Hello ladies and gentlemen. Thank you for participating in the Fourth Quarter and Full Year 2020 Earnings Conference Call for FinVolution Group. 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. I will now turn the call over to your host Jimmy Tan, Head of Investor Relations for the company. Jimmy, please go ahead.

Hello everyone and welcome to our fourth quarter and full year 2020 earnings conference call. The company 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 e-mail alerts by visiting the IR section of our website at ir.finvgroup.com. Mr. Feng Zhang, our Chief Executive Officer; and Mr. Jiayuan Xu, 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 certain non-GAAP financial measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release. 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 results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties are included in the company's filings with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Finally, we post a slide presentation on our IR website providing details of our results for the quarter. I will now turn the call over to our CEO, Mr. Feng Zhang. Please go ahead sir.

Thank you, Jimmy. Hello everyone and thank so much for joining us today. First of all on behalf of FinVolution I would like to express my sincere appreciation to our shareholders and stakeholders for all of their support over the past year. 2020 was an extremely unusual year with enormous challenges. However, despite the economic uncertainties created by the pandemic and the fast evolving regulatory environment in which we operate I'm proud to say we have done remarkably well by strategically shifting to better quality borrowers we delivered a solid financial performance over the past year. With the clearance of P2P balances and 2020 behind us our focus for 2021 will be on resuming high quality growth. After a strong recovery in the third quarter we continued on our upward trend in the fourth quarter helping us close the year on a strong note. For the fourth quarter our average IRR was 26.4% with loan origination volume increased by 24% from the previous quarter to RMB21 billion exceeding the top end of our guidance range of RMB20 billion. We attributed these gains to our strong strategic execution, our industry-leading technological capabilities and our sophisticated and prudent approach to risk management. We have successfully completed our strategic transition towards better quality borrowers as evidenced by the significant improvement in our delinquency levels. Equipped with our framework for enhanced risk assessment and management we were able to continue decreasing our funding costs while simultaneously increasing the number of institutional funding partners allowing us to maintain ample diversified and stable funding sources on our platform. It is encouraging to see our strong growth momentum continue as we enter into 2021. Both [side] by our prudent approach to risk management and our industry leading risk management capability we saw further improvement on multiple key…

Thank you Feng and hello everyone. In the fourth quarter, I made a recovering community environment in Mainland China. We delivered the non-GAAP operating profit of RMB593 million representing an increase of 34% year-over-year and further demonstrating the resilience of our core business model. Our balance sheet remains strong with RMB4.6 billion in unrestricted cash and short-term liquidity. Leveraging our strong technology capabilities we look to capture new opportunities arising from consumer finance markets both in Mainland China and Southeast Asia as we continue to expand and deepen our relationships with business partners. Now turning to 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 earning release for more details. Net revenue for the fourth quarter of 2020 increased by 50% to about RMB1.85 billion from RMB1.23 billion in the same period of 2019 primarily due to the adoption of ASC 326 at the beginning of the year and the increase in loan volume. Loan facilitation service fees increased by 19% to RMB643 million for the fourth quarter of 2020 for RMB539 million in the same period of 2019 primarily due to the increase in loan origination volume which was partially offset by decrease in the average rate of transaction fees. Post facilitation service fees decreased by 36% to RMB176 million for the fourth quarter of 2020 from RMB276 million in the same period of 2019 primarily due to the declining of any loans serviced by the company and the growing impact of the deferred transaction fees. Guarantee income was RMB667 million for the fourth quarter of 2020 due to the adoption of ASC 326. Net interest income decreased by 36% to RMB204 million for the fourth quarter of 2020…

We will now begin the question and answer session. [Operator Instructions] The first question comes from Hanyang Wang with 86Research. Please go ahead.

[Foreign Language] Let me try to take my questions. My first question is regarding on the Hong Kong release team. So any plan or timetable for that will be helpful. My second question is on take rate. So will we continue to reduce take rate in 2021 and the last question is about overseas business. So how we measure the timing in Southeast Asia and what will be the proportion of the overseas business in terms of participation volume in the next several years and what our primary business model and how we measure risk in the area assuming profiles is different. Thank you.

Okay. We have made the requirements for secondary -- on the Hong Kong stock Exchange and the company is too exploring the possibility as this is due very early stages. We will only update market when we have further updates from our side.

[Foreign Language]

Okay. Let me do the translation first. Okay, let us -- some pricing. The four times LPR – product lending and it's not applicable for us -- using the loan facilitation model. And from this perspective we have the flexibility to adjust our pricing. However, the decision on my adjustments is dependent on several factors such as the economic development, the level of customer satisfaction, and the level of rates etc. We will need to consider all these factors before making any changes.

[Foreign Language]

Okay. Apart from pricing, we also need to consider other factors such as the REIT and our funding cost. For example we have really -- market our funding cost is expected to be below 7.5 and our REIT is expected to be below 3% and from the take rate point of view we are confident to maintain the guaranteed rate at 4% as we have the capability to reducing funding cost and further improve delinquency rate.

I will just quickly add the 4% number if you do the exploration, if you do the math it is risk, it is basically based on our content pricing which is between 26% to 27% and 7.5% of funding cost and 3% cost. So it is based on these numbers. They come out with take rate of about 4%. Now as Zhang has mentioned the regulation has clarified the Supreme Court has clarified that the four times LPI pricing gap doesn't apply to our business model. So in that case we do have flexibility and we do have room to further adjust our pricing upward or downward, upward on the take rate side which is at that color.

[Foreign Language]

Okay. Let us recap on the situation in Southeast Asia. Our Indonesia market is leading the growth and we have also entry into other countries such as Philippines and Singapore. We will continue to keep -- of the local regulation developments and keep our operations within the limit of the regulatory requirements. For example, we really have a P2P license in Indonesia and our every loan tenure is between one to two months.

[Foreign Language]

We will continue to expand our market share in Indonesia as we think there is a lot of potential in Indonesia. It is just like China from a few years ago.

[Foreign Language] So what are the main competitors in the Southeast Asia market in terms of the loan facilitation business model? Thank you.

Okay. [Foreign Language]

[Foreign Language]

The Indonesia market is too very early stage and we do have the confidence and capabilities to repeat our success in China over -- Southeast Asia market and by the way, I just want to add that we are constantly among the top three fintech apps in Indonesia market.

[Foreign Language]

Our next question is from Alex Ye from UBS. Please go ahead.

[Foreign Language] I will translate my question. I have three questions. First one is how long -- so the loan growth guidance of 120 billion -- strong growth. So I am wondering how to achieve that growth because it looks like our new customers growth momentum is still haven't returned to a high level yet. I am wondering, do we plan to like activate our customers and increase the contribution from higher to strong growth. The second question is on your MSE loan target. You are going to rate the MSE loan contribution to 20% in 2021, could you share with -- this kind of [Indiscernible] and in addition how does the risk adjusted return of that MSE loan compare to your consumer credit and finally on your six month appreciation cost, there has been a rising for the past three quarters was probably driven by higher quality customers strategy. I am wondering whether that kind of a high customer constraints cost is really the future. Thanks.

[Foreign Language] In order to achieve the target of between RMB100 billion to RMB120 billion we need both the new and old customers. For example in the fourth quarter our new customer was around 370,000 and this is the 50% increase compared to the three quarter and already at the similar levels compared to the fourth same period of 2019. And actually in December this level is actually growing very fast and we expect the trend to continue in 2021.

[Foreign Language]

Okay. The new customers are more acceptable to our brands as we realize that they are actually more registrations actions from these new customers.

[Foreign Language]

We have also seen similar trends with our old customers as we have noticed repeat borrowings actually increase.

[Foreign Language]

Our growth in the past two years has been slow but prior to 2018 we have enjoyed very rapid growth during the last two years we have been occupied with the P2P at the entrance. We have P2P exist and the transition to better quality borrowers. We have successfully achieved both of these targets and both of these targets has been complete we have the ability to resume high quality growth in terms of loan origination volume.

[Foreign Language]

We have been acquiring our new customers through diversified of online/offline channels. For the online channels we are acquiring them through information.

[Foreign Language]

Our customer acquisition cost in the fourth quarter on the CPS basis is 500 plus similar to the level in Q3 but do remember that the fourth quarter was also impacted by the event.

Yes and going forward. Therefore Q4 the cost will be little bit higher because of the e-commerce they have a lot of advertisements because of the year end events. And we are confident going forward that our CPS, our marketing cost will be controlled at the similar level and given the better quality borrower base and lower loss rate as well as lower funding cost. Such a CPS level we think it is very healthy for our business model. So I will add try to answer the second question. Yes. So our SME line business there are customers mostly are those -- shop owners like in Chinese [Indiscernible] and our ticket size range from a few thousand to mostly like RMB50,000 with an average around 10,000, is in the range of 18% to 27% and slightly lower than our average borrower. We have seen like better risk quality for these customers on average. We estimate the loss rate to be probably like 1% lower than our standard loans. So the profitability we expect given the slightly lower price their price is little bit lower and also lower delinquency rate. We expect the same risk adjustment margins and the same return. So in terms of yes I think that's probably all the things you are asking right. Thank you.

Thanks. That's very clear. Thank you.

Thank you Alex.

The next question is from Jacky Zuo with China Renaissance. Please go ahead.

[Foreign Language] So thanks management for taking my questions. I have two questions. Number one is about the borrowing demand. Just want to check what is the latest trend we see from the borrower side in the first quarter and do you see some additional borrowing demand from end users given we have seen from the news that -- is cutting the credit line for these users. And second question is on the funding side. We see some of our peers exploring the profit sharing model with the funding partner. So just want to check whether what is our progress on the profit sharing model? Thank you.

[Foreign Language] Okay the demand is very strong based on our loan origination volume guidance in 2021 and also our Q4 loan volume guidance exceeded the top end of our guidance in Q3 and this are due to the support from our old customers and our new customers.

[Foreign Language]

We do not have 100% confirmed data if these users are from the internet drive impact. We are able to indirectly estimate some of the overlaps with other players in the market for example we have conducted, with results reflecting that demand has not been fully satisfied.

[Foreign Language]

There is no specific guidance from the regulators regarding the risk sharing model.

[Foreign Language]

From the company's perspective regarding the capital model we need to consider several issues such as leverage ratio, cash position and unique economics, etc.

[Foreign Language]

At this moment the risk bearing loan facilitation model is most -- for us.

[Foreign Language]

With that being said, this does not mean that capital-light model is not important for us. In fact the capital-light model is one of our powers in 2021 and growing the numbers of institutional partners working with us in the capital-light business remains our top priority.

[Foreign Language]

As you know we already have over 60 institutional partners working with us and most of these institutional partners operating under the risk free model are also our institutional partners. This is why we believe that we have the fundamentals try and support if we were to venture in the capital-light model with them.

[Foreign Language]

[Operator Instructions] The next question is from Henry Liang with Golden Dragon. Please go ahead. Pardon me Henry Liang, your line is open.

Sorry, just muted. [Foreign Language] So basically congrats, all the metrics, volume, and profitability it's like going so well. Just wonder like can you guys explain what's really decline of the transaction and like all the fantastic metrics. Can you share that what is our core competitors. Thanks.

[Foreign Language] Okay. First of all we have over 13 years of operating history and if you take a look at two years ago our business is actually going very rapidly but during the past two years we have been occupied with the P2P exit and the upgrade to better quality borrowers.

[Foreign Language]

We manage to transform because the team has the four sides, the ability to execute swiftly and the core capability in the technological management and with all these capabilities we are able to transform the compared to most of our peers.

[Foreign Language]

One for example we have operated our borrowers from the sub that we used to do in the P2P era to the better quality borrowers today. This is not only because of our capabilities in data and lease managements.

[Foreign Language]

Hey Henry. [Foreign Language]

[Foreign Language]

Our condition has basically comes to temporary spot and now we are resume our focus on resuming and based on our past track records we have to -- market. We do have the capability to resume growth rapidly.

[Foreign Language]

We have also proved to the market area. Our capabilities and technologies are transferable not only in China but also on the international market. And this means that we are able to replicate our experience in China to the international markets.

Hey Henry, I won't add more color. I think there are couple of things. One is our company I think would set us apart from a lot of other players in the market is we have a really strong risk culture. And we put because our emphasis on keeping like the risk at our target level and we don't sacrifice our risk growth. The one thing that I can share is our President, our current President was Chief Risk Officer of the company before I joined the company in 2015 and I joined the company as a Chief Risk Officer and now I am the CEO of the company. So that kind of gives you the color of like how important is risk in our management's focus. And that's why given a good risk track record we have a very smooth access of P2P and we have a very smooth transition to institutional funding model. We also emphasize a lot on technology. We continue to invest in technology as we believe that is the key competitive advantage for long term success in this fintech business and finally we have a very strong team. So I think it is why you see like no, you see like risk is good and growth comes I think it really is a grown work of the result of many years grown work. We set our strategic goal of production for better quality borrowers, for institutional facilitation model more than two years ago. And we are seeing like fruits today and we believe we will see even better going forward. So it is really combination of we think good strategic planning and execution.

[Foreign Language] So thanks for the very insightful and just very quick follow-up. One it's like what is the total margin of funding cost that we can negotiate with the new funding partners in the current situation and secondly, how much of this growth in our top line volume can be transitioned into the earnings.

Okay Henry [Foreign Language] Okay the funding facts, we already have 10 to 15 partners in our pipeline and we believe there is further room for improvement in the funding side.

[Foreign Language]

However, funding cost is only factor. We will need to consider other issues that just funding partner ability, the level of customers and however, at the current moment our priority is not to have the lowest funding cost but the find the most appropriate partners to support our high quality growth.

[Foreign Language]

Okay we have given our loan origination guidance and we have also given our take rate guidance of around 4% so if you do accomplish you will be able to have a sense of how much revenue we are going to have.

[Foreign Language]

However, from top line to bottom line there are several factors influencing these. For example customer is one of them. And we need to recognize this cost up front.

[Foreign Language]

New customer acquisition is not purely a cost for us. If you understand us you know that new customers is required for growth. This is why we view new customers acquisition as a form of investment.

[Foreign Language]

We try to maximize the acquisition of new customers on our side.

[Foreign Language]

Another factor influencing the bottom line is the accounting.

[Foreign Language]

And because of these two situations from top line and bottom line when doing a completion.

[Foreign Language]

However we are too competent to maintain a steady growth in the bottom line trend.

[Foreign Language]

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

Okay. Thank you everyone for joining our call tonight. If you have any further questions feel free to reach out to the IR team. Good night.

This concludes the conference call. You may now disconnect your line. Thank you.