Qfin Holdings - Q3 2019
November 27, 2019
Transcript
Operator (participant)
Good day, everyone, and welcome to the 360 Finance Third Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, you may signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may Press Star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Matthew Li, the company's IR director. Sir, please go ahead.
Matthew Li (IR Director)
Thank you, Jimmy. Hello, everyone, and welcome to our third quarter 2019 earnings conference call. Our results were issued earlier today and can be found on our IR website. Joining me today on the call are Mr. Haisheng Wu, our CEO and director, Mr. Alex Wu, our CFO, and Mr. Yan Zheng, our Vice President. Before we begin our prepared remarks, I would like to remind you of the company's safe harbor statement in connection with today's earnings call. Except for any historical information, the material discussed on this conference call may contain forward-looking statements. These statements are based on our current plans, estimates, and projections, and therefore, you should not place an undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement.
For more information about potential risks and uncertainties, please refer to the company's filings with the ICC in its registration statements. In addition, this call will be also include the discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference, conference call are in renminbi. I will now turn the call over to our CEO, Mr. Wu Haisheng.
Haisheng Wu (CEO)
Hello, everyone. Thank you for joining our call today. As a leading fintech company supported by an internet giant, the 360 Group, we have always prided ourselves on our market position and sustainable growth. In the third quarter, we continued to achieve healthy and solid growth as we remain committed to executing our strategies in place. Our total registered users increased by 15% from last quarter to 126 million, and the loan origination volume increased by 16% from the previous quarter to RMB 56 billion. We have firmly implemented our strategic transition from a traditional loan facilitator to a technology enabler through the capital light model. In this quarter, loans facilitated under capital light model accounted for 20% of total loan origination volume, significantly increased from 8% in last quarter.
This has not only allowed us to steadily reduce overall operational risk, but also have more free cash to support our daily operations and the pilot projects. In the third quarter, we have devoted effort to delicacy management for cost and operations management. We managed to bring the average user acquisition cost down from last quarter, which improves the lifetime value of our borrowers. We have strengthened our cooperation with financial institutions and further diversified our funding sources, and as a result, reduced our overall funding costs. As of the end of Q3, we had established a relationship with 74 financial institutions, increased from 62 a quarter ago. Our overall funding cost was 8.44% in this quarter, decreased from 8.83% in Q2. Recently, we have observed regulatory tightening and market volatilities.
We have been always considering regulatory compliance as a top priority in our business operations and to actively build out a number of measures to cope with the evolving regulatory environment. Backed by largest internet security company in China, we are honored to join efforts with regulators and their leading companies to establish an anti-scam alert system. In addition, we cooperated with National Internet Finance Association of China to invite regulatory departments, renowned media, and the leading peer companies to advocate for anti-scam and protecting customers' property. Furthermore, we have received approval from People's Bank of China to connect to its credit system, which will allow us to download and submit data on borrowers' credit profile. We believe this will enhance our risk management capabilities by increasing the effectiveness of credit underwriting and the borrower cost of default.
We also increased the adoption of AI robots in collection of default loans and strengthened our quality inspection for collection activities.... Additionally, we have joined hands with Shanghai Jiao Tong University to establish a lab to conduct research on the most cutting-edge AI algorithm for application in Fintech industry. This is an important step for us in developing AI technology and recruiting high-quality AI talent. In response to the short-term market uncertainties, we expect to adopt a relatively conservative measure of customer acquisition, yet remain confident in meeting our full year guidance. In the long run, we will continue to focus on the quality of growth and the safety of operations, while maintaining our reasonable growth rate. We are committed to delivering greater value to our stakeholders.
And one more thing, we are glad to hear that FountainVest, one of the leading private equity funds in China, has completed a deal with several of our pre-IPO investors, and it became a significant shareholder through 360 Finance. FountainVest targets to act as a long-term institutional investor of our company, whose investment helps to improve our shareholder structure and the expectation to resolve the overhead issue. FountainVest comes with deep understanding of China market and the Fintech industry. We expect them to provide us with valuable advice and insights on corporate strategy and capital market, among other things. On behalf of the company, we extend our warmest welcome to FountainVest as our shareholder and their board member. With that said, I will now turn the call over to our CFO, Alex, to discuss our financial results.
Alex Xu (CFO)
Thank you. Hello, everyone. Since our operational and financial results were released earlier today, I will only comment on a few highlights. As Haisheng just mentioned, we achieved a solid operational results in a lot of areas of our business, which in turn generated healthy financial results. Compared with Q2, our total net revenue in this quarter increased by 16% to RMB 2.6 billion. Operating income increased by 14% to RMB 924 million, and net income increased by 19% to RMB 734 million. In addition to achieving solid and healthy growth, we have firmly implemented our strategic transition from the traditional loan facilitator to a technology enabler through the capital light model.
In this quarter, loans facilitated under the capital light model accounted for 20% of total loan origination volume, significantly increased from 8% in the last quarter. In this quarter, the revenue generated from the capital light business was RMB 336 million, or 13% of the total net revenue, compared with RMB 114 million, or 5.1% of the total net revenues in the previous quarter. This has not only allowed us to steadily reduce overall operational risk, have more free cash to support our daily operations and pilot projects, but also provided us with more cushion for the uncertainties down the road. More importantly, we have constantly adopt a prudent policy for financial and operational management.
This is illustrated by our commitment to originating more on-balance sheet loans to better match our revenue with cash flow, as long as the cost of consolidated trusts were reasonable. In the third quarter, on-balance sheet loans accounted for 16.6% of total loan origination volume, increased from 9.5% in the last quarter. On the other hand, we maintain our prudent attitude towards risk management to ensure sufficient provisions for credit risks related to both on and off-balance sheet loans. Our prudent provision policies also reflect on, the other service fee revenues. That's the item in the P&L, which include the revenue from, excessive guarantee liabilities released upon expiry of the underlying loans. In this quarter, the other service fee revenues increased by 42% from the previous quarter to RMB 282 million.
This was primarily due to the increase in the revenue from referring borrowers to our platform and the increase of the release of guarantee liabilities mentioned above. Although these strategic initiatives enable us to reduce our overall operational risk, we need to be frank that they have caused a negative impact on our profitability. As a result, we have rolled out a number of initiatives to cut costs and offset the impact on our earnings. Firstly, we have strengthened our cooperation with financial institutions to diversify our funding source and trim down overall funding cost. Our overall funding cost was 8.4% in the third quarter. In July, we successfully issued RMB 1 billion ABS with an attractive comprehensive cost at about 5.6%, despite the challenging domestic ABS market.
Secondly, through our delicacy management of sales and marketing, we managed to bring the average user acquisition cost down to CNY 246 per each user, we granted credit line, compared with CNY 262 in the previous quarter. Thirdly, we are striving to reduce our effective tax rate, which will, we expect to be reflected in our future earnings. In response to short-term market uncertainties, we expect to adopt a relatively conservative measure of customer acquisition going forward in the near term. However, we remain very confident in beating our full-year guidance and maintaining sustainable growth in the long run. With that, I will conclude our prepared remarks and open the floor for questions. Thank you.
Operator (participant)
Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and two. At this time, we'll pause momentarily to assemble the roster. Our first question today comes from Steven Chan from Haitong International. Please go ahead with your question.
Steven Chan (Senior Dealing Manager)
Good morning. This is Steven Chan of Haitong International. Three quick questions. First of all, about take rate of the capital light model and the take rate of the guarantee model. Could you share with us what's the take rate in Q3 for each of them? And your plan to, how long are you going to convert your capital light model into 100% of, you know, of your whole loan book? That's the first question. Second question, I noticed that there was an item related to interest expenses, which is net after the total operating cost. And then at the same time, there is a short-term loan of about CNY 1.5 billion.
So, could you share with us, what, what's that about? And finally, of course, we noticed that, you know, your provision has increased quite substantially for both... You mentioned about, even for all balance sheet as well. So, could you share with us, is it more related to, sort of like, an increase in general provisions, or because, or is it more related to an increase in, sort of like, delinquency, so that's why you have to make your provisions? And, what, what's the guarantee cost, currently, in the third quarter compared with second quarter? And finally, a very short one. Well, sorry that I, could you remind us your full year guidance again? That's it. Thanks.
Alex Xu (CFO)
Thank you, Steven. I will take the first question. So the take rate under the... we call it this traditional facilitation model, the gross take rate is around 14% in the third quarter. It's quite relative stable. And for the capital light model, it actually decreased a little bit to below, slightly below 10%. That's because, you know, in the second, in the third, second quarter, we primarily offload assets priced at the high end to the financial institution partners. In the third quarter, we're starting to offload the assets with slightly lower APR to the financial institutions, which will naturally bring down the take rate for the capital light model. That's within our expectation. The second question, I'm not quite get it.
Which number are you looking at, from the P&L?
Steven Chan (Senior Dealing Manager)
Okay. You were talking about in P&L in the third quarter, there is an item called, you know, RMB 25.5 million. You know, it's an-- I think it's an interest expenses below the total income from operations. You know, total operating costs and expenses and income from op- you know, below the item income from operation, there is an item, interest expenses net, which is RMB 25,546. And correspondingly, we are seeing the short-term loans of RMB 1,535 million. So, just want to know what, you know, I suppose you guys should be cash rich, so what's that about? Is that related to ABS or, or-
Alex Xu (CFO)
Yes.
Steven Chan (Senior Dealing Manager)
- Something else?
Alex Xu (CFO)
Yes, that's related to... Yes, Steven, you are right. That's related to ABS.
Steven Chan (Senior Dealing Manager)
Okay, okay. And then provisions, is it more related to general or specific provisions, the increase?
Alex Xu (CFO)
The third question-
Steven Chan (Senior Dealing Manager)
The guaranteed costs.
Alex Xu (CFO)
Yeah. Maybe our vice president for the risk management, Mr. Chen, can answer that in Chinese, and maybe translate it in English. Okay.
Yan Zheng (VP)
... higher. But actually we can see historically, our regulatory policies have always been quite conservative. You can see that in this quarter's revenue, part of it is from recovering amounts from previous years' provisions. So we believe that a more conservative regulatory policy can enhance the company's overall ability to mitigate risks.
Matthew Li (IR Director)
Stephen, this is Matthew. Let me translate for Mr. Zheng. So, in the third quarter, if you annualize, our provision rate was around 7.1% of the loan volume. It's slightly higher than 6.18% in the second quarter. But if you look at the other revenue item on our PNL, which includes the release of guarantee liabilities upon the provision of underlying loans. So this illustrates our consistently prudent treatment policy for provision related to credit risk. In general, we believe our prudent policy will improve our overall resilience for risk in the long term.
Steven Chan (Senior Dealing Manager)
Sorry, can I have, you know, very, very quick one? So do you have any guidance for provisions? Because now you have make it up to 7.1. Do you think that, you know, the provision will likely to go down in the final quarter? And then, as I mentioned, what's your full year guidance? And also related to question one again, what would be the timing for you to have a 100% capital light loan portfolio?
Alex Xu (CFO)
Let me take that, Steven. So, for the guidance, we only provide, we maintain our guidance for the full year. We give the guidance early this year on the revenue. It's CNY 8 billion-CNY 8.5 billion. We are very confident, as I just mentioned, we are very confident to beat that guidance. And, you know, our company is very conservative in terms of the verbal, you know, communication. We don't revise it up or down, down the road. We just make sure that we beat the guidance. So that's, that's the... Hopefully, I can answer that question to you.
Secondly, in terms of the timeline for this model switching, obviously, our ultimate target will be primarily, you know, revenue were primarily driven by the so-called capital light model. But we need to keep a fine balance between the sustainable business and the profitability. So we will gauge the progress, you know, down the road, and we don't think 100% capital light model will not happen next year. We're still evaluating the percentage. We will give you the guidance, more clear guidance, you know, by end of this year or early next year.
Steven Chan (Senior Dealing Manager)
Thank you.
Alex Xu (CFO)
Thank you, Steven.
Operator (participant)
Our next question comes from John Cai from Morgan Stanley. Please go ahead with your question.
John Cia (Executive Director)
Hi, thank you, management. Congratulations on the solid results and the strong growth momentum. I think you mentioned about the regulatory tightening and market volatilities. Just wonder how has our loan book been impacted by that already? I know that we raised the provision in the third quarter. Just want to try to understand, is that conservative approach towards future potential risk pickup, or we already see some impact on our existing loan books? And more specifically, I understand that we have a relatively wide risk spectrums. Just wonder, if there's any impact or are we concerned about a certain segment that will be impacted by this volatility and tightening?
Secondly, I want to ask about the acquisition cost. It seems it's down on a sequential basis. Just wonder what's our outlook for that. Thank you.
Alex Xu (CFO)
Sure. John, let me take this first question, and probably our CEO, Haisheng, might answer your second question in terms of acquisition cost. So for the provision, obviously, everybody noticed that for the provision for loan at the amortized cost increased a lot, compared with last quarter. That's not related to the worsening of the asset. It's just because we accumulate on-balance sheet assets in the past two quarters. It's a natural result. It's not something we see as a bad sign for the asset quality. Okay. Because initially we used a relatively high-quality asset to put on our balance sheet.
As we increase the scale of on-balance sheet assets, we kind of, you know, touch on the medium-quality assets, so the provision would naturally go up. But simply, just, you know, simply use that number divided by the on-balance sheet loan origination, you will see that percentage is, it's in line with our assets, the whole book asset quality. So it's not related to the current situation. That's the first point we wanted to address. The second point is that we do see, there's a, you know, there are uncertainties driven, asset quality bumping on the road. We are closely monitor that. Right now, we think the asset quality is still manageable, and we still comfortable with our asset quality.
Hopefully I answer your question, the first question, and I will turn to Mr. Haisheng, to your second question. Okay.
Speaker 10
John, probably, I'll translate the first point. So in Q3, we did see a decline of user acquisition cost. But at the same time, we also have seen the absolute number of borrowers we acquired increased by roughly 20% from the previous quarter, and also with better credit profile. So in general, we see the, you know, customer acquisition efficiency in the third quarter has improved a lot.
This is because we spend a lot of efforts and investments on the development of AI system, which enabled us to cover more user acquisition channels and improve the quality of users and the efficiency of user acquisition.
So for our expectation of user acquisition cost in the future, that will depend on a number of different factors, including our target growth rate, the market competition dynamics. But what we can assure you is that we will continue to invest more in the development of the AI technology to further optimize our user acquisition system and efficiency.
Alex Xu (CFO)
Yes, so. Thank you, John.
Operator (participant)
Our next question comes from Stephanie Tan from Citi. Please go ahead with your question.
Stephanie Tan (Senior VP)
Hi, thanks for taking my questions. So my first question is about actually the regulatory outlook for the loan facilitation model, especially the risk-taking part. So, I think recently there has been some possible potential tightening against this risk-taking model. And, some of your peers have also been quite aggressively, like, moving towards the loan risk-taking, or you call it capital-light model. So I would be glad to hear your view on that, in terms of the regulatory outlook. And, I guess you mentioned that you have no rush to ramp up the capital-light model yet, but do you see any, like, concerns from the regulatory side?
And secondly is also regarding the capital light model. On the take rate, you started with 36% APR loan, and then this quarter, you lowered the APR, and that also bring down the take rate. In terms of the outlook, do you have any guidance in terms of what kind of APR would be the sustainable level for that model? And also what would be the sustainable take rate for that? Yes. Thank you.
Alex Xu (CFO)
Thank you, Stephanie. Let me take your questions. The first thing is the, about the facilitation model. Obviously, there are a lot of talks in the past few months in terms of regulation change. We noticed that as well. That's why we firmly to commit our transition from the traditional model to the capital light model. That's one of the reasons, right, obviously. The second thing is the reason we're not in rush, just because, based on our conversation with the regulators, business is still on the way. Just remind everybody how long the final decision about P2P issue, you know, to form up, right? It's not just, something can come, you know, come into truth in one night.
So we will take it very seriously, but we're definitely not in the rush to make a, you know, a quick decision on that. We will closely monitor the process. But just to assure all the investors and the international capital market community, we are very responsible for all the stakeholders. We will not, you know, put our business model under danger in the long, on the long. Second question about the capital light model is take rate. You are right. This naturally, if we take the capital light model, the take rate will drop down, right? So we would never deny that.
But what we can see is that there are a lot of moving parts in terms of this business model. For example, we see that funding costs decreased in the past few quarters. They're constantly decreasing. With more diversified funding source, we are capable to decrease the funding source cost a little bit further. As we just mentioned, we issued RMB 1 billion ABS in the third quarter. Just to remind everyone, the domestic ABS market was very challenging in the past few quarters because of you know, regional banks, they have some issues there. But we still can successfully manage that things happen, so we are confident to do that.
The other moving part is the, as Haisheng just mentioned, the sales marketing cost. Obviously, the trend is not a one-way ticket. We still see some, you know, way to control that cost. We will closely monitor that on an hourly basis. We make sure that every dollar we put in, we have at least make certain amount, or say, decent amount of profit. The third thing is that if we take this capital light model, we don't take any provisions, just to remind everyone. The provision still count for a slight portion of the whole economics, right? So there are so many moving parts.
So if you ask me today, what's the guidance in terms of break-even point, it's, to be honest, we can't give you a exact number right now. I think this is very responsible for all the investors, but we will closely monitor that, make sure that this is not a loss-making business. Hopefully, I answered your questions.
Stephanie Tan (Senior VP)
Yeah, so maybe just following up on the capital light model. So, so actually my question is, if you have to, like, further ramp up the capital light model, to expand to more funding partners, does that means that the APR will potentially have to come down further? Maybe some banks or other financial institutions, they may only take 24% APR. So-
Alex Xu (CFO)
Yes, you are right.
Stephanie Tan (Senior VP)
In that sense, that, I guess, like, where you see that APR stabilizing, like, for that capital light model?
Alex Xu (CFO)
Yes, you are right. Obviously, when we work with some larger scale banks, they will have some requirement in terms of APR, then we will, you know, upload the corresponding assets to them. But just to remind everyone that if we price that asset at a lower APR, which means the delinquency rate will naturally lower.
Operator (participant)
Our next question comes from Jacky Zuo from China Renaissance. Please go ahead with your question.
Jacky Zuo (Stock Analyst)
Hi, Benjamin. Thanks for taking my questions, and congrats for the solid results. So several follow-up questions. First one is on the customer acquisition cost. We mentioned in our results announcement that we will be conservative in acquiring our customers in the near future. So, does that mean we will see a decline, probably, in the sales marketing item? And so in my view, probably we want to acquire, you know, good quality customers. So, a related question is, what is our APR trend, probably in the third quarter and the fourth quarter afterwards? And second question is about our funding cost.
We mentioned earlier that our funding cost roughly dropped about 40 basis points, if I remember right, in this third quarter. So, does that all come from the issuance of lower cost ABS? ... or we also get, you know, cheaper funding from our funding partners, and what will be the funding cost trend going forward? And my last question is also about regulations. So, today we saw news, a media report that the regulator actually encourage P2P to convert to online micro-lending companies with roughly 6 times maximum leverage. So it seems licensing is kind of one regulation direction. So, just wondering, you know, do we prepare to kind of acquire or apply lending license?
Do we sense that they will open up the ABS market as well, going forward? Thanks for that.
Alex Xu (CFO)
Thank you. I think for the first question, our CEO will answer that, and will take the
The first point is, in Q4, we expect to adopt a more conservative growth target, since we're currently very confident in meeting our full year guidance gave to the market.
Yeah, so, as of now, we have accumulated a huge number of borrowers on our database. So our target is to develop more potential from these borrowers and serve them, provide them with more products and services. So if you look at the numbers, there are already more than 10 million users have you know completed transactions through our platforms. Going forward, we target to you know provide more services to these users. And in this quarter, we also tailor-made a product to retain our existing users and provide more services to them. That's it.
Okay. I will take the rest questions, Jackie. So for the APR trend, what we can see is, it would, we see the trend would be relatively stable. It will, you know, fluctuate between, 28%-30%. But, in the general trend, it will slightly go down a little bit, but, it should be quite stable at, at this stage. For the funding cost, the decreased, funding cost, is a mixed effort of the ABS and, decrease of funding costs from financial institutions. We do see, there's strong demand, for our assets from the financial asset- financial institutions. So the funding costs actually go down, from their end. So, it's a mix, to answer your question. The third thing you mentioned is this, regulation license issue.
Yes, we noticed that, this new circular, Circular 83, I think, or 85, I can't remember the exact number, but we do notice that. And just to remind everyone, we do have online micro-lending license. So if that regulation comes out, it will... It's a very nice thing for us. What we can do is just increase our registered capital, then we can do more business, you know, under this license. So, to your question, for micro-lending license, we don't need another one. And we don't need a P2P to convert micro-lending license. But we are really open for all the options to other, you know, big, so-called big license.
But right now, there is no any firm discussion at this stage. We're just open for all options. Hope we answer your questions.
Stephanie Tan (Senior VP)
Yes, thanks so much.
Operator (participant)
Once again, if you would like to ask a question, please press star and one. Our next question comes from John Cia. from Morgan Stanley as a follow-up. Please go ahead with your question.
John Cia (Executive Director)
Hi, thank you. Just want to follow up on the market conditions that we are seeing. So, it seems that we are still resilient in terms of the asset quality, in terms of the growth outlook. Just wonder, are you seeing a lot of the players exit in the market and smaller players, obviously? And I noticed that we also refer some traffic to others. With that, you know, will this exit of smaller players in certain ways impacted our referral revenue? Thank you.
Alex Xu (CFO)
Yes, John, you are right. Obviously, we can't comment on other players, but we do, as usual, see any tightening regulation as an opportunity for us to grab the market shares, and we do have the resilience to, you know, meet all the regulations, no matter new or old regulations. In terms of referral business, you are right. It will impact by these uncertainties. We do see this happen in the past few quarters, again and again. But given that that business has contributed a very small portion in terms of our overall revenue, we don't think this will have a significant impact on our overall performance.
John Cia (Executive Director)
Thank you very much.
Alex Xu (CFO)
Thank you, John.
Operator (participant)
Our next question comes from Matthew Larson from National Securities. Please go ahead with your question.
Matthew Larson (Financial Analyst)
Hello, thanks for taking my call. I got on a little late, so I apologize if I asking a question that might have already been addressed. A couple things. I see on November twenty-seventh, a group called FountainVest bought 11.5 million shares. Was that newly issued shares, or were these shares bought, I guess, from some other current shareholder?
Alex Xu (CFO)
Thank you, Matt. Let me take your question. In short, it's not new shares. The FountainVest bought shares directly from our existing shareholder. I think we mentioned that in the past few quarters that we have the so-called legacy shareholders who helped our chairman privatize 360 a couple years ago. When we spun off from 360, those shareholders become our shareholders. So, according to our understanding, FountainVest bought shares from those legacy shareholders. But given that that transaction has happened between FountainVest and our existing shareholder, for the details, we are not quite clear. We do believe that FountainVest will issue in some documents, like 13D, you will find out more details on that.
Matthew Larson (Financial Analyst)
Okay, thank you. And then just trying to get my arms around the, you know, cautionary or bearish case on, the whole industry. Because the regulatory environment has been tightened, and, you know, it's something you all have to negotiate, but this is nothing new. This has been going on for two years, and it has resulted in the exit of perhaps thousands of, you know, companies, many P2P players, which in the short term, presumably, you know, has caused some, liquidity issues.
Because people who might have loans with some of these companies that are exiting the industry, you know, have trouble refinancing, which might be one of the reasons why firms like yourself and others are seeing maybe an uptick in provisions and delinquencies that hopefully might, you know, abate as the short-term loans roll over. I mean, for me as an investor, you know, you never like to see companies with a very low valuation, you know, as a price to earnings valuation that can't seem to attract investors, because that means that maybe those earnings are gonna disappear or turn into losses, and the book value might be impaired.
But what I don't see, which is what we saw here in the United States and globally, I guess, during the financial crisis, where you had, you know, companies in the financial area, I'll just throw out names like Lehman Brothers and Bear Stearns, who, you know, were trading every day through their decline, well below their book values, because their book values weren't accurate, and they were leveraged, say, 3-1. Companies in your industry tend to be leveraged 2, 3, 4, 5 to 1, and, everybody seems to be reining in some of their lending until they can get, their arms around some of the, you know, delinquencies that might be creeping higher, which are manageable right now. But it's no secret that the, economy's been a little weak in, in the PRC.
If you believe in cycles, because that's why the term cycle even exists, there's, you know, every reason to believe there'll be an upcycle at some point, of which you'll see, you know, loan growth and even more manageable delinquencies. So, with that being said, you know, your company, you know, has RMB several hundred million in cash, and if you just have flat earnings or even slightly declining earnings, you know, within a year, year or two, you'll have more cash than your market value, assuming that the stock never goes up, which in a sense, you could just go private. So with that assessment, can you critique it or pick any holes in it? Because you're not saddled again with subprime, you know, assets that have no liquidity, where there's no bid for them.
Your loans that might be having a problem because the delinquencies are creeping higher are just gonna roll off anyway, and you don't have to renew them. At least that's how I look at it. So can you give me a sense of your next year's guidance? Do you see growth, I mean, well, from this year?
Alex Xu (CFO)
Yeah.
Matthew Larson (Financial Analyst)
Is that something you can talk about?
Alex Xu (CFO)
Yeah, sure. Really appreciate your insights on the cycle and the, you know, the concerns on the overall industry. It's more like guidance for us. I really appreciate it, Matt. And if you ask if there is any potential loophole in our business model, I would say, you know, nobody is perfect, okay? So we do see we have a lot of room to improve. That's why, starting from Q2, we firmly to starting to switch up, trans- you know, do this transition, business model transition from the traditional facilitation model to the capital light model. If for the capital light model, we take zero principal risk on the table and off the table.
So if you take a look at our leverage, so-called leverage ratio, it actually decreased in the past few quarters. We can calculate that. I think everybody can calculate that. We provide all the data. So going forward, obviously, the capital light models, you know, will increase the volume. So we see our business model will be more sustainable going forward. But you are right. The ultimate goal for us is to survive the credit cycle and make profit for all the shareholders, right? So we will closely monitor that. But if you ask me the guidance for specific numbers the next year, we cannot give you that.
But what we can say that is, we will see growth next year.
Matthew Larson (Financial Analyst)
All right. I mean, that's really all-
Alex Xu (CFO)
Wait.
Matthew Larson (Financial Analyst)
I'm sorry. Go ahead.
Alex Xu (CFO)
Yeah, go ahead. Go ahead.
Matthew Larson (Financial Analyst)
Well, when a company such as yours is valued at, say, 2-2.5 times current year's earnings, and you have, you know, I'm not looking at it, but I, you know, you've got like $500 million roughly in cash and restricted cash, and your market cap is $1.1 billion. If you just show any growth, right, then the multiple is still gonna remain extremely depressed relative to, you know, really any other asset class out there. And that's really all investors, myself included, care about, is that it's not, you're not circling the drain, and you're overwhelmed with bad lending decisions, legacy lending decisions. And instead, you're saying that there will be some growth, but you just can't give accurate guidance yet. But we would expect to get that in the coming weeks or months.
That's what investing is all about. All right, well, you've kind of answered my questions, because I'm trying to get our arms around this industry because it's, you know, it's kind of on my radar. Thanks for your insight and your information.
Alex Xu (CFO)
Thank you. We will definitely give the market the guidance in the near term for the next year.
Operator (participant)
Ladies and gentlemen, with that, we'll conclude today's question and answer session and today's conference call. We do thank you for joining today's presentation. You may now disconnect your lines.
Alex Xu (CFO)
Thank you.