CNFinance Holdings Restricted (NYSE:CNF) Q2 2022 Earnings Convention Name August 24, 2022 8:00 AM ET
Firm Individuals
Jane Jenn – IR
Jun Qian – VP
Jing Li – Performing CFO
Bin Zhai – Chairman and CEO
Convention Name Individuals
William Gregozeski – Greenridge World
Jane Jenn
Good morning and good night, and welcome to CNFinance Second Quarter and First Half of 2022 Monetary Outcomes Convention Name. In at present’s name, our Director and Vice President, Mr. Qian Jun, will stroll us by way of the working outcomes adopted by the monetary outcomes from our appearing CFO, Ms. Jing Li. After that, we may have the Q&A piece.
Earlier than we begin, I want to remind you that this convention name incorporates forward-looking statements throughout the that means of Part 21E of the Securities Alternate Act of 1934 as amended, as outlined in U.S. Personal Securities Litigation Reform Act of 1995. This forward-looking assertion might be recognized by terminology similar to will, count on, anticipates, future, intends, plans, beliefs, estimates, targets, going ahead, outlook and related statements. Such statements are primarily based upon administration’s present expectations and present market and working situations and relate to occasions that contain recognized or unknown dangers, uncertainties and different components, all of that are tough to foretell and plenty of of that are past the corporate’s management, which can trigger the corporate’s precise outcomes, efficiency or achievements to vary materially from these within the forward-looking statements.
Additional info concerning this and different dangers, uncertainties or components is included within the firm’s submitting with the U.S. Securities and Alternate Fee. The corporate doesn’t undertake any obligation to replace any forward-looking statements on account of new info, future occasions or in any other case, besides as required beneath legislation.
Now please welcome Mr. Qian Jun.
Jun Qian
[Foreign Language] Thanks, everybody, for becoming a member of us on this convention name. On at present’s name, we are going to introduce the corporate’s monetary and operational ends in the second quarter and the primary half of 2022, adopted by a Q&A piece.
Within the second quarter of 2022, our enterprise was repeatedly impacted by the pandemic, prevention and management measures, however we have been in a position to keep secure enterprise quantity. Through the quarter, we originated loans of three.1 billion beneath our collaboration with belief firms and introduce loans of 200 million to the industrial banks.
The curiosity income beneath the collaboration mannequin for the second quarter have been barely greater than the identical interval of 2021 and curiosity expense decreased marginally. After we adjusted our fee coverage, our gradation value decreased considerably year-on-year, which drove up the corporate’s gross revenue margin. Nonetheless, given the impression of pandemic prevention and management coverage, in addition to the uncertainty of the China’s actual property market, we proceed to be conservative in evaluating potential losses and recorded a provision for credit score losses of 18 million for the second quarter. And this was the primary motive for the web earnings to be decrease than the identical interval of 2021.
Now I want to give a extra detailed introduction of the challenges we face and the measures we’ve got taken and likewise share the administration ideas on our future developments. Our enterprise continues to be challenged by the pandemic, prevention and management. Numerous cities, together with Shanghai have been locked down in the course of the quarter and China’s GDP fell by 2.6% as in comparison with the primary quarter of 2022. On the identical time, there have been nonetheless uncertainties in China’s actual property market. The financial downturn has negatively affected our enterprise progress and the rise in delinquency charge has additionally affected the liquidity of our gross sales companions.
Below such situations, we concentrate on stabilizing enterprise fashions, decreasing financing prices, administration threat and empower our SaaS tenders in the course of the second quarter. The work we’ve got performed are as follows.
First, with a view to issue these followers and assist MIC homeowners, we began our cooperation with two new vehicles and make efficiently originated loans of 39 million in the course of the quarter. Now we have lowered the rate of interest on former mortgage merchandise this quarter. Second, we proceed to advertise our partnership with industrial banks and really useful loans of 200 million to them. Now we have additionally began to facilitate loans beneath our collaboration with PICC.
Second, value management. We keep dialogue with main funding companions and have reached consensus on decreasing financing prices and optimizing the compensation coverage. So efficient coverage is predicted to be adopted within the third quarter of 2022.
Third, threat management. Within the second quarter, a number of drug firms has signed settlement with third-party subordinated unit subscribers really useful by us, permitting this establishment to instantly spend money on the subordinated models of the transplant. By rising these third-party buyers, we additional lowered the quantity our fund wanted and likewise decrease our threat publicity.
Fourth, when it comes to empowering gross sales companions, we proceed to permit extra gross sales companions to repurchase delinquent loans by installments. With the corporate judging uncertainty primarily based on the phrases. We additionally plan to herald an asset administration firm to offer our gross sales companions with put up mortgage administration companies, together with unhealthy debt assortment, arbitration and judicial proceedings. We hope that by collaborating with such asset administration firm, our gross sales companion might bear much less threat and obtain reasonably secure return on delinquent loans.
We shall be offered with each challenges, alternatives sooner or later. Based on the info not too long ago launched by the Folks’s Financial institution of China, July’s new RMB loans have been [679.4] billion falling by 404.2 billion year-on-year. This means that the financing wants of each enterprises and clients has shrunk. This implies we might want to put up extra efforts to take care of progress. Nonetheless, we imagine our extra micro insurance policies to stimulate the financial and help MSCs take impact. There have been nonetheless alternatives in China’s inclusive financing trade. With the intention to see such change to increase our enterprise and supply inexpensive and accessible financing companies to extra MSE homeowners. We are going to work on enhancing gross sales, decreasing funding prices and improved portal administration.
Our plans are; first, with the change of the market situation, the corporate will focus extra on the demand aspect and construct system that’s gross sales oriented. We are going to set up an all-around gross sales companion system primarily based on the info assortment and useful resource coordination. And use expertise as a software to enhance the general effectivity.
Second, we are going to proceed to advertise our partnership with industrial banks and with PICC. We imagine such partnerships shall be an vital complement to our collaboration with belief firms because it might enhance our product combine and the client protection. Sooner or later, we won’t solely set promotion plans to incentivize the gross sales employees of the industrial banks with PICC, but in addition cooperate with third-party gross sales channels to collectively increase the client base and enhance the gross sales quantity.
Third, decreasing financing prices will proceed to be one in every of our long-term strategic objectives. We are going to keep dialogues with funding companions primarily centered on addressing the mismatch between funding provide and the mortgage purposes. Our objective is to chop the general value of our mortgage merchandise by decreasing the stability of the idle fund. .
Lastly, we are going to deepen our collaboration with third-party executions to speed up the disposal of delinquent loans and get well money. By doing that, we hope to launch the liquidity of gross sales companions in order that they will use extra sources within the enterprise enlargement.
With that, I want to hand the decision over to Ms. Jing Li, the appearing CFO of the corporate, will stroll you thru the second quarter and first half 2022 financials.
Jing Li
Thanks, Mr. Qian, and thanks once more to everybody becoming a member of us at present.
I’ll stroll you thru our second quarter and first half of 2022 financials. We imagine year-over-year comparability is one of the simplest ways to assessment our efficiency. Until in any other case said or the proportion change I will give shall be on GAAP foundation. Additionally, except in any other case said, or numbers I will give shall be in RMB.
We are going to work additional the figures for second quarter of 2022 first, adopted by that for the primary half. As of June 30, 2022, the full excellent mortgage principal decreased to RMB 9.4 billion in comparison with RMB 10.4 billion, December 31, 2021. The full mortgage origination quantity was 3.1 billion in comparison with 3.8 billion in the identical interval of 2021.
Curiosity monetary service price on loans was 408 million, a lower of 9%, primarily because of the lower of common every day excellent mortgage principal within the second quarter of 2022 as in comparison with the identical interval of 2021. The lower in common every day excellent mortgage principal was because of the decrease mortgage facilitation quantity within the second quarter outcomes from the lockdown because of the native outbreak of COVID-19 in a number of cities inside China.
Curiosity expense was 187 million in comparison with 195 million in 2021, primarily because of the lower within the precept of different borrowings. Collaboration value for gross sales companions decreased to 77 million within the second quarter of 2022 in comparison with 107 million in the identical quarter of ’21 partly because of the decrease price charge, the corporate paid to the gross sales companion within the second quarter of 2022.
Provision for credit score losses was 18 million, in comparison with 15 million in the identical interval of final yr. The lower was because of the elevated financial uncertainties brought on by lockdown and response to native outbreak of COVID-19 in addition to the downward strain confronted by China actual property market in the course of the second quarter of this yr.
The full working expense have been 91 million, a rise of 5% in comparison with 87 million in the identical interval of final yr. Earnings tax expense was 3 million, a lower from 8 million in the identical interval of 2021, web earnings was 18 million, a lower of 72 million from 65 million within the prior yr.
Now we’re transferring on our financials for the primary half of 2022. The full mortgage origination quantity was 5.4 billion, in comparison with 6.7 billion in the identical interval of final yr. Curiosity and financing service charges on loans was 843 million, a lower of 6% in all probability because of the lower of common every day excellent mortgage rules within the first half of 2022 as in contrast with the identical interval of final yr.
The lower within the common every day excellent mortgage principal was because of the decrease facilitation quantity within the first half of this yr have been some from the lockdown because of the low outbreak of COVID-19 in a number of cities inside China.
Curiosity expense was RMB388 million in comparison with RMB351 million in the identical interval of final yr, partly because of the enhance of filling from the belief firm. Collaboration value for gross sales companions elevated to RMB156 million within the first half of this yr, in comparison with RMB205 million in the identical interval of final yr, main attributable to the rise in mortgage stability beneath the collaboration mannequin.
Provisions for credit score losses was – a provision of RMB112 million in comparison with the restoration of RMB3 million in the identical interval of 2021. The rise was because of the rising financial uncertainties brought on by the lockdown in response to the native outbreak of COVID-19 in addition to the downward strain confronted by China’s actual property market in the course of the first half of 2022.
Whole working bills was RMB171 million, a lower of 6% in contrast with RMB182 million in the identical interval of 2021. Earnings tax bills was RMB19 million in comparison with RMB38 million in the identical interval of final yr, partly because of the enhance in taxable earnings within the first half of 2022 as in comparison with the identical interval of final yr.
Internet earnings was RMB61 million in comparison with RMB151 million in the identical interval of final yr. As of June 30, 2021, the corporate had money and money equal of RMB1.4 billion in comparison with RMB2.2 billion as of December 31, 2021.
The delinquency ratio, excluding loans held on the market for mortgage origination by the corporate decreased from 16.2% as of December 31, 2021, to 14.9% as of June 30, 2022. And the NPL ratio, excluding the held on the market – excluding the loans held on the market for mortgage originated by firm decreased from 2.1% as of December 31, 2021 to 1.9% as of June 30, 2022.
With that, we’d now wish to open up the decision for Q&A. Operator, please?
Query-and-Reply Session
Operator
[Operator Instructions] And the primary query will come from William Gregozeski with Greenridge World. Please go forward, sir.
William Gregozeski
Hello. You talked about making an attempt to do various things to assist the gross sales companions and also you clearly want the gross sales companions to develop the mortgage origination. You talked about a few of the bringing asset administration firm. What is the monetary well being of your gross sales companions? Are they liquid sufficient to supply new loans? Or are they only making an attempt to handle what they’ve now?
Bin Zhai
[Foreign Language] Okay. So beneath the present situation, the liquidity strain of our gross sales companions have been greater than earlier than. And I feel that is primarily due to the rise of the delinquency ratio as a result of beneath our collaboration with the gross sales companions, they should bear the obligations to repurchase the default loans, in order that has put numerous strain on the liquidity?
So ever for the reason that starting of 2022, we’ve got remained very supportive to our gross sales companions. And I feel the very first thing we did is to permit them to meet repurchase obligations by installments. And in addition getting into the second quarter of 2022, we’ve got been giving them extensions in order that they will pay smaller installment each month.
And in addition, we’ve got been negotiating with a third-party asset administration firms to see if they may present put up mortgage companies for the gross sales companions in order that approach they may have their money recovered quicker. And in order that they may additionally launch their liquidity and spend on the enterprise expansions. Does that reply your query?
William Gregozeski
Sure. Might you additionally – simply discuss in regards to the amount of gross sales companions you might have? I imply are you seeing extra curiosity? Or are gross sales companions shrinking down within the amount they’re making an attempt to supply?
Bin Zhai
You imply the amount for?
William Gregozeski
Sure. So the full variety of gross sales companions you might have, is that quantity rising or lowering? And are they – are you seeing them being extra lively or much less lively.
Bin Zhai
It’s nonetheless going up barely. And in addition when it comes to the quantity I can provide – numbers of gross sales companions, this is the info. So the gross sales companions who’ve signed the collaboration settlement with us has went up barely to 90,000 as of the tip of the second quarter. And we’ve got additionally seen a rising variety of lively gross sales companions, and that may be round 500 as of the tip of the second quarter of 2022, which is a 9% enhance as in comparison with the identical quarter of 2021. In order to your query, the quantity has gone up, in addition to the variety of lively gross sales companions.
William Gregozeski
Okay. Good. There’s been numerous information within the media about the true property market from builders having money shortfalls. The variety of unfinished unlived in properties rate of interest cuts, how do you guys view the true property market as a complete and the way it impacts CNF going ahead?
Bin Zhai
Okay. So after practically 20 years of high-speed progress of China’s actual property market, I feel it looks as if even into that finish. And I feel that primarily affected individuals, particularly the shoppers view in direction of the housing market. And as for us, such as you talked about, there are a variety of issues in the true property market, together with the inadequate money of the builders and in addition to the unfinished properties and stuff.
And significantly to us, I feel, to start with, the event of the house fairness loans depends upon the worth of the properties, and that is for positive. And that primarily impacts our enterprise quantity and stuff. And in addition for us, if the liquidity of the homes went down and the housing market is much less lively, it would affect our effectivity of disposing delinquent loans and the collaterals.
However we’re nonetheless constructive in direction of the long run growth of the true property market. As we – as a result of we imagine that our authorities goes to place extra macro measures to stimulate and management the true property market in China. And in the long term, the worth and liquidity of homes shall be increasingly secure.
And in addition, we’ve got noticed one factor, even within the fluctuation of the true property market, the homes within the main blocks in Tier 1 and Tier 2 cities remained reasonably secure when it comes to costs and liquidity. And our collateral are primarily situated inside such areas. So we predict our collateral and our enterprise is extra resilient to the fluctuations of the capital – of the true property market.
William Gregozeski
Sure. Are you able to simply – you stated many of the loans are in Tier 1, Tier 2 cities, what p.c of your portfolio is in Tier 1, Tier 2?
Bin Zhai
Okay. So we’re fortunate that due to our expertise within the residence fairness mortgage trade, our collaterals are primarily situated within the main blocks in Tier 1, Tier 2 cities. As for the detailed percentages. So over 90% of our collaterals are in Tier 1 and Tier 2 cities. And in that, about 30% of the collaterals are in Tier 1 cities.
And that is when it comes to the mortgage origination. And that is beneath the – our collaboration with belief firms. And I additionally need to provide the numbers which are related to our partnership with industrial banks.
So that’s reasonably the loans beneath the industrial financial institution partnership, which is situated – which is – round 7% that’s facilitated in Tier 1 cities, which is reasonably decrease than that of our partnership with belief firms. However there are round 70% of the collaterals that’s situated in Tier 2 cities beneath our partnership with industrial banks.
William Gregozeski
Okay. Good. And final query is, you have talked up to now about some expertise upgrades you wished to make. Are you able to simply define the place you might be on that course of? What are you what is the focus for the rest of this yr and subsequent yr? And what’s the price going to be for that?
Bin Zhai
So up to now three years, beneath the COVID-19 pandemic, we’ve got seen that how vital it’s for a corporation might do their enterprise on-line. And because the – our enterprise volumes stored going up, we’ve got been investing extra into the expertise.
And I feel I need to make one factor clear that to enhance our technological functionality is to help the gross sales by coordinating information in order that we are able to present higher companies to the gross sales companions and the debtors. In order – in order of this second, as of at present, the price was not very vital as we – the foremost venture was performed by our in-house employees.
However as for the long run, we don’t actually have a sure plan for proper now. However our thought is that to make the funding in direction of expertise a sure p.c of income. Meaning if the income goes up with the funding within the expertise will even go up. And our long-term objective is to make CNFinance an organization that might promote enterprise each on-line and on web site.
William Gregozeski
Okay. Good. Thanks.
Operator
[Operator Instructions] This may conclude our question-and-answer session in addition to our convention name for at present. You may view the corporate’s info at ir.cashchina.cn. Thanks for attending at present’s presentation. You could now disconnect.