Emma Xu

Emma Xu asked about the potential implications for Qfin if new regulations lower the average APR for consumer finance companies to below 20%, even though these rules don't directly apply to loan facilitation firms. She inquired if this could lead to slower loan growth, increased credit risk, and what measures Qfin has to hedge against profitability impacts.

Answer

CEO Wu Haisheng acknowledged informal communication about consumer finance companies keeping average pricing below 20%, aligning with the regulator's goal to reduce borrowing costs. He stated that Qfin's direct exposure to consumer finance companies is small (15% of loan mix, mostly from banks), limiting direct impact. However, he noted an indirect impact through potential short-term liquidity pressure and risk volatility, which might lead Qfin to further tighten risk standards. He mentioned Qfin's Q3 average APR was 20.9% and emphasized strengthening the ability to serve higher-quality users, optimizing pricing, and improving overall operational profitability, prioritizing long-term user value over short-term profits.

Emma Xu from BofA Securities asked Qifu Technology about potential new regulations for consumer finance companies, reportedly aiming to lower the average APR of newly issued loans to 20%. Xu inquired if management had evaluated the implications of an average APR below 20% on loan growth and credit costs, and what hedging measures the company had in place to mitigate profitability impacts.

Answer

Wu Haisheng, CEO of Qfin Holdings, acknowledged informal communications about consumer finance companies keeping average pricing below 20%, aligning with regulators' intent to reduce borrowing costs. He stated Qifu's direct exposure to consumer finance companies is small (15% of loan mix), limiting direct impact. However, indirect impact includes potential liquidity pressure and risk volatility, leading Qifu to tighten risk mitigation. Haisheng noted Qifu's average APR in Q3 was 20.9% and emphasized strengthening the ability to serve higher-quality users and optimizing operations for long-term value over short-term profits.

Emma Xu from BofA Securities asked for an update on the share buyback program's progress and whether the company plans to increase its scale given the stock's price movement.

Answer

CFO Alex Xu reported that the company had executed $277 million of its $450 million program, bringing the year-to-date total repurchase to over $500 million and reducing the share count by about 9%. He stated the company will maintain a flexible pace for buybacks and remains committed to delivering industry-leading shareholder returns in the long run.

Emma Xu of Bank of America Securities questioned the potential impact of U.S.-China tariff tensions on lending standards and the company's strategy regarding ADR delisting risk, including a potential dual primary listing in Hong Kong.

Answer

CEO Haisheng Wu stated that the direct tariff impact is limited, as only about 1% of loan volume is in highly affected sectors, though the company prudently tightened its risk strategy in April. CFO Zuoli Xu addressed delisting risk by highlighting the Hong Kong secondary listing, which provides a seamless trading transition for investors. He explained that if a delisting occurred, trading volume would naturally shift, and the Hong Kong listing would automatically convert to a primary one.

Emma Xu from Bank of America Securities questioned the trend in Qifu's funding costs, asking if they are continuing to decline and what the potential lowest level could be.

Answer

An executive explained that funding costs have declined significantly due to risk cuts and asset demand, but there is now limited room for further reduction as they approach the floor for financial institutions. CFO Zuoli Xu added that while external factors like LPR and market demand play a role, Qifu plans to increase its ABS issuance in 2025 to further optimize its funding mix and hopefully achieve a moderate decline in overall costs.

Emma Xu from Bank of America asked for the outlook on asset quality and questioned why Qifu's metrics were improving while many banks faced pressure in their retail and credit card businesses.

Answer

CEO Haisheng Wu attributed the strong asset quality to a strategic focus on quality over quantity, which led to an early tightening of credit standards. He detailed technological enhancements, including upgraded risk models using graph networks and NLP, which improved performance. He also cited optimized allocation of higher-risk assets and a strengthened collections process using AI. Mr. Wu expects risk performance to remain relatively stable, assuming a muted macro environment.

Emma Xu from Bank of America Merrill Lynch questioned the strong performance of interest income despite a drop in HIBOR and the divergence between interest income and expense trends, seeking an outlook for Q3. She also asked about the drivers behind the significant growth in 'other income' and whether that momentum was sustainable.

Answer

CFO Arthur Yu Chen explained that strong interest income was driven by increased revenue from securities lending (especially hard-to-borrow stocks) and higher client cash balances, which offset lower yields. He expects the momentum to continue in Q3. For 'other income,' Chen attributed the growth to fund distribution fees and FX income, which he believes are sustainable, and also noted a one-time technology service fee in Q2.

Emma Xu questioned the impact of the recent sharp drop in HIBOR on Futu's net interest income and inquired about any corresponding changes observed in client behavior, such as fund deposits and trading activity.

Answer

CFO Arthur Yu Chen stated that while lower rates present a headwind, the negative impact on Q1 interest income was offset by a significant increase in clients' average idle cash balances. He also noted that lower HIBOR tends to stimulate client trading activity, which benefits commission revenue, and suggested the recent drop may be temporary.

Emma Xu inquired about the strong guidance for 800,000 new paying clients in 2025 without new market entries, and asked for the reasons behind the moderate increase in client acquisition cost (CAC) in Q4 2024 and the target for 2025.

Answer

Chief Financial Officer Arthur Chen explained that the robust 2025 client growth guidance is based on strong outlooks in newer markets like Malaysia and Japan, as well as continued upside in mature markets like Singapore and Hong Kong. He stated the client acquisition cost (CAC) target for 2025 is between HKD 2,500 and HKD 3,000, with plans to increase spending on brand equity to enhance long-term user loyalty.

Emma Xu asked about the strategies in markets like the U.S., Canada, and Australia that led to improved client asset growth, questioning if it was strategy or market-driven. She also inquired about recent changes in investor trading behavior and asset allocation due to macro events like the U.S. election and potential Fed rate cuts.

Answer

Executive Daniel Yuan responded that there is no 'one size fits all' strategy; instead, the company develops unique product pipelines and marketing for each of its seven markets based on a deepening understanding of local user demands. Regarding investor behavior, he reiterated that U.S. stock trading volume was strong, boosted by tech and virtual asset stocks around the election, while Hong Kong and China ADR trading saw a surge and subsequent moderation.

Emma Xu of Bank of America Merrill Lynch inquired about the observed impacts of new loan facilitation regulations and the company's strategy and outlook for its rapidly developing business ecosystem.

Answer

CEO Jay Wenjie Xiao acknowledged that the new regulations caused short-term funding tightness and minor risk fluctuations but stated that in the long run, they will foster a healthier industry, benefiting compliant platforms like Lexin. He detailed the ecosystem's progress, highlighting the growth in the installment e-commerce business, expansion into lower-tier cities for inclusive finance, new partnerships in tech empowerment, and consecutive quarterly growth in the overseas business.

Emma Xu from Bank of America asked for a breakdown of the strong Q1 net asset inflows by region and account type. She also questioned why net interest income was flat sequentially despite growth in margin financing and requested an estimate of the P&L impact from potential Fed rate cuts.

Answer

Arun Li, Head of Investor Relations, detailed that of the $3.2 billion in Q1 net asset inflows, approximately 60% came from Greater China, 30% from Singapore, and 10% from other markets, with retail clients contributing about 60% of the total. CFO John Zeng explained that the flat net interest income was due to a $1.5 million impact from matured U.S. treasury investments, which offset growth from margin financing. He estimated that each 25 bps rate cut by the Federal Reserve would negatively impact quarterly net interest income by $1 to $1.5 million.

Emma Xu from Bank of America Securities asked for clarification on the higher-than-anticipated compensation expenses and the notable sequential increase in the effective tax rate. She also inquired about the first-quarter-to-date run rate for assets under custody (AUC), new funded clients, trading volume, and management's perspective on recent U.S. market volatility.

Answer

CFO John Zeng addressed the financial questions, stating that higher labor costs were due to increased year-end bonus accruals. The effective tax rate rose from 14% to 25% sequentially due to higher profits from the U.S. market, which has a higher tax rate, driven by strong margin financing activity and the maturation of several T-bonds. Chairman and CEO Tianhua Wu added that year-to-date, the company has seen a solid increase in client assets from strong inflows, continued momentum in new user growth, and steady overall trading volume, as active Hong Kong trading offset U.S. market volatility.

Emma Xu asked for an update on the business run rate since October for key metrics like AUM and trading volume, and questioned how the company views its operating efficiency improvements, given revenue growth outpaced profit growth.

Answer

Executive Aron Lee confirmed that October was a record month for trading volume and commissions, and the company had already met its annual guidance for new funded accounts. CFO John Zeng clarified that after excluding a Q3 FX loss and a Q2 one-off impairment, operating profit grew 45% quarter-over-quarter, significantly outpacing revenue growth and demonstrating improved operating leverage. He attributed this to prudent fixed cost management and low variable costs.

Emma Xu inquired about the current state of loan demand, whether Lufax is on track to meet its full-year guidance, and the sustainability of recent improvements in asset quality, specifically the C-M3 flow rate.

Answer

CEO Yong Suk Cho acknowledged that overall loan demand remains weak and a recovery is dependent on the macroeconomic environment. He stated the company is focusing on its consumer finance business to offset sluggish demand for Puhui loans. Mr. Cho expressed confidence that asset quality will continue to improve, driven by a better portfolio mix from recent vintages and enhanced risk and collection models.

Emma Xu inquired about the current state of loan demand, the company's progress toward its full-year new loan guidance, and the potential timing for a loan growth recovery. She also asked about the sustainability of recent improvements in asset quality, specifically the C-M3 flow rate.

Answer

Chairman and CEO Yong Suk Cho acknowledged that overall loan demand remains weak and recovery is dependent on the macroeconomic environment. He noted that Lufax is focusing on its consumer finance business to counter the sluggish demand for Puhui loans. Regarding asset quality, Mr. Cho expressed confidence that the C-M3 flow rate improvements are sustainable, attributing this to a better portfolio mix, upgraded risk and collection models, and robust quality management processes.

Emma Xu of Bank of America Securities inquired about the progress of the special dividend, the company's long-term shareholder return policy, and the sustainability of the recent improvement in asset quality.

Answer

Chairman and CEO Y.S. Cho confirmed the special dividend is subject to shareholder approval at the May 30, 2024, Annual General Meeting, with a record date of June 4, 2024. He reiterated that the long-term dividend policy of paying 20-40% of annual net profit remains unchanged. Regarding asset quality, Cho acknowledged the improvement in the C-M3 flow rate but stated that management remains cautious about the sustainability of this trend given the increased risk exposure from the 100% guarantee model.

Emma Xu from Bank of America inquired about the progress of the special dividend, the company's long-term shareholder return policy, and whether the recent improvement in asset quality is sustainable for future quarters.

Answer

Chairman and CEO Y.S. Cho confirmed the special dividend is subject to shareholder approval at the May 30th AGM, with a record date of June 4, 2024. He reiterated the long-term dividend policy remains 20% to 40% of annual net profit. Regarding asset quality, Mr. Cho acknowledged the C-M3 flow rate improvement due to de-risking efforts but stated the company remains cautious about the sustainability of this trend, given the increased risk exposure from the new 100% guarantee model.