Yiren Digital Ltd. ($YRD)

Hello, and welcome to the 30th Deutsche Bank -- Virtual Investor Conference, dbVIC. My name is Zafar Aziz. In the DR Investor Relations advisory team at Deutsche Bank. I'm pleased to announce that our next presentation will be from year-end digital. Before handing over to our presenter, some points to note. Please submit your questions at any time throughout the presentation. Finally, all of today's presentations will be recorded and can be accessed via the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome our speaker from Yiren Digital.

Hello, everyone. Thank you for taking the time joining Yiren Digital's Virtual Roadshow Hosted by Deutsche Bank. My name is William Huiand I am the CFO of the company. And we are making great progress in our AI development and commercialization. These technologies are already helping us building the next-generation fintech platform. Before we get into our presentation, this is the compliance disclaimer. So let me briefly walk through our company history. So we began digital lending business in 2006. We are listed on the New York Stock Exchange in 2015. In 2019, we expanded into insurance brokerage business through strategic restructuring and acquisitions. In 2025, we facilitated RMB 67.9 billion of loans -- consumer loans to near 4 million individual borrowers. And we also sold nearly 1 million insurance policy. We already sold the insurance policies to 1 million customers. Since 2021, we have been investing heavily in AI R&D -- we have our own GPU computing resource for model training. We built our own LOM and successfully integrated into our platform from borrower acquisitions risk management and customer service. Through our genetic AI platform, Magic Q, the magic tube is a platform that incorporates our in-house LMCG and other third-party models plus 6 functional agents that performs designated task because of these AI technologies, we save about RMB 80 million from direct operating costs last year, mainly from lower acquisition costs and more streamlined customer services. Our outbound core cost as a -- of enabling AI in the IVR system was reduced by 84% last year. The service ticket per staff and increased by 47%. Our AI agent now can handle capital allocation optimization job autonomously. This job was previously conducted by 2 to 5 full-time staff that spent 10 days a month to find the right capital mix. Now I can do it within 20 minutes. Here are some of the investment highlights. Since the credit cycle in China turned to a cyclical low and was trough in November 2025. Our early risk indicators have shown our first payment default 30 days are in the lowest since May 2025 when the risk began to shoot up. Our February numbers are near the long-term average level. it indicates our credit solution business has bottomed out. Since the new regulation and the industry overall, we are seeing the competition in the industry has eased a lot -- the cost of capital and borrower acquisition costs have come down dramatically since the new rule took effect in October. Our revenue base is more diversified with non-rent longer percentage of revenue driven by our AI innovation income and the growth of our Internet insurance is our first shots of our next January fintech initiatives. With the turnaround of the fundamentals and changing and the change of our revenue mix, we think the company has bottomed at least from the fundamental point of view. Now let's dive into our business. So for our credit solutions business, our flagship digital lending platform, in Yahua incorporates 20 years of lending experience servicing over 100 million of registered users. In 2025, we have approximately 4 million active users. And 77% of the loan was issued to repeat borrowers. This is a record high. That shows our brand loyalty and the ability to manage risk with existing borrowers. With the use of AI, we are able to customize the marketing content to individual customers. The response time for our AI agent to generate personalized new content is by half a second, with the help of AI we analyzed and approved millions of loans automatically every year. With the use of AI and improvement in credit markets, our first payment default was down from recent peak of 2.1% to near 1.5%, about the same level as the May 2025. We have done a few measures in the past quarter to mitigate risk we increased and maintained the repeat borrowing amount to 77% of total loan facilitated. The risks from repeat borrowers are more predictable, therefore, that enable us to manage our risk better. Here are some of the metrics improvement from our customers on average stay longer with the AI agent bond call compared to the traditional IVR sales pitch, contributing to a higher sales conversion ratio. Not only the AI agent outbound core is more effective than the traditional IVR. It is also 84% cheaper. Our generative AI model is 50% faster in generating marketing messages to clients. And the conversation is more relevant and personalized. We use AI agent extensively in our debt collection. In 2024, about 45% of a first notice collection were handled by human -- now the number is down to less than 1/4. Our recovery staff on average, handles 525 cases per quarter and they are 47% more productive. It is not just the volumes they are. The AI is also handling more complicated cases as you see on the middle bottom in 2024, our AI agent only handles the first day delinquent notice. In 2025, it handles 14% to 20% of a longer delinquent cases. They require more personalized interaction with the power. The AI can on the spots bill repayment proposal or litigation documents within 5 minutes while chatting with the borrower. This shows the level of sophistication and efficiencies of our AI agent brings to the operation. This is one of the most powerful AI agent we developed last year, the EQ and QQ agent -- they help us to identify idle capital across our lending entities and predict the capital flow for the next month. It then automatically reallocate capital from the region platform that has a capital surplus to the 1 that needs more capital. EQ agent monitor transactions every month identify the trends that has changed during the period and recommend a capital allocation plan. 2Q agent does the execution, which facilitates the process, including going through the approval process tracker, the fund transfer and so on. We were running this since mid-2025. So far, the capital allocation accuracy has improved by 10% to 66% resulting in lower capital cost by 24 basis points. The processing speed also increases before AI be used to full-time staff total of 100% hour to make the capital plan with the AI, it takes -- it only takes 20 minutes. It is more efficient, and it allows us to do the allocation on a weekly basis instead of monthly. Our agent is able to detect when restricted cash becomes unrestricted cash for redeployment. This makes our capital deployments much more efficient, and we are looking to deploy this technology to some of our institutional clients. This is our AI-based risk management process. It starts with a pre-approval, including the KYC. We understand our borrower profile through our channels and our record about the borrowers' credit history. Our model consists of over 200 risk models with the data from over 2,000 sources. The model then classified them into 1 of the 10 risk classes based on the risk classes, the system will make credit decisions and pricing automatically. In a post drawdown stage, the AI continues to monitor the borrowers' behavior, predict potential delinquency and propose solution before the loan is due. On the recovery side, our smart reminder systems can predict the best time to reach borrowers and improve overall recovery efficiency. With the help of AI and improvement in credit cycle, our 30 days first payment default was down to 1.5% from last year's peak of 2.1%. So let's move on to our second business segment. Our second business is insurance brokerage. We are 1 of the very few platforms in China that has both off-line and online distribution channels that operates nationwide. We recognize customer journey has changed in the past 5 years. They get a lot more information from social media and other digital channels, mainly even preferred digital interaction than face-to-face with the live brokers. As the first projects of our next-generation fintech, we leverage our existing channels and funnel down customer demand and identify products that fits the customers and the carriers. The with the customer and the carrier have difficult reaching those customer segments. Our first product is health care insurance products. Our existing customer base or traffic are young professionals. This customer segment has a unique lifestyle for example, they travel a lot for work or for leisure carrier like these customers because they are young and healthy, but hard to reach. So we determine a few use cases that target these customers and design our own products underwritten by our carrier partners, use our existing digital channel to interact with customers and the result has been very good. Here are the financial results of our Internet insurance business. On a quarterly basis, our fourth quarter 2025 gross premium was RMB 50 million compared to just RMB 4 million in the first quarter of 2025. So that representing the compound quarterly growth rate of 87%. The gross premium contribution has also been increasing. In fourth quarter of 2025, it was 5.8%, and we expect the revenue contribution from the online channel will reach 50% of overall insurance revenue by 2027. Another interesting point is the online channel has helped reviving our off-line channel as we use the online channel is a low-cost acquisition channel and we cross-sell to our customer to offline channel for high-margin Life or P&C products. So here are the strategic priority for this year. We will continue to drive AI innovation and operational efficiency. We will leverage our data and AI tools to support new product development as we begin to sell our AI capability as a service to external customers. An AI adaptive to AI service offering, starting from the bottom, we have the technology layer with the -- proprietary LM and Magic Cube, our multi-agent platform. And the sixth AR agent above that use these technologies and other external technologies -- these agents can learn, perform and can be sold as separate agents. For the service layer, we develop functional services such as customer acquisition, credit review and risk management targeting to corporate and consumer segments. And finally, on the business layer on the top, we developed a business model out of these services. And currently, we are turning our credit solution and insurance business to agentic business. Our growth driver for this year are recovery of our core business as the credit quality improved substantially. Expanding product scope with AI agents, continue to grow our online to off-line insurance model as it is pivotal to our next-generation fintech strategies and finally, exploit the next-generation fintech opportunities. So turning to financial. Now our 2025 revenue was RMB 5.7 billion, so it dipped by about 1.5%. We intentionally slowed down our loan facilitation in the fourth quarter 2025 to weather the credit down cycle. As the technology-related revenue increased in 2025, the revenue contribution from lending reduced and we expect this trend to continue in 2026. So here's our operating metrics, sorry, is the operating metrics of our lending business, starting from the left, as you see our first payment default 30 days in January '26 is already down to May 2025 level. When the risk begin to deteriorate, our February and March numbers show the number is near our long-term average as we have as we have increased the loan facilitation effort as a result. In the middle, the cost of capital decreased by 110 basis points since October 2025 when the new lending regulation was in force. Customer acquisition costs also decreased by 80 basis points year-over-year. These 2 metrics show after the new regulation in the program. Many small players have left the market, resulting in less competitions and also our AI has helped driving a higher sales conversion and more efficient capital allocation. So this is the breakdown of our insurance portfolios. We have a solid new book and a new P&C book. The Internet channel has been driving the growth in the past 3 quarters. The growth from the Internet insurance also results in more spill over to the traditional line as the cross-selling is taking effect. On the cost structure, AI has substantial benefits in lowering our cost as the sales and marketing costs as a percentage of revenue decreased from 32% in 2024 to 21% in 2025. Origination and services as a percentage of revenue decreased for both credit solutions and insurance business. So we are seeing AI has a major effect on our cost structure as the Internet insurance channel as virtually 0 commission to live agents. So heading to our last slide. So here's our financial highlights. Our 2025 revenue dipped by 1.5% as we decided to slow pace of loan facilitation in the fourth quarter when the risk was high. On the net income side, we changed our lending model to take on a higher proportion of the book under the risk-taking model. We took that approach as the funding pool was stretched during the period of regulation change in the second half of 2025. Many funding partners and guaranteed companies did not want to take the credit risk at that time. We have many high-quality repeat borrowers. So we took a calculated risk to guarantee those loans so that the capital can flow through. Unfortunately, our accounting standard has a revenue and provision mismatched for this risk-taking model. So we need to take a provision upfront for this self guarantee model regardless of the risk but our revenue is amortized over the loan period. As the risk-taking model loan book growth, we took a bigger hit up front, but it results more predictable revenue stream in the future. So we will continue to monitor the market conditions and they adjust the loan mix between the risk-taking and the own model. So this is the end of our formal presentation. So you may follow us on linking and X. And now let's move to the Q&A from the audience.

The first question is, given the growing interest in AR and across industry. When you consider partnership white label deals where magic you become the engine behind the platform workflow? Yes, we are open to different partnerships. But what we want to do is we are not just exporting the technology to the -- to our clients. And we will also work very closely with our clients in transforming their business using the AI agent. So meaning we will also help them how they -- how to use the AI agent to integrate into their workflow, their existing workflow and their business model. Okay. The second question is, Yiren has shown that AI can cut costs and boost efficiency. Where do you still see an easy win from AI that haven't been fully implemented in the business. That's a very good question. So we think the Internet insurance will still have a very good growth potential because currently, we only deploy our AI agent to sell the -- what we call the standard product that's sold online, mostly the 1-year health products. So we think as the technology becomes more advanced, we can start rolling out our agent to sell more long-term product like the life or the multiyear property and casualty products, so which has a much higher margin. Okay. So the next question is several valuation model shows a very large upside versus the current share price. In your view, what are the 1 or 2 concrete milestones that could trigger every rating from here? That's a very good question. So I think there are 2 factor that will trigger the rerating, first of all, our existing business. It went to a regulatory uncertainty last year and also together with the down cycle of the -- down credit cycle. But this year, we have seen so far since January, the risk metric has improved much better than expected. So from our existing business, that's definitely a turnaround. And for our AI business, and as we start generating more technology revenue from these AI products, so we expect -- we are looking to sign more long-term contracts with our clients, so that will enable us to build a more stable revenue stream to get and more predictable cash flow to support our ongoing R&D. So I think the AI part will help us to not just not just help our existing fintech business, but we are also developing new use cases in other industries, so which we hope we will make some announcement later this year to go through that. Okay. So there are a few audience asking about our international strategies outside of China. As for those who follow us, we started our Philippines business in 2023, and our Indonesian business just started in September 2025. And in the next 12 to 18 months, we will be -- our Indonesian business will start to scale up because we spent the first 6 months understanding the market and collecting more data. So now we -- and this year, we are in the position to scale up our loan facilitation scale and to generate higher revenue contributions. Next question. Your presentation mentioned fraud detection blocking large number of high-risk customer every day. How does this AI edge translate to a better terms or larger quota from our fund partner -- that's a very good question. So our fraud detection program actually read about tens of thousands of documents every day. And last year alone, it saved us about RMB 180 million of potential front loss. So I think given those potentials, the funding partner will see our -- definitely, our loan loss has improved a lot -- with the macro industry condition with less competition, so they are more willing to partner with us at a lower at a lower cost of capital. So this helped us to improve our margin. Okay. So one last question. We're running out of time. So the AI leader globally still trade at a premium valuation, what do you think is missing in the current perception of earn AI power platform rather than just a lender. I think what we have been building the -- we have been doing our AI R&D since 2021. So I think this 2025 was the year we can -- we have launched the products in 2026 and 2027 is the one that we can start monetizing those technologies. So yes, so -- okay, so I think we are running out of time. Thank you for attending the road show, and then we will -- for those who leave your contact address, we will follow up with you with the answers. -- with your questions. But meanwhile, please also follow us on our X and LinkedIn account. So with that, thanks very much.