Jiayin Group Inc. (NASDAQ:JFIN) Q2 2023 Results Conference Call August 21, 2023 8:00 AM ET

Company Participants

Shawn Zhang - Investor Relations

Yan Dinggui - Chief Executive Officer

Fan Chunlin - Chief Financial Officer

Xu Yifang - Chief Risk Officer

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Jiayin Group Second Quarter 2023 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have objection, you can disconnect at this time.

I'll now turn the call over to Mr. Shawn Zhang from Jiayin Group Investor Relations. Please proceed.

Shawn Zhang

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 2023. We released our earnings results 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 Xu Yifang, Chief Risk Officer.

Before we continue, let me quickly go through the safe harbor. Please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. prior 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 the Company's public filings with the SEC.

The Company does not assume any obligation to update any forward-looking statements, except as required under applicable Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese renminbi.

I will 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.

Yan Dinggui

Good day to all I appreciate everyone for taking the time to join us for our second quarter 2023 earnings conference call. As I look back on the past quarter, I'm filled with pride at the exceptional performance. Our team has once again delivered with excellent results, which is a testament to our focus on technological innovation and our continuous drive to enhance operational efficiency.

I would like to highlight that our loan origination volume saw a remarkable increase of 77.8% and our net revenue experienced a strong growth of 57.4% compared to the same period last year. More importantly, our commitment to cost optimization ensures that we continue to improve our bottom line as well.

Reflecting upon the second quarter, the recovery of China's economy is still under progress. Zooming out to view the broader economic landscape, China's GDP expands by 6.3% year-over-year for the quarter.

Against this backdrop, the Chinese government rolled out multiple initiatives, in apps stimulating and encouraging consumer spending. This positions the consumer sector as one of the key potential driver in China's economic revival and its onward growth trajectory.

Additionally, statistics from the People's Bank of China reviewed that new RMB loans for the first half of the year reached RMB15.73 trillion marking a substantial year-over-year RMB2 trillion increase. This relatively relaxed credit scale offers a favorable safeguards for boosting consumption.

Amidst the economic recovery trend, we have been steadfast in our mission to strengthen our funding channels to ensure our funding supply remains stable. Our strategy has centered around converting deeper ties with key financial institutions and enhancing our existing collaborations.

This approach has not only fueled our loan volume growth for the quarter, but has also fortified our reserves, positioning us to capitalize on upcoming opportunities. As of June 30, 2023, our fintech partnerships have grown to encompass 69 financial institutions, and we are actively engaging with another 70.

Meanwhile, we are also refining our partnership metrics beyond our engagement with city commercial banks, rural commercial banks and the consumer finance firms, we have expanded our coverage to Internet banks, private banks and even joint stock banks.

It's worth noting that by the end of the second quarter, the credit line to be facilitated without regional constraints still constituted to the majority of our total credit line for origination provided by our funding partners demonstrating our prospects for sustained robust growth in our loan origination business across China going forward.

Furthermore, our commitment to leveraging fintech capabilities has been primordial in assisting licensed financial institutions with the digital transformation of their in-house businesses. By the close of second quarter, we have successfully added six financial institutions in transitioning their in-house operations to digital platform and are in the process of collaborating with another five to empower their online self-operated business platforms.

Additionally, we are currently in progressive discussions with three more institutions under this framework to explore avenues for potential collaborations. Importantly, either we enable our partners to leverage our loan facilitation platform, or we empower our partners' digital operations we're strategically positioned to cultivate long-term, stable and synergistic collaborations with our partners are based on our leading fintech capabilities.

As the market dynamics continue to evolve, we will remain committed to enabling our partners especially in areas such as targeting high-quality borrowers and managing risk volatilities.

Here, I would like to highlight is that applying AI technology have further strengthened our fintech abilities. Today, GPT business assistance has been deployed or is under development in three distinct use cases.

Firstly, it aids in enhancing performance, efficiency and the quality of our service representatives by leveraging ChatGPT, we empowered various service aspects such as tag instruction, conversation summarization, customer compliant prediction, emotion detection and deep conversation insights, all of which further refine our operations.

Secondly, it facilitates real-time risk analysis and alerts by assisting in the extraction of signatures, text and essential elements from credit contracts, thereby streamlining our business processes.

Thirdly, within our firm, we have established the Jiayin GPT lab using the ChatGPT interface, encouraging our employees to actively explore the utilization of AI technology in business use cases to enhance efficiency and support intelligent detailed operations.

This will also pave the way for our future development of multi-scenario intelligent Q&A assistance, virtual avatar [Uni], marketing audio visual generation, the prom platform and other initiatives that drive end-to-end operational intelligence.

Furthermore, since its update in May 2023, the Mingjian intelligent quality inspection system we developed through our subsidiary Geerong has achieved a remarkable feat by ensuring 100% coverage in our quality and inspection processes. This has been made possible through the integration of cutting-edge AI technologies that consists of voice recognition natural language processing and advanced big data analytics.

The Mingjian system seamlessly integrates automated AI-driven quality chat with human oversight, ensuring storage and quality of both textual and auditory data. This synergy enabled a comprehensive and precise evaluation of our service representatives performance metrics and preliminary resource.

Since the systems launch have validated its efficacy, the system has been instrumental to improving quality and inspection capabilities elevating customer service standards and optimizing operational cost and risk profile for us and our licensed financial institution partners.

Now on to borrower base operations, we continue to refine our borrower structure in the second quarter, consistently increasing the proportion and overall number of high-quality borrowers. In our acquisition strategies, we focus on online channels this quarter, targeting a more high-quality borrower base.

Alongside new borrower acquisition, we have been strengthening our service offerings to existing borrowers to maximize the full potential of their lifecycle value. Impressively, our repeat borrowing rate improved by 2.3 percentage points year-over-year, achieving a remarkable 70.1% and the average borrowing amount per borrowing reached RMB10,368 marking a 16% increase from the previous year.

At the same time, as we optimize our borrower portfolio, we have also observed a reduction in the product rate levels offered by our partner financial institutions. This not only solidifies our future trajectory in asset quality, but also underscores our ongoing efforts in boosting consumption and driving economic recovery.

In terms of risk management, our approach continues to prove its effectiveness despite the ongoing market volatility, throughout the second quarter, we have successfully maintained our 61- to 90-day delinquency rate at a stable level of 0.66% as of June 30, 2023.

We have also noted that in recent days, some emerging and external risk factors such as illegal and disruptive financial activities have had a certain impact on the normal operation of financial institutions and have also posed challenges to the personal information security and various legitimate rights and interest of borrowers.

We want to mention that at the same time, as we're assisting funding partners to effectively deal with risk fluctuations Jiayin also puts the protection of consumer rights and interest at the top of the list.

As our platform's borrower base continue to grow in both members and quality, our focus remains twofold, ensuring reliable risk management and elevating our service standards to the users. Our mission is clear to strike a balance between growth and sustainability, all while upholding the highest level of service and risk oversight.

On the global stage, our Nigerian operations have demonstrated resilience showcasing a consistent uptrend in profitability, even after navigating through certain risk challenges. A testament to our commitment to Nigerian market is our growing local workforce, which demonstrates our determination and confidence to develop in the local market for a long time in the future.

Besides that Africa is a continent bringing with spotless potential remains a focal point in our overseas strategy. As we witnessed our steady progress in Nigeria, our guess is also set on identifying potential business opportunities in other parts of the continent.

Shifting to Southeast Asia, we are increasingly committed to our investment in the Indonesian market. We have observed a rapid growth trend in Indonesian market and anticipate swift evolutions in its mainstream fintech lending business models.

We are prim and enthusiastic about working partnerships with financial institutions in Indonesia with our deep-rooted experience in China's loan origination sector and a collective vision for charting a new path of development.

Before I conclude I would like to highlight the recent release of our second annual ESG report. The report illustrated our commitment to efficient operations throughout 2022 with significant achievements in areas such as technology empowerment, collaborative partnerships, employee growth, carbon-conscious operations and community engagement. These accomplishments solidify the foundation for our sustainable growth.

Going forward, our commitment to our ESG strategy remains at the forefront of our operations. Our corporate mission to realize dreams is not just a slogan, but a guiding principle that we bring to reality through our actions. Our focus is on fostering sustainable growth for the Company while upholding our social responsibilities in our pursuit to deliver safe, trustworthy and high-quality products and services to all stakeholders.

In summary, we once again demonstrated significant business expansion and showcased a solid financial risk profile in the second quarter of 2023. These achievements underscore the success of our group strategies and expanding our business scale, refining our borrower structure strengthening our risk management and penetrating international markets.

We are confident that our concerted efforts will enable us to maintain a growth trajectory in the medium to long term and deliver satisfactory performance in the upcoming quarters. Given our current growth momentum and confidence in the strategic direction, we have decided to revise our annual business forecast upwards to RMB85 billion with RMB24 billion coming from the third quarter of 2023,

With that, I will now turn the call over to our CFO, Mr. Fan Chunlin. Please go ahead.

Fan Chunlin

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, we maintained our robust growth momentum in the second quarter. Our loan origination volume grew by 77.8% to 24 billion, meeting the top end of our previous guidance range.

Our net revenue was about 1.28 billion, up 57.4%. The growth of our revenue from loan facilitation services moderated to 24.5% year-over-year as we adjusted our take rate to better serve our borrowers and refine our borrower base structure. However, other revenue grew significantly to 352.9 million from 69 million in the same period last year, mainly driven by incremental revenues from individual investor referral and financial guarantee services.

Moving on to costs. Origination and servicing expenses were 355.8 million compared with 128.3 million for the same period of 2022, driven by the increased loan origination volume and post-loan service-related expense. Allowance for receivables and contract assets grew by 97.1% to 13.8 million or 1.1% of net revenue compared to 7 million or 0.9% of net revenue in the same period last year.

Sales and marketing expenses increased by 79% to 420.7 million, mainly reflecting higher borrower acquisition expenses. As a percentage of net revenue, S&M expenses increased to 32.9% from 29% in the same period last year, as we continued our investments to attract and retain high-quality borrowers.

G&A expenses were 50.1 million, up 17.6%, primarily driven by higher staff costs as a result of increased share-based compensation expenses in the quarter. As a percentage of net revenue, G&A expenses reduced to 3.9% from 5.2% in the same period last year.

R&D expenses were 68.1 million up by 25.9%, mainly due to the higher employee compensation as a result of an increase in research and development headcount. As a percentage of net revenue, R&D expenses reduced to 5.3% from 6.7% in the same period last year.

Consequently, our net income for the second quarter increased by 28.6% to 326.3 million from 253.8 million in the same period last year. Our basic and diluted net income per share were both RMB1.52 compared to RMB1.18 in the same period last year. Basic and diluted net income per ADS were both RMB6.1 compared to RMB4.72 in the same period last year.

We ended this quarter with 288.9 million in cash and cash equivalents compared to 340.6 million at the end of previous quarter. As of June 30, 2023, we have bought back approximately 1.8 million of our ADS for a total of $5.5 million on our $10 million share repurchase plan we announced in June 2020 and extended in June 2023.

With that, we can open the call for questions. Operator, please proceed.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Lin Yao from [Wafu Securities].

Unidentified Analyst

I'm Lin Yao from [Wafu Securities]. My first question is about the low origination volume growth. Compared to the previous quarters, where your volume growth were generally over 100%, what are the key elements before behind this lower low origination volume growth in this quarter, how should we expect your low origination volume to trim going forward?

Xu Yifang

[Foreign Language]

Shawn Zhang

Okay. This is Shawn Zhang from the Investor Relations, and I will do the translation for Ms. Xu. As you mentioned that our volume growth rate for this quarter is 77.8%, which looks lower than over 100% rate in the last quarters. Well, one of the reasons is that if you look at the absolute value in the early 2022 and the whole year of 2021, our loan origination volume, the absolute value of it is relatively small.

And when we would relatively slowdown in the growth rate of the origination volume in this quarter because the growth rate in the year of 2022 was very fast, which made it appear to slow down year-on-year for this quarter. But if you compare with what we had in the last quarter, the growth rate is still quite impressive.

And just as Mr. Yan just mentioned that we just revised our annual guidance upwards and which means that in the long run, we still want to pursue the growth of origination volume at a healthy level. And as you know that the business logic of the liquidity loans always includes the lack of risk cost. Therefore, we want to choose to achieve a group which is under control and pursuing sustainable and healthy expansions. I hope that will answer your question, Ms. Lin.

Unidentified Analyst

Also, I will do the translation for myself. With the judgment integrates and operational costs or margin trends should we tap going forward, layer any potential headwinds or tailwinds my impairment company's profitability? Thanks.

Fan Chunlin

[Foreign Language]

Shawn Zhang

Okay. This is Shawn Zhang again, and I'll do the translation. So, on the basis of continuously optimizing the borrower base structure and improving the Company's overall operating efficiency and combined with the monetary policy of the central bank for the downward interest rate. The product pricing offered by our partner financial institutions will maintain a further steady downward trend in the medium- and long-term round. At the same time, I think our take rate has room to further decline as well.

Fan Chunlin

[Foreign Language]

Shawn Zhang

The main majority of the Company's revenue right now comes from the loan facilitation services, including the acquisition of borrowers and risk control services, and with the scale effect and the improvement of our overall operating efficiency, the margin of this part of the business will remain stable.

And if you look at our other revenue sector, you can see overseas business revenues and also the revenue from guaranteed business. So for the guarantee business, it has started to grow rapidly in the last two quarters. And the current margin of the guarantee business is still lower than the loan facilitation services.

Fan Chunlin

[Foreign Language]

Shawn Zhang

So you may say that facilitation services will still as the majority of a source of our revenue. And we will grasp the balance of different business segments in the proportion of the revenue. Our net profit margin in this quarter is 25.5% which has a slight increase from the previous quarter.

Yan Dinggui

[Foreign Language]

Shawn Zhang

And just as what Mr. Yan just mentioned, that we will strengthen our AI applications and also refine our operations. Our management team is confident that our net profit margin will be maintained at a healthy level of around 25%.

Operator

Our next question comes from the line of [Martin Chen from Ten Asset].

Unidentified Analyst

This is Martin Chen from [Ten Asset]. Congratulations on a strong second quarter results and raised whole year guidance. I have two questions. First one is that I noticed that the Company's cash and cash equivalent has decreased compared to last quarter. What are the main factors close to [indiscernible]? Also, I'd like to know the Company's strategy to manage liquidity and cash flow going forward?

Fan Chunlin

[Foreign Language]

Shawn Zhang

Okay. So just like what you mentioned that as of June 30, 2023, our cash and equivalent balance was RMB289 million, which has a slight decrease from the end of the first quarter. And I think there are two main reasons for that. Firstly, we get -- we have a capital investment in our overseas businesses.

And the reason for that is we have increased strategic investment in our overseas business this year. And for the overseas business, it still needs some time to be on the right track and will take some time for the overseas business to achieve a breakeven or positive cash flow. Secondly, our guarantee business started to grow up in the most recent quarter as well. And the payment of security deposits increased accordingly which occupy part of the cash as well.

Fan Chunlin

[Foreign Language]

Shawn Zhang

Okay, so generally, we think the liquidity position right now for the Company is pretty good. And for most of the -- for the most of the asset we also see a majority of them is from account receivable and the recovery of our account receivable is pretty good. We also have a cash balance for needed for our overseas business.

Fan Chunlin

[Foreign Language]

Shawn Zhang

So, in the medium and long run, in terms of our liquidity management, our plans will include as follows. Firstly, we will be monitoring the recovery of the -- our accounts receivable, and we will strengthen the recovery of it.

Fan Chunlin

[Foreign Language]

Shawn Zhang

Okay. So, we will also further reduce the deposit payment ratio by negotiating with our partners and to decrease the effect from the occupying -- the cash occupied by the guarantee business.

Fan Chunlin

[Foreign Language]

Shawn Zhang

So thirdly, the business expansion of our overseas business in the future will rely on relying more on funding sources from other channels so as to achieve overseas business breakeven or a cash inflow as soon as possible.

Fan Chunlin

[Foreign Language]

Shawn Zhang

To conclude, we will further strengthen the refined operations and to increase workforce efficiency and continue to optimize the Company's utilization efficiency of operating cash. Martin, I hope that will answer your question.

Unidentified Analyst

My second question is the overall economy environment remained weak in the third quarter, is Jiayin currently under pressure from the economy downturn? Can management share some preliminary information on the growth of loan facility over asset quality in the early 3Q as well as the Company's estimate on the trend of these metrics throughout the quarter?

Xu Yifang

[Foreign Language]

Shawn Zhang

Okay. I will do the translation for this part as well. And yes, Martin, we did experience some challenges you just mentioned. And from Mr. Yan just mentioned that, we also know the GDP of China is still have a growth and the consumer section will probably going to be a going to be a very important part for the economy development in the future.

But also from the outside, we also observed that the employment rate data becomes somewhat uncertain and probably not that optimistic. And at the same time, we find that the demand for the credit loan is still very strong. And the debt-to-income ratio of the borrowers is raising up as well. And also, from the internal perspective, we can also see some trend changes from the inflow rate of some subdivided borrower groups. And also, we can see some collection data.

Xu Yifang

[Foreign Language]

Shawn Zhang

Okay. So for the -- if we talk about the asset quality in the -- for the third quarter, I want to mention that just like what I have mentioned before that we want to pursue our goal at a stable, sustainable and healthy way. So, we are -- we will monitor some early indicators, just like include the asset quality of our borrowers and also the debt income ratio of them and also some short-term to midterm loan application situations.

Xu Yifang

[Foreign Language]

Shawn Zhang

Okay. So for us, the Jiayin Group, we have experienced -- we have accumulated a lot of the experience in the past few cycles. And I think we have the experience and confidence to actively match the asset quality well, and for the online credit market business, we're always using a prudent approach when facing new risk factors and volatilities, and hope that we will deliver another satisfying business report in the future for all of our stakeholders.

That's going to be my answer.

Operator

Thank you. We have no more questions at this time. I will return the call back to Shawn for closing remarks. Please go ahead.

Shawn Zhang

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.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.