Qfin Holdings, Inc. (QFIN) Earnings

Management highlights

- Industry Context & Core Operating Principles * Since April 2025, China's consumer credit industry has undergone profound structural regulatory adjustments, with sustained soft consumer credit demand and broad pressure on asset quality. Household short-term consumer loan balances declined for the fifth consecutive quarter, dropping 5% sequentially (RMB 470 billion). * The company prioritizes compliance, prudence, and high-quality growth over scale expansion, proactively optimizing user and asset mix to strengthen long-term business resilience. - Risk Management Performance & Initiatives * Forward-looking risk tightening measures implemented in H2 2025 delivered tangible improvements in Q1 2026. The first payment default at 7 days (FPD7) for new loans declined 20% sequentially, and the C2M2 ratio (outstanding delinquency rate after 30 days of collection) fell 17% sequentially to 0.8%, returning to July-August 2025 levels by March and meeting risk optimization targets. * Key initiatives: Upgraded pre-loan income and borrowing prediction models to more accurately identify high-quality users; refined in-loan behavior scoring for targeted credit line and pricing adjustments; upgraded post-loan collection scoring to match risk segments with appropriate collection strategies. The quarterly average 30-day collection rate rose 1.8 percentage points sequentially to 85.8%. - Customer Acquisition & User Mix Optimization * The company maintained a disciplined acquisition approach, cutting spending on underperforming embedded finance channels while increasing marketing investment in high-quality users by 40% sequentially. Overall acquisition costs fell 17% sequentially, with blended unit acquisition costs largely stable. * As of end-Q1 2026, the company's AI-powered credit decision and asset distribution platform served 167 financial institutions, with over 64 million cumulative credit line users. - Funding Strategy * The company increased the share of ABS in its funding mix, cutting overall funding costs by 10 basis points sequentially. Q1 2026 ABS issuance totaled RMB 2.9 billion, up 16% sequentially. The company holds RMB 10.79 billion in cash and short-term investments, with a leverage ratio of 2.4x (down from 2.7x sequentially), and has repurchased $577 million of convertible bonds, leaving $113 million outstanding. - Tech Solutions Business (Strategic Pillar) * Enterprise-facing tech solutions for financial institutions grew seven-fold year-on-year, with Q1 loan volumes enabled by the platform reaching RMB 9.96 billion. The company's core AI agent AI Loan Officer has entered initial commercial deployment at a Chinese city commercial bank, covering retail, SME, and corporate lending. - AI-Native Organization Transformation * The company is converting all historical business documents, strategies, and operational experience into structured training data for large language models to build a company-wide knowledge base. As of May 2026, 98.4% of technical staff use AI coding tools, with penetration matching top Chinese internet companies. Cost savings and efficiency gains are expected to be natural byproducts of this transformation. - Overseas Expansion * The company launched operations in a new emerging market in Q1 2026 and is refining local risk models in existing markets. It plans to leverage technology, global capital, and local operational expertise to build a sustainable international presence.

Guidance

- For full-year 2026, management will maintain a cautious approach to business planning, with a continued focus on risk control, efficiency improvement, and cost cutting amid persistent macro uncertainty and regulatory pressure. - For Q2 2026, management guides non-GAAP net income in the range of RMB 900 million to RMB 980 million, representing a 47% to 51% year-on-year decline. This preliminary outlook is subject to material change based on market conditions. - Management expects the leverage ratio to fluctuate around the current 2.4x level in the near term. - The company plans to maintain a progressive dividend per share (DPS) policy, and will consider opportunistically resuming share repurchases given its attractive current valuation, strong balance sheet, and healthy cash flow generation.

Segment performance

QC Holdings reported total net revenue of RMB 3.91 billion in Q1 2026, down 4.4% sequentially from RMB 4.09 billion in Q4 2025 and 16.6% year-on-year from RMB 4.69 billion in Q1 2025. 1. Credit-driven service (capital heavy): Revenue was RMB 2.96 billion, accounting for 75.7% of total net revenue. This represents a 13.7% sequential decline from RMB 3.43 billion and a 4.8% year-on-year decline from RMB 3.11 billion. 2. Platform service (capital light): Revenue was RMB 951.9 million, accounting for 24.3% of total net revenue. This represents a 44.2% sequential increase from RMB 660 million and a 39.8% year-on-year decline from RMB 1.58 billion. Non-GAAP net income was RMB 946 million, down 11.6% sequentially from RMB 1.07 billion and 50.9% year-on-year from RMB 1.93 billion. Non-GAAP fully diluted earnings per share was RMB 7.7, down 6.4% sequentially from RMB 8.23.

Risks & headwinds

- Persistent near-term macroeconomic weakness continues to pressure consumer credit demand and asset quality across the industry. - Ongoing regulatory structural adjustments and tightening scrutiny create uncertainty for business operations and strategy. - The industry faces continued liquidity pressure, with funding market liquidity tightening further from April 2026. - The 90-day delinquency rate rose to 3.5% in Q1 from 2.71% in Q4, a lagging indicator reflecting elevated risk from the end of 2025. - The provision coverage ratio declined to 391% in Q1 from 481% in Q4, driven by higher 90-180 day delinquent loan balances carried over from Q4 2025.

Analyst Q&A

• Q: Why has average loan pricing continued a downward trend, unlike peer stability, where will pricing settle by the end of 2026, and what is the outlook for business scale and shareholder returns? /

  A: The downward trend is a deliberate outcome of the company’s user mix optimization strategy. Lower pricing is offered to high-quality users to improve stickiness and long-term lifetime value, and the share of high-quality users in new origination has increased 25 percentage points since Q3 2025. Pricing has fallen 2.2 percentage points over the past two quarters as the mix shifts, and pricing will remain relatively stable as the pace of high-quality user acquisition steadies, with ongoing adjustments to balance risk and profitability. For scale, the company prioritizes business health over volume growth, and has a strong balance sheet to support both growth and shareholder returns. Dividends will remain the primary return tool in uncertain markets, and share buybacks are now being considered opportunistically given the company’s attractive valuation.

• Q: After completing user mix optimization and improving asset quality, when will the company loosen risk appetite and return to sequential loan volume growth? /

  A: Structural risk and user mix adjustments have delivered clear improvements, with C2M2 remaining stable and improving marginally through April and May 2026. While the company is exploring structural growth opportunities by dynamically adjusting credit rules for low-risk borrowers and expanding product offerings, it will maintain a prudent overall strategy amid ongoing regulatory uncertainty. It will not blindly chase volume growth or loosen risk standards based on near-term asset quality improvements, and will continue focusing on improving asset health and operational resilience to prepare for future market volatility.

• Q: What is the trend of credit risk in April and May 2026, what is the trend in customer acquisition costs, and what channels are used for high-quality user acquisition? /

  A: C2M2 has remained broadly stable with a positive trend compared to March, and Q2 overall asset quality is expected to improve further from Q1 if conditions hold. FPD7 for April new originations is flat versus March, remaining at healthy levels. For customer acquisition, the company reallocated spending: cutting spending on regular users and increasing it on high-quality users by 40% sequentially, leaving blended CAC largely stable quarter-over-quarter. The company does not chase low absolute CAC, instead focusing on ROI, LTV, and payback period to ensure marketing spending delivers solid returns. High-quality users acquired through this strategy already show better early and long-term risk and operational performance.

• Q: Is there further room to cut operating and funding costs, and what is the latest update on overseas expansion? /

  A: The company will continue increasing ABS share in the funding mix to keep overall funding costs stable amid industry liquidity pressure. For operating costs, the company has already optimized collection costs by scaling back low-margin high-cost strategies as risk improved, and cut redundant G&A roles to improve team efficiency. Further efficiency gains will come naturally as the company transitions to an AI-native organization. For overseas expansion, it is accelerating investment, launched a new market in Q1, and is focusing on localizing risk models in existing markets with early results meeting expectations. It is planning entry into other high-potential regions, and the business remains in early-stage investment, with management targeting meaningful long-term growth over 3-5 years while controlling risk.