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Operator: Hello, everyone, and welcome to the OneConnect Financial Technology Fourth Quarter and Full Year 2022 Earnings Release Call. My name is Bruno, and I will be operating your call today. I will now hand over to your host, Danielle Gao, Head of Investor Relations. Please go ahead.

Danielle Gao: Thank you, operator. Hello everyone, and welcome to our 2022 first quarter and full year earnings conference call. Our financial and operating results were released earlier today and are currently available on our IR website. Today, you will hear from our Chairman and CEO, Mr. Shen Chong Feng, who will give opening remarks and the business highlights. Afterwards, our CFO, Mr. Luo Yongtao, will offer a closer look into our financials. And then, in question-and-answer session, our management team will be available, too. We have our CTO, Mr. Li Jie; Head of Digital Banking, Ms. (ph); and the Chief Executive of Ping An OneConnect Bank, Mr. Michael Fei. In today’s conference, our management team will make statements in Mandarin or in English.

For those in Mandarin, a consecutive translation will be provided. If any discrepancy, our statement in the original language will prevail. Let me quickly cover the Safe Harbor statement before we start, as we will be making forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that we may present both IFRS and non-IFRS financial measures. So, with that, I’ll now pleased to turn the call to our Chairman and CEO, Mr. Shen Chong Feng. Shen Chong, please.

Shen Chong Feng: Hello, everyone. Thank you. I’m Shen Chong Feng. Thank you for taking the time to join OneConnect 2024 — 2022 Q4 and full year earnings release. Economic headwinds in 2022 have been a challenge to all technology companies. Despite impact on parts of our businesses, we still achieved solid growth in our results. Revenue from third-party customers reached (ph) full year, representing a year-over-year growth of 6.5%. Premium Plus customers increased by nine year-over-year to 221. Significant improvement in operational efficiency also narrowed our losses by a big margin. Next, I will share with you OneConnect business developments in Q4 and 2022 full year. You can go to Page 3 of our slides. 2022 was a crucial year for broadening customer engagement in our Stage II strategy.

Now, could you please go to Page 4? In our second stage, we continued to execute “One Body, Two Wings” initiative, that is focusing on financial institutions while expanding ecosystem and overseas. Next, please go to page 5. This year, we continued product innovation and upgrade efforts in Digital Banking, Digital Insurance and Gamma Platform, and released over 100 new product versions. As a result, we saw higher efficiency in configuration for customized demand as well as greater coverage of business scenarios. In Digital Banking, we updated our cloud native based banking system 2.0. The latest version comes with over 400 APIs and is fully adapted to self-control technology. In Digital Insurance, we collaborated with a global top 50 insurer in the omnichannel agent solution project, which also marked our first success with this product.

In Gamma Platform, we continued to upgrade product scenarios, flows and features in AI customer services and have achieved multiple technological breakthroughs in key functionality, such as multi-model machines, human-robot collaboration, as well as dialogue analysis insights. Thanks to OneConnect’s consistent product innovation capacity, customer recognition is also improving. In 2022, our new products have demonstrated strong momentum in revenue, new customer acquisitions and customer stickiness. Next, on Page 6. Home-developed technologies or self-controlled technologies have become an important investment for financial institutions in recent years. OneConnect products and integrated solutions fully accommodate home-developed technologies.

All our products in three business segments are 100% adapted to meet the customers’ demands in this front. At the same time, leveraging Ping An’s experience in self-controlled IT, we also launched a consulting plus implementation solution, which is uniquely positioned with business plus technology to help our customers with their efforts to shift to home-developed IT. So far, over 30 customers have implemented our products and solutions. Next page, on Page 7. The omnichannel agent solution in digital life insurance is a key product in 2022. Targeted at the international life insurance transformation market, we see huge potential in this offering. We collaborated with a global top safety insurer, which is also an insurance giant in emerging markets in the omnichannel agent solution project.

Our solution stemming from integration of business plus technology offers end-to-and empowerment in Asian transformation, which, Ping An proven transformation experience together with our leading AI technology, are the foundation to our success. Next on Page 8. Product standardization remains a key initiative in 2022. Although this generates some R&D investment, we are convinced that product standardization is fundamental to our long-term product competitiveness. We standardized over 1,200 modules this year, boosting delivery efficiency by nearly 30%. Looking ahead, we will remain committed to product standardization efforts, which we believe will reflect in gross margin improvement. On Page 9. We also noted encouraging results in broadening customer engagement, which is also a crucial part of our Stage II strategy.

Despite impact from the pandemic, OneConnect still managed to achieve 221 Premium Plus customers, up by nine compared with last year. Our cooperation with many financial institution customers saw a new depth this year, including the National Development Bank, Bank of Ningbo Bank, China Guangfa Bank, China Continent Insurance, Guoren P&C Insurance. Our engagement with these institutions demonstrates breakthroughs and progress in business development in different segments. Looking forward to execute Stage II strategy, OneConnect will continue to acquire new customers and also improve value from existing customers. Next on Page 10. Overseas business, as an important wing of our “One Body, Two Wings” strategy, also reported a rapid growth this year.

In Singapore, we successfully replicated our SME Financing Platform in Guangdong province. And jointly developed an SME Digital Financing Platform with Abu Dhabi Global Market. In addition, we also launched a core system plus mobile banking plus lending platform with CIMB Philippines. In Hong Kong, PAOB doubled its interest income in 2022 and introduced the short-term lending products tailored for SMEs in the construction industry. Our credit referencing agency officially qualified to commence business and is expected to launch in late 2023. Next, on Page 11. In technology and product front, we have been awarded by many renowned institutions this year, including Wenjun AI Science and Technology Award, National High End — High-tech Enterprises — Enterprise, IDC Financial Insights Innovation Award, to name just a few.

Moving ahead into 2023, despite mild signs of economic recovery, operation and development remains challenging as it still takes time for businesses to fully restore their order. For OneConnect, we do expect the course of recovery to take a while as a result of the business nature in the industry. Therefore, in 2023, we will continue prudent operation strategy and focus on improving volume from third-party customers and narrowing losses. Next, I’ll hand it over to Luo Yong to brief you on our financial performance. Thank you.

Luo Yongtao: Okay. Thank you. Good evening, everyone. Just as, Mr. Shen mentioned, despite the pandemic and the macro environment headwinds, we recorded a solid result in 2022. In this presentation, I will spend more time on our full year results. For the fourth quarter details, please refer to our results release. My portion starts from Page 13. In 2022, our third-party revenue reached RMB1.48 billion, improved by 6.5% on a year-over-year basis. Our top-line revenue was RMB4.46 billion, which was 8% higher than that in 2021. Benefited from continuous efforts on customer upgrade in Stage II development, the number of our Premium Plus customers increased to 221. Our adjusted net loss reduced to RMB802 million and corresponding profit margin improved by 12.7 percentage points to negative 18%.

Next page, our revenue mix by customer type remained stable in 2022. Revenue from third-party customers grew by 6.5% to RMB1.48 billion, representing 33.1% of our total revenue. We are glad to see that our products in Gamma Platform and in overseas business continued strong momentum along the whole year, making up the shortfalls of reduced usage from certain products and delayed implementation caused by the pandemic. Revenue from Lufax increased by 7.3% to RMB459 million and revenue from Ping An Group increased by 9.1% to RMB2.53 billion, representing 10.3% and 56.6% of our total revenue, respectively. Moving to revenue mix by business type. Implementation revenue accounted for 19.3% of total reached RMB862 million and increased by 17.5%. Despite the pandemic-imposed pressure on our product delivery to third-party customers, we were able to achieve the growth mainly attributable to ongoing digital transformation demands from Ping An Group and overseas expansion of our life insurance business.

Revenue from business origination decreased by 14.8% on a year-over-year basis to RMB384 million. Revenue from risk management decreased by 22.3% on a year-over-year basis to RMB415 million. The decreases of these two types of revenue are mostly due to reduced transaction volume from insurance claims system products and banking loan products as a result of the pandemic as well as less customers’ demands. Revenue from operation support increased by 3.9% on a year-over-year basis to RMB1,141 million, which was mostly benefited from increased demands for AI customer service products in Gamma sector. Revenue from cloud services platform grew by 25.3% on a year-over-year basis, to RMB1,316 million from RMB1,050 million in the same period last year.

It was largely benefited from increased demands from Ping An Group. It was also worthwhile to mention that revenue from third-party customers continued a strong momentum along the whole year. Post-implementation and other revenue was up by 3.8% on a year-over-year basis to RMB241 million. We recorded strong revenue growth performance from our virtual banking business in Hong Kong in 2022, which increased by 210% to RMB107 million from RMB34 million in the prior year, which made a strong contribution to our above average growth of overseas business. Let’s turn to revenue mix by product sectors. Gamma Platform sector, our focus of product innovation in Stage II strategy, contributed the biggest chunk of our revenue, recording a 24.1% growth in 2022 and accounting for 45.2% our total revenue.

Digital Banking sector, which accounted for 32.6% of total revenue reduced by 12.1% on a year-over-year basis, which was mainly caused by a reduction in transaction volume of our loan products as a result of the pandemic and adverse macro circumstances. Digital Insurance sector, which accounted for 19.8% of total revenue increased by 8.4% on a year-over-year basis, benefited from newly launched life insurance agent product in the overseas market. While having the shortfall of reduction in transaction volume from insurance claim system products, we were able to achieve overall revenue growth in Digital Insurance sector. Last not — but not least, our virtual banking sector, which I have mentioned before, accounted for 2.4% of our total revenue.

On next page, we are very glad to see our gross profit reached RMB1.64 billion in 2022, with the gross margin achieved 36.6%, which was 1.8 percentage points higher than that in the same period last year. However, on a non-IFRS basis, gross margin was 40.1% compared with 42.1% in the prior year. As Mr. Shen mentioned, in 2022, we have developed more than 1,200 standardized modules and have improved about 30% delivery efficiency. Such ongoing product and delivery standardization efforts helped us improve our gross profit margin and it will be one of the main drivers for OneConnect to achieve our mid-term target of profitability. Moving to our expenses and net profit. You can see that we are well on track to our breakeven mid-term target. First of all, our research and development expenses came to RMB1.42 billion from RMB1.35 billion.

As a percentage of revenue, it amounted to 31.8% compared with 32.7% in the prior year. We continued to implement our Stage II strategy focusing on product integration. Our upgraded products are more mature and will further improve our product development efficiency. Looking forward, we will keep investing in research and development to enhance our product competitiveness against our competitors. Sales and marketing expenses for 2022 decreased to RMB411 million compared with RMB588 million in the prior year. As a percentage of revenue, sales and marketing expenses decreased to 9.2% from 14.2%. Such improvement was benefited from enhanced sales capability and efficiency. Meanwhile, on-site marketing and travel-related expenses also decreased compared with that in 2021, which was mainly caused by COVID travel restrictions last year.

Regarding our adjusted general and administrative expenses, in which we have deducted our one-off Hong Kong listing expense incurred in 2022, it came to RMB755 million from RMB829 million in the same period last year. As a percentage of revenue, it decreased to 16.9% from 20.1%. Based on all these above, our adjusted net profit improved to negative RMB802 million from negative RMB1,269 million in the same period last year. And our adjusted net profit margin improved by 12.7 percentage points from negative 30.7% to negative 18%. Despite a very challenging business environment last year, we again managed to deliver a double-digit narrowing of net loss margin. The next page represents a comparison of loss ratio in the past four years. From this page, we can see a very clear trajectory of our path to profitability.

We will further upgrade our product (ph) to boost our gross profit margin, and we will further improve operating efficiency to reduce expenses. We are very confident about breaking even by mid-term. Lastly, we summarized the adjustments in non-IFRS gross margin for your reference. Thank you.

Danielle Gao: Thank you, Luo Yong. Operator, we are ready for questions. Please open the please line.

Operator: Our first question is from Timothy Zhao from Goldman Sachs. Timothy, your line is now open. Please go ahead.

Timothy Zhao: Thank you management for taking my questions. I have two questions. First question just about the IT spending, management, in ’23. Could management share any outlook in terms of the recovery pace and the recovery pace difference between different financial institutions or different customers of your IT spending recovery? My second is about our third-party revenue growth. I saw in the fourth quarter last year that third-party revenue was pretty well. Could management share your outlook on the growth rate of third-party revenue into ’23? And what kind of products that we could expect a faster growth rate? Thank you.

Danielle Gao: Thank you, Timothy. Shen Chong will take your questions.

Shen Chong Feng: I will answer your first question now. Over the short term, we do expect that some financial institutions will be more prudent with their IT spending. However, over the medium to longer term, financial institutions need technologies and digital transformation to bolster their business development and growth. Therefore, we expect that in 2023, starting from the second quarter of 2023 and until the second half of this year, IT spending will pick up. OneConnect is uniquely positioned to satisfy the digital transformation demand from banks in the following front. In summary, technologies such as self-controlled risk management, data security, digital operation, as well as shift to home-developed technologies will be the key areas where banks will have demand and OneConnect has products to satisfy their demand in these areas.

The shift to self-controlled technologies have attracted quite a lot of investment in the financial institution. And we see the IT budgets in bank to pick up because of the shift to home-developed IT. For medium- to large-sized banks, they will have higher demand for data security as well as home-developed IT. For medium- and small-sized banks, they have higher demand for regulatory — to help them satisfy regulatory requirements as well as to improve their operational efficiency. Next on your second question, our OneConnect’s long-term growth ultimately stems from the broadening of customer engagement in our Stage II strategy. Two of the key metrics for our — for 2023 are improvement in third-party revenue as well as improvement in gross profit margin.

If we look at the product by segment, thanks to our consistent investment and efforts in product innovation, we do see that — we do see positive trends in our — in all of our products. Risk management and smart management in the banking segment, life insurance products in Digital Insurance, AI customer services in Gamma Platform are expected to be the key drivers for growth in 2023. Over the long term, our overseas business, our financial cloud business as well as our push for home-developed technology will also become our long-term growth drivers. Thank you.

Operator: Our next question is from (ph) from — okay, Tiannan, your line is now open. Please go ahead.

Unidentified Analyst: Okay. I would like to (ph) myself. The first question is, as self-controlled technology is a very hot topic among the tech sector, what’s the opportunities will you the strategy on it? And second question is, what’s the 2023 guidance? And the last question is, what’s the company’s cash position? And is it at current to support your breakeven? And what’s your exposure in SVB? Thank you.

Danielle Gao: Thank you, Tiannan. Our CTO, Li Jie, will take your first question and Luo Yong will take your second and third question.

Li Jie: Self-development — developing self-controlled technologies in the financial industry have been one of the most relevant trends in the industry, and we see huge market potential, and adoption is needed in both in the application layer, core system as well as in the infrastructure level. And the CBIRC has launched a fully-fledged push for the home-controlled — home-developed technologies in 2022 and overall 5,000 institutions are involved in the testing. OneConnect fully accommodates self-controlled technologies at both the infrastructure level as well as the application level. Our financial clouds are 100% satisfy the requirements for home — for self-controlled technologies. At the application level, in — our product in the banking segment as well as in Gamma Platform, 100% — are 100% adapted to self-controlled IT.

At the same time, OneConnect is also closely involved in the push for self-controlled technology in the banking industry through our consulting plus implementation model. So far, we now have over 30 customers using our solutions.

Luo Yongtao: Okay. I’ll do the translation myself. First of all, we won’t give the guidance — official guidance for 2023 due to the external and the internal factors — reasons. Because I think external factors are the recovery and the micro circumstances are still uncertain and a lot of challenging factors. And internally, we are experiencing the Stage II transaction, still in that period. Having said that, we will communicate more information about our profitability by different regions. We will — I think this year, we will — well, we said, on mid-term, we’ll be breakeven for the whole company. And first of all, our business in Mainland China will be breakeven and we will communicate with more information with markets on this side.

And there are — two points we want to emphasize again are the two main tasks in 2023. One is quality or structure of the revenue improvement where we will put more first priority on the third-party revenue growth. And at the same time, we will cut — we will make more deduction of our loss making. I think, we are well on track to the path of breakeven in mid-term. Okay. By end of 2022, we have cash available RMB2.6 billion. And in 2022, all the deduction of the cash is due to the operating activities — mainly due to the operating activities. And in 2022, the narrowing of the loss making and the acceleration of the receivable helped us a lot to get a very healthy cash position. And we are very confident that we have enough cash to support us — to support our operation until we breakeven on the mid-term.

And within the RMB2.6 billion, RMB520 million are in the PAOB, (ph) bank in Hong Kong. And another two point — almost RMB2.1 billion is in other business units of OneConnect. And we have no deposits in the Silicon Valley Bank. Thank you.

Operator: Our next question is from Lydia Lin from Morgan Stanley. Lydia, your line is now open. Please go ahead.

Lydia Lin: So, my first question is a follow-up on localization. So, will the localization affect all the businesses line or just the implementation? And the second question is about operating expenses arrangement and allocation in 2023?

Danielle Gao: Thank you, Lydia. Your first question — Luo Yong will take your first question and also the second question. Thank you.

Shen Chong Feng: As I mentioned before, the drive for self-controlled technologies range from infrastructure to the application level. Therefore, implementation part is the biggest part of our efforts in self-controlled technologies. And as for the consulting plus implementation solution we offer, it is mostly about implementation and consulting is used as a tool for us to break into the banks. Actually, our three main business segments are quite relevant to self-controlled technologies. We see huge potential in both the application level, the core system level as well as the infrastructure layer.

Luo Yongtao: Okay. I think in 2023, the hiring process actually is pretty much back to normal already. We started hiring new tailings. Well, we will do some optimization due to the — related to the products optimization. According to the three expenses, we continue to put more resources into research and development. And for the sales and marketing, and general and administrative expenses, we will continue to have a very cost control policy. And looking forward, the ratio of all three expenses will keep going down until we breakeven on the mid-term. Thank you.

Operator: We currently have no further questions. I would like to hand back now to Danielle Gao for final remarks. Please go ahead.

Danielle Gao: Thank you everyone for joining the call today. If any questions, please feel free to contact our IR team. We appreciate your interest in following us and looking forward to speaking with you again. Thank you.

Operator: Ladies and gentlemen, this concludes today’s call. You can now disconnect your lines. Thank you.