Hello and welcome to the X Financial First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tanya Wen.

Please go ahead. .

Thank you operator. Hello everyone and thank you for joining us today. The company's results were released earlier today and are available on the company's IR website at ir.xiaoyinggroup.com. On the call today for X Financial are Mr. Kan Li, President; and Mr. Frank Fuya Zheng, Chief Financial Officer. Mr.

Li will give a brief overview of the company's business operations and highlights, followed by Mr. Zheng, who will go through the financials. They are all available to answer your questions during the Q&A section.

I remind you that this call may contain forward-looking statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding these and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise, effect as required under the law.

It is now my pleasure to introduce Mr. Kan Li. Mr. Li, please go ahead. .

Hello everyone. We are pleased to start 2022 with a solid performance for the first quarter despite of multiple challenges from the resurgence of COVID-19 and the economic slowdown in China. The total loan amount facilitated and provided in the first quarter increased on both a yearly and quarterly basis.

We also saw our asset quality remain stable during the quarter. However, given the uncertainties of the macroeconomic environment, we are cautious about the business outlook for the coming quarters. We will continue to closely monitor the market dynamics and stay vigilant to any inefficiencies and issues related to the pandemic in China.

During the first quarter, our total loan amount facility and provided reached RMB 15 billion, up 40% year-over-year and 17% quarter-over-quarter in line with our previous guidance. The delinquency rates for all outstanding loans that are past due for 31 to 60 days as of March 31, 2022 decreased to 1.31% from 1.48% as of December 31, 2021.

We are pleased to see that our tightened risk control measures have successfully stabilized our asset quality amid the complex environment, and especially during the recent COVID-19 resurgence and lockdowns. In the meantime, we have been actively working with various partners to jointly explore new opportunities in the personal financing market.

In the fourth quarter of 2021, we became an indirect minority shareholder of the Newup Bank of Liaoning. Since the second quarter of 2022, we have started to provide loan facilitation services to Newup Bank.

Now we are in active discussions with the Newup Bank to jointly design and develop products and programs that cater to the financing needs of small and micro business, in line with the government’s call to support and the development of small and medium enterprises in China.

We look forward to deepening our cooperation with Newup Bank by leveraging our extensive experience in the personal financing market, and our capabilities in cutting-edge and tech-driven risk control and assessments. We believe helping licensed financial institutions to grow their business will benefit both parties in the long run.

On the regulatory side, the Chinese government recently highlighted the importance of promoting the healthy development of the platform economy in China. We believe a more visible market with clear and standardized regulations will benefit all the market participants including us.

We're fully compliant with and supported the government's initiatives and policies to promote the long-term development of the industry. We have laid a strong foundation and are very confident of our expertise to capture growth opportunities aimed at healthy regulatory environment.

Recently, we were included in the list for the first year under the Holding Foreign Companies Accountable Act which allows the US regulator to delist companies, if the sales comply with the merge audit standards for three consecutive years.

According to the Foreign Ministry of China, the Chinese securities regulator has regularly been in communicating with US regulators in this regard. Whether these companies will be delisted or not from the US stock exchange, depends on the progress and the results of the China-US audited supervision cooperation.

We hope and look forward to the two governments reaching an agreement in the near future. In the meantime, we have been proactively exploring possible solutions to protect the interest of our stakeholders and maintain our listing status on the New York Stock Exchange. Now, I will turn the call to Frank who will go through our financials..

Thank you, Kan, and hello everyone. We are pleased to see our top line increased 8% quarter-over-quarter sequentially in the first quarter. As per the guiding principles of the government, we are on track to further reduce the total borrowing cost of the borrowers in order to jointly promote and stimulate economic growth.

We have been stepping up our efforts to acquire more high-quality borrowers and securing a large user bases for a long-term sustainable growth. This strategy has put some pressure on our bottom line due to our increased user acquisition cost, but we believe that a solid foundation of the borrowers is critical to long-term development of our business.

We will continue to strengthen our user acquisition, while implementation disciplined cost control measures to deliver a balanced top line and bottom line growth. Now, I would like to brief some financial performance for the first quarter. Please note that all numbers stated are in RMB and rounded up.

Total net revenue decreased by 2% to RMB888 million from RMB906 million in the same period of 2021, primarily due to a decrease in average total borrowing cost of the borrowers, and also partially offset by an increase in the total loan amount facility provided this quarter compared with the same period of 2021.

Origination and servicing expense decreased by 19% to RMB465 million from RMB573 million in the same period of 2021, primarily due to a decrease in insurance fee paid to the insurance company.

General and administration expenses increased by 7% to RMB45 million from RMB43 million in the same period of 2021, primarily due to an increase in consulting service fee expenses in the first quarter of 2022.

Provision for accounts receivable and contract of assets was RMB26 million, compared with RMB17 million in the same period of 2021, primarily due to an increase in the accounts receivable from facilitation services, as a result of increase in the total loan facilitation amount in the first quarter of 2022, compared with the same period of 2021.

Provision for loans receivable was RMB33 -- RMB34 million compared with RMB27 million in the same period of 2021, primarily due to an increase in the loan receivable held by the company as a result of increase in total loan amount facilitated and provided in the first quarter of 2022, compared with the same period of 2021.

Income from operations was RMB314 million, compared with RMB251 million in the same period of 2021. Net income was RMB140 million compared with RMB189 million in the same period of 2021. Non-GAAP adjusted net income was RMB154 million compared with RMB212 million in the same period of 2021.

For further financial information, please refer to the earnings release of the company's IR website. Now for our business outlook.

We expect total loan amount facilitated and provided for the second quarter of 2022 to be between RMB15 billion and RMB16 billion and the range of incremental in total loan amount facility provided for 2022, to be from 15% to 25%. This forecast reflects our current and preliminary views, which are [indiscernible].

Now, this concludes our prepared remarks, and I would like to open the call to the questions. Operator, please..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Boyd Haynes [ph] with Equinox Capital. Please go ahead..

Hi. Thank you for taking my questions. I have three at the moment. What was your average interest rate in the quarter that you charge customers? The second question is on the tax rate.

Why was it so high this quarter and in Q4? And what is your outlook for tax rate for the full fiscal year? And the last question is, can you provide us with any update on your share repurchase program? Thanks..

Okay. Regarding to your first question, and we do not provide exactly the number regarding our general rate that we charge for the borrower. And -- but I will tell you in the general trend, it's going down.

And we also can provide regarding the -- like, the 24% borrowing rate for the loan is about -- in the first quarter this year is about between 40% to 50% range. So we are on track to have a majority of our business will be based on 24% rate on going forward.

I think that process will all the way to end of this year, okay? Regarding the tax rate, for the last quarter or this quarter, especially this quarter, we have one subsidiary in China. It has deferred -- so called deferred tax assets.

And since that business and the subsidiary is -- it would not be generate enough revenue in the future to offset those deferred tax assets. So for example, like this quarter, we have around about RMB90 million in the line of that tax line.

So our -- overall, our tax rate is relatively stable, it's around a little bit over 20%, but below -- somewhere between 20% and 25% is overall net. And for the first quarter of this the tax amount is so high is, because the special RMB90 million something special charge. That's the second question.

Regarding the share buyback program, the company's share buyback program is still subject to the inside trading rule specifically 10b-5, 10b-8, so we will starting doing the -- start doing buyback starting this Friday. So in other words, we haven't had any buyback yet so far up to this point, because there's no buyback window allowed to us to do so.

We will start doing -- start buying back our shares starting this Friday..

Okay. Let me just follow up on the tax rate question. I'm trying to understand what you're implying.

Is it, -- are you saying that the tax rate is going to drop going forward so that starting in second quarter, it should be closer to that 20% to 25% statutory rate?.

No. I'm trying to say, for the last quarter of last year and the first quarter of this year, the number on the tax line is abnormal in the sense because we have one subsidiary all the way back like 2020, we have some loss. So we have a tax credit available on that Chinese subsidiary.

But normally, you will earn the -- if you have -- in the future you have income that generate profit you can offset those tax credits, in order to -- so that mean that subsidiary business will have a lower tax rate or zero tax rate for foreseeable future, in order to absorb those tax credits.

But because something happened for that subsidiary, we do not have enough revenue to cover those that's why we – prudently, we took a charge about RMB 90 million in the first quarter this one.

So for the quarter of this year -- this quarter of this year, the tax amount is abnormal and will be back to normal between the 20% to 25% starting next quarter. .

Great. Thank you. My last question is really to the management team.

Have you considered taking this company private?.

No. And we understand our valuation is very low and like PV is well below the 1%. And we are still making money. We are not losing money. We are not in the -- except like special year like 2020, because of COVID situation mainly in China.

Normally, we are making money right, so it's kind of a reason why we cannot make a reasonable valuation for the shareholder. But I believe -- we believe, that in normal situation this depressed valuation level mainly due to uncertain regulate environment right now in China.

As we gave you the script in this quarter, if you pay attention to Chinese government news, you will see, we feel at this moment we will -- the Chinese government maybe we will refrain to have so-called arm-twisting regulated measure for this industry.

So we will -- maybe we will have a normal -- so-called normal -- we will not stop with a normal regulatory environment in the future. It doesn't mean we are doing -- we have a new measure coming up. We will still -- those measures we will believe, is normal a stuff. It's like a consumer protection whatever.

It's like every company -- it's like any country, you will expect to have a same kind of a regulation come from those areas. But we'll not have like earthquake event, for something like for the last few years and that kind of thing. So we believe both depressed valuation measure like PV or P/E will back to normal.

Well we believe we feel it will back to like -- back to one maybe not reach the one maybe, but definitely it's much higher than like 0.23% PV rate right now. So we still -- are on the regulatory front we think the thing will turn around. And we are still very believe the business we are involved is contributed to the consumer in China.

We are a contributor to society. And for the long-term, e will have -- maybe have a big role for us to play. So maybe -- so on regular result which is we believe is the most biggest effect to effect negative effect of not just our company -- the whole sector or appear the same thing they will be back to normal. But we don't know how and when.

But in terms of the trend we believe it will be back to normal. .

Right. Well most of your competitors have initiated stock repurchase plans. They have followed through. They also pay a dividend and some of them actually have seen some of their top senior executives have purchased stock instead of selling stock.

So if you believe that your shares are undervalued and they are not going to be delisted I would urge you to aggressively do all of that. .

All our management team nobody as far as I know do not sell any share. Certainly, I myself haven't sold any share yet. Our company is the biggest shareholder in adjusting very substantially share personally is more than like 30%. So I believe and I think with his means he did some small purchase also.

And if you compare with his holding at the end of last year, which is a disclosure in 20-F, he did buy some shares as -- not a big one but a small one yes, he did buy. So I think we will -- we haven't -- we -- for the share buyback profile we will do the share buyback at every opportunity. Every day available for us we will do the buyback.

And as we committed before in the due time, we will not exclusively in terms of the dividend same, but let's see the share buyback work faster then maybe we'll have something else. But there's no promise for that. .

I agree that share dividends don't make as much sense as share repurchases. But could aggressive purchase repurchase 10% to 15% of the company right now for very little. .

If they allow us to do that we will do that. As you see we put out RMB 15 million to doing that. Definitely in terms of the current market cap it's about 15%. But 10BA they allow you to only buy 25% of the flow every day. So the flow right now is very slow. That's -- you know what I mean? So we will buy everything available for us to buy.

But we still have to follow the rule. .

Okay. Thank you. I appreciate you answering my question..

Thank you. .

Thank you. And ladies and gentlemen this concludes your question-and-answer session. I'd like to turn the conference back over to Tanya Wen for closing remarks. .

Okay. Thank you everyone for joining us on the call today. We look forward to speaking with you again in the new quarter. Thank you. .

Thank you. And ladies and gentlemen this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day..