FinVolution(FINV) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The average internal rate of return (IRR) declined to 28% for the three-month period from August to October 2020 [7] - Loan origination volume in Mainland China reached RMB 17 billion, a 30% increase quarter-over-quarter [7] - Operating income increased by 21% quarter-over-quarter to RMB 689 million [7] - Non-GAAP operating profit was RMB 698 million, representing a sequential increase of 21% [16] - Net revenue for Q3 2020 increased by 13% to approximately RMB 1.8 billion from RMB 1.6 billion in the same period of 2019 [16] - Net profit was RMB 597 million for Q3 2020, compared to RMB 599 million in the same period of 2019 [19] Business Line Data and Key Metrics Changes - Loan facilitation service fees decreased by 46% to RMB 486 million due to a decline in loan origination volume and transaction fees [17] - Post-facilitation service fees also decreased by 46% to RMB 161 million, primarily due to a decline in outstanding loans serviced [17] - Guarantee income was RMB 747 million for Q3 2020 due to the adoption of ASC 326 [17] - Net interest income decreased by 24% to RMB 261 million, mainly due to reduced interest income from outstanding loan balances [18] Market Data and Key Metrics Changes - The vintage delinquency rate for loans originated in Q2 and Q3 is expected to be below 4%, with expectations to lower to around 3.5% by year-end [8] - Early-stage delinquency rates (15 to 89 days past due) fell to 1.9%, a historically low level for the company [8] - The average cost of funds on the platform declined to 8.2%, with new funds costing below 8% [9] Company Strategy and Development Direction - The company is focusing on a strategic shift towards higher quality borrowers, which has led to a steady reduction in funding costs [9] - The international business expansion, particularly in Indonesia, is gaining traction with loan origination rebounding significantly [11] - The company is leveraging technological capabilities to drive long-term growth and is making strides in empowering banks and financial institutions for digital transformation [13][14] - The transition from P2P to institutional funding has resulted in a stronger credit risk profile and lower lending rates for borrowers [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of the loan business as China emerges from COVID-19, with expectations for Q4 loan volume between RMB 18 billion to RMB 20 billion [10] - The regulatory environment is evolving, but management believes that recent rules primarily target larger companies and do not materially affect their operations [19][30] - Management is optimistic about the long-term sustainability of profitability despite lower pricing due to improved credit quality [29] Other Important Information - The company has a strong balance sheet with RMB 3.4 billion in unrestricted cash and short-term liquidity [16] - Share buybacks continued, with $11 million deployed since the last earnings call, totaling $122 million since 2018 [21] Q&A Session Summary Question: Regarding the decline in credit cost and write-backs - Management confirmed that there were write-backs in Q3 due to better-than-expected credit risk experience, with a write-back of approximately RMB 690 million [26] Question: Economic outlook and long-term sustainable rates - Management indicated that the take rate is expected to decline slightly in Q4, with a range of 3.5% to 3.9% anticipated [28] Question: Regulatory environment and its impact - Management believes that the recent regulations recognize the value of fintech companies and should encourage healthy industry development [30] Question: Funding partners' attitudes and business model evolution - Funding partners remain supportive, with banks and consumer finance companies facilitating around 85% of loan volume [38] Question: Customer acquisition costs and strategies - There has been an increase in customer acquisition costs due to a shift towards higher quality borrowers, but the company expects newly acquired customers to deliver healthy net present value [70] Question: Managing delinquency ratios - Management attributed the decline in delinquency ratios to a combination of proactive measures, improved credit information, and a focus on better quality borrowers [76] Question: Future write-backs and credit loss assumptions - Management indicated that if credit loss levels continue to improve, there may be further write-backs in the future [50][51]