Jiayin Group Inc. (JFIN) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Jiayin Group's Third Quarter of 2021 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. I will now turn the call over to Ms. Susie Wang, Director of the Blueshirt Group Asia. Ms. Wang, please proceed.

Hello, everyone. Thank you, all, for joining us on today's conference call to discuss Jiayin Group's financial results for the third quarter of 2021. We released the results earlier today. The press release is available on the company's website as well as [indiscernible]. On the call with me today, are Mr. Yan Dinggui, Chief Executive Officer; Mr. Xu Yifang, Chief Risk Officer; and Ms. Delia Chen, Co-Chief Financial Officer. Before we continue, please note that today's discussion will contain forward-looking statements, made on the safe harbor provisions of the U.S. Private Securities Litigation Reform Act 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from expectations we express today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicate law. Also, please note that unless otherwise stated, all figures mentioned during the conference call, are in Chinese renminbi. With that, let me now turn the call over to our CEO, Dinggui Yan. Go ahead, Mr. Yan.

Hello, everyone, thank you for joining our third quarter 2021 earnings conference call. We delivered another outstanding quarter with impressive financial results, reflecting the success of our growth strategy execution, as we continue to diversify our funding resources and burden our collaborations with our institutional partners. Our loan origination volume has doubled from last year to surpass USD 1 billion, with a 43.8% increase in our net revenue. We believe we are on the right track for our next stage of our growth, leveraged by our continuously effort in expanding our funding resource while maintaining risk management excellence. In quarter 3, our funding partners increased to 36, with another 42 institutions in discussion. We are confident, we will have continued top line growth and capture massive opportunities in the growing consumer market. In this quarter, we resumed our marketing program and began acquiring new customers at a more accelerated pace that is focused on higher credit-quality customers. We have maintained delinquency rate while sustaining rapid portfolio growth. We started a loan program for small business owners. Small businesses are the backbone of our country's economic development and a common prosperity initiatives, the act of the option for accessing capital to growth presents a great opportunity for us. However, we are very cautious about what we are offering and the use of a low-integrated and repayment capabilities. We are gradually rolling out this program, and we are gathering more data and develop differential risk, underwriting criteria and tools to ensure our loans are for borrowers, of quality and good credit. Today, a large portion of our loan volume continues to go to our existing borrowers with higher quality, with our repeat borrowing rate for this quarter at 69.1%. We believe, serving higher-quality borrowers will improve our credit risk profile and ensure asset quality. We remain dedicated to controlling credit -- credit quality with our improved credit scoring system and advanced technology capabilities. Last, I want to mention our efforts in corporate social responsibility, or CSR, which is one of the most important aspects of our corporate culture. Since Jiayin was founded, we have been dedicated to creating value for society, adhering to charity, spirit of the "help others, you help yourself". One of our main brands are for the schools program, designed for providing better school environments for the children in need. So far, Jiayin has made donations to 40 schools across the country, including donations of the school supplies, books, cash awards and more. In addition to the information, we also obliging various of the events, in order to serve more people's lives and contribute better health. We're remaining committed to launch more initiatives and continuously promoting CSR awareness by obliging and participating in a wider variety of the social and public events. In conclusion, we achieved yet another solid quarter with impressive financial growth. We will continue to advance our technological capabilities and solidify our operation in China and in overseas market, while working with our institutional partners to further explore our opportunities that will enable us to diversify our business model. We are confident to maintain healthy growth in the quarter ahead and resume robust, consistent and long-term growth. With that, I will now turn the call over to our CFO, Senior Chen. Chen, please go ahead.

Thank you, Mr. Yan, and thank you, everyone, for joining our call today. As Mr. Yan mentioned, we ended another great quarter on a strong note. Total loan origination volume maintained a strong growth trajectory, reaching RMB 6.7 billion, representing an increase of 100.2% year-over-year and 17.7% sequentially. Net income came in at RMB 124.8 million, a 41.2% year-over-year increase, compared to RMB 88.4 million in the same period, last year. With the clearance of P2P balance and the diverse financial institutional partners, we are able to continue our upward trend in this quarter, and we are confident to resume high-quality growth in the years ahead. Now, let me go through our financial highlights for the quarter. Please note that unless stated otherwise, all numbers quoted are in RMB, and the percentage change refer to year-over-year comparisons. Net revenue was RMB 577.1 million, up 43.8%. Revenue growth was primarily driven by the significant growth in loan origination volume, which increased to 100.2%. Other revenue was RMB 40.3 million, down 47.7%. This decrease was primarily due to reduced revenue from P2P-related services as the company no longer supports the legacy P2P lending business, partially offset by the sales of hardware by Shanghai Bweenet since the integration in May. Moving on to costs. We have stepped up the overall spending on customer acquisition since last quarter. In the third quarter, our total operating costs and expenses increased 68.4% year-over-year, reaching RMB 423.2 million. The increase was along with our top line growth as well as the significant increase of spending on sales and marketing, as we began to attract new customers at a more accelerated pace. Total operating costs and expenses, as a percentage of revenue, was 73.3% versus 62.6% in the same period, last year. Origination and servicing expenses were RMB 88.3 million, up 48.4%, primarily due to the increase in credit assessment expense, resulting from higher loan origination volumes. We incurred cost of sales of RMB 9.4 million, compared with nil from the same period of 2020. The increase was primarily due to the cost of hardware sold by Bweenet. Allowance for uncollectable receivables, contract assets, loans receivables and others were RMB 6.2 million, down 60.8% from the same period of 2020. The decrease was primarily due to the decrease in estimated default rate, under current business model, since we no longer support the legacy P2P lending business. G&A expense were RMB 45.3 million, up 21.4%, primarily due to increased expenditures in employee benefits and professional service fees. R&D expense was RMB 37.1 million, down 4.5% (sic) [ 5.4% ]. This was primarily due to the improved utilization and the productivity of our facility and our employees allocated to the research and development department, of which has been partially offset by the increase in professional services expenses as the company continued to enhance research and development capabilities. Sales and marketing expenses were RMB 236.9 million, up 138.1%, primarily due to our new online advertising and marketing strategy, which has resulted in higher customer acquisition expenses. As we intend to continuously grow our origination volume, we began attracting new customers at a more accelerated pace, with our superior marketing algorithm and translating them into our loyal customer base. We have achieved another attractive profitability through our loan volume growth with the posted net income of RMB 124.8 million, up 41.2% year-over-year. We ended this quarter with RMB 178.5 million cash and cash equivalents, compared with RMB 141.4 million as, of June 30, 2021. Our improved cash position gave us greater flexibility, while enable us to invest in initiatives that will drive long-term growth. Moving to our guidance. Due to the lower-than-expected growth from our loan origination volume, our full year 2021 loan origination volume is revised downward to the range between RMB 20 billion to RMB 23 billion, representing 72% to 98% year-over-year growth. As we follow and achieved our long-term growth objectives, we are still confident in our business model and our ability to bounce back strongly. With that, we can open the call for questions. Mr. Yan; our Chief Risk Officer, Mr. Xu and I will answer questions. Operator, please go ahead.

[Operator Instructions] Your first question comes from the line of Andrew Scutt of ROTH Capital Partners.

Congrats on the strong profitability. My first question revolves around your increased acquisition of new borrowers. It looks like you guys are making strong traction on the sales and marketing spend, you guys have made in the last few quarters. So can you just, kind of, talk to the success you've seen in the new online advertising?

Yes. So this is Delia. I will take this question. So yes, the sales and marketing expense were, yes, RMB 236.9 million. So if you compare it to the last year, I think it's primarily due to the increase in loan facilitation amount. But if you -- if we look at the last quarter's number, this quarter represents a 36% increase. So amount this 36% increase, I think, roughly half is the marketing fee, and the remaining half is driven by the marketing initiatives and the strategy that we launched. So as we mentioned in the last quarter, I think the second quarter is the quarter that we still launching the information-feed advertisement. So compared with the last quarter, we are pretty happy to see great improvements in the cost-effect ratio of this initiative. So in terms of the cost per new borrower and the cost per facilitation amount, they are both edging downwards. So -- and we've also seen the great breakthrough at the end of September that the cost of these initiatives are comparable to our existing marketing channels. So if we look at the total sales and marketing expenses, at this moment, I would say, there are lots of moving pieces, and the result will be affected by different customer mix, I mean, the repeat borrowers or the newly-onboard borrows and the channels mix. But as the numbers and the performance come in this quarter, we are pretty confident to see that these new initiatives will help bringing our target customers in a more effective economic and efficient way. So there will be definitely -- there will be room for efficiency gains, as long as our volumes grow, and we will continue to work to optimize the cost. So hope, it was covered by the change that we are seeing now.

Great. Thank you for the information for the efficiency, and the initiative is improving. So my second question revolves around the new products, you guys have, for small businesses. It's to hear you guys are rolling that out. Can you maybe, provide some details on, maybe, the size of the loans? What type of businesses you guys are targeting? And any other detail you could provide there, will be good.

This is Xu Yifang. I'm going to take your questions. Thank you, Andrew. So regarding to SME, we have started to focus ], primarily focusing on acquiring these customers through our online acquisition channels. So we stay, where we are familiar with and where we are highly cost-effective with channel-wise -- In terms of the type of customer we're acquiring, are really micro to small businesses. As part of the acquisition process, we are asking these potential customers as to submitting their business licenses as well as their personal credential, which helps us to evaluating their credit worthiness. At this point, we have both targeting the existing customer calls to identify the customers, who are part of Jiayin customers, but also our small business owners. In addition, as I said before, we also [indiscernible] to our online new-customer acquisition channels. In terms of loan size wise, it's getting a little bit on site -- on loan price, it's a little bit higher than what we are having now, about 20% to 30% higher, in terms of average credit line.

That was very helpful. My next question has to deal with the international [indiscernible]. Last time we spoke, you guys are still seeing great is a top 3 lender, and you just recently received [indiscernible]. So I was just wondering, if you guys had any updates on the various markets you guys are entering into?

We are -- it's Yifang, again. I'm going to take your questions on the market expansion. As we have shared last time, we are making solid progress in our international markets. For the Mexico market, we are seeing newcomers into the Mexico microlending business, but we remain at the leading position in Mexico. Our volume -- our total volumes may not have increased dramatically, but we are making solid progress, in terms of preparing ourselves towards our product proliferation. In terms of Nigeria, so we have believed, we shared that we obtained the lending license. We are now trying to achieve our scalability. And reporting back on Indonesia, we are still in the process of trying to solidify our positions, in terms of our lending license.

Great. Next for me, if I may. On your credit cost, your charge for allowance -- uncollectible receivables, as a percentage of loans funded, has dropped substantially. Is there, kind of, a level that you guys see it normalizing? And do you guys feel comfortable with the average credit quality of the customer, you guys are funding today?

We're not able to catch a question. Can you say it again, Andrew?

Yes, sorry. Just on credit cost, your charges for uncollectible accounts per loan funded, has dropped substantially. So the new -- can you talk to where you see credit costs going, and how you feel about the average credit quality of the standard customer today?

I will talk about the general directions. The reason for the drop is the credit cost on the uncollected loans. It's primarily driven by our improvement on the credit quality.

And for -- because the last year, we've changed our business model, substantially. So most of the uncollectible allowance, for this quarter, are due to the related party -- I mean, it's our financial institutions that we provide service to. So most of them are licensed credit, financial institutions. So they have a pretty good credit. So we -- basically, you can see, the remaining part on the collectible allowance, are from on the previous business that remaining on the book.

Awesome. And last one, if I may. With -- so you guys are beginning to generate some revenues since we met. Can you just speak to how the integration is going, and how you see that business working over the next few quarters?

Yes, right. So this is Delia again. So because of the recent crackdown on the blockchain and bitcoin mining broader market [ segment ], a lot of challenges to those business segments. So as a result, at this moment, we just started this segment operations in Mainland China, but we are actively seeking opportunity to move it to the overseas, and we'll be closely monitoring the regulation change, and we remain alert to adjust our plans. And in the -- at this moment, we will -- we are assessing this investment, according to this ever-evolving policy and update -- we will update the market, when there is progress.

[Operator Instructions] Seeing no more questions, I will turn the call to Ms. Chen. Please go ahead.

Thank you, operator, and thank you all for participating on today's call, and thank you for your support. We appreciate your interest and look forward to reporting to you again, next quarter, on our progress.

This concludes today's conference call. Thank you for participating. You may now disconnect.