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360 Finance Inc ( QFIN -12.41% )
This fall 2021 Earnings Name
Mar 10, 2022, 7:30 p.m. ET
Contents:
- Ready Remarks
- Questions and Solutions
- Name Contributors
Ready Remarks:
Operator
Women and gents, thanks for standing by, and welcome to the 360 DigiTech fourth quarter and full 12 months 2021 incomes convention name. Please additionally word at present’s occasion is being recorded. At the moment, I wish to flip the convention name over to Ms. Mandy Dong, IR director.
Please go forward, Mandy.
Mandy Dong — Investor Relations Director
Thanks. Hi there, everybody, and welcome to our fourth quarter and full 12 months 2021 earnings convention name. Our outcomes had been issued earlier at present and will be discovered on our IR web site. Becoming a member of me at present are Mr.
Wu Haisheng, our CEO and director; Mr. Alex Xu, our CFO and director; and Mr. Zheng Yan, our CRO. Earlier than we start the ready remarks, I would prefer to remind you of our Protected Harbor assertion in our earnings press launch, which additionally applies to this name.
We could seek advice from forward-looking assertion based mostly on our present plans, estimates, and projections. Additionally, this name consists of discussions of sure non-GAAP measures. Please seek advice from our earnings launch for a reconciliation between non-GAAP and GAAP ones. Final, until in any other case said, all determine talked about are in RMB.
I’ll now flip the decision over to our CEO, Mr. Wu Haisheng.
Haisheng Wu — Chief Government Officer and Director
[Foreign Language] Hi there, everybody. I am very completely happy to report one other stable quarter that cap-off a powerful 12 months. In 2021, complete mortgage facilitation by our platform reached RMB357.1 billion, up 45% 12 months on 12 months. This beats the midpoint of our charge of full-year steering.
In This fall, complete mortgage facilitation reached RMB96.9 billion, up 4-0, 40% 12 months on 12 months. Excellent mortgage steadiness reached RMB142 billion, up 54% 12 months on 12 months. Our enterprise overcome a number of challenges associated to macro economic system uncertainty, by erratic outbreak of COVID and the quick altering regulatory setting in a reasonably risky 12 months of 2021. We delivered development, whereas sustaining steady asset high quality and additional demonstrating the resilience and adaptability of our enterprise.
Now, let me stroll you thru some updates for This fall. Regulation stays an space that pulls loads of consideration. So, let me first share some updates right here. I can consider the federal government coverage for 2022 could be very clear, which is to attain that financial development by driving consumption, suggesting extra supportive to the event of client finance.
We anticipate policymakers to introduce extra measures to drive consumption and assist SMEs as China’s State Council has made the above talked about coverage theme as a better precedence. We then hope on the municipal degree working by your plan, or the monetary trade report, [inaudible] helps the enlargement of client finance trade by correct loosening of financing restrictions for client finance firms. On the central authorities, degree PBOC has acknowledged the worth of fintech is harmful improvement plans for 2022 to 2025. There are great alternatives for monetary establishments and the faucet firms to work collectively and contribute to the digital transformation of monetary sector.
As well as, the PBOC and different nationwide regulators are selling innovation in Financials generalization, outlined within the 14 by 12 months plan for the financials standardization. We actively participates in coverage design associated dialogue organized by a regulator and contribute our trade know how one can assist efforts.
[Foreign language]In This fall, we began to implement rectification measures, in accordance with the regulatory necessities. We’ve enhanced our company governance construction and additional centered on our core enterprise. At our latest briefing, [inaudible] chairman of CDIRC said that the self-check a part of rectification work has been largely accomplished. Total progress of rectification has been clean to date and are assured to finish the rectification work very effectively based mostly on the regulatory pointers and our personal enterprise wants.
We elevated the registered capital of our micro-lending subsidiary in to RMB5 billion. This enhanced our capabilities to serve customers and managed threat going ahead. We’ll proceed our technique on each direct and oblique mortgage service. On one hand, we provide loans by our micro-lending firm instantly to focus on prospects and the trade.
Alternatively, will work with credit score companies and assist monetary establishments higher serve shoppers. We consider that monetary regulators will proceed to work on the implementation of the beforehand launched common regulatory ideas akin to monetary service can solely be undertaken with correct monetary license. We’ll concentrate on the execution of the rectification plan and the common monitoring of the progress. We’re coming into the late-stage of guide rectification course of and the ready for the overview and certification by the regulators.
[Foreign language]In This fall, we additionally made progress in a number of different compliance-related areas. Common API who’re lengthy facilitated by our passwords declined 2% from earlier quarters, successfully introduced down the price for our debtors. By way of data-related compliance, we proceed to extend funding in knowledge safety and knowledge safety. The China Cybersecurity Expertise and the Certification Heart, CCRC, awarded its safety certification to our flagship product.
The 360 account APP including one other nationwide certification for privateness safety to our merchandise. We additionally obtained the ISO 27701 certification privateness safety administration system issued by SGS, a widely known worldwide normal certification group. That is the second necessary worldwide normal certification in privateness and data safety space we acquired. Following the ISO 27001 Data Safety Administration System a number of months in the past.
As well as, the Cybersecurity Measurement Bureau underneath the Ministry of Business and Data Expertise, MIIT, issued a written commendation of brokers our glorious efficiency and particular companion for app customers privateness safety. [Foreign language]In This fall, we additionally achieved glorious leads to a number of operational areas. [Foreign language]On the product entrance, our client mortgage enterprise achieved the prime quality development all year long. Our SME mortgage product, which we launched final 12 months do quickly and delivered passable leads to This fall.
Whole quantity of recent accredited the credit score line for SME mortgage accelerated and grew by 1-6, 16% sequentially to RMB9.Three billion as of the tip of 2021. The excellent mortgage steadiness of SME mortgage accounted for 1-3, 13% of our complete mortgage guide. In the meantime, we proceed to refine SME merchandise and increase to higher high quality buyer group by providing bigger ticket-size product, focusing on particular SME group offline. For instance, we funded our collaboration with banks to entry company credit score file.
This permits us to supply greater ticket-size credit score product and appeal to extra high-quality SME borrower. One other efficient method is that we provide custom-made merchandise to the tobacco and alcohol retail borrower throughout Chinese language New Yr when their funding wants surge and turnover improve. To capitalize such alternatives, we simplify accredited procedures and improve direct gross sales for the e-commerce group. In December, credit score line granted to the tobacco retail borrower acquired by our direct gross sales staff accounted for greater than 20% of the entire SME and the transaction quantity elevated by 106% on a month-to-month foundation.
In the meantime, beginning up this 12 months, to supply differentiated service to SME and shoppers and to enhance effectivity, we are going to serve SME person by an upgraded app separate from 360 DigiTech. As well as on prime of the credit score service, we presently present, we are going to actively discover different service and merchandise to higher assist SMEs enterprise operations. [Foreign language]In collaboration with monetary establishments, we leverage our know-how benefit and expanded partnership with stronger monetary establishment. This enabled us to additional optimize the combo of our monetary establishment companions and set up a extra balanced and a resilient unknown community.
Newly added monetary establishment companions have introduced renewed protection, sturdy risk-management functionality and the various enterprise line. Extra over our ICE merchandise presents passive add to higher becoming the compliance necessities of some banks. It will allow us to develop normal options to work with extra banks sooner or later. In the meantime, we proceed with ABS insurance coverage in with a complete of RMB1.1 billion at a set charge of 5.7%.
This introduced our complete ABS insurance coverage for the complete 12 months to RMB6.5 billion, up by 282% 12 months on 12 months. Our total ABS funding value for 2021 was 5.47%.[Foreign language] As for our buyer base, the general high quality of newly acquired buyer’s step by step improved, coming together with decrease pricing. The worth of these prime quality prospects shall be step by step launched over the lifecycle. As worth declines, we word some key indicators of person high quality improved considerably, such because the ratio of person with multi-platform credit score strains, person with mortgage and automotive loans, person with a steady earnings and customers with tangible belongings, based mostly on the Advert group take a look at we carried out.
The drawdown ratio and return from charge are each larger or decrease pricing we anticipate this prospects will generate larger LTV as effectively. [Foreign language]In This fall, we additionally made a noticeable progress to reinforce our tech capabilities or a number of platforms as we stay dedicated to turn into a tech empowered alongside facilitating the first step, serving our monetary establishment associate and debtors. We leverage our AI and the massive DigiTech to successfully determine buyer threat profiles after which match overseas wants and founding useful resource based mostly large knowledge inputs. [Foreign language]First, we made main improve to the framework AI threat administration programs, this considerably improved our potential to higher determine customers and enlarge our processing capability.
Our common person high quality was up by over 20%. Our effectivity in person acquisition was additionally improved by over 20%. The size of our identifiable person base elevated by threefold. Second, we proceed to make key improvements by deepening integration of AI software with our others threat administration system within the areas of group detection, hierarchical federated studying and risk-management technique automation.
This have strengthened our potential to determine potential borrower and main dangers. Third, as for AI-powered operations know-how, our proprietary manufacturing diagnostic platform offers one-stop sensible diagnostic service inside an effort expertise into automated instruments. These instruments guarantee the steadiness and accessibility of our service. The platform can determine issues inside 30 seconds and increase our diagnostic effectivity by 99%.
[Foreign language]Trying forward of 2022, contemplating the macro uncertainties, we are going to proceed to take prudent working technique as at all times from what we’ve realized from path to success, we consider that holding prudent and regular method in day by day operation is the golden normal. The factor occurs is when macro uncertainties come up.[Foreign language]After all of the rectification once more 2021, we anticipate to see a a lot clearer regulatory framework for the complete trade in 2022, which ought to enable trade contributors to be extra centered on long-term enterprise improvement. We’ll prioritize our technology-driven technique and proceed to put money into R&D additional pursuing revolutionary options and enterprise fashions for our 2B enterprise will discover extra various merchandise and repair for various monetary establishments. In the meantime, we are going to collaborate with stronger monetary establishments to optimize the combo and the standard of our partnership community and finally to spice up our providers sustainability.
For 2C enterprise, we are going to proceed to improve our know-how and fashions to higher determine prime quality borrower and optimize our user-base matrix. We’ll roll out extra merchandise catering to those prime quality prospects. It will convey larger buyer LTV and retention charges as effectively. We’ll convey very optimistic change in our companies following the Howard we did final 12 months that we’re fairly trying ahead to the 12 months forward.
For our personal steadiness sheet mortgage enterprise, we’ve elevated the registered capital of our licensed microlending subsidiary to RMB5 billion. It is a essential technique useful resource that we positively well-capitalized on.[Foreign language]With these structural upgrades and enhancements, I consider, we are going to serve our prospects, companions and society extra effectively in 2022, making us a wholesome, a extra resilient and extra sustainable firm. It will allow us to higher serve the actual economic system and contribute to develop our technique for regular economic system development. [Foreign language]Now I’ll flip to our CFO, Alex for extra monetary particulars.
Alex Xu — Chief Monetary Officer and Director
Thank, you. Haisheng. Good morning and good night, everybody. Welcome to our quarterly earnings name.
As Haisheng talked about, regardless of going through a number of micro challenges, we delivered stable This fall leads to each operations and monetary phrases, and completed 2021 with a collection of file setting annual numbers on the guide. Through the quarter, we noticed continued wholesome client demand for credit score had been asset high quality was fluctuating in This fall primarily because of [Technical difficulty] are glad to see enchancment within the new 12 months as funding turns into ample. Internet income for This fall was $4.Four billion versus $4.6 billion in Q3 and $3.Three billion a 12 months in the past. Income from credit score pushed service capital heavy was $2.71 billion in comparison with $2.62 billion in Q3 and $2.56 billion a 12 months in the past.
The 12 months on 12 months and sequential improve was primarily resulting from development in on steadiness sheet loans and releasing warranty legal responsibility on earlier mortgage steadiness, greater than offsetting the decline in capital heavy facilitation quantity and income take charge. The commerce — take charge decline was as anticipated on the common costs of our loans had been lowered by 200 foundation level in the course of the quarter. Properly the offsetting components but to kick in. Income from platform service capitalized was $1.71 billion, in comparison with $1.99 billion in Q3 and $780 million a 12 months in the past.
The sturdy year-over-year development was primarily pushed by a major improve in capitalized mortgage quantity. The sequential decline was resulting from a lower in capitalized mortgage quantity together with a modest decline in income take charge in This fall. Through the quarter, capital-light and different know-how resolution contribute roughly 54% of complete mortgage quantity. Capital-light mortgage quantity was negatively impacted by seasonal scarcity of total funding provide, in addition to the 24% charge cap associated tightening from conventional funding sources.
At the least for the primary half of 2022, we anticipate capital-light proportion contribution to our complete quantity to stay fluctuating round present degree as an trade step by step modify to the brand new charge cap. On the core of our long-term development technique, we are going to proceed to pursue tech pushed enterprise mannequin. After this transitional interval in 2022, we anticipate capital-light to turn into a bigger portion of our enterprise in the long term. Through the quarter, common pricing of our mortgage portfolio dropped 200 foundation factors.
And by the tip of 2021 common rate of interest of loans on our platform had been already under 24%. The 200 foundation level minimize in This fall was sooner than earlier trajectory and we did it proactively. We consider it will give us an ideal flexibility in Q1 and Q2 of 2022 to be in compliance with the regulatory necessities and finally hit our goal — retail goal by mid-year deadline. Through the quarter on bended foundation, common customer-acquisition value per person was proved credit score line was 390, in comparison with 305 in Q3.
As we elaborated in final quarter’s earnings name, we continued to concentrate on attracting prime quality debtors these with a lot bigger credit score strains and the comparatively low dangers. The typical ticket measurement of those prospects usually run between 150,000 to 200,000 in comparison with common of 10,000 for our common debtors. The unit prices to accumulate these prime quality prospects are justifiably a lot larger than the common debtors. So to check issues apple-to-apple, excluding giant ticket-size prospects in each client and SME markets, common prices per accredited credit score line of standard debtors was roughly RMB 246 in This fall in comparison with RMB 249 in Q3.
As we mentioned up to now, common prices per accredited credit score line is a calculated quantity with restricted worth in our inner decision-making course of. We’ll proceed to make use of lifecycle ROI and LTV as key metrics to find out the tempo and scope of our buyer acquisition technique. All through 2021, we’ve maintained wholesome ROI and our LTV development, which in flip drives steady internet take charges. As total threat metrics fluctuating in This fall, we proceed to take prudent method in reserving provisions in opposition to potential credit score loss.
New provisions for contingent legal responsibility for loans originated within the quarter was roughly RMB 1.6 billion. In the meantime, roughly RMB 400 million of provisions from contingent legal responsibility of earlier interval loans was written again as precise efficiency of these loans was higher than anticipated. Efficient tax charge for This fall was roughly 14.8%, which introduced full 12 months ETR to roughly 17.3%. Going ahead, we anticipate ETR to normalize to round 15%, which shall be sustainable within the foreseeable future based mostly on present tax-planning schedule.
With sturdy working outcomes and steady contribution from capitalized mannequin, our leverage ratio, which is outlined as a risk-bearing mortgage steadiness divided by shareholders’ fairness stay at a historic low of 4.Three instances in This fall, in comparison with 6.6 instances a 12 months in the past. We anticipate to see reasonably steady leverage ratio in the intervening time till capitalized contribution zoom development sooner or later. We generated RMB 2 billion money from operation in This fall, in comparison with RMB 1.Eight billion in Q3 and RMB 1.2 billion a 12 months in the past. Whole money and money equal was RMB 9.6 billion in This fall, in comparison with RMB 7.6 billion in Q3.
Non-restricted money was roughly RMB 6.1 billion in This fall versus RMB 4.2 billion in Q3. A significant improve in money was partially as a result of timing of the registered capital improve for our micro-lending subsidiary, which leads to giant money steadiness sitting in financial institution accounts on the 12 months finish, versus being deployed in regular course of a enterprise. As at all times, a good portion of our money would usually be allotted to assist on-balance-sheet loans and safety deposit with our institutional companions. As we proceed to generate wholesome money movement from operations, we consider our present tax place is ample to assist the expansion of our enterprise to put money into key applied sciences, to fulfill the potential regulatory necessities and to return to our shareholders.
For those who’ll recall, our board of administrators accredited a quarterly dividend coverage in Q3, permitting us to distribute roughly 15% to 20% of quarterly internet earnings after tax within the type of money dividends on a recurring foundation. In accordance with this dividend coverage, we declared one other quarterly dividends of US$0.26 per ADS for This fall, this money dividends symbolize roughly 20% of our This fall earnings. Lastly, let me provide you with some replace about our outlook for 2022. As we communicated to the market beforehand, we consider 2022 shall be a transitional 12 months for the trade because the contributors are adjusting to a brand new regulatory settings, in addition to some micro uncertainties.
As such, we anticipate complete mortgage quantity for the 12 months to be between RMB 410 billion, RMB 450 billion representing year-on-year development of 15% to 26%. This transitional 12 months as a possibility was to optimize our operation, strengthened our know-how platform and upgrading our buyer base, to construct an excellent stronger basis for future development. As at all times, this forecast displays the corporate’s present and preliminary views, which is topic to materials change. With that, I wish to conclude our ready remarks.
Operator, we are able to now take some questions.
Questions & Solutions:
Operator
Thanks, administration. For many who can communicate Chinese language, please kindly ask your query in Chinese language first, adopted it by English translation. In extra, to be able to have sufficient time to handle everybody on the decision, please hold to at least one query and one follow-up after which return to queue if in case you have extra questions. Thanks.
[Operator instructions] Our first query is Yao Lee from CICC. Please go forward.
Yao Lee — CICC — Analyst
[Foreign language] OK. That was a great translation. The primary one is, I would prefer to know the progress of the pricing changes. What is the proportion of loans in Tokyo 2021 which can be priced underneath the 24%? And the way a lot this proportion can attain as much as for the primary quarter this 12 months? And surprise pricing going downward and the goal prospects form of get shocked.
I used to be questioning how are we shifting our customer-acquisition technique. Thanks.
Alex Xu — Chief Monetary Officer and Director
Positive. Thanks, Yao. I might — I might take the primary a part of the query after which Haisheng will do the second half. So within the first quarter, over 70% of our prospects are priced under 24%.
And as I discussed within the ready remarks, by 12 months ending, the common worth is already under 24. And this quarter in Q1, we’re anticipating even bigger portion of shoppers being priced that under 24. And we’re fairly assured that we are going to get the focused rate-cut purpose, by the mid-year headline. Haisheng?
Haisheng Wu — Chief Government Officer and Director
[Foreign language]Sure. Let me attempt for our CEO, as 4 questions the customer- acquisition technique to entry the upper high quality buyer teams. We’ll navigate three approaches. Primary, additional make investments extra in R&D to enhance our tech as in mild AI fashions to higher determine the client threat of profiles.
What’s the roadmap in This fall? They’ll method. We adapt our API, buyer acquisition method with our capital enhancement examine. We realized offline development which traditionally reveals is a significantly better method is particularly for the prime quality prospects.[Foreign language]
Operator
Our subsequent query is Richard Xu from Morgan Stanley.
Richard Xu — Morgan Stanley — Analyst
[Foreign language] Principally, my query is on the funding entrance, there’s been rising in ADS additionally the small mortgage firm. Capital injection that is additionally accomplished ought to wish to see whether or not there is a credit score line with banks the place cooperation with the banks remains to be increasing. And what would be the long run combine when it comes to the funding between capital lights, capital heavy after which their totally different funding sources?
Haisheng Wu — Chief Government Officer and Director
[Foreign language] Sure. To reply your query, Richard, you’re very appropriate. First — effectively, it repeatedly expands our variety of monetary establishment companions by introducing stronger banks. As this comes alongside, we are able to provide bigger ticket measurement to higher high quality prospects.
Second, as for the capital mild volumes, we are going to discover extra various merchandise catering to totally different wants of monetary establishments. Their wants embody advertising surveys, risk-management surveys and loan-collection surveys.
Alex Xu — Chief Monetary Officer and Director
I simply wish to add one level. So from a long term perspective, the capitalized contribution, as I discussed within the ready remarks, shall be shifting larger from present degree. For those who recall, up to now, we had been sooner or later focusing on like two-third or 70%. I believe from a long term perspective that is most likely nonetheless be the goal.
This 12 months shall be fluctuated round this present degree, simply because the entire trade is adjusting to the brand new setting. And once we’re completed with this adjustment, the trendline will begin to transfer to the upper route for cap mild.[Foreign language]
Operator
Our subsequent query is, Ethan Wang, CLSA.
Ethan Wang — CLSA — Analyst
[Foreign language] OK. I’ve two questions. Firstly, is a fast follow-up simply questioning the funding value for the fourth quarter and the administration view on funding prices for this 12 months? And second query is down available in the market concern on tightening regulation for the native monetary establishments or inflicting monetary establishments. And so for the regional banks who’re collaborating, simply questioning whether or not they’re having concern on this entrance, and whether or not that is going to empower enterprise and for warranty firms does that imply there have been arrange varied establishments throughout the nation, so we are able to cooperate with them to lend nationwide? Thanks.
Alex Xu — Chief Monetary Officer and Director
OK. Thanks, Richard. I’ll take the primary half once more after which Haisheng shall be caring for the second. So for the funding prices for the This fall, it was roughly 7%.
And the This fall as , it is at all times been a really tightening interval from cash provide perspective within the monetary system. So usually that is reflecting the funding prices. And for shifting into this 12 months, as we form of step by step transition to new institutional companions, the general funding provide, we’re getting extra ample. However throughout this transitional interval, we expect a reasonably steady funding value round 7% and after we have completed with this transitional, we’ll most likely begin to see a gradual though modest, type of decline in funding value in the long term.
Haisheng Wu — Chief Government Officer and Director
[Foreign language] Sure, sure. To reply your query primary, your query comes from the very early requirement that the web mortgage enterprise for city industrial banks. That is fairly early regulation and the regulator offers a reasonably lengthy grace interval for all of the market contributors. The cutoff date challenge is January 1 this 12 months.
At present, all our monetary establishment companions are throughout the compliance. Secondly, trying on the matrix of our monetary establishment earnest community, most of them are nationwide smart operations. Subsequently, we’ve very restricted influence from this regulation. [Foreign language]Sure.
The second a part of your query the regional restriction for assure firm, assure firm can stack native department nationwide smart to fulfill these necessities. It is comparatively straightforward in comparison with the banks to cowl nationwide smart.
Ethan Wang — CLSA — Analyst
Thanks.
Operator
Our subsequent query is Thomas Chong from Jefferies.
Thomas Chong — Jefferies — Analyst
[Foreign language] Thanks administration for taking my questions. I’ve two. My first query is about different SME technique. Can administration feedback about how we must always take into consideration the contribution over the long run, in addition to the borrowing value and the mortgage measurement going ahead, along with the trade classes that we’re working with? And my second query is extra in regards to the macro headwinds that we face as of late, an impact of COVID.
Are we seeing any modifications when it comes to the buyer conduct, when it comes to the usage of the insurance policies? Thanks.
Haisheng Wu — Chief Government Officer and Director
[Foreign language] Properly, first relating to your query about SME enterprise, the common ticket measurement for SME merchandise total is about RMB50Ok, five-zero, for some tax legal guidelines, which is bigger ticket measurement, often we offer merchandise over RMB250Ok. For the tax regulation, we estimate the market expanded round 2%. Secondly, to your query about the usage of mortgage, as most of our shoppers had been within the trade which can be much less impacted across the COVID and the macro economic system, we’re seeing their use of mortgage is per earlier. [Foreign language]I wish to add extra coloration for our working technique for SME enterprise line even underneath the great demand for any borrower and the supportive half from authorities; we take a really prudent technique on this enterprise.
We centered on these industries which can be much less impacted by the macro economic system akin to manufacturing and retail. This 12 months, we don’t anticipate to speed up exponentially on this enterprise, once more, we are going to take very conservative function. Additionally we prefer to discover extra capital life and the extra tech-driven options for monetary establishments on this SME enterprise.
Thomas Chong — Jefferies — Analyst
[Foreign language]
Operator
Thanks. That is the tip of our question-and-answer sections. Now I give it again to the administration for closing comment. Thanks.
Mandy Dong — Investor Relations Director
OK. Thanks for — once more for collaborating within the name, and if in case you have any extra questions, please contact us offline and we’ll focus on that. Thanks.
Operator
[Operator signoff]
Length: 60 minutes
Name contributors:
Mandy Dong — Investor Relations Director
Haisheng Wu — Chief Government Officer and Director
Alex Xu — Chief Monetary Officer and Director
Yao Lee — CICC — Analyst
Richard Xu — Morgan Stanley — Analyst
Ethan Wang — CLSA — Analyst
Thomas Chong — Jefferies — Analyst
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