Q4 2023 X Financial Earnings Call
Participants
Victoria Yu; Investor Relations; X Financial
Kent Li; President; X Financial
Frank Fuya Zhang; Chief Financial Officer; X Financial
Bo Hinds; Analyst; Equinox Capital
Mason Bourne; Analyst; AWH Capital, L.P.
Matt Larson; Analyst; Fincadia Capital Partners
Presentation
Operator
Hello and welcome to the X Financial fourth-quarter 2023 earnings conference call. (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.xiaoyinggroup.com.
On the call today from X Financial are Mr. Kent 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, factors is included in the company's filing with the US Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law. It is now my pleasure to introduce Mr. Kent Li. Mr. Li, please go ahead.
Kent Li
Hello, everyone. We are pleased to conclude the year with solid operational and financial results, emphasizing our commitment to a sustained growth. In 2023, we facilitated and originated 43% more loans than in 2022 and delivered notable year-over-year growth in both revenue and profits Total net revenue increased 35% on an annual basis, while income from operations increased 33%, and net income improved by 46%.
However, as we enter the second half of 2023, particularly in the fourth quarter, we experienced the increasing risk levels in asset quality. While we strengthen 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 of growth.
During the fourth quarter of 2023, our total loan amount facilitated and originated was RMB26 billion, a 20% year-over-year increase but an 11% quarter-over-quarter decline. Delinquency rates for loans past due for 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 the 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, aligning 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 the 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 prioritizing profitable growth. Our commitment to delivering value to shareholders is unwavering, and we intend to pay dividends and when profitability and smooth operations allow. This overall approach reflects our decision to navigating the evolving economic landscape while ensuring a 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 Zhang
Thank you, Kent, and hello, everyone. We are pleased to deliver solid financial results in 2023. Total net revenue increased by 35% year over year to RMB4.8 billion and the net income rose by 46% to approximately RMB1.2 billion. In response to heightened asset quality risks in the first quarter, we proactively reduced loan volumes to satisfy profitability, resulting in a 15% sequential decline in total net revenue for the quarter.
We recognized RMB26 million and RMB46 million of impairment losses on long-term investments related to our indirect investment in Newup Bank of Liaoning in 2022 and 2023, respectively, mainly due to depreciation in the market valuation of the Chinese banking sector. However, the banking loan portfolio and operation remain healthy, and we believe it continues to be a good investment for us.
Looking ahead, we will not pursue pure loan volume growth at the expense of profitability, which is always our strategic focus to ensure long-term growth and returns to shareholders. We will continue to strengthen our risk management system to improve asset quality and balance our revenue and profitability growth.
Now I would like to brief some financial performance for Q4. Please note that all numbers stated are in RMB and is rounded up. Total net revenue increased by 25% to RMB1,193 million from RMB956 million in same period of 2022, primarily due to an increase in the total amount facilitated and originated this quarter compared with the same period of 2022.
Origination and servicing expenses increased by 28% to RMB755 million from RMB589 million in the same period of 2022, primarily due to the increase in commission fees and collection expenses resulting from the increase in total loan amount to facilitated and originated this quarter compared with the same period of 2022. Provision for loans receivable was RMB99 million compared with RMB75 million in the same period of 2022, primarily due to an increase both in loans receivable held by the company as a result of increase in total loan amount of facilitated and originated this quarter and in the estimated default rate compared with the same period of 2022.
Income from operations was RMB254 million, compared with RMB274 million in the same period of 2022. Net income was RMB189 million, compared with RMB275 million in the same period of 2022. Non-GAAP adjusted net income was RMB231 million, compared with RMB278 million in the same period of 2022. For further financial information, please refer to the earnings release on our website.
Regarding our share repurchase plan. In Q4, we repurchased about approximately 36,000 ADS for a total consideration of USD143,000. Since the beginning of 2023, we had purchased an aggregate of approximately 838,000 ADS for a total consideration of the USD3.5 million. We have approximately USD5.5 million remaining for the potential repurchase under our current plan.
With respect to our dividend. 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 dividend in any particular half year will be made at the discretion of the Board and will be based upon the company's operations and earnings, cash flow, financial condition, and other relevant factors that the Board may deem appropriate. Pursuant to the semi-annual dividend policy, the Board has approved the declaration and a payment of semi-annual dividend USD0.17 per (technical difficulty) -- for the second half of 2023.
Now on our business outlook. For Q1 this year, we expect the total loan amount facilitated and originated to be between RMB21 billion and RMB22.5 billion. This concludes our prepared remarks, and we would like to open the call to questions. Operator, please.
Question and Answer Session
Operator
(Operator Instructions) Bo Hinds, Equinox Capital.
Bo Hinds
Hi, I'd like to spend a few minutes talking about some of the recent changes in regulation. I'm wondering how some of those changes will affect you as a smaller consumer financing company. Thanks.
Kent Li
Can you tell us exactly which regulation that you are referring to?
Bo Hinds
Yes, there are two that I'm speaking of. One is the requirement for a minimum registered capital of CNY1 billion or USD139 million. And the other regulation is to have a major investor for the stake of at least 50%. I'm just wondering how the company is going to be able to comply with those two regulations?
Frank Fuya Zhang
Okay. I think I'll take that question because (multiple speakers) -- Yeah, I can take this question first and because I received with voice, e-mail, and that one.
First of all, we are not consumer financing company in China. We are so-called FinTech company. So that particular regulation is not directly tied to us, actually apply to the consumer financing company. Those kinds of companies usually owned by major banks; they're mainly exclusively focused on issuing consumer loan.
As you see the article, they haven't come out with a detail in terms of the timeline how to implement this. Mainly it's because of the CNY1 billion capital requirement most of it or they already meet our requirement. But mainly is that about half of our or maybe over 10 consumer financing company haven't met the largest shareholder at least up to 50% ownership. That the second requirement they haven't met. But it was again, they haven't come up with a detail in term of when they have to acquire the second requirement, mainly as the article you sent to me.
But we are a FinTech company. So we are basically doing is mainly acquire the borrower mainly through online or offline method. And by forward those consumer, we also get a certain risk of profile sent through those the potential demand to the bank, also to the consumer institution also. So the banking also the consumer institution, they both provide us funding for so called the loan portfolio.
And those loan portfolio is legally under their, but not belong to us. Because we don't have a -- except that we have a small or our own capital about USD1 billion in a capital small loan company. We can directly issue the loan, but because the funding limitation, we mainly source of funding is from the banks and the financial institution.
So that one is not -- because of the Chinese monetary policy right now, it's very loose. And so that requirement do not affect us in terms of the lending available or funding at that regard. So no effects at all. So we don't see that will have any effect on us any time soon. Kent, you want to add on something?
Kent Li
No, I think you got it.
Frank Fuya Zhang
Okay.
Bo Hinds
Thank you. I appreciate the detailed answer. Okay, that's all I have. Thanks.
Operator
Mason Bourne, AWH Capital.
Mason Bourne
Hi, thanks for the questions. I have two. To start, could you talk about your growth outlook, and I know you gave guidance for Q1, but just how you're thinking about the opportunity to grow going forward, given kind of the pullback. And I guess your aggressiveness on growth, given what's happening on the risk side of things, then how that looks longer term, both, I guess, '24 and beyond.
Kent Li
Okay, I'll take this one. It's really difficult for me to give you a forecast for 2024 and beyond. Let's talk about '24. I think over Q1 and looking forward, it looks to us like the environment has been becoming from worse, from the better situation to a little bit better one. But we still feel that the so-called better environment is not as good as the much better environment to that for the first half of 2023. So in terms of growth, I think we will gradually go into the growth mode, but the growth rate will be slower than that of the last year.
Mason Bourne
Okay, thanks. And then the second one, if I look at your dividend policy, it's good to see that you're returning some of capital to shareholders. But if I look at peers, some of them are returning substantially more as a percentage of net income is up to about 50% through buybacks and dividends combined. Or another competitor announced a large special dividend this week. I was wondering how you think about your balance sheet, given where tangible book value is per share? And if you could do more on the dividend side of things. Thanks.
Frank Fuya Zhang
Yes, we actually do have a -- beside the dividend payout, we are looking for other way to return shareholder value. Right now, we have just issued Q4 or the last year financial reports. And then we will do a 20-F by the end of next month. And in May, we will have for the first quarter of financial reports earnings call. And after that, we definitely this year looking for the way to have more way to return shareholder value.
Our situation is a little bit different to compare and almost now you know that. And so we have a regular open window period. We just cannot buy as much. No, we are restricted by 25% of flow on a daily basis. So we are looking for more ways to return shareholder value. That's all I can say at this moment.
Mason Bourne
Thank you.
Operator
(Operator Instructions) Matt Larson, Fincadia Capital Markets
Matt Larson
Thanks for taking my questions. My questions, just kind of follow up on the previous two people who have called in. Thanks for the dividend because it puts you on the map and is returning some capital to shareholders.
What I'm asking is kind of abstract. Your company trades at a multiple, which one would never see in certainly United States and probably in many parts of the world of slightly above 1 to 1.5 times earnings. The dividend will definitely have drawn a few more investors. But in the past, when people have brought up the subject of maybe going private or finding a way to get your share price higher, the answer was that wasn't an option.
So I'm kind of wondering what is your plan? A couple of your competitors do trade at four times earnings or so, they pay a similar dividend to what you are forecasting. So if you could get your multiple to a four. That's at least a triple in your price and it gets you to a level where I think your primary shareholders would be happier from a financial point of view and also for any long-term investor.
Your stock has been in an uptrend, so which is contrary to what the stock indices out of the PRC have been. So one can complain over the last six or eight months. But is there a game plan to get better awareness of your company? And the fact that you've got pretty stable earnings -- consistent earnings so that more investors are aware of your stock is thinly traded, but that can work both ways. If social media and other sites here in the United States became more aware of a company trading at 1.3 times earnings with significant cash on the balance sheet. Yeah, it wouldn't take much to move the stock.
Sorry, I'm rambling on here, but for investors to be frustrated with the stock trading one and change multiple, what game plan do you have? My suggestion is to get the word out there. And that would be more news releases and things like that. Sorry, to take so long, but interested in what you have to say.
Frank Fuya Zhang
Yeah. We are in kind of not that sexy industry. And also, we are definitely among the leader of this industry, like I believe it's financial and that so far. So you know what I mean.
And in terms of whatever visibility for the sector and for flow for the whole thing, you can contribute a lot of factors. We know it very much interest in to talk about it. But the only thing I think everyone agree those factor, not in our control like the US relationship with China or something like that.
So we believe, this example that we believe we should continue to what is the right, mainly run our business as best we could and return the cost standard or return our kind of shareholder value. I think over time it will play out, but definitely I don't know when.
And regarding the privatization, I would say once again, that it was kind of tricky because US investor consider privatization, basically it's a value play. And you have definitely have no obstacle to reshape and come back anytime you wanted to. So there's no risk.
But in China, it's different. If you don't believe me, just look at the big company, real estate company, they run the bigger, in China, run the biggest mall. Use the real estate company they own and run the biggest shopping mall in China.
The (spoken in Chinese) the learning company. They used to list in Hong Kong. Then somehow in like 2015, 2016, they see the valuations horrible, they go to privatization, and they want to re-list in the domestic market, but they never got the permission, and they never got the chance to come back to the Hong Kong market.
We are somehow in the consumer sector also. Chinese there's a rule on the book, definitely apply to us. Say that or anything you have over 1 million consumer. We have to get approval from the Chinese government in order to list overseas, especially in the US, Hong Kong is a little bit of gray area because technically you can consider the China territory.
So if you're de-listing -- de-list, listing, is an offshore. That's all I want to say. Because we are subject to government approval because we have a more than tendering, the customer base. That's much more than that. So that is not something we can talk about.
We can't have someone, given this kind of -- there's no insurance policy for that. So if we de-listing, we maybe, we're never going to list again. So that's why everyone do not want to do that. It's kind of a -- listing status is kind of a privilege in China.
In terms of the plans. I don't have a detailed plan, but I have a general plan. The first plan is get the stock over $5. So the institutional investor can technical contact us. So if we have some period of time, say like more than half a year, so our stock is mainly over $5. We will probably rethink our PR policy. Maybe I will be more on the road show other role. Do whatever usually the stuff we do and hope for the best result. That's the general plan. I hope I can answer your question.
Matt Larson
All right. Yeah, you did in a way. You're kind of trapped in your current listing because you can't go private because then you've got no other exit strategy. But I guess, I was looking for some sort of I don't know, illumination of the game plan because your stock's been mired in a low multiple, you're not the only one there. I understand there's one or two FinTech companies that trade less than 1 times earnings in Hong Kong. So it's just a sector that people are concerned about regulation and things like that.
But when you're trading near cash value, just coming from the capital markets here in the United States, we have options to handle that. I mean, like going private or merging. What would prevent you from selling to a partner who has like a bank or somebody that has a significantly higher multiple where it would be very accretive to them to buy a company of yours with your client base and your reach with all your millions of customers. But I'll leave that there just for you to consider. Thanks for your time.
Frank Fuya Zhang
Thank you.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Victoria Yu for any closing remarks.
Victoria Yu
Okay. Thank you, everyone, for joining us on the call today. If you haven't got a chance to raise your questions, we will be pleased to answer them through follow-up contacts. We look forward to speaking with you again in the near future. Thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
