduce CNF's operational financial results in the first quarter of 2023 and followed by a Q&A session.

[Foreign Language]

[Interpreted] In the first quarter of 2023, we have maintained our momentum and achieved year-on-year growth in key operational and financial indicators. In this quarter, loan origination volume increased 48% from the same period of 2022 to RMB 3.4 billion, including RMB 1.2 billion under commercial bank partnership. Net revenue under the commercial bank partnership model came in at RMB 21.5 million for the first quarter of 2023. The total interest and fees income for Q1 2023 was RMB 450 million, representing a year-on-year increase of 9%. We continued to provide installment services and funding support for sales partners were obligated to repurchase delinquent loans and recorded interest income charged to sales partners of RMB 37.5 million. And net income in Q1 2023 increased 14% year-on-year to RMB 49 million. In the first quarter of 2023, we have done the following works.

[Foreign Language]

[Interpreted] We continued to promote and refine commercial bank partnership. Targeted borrowers of commercial bank partnership have better credit ratings in general and bank lending products require less own capital of the company. Since its launch in 2021, the commercial bank partnership model has gradually gained recognition from the market and our partners because of this low interest rate. After deepening cooperation with private banks, the origination volume of bank lending products began to increase quickly in the second half of 2022 and continued growth in the first quarter of 2023. In Q1 2023, loan origination volume of bank lending products accounted for 35% of total loans originated by the company and has become one of the company's major revenue streams. In this quarter, we have brought sales partners into the commercial bank partnership and further reduced our risk exposure.

[Foreign Language]

[Interpreted] We have reduced the funding cost and diversified the financing mix. As we have reached consensus with funding partners are reducing interest rates in the second half of 2022, our interest and fees expense in Q1 2023 has decreased 8% year-on-year, RMB 180 million. In this quarter, we successfully established a couple of [ funds ] with third-party AMC and provided sufficient and consistent funding support for sales partners who needed to repurchase [ delinquent ] loans. With that, those partners' liquidity was improved and were far motivated to expand their business.

[Foreign Language]

[Interpreted] We have improved the asset quality. In this quarter, we analyzed historical loan originations and conducted risk factor analysis on defaulted loans. Based on the results, we refined our model for risk assessment and shifted our prioritization to business operations, Tier 1, new Tier 1 and other major cities. As a result, delinquency ratio at the end of Q1 of 2023 has decreased as compared to the end of the [indiscernible].

[Foreign Language]

[Interpreted] We continued to be confident that China's inclusive financing industry is in its window period. At the same time, [indiscernible] environment has made it very important for us to pursue high-quality development [indiscernible] expand our business [indiscernible].

[Foreign Language]

[Interpreted] We will focus on increasing loan origination volume. We will continue to take measures to better service high-quality sales partners and support their growth. We will keep promoting commercial bank partnership, refining trust lending model, and discovering opportunities to deepen our collaboration with [indiscernible]. So we will adjust our products based on market conditions. We are looking forward to rolling out a new bank lending product that charges an annual interest rate less than 12% in the second quarter of 2023.

[Foreign Language]

Second, we will keep refining our funding model. First, we will maintain dialogues with [ trust ] company partners on adjusting the structure of trust [ plans ]. Second, we will negotiate with AMCs on reducing the interest rates they charge in order to further ease liquidity pressure of our sales partners.

[Foreign Language]

This is the operator. I'm sorry, we're getting a lot of noise. I'm going to see if we can reconnect. Just give me one moment, please. [Technical Difficulty].

Welcome back, and we'll just pick up from wherever we probably hung up. Now please welcome again Mr. Jun Qian to give his remarks.

[Foreign Language]

[Interpreted] Our future tasks [ include ], first, we will focus on increasing our origination volume. We will continue to take measures to better service high-quality sales partners and support their growth. We will keep promoting commercial bank partnership, refining trust lending model and discovering opportunities to deepen our collaboration with insurance companies. So we will adjust our products based on market conditions. We are looking forward to rolling out a new bank lending product that charges an annual interest rate less than 12% in the second quarter of 2023.

[Foreign Language]

[Interpreted] Second, we will keep refining our funding model. First, we will maintain dialogue with trust company partners on adjusting the structure of trust plans. Second, we will negotiate with AMCs on reducing the interest rates they charge in order to further ease liquidity pressure of our sales partners.

[Foreign Language]

[Interpreted] Third, we will keep investing in [indiscernible] and fully recognize the importance of technology in refining product design and risk assessment. We will continue to analyze historical data of loans originated. We will tailor products or loans served by collaterals in core areas of Tier 1 and new Tier 1 cities. We will also roll out trust lending products that charge lower interest to increase our market share through deeper analysis on different factors of collaterals and borrowers to help refine risk assessment model in order to improve asset quality and our resistance to market fluctuations.

[Foreign Language]

[Interpreted] Now I would like to hand the call over to our acting CFO, Mr. Jing Li, who will walk you through the financial results of Q1 of 2023.

Thank you. Thank you, Jun. So the first quarter of 2023 financial results. Before we start, I want to remind you that unless otherwise stated, the currency we use is in RMB. Also, unless otherwise stated, all comparisons will be made on a year-over-year basis. The interest and financial service fees on loans increased by 5% to RMB 412 million from RMB 391 million, primarily attributable to the increase of average daily outstanding loan principals in the first quarter of 2023 as compared to the same period. [indiscernible] charged to sales partner, representing fee charged to sales partner who choose to repurchase default loans in installments, increased by [ 60.3% ] to RMB 38 million from RMB 23 million. This is primarily due to the fact that the company allows more sales partners to repurchase [indiscernible] in installment to help sales partner ease their pressure on cash flow. And fees expense decreased by 8% to RMB 185 million as compared to RMB 200 million in last year. Finally, due to a decrease in [indiscernible] and as well as the funding cost from the trust company, net income and fees income [indiscernible] was RMB 22 million. The company has started to collaborate with commercial bank since 2021 and such collaboration growth and scaled in second quarter of 2022. The outstanding loan principal under the commercial bank partnership was RMB 3.4 billion as of March 31, 2023 [indiscernible] compared to [ RMB 70.4 ] million as the same period of last year. Collaboration cost of our sales partners. This represents sales incentives paid to sales partners, 4% to RMB 83 million compared to RMB 80 million same period, primarily attributable to the increase of average daily outstanding loan principal in the first quarter of 2023 as compared to the same period. Provision for credit losses. The provisions for credit losses under the trust lending model and the expected credit losses of guarantee under the commercial bank partnership model in relation to certain financial guarantee arrangements the company entered into with a third-party guarantor, who provides guarantee services to the commercial bank partners was RMB 79 million in the first quarter of 2023 as compared to a reversal of RMB 14 million in the same period of 2022. The reversal in last year was primarily due to the transfer of the remaining loans under the traditional facilitation model to third parties and allowance of such loans was reversed.