LexinFintech Holdings Ltd. Q3 FY2024 earnings call

• Risk management: Ongoing efforts led to improved new asset quality and turning point in overall portfolio risk. FPD7 of new loans decreased, and day 1 delinquency ratio of the portfolio declined. Measures included optimizing online advertising channels, leveraging user base, bringing in third-party data, and upgrading anti-fraud models.
• Profitability: Net profit margin increased due to declined risk levels and enhanced asset quality. Funding costs decreased, and net profit margin reached 8.45% with a 223 basis points quarter-over-quarter increase. Focused on meeting diverse customer demands, e.g., enhancing [Foreign Language] product for small and micro business owners with 78% quarter-over-quarter transaction volume growth, and restructuring pricing for super prime Salary Workers.
• Technology and R&D: Invested RMB 149 million in R&D. Business management connected to anomaly attribution system for real-time detection of business metrics. Launched Intelligent Credit Platform under light asset profit-sharing model to drive revenue and customer base expansion.

In the third quarter, loan originations reached RMB 51 billion. The outstanding loan balance stood at RMB 111.3 billion. Revenue was RMB 3.7 billion, and net profit was RMB 310 million. The net profit margin reached 8.45%. For new loans, the FPD7 decreased by about 13% compared to the second quarter, and the day 1 delinquency ratio of the overall portfolio declined by around 9% compared to the previous quarter. Funding cost dropped by 98 basis points from the second quarter to a new historical low of 4.28%. The revenue contribution was from loan originations, tech empowerment income, and other services, with the net profit driven by improved asset quality and cost optimization.

• Expect further improvement in revenue and net profit as portfolio fundamentals strengthen. Q4 GMV of loan originations is expected to grow flat to lower single-digit quarter-over-quarter. Committed to stronger profitability in 2025 with the Board approving an increased dividend payout ratio to 25% of net profit starting January 1, 2025.
• Anticipate continued improvement in asset quality as high-quality new loans increase and existing loans mature, laying foundation for performance growth next year.

• Macro environment uncertainties: Impact on loan demand and overall business performance. - Risk management challenges: Potential failure to maintain or improve risk levels, leading to higher delinquency. - Funding cost fluctuations: Dependence on financial institutions' confidence and market conditions may affect funding costs.

Q: What's management view on growth strategy following government policy stimulus and consumer loans demand recovery?

A: Observed short-term positive change but long-term recovery depends on macro environment. Q4 loan origination volume is generally flat due to prudent strategy, but asset structure is optimized with higher-quality customers and new customer acquisition strategy effective.

Q: Elaborate on net profit growth drivers and future momentum?

A: Net profit growth in Q3 is due to asset quality improvement and record low funding cost. Expect significant growth in 2025 with continued focus on risk management and operational optimization.

Q: Details on risk level optimization measures and Intelligent Credit Platform model?

A: Measures in Q3 included focusing on high-quality channels, building joint models, enhancing anti-fraud. Intelligent Credit Platform is capital-light profit-sharing model to expand market and profitability, with growth potential.

Q: Funding cost drivers and outlook?

A: Funding cost decreased due to ample funding and partner confidence, reaching new low of 4.28%. Q4 funding cost expected mildly optimized due to seasonality, but confident in further optimization in 2025.

Q: Customer acquisition measures and future cost?

A: Measures include improved online channel efficiency, activating dormant customers, and cooperation with key channels. Expect continued low customer acquisition cost with reactivation of dormant customers and strengthened acquisition capability.