FinVolution Group Q1 FY2025 earnings call

• Resilience: Since IPO in 2017, navigated multiple challenges, delivered consistent year-over-year growth in transaction volume and revenue every quarter since 2021. - Strategic diversification: International business contributes 20.4% of total net revenue in Q1 2025, on track to have international business contribute 50% of total revenue by 2030. - Customer acquisition: Onboarded 1.2 million new borrowers in Q1 2025, 62% year-over-year increase. - Technology initiatives: Exploring use of large language models in risk assessment, virtual representative program for automation. - ESG efforts: Facilitated RMB 15 billion in financing for 442,000 small business owners, core contributor to China Finance Consumer Rights Protection Bluebook.

China: Transaction volume grew 7% year-over-year, added 512,000 new borrowers. International: Transaction volume up 36% year-over-year, contributed 20.4% of total net revenue in Q1 2025 (up from 18.8% same period last year). International transaction volume exceeded RMB 3 billion, outstanding loan balance reached RMB 1.9 billion, unique borrowers in Q1 were 1.7 million (106% year-over-year increase). Indonesia: Transaction volume reached RMB 1.8 billion (10% year-over-year growth), outstanding balance hit RMB 1.2 billion (18% year-over-year growth), unique borrowers reached 671,000 (32% year-over-year growth). Philippines: Transaction volume reached RMB 1.2 billion (118% year-over-year growth), outstanding balance was RMB 693 million (142% year-over-year growth), buy now pay later contributed 30% of Q1 volume.

• Reiterated 2025 full year revenue guidance of RMB 14.4 billion to RMB 15 billion (10%-15% year-over-year growth). - International revenue contribution expected to increase to 25% in 2025. - Philippines and Indonesia expected to have solid growth in Q2.

• Macro uncertainties: Global trade tensions, property sector softness, evolving regulations in China's consumer finance sector. - Indonesia: Seasonal impact from Ramadan, U.S. tariff uncertainty. - China: New loan facilitation regulations effective in October.

Q: With recent new regulation on loan facilitation in China, do you see any business impact from it? And what's our basis adjustment for this? And given the recent U.S. tariff uncertainty, have you seen any impact on the Indonesia or Philippines consumption loan demand since April? And how do you expect the international new loan volume in second quarter?

A: Okay. Thanks, Cindy. I will take your first question, and Tim will take your second question. Well, your first question is about the new regulations. Yes, it's about the loan facilitation model and the new regulation was announced in April and will be effective in October. I think it's the first time to clearly define the core model of loan facilitation as the loans issued by the traditional financial institutions through the external third-party platforms. So it marks the official inclusion of the loan facilitation business in China's financial regulatory framework and to reference the regulatory authorities formal recognition across the sector. Meanwhile, we noted that the regulations were just following the regulators' focus on consumer finance. We believe it's a positive signal to promote the healthy development of the industry and then to encourage the increase in supply of consumer finance products and boost the consumers' confidence. And if we look at some details in the regulation, we can find the final version to be relatively moderate stance compared with the draft ones as the focus is more on qualitative aspects than the quantitative ones. And according to the regulation, banks now are required to implement a white list management system for those cooperative Internet platforms. And the financing costs are clearly defined with all revenue costs should be included and disclosed in the contracts. So we think it will promote the industry's compliance level and benefit those leading platforms, which have the adequate capital, the strong risk management capabilities and high compliance standards. So in conclusion, we believe the overall impact of the new regulation is manageable and it's very -- it's crucial for the long-term development of the industry, okay? Cindy, I will answer the second question. Yes, we do have observed the global trade tensions, have introduced certain economic challenges to Southeast Asia. Some of the trade-oriented economies in the region are encountering slower-than-expected economic growth. And right now, many countries are currently engaged in negotiations with the United States to secure favorable tariff rates. And this year, the macroeconomic trend of Indonesia and the Philippines are different. In the first quarter, Indonesia's GDP growth rate decreased to 4.9%, slightly below the 5.2% target. And PMI in April declined by 11% month-on-month to 46.7%. While in the Philippines, GDP growth came in at 5.4%, up slightly by 0.1% from previous quarter and keeping it among Asia fastest-growing economies. Domestic demand continues to drive the economy with consumer spending making up nearly 80% of GDP in Q1. Fortunately, our customers are mainly consumers and the loan demands are less affected by the trade war. On the ground, we've seen some seasonal softness in Indonesia. Remittance slowed things down a little bit, but volume were still up nearly 10% year-over-year. We expect a nice rebound in Q2 with sequential growth. In the Philippines, it's been a strong start in Q1. Volume jumped 18% quarter-on-quarter. And in Q2, we are projecting another solid quarter with good sequential growth. Thank you, Cindy.

Q: So I have 2 questions. First one is on the loan application demand trend in China in the past 2 months. And do you plan to tighten the credit approval preemptively given the rising macro uncertainty? And how would that impact your full year's loan volume outlook? The second question is regarding the drivers for the improved take rate for the China business and the outlook ahead.

A: Thanks, Alex. I will take your questions. Your first question is about the credit demand in April and May. We have delivered solid results in the first quarter. And in terms of the loan application demand, we observed the rate holding steady in April and May. While April, we saw a slight month-over-month decline and rebounded in May has surpassed the March levels. And historically, the main demand tends to be softened slightly due to the seasonal holidays. But this year, we are seeing the moderately better demand. Yes, so that's about the application rate. And in terms of the credit performance, yes, it showed steady improvement in the first quarter and have remained stable in the second quarter so far. As the macro economy still has a lot of uncertainties and given the moderately supportive demand, we have selectively adjusted our risk appetite for marginal assets. And meanwhile, we will closely monitor the macroeconomic trends and the industry development and will dynamically balance between the risk management and the business growth. The performance of April and May, the transaction volumes indicate that a healthy growth trajectory has emerged. So given our current business performance and operation capabilities, we are confident in achieving our guidance of 10% to 15% full year revenue growth, okay? So that's about the first question. And your second question is about the take rate in our domestic business. Yes. In the first quarter, our take rate in China increased by 10 basis points sequentially, primarily driven by several factors: number one, we further improved the funding cost by 10 basis points quarter-over-quarter; and number two, our loan tenure extended slightly from 8 months to 8.2 months with the improved risk performance. Currently, both risk metrics and funding costs are at historical favorable levels. And looking ahead, we expect that both will remain stable. So it will stabilize the take rate at current level. We will continue to drive high-quality growth in China market with refined operations and management.

Q: I was wondering if you could give more color on the latest business updates regarding the international expansion. Any guidance for revenue and profit in 2025? And besides Indonesia and Philippines, could you elaborate more about the development of other regions as well?

A: Okay. Thanks, Yada. I will take your question. Well, for international markets, despite the uncertainties in the macroeconomic environment, with our proven technological capabilities and the risk control expertise across those diverse markets, it enabled us to deliver a strong first quarter performance. The transaction volume in our international market surpassed RMB 3 billion for the first time in this quarter with a year-over-year increase of 36% and a quarter-over-quarter increase of 5%. And the number of unique borrowers reached a historical high at 1.7 million with a triple-digit year-over-year growth. And the revenue from our international market [boosted] to RMB 711 million, marking a year-over-year increase of nearly 20% and accounting for 20.4% of total revenue. And in terms of the revenue and the profit, we maintain our full year revenue growth target of 10% to 15%. The contribution from international markets is expected to increase to 25%. That indicates the growth rate of international revenue will outpace the overall growth. In the first quarter, Indonesia and the Philippines collectively achieved a modest profit aligned with our projection. And looking ahead, we expect they will generate a minimum net profit of $10 million in 2025. For our expansion into the new markets, we have mentioned in the early earnings call, we shared that we recently obtained the banking finance company license in Pakistan. And operation in Pakistan is still in an early stage. Meanwhile, we were actively exploring the new countries to support our long-term strategy. That means we will -- we aim to deliver at least 15% revenue contribution from international markets by 2030. We would be happy to share if there are any updates.