FinVolution Group (FINV) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Thank you for participating in the second quarter 2026 earnings conference call for FinVolution Group. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Yam Cheng, Head of Capital Markets for the company. Yam, please go ahead.

Hi all. Thank you for joining our call. Welcome to our second quarter 2026 earnings conference call. The company's results were issued to newswire services earlier today and are posted online. You can download the earnings release and sign up for the company's e-mail alerts by visiting the IR section of our website. Mr. Tim Li, our Chief Executive Officer; and Mr. Alex Xu, our Chief Financial Officer, will start the call with the prepared remarks and conclude with a Q&A section. During this call, we will be referring to several non-GAAP financial measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. 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 these and other risks and uncertainties are included in the company's filings with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Finally, we posted a presentation on our IR website providing details of our results. Before I turn it over to our CEO, we are dialing in from multiple locations, so if there is any delay in connection, please bear with us. I will now turn over to our CEO, Tim. Tim, please go ahead.

Thanks, Yam, and thanks, everyone, for joining us. Let me start with the big picture. For years, we have pursued on clear strategy, internationalization. The world is volatile. Such strategy matters more than ever. It let us take what we have learned and put it to work in markets that are ready for fintech, and it helps us diversify away from any single market. That strategy served us well this quarter, and it is exactly where we are [ ready ]. Overall, the second quarter was a solid one. In China, a stable risk backdrop, together with the preemptive actions we took in early quarters give us a constructive environment to operate in. Overseas, momentum in Indonesia and Australia more than offset deleverage temporary pullback in the Philippines. That is our diversification strategy working as defined. Let me turn to the results. Given the results in China in the fourth quarter of last year, the sequential trend is more [indiscernible] measure. Group volume rose 5% sequentially to RMB 45 billion and the revenue moved in stack, up 6% to RMB 3.4 billion. Net profit was RMB 427 million, up 1%. But the figure we are most encouraged by is overseas, RMB 54 million in operating profit, up 17% sequentially. Overseas now account for roughly 27% of group revenue, and that share will keep rising for the rest of the year. Now let me dive into the 2 segments, starting with our Chinese Mainland. At a high level, we booked RMB 41 billion in loan volume, up 6.5% quarter-over-quarter, a healthy continuation of the recovery that began at the beginning of 2026. That said, the industry was riddled by an isolated credit incident, which adversely impacts the risk and funding dynamics. I will walk you through in a bit. Right now, we are watching 3 priorities closely, asset quality, fundings and regulation. First, asset quality. Coming into 2026, we expected a gradual recovery following the regulatory result in the fourth quarter of last year [ to quarter 3 ] that laid out as we expected through the first half, risks continue to ease through the second quarter. C2M2 came down again from 0.68% to [ 2.56% ]. So we grew the book selectively, focusing on the high-quality repeat borrowers as we know will. The strategy generated 6% sequential growth in unique borrowers while keeping credit quality firm. Vintage credit cost was steady at roughly 2.7%. The environment has since turned in July. An isolated credit event led institutional funding partner to reduce funding for loan facilitation. Many smaller platform [ excited ] our [indiscernible] card loan origination. Separately, a regulation campaign around the collection industry has tightened the collection capacity across the industry. Together, this creates a risk headwind for us in the coming quarters. While it is in the early stage, we are staying cautious on the risk of our portfolio. On funding, let me be direct. The same tightening states behind our funding outlook. Our own funding held up well in the second quarter, but beginning in July, we are seeing the industry as a whole tighten. As an institution turn more cautious, for us, that could meaningfully lower our origination volume and some upward pressure on funding costs. Here is how we are managing it. Our balance sheet and liquidity give us room, and our asset quality and the compliance record might turn more when funding partners get selected. We've already begun allocating liquidity towards our China funding base and will prioritize funding stability over near-term growth until the environment normalizes. On regulation, the new fee disclosure requirements took effect on August 1, and we are compliant. So online marketing rules take effect at the end of September, and we are already working with our partners to be ready. Now let's move on to the overseas segment. Our overseas segment is performing well. Volume rose 19% year-over-year and the revenue reached RMB 930 million, up 18%. More important, these numbers are backed by real demand. Our unique borrowers more than doubled from a year ago to 5.3 million. Over the past 2 years, we have reached several important milestones. We have built a diversified portfolio of markets, where temporary weakness in any one country can be offset by strength in the others. Last year, we absorbed an interest rate cap in Indonesia on the strength of the Philippines. This quarter, we deliberated back origination as a new rate cap took effect in the Philippines. And that gap was fueled by structural growth in Indonesia and the progress we keep making in our newest market, Australia. As the [ country balance ] and as we add more profit -- profitable markets, our growth trajectory would be increasing predictable and certain. Our playbook remains the same, product expansion and customer upgrade. We use a broad portfolio of easy-to-use financing products to attract customers to try out and progressively cross sell other credit solutions to build better unit economics over time. In Indonesia, off-line buy now, pay later continued to lead the growth. Our partnership inverse off-line consumption scenarios continue to proliferate. Offline buy now, pay later is now around 25% of the volume comparing to single-digit contribution a year ago. In the Philippines, the rate cap took effect this quarter. We slowed down deliberately to protect quality. The same approach we have taken through past transition and growth has typically returned once the new pricing [ set ]. In Australia, we further expanded our offerings to large ticket size, lower interest rate to attract consumers with strong credit profiles for higher credit limit. While this is still preliminary, we plan to continue to pursue customer upgrade as a core strategy. We also made further investments in building the open banking infrastructure giving us direct sight to bank statement data and a far sharper rate on each borrower. Finally, ESG. In our business, trust is everything. In June, we published our east annual ESG report. On fraud prevention, we made [ 60 ] upgrades to our antifraud system, flagged more than 9,000 suspicious activities each day and blocked over 17,000 fraud attempts. We also launched our own consumer protection system, Golden State Mail. It systematically integrates early risk warnings, compliant analysts, company unit and data dashboards to drive consumer protection governance from post incidents handling towards proactive volume, and those results 74.5% of cases on first contact, with customer satisfaction at 98.5%. With that, let me hand it to Alexis for a closer look at numbers.

Thank you, Tim, and hello, everyone. Let me walk you through our key results for the second quarter. And please refer to our earnings press release for further details. Now let me discuss each of the segments. First, China. Micro in China remains in our gradual recovery model. China's real GDP growth slowed down from 5% in first quarter to 4.3% in the second quarter on the back of subdued household consumer competence. [ Fourth ], in Q2 Revenue was RMB 2.4 billion, up 8% sequentially, a direct result of recovering loan volume during the quarter. Take rates stabilized at about 3.2%, in line with the first quarter. On risk, asset quality, our new loans held steady at 2.7%. And other risk indicators show signs of improvement on outstanding loans. The day 1 delinquency ticked up slightly from 5.2% to 5.3%, while 30-day collection rate strengthened from 87% to 89%. Overall, C2M2 improved to 0.56% and from 0.68%, below the Q3 2025 level. While discipline to our portfolio of improving credit quality, we are [indiscernible] on the risk uptake following various industry events in July. Separately, funding cost shows a further 30 basis points accretion to 3.7%. Institutional funding supply began to tighten towards the end of the quarter, and we expect further upward pressure on funding costs in the coming quarters. On customer acquisition, we raised our risk appetite for repeated borrowers, combined with acquisition costs holding at an attractive level, that brought our overall customer acquisition costs down quarter-over-quarter. As a result, China's operating profit grew 4.3% sequentially to RMB 625 million. Turning to the overseas. Overseas revenue rose 18% year-over-year to RMB 930 million, partially dragged by our deliberate pullback in loan origination in the [indiscernible] business. One priority for our overseas segment is to balance profitability with growth. By its nature, this business recognized customer acquisition costs and credit loss upfront, while revenue is earned over time. Philippines profit is inherently backloaded and the rapid growth on its own would leave the early years deeply unprofitable. We manage it deliberately against that dynamics, ensuring we deliver profit even as we scale. The second quarter was a case in point, RMB 54 million in operating profit, up 17% quarter-over-quarter and more than double year-over-year. Earlier this year, we guided to USD 13 million of full year EBITDA. Doubling from last year, we remain confident in delivery. During the quarter, we added 2.2 million new borrowers in the quarter, up 29% sequentially. Offline buy now, pay later operator in Indonesia drove most of the new borrower momentum. Our [indiscernible] or off-line expansion is translating directly into new customers rather than just brand awareness. The Philippines continued to absorb the impact of the industry's new interest rate cap. We preactively scaled back originations this -- over the past 2 quarters, but the momentum [ to restart ]. In Australia, unique borrowers grew 22% sequentially, driven by effective online marketing, a wider product range and a cleaner app experience. Going into the next quarter, we continue to be mindful of the macros, such as oil price, may impose our currency as well as credit quality in market we operate. On a group basis, net revenue reached RMB 3.4 billion up 6% sequentially on the back of higher loan volume. Operating profit came in at RMB 529 million, which included a one-off intangible asset impairment of RMB 64 million. Excluding that impact, operating profit was up 8% sequentially. Net income was RMB 427 million, up 1% sequentially. We had RMB 6.4 billion in cash and short-term investments and the leverage is set at 2.1x, near historical lows. The balance sheet strength gives us the flexibility to navigate a tighter funding environment in China. Our shareholder returns, our capital allocation is clear. We prioritize business growth first and use buybacks as our flexible level thanks to market conditions, trading volume and the share price. In the second quarter, we repurchased USD 27.4 million of shares, bringing first half 2026 repurchase to USD 66.8 million. Now to our outlook. We are reiterating our full year revenue guidance of RMB 11.5 billion to RMB 12.9 billion based on information currently available. We set a range conservatively at the start of the year given the industry volatility. Our first half performance tracked ahead of our internal plan. That gives us a cushion. The other performance we delivered in the first half year helps absorb the softer second half we now expect as funding and credit conditions tighten. Given that near-term pressure, we would expect to land in the lower part of the range unless the operating environment substantially changes. To sum up, China is moving through a transition that we believe will favor players with strong compliance and operational know-how. Overseas is becoming a second growing source of profit. We go into the third quarter clear-eyed about the funding and the regulatory pressure ahead and committed to the same [indiscernible] execution that has carried us this far. Across capital allocation and operations, we are focused on one goal, lasting, compounding returns for our shareholders. Thank you. We will now hand the call to the operator for questions.

[Operator Instructions] The first question will come from the line of Cindy Wang of China Renaissance.

[Foreign Language] I have 2 questions here. First, following the GG pattern incident, what business adjustment did the company make to ensure risk control. What is the current funding supply situation? And will the recent exit of small size platform would lead to a resurgence of industry risk? And what are the recent changes in the company's early risk indicators? Second, what is the current interest rate adjustment situation in Philippines? And will they affect the growth rate of overseas new loan volume this year?

Thank you, Cindy. I will take your questions. I think you have 2 questions, and your first question is a very big and multipart question. So I will break it into different pieces. Okay? Let's start with what we are seeing on the funding side after the [indiscernible] event, the credit and the liquidity issues at the individual platform did trigger some broader volatilities in the funding across the long-position industry. So the first impact is the tightening appetite of the financial institutions. The event is concerns about the financial institutions about the [ funding flow safety ] and the compliance of the platform. Since July, a lot of institutions have launched internal self-checks and do some reviews for their partners. Some of them [ paused the ] business doing the process, took up weight and the approach. So that's led to a value [indiscernible] pullback in funding supply across the whole market. I think most of the small and middle-sized platforms have either exited or pulled back sharply on lending. And we are relatively less impact, but our China volume was down around 50% in July. And looking at August, we believe institutional confidence has started to stabilize. But the funding recovery is still coming back at a slower pace. Yes. And what we have done to adjust our business for the challenge, okay, so first is on transparency. We have worked very closely with our financial institution partners, gives them the visibility into our fund flows and the repayment path, kept everything in a very clear and close loop capacity process. We believe it will help to ease their concerns. And secondly, during this period, we have prioritized the quality over the scale, further refined our customer segment, Tixi, recent underwriting and prioritize funding for our high-risk quality customers. And then turn to the funding outlook. I think over the long term, financial institutions will keep reducing their exposure to those small platforms and focus on the big platforms that they are combined, well capitalized and have a strong risk track record. That's where we see it. I can show some figures. In the second quarter, we had RMB 6.4 billion in cash and short term investments. Our cash flows stayed solid through July and August. And the latest number is RMB 7.5 billion. At our top net, we have got roughly RMB 5 billion in highly liquidity assets. I mean those cash, we can recover very quickly year-on-year term. So the aggregation number is 12.5 billion in total. Okay? That gives a real resilience and forms the foundation for our leading position in this industry and our long-term relationships with the founding partners. We think in near term, there will still be some volatility as these [ 2 cans ], still near time to rebuild their risk appetite and work through their process reviews. So maybe in the next 1 or 2 quarters, I think it comes down to 2 things. First, it depends on how fast institutions get through their self-checks and system fix. The pace varies a lot case by case. So industry-wide, the recovery hasn't quite caught up yet. Secondly, I think whether the broader credit environment stays stable [indiscernible] and as keep exiting and assuming there is no new extreme event, so in that case, I would expect risk appetite and confidence to gradually come back with the self-check wrap-up. Okay. And last, I will talk about our early risk indicators. This runoff funding tightened also overlapped with the regulatory action in the collection industry at the end of July. So collection resource got tighter. And the recovery efficiency took a bit of [ 2 ]. That's added some challenges on top. Okay. Actually, we have seen some movement in our early risk indicators. As a result, our latest reading is up around 20% versus the second quarter. Given all of that, we are seeing profit focus reiterating scale. We are also taking a more conservative posture on shopping, how we identify higher-risk borrowers, speeding up model integration and tightening the acquisition spend. All our goal is protecting our unit economics. Okay? So that's my answer for your first question. And your second question is about Philippines. Okay? The Philippines rolled out a new interest rate cap effective from April 1. So heading into that, we took a pretty deliberate cultured approach in the first half. We actually slowed down the originations on [ per ] to give ourselves room to adjust the business. Yes. short-term volume in the Philippines did take a hit, okay, as we have mentioned before. But based on our experience, navigating similar pricing adjustment in Indonesia before, we believe this kind of recovery typically takes about 2 or 3 quarters. So we expect the Philippines business will return to growth in the third quarter. And after the adjustment, the new regulator framework saying and as our mix shift further towards high-quality borrowers, we have still got room to optimize both credit costs and funding costs and the gold peaks back up from there. A little bit clear. In the Philippines, I think we are not just cutting prices to comply with the new rules. We are using this as a chance to push deeper structure upgrade across the business. For example, on the risk side, we have raised our underwriting bar and the pullback on the marginal segment where risk and returns were not done yet; while growing the share of higher-quality borrowers, the ones with more stable repayment behavior and better repeated borrowing performance. And on the product side, we are continuing to diversify beyond online cash loan product. We have expanded into more senior-based products like our buy now, pay later product with the local smart shop campaign and car sale. That let us more beyond a single cash loan product into a broader range of consumption and payment use case. So we can match our better quality customers with the right credit line, tenure and the product and then build the lifetime value to repeat borrowing. Now zooming out to the overseas business as a whole, the fee adjustment in the Philippines in the first half doesn't change the overall growth trajectory for our overseas markets. And there is really, thanks to our -- the multi-market point. The Q2 pullback in Philippines was largely offset by the strong growth in our Indonesia and Australia market. So heading to the second half, we expect the momentum in Indonesia and Australia to continue. And also, we expect the Philippines to work through this adjustment period to get back to [indiscernible] goals. So for the full year, we are well confident to expect the overseas volume to grow at a double-digit rate year-over-year.

The next question now comes from the line of Alex Ye of UBS.