Yiren Digital Ltd. (YRD) Earnings Call Transcript & Summary

Hello, and welcome to the Deutsche Bank Depositary Receipts Virtual Investor Conference, dbVIC. I'm pleased to announce that our next presentation will be from Yiren Digital Limited from China. Before I introduce our speaker, a few points to note. [Operator Instructions] On a final note, all of today's presentations are recorded and can be accessed by the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome Ms. Keyao of the Yiren Digital Ltd. which trades on the NYC under the symbol YRD. Over to you.

Thank you and hello investors. Thank you for joining our session. We will now give you a brief introduction about our business and growth strategy steps, and then we'll start Q&A session. And our IR director, Lydia Yu, is also online for the Q&A session. And next slide, and thus, we'll give you an overview of Yiren Digital. So we are Yiren Digital, and we are positioned as a leading digital personal financial management platform. And by these 3 words, we mean that we are offering products and services that meet our customers' comprehensive financial management needs, which include their need for credit and their need for investments and also yearning for financial [indiscernible]. In other words, we work as a consumer personal financial manager, helping them to manage their personal balance sheet. For example, to improve their liquidity from credit tax services, to help them generate income -- more income through our investment services, and also to help them get better secured and protected through our insurance protection services. And by the nature of our services and products, our businesses can be divided into 2 big paths: the wealth management businesses, including the insurance; and also the credit business. And here is a quick, quick glance at our second quarter performance. Just to give you a grip of our business scale. And you can see that from the wealth management side of the business, our total client asset reached of RMB 14.7 billion in the -- at the end of the second quarter. And in the second quarter, we have more than 380,000 active investors. And also cumulatively, we serve more than 2.5 million investors. And from the credit side of the business, our loan balance as of the end of the second quarter is RMB 12.5 billion. And we have served more than 400 -- 4,300,000 investors in the second quarter. And then we -- cumulatively we have served as far in the numbers of 5.6 million at the end of the second quarter. And then we'll give you -- let's take a closer look of our business, our forward business model. So here is a map of our wealth management business. You can see that by the amounts of investable assets, we can divide wealth management markets into 4 customer segments: the mass, mass affluent, high net worth and ultra-high net worth. We are targeting the mass affluent segment with the -- investable assets ranging from RMB 1 million to RMB 10 million. And we are serving them with asset allocation-based wealth management services. And you can see that in the-- on the right-hand side, there were 2 different business lines that form our entire wealth management business. One is YirenWealth. YirenWealth is an online wealth management platform. And other is Hexiang Insurance, Hexiang Insurance is a national insurance broker. And next, what is worth mentioning is also -- is that our parent company quite -- it has decades of experience serving high net worth and ultra-high net worth. So the whole credit in wealth management ecosystem brings us strong synergy. And in terms of -- and when you join the synergies in terms of serving capabilities, product offerings and also customer acquisition. And also for customers with higher investment needs, we also up-sell or our products. We also up-sell our own products to -- from credit. Next page. This slide shows how YirenWealth platform works. As I said, YirenWealth is a one-stop asset allocation-based wealth management service platform. We have diverse online acquisition channel like -- working with different channel partners like telemarketing, like, MGM. What is also worth mentioning is that through years of operation, we have accumulated large numbers of investors. Like I said, over 2.5 million investors served on our now beginner wealth platform. Some of them are still our investors. And meanwhile, we are also reactivating our legacy customers, which is quite a considerable investor base. And that will also compose a big chunk of our current customer base. And then we are serving them -- after acquisition, and then we will serving them to our -- both AI robots and real person remote consulting services. We are a tech-driven platform through our strong pack capability. We do intelligent KYC. And based on our investor financial backlog and financial targets, we will match them with proper short-term or long-term asset allocation plans and products. And during this process, we are selling them with best education references and also co-selling and up-selling different products. And by product, we are offering different asset classes. And we are offering our investors with sound portfolio insurance and short-term wealth management products, et cetera. It seems that this slide doesn't work. And next slide, on to our insurance business, we have a national insurance broker called Hexiang. And we are doing both 2B and 2C businesses. And we are offering both large insurance and property insurance. So to 2C business, Hexiang insurance and Yiren have whole interaction and have generated strong synergies within our wealth management ecosystem. For even wealth, Hexiang has enriched their product offering. And on a -- and for Hexiang, Hexiang has also tailor-made insurance products suitable for the investors of YirenWealth. And in the meantime, for Hexiang, YirenWealth could function as an effective acquisition channel to help them better acquire customers. And currently, Hexiang Insurance has more than 403 -- 430 products from 108 insurance companies. Next, for 2B business. There was one thing that was meant -- that's worth emphasizing. This is our unique 2B2C business model. For 2B2C model, we mean that after serving our 2B corporate clients, we transfer our 2B clients into channel partners, work with them to design tailor-made insurance products for their own customers. Then our insurance products will be embedded into those channels and platforms and serve those 2C customers. So this is a win-win situation. By doing this, we have, to these, clients realize additional revenue streams. This -- we're sharing in profits with them when they're there to see customers buy our products. And for us, we acquired large numbers of 2C customers during this process of service. And all the 2C customers we serve will be put into our customer pool. And we will restore their badly needed insurance needs and convert them into different products. And during this process, some of our customers are converted into a new 2B corporate clients as well, say, some of them are business owners themselves or some of them, management from our base companies. There are ways to serve them in a 2B2C model again, but then we can -- we are serving -- we can serve and acquire more 2C customers. So it's like a circle is formed. What differentiates us from our peers in terms of insurance is that -- is our strong capability in product customization and digitalization and our strong servicing capability. And in terms of the scenarios that we focus in such a 2B2C model includes medical and health care, travel and letter, wealth and finance, agriculture and fishery. So the offering goes, 2B, to sign -- offering both property and life insurance and also doing both 2B and 2C businesses, we are actually establishing a strong insurance ecosystem. Yes. Before I start with this page, I will just emphasize that Hexiang, our insurance business, is showing strong momentum in the recent quarter. In the second quarter, Hexiang Insurance contributed more than RMB 570 million in premium, which translates into 130 growth quarter-over-quarter and over 5x growth year-over-year. And then we'll start with our net financial services. So this is a new initiative that we start to deploy in the second half of this year. What we are in -- basically is -- what we found that's interesting is that the mass, affluent mass that we serve in our platform have common needs in formed particular scenario. That is on health and bodybuilding, steady and self-improvement, life, high-quality lifestyle and also child education and parenting, since more than 60% of our investors in the platform are female. And based on those 4 key scenarios, we select and sometimes tailor-made products and services nonfinancial production services and we should use them as an acquisition tool to target to our potential investors. So once they invest -- so once the customers purchase our main financial services and products, and they will become part of our wealth community, and it will be put into our customer pool. And then we can explore their set of financial needs to convert them into wealth management investors. So by doing this, on the one hand, we are gaining more non-financial revenue. On the other hand, we are transferring, we are converting more customers into our new investors, which means more Wealth Management Services fee. So the 2 business lines that I've just mentioned form our entire wealth management business. And I'm going to show our credit side of the business. We are doing quite a set of a business and a loan facilitation model, which means that we are 100% funded by institutional partners. And we work with institutional partners to serve our borrowers. So as shown on this slide, we connect borrowers with institutional partners. And we sell our borrowers with credit application services and post facilitation services. And then we serve our -- we cooperate with institutional funding partners and provide them customer referral and collection of services. And in terms of the products, we have 3 main products in our credit side of the business. First is our more revolving loan. And this is the online unsecured loan. And the average ticket size is around RMB 4,000 to RMB 6,000. And the average tenure is around 11 months. And in this business, we cover with different traffic platforms like 58.com, like Xiaomi Wallet and -- to embed it, our scenario-based products into their particular consumption scenario and then better serve our customers. And in the meantime, we're also developing our own construction platform. And by this way, we are establishing our own traffic pool to better serve our customers and to better do customer acquisition. The small revolving business is showing very strong momentum since we only started to focus on this new small revolving loans at the beginning of last year. And then in the second quarter of this year, the small revolving loans have contributed more than 50% of our loan volume. Next is our auto loan and this is an off-line business. The average ticket size is around 50,000 to 70,000 and the average tenor is around 27 months. And by -- we acquire our customers off-line and also, some of our customers come from customer referrals. And the -- it basically -- this is the way our customers will use at their auto to add collateral to fly loans was. And also secure loans accounted around 40% of our total loan volume in the second quarter. And next, our small SME loans. We started a key focus on SME loan to scale up SME loan in October to September this year. And this is their online business, the unsecured loans to small business owners. The average ticket size is around CNY 200,000 and the average tenor is around 12 months. The outline loan is showing -- it's growing very fast as well. And when you pass the SME loan will account for more than 10% of our total loan volume in the fourth quarter this year. So to sum up our growth strategy, we will continue our efforts to integrate different business lines to meet our customers' comprehensive needs for financial management services. And we'll continue to position ourselves as a personal financial management platform. What is worth mentioning is that our different business lines are not isolated. It's all integrated and well connected. So our strategy is to focus on the actual needs of our customers. It's user-centric to treat our customers as -- to serve our customers as a comprehensive need -- their comprehensive needs still. We will not treat our customers like a borrower or investor. Rather, we will serve them in the long run. One example that is worth mentioning is that from the -- from last year, we start to offer insurance products on -- in our credit business line, and it turns to be very effective. In the second quarter, insurance premium coming from credit part of the business line grow by 58% quarter-over-quarter. So that's quite a good example to explain what it means to be a comprehensive personal financial management platform. And then a very quick briefing on our key financial update. In the second quarter, our client asset for investor reached more than -- if we include our insurance products and legacy products, our client asset investor reached more than RMB 240,000. And our investors -- active investors, the numbers of active investors also incredible growth. And loan volume for the second quarter is RMB 5.3 billion. And also, we have generated 1.1 -- more than CNY 1.1 million revenue and CNY 200 million net income. And that's introduction of our current business. So if you have any questions, please feel free to ask.

We got some questions. They ask more about our customer acquisition strategy. Yes. I'll start with that. For our wealth management, our -- for wealth management, our acquisition strategy consists of 3 main channels. First is the online from YirenWealth. And second is from our -- second -- especially from the net financial services that I just mentioned earlier in the presentation. And also for -- in the second channel of acquisition coming from our insurance product, mainly 2B2C and the 2B2C model, we find this is a very fast way to acquire new customers, not only 2B but also 2C. And thirdly, coming from our ecosystem from our credit ecosystem, and the credit ecosystem, we are enjoying synergies in terms of customer acquisition as well. So that's for wealth management. And for credit, we are acquiring customers from both online channels and offline channels. From offline channels, we're mainly operating with traffic platforms and also building up our own shopping platform by setting up a consumption platform, a shopping mall of our own. And secondly, for the off-line acquisitions, we have our agents. And we also -- we also cover with different channels to acquire off-line customers. And certainly, for SME loans, we also cooperate with some platforms, like [Foreign Language]; like [Foreign Language]. Next slide. And we found this, and also some of our e-commerce platform, we found this a very effective way to acquire customers as well. Hope that answers your question. The expectation for growth, another question. Our expectation for the growth of our wealth management business in 2020 -- 2022. Yes, we -- in the second quarter of 2021, in -- our wealth management business account for 25% of our total revenue. And we expect this percentage to continue to grow in the year of 2022. I hope that answers your question, by about 30% in the year of 2022. Next question? Next question is, what are your key milestones for the next 12 months? We will -- first, for the wealth management business, we will continue to scale up the total AUM and also to scale up our insurance business. And we are expecting to drive up a higher proportion, a higher contribution of our wealth management for our total revenue. And our -- we expect concrete growth, especially we expect corporate growth in own insurance product. That's for wealth management. And also for credit, we are driving up as anyone, which will take, like, more than 10% at year-end and more than 30% in the first half, yes, first quarter of next year. And so SME loans will be our next focus. And for small revolving loan, we are building up our own shopping -- we are building up our own traffic forward. And this will be proven effective from the fourth quarter or from the coming quarters. One thing is also worth mentioning is that we started to deploy net financial services, like I said in the presentation. This will bring in increase in MS investors at a lower customer acquisition cost in the future, in the coming months. And we will see that result coming in very soon in the quarters to come. Any other questions? Lydia, do you have anything to add?

No. Not at the moment. We need to wrap up. Okay. Thank you, everyone, for joining us. If you have any questions, feel free to reach out to our IR team and we can -- and then we can go back to if any investors have any more questions. Thank you for joining us today. Thank you, everyone.