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Jiayin Group Inc (NASDAQ:JFIN)
Q3 2020 Earnings Call
Nov 30, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Jiayin Group third-quarter 2020 earnings conference call. [Operator instructions] I will now turn the call over to Ms. Julia Qian, managing director of the Blueshirt Group Asia.

Ms. Qain, please go ahead.

Julia Qian -- Managing Director of 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 third quarter of 2020. 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. Charlie Fan, chief financial officer; and Ms. Xu Yifang, chief risk officer.

Before we continue, please note that today's discussion will contain forward-looking statements made under safe harbor provision of the U.S. 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 filings with the 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 the 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, then our IR director, Shelley Bai will translate his comments to English. Go ahead, Mr. Yan.

Yan Dinggui -- Chief Executive Officer

[Foreign language]

Shelley Bai -- Investor Relations Director

Hello, everyone. Thank you for joining our third-quarter 2020 earnings conference call. We are pleased to report another solid quarter. We made significant progress in driving our business transformation, shifting funding sources to institutions and optimizing our cost structure.

Most notably, we are excited to have reached an important milestone. As of November 10, 2020, the outstanding loan balance of our legacy P2P lending business was reduced to 0. This signifies that we have successfully completed the transition to being a fintech company with a platform fully funded by institutions. We did this by leveraging our technology, our advanced data algorithms and our risk systems.

We've facilitate and enable financial institutions to offer products and services to our large database of borrowers.

Yan Dinggui -- Chief Executive Officer

[Foreign language]

Shelley Bai -- Investor Relations Director

The magnitude of this transition is remarkable. Just the one year ago, our platform was over 90% funded by individuals. Being able to fit to complete institutional funding in just one year, demonstrates our agility and our understand -- and our outstanding execution capability. By transforming our business process, we were able to enable the functionality of our platform, such as institutions can onboard and integrate easily.

We built the team and capabilities to scale and transform to a fintech service company with the technology platform optimized to serve financial institutions. With a new solid foundation under our business, combined with strong brand recognition, we are confident that we can achieve robust growth for years to come.

Yan Dinggui -- Chief Executive Officer

[Foreign language]

Shelley Bai -- Investor Relations Director

Despite market uncertainty and the incredible speed of our business transformation, we sustained attractive profitability throughout the process. We achieved healthy margins through vigilant cost control and better operating efficiency. Net income reached RMB 88.4 million in the quarter, up 8.1% year over year and 115.1% Sequentially, a remarkable improvement.

Yan Dinggui -- Chief Executive Officer

[Foreign language]

Shelley Bai -- Investor Relations Director

With our successful business transition, we were able to accelerate collaboration with institutional partners to further diversify our funding resources and drive down our funding cost. Since announcing on November 10 that our legacy P2P lending business was down. We immediately onboarded another three institutions. We now have 19 institutions on the platform and have another 36 institutions in discussions and preparation.

We believe we are well positioned to achieve greater progress in the near future.

Yan Dinggui -- Chief Executive Officer

[Foreign language]

Shelley Bai -- Investor Relations Director

On the regulatory front, regulators have put in place policies and the guidance associated with the development of fintech companies. The policies mainly cover micro-lending and colending which have limited impact on our business model. We have fully evolved into a fintech company, providing platform services. Within government regulators recognize the value that fintech companies bring to the financial systems, such as online customer acquisition and servicing, big data analysis and risk management.

We complement traditional financial institutions by creating more efficient process that benefits everyone. This is all positive, and we think it's good news for us. We have well-proven track record of being prudent, being agile, being fully compliant with evolving policies, while maintaining attractive profitability. As one of the leading fintech players, we are optimistic about the future.

With our business model transition completed, we feel well positioned to reignite growth and benefit from the faster-growing consumer finance market in China.

Yan Dinggui -- Chief Executive Officer

[Foreign language]

Shelley Bai -- Investor Relations Director

With that, I will now turn the call over to our CFO, Charlie. Charlie, please go ahead.

Charlie Fan -- Chief Financial Officer

Thank you, Mr. Yan and Shelley. And thank you, everyone, for joining our call today. As Mr.

Yan just mentioned, we ended Q3 on a strong note. Notably, as of November 10, Jiayin is no longer a P2P lending company as we close out our last individually funded loan. This quarter, we continue to operate conservatively while achieving attractive profitability. We state our focus on serving high-quality borrowers which led to our repeat borrowing rate, reaching 74.5%.

Loans performed well and investor confidence remained strong. This creates an outstanding foundation for future growth. Now, let me briefly go over the financial results for the third quarter. Please note that, unless otherwise specified, all financial figures are in RMB.

In the interest of time, I will not walk through each item by line on this call. Please refer to our earnings release for more details. I will just highlight some of the key points here. Loan origination volume was RMB 3.3 billion, down 29.4% year over year, but up 48.8% sequentially.

This was impressive considering the state of our business transition and the current market conditions. Net revenue was RMB 401.3 million, down 21.4% year over year, but up 63.8% sequentially. The big sequential jump was due to the other revenue of RMB 77 million. The increase was primarily due to the variable consideration related to automated investment program recognized from loans previously presented on the P2P business.

Since we have now exited P2P lending, our P2P rated revenues will continue to shrink, and there will be no further P2P-related revenue starting from 2021. Moving on to costs. This year's cost-cutting efforts are bearing fruit. As you can see in our greater reduced operating expenses this quarter.

Total operating expenses were RMB 251.3 million, down 41.2% year over year. Origination and servicing expenses were RMB 59.5 million, down 41.1% year over year primarily due to decreased loan origination volume. Allowance for incredible receivables and contract assets was RMB 15.8 million, down 76.7% from RMB 67.8 million in the same period of 2019. The decrease was primarily due to two factors.

First, the overall decrease in facilitation volume. And the second, the lower credit risk under the new business model. G&A expense and R&D expense fell to RMB 37.3 million and RMB 39.2 million, respectively. This was mainly due to decreased share-based compensation expense allocated to G&A and R&D expenses as well as lower compensation and other business-related expenses.

We continued to reduce our customer acquisition and advertising spending, while still focusing on higher-quality borrowers. This enabled us to effectively reduce the sales and the marketing expenses related to loan originations. Sales and marketing expense was down 34.7% year over year to RMB 99.5 million. This quarter, on a conservative basis, we also had an RMB 34.6 million loss provision related to a short-term investment.

We will closely monitor the process and take necessary actions to minimize the loss. We were able to achieve attractive profitability through tight cost control and improved operating efficiency. We posted a net income for RMB 88.4 million, up 8.1% year over year and 115.1% sequentially. Turning to the balance sheet.

We ended the quarter with RMB 94.8 million in cash and equivalents compared with RMB 69.9 million as of June 30, 2020. Before I conclude, I want to mention that on September 30, we completed the acquisition of a 35% equity interest in Keen Best Investments. The purchase price was HKD 105 million or approximately USD 17 million. This was settled by offsetting against the receivables held by the company from Smartpay.

Keen Best has the Internet micro-lending license in China as the government has rolled out many policies to further regulate the micro-lending industry. We will remain alert to adjust our strategy and assess our investment according to this ever-evolving rules and policies. In summary, we are making steady progress in all regards. We are optimistic about the long-term promise of the fintech industry.

With our optimized business structure and strong execution capability, we can navigate through any future policies changes and drive growth in profitability. With that, we can open the call for questions. Mr. Yan, our chief -- our CEO; and Mr.

Xu, our chief risk officer, will answer questions. Operator, please go ahead.

Questions & Answers:


Operator

[Operator instructions]Our first question is from the line of Andrew Scutt of Ross Capital. Please go ahead.

Andrew Scutt -- Ross Capital -- Analyst

Good morning and thank you for taking my questions. Congrats on the quarter, very strong results and great to see the progress you guys are making. First question here. With regards to revenue and margin.

So great quarter on the top line. Can you provide some extra information on the other revenue, I believe it RMB 77 million, it was a big gain there quarter over quarter and year over year. So some extra details on the other revenue. And very strong margins this quarter.

Looks like you guys are doing well with the cost controls. And is that something that we'll be able to stay steady over the next few quarters, these strong margins? And any color you can provide there would be great as well.

Charlie Fan -- Chief Financial Officer

Yeah. Sure, Andrew. Thanks for your question, and I will take this one. The other revenue was related to a decrease of the P2P related outstanding loan balance.

With a combination of reversal of the overestimate of the refunding liability item and other factors, the revenue was generated, it's around like RMB 77 million for this quarter. And actually, it's a nonrecurring revenue, with P2P running down to 0 in November, we should have very little P2P rated revenue in Q4. And going forward, because our P2P outstanding balance had decreased to 0. So we'll not see that item anymore.

I mean P2P-related revenue. That's the answer to your first question. And second one, you asked about our margin. And the margin driver, actually, of our business is very dynamic which is the final outcome-based on the skill of business, the funding costs, the revenue take rate and the credit cost and also the operational efficiency level.

You can see some ups and downs of our profit margin historically. Affected by our compliance efforts and the regulation, the business transition actively. Since now, we have fully exited the P2P business and 100% shifted to the institutional loan facilitation model. And Jiayin is now in a much better position than before to further lower the pricing to meet the requirement of the strictest founding partner.

We can lower the funding cost by partnering with more financial institutions, lower the credit cost by acquiring better quality assets and improving our risk management capability. And we can also get the better margin by improving our operational efficiency by overall cost control. And the integration of the advanced technology. And all in all, I think the management team is very confident that from a long-term perspective, our net profit margin will be maintained in a very stable and healthy double-digit level.

I hope that helps.

Andrew Scutt -- Ross Capital -- Analyst

Yeah. Great. That was very helpful and a good segue into my next question. So can you just provide an update on your client take rate right now and the cost of acquisition, especially now that you guys have transitioned away from P2P lending? And if you guys have a kind of target marks there that you're working toward?

Charlie Fan -- Chief Financial Officer

Yeah. Our Q3 take rate actually is very similar to our Q2 because in Q3, 100% of our loan origination volume comes from the institutional funding, and it's around 7%. Actually, it's much lower if you compare that with our take rate last year. Last year, our take rate is above 10%, and we are seeing the revenue take rate will keep at that level and probably will get lower once we lower our pricing and lower our funding cost and lower our credit cost as the trend trajectory is well deserving.

Andrew Scutt -- Ross Capital -- Analyst

Great. Thank you. And then last question for me for now. Congrats on the acquisition or the investment into Keen Best Investment, can you just kind of provide some more color around the strategy there? And if you guys have plans to make similar investments in the future?

Charlie Fan -- Chief Financial Officer

Are you talking about our short investment, we made a provision of RMB 34 million this quarter?

Andrew Scutt -- Ross Capital -- Analyst

Yeah. The acquisition of Keen Best investment, the 35% stake you guys have. I mean...

Charlie Fan -- Chief Financial Officer

OK. Yeah, right, right, right. Yes. Sure.

Yes. We acquired 35% of the shares of the company, named Keen Best, right? And with the consideration of HKD 105 million and actually, the decision was made in the first quarter of this year. And we consider this will be very beneficial to our overall business when decision was made. And the share transfer agreement actually was signed in Q1 this year, and the deal was officially closed by the end of Q3.

So if you look at our balance sheet as of end of Q3, the balance of the long-term investment line item, increased and due from unrelated party balance decreased. So the rationale we made the decision is, when we made the decision in Q1, we think the micro-lending business license will be very helpful and beneficial to our long-term business. So we made this decision. And now we all know that that regulation is kind of getting tightened because of the -- for the microlending business.

But we are still assessing the value of this investment, and we will see what we can do about this investment going forward. And I think everything is open. We are open-minded to this kind of investment, and we will see what we can do about that.

Andrew Scutt -- Ross Capital -- Analyst

Great. Thank you. That's all for me for now.

Operator

[Operator instructions] Thank you. And seeing no more questions in the queue. Let me turn the call back to CFO, Mr. Charlie Fan, for closing remarks.

Charlie Fan -- Chief Financial Officer

Thank you all again. This concludes the call. You may now disconnect. Thank you very much.

Operator

[Operator signoff]

Duration: 36 minutes

Call participants:

Julia Qian -- Managing Director of the Blueshirt Group Asia

Yan Dinggui -- Chief Executive Officer

Shelley Bai -- Investor Relations Director

Charlie Fan -- Chief Financial Officer

Andrew Scutt -- Ross Capital -- Analyst

More JFIN analysis

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