Good day, everyone and welcome to the X Financial Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] Please also note today’s event is being recorded. At this time, I would like to turn your conference call over to Tanya Win [ph]. Ma’am, please go ahead.

Thank you, operator. Hello, everyone and thank you for joining us today. The company’s results were released earlier today and are available on the company’s IR website at ir.xiaoyinggroup.com. On the call today from X Financial are Mr. Simon Cheng, President; and Mr. Kevin Zhang, Chief Financial Officer. Mr. Cheng will give a brief overview of the company’s business operations and highlights, followed by Mr. Zhang, who will go through the financials and the guidance. They are all available to answer your questions during the Q&A session. I remind you that this call may contain forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations and the current market and operating conditions and related events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company’s control, which may cause the company’s actual results, performance or achievements to differ materially from those in the forward-looking statements. For the information regarding this and other risks, uncertainties and factors is included in the company’s filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements and as a result of new information, future events or otherwise, except as required under law. It is now my pleasure to introduce Mr. Simon Cheng. Mr. Cheng, please go ahead.

And ladies and gentlemen, Simon has dropped. I will ask you to please stay on the line. I will attempt to reconnect Simon’s line.

Mr. Cheng?

Tanya, yes, yes. Sorry. Yes, sorry that the line dropped off, and then we joined again, okay. Sorry about that. Hello, everyone. We closed out this year with a solid quarter of financial and operational results. We remain committed to providing most user-friendly and convenient financial and business services to borrowers and made significant progress in doing so during the quarter, while ensuring we remain fully compliant with rapid changing regulatory environment. We rapidly made a necessary adjustment to our operations and a loan product portfolio during the quarter to comply with recent regulations governing the maximum interest rate lenders can charge. As a result of the new regulations and adjustments made to our loan portfolio, our total loans facilitated declined on a sequential basis during the quarter. However, Yaoqianhua and Xiaoying Online Mall maintained a rapid growth moment as consumers increasingly turned to online platforms for consumption. This trend has accelerated significantly since the coronavirus disease outbreak at the beginning of 2020 as consumers were forced to consume online under government mandated quarantine, and we are well positioned to capitalize this opportunity. The GMV of Xiaoying Online Mall rose to RMB160.9 million in the fourth quarter of 2019, representing an increase of 107.9% from RMB77.4 million in the third quarter. The number of transactions on Yaoqianhua increased significantly to 4.9 million during the quarter from 0.2 million during the same period last year. As of December 31, 2019, the number of active users of Yaoqianhua was around 408,000, representing an increase from around 330,000 as of September 30, 2019. And the transaction volumes for Yaoqianhua jumped significantly to RMB2 billion this quarter from RMB1.4 billion in the last quarter, while it’s outstanding loan balance increased to RMB1.5 billion as of December 31, 2019, from RMB949 million for September 30,…

Thank you, Simon, and hello, everyone. Although we are facing a series of challenges, including changing regulation requirement, transitioning of funding source from P2P to institutional funding, the impact of COVID-19 in the past 6 months, we still have some strong points, here, in the fourth quarter and the whole year of 2019. Total loan facilitation amount was RMB39 billion in 2019, an increase of 6.8% year-over-year. The total loan facilitation amount in the fourth quarter of 2019 was RMB8.9 million – RMB8.9 billion, at the higher end of our previous announced guidance range. Even though the total number of loans facilitated of Xiaoying Term Loan in the fourth quarter decreased year-over-year, the average loan amount per transaction was RMB14,600, an increase of about 64% from the same period of 2018 and an increase of 13.7% sequentially. The average consumption amount per user of Xiaoying Revolving Loan also increased 49% in the fourth quarter to RMB8,268 compared to RMB5,600 in the third quarter of 2019. The number of active borrowers during the quarter decreased by 29% because certain existing borrowers are not qualified to borrow money on our platform anymore after we implemented our most – a more stringent standard to evaluate borrowers in October 2019. Together with more modification to our pricing model, we believe that the transformation would make us finally survive under current volatile environment. The percentage of loan products we facilitated that were covered by ZhongAn Insurance decreased further to 73% during the quarter as we continue to reduce our insurance coverage rate to lower our customers’ borrowing costs. We expect that in 2020, the percentage of loan products covered by ZhongAn will be less than 50%. So change would minimize the risk of high concentration to ZhongAn for the proposed credit enhancement and increase the…

[Operator Instructions] And our first question today comes from John Cai from Morgan Stanley. Please go ahead with your question.

Hi, John.

Hi, hi. Can you hear me now? Hi, yes, sure. Thank you for taking my question. Sorry, I joined a little bit late, so I missed – I guess I missed some part on the prepared remarks. So just wonder if there are any more colors on the risk trend we see basically on a month-on-month basis? How does that recover? Any colors or quantitative metrics that we can share, so related to that is, do we have an assessment of loss – credit loss related to the outbreak as of this moment? And the second question is on a volume basis. So just wonder on a month-on-month basis, April, March, do we see any pickup of the sequential growth? And the final question is on the income tax. I think it’s a credit. So just wonder what’s the reason behind that? And how should we think of the tax rate in this year? Thank you.

Okay. Thank you, John. This is Simon. I think your question is regarding the Q1, the outbreak of COVID-19, what’s the impact on our business? Absolutely, there is a big impact in our business because people are not – were not allowed to go out to work. So some of our customers have – are losing their income. We saw an increase in delinquency in February and March. However, in April, we’re pretty much back – our delinquency situation is pretty much back to what it was before the outbreak. So it’s going to be a onetime shock to our business, where we would have some loss, but it is just one-time. And it’s – the size is – it is still manageable to our business. So that is regarding the loss. And the second question is regarding the trend. If we see some growth – we still see a huge demand this time in March and April. However, because of this macro economical environment, this uncertainty around the future economic situation as well as the employment and the income of our customers, we are quite cautious at this time, actually. We see the demand, but we are – our credit policy is very tight at this moment. So that’s why we will see our business – loan volume facilitation will decline, that is Q1 2020. And regarding the income tax, I think, Kevin.

Yes. I will explain your question of the income tax. Okay, first, I would like to address into as a whole year. For example, you may – you can get number. For the whole year, we have net income before tax that’s probably around – sorry, that’s around CNY683 million. And our – and actually for this year, our actual tax rate is about 15%. And that means for the CNY600 million profit that we have, we should have a CNY90 million of income tax expense. But finally, we – in our P&L item, we showed an income tax benefit of CNY93 million. And that’s because we have a total income tax benefit of CNY180 million, which includes about CNY110 million of tax exemption for our major subsidiary, which was actually qualifying as a new and hi-tech enterprise. And that means we have tax – we totally have a tax benefit from this company. That’s a total tax exemption of – the tax of this subsidiary in 2018, that would be the above CNY110 million. And the remaining CNY70 million that was – consists of two parts: first, we have a withdrawal of or the reverse of the withholding tax of around CNY47 million. And the withholding tax in respect to the previous accrual of the profit and our – such uncertain VIE, VI entities. But in 2019, some of the VI entities actually were in a loss. So the previously accrued withholding tax was now reversed. And the remaining CNY23 million are mainly for the additional tax reduction in 2019. For example, the R&D cost, tax reduction, and such a calculation was made mainly in the fourth quarter of 2019. So I hope that could resolve all your questions.

Yes. So just one quick follow-up, yes, can you hear me now?

Yes. Yes, we can hear you.

Yes, okay thank you. One quick follow-up on the – I saw on the prepared remarks that in this quarter, we addressed to comply with latest APR cap. So just wonder how would that impact our take rate going forward? Is there any guidance on the take rate? And given the COVID-19, what’s the further pressures from the COVID-19 on our take rate? So yes, just take rate guidance in short. Thank you very much.

Okay. First – for example, first, we previously communicated, and we actually have some changes in the – in November 2019. That means we tried to fully apply the recent regulation requirement that will change our total capital – total borrowing costs from APR 36 to – totally to the IR 36. But after considering a series of reduction, for example, the impact of risk and the other cut-off to the tax, so on. And so we – so for the Q4, actually the take rate for our service income decreased about – was 0.7%. And we believe that in the first quarter of 2020, it will keep decreasing because the change was previously adopted in November 2019. That’s only about Q4 in 2019. So actually, we believe that the take rate will keep on decreasing. And secondly, we actually increased our insurance premium and the guarantee fee premium, which was another way to decrease our take rate. So actually, we found that maybe in ‘20 – in the last months of – sorry, in March 2020, the take rate for our payments will be very low. And then it may be only around 1% to 2%. And that means, actually, that’s why we actually foresee a loss in Q1 2020.

Okay thank you very much.

[Operator Instructions] And ladies and gentlemen, at this time, I’m showing no additional questions. I’d like to turn the conference call back over to Ms. Zhang for any closing remarks.

Okay. Thank you, everyone, for joining us on the call today. If you haven’t got the chance to raise your questions, we will be pleased to answer them through follow-up contacts. We look forward to speaking with you again in the near future. Thank you.

Ladies and gentlemen that does conclude today’s presentation. We do thank you for joining. You may now disconnect your lines.