Qfin Holdings, Inc. Q2 FY2025 earnings call

• Global economic landscape had growing uncertainty with geopolitical tensions, but China's economy was stable. Consumer credit industry undergoing supply-side reforms under regulation.
• Leveraged AI to drive upgrades across consumer credit value chain, with AI-powered credit decision engine and asset distribution platform empowering 165 financial institutions and serving over 60 million users. Total loan facilitation and origination volume up ~16% YOY to RMB 84.6 billion.
• Take rate for the quarter reached 5.4%, up almost 1 percentage point YOY. Non-GAAP net income up 30.8% YOY to RMB 1.85 billion, non-GAAP EPADS up 48.8% to RMB 13.63.
• Refined risk strategies and models, tightened risk standards in April and optimized in June, leading risk indicator FPD over 7 days for new loans in June decreased by ~5% from May. Enhanced risk decisioning AI agent using LLM technology.
• Diversified funding partnerships, issued ~CNY 7.8 billion in ABS in Q2, up ~70% YOY, funding costs decreased. Extended embedded finance network with 4 new strategic channels, new credit line users up 40% YOY, new borrowers up ~60% YOY.
• Advanced AI+ bank strategy, upgrading FocusPRO credit tech solution, entered strategic partnership with AI hardware provider, AI agent products attracting interest from banks with commercial orders scheduled for Q3.

In Q2, revenue from credit-driven services (capital heavy) was CNY 3.57 billion, up from CNY 3.11 billion in Q1 and CNY 2.91 billion a year ago. Revenue from platform services (capital light) was CNY 1.65 billion, up from CNY 1.58 billion in Q1 and CNY 1.25 billion a year ago, accounting for roughly 51% of the quarter ending loan balance. The embedded finance segment saw new credit line users increase 103% year-over-year, while loan volumes surged by roughly 155%. ROA of this segment remained stable. Loan volumes supported by the total technology solutions business increased approximately 150% year-over-year.

• For Q3 2025, expects non-GAAP net income between RMB 1.6 billion and RMB 1.8 billion.
• Overseas expansion with small-scale operations launched in the U.K. in Q2, continuing to refine risk models and enhance conversion efficiency in international markets.

• Macro-economic uncertainties affecting consumer credit demand.
• Regulatory changes creating uncertainty, industry adjustment period ahead.
• Funding supply tightening due to industry concerns over new regulation implementation, impacting overall risk performance in the sector.

Q: What's the management's latest outlook on the loan volume growth? Are we seeing any signs of potentially rebound in the consumer loan demand compared to particularly start of the year? Secondly, what's the latest news on the take rate? Any areas performing better than expected? Do we expect the take rate to remain at the current level over the next several years? If any changes, what will be the factors that are driving those changes?

A: For customer demand, PBOC data shows short-term household loans decreased, consumer confidence and credit demand remains soft; government policies to subsidize consumer loans may help but impact will take time. Q2 take rate was 5.4%, Q3 guidance around 5%, near-term volatility due to new regulation effective Oct 1, longer term market cleanup expected to benefit take rate.

Q: What would be the estimated impact of the new regulation on our ICE business? And what is our current strategy and -- regarding the products under the 24% plus benefit loan products? And after the official implementation in October, will there be any impact on the competitive landscape and customer acquisition cost for the product that's priced within 24%? And my second question is about our overseas expansion. So what are the main considerations of the company when we select the target market? And in the U.K. -- so could management please provide more details on how we have -- how the progress is going? And are we trying to grow organically or partnering with some local players?

A: New rules seen as positive for industry, may improve health and sustainability. ICE is referral service, we have prepared alternative plans, expect take rate to remain healthy. For overseas expansion, consider regulatory environment, fintech innovation openness, financial infrastructure. In U.K., small-scale operations launched, focusing on building understanding of local market, refining risk models, moving forward cautiously.

Q: So I'll translate my questions. So the first one is a follow-up on the new regulation. So what would be the estimated impact of the new regulation on our ICE business? And what is our current strategy and -- regarding the products under the 24% plus benefit loan products? And after the official implementation in October, will there be any impact on the competitive landscape and customer acquisition cost for the product that's priced within 24%? And my second question is about our overseas expansion. So what are the main considerations of the company when we select the target market? And in the U.K. -- so could management please provide more details on how we have -- how the progress is going? And are we trying to grow organically or partnering with some local players?

A: New rules seen as positive for industry, may improve health and sustainability. ICE is referral service, we have prepared alternative plans, expect take rate to remain healthy. For overseas expansion, consider regulatory environment, fintech innovation openness, financial infrastructure. In U.K., small-scale operations launched, focusing on building understanding of local market, refining risk models, moving forward cautiously.

Q: So I have a question about the buyback. So what is the current progress of the share buyback? As the company's stock price has significantly retreated from its high, do you have plan to increase the scale of your buyback?

A: So far, CNY 450 million program has executed CNY 277 million, combined with CB issuance, spent over USD 500 million in repurchases this year, reduced share count by about 9% so far. Will take flexible pace in managing buyback to enhance capital allocation efficiency.

Q: This year, the total ABS in first half, the issuance amount has been matched the full year in 2024. So if we look at the second half of this year, so what's the ABS issuance target in 2025? And also because ABS issuance increased, do you see there's any funding cost room to further go down in second half of this year?

A: In 2025, expect total ABS issuance to grow by over 30%. ABS issuance tends to be seasonal, second half liquidity tighter, will balance issuance costs and slow pace, funding costs expected to decrease meaningfully compared to 2024.