X Financial (NYSE:XYF) Q4 2023 Earnings Call Transcript March 27, 2024
X Financial isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to the X Financial Fourth Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Victoria Yu. Please go ahead.
Victoria Yu: 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.xiaoying.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 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 US 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 under the law. It is now my pleasure to introduce Mr. Kan Li. Mr. Li, please go ahead.
Kan Li: Hello, everyone. We are pleased to conclude the year with solid operational and financial results, emphasizing our commitment to a sustainable growth. In 2023, we facilitated and originated 43% more loans than in 2022 and delivered notable year-over-year growth in both revenue and projects. Total net revenue increased 35% on an annual basis, while income from operations increased 33%, and the net income improved by 46%. However, as we enter the second half of 2023, particularly in the fourth quarter, we experienced increased risk levels in asset quality. While we strengthened our risk control system and implemented various measures to managing delinquency rates, we also made the strategic decision to proactively reduce loan volumes in the fourth quarter, prioritizing profitability over sheer volume growth.
During the fourth quarter of 2023, our total loan amount of facilitated and originated was RMB 26 billion, a 20% year-over-year increase, but an 11% quarter-over-quarter decline. Delinquency rates for loans past due 31 to 60 days and the 91 to 180 days were 1.57% and 3.12%, respectively, at the end of the quarter compared with 1.02% and 1.93%, respectively, a year ago. Our team remains vigilant in monitoring asset dynamics and has taken further steps to mitigate risk by reducing our exposure to higher risk areas and adjusting our business approach to ensure sustainable profitability. We aim for continued gradual improvement over the course of 2024 and these measures have begun to have a positive impact on our risk indicators. For fiscal year 2024, our strategic approach will remain consistent and somewhat conservative, aligned with current market conditions in China.
We believe the regulatory environment has become stable and the government is committed to promoting economic recovery. However, we recognize that the challenges and uncertainties exist as the country undergoes a transformative shift in its economic growth model, away from a rapid expansion of the past. And structural adjustments are imperative. All of this has far reaching impacts on various sectors, including our target market. Despite these challenges, we remain committed to executing our strategy and prioritization profitable growth. Our commitment to delivering value to shareholders is unwavering and we intend to pay dividends when probability and smooth operation allow. This overall approach reflects our decision to navigate in the evolving economic landscape while ensuring the sustainable success of our business and returning value to our shareholders.
Now I will turn the call to Frank, who will go through our financials.
Frank Fuya Zheng: Thank you, Ken. Hello, everyone. We are pleased to deliver solid financial results in 2023. Total net revenue increased by 35% year-over-year to RMB 4.8 billion and the net income rose by 46% to approximately RMB 1.2 billion. In response to heightened asset quality risk in the first quarter, we proactively reduced loan volumes to satisfy probability, resulting in a 15% sequential decline in total net revenue for the quarter. We recognized RMB 26 million and RMB 46 million of impairment losses on long-term investment related to our indirect investment in Newup Bank of Liaoning in 2022 and 2023, respectively, mainly due to depreciation in the market evaluation of the Chinese banking sector. However, the banking loan portfolio and the operation remain healthy and we believe it continues to be a good investment for us.
Looking ahead, we will now pursue pure loan volume growth at the expense of the probability, which is always our strategic focus to ensure long-term growth and returns to the shareholders. We will continue to strengthen our risk management system to improve asset quality and balance our revenue and the probability growth. Now I would like to brief some financial performance for the Q4. Please note that all numbers stated are in RMB and rounded up. Total net revenue increased by 25% to RMB 1,193 million from RMB 956 million in the same period of 2022, primarily due to an increase in the total loan amount facilitated and originated this quarter compared with the same period of 2022. Origination and the servicing expenses increased by 28% to RMB 755 million from RMB 589 million in the same period of 2022, primarily due to an increase in the commission fees and the collection expenses resulting from the increase in total loan amount facilitated and originated this quarter compared with the same period of 2022.
Provisions for loans receivable were RMB 99 million compared with RMB 75 million in the same period of 2022, primarily due to an increase both in loan receivable held by the company as a result of increase in total loan amount facilitated and originated this quarter and in the estimated default rate compared with the same period of 2022. Income from operations was RMB 254 million compared with RMB 274 million in the same period of 2022. Net income was RMB 189 million compared with RMB 275 million in the same period of 2022. Non-GAAP adjusted net income was RMB 231 million compared with RMB 278 million in the same period of 2022. For further financial information, please refer to the earnings release on our IR website. Regarding our share repurchase plan, in Q4, we repurchased approximately 36,000 ADS for a total consideration of US$143,000.
Since the beginning of 2023, we had purchased an aggregate approximately 838,000 ADS for a total consideration of US$3.5 million. We have approximately US$5.5 million remaining for the potential repurchase under our current plan. With respect to our dividends, our board has approved a semi-annual dividend policy. Under this policy, the determination to declare and pay such semi-annual dividends and the amount of dividends in any particular half year will be made at the discretion of the board and will be based upon the company operations and earnings, cash flow, financial conditions, and other relevant factors that the board may deem appropriate. Pursuant to the semi-annual dividend policy, the board has approved the declaration and payment of semi-annual dividend of US$0.17 per ADS in the second half of 2023.
Now, our business outlook. For Q1 this year, we expect a total loan amount facilitated and originated to be between RMB 21 billion and RMB 22.5 billion. This concludes our prepared remarks and we would like to open the call to questions. Operator, please.
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