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Operator: Hello, and welcome to the X Financial Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note today’s event is being recorded. I would now like to turn the conference over to Victoria Yu. Please go ahead.

Victoria Yu: Thank you, operator. Hello, everyone, and thank you for joining us today. The company’s results were released earlier today and are available on the company’s IR website at ir.xiaoyinggroup.com. On the call today from X Financial are Mr. Kan Li, President; and Mr. Frank Fuya Zheng, Chief Financial Officer. Mr. Li will give a brief overview of the company’s business operations and highlights, followed by Mr. Zheng, who will go through the financials. They are all available to answer your questions during the Q&A session. I remind you that this call may contain forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company’s control, which may cause the company’s actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding these and other risks, uncertainties and factors is included in the company’s filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law. It is now my pleasure to introduce Mr. Kan Li. Mr. Li, please go ahead.

Kan Li: Hello, everyone. We are very pleased to report another solid quarter as we made a further progress in improving our profitability. Our proactive management of loan volumes based on asset quality dynamics continued to bear fruit in the second quarter. As a result, while loan volume declined year-on-year, our net income for the quarter grew significantly and reached a record high. The total loan amount facilitated and originated decreased by 12% year-on-year but increased 6% sequentially to RMB 23 billion. Our total outstanding loan balance was RMB 42 billion at the end of June 2024. The delinquency rates for outstanding loans past due for 31-60 days and 91-180 days were 1.29% and 4.38%, respectively, at the end of the quarter, compared to 1.61% and 4.37% a quarter ago and 0.96% and 2.5% a year ago.

As we have seen an improvement in our asset quality, we have decided to ease our strict controls on loan volumes, and we expect our loan volumes to gradually recover on a year-on-year basis in the second half of the year. Meanwhile, we will continue to strengthen and refine our risk management systems to improve asset quality. Our focus remains on sustainable profitability, and we employ flexible tactics to adapt to evolving market conditions to achieve this and, as always, to increase shareholder value. Now I will turn the call to Frank, who will go through our financials.

Frank Fuya Zheng: Thank you, Kan, and hello, everyone. We delivered strong financial results this quarter. The total net revenue was RMB 1.4 billion, up 12.5% year-on-year and 14% sequentially. We continued to focus on cost control and improved asset quality and, as a result, our net income grew 13% year-on-year and 14% sequentially to RMB 415 million, a record high in our history. In May 2024, we announced a new 20 million share repurchase program. In June 2024, we initiated a tender offer to purchase 2 million ADS, which was completed in June – July 2024. We are pleased to have executed this ADS buyback, which provided liquidity to shareholders, seeking an exit at a premium price and, at the same time, increased remaining shareholders’ stakes in the Company.

We are committed to profitable growth, while exploring various avenues to further increase returns for our shareholders. Now I would like to brief some financial performance for Q2. Please note that all numbers stated here are in RMB and rounded up. Total net revenue increased by 12% to RMB 1,373 million from RMB 1,220 million in the same period of 2023, primarily due to growth in various disaggregated revenue items compared with the same period of 2023. Please refer to the analysis of disaggregation of the revenue. Origination and service expenses increased by 19% to RMB 415 million from RMB 349 million in the same period of 2023, primarily due to the increase in collection expenses, resulting from the cumulative effect of the increased volume of loans facilitated and provided in the previous quarters, compared with the same period of 2023.

Borrower acquisitions and marketing expenses decreased by 3% to RMB 324 million from RMB 332 million in the same period of 2023. Provision for loans receivable was RMB 96 million compared with RMB 55 million in the same period of 2023, primarily due to an increase in loans receivable held by the company as a result of the cumulative effect of the increased volume of the loans facilitated and provided in the previous quarters, compared with the same period of 2023. Income from operations was RMB 463 million compared with RMB 445 million in the same period of 2023. Net income was RMB 450 million compared with RMB 366 million in the same period of 2023. Non-GAAP adjusted net income was RMB 375 million compared with RMB 365 million in the same period of 2023.

For further financial information, please refer to the earnings release on our IR website. With respect to our dividend, we provided a semiannual dividend policy in March. Pursuant to this policy, our Board has authorized the declaration and payment of the semiannual dividend of USD 0.17 per ADS for the first half of 2024. For specific dividend payment dates and instructions, please refer to our earnings release. Now on to our business outlook. For Q3 this year, we expect the total loan amount facilitated and originate to be between RMB 26 billion and RMB 27.5 billion. This concludes our prepared remarks, and we’d like to open the call to questions. Operator, please?

Operator: [Operator Instructions] and today’s first question comes from Mason Bourne with AWH Capital. Please go ahead.

Mason Bourne: Hi. Thanks for taking the question. I guess to start, you provided pretty substantial guidance about increase in loan volumes for Q3. I wondered what you’re seeing that gives you confidence for that growth?

Kan Li: Well, this is mostly due to the — I think, because of the environment. The reason that you see a fairly low volume for the first two quarters is really because we have a very restrictive risk management system in place. That is why that our overall approval rate has been kept fairly low. But with the current environment, especially the much better delinquency performance that we have optimized our approval policy. So as a result, we will see a significant increase in our approval rate. That being said, there’s also some other channels where we are able to successfully connected in the first two quarters, and they will contribute to our — to some other new customers. So those combined that we are fairly confident with our volume forecast.

Mason Bourne: Could you talk about customer acquisition costs and what you’re seeing there? Maybe how that’s changed?

Kan Li: I think overall, our acquisition cost in terms of the rate has been kept very constant. That is why when the approval rate — so when you think about it, when the approval is low, our overall spending also kept low. And that is translated into the lower loan volume. Now because of the approval rate is a little bit higher and our — so our overall spending will be higher in the Q3 and which will translate into the higher volume that we forecasted.

Mason Bourne: So are you seeing improving consumer health? Or what is it that’s really allowing your approval rates to go higher and delinquencies to improve? I just wondered if maybe you’re seeing a turn in the overall economy.

Kan Li: Yes. I don’t think I really see the overall economy has been turning into the much better situation than before. But what happens usually in this type of dynamics is some of the customers that they used to be okay customers. And now they have exited the market because they cannot be the okay customer anymore. And our model will be able to pick those — we’ll be able to separate those marginal customers with much better customers. I think that’s the number one situation, as our overall learning — machine learning system is in place. It will automatically analyze all the data. So as time goes by, even with bad economic situation that our overall risk management efficiency will be higher. That is the reason number one.

The second one is, as I mentioned, that we are able to get some good customers from some specific channels. Those channels before weren’t open to us, but now they are able to accept us and we are able to get some good customers from them, which will also increase our overall customer quality. So combine the two forces, we are able to see that our overall performance will be better than before.

Mason Bourne: Okay. Last one for me. It seems like your number of active borrowers is up substantially, while loan volumes were down year-over-year. What’s driving — I assume that means the average loan size is significantly smaller. Is that correct? And what’s driving that? Is that something that you’re doing? Or is that just a function of the market?

Kan Li: Well, your observation is absolutely correct. And our overall loan size has been decreased significantly. And this is also another risk management control that we have in place, which besides the approval rate that I mentioned before, the average loan size is another very important tool that we implement in our risk management. So when the environment is not good, then we will intentionally lower the average normal size. So as you can infer from this as the economy — as the overall environment is improving, that our average loan size will also grow, which will contribute to — which will be another contributor to our overall loan volume.

Mason Bourne: Okay. Thank you.

Kan Li: Thank you.

Operator: [Operator Instructions] And this concludes our question-and-answer session. I’d like to turn the conference back over to Victoria Yu for any closing remarks.

Victoria Yu: Thank you, everyone, for joining us on the call today. If you haven’t got a chance to raise your questions, we will be pleased to answer them through follow-up contacts. We look forward to speaking with you again in the near future. Thank you.

Operator: Thank you. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines, and have a wonderful day.