X Financial (NYSE:XYF) Q3 2024 Earnings Call Transcript

X Financial (NYSE:XYF) Q3 2024 Earnings Call Transcript November 27, 2024

Operator: Hello, and welcome to the X Financial Third Quarter 2024 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. Kan Li, President; and Mr. Frank Fuya Zheng, Chief Financial Officer. Mr. Li will give a brief overview of the company’s business operations and highlights, followed by Mr. Zheng, who will go through the financials. They are all available to answer your questions during the Q&A session. I remind you that this call may contain forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties or other factors, all of which are difficult to predict and many of which are beyond the company’s control, which may cause the company’s actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding these and other risks, uncertainties and factors is included in the company’s filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law. It is now my pleasure to introduce Mr. Kan Li. Mr. Li, please go ahead.

Kan Li: Hello, everyone. We are pleased to report another strong quarter with loan volumes exceeding our forecast and a significant sequential improvement in asset quality. In the third quarter, we continued to promptly adjust loan volume based on risk levels. As asset quality improved, we further intensified our borrower acquisition efforts, which have yielded very positive results. Both the top and the bottom line continue to grow year-over-year. Non-GAAP adjusted net income reached a new record high. Specifically, on the operational front, our total loan amount facilitated and originated was down 4% year-on-year, but up 25% sequentially to RMB28 billion, above the high end of our guidance. Delinquency rates for all outstanding loans past due for 31 days to 60 days and 91 days to 180 days were 1.02% and 3.22%, respectively, at the end of the quarter, compared to 1.29% and 4.38% a quarter ago and 1.11% and 2.50% a year ago.

We are pleased with this improvement in asset quality, and we’ll continue to optimize our risk management system through advanced technology. In September this year, the Chinese government unveiled a comprehensive stimulus package aimed at improving liquidity, boosting the property market, stabilizing financial markets and stimulating consumption. We expect this will provide a meaningful boost to the macroeconomic recovery. As an integral part of the economy, the personal finance market we serve should benefit from this upturn. We have already observed positive signs in the market and are committed to adjusting loan volumes in line with risk levels. As a result of this favorable environment, we are raising our guidance and expect our monthly loan volume to exceed RMB10 billion in the fourth quarter, setting a new record.

Now I will turn the call to Frank, who will go through our financials.

Frank Fuya Zheng: Thank you, Kan, and hello, everyone. I’m pleased to report that our strategy of balancing business growth and profitability continued to pay off. Total net revenue was RMB1.6 billion, up 13% year-on-year and 15% sequentially. While non-GAAP adjusted net income reached a record high of RMB434 million, up 6% year-on-year and sequentially. As we continue to deliver strong profitability and execute on our proven strategy, we have full confidence in our future. We will continue to execute our semi-annual dividend policy and explore opportunities under our share repurchase program to return more value to our shareholders over the long term. Now I would like to brief some financial performance for Q3. Please note that all numbers stated are in RMB and rounded up.

Total net revenue increased by 13% to RMB1,582 million, from RMB1,397 million in the same period of 2023, primarily due to growth in the various disaggregated revenue items compared with the same period of 2023. Origination and servicing expenses increased by 14% to RMB458 million from RMB403 million in the same period of 2023, primarily due to the increase in collection expenses, resulting from the cumulative effect of increased volume of the loans facilitated and originated in the previous quarters compared with the same period of 2023. Borrower acquisitions and marketing expenses increased by 21% to RMB507 million from RMB420 million in the same period of 2023, primarily due to intensified efforts in borrower acquisitions compared with the same period of 2023.

Income from operations was RMB509 million compared with RMB435 million in the same period of 2023. Net income was RMB376 million compared with RMB347 million in the same period of 2023. Non-GAAP adjusted net income was RMB434 million compared with RMB375 million in the same period of 2023. For further financial information, please refer to the earnings release on our IR website. Regarding our share repurchase plan. In September 2024, we further extended the period of USD30 million share repurchase program until the end of March 2026. In Q3, we repurchased approximately 282,000 ADS for a total consideration of USD1.3 million. We have approximately USD4.1 million remaining for the potential repurchase under our current USD30 million share repurchase plan.

Additionally, in May 2024, we announced a USD20 million share repurchase plan effective until November 30, 2025. Following a tender offer completed in July 2024 for approximately USD9.2 million and USD10.8 million remaining available under this plan. Together, these 2 share repurchase programs reflect our commitment to enhancing shareholder value. Now on our business outlook. For Q4 this year, we expect the total loan amount facilitated and originated to be between RMB30 billion and RMB31 billion. The total loan amount facilitated and originated for 2024 to be between RMB102.6 billion and RMB103.6 billion. This concludes our prepared remarks, and we’d like to open the call to questions. Operator, please?

Q&A Session

Operator: [Operator Instructions]. The first question today comes from Ramsey Ballista [ph] with Blackbird Capital. Please go ahead.

Unidentified Analyst: I was wondering if you can update us on the capital return program. And if there is a plan as to what it would be relative to the net income of the company? And as well, if you could update us on the regulatory landscape? Thank you.

Frank Fuya Zheng: Yes. We have a true repurchase program, have about $50 million remaining in place. And if we have a working with one or two big investor regarding the share repurchase program. If those programs — the current program is not enough to — we will have initial to have a new repurchase plan in place to that. We — between the two methods, dividend return and the share repurchase based on our current share price, we would much prefer our share repurchase, that’s our stand. But we will continue to do a semi-annual dividend payout on a continued basis. That’s our plan. I hope by end of the year, and you will see — even though we do not give out in terms of the percentage out to return on capital. But by the end of this year, I hope you will see we will do beyond normally the percentage in terms of the capital return. I’ll ask Kan to answer the first question.

Kan Li: In terms of the regulatory environment, it is the management’s view that there’s — right now, the regulation has been fairly stable. And normally, the end of the year is not the time for the government to issue some new rules or regulations. So, at this moment, I would say the environment is fairly stable, and we do not expect any significant regulations in our industry. That being said, we have seen that the Chinese government has been fairly active in trying to stimulate economy to push up the development rate. And we think that will, in turn, sort of benefit our industry as a whole, basically, as we are in this industry. So that’s why that we expect that our volume will continue to grow from — at this moment. That’s it.

Operator: [Operator Instructions]. Next question comes from Mason Bourne with AWH Capital. Please go ahead.

Mason Bourne: It’s good to see the strong results, and appreciate the return of capital. Frank, I think you started sort of alluding to it on the dividend, but I just wanted to follow up on that. I mean the stock is trading on this quarter’s results if you annualize on 1.3 times earnings. You’re paying out about 6.5% of your earnings per share as a dividend. It seems like that could be potentially significantly higher. I know you said you’re not looking at setting a percentage of income. But if you look at your peers, they’re paying somewhere in the low 20s as a percentage. So, it seems like you could pay a lot more and not affect your business. I was just kind of hoping that you would consider that. Do you have any thoughts on that?

Frank Fuya Zheng: We did this year, the public buyback and at least we did a public buyback, we’re only able to — we were only able to collect just over about 2 million ADS. So, we definitely, yes, have more money available to do more, except the technical currency exchange issue, but that’s not an excuse. But we yes, yes — and we would like to do more in terms of the share repurchase. Hopefully, lately whatever with prices since end of September, the price is from like below $5 up to right now almost $7 will attract more attention and hopefully, there will be more available share for us to buyback. But we will — in terms of our dividend yield, we will continue, as I told you before, we will continue to pay above the industry and yield over — since right now after 2 dividend Fed rate cuts, it will be like around about 4.5%.

We will keep the yield around 6%. Even as the stock price goes up, we will adjust that accordingly. Other than that, I don’t know, public buyback offering, what else we can do, which is the — just again, we will continue to do dividend payout at an attractive rate yield. And also, we will do every possible available share buyback, we will do that. And hopefully — and in terms of the valuation or whatever, I think that over time, it will address by itself. We will continue to focus on the operations.

Mason Bourne: Just if I could follow up on that. I think that your peers — I think when you first instituted your dividend, it was about a 10% yield. And now you’re right, it’s around 5%. The difference though is that your peers, some of them trade at 3 times, 4 times, 5 times earnings and you’re trading at just over 1 time earnings. And so yes, if you can get the buyback done there and you’re trading at about 1/3 of your tangible book value, you can get the buyback done, that’s great. I just know you’ve had limits on that in the past. And so maybe the dividend increase could be a way that you sort of help the share re-rate is that you increase that? And then eventually gets to a 5% dividend yield from share price appreciation. Just some thoughts there. I know that you guys are focused on returning capital, and that’s been a real positive over the past year. So, I’m not knocking it and just having discussion.

Frank Fuya Zheng: Just one more thing. In terms of the only — the major issue we face and challenge is our volume is very low. And so, we hope this volume went up for the last few months, so we could do more buybacks during the open period. That’s another thing we definitely will do. And that’s what I say. In even every possible way, we will do the maximum in terms of yield and the share buyback. And hopefully, we will address just the low valuation issue in a short period of time. But we’re not willing to talk too much like peers our regarding like something like next year or something like that because, first of all, we — in terms of operation, we are — for the last year, 2 years or 3 years, in general, we are in kind of in smooth operation, nothing we can point out like a turnaround big change.

We will do as we always do, mainly based on our operation, mainly on the risk level or definitely on Chinese environment, but we’ll do our best regarding that. But something else, I think, once again, nothing I can say other things, just advise for the patience. I think at least for the last 2 years, our stock appreciation is maybe much more, but still going up. I think when I was onboard this company, stock was around $2. Right now. It’s almost $7. And let’s see what’s going to be. But we definitely hope the stock price reflects the true value of this company, and we believe, eventually, it will.

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: Thank you, everyone, for joining us on the call today. If you haven’t got the 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.