Hello, ladies and gentlemen. Thank you for participating in the First Quarter 2021 Earnings Conference Call for FinVolution Group. At this time, all participants are in a 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 first quarter 2021 earnings conference call. The company results were issued via newswire services earlier 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 several 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 US 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 US 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 US 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 you so much for joining us today. We are pleased to start 2021 with remarkable progress, delivering high-quality growth across all aspects of our business in the first quarter, while also achieving further improvement in risk metrics across the board. Notably, our total loan origination volume for the quarter reached a record high to RMB 26.8 billion, representing a year-over-year increase of 105%. Our loan origination volume for Mainland China increased 24% quarter-over-quarter to RMB 26 billion. Also our international business is continuing its rapid growth generating approximately RMB 760 million of loan origination volume during the quarter up 42% from the fourth quarter of 2020. Our sequential quarterly growth in low volume following the continued economic recovery from the pandemic is a testament to the effectiveness of our strategies and our strong execution. Also in the quarter, we continued to benefit from our successful transition toward higher quality borrowers. We improved our delinquencies to historical lows, while achieving sequential growth. Our recent day one delinquency rate in May was around 5.4% compared to 9.7% in the same period last year. Our vertical delinquency rate that was 15 days to 89 days past due further improved to 1.24% from 1.38% in the previous quarter, while our 90-day plus delinquency rate was 1.13% compared to 7.25% in the same period last year. Our loan collection recovery rate continued to stabilize at 90% around. We further expect vintage delinquency rate to fall to historical lows, around 2.5% in the first quarter, and the key risk metrics to remain stable for 2021. Going forward, we see continued opportunity for quality growth as we further build our strong technological capabilities and the credit risk management framework. Notably, our total number of new acquired borrowers in the first…

Thank you Feng, and hello everyone. With a strong and steady recovery across multiple operational fronts in the first quarter, we delivered a 45% increase in GAAP operating profit to RMB 671 million. We are affirming the successful transaction of our business model towards high quality borrowers. Our balance sheet remained strong with RMB 5.1 billion in unrestricted cash and short-term investments, empowering our strong technology and risk management capabilities. We will continue to explore new business models and tap into new opportunities, both domestically and internationally. Now, turning to the financial results for the first quarter. In the interest of time, I will not go through each item line by line on this call. Please refer to our earnings release for more details. Net revenue for the first quarter of 2021 stabilized at around RMB 2.11 billion, primarily due to increase in loan origination volume and partially offset by the decrease in guaranteed income, as a result of improved asset quality. Loan origination service fees increased by 103% to RMB 761 million for the first quarter of 2021 from RMB 375 million in the same period of 2020, primarily due to the increase in origination volume, which was partially offset by the decrease in average rate of transaction fees. Post-facilitation service fees increased by 24% to RMB 226 million for the first quarter of 2021 from RMB 183 million in the same period of 2020, primarily due to the increase in outstanding loan serviced by the company and the rolling impact of the deferred transaction fees. Guarantee income was RMB 659 million for the first quarter of 2021 compared to RMB 1,150 million in the same period of 2020, as a result of improved asset quality. Net interest income decreased by 11% to RMB 280 million for the first…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Thomas Chong with Jefferies. Please go ahead.

[Foreign Language] Thanks management for taking my question. Can you comment about, unit economics as well as the trend in coming quarters? Thanks.

Hi. Thomas. Yeah. [Foreign Language] Unit economics.

Economics.

[Foreign Language] Okay. Let me do the translation for Mr. Alex. The competition for our unit economics is pretty straightforward. Our IRR on average is between 26% to 20%. And our funding cost is about 7.5% and our vintage delinquency rate is 2.5%. On an annualized basis, it's around 7%. So on average, the IRR is around 12%. And when we convert to a take rate of 4%, it's in line with what we have been guiding with the market along the past few quarters. Okay. I will -- next will elaborate more on our development space we will be explained in two different stages, yeah. Our loan facilitation business in China have shown -- in all our key metrics in our loan facilitation business in China has been showing a healthy sign. For example, our risk metric has continued to improve. And in the second quarter, our expected loan origination volume is expected to be in the range of RMB29 billion to RMB30 billion. And we are continuing to show healthy growth in all key metrics going forward. In the first quarter, our total number of new customers exit one million. And in the domestic market alone, our new customers exit 600,000. And all this increase in new customers actually provide end use of growth for the future. And based on the current situation and the current performance of our key operation metrics, we are confident to deliver our full year loan guidance of RMB100 billion to RMB120 billion. [Foreign Language] Okay. For the Southeast Asian market, we are still maintaining very rapid growth, although, there has been some impact by the rebounding of the pandemic in the Southeast Asia. In terms of new customers and loan origination volume, we are still seeing very rapid growth in both of these metrics. [Foreign Language] And beside Indonesia, we have also penetrated into a new country Philippines. And we have also begun operations in Philippines.

Hey, was there a follow-up Mr. Chong? Okay. Continuing to the next question. The next questioner is Yiran Zhong with Credit Suisse. Please go ahead.

Hi. [Foreign Language] Thank you management for taking my questions and congratulations on the strong results. I have two sets of questions. One is on the loan facilitation, it seems the exposure to the on-balance sheet lending and lending by trust structures have been rapidly reducing. And so I wonder what's the latest split between the on-balance sheet and off-balance sheet origination volume? And related to loan facilitation, what's your assessment of the regulation over the loan facilitation business model going forward? Would it be regulated under a license regime for example, under the personal credit reference law? Any feedback you can share from the funding partners or regulators would be appreciated. And secondly, regarding the overseas business following up on your earlier comments, can you share more details on the Southeast Asia expansion? What's the economics there? Any guidance on what you expect the volume to make up -- when the volume would make up a meaningful contribution of your volume going forward? Thank you.

[Foreign Language] Okay. On the balance sheet -- it's the trust contribution that on the balance sheet is currently less than 10%. Our loan facilitation model, mainly cooperate with the banks and consumer finance companies which is off-balance sheet.

[Foreign Language] Okay. Let's further understand the regulator's intentions. The regulators, is in the process of building a comprehensive network framework. And over the last one-year-plus, the regulators, is in the process of establishing a comprehensive framework. [Foreign Language] From our observation, the regulator is in the process of establishing a comprehensive framework, plus many different aspects such as, data protection, funding restriction, customer privacy are being reviewed. [Foreign Language] And based on our observation from March 2021 onwards, the regulatory environment seems to be much more stable. And it is less likely for any new regulatory framework to be introduced. [Foreign Language] In the future, it is less likely for any new regulatory framework to be introduced. However, modifications on the current regulations will still continue. [Foreign Language] Within the credit scoring consultation coverage is very broad. [Foreign Language] Our business is based on the loan facilitation model, providing comprehensive solutions on multiple aspects such as customer acquisition, risk management, after loan management and loan maturing, et cetera. [Foreign Language] For the loan facilitation model, we do not offer stand-alone credit scoring services of point scores. We refer the customers to our financial institution partners whether a loan is being approved or not is dependent on their independent assessment. [Foreign Language] And from our -- from this view and our current assessment, we believe we are not within the scope of the current credit scoring consultation paper. [Foreign Language] Okay. As the Southeast Asia business contribution is still very small relatively to our overall business, we will -- we intend to share more updates with you when this portion of the business grew bigger in the future.

The next question comes from Henyang [ph] with 86Research. Please go ahead.

[Foreign Language] So, let me translate my questions. Thank you management for taking my questions. Congratulations on another great quarter. My first question is regarding on the privacy protection. So recent days, some smartphone makers changed its privacy policies, for example, like the new IDSA policy by Apple. So will this policy change affect our advertising effectiveness and the borrower acquisition cost? And in addition, regulators clarify some necessary personal information for online lending apps. So, will this adversely impact our data collection and risk assessment model? My second question is on our technical service. So we launched the bus service last month. Can you share more color on how many institutions have adopted the service and how we charge them? Thank you.

[Foreign Language] It actually belongs to the same question. The regulators have increased the barrier on data privacy and customer protection. [Foreign Language] So from the current results, the impact is minimum. As we are a technology company, we are using our technology capabilities to solve all these problems. And also, compliance is our top priority for us. [Foreign Language] As you know compliance is of the top priority of us. And if you actually notice on many mean lease, our company is actually not our stores being highlighted by the regulators. [Foreign Language] Regarding our bus progress with our 14 years of digitalization capabilities, we are helping our financial institution partners in terms of increasing their efficiency and... [Foreign Language] Our partners actually agree with our views on the bus services and we are currently working with three of them to introduce the various stage of the bus services. [Foreign Language] We are actually providing services such as after loan management risk-related services and the fees collected will be based on the actual results of the performance. [Foreign Language] Okay. The pass is a -- to be business model. And during this process of permitting the pass services we will -- our intention is to allow us to have more time to enhance our products before sharing it with more of our institutional partners.

Thanks. Very helpful.

Thank you, Yang.

The next question comes from Alex Ye with UBS. Please go ahead.

[Foreign Language] So I have two questions. First one is on any updates on the earlier -- the national -- on micro loan license is there any update on that front? And earlier one of your peers have mentioned that they might be doing some preparation work on applying for such a license? Second question is on your international business. I'm wondering would you have any specific guidance in terms of the full year loan volume contribution from that business? And also as you ramp-up your international business what's the implications on your sales and marketing expense? And in particular, I'm wondering if you could share with us some color on the customer acquisition cost for your international business? Thank you.

[Foreign Language] Okay. With regards to the nationwide micro-lending license programs, we are still in the process of evaluation and understanding the regulators requirement as there has been no update from the regulators since the previous consultation paper. We will share more details with the market when there is more information from the regulators. [Foreign Language] Okay. Although the pandemic is rebounding in Southeast Asia, we are still confident to achieve three to four times growth on a year-on-year basis in Southeast Asia this year. Okay. As we have disclosed, we have acquired over 300,000 new customers in Indonesia. And our lending app is known as AdaKami. Our app in Indonesia is very popular. And between the last six months ranging from 1 October to March 31 in terms of fintech lending debt, we are ranked number one in terms of downloads. The cost of customer acquisition in Southeast Asia is relatively lower. But as the business and situation change, the cost of acquisition is expected to change as well. In the first quarter, the cost of a successful new borrower in Mainland, China is about RMB450 and this has shown improvement compared to the previous quarter. As you know we have also become an important partner with many leading information feed standards. And our cooperation with these partners has become closer and leading to a more strategic partnerships. As our risk metrics have been constantly improved these has also led to a decrease in our customer acquisition costs.

Thank you. [Operator Instructions] The next question comes from Eric Lu with China Renaissance. Please go ahead.

[Foreign Language] So my question is, we thought the asset quality has been largely improved. So just want to know, if there's any change to our current client profile? Thank you.

[Foreign Language] Okay. Our customer profile has actually changed a lot. During the P2P era, only about 15% of our borrowers have PBOC records. And today over 95% of our borrowers have PBOC records. And we would also like to share more color on how we are able to gain such a significant change in our asset quality. Okay. The reason for the improvement are largely due to two of our capabilities: number one, our digitalization capabilities; and number two, constant data accumulation, enabling us to upgrade the effectiveness of our model. Our digitalization capabilities can be proven in many situations. For example, during the last 14 years we have track record in customer acquisitions, risk management and after loans management, et cetera. These capabilities has been proven during our P2P era. And after our strategic transition to better quality borrowers, we have also seen multiple improvement across operational metrics, as we leverage on our digitalization capabilities. And these capabilities have also been leveraged onto our Southeast Asia business, where our business is expanding rapidly. And in the future, we believe our digitalization capabilities can also be leveraged in non-finance industry across multiple scenarios. Another very important factor is the constant data accumulation.

[Foreign Language] Constant data accumulations coupled with the digitalization capabilities double the results as more data are being collected really to a more accurate model, hence increasing our capabilities. As you can see from our transition to higher-quality borrowers driven by the increase in number of new customers and resulting in higher loan origination volumes. [Foreign Language] As the number of new quality borrowers increase of the platform with a higher loan origination volume all this will become a positive impact. [Foreign Language] And we are confident that with all these capabilities as our key operational metrics such as our risks improve, we are able to have a healthy growth for the business.

Thank you.

Thank you. The next question comes from Henry Liang with Gold Dragon. Please go ahead.

[Foreign Language] So, just congrats on such a strong result. And as we see FinVolution has been doing very well in Southeast Asia market, especially Indonesia. And like outperforming all the local players after COVID and like even for our peers who have been like doing a better and larger business in Mainland China like none of them has been as successful in overseas market as our company. Can you please share like what kind of core moat or competitiveness we have to be able to lead in the Southeast Asia market? And would you please also share your plan on the overseas expansion and the total addressable market over the long-term? Thank you.

Thanks Henry. This is Feng. I'll try to give a brief view on your question. I think it's a really good question. I think our core capability -- core strength of the company are really two-folds. One is after so many years, we are really good at leveraging data and the technology to improve efficiencies in a business process. And particularly, I think in the past our main business has been on this loan tech business in our view. And secondary, I think the company has a really strong value system and reflecting in our business. I think it has -- we have a very strongest culture and we really respect with risk and we treat it very seriously. We don't sacrifice risk for achieving short-term growth, and we really look at things in a very long-term way. So I think these are the two core strengths of the company, and I think the company has experienced up and downs. I think before we went IPO, we had a period of rapid growth. And after IPO due to very severe regulatory environment and external environment shift, we had a couple of tough years, but I think what's inside the company are the fundamentals of the company really were able to enable us to go through that tough period. And I think our track record during good years and tough years has been -- it really says, a lot about our fundamentals. And the second part of your question, I think, we are really bullish about the Southeast Asian market. I think roughly it's half the size of Mainland, China. So I think even for Indonesia, Philippines, these two countries combined, we are very small. We are very early stage, though we are developing very fast, but we think the market is huge. So we think just like in this market, we have a lot of opportunities there. We're very bullish about that. And I think, I will also add we will continue to explore getting into other markets when opportunity presents, but I also want to like take a step back coming back to what we believe is the core strengths and fundamentals of the company. And I want to call out that it's actually not limited to only loan facilitation model or loan tech. Think about that. It's really leveraging data and technology to improve efficiencies, right? And our long-term based value system, we believe there's a lot of opportunity for us to leverage the cost strength of the company to improve efficiency. And so we are also exploring, how do we leverage this core capability to enter different markets and different businesses, and we will share with the market, share with you guys when they are more meaningful processes, but there are a bunch of things in the incubation skip stage in the company. Thank you, Henry.

Yeah. Just a very quick follow-up, our investors, shall we expect sort of a -- to share a meaningful update of the overseas business both, on their top line contribution and also the bottom-line contribution towards the end of this year and the next?

Yeah. Possibly yeah, I think, as the business size, have continued to grow some of our new businesses namely -- particularly the international business. And we are very careful, because, for example, this is the first time we disclosed the international business. But internally, within the company, we started the business several years ago, right? So -- but no, we decide -- no until we feel very comfortable. And we will start to share some information. And I think, as the business becomes more meaningful we're very bullish about the business. The business is in a very healthy stage, very healthy -- in, both growth as well as unit economics. And as it becomes a more meaningful part of our entire business we will share more color, more insights, and more numbers with the team. Thank you.

Thanks.

As there are no further questions now, I'd to turn the call back over to the company, for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact the FinVolution Investor Relations team. Good night.

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