Hello ladies and gentlemen. Thank you for participating in the Fourth Quarter and Full Year 2018 Earnings Conference Call for PPDAI Group Inc. also known as Paipaidai. At this time all participants are in listen-only mode. After management’s prepared remarks there will be a question-and-answer session. Today’s conference call is being recorded. [Operator Instructions] I will now turn the conference over to your host Mr. Jimmy Tan Investor Relations Director for the company. Jimmy please go ahead.

Hello everyone and welcome to PPDAI’s fourth quarter and full year 2018 earnings conference call. The company’s results were issued via newswire services earlier today and are posted online. You can download the earnings release and sign up for the company’s distribution list by visiting the IR section of our website at ir.ppdai.com. Mr. Cliff Zhang our Chairman and Co-Chief Executive Officer; Mr. Feng Zhang our Co-Chief Executive Officer; and Mr. Simon Ho our Chief Financial Officer will start the call with their prepared remarks and conclude with a Q&A session. During this call we will be referring to several non-GAAP financial measures to review and access our operating performance. These non-GAAP financial measurements are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the US GAAP. For information about these non-GAAP measures and reconciliation to the GAAP measures please refer to our earnings press release. Before we continue please note that today’s discussions will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such the company’s results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties is included in the company’s filings with the US Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable laws. Finally we posted a slide presentation on our IR website providing details on our results for the quarter. I will now turn the call over to our Chairman and Co-CEO Cliff. Please go ahead.

Hello everyone and thank you for joining us today. We delivered solid performance in the fourth quarter and the fiscal year 2018 with strong profitability. This is highlighted by 128% year-over-year increase in net profit to RMB2.47 billion for 2018 in spite of threatening regulations in a volatile market environment. Our outstanding results reflect a growing and stable business operation which is built on a foundation of good compliance concrete framework on risk controls as well as innovative technologies. All of these trends come together in order to deliver accessible and a convenient financial services to an under-served market. The result of our efforts is a vibrant market base of followers investors and financial partners. As an early mover in China we are revolutionizing the online consumer finance market place which in the last few years has gathered critical mass hosted by the country’s faster internet penetration rate and adoption of mobile payments. When the market is subject to tightening regulations scrutiny and ensuing volatility we have delivered high resiliency supported by an extensive user base healthy funding structure as well as proprietary technologies. Our cumulative registered users reached approximately 89 million and the number of cumulative borrowers was 14.4 million at the end of December 2018. As the industry grows and evolves through regulatory oversight and a subsequent consolidation our business will continue to benefit as demonstrated by the broadening of users within our network. In addition the cumulative effect of our big data efforts and our platform technology development allowed us to further to support our technologies as a service to a wide range of third party financial service providers including banks consumer finance institutions and online lenders who seek our service in order to better operate in our consumer finance market in a consumer finance space. In this rapidly developing market the date and application that we’ll provide to our financial partners are both in integral and embedded part of their businesses. As the leading online consumer finance market place we remain committed to enhancing shareholder value. We are also pleased to announce our first dividend of US$0.19 per ADS as a listed company. This reflects our confidence in our business our capabilities and the long term market potential. Moving forward we will continue to maintain focus on expanding the breadth of long services strengthening brand recognition continuing to invest in proprietary technologies and explore opportunities for expansion both domestically and internationally. Now I would like to pass the call over to our Co-CEO Feng to discuss and update our business.

Thank you Cliff and Hello everyone. I’m Feng Zhang, Co-CEO along with Cliff. The industry as a whole has undergone transformation due to the increasingly obvious need for regulatory oversight and the stricter enforcement of regulations has led to rapid consolidating the space. With a mature operation and management team we have evolved accordingly and are seeing the benefits. To illustrate as mentioned in our recent press release our total loan origination volume in the fourth quarter of 2018 reached a healthy RMB17.6 billion on par with the year ago period and up 19% from RMB14.8 billion in the third quarter of 2018. This solid recovery from the challenging industry conditions in the third quarter was supported by the increased funding from our institutional partners and our mutual investors continued confidence in us. This performance is also a clear evidence of our strengthened leadership position in the industry. We have made solid progress in diversifying our funding sources through expanding and deepening relationships with our institutional funding partners. The proportion of loans funded by institutional partners through total loan origination volume increased to 20% in the fourth quarter of 2018 compared to 14% in the third quarter of 2018 and approximately 10% in the first half of 2018. As in our recent announcement we made a solid start in 2019 with total loan origination in January further increasing from the average monthly volume experienced in the fourth quarter of 2018. The proportion of loans facilitated by institutional funding partners to total loan origination volume further increased to 35% in January 2019. We need to bring your attention that new institutional inflows in January were exceptionally high due to some degree of seasonality and lumpiness in institutional funds. In this regard we expect the proportion of institutional funds for the first…

Thank you Feng and hello everyone. During the quarter despite the industry volatility we are delighted to achieve solid operational results in the fourth quarter with a sequential increase of 19% in loan origination volume and approximately 34% year-over-year increase in operating revenues. Our efforts to leverage operating efficiencies continuously paid off as demonstrated by a 44% year-over-year increase in our non-GAAP operating income and a healthy non-GAAP operating margin of 40% in the quarter and 43% for the full year 2018. Our balance sheet continues to be strong with approximately RMB3.3 billion of cash and short-term liquidity and our quality assurance fund remains efficiently funded. The total balance of the quality assurance fund was approximately RMB4.5 billion as of the end of December 2018 equivalent to 23.2% of the total outstanding loans protected by the fund. PPDAI remains financial sound and well positioned for the future. Now let me briefly go over the financial results for the fourth quarter. In the interest of time I will not walk through each item line by line on this call. Please refer to our earnings release for more details. Operating revenues for the fourth quarter of 2018 increased by 34% to RMB1.2 billion from RMB912 million in the same period of 2017 primarily due to constraints of the old revenue recognition standard use in 2017 and the write-back of provisions for expected discretionary payments to IRS investors. As a result of the adoption of ASC 606 effective January 1 2018 revenue is generally recognized earlier in the life of the contract as there is no contingency revenue cap under the new standard. For the three months ended December 31 2018 the impact of applying the new revenue standard resulted in an increase of approximately RMB44.5 million in revenues. Loan facilitation service fees…

[Operator Instructions] The first question comes from Sanjay Sakhrani of KBW. Please go ahead.

First question, I appreciate all the update on the P2P registration process, but could you just talk about what the timing would be or what you’ve seen in the marketplace after all the tests and onsite investigations, and sort of what the timing is before you get the actual - any word from the regulators?

Sure. Sanjay we’re working still through the compliance and inspection checks as we said. We are working through the National Internet Association based in Beijing. There is no hard timeline for that but it looks, and we hope and expect that this could be wrapped up by the middle of this year. Again, that’s just our best estimate, and beyond that again as to the registration timetable again there is no official date out there as yet.

And can you remind me has anyone that’s come through the process already, and sort of where are we with that?

No, I don’t believe anybody has completely come through the compliance and inspections process.

And then obviously we’re hearing a lot about mixed signals in the economy in China, and I understand your credit metrics are quite strong. Have you guys noticed anything on the margins in terms of customer behavior, and have you made any adjustments to your underwriting to sort of capture this trend?

As you can see the demand for credit out there remains robust, and we are increasing our volumes and the funding is increasing, particularly from the institutional partners. In terms of the delinquencies; we are mostly as you can see the numbers, we have mostly been pretty stable during most of the fourth quarter despite obviously the softening economy in China. We did see a slight pickup in delinquencies toward the very end of the year, and it has kind of continued and carried on in the early parts of Q1. Some of this could be seasonal, some could be related to the weakening economy, but we are vigilantly monitoring, and we continue to expect our vintage delinquency rates of between 6% to 8%, which is no change from the range that we have been guiding toward since pretty much the beginning of last year. So that’s sort of an update on what we’re seeing on the ground right now.

Okay. And then final question, appreciate the dividend and all the capital return, as we think about this current dividend that you’ve instituted, how should we think about the recurring nature of this dividend, is this sort of a one-time dividend, or is this an ongoing dividend?

So Sanjay our dividend payment reflects the healthy profitability of our business and the confidence we have in our business, and we do hope that we can pay dividends each year. And we hope that if conditions allow and certainty improves in the industry, there is even obviously room to increase those dividends. But, of course, this payment of dividend each year depends on our cash flow and our operations, and of course it’s subject to review and still discretion by the management and our Board. I hope that helps.

The next question comes from Anderson Cha of BNP. Please go ahead.

Hello this is Anderson from BNP Paribas, first of all congrats to your solid results and let me ask you two questions. First of all, looking at your P&L, there appears to be a new line item called provision for (inaudible), so can you please elaborate on that please, and also it may or may not be related I see the gain from quality assurance program also decreased quite significantly in the fourth quarter. So does it actually reflect the actual deterioration in the underlying asset quality or does it have its own dynamics, and also please guide us how much credit related cost do we have to expect for 2019 versus 2018? And my second question is about year 2019 outlook; if you can share I will like you to share some outlook for 2019 in terms of business and other loan origination volume and other numbers.

So for your first question, yes well noticed, there’s a new line item under our operating expenses related to provisions for doubtful accounts or doubtful receivable. So basically these relate to the provisions for delinquent transaction fees that we charge our borrowers, and in the fourth quarter, we started to separately break this provision out. This provision has always existed, but it’s the first time we separately put in line item in there, and as just going back into sort of the background of this practice of transaction fees, as you know, since December 2017 we started collecting our transaction fees on a monthly basis. So when loans go delinquent, we may not receive our transaction fees in full, and therefore need to make a provision. In the previous quarters, this provision was included under net interest income and provisions. You’ll see that’s just a line just right before net revenues, but since the fourth quarter and our full year 2018 accounts, we have separately listed this under our operating expenses as provisions for doubtful accounts receivable. So, it’s pretty much always been part of our P&L for the whole of 2018, and because the line is getting obviously larger, so we decided to start breaking this down. To your second question, now why the small QAF gains in the fourth quarter obviously versus larger gains in previous quarters, and yes that’s mainly due to the slight pickup or minor pickup in delinquencies at the end of the year as I just mentioned, and what happens is this leads to higher QAF liabilities and therefore there’s less income statement gains. So just to put into some context, you would recall that in the third quarter, we had relatively larger QAF gains, which was due to actual credit losses being better than what had been previously assumed. So this gain was not only from loans facilitated in Q3, but also from loans made in the prior quarters before that. And going forward, I think given the credit risk environment, we would probably guide you to expect relatively smaller or minimal QAF gains to be sort of a more than norm going forward. And your last question relates to the outlook for 2019; now we are aiming for moderate loan volume growth in 2019, driven by the expansion in institutional funds. As Feng mentioned, we expect our institutional funds to be around 30% of our loan origination volume in the first quarter, and we hope that by the end of this year, this ratio could reach to over 40% by the end of the year. We have started 2019 positively, and we expect loan origination volumes in the first quarter to be roughly in the range of RMB18 billion to RMB19 billion, which is higher than the RMB17.6 billion achieved in the fourth quarter of 2018. I hope this addresses your questions?

Yeah, that’s very clear.

The next question comes from Daphne Poon of Citi. Please go ahead.

So I just wanted to attack on the funding cost trend, so we see that the liquidity situation on the (inaudible) has improved quite a lot in the past few months. So I guess the question is how has that reflected in your funding cost trend in both the P2P side and also the institutional (inaudible) sides?

The funding cost for institutions has been largely stable in the last several months; it’s still running between 10% to 12%, for retail investors their returns are currently around 8% to 9%. We have been lowering the returns to retail investors, and during the fourth quarter this figure actually came down by about 2 percentage points, and we do believe there is room to lower the funding cost from the institutions as we grow the funds further and broaden the partners that we work with.

This is Feng, I’ll just add. As we see with the (inaudible) trying to stimulate the economy and the liquidity situation for the entire economy is getting looser, we do see trends of lowering. We do start to see trends of lowering costs from the institutional side, and that we are fairly optimistic throughout the year as we grow our base of institutional partners, we’ll continue to do some benefit of reducing funding costs on the institution side as well.

So just a follow-up, so in terms of the institutional funding partners that you work with, my understanding is that if you (inaudible) trust companies, so I’m wondering like do you have time to like sort of [exercising] or diversify the funding source into commercial banks and maybe what you see as to key charge to ramp up from the bank (inaudible)?

Sure. Daphne so if you look at the sort of mix of the types of institutions that we work with, the majority actually comes from licensed financial institutions, and you’re right trusts have traditionally been a very significant source for us and it’s still the largest category which accounts for over half of our institutional funds. We have recently started working with a commercial bank, and so we do expect the contribution from banks to increase going forward. Sorry Daphne. Sorry please go on, please go on I think there was a second part to your question.

So for the banks, do they have any like requirements in terms of your (inaudible) or your delinquency rate?

We tend to be at the sort of higher quality end of the spectrum that we operate.

So there is no like specific cap that the banks will require?

It just needs to be within the regulatory cap of 36%, and obviously each institution has slightly different requirements and we would tailor in and work towards and work with them.

[Operator Instructions] The next question comes from Jasmine [Kin] of China Galaxy International. Please go ahead.

So, I have two questions; the first one is that last year we have talked about 175. So I would like to know whether you have any comments on these verticals, this document tried to guide smaller, problematic platform to exit from the industry. And the second one is that I wanted to know, do you have any observation on quality of new loans so far in this year, and do you think that this can be the industry wide result or it’s a result of your risk management?

Yeah, Jasmine, sure I mean talking about 175, I think the major focus has, in our view is to manage and wind down the risks in the P2P industry related to the large number of smaller platforms and non-compliant platforms. So this is clearly number one in the government’s agenda, and it’s to reduce obviously the risks posed by the P2P industry. We have always been one of the most compliant players in the industry, so we are comfortable that we will not be among the ones that will be cleaned out of the industry. In fact, we’re pretty confident that we are able to meet further regulatory requirement should they come. Today, there are no significant major issues that we received from our regulators in terms of our business practices. In terms of the quality of new loans, as we just mentioned previously, we have seen a slight uptick in delinquencies in the last several months, and I think if you speak to other industry players, you would see quite a varied experience. There are others which are seeing significantly weaker performance as well. So I think the relative resilience that we’re seeing definitely is a result of the risk management capability that we’ve built up over the years, and without that I don’t think we’d be able to be performing the way we are today.

This concludes our question-and-answer session. I would like to turn the conference back over to the company for any closing remarks.

Thank you once again for joining us today. If you have further questions please feel free to contact Paipaidai investor relations through the contact information provided on our website or in our press release.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.