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 Second Quarter 2024 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 Mr. Shawn Zhang from Investor Relations of Jiayin Group. Please proceed.

Thank you, operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss Jiayin Group's financial results for the second quarter of 2024. We released our earnings result earlier today. The press release is available on the company's website as well as from Newswire services. On the call with me today are Mr. Yan Dinggui, Chief Executive Officer; Mr. Fan Chunlin, Chief Financial Officer; and Ms. Xu Yifang, Chief Risk Officer. 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 actual results may be materially different from the expectations expressed 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 statement, except as required under applicable 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, Mr. Yan Dinggui. Mr. Yan will deliver his remarks in Chinese and I will follow-up with the corresponding English translation. Please go ahead, Mr. Yan.

[Foreign Language]

[Interpreted] Hello, everyone. Thank you for joining our second quarter 2024 earnings conference call.

[Foreign Language]

[Interpreted] Reflecting on the second quarter, this was a time of change in the external environment and deep adjustment in domestic industries and consumption. China's macroeconomic situation is moving forward under pressure with cautious consumer credit demand. After a period of risk volatility, various risk indicators have improved. However, it remains to be seen whether the changes in the market risk levels will continue this trend in the second half of this year, which requires further observation and analysis. During this challenging period, the company's risk control and technological capabilities were put to the test. But we never stopped assisting financial institution clients in maintaining a strong first line of defense. Against this backdrop of improving risk levels, our team successfully achieved our strategic goals with innovation and firm execution. In the second quarter, the company achieved a loan facilitation volume of RMB 24 billion, a further increase compared with the previous quarter. In addition, the company achieved net revenue of RMB 1.476 million, a 15.5% year-over-year increase, continuing our healthy growth momentum.

[Foreign Language]

[Interpreted] In terms of technology, we have actively advanced our technological transformation. We have continuously explored the use of AI technology in business scenarios. In the second quarter, we built out on our existing capabilities and integrated AI into several areas, including customer services, internal communications, decision support, production monitoring, predictive maintenance, and personalized marketing by leveraging our strong in-house research capabilities, we launched several innovative products in the second quarter. This includes the Canglong intelligent recommendation system and the Lingxi AI agent platform. This advances, are part of our commitment to use technological innovation as a driving force to inject digital power into the company's business development.

[Foreign Language]

[Interpreted] Our company has also continued to advance the construction of high-quality and sustainable network of cooperative financial institutions. As of June 30, we have established partnerships with 69 financial institutions and are in talks with additional 35. Overall, our plans to deepen our cooperation with key partners are progressing well. And we are gradually implementing additional and deep cooperation in credit reporting scenarios, traffic cooperation and other business areas. As an example of our achievements in the second quarter, we assisted a private bank in connecting targeted asset acquisition channels. And we successfully implemented a joint operation project based on the designated traffic channel plus [indiscernible] plus bank model. As part of our deepening cooperation with institutions, we are also exploring expanding services boundaries and exploring multiple new businesses, including car loan matching services. We are also continuously advancing the channel docking and the implementation to help attract borrowers for small and macro business owners. Each of these developments is part of our commitment to provide comprehensive and multilevel technical services to our partners. We are continuously striving for high quality synchronous development with institutions through these and other various deep cooperation models.

[Foreign Language]

[Interpreted] Meanwhile, we also increased our investment in borrower acquisition in addition to optimizing on existing channels. We have established partnerships with several top-tier platforms. This occurred as we continued exploring different types of touch points, innovating our acquisition scenarios and meeting the diverse needs of borrowers. At the same time, we adjusted our borrower identification strategy and enhanced it with a comprehensive marketing system, leading to a broader borrower base. With these measures in place, the number of new borrowers this quarter reached 680,000, reflecting a 32.9% year-over-year growth and injecting strong momentum into our future development. As our new borrower acquisition figures and capabilities continue to strengthen, we have placed a strong emphasis on conversion efficiency through targeted operations and continuous product iteration, we have consistently improved user retention. This quarter, our repeat borrowing rate remained stable at 67.1%. Looking ahead, our focus will be on optimizing the balance between new and existing borrowers while fully leveraging the lifetime value of our user base, which will be central to our long-term strategic objectives.

[Foreign Language]

[Interpreted] Risk management is always a key focus in our strategic planning and business operations. By the end of the second quarter, our 61 to 90 days delinquency rate remained at 0.67%, demonstrating a clear improvement in asset quality. We also continue to work on consumer rights protection, implementing systematized and refined consumer rights protection operations. In the first half of this year, we identified and effectively blocked fraudulent borrowers over 1.59 million times. In all 160,000 malicious attackers were successfully identified and intercepted. We have leveraged technological innovation to build a strong protective shield for safeguarding consumer rights.

[Foreign Language]

[Interpreted] International business remains a key focus for the company's future development. And we maintained healthy and stable growth in this area during the second quarter. In the international market, we are paying close attention to the changes in local regulatory requirements. Meanwhile, our local partner optimized its entire business chain, achieving significant results. In the second quarter, the loan size of our Indonesian partner increased by 25% compared with the previous quarter. Overall performance and business conditions exceeded expectations set at the beginning of the year. And we also recognized that our local partner was in ongoing discussions with 5 local financial institutions, striving to expand our partnership network. In the Mexican market, we continue to focus on improving various business infrastructures and exploring long-term products. In the Nigerian market, against the backdrop of the stable risk indicators in the second quarter, our business scale further increased compared with the previous quarter. In the market, some local regulations are also being implemented to regulate the listing of financial loan applications. We believe that regulatory norms will help the industry develop in a compliant, healthy, and sustainable direction.

[Foreign Language]

[Interpreted] We adhered to the concept of sustainable development and integrated ESG practice into all aspects of cooperative management. In early August, we released our 2023 ESG report. Our company actively pursues technology empowerment support for small and macro enterprises, employee care, environmental protection, and social welfare. This has brought fruitful results. It is worth mentioning that we also focused on empowering technology and supporting data elements, which have improved the coverage and accuracy of our inclusive finance. We are focusing on high-quality development in our core businesses. We remain dedicated to promoting social welfare with ongoing efforts in educational support, youth mental health care, and volunteer services. Looking ahead, we plan to continue to actively take on social responsibilities and promote the sustainable and high-quality development of the company.

[Foreign Language]

[Interpreted] Based on our overall assessment of the market, we are confident in the company's growth for the second half of the year and in achieving our annual targets. Therefore, we have decided to set the guidance for the loan facilitation volume in the third quarter at approximately RMB 25 billion. Additionally, we are focused on enhancing shareholder value and reinforcing investor confidence. Recently, we announced this specific distribution plan for the first dividend of this year. The dividend distribution plan is USD 0.5 per ADS. And the total amount for the dividend is approximately USD 26.6 million. With the market gradually improving, we look forward to rewarding investors who care about the company's development in various ways. And we strive to share the fruits of our progress with the company and investors.

[Foreign Language]

[Interpreted] With that, I will now turn the call over to our CFO, Mr. Fan Chunlin, please go ahead.

Thank you, Mr. Yan, and hello, everyone, for joining our call today. I will now review our financial highlights for the quarter. Please note that all numbers will be in RMB and all percentage changes refer to year-over-year comparisons, unless otherwise noted. As Mr. Yan mentioned, our company remains strong and adaptable, maintaining a stable performance despite shifts in the macro environment. Notably, our loan facilitation volume reached RMB 24 billion, exceeding our previous guidance of RMB 23 billion. Our net revenue was about RMB 1.48 million, up 15.5%. The growth of our revenue from loan facilitation services moderated to 2.8%, primarily driven by the service fee optimization within our loan facilitation operations. Moving on to costs. Facilitation and servicing expense was RMB 608.2 million, representing an increase of 70.9% from the same period of 2023, primarily due to the increase of guaranteed costs incurred. Reversal of uncollectible receivables, contract assets, loans receivable, and others represented a reversal of RMB 3.3 million compared with the allowance of RMB 13.8 million in the same period of 2023. This was primarily due to the net impact of the current period provision and recovery of certain receivables written off in the prior year. Sales and marketing expense was RMB 486.6 million, representing an increase of 15.7% from the same period of 2023, primarily due to an increase in borrower acquisition expenses. G&A expenses were RMB 65 million, representing an increase of 29.8% from the same period of 2023, primarily driven by an increase in payroll expenses and share-based compensation. R&D expense was RMB 92.8 million, representing an increase of 36.3% from the same period of 2023, primarily due to higher employee compensation benefit expenses. Consequently, our net income for the second quarter was RMB 238.3 million, representing a decrease of 27% from RMB 326.3 million in the same period of 2023. Our basic and diluted net income per share were both RMB 1.12 compared with RMB 1.52 in the second quarter of 2023. Basic and diluted net income per ADS were both RMB 4.48 compared with RMB 6.08 in the second quarter of 2023. We are pleased to report that our cash position significantly improved this quarter. As of June 30, 2024, our cash and cash equivalents reached RMB 880.2 million, a potential increase from RMB 568.2 million at the end of the previous quarter. This growth reflects our continued emphasis on financial discipline and operational optimization. With that, we can open the call for questions. Ms. Xu, our Chief Risk Officer, and I will answer your questions. Operator, please proceed.

[Operator Instructions] We will now take the first question from the line of Chen Yuxuan from Huatai Securities.

[Foreign Language]

[Interpreted] Here is Yuxuan Chen from Huatai Securities. The first question is, considering that the net revenue this quarter increased by 15.5% year-over-year, but the net income decreased by 27% and the operating costs and the sales and marketing expenses also increased. How does the management expect the take rate and the net margin to change in the future? And the second question is, we noticed that the company's second quarter loan facilitation volume was RMB 24 billion flat year-over-year and up [ 6.7 ] quarter-over-quarter. Do you expect this growth rate to continue in the coming quarters? Or is there a potential for it to accelerate in the future? At the same time, is the management confident about the future growth? The second quarter guidance of RMB 25 billion seems relatively conservative. Could you please elaborate on the considerations behind this?

[Foreign Language]

[Interpreted] I'm Fan Chunlin, the CFO of the company, and I will answer your first question. And just as what you said, the company's revenue for the second quarter has a year-over-year increase of 15.5%, but the net income declined. And the main reasons are as follows: Firstly, is because of the structural difference in the revenue, mainly because of the proportion of our guaranteed business. Just like what we said before, the margin of the guarantee business is much lower than that of loan facilitation services. And if we talk about this indicator in the quarter, the guarantee services related revenue in the second quarter of 2024 was RMB 424 million, which was much higher than the RMB 197 million in the second quarter of 2023. So it lowered the overall margin and net income level in the second quarter.

[Foreign Language]

So from the perspective of the company's overall business development strategy, the listed entity will continue to focus on the loan facilitation services and reasonably control the balance of different business segments in the proportion of revenue. And the guarantee business has been steadily declining since the year. And we will see that in the second half of the 2024, it will significantly improve the company's future overall margin level.

[Foreign Language]

[Interpreted] And that's the first reason. And the second reason is because that we have made more strategic investment in the borrower acquisition and also R&D portion. And that's also in the view of the company's relatively healthy profitability and the cash flow situation.

[Foreign Language]

[Interpreted] And so acquiring the new borrowers and retaining high-quality existing borrowers. So the borrower acquisition cost and the credit cost in the second quarter increased significantly. And the company's proportion of new borrowers in the second quarter reached about 33%. So in the future, we will also focus on the sustainable and healthy growth of our business. And our investment in those areas will prove that -- will help our business to grow in this way.

[Foreign Language]

[Interpreted] So our R&D expenses in the second quarter increased by more than 36% year-over-year. And our investment in the AI technologies and also the application in the several business scenarios; is good for the long-term development of our company's business.

[Foreign Language]

[Interpreted] So just as Mr. Yan just mentioned that we set our third quarter guidance at RMB 25 billion. And the company focuses on high-quality growth and stable price and continuous optimization of capital costs and further improvement of asset quality, which can support our take rate to remain at the current level. And we also have the room to improve in the future.

[Foreign Language]

[Interpreted] At the same time, with the continuous optimization of revenue structure and the results of strategic investment in borrower acquisition and also R&D, the company is confident that the profit margin will increase in the second half of the year.

[Foreign Language]

[Interpreted] Okay. So the second question, I will turn over to Ms. Xu Yifang.

[Foreign Language]

[Interpreted] This is Xu Yifang and thank you for your question and I will talk with you about our guidance. So first of all, we set a goal for further reducing risks and continuing to grow to about RMB 25 billion in the third quarter of this year as our third quarter guidance. And actually, this guidance is a certain challenge for us, but our team is confident about that.

[Foreign Language]

[Interpreted] Secondly, the guidance is a direction and goal set by the company's management based on a comprehensive consideration of the overall economic environment, borrowers' needs, market competition and also our own strategic position.

[Foreign Language]

[Interpreted] And as Mr. Yan just remarked before that we are still cautiously optimistic about the overall economic environment. And as you know, the finance shall serve as the economic development. And the borrowers' demand for the credit products has been strong in the third quarter. We have seen that the number of the multi-application borrowers has been rising recently. But as a credit service provider, we need to balance the health and sustainability behind the demand and strengthen the approval process and management work upon the applications during the risk management.

[Foreign Language]

[Interpreted] In the competition landscape of the loan facilitation market, it is stable, but also with dynamic changes. And we can see that the industry participants, including our licensed financial institution partners are more prudently considering how to make the consumer credit market develop healthy in the long term and also to balance and choosing between the scale and risk indicator measurement. And I can tell you that our peers and us will not rush in to achieve rapid expansion in the short term.

[Foreign Language]

[Interpreted] And so in general, our business strategy will continue to maintain a stable and slightly raising long-term business guideline. And in specific to answer your question, the guidance and/or our group speed will speed up in the future, I think we need to also observe the overall environment in the future as well.

[Foreign Language]

[Interpreted] So that will be my answer about your questions about our third quarter guidance. That's all.

We will now take the next question from the line of [ Hua Rong from Jinyu Assets].

[Foreign Language]

[Interpreted] I have 2 questions. The first one is the repeat borrowing rate this quarter dropped from 70.1% last year to 67.1%, while sales and management expense grew by 15.7% year-over-year. But the average borrowing amount per borrowing and customer stickiness have declined. Does this indicate challenges in borrowing acquisition efficiency and retention under current market conditions? What targeted strategies has management implanted to retain existing borrowers, attract new ones, and optimize marketing spend to reduce inefficient -- ineffective advertising? And my second question is, at the end of this quarter, the company's cash and cash equivalent position reached about RMB 818 million, a significant increase compared to the previous quarter. How did the company achieve cash flow growth under this current macroeconomic period? What are the main factors for the growth? What plans does the company have for the use for the cash flow in the next few quarters?

[Foreign Language]

[Interpreted] I'm Xu Yifang, I will answer about your first question generally about the repeat borrowing rate and also the stock of our borrowing amount per borrowing. And I can also see that you are really focusing upon our business. And you are very familiar with our key business indicators. And just as what you said, these indicators are in line with the overall business thinking and also are the results of our decision-making execution.

[Foreign Language]

[Interpreted] So in summary, these 2 indicators reflect that we have increased the efforts to acquire new borrowers while reducing the credit limit for each borrower.

[Foreign Language]

[Interpreted] And on the one hand, after this so-called silent period of the market at the beginning of this year, and so, in the second quarter, we can see that the risks, especially the post-loan indicators, have been optimized across the industry. And the overall economic situation is also full of expectations for the whole year of 2024. And the borrowers' credit demand is also very strong. So from the perspective of borrower acquisition, it is a good time. And that's also why we invest more on the new borrower acquisition.

[Foreign Language]

So to clarify that, can you repeat that?

[Foreign Language]

[Interpreted] Okay. Thank you. So to clarify that, the increase on our S&M expenses is 15.7% year-over-year. And if you talk about our -- the change in the number of our new borrowers, it will be 32.9%.

[Foreign Language]

[Interpreted] So on the other hand, from the perspective of average per borrowing or per borrower credit perspective, we have made more complex structural adjustment and set differentiated business goals for different borrower groups. So the final result is a decrease in the amount of borrowing amount.

[Foreign Language]

[Interpreted] So overall, we hope to maintain the scale of facilitation volume to be stable and maybe some increase in this year. And also, we want to ensure our operating profits and also to expand the borrower base and enable us to be more flexibly meet the next stage of market changes.

[Foreign Language]

[Interpreted] So I will turn over to Mr. Fan for your second question.

[Foreign Language]

[Interpreted] So the company's cash flow continue to improve, increasing by about RMB 312 million at the end of the second quarter compared with the end of the first quarter and mainly due to 2 reasons. The first will be the company's profitability and operating cash flow performed very well and especially as the company's performance growth switched from the ultra-high-speed growth before 2023 to the high-quality growth model. The company's accounts receivable balance growth slowed down and the recovery was very good, which made the company's net operating cash inflow and current profits show a stronger linear relationship.

[Foreign Language]

[Interpreted] And the second is because the funds released by business model optimization with the strategic reduction of guarantee business and the continuous optimization of related commercial terms, the company's funds occupied by the security deposits have been continuously released.

[Foreign Language]

[Interpreted] So in the next quarters, our company's cash flow situation will be continuously optimized, laying a solid foundation for the long-term sustainable development of the company's business, including the development of overseas businesses.

[Foreign Language]

[Interpreted] So at the same time, if our policy permits, so the company will continue to implement the currently existing dividend policy and share repurchase plan to continuously reward our shareholders. Just as Mr. Yan remarks before, on August 16, our Board permits the dividend -- the current -- the very first cash dividend -- cash dividend of this year, which is USD 0.5 per ADS. And the ADS holders can expect to receive the dividends on the 6th of September.

[Foreign Language]

[Interpreted] So that will be my answer for your second question.

I would now like to turn the conference back to Shawn Zhang for closing remarks.

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. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]