CNFinance Holdings Limited (CNF) Earnings Call Transcript & Summary

Hello, and welcome to the CNFinance Holdings Limited First Half of 2024 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to [ Simon Tan ], Manager of the Capital Markets Department. Please go ahead.

Thank you, Joe. Good morning and evening, and welcome to the CNFinance first half of 2024 financial results conference call. In today's call, our Director and Vice President, Mr. Qian Jun, will walk us through the operating results followed by the financial results from our Acting CFO, Ms. Li. After that, we will have a Q&A section. Before we started, 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 terminology such as will, expects, anticipates, future, intends, plans, believes, estimates, target, 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 take any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law. Now, please welcome Mr. Qian Jun.

[Interpreted] Good day, everyone. Thank you for joining us today. In the first half of 2024, our focus was squarely on navigating the macroeconomic uncertainties by reinforcing our business fundamentals and ensuring the quality of our assets. During this period, we originated loans of RMB 6.9 billion. As of June 30, 2024, our outstanding loan principal was approximately RMB 16 billion, reflecting a year-over-year growth of about 10%. To manage potential risks, we continue refining our credit approval strategy and strengthened our efforts in collecting and disposing of non-performing loans. As a result, we maintain our non-performing loans ratio at approximately 1.2% as of June 30, 2024, consistent with the level at the end of last year. We recorded an interest income of approximately RMB 930 million, up 5% compared to the same period last year. However, while we benefit from a continued decline in interest rate of our trust financing, the increase in average daily loan principal on the trust model leads to a slight year-over-year rise in interest expense. Since the start of the year, we have enhanced our collaboration with third-party asset management institutions, particularly in area of overdue loan collections. These strategic moves significantly boosted our recovery amounts, though it also lead to a corresponding increase in operating expense due to service fees paid to the third-party institutions. Despite these additional costs, our net income from operating activities for the first half of 2024 was approximately RMB 220 million, remaining largely flat compared to the same period last year. We have maintained a prudent approach in provision for impairments. With the increase in our outstanding loan principal, the provision for credit losses increased to RMB 172 million. Consequently, our net profit for the period decreased to RMB 48 million. Our key area of focus for the half year period includes: first, we continue to drive down our funding cost. With market interest rates turning downward, we actively engage in negotiations with our funding partners to secure more favorable financing terms. Leveraging our long-term relationship, we achieved a reduction in our average financing rate by approximately 4% year-over-year. The reduction allowed us to pass on benefits to our customers with end user interest rate decreasing by about 1% point. Second, we strengthened our support for sales partners. This quarter, we observed a further easing of liquidity pressure on our sales partners, with more of them resuming their repurchase obligation to protect the loan they recommended. This share benefit, share risk model has been instrumental in reducing our risk exposure. Third, we maintain our focus on asset quality. We concentrate our business efforts on the core area of first tier and new first tier cities with over 90% of our loan is in the period being originated in these regions. In addition, we deepened our cooperation with third-party asset management companies, enhancing our capability in collecting delinquent loans. Through these efforts, we successfully maintained our NPL ratio at 1.2% as of Jan 30, 2024, while achieving a recovery rate of 110% during the period. As we look ahead, we recognize the ongoing uncertainty in the microeconomic environment and the adjustment in the real estate market. We are committed to adjust the quality pressure of our existing loan and navigating the uncertainty surrounding new loans. To that end, we will continue to adjust our strategy focusing on ensuring asset quality and enhancing operational efficiency. Our goal is to improve both quality and profitability of our business. Our specific measure moving forward includes: enhancing our focus on asset quality, we will rigorously manage our credit approval standards for new loans; ensuring the quality of forwards and collaterals. Additionally, we will continue to improve the efficiency of our delinquent loan recoveries, particularly through settlement recoveries, which offer the advantage of fast recovery and high recovery rate. We plan to deepen our cooperation with third-party asset management company to further leverage this advantage, improving both recovery speed and recovery rates. Strengthening our product innovation, we will maintain the high quality and fast advantage of our products, while expanding our product portfolio to adapt to various scenarios. To support these new business scenarios and enhancing overall efficiency, we will continue to optimize our sales system and adjust our credit approval policies. Incorporating additional dimensions into our approval models. Further strengthening our compliance efforts, we are committed to continuously improving our risk control and compliance process through target actions, which will help us prevent the non-market risk cases. Now I will hand over the time to our CFO, Mr. Li Jing, and she will introduce the financial results for the first half of 2024 to you.

Our total interest and fixed income increased by 4.7% to RMB 926.5 million from RMB 884.5 million. Total interest and fees expenses increased to RMB 401.7 million from RMB 366.3 million. The increase in total interest and fees expenses was mainly due to the increase in average daily balance of interest-bearing borrowings. Net interest and fee income was RMB 524.8 million, representing an increase of 1.3% from RMB 518.2 million. Net revenue under the commercial bank partnership model was RMB 58.4 million as compared to RMB 50.1 million in the same period of 2023. In the first half of 2024, the majority of borrowers were introduced by sales partners and the commission paid to sales partner sales channels have decreased, which has ultimately led to an increase in the net revenue under the commercial bank partnership model. Collaboration cost for sales partners decreased by 3.9% to RMB 159.2 million from RMB 165.6 million. Net interest and fee income after collaboration costs increased by 5.3% to RMB 424 million from RMB 402.7 million in the same period of 2023. Provisions for credit losses increased to RMB 170.8 million from RMB 129.6 million in the same period in 2023. The increase was mainly due to the increase in outstanding loan principal. Other expenses increased by 62.2% to RMB 97 million from RMB 59.8 million in the same period of 2023, primarily due to the increase in fees paid to third-party asset management companies to collect delinquent loans. Net income was RMB 48 million as compared to RMB 93.1 million in the same period of 2023. As of June 30, 2024, the company had cash and cash equivalents and restricted cash of RMB 1.6 billion, including RMB 1 billion from structured funds as of June 30, 2024, which could only be used to grant new loans and activities. The delinquency ratio for loans originated by the company increased from 15.5% as of December 31, 2023, to 16.4% (sic) [ 17.4% ] as of June 30, 2024. The NPL ratio for loans originated by the company was 1.2% as of June 30, 2024, compared to 1.1% as of December 31, 2023. With that, we would like to start the Q&A session.

Okay. At this time, I understand that this will conclude the question-and-answer session. I would like to turn the conference back over to Simon Tan for any closing remarks.

That's all for today. Thank you for joining us. If you have any more questions, please feel free to reach us at ir@cashchina.cn. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]