LexinFintech Holdings - Earnings Call - Q2 2025

Transcript

Speaker 6

Thank you for standing by and welcome to the LexinFintech Holdings Ltd second quarter 2025 earnings conference call. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Wei (Will) Tan. Please go ahead.

Speaker 0

Thank you, operator. Hello everyone. Welcome to our second quarter 2025 earnings conference call. Our results were released earlier today and are currently available on our IR website. Today, you will hear from our Chairman and CEO, Mr. Jay Wenjie Xiao, who will provide an update on overall performance and strategies of our business. Our CIO, Mr. Arvin Zhanwen Qiao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Xigui Zheng, will discuss our financial performance. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. Please note that all figures are presented in renminbi terms and all comparisons are made on a quarter-over-quarter basis unless otherwise stated.

Please kindly note Jay and Arvin will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvin's AI-based voices. With that, I am now pleased to turn over the call to Mr. Jay Wenjie Xiao, Chairman and CEO of LexinFintech Holdings Ltd, please.

Speaker 7

好的, 大家好, 很高兴和各位分享我们2025年二季度的业绩。我们公司坚持风险驱动、数据驱动, 实现经济化运营的战略转型, 迎来了又一个高质量增长的季度。我们面对不确定的宏观环境, 公司秉承审慎经营的策略, 盈利持续回升, 发展更加稳健。二季度交易额为¥52.9 billion, 环比增长2.4%, 营收近¥3.6 billion, 环比增长16%, 净利润¥511 million, 环比增长19%, 同比增长126%, 创下14个季度以来的新高。风险持续下降, 生态业务稳步增长, 带来了季度内优秀的整个业绩表现。公司一直以来高度重视股东回报, 致力于各种方式回馈股东。今年下半年, 现金分红比例将从上半年的25%提高到30%。7月份, 公司又宣布了未来一年内$60 million的股票回购计划。公司股东回报率进一步提升, 已经达到行业的回报前列。接下来, 我跟大家介绍二季度重点的工作和具体的进展。 第一, 独特的生态业务持续健康发展, 核心竞争力正在持续的提升, 公司的经营韧性明显增强。分期零售业务聚焦于年轻客群的刚需消费, 我们全面升级了供应链, 引入数十家行业TOP级别的品牌商家, 加强了真品会、工厂店等模式, 充分契合了用户多元化的消费需求。我们完善了一客一品一策、千人千面的经营策略, 加强了用户的洞察和运营。618大促活动期间, 电商的GMV同比增长了139%, 分期电商业务步入快速发展的通道。谷汇业务加强了属地化的经营, 深入到第一线城市, 采取了差异化的风险和竞争策略, 提高了服务能力, 高效服务, 不会小微用户, 盈利性足迹正在增长。个人消费信贷业务加速布局, 我们新增了多个头部平台合作, 占据了有利的身位, 为未来进一步的增长奠定了基础。数科业务依托标准化的风险, 标准依托标准化的系统和风险管理能力, 持续助力多家银行高效对接各大住贷平台, 提高了银行数字化风险管理能力, 广受合作银行的认可。季度内数客业务的规模及用户都有显著的增长, 发展势头良好。海外业务, 我们持续加强了中后台的能力建设, 季度季度内取得了不错的进展, 连续多个季度规模和营收环比大幅增长。 第二, 提升产品服务体验, 促进优质客户规模稳步增长。二季度我们丰富了产品矩阵, 为用户提供有竞争力的offer和灵活的还款方式, 匹配用户全生命周期的产品和服务需求, 用户粘性大幅增强。针对优质的个人消费信贷客户, 推出定价更具竞争力的新乐金卡, 满足了用户的随借随还、看日记息的一些个性化需求。产品上线后广受用户欢迎, 针对优质的普惠小微, 我们联合银行推出了灵活周转的产品, 进一步降低了用户的融资成本, 精准满足了更多普惠小微的需求。 第三, AI进一步为业务提质增效, 本地化部署的AI大模型深度运用在多个核心业务场景, 如在代购管理领域, 智能数据辅助平台实现了从案件分配、催收作业到用户经营。代购策略的全流程AI辅助, 有效地提升了代购的整体回款率。公司自研的AI智能体也有较大的进展, 目前已上线50个AI智能体岗位, 应用在策略辅助生成、策略检查、上线后的自动监测等核心业务领域, 大幅提升了公司的经营效率。公司秉承以用户为中心的服务理念, 持续优化用户服务体验, 高效响应用户的需求, 努力提升消费者的获得感与信任。我们持续聚焦消保治理、顶层设计与长效机制的建设, 推进消保融入全业务链路, 以用户需求与产品体验作为双驱动引擎, 构建预建制的权益保护体系, 推动消费者保护工作高质量的发展。季度内我们加大了消保工作的科技投入, 完善数字化模型化工具50余项, 提升了服务响应率、用户满意度。 展望未来, 三季度我们将保持规模平稳, 风险持续下降, 盈利稳步增长。住宅新规将在四季度落地实施, 尽管新规可能会对行业带来一些变化, 但我们相信新规将有利于行业的长期健康发展, 尤其有利于LexinFintech Holdings Ltd这样高度重视合规的平台。我们将积极发挥LexinFintech Holdings Ltd的业务生态协同优势, 打造我们差异化的一些竞争优势, 推动公司稳健的经营。因此, 我们维持全年净利润同比大增的整个业绩指引。接下来我把发言时间交给CIO Arvin Zhanwen Qiao, 谢谢。

Speaker 1

Thanks for joining us today for our second quarter 2025 earnings. We're delighted to report another quarter of LexinFintech Holdings Ltd, a company who successfully executed the transformation towards a business model by data analytics, risk management, and refined operations. Like microeconomic uncertainty, our proven strategy has led to continued profitability recovery and sustainable growth. In the second quarter, total GMV reached RMB 52.9 billion, a quarter over quarter growth of 2.4%. Revenue increased by 16% to RMB 3.6 billion. Net profit reached RMB 511 million, representing quarter over quarter growth of 19% and year over year growth of 126%, a record high in the past 14 quarters. The excellent quarterly results are driven by the sustained improvement of asset quality and resilient growth across our business ecosystem. The management has always placed great emphasis on shareholder returns and remains committed to improving shareholder returns through various means.

Starting from the second half of this year, our cash dividend payout ratio is raised from 25% to 30%. Also, in July, the company announced a $60 million share repurchase plan to be executed within the next 12 months. These measures will further raise the company's shareholder returns above the industry average level. Now, let me introduce the specific business progress we have made in the second quarter. First, our unique business ecosystem has sustained strong growth, which has enhanced our competitiveness and strengthened our operational resilience. Our installment e-commerce business focuses on the essential consumption needs of young customers. In the second quarter, we comprehensively upgraded our supply chain and partnered with dozens of top-tier brands to expand our product matrix. Also, we fully tapped into users' diverse consumption demands through two merchandising categories: high-quality offerings and factory outlet products.

In addition, based on our user insights, we developed and optimized our hyper-personalization approach to customize operation and risk strategies for different segments of customers. During the June 18th shopping festival, our e-commerce GMV increased by 139% year over year, putting this business firmly on a rapid expansion path. For offline inclusive finance business, we strengthened localized operations and expanded our business into lower tier cities. By adopting customized risk management and differentiated competition strategies, enhancing our service capabilities, and improving our efficiency to serve small and micro business owners, the profitability of inclusive finance business achieved steady sequential growth. For online consumer finance business, we accelerated its development by partnering with multiple leading platforms to secure a favorable market position, laying a solid foundation for future growth.

For our tech and hourly business, we leveraged our standardized systems and risk management expertise to help partner banks efficiently connect with major platforms, enhancing their data-driven risk management capabilities, and have gained wide recognition from our partner banks. During the quarter, the business saw a significant increase in business volume and number of users, maintaining robust growth momentum. For overseas business, we continue to strengthen mid and backend capabilities, making notable progress during the quarter. It delivered substantial quarter over quarter growth in both business volume and revenue for multiple consecutive quarters. Second, we strove for product service excellence to drive the growth of quality users in our online credit business. In the second quarter, we expanded our product portfolio, offering users competitive terms and flexible repayment options to meet their product and service needs throughout the full life cycle, significantly increasing user engagement.

For prime customers, we launched a product with more competitive pricing, upgraded lodging card, catering to their demands for on-demand borrowing and repayment with daily interest calculation. The product has been well received since its launch. Qualified small and micro business owners, we partnered with banks to introduce products with flexible terms, further reducing financing costs and precisely meeting the needs of the segment. Third, AI further enhanced our business quality and efficiency. Our locally deployed large AI models are deeply applied in multiple business scenarios. For example, in post-loan management, the intelligent data-driven platform has achieved full process end-to-end AI support, ranging from case allocation and collection operations to customer operation and repayment strategies, effectively improving the post-loan collection rate.

The company's self-developed AI agents have also made significant progress, with 50 AI agent roles currently deployed in key business areas such as operational strategy generation, credit strategy review, and automated monitoring, greatly enhancing our operational efficiency. The company adheres to a user-centric philosophy and strives to enhance consumer satisfaction and trust by optimizing user service and experience and responding to user needs efficiently. We remain focused on the top-level design and long-term mechanisms for consumer rights protection governance, integrating consumer rights protection into all business processes. Also, we have built a proactive consumer rights protection system to advance the high-quality development of consumer rights protection. During the quarter, we increased technology investment in consumer protection and have refined over 50 digital and model-based tools to improve service response and user satisfaction.

Looking ahead, we will maintain payable business scale, further reduce risks, and sustain profit growth in the third quarter. Although the new regulation of loan facilitation, which is to take effect in the fourth quarter, may bring some changes to the industry, we believe it will foster the healthy development of the industry, particularly benefiting platforms like LexinFintech Holdings Ltd that place high importance on compliance. We will strengthen our business ecosystem synergy to build a unique competitive advantage and ensure continued business growth. As such, we maintain our full-year guidance of achieving significant year-over-year profit growth. Now, I would like to give the floor to our CRO, Arvin. Thanks.

Speaker 4

不确定性比较高。我们快速行动, 采取有针对性的风险管理措施, 应对外部的风险影响, 确保风险继续保持下降趋势。重点聚焦于易受风行业风险波动影响客群的识别处置, 通过交互式 re-offer 大力促进优质客户的规模增长, 利用大模型升级风控能力, 提升风险决策的效率和额度价格策略的精准性。通过一系列的风险管理措施, 确保了二季度无论是新增资产还是全量资产的风险继续保持下降趋势。具体来说, 二季度新增资产 FTD 期相比一季度下降了约 5% 左右, 全量资产入催率下降了 2% 左右, 全量资产 90 天不良率下降了 1.6% 左右。下边向大家介绍一下我们在二季度采取的重点风险管理举措。一方面, 在模型识别能力建设上, 二季度我们持续优化数据模型, 并重点对易受行业风险波动影响的客户进行专项识别和处置。首先, 我们基于公司在过去多个信贷周期积累的信贷风险持续数据, 运用因果推断技术, 构建了评估客户风险对环境变化敏感度的风险识别模型。该模型效果显著, 在相同风险评级的客户中, 识别出的高敏感客户是当下的情境下风险是低敏感客户的 1.5 倍以上。其次, 我们重点应用客户画像、工作稳定、资产状况等稳定性更强的数据来加强对于长期表现风险的预测能力, 从而为优质客户提供更稳定的信贷规模, 促进优质规模的一个增长。第二部分是继续加强正负向风险管理。一方面, 针对上述模型识别出的易受行业风险影响, 风险上升幅度比较大的客户及时采取清退降额处置, 提前应对潜在的行业风险影响。另一方面, 持续提升优质客户的 offer 能力。二季度通过上线交互式增信、授信、量化和人工相结合的个性化实时 re-offer, 大额低息的新金融产品等, 保持了优价客户规模和动支客户的环比上涨和增长。三季度, 我们将继续加强正负向相结合的风险管理策略, 持续保持风险的稳定下降趋势, 促进优质规模和客户数的上涨。第三, 在电商方面, 二季度我们对商城的进行了持续的风险管理体系的升级, 在搜推搜索推荐 offer 匹配、交易审批、re-offer 建立毫秒级的实时风险决策能力。在控制风险的前提下, 满足不同消费者的商品交易需求。基于独立的风控体系, 电商模型的识别能力环比提升了 30% 以上。商城服务, 尤其是优质用户的授信和下单通过率大幅提升, 促进电商业务的快速增长。最后, 我们继续加大智能化风控工具建设和应用, 利用最新的大模型技术研发和落地了额度机器人。在额度决策上, 决策的效率和效果均取得了良好的效果。定价机器人通过实验数据建立价格曲线, 动态优化利率策略。在风险可控的前提下, 大幅改善了降价带来的规模增长。未来, 我们将持续加大大模型在风险管理上的应用探索, 推动风险管理存量化风险管理, 向智能化风险管理方向迭代升级, 构建在风险管理能力上的领先优势。单季度, 外部环境和行业波动不确定性依然比较大。我们将继续加强风险管理, 积极应对风险变化, 利用风险资产自动寻检和处置能力, 加强准入交易管理, 提升高风险客户的处置能力。同时, 继续优化授信额度策略, 更好地满足优质客户的需求, 全面提升用户体验, 促进优质资产规模继续增长, 保障资产风险水平继续下降。下面有请 CFO James Xigui Zheng 介绍公司二季度的财务表现情况。

Speaker 1

Thanks, Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the second quarter. In the second quarter, while the macroeconomic and industry environment remained complex and uncertain, we took swift action to address the potential impacts and maintain the downward trend in risks. Specifically, we focused on identifying customers vulnerable to industry fluctuations and taking measures to mitigate potential risks. Also, we adopted interactive re-offers to drive the increase of high-quality asset volume. In addition, we leveraged large models to upgrade our risk management capabilities, improving the efficiency of risk decision-making and the accuracy of pricing and credit line strategies. Thanks to the initiatives we've taken, risks of both new and overall assets continued to decrease. Leading risk indicator for new loans, first payment default (FPD), over seven days of the second quarter declined by about 5% compared to the previous quarter.

On total loan portfolio, day one delinquency ratio decreased by about 2% and 90-day delinquency ratio decreased by 6% quarter over quarter. I will introduce in detail the key initiatives we've taken for the second quarter. First, in terms of risk identification, we continued to optimize data models in the second quarter, focusing on identifying customers who are vulnerable to industry fluctuations and mitigating potential risks. Based on the accumulated data on time series changes of credit risk across multiple credit cycles, we employed causal inference techniques and scenario simulations to develop a risk identification model that assesses customers' risk sensitivity to environment changes. The model has proven to be highly effective. Among customers of the same risk rating, those who are identified as highly sensitive exhibit 1.5 times risk level of low sensitivity customers in the current environment.

In addition, we focused on using data that shows greater stability features such as customer profiles, job stability, and personal asset status to enhance our predictive capability for loan provides and risks, thereby providing more reliable credit services to high-quality customers. Second, we continue to strengthen risk management through preventive and proactive approaches. For customers identified by our model who are vulnerable to external environment changes and show higher risks, we've promptly taken measures such as reduction or suspension of their credit lines in order to mitigate the potential impacts of industry risks. Meanwhile, we continue to enhance the competitiveness of offers for quality customers. In the second quarter, we launched a mechanism for customers to supplement credit enhancement documents, conducted personalized real-time re-offering, which combines machine review and manual review, and launched a braided legend card, a new financial product featuring higher credit amount and lower fee rate.

These measures helped drive the asset volume of prime customers and number of active customers to increase quarter over quarter. In the third quarter, we will continue to strengthen the risk management strategy that combines preventive and proactive approaches to sustain the risk reduction trend while expanding high-quality assets and customers. Third, in terms of e-commerce, we further upgraded the risk management system for e-commerce, which is an independent system from online consumer finance business. Specifically, we established millisecond-level real-time risk decision-making capabilities across key processes, including search recommendations, offer matching, credit approvals, and re-offer, etc. This ensures we meet customers' diverse consumption needs while maintaining risks well under control. Based on the independent risk management system, the risk identification capability of e-commerce platform improved by over 30% compared to the previous quarter.

Approval rates for credit application and order placement of platform users, especially quality users, have significantly increased, which has promoted the rapid growth of e-commerce business. Last but not least, we continued to strengthen the development and application of intelligent risk management tools. Leveraging the latest AI large model, we have developed and implemented the credit line robot and pricing robot, which has delivered favorable results. The credit line robot has improved the efficiency and effectiveness of credit line decisions, while the pricing robot significantly improved the volume growth from pricing reduction by establishing price curves based on experimental data and dynamically optimizes pricing strategies. In the future, we will continue to explore the application of large models in risk management, advancing our capabilities from quantitative risk management to intelligent risk management and building a leading edge in risk management capabilities.

In the third quarter, while external uncertainties and industry fluctuations remain, we will continue to strengthen our capabilities in automated high-risk asset screening and resolution, further refine credit approval and lending management, and enhance customer onboarding and transaction management while swiftly addressing high-risk assets. In the meantime, we will further optimize credit approval and credit line granting strategies to better meet the needs of quality customers, improve user experience, and foster continued quality assets growth. These efforts are aimed at ensuring that key risk indicators remain on a downward trajectory. Next, I will hand over to our CFO James Xigui Zheng to provide a review of the company's financial performance for the second quarter.

Speaker 7

Thanks, Arvin. I will now provide a detailed overview of our second quarter financial results. Please note that all figures are presented in revenue returns and all comparisons are made on a quarter over quarter basis unless otherwise stated. We are pleased to announce another quarter of solid financial performance, marked by robust revenue growth, sustained profitability, and expanding margins. We're on track on our profitability recovery trajectory. Revenue recorded ¥3.6 billion in the second quarter, representing a 16% increase quarter over quarter. Net income grew strongly by 19% quarter over quarter and 126% year over year to reach ¥511 million. Our net income margin increased to 14.3% from 13.9% last quarter. Net income take rate, calculated as annualized net income divided by the average loan balance, increased 34 basis points to reach 1.92%.

The net income, net income margin, and net income take rate kept reaching record highs for the past 14 quarters, laying a solid fund to profit expansion. This set of financial results underscores our ability to turn around and drive sustainable growth in a dynamic market condition. To gain a clearer understanding of our business growth dynamics, let's take a holistic view of our financial results. First, if we add up credit facilitation service income and tech empowerment service income, net of credit costs, including the provisions and the fair value changes, and the funding costs, we come up with a net revenue of the credit business. The net revenue provides a more accurate reflection of our credit business performance as it absorbs the impact of a different accounting treatment for capital-light and capital-heavy business, as well as the shifting mix across quarters.

In the second quarter, the net revenue of our credit business increased by 10%, or ¥183 million, to ¥2 billion. The net revenue of our e-commerce business, defined as the e-commerce revenue net of cost of inventory sold, increased by 71%, or ¥40 million, to ¥97 million. The total net revenue added up to ¥2.1 billion. Operating expenses, including self-marketing, research and development, general and administrative expenses, processing and servicing costs, tax, and others, increased by 9.8%, or ¥142 million, to ¥1.6 billion. If we deduct total expense of ¥1.6 billion from the total net revenue of ¥2.1 billion, we get a net income of ¥511 million, increased by 19%, or ¥81 million quarter over quarter.

Driving the second quarter's strong financial performance are the following three business highlights, namely the flexible volume shift between business models, continued improvement in asset quality alongside sufficient provisioning, and a robust growth in our e-commerce business. Now, let me elaborate more on the three business highlights. First, flexible volume shift between business models highlights operational resilience, driving stable growth in volume, revenue, and net profit. From a unit economics perspective, net income take rate achieved 1.92% this quarter. The 34 basis point improvement quarter over quarter is mainly driven by an 82 basis point increase of revenue take rate of credit business, which is calculated by dividing the net revenue by the average loan balance. During the quarter, the net revenue take rate of credit business increased from 6.69% to 7.51%.

The increase was mainly driven by the increase of APR of capital-heavy model, which increased to 23.2% in the second quarter from 22.6% last quarter. Also, the stabilization of early payoff impact happened during the last quarter, partially offset by the increase of funding costs. The improvement of net revenue take rate reflects our business resilience in a dynamic and complex environment. In the second quarter, we have observed a reduction in the supply of funds for capital-light business due to the fluctuation related to the new regulation, leading to higher funding costs for both capital-light and capital-heavy models. To offset the impact, we proactively adjusted our business mix, switched more loan volumes from capital-light model to capital-heavy model.

In the second quarter, the capital-light model accounted for 20% of GMV, decreased from 27% in the first quarter, mainly driven by the decrease of loans from ICP model, which only accounted for about 15% of GMV, decreased from 24% in the first quarter. The proportion of capital-heavy model increased to 80% from 73% in the first quarter. As you know, the borrowers from capital-light model typically have relatively higher risk profiles. To reflect this risk premium, the average APR of new loans and the capital-heavy model increased. At the same time, the provision increased due to the increase of loans and the capital-heavy model. The smooth switch was supported by our enhanced risk management capability, which equipped us to accurately assess borrower risk, enabling risk pricing and product offering to optimize profitability and volume growth. Second, asset quality sustained the improvement train, and the provision remained prudent and sufficient.

Our asset quality has continued to improve for four consecutive quarters. In the second quarter, 90-day delinquency ratio declined by 16 basis points to 3.1%. FPD7 of new assets further came down by about 5%. Day one delinquency rate of total assets also decreased by about 2% quarter over quarter. Also, our provision remained prudent and sufficient. As mentioned above, in the second quarter, our total credit cost, including three provisions line items and the fair value changes of financial guarantees derivatives, increased by 13.6% quarter over quarter, despite improved asset quality and a decreased loan balance. It is important to note that due to the net accounting policy we have adopted for change in fair value of financial guarantee derivatives and loans in the fair value account, the amount was partially offset by guarantee income and recorded as a net value in our P&L.

As such, it only represents part of the actual full provision. As another indicator of the sufficiency of our provisioning, our provision coverage ratio remained ample at 270%, up by two percentage points quarter over quarter, and reached the highest level in the last four quarters. Third, e-commerce bins gained further traction. Our e-commerce bins are deeply integrated into our ecosystem, creating strong synergies, and therefore becoming a unique competitive advantage. E-commerce bins not only generate a gross profit by selling merchandise, but also create interest income by providing installment services to customers. Around 97% of e-commerce customers choose to finance their consumption with our installment service. In the second quarter, e-commerce GMV witnessed a substantial quarter over quarter growth of 80% and a year-over-year growth of 117%. E-commerce bins' gross profit recorded ¥97 million in the second quarter, up 71% quarter over quarter.

Going forward, we continue to expect a strong sequential GMV growth for the e-commerce business. Next, I'll go through some specific financial statement items. For our income statement on the revenue side, total revenue reached ¥3.6 billion, representing a growth of 16% quarter over quarter. Credit facilitation service income amounted to ¥2.3 billion, up 4% quarter over quarter, driven by an increase of loan volume and the capital-heavy model, higher APRs, and partially offset by the higher funding costs. Tech empowerment service income increased by 33%, or ¥205 million to ¥830 million, mainly thanks to the release of provisions of revenue and ICP model, reflecting better than expected asset quality performance and the increased income from our referral services. E-commerce platform service income increased by 69% to ¥487 million, driven by increased GMV.

On the cost and expense side, total operating expenses, which include processing and servicing costs, self-marketing, research and development expenses, general and administrative expenses, increased by 10% to ¥1.4 billion, mainly driven by the increase of self-marketing expenses and processing and servicing costs. For balance sheet items, as of June 30, our cash position, which includes cash, cash equivalent, and restricted cash, was approximately ¥4 billion. Shareholders' equity remained solid at about ¥11.6 billion. Looking ahead, despite ongoing market uncertainties and an evolving operating environment, the management maintains its four-year guidance of achieving a significant year-over-year growth in net income. Furthermore, we remain committed to enhancing shareholders' value, as demonstrated by our recent $50 million share repurchase program and $10 million CEO share purchase announced in July. The board has approved a cash dividend of $0.194 per ADS for the first half of 2025.

The share repurchase program, together with our dividend policy, boosted our total shareholder return to above industry average levels. Going forward, we will continue to evaluate opportunities to ensure we deliver optimal value to our shareholders. This concludes our prepared remarks for today. Operator, we're now ready to take questions.

Speaker 6

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your first question comes from Emma Zhu with BFA Securities.

谢谢给我这个提问的机会，恭喜公司取得了这个非常优秀的业绩。那我第一个问题是想问一下，就是住宅新规出台也已经有一段时间了，那对公司的影响是怎样的，公司是怎样应对？然后第二个问题想问一下，这个二季度公司各生态业务发展迅速，能否请管理层分享一下公司对生态业务的后续战略及展望？那我也简单翻译一下我的问题。 Congratulations on the good result amid a challenged environment. I have two questions. The first one is about the new regulations. As the new regulation on loan facilitation has been rolled out for a few months, what impacts has the company observed, and what measures will you take to address the impacts? The second question is about the ecosystem. The ecosystem has developed rapidly in the second quarter. Could you share more on the development strategy and outlook of your ecosystem business?

Speaker 1

好的, 这两个问题我来回答一下。住宅新规其实出台已经有一段时间了, 但还没有开始执行。其实行业里面已经受到了一定的影响。我们在观察到我们自己的时候呢, 我们看到其实很明显资金的供给上是开始变得更加紧张一点了, 是吧? 所以会导致整个资金成本有所上升, 是吧? 另外一个呢, 那就是我们看到它会导致整个的一个回收率其实是有一定的下降的, 所以说也会带来一定的整个的一个风险的波动。

This is a translation for Jay's answer. Thanks for the question. Yes, the new regulation on loan facilitation has been rolled out for some time, but not yet satisfied. We think the industry has been impacted by a bit. For LexinFintech in the short term, we did observe funding supply tighten a bit, which led to an increase in the funding costs of the second quarter. Also, some risk metrics experienced minor fluctuations, for example, collection rate, and this decreased a little bit.

但是我们其实在住宅新规出来以后，我们就开始在主动的做了一些整个的一个调整。我们首先还是提早了进行干预，我们收紧了整个的审计的策略来应对未来可能潜在的一些风险的波动。现在为止，我们可以看到，其实我们虽然说在整个回收率上略有一些影响，但是我们在整个的一个入退率还是保持了整个的下降，所以能够比较好地去对冲这一部分整个风险波动的影响。另外一块呢，就是我们还是有非常独特的整个的一个业务生态，我们通过我们灵活地来调整我们的一些业务的一些结构和布局，也可以来对冲一部分未来潜在的整个的影响。

Actually, we have taken active actions as early as ethical. More specifically, we tightened our risk management strategy to mitigate the potential impacts of second-line risk fluctuation. As I mentioned, collection rate decreased a little bit, but our day one delinquency also decreased, so the impact of that is travel. Furthermore, leveraging our renewed business and business client advantages, we have the flexibility to adapt our business model to navigate the challenges effectively.

We are still maintaining our guidance for a significant year-over-year increase in full-year profit.

In the long run, the implementation of the new regulation may bring some changes to the industry, but it will foster a more standardized, sustainable, and healthier industry environment, which benefits compliance platforms like LexinFintech Holdings Ltd. In the past, we also experienced several rounds of regulation, and I think we have the experience and flexibility to adjust our business model to navigate the challenges. For LexinFintech Holdings Ltd, we firmly support regulators' efforts to democratize and drive the sector, and we'll continue to adhere to our customer-centric philosophy, enhance our ecosystem synergy to ensure continued business growth. As such, we maintain our four-year guidance of achieving significant year-over-year profit growth.

During the 618 period, we achieved very strong growth, right? Compared to last year’s 618, our growth rate exceeded 100%.

Regarding your second question about our development of the business ecosystem, actually, our business ecosystem achieves various progress. For our industry's dominant e-commerce business, LexinFintech Holdings Ltd is the first independent e-commerce platform in China and has been developing this business for over a decade. It has been a crucial part of our ecosystem. As part of our transformation, it was a business model driven by data analytics and risk management. In the last year, we have built an independent risk management system for the e-commerce business. You can see in the past several quarters, our e-commerce longer-term volume has sustained significant growth, particularly in the June 18th shopping festival, our GMV increased by over 100%.

另外几个业务呢, 像普惠, 其实我们还是定位在线下来服务线下的整个的小微及优质的个人消费者, 是吧? 这个业务呢, 其实我们在二季度我们也能够看到这个业务它的整个的一个增长的趋势也是不错的, 尤其是说我们采取了整个的低线城市的整个的一个布局的整个的策略。我们可以看到普惠的这一块的整个的资产是我们自主获客的整个的一个渠道, 而且它的整个的一个风险表现也是长期低于我们整个大盘的整个的风险表现的。这块业务还是相对非常稳健的正在增长的。另一块呢, 那就是我们的数科业务, 数科业务在这个季度我们还是看到它取得了不错的一个突破, 是吧? 我们上线了多家的新的机构, 并且对接帮助这些新的机构对接一些大型的住宅平台, 也帮助他们能够更好地提升了数字化的整个的一个风险管理和资产管理的整个的能力。在海外前面也提到, 其实海外我们已经也是连续多个季度取得了规模, 还有营收有不错的整个的一个增长。未来在海外方面呢, 我们也会持续地去加强我们自身的整个的能力建设, 来推动海外业务长期健康持续的发展。

For our offline business, we will continue to expand our business into lower-key cities. Just to emphasize, this channel we target at serving the small and micro business owners, and the differentiated advantages of LexinFintech is that we have our own proprietary self-developed direct sales team. In the second quarter, we cooperated with several new owners, helping them to connect with large platforms and banks and improve their digital risk management capability. For our tech empowerment business, leveraging our standardized system and risk management expertise will continue to help them to connect to the large platforms and to enhance their customer acquisition capability. For our overseas business, we have delivered a total over quarter sequential growth in those business volume and revenue for multiple consecutive quarters. That will continue to enhance team development in order to sustain healthy and sustainable.

Speaker 6

Your next question comes from Alex Ye with UBS.

Speaker 8

感谢管理层给我这个提问的机会。我这边第一个问题是想请问风险这一块, 就是针对现在可能外部也会在接下来可能一两个季度会可能会看到一些波动和不确定性。想请教一下咱们这边风险风控体系如果能够去更好地应对这样子潜在的一些风险的一个变化。然后第二个问题想请管理层可不可以带给我们进一步分析一下这个季度我们看到净利润这块还是有一个持续natural提升, 想问问看背后的一个驱动因素和一个展望。谢谢。 My first question is on asset quality. In light of the current uncertainty, the general environment driven by the regulatory change, how does the risk management system help you better respond to the potential risk fluctuations? The second question is regarding your ongoing tech improvement. Could you also give us more color on the drivers on the unlined improvement? Thank you.

Speaker 4

关于风险的问题由我来回答一下。针对这个新规引发的行业的一个不确定性风险，我们在4月份开始就收紧了新发放资产的风险审核标准，然后保障新发放资产在外部风险不确定的情况下仍能保持一个下降的一个趋势。同时针对这个存量资产，我们加强这个还款提醒以及代扣能力的一个升级，保障我们存量资产的一个入催也是一个下降趋势。同时呢，我们尤其是针对这些易受行业风险波动影响的敏感客户进行有针对性的识别和处置。然后我们通过这个优化数据和提升这个模型能力，将易受这种行业影响波动的客户更好地识别出来，然后及时地采取一个清退和降额的处置，然后让我们能够在这一轮的整个风险波动的情况下仍能保持一个风险的平稳和稳健。另一方面呢，除了加强这个风险客户的这个互相处置，我们也积极地去推动和促进优质客户的一个规模增长，提升和优化我们的一个资产结构，通过分子、分母两个方面共同的一个调整，然后提升我们的一个资产质量，保证我们的风险的一个持续稳健。

This is a translation for Arvin's answer. In response to the uncertainty of the industry risk development arising from the new loan facilitation regulation, we actually take proactive measures as early as in April. We tighten the risk approval standard as early as in April for new practice in order to maintain a downward trend for new risks. For vintage or existing loans, we improve the early reminders for the loan repayment in order to reduce the debt on delinquents. We implemented targeted measures for customers vulnerable to industry risk fluctuation. For customers identified as high risk sensitive by our models, we've taken prompt measures such as reduction and suspension of their credit lines to mitigate the potential impact of sector-wide rates. This has helped maintain steadily improving risk performance. We continue to drive high-quality asset growth, which will lay a solid foundation for our future high-quality development.

We leverage advanced AI models to inform our risk management system. We also refine customized pricing strategies, which have increased the offer competitiveness for prime customers while improving the overall user experience, further supporting our high-quality asset growth. Overall, we not only reduce the formation of high-risk assets, but also try to drive the growth of high-quality assets.

ensure the steady development and growth of our business.

Third, we also strengthen provisioning to enhance our risk buffer, enhancing our capability to cope with future uncertainties. In the second quarter, we increased provisioning by 13.6% to RMB 1.04 billion. The reinforced provisioning, along with improved risk performance, showed our provision coverage ratio to rise to 270%. To summarize, we will continue to prioritize high-quality asset growth while also enhancing provisioning and maintaining a state of steadily improving risk performance. In the meantime, while we continue to strengthen risk identification and management, we will also ramp up the application of intelligent risk management tools to increase efficiency.

Speaker 7

Okay, I will take the net profit takeaway question. Almost a year ago, we told the market that thanks to the company's turnaround initiatives, we will be able to gradually improve the business profitability, and that this will be reflected in our net profit take rate. I'm happy to tell you that in the last four quarters, we have successfully delivered the promise of improving 20 to 30 basis points each quarter to reach 1.92% in Q2. We're now on track for the goal by the end of the year. As for Q2, really the credit goes to the strong revenue growth from both the credit and the e-commerce business, as I mentioned in my prepared script. Specifically, the net revenue of our credit business increased by 10% quarter over quarter, or about RMB 183 million to RMB 2 billion.

As a reminder, as I mentioned earlier, if we add up the credit facilitation service income, the tech empowerment service income, net of credit costs, including the provisions and the fair value changes, and the funding cost, we come up with a net revenue for the credit business. If you further break down to the next level, the net revenue of the capital-heavy model remains stable, driven by the increase of loan volume under the capital-heavy model, higher APRs, and partially offset by higher credit costs and funding costs. By the way, as Arvin mentioned earlier, the increase of credit costs is mainly driven by our prudent provisioning policy.

The net revenue of the capital-light model, on the other hand, increased by 33% quarter over quarter, or about RMB 205 million to RMB 830 million, mainly thanks to the income from our referral services and from the relief of provisions of revenue under the ICP model. This really reflects the better-than-expected asset quality performance within the ICP. In addition to the credit business, the net revenue of our e-commerce business, defined as the e-commerce revenue net of the cost of inventory, increased by 71%, or RMB 40 million to RMB 97 million, also contributing to the increase of our profitability. With the strong increase of revenue offsetting by some increases from the operation costs and expenses, we get the net profit takeaway of 1.92%, a 34 basis point higher than the previous quarter. This fully demonstrates the uniqueness and the strong growth potential of our diversified business ecosystem.

Looking forward for Q3, we continue to expect relatively stable volume, improved risks, strong quarter over quarter net income growth. Therefore, we continue to expect the net income take rate will improve in a similar pace as before.

Speaker 6

Your next question comes from Alan Chen with Citibank.

Speaker 3

感谢领导给我一个提问的机会, 我是花旗的Alan。我想很快请教一个关于股东汇报的问题, 关于到我们7月份推出了一个千万美元的回购计划, 就请管理层能不能帮我们分享一下这个回购计划背后的一些考量。然后很重要的是就往后看, 咱们不管是通过回购也好, 分红也罢, 咱们现在还有没有一些什么计划或者空间进一步加大这个股东汇报, 非常感谢。我很快翻译一下。 Thanks for taking my question. This is Alan from Citibank. I just have a quick question on shareholder return. Notice that in July, you have announced a $50 million share repurchase program. I just wonder if management, if you could give us a little bit more color on the thought process and rationale behind the buyback program. On top of that, if management has any plan to further boost shareholder return in the future. Thanks.

Speaker 1

好的, 这个问题我来回答一下。公司在7月21号已经发了公告, 将会在未来12个月内来回购最高$50 million的整个的一个股票。此外, 还有我个人也会将通过自有资金来增持公司最多$10 million的整个的股票。若本次的整个的一个回购金额全部执行的话, 那结合我们此前有两次上调了整个的分红派息率, 公司整体的整个的股东回报水平已经能够达到行业的整个的一个前列了, 是吧? 结合当前不到四倍的整个的一个PE的估值吧, 我们认为公司还是具备比较好的整个投资价值。本次回购和增持也充分彰显了公司管理层对于公司未来发展前景的整个的一个坚定的信心, 也再一次证明了公司在不断提升股东回报方面具有这样的能力, 还有这样的一个诚意。在回购的整个具体的实施方面呢, 我们将会在本次季报发布之后启动开始启动回购。我们会严格遵守回购的交易相关规则, 参照市场具体情况决定回购的整个的一个具体的执行, 并且我们会按季度向市场汇报我们整个回购的一个进度。公司还是充分重视股东的整个回报, 未来公司也将会持续探索通过各种方式来将公司的整个价值回馈给股东。

This is the translation of Jay's answer. On July 21, we announced a 50 million share repurchase program to be executed over the next 12 months. In addition to that, I plan to purchase up to $10 million worth of shares using my personal funds. If the company's repurchase program is fully executed, alongside the key interest rate in the cash dividend payout ratio, our total shareholder return would rise above the industry average. With a forward PE ratio below all time, the company has compelling investment value. This repurchase program underscores the management's confidence in the company's value and reinforces our commitment to delivering value to our shareholders. In terms of repurchase execution, we will implement the program after the second quarter results meet and will strictly follow repurchase rules while taking into account market conditions. We will make regular updates on repurchase progress in our quarterly earnings release.

As I said, the company values shareholder return and will continue to explore various means to deliver value to our shareholders.

Speaker 6

Thank you. That does conclude our question and answer session. I'll now hand back for any closing remarks.

Thank you. This conference is now concluded. Thank you for joining today's call. If you have any more questions, please do not hesitate to contact us. Thanks again.