Thank you for standing by. And welcome to the Yiren Digital Third Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. [Operator Instructions]. I would now like to hand the conference over to Ms. Keyao He, IR Officer. Please go ahead..

Thank you, operator. Good morning and good evening, everyone. Today's call features a presentation by the Founder, Chairman and CEO of CreditEase and our CEO, Mr. Ning Tang; and our CFO, Ms. Na Mei. Our SVP, Ms. Mei Zhou; Raymond Fang, CEO of Yiren Select who will also join the presenters in the Q&A session.

Before beginning, I would like to remind you that discussions during this call contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Such statements are subject to risks, uncertainties and factors that can cause actual results to differ materially from those contained in any such statements. Further information regarding potential risks, uncertainties or factors is included in our filings with the U.S. Securities and Exchange Commission.

We do not undertake any obligation to update any forward-looking statements as required under applicable law. During the call, we will be referring to certain non-GAAP financial measures and supplemental measures to review and assess our operating performance.

These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about those non-GAAP financial measures or reconciliations to GAAP measures, please refer to our earnings press release.

I will now pass it on to Ning Tang for opening remarks..

Hi, everyone. Thank you for joining our conference call today. We are pleased to deliver a resilient quarter with solid business recovery and continued improvement in profitability post our product restructuring and pandemic resurgence in the first half this year.

As the macro environment gradually rebounds, and our revenue structure continues to evolve and upgrade, we have full confidence to embrace an accelerated growth path in the quarters to come. First , an update on our holistic wealth management business.

Our insurance brokerage business continues its strong momentum this quarter, becoming an essential revenue pillar. In the third quarter of 2022, our total premiums reached RMB1 billion, representing a 36% increase year-over-year, surpassing the industry average growth rate by over six times.

Revenue generated from Hexiang Insurance brokerage services reached RMB189 million, accounting for more than 22% of total revenue, and we expect to see an accelerated double-digit growth in the fourth quarter.

The rapid expansion of our insurance brokerage business is fueled by Hexiang’s outstanding capabilities in product customization and innovation, distinguished from other insurance brokers, Hexiang excels in analyzing and exploring different clients specific needs in their life and working scenarios.

Therefore, our products enjoy a strong advantage of exclusiveness in the market. For example, one of our whole life insurance products, tailor made for high-net-worth clients called [inaudible] close for nearly RMB 60 million in premiums this quarter alone.

Another example, our customized group insurance products targeting kids and teens with Vision Care Services will hit the market soon, which is expected to contribute sizable premium in the coming quarters.

Moreover, our property insurance products also saw continued growth for the past 22 consecutive months, and that the demand remains strong as we expand into more fast-developing areas, such as litigation preservation liability insurance business.

Another highlight, I would like to point out is that second year renewal rate for our long-term insurance products reached 96.6% as of the end of the quarter this year, much higher than the industry average of 85%, which has further proven the high quality of our services.

Regarding the new regulation on online insurance sales, that's been a hot topic in industry this year. The actual impact on our business has been minimal due to the complexity and richness of our product matrix, and our relatively low reliance on online channels.

In the third quarter this year, the total number of insurance products offered exceeded 750, up from around 650 in the prior quarter. Looking ahead, the momentum remains strong for both our life and property insurance segments. Now, moving on to a bigger picture of our holistic-wealth business.

In the third quarter of 2022, total client assets reached the RMB 22.8 billion, an increase of 31% year-over-year, particularly on Yiren Select platform, which is the upgraded version of Yiren Wealth and our Super App strategy.

Average client assets held by each client, through our institutional partners reached over more than RMB 350,000 representing a year-over-year growth of 36%.

With the ongoing penetration of our live class finance initiatives, and the balanced asset allocation investment educational concept, in the third quarter, the number of clients with client assets over RMB 1 million increased by 57% from prior year, a vivid reflection of the enhanced recognition for our improved serving capabilities.

Before we move on to an update on credit, I want to mention that we have officially closed our online brokerage arm China Glory in the fourth quarter last year to be complying with new regulations.

Going forward, we will focus our efforts on our core wealth business lines and creating a powerful flywheel effect that will help our loyal and growing number member base with additional financial management solutions that match their needs for investment, savings and insurance protections, while also increasing their lifetime value to us.

Looking into the year of 2023, we expect to realize increasing synergies between each business line, as Hexiang Insurance Brokerage continues to customize products and services that match the needs of our customers within the Yiren Digital ecosystem.

Our customer base is also expected to continue to expand with higher acquisition efficiencies as our consumption driven businesses start to ramp up in scale and drive-up overall customer engagement. Now, I will pass it Mei who will go through the highlights of our credit-tech business for the third quarter..

Thanks Ning Tang and hello everyone. Before I provide an update on our credit-tech business, I like to reiterate our statistical product transition. And we would like to see a full recovery of the growth pace post op restructuring with the aim of to improve our overall profitability and reduce a potential operational risk amid the pandemic resurgence.

We started to proactively optimize our loan portfolio structure back to the second half of the last year, and to scale back, our offline secure loans business that were in higher operating costs and the higher volatility and during the pandemic. We officially terminate this product in the first quarter of this year.

Now that our new loan portfolio enjoys a higher operating efficiency and large, lower borrowing costs, we believe the transition allows us to better sustain and scale with the housing unit economics and the higher flexibilities and leads in to respond to any further market evolvement.

In the third quarter of this year, our total loan volume reached RMB6.3 billion, accounting for 66% of total loans facilitated in the first half this year and close to pre-restructuring level.

Given the current strong demand for our loan-facilitation services, especially for our small revolving loans, we project a further two-digit growth quarter-over-quarter in total loan volume in the fourth quarter this year.

Another notable highlight is that our MAU increased it to 1.7 million at the end of the third quarter this year, representing a 24% increase compared to the end of the last quarter, and a 54% growth compared to the end of the third quarter last year, due to our improved services and enhanced integration with our borrowers.

Meanwhile, we see an increasing number of the users coming back for a second loan, as we continue to offer various value-added services and membership benefits, such as discounts, tailored insurance and products, and award credit in the third quarter of 2022, the repeat to borrowers accounts for 81% of the total borrowers for small revolving loan products compared to 62% in the third quarter last year, translating into a decline in acquisition cost per user.

Moreover, as our e-commerce platform continue to enjoy increasing popularity among our users and bring a growing traffic, the average acquisition cost is expected to further decrease in the future.

Just to echo what Ning mentioned earlier, our consumer -- our consumption-driven services from both our e-commerce platform and Yiren Select has helped built up a more dynamic and integrated ecosystem including synergies between different business lines.

On the funding side, as we continue to increase and diversify our funding partners, we expect to see a continued decline in the funding cost in the coming quarters. Last, but not least, the asset quality of the new loan shows stability and improving trend.

Our FPP 30-plus delinquency rate in the third quarter reached the 0.49%, still at a historical low as a result of our continued efforts in customer segment [inaudible] and risk control tightening. With that, I will now pass it on to Na, who will go through the financials for the third quarter this year..

Okay. Thank you, Mei, and hello, everyone. For this quarter's financial update, I will focus on key financial highlights only. Please refer to our earnings release deck for further detail.

We delivered solid results this quarter, with total revenue reached RMB 841 million, accounting for 56% of total revenue in the first half of this year, with an accelerated recovery from the temporary impact of our product restructure and the pandemic lockdown.

As you may have noticed, we recognized our revenue segmentation in the third quarter last year to high e-commerce revenue as our strategy deployment in consumption driving service start to set off and life to a multi match maker ecosystem with enhanced our customer engagement, activity and long-term value.

Contribution from holistic-wealth business reached RMB 294 million in the third quarter and accounting for 35% of the total revenue, up 8 percentage points compared with the same period last year. This is in line with our strategy proceeding as a personal financial management platform that differs us from our leading peers.

On the credit side, our total facilitated this quarter RMB 6.3 million realized double-digital growth quarter-over-quarter and a rebounding to restructure level of last year, driving by the rate of our small revolving loan.

Revenue from credit-tech service reached RMB 493 million this quarter, accounting for nearly 50% of that of the first half of this year. Our average borrowing cost has fell in to 24.3% for all new loan facility October, reflecting our ongoing commitment to financial inclusion and in line with the regular directive.

On the income side, total operating income was RMB 505 million this quarter, decreased by 38% compared with the third quarter last year. Sales and marketing expense decreased to 66% to RMB 136 million from the same period last year, mainly driven by cost savings as we optimize our off-line business which Mei has stated on today’s earnings.

On general and administrative expense increased 20% year-on-year to RMB 224 million, mainly due to the expense of our insured work business as well as the increased spend on risk assessment service costs, having our risk management policy earlier this year.

Allowance for accounts receivable and others decreased by 38% year-over-year to RMB 35 million due to higher provision booked for our long-term secured loan business last year.

We delivered a strong profit of RMB 270 million this quarter, reflecting a net income margin of 32.2%, up 6.2 percentage point year-over-year as we enjoy better unit economics post the product-restructuring and continue to improve our cost efficiency.

Turning to our balance sheet, our net income with substantial balance sheet reached RMB 5.5 million in total shareholders' equity of September 30, 2022, increased by 15% compared to as of December 31 last year.

Meanwhile, we remain under strong cash position with usable cash reaching RMB 4.7 billion reserving sufficient buffer for the further execution of our share repurchase plan which was announced earlier this year as well as providing enough fuels for any new business opportunities going forward.

Now based on our assessment, our business and the marketing conditions, we expect revenue in the fourth quarter this year is to be between RMB 0.9 billion to RMB 1.1 billion, with net profit margin expected to remain stable. With that, we conclude our remarks. Operator, we will now open for questions. Thank you..

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

Hi. Can you tell us how many is the size of the loan facilitation in Q2 of fiscal year '22? In your previous press release, you just gave a first half number. I'm just kind of curious to see what was the sequential rate of growth in your online lending channel..

Can Mei and Na answer this question, please. Second quarter loan volume..

Okay. This is Na, I will answer your question. The third quarter, our loan volume is total about [RMB 12.6 million] and compared to the third quarter, the loan volume in our third quarter increased about 20% to 30%..

I'm sorry, that was Q2, it increased 20% to 30%?.

Yes..

Okay. And can you talk a little bit about the strength of the demand of those online loans.

How much more growth can you expect to see in fiscal year '23?.

We have positive outlook.

But Na, do you have detailed numbers? Or do we disclose that?.

Yes, since our current outlook for our 2023 forecast, we think that our loan will keep on a stable and good at plan. And based on our current forecast, we think that our loan will increase about 20% to 30%, yes, at least. We hope that there is a better performance, yes..

Your balance sheet is very strong. You have a lot of cash. What kind of interest income are you generating from that cash at this time? Because it seems like there's not -- I don't see much that's been reported on the income statement..

Yes. I think most of our cash is mostly from the -- our revenue from our customers from the credit segment and the holistic segment. And actually, there is a little interest income as you mentioned in your tax deposits, yes, it's most from our customer revenue..

Right. And I think you've done a great job of managing your expenses in a declining revenue environment. I'm just curious about your capital allocation. Given that you're not generating much interest income from the cash, is it possible that you could -- you do have a USD 20 million buyback program in place.

And it doesn't appear to me that you have utilized any of that yet. It would appear to me that you should be much more aggressive about repurchasing your own shares going forward.

Can you just comment a little bit about the status of your buyback program? Is it ready to be put into effect immediately?.

Yes, we totally agree with you. Yes, as you mentioned, we have announced a new share repurchase plan in September. And now I think after the earnings release with the quarter financial statement, then we'll restart our repurchase plan. And I think our strong cash positioning will give win power to execute our share repurchase in the future.

Of course, we will also keep on identifying other, wise, multi business opportunity to use our capital -- use our cash position and also enhance our capital income. Yes, as you mentioned, we'll execute our repurchase plan and identify otherwise opportunity to use our cash position..

Just -- sorry, I didn't mean to interrupt. Just to be clear, looking at your 20-F, you did have a previous USD 20 million buyback program authorized and in place. And yet you didn't utilize that during the year, and you canceled that and then put a new USD 20 million to replace it.

Why was -- why did you do it that way? Why didn't you just utilize the existing repurchase program that was -- had already been authorized?.

Yes. I also mentioned we renew our new repurchase line in September. That's because the old plan we announced many years ago and during the last several years, we have executed our purchase plan and there is a little left so and as because we have a shareholder hope that we need to renew a new purchase line amount to $20 million.

And so that we can renew one because the last one is the little left. Yes, it was many years ago we announced it..

Right. I think what people are looking for is to see if you actually follow through with the repurchase. So I would urge you to do that.

And that's it's important to show investors around the world that you also feel that the shares are undervalued and that you're going to be in there supporting the ADS, which seemed to be extremely undervalued even in a sector that is generally undervalued. And I guess this question is also for the larger shareholders who are on the call.

Have you considered taking this company private given the dramatic difference in what this company should be valued at and what it is trading at right now..

We have no such intention at this moment. Because [Obo] is our strategy, yes. And this offshore listing position helps a lot with our global strategy..

I see.

Would you consider going in and purchasing more shares at this level yourself individually?.

You're talking about me?.

Yes, you..

The program is there and it's not finished. As you pointed out, we will, yes, push forward with that program..

Right. I understand. But a lot of, what can also be done in addition to that is if large insiders at the company are going in and purchasing stock themselves for their own accounts. And again, just another way of -- ..

Yes, the stock, the floating part is not that big. So while we totally agree that, yes, share buyback is very helpful, we are also mindful that the flow is not that big. If we buy back all the shares, then it is delisted..

There are no further questions at this time. If you have any further questions, you can feel free to contact the company's IR team. That does also conclude our conference for today. Thank you for participating. You may now disconnect..

Thank you, all..