Good day and thank you for standing by. Welcome to LexinFintech's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

It is now my pleasure to hand you over to the IR Director, Ms. Mandy Dong. Please go ahead, ma'am..

Thank you, Amber. Hello, everyone. Welcome to the Lexin's third quarter 2023 earnings conference call. Our results were issued earlier today and can be found on our IR website. Joining me today are our CEO, Jay Xiao; President, Jared Wu; and CFO, James Zheng.

Before we get started, I'd like to remind you of our safe harbor statement in our earnings press release, which also applies to this call. During the call, we may refer to business outlook and forward-looking statements, which are based on our current plans, estimates and projections.

The actual results may differ materially, and we undertake no obligation to update any forward-looking statements. Last, unless otherwise stated, all figures mentioned are in RMB. Jay will first provide an update on our overall performance. James will cover the financial results in more details. And lastly, Jared will then discuss risk management.

I will now turn the call over to Jay. His remarks will be in Chinese and the English translation will follow..

one, strengthening our data security management system; two, enhancing anti-fraud protection capabilities; three, expanding intelligent customer service application; and fourth, intensifying efforts to combat illegal anti-collection groups. These measures collectively established a comprehensive safety firewall for consumers.

From January to August this year, Lexin intercepted 160 million instances of data security attacks, maintaining a record of zero data leak since the launch of the data protection and governance system. The anti-fraud system has prevented potential user logs for over RMB 270 million]. And the customer satisfaction has reached 99.6%.

Looking ahead to the fourth quarter, in the face of a complex and uncertain external environment, we will adhere to the principle of prudent operation and prioritize risk management. We will continue to enhance risk management capabilities and improve asset quality while striking a fine balance between transaction volume and asset quality.

We maintain the guidance on full year loan origination we gave earlier this year, ranging from RMB 245 billion to RMB 255 billion, representing a 20% to 25% year-over-year growth. Next, I will pass to our CFO for financial updates..

risk management, customer enhancement, operational refinement and cost efficiency are all paying off. As we navigate ongoing macro and industry challenges, we will maintain our focus on asset control, measured business expansion and operational optimization, poised to seize opportunities as they arise.

Now I will hand over to Jared Wu, our President, to discuss our approach on risk management in detail. Jared, please take it from here..

Thank you, James. In the third quarter, we continued to step up our efforts in honing our holistic risk management system and optimizing our customer base on the ground of our corporate strategy, risk management upgrading and customer base upgrading, which yield consistent results.

Although we continued to improve our risk management capabilities, our loan collection rate experienced some fluctuations due to the slow recovery of macro conditions and the rise of illegal anti-collection activities recently.

We anticipate this impact from these factors may last into Q4, therefore, we have built into a more prudent risk management approach going forward. Meanwhile, we rolled out a series of countermeasures to mitigate these impacts on loan collection.

For instance, in the collection process, we have set up our internal collection workforce and leveraged the advantage of internal collection manpower, and we also increased the proportion of manual case handling to uphold the collection right.

During the third quarter, through continuous optimization of our RTA model and the risk models for new customer credit line approval. We achieved a 50%, 5-0, improvement in customer acquisition efficiency and a 20% reduction in new customer risk levels.

In Q4, we will gradually amplify our experimental flow and continue to rapidly advance strategies iteration, striving to accumulate a sufficient number of high-quality customers this year and laid a solid foundation for next year's growth.

In the third quarter, we accelerated the recruitment of top-notch industry talent in risk management space, further enhance our core competitiveness. We anticipate their professional skills and extensive experience in risk management space will assist us to achieve more breakthroughs.

Adhering to the risk management-driven principle, we will continue to build up our industry-leading risk management team.

Looking ahead, in the face of the current macroeconomic situation in Q4, we will continue to adhere to the principle of risk management first, adopt a prudent strategy and at the same time, continue to enhance our underlying risk management capabilities, and persistently integrate the overall level of our risk management..

Operator, that closed all our prepared management remarks. I think we are now good to open the floor for questions..

[Operator Instructions] Our first question comes from the line of Alex Ye from UBS..

I have two questions. The first one is regarding the management remarks, about the control in early repayment ratio in Q3, which helped to increase the revenue take rate.

Could you share with some more color in terms of the specific measures taken and provide us with some color into the -- your expectation for the Q4? And second question is about your new customer acquisition. We have noticed good progress in Q3 in terms of both lower customer acquisition costs and a number of new customers acquired.

So could you also give more color on this?.

Thank you, Alex.

So in the first quarter, we set up a special task force directed by the Company's management level and then spanning multiple departments such as operations, to determine based on the customers' outstanding balance for credit line decide approval strategies based on their own performances to better determine whether they are likely to do the repayment, early repayment process or not to better avoid our strategic error to cause that.

We -- as well as we issued the suitable and the fit coupons in order to deter them from doing so, which effectively helps us to reduce the earning premium rate and also our tasked team held weekly meetings to review, adjust and reoptimize and achieve a very good result in the third quarter.

In the third quarter, our early repayment rate was only about 9% of which -- in the second quarter, which significantly improved the take rate level of the revenue and then we expect to maintain such strategy as well as the optimized level in the early repayment rate to go on in the fourth quarter.

So in third quarter, we continue to iterate our ability to acquire new customers and achieve the same reduction in the new customer risk in comparison with the previous quarter.

We did a significant new customer risk model upgrade, including integrating more on the, say, model usage as well as promoting the RDA model upgrade with our own -- with our main media channel. Specifically, our customer acquisition efficiency will increase by 50% and reduced new customers risk by 20%.

And from a pure earnings point of view, sales and marketing expenses decreased by 4% over-quarter, but newly registered user increased 9.0% quarter-over-quarter. And new users with improve credit line has increased by 15.1% and new active users will increase by 8.2% on a quarter-over-quarter basis.

It's hitting a much lower customer acquisition cost in the third quarter.

Coming in the fourth quarter, we will increase the volume of our comparison as well as the experimental group mentioned before and to continue to push forward the strategy of generation at a more faster pace to better reserve a significant number of high-quality customers as well as including -- pushing the new model, which has been showing prominent results to better lay a foundation for the next year's growth.

Hope that answers your questions, Alex..

Our next question comes from the line of Yada Li from CICC..

I'll do the translation. I was wondering if you could elaborate more about how the current loan demand looks like in October and November? And compared with the previous quarter, currently, how is the recent trend of the asset quality? And that's all..

Okay. Thank you, Yada. At the operational level, we see demand growth seen so far in October and November is down slightly compared to the third quarter and no significant recovery is seen. So specifically, in the demand level were slightly weaker in October compared to the third quarter, probably ranging in the mid-single digits.

And from the point of view that the average daily demand in November up to now benefiting from the boost of 11.11 e-commerce special compared with the level of third quarter is basically flattish.

However, considering the year's seasonality factors, including the bank's yearly slight tightening and the recent trend of overall capital flow shifting to government and real estate assets, we maintain a cautious and conservative stance on the fourth quarter volumes.

And in terms of the asset quality, as Jared mentioned earlier, in the fourth quarter, the factors affecting our asset quality persisted mainly because of the macro economy is still in a period of steady recovery as well as the growth and the impact of the anti-collection industry has been expected, the rate of our collection rate to a certain extent.

And it seems that we are currently under pressure on the quality of assets and the various group indicators have been concerning].

However, we have actively taken various countermeasures to deal with the fluctuations caused by external factors such as increasing the proportion of our own in-bound causes] and continuously iterating our risk management model and the volatility of risk will put some pressure on the growth for the fourth quarter, that's for sure.

But we are doing measures to combat that. Hope that answers your question, Yada.

So just to add one last point in terms of the results that we're getting and the progress we're getting for new customer acquisitions, with it, we are hoping with promising side and the volume that comes out of new customers as well as the cost being lower for new customer acquisitions as well as the risk level, looking very promising and good right now.

It should be a very good factor for us in the future. It should be helping whether it's on our asset quality side of the -- or the operational side in the future. So I hope that answered your question, Yada..

Our next question comes from the line of Betty Li from CLSA..

I will translate by myself. The first one, given the current loan guidance, I think the Company is in good track in maintaining the -- in the full year loan origination. But just wonder if you have any outlook for the 2024 loan demand. The second one is I just wonder if the Company has any further share buyback plans..

Okay. I will take the question. Basically, first question is related to the outlook. Second question is about the buyback, right? Basically, for the macro perspective, we still believe there is a considerable amount of uncertainty in the fourth quarter. The overall recovery of the consumption still remain relatively slow.

Because at the same time, because of the typical kind of seasonal factor of funding supply in the fourth quarter is a little bit tight, so we expect the overall lending volume in Q4 to be broadly in line with Q3, okay? This is one. Two, obviously, we have other factors affecting the seasonal asset quality.

These factors continue to exist as mentioned earlier, right? One is the macro kind of still -- the growth is a little bit slow.

And also the -- within the loan industry, the impact of the combating illicit financial activities related to the debt collection, this is still kind of affecting the rate of entry into the collection and also the asset from the collection, okay? So based on this, the overall kind of asset quality is still under slight pressure at this point.

The short-term risk indicators have still show some fluctuations. So based on all of this, we have basically continue to maintain a prudent approach for Q4, really adhering to the principles of prioritization risks and prudent management. And up to now, as a reminder, actually, we have maintained a pretty good rate of growth.

We have completed about RMB 188 billion so far for the first three quarters of this year. Really, this is about 26.7% year-over-year growth, okay? So we're going to continue -- we're confident we'll continue to achieve the RMB245 billion, RMB255 billion GMV growth, this will be 20% to 25%.

And in terms of 2024, we're probably going to wait until after we close this year to give more guidance. By that time, hopefully, we have more certainty about the overall macros next year, okay? That's the first question. Second question in terms of any buyback plans. As a matter of fact, the Board has approved two buyback plans last year.

We completed about RMB50 million buyback, earlier part of this year. And then the Board authorized RMB20 million buyback in November last year. For that, we haven't done anything yet. But in last quarter, we have declared a dividend plan. Basically, we declared we're going to pay out from 15% to 30% of our net income as a dividend payout range.

So the first half of this year, we paid out 20% of our net income, and we have completed paying out the dividend in the last month or so. So we will continue to look for ways to return value to our shareholders.

Basically, when we close the end of this year, we're going to come back to look at our dividend planning again to see whether we should continue to pay out for the second half of the dividend for this year, okay? So basically upholding the shareholder value is the #1 priority for us. Thank you. Hopefully, that answers your question..

We have reached the end of the question-and-answer session. I'll now turn the conference back to the Company for any additional closing comments..

Well, I think that closes our conference call today. Thank you again, everyone, for joining us today. If you have further questions, please contact us via our contact information on the IR website. Thank you all. Have a good day and a good night. Thank you..

Thank you. Okay. Bye-bye..

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