Ladies and gentlemen, thank you for standing by and welcome to Yirendai First Quarter 2019 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 11 July 2019. I would now like to hand the conference over to your first speaker today, Ms. Lydia Yu. Thank you. Please go ahead.

Thank you and welcome to Yirendai's first quarter 2019 Earnings Conference Call. Today's call features a presentation by the Founder, Chairman and CEO of CreditEase and CEO of Yirendai, Mr. Ning Tang; our CFO, Mr. Dennis Cong; our Board Director and CRO Mr. Huan Chen; Ms. Wei Wang, our CEO of Yiren Credit; Ms. Xiao Shang, our CEO of Yiren Wealth; and Ms. Joanne Liu, Co-CFO of Yirendai will join the presenters in the Q&A session. Before beginning, we will like to remind you that the 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 cause actual results to defer materially from those contained in any such statements. Further information regarding potential risks, uncertainties or factors is included in Yirendai's filing with the U.S. Securities and Exchange Commission. Yirendai does not undertake any obligation to update any forward-looking statement as of as required under applicable law. During this call, we will be referring to several non-GAAP financial measures, 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 to U.S. GAAP. For information about these non-GAAP measures and reconciliations GAAP measures, please refer to our earnings press release. I will now hand the call to CEO, Ning Tang for opening remarks.

Thank you all for attending our first earnings conference call post Yirendai and the CreditEase business realignment. This transaction is a significant milestone for us as it sets the stage for our next strategic business transformation. The business Yirendai assumed from CreditEase includes online wealth management targeting the mass affluent and the secured consumer lending and the small business lending which work nicely with Yirendai's existing credit and the wealth management operations and will provide a strong foundation for our future growth. Post the realignment, the company will have two main business lines; consumer credit and the wealth management. The new consumer credit business Yiren Credit is now one of the largest of credit type platforms in China that provides a full suite of online and offline multi-channel lending products and services. With our unique and the high-quality fixed income assets, we have attracted and retained a large number of affluent investors on our online wealth management platform. And provide a strong investor base for us to build our Yiren Wealth business, one stock asset allocation-based wealth management solution for affluent investors. We believe we are well positioned to capture the significant synergies presented by this business realignment and the strategic transformation to deliver long-term operating performance and shareholder value. Post the transaction, we will be rebranding the listed company and a new name Yiren Digital as we are broadening our business to include more holistic personal financial services to our customers. I would like to take the time now to introduce our new management team for Yiren Digital. Ms. Wei Wang will be our CEO for Yiren Credit. Ms. Wang joined CreditEase in 2010 and has extensive operational and leadership experience in the consumer credit industry. Ms. Xiao Shang will be our CEO for Yiren Wealth. She brings invaluable…

Thank Ning. Hello everyone. First let me provide our financial operational highlight which reflect the combined financial results of Yirendai and the business we assume from CreditEase. On the credit business side, we continue to focus on the quality of our asset growth and operate at a conservative risk management mode with total loan origination volume. As we continue to monitor the remaining uncertainties in the regulatory environment and persistent challenges in the risk management with P2P leading platform going through consolidation. Total loan origination for the quarter was RMB11 billion with about 38.8% of loan volume came from repeat customers in Q1 2019. About 96% of loan sold are unsecured consumer loans and the rest are secured loans and SME lending product. The accumulated number of borrowers we have served reached more than 4 million as of March 31, 2019 representing an important customer asset to us. The first quarter was a quarter of integration, adjustment and investment for the company. Near-term we're making strong adverse to optimize our internal resources and operating efficiencies by integrating and consolidating various business functions that will help us to grow our business more effectively in the future. Longer term, we plan to transition our operational strategy from being product focused to being more customer focused. And from a distinct online offline customer acquisition approach to a more integrated online to offline model to improve operating business using customer experience. In addition, we'll continue to expand our consumer credit product portfolio to include products with different tenure, size and pricing to better meet the needs of our customer. Institutional funding, we're continuing to make progress in terms of funding source diversification. And today we have already secured a total of RMB19 billion from selected National Joint Stock and CD Commercial Banks. We're in…

Thanks Dennis. On credit performance and the risk management, we noted an improvement in credit quality in new loan origination 15 to 29 fee income ratio further decreasing to 1.9% as of March 31, 2019, compared with 1% as of December 31, 2018 and 1.1% as of September 30, 2018. In spite of a challenging economic and credit environment, we finally promised to remain within our expectations in the near-term. In the first half of 2019, we successfully implemented a new enhanced credit scoring to improve our risk management capabilities. In the second half of 2019, we will continue to adjust our risk priorities and enhance our customer channels to maintain risk at a reasonable level. This concludes our prepared remarks. We are ready for Q&A.

Thank you. [Operator Instruction] Your first question come from the line of John Cai from Morgan Stanley. Please ask your question.

Hi. Good morning. Thank you. Thanks management for taking my questions. So, I have a few questions on the combined business. So, I haven't looked into the details for now, but it seems that EPS is accretive based on my comparison with the restated number for 2018 and previous reported number. So just wondered, if the management can share the more details on the valuation for the acquired business? Has that changed because that seems the shift between mix -- that the mix between the cash payment and the share payment has some change on there, but I'm not sure that the total consideration has changed. So that's the first part. And the second part is, I understand the first quarter the revenue has declined and also the OpEx has declined. So just wonder on first of all on the loan balance, what we see the trend for this year, can we see some rebound? And then, on the OpEx side, so I just wonder what caused the decline -- the significant decline of the OpEx on a year-on-year basis. And how do you see the cost income ratio of the combined business going forward? And the final question is on the regulations. So, is there anything more we need to do on the regulations and also how many loan balance do we need to cut for the P2P for the rest of the year? Thank you very much.

This is Ning. On regulation front, we are going through the inspection process and I mean the whole country and recently the regulators held a meeting to discuss next steps regarding the marketplace lending industry. And we expect that many lower quality companies will have to exit the market. The leading strong companies will have the opportunity to become fully regulated. And that process will likely begin in Q4.

Okay. Maybe next Wei can talk a little bit about the business trend for the rest of the year.

[Foreign Language] So, John, I'll briefly translate that into English. So, normally and each year February is our lowest season due to the Chinese New Year holiday. And going into the second half of the year and going to December that should be the peak for our loan volume. And for this year and considerations of regulations and depending on when the P2P online registration will start. We expect this latter half of the year to resume our monthly loan growth of about 30%.

Yes. So, I think what we mean is that first half was flattish due to our risk control mode. But both from seasonality perspective, our business readiness perspective we're seeing a ramp up trend in the second half of the year. And then regarding the consideration, if we take the number of shares and still assume the same price of the shares as we announced the deal in March, the total consideration did not change for the acquisition. However, if you consider the current stock price then it somewhat changed. In terms of the EPS accretiveness, yes, indeed if we look at the consolidated combined 2019 numbers versus the Yirendai 2018 standalone numbers and look at the total shares outstanding, we do see the EPS accretive by about 10% to 15% roughly. In terms of the margin structure, actually we see the margins are reasonably similar between the 2018 versus the first quarter 2019. The customer acquisition, sales marketing cost a bit of higher, but the operating lines are a bit of lower given the nature of our new combined business of online to offline operation, especially when the total business volume we're at a measured level that the utilization or the capacity is not [indiscernible], but as we have mentioned we're ready, we're in the process of ramping up our business and we would expect more productive sales force and channels and we should see more leverage coming out from the sales marketing side. So, John, does that answer all your question?

Yes. It's very helpful. So, if I can add two follow up questions on the funding side, so I just want to clarify, I think we have granted loan balance of RMB63 billon. And then, and [AUM balance] [ph] is 47 and to some P2P product, I'm not sure if that's credit, but so I just wonder what's the funding mix for the 63 billion credit loan. And then, maybe 47 is the AUM or what's the [indiscernible] and then how much of that is from institutional funding? Thank you.

Yes. Actually, right now even we have already achieved 19 billion line of credit from the bank financial institutions, which is very significant if you compare with our current loan volume growth and balance. But at the current level, the fortune of the institution are still not very thick single-digit percentage, but we're in the process of ramping up. In terms of the GAAP between the 63 and 47, we do have an outside investor channels that's taking part of those fundings. Some of them are actually from the historical business that remains a balance from the business we acquired.

Okay. Thank you very much.

[Operator Instructions] Your next question comes from the line of May Yan. Please answer your question.

Yes. Hi. Thank you for the opportunity to ask questions. It's May Yan from UBS. Can you explain a bit on the rationale for doing these acquisition of DaoKouDai Technology and also the incubation of ZBO Fintech et cetera? And how do you expect those to contribute to your business going forward.

I'll take a dig and Dennis and other colleagues can jump in as well. Actually, regarding the acquisition of DaoKouDai that company is very high-quality marketplace lending platform serving medium to small-sized enterprise customers and enjoys a very good reputation in the industry. And its funding party is Tsinghua University, the leading school of finance Tsinghua University. They have a fintech lab incubating leading business models in Fintech marketplace lending being one of them. And we've been strategic partners, I mean CreditEase and Tsinghua University, School of Finance for many years. And we understand each other very well and have shared vision how to serve China's small business community, which is a very key government growth agenda. So, is a national priority. And we believe jointly we can do a much better job in that space. And also we can better draw upon that the resources. Yes, from Tsinghua University School of Finance. So that's the rationale for the acquisition of top of that. Regarding the strategic investment and joint venture with the ZBO, we actively look for acquisition channels and high-quality data for our lending business and working together with leading insurance company like PICC, will give us a such job opportunity to broaden our borrower acquisition channels and also the data affiliated with that can help us better assess a borrower credit worthiness. So yes, this is the rationale for that joint venture access. Dennis you have anything to add?

Yes. Maybe just a little bit on the scale, in terms start with that, first, we're in the early preliminary discussion. Their business size is about 3 billion or so in terms of loan origination volume. And then, the balance of the loans is about a billion. That's the scale of DaoKouDai. And then in terms of ZBO Fintech JV is just the starting point. You probably not going to see near-term meaningful impact on the business, but as Ning as mentioned this would significantly expand our business collaboration with PICC and all of you know that we already have a very strong working relationship with PICC on certain products. But this is more significant perhaps in terms of collaboration potentially expanding PICC's own business operation as well which has a significant potential market opportunity.

Thanks for answering my questions. And two follow-ups, so with a combined entity now what percentage of your credit loans are SMEs versus consumer loans and what percentage is online versus offline?

Okay. Yes. As we mentioned close to 96% of our loans are consumer loans. So, the SME right now is to a very small percentage, but we do have certain unique products and unique online channels for supply chain as well as online version, small business lending that's very unique and data driven advanced. In terms of the channels, yes, actually we used to have as we mentioned we used to have more distinct online, offline customer acquisition process, but as we going through the integration actually the lines between online and offline has been blurred. We're collecting customer lists from the online channels and then we're utilizing both online direct conversion as well as telemarketing conversion as with offline conversions. So that line is becoming blurred. But, if we have to talk about a customer that direct convert on the mobile apps versus customers that have two in-person filling the forms or closing their applications, it's roughly 50/50.

Thank you.

Sure.

Next question is a follow up question from John Cai. Please ask your question.

Hi. Thank you for taking my questions again. So, I have another look at the numbers for 2018. So basically, the combined versus the previous Yirendai. And then, there's take rate improve. So, revenue divided by the presentation so that take rate has increased. And so, I think the acquired business as a take rate and I guess, can the management explain what's driving that? So, from maybe introduce more about the products of the offline business in terms of the loan tender or the credit loss et cetera. So just wonder what makes the offline business report in a higher take rate here? And also on the OpEx side it seems the majority of the offline business is also sales and marketing expense. So just wonder is that as -- so it seems very scaleable, right? So we have to [indiscernible] the sales and marketing expense will go down. So just wondering if that's a proper understanding or do we have actually larger fixed cost base. So, it seems to me as is mostly subset marketing and variable similar to your online business. Thank you very much.

[Foreign Language] Okay. Let me first briefly translate what you said John, so customer require offline versus online have different attributes and therefore risk pricing will be different based on their different characteristics. But overall the difference in pricing between offline and online is small.

Yes. I thought of adding one is because we acquired the business. Also have the whole country's network -- servicing network. So, we have good branding in many cities and we have higher negotiating powers over the customers, and which give us a good advantage on pricing. And so, which I enjoyed higher take rate of our product. And for products features actually similar to previous year Yirendai's product on the [indiscernible], it is also mostly two and three years product and because we having a better chance to have to improve our risk measurement process, so that we can have a face to face check with the borrowers. So, we can have -- what would be our new kind of business we can have a higher average take size and less similar balance with the old business.

So, I think the offline product has a bit wider price range, but as Huan mentioned that with the in-person service network it helps us servicing the client when directly managing the upfront risk as well as the follow collection process. Actually, the probability of a business actually tend to be better. You probably can see that from the consulting results as well as the risk curve.

Yes. So on the terms of market and just wonder for the offline. So it sounds basically did nothing. So using the full consolidated amount divided by the previous data, so it seems like last year we have 4 billion in terms of the market for the offline business. So, I just wonder how many of that is fixed, and how many of them is variable. Just want to see how scalable is the offline business? Thank you.

Yes. I'll try to answer this. If you think about the offline sales network probably around 15% is rental related. You can think about certain things. The remaining 40, at the car level 40, you can call it base salary. The other 40 is coming from the sales commission, so that's the split you can looking at -- right now, close to 60% is fixed and then 40% is volume driven. As the productivity goes up for both sales as well as offline stores as we integrate more technology that enable customer conversion process, we would expect the variable portion to increase that you should see certain efficiency coming up from the business volume ramping up during the second half.

I'm sorry. Maybe a final question on the AUM footing non-P2P products that is going to be like 457 million there. What's the economics raise or how many percentage we can take as revenue out of that? Thank you.

Xiao, do you want to answer the question? It's okay. I think right now maturity of the product we're selling through on our online platform, third party financial products. We're taking ranging between 0.3%, 0.5% on an annual basis on these sales volumes. Even though the revenue is not significant, actually on AUM basis and its a cross-sell for us. So, it's update in terms of our revenue opportunity and also this is really helping us to view a more holistic customer what's better than service and significant for us to get the business going forward as we see that more sticky end and then investor invest more of their investable assets onto our platform.

Thank you so much.

There's no more question at this time. [Operator Instructions] Your next question comes from the line of Stephanie Kwan. Please ask your question.

Hi. Management team, this is Stephanie Kwan from Citi. So, I have a follow up about the take rate. So, can you actually help to share the difference in terms of like the API and also the credit costs for the acquired business versus the original Yirendai business. And second is on the AUM number, so you mentioned earlier that AUM, Yiren Wealth is 47 billion. But I also see in the Q1 result. That's a number on AUM of investment which is 67 billion. So, can you explain what's the difference between that? And also in terms of the strategy between the wealth management business and P2P business. So, which you see as the key, core driver in the next -- rest of the year and in the longer term. And what is the percentage of graph national business contribution in terms of revenue that you will be targeting that. So that's my question. Thank you.

First, I will talk a bit about our wealth management business strategy. Yes, basically we are moving from single product to comprehensive wealth management based on asset allocation. So an investor and mass affluent middle class investor now can access a full suite of products on our wealth management platform. At the beginning when we listed the company there was only one investment opportunity which was P2P lending. But we purposefully targeted this mass affluent investor base not focusing on longtail because we had the vision, we had the idea that eventually was this investor community people need is not a single investment product opportunity is actually wealth management advisory work. So, our vision is that, we have already built this cash to investor base -- mass affluent investors with a much higher per investor AUM than the industry. They actually have, their wallet size is much bigger than what they have invested with us. So, we are cross-selling insurance, mutual funds, banks investment products, so on. So, in the future and investor portfolio should follow actually the asset allocation strategy. Very soon we're going to announce our asset allocation strategy to this investor group telling them how much of their portfolio should go to fixed income. How much go to like real liquid bank investment product how much going to mid-term long-term investment opportunities like fund solutions like mutual fund solutions for their pension retirement planning for their kids education planning, so on. And how much going to insurance for their basic protection. This represents a RMB100 trillion opportunity, 20 million more mass affluent investors in China and we have the lead in this opportunity because one through marketplace lending business development, we have already built this investor base although in the past. It's mainly a funding source for…

Okay. Let me talk a little bit about on the take rate and APR in terms of Yirendai and the acquired business. So, if you look at in our IR deck we actually showed the [indiscernible] comparison between Yirendai stand on business of 2018 versus the consulted combined 2018 number as well as 2019 Q1 numbers. You can think -- you can look at the revenue take rate after the consolidation, it's about two percentage points higher than historical Yirendai average. So, if you remember the Yirendai loan pricing is ranging somewhere between high 20s to mid 30s APR range, you can think about that because -- the combined business is about two or three percentage higher if you think of it that way. In terms of the prior performance of the acquired assets, if you look at our vintage curves or the table that we showed on the earlier vintages, if you remember the number for the 2015/2016, you will probably clearly see a drop, decrease in terms of the vintage charge offs. So that probably give you a pretty good direction in terms of the asset performance in general. And then, Stephanie, I want to clarify so that your question -- the next question is regarding the discrepancy between the AUM of investment which is 67 billion versus the remaining principal of performing loans which is 63 billion. That's your question, right?

No. Actually I'm referring to the -- so, you first mentioned the AUM of Yiren Wealth which is 47 billion. And then, there is another number, it's called AUM of investment which is 67 billion. So, what's the difference between that?

Yes. We still have some third-party channels of individual investors providing a funding source for our loan business. So that's what's the difference between that committed individual AUM versus the overall AUM.

Okay. Actually, I just want to follow up more on the wealth management business strategy. So, it seems to me that this wealth management or further distribution business is actually facing a very keen competition from banks or some brokers. And I guess one of your close peer, they are also going into the similar direction, when you think from a P2P to more comprehensive wealth manager. So, can you highlight to us a few points in terms of what you see as your key competitive advantage compared with this peer?

Sure. And I'll start and Xiao please add to it. And actually, if you look at China, the wealth management industry is very early stage. Yes. In that investors don't have a good idea about asset allocation. Don't have a good idea about long-term investment. They are rather short-term. And very used to fixed income type of products, guaranteed return. So, the whole industry, the whole market is going through profound change. Moving from fixed income mainly to equity more than fixed income. From domestic RMB-only to global portfolio construction including QD type of products, express type of products like Hong Kong Shanghai Express so on. Yes. Moving from short-term speculation to long-term investment, long-term holding. From single product-centric to portfolio construction asset allocation. So, these are very profound changes happening right now in China wealth management industry. In the past many, many players do this product manufacturing or product distribution kind of business. But what investors really need is a trusted advisor, trusted guide helping them construct a portfolio first leading to the right asset classes and the right products. So, from this point of view, we have a lead in the market. Also, it matters a lot which investor segment you serve, we are not in the business of serving long tails, small, small investors. These investors don't have asset allocation, wealth management technique. They want to buy some simple investment products. So, we are talking about really wealthy people but not that wealthy. But these people having like U.S.$100,000 to U.S.$1 million, they have just enough money to think about wealth management gold based investment, long-term holding or pension and retirement planning and so on and they don't have good help from wealth managers. So, this is our positioning. This is our edge because we've been focusing…

That's all. Thank you.

There's no more question at this time. [Operator Instructions] Since there is no more question, I will hand back the conference over to our speaker today. Please continue.

Thanks everyone for joining the call. This concludes our first quarter conference call. Thank you.

Thank you.

Thanks.

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