Yiren Digital Ltd. (YRD) Q4 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Yirendai's Fourth Quarter and Full Year 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] Please be advised that today's conference call is being recorded today, Thursday, 15th of March, 2018. I would now like to hand the conference over to your first speaker today, the Director of IR. Matthew Li. Thank you. Please go ahead.

Thank you, and welcome to Yirendai's Fourth Quarter and Full Year 2017 Earnings Conference Call. Today's call features presentations by our CEO, Ms. Yihan Fang, and our CFO, Mr. Dennis Cong. Mr. Cao Yang, our COO and CTO; and Mr. Joanne Liu, our VP of Finance, will join the presenters in the Q&A session. Before beginning, we would like to remind you that discussions during this call contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties and factors that may cause actual results to differ materially from those contained in any such statements. Further information regarding potential risks, uncertainties or factors is included in Yirendai's filings with the U.S. Securities and Exchange Commission. Yirendai does not undertake any obligation to update any forward-looking statements, except as required under applicable law. During this call, we will be referring to several non-GAAP financial measures and supplemental measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about this non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release. With that, I will turn the call over to our CEO. Yihan, please begin.

Thanks Matthew. And thank you all for joining the call today. 2017 was a tremendous year for Yirendai. We have delivered outstanding results. In lending for the full year 2017, our loan origination volume increased by 102% from prior year to RMB41.4 billion and as of the end of 2017 we had cumulatively served 1.1 million qualified borrowers. This year we launched key partnership with top internet giant, PICC insurance company, as well as of few of the leading banking institutions in China. In wealth management, as of December 31, 2017, we had cumulatively served 1.3 million investors and total AUM reached a new high of RMB42 billion. In our technology platform business, we established partnership with 40 industry stakeholder on technology risk management and customer acquisition. In 2017, we expanded our corporate strategy from online lending to three business lines. One, online lending platform Yirendai. Two, online wealth management platform Yiren Wealth and three, the technology enabled platform YEP. These roadmaps have been set for all three business lines. In 2017, we also continued to grow our team with top talent to have moved our business to the next level. China's financial industry is going through an important transition period right now. The tightening of industry regulations has caused a short term fluctuation, our credit performance across industry. However, as industry consolidation accelerate with many non compliant players exiting the market, and with a new nationwide the personal credit information system underway, we believe that in the long run the financial industry will be able to develop and grow with the high quality and at a healthy rate. As the regulatory environment evolves, Yirendai is well positioned to continue to lead the market. The demand for consumer credit remains strong in China with the large percentage of the market is still untouched. With our leading risk management product, better technology and partnerships capabilities, coupled with our strong brand positioning, we are well positioned to benefit from these macro changes. In addition, we have and will continue to remain in close communications with the regulatory bodies to ensure our full compliance and that we will be fully prepared for the upcoming legislation process. Going to 2018, our strategy is very clear. First, continue to grow our online lending business through developing new partnerships and enhancing product development, while continuing to improve operational efficiency. We also focused on building more comprehensive relationships and the increasing customer stickiness p3 by offering more diversified products, as well as offering other financial services and tools to meet our customers' varying need at each stage of their life. Second, Yiren wealth will be a top priority part this year. We aim to provide the best and long-term wealth management solutions and services to online mass affluent investors. Our goal this year is to acquire new and grow more existing investors into wealth management client. Third, we are seeing a high demand from our partners for YEP, so we will vigorously grow our platform business. We expect to form many new partnerships and deals in 2018. With these strategies in place and the effective execution, we are confident to continue growing our business sustainably and further solidify our leading position in China's Fintech industry. I'll now hand the call over to CFO, Dennis to discuss our Q4 and full year 2017 financial results.

Thank you, Yihan. Hello, everyone. Before I start with our financial results, I'd like to make some comments on the market environment and implication to our business. On a macro level, we see a prudent de-leveraging process in China with an aim containing systematic financial risk, by controlling credit growth in both corporate and consumer segments, which should result in a healthy and more sustainable long-term consumer credit cycle, given continuous household saving growth backed by an overall stable economic environment. Coupled with recent tighten regulation policy towards online lending industry, we expect industry to enter into a consolidation stage with more rationalized growth rate that's open up the opportunity for leading platform to end market share and extend the leadership position. It is industry consensus that institutional funding will be tight and cost will rise in 2018. However, we have been receiving increasing inbound encourage from institution partners to collaborate with us given our advanced technology capability and superior asset quality, which we hope to leverage to diversify our funding source and maintain our funding cost advantage. On wealth management front, we see overall deceleration of the fixed income asset growth as a result of tightened financial regulation. That could provide significant opportunities for us. First, this could make our high quality consumer loan products more attractive to retail investors and second generates strong demand for our newly introduced equity linked investment product service as we wrap our Yiren wealth platform. We see 2018 as a year of industry consolidation with many opportunities ahead of us and will continue to exercise our prudent risk management practice to drive long-term sustainable growth. Now on to our financial update. I'll only focus on key highlights of our business operation and financial performance and you can refer the detailed financial results to our earnings release and IR deck that is now online. We are pleased to conclude 2017 with yet another strong quarter. We again outperformed industry with more than 100% year-over-year loan origination growth in 2017, comparing to the industry outstanding loan balance growth of 50% from the previous year. We are also and consistently ranked number one wdzj.com in their online lending platform development index in 2017. On to our credit business. We continue to make strong progress in expanding our volume growth through online channels driven by the optimization of our online customer acquisition efficiency through deep collaboration with leading online traffic platform such as Baidu and Tencent as we have accumulated close to 55 million registered users and serving more than 800,000 current borrowers online. We have also successfully introduced various new products to get the expanded coverage of our diversified product portfolio. Our loan product based on insurance policy and housing product front continue to gain traction from high quality borrowers which resulted in about RMB 800 million sales volumes during the quarter. In addition, our new product base on China social security data which was launched in Q4 is also gaining traction and expected to expand to wider geographic coverage. With key customers has also become significant contribution to business. In Q4, 2017 about 9% of our borrowers were repeat borrowers for the top up loans products. Next in wealth management. We continue to execute our strategy to build Yiren Wealth into leading online wealth management platform in China. Our annualized yield to investors remains stable at around 8% with average tenure close to 10 months. Average AUM per investor has increased to RMB 144,000 as we continue successfully upgrade our investor base to reach mass affluent population. Our Yiren wealth app, EIU has reached 600,000 by end of quarter. In Q4, 2017 we cross sold RMB38 million of insurance and bond products to our existing platform investors to attract their diversified investment needs. As of the end of 2017, there were about 130,000 investors who have opened E wallet account with total AUM reached RMB355 million. As an important KYC and client service customization tool, we launched our intelligent wealth management system Yiren which was developed by our in-house engineers based on AI technology. Yiren can provide investors with customized asset allocation plans based on their unique characteristics including a non investment asset, liquidity requirement, risk tolerance, risk preference and life stage. Our new technology enabling platform business which is conducted through the Yirendai enabling platform continue to grow steady with customers coming from both Fintech platform, as well as traditional financial institutions such as bank. As of the end of 2017, we had established cooperation with 40 industry stakeholders on data collection and for customer acquisition. In 2017, we generate approximately RMB95 million of revenue through YEP. As to our risk performance. Over the past few months, we noted that recent tightening of industry regulation have resulted in short-term volatility of borrower credit performance across the industry. Yirendai was marginally impacted as we saw our inventory rate slightly rising in December. Our 15 to 29 days delinquency rate as of December 31, 2017 increased to 0.8% as compared to 0.5% as of September 30, 2017. In response, our team reacted immediately and tightened our credit policy while imposing stronger measure of collection. In addition, we also conservatively increased our provision for the quality assurance program from 8% to 8.5% of loans specific during the quarter. As well as a approved and additional contingent liability of RMB61 million for historical loans to ensure that it is sufficient to cover any potential volatility in recent credit performance of our asset portfolio, as well as to provide credit buffer as we further grow our business volume from online channels. We believe this credit risk volatility is likely short term and expect the risk performance to return to normal as we exercise our risk policy adjustment as stringent collection measure, and we have already seen early indication of improvement. Of course, at the same time we will continue to strengthen our anti fraud and credit underwriting capabilities as we further grow our business. Given our strong earnings growth and health cash position, the Board of Directors has approved a semi annual dividend of RMB0.93 per ordinary share or RMB1.86 per ADS equivalent of approximately 15% of the company's second half 2017 net income after tax, which is expected to be paid on May 15, 2018 to holders of company's ordinary share of record as of the close of business April 30, 2018. Before I give out our 2018 Q1 guidance, I'd like to highlight one significant accounting policy change. As required by US GAAP, effective January 1st, 2018, we will adopt a new revenue recognition policy, ASC606 which will mainly impact the recognition revenue from our loan products with monthly fee collection schedule. Previously, we only recognized revenue from monthly fees when cash is collected. Under ASC606 we will be acquiring and recognizing a significant portion of revenue upfront in regardless of the fee collection schedule, which we believe will better align our revenue and expenses and provide better reflection of our operating results. We are currently performing assessment on revenue recognition of our business under ASC606 to assess the detailed financial impact. In line with most Chinese ADR companies, earnings release practice; we'll provide our guidance on quarterly basis going forward. With that let me go over our guidance for first quarter of 2018. Based on new volume originated past general first 2018, we expect our loan origination volume to be in the range of RMB11 billion to RMB11.2 billion. Total net revenue to be in the range of RMB1.53 billion to RMB1.57 billion. And adjusted EBITDA to be in the range of RMB430 million to RMB450 million. We would like to make an extra note; this above guidance does not include the earning contribution from deferred revenue of the loans originated pre 2018, which could add meaningful earning to the quarterly results as we continue to assess the effective non-GAAP reporting method to represent the impact of this business. Even we are not giving 2018 full year guidance, our target of reaching RMB100 billion new loan origination by year 2020 and long-term EBITDA margin of mid 20 should give you a good indication of our near to mid-term growth projection. That concludes my remarks. And now I'd like to turn the call back to operator for the Q&A.

[Operator Instructions] Thank you, Dennis. Your first question comes from the line of Richard Xu from Morgan Stanley. Please ask your question.

Hi. Thank you for the opportunity to ask questions. Two quick questions. One, I guess given the regulatory environment we are hearing lot of I guess platforms somewhat exiting or less active. So how does that impact I guess your cost, client acquisition cost on the online front. Are you seeing any changes on that front and any potential moderation? Also any update on I guess your cooperation with some of the large VATs on the acquisition front, more targeted client acquisition front. Second question is on the cooperation with PICC. Given the announced merger of CBRE and CVRC, do you foresee any potential policy that will probably make you -- make further changes on this credit insurance? Thank you very much.

Hello, Richard. This is Yang and I will take your first question regarding acquisition cost and so in -- we do see a slight uptick on the acquisition cost in Q4 mostly due to our approach on credit underwriting and reduced approval rates. But on the market -- overall market side we potentially will see stabilizing of the acquisition cost and even potentially lower because after this regulatory compliance process, few major players we believe will see advantage in market and especially the one can acquire and convert customer better with the technology will have a very strong position. And so we do see the stabilizing and potentially lower in acquisition cost.

But develop; we are not seeing that yet right. The regulation came up several months ago, we are already in March. Are we seeing any of that trend or we are probably expecting that to happen?

We are still going through the regulatory process. So we are not seeing that yet.

Yes. Richard, this is Dennis. I also want to add a little bit to that. And I think, of course, I think the overall environment with more platform exiting industry; we will see a better market opportunity ahead of us. But also on the other note, our customer base are rather unique were a prime population. So sometime we are more focused on our own customer segmentation and less volatilities given what the industry consolidation is happening. I think that's one thing I want to add. And of course with our foreseeable registration completion with the regulation we will be standing out in terms of working with large internet platforms that they have been more stringent in terms of licensing, working with the licensing compliant parties. In terms of the PICC, we see the overall regulation environment actually very healthy for us because before when you have CBRE and CVRC, sometime there is confusion on what insurance company do and what bank can do. I think when they are combining together actually you probably have a one single decision making process for the business to go through to conduct the reasonable business model. I think there will be quite beneficial as we have for the preliminary discussion with our partners.

Your next question comes from the line of Alice Li from Credit Suisse. Please ask your question.

Good morning, management. Thanks for taking my questions. I have two questions. The first one is that we found out from some industry data that the average investment return on P2P tax has been increasing. So have you seen the intensify competition in the funding side under the tightened liquidity condition. Also how will this affect your wealth management business? My second question is that we see there on Q-on-Q we see strong Q-on-Q loan volume growth in each quarter in 2017 but your first quarter 2018 guidance implies around 15% loan volume Q-on-Q decline, so what are the main reasons for the slowdown because we -- previously we have not -- is this purely because of the seasonality or because of your caution during this credit crunch. Thanks very much.

So, yes, the overall regulatory toll is now less leveraging and more tightening, not only for the internet finance industry and overall. So we actually see we think in 2018 the cost of fund would be higher not -- at least not lower but in higher industry. The good thing is that the impact has yield good brand and our yield to investors actually remain the same as of now. And going forward actually we have the PICC partnership with that. It's more guarantee our clients will feel much safer with this kind of partnership. So we actually expect -- we offer at lower even lower yield to our investor clients and still we think they will feel very safe and trusting us even with lower yield but we do think the entire industry will face bigger challenge to this year in terms of acquiring funding, yes.

Yes. And I think to follow up on Yihan's comments; of course we are also expanding to the institutional funding sources. The partnership with PICC is a significant advantage we have that will easily smooth out arrangement or working process with institutional funding and bring a lot of credibility to our platform. And also even though I think some of other P2P platform has been raising their yield, we do not -- I mentioned we do not see any impact to our platform. And I think we are pretty confident in terms of brand, quality and consumer trust on us. And as for the impact to our overall new wealth management business, I think as we mentioned before, we see a lack of fixed income asset in the market. We believe our asset quality is superior. And will be attracted and also at the same time, it's a great time when the market is shifting from guaranteed fixed income type of asset into more equity driven wealth management product that fits very well into our strategy of providing a holistic personalized asset allocation service to our wealth management business. So it's a perfect timing for us as well. In terms of the quarter-over-quarter gross rate, in 2018 Q1 I think there is a couple of a thing. Even with quarter-over-quarter down quarter on the year-over-year basis, our 2018 Q1volume is growing around 55%. So that's a very respectable year-over-year growth after 100% year-over-year growth in 2017. Of course, and first quarter is always a slow season given the February shutdown and also indeed we had taken a little bit conservative approach in the first quarter as we see slightly volatility in the early delinquencies of our asset performance. We've been tightening certain credit policy and serving channel to make sure we are not impacted even though we've been stated our customer segmentation are superior and relatively a less impacted by a recent industry volatility.

Your next question comes from the line of Daphne Poon from Citigroup. Please ask your question.

Hi, good morning, management. Thank you for taking my questions. So I got three questions please. So first is regarding the delinquency rate trend. So we do see on the online loan quite a meaningful pickup in the delinquency rate in 4Q. But you have also mentioned that you've seen some recent improvement. So looking into the provisioning ratio, do you expect that to stay at above 5% in the coming quarter or when you will expect it to little more actually come back to at present? And also what is your loan approval rate now versus before? And the second question is regarding your partnership with CreditEase. So we know that the contract for referral is going to expire by the end of this year. So just wondering what will be the plan going forward? Like whether you will continue to contract or just consider moving 100% online. And lastly is about the P2P registration timeline. So just wondering do you have any update regarding the registration progress because I guess initially the government gave other timeline the first batch of registration that will come in April but recently we hear there maybe some delays on that so any update regarding the timing of the application and eventually getting the registration will be great. Thank you.

Actually, this is Yihan. Thank you, Daphne. I'll answer the third question which probably the simplest first, yes, there is no like clear timeline for now. I think originally the deadline was I think of registration process supposed to end or finished by the end of June but there is possibility it will be postponed. We don't have a clear timeline, yes. And I think in Beijing it's not in batches. It is more like each individual platform whichever pass the process they all will be registered. So there is no like first batch, yes.

Okay. Now on to the delinquency and provision question. I think if you look at our Q4, 8.5% provision issue and plus the RMB61 million contingent liability come with about 9% quality assurance provision. That's where we are looking near term. The reason being actually there is quite movement in terms of the asset performance and uncertainties. A couple of reasons let me elaborate. First, February is a slow season and usually Q1 is just because the growth rate slowdown tampering growth rate. Usually you see delinquency rate goes up. So that's one of the reasons. And then also we do see collection efforts that being delayed due to holiday season and also our team has been approached by other competitors that have certain impact. Of course, we are building our team and strengthened our overall collection measurement to counteract to that. And then in terms the risk variation due to the industry consolidation, we are still monitoring that and as we mentioned that we see early indication of significance movement that give us a very good confidence that will be rather short term. And so given all these, we believe probably 9% is range that we are looking right now. And we are taking important data point by the end of March given our strengths and collection measure are early indication of our credit policy changes to see how our overall asset performance growth change. Then we'll probably give you more clear guidance in terms of 2018. And also as you rightly point out, our online delinquency tends to be slightly higher. That has been the case historically. And we are making our product adjustment and credit policy adjustment to bring the online risk in line with our overall portfolio expectation. But it may take slightly time for us to adjust to that. And given our strong earning profile, unique economics, we believe we do have room to adjust the provision. At the same time maintain a good risk performance that we can also continue to support our growth trajectory for our online business. And also our operating leverage has been playing up. So we have many rooms for possibilities to support our mid-20 EBITDA margins going forward. In terms of our collaboration with the business from offline referrals from CreditEase, I think we stated late last year as our online customer acquisition improvement significantly, our customer acquisition of our online channel has been coming close to 6% or even below. So with that -- with the strategy of Yirendai of pure online platform, our business, our management strategy was to focus on online channels, grow our business through online operation. And in terms of the offline referrals, I think it will deemphasize going forward. Hope that answer your question.

Yes. And just follow up on the delinquency rate. You mentioned that a loan collection effort that has like there has been some competition like from other players. Can you elaborate a little bit more on that? And also just to confirm on the delinquency rate that you see in March so far, is this still rising but like rising less or has it been coming down month to date? Thank you.

Yes. So we rely on CreditEase collection team. They are the market leader in China. So that's not surprising given CreditEase been approached by other. So I think it's more of competitors hiring people away. But we think we have a very strong organization and culture and we have a very systematic way of training our collection team. So we are right now backing into our normal capacity and actually strengthening more in terms of collection for Yirendai. So I think that was the competition step. In terms of risk performance, yes, we clearly see the indication of improvement early March but we also having a couple of things we will see the impact as we go into the later part of March or early April, a couple of key efforts in collection, a couple of key efforts in the risk policy adjustment and so we expect to see more data coming out and we are quite comfortable.

Your next question comes from a line of Han Pu from CICC. Please ask your question.

Good morning, management. And congratulations on another strong quarter. I have a quick question about regulatory APR card. We want to know how the regulatory APR card would imply impact our revenue take rate to the loan value. Actually we see an increase after take rate in the guidance in the first quarter of 2018. Thanks.

Sure. I think we've done certain adjustments to our pricing in February first -- in February, early February; we've done some pricing adjustments to our product to be in compliant with the regulation environment or guidance. And that actually has a very limited impact to our revenue take rate as you probably have seen in our historical financial disclosure are APR card has been on the volume adjust average level is around 33% and there is certain product has little bit higher APR card, we just need to move down, trimming down a few percentage points from those products. And then overall volume adjusted EBITDA really doesn’t really change too much from our perspective in terms of the revenue take rate. As for 2018 Q1 guidance of revenue take rate, it's a little bit complicated with contribution from both product mix, online offline mix, channel mix, as well as the revenue recognition policy changes. So I think for 2018 Q1 you are probably looking somewhere around between 14% to 15% revenue take rate. That's actually not too different from historically the revenue take rate that we have. Probably historically been 12% to 13%, yes, I think it's actually relatively stable even though there is this revenue recognition change, yes.

Your next question comes from the line of Bo Pang from China Renaissance. Please ask your question.

Hey, good morning, management. And thank you for taking my question. I just had on here on the quality insurance program. So I understand that we are facing out of QAP over time, so just how should we think about the schedule and roadmap of replacing QAP with the third party insurer and guarantor. How that change impact our economics since I guess we might need to pay a little bit higher premium now. So anyway we can benefit out of the change. For example, maybe the third party insurance could help us open a door to get more capital from the bank institution with more favorable returns. Thank you.

Hi, it's Joanne. So I'll take this question. So in terms of our transfer of QAP program to third party guarantor, we have made very good progress with partnership with PICC. So PICC, it is not only for we can--and we are planning to decrease the investor yield to our individual investors. But also it opens up the door of cooperating with top banks in China. So as the model will be PICC bear the credit risk and provide a guarantee to the bank and we are the loan facilitator to provide online customer operation and with the first line risk management service. So, yes, as we mentioned it will significantly lower down our funding cost from the institutional partners.

Yes. In terms of timing, also I think method; I think certain portion of the loans will go through PICC. And there are also certain other loans that could through a guarantee company, a financing guarantee company arrangement. And all these will be online and then ready for the regulation compliance, evaluation process. So we are already in place and in terms of the incremental channel cost, as Joanne mentioned, is very minimum and then given our regulation and PICC trending we actually expect the funding cost to be able to come down, especially I think with PICC we will have to give the channel work with institutional funding that will actually provide even more cost saving from funding side. So actually see near to mid term mutual or even lower overall cost from this arrangement changes, yes.

Your next question comes from the line of Tian Hou from T.H. Capital. Please ask your question.

Good morning, management. Congratulations on a good quarter. Just want to ask about this institution funding side, so PICC is starting point, is a pretty good staring point. So I wonder in your pipelines are there any other institution, finance institution are going to be develop as your partner. That's number one. Number two, as a funding partner what's the arrangement financial or economic arrangement? Do you give them a particular fixed fees or what kind of arrangement? And also what's kind of the scale of the capital they are available to provide to you? So that's on the institution funding side. Also on the approving rate side, so as the policy changes tightening are you guys also tightening your approval rate? So what can be the ongoing approval rate in 2018? That's my two questions. Thank you so much.

Okay. So I'll take that. So in terms of institutional funding pocket, I think the unique partnership with PICC will bring a lot of sources because PICC has a lot of some partnership relationships and they will like to work with them. The arrangement is rather simple because our loans are guaranteed by PICC so the bank feels comfortable investing in those loans with certain expected returns. And these returns cab be rather a competitive in the market or what were initial discussion with some of the partners we see that it's below the expected return that if we were to work directly with the bank. So I think that's the beneficial of the PICC relationships and also the bank institution cut efficiency on us. And in terms of the skill of the institutions funding, internally we had made a rule of working with bank that we need minimum line of credit from each bank because there is a strong demand from the bank partnership to us but we can't work with everybody. So we would require at least a RMB1 billion line of credit from each partners if we were to work with them together. So as you probably have seen that. We have signed some bank partnership very early on but it' taking a while for us to do that. I think it's a couple of reasons. One is that our retail investors have all been very strong. It's been our focus. And secondly that we have been selected in terms of working with bank partners and of course in 2018 we see the PICC relationship is a significant entry point for us to get into the institutional funding source that diversify our liquidity risk as well as helping us to manage our cost. And also will provide more room for our retail center base to do asset allocation to invest into non P2P asset that's also aligned well with our overall strategy. I think from approval rate, I think near term we probably see a little bit coming down approval rate but we expect is to back up to normal after we adjust or credit policies because I think we are taxing our risk policies into different channel, different product for channel products as we do not believe there is risk. We actually going to expand and increase the effort of marketing for those channel. So I think its one direction. It's actually more optimization process. So do not expect the approve rate to deviate significantly from what we've been planning for or target for.

So I do have a follow up question. So you mentioned the new business, one of new business is asset management. Would you please elaborate a little bit? So are you going to issue some fund and to bring investors into the fund and investing as like a private fund or something like that? So how the private wealth management is is going to work?

Hi, Tian. This is Yian. I'll take this question. Actually our new business is online wealth management platform focusing on mass affluent investors in China. So there is -- I would say there is asset management flavor in the wealth management business in some sense the impact P2P asset is asset we manage on this platform but we-- our goal is actually to offer more diversified asset allocation solution including our own asset as well as other things for example now the majority is public fund as well as insurance online, yes. And in the future we might also include some other for example CreditEase asset, management asset in the future but currently our goal is really to build our wealth management capability and attract a lot wealth management clients. [Multiple Speakers] revenue from the fund. And we have big AUM for example for the fund. And lot of this is out; we can make money from those. We also -- we are also developing some tools for like KYC and the personalized wealth management solutions, one of them is called the Yiri is more of artificial intelligence backed personalized asset allocation recommendations and is you are already seeing the testing stage.

Okay. I just want to add what Yihan said. By the way this is Yang. So the reason we see we have advantage for doing wealth management is we do have a very large retailing investor base. And we have very good trust relationship with them. So by the handset providing some very interactive tools like Yiri and also using their task behavior data with us we can give them the personalized recommendation for other wealth management product including fund and also insurance, give them the best recommendation for their life stage and also their need. So that's what we think we have a good, trust on our wealth management also we are aggressively applying a new wealth management customers. So when they come to our platform they already have a good understanding of what we offer and also can take our recommendation pretty easily. So that's what we are going to do on wealth management side.

Yes. Actually I want to add more to this because I think wealth management is a key business initially to us. I think we are actually very differentiated in terms of online wealth management platform. If you look at our existing platform they are more taking a super market approach selling everything to everybody. But as Yihan and Yang mentioned, we are actually doing customized, personalized asset location strategy to serve our retail and consumer that actually very unique business model. And if we are able to do it well online with technology I think it's a huge opportunity ahead of us.

Your next question comes from a line of Ryan Roberts from MCM Partners. Please ask your question.

Good morning, management. And thank you for taking my question. I had a couple. The first one is kind of follow up on an earlier question on the call on the delinquency rate like kind of little bump up. I want to get some more color if I could get in terms of maybe a product wise if there is any kind of change there or alternatively any kind of maybe where borrowers are coming from or maybe even cohort kind of color on the step up in delinquency. And on the back of that just what kind of tightening, what kind of changes you are making to your risk model to account for that kind of going forward? I have another follow up after that.

Yes. So I think in terms of products, we do see certain difference from the data sources in terms of risk performance. I think if we have more specific data that are more correlated to the salary income the risk is tend to be much better. So that's one direction we are going to take to have more credit policy tilted towards the income of the borrowers so that prevent this not that platform borrowing customers who is actually borrowing from other platform to take loans. So that's kind of obvious but we are seeing that. In terms of vintages, it's actually quite interesting is across -- it's a very small percentage but we don't see in terms of vintage differences. I think that also is very reasonable basically because every vintage you have a very small population of users who may have to rely on other borrowing from. But that also speaks to the overall collection impact, as well as the seasonality of the slower loan growth that move, it usually curves up. So I guess that's what we observed from our delinquency data. And the actions we are taking is to provide or try to figure out more risk policies to figure out the income level of the borrowers, so we feel more comfortable with their credit performance.

Thank you. That's pretty helpful. And maybe just kind of maybe one kind of switching gears to the kind of the product side, kind of the guys into business side rather. So just switching gears to that. In terms of the cross sale of the different kind of products that you are trying to develop and you mentioned a second ago and Yihan mentioned a second ago about the asset management and kind of growth initiative we are trying to do there. I am just kind of curious how that strategy is going to unfold with respect to again selling a kind of different set of products and just be side question, is that all going to be internally developed on the product side or we going to white label some of that or I think you mentioned you don't want to head the supermarket kind of approach. I am just kind of curious about the product sourcing a little bit but also more the sale side, how they are going to make that transition to cross sale would be helpful. Thank you.

Yes. The products beside the fixed income asset from Yirendai currently are mostly publicly available but we select them carefully. For example, mutual fund, money market fund, ETS as well as insurance offered by great financial companies. The reason we think we can sell is that first we want to focus on mass affluent population, the couple of things, one they are under serviced by bank. They cannot -- they are not qualified for like for example trust product from private banking or other like a private banking, wealth management services. Secondly, there is a lot mass affluent people in China we think they are like 30 million mass affluent individuals in China and certainly we want to focus on them by providing tailored solutions and there will be some solutions potentially white labeled by us. For example, we are launching local advisor end of Q2 and it will be white labeled solution partnering with CreditEase, our local advisor. And we think it will be critical for our mass affluent investors. So we actually build a good customer base and brand name. And we have the capability of acquiring and converging customer online. So we think we can sell and this is a brand new we think -- this is like online lending three to five years ago in China. It's sleek opportunity and we think we can grab the market and win over there.

Thank you. That's helpful. Maybe just one quick if I could follow up on that real quick. So the differentiation given the most of the products are publicly available, the differentiations versus kind of I guess there are couple of other competitors kind of doing this. Differentiation is really kind of the recommendation I presume it sounds like you are going to use some obviously AI and I think you mentioned before behavioral data in terms of let's say risk appetite and that kind of thing to make the best probably recommendation to shorten the length between product display and product purchases. Is that right?

Yes. We want the asset allocation based on each individual personalized asset allocation solution.

So I just want to add on that and you already said it's really we against -- I mentioned we actually -- our advantage of the first we have a large client base. And also we see we kind of acquire the clients and extend that client base. And so that's one. The second one is that we do have ability to sell based their need and their investment asset and also their life stage. And almost a personal as Yihan mentioned personalized selling at the right time. So that's what I know we can do it online. So that's what we already see some positive development and we hope to scale and grow their business here. And behind this all data and technology and using various algorithm to match the customer with a right financial product. That's what we think we have advantage here.

Your next question comes from the line of [Alex Yi] from UBS. Please ask your question.

Hi. Good morning, management. Thanks for taking my question. Just have a quick question on the funding from institution partner. I just want to confirm that I recall in the December, there is a regulation says that financial institutions, funding from financial institutions are not allowed to be involved P2P lending. So just want to quickly confirm this. Is this still the case? Are they in fact our partner -- our potential partnership with banks and other financial institution? Thanks.

Hi. It's Joanne. So, yes, as you mentioned in December last year there was a regulation that stipulate about the detail model of loan facilitation. So it's not allowed to match the institution with individual borrowers on the P2P platform but the loan facilitation service is -- it's not -- is allowed but a new model. So it requires the financial institution to take credit risk. And they have to do their business. We have to do -- they cannot outsource the risk management. They have to reserve enough provision on the balance on the portfolio. On the other hand, if the banks want to take a third party guarantor, the guarantor has to be licensed entity. So they are really just the two types of entity that can provide third party guarantee service to bank. One is insurance company and the other is financial guarantee company. So that's exactly why we -- when we transfer the QAP model to third party guarantor model. We partner with either insurance company or the financial guarantee company. So in the cooperation with the banks, it's not P2P business, it's actually more of technology outsourcing business. So we provide technology service to those PICC or insurance company or the banks. And the banks will or the insurance company will be the decision maker of whether it issues the loan or not. So it is a different business model. It's more of a loan facilitation model. And the difference on the P2P.

Yes. I just one add on that from borrower perspective even we call institutional funding and from the join -- from the banks and insurance company we bring risk management and data and also sometime customer acquisition to them, so it's more like we are their tech and risk technology provider from their perspective. So the revenue model also will reflect that.

Your next question comes from line of Daphne Poon from Citigroup. Please ask your question.

Hi. And just a real quick follow up on the wealth management side. So I am wondering what will be the difference for our wealth management platform versus CreditEase business. Are they focusing more like on the higher end and higher level individual business and will there be any like referral from CreditEase or cross selling from them to expand our investor base? Thank you.

Hi, Daphne. Yes, the CreditEase wealth management is focusing our high net worth individual and the entire inner wealth is focusing on mass affluent online. So different segmentation and a different product offering but we expect cross referral from both way, yes, we are thinking it will be good synergy between the two parties.

Your next question comes from a line of [Frank Xu from Nazu Asia]. Please ask your question.

Hi, management. Thanks very much for taking my call. So I just have two questions. The first one is kind of the detachment between the revenue growth and earnings growth which has been persistent in 2017 as in part because of the offline to online shift. So can you elaborate on how the accounting policy change is going to impact or potentially better align the income growth with the earnings growth because as you look at first quarter guidance EBITDA growth is still below revenue growth. Will we see a gradual catch up going into the rest of the quarters? Or would there be more expense coming out we should also expect. I guess the second question is on your cooperation with PICC PNC as well. So I think you mentioned that for the other parts of the loans currently not guaranteed by PICC PNC, what's the plan? Would there be any more development with PICC PNC regarding ensuring more of the long duration loans and from the initial conversation what's the attitude toward this type of business? Thank you.

Okay. I can take the first one and then Joanne can address the second question. I think, yes, actually in 2017 there is a clarity lack in terms of top line revenue growth versus the earning growth. And I think that's just due to our historical very conservative cash base revenue recognition content. And, of course, that also means that there are a lot of deferred fees collected in the future that will drop to the bottom line that supposed to enhance our earning part going forward. Into 2018, I think the ASC606 US GAAP requirement and then it actually provide a much better match in terms of our service providing and revenue recognition and at the same time versus our cost associated with providing this service. So I think that is a better unique economics representation of our business model going forward. So I think that will bring the top line growth as well as earning more in sync. But as I mentioned in the guidance note there is significant amount of our deferred fees to be collected from the loan originated before 2008. These fees will be collected on the monthly basis in the next 12 to 24 months and these are actually revenue hasn't been recognized previously given our policy for now that will flow into our earnings. However, we are still in the process of figuring out what's the best of non-GAAP way to present these earnings flow into our bottom line. I guess it's getting better in terms of revenue and earning growth match. And also there is a piece of earning that will come into our bottom line that is not in our Q1, 2018 guidance yet. I mean at least from the number perspective.

So I will talk about the PICC cooperation. So basically in the future we'll have two models of guarantee that provided to our individual investors. One is through PICC and currently the partnership with PICC only covers the loan with 10 or 12 months and we both have the intention in next year to expand the scope to cover the longer tenure loan. And the second model is to provide a limited guarantee protection to financial guarantee company. And that coverage will be similar with the protection we provide in the QAP.

Ladies and gentlemen, there are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may all disconnect.