Yirendai (YRD) Q2 2021 Earnings Call Transcript

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Yirendai (YRD -0.31%)
Q2 2021 Earnings Call
Aug 19, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Yiren Digital second-quarter 2021 earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I'd now like to hand the conference over to your first speaker for today, Ms.

Lydia Yu, please go ahead, ma'am.

Lydia Yu -- Investor Relations

Thank you. Today's call features the presentation by the founder, chairman and CEO of CreditEase; our CEO, Ms. Ning Tang; our SVP, Ms. Mei Zhou; and our CFO, Ms.

Na Mei. Before beginning, we would like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provision for U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties and factors that can cause actual results to differ materially from those contained in any such statements.

Further information regarding potential risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements as required under applicable law. During the call, we will be referring to several non-GAAP financial measures and supplemental measures to review and assess our operating performance.

These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and reconciliations to GAAP measures, please refer to our earnings press release. I'll now pass it on to Ning for opening remarks. 

Ning Tang -- CEO/Founder

Thank you, all, for joining us today. We are very pleased to deliver another solid quarter with continued improvement in profitability and increasingly diversified revenue mix as we further navigate Yiren Digital to become a leading user-centric, personal financial management platform. As we continue to strengthen our competitive edge and drive up our business scale, we have developed sophisticated strategies for both our wealth management and credit businesses. For wealth management, we are further differentiating ourselves by upgrading our services and enriching our product offerings.

For example, in the second quarter, we started to offer retirement plans and services, partnering with the leading global investment management company principle which received immediate popularity since launch. And as we further dive into the retirement financial market, our new products and services will help enhance our customers' LTV. Moreover, we are enhancing our capabilities to serve customers with higher investable assets and to the number of users who invested more than RMB 0.5 million in one single transaction on our platform this quarter, increased by 126% compared with last quarter. Meanwhile, for our credit business, we are focusing on high-quality growth and continue to take a proactive approach to transition our target borrower segment into higher credit quality borrowers paving the way for the launch of our increasingly diversified product in the future.

Secondly, we are deepening our deployment in small business markets in the second half of 2021 and will further diversify product mix by increasing SME loans. Last but not least, as the user-centric financial management platform, we are making continued efforts to integrate our different business lines and service scenarios addressing the comprehensive financial needs of each customer. For example, we're offering suitable insurance products to our borrowers to better protect them and their families, which Mei will talk about later. Through the strategies and moves mentioned above, we believe that Yiren Digital is well-positioned to expand its business as the leading personal financial management platform.

Now I will provide a business update on our wealth management side before passing it over to Mei to give an update on our credit business. Our wealth management business continues to see visible growth this quarter. Client assets for investment products reached RMB 14.7 billion as of June 30, 2021, representing an increase of 37% quarter over quarter. Total number of active investors stood at 386,000 as of June 30, 2021, representing an increase of 26% from last quarter.

Meanwhile, the average client asset per investor further increased by 17% quarter over quarter to close to RMB 100,000, and the number of investors who held more than two asset classes on our Yiren Wealth platform grew by 420% from prior year, reflecting a concrete improvement in our customers' overall LTV. On investor acquisition, we continue to invest in our brand to increase recognition and customer engagement. On May 28, our live anniversary program was joined by 20% of our active investors, which is a vivid reflection of our high customer engagement and loyalty. It's worth mentioning that our fund product became one of the key growth drivers this quarter.

Specifically, our retirement Fund of Funds products enjoyed an immediate success right after its launch in June, which contributed RMB 23 million transaction volume since just -- in just 23 days. Moreover, our recently launched new version of mobile fund portfolio products, that offer more flexible target returns, were also well received among investors with sales volume increasing by 80% compared with last quarter. Next, to our insurance business, Hexiang Insurance Brokers. The business growth remains strong.

In the second quarter of 2021, total premiums were approximately RMB 570 million, up more than 130% quarter over quarter. For Hexiang, we are focused on growing through our closed loop 2B2C strategy, in which post to serving our corporate clients and fulfilling their insurance needs. We then leverage our insurance tax capabilities and provide customized and targeted insurance products to their clients and customers, transitioning our corporate customers into partner channels helping them unlock a completely new revenue stream and, at the same time, finding new customers with unmet insurance needs. Lastly, our digital stock brokerage platform, China Glory Securities, was officially launched this quarter, which is a meaningful milestone for us to establish a full spectrum wealth management product mix and to bring strong synergies into our wealth management ecosystem.

The platform targets both mass affluent and high net worth customer segments. And currently, we offer both Hong Kong and the U.S. stocks, ETFs and REITs, with more services and products to hit the shelf soon. Meanwhile, we believe that investing in investor education is core to drive business growth.

That's why we have created a variety of educational content with something suitable for investors at each stage of their investing journey, including daily and weekly live stream sessions to review market performance, as well as trending top in the daily financial news. On customer acquisition, in addition to strong support from our wealth management ecosystem, we're also focusing on 2B2C strategy with over 10 partner channels already in our pipeline. With that, I will now turn the call over to Mei, who will highlight key updates for our credit business this quarter. 

Mei Zhou -- Senior Vice President

Thanks, Ning. This is Mei Zhou. Hello, everyone. Now before I go through the operational highlights of our credit business, I'd like to share our response to the recent regulatory development and to echo what Ning just mentioned about our initiative in credit business strategies.

As of this July, a window guidance came from -- came out from the local financial regulatory requiring a financial institution to cap the APR of the customer loans at 24%. We think that is a potential new requirement to beneficial for the industry as it completely eliminates the market's long guaranteed concern over APR and pricing. In response, since the last year, we have transitioned our target customer segment to higher credit quality borrowers through implementing a target credit products, including APR, 18% to 24% as well as the interest-free loan products. In addition to echo government's focus on supporting small and the micro business, starting from the second half of this year, we will further expand our SME segment to better promote inclusive finance.

Historically, we have been serving small business owner for years and have accumulated reach, experience and expertise in product design, customer acquisition and servicing. Coupled with our strong technology capabilities and efficient channel partners, we expect to see the meaningful growth in this segment. Now I will provide an update on our credit business for this quarter. We saw a stable business growth in the second quarter as we are making strategic transition aimed regulatory change.

Loan volume under loan facilitates model in the second quarter reached at RMB 5.3 billion, representing an increase of 7% from the last quarter of 245% from the same period last year. Total number of the borrowers served in the second quarter reached more than 434,000, an increase of 25% quarter after quarter and 300 or 4% year on year. Meanwhile, our product and unit economics continue to improve as we enhance our operating efficiency. We continue to see declined trends in our acquisition cost as our repeat borrowing rates increased and that our product and services offering broaden.

Moreover, we have seen visible progress in cross-selling insurance products to our borrower base. Total premium contributed by borrowers in the second quarter saw 55% increase compared with the last quarter and the demand remains strong. To eliminate our positioning as a user-centric personal financial management platform, we provide customer My Services by user, not by loan, which means that we value each of our customers' comprehensive demand for financial services and dramatically for their different needs and to serve them accordingly, enhancing our customers' LTV. On funding side, we continue to focus on expanding our funding partners, and we received additional RMB 10 billion in credit line this quarter with another 20 financial institutions in our pipeline.

Lastly, on risk performance, we have seen a stable and improving asset quality. At the end of June, the delinquency rate for loans originated that are past due for 15 to 29 days, 30 to 59 days and 60 to 89 days were 0.5%, 0.8% and 0.7%, respectively. Remaining at our historical-lowest level, as we continue to upgrade our customer segment, we expect our asset quality continue to improve throughout the year. With that, I will now pass it to our CFO, Na, who will provide this quarter's financial update. 

Na Mei -- Chief Financial Officer

OK, thank you, Mei. Hello, everyone. For financial update, I will focus on key items of business operation under the financial performance only. You can refer to the detailed financial results in our earnings release and IR deck that has been posted on our website.

Firstly, on our operating highlights for our wealth management business, as of June 30, 2021, we have cumulatively served more than 2.1 million investors and the number of active investors this quarter continued to grow to 385,536, increased by 26% from last quarter. Client asset in our investment products climbed through CNY 14.7 billion as of June 30, 2021, representing a growth of 37% from last quarter. On the credit side, total loan facility in the second quarter reached CNY 5.3 billion, showing a [Inaudible] increase quarter over quarter. The number of borrowers serviced this quarter stood at 434,153, representing an increase of 25% from last quarter.

Now on to our financials. In the second quarter, total revenue increased by 49% year on year to CNY 1.1 billion, of which 25% came from our wealth management business. Due to enhanced cost control and operating efficiency, total net income in the second quarter grew by 5% quarter over quarter, reflecting a health net income margin of 18%. Total operating expense decreased by 17% year on year to CNY 0.8 billion.

Sales and marketing expense decreased by 40% from prior year to CNY 437 million, driven by increased customer acquisition efficiency. Our original and service expense increased to 11% from prior year to CNY 183 million, mainly due to the continued expansion of our insurance business. Allowance for contract assets, receivables and others was CNY 93 billion this quarter, equivalent to 1.8% of loan volume as compared to 2.9% last quarter. The decline was largely driven by improved asset quality and the change of product mix.

On the balance sheet side, our cash position remains strong with RMB 2.2 billion of cash and cash equivalent as of June 30, 2021. Our strong balance sheet positions us well in the current operating environment and products with sufficient resilience to continue implying new initiatives and new opportunity and to meet any new capital requirement that may come. This concludes our closing remarks. Operator, we're waiting for Q&A.

Questions & Answers:

Operator

[Operator instructions] First question is from the line of Cindy Wang of DBS. Your line is open.

Cindy Wang -- DBS -- Analyst

Hi, management. Congrats for the great quarter. I have three questions, if I may. My first question is related to wealth management.

Since sales volume of investment product was slightly slowing down from first quarter this year, could we know what's the reasoning behind it? Is that because of seasonal effect or listing product adjustment on the platform? Besides that, fee rate for wealth management product is also down sequentially. Is that because investors subscribe more lower fee rate of products on the platform or any other reasons behind it? So entering in second half of this year, how do we expect the trend of sales volume and the fee rate? My second question is related to insurance. Since lately, regulators have issued an announcement related to the inspection of selling insurance products online. Any process you have taken? And is that gonna impact your insurance sales in second half of this year? And the last question is related to consumer credit.

Could we have the breakdown of auto loan and small revolving loan ratio? Since you highlighted that you will expand to the SME segment to better promote inclusive financing in second half of this year. So do you have any loan mix target that you could share to us among the auto loan, SME loan and a small revolving loan? And besides that, since the take rate for consumer credit further came down in the second quarter. So I think, it's mainly because you acquire better quality borrowers, which APR is lower. Since window guidance has been capped APR at 24%, how do we see take rate in second half of this year and going forward? Thank you.

Ning Tang -- CEO/Founder

Thank you for your three questions. I will have our CFO Na answer the first question regarding wealth management business fee rate and so on. And then, our wealth management business ahead Xiao is also online who can cover the second question regarding insurance regulatory update, and also, if she may comment on wealth management. And then, the third question will be covered by Mei Zhou.

Please? 

Na Mei -- Chief Financial Officer

OK, thank you, Ning. For the first question, OK, I will answer why the fee rate for our wealth investment is down compared to the last quarter. It's mainly due to the mix of the products, mainly due to the policy in the first quarter and the last -- the first quarter, the main products of insurance is from life insurance for the people alive. And so the channel commission from the insurance company is higher about general 17% or 18%.

But in the second quarter of this year, the main insurance products is about the assets. So for the asset's insurance, planning level is lower than the life, and generally, commission channel is about 14% to 15% from the insurance company. So that is the reason why the fee rate down for our wealth management. It's mainly due to the product [Inaudible].

Ning Tang -- CEO/Founder

Thank you. And Ms. Xiao, you will talk about the insurance policy [Inaudible]? Hello?

Na Mei -- Chief Financial Officer

OK, this is Na. OK, Xiao is going on to the online. I will answer this question. And for this -- for the regulation of our insurance, before that, I will confirm what are our internal and external hours.

And we think that the mainly -- insurance regular is mainly about the online insurance service. But for our Hexiang, it's also mainly off-line. So from our [Inaudible], we don't think they have any new regular to our insurance business, yeah.

Ning Tang -- CEO/Founder

Yeah, I echo that, and we don't see any negative impact on how we do our insurance business. And Mei, can you please answer the third question?

Mei Zhou -- Senior Vice President

This is Mei. I think, for the credit business, I think for the SME, we have been involving the auto loan business for a quite year. And some of the customers, they -- actually they are just SME owner. So I think, for our SME, we have a lot of -- over to customer, we treat them as a different product [Inaudible] lower the product from the better customer performance.

So I think, that the percentage is 22% to 30%. I think, as we continue to expand our old customer segment, I think as a percentage is improving to 50%. So I think, the -- that's why our asset quality is better and better, I think. 

Cindy Wang -- DBS -- Analyst

Thank you.

Operator

Thank you. [Operator instructions] As there are no further questions at this time, management, please continue.

Lydia Yu -- Investor Relations

Thank you, everyone, for joining our call. This concludes our call for today. Thank you.

Ning Tang -- CEO/Founder

Thank you.

Operator

[Operator signoff]

Duration: 29 minutes

Call participants:

Lydia Yu -- Investor Relations

Ning Tang -- CEO/Founder

Mei Zhou -- Senior Vice President

Na Mei -- Chief Financial Officer

Cindy Wang -- DBS -- Analyst

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