360 DigiTech Inc (NASDAQ:QFIN) This autumn 2021 Earnings Name dated Mar. 10, 2022.
Company Individuals:
Mandy Dong — Investor Relations Director
Haisheng Wu — Chief Government Officer and Director
Alex Xu — Chief Monetary Officer and Director
Analysts:
Yada Li — CICC — Analyst
Richard Xu — Morgan Stanley — Analyst
Ethan Wang — CLSA — Analyst
Thomas Chong — Jefferies — Analyst
Presentation:
Operator
Women and gents, thanks for standing by, and welcome to the 360 DigiTech Fourth Quarter and Full 12 months 2021 Incomes Convention Name. Please additionally observe right this moment’s occasion is being recorded.
Presently, I want to flip the convention name over to Ms. Mandy Dong, IR Director. Please go forward, Mandy.
Mandy Dong — Investor Relations Director
Thanks. Good day, everybody, and welcome to our fourth quarter and full yr 2021 earnings convention name. Our outcomes have been issued earlier right this moment and could be discovered on our IR web site. Becoming a member of me right this moment are Mr. Wu Haisheng, our CEO and Director; Mr. Alex Xu, our CFO and Director; and Mr. Zheng Yan, our CRO.
Earlier than we start the ready remarks, I want to remind you of our protected harbor assertion in our earnings press launch, which additionally applies to this name. We might seek advice from forward-looking statements based mostly on our present plans, estimates, and projections.
Additionally, this name consists of discussions of sure non-GAAP measures. Please seek advice from our earnings launch for a reconciliation between non-GAAP and GAAP ones. Final, except in any other case said, all figures listed below are in RMB.
I’ll now flip the decision over to our CEO, Mr. Wu Haisheng.
Haisheng Wu — Chief Government Officer and Director
[Foreign Speech] Good day, everybody. I’m very comfortable to report one other strong quarter that capped off a powerful yr. In 2021, whole mortgage facilitation by our platform reached RMB357.1 billion, up 45% year-on-year. This beats the midpoint of our raised full-year steering. In This autumn, whole mortgage facilitation reached RMB96.9 billion, up 4-0, 40% year-on-year. Excellent mortgage steadiness reached RMB142 billion, up 45 — 54% year-on-year. Our enterprise overcome a number of challenges associated to macro financial system uncertainty, by erratic outbreak of COVID and the fast-changing regulatory setting in a slightly unstable yr of 2021. We delivered the expansion whereas sustaining secure asset high quality and additional demonstrating the resilience and the pliability of our enterprise.
[Foreign Speech] Now let me stroll you thru some updates for This autumn.
[Foreign Speech] Regulation stays an space that pulls plenty of consideration. So let me first share some updates right here. The overarching theme of the federal government coverage for 2022 may be very clear, which is to realize regular financial progress by driving consumption, suggesting extra supportive to the event of client finance. We anticipate the policymakers to introduce extra measures to drive consumption and help SMEs as China’s State Council has made the above-mentioned coverage theme as their larger precedence. For instance, in municipal degree 14th 5 12 months Plan for the monetary business report, Metropolis of Chongqing helps the growth of client finance business by a correct loosening of financing restrictions for client finance corporations. On the central authorities degree, PBOC has acknowledged the worth of fintech in its fintech growth plan for 2022 to 2025. There are super alternatives for monetary establishments and the tech corporations to work collectively and contribute to the digital transformation of monetary sector. As well as, the PBOC and different nationwide regulators are selling innovation in monetary standardization outlined within the 14th 5 12 months Plan for the monetary standardization. We actively take part in coverage design-related dialogue organized by a regulator and contribute our business know-how to help efforts.
[Foreign Speech] In This autumn, we began to implement rectification measures in accordance with the regulatory necessities. We’ve got enhanced our company governance construction and additional give attention to our core enterprise. At a current briefing, Guo Shuqing, Chairman of CBIRC said that the self-check a part of rectification work has been largely accomplished. Total progress of rectification has been easy to date and are assured to finish the rectification work very effectively. Primarily based on the regulatory pointers and our personal enterprise wants, we elevated the registered capital of our micro-lending subsidiary in Fuzhou to RMB5 billion. This enhanced our capabilities to serve customers and handle dangers going ahead. We’ll proceed our technique on each direct and oblique mortgage service.
On one hand, we’ll supply loans by our micro-lending firm instantly to focus on clients and industries. Alternatively, we’ll work with credit score companies and assist monetary establishments higher serve customers. We consider that monetary regulators will proceed to work on the implementation of the beforehand launched basic regulatory ideas, akin to monetary service can solely be undertaken with correct monetary license. We’ll give attention to the execution of the rectification plan and the common monitoring of the progress. We’re getting into the late-stage of many rectification course of and ready for the evaluate and the certification by the regulators.
[Foreign Speech] In This autumn, we additionally made progress in a number of different compliance-related areas, common API who’re lengthy facilitated by our platform declined 2% from earlier quarter, successfully introduced down the fee for our debtors. When it comes to the data-related compliance, we proceed to extend funding in knowledge safety and knowledge safety. The China Cybersecurity Evaluate Know-how and Certification Middle, CCRC, awarded its safety certification to our flagship product, the 360 Jietiao APP, including one other nationwide certification for privateness safety to our merchandise.
We additionally obtained the ISO 27701 certification, Privateness Safety Administration System issued by SGS, a well known worldwide normal certification group. That is the second necessary worldwide normal certification in privateness and data safety space we acquired following the ISO 27701 Data Safety Administration System a number of months in the past. As well as, the Cybersecurity Administration Bureau below the Ministry of Business and Data Know-how, MIIT, issued a written commendation of our glorious efficiency within the particular content material for app customers’ privateness safety.
[Foreign Speech] In This autumn, we additionally achieved glorious ends in a number of operational areas.
[Foreign Speech] On the product entrance, our client mortgage enterprise achieved a high-quality progress all year long. Our SME mortgage product, which we launched final yr grew quickly and delivered a passable ends in This autumn. Whole quantity of latest permitted credit score strains for SME loans accelerated and grew by, 1-6, 16% sequentially to RMB9.3 billion. As of the top of 2021, the excellent mortgage steadiness of SME loans accounted for, 1-3, 13% of our whole mortgage ebook. In the meantime, we proceed to refine SME merchandise and increase to raised high quality buyer group by providing bigger ticket measurement merchandise, concentrating on particular SME group off-line. For instance, we expanded our collaboration with banks to entry company credit score report. This permits us to supply greater ticket measurement credit score merchandise and entice extra high-quality SME debtors.
One other efficient method is that, we provide custom-made merchandise to the tobacco and alcohol retail debtors throughout Chinese language New 12 months when their funding wants surged and turnover elevated. To capitalize such alternatives, we simplify approval procedures and elevated direct gross sales for the e-commerce group. In December, credit score line granted to the tobacco retail borrower acquired by our direct gross sales crew accounted for greater than 20% of the full SMEs and the transaction quantity elevated by, 1-0-6, 106% on a month-to-month foundation. In the meantime, beginning off this yr to supply differentiated service to SMEs and customers and to enhance effectivity, we’ll serve SME customers by an upgraded app separate from 360 Jietiao. As well as, on high of the credit score service we at the moment present, we’ll actively discover different service and merchandise to raised help SMEs enterprise operations.
[Foreign Speech] In collaboration with monetary establishments, we leverage our expertise benefit and expanded partnership with stronger monetary establishments. This enabled us to additional optimize the combo of our monetary establishment companions and set up a extra balanced and resilient associate community. Newly added monetary establishment companions has introduced renewed protection, robust danger administration functionality and a various enterprise line. Furthermore, our ICE merchandise presents passive add to raised becoming the compliance requirement of some banks. It will allow us to develop normal options to work with extra banks sooner or later. In the meantime, we continued ABS insurance coverage in This autumn with a complete of RMB1.1 billion at a low coupon price of 5.7%. This introduced our whole ABS insurance coverage for the full-year to RMB6.5 billion, up by 282% year-on-year. Our general ABS funding value for 2021 was 5.47%.
[Foreign Speech] As for our buyer base, the general high quality of newly acquired clients regularly improved coming together with decrease pricing. The worth of these high-quality clients will likely be regularly launched over the life cycle. As value declines, we observe some key indicators of person high quality improved considerably, such because the ratio of person with multi-platform credit score strains, person with mortgage and automotive loans, person with a secure revenue and customers with tangible property based mostly on the A/B group check we performed, the drawdown ratio and the retention charges are each larger for debtors at decrease pricing. We anticipate these clients will generate larger LTV as effectively.
[Foreign Speech] In This autumn, we additionally made a noticeable progress to boost our tech capabilities on a number of fronts as we stay dedicated to develop into a tech-empowered mortgage facilitating platforms, serving our monetary establishment companions and debtors. We leverage our AI and large knowledge tech to successfully establish buyer danger profiles after which match borrowing wants and funding resource-based large knowledge inputs.
[Foreign Speech] First, we made main upgrades to the framework of our sensible advertising and marketing system. This considerably improved our capability to raised establish customers and enlarge our processing capability. Our common person high quality was up by over 20%. Our effectivity in person acquisition was additionally improved by over 20%. The size of our identifiable person base elevated by threefold. Second, we proceed to make key improvements by deepening integration of AI software with our Argus Threat Administration System within the areas of neighborhood detection, hierarchical federated studying and danger administration technique automation. These have strengthened our capability to establish potential borrower and handle danger. Third, as for AI-powered operation expertise, our proprietary manufacturing diagnostic platform offers one-stop sensible diagnostic service, which improve the hassle expertise into automated instruments. These instruments guarantee the steadiness and accessibility of our service. The platform can establish issues inside 30 seconds and increase our diagnostic effectivity by 99.0%.
[Foreign Speech] Trying forward of 2022, contemplating the macro uncertainties, we’ll proceed to take prudent working technique as at all times. From what we’ve discovered from previous success, we consider that holding prudent and regular method in day by day operation is the golden normal for the fintech enterprise when macro uncertainties come up.
[Foreign Speech] After all of the rectification in 2021, we anticipate to see a a lot clearer regulatory framework for the fintech business in 2022, which ought to enable business individuals to be extra centered on long-term enterprise growth. We’ll prioritize our technology-driven technique and proceed to put money into R&D, additional pursuing revolutionary options and enterprise fashions for our 2B enterprise will discover extra various merchandise and repair for various monetary establishments. In the meantime, we’ll collaborate with stronger monetary establishments to optimize the combo and the standard of our partnership community and in the end to spice up our companies sustainability.
For 2C enterprise, we’ll proceed to improve our expertise and fashions to raised establish high-quality borrower and optimize our person base matrix. We’ll roll out extra merchandise catering to those high-quality clients. It will convey larger buyer LTV and retention charges as effectively. We’ll convey very constructive change in our enterprise following all of the arduous work we did final yr, thus, we’re fairly wanting ahead to the yr forward.
For our on-balance sheet mortgage enterprise, we’ve elevated the registered capital of our licensed micro-lending subsidiary to RMB5 billion. It is a essential technique useful resource that we positively will capitalize on.
[Foreign Speech] With these structural upgrades and enhancements, I consider we’ll serve our clients, companions and society extra effectively in 2022, making us a wholesome and extra resilient and extra sustainable firm. It will allow us to raised serve the true financial system and contribute to China [Technical Issues] technique for regular financial system progress.
[Foreign Speech] Now, I’ll flip to our CFO, Alex for extra monetary particulars.
Alex Xu — Chief Monetary Officer and Director
Thanks, Haisheng. Good morning and good night, everybody. Welcome to our quarterly earnings name. As Haisheng talked about, regardless of dealing with a number of macro challenges, we delivered strong This autumn ends in each operations and monetary fronts, and completed 2021 with a sequence of record-setting annual numbers on the ebook. Through the quarter, we noticed continued wholesome client demand for credit score, whereas asset high quality was fluctuating in This autumn primarily on account of [Technical Issues] we’re glad to see enchancment within the new yr as funding turns into ample.
Internet income for This autumn was RMB4.4 billion versus RMB4.6 billion in Q3 and RMB3.3 billion a yr in the past. Income from credit-driven service capital-heavy was RMB2.71 billion in comparison with RMB2.62 billion in Q3 and RMB2.56 billion a yr in the past. The year-on-year and sequential improve was primarily resulting from progress in on-balance sheet loans and releasing assure legal responsibility on earlier mortgage steadiness, greater than offsetting the decline in capital-heavy facilitation quantity and income take price. The take price decline was as anticipated as the common costs of our loans have been lowered by 200 foundation level throughout the quarter, whereas the offsetting components but to kick in. Income from platform service capital-light was RMB1.71 billion, in comparison with RMB1.99 billion in Q3 and RMB780 million a yr in the past. The robust year-over-year progress was primarily pushed by a big improve in capital-light mortgage quantity. The sequential decline was resulting from a lower in capital-light mortgage quantity, together with a modest decline in income take price in This autumn.
Through the quarter, capital-light and different expertise answer contribute roughly 54% of whole mortgage quantity. Capital-light mortgage quantity was negatively impacted by seasonal scarcity of general funding provide in addition to the 24% price cap associated tightening from conventional funding sources. At the least for the primary half of 2022, we anticipate capital-light share contribution to our whole quantity to stay fluctuating round present degree because the business regularly alter to the brand new price cap. On the core of our long-term progress technique, we’ll proceed to pursue tech-driven enterprise mannequin. After this transitional interval in 2022, we anticipate capital-light to develop into a bigger portion of our enterprise in the long term.
Through the quarter, common pricing of our mortgage portfolio dropped by 200 foundation factors. And by the top of 2021, common rate of interest of loans on our platform have been already under 24%. The 200 foundation level reduce in This autumn was quicker than earlier trajectory and we did it proactively. We consider it will give us an excellent flexibility in Q1 and Q2 of 2022 to be in compliance with the regulatory necessities and in the end hit our goal — price reduce goal by mid-year deadline.
Through the quarter, on a blended foundation, common buyer acquisition value per person with permitted credit score line was RMB319 in comparison with RMB305 in Q3. As we elaborated in final quarter’s earnings name, we continued to give attention to attracting high-quality debtors these with a lot bigger credit score strains and comparatively low dangers. The typical ticket measurement of those clients usually run between 150,000 to 200,000 in comparison with common of 10,000 for our common debtors. The unit value to amass these high-quality clients are justifiably a lot larger than the common debtors. So to check issues apple-to-apple, excluding giant ticket measurement clients in each client and SME markets, common value per permitted credit score line of normal debtors was roughly RMB246 in This autumn in comparison with RMB249 in Q3. As we mentioned prior to now, common value per permitted credit score line is a calculated quantity with restricted worth in our inner decision-making course of. We’ll proceed to make use of lifecycle ROI and LTV as key metrics to find out the tempo and scope of our buyer acquisition technique. All through 2021, we’ve maintained wholesome ROI and our LTV development, which in flip drives secure internet take charges.
As general danger metrics fluctuating in This autumn, we proceed to take prudent method in reserving provisions in opposition to potential credit score loss. New provisions for contingent legal responsibility for loans originated within the quarter was roughly RMB1.6 billion. In the meantime, roughly RMB400 million of provisions from contingent legal responsibility of earlier interval loans was written again as precise efficiency of these loans was higher than anticipated.
Efficient tax price for This autumn was roughly 14.8%, which introduced full-year ETR to roughly 17.3%. Going ahead, we anticipate ETR to normalize to round 15%, which will likely be sustainable within the foreseeable future based mostly on our present tax planning schedule. With robust working outcomes and secure contribution from capital-light mannequin, our leverage ratio, which is outlined as a risk-bearing mortgage steadiness divided by shareholders’ fairness stay at a historic low of 4.3 occasions in This autumn in comparison with 6.6 occasions a yr in the past. We anticipate to see slightly secure leverage ratio in the intervening time till capital-light contribution resume progress sooner or later.
We generated RMB2 billion money from operations in This autumn, in comparison with RMB1.8 billion in Q3 and RMB1.2 billion a yr in the past. Whole money and money equivalents was RMB9.6 billion in This autumn, in comparison with RMB7.6 billion in Q3. Non-restricted money was roughly RMB6.1 billion in This autumn versus RMB4.2 billion in Q3. The significant improve in money was partially because of the timing of the registered capital improve for our micro-lending subsidiary, which leads to giant money steadiness sitting in financial institution accounts on the year-end versus being deployed in regular course of the enterprise. As at all times, a good portion of our money would usually be allotted to help our on-balance sheet loans and safety deposit with our institutional companions. As we’ll proceed to generate wholesome money stream from operations, we consider our present tax place is ample to help the expansion of our enterprise to put money into key applied sciences, to fulfill the potential regulatory necessities and to return to our shareholders. Should you’ll recall, our Board of Administrators permitted a quarterly dividend coverage in Q3, permitting us to distribute roughly 15% to twenty% of quarterly internet revenue after tax within the type of money dividends on a recurring foundation. In accordance with this dividend coverage, we declared one other quarterly dividends of USD0.26 per ADS for This autumn. This money dividend represents roughly 20% of our This autumn earnings.
Lastly, let me provide you with some replace about our outlook for 2022. As we communicated to the market beforehand, we consider 2022 will likely be a transitional yr for the business because the individuals are adjusting to the brand new regulatory settings, in addition to some macro uncertainties. As such, we anticipate whole mortgage quantity for the yr to be between RMB410 billion, RMB 450 billion, representing year-on-year progress of 15% to 26%. We view this transitional yr as a possibility was to optimize our operation, strengthen our expertise platform and upgrading our buyer base to construct a good stronger basis for future progress. As at all times, this forecast displays the corporate’s present and preliminary views, which is topic to materials change.
With that, I want to conclude our ready remarks. Operator, we are able to now take some questions.
Questions and Solutions:
Operator
Thanks administration. [Operator Instructions] Our first query is Yada Li from CICC. Please go forward.
Yada Li — CICC — Analyst
[Foreign Speech] Okay. Now I’ll do the interpretation. The primary one is, I’d wish to know the progress of the pricing changes. What’s the proportion of loans in 4Q ’21 which are priced below the 24%? And the way a lot this proportion can attain as much as for the primary quarter this yr? And when the pricing going downward and the goal clients kind of get robust, I used to be questioning how are we shifting our buyer acquisition technique? Thanks.
Alex Xu — Chief Monetary Officer and Director
Positive. Thanks Yada. I’d take the primary a part of the query after which Haisheng will do the second half. So within the fourth quarter, over 70% of our clients are priced under 24%. And as I discussed within the ready remarks, by yr ending, the common value is already under 24%. And this quarter, in Q1, we’re anticipating even bigger portion of shoppers being priced under 24%. And we’re fairly assured that we are going to get the focused price reduce objective by the mid-year deadline. Haisheng?
Haisheng Wu — Chief Government Officer and Director
[Foreign Speech] Sure. Let me translate for our CEO. As in your query, the shopper acquisition technique to entry the upper high quality buyer teams, we’ll leverage three approaches. Primary, additional improve extra — make investments extra in R&D to enhance our tech and the AI fashions to raised establish the shopper danger profiles. What’s the roadmap in This autumn? Second method, we tackle our API buyer acquisition method with our capital enhancement research inside the off-line development, which traditionally confirmed is a a lot better method, particularly for the high-quality clients.
Operator
Our subsequent query is Richard Xu from Morgan Stanley.
Richard Xu — Morgan Stanley — Analyst
[Foreign Speech] Principally, my query is on the funding entrance. There was rising in ADS additionally the small mortgage firm. Capital injection that’s additionally accomplished. So wish to see whether or not there’s a credit score line with the banks the place cooperation with the banks remains to be increasing. And what would be the long-term combine when it comes to the funding between capital-light, capital-heavy after which their totally different funding sources? [Foreign Speech]
Haisheng Wu — Chief Government Officer and Director
[Foreign Speech] Sure, to reply your query, Richard, you’re very right. First, we’ll constantly increase our variety of monetary establishment companions by introducing stronger banks. As this comes alongside, we are able to supply bigger ticket measurement to raised high quality clients. Second, as for the capital-light quantity, we’ll discover extra various merchandise catering to totally different wants of monetary establishments. Their wants embody advertising and marketing surveys, danger administration surveys and mortgage assortment surveys.
Alex Xu — Chief Monetary Officer and Director
I simply wish to add one level. So from a longer-term perspective, the capital-light contribution, as I discussed within the ready remarks, will likely be shifting larger from present degree. Should you recall, prior to now, we have been in some unspecified time in the future concentrating on like two-thirds or 70%. I believe from a longer-term perspective, that’s in all probability nonetheless be the goal. This yr, we’ll be fluctuated round this present degree simply because the entire business is adjusting to the brand new setting. And after we’re performed with this adjustment, the trendline will begin to transfer to the upper route for capital-light.
Operator
Our subsequent query is Ethan Wang, CLSA.
Ethan Wang — CLSA — Analyst
[Foreign Speech] Okay. I’ve two questions. Firstly, a fast follow-up. Simply questioning the funding value for the fourth quarter and the administration view on funding value for this yr. And second query is available on the market concern on tightening regulation for the native monetary establishments or inflicting monetary establishments. And so, for the regional banks who’re collaborating, simply questioning whether or not they’re having concern on this entrance, and whether or not that’s going to influence our enterprise. And for the assure corporations, does that imply there have been arrange numerous establishments throughout the nation, so we are able to cooperate with them to lend nationwide? Thanks.
Alex Xu — Chief Monetary Officer and Director
Okay. Thanks Ethan. I’ll take the primary half once more after which Haisheng will likely be caring for the second. So for the funding prices for the This autumn, it was roughly 7%. And the This autumn, as , it’s at all times been a really tightening interval from cash provide perspective within the monetary system. So usually that’s reflecting the funding prices. And for shifting into this yr, as we kind of regularly transition to new institutional companions, the general funding provide, we’re getting extra ample. However throughout this transitional interval, we expect a slightly secure funding value round 7% and after we’ve performed with this transitional, we’ll in all probability begin to see a gradual, though modest type of decline in funding value in the long term. Haisheng?
Haisheng Wu — Chief Government Officer and Director
[Foreign Speech] Sure, Ethan, to reply your query, primary, your query comes from the very early requirement that the web mortgage enterprise for city industrial banks, that is fairly early regulation and the regulator offers a slightly lengthy grace interval for all of the market individuals. The cutoff date difficulty is January 1 this yr. At present, all our monetary establishment companions are inside the compliance. Secondly, wanting on the metrics of our monetary establishment companions community, most of them are nationwide large operations. Subsequently, we’ve very restricted influence from this regulation.
[Foreign Speech] Sure. The second a part of your query, the regional restriction for assured corporations, assure firm can set native department nationwide large to fulfill these necessities. It’s comparatively simple in comparison with the banks to cowl nationwide large.
Operator
Our subsequent query is Thomas Chong from Jefferies.
Thomas Chong — Jefferies — Analyst
[Foreign Speech] I’ve two. My first query is concerning the SME methods. Can administration feedback about how we should always take into consideration the contribution over the longer term in addition to the borrowing value and the mortgage measurement going ahead, along with the business classes that we’re working with? And my second query is extra concerning the macro headwinds that we face lately, and outbreak of COVID. Are we seeing any modifications when it comes to the buyer conduct when it comes to using the proceeds? Thanks.
Haisheng Wu — Chief Government Officer and Director
[Foreign Speech] Properly, first, concerning your query about SME enterprise, the common ticket measurement for SME merchandise, the general is about RMB50,000, for some tax loans, which is bigger ticket measurement, normally we offer merchandise over RMB250,000. For the tax mortgage, we estimate the advertising and marketing expense is round 2%. Secondly, in your query about using mortgage, as most of our customers have been within the business which are much less impacted across the COVID and the macro financial system, we’re seeing their use of mortgage is in step with earlier.
[Foreign Speech] I wish to add extra shade for our working technique for SME enterprise line, even below the super demand from SME borrower and the supportive coverage from authorities, we take a really prudent technique on this enterprise. We give attention to these industries which are much less impacted by the macro financial system akin to manufacturing and retail. This yr, we don’t anticipate to speed up doubtlessly in these companies line. Once more, we’ll take very conservative position. Additionally, we wish to discover extra capital-light and the extra tech-driven options for monetary establishments on this SME enterprise.
Operator
Thanks. That is the top of our question-and-answer part. Now, I give it again to the administration for closing comment. Thanks.
Alex Xu — Chief Monetary Officer and Director
Okay. Thanks for — once more, for collaborating within the name. And you probably have any extra questions, please contact us off-line and we’ll talk about then. Thanks.
Operator
[Operator Closing Remarks]
