Good day, and thank you for standing by. Welcome to Lexin First Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Will Tan, Head of Capital Markets. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to our first quarter 2025 earnings conference call. Our results were released earlier today and are currently available on our IR website. Today, you will hear from our Chairman and CEO, Mr. Jay Wenjie Xiao, who will provide an update on overall performance and strategies of our business. Our CRO, Mr. Arvin Zhanwen Qiao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Zheng, will discuss our financial performance. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Last, please note that all figures are presented in renminbi terms, and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated. Please kindly note Jay and Arvin will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvin's AI-based voices. With that, I'm now pleased to turn over the call to Mr. Jay Wenjie Xiao, Chairman and CEO of Lexin.

Thanks for joining us today for our first quarter 2025 earnings call. Despite ongoing macroeconomic uncertainties, our GAAP net profit reached CNY 430 million, a record high in 13 quarters, representing quarter-over-quarter growth of 18.6% and year-over-year growth of 113%. Our first quarter results demonstrate the success of our 2-year transformation, centering on building a model driven by data analytics, risk management and refined operations. Having completed this challenging transformation, we have entered a new phase of high-quality development. The fundamental enhancement of our core capabilities will drive sustained value creation moving forward, and we remain confident in delivering our full year performance targets. Over the past 2 years of transformation, we have adhered to a risk-first approach, comprehensively upgrading our core business capabilities. We have iterated and optimized the full life cycle strategy, covering risk management, marketing and operations while also strengthening our system infrastructure to achieve effective coordination between risk management and business development. By far, we have completed the upgrade of our risk management framework and established robust risk management infrastructure. Furthermore, we have built a comprehensive quantitative business analysis framework that supports differentiated credit assessment and pricing strategies tailored to various customer segments. These initiatives have resulted in significant enhancements to our refined operations. Lexin has also achieved significant progress across multiple ecosystem businesses. For our online consumer finance business, we have notably enhanced customer acquisition capabilities and efficiency by implementing model-based decision-making upfront at the traffic allocation stage. Building on our differentiated pricing strategy, we launched the on-demand credit product, [Foreign Language] flexible loan in the first quarter, featuring flexible use of credit and repayment. The new product, together with our existing products, [Foreign Language] and [Foreign Language] forms a competitive product matrix. Our overall product offering features optimized credit lines, rates and tenors, making…

Thanks, Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the first quarter. In the first quarter, we remained committed to our strategy of prioritizing asset quality, focusing on scale stability and profitability enhancement. Specifically, we focus on improving risk identification capability, optimizing risk strategy system and developing smart risk tools as well as actively exploring the application of large models in risk management. Thanks to the initiatives we've taken, risks of both new and overall assets maintained the downward trend in the first quarter. Leading risk indicator for new loans, first payment default, FPD, over 7 days of the first quarter declined by about 5% compared to the previous quarter. On total loan portfolio, day 1 delinquency ratio decreased by about 11% and 90 days delinquency ratio decreased by 9% quarter-over-quarter. I will introduce in detail the key initiatives we've taken for the first quarter. Firstly, in terms of risk identification capabilities, we've continued to improve the performance of our risk identification models. We built a multimodal fusion model, integrating different types of heterogeneous data, including textual time series, numerical and graph features, which helped further improve the risk identification capabilities by 10%. Meanwhile, we deployed a 2-stage modeling structure. A standard model was used to identify the mid- to long-tail customer groups. We then optimized the data samples and brought additional data sources to conduct more granular risk identification for these customers, further improving the risk differentiation capabilities. Besides, for customers from different channels, we conducted deep joint modeling with our channel partners. This allowed us to fully leverage both partner channel data and our own internal data to improve model performance. Secondly, we also strengthened risk management through preventive and proactive approaches. Regarding high-risk assets, we adopted a preventative…

Thanks, Arvin. I will now provide a detailed overview of our first quarter financial results. Please note that all figures are presented in renminbi terms and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated. Our first quarter performance marked another strong leap forward and we are on track on our profit growth road map. During the quarter, our net income increased by 18.6% to CNY 430 million and 113.4% year-over-year, even though the overall new loan volume and the loan balance declined slightly due to the Chinese New Year seasonality. Our net income margin increased to 13.9% from 9.9% last quarter. Net profit take rate calculated as the net income divided by the average loan balance, increased to 1.58% from 1.31% from last quarter and 0.66% a year ago, advancing by 27 basis points sequentially. The net income, net income margin and the net take rate, all reached the highest level in the last 3 years, laying a solid foundation for future profit expansion. From a unit economics perspective, the 27 basis point net profit take rate improvement quarter-over-quarter is led by a 47 basis point increase of revenue take rate, which is calculated by dividing the sum of credit facilitation service and the tech empowerment service income after deducting the funding and the credit cost by the average loan balance. During the quarter, the revenue take rate increased from 6.22% to 6.69% of the previous quarter. The improvement of revenue take rate reflects our ongoing risk-centered business transformation, which resulted in better asset quality and therefore, a lower credit and funding cost and the refined business operations. The specific business execution involved focus on retaining prime customers through competitive loan offers, including lower prices and improved tenor and migrating subprime borrowers to capital-light model via intelligent…

[Operator Instructions] Our first question comes from [Emma Zu] from BofA.

So how does the company address various external challenges such as the impacts of the new rules on loan facilitation business and geopolitical uncertainties on the company's listing standards? Does the company have any plans for Hong Kong IPO?

This is the translation for Jay’s remarks. Despite significant changes in the macroeconomic environment and industry landscape this year, the company has delivered outstanding results by adhering to its strategy, focusing on risk management, data analytics and refined operations. Although external challenges persist, the company is well prepared to navigate through them and management remains confident in achieving its 2025 performance targets. Regarding the new rules on loan facilitation-based business, we welcome and support regulators’ efforts in standardizing the industry. While the full impact of these rules remain to be seen in the short term, they are expected to foster a more compliant, healthy and sustainable environment for the sector in the long run, a trend that particularly benefits large and compliant platforms like Lexin. For us, we have the capabilities and resilience to address the potential impact of the new rules. Therefore, we are confident in achieving our full year profit target. Regarding the geopolitical uncertainties, the company has proactively taken measures to prepare, including exploring potential listings on different exchanges, including Hong Kong Stock Exchange in order to protect the interest of all shareholders. Once any concrete plans or significant progress materialize, we will promptly disclose relevant information to the market in accordance with laws and regulations.

Our next question comes from Alex Ye from UBS.

So my questions include -- first one is what are the progress and development plan for your ecosystem business? And second is, can you give us more color in terms of where we are in terms of our asset quality improvement trend and how to understand the strength of the current risk management capabilities and what's the plan for the next stage?

Lexin has always had very diverse business [indiscernible] and not only having online business but also offline, and we have unique competitive edge in our own ecosystem business. More specifically, as I mentioned in my remarks, for our online consumer finance business, we continue to improve the risk management capabilities and operational refinement and have witnessed a substantial enhancement in the capability and efficiency of customer acquisition. Going forward, we’ll focus on providing tailored product offers to match customers with varying risk profiles, enriching our product portfolio to enhance customer offer competitiveness and expanding customer acquisition channels. Meanwhile, we will further explore collaboration with huge traffic platform, which has already exhibited good momentum this year and expanding our business model to achieve sustainable volume growth. For our installment e-commerce business, we have revamped our risk management system, upgraded merchandise supply chain and expanded the business boundaries. By tailoring installment services to users based on their risk profile, we better address diverse customer demand. Going forward, we will fully leverage our e-commerce business to better engage existing customers and attract new ones, making it a key lever for us to adapt to [Technical Difficulty] changes and enhance the company’s operational resilience. For our off-line inclusive finance business, which is quite a unique feature of our business deployment, we have strengthened our in-house channel development and optimized the risk management model to ensure the differentiated competitiveness of our products and also secured sequential increase of profit. Going forward, we will continue to increase the penetration of micro business owners in lower-tier cities, enhance localized business development and improve operational efficiency. For our overseas business, we further optimized the business model and capabilities at various fronts. By far, our overseas business have achieved profit overall. Going forward, for overseas business, we will adopt a prudent approach in terms of investment and expansion. Over the past year, we have comprehensively upgraded our risk management system across multiple fronts, including risk identification, differentiated risk strategy, differentiated risk pricing, risk-bearing models, risk monitoring and early warning and risk management tool, et cetera. This has led to a significant improvement in our risk management strength and our ability to handle risk volatility. Thanks to our efforts and upgrades in the past year, we have established a mature, robust quantitative-driven risk management system. As a result, risk levels of both new and overall assets have exhibited a sustained decline over the past year. In light of the persistently challenging external environment and ongoing industry uncertainties, we remain committed to our risk-centric strategy and prudent operational approach. We will further strengthen our risk management capability. We’re actively exploring the application of large models to enhance the accuracy and efficiency of our risk management system. This will ensure asset risk maintain the current downward trajectory.

Our next question comes from Yada Li from CICC.

First, congrats to the record high results. My first question is, in this quarter, I've noticed that the revenue structure experienced some material changes. And I was wondering what are the main reasons to drive this change? And second, what is the company's plan in shareholders' returns going forward?

Okay. I will take the first question and ask Jay to talk about the second. So the first question, first of all, as I mentioned in my previous script, it is important to bear in mind that despite the different factors contributing to the quarter-over-quarter revenue variance analysis, we should always take a holistic view to look at the total revenue and the credit cost together to get the big picture. The big picture is that from the unit economics perspective, our revenue take rate increased from 6.22% to 6.69% quarter-over-quarter. And the net take rate after offsetting the operational cost increased from 1.31% to 1.58% quarter-over-quarter. So in terms of the specific revenue variance analysis, basically, the quarter-over-quarter variance in total revenue was primarily due to lower credit facilitation service income driven by the reduced pricing, higher early repayments and the shift in GMV towards the capital-light model. While the tech empowerment service line income saw some increase driven by the capital-light GMV volume migration, here, the net-based accounting recognition is used where the revenue is net of related credit costs instead of recognizing revenue and the credit costs in 2 separate lines. So related to this, the total credit cost declined at the same time, partially due to the same reason. Additionally, despite the sequential GMV growth of 16.2% quarter-over-quarter, the installment e-commerce platform revenue decreased similarly as a result of the revenue recognition difference due to the volume mix shift between the third-party sellers and the company direct sourcing. For the third-party sellers, only the platform service commission is recognized as a revenue rather than the entire transaction amount under the direct sourcing model. The sales volume from the third-party seller account for 56% of the total e-commerce GMV in the first quarter, up from the 36% in the last quarter. So in conclusion, the revenue structural variance really reflected our ongoing risk-centric business transformation and our operational refinement. While the accounting treatment across different business models may cause some top line variances, however, our profit and profit margin continue to improve, really firmly tracking our plan.

The company has always attached great importance on shareholders’ return and is committed to delivering value to shareholders through various means. Since November 2024, the company has increased its cash dividend payout ratio twice within 6 months, demonstrating its emphasis on shareholders’ return. This not only testifies the company’s stable and reliable profitability, but also reflects the management’s confidence in achieving stable and sustainable growth in the future. The company will continue to create value for shareholders. We understand investors’ expectations regarding shareholders’ return and we will work to align our dividend policy with shareholders’ expectations by considering the company’s resources, its business development and capital market conditions while striving to enhance returns appropriately.

I see no further questions at this time. I will now hand the conference back to Will for closing remarks.

Thank you, operator. This conference is now concluded. Thank you for joining today's call. If you have any more questions, please do not hesitate to contact us.