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Jiayin Group Inc. (NASDAQ:JFIN)
Q4 2019 Earnings Call
Apr 1, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by and welcome to the Jiayin Group Fourth Quarter 2019 Earnings Conference Call. And at this time, all participants are in listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today's call. And if you have any objection, you may disconnect at this time.

Now, I will turn the call over to Julia Qian, Managing Director of The Blueshirt Group Asia. Ms. Qian, please proceed.

Julia Qian -- Managing Director-The Blueshirt Group Asia

Hello everyone. Thank you all for joining us on today's conference call to discuss Jiayin Group's financial results for the fourth quarter and the full year of 2019. We released the result early today. The press release is available on the Company's website as well as from Newswire Services. On the call with me today are Mr. Yan Dinggui, Chief Executive Officer; Mr. Fan Chunlin, Chief Financial Officer; and Mr. Xu Yifang, Chief Risk Officer.

Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provision of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the Company's public filing with SEC. The Company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese RMB.

With that, let me now turn the call over to our CEO, Yan Dinggui. Mr. Yan will speak in Chinese and then, our IR Director, Shelley Bai will translate his comments to English. Go ahead, Mr. Yan.

Dinggui Yan -- Founder, Director & Chief Executive Officer

[Foreign Speech]

Hello, everyone. Thank you for joining our fourth quarter and full-year 2019 earnings conference call. Despite the ever-evolving regulatory environment and the economic uncertainties, we made progress on many fronts in 2019. Since our successful listing on NASDAQ in May last year, we have been strategically transforming our business model in order to drive sustainable long-term growth. As you know, we disposed of Caiyin and integrated Geerong Yun, our fintech platforms that committed to connect consumers with financial institutions. It uses AI and the big data analysis as a core technology. This critical restructuring streamlined our operations, enhanced our risk management system and accelerated our collaborations with financial institutions.

[Foreign Speech]

In the second quarter, right after the IPO, we started transitioning funding from individual to institutions. We are glad to see that 45% of loan originations were funded by institutions in March. So far, we have successfully onboarded 10 institutions and have another 20 institutions in preparation. Our institutional onboarding process was affected by the six-week lock down in China starting in February 2020, due to coronavirus control.

[Foreign Speech]

Our market has been changing rapidly. In the fourth quarter, all of our fintech peers faced challenge of an accelerating decrease in the loan origination volume as a result in revenue decline. Our fourth quarter results include these challenges in our peer group.

[Foreign Speech]

Our fourth quarter net income was a modest RMB22.6 million. We have taken all necessary actions to reduce expenses, including reduction in promotions lending by increasing our focus on repeat borrowers, closely monitored and prioritized R&D expenses and reduced costs related to loan originations.

[Foreign Speech]

We started 2020 in an incredibly challenging environment in light of the combined impact from the coronavirus outbreaks, the macroeconomic slowdown and the regulatory developments, which have all adversely affect our industry. Thanks to geographic diversity, most of our clients are outside of the epidemic center. Due to that and the higher level of repeat customers, we expect the Q1 2020 loan volume to be flat sequentially. The industry risk should be only modestly affected in Q1 and in fact, has returned to pre-virus levels.

[Foreign Speech]

China appears to have contained the strength of the virus. We have fully resumed operations. We believe that consumer demand will rebound quickly once the virus is fully contained.

[Foreign Speech]

In 2020, we will continue to invest in our technology platform and our talent. Our management team is stable, solid and focused. We are in this for long-term growth and are committed to explore and identify opportunities to recognize growth.

[Foreign Speech]

We have laid out three key initiatives for this year. First, identify opportunities to drive business growth and expense and scalability of our platform. We are very actively exploring an opportunity to acquire a nationwide online micro-lending license. Several discussions are being planned and we expect a great progress. We will also continue to focus on the transition of funding to institutions. The speed of transition will depend on how quickly the virus crisis subsides.

Even as the coronavirus pandemic spreads globally, China is recovering after six to eight weeks of lockdown for the entire country. Business are reopening and the consumer confidence and spending are gradually recovering. We will have more clarity on economic recovery in the next several months. We remain optimistic.

[Foreign Speech]

The second initiative is to build strategic partnership with financial institutions, including the possibility of strategic investments. We have identified several partners for potential investments and the cooperation.

[Foreign Speech]

The third initiative is to continue to expand into self-installation in the Latin America, most notably, India, the Philippines, Indonesia and Mexico. We are a financial technology platform company. Our advanced risk management system, AI-based consumer behavior analytics and operational experience can be easily utilized in this market. Of course, our roadmap for overseas expansion will be dependant on the status of the virus outbreak in those regions as well.

[Foreign Speech]

We are geared up to resume growth. We are confident that we can emerge from this challenging period with an agile platform, loyal customers and strong execution.

With that, I will now turn the call over to our CFO, Chunlin, who will offer more details on fourth quarter financial performance. Chunlin, please go ahead.

Chunlin Fan -- Chief Financial Officer

Thank you, Mr. Yan and Shelley. And thank you everyone for joining our call today. Before I go into details about our financial results, please note that all numbers presented here are in RMB and the percentage changes are on year-over-year basis, unless otherwise stated. Our press release contains all the figures and the comparisons you need. So I will only highlight some of the key points here.

We are pleased to have sustained healthy profitability in 2019. Despite very challenging headwinds, we posted modest net income of RMB22.6 million in the fourth quarter. This result reflects the challenging marketing conditions and an evolving regulatory environment. During the quarter, we decreased outstanding loan balance, reduced the number of investors and reduced number of borrowers. This caused the lower loan origination volume and resulted in the top line decline. While we wait for further clarification on the regulatory situation, we are managing our business prudently by closely watching our costs and sustaining margins by operating more conservatively and efficiently.

We shifted our focus to repeat lenders and repeat borrowers. As you know, serving repeat customers is a more cost effective and had less credit risk. We were also able to effectively reduce our sales and the marketing expense and the costs related to loan originations. At the same time, both average investment amount and average borrowing amounts were up significantly. This further reflected our lenders and the borrower’s strong confidence in our platform. We also closely monitored and managed R&D expense. We made a significant investments in technology and talents in the first half of 2019.

With the challenging environment now, we reprioritized R&D expense in Q4, resulting in meaningful reductions. General and administrative expenses were up, but this was mainly due to the increased share-based compensation expense allocated to G&A. In addition, in Q4, we continued to accelerate the transition of funding to institutions and the proportion of institutional funding improved steadily.

As Mr. Yan mentioned earlier, 45% of the loan volume was founded by institutions in March this year. If coronavirus outbreak is fully contained, we expect even more progress. The coronavirus outbreak has adversely impacted our whole industry. The impact to our business is modest due to our geographic diversification and our focus on repeat high-quality customers.

Loan volume in Q1 of 2020 should be flat compared to Q4. We have seen some early signs of improvement in recent weeks. As the country reopens, people are returning to work. We hope economic activity will pick up and the consumer spending will reduce. Our balance sheet is solid with RMB122.1 million in cash and equivalents, compared with RMB41.4 million at the end of 2018. This solid cash position will enable us to execute our 2020 strategy and reignite growth.

With that, let's open the call for questions. Mr. Yan, Mr. Xu, our Chief Risk Officer and I will answer questions. Operator, please go ahead.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Yes. We have a question from the line of Craig Irwin of ROTH Capital Partners. Please go ahead.

Craig Irwin -- ROTH Capital Partners -- Analyst

Good evening or good morning and thanks for taking my questions. The first thing I wanted to ask about is the change, the borrowing base with the virus. Are you seeing any industry-wide deterioration credit quality? What's the current delinquency rate on loans and how does that compare to six months ago, a year ago? And is this already starting to improve given that I guess we’re full 90 days after the end of the December fiscal quarter?

Xu Yifang -- Director and Chief Risk Officer

Thanks, Craig. This is Yifang Xu. I’m going to take on your question. So in terms of very specific delinquency numbers that we are ready to publish that in our annual report, but we can generally talking about the trending and the impact coming from the coronavirus pandemic outbreak. So as you mentioned early in your question that we are seeing some adverse impact from this outbreak. We are seeing some -- something very similar on our business as well. However, overall assessment on the impact is modest. So here, how we are approaching this impact from managing our business perspective. First, we are taking a conservative position in terms of new loan generations. We are limiting our loan growth in our Q1. As a result, you're likely going to see a flat growth in terms of the loan volume in Q1 2020 compared to Q4 2019.

In addition to that, we are also making a deliberate choice to shifting our loan portfolio towards our repeated borrowers, just to be -- to stand more conservative in terms of risk [Indecipherable] perspective. Secondly, we are seeing some of our customers are truly impacted by the pandemic outbreak. We are rolling out some credit release solutions and -- which is granted on a case-by-case basis. And we are seeing the participation rate is relatively low, due to our geographic diversity. Most of our customers are residing outside of the pandemic center. As a result, we are likely going to see a very limited impact in terms of that -- the loss rates.

But in the month of February, just as our peers who are started seeing some impact due to the lockdown period and the impact on our customers on the repayment as well as some disruptions to our collection operation. As a result, we're seeing some uptick in our delinquency rate and some impact in terms of our collection rate. But good news to report you now is we are seeing early sign of improvement in recent weeks, and we're seeing steadily the numbers rolling back to what the levels seen before the outbreak, and relatively that we are back to the -- in terms of the -- both the delinquency rates and our collection rate, we’re back to the levels before the virus outbreak period time.

Craig Irwin -- ROTH Capital Partners -- Analyst

Okay. My second question is about the first quarter. So the first quarter is done. Today is 1st of April. Can you share with us your cash balance today on April 1 and can you comment whether or not you expect the first quarter to be profitable without the benefit of something like a tax rebate or something like this?

Chunlin Fan -- Chief Financial Officer

Okay. Thank you, Craig for your question, and I will take this one. The cash and cash equivalents for the -- as of the end of 2019 is RMB120 million, which is RMB80 million bigger than the number of the end of 2018. And the good thing about our cash position is the net operating cash or the net cash provided by the operating activities is positive in 2019. And for quarter one, due to the loan origination volume, we are aligned with the number for Q4, because it is already April 1 and I can't disclose this number to you already. The loan origination volume for Q1 is RMB1.2 billion as well. It's exactly the same as Q4. And because the management team has taken measures to manage the overall cost structure, and we are going to see a decrease of the operation cost. And the net profit margin will come back to our normal double-digit. That's what I'm expecting.

Craig Irwin -- ROTH Capital Partners -- Analyst

So normal double-digits in the first quarter or in the second quarter?

Chunlin Fan -- Chief Financial Officer

It's hard to tell, but I would say, our net profit margin in fourth quarter last year was not a normal margin, and we are expecting to see it to be normalized in the first quarter or second quarter this year, but it's still largely subject to the containment of the pandemic outbreak.

Craig Irwin -- ROTH Capital Partners – Analyst

Okay. And I just -- I want to understand this very clearly. So I guess, I'm asking the question again. So in the fourth quarter of 2019, the cash position declined by RMB115 million to RMB122 million. I believe your answer just now, you confirmed that we should be flat or similar on the cash balance to that RMB120 million, RMB122 million exiting the March quarter. Can you just confirm that I understand that correctly?

Chunlin Fan -- Chief Financial Officer

Yes, I think your understanding is basically correct. As I said, the loan origination volume for Q1 this year was same at Q4 last year. And if you do a very simple calculation, basically the take rate for the Q1 probably will be a little bit lower than Q4 because in Q1, we increased the portion of the institutional funding to like 27%. That's why the take rate will be a little bit lower, but the key thing here is our operating cost will also be lower because we did some actions to manage the overall cost structure in Q1 this year and this benefit will also be reflected throughout the full year in 2020. So that's a positive sign.

As CEO just mentioned, this year, our strategy is to grow the business. So the overall loan origination volume for the full year, we're still trying to grow our business. So that's the bottom line. Yeah.

Craig Irwin -- ROTH Capital Partners -- Analyst

Yeah. So then turning to originations using funding from institutional investors, you made huge progress in 2019 despite the challenges as we finish the year. Can you maybe frame out for us what your priorities are in working with institutional investors over the next couple of quarters? Where would you like to be with institutional investors by the end of the year, how many institutions do you think is a reasonable number for us to expect to be participating on your platform? Any other color you can provide would be helpful?

Xu Yifang -- Director and Chief Risk Officer

Thanks, Craig. It's Yifang again. I’m going to take your question. Yes, as you noted early that -- we -- since mid of 2019, we have made a significant improvement in terms of our shifting of strategy towards having the funding source funded by institution partners. And as the numbers pointed out that in the Q1 -- in Q4 2019, we are reporting a 60% -- 16% of our funding -- our loan origination will be funded by our institutional investors, compared to 10% in the prior quarter, which is Q3 2019. And we are seeing steady improvement even during the time period of what we've seen at the beginning of this 2020.

Chunlin actually mentioned that number that is pretty exciting earlier, which is in the Q1, we are seeing in a rate of 27% for loans will be coming from institutional investors. And in March, we are seeing 45% of loans from the institution investors. And we are -- in the meantime, we are keeping our total origination flat compared to -- in Q1 2020 compared to Q4 2019. So, so far, we have 10 financial institution partners we are working with fully on board. And we have -- again, we are reporting a healthy pipelines. So we have 20 financial institution partners, which are -- who are under discussions with us and prepared to be onboarded over the next several months. And yes, as the business turns back to normal, our business development teams for our institutional investors are continuing to working hardly toward that goal. We are expecting going to have our full transition to institutional investors sometimes during -- in 2020.

In the meantime, while Mr. Yan were discussing our overall strategies, we are actively exploring opportunities to acquire [Indecipherable] lending license. So we are having several conversations, and we are seeing some purposes and hopefully, we're going to report some good story sometimes soon.

In addition to that, we are -- while we are deepening our relationship with our institutional funding sources, we are also seeking building -- seeking to build strategic partnership with financial institutions with the possibilities to build strategic investments. So with all these efforts in place, we are helping in 2020 that we -- our loan origination volume and our loan portfolio will grow.

Craig Irwin -- ROTH Capital Partners -- Analyst

Excellent. Last question if I may. In your prepared remarks, you mentioned multiple international geographies, including countries like the Philippines and South America. Can you maybe frame out for us what the status is of those markets for Jiayin Group? Do you expect a material contribution from any of those markets in 2020? How rapidly do you see them growing for you over the next couple of years?

Xu Yifang -- Director and Chief Risk Officer

Yeah, one of our initiatives to drive our international strategy is to expand into the Southeast Asia and Latin America, especially the Latin American market. By as of now and we are taking a close watch on how this pandemic situation is expanding worldwide. And it's specifically even in China, that impact has been -- or even in China, that impact has somewhat contained which is kind of having a strong growth for our overall business. In terms of international strategy, in terms of how soon the things will be under control and what is the impact -- economic impact from the mid to long-term perspective will -- on the international markets, we are still waiting to see. But on the material front that we can report is that in Indonesia, we have in a trial period of obtaining our license, peer-to-peer license, that's a material -- that's a milestone that we would like to report on this call that how -- in terms of how soon we can grow the -- how soon we can grow the business and have significantly -- significant expansion on the business, we are still waiting to see.

Craig Irwin -- ROTH Capital Partners -- Analyst

Thank you. Thanks again for taking my questions.

Chunlin Fan -- Chief Financial Officer

Thank you, Craig.

Operator

Thank you. [Operator Instructions] And seeing no more questions in the queue, let me turn the call back to Mr. Fan for closing remarks. Please go ahead.

Chunlin Fan -- Chief Financial Officer

All right. Thank you, operator, and thank you all for participating on today's call. And thank you for your support. We appreciate your interest and looking forward reporting to you again next quarter on our progress.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Julia Qian -- Managing Director-The Blueshirt Group Asia

Dinggui Yan -- Founder, Director & Chief Executive Officer

Chunlin Fan -- Chief Financial Officer

Xu Yifang -- Director and Chief Risk Officer

Craig Irwin -- ROTH Capital Partners -- Analyst

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