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Edited Transcript of 2858.HK earnings conference call or presentation 28-Aug-19 11:00am GMT

Half Year 2019 Yixin Group Ltd Earnings Call

Aug 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Yixin Group Ltd earnings conference call or presentation Wednesday, August 28, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Xiaozheng Liu

Yixin Group Limited - CFO

* Xuan Zhang

Yixin Group Limited - Chairman & CEO

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Conference Call Participants

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* Alex Xie

Crédit Suisse AG, Research Division - Analyst

* Hillman Chan

Citigroup Inc, Research Division - Research Analyst

* Jason Chen;Blue Lotus Capital Advisors Limited;Analyst

* Man Nga Chui

DBS Vickers Research - Analyst

* Xiaomeng Zhuang

BofA Merrill Lynch, Research Division - Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the first half of 2019 earnings conference call. Shortly, you'll be hearing from our presenters. The session will be followed by Q&A at the end. We will try to answer as many questions as time permits.

I would now like to hand you over to Ms. [Helen Zhou]. Thank you. Please, go ahead.

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Unidentified Company Representative, [2]

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Thank you, operator. Good evening, and welcome to our first half 2019 earnings conference call. This is [Helen Zhou] from Yixin IR team. Today with me are Mr. Andy Zhang, Chairman and CEO of Yixin Group; and Ms. Catherine Liu, our CFO. After their prepared remarks, Andy and Catherine will be available to answer the questions. Before we proceed, I would like to remind you that all our remarks today may include certain forward-looking statements. The number of risk and factors beyond our control may cause our actual results to differ materially from those contemplated by these forward-looking statements.

During this call, we will present both IFRS and non-IFRS financials. We will also discuss general market conditions for our industry, and such information may come from a variety of sources outside of Yixin Group. For a detailed discussion of the risk factors we face and the non-IFRS measures, please refer to our public documentation on www.yixincars.com. As a reminder, this call is being recorded. In addition, a live [and final] replay of the conference call will be available on our website.

With that, I will now pass the call to Mr. Andy Zhang, Chairman and CEO of Yixin.

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Xuan Zhang, Yixin Group Limited - Chairman & CEO [3]

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Thank you, everyone, for joining our first half 2019 earnings conference call this evening. I'm pleased to present our first half result. As of June 30, our accumulated total financed automobile transactions reached approximately RMB 1.4 million, and our accumulated aggregate auto financing amount exceeded RMB 100 billion.

As a leading player in the industry, we have enjoyed leadership advantages during our business development. Despite the sustained weakness in passenger vehicle sales in China during the first half of 2019, Yixin, once again, achieved significant growth, further strengthened our industry leadership and enhanced our competitive advantages. For the first half, our total financed automobile transactions reached approximately 285,000, representing a 31% year-on-year increase, while China's total sales for new and used passenger vehicle decreased by 8% year-on-year, according to the data from CAAM and the CADA.

During these 6 months, our financed automobile transactions, both new and used, continue to achieve faster growth than the industry. Our financed new automobile transactions increased 40% year-on-year and reached about 174,000, while China's new passenger vehicle sales decreased by 14% year-on-year according to CAAM. Our financed used automobile transactions reached about 111,000, representing an 18% year-on-year increase, while China's used passenger vehicle sales increased only by 4% year-on-year according to CADA.

Our loan facilitation continue to grow fast and healthy. In the first half of 2019, we facilitated about 164,000 transactions through our loan facilitation services, representing a 486% year-on-year increase. Our transactions through loan facilitation services' contribution 58% of total financed automobile transactions, increased from 13% for the same period last year.

Looking into the second half of 2019, we expect the growth momentum to continue from our loan facilitation services, which features strong scalability and attractive margin profile. We expect to further expand our loan facilitation partners' network. We increased our auto dealer coverage in low-tier cities, enrich our product offerings and attract more financing customers.

Our total revenues increased by 23% year-on-year to RMB 3,162 million, mainly due to the increase in our loan facilitation services. Our new core services revenues, which include revenues from loan facilitation transactions and the new self-operated financing lease transactions we facilitated during the period, increased 95% year-on-year to RMB 1,100 million.

Coming into 2019, we began to see profitability improvement, benefiting from our strategy shift as well as the business scalability and the improved operation efficiency. For the first half 2019, our adjusted operating profit increased by 221% year-on-year to RMB 384 million, and our adjusted net profit increased by 178% year-on-year to RMB 343 million. Accordingly, our adjusted operating margin and our adjusted net margin increased to 12% and 11%, respectively, from 5% and 5%, respectively, for the same period last year.

For our loan facilitation services, we currently work with 10 banks and financial institutions and our partners. In addition to our equity funding and the cash flow from operations, we also issued asset-backed securities and notes as well as obtained loans and borrowings from over 20 banks and over 50 other financial institutions. At the end of June 2019, our total borrowings were RMB 27 billion among which about 39% were from asset-backed securities and notes.

Yixin is a highly recognized issuer in China's asset-backed securities market. As of today, we have offered accumulatively 22 asset-backed securities and notes publicly with total issuance amount of RMB 31.3 billion on Shanghai exchange, National Association of Financial Market Institutional Investors and the Shanghai Insurance Exchange.

In this first half 2019, we also began to see improved cash flows and decreased debt ratios, which reflected better liquidity of our businesses. Our net cash inflow generated from operating activities was RMB 3.9 billion compared to a net cash outflow of RMB 4.9 billion for the same period in 2018. Our debt-to-equity ratio decreased to 1.77 at the end of June compared to 2.03 as at December 31, 2018.

Going forward, we're dedicated to develop our cloud capabilities that feature standardization and artificial intelligence to better connect with and serve consumers, financial institutions and auto dealers. We will also focus on strengthening our big data capabilities, to improve our risk control system for enhanced accuracy, security and efficiency, and to enrich our product offerings and tap into our existing customers for increased monetization opportunities.

With that, I'll pass the call over to our CFO, Catherine Liu.

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Xiaozheng Liu, Yixin Group Limited - CFO [4]

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Thank you, Andy. We are pleased to deliver solid results for the first half of 2019. Our total revenue increased by 23% year-on-year to RMB 3,162 million, mainly due to the increase in our loan facilitation services.

Our new core services revenues, which includes revenues from loan facilitation transactions and new self-operated financing lease transactions we facilitated during the period, increased 95% year-on-year to RMB 1,100 million. Revenues from our loan facilitation services was RMB 839 million, representing a year-on-year increase of 655%. For the 6 months ended June 30, 2019, we facilitated about 164,000 financed automobile transactions through loan facilitation services, representing 486% year-on-year increase in volume. Revenue contributions from our loan facilitation services increased to 27% compared to 4% for the same period last year.

Revenues from our advertising and other services decreased by 72% year-on-year to RMB 42 million, mainly due to our strategy to de-emphasize advertising and other services. Benefiting from the growth of loan facilitation, our total revenues from transaction platform business increased by 237% year-on-year to RMB 881 million. Accordingly, our transaction platform business contributed 28% of our total revenue, increased from only 10% for the same period last year.

Revenues from our self-operated financing business decreased by 1% year-on-year to RMB 2,280 million, mainly due to the decrease in revenues from our new financing lease transactions for the first half and partially offset by the revenue increase from our existing financing lease transactions in prior periods.

During the first half, we facilitated about 121,000 financed automobile transactions through our self-operated financing lease business, representing 36% year-on-year decrease in volume, reflecting our strategy to focus on loan facilitation services.

Revenues from our financing lease services increased by 3% year-on-year to RMB 2,081 million. For the first half of 2019, we generated RMB 1,820 million revenues from existing financing lease transactions in prior periods and the RMB 261 million revenues from new financing lease transactions. Revenues from other self-operated services decreased by 30% year-on-year to RMB 200 million, primarily due to the decrease in revenue from operating lease services as a result of our strategy to de-emphasize operating lease services.

Now moving to the cost of revenues and gross profit. Cost of revenues increased by 24% year-on-year to RMB 1,630 million, mainly due to the increase of commissions associated with our loan facilitation services, the increase of costs associated with automobile sales, the increase of funding costs associated with our self-operated financing business and partially offset by the decrease of automobile depreciation associated with operating lease services.

Our total gross profit increased by 23% year-on-year to RMB 1,532 million, primarily due to total revenue growth. Our overall gross profit margin slightly decreased to 48% compared to 49% last year. Gross profit margin of our transaction platform businesses decreased to 61% compared to 77% last year, primarily due to the change of revenues mix and the increase of commissions associated with our loan facilitation services.

Gross profit margin of our self-operated financing business decreased to 44% compared to 46% last year, primarily due to the increase of costs of automobiles sold and then the slight decrease of gross profit margin of our self-operated financing lease services. Gross profit margin of self-operated financing lease slightly decreased to 51% from 52% for the same period last year.

The average yield of our net finance receivables was 11.7% compared to 12.1% for the same period last year, mainly due to the increase of financed new auto transactions as a percentage of total transactions. Our financed new and used auto transactions contributed 61% and 39% of our total financed auto transactions compared to 57% and 43%, respectively, for the same period last year. The average funding cost of our net finance receivables was 5.7%, slightly decreased from 5.8% for the same period last year. The spread of our net finance receivables was 6.0% compared to 6.3% for the same period last year, mainly because of the mix of our new and auto transactions.

Now moving to the operating expenses. Selling and marketing expenses decreased by 3% year-on-year to RMB 579 million, primarily due to the decrease in marketing and advertising expenses and partially offset by the increase of salary and employee benefit expenses and SBC expenses.

Marketing and advertising expenses were RMB 54 million compared to RMB 163 million last year. Our admin expenses decreased by 51% year-on-year to RMB 207 million, primarily due to the decrease of salary and employee benefit expenses and SBC expenses as well as professional services expenses. Our research and development expenses decreased by 27% year-on-year to RMB 104 million, primarily due to the decrease in salary and employee benefit expenses and partially offset by the increase in SBC expenses.

Our net impairment loss on financial assets includes provision for expected credit losses of finance receivables, provision for impairment of trade receivables and provision for impairment of other receivables. Provision for expected credit loss of finance receivables was RMB 256 million compared to RMB 259 million for the same period last year. Provisions for impairment of trade receivables was RMB 274 million [increasing from] RMB 22 million for the same period last year. The trade receivables were generated mainly from the services to auto dealers we no longer provide.

In consideration of the general economic slowdown in recent periods, we made such provision for impairment of trade receivables from the services that we no longer provide, however, we expect the provision of trade receivables in the future to decrease significantly since we no longer provide the services.

Coming into 2019, we began to see probability improvement benefiting from our strategy shift as well as our business scalability and improved operation efficiency. Our adjusted operating profit increased by 221% year-on-year to RMB 384 million, and our adjusted operating profit margin increased to 12% compared to 5% for the same period last year. Our adjusted net profit increased by 178% year-on-year to RMB 343 million, and our adjusted net profit margin increased to 11% compared to 5% for the same period last year. The increases were mainly due to the increase of gross profit and revenues and the decrease of operating expenses. Our operating profit was RMB 164 million compared to an operating loss of RMB 163 million for the same period last year. Our profit was RMB 123 million compared to a loss of RMB 159 million for the same period last year.

Now let's move to the balance sheet and asset quality. Our carrying amount of finance receivables decreased to RMB 34.3 billion as at June 30, 2019 compared to RMB 36.8 billion as at December 31, 2018, primarily due to our strategy to focus on loan facilitation services. As at June 30, 2019, our total borrowings were RMB 27.0 billion compared to RMB 30.2 billion as at December 31, 2018. The decrease was mainly due to our strategy to focus on loan facilitation services.

Total borrowings comprised of asset-backed securities and notes of RMB 10.4 billion, which contributed about 39% of our total borrowing, and bank loans and borrowings from banks and other institutions of RMB 16.6 billion, which contributed about 61% of total borrowings.

As at June 30, 2019, we had cash and cash equivalents of RMB 1,712 million, and our net cash inflow generated from operating activities was RMB 3.9 billion compared to a net cash outflow of RMB 4.9 billion during the same period. So generally, we have a much more healthy debt ratio and cash flow.

Since 2019, various global governments started to implement much stricter rules and guidance of different consumer accounts payable -- payment collection. And in order to better comply with these new rules and guidance, we started to use litigation as our priority collection method, although litigation usually take longer time for collection and our delinquent ratios increased slightly accordingly in the near term. However, we believe in the longer term it will help regulate the overall industry practice and to further improve consumer user experience.

In the first half of 2019, for all financed transactions for both our loan facilitation business and self-operated financing business, our 180-days past due ratio was 0.58% at June 30, 2019 compared to 0.42% at December 31, 2018, and our 90-days plus, including 180-days past due ratio of 1.06% compared to 0.92% at December 31, 2018. This is our prepared remarks.

And we will now open the call to Q&A. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Alex Xie of Crédit Suisse.

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Alex Xie, Crédit Suisse AG, Research Division - Analyst [2]

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So my first question is why is -- was the performance of Yixin's automobile financed transactions much better than the overall auto sales? What have you seen in the increasing penetration of auto finance in auto retail sales? And what are we seeing in the changes of our market shares in auto finance industry? And my second question is, what are management's outlooks for the auto financed transaction volume in the second half and also the mix between self-operated finance and the transaction facilitation model?

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Xuan Zhang, Yixin Group Limited - Chairman & CEO [3]

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I'll be answering all the market-related questions. We've been outgrowing the market in the last few years since operation. 2019 -- first half 2019 set another solid growth compared to the entire industry. I think the following reasons are, first of all, because of the market condition in general where new cars and used cars are all facing fairly tough retail market. I think the dealerships and OEMs are all seeking different alternatives to sell vehicles and also the buyers of the entire mix of different vehicles new and used agewise has been getting younger and younger, and obviously, from a savings standpoint, from a volume pushing standpoint of the market drivers.

All of them are looking for alternative methods, which, in this case, auto financing and leasing comes into play. So we're definitely the beneficiary of this particular trend. And just like any other mature markets, I believe this trend will continue until the auto financing leasing penetration reaches the approximately 70% to 80% of the market. What we have estimated for 2019, I think the auto financing leasing penetration should go up to above 55% to almost 60% at the end of 2019, which we still have almost 20 percentage points to catch up to the mature markets. So that also gives the market player confidence as to seeking growth from different areas. For us, because the entire market has been really slow on the auto sales, different consolidations has been really contemplating in the first half of 2019. We will see more of that happening in the second half of 2019.

When there's consolidation, the half players always benefit from that. So similarly, not only the car sales people are consolidating but also the financial services providers are also consolidating as well. So the long tail and players has gradually phasing out of the market, and because we do have a strategy of continue to penetrate into lower tier cities, which we have been doing that successfully in the last 12 months. This is why we have been really outgrowing the market quite significantly.

In terms of the second half of 2019 auto sales, I think yesterday the State Department or the General Office of the State Department issued a -- it's called -- the official name is the General Office of the State Council of the People's Republic of China. They've issued a statement where to encourage release or relief of the license plate restrictions in those cities in China which has these in place currently. Even though the wording within that statement has been quite direct, and -- but it also indicated that there was gradual relief of those restrictions.

I think that sort of gave a lot of auto industry players quite a bit confidence because this is the third time during the year one particular department came out to specify the importance of auto consumption in the general economy. And this time it's actually the central government office that stepped out, made that suggestion and made that announcement. So we take that as a very positive sign for the overall market. And especially when the message came out yesterday, which is the end of August, we are facing with 4 months of -- 4.5 months, right before the Chinese New Year will be the sort of the high season during the year, any particular year. So hopefully, we will see different adoptions from those cities who currently have these restrictions in place gradually throughout the next few months to really necessarily complying with this particular statement.

In terms of the mix from our own volume, I believe our goal has been set very straightforward. Facilitation is our way, our route to success, our route to scalability, our route to efficiency. So therefore, you've seen the cash flow statement, we've indicated that we actually have lot more operating cash inflow, much less outflow in the first half of the year, which has also benefited from that strategy. Our facilitation percentage penetration has been much higher compared to the 6 months ago and 12 months ago. I think this strategy will be continue to be in place moving forward, hopefully in the reasonable time frame, where you will see majority of our transactions during the quarter or during the year will essentially be facilitation transactions.

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Operator [4]

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Your next question comes from Hillman Chan, Citigroup.

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Hillman Chan, Citigroup Inc, Research Division - Research Analyst [5]

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Andy, Catherine and [Helen]. Firstly, could management share more color on the competitive landscape for the industry? For example, with the players such as [Uxin], [Qudian] and others even though they may not be, entirely, direct competitors to us. Just want to see how we think about the intensity of the competition in the online adhoc space? And then my other question is more a housekeeping one. Could management share more color on how does it think about the cost of funding going forward? And also we note the paying due ratio has gone up a little bit, could management share more about the reason behind? And how we should think about the payment due ratio in the near future?

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Xuan Zhang, Yixin Group Limited - Chairman & CEO [6]

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Okay, thanks, Hillman. I'll take the first question in terms of competition. I think generally, we are still facing the same old type of competition. Online wise, as you indicated [Qudian] and [Uxin], off-line wise still consistently GMAC, [Pingan] as well as [Ontaibu], so these are the traditional competitors. I think in my last answer to the prior analyst that -- regarding the overall landscape, I think we are witnessing in the process of the smaller players phasing out. So we do see Yixin taking up a lot more market share, picking up the -- what they left over -- left off and -- but still, again, these are -- used to be concentrated in the lower tier cities, which, historically, none of our existing competitors has really been penetrating down into.

So it's also a new area for us, so far we have received better-than-expected results because we do have a -- quite a bit of a dominance in those markets given that we have a -- thousands of them are currently, well, working with us. In terms of the online competitor, I think, auto financing in general -- auto leasing in general in the past history of the industry, no one has really been proving that it can be solely carried out from online. I think, again, I think that at the beginning of Yixin's history, we also take a crack at it, but we decided to move more off-line in 2016, and that's what's been giving us more success. So while currently, we were -- I think our role is to stick with that for now and -- but, however, 5 years, 3 years later, we do have better technology, we have lot more data that's being accumulated from existing customers.

We will definitely work a lot closer with our strategic shareholders in the very near future in terms of having a better risk factor models to build between us or among us. So I think if it's their strategy as well so, therefore, I think -- I wouldn't be surprised that we'll be, again, taking another crack at the online side as well, but I think that we need to wait until all the tools are ready, we need to wait until all the conditions are right, before we are beginning to test that particular water, after 4, 5 years. So that's my answer to your first question. I think Catherine's going to pick up the second and the third.

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Xiaozheng Liu, Yixin Group Limited - CFO [7]

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In terms of cost of funding, we -- I think, in the first half of this year, we see kind of a stable and slightly decrease of the total cost of funding. We think -- so currently we're taking a conservative approach, and we'll kind of wait-and-see how the cost of funding will trend. Our estimate is probably going to be relatively stable or slightly decreased. However, our cost of funding is still among the lowest among our competitors in the financing lease space because of our leading position in the industry. So for example, we have already issued 22 public [ABS] [ABNs] which is -- the information is listed, I think, publicly. So if you take a look on our ABS and ABNs , publicly listed, versus some of our competitors public ABS , and ABNs .

One is our number of public ABS ABNs is much, much higher than our competitors and our interest rate during the same period is also lower. And as to your third question, our past due ratio slightly increased mainly because, since 2019, various local governments started to implement much stricter rules and guidance on delinquent consumer accounts payment collection, and in order to better comply with these new rules and guidance, especially it started in the second quarter of 2019, we started to use litigations as our priority collections method, so litigation typically takes longer time for collection so our delinquent ratio increased accordingly in the near term, but we believe this is the trend that affects everybody in the industry and we believe in the long term the government's activities will help regularize the overall industry practice and probably help the industry growth in the long run, but in the short run, we probably will see our capital ratio slightly increase, but we think in the long run, it's going to be stabilized.

Okay, next question.

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Operator [8]

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Our next questions come from [Alex] (inaudible) of UBS.

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Unidentified Analyst, [9]

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Management, I have three questions. The first one is on the strategy. So we have seen the new car market has been very weak over the past year. And for Yixin, our new car loan facilitation volume seem to be growing at a faster pace than the used cars. So I just wonder, if you can share on some of your thoughts on strategy, in terms of how we should look at the breakdown between your new and used car volume going forward? And given that -- given the weakening in new commodity has remained, would we consider taking a more aggressive stance in expanding into the used car market? And then my second question is on the operating efficiency.

So it's good to see that we have turning to profit for this half year, and we have seen an improvement in our operating margin. So I wonder if there's any room for our operating margin to further improve from the current 12% level. And how can we achieve that? In particularly, on the sales and marketing expense, could we see any room to reduce that? And my third question is on asset quality. So you have mentioned that the increase in positive ratio is partly due to the more stringent rules on room collection, so I wonder how important was the purchase of collecting the cars back from those defaulted payers has been to our bad debt collection in the past. And now that we have more -- we can -- if we can't do that anymore, is there any way we can mitigate the next impacts?

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Xuan Zhang, Yixin Group Limited - Chairman & CEO [10]

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Okay, I'll answer the first question and then Catherine will answer the second and third. First of all, I think strategy on new car and used car, obviously, as I've been answering the first 2 [Alex's] questions relating to the new car market. Now we do have an opportunity in the new car market where we penetrate down to the lower tier cities and also because the market slowed down in consolidation. A lot of the original small players have been squeezed out. We do have a good dominance in this area. And also, historically looking at the picture, I think new car buyers are -- to us a little bit healthier buyers, so to speak. So we're not hesitating in terms of occupying these markets, especially first and second tier cities.

General view on auto sales. I think we've enjoyed so many, so many, 30-some years of growth on auto sales and since last July, I think it was the first down trend ever in 2018. Also has been down trending for the past 13, 14 months now. So I think that's also why the state, the Council Office -- the General Office of the State Council came out yesterday and issuing the statement where to tried to stimulate the auto consumption, in general. I think not only we as an industry player are aware of that situation but also the country and the state is aware -- is also aware of the situation as well. For us, I think, the good part is that even though the sales volume has been dropping but the penetration of financing/leasing has been increasing significantly, year-over-year.

As I said before, I think, for the entire market where it gets to maturity, it's safe to expect 70% to 80% of the financing and the leasing penetration in all the vehicle sales during the year, regardless new or used. So that's the opportunity, that's for Yixin, and we want to grab that. So we are always looking to find a good position in the market and continue to lead the market as well, no matter in new or used, and strategy wise, we're shifting from our own balance sheet to facilitation, and also our 3.0 strategy for Yixin is also going from facilitation into the pure cloud platform services. So we are moving along that particular route as far as the company's operation wise is concerned. I think Catherine is going to answer the second and third. Thank you.

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Xiaozheng Liu, Yixin Group Limited - CFO [11]

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In terms of margins, we believe that we still have room for improving efficiencies and improve the profitability. Mainly, due to several reasons, one is that, we expect that our loan facilitation services will -- as a percentage of total revenue, will keep increasing. And the loan facilitation services has better gross margins than our self-operated financing lease business. And that we're -- and along with the revenue mix change, we think that our gross margin will gradually increase.

And then second, we think, our self-efficiency will also increase i.e. each self-person, they do -- will have -- keep try increase every year, and then also in terms of our back -- in terms of our risk of control and personal loan management along with our economy of scale and more experience, we think there is also operating efficiency improvement room and in terms of the, I think the back-end offices such as technology and like finance and the legal back-end offices, there is also economy of scale. So generally, we think there is room for improving operating efficiencies.

And to your third question about changing assets quality, in the first half our asset past due ratio slightly increased mainly due to local governments much stricter rules and guidance. We think that even though, previously, we probably used cost collections as one of the major methods. Currently we are using litigation as our priority collection method. This is a matter of mainly of timing because litigation is going to take a longer time for collection, so we think that in the near term it will increase our past due ratio, but I think in the long term it will be stabilizing.

Okay, next question.

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Operator [12]

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Next question comes from Susanna Chui from DBS.

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Man Nga Chui, DBS Vickers Research - Analyst [13]

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We actually saw the offshore markets that are recovering and the decline is moderating for the last month's record, but we also see that you being [banked] due to an auto financed volume growth or guidance at 20%, which means around 10% year-over-year growth in the second half. I would like to ask that is this up because you are tightening the -- your pricing control because of the rise in past due ratio, and would like to ask how you balance their auto finance volume growth and [private] list? Which one is in the first priority?

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Xiaozheng Liu, Yixin Group Limited - CFO [14]

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I think you know -- first of all, we were taking a conservative approach to -- for our second half of the businesses, and currently, we still see very healthy growth in July and August, but I think we also want to have a balance of the risk of control and our growth. So we want to have a healthy growth with relatively stable asset quality.

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Xuan Zhang, Yixin Group Limited - Chairman & CEO [15]

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I think for us, growth, honestly speaking, is not necessarily a challenge, especially in the tough market condition where that -- all the resources are really being redirected to the top players. We have been witnessing in the last -- actually last, almost, 12 months now. So within the team of BIT, I was -- within the team of YX, we -- our primary concern -- our primary focus was always bilateral. Bilateral meaning that we grow at a very stable and healthy condition.

So again, we have to first ensure that before we, actually, eye in for more growth. So far, I think -- looking at what we are entering, we have more new car transactions vs other types. We are penetrating more into [4S] and we're also penetrating more into second tier. I think these are the areas where that's been -- that can actually provide us with much higher quality assets as well, so we are definitely balancing that. And our primary concern is to sustain a healthy growth not necessarily just to go for growth. That's always been our case.

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Xiaozheng Liu, Yixin Group Limited - CFO [16]

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And then just to supplement, we believe that we will still beat the industry growth by a significant pace.

Okay, so next?

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Operator [17]

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Our next question comes from the line of Miranda Zhuang of Bank of America.

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Xiaomeng Zhuang, BofA Merrill Lynch, Research Division - Associate [18]

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Congratulations on the solid results. So I'd like to understand more about the strategy to penetrate into lower tier cities. So can management give us an update of like any color on the matrix, for example like mix of the volumes on lower tier cities? Or mix of the tier coverage in the lower tier cities by now? And is there any target for the penetration by the end of this year or next year? And then can management give us more color on how you will increase the penetration in lower tiered cities? And lastly, can management give us any color on the unit economy, also auto finance transactions in lower tiered cities versus that in the like tier 1 and 2 cities? Isn't that the APR wise the -- like similar but will we see any difference in the cost of the funding or any difference of the -- in terms of the repay to dealers or loan facilitation commission rates to the dealers?

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Xuan Zhang, Yixin Group Limited - Chairman & CEO [19]

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Okay, I think the second tier penetration occupies of our -- approximately 65% of our new [fire] volume. We're dealing with about, approximately, over 7,000 second-tier dealers right now. The total market size will constitute about somewhere around 20,000 second tier dealers in the entire market -- sizeable dealers, which is worthy of business. So I think we're about 35%, 40% penetration right now. So hopefully, by the time -- next year this time, we'll be doing upwards of 2/3 penetration by then. So again, this has been a very good part of the contribution to us in terms of growth in the second tier.

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Xiaozheng Liu, Yixin Group Limited - CFO [20]

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And in terms of APR differences, I think it's relatively similar for our first tier -- for our product to sell in first tier and second and other tier cities, so I think our policy is still trying to penetrate into lower cities and then, I think the APR difference is not that significant.

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Xuan Zhang, Yixin Group Limited - Chairman & CEO [21]

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Yes, because all the OEMs are all penetrating, all along. So again, I think, ultimately, you are still dealing with the same type of vehicles, doesn't matter first and second -- or second, but it's just that there may be a different mix or different -- or maybe because of the time of entering for us, for the OEM, we may have different mixes in different markets. But that's pretty -- in a way, fairly random. It really depends on our strategy about where to entering as well as what the OEM strategy is. So I think while both of us are coming in -- going in, we really will see that if those were actually -- have high comparability then we'll cover more. Those with lower comparability than will have less. But that's a lot more of the detailed analysis, so, well, maybe you can, in the future, work with us or our IR teams to get some light on that.

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Operator [22]

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Our last question comes from the line of Jason Chen of Blue Lotus Capital.

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Jason Chen;Blue Lotus Capital Advisors Limited;Analyst, [23]

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So I have two questions, actually. First one is on your -- you're mentioning that Yixin is seeking more monetization opportunities leveraging on your big data. Can you please give us some of detailed colors on this? Or are we expecting those things will start contributing some of the revenue in near term. And the second one is a follow-up questions on the past due ratios, since you're expecting the past due ratios are going to be increased slightly in near terms, so how shall we look into your -- basically on the provision into the second half of 2019 and the year after.

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Xuan Zhang, Yixin Group Limited - Chairman & CEO [24]

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Well, the big data is something that we are currently collaborating with our strategic shareholders and because we have been accumulating over 1.5 million -- over 1.4 million customers and a lot of them are 3 years or longer. So while we do -- we are capable of saying that we have a lot of those that related to data, but in terms of monetization, I think, again, as I said before, we are still looking through this data. We're looking through them at different angles and how can we utilize these data along with our strategic partners and our strategic shareholders. As to firstly implementing them into our risk management factor and then in the future potentially outsource that, but again, we're in a very, very early stage.

We are looking at this as an overall Yixin 3.0 strategy, so again, we're only at the 2.0 level right now in terms of business operations. We're having much higher percentage on facilitation. We will continue to go higher. Before we actually get to the point of maybe 70%, 80% of penetration on the facilitations, we will not start to too quickly monetize that on the big data, but that doesn't mean we're not accumulating, that doesn't mean we're not working on this. So again, I was just shedding some light on -- as to what we are thinking, as to all of these things that, eventually, accumulate it and we will put into use. So that is the indication of what our thinking will be.

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Xiaozheng Liu, Yixin Group Limited - CFO [25]

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And then your second question, I think even though due to the government policies we think near term, our past due ratio will increase slightly. However, given that our loan facilitation is going to increase as a percentage of the total transaction volume and revenue, so our ending balance of finance receivables for our self-operated financing businesses we believe is going to decrease over the time. So with this to offset the near term past due ratio increase, we think that the provisions for our impairment of finance receivables is going to be relatively stable compared with the first half of this year. This is a relatively conservative approach.

Okay, so…

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Unidentified Company Representative, [26]

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Okay. Operator, this ends the call.

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Operator [27]

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That is all the time we have left for questions. I would like to pass the call back to Ms. Catherine Liu, the CFO of Yixin. Thank you, ma'am. Please, go ahead.

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Xiaozheng Liu, Yixin Group Limited - CFO [28]

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Thank you all for joining us today. If you have any further questions please contact our team at IR at yixincars.com.

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Operator [29]

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That does conclude our conference today. Thank you for your participation. You may now disconnect.