Ladies and gentlemen, thank you for standing by, and welcome to the Qifu Technology Fourth Quarter and Full Year 2024 Earnings Conference Call. [Operator Instructions]. Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Karen Ji, Senior Director of Capital Markets. Please go ahead, Karen.

Thank you, operator. Hello, everyone, and welcome to Qifu Technology's Fourth Quarter 2024 Earnings Conference Call. Our earnings release was distributed earlier today and is available on our IR website. Joining me today are Mr. Wu Haisheng, our CEO; Mr. Alex Xu, our CFO; and Mr. Zheng Yan, our COO. Before we start, I would like to refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make certain forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP financial measures to GAAP financial measures. Also, please note that unless otherwise stated, all figures mentioned in this call are in RMB terms. Before we start, we would like to let you know that today's prepared remarks from our CEO will be delivered in English using an AI-generated voice. Now I will turn the call over to Mr. Wu Haisheng. Please go ahead.

Hello, everyone. Thank you for joining us today. 2024 was an exceptional year for our company. Despite the macroeconomic headwinds, we focused on driving high-quality development and evolving our business, consistently hitting new quarterly milestones to close out the year on a strong note. As our business model gradually shifts to a platform model, our organizational capabilities have been upgraded alongside it. As we look to the future, we will adopt a more open and collaborative approach to engaging and empowering our users and partners further enhancing the health and resilience of our business. By the end of 2024, our platform empowered a total of 162 financial institutions to serve more than 56 million users with approved credit lines on a cumulative basis. Throughout 2024, we maintained a disciplined approach, optimizing risk management and enhancing operational efficiency. In Q4, our C2M2 metric, representing the delinquency rate after 30-day collection for our overall loan portfolio declined further sequentially, reaching its lowest level of the year and approaching a historical best. With our risk metrics stabilizing, we strengthened our ability to address user needs through differentiated risk and pricing strategies. Total loan facilitation and origination volume on our platform have grown for two consecutive quarters with Q4 loan volume increasing by 9% sequentially to RMB89.9 billion. Loan volume in the second half of the year regained positive growth, increasing by approximately 15% compared to the first half. With operational efficiency continuing to improve, our Q4 profitability hit a new record high with non-GAAP net income, increasing 71.5% year-over-year to RMB1.97 billion and non-GAAP net income per diluted ADS surging 91.3% year-over-year to RMB13.7. Despite macroeconomic headwinds, we have consistently improved upon our results over the year and outperformed our market commitments through the ongoing evolution and enhancements to our business. In 2024,…

Thank you, Haisheng. Good morning, and good evening, everyone. Welcome to our fourth quarter earnings call. We closed the year with a strong Q4 as microenvironment start to see tentative indication of modest improvement in user activities. Our continuous effort to optimize operations, improve efficiencies and manage risk exposures generate healthy financial results and operating metrics. Total net revenue for Q4 was RMB4.48 billion versus RMB4.37 billion in Q3 and RMB4.5 billion a year ago. Revenue from credit-driven service, capital heavy was RMB2.89 billion in Q4 compared to RMB2.9 billion in Q3 and RMB3.25 billion a year ago. The year-on-year decline was mainly due to significant decline in off-balance sheet loans despite strong contribution from on balance sheet loans and other value-added services. Overall funding costs were stable Q-on-Q in seasonally timing funding environment. Revenue from platform service capital light was RMB1.59 billion in compared to RMB1.47 billion in Q3 and RMB1.25 billion a year ago. The year-on-year growth was mainly due to strong contribution from ICE and other value-added service, more than offsetting the decline in capitalized loan facilitation. For the full year 2024, platform service account for roughly 53% of our total loan volume and 58% of the year-end loan balance. We expect the ratio to be roughly stable in the near term. During the quarter, average IRR of loans we originated and/or facilitated was 21.3% compared to 21.4% in prior quarter. Looking forward, we expect pricing to be fluctuating around this level for the coming quarters. Sales and marketing expenses increased 25% Q-on-Q but declined 5% year-on-year. The sequential increase was mainly due to increased customer activity and the typical Q4 seasonality. We added approximately 1.69 million new credit line users in Q4 versus 1.58 million in Q3. We will continue to make timely adjustment to the…

[Operator Instructions]. Your first question comes from Richard Xu with Morgan Stanley.

[Foreign Language]. Two questions from me. Number one, on the AI, could the management discuss what areas we're seeing the most potential to integrate it maybe Deepseek and other AI modules and what type of efficiency gain could be achieved and any progress so far? Second of all, there's been some, obviously, policy support since September of last year. Are we seeing any credit demand recovery at the moment? And what's the credit demand at the moment? Outlook for 2025? Any improved credit outlook as well as supply maybe credit growth outlook.

Okay. Richard, thank you. For your first question about the AI and Deepseek. Actually, it's really a hard topic for now. And over the past year, we are happy to see the great improvement in large language module technology, especially in its writing efficiency. We believe credit is perfect scenario for AI application because this industry has a strong data foundation and a high degree of digitalization. Last year, we had a lot of AI practice and efficiency work like sales, loan collection, intelligence, marketing and R&D. For tempo, we launched the competitive system to empower our collection team by analyzing our historical phone costs the system can effectively lead user’s intent and suggest how to effectively communicate with the users. So far, the adoption rate of the Capella system among our collecting team has reached about 84%. Deal usage is roughly 30x per person. And this year, we will allocate more resources to apply AI into our credit assessment, leveraging the AI reasoning capabilities to enhance our ability to analyze credit reports. One example is when we use feature recognition during the loan application process, AI will recognize additional information from the pictures or videos, such as users closing or their rounding’s. This information can be cross-checked with the identity information provided by the users to reduce the fraud risk. This year, we will put a more portion of our traffic into the end-to-end AI-driven risk decision-making process. We are really looking forward to the results of this test. In addition, we are fully committed to advancing our AI is strategy. We plan to build the trading platform that will empower our whole company. This AI agent could become our digital employees working together with us. We have built the dedicated team to execute this AI Plus strategy. And…

Your next question comes from Alex Ye with UBS.

[Foreign Language] So, my first question is about what's the drivers for the movement of the 2 early equating pages in Q4, including Taiwan delivered ratio and collated collection ratio what's the latest trend in Q1 and the outlook going forward? And second question is about the net tariff outlook which was started by management previously at around slightly above 5% for the full year. So, based on your related results, and your operation into this year so far. So, what's the -- is there any adjustment to this guidance?

[Foreign Language].

Okay. Let me do the translation for Mr. Zheng. First, let me explain how we monitor our risk internally. We usually look at both the day 1 delinquency rate and the 30-day collection rate together because individual matrix can fluctuate for various reasons. What we focus on more is the C2M2 ratio which is the delinquency range after a 30-day traction period. Based on this metric, our risk level is very, very stable. Now about the slight increase of our day 1 delinquency rate and the collection rate compared to Q3, it was mainly due to the optimization we've made to our repayment reminders strategy. We reduced the coverage of our early reminder by about 13% to improve unit experience without compromising our loss rate. As a result, some of our high-quality users is the repayment on the due date, but today quickly caught up. That's why you will see a small increase in both day-one delinquency rate and the collection rate. but it didn't have any meaningful impact on our actual credit losses. Our risk performance in January and February was pretty much in line with Q4, with overall risk levels remaining stable. I also want to emphasize that we are not aiming to reduce our risk to the absolute lowest level as it doesn't serve the best interest of the company. Right now, with a decent level of take rate we have a solid margin opportunity to experiment with new strategies and find a better balance between growth and risk.

Okay. And Alex, I will respond to your second part of the question about the take rate. As you know, the -- throughout 2024, we have been on a steady improvement trend in trade grade as we reduce the risk and with the funding costs continue to trending lower around last year. So, by the end of last year, in Q4, our take rate net approach to 6%. So that's a trend for last year. And obviously, there are some one-off factors, as you guys know, for example, the mix change on the revenue recognition different between the second half and first half. But excluding all this kind of one-off factors, I think we're looking at for this year. It's a reasonable assumption. As you mentioned, we achieved sort of a 5% above kind of a take rate for the year. And overall, we as our CRO just mentioned, we have enough sort of cushion in our take rate, all our risk metrics that enable us to actually do a little bit testing around the margin. If we see the opportunity, which could be resulted by the macro environment change or could be resolved by the user activity change if we see the opportunity, we will take that and try on the margin to see whether we can bring the incremental marginal profitability on top of our sort of base case. So that will be the process we will continue to pushing throughout 2025. The end results or the ultimate goal is to really drive higher profit -- total profit on top of the sort of the base case there. So that's our approach to looking at this year's profitability and this year's kind of a take rate.

Your next question comes from Cindy Wang with China Renaissance. Please go ahead.

[Foreign Language]. Thanks for taking my question. So, I have a question related to the regulation side. So last week, National Financial Regulatory Administration issued a notice requiring financial institutions to promote consumer finance and boost consumption -- to boost consumption in China. So how do you see the new policy impact to the overall industry and the company? Thank you.

Okay, Cindy. I'm glad you mentioned this. It's really a big news for our industry. We believe this document and a very positive signal. And we are very encouraged. It is very clear that the government's direction is to boost consumption by encouraging the development of consumer credit industry. And I think there will be a series of policies to support that direction. I think we noticed three details in the document. The first, increasing the supply of consumer loans, which means support in terms of monetary policy and liquidity. And secondly, they encourage financial institutions to increase loan volume and fair reasonable terms of for loan products, which means that the regulator will provide more flexible space for financial institutions. And thirdly, they emphasize the consumer protection and providing support for users who have difficulty in repayment. [indiscernible] the regulators have fully recognized the value of consumer finance in boosting consumption. Therefore, we expect that the regulator environment will remain relatively stable, leaving enough more room to innovate and serve our customers. Thank you.

The next question comes from Emma Xu with Bank of America Securities. Please go ahead.

[Foreign Language]. So, I have a question about the funding cost. So, is your funding cost continuing to decline? And what's the lowest level you think the folding cost can go to?

In terms of funding costs, over the past few years, our funding costs have continued to decline even much faster compared to the LTR. This is partially driven by the risk cuts but more driven by the demand oversupply of consumer credit assets. And in the future, if macro improves, the supply and the demand situation will also change. And we always emphasize that financial institutions have their operating costs. The current cost of funds has already approved the bottom line of financial institutions. And so, this is -- there is a limited room for further decline. In addition to the funding provided by financial institutions, a significant portion of our funding comes from ABS. We will continue to issue more ADSs this year to further optimize our funding structure. So, hope we can achieve further decline in overall funding cost.

Yes. I Just -- Emma, I just want to add a couple of points. So basically, you can see there are three factors to really drive the funding cost to external and one internal. The two externa are on the LPI obviously, is that if you see the reduction in LPR, it will more or less kind of pass through to us a little bit. But at the same time, the supply-demand situation will also have the impact on the funding cost, in particular, if the macro situation is getting a little bit hot, then you will -- you may run into a short of a fund kind of environment overall, that certainly will put some pressure on our funding costs there. So that's two external factors. The internal one, on the ABS side, last year, we did about 100 -- I'm sorry, 15 billion, a little bit over 15 million in ADS issuance. And which represent about 20-some percent increase over the year before. I think at least from our planning perspective, we try to maintain this kind of a year-over-year growth pace for this year. If we had achieved that will certainly help us from a mix perspective, reduce the overall funding cost a little bit. But net-net, given we are how low we are already be, so there's limited -- the space in terms of downward movement will still be quite limited. Thank you.

Your next question comes from Yada Li with CICC. Please go ahead.

[Foreign Language]. Hello management, thanks for taking my question. my question is about the shareholders' return. I was wondering you expect to deliver more value to the shareholders and how to view the sustainability and there is still potential for future growth? That's all. Thank you.

Sure. Thank you, Yada. I'll take this one. We have been very committed to returning value to our shareholders in the past couple of years. And we are looking at -- if you look at the 2024, the actual payout almost represents 100% of our earnings for 2023 there. And so, going forward, we have been saying that we try to maintain a 70-plus percent payout ratio for the next few years. And given that we also have a target to kind of shrink our share base by a significant percentage. So, we put the current priority and also maybe the next year's priority into the share buyback side, and we have the current $450 million share buyback program running so far in first quarter, even though our share prices have been moving up quite significantly. We still maintain a very consistent pace in terms of executing the current $450 million buyback program. And we intend to continue to do so for the remainder of the year. If there's opportunity to arise, we also may consider to accelerate the buyback program down the road. On the dividend side, given the priority for now is on the buyback, we try to achieve a continued increased per share dividend on the semiannual basis. For example, this quarter, we declared a $0.70 per ADS dividend versus 6 months ago, that's only about $0.60. So, it's a pretty significant rate in dividends. And you should expect that the dividend per share number to continue increase over the course of next few dividends, given that we are shrinking our share base quite significantly, and we also have to meet the Board authorized at least 20% dividend payout ratio. So mathematically, you have to see an increased DPS in the going-forward basis there. And in the long run, once we achieve our sort of share repurchase target, which may be about 2 years down the road, we will, at that time, reconsider the mix between the buyback and the dividend, but that's still a little bit long time away. So, for now, the priority is still be on the buyback side. Thank you.

Thank you. There are no further questions at this time. I'll now hand back to management for closing remarks.

Okay. Thank you, everyone, to joining us for today's conference. We are very efficient to make the call going very quickly. And we saw -- but if you have any additional questions, please feel free to contact us off-line. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.