Yiren Digital Ltd. (YRD) Q4 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Yirendai Fourth Quarter and Full-Year 2018 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] I must advise you that this conference is being recorded today, the March 25, 2019. I would now like to hand the conference over to your first speaker today, Miss. Lydia Yu. Thank you. Please go ahead ma’am.

Thank you, and welcome to Yirendai's fourth quarter and full-year 2018 earnings conference call. Today's call features our presentations by the Founder, Chairman, and CEO of CreditEase and Chairman of the Yirendai, Mr. Ning Tang; our CEO, Miss. Yihan Fang; our CFO, Mr. Dennis Cong; Mr. Huan Chen, our Board of Directors; and Miss. 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 statement, except as required under applicable law. During this call, we will be referring to several non-GAAP financial measures as 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 these non-GAAP measures and reconciliations to GAAP measures, please refer to our earnings press release. With that, I’ll turn the call over to our Chairman, Ning, for opening remarks.

Thank you, dear investors and friends. Thank you all for joining Yirendai earnings conference call today. Yirendai was the first listed fintech company from China on the New York Stock Exchange in December, 2015. And I thank all of you for your continued support and attention in the past years. I believe Yirendai has demonstrated its industry-leading position in serving its customers. To further strengthen the Company's market leadership and provide better customer service to our investors and borrowers, I am excited to announce the business realignment plan between Yirendai and certain part of CreditEase business operations, which mainly include online wealth management targeting the mass affluent, unsecured and secured consumer lending, financial leasing, and small business lending. You can find more details in our realignment press release that was published today. I believe this business realignment is very strategic for both Yirendai and CreditEase through which we will be able to form the leading fintech platform that provides both wealth management and consumer lending products and services to millions of individual investors and borrowers in China. The combined online wealth management operation will strive to become the high quality one-stop destination for mass affluent investors, seeking asset allocation based wealth management services. While the combined lending operation will be able to provide diversified credit product portfolio to consumers with unsecured consumer loans, auto loans and home equity loans, and to small businesses with supply chain financing and leasing. I will personally assume the CEO position of the combined operation, working with the management team upon closing. And I believe this strategic realignment will help us provide better service to our enlarged customer base at scale, leveraging Yirendai and the CreditEase management team, product and business operation expertise, technology know-how and the risk management capabilities. We look forward to presenting the combined business operation by the time of closing of the realignment. And thank you again for your continued support. With that, I will pass the call to Yihan to talk about Yirendai Q4 2018 business results.

Thanks, Ning, and thank you all for joining us today. In the fourth quarter of 2018, we achieved solid performance as our credit business resumed steady growth and our online wealth management business continued to show strong momentum. During the quarter, our loan origination volume increased by 28% from the previous quarter to RMB8.4 billion. This brings our cumulative loan origination volume to approximately RMB113 billion, and outstanding loan balance of performing loans to RMB41 billion. In addition, we have elevated the overall credit quality of our individual borrowers through implementing more stringent risk policy, which have shown improving credit performance for our recent loan origination. Furthermore, we have strengthened our cooperation with our parent company CreditEase through its online and offline network through which 40% of our borrowers were referred by CreditEase, contributing to approximately 52% of our loan origination volume. Our platform investors on the other hand have continued to show strong interests and confidence in our attractive loan assets and non-P2P wealth management products. In the fourth quarter of 2018, we facilitated 145,000 investors with total investment amount of RMB7.8 billion. Investors with AUM of about RMB100,000 exceeded 33% of total existing investors on our platform. We strive to develop Yiren Wealth into a leading online wealth management platform to provide comprehensive products and services to the growing mass affluent population in China, and we believe the announced strategic business realignment will further strengthen the efforts. By acquiring CreditEase other online wealth management platforms, the combined business will be much stronger in terms of brand, team, client base, and products and service capabilities. In 2018, we will grow client base on our platform, while reducing customer acquisition cost through brand marketing, optimization of channels and operations. We will also expand our products and services offering by providing wealth selected products of different asset class that are suitable to our mass affluent clients, launching multimedia investor education lessons, building out investment tools such as online financial advisory and child education planning and upgrading customer service levels. On the regulatory front, the P2P compliance and inspection process is still going on. The Beijing Internet Finance Association completed their on-site inspection in December last year. We have also submitted all requested data and related documents to the National Internet Finance Association for their review. Next step is for the local finance bureau and offices to conduct their on-site inspections. We are readily prepared for the ongoing regulatory inspection process. We believe that Yirendai will be one of the few platforms to operate in compliance exceedingly in the future. With that, I'll turn the call over to our CFO, Dennis to discuss about this quarter’s operating results.

Thanks, Yihan. Hello everyone. I will provide the financial update of our business. First regarding the transaction, as disclosed in our press release, Yirendai has signed a business agreement after receiving approval from our Independent Audit Committee as well as our Board of Director to acquire certain business operation from CreditEase. The total consideration of the transaction will be of 107 million newly issued ordinary shares of Yirendai, and RMB889 million in cash, and maybe adjusted in accordance with the pre-agreed mechanism at the closing of the transaction. It is estimated that the unaudited U.S. GAAP net revenue of the Target Business were RMB6.6 billion or US$962.3 million in 2018. The online wealth management business has RMB8.6 billion of total assets under management as of December 31, 2018 and an active investor base of close to RMB0.2 million in 2018. It is estimated that in 2018, the lending business has referred RMB15.9 billion sales of loans to Yirendai and facilitated RMB23.2 billion of loans on its own platform. This is a significant acquisition for us and that we are very excited as we believe that it will create many synergies and significant shareholder value. CreditEase has a diversified portfolio of loan products, customer base and customer acquisition channels that will be complimentary to Yirendai business and combining the operation with the only optimize our online, offline service to our customer base, but it will also drive stronger longer-term growth and present cost saving opportunities. After this transaction, we will become one of the largest fintech platform in China further reinforcing our leading position in the industry and will be best positioned to serve our credit and wealth management clients. Over the past few months, the industry has continued to undergo rapid transformation due to a tightening regulatory environment, especially after the release of Circular 175, which has increased industry consolidation. According to data released by wangdaizhijia.com as of February, 2019, the top 20 platforms contributed close to 60% of total industry transaction volume as compared to 35% over a year-ago. Post the transaction, we believe we will be able to better capture this market opportunity through offering a wider range of Credit product and service, including consumption, auto and home equity loans to meet all customer demands. On the Credit side, loan originations started to recover in the fourth quarter, increasing 28% quarter-over-quarter RMB8.4 billion as we continue to proactively control the growth rate with conservative risk policy. Early delinquencies for new vintages have remained largely stable and have shown the improving trends. However, due to our relatively longer tenure, charge-offs for the 2017 and 2018 vintages continue to be impacted by the loans generated in the second half 2017 and first half 2018. To ensure adequate investor protection, we have increased the borrower contribution to our credit assurance program to about 13% of the loan contract amount this quarter. Risk management will continue to be a top priority and our risk management initiative for 2019 include upgrading our risk scoring grid, implementing early delinquent collection as well as connecting to PBOC with records for loans, facilitate with our institutional funding partners to increase the cost of deporting. On institutional partnerships, we are pleased to note that we have made significant progress. Our line-of-credit from Xinwang Bank has been increased from RMB1 billion to RMB1.5 billion effective as of January, 2019. In addition, we have also received approximately RMB10 billion line-of-fundings from selected joint stock and CD commercial banks at a competitive funding rates. We will remain committed to diversifying our funding base and we expect to increase the portion of loans funded by institution partners through the 2019. For our financial update, I will focus on key items of our business operation and financial performance. And you can refer to the detailed financial results to our earnings release and IR deck that is now online. Total net revenue was up 13% quarter-over-quarter to RMB1.3 billion during the quarter with a corresponding net revenue take rate of 13.1% as compared to 13.9% last quarter due to a higher contribution to our credit assurance program. Please note that our net revenue take rate is calculated net of provision expenses for better comparability. On the balance sheet side, as of December 31, 2018, our cash and cash equivalents were RMB2 billion. Balance of held-to-maturity investments worth RMB316 million and balance of available-for-sale investment was RMB832 million. As of December 31, 2018, our usable cash increased from RMB2 billion in September 2018 to RMB3.2 billion. We would also like to highlight that our operating cash flow has increased from net cash use of RMB138 million to net cash generated of RMB1 billion due to our efforts in cash management putting us in a solid cash position. The share repurchase program that we announced last June is still effective. We remain committed to driving shareholder value and if we’ll deploy the buyback program when our blackout period ends as management discretion. Regarding 2019 outlook, we will not be giving out any guidance given we’re in the process of closing the transaction and we plan to report consolidated financial results of the combined business when the deal close. That concludes my remarks. I would now like to turn the call back to operator for Q&A.

Certainly. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of John Cai from Morgan Stanley. Please go ahead.

Hi. Good evening, management. Thank you for taking my questions. So I have two questions. The first one is on the business realignment with CreditEase. So is there any more details like the cost income ratio of the Target Business or the profits and the operational levels like what they are doing at the moment? So how many branches, if any are there? And what would the price imply on like price-to-book basis? I saw this total AUM of around RMB8.6 billion, so just wondered how you think about the multiple there? The second question is on the cash, or capital management, as mentioned by Dennis, I think previously we have a very strong improvement on the cash flow. Just wondered what's driving that besides our profits? So I see some balance sheet items that has been changing quarter-on-quarter, such as the loan at fair value, contract assets and prepaid expense. So I just wonder, yes, what’s driving our cash improvement and what’s our take on the operating cash flow looking forward? And if cash further increase, what’s our plan on that we assume the dividends? Thank you very much.

Okay. Thanks John. In terms of the Target operation, you can think about it has two parts. One is the including finance operation from CreditEase that we have talked about including unsecured consumer loans, auto loans, home equity loans and some of the small business supply chain financing and leasing operation. And I think we're still in the process of closing the transaction and we have not completed the audit financial statement yet. So at this moment, we are only enabled to share the operating metrics that we have highlighted in our press release as well as the last section of our IR deck. I apologize if it came out a bit late before the call. So if we just look at the 2018 business operations skill, in terms of the lending side of business, the Target Business has originated more than RMB23 billion loans on its own platform and also referred close to RMB16 billion to Yirendai and you can consider also think about the Yirendai business operation in SKU at the comparison that has originated close to RMB23 billion online through its own platform. Of course, the other RMB16 billion was referred from CreditEase operation. And in terms of the online wealth management part of the operation that's – we'll be combining with Yirendai. It's also similar in nature, but more focused on the mass affluent investor base. The total AUM as we mentioned is about RMB8.6 billion and close to 230,000 active investors. So from a revenue perspective, we also mentioned that the end audit, U.S. GAAP net revenue for the Target Business is RMB6.6 billon compared with the current reported unaudit net revenue for Yirendai for the full-year 2018 is about RMB5.6 billion. So that will give you some level of comparison in terms of business operations skill as well as the financial metrics. And we will report the earnings and all those when the audited financial statement is ready when the time of closing of the transaction. And in terms of the cash position and balance sheet, I will refer that to Joanne to give a highlight.

Sure. So in terms of the increase on our cash position, it's mainly due to two reasons. One is because we changed the product mix and we increased the upfront fee portion to reduce the uncertainty of the cash collection in the future. And the second is, we optimized our cash in operation and reduced the cash in transaction, and that's why you see a reduce on the balance of prepaid expense and other assets. And of course with the repayment of the loans at fair value, we also collect back the cash. So in the future, we are going to maintain the cash position on healthy level and with the increase of the cash position, we are more investing into operation and also in the new wealth management business.

Yes. And also maybe for me to add a bit more in terms of business synergy between the two combined business operation. I think from the lending side, you are going to see a much wider customer segmentation as more diversified product portfolio and combined with multichannel customer sourcing acquisition that will be complimentary to Yirendai’s online customer acquisition capabilities. And then from the online wealth management business part, I think the overlapping between the two platforms from the customer segmentation perspective was small, and then the combination of the two operations will unify the resource, technology capability for Yirendai to focus on the online wealth management business for 2019. And maybe Yihan can add some more on that front.

Yes. As I communicated in my previous remarks, so the realignment combining CreditEase online wealth management platform is the win-win situation, because we can really find the synergy between the parties and there is a one-stop platform for mass affluent as well as like new mid-class population in China, which is even bigger market opportunity, and in terms of the team and product and service capability, is all great upgrade from my point of view.

Yes. Thank you very much. So I just have a small follow-up. So in terms of the – on targeted business, is it P2P? Is it under any growth constraint like the Yirendai because of the regulatory requirement that the loan balance need to decline? Thank you.

Yes. It's also operating as a peer-to-peer business model. Of course, right now, as you all know, there's a cap on the individual investor funding for the loan balance. However, as we mentioned, the significant progress we have made in terms of working with the banks, institutional parties will definitely help us to combine the multichannel, multi-sources of asset sourcing capability with the institutional funding that continue to drive our growth. And in particular, as you may know, the multichannel, online-offline combination usually gives better stable asset quality, while the Yirendai online Yiren Wealth has always generated very strong demand in terms of very competitive funding cost. So we believe the combination of the two operation will really gave us a lot of synergy and momentum for our business going forward.

Thank you very much.

We have our next question from the line of Jacky Zuo from Deutsche Bank. Please go ahead.

Hi, management. Thank you for giving me the chance to ask questions. So first one is also related to the – our new business realignments. Can you give us some color on the loan product mix of the combining lending business from CreditEase? So how much percentage is from retail and secure, auto, the home equity and how much is from the SME? And what is the roughly APR level? And so on the asset quality, how much has been kind of trend recently and what’s the different insight in terms of the vintage loss compared with our existing asset quality? And the second also related to that is what is the near-term cost synergies if we have seen about this transaction? And my last question is about the SME lending, so given that the top priority from regulators this year to encourage SME lending. So any initiatives or any plan to promote our SME lending given our combined business going forward? Thank you.

Okay. So in term of the product mix of the Target Business, majority of the business are unsecured consumer loans with certain percentage of the loans are under secured. It's a small percentage, which we lend out to people who have car and home. So basically it’s secured by the ownership of the car and home ownership. This is a small percentage. And then we also have online small business lending business operation that's also about 5% to 7% of our 2018 operation. So you can think about more than 80% is consumer individual unsecured consumer lending and the rest of them are some a few percentage of secured loans, which we believe has huge room for growth especially when we connect with the bank institutional fundings and the same thing with the small business lending. As you may know, it’s a key focus from the financial institutions for the year of 2019. We have been approached by multiple institutional partners to work together to lend through on these channels and in terms of the assets. From APR and risk performance as well, I think, by the time we close the transaction, we will be able to report in detail the combined financial performance as well as the historical performance of the Target Business. However, in the general you can think about there have a similar wrench of the risk and then the somewhat higher revenue opportunity. So when you consider the risk adjusted revenue opportunity, I think the Target Business actually have shown reasonably a better performance from either historical as well as recent industry trends. So I would leave that for the performance and when we report our first quarter 2019, you will be able to see them in detail. In terms of cost synergies, we see significant benefits as we mentioned. One is that from funding cost perspective, Yirendai has always enjoyed competitive funding costs, and then from the asset quality perspective, the multichannel online, offline combination has demonstrate the ability to provide a steady stable asset performance that's actually in demand from both retail as well as the institution. And also we will be able to fully leverage our online, offline operation to better serve our customer, and as you may consider, imagine when we have a large registered applicant states from online channels and some of them may drop at the middle of the application because they were not sure, what to do. And we could have our telemarketing guys or potentially with our offline sales agents to help them out to complete the application and then finish the process. And also we believe with the offline operation that would also help us in terms of building the customer relationship, providing closer contact with customer and in turn, increase the customer stickiness and help the collection process for the credit side of the business.

That’s helpful. Thank you.

We have our next question from the line of Alex Ye from UBS. Please go ahead.

Among the RMB6.6 billion of net revenue, what's the percentage contribution from our online wealth management business? And do we expect this online wealth management platform from both Yirendai and the target acquired business to further expand into a bigger portion of our revenue contribution in near-term? And my second question is about our funding partners. So we have made some progress in terms of something additional bank fundings. So you had mentioned we have got RMB10 billion of credit line from John Stott banks. So just to confirm if this number is correct and how much have we deploy this credit line so far, and could you please give us some breakdown about the loan volume facilitating in Q4, which are contributed by the institutional funding and also what's the comparative figures for the last quarter? Thank you.

Sure. So in terms of the revenue from investor side, that's usually the way we look at the wealth management business from our business operation perspective. Of course, these revenue with service fees we generate from both fixed income or P2P loan type of products as well as some other product we start to selling. It's just purely looking at the service fee from investor side. On the target side close to the 10%, compared with that's from the wealth management or the investor side of the business. We expect to ramp up the online was management business a particular with a focus on cross-selling, non-P2P loans for the 2019. I think that's very strategic for us to provide multi-asset class of wealth management product to our investor. The initial revenue may not grow as fast as the sales volume or AUM, but we believe a longer-term as you viewed a strong larger base of AUM the repeat revenue will become generate much more a profits are going forward. So in terms of the bank line, yes, it has RMB10 billion, so – and there maybe [i.e.] a line of funding from the bank. We're in the early process of working with the bank, establishing the product, connecting the system. So it's still early in terms of the number of loans we deployed through the bank of fundings. It is still a small percentage, single percentage of our loans that now go through the bank funding. So for this I would also want to highlight a bit, I think from either the research community or the capital market perspective, people have always been very focused on the ability of a platform sourcing institutional fundings. However, from our platform Yiren Wealth has always enjoyed a very strong brand and reputation among the retail investors. We have very competitive funding costs from the high qualities, sticky, individually investors. And then grow the wealth management business for the mass affluent customer base has always been strategic for us. So particularly in the later part of last year and early part of this year, we actually see a very strong demand from institutional partners coming to our platform asking for assets. We are actually in undersupply of asset situation. So we have to allocate between our individual investors strong demand versus the strategic nature institutional partner banking fundings. So but we also understand from the risk diversification perspective we need to have a multichannels of fundings. But at this moment, our retail investors funding are as competitive if not more compared with institution. But as we mentioned, we are building multiple lines of institutional fundings, and we're establishing, these are very strategic relationships. So we believe that will be a very healthy footings are going forward in 2019 in terms of the ability of sourcing fundings from both retail as well as the institution.

[Operator Instructions] We have our next question from the line of Anderson Cha from BNP Paribas. Please go ahead.

Hi. This is Anderson from BNP Paribas. Thank you very much for the opportunity for asking questions. My first question is with regards to our 2019 guidance, do you have any specific guidance for loan origination volume and also institutional investor targets? Given that you mentioned about very strong demand from institutional investors. And second question is with regards to your the business realignment. I just saw that you are issuing new shares and also you are paying RMB889 million cash. So how do you fund that acquisition? And also do you have any timeline of this transaction? Thank you.

Sure. As we mentioned, we're in the process of closing the transaction. So we will not be able to give out the full-year 2019 guidance. And in terms of the institutional funding, we mentioned that we have at least RMB10 billion, and actually right now it's more than RMB10 billion, close to somewhere between RMB10 billion to RMB15 billion line up – banking lines already available. That will be for us to use through the year. So it's actually a matter of truth between retail and institution for us to best optimize our business operation as well as to maintain the strategic relationships with both our retail customer as well as our institutional partners. So in terms of the consideration – in terms of number of shares as well as the cash. So the number of shares will be new share issued, so you can consider that transaction will be financed by the number of new shares issued from Yirendai, as well as the RMB889 million cash from our operation to finance the transaction, and we expect the closing to be in mid of this year as we complete some of the pre-request closing condition that we look forward to have the combined business and report our business operation to all of you.

We have our next question from the line of Matthew Larson from National Securities. Please go ahead.

Okay, hi. Thanks for taking my call. I'm calling more from the point of view of a fairly large investor in this space and if there wasn't a peer-to-peer lending or payday lending, be online and mobile, which is really the area at year-end and many of your competitors, whether it's a Qudian or PPDAI or Lexin Tech and what have you. Where would the consumer in the PRC get loans? I've always understood it is hard to get them from banks and that credit card usage is not as widely around as it is here in the United States?

I think you can think about in this way, the number of credit providers in China, you have of course the bank and then you have the licensed consumer finance companies, and then you have fintech platforms like us. So usually the banks are limited by the lending risk that they are restricted. As you may know that, all the banks have their own HCL, NPL threshold and then the lending rate usually capped around 18%. And then for the consumer finance – licensed consumer finance companies, you have several of them that they also have certain risk and price spectrum. And then in China given it's a large population, a lot of under developed credit system, there is a many borrowers who do not have enough access from the traditional financial institutions. And then fintech platform like us and our peers are really innovating by working through online collecting data to the – make a very sophisticate credit underwriting to provide the fundings for the underserved population in China. So in this way, you can think about you have most like bank institutions and then you have fintech platforms that they have different customer segmentation as well as the capability. Of course, I think the fintech platform are also leveraging the online customer acquisition, online data collection and credit underwriting that really providing faster service more user friendly service to the consumer base in China.

I guess that’s my point is that for the young consumer particularly in China, your industry seems to be very important. People need credit if they want to buy things and the government has been regulating your business because perhaps it was kind of a Wild West environment and the amount of lenders both peer-to-peer and say payday type of loan, operations have been reduced dramatically from several thousand or few hundred, I guess is what I read. But in the meantime the surviving firms that yourself who have been in the business for a number of years that are well capitalized. Presumably would pick up market share once the caps on loans are lifted. And in the meantime, you're developing a tremendous database on the consumer of habits of everybody you worked with. So this is why I don't really understand why the stock values of all the companies are at such a low levels based on the fact, you don't take a lot of credit risk, and that even that your charge-offs are pretty minimal, 1.5% or something, which are a fraction of what you would see with credit card companies here in the United States, who also charge high interest rates. So do you have an explanation that at some point the government in the PRC will probably become less restrictive once they've cleaned up in their mind the whole industry, leaving stronger players there, so that they don't have to worry about people losing whatever happened last summer when there were people riding in the streets because they lost all their money because certain operations just closed down. So when that lifts, which could be a year from now or two, I mean, wouldn't it seem that an investor would do themselves well to buy in at multiples that are extremely low now versus where you would have bought into – I mean your own stock is down 80% for repeat sake. All the analysts like your stock, when it was $50 and nobody really likes it down at $10. Does that ever resonate with you? That's what I don't understand as an investor, usually buy when there's kind of blood in the streets and when everybody likes something, you get a little nervous. So that's my comment on the whole thing. It sounds like your business is pretty sound, and that your growth prospects are just caps by governmental regulations that at some point might be lifted.

Thanks Matthew. We of course, I'll agree with you. That there's a huge market opportunity for the leading platform in China, as you stated that significant upside from here. And we have multiple business going on and then in particular this business realignment is really getting us set ready for the upcoming opportunities, as all the things are get cleared up. So clearly we're very excited and we have a great expectation of our business and the future. In terms of capital market, I think probably not for us to comment. We are long-term business operator. We look at business for long-term as our Chairman says, the finance is marked and without ending. So we look for very, very long-terms and we believe that smart investor will realize the value when they see the truth. So I guess we'll leave at that.

All right, well thanks for your insight. I appreciate it. Thanks for taking my call.

Sure. Thanks.

We have our next question from the line of Daphne Poon from Citibank. Please go ahead.

Hi, thanks for taking my questions. So we like to first ask about the loan growth outlook. So I'm just looking at the January and February data that’s disclosed on the FA as I've said. So we see the first two months of this year, the loan volume looks a bit neutral, I guess down about 50% year-over-year. So I'm wondering that what is the reason for with that and since you're just imagine actually the funding supply is pretty ample from with both we'd have investors and the institutional from the partners. So that means maybe asset qualities it's still the key constraint for loan growth to sort of pick up from here. We understand that you previously have been tightening on the credit approval. So I guess the question is now when do you see asset quality like stabilizing, and then you can further like, which will lead loan growth? And second is about also further about the transactions. So I'm wondering, what was the difference between the wealth management business for the targeted company and Yirendai? And if I look at the revenue for the target business, is that mainly coming from – through the lending business and I'm just looking at the revenue take rate for the targeted business and since higher than Yirendai for 2018. So I'm wondering like what was the reasons for the different here is that because of the asset quality or maybe the loan pricing? Thank you.

Sure. Yes. Thanks, Daphne. In terms of our business, as we mentioned, the top priority is for us to make a stable credit performance, risk performance is top priority for us. I think if you look back in Q3, we have controlled the risk really tight. And then as you will have seen, we're gradually recovering our loan origination volume in Q4, and also that's – if you look at our early delinquency data is already shown improving side. So from our own operation perspective, we have first tightened the risk policy back in Q3, and now as we have seen a steady improving asset quality from the new originations were slowly opening up in terms of our loan origination volume. So of course we're still under a control, growth mode. We're not in a rush. The reason being that as you all know from the Circular 175, they will continue process of some of the platforms leaving the business and there's a potential impacts in the industry credit performance. So it would be very, very risk conscious in terms of growing a business. And of course, as we continue to observe improving credit performance and overall recovering credit environment and we would expect our business to recover to the level that we all feel comfortable with. So in terms of the transaction, the part of business that we acquire is online. And then as you may know from the news or the website that CreditEase also have a large wealth management operation that's mainly driven by financial advisors. That's targeting a high net worth customers. So basically with the investment asset of RMB30 million and above the business that Yiren Wealth as well as the business we acquire are more targeting the mass affluent, which we define as the investor with AUM from RMB500,000 to RMB6 million or a few million, that how we separated the business operation. And then in terms of the revenue take rate. It's a bit of over simplified if you just take the revenue divided by the loan volume. As you know that, there's about half of the sales of the volume is actually referred to Yirendai. So the targeted business was only collecting the commission, which will artificially increase the revenue take rate if you're just using the simple mass. And so I think as we mentioned, by the time we close the transaction, close the historical financials, you will see much more clear in terms of the revenue take rate, the costs and profitability, and as I had mentioned in the previous answer that the customer base is somewhat wider, and then the product is actually quite similar unsecured consumer loans. And then from the risk return perspective, it actually shows reasonably good probability from the historical performance of target in 2018.

Okay, thank you.

[Operator Instructions] We have our next question from the line of May Yan from UBS. Please go ahead.

Yes. Hi. Thanks for give me this opportunity to ask questions. Just want to follow-up on the Target Company versus Yirendai. So is the two companies or business are similar and previously there was like a business referred from the parent to Yirendai. So how was the decision made? What business would be referred or introduced to Yirendai versus they may stay at the CreditEase or stay at the parent company? And that's the first question. And I guess previous also ask what was the timeline to finish the transaction? Thank you.

Sure. Yes, thanks May. Yes, historically the CreditEase lending operation, we have a non-compete agreement. For Yirendai, we target the customer who has credit card and salary income. So when the CreditEase lending operation sees customers before in that profile. They actually obligate to refer to us. So historically we have always had the referral program between the CreditEase inclusive finance as well as Yirendai operation. That’s actually contributed to close to 40% to 50% of our business origination volume. I'm not sure if that's what you're asking on the referral side? And then in terms of the timeline for the closing, we are expecting to close the transaction in mid of this year, when the audit financial statements are available and in fact several other preconditions met that we expect to close the transaction soon. And at the same time, we believe that the synergy will be great. The operation level, we already see and expect significant step up in term of our business operational efficiencies going forward.

Okay. Again thanks for answering the question. I guess it's just for us, it's very limited data given the target. So how should we value it or how should we think about it, whether it's a favor for Yirendai or is this something more favor for the parents?

I think from the business operation perspective, you can consider the majority of the business has a business model that's similar to Yirendai. And then I think from the business operation skill and capacity as well as the revenue number that we provided, I think it should give you a good sense of how the two businesses compare. And then in terms of the transaction, the valuation was actually down based on the historical performance of the target as well as the potential business operation and probability. This was actually confirmed by an independent third-party advisor and then was approved fully by our audit committee and independent Board members that we believe is a very fair transaction for both sides.

Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect now. Thank you.

Thank you.