Q2 2024 Earnings Summary
- XYF expects significant growth in loan volumes for Q3 due to improved delinquency performance and optimized approval policies, leading to higher approval rates.
- The company has accessed new channels to gain higher-quality customers that were previously inaccessible, which will improve overall customer quality and performance.
- The average loan size has decreased significantly as a risk management strategy, and as the environment improves, average loan size and loan volume are expected to grow, contributing to revenue growth.
- Decrease in Loan Amount Facilitated Year-over-Year: The total loan amount facilitated and originated by XYF decreased by 12% year-on-year to RMB 23 billion in Q2 2024. This decline suggests potential challenges in maintaining loan growth, possibly due to a deteriorating borrower pool or economic conditions, as the company exercised strict risk management controls that kept approval rates low.
- Increase in Delinquency Rates Year-over-Year: Delinquency rates for loans past due 31-60 days increased to 1.29% at the end of Q2 2024 from 0.96% a year ago. Similarly, delinquency rates for loans past due 91-180 days rose to 4.38% from 2.5% a year ago. This upward trend indicates worsening asset quality, which could lead to higher credit losses.
- Significant Increase in Provisions for Loans Receivable: The provision for loans receivable increased to RMB 96 million in Q2 2024 from RMB 55 million in the same period of 2023. This substantial rise suggests that the company anticipates higher loan defaults, potentially impacting future profitability.
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Increase in Loan Volumes
Q: What's giving confidence in Q3 loan volume growth?
A: The company is confident in significant loan volume growth for Q3 due to an optimized approval policy that has raised their approval rate. This optimization stems from a better delinquency performance in the current environment. Additionally, they've connected with new customer channels, contributing to an influx of new customers. -
Approval Rates & Delinquencies
Q: What's allowing approval rates to rise and delinquencies to improve? Is the economy turning?
A: Although the overall economy hasn't significantly improved, the exit of marginal customers from the market allows their machine learning system to better identify and focus on higher-quality customers, enhancing risk management efficiency. Access to specific new channels also enables them to acquire better quality customers, improving overall performance. -
Average Loan Size Decrease
Q: Is average loan size significantly smaller? What's driving that?
A: The average loan size has decreased significantly as an intentional risk management strategy. In unfavorable economic conditions, they intentionally lower loan sizes to mitigate risk. As the environment improves, they anticipate the average loan size will grow, boosting overall loan volume. -
Customer Acquisition Costs
Q: How have customer acquisition costs changed?
A: The customer acquisition cost rate has remained very constant. With a lower approval rate, overall spending was kept low, resulting in reduced loan volumes. As the approval rate increases, they expect higher spending in Q3, which should translate into higher forecasted loan volumes.
Research analysts covering X Financial.