Qfin Holdings, Inc. Q3 FY2025 earnings call

Qfin Holdings prioritized risk management, advanced AI capabilities, and deepened collaboration with financial institutions. By the end of Q3, the AI-powered credit decision engine and asset distribution platform served 167 financial institutions, with over 62 million credit line users on a cumulative basis. The company dynamically fine-tuned risk strategies to maintain a healthy balance between risk and growth. In the Technology Solutions business, loan volume supported achieved roughly 218% sequential growth. The proprietary SME lending solution was adopted by several new banking partners, and AI agents entered pilot testing with around 50% engagement rate among the activated user base. For user acquisition, the number of new credit line users grew by 9% to 1.95 million while average cost per credit line user declined by 8%, and the number of new borrowers grew 10% sequentially. The embedded finance network expanded with 7 new strategic partners, and new credit line users from embedded finance channels increased by 13% sequentially while loan volume was up by 11%.

In Q3, revenue from credit-driven service capital heavy was CNY 3.87 billion, compared to CNY 3.57 billion in Q2 and CNY 2.9 billion a year ago. Revenue from platform service capital light was CNY 1.34 billion in Q3, compared to CNY 1.65 billion in Q2 and CNY 1.47 billion a year ago. Platform service accounts for roughly 48% of the quarter-ending loan balance. Total loan facilitation and origination volume on the platform reached RMB 83.3 billion in the quarter. Non-GAAP net income reached RMB 1.51 billion, while non-GAAP EPADS on a fully diluted basis came in at RMB 11.36.

For the fourth quarter of 2025, the company expects to generate non-GAAP net income between CNY 1 billion and CNY 1.2 billion. The company will continue to make timely adjustments to the business mix to reflect changing market dynamics and regulatory guidelines. There may be further pricing decline as the new regulatory environment is fully implemented, but the pace of decline should be modest. The company will adjust the pace of new user acquisition in the coming months, optimize user acquisition channels, and improve user engagement and retention.

Industry regulatory-driven adjustments pose challenges. Funding liquidity in the high-price segment tightened in Q3, leading to an uptick in overall delinquency risk. Macro headwinds and volatile market conditions may impact loan volume and profitability. New industry-wide regulatory measures may affect industry dynamics.

Q: After the new loan facilitation come into effect in October, how should the management think about the change to the business model or profit model of the loans? And what's the expectation for the take rate in 2026? And maybe over the long run, how should we think about the loan economics when they normalize? And number two is how do management think about the competitive landscape after the loan facilitation rule taking effect?

A: With the new rules in place, both the loan facilitation space and the broader consumer finance industry need time to adjust. In the near term, the rules will impact market size, risk levels, and profitability. In the long run, the competitive environment will become more sustainable and healthier. For the take rate in 2026 and beyond, the focus will be on optimizing risk strategies, improving collection efficiency, optimizing costs in user acquisition and operations, and exploring new service offerings. Regarding the competitive landscape, the new rules led to a major shakeup in the high pricing segment, with less competition for traffic in the future. Market consolidation will benefit Qfin with more effective marketing, higher-value user acquisition, and improved user lifetime value.

Q: Given the recent share price volatility and the regulatory uncertainties, would there be any change in the company's execution of the existing buyback plans? As I see, we still have about 170 million remaining from the plan announced in last November. And also in longer term, what is the company's consideration on shareholder return?

A: As of now, about 170 million is left under the 450 million share repurchase program. A temporary pause was taken during the third quarter due to regulatory updates. The repurchase program will be resumed after this earnings call. The goal is to gradually increase dividend per ADS through each semiannual dividend payout. The Board-approved dividend payout ratio is 20% to 30%, providing room for a progressive dividend trend even with volatile earnings.

Q: How has been the trend of asset quality in October and November? Have we seen any rate deterioration versus Q3? And assuming there's no further trends in regulatory framework, so how -- when does management expect the equity to stabilize and pick? What are the upside that we should be aware of?

A: Since the new rules took effect, high-cost fundings tightened and industry risk levels went up. However, in November, early risk indicators of new loans showed signs of stabilization and slight improvement. The FPD7 delinquency rate for new loans in September decreased compared to July. The 7-day delinquency rate in November remained broadly flat compared to October. The company focuses on optimizing pre and in loan processes by increasing the share of high-quality users and using large language model algorithms for pricing. For collection, more in-house capacity is added and user profiling is improved. It will take some time for the trend to hold as loan tenure is 9 to 10 months, and provisions and profit buffer are solid, giving room to manage through headwinds.

Q: Regulators are starting new regulations for consumer finance companies that will lower the APR of newly issued loans to 20%. Although these regulations will not apply to loan facilitation firms, has the management evaluated the potential implications if the average APR will fall to below 20%? Could this lead to a slowdown in loan growth and an increase in credit cost? In such a scenario, does the company has any measures in place to hedge against the impact on profitability?

A: On the pricing guidance for consumer finance companies, informal communication exists about lowering average APR below 20%. In the near term, it will impact market size, risk levels, and profitability. Over time, it will create healthier competition and improve asset quality. The direct impact on Qfin is limited as direct exposure to consumer finance companies is small. The company will strengthen the ability to serve higher-quality users, optimize pricing, and maintain operation to improve overall profitability, focusing on users' long-term value.

Q: During the opening remarks, CEO mentioned Technology Solutions loan volume up more than 200% quarter-over-quarter in Q3. What's the main drivers behind it? And what is the outlook of this business? Second, in Q3, capital light accounted for 42% of the new loan volume, largely the same as Q2, but down 3 percentage points quarter-over-quarter to 48% of loan balance. So how do you expect the ratio of capital-heavy and capital-light business to new loan volume and loan balance in Q4 and 2026?

A: The main drivers of Technology Solutions loan volume growth include steady ramping up of loan volume with same partners and expanding collaboration across broader online scenarios. AI agents are in pilot testing with positive feedback, and there is huge future upside. Regarding the ratio of capital-heavy and capital-light business, in the short term, flexible adjustments will be made based on market conditions. Directionally, it is likely to bounce around the 50-50 line in 2026, with timely adjustments based on risk level, funding sources, and market conditions.