Qfin Holdings, Inc. Q1 FY2025 earnings call

• Leveraged AI to reshape credit value chain, with AI-powered credit decision engine and asset distribution platform empowering 163 financial institutions and serving over 58 million users. Total loan facilitation and origination volume up 15.8% y-o-y. Take rate 5.7%, up 2.2 percentage points y-o-y. Non-GAAP net income up 59.9% y-o-y to RMB1.93 billion, non-GAAP EPADS up 78.5% to RMB13.5.
• Rolled out AI-Plus credit strategy, plan to recruit 100 algorithm engineers by year-end. Established deep bank division, introduced internal AI Agent platform, deployed 5 digital employees. Risk management: pilot end-to-end risk management framework with LLMs, AUC improved to 0.64, upgraded data mining with multimodal inputs, user profiling agent with 95% accuracy. C2M2 metric stable at 0.6%.
• Upgraded Intelligent Asset Distribution platform, improved fund asset matching. Funding costs decreased, issued RMB6.6 billion in ABS (+25% y-o-y), funding mix with more ABS led to further 30 basis points sequential decrease.
• User acquisition: added 1.54 million new credit line users (+6% y-o-y), new borrowers up ~41% y-o-y. Marketing focused AI agent improved user profiling accuracy, conversion rate up 33%. Embedded finance added 7 new channels, new credit line users from embedded finance up 36% y-o-y, loan volume up ~106%. Technology Solutions business partnered with 3 mid-to-large municipal banks, loan volume up ~144% y-o-y.
• Received regulatory notice on Internet loan facilitation, view as recognition of model value, will engage with regulators.
• Issued USD 690 million convertible senior notes, proceeds for share buybacks. Started RMB450 million share repurchase plan, expect total repurchases no less than USD 680 million in 2025.

Total revenue for Q1 was RMB4.69 billion. Revenue from credit driven service (capital-heavy) was RMB3.11 billion in Q1, up from RMB2.89 billion in Q4 and RMB3.02 billion a year ago. Revenue from platform service (capital-light) was RMB1.58 billion in Q1, compared to RMB1.59 billion in Q4 and RMB1.14 billion a year ago. Platform service accounts for roughly 56% of quarter ending loan balance.

• Second quarter of 2025 expected non-GAAP net income between RMB1.75 billion and RMB1.85 billion, representing year-on-year growth between 24% and 31%.
• Expect funding costs for coming quarters to decrease slightly from Q1 levels.
• Intend to continue efficient capital allocation and shareholder value creation through share buybacks and dividends.

• Macroeconomic uncertainties, including impact from trade war.
• Potential delisting risk for ADRs, but secondary listing in Hong Kong provides protection.
• Credit quality fluctuations, including slight increase in day one delinquency rate due to loan mix change, but C2M2 ratio remains stable within target range.

Q: What kind of impact of changes do we expect once the new loan facilitation rules come into effect in October 2025? Secondly is what's the latest trends QFIN is seeing on the credit quality? How does it compare to second half of 2022 and 2023 when QFIN started to tighten credit risks? Will that impact the total expected loan growth for the year?

A: Alex Xu said new rules recognize value of loan facilitation model, industry will be more organized, leading to better health. Zheng Yan said asset quality stable, C2M2 ratio in Q1 0.6% better than 2022-2023, risk levels under control, loan volume growth depends on credit demand with macro uncertainties but outlook largely unchanged.

Q: What's the reasoning behind the slight fluctuation in C2M2 ratio and increase in day one delinquency rate? How do you expect these indicators to trend going forward? Also, how is credit demand trending?

A: Haisheng Wu said C2M2 fluctuation in line with expectations, day one delinquency increase due to loan mix change (higher from embedded finance) and loan volume structure. Expect C2M2 to remain stable around 0.6. Alex Xu said credit demand in April roughly in line with March, May slightly decreased due to holiday, but loan volume in Q2 on track.

Q: With recent China-U.S. trade escalation, how does it impact potential lending standards and credit demand? What's the strategy regarding ADR delisting risk?

A: Haisheng Wu said slight tightening of risk strategy in April due to tariff uncertainty, but risk levels stable. Yan Zheng said ADR delisting risk reduced with U.S.-China tariff talks, secondary listing in Hong Kong provides protection, liquidity in Hong Kong would improve if delisting happens.

Q: Reason behind increase in CAC and impact of trade war on new borrowers' quality and customer acquisition strategy?

A: Alex Xu said increase in CAC due to business mix change (API channels contributing), but acquisition cost per loan via API lower. Focus on acquisition efficiency, conversion rate up. Trade war affected credit demand slightly, will adjust acquisition pace accordingly.

Q: View on loan demand trend, funding liquidity from bank partners, and company's loan strategy amid domestic consumption stimulus? Can maintain low funding cost long-term?

A: Alex Xu said domestic consumption policies positive, credit demand slightly better. Funding environment supportive, expect funding costs to decrease. Yan Zheng said net take rate expected to improve in 2025 assuming no dramatic micro changes.