Yiren Digital Ltd. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Services Business: Steady loan volume growth with higher credit quality customers, refined RTA credit model, increased borrowers and active users. International business saw nearly doubled loan volume in Q2 2024, Philippines monthly loan volume exceeded RMB20 million, customer acquisition costs decreased 18% quarter-over-quarter, and positive net profit margin in June 2024.
• AI Integration: Proprietary large language models used in customer acquisition, service, risk management, and asset management. Anti-fraud AI models in international operations processed over 10 types of IDs with 93% accuracy.
• Asset Quality: Delinquency rates improved; 15-89 day delinquency rate at 3.8%, FPD 30-plus delinquency rate decreased for third consecutive quarter, M1 collection rate increased 290 basis points quarter-over-quarter.
• Funding Costs: Decreased 82 basis points quarter-over-quarter to historic low, expected to continue downward trend.
• Insurance Brokerage Focus: Strengthen channel partnerships for property insurance, focus on high-net-worth clients in life insurance, enhance online customer acquisition with AIGC tools.
• Dividend Policy: Board approved new dividend policy with no less than 10% of anticipated net income after tax per half-year. First half 2024 cash dividend set at USD0.2 per ADS.
• Management Change: Appointed new CFO, Yuning Feng, with extensive experience in venture capital, investment banking, etc.

Segment Performance

• Financial Services: Total loan volume in Q2 2024 was RMB12.9 billion, a 59% year-over-year increase. Revenue from financial service business was RMB851 million, up 14% year-over-year. Number of borrowers served increased 47% year-over-year to 1.5 million. Monthly active users on loan facilitation platform rose 88% year-over-year to 4.5 million. International loan volume nearly doubled in Q2 2024, Philippines monthly loan volume exceeded RMB20 million, customer acquisition costs decreased 18% quarter-over-quarter, and positive net profit margin in June 2024.
• Insurance Brokerage: Gross written premiums totaled RMB1.1 billion, down 20% year-over-year but up 16% quarter-over-quarter. Property insurance premiums reached RMB557 million, up 19% quarter-over-quarter. Revenue from insurance segment was RMB91.5 million, down 77% year-over-year.
• Consumption and Lifestyle Service: GMV increased 40% year-over-year to RMB554.6 million, but declined 11% quarter-over-quarter.

Guidance

• Revenue for Q3 2024 expected to be between RMB1.4 billion to RMB1.5 billion.
• Dividend policy: Board plans to declare dividends of no less than 10% of anticipated net income after tax per half-year, with first half 2024 dividend at USD0.2 per ADS.

Risks

• Market environment uncertainties.
• Risks associated with AI product commercialization.
• Regulatory uncertainties in the insurance sector, especially life insurance.
• Fluctuations in credit risk in the financial services business.

Question and Answer

• Q: About AI development, investment, commercialization and risks A: Ning Tang discussed extensive use of AI in operations, proprietary model development, investment in AI, and use in customer acquisition, service, risk management; mentioned potential monetization of AI technologies.
• Q: Large second quarter increase in net cash used in investing and financing activities, and international business growth A: Na Mei explained investment in financial licenses for financial service business, and international business growth in Philippines and other markets.
• Q: R&D costs related to AI A: Ning Tang mentioned RMB56 million spent on AI development, combining open source models with own data and algorithms.
• Q: Guarantee business accounting and parent controlling shareholder structure A: Ning Tang mentioned follow-up calls to cover details, and no substantial related party transactions expected.