Akso Health Group Q1 FY2020 earnings call

• The company is in a transition period, repositioning its business by developing a loan assistance business while maintaining the P2P business.
• Leveraging experience in borrower acquisition and risk management, the loan assistance business has formed partnerships with institutions like Bohai International Trust, Kunming Aotou, and Phoenix Financial Group, with solid results such as Bohai International Trust extending ~RMB40 million and Kunming Aotou ~RMB30 million.
• The P2P business is gradually recovering but still impacted by the challenging industry environment.
• Financials: Net revenue $4.9 million, operating costs and expenses decreased, service and development expenses increased, net loss $7.2 million.
• Customized and fine-tuned risk management system based on P2P big data.
• Committed to share repurchase program, having repurchased nearly 1.2 million ADS for approximately $4 million.

In the first quarter of fiscal year 2020, the volume of credit loans facilitated through the peer-to-peer marketplace was $28.2 million (RMB0.2 billion), a decrease from the same period last fiscal year. Net revenue was $4.9 million, a decrease of 90.5% from the same period last fiscal year. On a sequential basis, net revenue increased by 8.6% as the loan assistance business grew. Loan volumes funded by institutional partners during the quarter accounted for approximately 20% of total loans facilitated, and the company expects approximately 80% of loans facilitated by them to be funded by institutions in 2020. Microfinance loan products accounted for approximately 22% of total loan volume during the first quarter, with borrowers for these loans acquired purely online.

• Expect 80% of loans facilitated by the company to be funded by institutions in 2020.
• Anticipate gaining operating leverage as the business progresses.
• Commitment to share repurchase program to maximize shareholder value.

• Uncertain regulatory environment hanging over the P2P industry.
• Dependence on partnerships with financial institutions for the loan assistance business.
• Impact of regulatory changes on the P2P and loan assistance businesses.

Q: Can you please talk about the percentage of borrowers that were acquired from online channels in the first quarter and how that compared to a year ago? And if there was any change, why so?

A: In terms of loan volume facilitated, 42% of borrowers were acquired online and 58% offline in this quarter. Microfinance loan products accounted for approximately 22% of total loan volume during the first quarter, with borrowers for these loans acquired purely online. As the company continues to put more effort into developing the loan assistance business, the proportion of borrowers acquired online will continue increasing.

Q: Can you please discuss some advantages that you see in loan assistance compared to the P2P business?

A: Loan assistance business has several advantages. Demand for good investment opportunities is strong with institutional funds showing interest. Partnerships with licensed financial institutions operating in regulated frameworks reduce regulatory uncertainty. Licensed financial institutions have strict default prevention processes. The company leverages its experience from the P2P business in borrower acquisition, risk management, and operational capabilities.

Q: How much is left remaining on the current share repurchased authorization? And maybe discuss your appetite for buying back shares and at what prices would you get aggressive in perhaps repurchasing shares?

A: The company has repurchased about 1,160,000 ADS under the share repurchase program so far, representing a total value of approximately $4 million. Shares are purchased on the open market at prevailing market price depending on factors like share price, trading volume, and general market conditions.

Q: Looking at the press release from earlier this month about regulators’ decision to include P2P platforms in the Central Bank's system, can you please share what the proposed timing is for when the P2P lending companies are required to be connected to the Credit Reference Center at the PBOC? And are you already in compliance given that it requires a relationship with Baihang Credit which you currently have?

A: China's regulators required peer-to-peer lending companies to be connected to the Credit Reference Center at the People’s Bank of China and Baihang Credit. The company connected its systems and began sharing credit data with Baihang Credit in January this year and will make regular transfers of credit data.