High Templar Tech Limited (HTT) Q1 2018 Earnings Report, Transcript and Summary

Hello, ladies and gentlemen. Thank you for standing by for Qudian Inc.’s First Quarter 2018 earnings conference call. At this time, all participants are in listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference call is being recorded. [Operator Instructions]. I will now like to turn the call over to your host, Ms. Sissi Zhu, Director of Capital Markets for the Company. Sissi, please go ahead.

Hello, everyone, and welcome to the first quarter of 2018 earnings conference call for Qudian. The Company’s results were issued via newswire services earlier today and are posted online. You can download the earnings press release and sign up for the Company’s distribution list by visiting the IR section of our website at ir.qudian.com. Mr. Min Luo, our Founder, Chairman and Chief Executive Officer, and Mr. Carl Yeung, our Chief Financial Officer, will start the call with their prepared remarks. Before we continue, please note that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company’s results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the Company’s prospectus as filed with the U.S. Securities and Exchange Commission. The Company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that Qudian’s earnings press release and this conference call-include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Qudian’s press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. We also posted a slide presentation on our IR website providing details on our results in the quarter. We will reference those results in our prepared remarks but will not refer to specific slides during our discussion. I will now turn the call over to our CEO, Min Luo. Please go ahead.

Thank you, Sissi. We delivered solid results first half of the year. I'm very pleased with how our team navigated the evolving Chinese fintech industry during the quarter. We experienced an industry wide credit down trend in the consumer credit market following the regulatory changes and we swiftly took proactive steps to manage our risk by temporarily tightening our credit standards. Those proactive steps impacted our transaction cost in the quarter, but we successfully derisked our group and experienced only a small increase in delinquency rates which we expect to be temporary. Despite fewer transactions and a small number of credit products, our total loan book grew in the first quarter, which we construed risk, we choose to optimize credit tax and credit sides to our high-quality users. The increase of credit tax acts actuary made our product more affordable by reducing the required monthly payment due from users. And our strategy decision to tighten credit or risk borrowers while offering high high-quality users broaden up options is further intense value of our product data analytics as we applied, utilized our efficient platform to connect funding focus with qualified followers. As the quarter progressed, we saw improving delinquency trends, and following Chinese New Year, we began embrace local consumer credit demand. While we continue to closely monitor the impact change by a reduction of favorable consumer credit growth. Our core business is on solid footing and I am excited to share about Dabai auto and vehicle leasing where we are driving our net buys of our business. Of November 2017, we have opened over 175 self-owned Dabai Auto showrooms across the nation and have quickly established ourselves as a significant player in China’s automotive repair market. Capitalizing on our index priorities of our key democratic China’s new young generation, we have had great successes positioning Dabai Auto as a first car financing solution for you people, providing an access to operable cars in comfortable shopping environment. But amongst our but borrowers with convenient financing solution has been an obvious point of differentiation for us in the market. We are also working to differentiate ourselves from other auto sellers by providing quick delivery of the consumers' desired vehicle. Our current average delivery occurs in about 15 days versus at average of over 50 days for some of our competitors. We can do that efficiently. We saw huge investment in inventory by using our robust data and proprietary analytics to better credit consumer preference and managing our inventory accordingly. In addition, we recently entered into an agreement with a large OEM in China, which is key to securing a cost-efficient -- effective supply of vehicles. This agreement is testament to our established industry players of how far we have gone over short term. We anticipate learning from established Chinese auto industry players in key areas such as branding, marketing and capital management. At the same time the OEM will benefit by using the auto channels to further penetrate medium and small cities while leveraging our digital analytic capabilities to better understand those by traditional financial source in China, especially in new markets and their car buying needs and challenges. We are very excited about this cooperative agreement and the and synergies it will manage. Strong OEM relationships and continuous improvement in operational efficiency will help us minimize delivery time, enhanced revenue per staff, and create a strong competitive advantage to other providers. At the end of the first quarter, Dabai had received over 6,600 vehicles since November and today we have exceeded10,000 leased and delivered vehicles. Physically, retail car sales are lower in the first half of the year and pick up in the second half. So, we have focused on optimizing talent operating efficient and exploring opportunities in the first half of the year becoming world sufficient, we have solid momentum in our business and all signs points to an improving consumer credit marketing in China, we are well positioned to leverage our 65 million users, give data analytics advertise and growing foot hold in the Chinese auto markets to continue to grow our business in the quarters and in years to come. With that, I will now turn the call over to our CFO, Carl Yeung, who will discuss our key operating metrics and financial results.

Thank you, Min and hello everyone. First, I would like to touch base on a couple of highlights for the quarter. We delivered solid results in the quarter with our number of registered users, reaching 65.3 million and our number of users who have been approved for credit, reaching 27.5 million. Nearly double the number of users approved for credit as of March 31, 2017. Additionally, the data collected from the credit downturn period provided significant enhancement to our data analytic capabilities giving us further ability to distinguish high quality borrowers from low quality ones. This allowed us to start offering slightly larger ticket size and credit term to our high-quality users witnessed by average credit size increasing to RMB1,400 and average credit term increasing to 5.1 months in the first quarter of 2018. The increase of credit terms actually reduced the average amount of monthly repayment due from our users, making our products more affordable. For example, the average amount of monthly repayments in the first quarter of 2018 would be about RMB300 based on the average ticket size of RMB1,400 and the average duration of 5.1 months and 36% APR, down from the average amount of monthly repayment in 2017 of about RMB400 based on the average ticket size of RMB960 and a duration of 2.5 months over a 36% APR. Our proactive management of market driven risk was swift and effective, as we witnessed delinquency rates stabilize and then fall. The risk level was appropriate again by the end of the first quarter to have the loan book grow. Our loan book actually increased from RMB11.2 billion at the end of 2017 to RMB12.9 billion at the end of March 2018. And now has reached RMB14.6 billion to-date. Overall, the steps we took to derisk our business positions us as well as the consumption credit market stabilizes and transaction volume growth resumes. We are also well positioned to continue to grow by leveraging our large customer base, proprietary data and data analytics and strategic collaboration with established OEMs to serve China's new companies. We continue to co-demand the credit trends and leverage our proprietary data to manage risk while cost effectively making credit accessible to credit noteworthy buy underserved consumers in China. Now let's to walk you through the detailed financial results in the first quarter of 2018. Total revenue for the quarter increased by 106% to RMB1.7 billion from RMB835 million in the prior year period, primarily due to the increase in revenue from sell-type leases and a result of the ramp up of our Dabai Auto business. Financing income totaled RMB777 million for the quarter increasing 12% from RMB697 million for the quarter 2017. Loan facilitation income and others increased to RMB278 million for the quarter up 661% from the prior year period. As a result of the substantial increase of our balance sheet transaction volumes, as well as the required adoption of new accounting treatment. Sell commissions fees increased to RMB111 million for the quarter, and 11% increase from the same period of the year ago. Revenue from sell-type leases was RMB546 million, representing revenue generation in the first full quarter since we launched Dabai Auto. Total operating cost and expenses increased by 366% to RMB1.4 billion for the quarter from RMB299 million for the first quarter of 2017. Cost of revenue increased by 461% to RMB686 million for the quarter, up from RMB122 million for the quarter of 2017 primarily due to the cost of sell-type lease incurred by Dabai Auto business. Sales and marketing expenses increased by 127% to RMB123 million for the quarter from RMB54 million for the first quarter of 2017. This increase was primarily due to the higher compensation and travel expenses associated with the Dabai Auto business in the first quarter of 2018, compared with the first quarter of 2017. Excluding cost related to Dabai, sales and marketing expenses actually declined 11% year-over-year primarily due to a significant increase of transactions directly on our own tax. General and administrative expenses increased by 36% to RMB56 million for the quarter, from RMB41 million for the quarter of 2017. The increase was primarily attributable to the increase in administrative fees payable to trust companies as a result of increased use of trust funding in the first quarter of 2018 compared with the same quarter in 2017. Research and development expenses increased by 74% from RMB44 million for the quarter from RMB25 million for the first quarter 2017. This increase was primarily due to an increase in technology service expenses. Our provision for loan principals, financing service fees receivable and other receivables increased by 779% to RMB444 million for the quarter, up from RMB51 million for the first quarter of 2017. This increase was primarily due to an increase in the M1+ overdue loan principals and financing services fees receivables, which we intend to provide sufficient allowance to cover. We have cumulatively provided RMB806 million allowances for principal and financing services fees receivables, more than covering the actual M1+ overdue loan balance. Our M1+ delinquency by Vintage for the new credit transactions facilitated in 2017 stayed less than 1.7% as of March 31, 2018. Income from operations for the quarter was RMB326 million, representing a 42% decrease from RMB558 million during the same period last year. Income tax expense totaled RMB9 million for the quarter of 2018, down 91% from RMB92 million for the first quarter of 2017, primarily due to the deferred tax treatment and increased tax refund. The net income totaled RMB316 million for the quarter, down 32% from RMB465 million for the same quarter 2017. Net income attributable to the company's shareholder per diluted share was RMB0.95 compared to RMB1.53 in the prior year period. Adjusted net income attributable to the company's shareholder, which excludes share-based compensation expenses, decreased by 30% to RMB338 million from RMB486 million in the prior year period. The adjusted net income attributable to company's shareholders per diluted share decreased to RMB1.02 from RMB1.60 in the same period last year. As of March 31, 2018, the company had cash and cash equivalents of RMB5.7 billion compared with RMB6.8 billion as of December 31, 2017. The company also had restricted cash of RMB538 million compared with [RMB2.253 million] as of December 31, 2017. The restricted cash actually is mainly representing the cash in consolidated trusts that which can only be used to fund credit drawdowns or settle these trusts' obligations. As of March 31, 2018, the company had short-term amounts due from related parties of RMB517 million compared with short-term amounts due from related parties of RMB551 million as of December 31, 2017. Such amounts include RMB512 million and RMB549 million deposited in our Alipay accounts as of March 31, 2018 and December 31, 2017 respectively. Such amount is unrestricted as to withdraw and use and its readily available to the Company on demand. Net cash provided by operating activities for the first quarter of 2018 was RMB488 million. Looking forward, for the full year 2018, we are reiterating and reaffirming our prior guidance and continue to expect adjusted net income to be more than RMB2.5 billion and the number of vehicles leased to be more than 100,000 units. Now this outlook is based on the current market conditions and reflects the Company’s preliminary estimate of regulatory market of an operating condition as well as customer demand which are subject to change. With that, this concludes our prepared remarks, we will now open the call to questions. Operator, please go ahead.

We will now begin the question-and-answer session. [Operator Instructions] For the benefit of all participants on today’s call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble the roster. The first question comes from Charles Zhou of Credit Suisse. Please go ahead.

So, my first question is, we also note that the accumulated car lease by your Dabai Auto is over 6,000 we also note that your sales and marketing expense is more than -- I mean it's around RMB17 million. You also told about your full year target of 100,000 number of cars, so it seems to me that you are still a little bit far away from your full year target, so when shall we expect the number of cars to be pickup. So, this is my first question. My second question is also a note, some of the companies used the financial guarantee, I mean like the own the financial guarantee company and they use the sign up and also, they have a financial guarantee license and they use this as part of the credit enhancements. So, may I ask as Qudian, do you also consider to buy maybe a financial guarantee license going forward if yes or not, but I also ask you reasons as well. And my third question is I know that provisional expenses increased a lot in the first quarter of 2018. So, was this attributable to the high delinquency ratio for loans in the fourth quarter last year as delinquency ratio already stabilized? So how should trend the provision? Thank you.

Hello Charles, this is Carl. And thank you very much for the questions. I'll answer directly in English. First of all, regarding Dabai. As we all know the auto leasing business is a complex and long value chain. We have just launched this for few months. For the quarter, we are learning a lot about how to lease cars in a complex nationwide environment. So, we have done a lot of work in the first quarter to optimize the workflow, conversion rates and delivery times. Specifically, you have seen a significant increase in our delivery times to now just around 15 days from when we started well over 20 something days. So, there is a lot of optimization going on. Secondly, the Chinese auto segment does see seasonality, typically the first half of the year tends to be slower, and the second half of the year tends to be more robust in terms of demand and sales. So, we do expect the second half is where really the volume should pick up. Right now, we're still looking at a 100,000-vehicle target. We are not moving away from that, because we believe we have the confidence of doing that thing, because we believe out of the 26 million plus people with credit limits the majority of them do not draw account the very small credit size that they have some sort of auto need. So, from a probability perspective, 100,000 units out of 26 million is not an unachievable as long as we get the details right. So that's where we are. The RMB70 million sales and marketing expenses that as you back calculated from our sales and marketing is really mostly initial set up fees, staff flying around different cities, setting up the stores. So, it would just be very stable. We haven't actually has deployed so called mass marketing to push volumes yet. And if we have to, if we need to, we can use those options to reach these targets. Right now, we still actually expect auto to be breakeven if not actually generate a sizable profit for 2018. Secondly, regarding the guarantee. Thank you for observing that, we are in the process of applying our own guarantor license from CBRC. That timetable is currently uncertain, but we hope to catch that in the next couple of months. At the same time, we already have signed up various license guarantor companies as well as insurance companies to match what Regulation 141 requires. So, we are ready to go and there is -- we'll intend to be fully compliant with what Regulation 141 is required. And then the third question is related to our provision expense in the first quarter of 2018. As you can see the actual M1+ coverage is 1.01, versus previous quarters, which usually at 1.3 times. We do not intend to do any conservative or aggressive counting, this is the way our provision numbers are calculated based on a growth rate model for various delinquencies that reach into the -- that performs into the quarter and we use these to calculate the expected percentage of loss for loans for credit that’s originated in the quarter. This coverage ratio is lower in this quarter because they are really clear, very clear recovery of delinquency by February and March. So, the delinquency coverage ratio aimed up. So, we believe generally the work has passed as volumes and transaction volumes as well as loan balance continue to grow as well as the actual delinquency balance grow as well. We expect going forward as we discussed in the prepared remarks, we should see a much lower so called delinquency ratio by Vintage.

The next question comes from Daphne Poon of Citi. Please go ahead.

So first, I just have a follow-up on the Dabai business. So, we note that actually in addition to the 175 self-operated stores that you have also been recently expanding into the franchise store model. So, I am just wondering how much of the full year like 100,000 self-pattern is expected to be different by this franchise store? And second is on the funding side, we see that some of coverage seems to be on balance sheet funding cost has been coming down quite a bit in the first quarter to around 7% from our calculation. So, would you be able to comment on the reason behind and your outlook on the cost trend going forward? And lastly is about change in accounting policy. Just want to clarify that does that only apply to the off-balance sheet part i.e. loan facilitation service for the financial income is this still recognized on the cash basis instead of an upfront basis? That’s all my questions.

I appreciate the three questions. So, on Dabai Auto, beyond the 170 stores, our company has continued to explore ways to better reach and service our users. So, we have signed up with a very fragmented market rent single stores around China mainly in the four to fifth-tier cities to explore a cost-effective way to reach these users. So, we are collaborating with some of these stores. But this is a process as we discussed before on the call and elsewhere Dabai is very new to us following the complex value chain. So, we will continue to see ways to service these users and explore various methods and optimize this experience. So as regard to how much for the full year 100,000 units will come from our stores versus some of these so-called service provider partners we don’t have a good estimate yet because there’s still being optimization program going on. For example, a specific location yields a significant demand and how to be delivered it might make sense for us to not no longer what could service provided open our own stores. At the same time, for locations, that doesn’t make sense, we may close our own stores too. So, it is a process. We are confident about the 100,000 unit as of today since we have the users, it’s a matter of picking the right location to service them. So, this is where we are [unravelling]. And then the secondly on the funding side in the balance sheet, in fact as of today our external funding costs has remained pretty much similar to last year. So, whether the trust structures of our balance sheet funding from banks or consumer finance companies, the annualized rate of charges is roughly still the same. The observation you saw regarding the overall decline in the funding costs for on balance sheet transactions was we deployed an increased amount of our own cash, as investors behind the trust structures to better use our basically very large cash balance that is not generating better returns anywhere. So, going forward, we see pretty much stable funding environment, with some increase in overall interest rate environment in the market, but the overall so-called funding cost should be stable. And finally, the change in accounting current policy or namely ASC606 that we adopted as required by that is ASP was applied since January 1, 2018. This only applies to our balance sheet transactions, where we a facilitator in the transaction. The on-balance sheet component of our revenues is still used the existing period account treatment where the service fees are recognized over the service term of the user.

Okay, on the funding side, would you be able to give us a breakdown in terms of how much of the funding is from your own capital, and from of balance sheet and also from the trust handle as of 1Q.

Sure, I think, I am happy to share that, with the community and market. If you look at -- I will give you the comparison as well. If you look at the loan book outstandings, on December 31, 2017 the deployment of owned equity was 26.8% and then institutional funding partners that on balance sheet externalizes 55% and then the off-balance sheet institution funding was 18.2%. If you bring that forward to March 31, the self-funding part was 29.1%, so increased by about 2.3% versus three months before that and then the institutional funding partners external that on balance sheet is 46.3%. Now that is replaced significantly by the off-balance sheet arrangements from institutional funding partners externally, which increased from 18.2% on December 31, to now 24.5%. Does that help you?

So, in terms of the going forward the funding with -- you expect the off-balance sheet portion to continue to increase?

Yeah, we are looking to see that happen. Because we are seeing increasing demand from licensed banks to participate in what we have to offer.

Okay, that's helpful. Thank you.

The next question comes from Richard Xu of Morgan Stanley. Please go ahead.

I have two quick questions. First of all, given the continued increase in registered users I do notice that the pace of increase has somewhat slowed. At the same time, I know you also probably have moderated somewhat. Just wondering obviously, the firm have not been spending marketing dollars the cash registered for some time. Wondering whether given the competition more and more other firms are competing in the low rating categories whether there is a need to actually later on increase marketing dollar for the cash from products to maintain active user base and use drive a higher growth in the investor user base in the coming years and quarters? Secondly, I guess on auto business, given also more entrants in the market whether I don't know whether you're seeing more competition in I guess, some of the targeted cities from some of these other competitors at the moment as well. Thank you very much.

Hi Richard, thank you for the questions. These are two really good questions at this call. For observing the registered users to actual transaction users. In the first quarter, you would have seen a rather sharp decrease because a company proactive increased the big approval rate or really increased the rejection rate specifically in from December to January to February to really derisk from refinancing users. And we have done that very successfully. So, the results that we showed that the delinquencies have come down. Now to get back to you on this specific marketing dollar, you actually seeing the marketing spend in the first quarter taking up also up actually declined from the same period last year by 11%. And the company's strategy is really never to market a way into users because we serve an interesting product or credit. And if you market to users you are really asking users to come and borrow. We rather stay with these consumption scenarios where the credit is needed in convenient ways at a reasonable cost affordable cost. And we intend to continue to do that. So, we have no intention to step up our marketing dollars on first more user into borrowers. So, I think you know right now looking at close to 65 million new registered users still a long way to go for us to service the right credit product to them. So that’s kind of where we are. We still have a lot of room things we do. So, as you see we have optimized the credit terms in the first quarter. Although visually on the surface you have seen the ticket size increase and average duration increase will actually lower the per month repayment for each transaction from approximately 400 to now 300. So, making things more affordable with other products that didn't make sense. So, we think these optimizations of our products and services will continue to drive user engagement or actual transactions going forward. Regarding Dabai Auto business, there is and has been an increased sort of level of competition in this space because as everybody can tell, the demand and the need are there. We do expect to put some marketing dollars behind this effort really not for generating more sales away from competitors but really to educate our potential users. The product we serve is actually something that we prefer in terms of the very low-risk model, where these are direct leases. These cars’ titles are owned by our companies. And in the Chinese market not all users prefer that and they would see actually counter-party risk on our company because they will keep repaying but the cars will belong to us until very, very last repayment. We like this because the users are -- it’s very unlikely to defraud us but it does take some education. So, with the -- again large user base, the network of auto showroom still needs to be optimized. We think we are in a very good position to really open this market up. And if there were any sales and marketing dollars to be spent, we will spend it reasonably to really educate potential users only.

So, just one follow-up quick question. I understand -- totally I understand the number of active borrowers as the firm tightened the credit standards. But just wondering whether management is a big concern on the average MAU year-on-year decline in the first quarter? That one be impacted by the credit approval decision. So, I don't know if there's any considerable reason behind that or management expects a rebound in year-on-year growth in the MAU. I guess the active borrowers will come from?

Yes. Thank you, Ran Xu. The actual MAU in the first quarter has declined from the fourth quarter by about 30%. That I think is really mainly due to the overall ecosystems, the large ecosystems in China have basically sort of tuned down various exposures because of regulatory movements. The demand is there. I don’t -- we don’t question that. The credit need for the underbanked is just so massive. So, we hope and we believe that number should rebound somewhat. But let’s still assume the so called base case scenario where this MAU sticks and doesn’t grow. Even at that situation we are still looking at 20 plus million unique users that come and visit our app or across our own ecosystem every given month, which still means a very large and sizable opportunity for various credit products. Even out of 20 million we just served 4 million in the first quarter. So, there’s still a lot of things to do.

The next question comes from Jinjin Qian of Needham. Please go ahead.

A couple if I may. One is to follow-up on the user base. Obviously, you’ve expanded the size of your loan ticket to about 1,400. Just -- and you said you will kind of focus on high-quality users among your registered user base. Can you help us get a sense of how many of the 65 million or 27 million would you consider to be eligible for this larger ticket size? And in terms of your future customer acquisition strategy, are we going to move towards a higher tier of customers a little difference on what we have been focused before, or you are going to be -- you’re targeting the same user base but some will be eligible for the smaller ticket size and as they grow you kind of spend to the larger ticket size. So, kind of on a high level, has the strategy kind of changed given all the industry change. So that’s one question on a consumer credit. The second is in auto business, can you help us understand on the inventory side, what is the typical inventory and turnover you are seeing, how many vehicles do you have in your inventory right now and sort of how much capital would you expect to be needed to reach your 100,000 target this year. Thank you.

All right, thank you, thank you very much Jinjin. And I'd like to help that the company to understand the size of loan ticket. I think we’ve mentioned just briefly that actually although you see the loan ticket average size increase 1,400, with a term of 5.1 month. The actual per month repayment has been lowered to about 300, versus 400 last year. One of the things we have done behind this effort was we actually got rid of all the so called weekly products, where a user will come and borrow on a bullet term, this week and then repaid next week. What we have found to the credit cycle -- credit downturn was this type of product was more associated, correlated close to refinancing users than anything. So, we got rid of that product. And when that product is gone, when you don’t have lot of users borrowing on a weekly basis for RMB300,000, RMB400,000 a week, the average does go up. Secondly, because most players have stronger balance sheet in the first quarter, while most players who are responsible, they have stronger balance sheet in the first quarter. We have seen a group of users with very high-quality data and so called expected low delinquency to come into our platform. And for those users with strengthening our data analytics, we believe, we can serve them with a higher ticket size. But at this month, we do not still serve any user over RMB10,000. That’s kind of where our cap limit is and for those 10,000 the credit limits, the terms are usually 12 months, which actually still makes that transaction per month a small credit size of less than 1,000 per month. So that’s kind of where we want to stay at. So overall, we continue on to focus on the really under served, under credit, under access to credit users, who’s making RMB5,000 [ph] a month where our average is just superior to other competitors. So, we don’t have intention to venture into unsecured credit lending and to say the 50,000, 100,000 categories. So that’s kind of where we are. Secondly, in terms of Dabai Auto, as of March 31, we actually have inventory balance of slightly over 2008 cars. And as of right now, we have 5700 cars in inventory. We believe this is a kind of right level of inventories to get to growth we want to be. We actually carry out a smarter inventory sort of logics in growing Dubai Auto. Number one, we don't do a single brand product. It all multi-brands, so we ensure that vehicles that we want to carry inventory are selling more. For the long-term demand, we try to take them up through the distributors, where they have problems, but they a slow-moving inventory too. So, to combine the two together, we actually have fairly flexible inventory more off where we can get inventory at the lower cost at a faster pace and we can sell it out nationwide. In terms of the capital required to get to say 100,000 cars this year. It should be somewhere around RMB4 billion to RMB5 billion, where we would finance roughly 500,000 units of cars -- 50,000 units of cars. And then the remaining 50,000 out of that 100,000 units will find external way to finance us.

The next question comes from Linda Sun-Mattison of Bernstein. Please go ahead.

Hello, Carl. I have a question regarding general cash flow industry environment. The government, the tightening from December, there was a time table about cleaning up the cash in the industry by end of April. I think can you give us just general idea when the plans are? Have you heard of any players been expanding or shrinking? I just wanted to get a sense how this is developing and whether we've seen the last of regulatory tightening? And following on that, I'm looking at your slide 8 in Q1 a lot of questions were centered around, we've seen big decline. I think probably very straightforward question is when are we going to see this rebound? You said there is enough demand but how when we see this come to your financial numbers and your KPIs? Thank you.

Thank you very much, Linda. The first question I'm not in a position to predict where government has. I don't think anybody in the world can. But I can comment on the actions taken. We can offer our view in terms of what these actions mean? So first of all, there was a lot of regulation issues throughout last year actually, and then Regulation 141 came on December 1. The government all-in-all has really never put a so-called stop all approach to this industry but rather offer guidelines in how we should run the business to serve these underserved credit needs. There were timetables attached to some of these regulations. The April one you mentioned was more towards the PPT registration process, at which the government has actually moved the deadline back without giving a further deadline timetable. I think through the compensations, we have with industry participants as well as associations. We have -- we believe the government also knows that the companies who do not charge exorbitant rates, who do not go out and hurt users are actually doing the industry a good, right? Because if we are gone, if other players are gone, the demand is still there. Where do this demand go? They basically go offline to loan sharks and ultimately people get hurt. So as long as this industry operates with their own reasonable -- and if we provide affordable credit the government knows that this is an okay thing to do. So, you have seen the move back of P2P deadlines. You have seen some of these deadlines regarding confirmation of various licenses, small loan license for example, has really not been enforced or deadlines move back. So overall, I think the environment from a regulatory perspective is more relaxed and it gives the quality players a much more room to service these -- the credit demand. Secondly, on the second question, we are seeing substantial rebound. If you were to look at our first quarter, the rough -- I can’t give you the detailed numbers, but the rough average loan balance all the way from throughout January and February and all the way through the most of March was around RMB11 billion. The RMB12 billion loan balance you saw at the very, very end of March was really just increase in the very last week or two of March. And I just mentioned our current loan balance is 14.6 billion but delinquency rate has actually come down. So, everything you’ve seen in terms of decline in transaction volume, declines in loan balance, increase in the delinquency rates by vintage were actually basically all reverse in the next quarter or so. So, it’s very, very clear to us where our rebound was. That’s why we had confidence to really reaffirm that RMB 2.3 billion of net income that we hope to do this throughout the full year.

Can I just ask a quick follow-up question? You’re still regulated -- are you still regulated under the [indiscernible] with the license issued by the [indiscernible]? And currently can you just clarify the kind of license situation, is there any update basically to what we’ve heard from you during the Q4 briefing?

Okay, sure. I can help. So, our company is really a truly fintech company. There is a tech component of it and there is a fin component of it. Now the tech component of it is nothing more than an Internet platform with apps and data analytics to -- and machines and connections with various financial institutions. That part carries an ICP license which we have. Now we do also provide loans to our borrowers on our own equity. That part has to go through licensed financial institutions. For every loan that goes out of our door, it is our company’s policy, it has to go through a licensed financial institution. Now we also have a licensed or we actually have two, we have two internet micro lending licensed and we still have those, they are under review by [indiscernible] loan bank or local financial office under the CBRC. As to the outcome of that, nobody knows yet. But our business as usual. In fact, in the 20-F that we so-called submitted a month or so back. We have not been operating in that entity, those two entities since December and our business has not been interrupted, because other in financial -- the license that we have, we work with all licensed financial institutions and they have been basically -- we have been a facilitator for the transaction. So really not much a change.

The next question comes from Phil Yao of CICC. Please go ahead.

I have two questions. Firstly, we believe Dabai Auto sales will keep increasing, as we have the capability for channel, capital customer base and operation. However, are we already prepared for the alternative funding for this to support the increasing Dabai Auto sales. And secondly, what’s the APR on average for our cash loans company? And what number should we project in the mid and long term? Thank you.

Yeah, thank you. So first of all, thank you for the two questions, Zey and I’ll answer directly in English and appreciate the comments. First of all, regarding all the financing, so the financing support to grow this business is strategically intended to be driven by own capital first and then we seek external funding. But we’re not waiting for that full scale of external funding to be finished and then go out to get funding. In fact, in the first quarter, our two major external funding partners, one is a bank, one is a licensed asset management company, very large scale one, has already step-in to provide partial funding to some of these auto transactions. So, they are ready to go, when that volume picks up. So, the so called basic infrastructure for funding is already set up and are ready to deploy. We have full confidence in bringing in more funding partners. Because this, if you look at our portfolio of autos right now, we leased up 6600 vehicles in the first quarter with the zero M1 delinquency and to bring that number forward to now over 10,000 vehicles leased up, we have 5 M1 plus. These are extremely high performing assets, plus we are bringing some very interesting fintech elements to this portfolio for our active buyers. In the traditional days you buy an asset portfolio, you would just buy an asset portfolio. These days for example when you do this asset portfolio with us, we actually provide you a platform, a tech platform behind, where you can track individually how many miles the car has driven, what location it is where it's at because each vehicle is equipped with multiple telemetric. So that’s where funding is. So, we already have people stepped in to, and that process already been started. Regarding cash loan pricing, I believe the average actual APR in the first quarter is somewhere around 31% respectively. We don't intend to bring this pricing down because we don't see any competitors that can do this size of a transaction at near these rates right now in the market. In fact, we have full confidence we actually be looking at a full 36% APR across all the products except for. Now actually if you look at the per month financing service fee for the interest on a monthly basis, 36% versus say 30% versus let's say 24%. The absolute difference in terms of RMB because each ticket is still very small on a monthly basis, it's roughly a RMB2 difference. So, there is really no actual impact that will drive -- or the would impact or deteriorate user demand by changing pricing. So, we have full pricing power we intend to keep 36%.

The next question comes from Liyang Lu of L Squared Management. Please go ahead.

Hi Carl. Just have two questions. One is regarding the active users. I know you just quoted numbers. I was just wondering what percent of users are actually new users, if you can disclose that?

Hi, Liyang. Thanks for asking that question. So out of the disclosed active users in the first quarter, roughly 500,000 in that quarter was new users.

Okay. So, the other point you mentioned about…

out of 4.1 million, 500,000 were new users.

Okay got it. And the other question is really about you talked about the reserve, substantial rebound across all the metrics. Just wondering whether we can have some ballpark numbers on the April numbers. And how -- where do you see the sharp development balance sheet compound coming from the new users or just like more repeaters or like higher ASPs?

Okay, thanks for that question. I won't mention specifically April, but we saw the loan balance at the end of March at just roughly slightly over RMB12 billion. But that full quarter in the first quarter is really generated -- that net income is generated roughly around RMB11 billion loan balance. From RMB12 billion by exiting March, we’ve been maintaining around RMB14 billion throughout April to now, May. We are right now sitting on RMB14.6 billion. So, the rebound is very, very large, it’s substantial and we believe that the financial impact should be quite significant as we go into Q2. The confidence to really grow that is really we observe very closely minute changes in the markets as well as the observed actual delinquency rates, the delinquency rates with an effective RISK management that we have implemented since December last year was effective. Our delinquency rates have come down. So, we are confident to grow that loan volume. Now what’s driving that loan growth is really you won’t see a substantial increase in the active borrowers because we've gotten rid of the -- a lot of the financing -- repeat financing users. So, we've -- but our product is now exposing more and more to more new high-quality borrowers as a lot of platforms exit and we can pick and choose which people to serve. So, you would see as we venture into time, a slight increase in the overall ticket size as well as the duration as you’ve seen in the first quarter.

Just one last housekeeping question. Regarding the share buyback, any update on the progress of it?

Well the Board did announce a $300 million. We do not disclose specifically how much we have bought back. We have bought back -- we are not like other company where they announce something that didn’t move. We have bought back a large chunk of that throughout last year. Right now, because there is substantial demand in our business services as well as new ventures such as Dabai Auto, we intend to use that capital in driving business growth rather than just buying shares off the market.

As there are no further questions now, I would like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have other questions, please feel free to contact Qudian's Investor Relations department using the contact information provided on our website.

This concludes this conference call. You may now disconnect your line. Thank you.