LexinFintech Holdings Ltd. Q4 FY2024 earnings call

Key Highlights - Risk Management: Enhanced risk identification with multi-dimensional third-party data and tailored models, risk identification accuracy improved by 15% and stability by 10%. Upgraded credit line management using test-and-learn approach, optimized risk identification and decision-making system for API scenarios, implemented differentiated repayment reminder strategies. Completed construction of risk control laboratory. - Operational Improvements: Expanded customer acquisition channels, upgraded credit line decision-making system, e-commerce business revamped risk management system for installment platform, inclusive finance focused on serving small business owners in lower tier cities with over 65% of GMV from fourth and fifth-tier cities. Overseas business strengthened capabilities and reduced customer acquisition costs. - Technology: Invested RMB151 million in R&D, completed localized deployment of DeepSeek and developed proprietary large model Singularity, which is embedded in daily operations, boosting coding efficiency by ~35%.

In the fourth quarter, LexinFintech's outstanding loan balance stood at RMB110 billion. GMV was RMB52 billion, revenue was RMB3.7 billion, and non-GAAP profit was RMB390 million. Business lines such as conciliar finance, e-commerce, inclusive finance, and overseas business made progress. The e-commerce business saw profit enter a fast-growing track, inclusive finance has been profitable for three consecutive quarters, and overseas business focused on strengthening capabilities. The Intelligent Credit Platform (ICP) gained traction with its share of GMV rising, and installment e-commerce platform income grew by 12% quarter-over-quarter, accounting for 9% of total income. Revenue contribution: Tech empowerment service income accounted for 16% of total income up from 11% in the previous quarter, e-commerce business revenue was 9% of total income.

Forward-Looking Statements - Expect to achieve significant profit growth in 2025 by adhering to prudent strategy, privatizing risk management, and optimizing asset structure. Plan to increase dividend payout ratio to 25% of net profit starting from 2025. Expect Q1 GMV to be flat with Q4, and for 2025 overall, flat to single-digit year-on-year GMV growth with significant rise in net profit driven by profit margin expansion from asset quality improvement, funding cost optimization, and operational efficiency. - Aim to continue strengthening differentiated offerings in credit lines and pricings, refining operating systems, and broadening business boundaries.

Risks - Performance may experience volatilities due to macroeconomic headwinds and seasonality fluctuations. Overall portfolio quality still has gaps compared to peers mainly dragged by legacy loans. Continued uncertainties in macroeconomic environment and potential changes in funding partner terms could impact funding costs and business performance.

Q: What's our business plans for 2025? And what is our AI-related business layout and the specific applications of AI technologies such as DeepSeek and what are our future plans about AI?

A: In 2025, focus on prioritizing asset quality, profitability enhancement, and scale stability. Continue to upgrade risk management system. Leverage AI technologies like DeepSeek and Singularity, which are deeply applied in core operation workflows including telemarketing, customer service, collections, and will be further optimized and applied in risk management.

Q: Can you share some more color in terms of the latest progress on the achievement you have made in risk management capabilities and especially what's the current gap or differences versus your peers? Also, what are the main targets that you aim to achieve in this year and which are some of the most important indicators that you would suggest investors to track?

A: Achieved significant improvement in risk management capability, with risk management at industry level in some aspects and leading in technical aspects. Key risk indicators like 90 days delinquency ratio and FPD 30 days ratio improved for two consecutive quarters. Gaps exist compared to peers mainly due to legacy loans. Targets include continuing to optimize risk detection, scale, and profitability. Important indicators to track include 90 days delinquency ratio, FPD over 30 days ratio, FPD over seven days of new assets, and day one delinquency ratio of total portfolio.

Q: Could you elaborate more about the trend of unit economics and the main drivers? Also, how to view the OpEx in 2025, especially in sales and marketing expenses, and any further plans to deliver value to shareholders?

A: Unit economics net profit margin has been improving sequentially (from 0.66% in Q1 2024 to 1.31% in Q4 2024) with main drivers being asset quality improvement, funding cost reduction, and balanced revenue mix. OpEx is expected to increase in 2025 to support growth but at a slower pace than profitability improvement. Dividend payout ratio raised to 25% of net income effective from January 1st 2025, with dividend to be announced in August when Q2 results are disclosed, and open to increasing payout ratio as net income grows.