Hello, and welcome to the X Financial Second Quarter 2023 Earnings Conference Call. All participants are in a listen-only mode. [Operator Instruction]After today’s presentation there will opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Victoria Yu.

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 from 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 session.

I remind you that this call may contain forward-looking statements under the safe harbor provisions of 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, except as required and allowed.

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

Hello, everyone. We are delighted to end the first half of 2023 with outstanding operational and financial performance in the second quarter. We continue to execute our proven strategy and maintain our growth momentum.

In the first half of the year, the total loan facilitation and origination amount reached nearly RMB 50 billion, an impressive increase of over 55% year-over-year.

Our top line improved by 30%, while our bottom line nearly doubled in the first half, underpinned by our proven business model, consistent asset quality, and optimized operational efficiency.

Furthermore, our net income per basic ADS for the first half of the year grew more than 130% year-over-year, driven by our robust profitability and dedication to rewarding shareholders through our share repurchase program.

During the second quarter, our total loan amount facilitated and originated increased by 53% year-over-year and 7% quarter-over-quarter to RMB 26 billion.

In line with our expectations, with the total outstanding loan balance reaching RMB 45 billion at the end of June 2023, we continue to strengthen our risk management system to maintain healthy asset quality, with the delinquency rate for all outstanding loans past due for 31 to 60 days remaining stable at 0.96% at the end of June 2023.

And the delinquency rate for all outstanding loan past due for 91 to 180 days at 2.5%, significantly improved from a year ago. We are proud of our consistent high quality risk control and stable prime borrower space, which have been well received and recognized by our institutional funding partners.

We will continue to work together to meet the financing needs of consumers and SMEs in support of China's economic recovery.

On the regulatory side, with the recent settlement of fines imposed on some large financial platforms by the government, the market believes that the industry-wide ratification is expected to come to an end and a more stable regulatory environment is expected. Financial regulatory authorities are now shifting their focus towards regular supervision.

As a highly responsible company, we always operate in full compliance with regulations and laws and will continue to prioritize financial consumer protection. Looking ahead to the second half of 2023, we are confident in our ability to achieve sustainable growth and enhance shareholder value.

The normal regulatory environment provides a solid foundation of our continued growth and success. We remain committed to executing our share repurchase and dividend program to reward our valued shareholders. Now, I will turn the call to Frank, which will go through our financials..

one, an increase in commission fee resulting from the increase in total loan amount facilitated and originated this quarter compared with the same period of 2022; second, an increase in interest expenses as a result of an increase in payable to the institutional funding partners and investors.

Provision for the loans receivable was RMB 55 million compared with RMB 32 million in the same period of 2022, primarily due to an increase in loans receivable held by the company as a result of the increase in total loan amount facilitated and originated this quarter compared with the same period of 2022.

Income from operations was RMB 445 million compared with RMB 194 million in the same period of 2022. Net income was RMB 366 million compared with RMB 186 million in the same period of 2022. Non-GAAP adjusted net income was RMB 365 million compared with RMB 211 million in the same period of 2022.

For further financial information, please refer to the earnings release on our website. Regarding our share repurchase plan, in Q2, we purchased approximately 406,000 ADS for a total consideration of USD 1.6 million.

Under USD 30 million share repurchase plan announced last November, we have approximately USD 7.3 million remaining for the potential repurchases. Yesterday, our Board approved the extension of the existing share repurchase program for an additional 12 months until the end of September 2024. Now, on our business outlook.

For Q3 this year, we expect the total loan amount facilitated and originated to be between RMB 28.5 billion and RMB 29.5 billion. For the fiscal year 2023, we expect the total loan amount facilitated and originated to be between RMB 105 billion and RMB 110 billion.

This concludes our prepared remarks, and we would like to open the call to the questions. Operator, please..

[Operator Instructions] The first question comes from [Boyd Heinz] with Equinox Capital..

I wanted to ask some questions about the current trends that you're seeing among your active borrowers.

Can you just talk a little bit about what the average loan size is and what the loan tenor is like among your active group in the second quarter?.

Sure. I can answer that question. Our average loan and ticket size is roughly about RMB 10,000 to RMB 16,000. It's roughly around that. The average tenure right now is -- because we offer the loan up to 12 months, and the majority of the customers choose 12 months as their application tenure, so our average tenure actually is very close to 12 months..

So, if I'm borrowing that amount, am I expected to have repaid that loan fully at the end of that 12-month term?.

That is correct..

Okay.

And so, if I'm a repeat borrower, I'm not just rolling over a principal balance because I couldn't pay the full amount?.

No, you can't. Actually, if you are [indiscernible], you will not remember your amount..

Okay.

So, in terms of the current state of the economy and possible pressures on your borrowers, have you started to adjust your loan provision rates at all? Are you seeing any signs of pullback among your consumer base in terms of the amount of loans that they might be wanting to take on?.

Actually, the demand has been really -- has been fairly high for a long time. I think that's why we can keep the momentum of growth. In terms of the provision that you just mentioned, it is our company policy that always review our provision and to make sure that we are fully -- that our provision is coming in line with our risks.

So, I can't say exact how much that we are adjusting our provision, but our provision has been fairly robust for the past several years..

I appreciate that the dividend has been put in place and that you are continuing a fairly aggressive share repurchase. I think those are things that should absolutely continue, especially given where the stock is trading. And I hope that -- I wish you all the best for the rest of the year..

[Operator Instructions] Okay. Seeing that there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Victoria Yu for any closing remarks..

Okay. Thank you, everyone, for joining us on the call today. If you haven't got the chance to raise your questions, we will be pleased to answer them through a follow-up contact. We look forward to speaking with you again in the near future. Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..