CNFinance Holdings Limited (NYSE: CNF), a leading home equity loan service provider in China, reported a solid financial performance for the fourth quarter and fiscal year 2023. The company facilitated loans totaling RMB 17.3 billion, marking an 18% year-over-year (YoY) growth. Net income for the year saw a significant increase of 21% YoY, reaching RMB 165 million.
The results highlighted CNFinance's strategic focus on enhancing its commercial bank partnership model, optimizing funding structures, and improving asset quality through technology-driven credit assessments. Looking ahead to 2024, the company aims to diversify its product offerings, maintain a strong emphasis on asset quality, and reinforce its compliance framework.
Key Takeaways
- CNFinance facilitated RMB 17.3 billion in loans in 2023, an 18% increase from the previous year.
- Net income grew by 21% YoY to RMB 165 million.
- Interest income rose slightly, while interest and fees expenses decreased by 8%.
- Provision for credit losses decreased by 23% due to a lower delinquency ratio.
- Net revenue from the commercial bank partnership model surged by 53%.
- The company plans to maintain a 30% ratio between trust lending and commercial bank lending in 2024.
Company Outlook
- CNFinance targets diversified product offerings and prioritizes asset quality for 2024.
- The company aims to strengthen compliance training and audits.
- Plans to extend the share repurchase plan for an additional year are underway.
Bearish Highlights
- Loan demand in 2023 was lower than expected due to uncertainties in the real asset market.
- MSE owners did not meet expectations in the first two months of 2024.
- China's new RMB loans were RMB 1100 billion lower than the same period in 2023.
Bullish Highlights
- Net revenue under the commercial bank partnership model increased significantly.
- The delinquency ratio for loans decreased, improving asset quality.
- Cash reserves increased to RMB 2 billion, up from RMB 1.8 billion.
Misses
- Other gains decreased to RMB 5 million from RMB 90 million.
- Total operating expenses increased by over 12% to RMB 381 million.
Q&A Highlights
- The company discussed its strategy to lower financing costs for borrowers in 2024.
- CNFinance will invest in technology to improve collateral evaluation and borrower ratings.
- The goal for the commercial bank model is to continue to represent 30% of loan originations in 2024, with a target total loan origination of RMB 20 billion.
In conclusion, CNFinance's earnings call detailed the company's financial growth and strategic initiatives. Despite some challenges, including lower loan demand and a decrease in new RMB loans in early 2024, the company remains focused on expanding its commercial bank partnerships and enhancing technology to improve its service offerings. With a commitment to maintaining high asset quality and strengthening compliance measures, CNFinance is poised to continue its positive trajectory in the coming year.
InvestingPro Insights
CNFinance Holdings Limited (NYSE: CNF) has shown resilience in its financial performance, as reflected in the recent earnings call. To provide additional context on the company's valuation and market performance, we turn to real-time data from InvestingPro and insights from InvestingPro Tips.
InvestingPro Data indicates that CNFinance has a market capitalization of $141.97 million, which could be seen as relatively modest in the financial industry, suggesting a potential for growth. The company's Price/Earnings (P/E) ratio stands at 6.8, with an adjusted P/E ratio for the last twelve months as of Q4 2023 at 6.32. This low P/E ratio, especially when paired with a PEG ratio of 0.28 for the same period, could signal that the stock is undervalued relative to its earnings growth potential. Additionally, CNFinance boasts a Price/Book ratio of 0.26, further underscoring its potential undervaluation.
Two InvestingPro Tips that are particularly relevant to CNFinance's current outlook include:
1. Analysts predict the company will be profitable this year, which aligns with the reported net income growth and strategic initiatives to enhance service offerings.
2. The stock is trading at a low P/E ratio relative to near-term earnings growth, suggesting that the stock might be a compelling value proposition for investors seeking growth at a reasonable price.
For readers interested in a deeper analysis, there are 11 additional InvestingPro Tips available, which can provide further insights into CNFinance's financial health and market position. To explore these tips and more detailed metrics, visit https://www.investing.com/pro/CNF.
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Full transcript - CNFinance Holdings (CNF) Q4 2023:
Operator: Hello, and welcome to the CNFinance Fourth Quarter and Fiscal Year of 2023 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will an opportunity to ask questions [Operator Instruction] Please note this event is being recorded. I would now like to turn the conference over to Matthew Lou, Investor Relations Manager. Please go ahead.
Matthew Lou: Good morning and evening, and welcome to the CNFinance fourth quarter and fiscal year 2023 financial results conference call. In today's call, our Director and Vice President, Mr. Jun Qian will walk us through the operating results followed by the financial results from our CFO, Mrs. Li. After that, we will have a Q&A session. Before we start, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended. And as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expect, anticipates, future, intends, plans, believes, estimates, target, going forward, outlook and similar statements. Such statements are based upon management's current expectations and current market conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law. Now please welcome Mr. Jun Qian.
Jun Qian: [Foreign Language]
Matthew Lou: Thank you for taking this time to join this conference call. We will discuss CNFinance fourth quarter and fiscal year of 2023 operating and financial results and followed by a Q&A session.
Jun Qian: [Foreign Language]
Matthew Lou: 2023 is another important year in the history of CNFinance. As the condition of China's macro economy and real estate market continue to be complex we were still able to deliver a solid result at year-end. We concluded the year facilitating loans of RMB 17.3 billion, representing a year-on-year growth of 18%. In 2023, our interest income increased slightly as compared to that of 2022. Yet, our interest expense was 8% lower than that of 2022. In 2023, the liquidity pressure of our sales partners have eased due to the installment policy we have given them. Also, as we started to involve sales partners under the commercial bank partnership, the protection to the loans are much stronger, which led to a 23% decrease of provision for credit losses. As a result, we have recorded a net income of RMB 165 million in 2023, representing a year-on-year growth of 21%.
Jun Qian: [Foreign Language]
Matthew Lou: The company has faced many challenges in 2023. We have completed the following tasks to ensure smooth operations.
Jun Qian: [Foreign Language]
Matthew Lou: First, promoting the commercial bank partnership and enriching the product mix. Since its launch, the commercial bank partnership has gradually gained recognition from the market and our partners due to its high-quality borrower base and low financing cost. In 2023, we originated loans of RMB 5 billion under the commercial bank partnership and recorded a net revenue of approximately RMB 88 million. As of December 31, 2023, the outstanding loan principle under the commercial bank partnership was RMB 4.3 billion.
Jun Qian: [Foreign Language]
Matthew Lou: Second, optimizing funding structure. As the market environment evolves, the management started negotiating with our funding partners to optimize funding structure. Based on the mutually beneficial relationship between the founders and CNF, our funding partners were very supportive on that subject. As a result, our interest expense in 2023 was 8% lower as compared to the same period of 2022. We believe this has laid the foundation for us and the founding partners to continuously expand the business.
Jun Qian: [Foreign Language]
Matthew Lou: Third, continue to support our sales partners. In 2023, to help those partners alleviate their liquidity pressure, we continue to refine our installment policy for repurchasing delinquent loans. As a result, some sales partners who failed to fulfill their obligations were able to recommence the installments and start to introduce new borrowers to the company.
Jun Qian: [Foreign Language]
Matthew Lou: Fourth, improving asset quality due to the uncertainty associated with the real estate market, the management has decided to strategically shift CNF’s business to core areas of Chinese core cities. 90% of loans CNF facilitated in 2023 with in Tier 1 and Tier 2 cities. In addition, in the fourth quarter of 2023, the company disposed of a bulk of nonperforming loans, which helped the company to reduce its risk exposure and recover cash.
Jun Qian: [Foreign Language]
Matthew Lou: Fifth, using technology to refine credit assessments. In 2023, we have applied the property rating system to make more accurate evaluation of collaterals. We have also applied a risk control model designed by one of our commercial bank partners by adding more variables to -- we can give more thorough analysis of applicants. As a result, our delinquency ratio dropped to 15.6% as of the end of 2023 as compared to 19.2% as of the end of 2022.
Jun Qian: [Foreign Language]
Matthew Lou: We believe that the company will continue to face challenges in 2024 as there are still uncertainties associated with China's real estate market, it is equally important for us to maintain growth and contain risks. Our major tasks for 2024 includes the following:
Jun Qian: [Foreign Language]
Matthew Lou: First, we will keep mix innovation in product mix. In the year of 2023, we have optimized our geographic footprint. Our goal for 2024 is to diversify our product offerings to meet borrowers' needs in different scenarios and target high-quality collaterals as well as borrowers with better risk profile. At the same time, we will further optimize our sales team to accommodate with the adjustment of product mix.
Jun Qian: [Foreign Language]
Matthew Lou: Second, facing the complex property market, we will prioritize asset quality. First, we will refine our risk control mechanism except for collateral value, we will also assign greater importance to evaluating borrowers in decision making. For example, we will take into account the applicant industry as that may impact its ability to make payments. Other than that, we will apply differentiated review procedures for large cases. In addition, we will continue to dispose of nonperforming loans to contain our risk exposure.
Jun Qian: [Foreign Language]
Matthew Lou: Third, as one of the leaders in the industry, CNFinance fully recognizes the importance of compliance building for company's sustainable growth. In 2024, we will continue to strengthen the compliance building. First, we will continue to refine our internal control mechanism. Second, we will conduct compliance training on a regular basis to enhance our employees' awareness and also apply regular inspections, case audits and other critical means.
Jun Qian: [Foreign Language]
Matthew Lou: Now I will hand the call over to our CFO, Mrs. Li, to walk you through fourth quarter and fiscal year of 2023 financials.
Jing Li: Thank you, Mr. Qian, and welcome to our conference call. Now I would like to walk you through the fourth quarter and fiscal year of 2023 financials. Please note that the currencies that we use within RMB and all the comparison will be made on a year-over-year basis unless otherwise stated. For the first quarter of 2023, the total interest and fees income remained rather stable at RMB 445 million. The interest income charge to sales partner increased by 11% to RMB 36 million from RMB 33 million in the prior year. It's primarily attributable to an increase in the delinquent loan staff were recruited by sales partner in installments. Total interest and fee expense decreased by 7% to RMB 187 million as compared to RMB 201 million in last year. And this is primarily due to the lower funding cost of trust company partners. Net interest and fees income increased by 2% to RMB 258 million as compared to RMB 253 million in last year. Net revenue under the commercial bank furnishing model was RMB 10 million as compared to RMB 56 million in last year. The decrease was primarily due to the decrease of loan recommended by the commercial banks in the fourth quarter of 2023 as compared to last year. Collaboration cost for the sales partners increased to RMB 91 million from RMB 80 million, primarily attributable to an increase of daily average outstanding loan principles under the trust lending model during the fourth quarter of 2023 as well as the involvement of sales partner and the commercial bank partnership model since the beginning of this year. Provision for credit losses was RMB 42 million as compared to RMB 143 million in last year, primarily attributable to the lower delinquency ratio. Besides the fourth quarter of 2023, some sales partner who forfeited their credit risk mitigation position due to the inability to fill their obligation to repurchase the delinquency loans during the first half of 2023. And then in the year-end -- before the year-end, they were able to recommend the payment. In addition, we start to involve sales partner under the commercial bank partnership since the beginning of 2023, which has jointly led to an increased guarantee asset and also provide more protection to the loans. Net loss on sales of loans was RMB 12 million as compared to RMB 1 million in last year. Total operating expense increased by 15% to RMB 97 million compared to RMB 84 million in last year. Net income decreased by 33% to RMB 19 million from RMB 28 million. For the fiscal year of 2023, the total interest fees income increased by 1% to RMB 1,755 million as compared to RMB 1,731 million. Interest income charged to sales partner increased by 10% to RMB 125 million from RMB 122 million in last year. This is primarily due to an increase in the delinquent loans we were repurchased by the sales partner in installment. Total interest and fees expense decreased by 8% to RMB 723 million as compared to RMB 785 million, primarily due to the lower funding course of trust company partners. Net revenue under the commercial bank partnership model increased by 53% to RMB 88 million from RMB 58 million. The increase was primarily due to the increase of loan recommended by the commercial banks in this year as compared to the last year. Collaboration cost for sales partners increased by 7% to RMB 334 million as compared to the RMB 321 million in last year, primarily attributable to an increase of daily average outstanding loan principal under the trust lending models in 2023 and also the involvement of sales partner in the commercial bank partnership model since the beginning of this year. Provision for credit losses was RMB 183 million as compared to RMB 238 million in last year, primarily due to the lower delinquency ratio despite in the fiscal year of 2023, some sales partners who forfeited their credit risk mitigation positions due to the inability to fulfill their obligation to repurchase delinquency loans during the first half of 2023. We're able to recommend their payments. In addition, we started to involve sales partner under the commercial bank partnership since the beginning of 2023, which has jointly led to an increase of guarantee assets and also provide more protection to the loans. Other gains was RMB 5 million for this year and compared with RMB 90 million in last year. Turning to -- starting in the second half of 2023, the balance of credit risk mitigation position forfeited by the sales partner has been decreased. As we refine our installment policy to ease the liquidity pressure of the sales partners when the credit risk mitigation position deposit by trust partner are complicated by the company. The company will recognize the amount of future profit and other gains. In the first quarter of 2023, some sales partners who forfeited their credit risk mitigation positions were able to continue to fulfill their guarantee responsibility and associated with the credit risk mitigation positions will not be deemed as confiscated. Total operating expenses was RMB 381 million as compared to RMB 339 million, and the net income increased by 22% to RMB 165 million as compared to the RMB 135 million in last year. As of December 31, 2023, the company held cash and cash equivalents of RMB 2 billion as compared with RMB 1.8 billion as of December 31, 2022. The delinquency ratio for loans originated by the company decreased from 19.2% as December 31, 2022 to 15.6% at the year end of 2023. And the NPL ratio for the loans originated by the company increased was 1.2% of as of the end of this year compared with 1.1% as of December 31, 2022. With that, we would like to start the Q&A session.
Operator: [Operator Instructions] The first question comes from William Gregozeski with Greenridge Global. Please go ahead.
William Gregozeski: With the continued decrease in the borrowing costs, do you think that the rate you've seen in the last quarter is the rate that we should expect you guys to be borrowing at going forward?
Matthew Lou: [Foreign Language]
Jun Qian: [Foreign Language]
Matthew Lou: So the average rate that we charge our borrowers in 2023 was 16.1%, down from 16.3% from 2022. And going forward, in 2024, I think based on the market conditions, our goal is to keep lowering the financing cost of our borrowers.
William Gregozeski: Can you talk kind of generally about the demand for the loans that you're seeing in terms of the size and the split between trust and commercial?
Matthew Lou: [Foreign Language]
Jun Qian: [Foreign Language]
Matthew Lou: So in 2023 due to uncertainties associated with the real asset market, the loan demand from MSE owners are actually not as expected. And so in the first 2 months, we don't see the strength to recover in the first 2 months in the year of 2024. If you take a look in the release data, China's new RMB loans in the first 2 months of 2024 was actually RMB 1100 billion lower than that of the same time of 2023. In the year of 2023, we facilitated loans of RMB 12.2 billion under the trust lending model and RMB 50 billion under the commercial bank model. So the commercial bank, the loan facilitation under the commercial bank model was actually 30% of the total loans originated, which well met our goals set in the beginning of 2023. And also for the year of 2024, we still target the ratio between loans facilitated under trust lending and commercial lending to be RMB 723 million, mainly the commercial bank model will take up 30% of our loan originations. And our target for loan origination for 2024, we want to achieve growth and we target to be RMB 20 billion in total.
William Gregozeski: You mentioned doing some things like the compliance training and the audits and the increase borrower quality evaluation. Does that tie in at all to the technology upgrades for the platform you've been talking about? Or is that something different?
Matthew Lou: [Foreign Language]
Jun Qian: [Foreign Language]
Matthew Lou: So those are two different tasks. So as a participant in the financial industry, we believe that compliance building is one essential thing that we should do. And so for the year of 2024, we will surely enhance our compliance building, and we want to make all the audits we want to do the trainings and make compliance one essential thing for the culture and the culture of the company. As for the investment in the technology, so in the year of 2023, we basically invested in two things. One is to enhance our evaluation of collaterals to make more accurate evaluation of the value of the collaterals. And the other thing is that, as we said, we worked with one of our commercial bank partners to bring in this one big data model to give more thorough ratings to our borrowers. And also in the year of 2024, we will keep on investing in technology. And we want to use the actual practical data that we collect from our daily operations to make adjustments to the aforementioned to those two systems and to make it more suitable to our business and to adjust if there is anything that needs to be removed or anything that needs to be added into that model.
William Gregozeski: And then last question. The share repurchase plan looks like it expired. Is there any plans to renew that?
Matthew Lou: I'm sorry, could you say that again?
William Gregozeski: Yes. The share repurchase plan looks like the term on that expired like 1.5 weeks ago. Is there any plans to renew that?
Jing Li: [Foreign Language]
Matthew Lou: So that was absolutely from our CFO, Mrs. Li. And she said we will go into present it in front of our Board of Directors hoping to extend this per share repurchase plan for another year.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Matthew Lou for any closing remarks.
Matthew Lou: Thank you, Drew, and thank you, everybody, for joining us today in this conference call. If you have any questions, please feel free to contact us at ir.cashchina.cn. Thank you.
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