Q3 2023 Jiayin Group Inc Earnings Call
Participants
Chunlin Fan; CFO; Jiayin Group Inc.
Dinggui Yan; Founder, Chairman & CEO; Jiayin Group Inc.
Shawn Zhang
Yifang Xu; Chief Risk Officer & Director; Jiayin Group Inc.
Unidentified Analyst
Presentation
Operator
Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Jiayin Group's Third Quarter 2023 Earnings Conference Call. (Operator Instructions) As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time.
I will now turn the call over to Mr. Shawn Zhang from Jiayin Group's Investor Relations. Please go ahead.
Shawn Zhang
Hello, everyone. Thank you all for joining us on today's conference call to discuss Jiayin Group's financial results for the third quarter of 2023. We released our earnings results earlier today. The press release is available on the company's website as well as from Newswire services. On the call with me today are Mr. Yan Dinggui, Chief Executive Officer; Mr. Fan Chunlin, Chief Financial Officer; and Ms. Xu Yifang, Chief Risk Officer.
Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statement, except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese renminbi.
With that, let me now turn the call over to our CEO, Mr. Yan Dinggui. Mr. Yan will deliver his remarks in Chinese, and I will follow up with the corresponding English translation. Please go ahead, Mr. Yan.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] Hello, everyone. Thank you for joining us today to discuss our outstanding results for the third quarter of 2023.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] This quarter we have achieved new milestones in key financial and operational metrics. Our loan origination volume reached RMB 24.2 billion in the third quarter, a 62.4% increase compared to the same period last year. Net revenue grew by 64%, while net income further expanded to approximately RMB 324 million. These results once again proved that our development path is healthy and sustainable. And our strategy is precise and practical. We are confident and capable of continuously creating value for our investors and growing into a significant player in the global fintech industry.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] However, in the third quarter of 2023, both the global and Chinese economies face significant challenges despite the complexity and the constant changes in the global economic environment and ongoing adjustments in monetary policies of major economics. We have observed that China's economy is undergoing a slow recovery process. Although the pace of this recovery has not reached the expected speed, it still demonstrates that underlying strength and the resilience of China's economy.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] In the domestic financial sector, we have noticed fluctuations in credit market risks during this period with asset qualities and risk management emerging as key topics in our industry recently. We understand that continued prudent and detailed operation and management are crucial for our long-term stable and healthy development in the current environment. Therefore, whether in the third quarter of this year, the upcoming fourth quarter or the beginning of next year, we anticipate continuing our cautious business strategy under the premise of maintain stable development and profitability. We will also closely monitor market dynamics with a special focus on controlling risks and tracking changes in asset quality.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] Over the past 2 years, our fintech business in China has continued to grow steadily in scale with an expanding reach across financial institutions. By the end of the third quarter, the total number of financial institutions in our partnership network has reached 73, marking an increase from the 69 in previous quarter. As our business volume grows, the diversity and the concentration of our partner institutions are also involving. In the quarter, we are pleased to see that the proportion of funds to be facilitated provided by Internet banks and private banks partners has already accounted for the majority. Furthermore, we are currently in talks with 76 financial institutions aiming to extend the powerful fintech capabilities of us to benefit even more licensed financial institution partners in the future.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] While expanding our institutional coverage, we are also focusing on deepening and broadening our cooperation with key partners. A cooperation model that supports financial institutions in carrying out their self-operating business is making continued progress. As of September 30, we have launched cooperation with 6 financial institutions under this model with several more actively joining or are currently in discussion. Moreover, the proportion of non-regionally restricted funds to be facilitated continues to stay above 60%, which solidified our foundation for contributing to the development of inclusive finance across all regions in China, where we expand our business scale.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] As we have emphasized in the past few quarters, optimizing the structure of our borrowing customers remain a top priority this quarter. On one hand, we [strove] to refine the stratification of our user structure while further providing high-quality full life cycle services to our existing borrowers. On the other hand, we continue to invest in new borrower growth while ensuring high-quality acquisitions. Since the beginning of this year, we have observed that the risk fluctuations in the market have had a certain impact on the asset quality of licensed financial institutions.
As a trusted business partner of those clients, we deeply understand the importance of asset quality for the long-term stability and sustainability of their businesses. Therefore, during our group phase, we have narrowed relaxed our high standards and strict demand for risk control. As of September 30, 2023, our delinquency rate for 61 to 90 days has slightly decreased, maintaining a stable level at 0.52%. With the economy gradually warming up, we will closely monitor market risk fluctuations and changes in asset quality, making timely and accurate adjustment for our clients to address future uncertainties.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] We are actively aware of the significance of artificial intelligence technology in the fintech sector and the development and application of AI have been elevated to a very important position within Jiayin Group. To further advance the application of large model AI technology in Jiayin's smart operations, we launched the Jiayin AI season series of events in the third quarter. This included the construction of our own Jiayin GPT lab and the numerous GPT training sessions as well as the GPT innovation competition, aiming to promote the application of AI technology across all business processes.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] Last quarter, I mentioned some of the application of AI technology at Jiayin Group. And today, I would like to take this opportunity to share with you some of the latest developments over the past 3 months. First, in terms of a proprietary tools, we completed an important intelligent upgrade of our knowledge base using LLM plus vector database this quarter. This upgrade was our staff to perform multidimensional and fuzzy searches through semantics, presenting knowledge points in seconds, greatly improving search efficiency and introducing intelligent functions that provide more efficient and high-quality support for customer services.
Secondly, our Phase 1 ancillary functions for customer service agents have been launched in the customer service CRM system, including real-time text transcription, customer intention tagging and agent behavior tagging. These features have effectively improved the efficiency and accuracy of customer service agents work. Currently, the application accuracy rate of the session summary in various scenarios has been continuously improved to around 87%. Along with the launch of Phase 1 functions, the real-time knowledge recommendation of Phase 2 ancillary functions is also in development and internal testing.
Once launched, it is expected to further enhance the depth of AI-empowered agent operation processes. The Lengjing Quality Inspection System, which I mentioned in the second quarter has also got an important upgrade. This upgrade comprehensively improved the coverage and accuracy rate of quality inspections using AI technology, further expand support for various types of quality inspections and improve business efficiency through data mining.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] The progress and application of AI technology have not only enhanced our operational efficiency but also enabled us to commit in providing more exceptional services to our clients. Here, I would like to announce an important news, our company's name will be changed to Jiayin Technology, and we will adopt a new company logo. This changed signifies that developing and applying technology has been strategically prioritized at the group level. And more importantly, it underscores that technology will become the foundation of our existence. In the future, Jiayin will continue to closely monitor the development and application of AI technology, continuously strengthen the basics of fintech and let the technology attributes become Jiayin's most shining label.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] In the third quarter, Jiayin's international business continued to show a robust growth trend. The profitability of the Nigerian region has made significant progress. And for the first time, we achieved an important strategic goal in this region, turning a net profit positive. While we have seen significant growth in financial indicators, we are pleased to note that the important risk indicator of the 30-day delinquency rate has further improved significantly.
We recognize that Nigeria's superior population size and demographic structure along with the continually increasing mobile penetration [reach] provide tremendous opportunities for the fintech sector, especially cash credit services. In the medium to long term, our goal is to achieve sustained net cash flows in this area, thereby realizing the long-term healthy and stable development for our business peer.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] In Indonesia, we have formed a collaboration with a local entity full of potential in innovative way and continue to closely monitor the business environment and operating conditions. We believe that with the rapid progress of Indonesian regulatory policies and the industry environment in recent years, the loan facilitation business model is likely to be realized quickly in this region.
We have seen our partners' profitability improving this quarter and have made a breakthrough in achieving the loan facilitation business access for the first local financial institution partner, while discussions are underway with several others. However, we also noticed that the regulatory policies in the Indonesian region are systematically supporting the orderly development of the Internet finance industry in the long term. Such a market environment represents both opportunities and challenges for all participants. We will continue to focus on and support the development of our Indonesian partner and discuss the possibility of further cooperation in the future.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] Furthermore, we are expanding our explorations and feasibility analysis for business implementation in other emerging market countries in Africa, Southeast Asia and Latin America seeking potential expansion opportunities. We believe that our international business can not only contribute to the inclusive growth of local economies, but also create substantial value for our stakeholders with the goal of global expansion of inclusive financial coverage.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] Out of prudence, we have decided to set the loan origination volume guidance for the fourth quarter at RMB 20 billion. It is anticipated that the full year loan origination volume will exceed the previously issued annual guidance. Going forward, Jiayin will contribute to work diligently with our partners to manage risk and face challenges, striving for healthy and sustainable long-term joint development.
Dinggui Yan
(foreign language)
Shawn Zhang
[Interpreted] Lastly, I would like to take this opportunity to announce to our shareholders and investors who have been long-term supporters and [followers] of our company's development, that the plan for the second dividend distribution of this year has been almost finalized. For the outstanding ordinary shares, we anticipate paying a cash dividend of USD 0.1 per share, equivalent to USD 0.4 per ADS. Specific details regarding this schedule and other relevant information about this dividend payment will be announced progressively in our subsequent disclosure announcement.
For the specific financial result for this quarter, I will turn the call over to our CFO, Mr. Fan. Thank you all.
Chunlin Fan
Thank you, Mr. Yan, and hello, everyone, for joining our call today. I will now review our financial highlights for the quarter. Please note that all numbers will be in RMB and all percentage changes refer to year-over-year comparisons, unless otherwise noted.
As Mr. Yan mentioned earlier, we carried through our robust growth momentum over the past year to achieve new milestones in the quarter. Notably, our loan origination volume grew by 62.4% to RMB 24.2 billion, exceeding our previous guidance. Our net revenue was about RMB 1.47 billion, up 64% as our other revenue grew to RMB 529.8 million from RMB 101.4 million in the same period last year, mainly driven by the growth in guaranteed income from financial guaranteed services.
Moving on to costs. Origination and servicing expenses were RMB 544.3 million, up from RMB 148.4 million in the same period last year, driven by the increased loan origination volume and expenses related to financial guaranteed services. Allowance for uncollectible receivables, contract assets, loans receivable and others grew by 44.1% to [RMB 8.4] million from RMB 5.9 million in the same period last year. However, as a percentage of net revenue, decreased to about 0.6% from 0.7% in the same period last year.
Sales and marketing expenses increased by 26.1% to RMB 407.9 million, mainly reflecting higher borrower acquisition expenses. As a percentage of net revenue, S&M expenses decreased to 27.8% from 36.2% in the same period last year, demonstrating our improving efficiency in attracting and retaining high-quality borrowers. G&A expenses were RMB 53.2 million, up 3.5%, primarily driven by higher staff costs as a result of increased expenditures for employee compensation and related benefits in the quarter. As a percentage of net revenue, G&A expenses reduced to 3.6% from 5.8% in the same period last year.
R&D expenses were RMB 70.5 million, up 25%, mainly due to the higher employee compensation as a result of an increase in research and development headcount. As a percentage of net revenue, R&D expenses reduced to 4.8% from 6.3% in the same period last year. Consequently, our net income for the third quarter increased by 30.6% to RMB 323.9 million from RMB 248.1 million in the same period last year.
Our basic and diluted net income per share were both RMB 1.51 compared to RMB 1.15 in the same period last year. Basic and diluted net income per ADS were both RMB 6.03 compared to RMB 4.60 in the same period last year. We ended this quarter with RMB 180.3 million in cash and cash equivalents compared to RMB 288.9 million at the end of the previous quarter. Regarding our stock repurchase program. As of September 30, 2023, we have bought back approximately 1.8 million of our ADS for a total of USD 5.5 million and our USD 10 million share repurchase plan we announced in June 2022 and extended in June 2023.
With that, we can open the call for questions. Ms. Xu, our Chief Risk Officer, and I will answer questions. Operator, please go ahead.
Question and Answer Session
Operator
(Operator Instructions) Your first question comes from a (inaudible) with Jin Yun Asset Management.
Unidentified Analyst
(foreign language) This is (inaudible) from Shanghai [Jingyu Asset]. First congratulations on the strong results. And I have 2 questions. The first one is as you have reported 62.4% year-over-year increase in loan origination volume in Q3, yet forecasted single-digit growth in Q4 compared to higher growth rates in previous quarters. Is this deceleration solely due to scaling or are there any other factors? How sustainable is the current growth? And what trends do you foresee under the current market conditions?
And the second question is, what factors are driving the significant increase in your other revenue, which now accounts for over 1/3 of total revenues. Could you provide a breakdown of this segment and your future plans for it?
Yifang Xu
(foreign language)
Shawn Zhang
[Interpreted] This is Xu Yifang. And your first question is about the loan origination and I will do the answer for you. Okay, so for your question I think there are several factors we can consider. And the first one is just as you mentioned that our scale has reached a level of over RMB 40 billion. So thanks to the rapid development since the year of 2022, especially the quarter-over-quarter growth in the fourth quarter of 2022. The expected growth in the fourth quarter 2023 will not seem as that significant.
Yifang Xu
(foreign language)
Shawn Zhang
[Interpreted] So since the beginning of this year, the credit market has been exceptionally active, driven by the development of the consumer economy after the COVID-19 period. The ample supply of funds and balancing the demand of performance development and risk indicator management are among the strategic issues our management is focusing on. We hope to continue adhering to a cautious and prudent risk management style to ensure the sustainable and healthy development of the entire platform.
Yifang Xu
(foreign language)
Shawn Zhang
[Interpreted] So for the third one, the growth of our number of active borrowers is also very rapid. Our refined operations and the risk management models and strategies are closely tracking changes in borrower groups, closely monitoring the effectiveness of operations and risk stratification at each node. The evaluation and iteration of models are accelerating to ensure satisfied patients with products and services for active borrowers, especially high-quality ones and to achieve continuous optimization of risk management indicators, and this part of work seems like very important to us right now.
Yifang Xu
(foreign language)
Shawn Zhang
[Interpreted] And lastly, you just mentioned sustainable and forecast. I would like to say that we are closely monitoring the development of the domestic credit market and looking forward to a stable orderly and healthy growth for our company's future development. This is my answer for your first question.
Chunlin Fan
(foreign language)
Shawn Zhang
[Interpreted] This is Fan Chunlin, the CFO of the company. And I will answer your second question. Your second question is about the proportion of asset revenue of our total revenues. And you also mentioned a breakdown of the segment and got plans. Firstly, I would like to say that other revenue, yes, it amounted to RMB 530 million, mainly including revenue from financing guaranteed services, referral services in our overseas business.
Among them, the revenue from financing guarantee accounted for the highest proportion just as what you mentioned, maintaining rapid growth each quarter of this year with that part of revenue in the third quarter of 2023 approaching RMB 400 million. And within the listed group system, there is a financing guarantee firm. And just as requested by some financial institution partners, this form provides financing guaranteed services for some projects.
Chunlin Fan
(foreign language)
Shawn Zhang
[Interpreted] So however, from the perspective of the overall business development strategy of our group, the listed group will focus on borrower acquisition and risk control services with guaranteed services shall mainly be provided by independent third-party financial guarantee companies. Therefore, this part of our business and corresponding revenue growth of this part will be relatively stable in the future.
Chunlin Fan
(foreign language)
Shawn Zhang
[Interpreted] So additionally, the margin of the guaranteed business is relatively lower if you compare with the borrower acquisition and risk control sources, which will reduce the overall operating profit margin of the listed group. So from a financial metrics perspective borrower acquisition and risk control services will continue to account for the vast majority of our revenue. And the company will reasonably manage the balance of different business subtypes in revenue share. So this is my answer for your second question, and let's see if you have any other questions. Thank you.
Operator
(inaudible) did you have a follow-up?
Unidentified Analyst
(foreign language)
Shawn Zhang
So operator, we can get the next question, please.
Operator
Your next question comes from you (inaudible) with Huatai Securities.
Unidentified Analyst
(foreign language) This is (inaudible) from Huatai Securities. I got 2 questions. The first one is about your risk management strategies with a stable delinquency rate. Could you provide insights into your risk management strategies and the evolution in the (inaudible) stability? Also, do you expect your risk profile to remain stable going to Q4 on 2024?
The second one is about your expenses. We have observed a consistent reduction in operating expenses as a percentage of revenue over the past year. Is this because of your cost control, efficiency improvements or both? Can this trend to be expected to continue in Q4 on 2024?
Yifang Xu
(foreign language)
Shawn Zhang
[Interpreted] Hello, [Mr. Chen]. This is Xu Yifang and your first question will be answered by me. So you just mentioned the strategies and stabilities. And these are actually the goal and also the result of our risk management work. So we have some different approaches to that. The first will be -- we will pay attention to the development trends of the market, especially the overall income to debt ratio of our borrower group and also the debt situation and also then the willingness and activity of their credit application.
Yifang Xu
(foreign language)
Shawn Zhang
[Interpreted] So the second one is for our models and strategies and as the borrower group of us is growing so fast, it is very important for us to accelerate the monitoring process. And at the same time, we also need to update our models and strategies and the integration of them is also very important.
Yifang Xu
(foreign language)
Shawn Zhang
[Interpreted] So the third one is that we think the risk management works should not only be on the decision stage, but to strengthen the management and operation of the entire life cycle of our borrower group from a risk perspective is also very important. And with that, we also can see that the risk indicators are getting better because of it.
Yifang Xu
(foreign language)
Shawn Zhang
[Interpreted] So after the loan facilitation process, we also need to differentiate these strategies to further enhance the experience of our high-quality borrowers, thereby to improve their retention and loyalty of them. And we can also see those improvements also makes our risk indicators getting better. So for the goal of the fourth quarter of this year and the whole year of 2024, we are expecting to maintain and further optimize this risk management approaches, and this will be really important for all of our team. And these will be some ideas of our risk management works and my answer for your question. Let's see if you have other questions.
Chunlin Fan
(foreign language)
Shawn Zhang
[Interpreted] So your second question is about our expenses. And I think from the first quarter to the third quarter of this year, the proportion of our G&A expenses, S&M expenses and also R&D expenses in the revenue has continuously decreased. In the third quarter, the proportions of G&A expenses, R&D expenses and S&M expenses in the revenue were reduced to 3.6%, 4.8% and 27.8%, respectively.
And the main reasons are twofold. Firstly, is because the scale effect brought by the growth in facilitation volume and also revenue. And the fixed costs are relatively stable and the variable costs are getting more efficient. If you compare with other kind of expenses and their growth percentage is much lower than that of revenue growth. And second reason would be the efficiency improvements, both by the application of AI technology and also our refined smart operations.
Chunlin Fan
(foreign language)
Shawn Zhang
[Interpreted] So in the short to medium term, in line with our strategy of high-quality growth and smart operations, our proportion of G&A and S&M expenses will remain relatively stable. And we will also continue to increase investment in R&D and strongly enhance the application of AI technology in various business processes. And just as Mr. Yan just said, our company has been officially named as Jiayin Technology, and we will continuously strengthen our technology attribute.
Chunlin Fan
(foreign language)
Shawn Zhang
[Interpreted] Through the refined operation, and we are very confident to make our net profit margin to maintain above a relatively sustainable and healthy level. And just as Mr. Yan just mentioned that our second dividend distribution plan is almost decided, and we are very confident to give out more to our investors in the future.
So (inaudible), I hope those will answer your question.
Operator
We've reached the end of the call. I will return the call back to Shawn for closing remarks. Please go ahead.
Shawn Zhang
Okay. Thank you, operator, and thank you all for participating on today's call, and thank you for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.
Operator
That does conclude our conference for today. Thank you for participating. You may now disconnect.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
