Yixin Group Limited (2858) Earnings Call Transcript & Summary

Hello, and thank you for standing by for Yixin Group 2020 Annual Results Conference Call. [Operator Instructions] After management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, [ Joyce Wei ], IR Director at Yixin Group. Please go ahead.

Thank you, operator. Good evening, and welcome to our 2020 earnings conference call. This is [ Joyce Wei ] from Yixin IR team. Today with me are Mr. Andy Zhang, Chairman and the CEO of Yixin Group; and Mr. Xiaoguang Yang, our CFO. After their prepared remarks, Andy and Xiaoguang will be available to answer your questions. Before we proceed, we would like to remind you that all our remarks today may include certain forward-looking statements. The number of risks and factors beyond our control may cause the actual results to differ materially from those contemplated by these forward-looking statements. During this call, we will present you both IFRS and non-IFRS financials. We will also discuss general market conditions for our industry, and such information may come from a variety of sources outside of Yixin Group. For a detailed discussion of the risk factors we face and the non-IFRS measurements, please refer to our public documents on www.yixincars.com. As a reminder, this call is being recorded. In addition, a live webcast and the replay of the conference call will be available on our website. With that, I will now pass the call to Mr. Andy Zhang, the Chairman and the CEO of Yixin Group.

Thank you, everyone, for joining our 2020 earnings... [Technical Difficulty]

Hello, everyone, and I'm very sorry. We are probably experiencing technical difficulty. Hi, speaker.

Thank you, everyone.

You're back. Thank you. You may now proceed.

Apologies. Yes. Hi. Thank you, everyone, for joining our 2020 earnings conference call this evening. Year 2020 is quite unusual and left indelible markets in the history. During the year, COVID-19 heavily and negatively impacted Yixin's business, consumers' consumption capabilities, various industries and the macroeconomic of China and even the whole world. In 2020, China's total sales of new and used passenger vehicle decreased by 4.8% year-on-year, according to data from China Association of Automobile Manufacturers and the China Automobile Dealers Association. Yixin's total financed automobile transaction were 356,000 in 2020, representing a 32% year-on-year decrease. And the aggregate financing amount was approximately RMB 27 billion. Other than the COVID-19 factor, the group took proactive steps to tighten its underwriting standards of the loans that were facilitated as we shifted more towards quality consumers with better credit record. In the second half of 2020, we've seen a significant recovery of sales transactions. The number of total financed transactions in the second half of 2020 was 235,000, which was only 1% decline compared to the 237,000 in the second half of 2019. We achieved this comeback without sacrificing asset quality. Impacted by the COVID-19, our revenues in 2020 were approximately RMB 3.325 billion, representing a 43% year-on-year decrease. Our new core service revenues, which include revenues from loan facilitation transactions and the new self-operated financing lease transactions we facilitated during the year, decreased by 47% to RMB 1.34 billion for the year ended December 31, 2020. Accordingly, our gross profit decreased by 44% in 2020 to approximately RMB 1.556 billion, mainly due to the decrease in total revenues. Our adjusted operating loss for the year of 2020 was RMB 1.114 billion compared to an adjusted operating profit of RMB 458 million for the year of 2019, mainly due to the decrease in gross profit and the increase in credit impairment losses. It is worth noting that we recorded an adjusted operating profit of RMB 76 million for the second half of 2020 as compared to an adjusted operating loss for the first half of 2020. We've launched auto aftermarket services in the second half of 2020 to enrich the scope and added value to our platform services. This new setup generated RMB 28 million revenue for the year ended December 31, 2020. We will continue putting effort into the aftermarket service sector to complete our auto ecosystem in the future. In 2020, as the global economic growth has slowed down and the downward pressure on China's auto industry continue to mount, in order to focus on the improvement of our core business and seek to optimize cost control, the group successfully reduced its funding cost from 5.7% for the year ended December 31, 2019, to 5.4% for the year ended December 31, 2020. In addition, with a wide variety of credit risk control measurement, our 90-day-plus past due ratio presented a decline trend during the year-end December 31, 2020, from 2.46% as at June 30, 2020, to 2.28% as at December 31, 2020. 30- to 90-days past due ratio has also dropped to a more healthy level. As a result, the expected loss of finance receivables decreased to RMB 235 million in the second half of 2020 compared to over RMB 1 billion in the first half. On December 2, 2020, we announced the completion of privatization of Bitauto, our parent company, by the consortium led by Tencent, which effectively became our major shareholder. We look forward to exploring more business opportunities under this new shareholding structure. Looking ahead in 2021, as the COVID-19 pandemic continues to create extraordinary uncertainty to economic activities and the auto industry, the group is facing both challenges and opportunities simultaneously. While opportunities outweigh challenges, on the other hand, we are taking concerted action to accelerate the development of our loan facilitation services through our platform and continuing to adopt strict risk management for new loan facilitation. On the other hand, we will actively grasp arising opportunities such as aftermarket sales -- aftersales market to complete our auto ecosystem and firmly secure our leading position in China's auto financing market. Yixin will unswervingly utilize our resources to provide better financing products and services to our customers and partners. I will now turn the call over to Xiaoguang to discuss our financial highlights.

Thank you, Andy. Our total revenue in 2020 were RMB 3.325 billion, representing a 43% year-over-year decrease, mainly due to the decrease in the volume of loan -- our loan facilitation services and financing lease services. Our new core services revenue, which include revenues from loan facilitation transactions and new self-operated financing lease transactions we facilitated during the year, decreased by 47% to RMB 1.34 billion compared to RMB 2.5 billion in the previous year. In the second half of 2020, however, we have seen significant recovery of sales transactions. The total financed transactions in the second half of 2020 was 235,000, which is 94% increase compared to 121,000 in the first half of 2020 as well as a slight decline compared to 237,000 in the first -- in the second half of 2019. Revenues from our loan facilitation services was RMB 1.185 billion, representing a year-over-year decrease of 29%. For the year ended December 31, 2020, we facilitated about 296,000 financed automobile transactions through a loan facilitation service, representing a 15% year-on-year decrease in volume. But there was also an 87% increase from 103,000 for the first half of 2020 to 193,000 for the second half 2020 as well as an increase of 5% compared to 183,000 for the same period for the second half of 2019. Revenue contribution from our loan facilitation services were 35% compared to 29% for the same period last year. Revenues from our other platform services increased by 69% to RMB 154 million for the year ended December 31, 2020, compared to RMB 91 million in the previous year, mainly due to the increase in revenue from auto aftermarket services and guaranteed service. We launched auto aftermarket services since July 2020 to enrich the scope and value added to our customer and generated revenue of RMB 28 million for the year ended December 31, 2020, and that revenue was down in 2019. Our revenue from guarantee service was RMB 61 million for the year ended December 31, 2020, increased by 723% from RMB 7 million in 2019. Due to the decrease in loan facilitation volume, our total revenues from transaction platform business decreased by 24% year-over-year to RMB 1.339 billion, but the contribution of transaction platform business to the total revenue increased to 40% from 30% in the previous year. Revenues from our self-operated financing business decreased by 51% year-over-year to RMB 1.986 billion in 2020 compared to RMB 4.041 billion for the same period last year, primarily due to the decrease in revenues generating from our financing lease services. In 2020, we facilitated approximately 60,000 financed transactions through self-operated financing business, representing a 66% year-over-year decrease in volume, reflecting our strategy to focus on loan facilitation services. Revenues from our financing lease services decreased by 48% year-on-year to RMB 1.952 billion. We generated RMB 154 million revenues from new financing lease transactions for the year ended December 31, 2020, and RMB 1.798 billion revenue from existing financing lease transactions compared to RMB 850 million and RMB 2.905 billion, respectively, for the year ended December 31, 2019. Revenues from our other self-operated services decreased by 88% year-on-year to RMB 34 million, primarily due to the decrease in revenues from automobile sales due to our strategy to deemphasize such business. Revenues from automobile sales was RMB 23 million in 2020 compared to RMB 242 million for the same period last year. Moving on to cost of revenues and gross profit. Cost of revenues decreased by 42% year-on-year to RMB 1.77 billion in 2020 compared to RMB 3.034 billion for the same period last year, primarily due to the decrease in funding costs associated with our self-operated financing lease services and the decrease of commissions associated with our loan facilitation services. Our total gross profit decreased by 44% year-on-year to RMB 1.558 billion for the year ended December 31, 2020, compared to RMB 2.766 billion for the same period last year, primarily due to the decrease in total revenues. Our overall gross profit margin decreased slightly to 47% in 2020 compared to 48% for the same period last year. Gross profit margin of our transaction platform business decreased to 54% for the year ended December 31, 2020, compared to 59% for the same period last year, primarily due to lower pricing as to our products. Gross profit margin of our self-operated financing business decreased slightly to 42% for the year ended December 31, 2020, compared to 43% for the same period last year. The average spread of our net financing -- net finance receivables was 4.5% in 2020 compared to 5.6% for the same period last year, primarily due to our sales promotion, which offered more products with lower interest rate. Moving on to the operating expenses. Selling and marketing expense decreased by 20% year-over-year to RMB 854 million for the year ended December 31, 2020. Our admin expense decreased by 13% to RMB 439 million in 2020. Our research and development expenses decreased by 23% year-on-year to RMB 150 million for the year ended December 31, 2020. The drop of the operating expenses are all primarily due to a decrease in salary and benefit expenses, share-based compensation expenses and professional service fees. So all these are, by and large, in line with the drop in revenue. Credit impairment losses include provision for expected credit losses of finance receivables, provision for expected credit losses of risk assurance liabilities and provision for impairment of trade receivables and other receivables. It increased by approximately 64% year-on-year to RMB 1.812 billion for the year ended December 31, 2020, compared to RMB 1.108 billion for the same period last year, primarily due to the increase in provision for expected credit losses of finance receivables. Provision for expected credit losses of finance receivables was RMB 1.616 billion for the year ended December 31, 2020, compared to RMB 812 million for the same period last year. During the first half of 2020, RMB 1.381 billion of expected credit losses was provided, which contributed approximately 85% of that for the year ended December 31, 2020, as COVID-19 outbreak reduced consumers' repayment capability. The expected loss of finance receivables decreased significantly to RMB 235 million in the second half of the year 2020 as we took proactive steps to tighten underwriting standards for new loans we facilitated as well as reinforced our effort on collection of overdue payments. Our adjusted operating loss was RMB 1.114 billion for the year ended December 31, 2020, as compared to RMB 458 million of adjusted operating profit for the year ended December 31, 2019, mainly due to the decrease in gross profit and the increase in credit impairment losses. It is worth noting that we recorded an adjusted operating profit of RMB 76 million for the second half of 2020 as compared to adjusted operating loss of RMB 1.19 billion for the first half of 2020. We recorded an adjusted net loss of RMB 800 million for the year ended December 31, 2020, compared to an adjusted net profit of RMB 439 million in 2019, mainly due to the decrease in gross profit and substantial increase in credit impairment losses, as discussed above. Due to the same reason above, we recorded an operating loss of RMB 1.481 billion for the year ended December 31, 2020, as compared to an operating profit of RMB 50 million for the same period last year. Now let's move on to the balance sheet and asset quality. Our carrying amount of finance receivables decreased to RMB 12.8 billion as of December 31, 2020, compared to RMB 26.9 billion as of December 31, 2019, primarily due to our strategy to focus on loan facilitation services. As of December 31, 2020, our total borrowings were RMB 10.1 billion compared to RMB 19.8 billion as of December 31, 2019. The decrease was mainly due to our strategy to focus more on loan facilitation services. Total borrowings comprised of, number one, asset-backed securities and notes of RMB 2.7 billion as of December 31, 2020; and second, bank loans and borrowings from other institutions of RMB 7.4 billion. Asset-backed securities and notes as a percentage of total borrowings was 26% as of December 31, 2020. As of December 31, 2020, we had cash and cash equivalents of RMB 2.712 billion compared with RMB 1.587 billion as of December 31, 2019. The increase in cash and cash equivalents was primarily due to the collection of interest and principal from our financing lease services. Our net cash inflow generated from operating activities was RMB 12.3 billion for the year ended December 31, 2020, compared to a net cash inflow of RMB 11.5 billion for the year ended December 31, 2019. As of December 31, 2020, our 180-plus days past due ratio and 90-day-plus ratio, which including 180 days, for all financed transactions, including both our self-operated financing lease services and loan facilitation services, were 1.62% and 2.28%, respectively. The ratio increased as of December 31, 2020, versus the same numbers in 2019, mainly due to the COVID-19 outbreak in the first half of 2020. During the year ended December 31, 2020, we adhered to more prudent strategies of credit control -- credit risk control. We took proactive steps to tighten underwriting standards of the loans as we shifted more towards quality customers with better credit record. Meanwhile, we made a variety of credit risk control efforts throughout product life cycle, such as more focus on collection measures for early-stage overdue, improving the efficiency of the used car disposal, increasing the number and the efficiency of litigation, et cetera. As a result, the 90-plus days past due ratio presented a decline trend during the year-end -- during the year towards the end of December 31, 2020, from 2.46% as of June 30, 2020, to 2.28% as of December 31, 2020. This is our prepared remarks, and we will now open the call to Q&A. Operator, please go ahead.

[Operator Instructions] We have our next -- we have our first question, rather, sorry about that, it's coming from the line of Daniel Peng from BNP.

So my question is, can the management team give us more detailed plan of the cooperation with Tencent, given that Tencent is now the largest shareholder of the group? And we would want to know more about the company's plan -- the future plan together with Tencent. And what is the support from Tencent to the group's business in the future?

Okay. Thank you for the question. Together with us, we have our COO, Gao Zhi, as well. So he's going to answer this question in Chinese. We will translate simultaneously, okay?

[Foreign Language]

So number one, as the controlling shareholder became Tencent, which has a much better brand name and reputation in the market, we are hoping to gain more trust and confidence from our business partners.

Okay. [Foreign Language]

Number two, we are working with the finance business team within Tencent to improve our services to our customers.

[Foreign Language]

For example, we are building entry connections to Tencent's applications so that the customers can tie up their payments to Tencent's payment function, which will significantly increase their payment likelihood and also improve the customer experience. This will be done quite soon.

Okay. [Foreign Language]

Lastly, we are exploring more opportunities with Tencent team in terms of big data, in terms of technology. And we will see what's coming next.

Right. So if I have to summarize, I would like to say that we very much look forward to work with the Tencent team on the main 3 fronts. One is data and the credit analysis of our potential clients, potential customers, utilizing each other's credit analysis capabilities and also social, transactional and as well as basic data that is enabling us to access personal credits a lot -- at a more efficient and as well as a more trustful way. If -- because of this controlling interest fact that we're able to build such models together, so this is one of the directions we're working towards and as well as allowed by the governing bodies because of the shareholding structure change. Secondly, obviously, we do have quite a few, now over 2 million customers at Yixin's own base. On top of that, I think seeking out additional potential car buyers and also car owners who has potential leasing or financing needs on their vehicle or any other services that relates to the vehicle. This is also the second front that we're seeking opportunities to work together. I think in credit card, within [Foreign Language].

[Foreign Language]

[Foreign Language] So that's one of the examples that's how we're going to kick off this collaboration. So I think rest assured, there are additional entry points we will gradually occupy to serve either our own clients better or serve potential clients that's in need of these type of financial services within the big Tencent's asset range. I think lastly, obviously, there's also a potential collaborative funding partnerships between Tencent and also maybe Tencent-involved financial institutions with Yixin because historically, we have already been establishing these type of relationships with those potential financial institutions. But I think going forward, the options or the ways of collaborations can increase to additional fronts other than just on the loan facilitations then. I think on the direct funding level will also be something that seems to be more possible now versus before. So these are the 3 main fronts that will actually affect us in the future. But right now, at the current stage, because our deal just closed about a month ago, so I think we're gathering the teams to work together with each other to seek, to sort of finalize as to what exactly what we can do together and what are the time and the pace of each of the potential collaborations we'll take. So I think Yixin is doing that and also Bitauto is also doing a similar work with Tencent as well. So that's our answer. Thank you.

We have our next question, comes from the line of [ Ji Hang Wong ] from CLSA.

So I have 2 questions. First is regarding the current market share of the company in terms of the auto dealing finance market and how the management team sees the market penetration rate going forward. And second is with the overall funding cost of the company now and what are the major channels?

[ Ji Hang ], can you repeat your question again?

Okay. Okay, sure. I have 2 questions. Am I clear?

Yes.

So first is about the current market share of Yixin in terms of the auto dealing financing markets and then how does the management team sees the market penetration rates going forward. And second question is about overall funding costs and major funding channels of the company.

I think going forward -- let me answer the second question first. So the first question, I will give you a number very, very soon. I think the -- going forward, obviously, looking around, we see less and less competitors. That's a fact. So I think it was uneasy year for everybody last year and even the year before when the monetary policy was extremely tight back in 2018, '19 and 2020. So right now, I think the sizable competitors within the market who actually occupies market share has been significantly decreased. I'm not saying that we're picking up businesses that actually has less quality than we've already been engaged in. But just to see the share potential, our competitor number and also the size of the business that they're conducting, on an annual basis, our share -- market share was -- would look to be increasing on a pretty good case -- on a pretty good pace. Our market, so that's approximately 2.4% right now because we've conducted 365 -- 356,000 vehicles last year financing. Overall market has about 15 million that's done by carrying out leasing/financing. So we're a little under 3% market right now. But I think going forward, this rate can reach up to as high as between 5% to 10%, given that the competitive landscape is getting more towards our advantage in favor. Thank you.

We have our next question, comes from the line of Vincent Lai also from CLSA.

So just want to quickly ask about -- or like if the company can share around -- some color around how the company see the self-operated financing business going forward, understanding that the company's strategy currently is to focus on loan facilitation services. So perhaps can -- the company can share some more color around like what's like the rationale of doing that.

Thanks for the question. So Yixin's strategy is, as we said many times earlier, is to focus more on loan facilitation services, and which continue to maintain a high contribution level to our revenue and gross margin. However, we see self-operated financing business as a healthy complement and stable revenue generator. It also offers us some flexibility to approach our customers in terms of more product choices and a better customer experience. So we'll continue to do this business. It's not that we are completely going to stop self-operated financing business. And we'll try to maintain a healthy balance between self-operated financing business and our platform business.

[Operator Instructions] I guess that's it for now. I will now pass the call back to Mr. Xiaoguang Yang for the closing remarks. Please go ahead, sir.

Thank you, everyone, for joining the call today. And we are glad to share the annual results with you guys. And hopefully, you find this helpful. And it has been a tough year, but we were glad that there's some comeback in the second half of 2020. So we look forward to a better year in 2021, and hope to talk to you soon. Thank you.

All right. Thank you, Mr. Yang. That does conclude our conference for today. Thank you for participating. You may now all disconnect.