360 Finance Inc (QFIN) Q4 2020 Earnings Call Transcript

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360 Finance Inc (NASDAQ:QFIN)
Q4 2020 Earnings Call
Mar 16, 2021, 9:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by, and welcome to the 360 DigiTech Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions].

At this time, I’d like to turn the conference call over to Ms. Mandy Dong, IR Director. Please go ahead, Mandy.

Mandy DongInvestor Relations Director

Thank you. Hello, everyone, and welcome to our fourth quarter and full-year 2020 earnings conference call. Our results were issued earlier today and it can be found on our IR website. Joining me today are Mr. Wu Haisheng, our CEO and Director; Mr. Alex Xu, our CFO and Director; and Mr. Zheng Yan, our CRO.

Before we begin the prepared remarks, I would like to remind you of the company’s Safe Harbor statement. Except for historical information, the materials discussed here may contain forward-looking statements, based on our current plans, estimate and projections. Therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution that a number of important factors could cause actual results to differ materially from those in forward-looking statements. For more information about potential risks and uncertainties, please refer to company’s filings with SEC.

Also, this call includes discussion of certain non-GAAP measures. Please refer to our earnings release for a reconciliation between non-GAAP and GAAP one. Plus, unless otherwise stated, all figures mentioned are in RMB.

I will now turn the call over to our CEO, Mr. Wu Haisheng.

Haisheng WuChief Executive Officer and Director

[Foreign Speech] Hello, everyone. I’m very pleased to report another exciting quarter. We closed out the year with another set of record-breaking results and continue the growth momentum since 2020 Q4 [Phonetic].

[Foreign Speech] For Q4, total loan facilitation was RMB69 billion, up 29% year-over-year. Outstanding loan balance increased by 27% year-over-year to RMB92.1 billion. Total revenue was RMB3.34 billion, up 39% year-over-year. Non-GAAP net income was RMB1.31 billion, up 155% year-over-year.

[Foreign Speech] For the full year, total loan facilitation was RMB246.8 billion, exceeding the upper end of our guidance range, which was RMB242 billion to RMB244 billion, by RMB2.8 billion. Total revenue was RMB13.6 billion, up 47% year-over-year. Non-GAAP net income was RMB3.8 billion, up 38% year-over-year.

[Foreign Speech] We delivered outstanding results, despite a challenging year brought in by the COVID-19 pandemic. This is an important testament to the resilience of our risk management systems and the efficiency of our overall operation. We have more confidence that we will be able to maintain sustainable and solid growth. Meanwhile, this result speaks to the effectiveness of our strategy as we expand to diversified customer base and within channels. We’re expecting accelerating growth in 2021.

[Foreign Speech] While achieving strong growth in key operational and financial metrics, the quality of earnings and our overall business also improved meaningfully. Capital light and other tech solutions and new milestone contributing 34.1% of total loan facilitation in Q4. Recently, this ratio reached over 50% on a monthly basis. Moreover, the quality improvement of our earnings indicates that we have succeeded in our milestone state of tax-driven strategy upgrade.

[Foreign Speech] Despite the rising contribution from capital-light, we have successfully maintaining the overall take rate around 4% by optimizing the competitor terms with our partners and boosting operational efficiency. Going forward, we are more determined than ever to further advance this strategy to build our business on technology-driven models.

[Foreign Speech] As we enter 2021, on the macro level, we are seeing tailwinds from both the macro economy and industry policies. The macro economy recovery has continued, and we saw a strong demand at operational level. In particular, our business significantly outperformed the normal seasonality during the Chinese New Year holiday as the Government stayput guideline increased business activities across [Indecipherable].

[Foreign Speech] On the regulatory front, we believe that the regulations brought out recently either has minimal impact to our business, or in some cases, even created favorable environment for top platforms like us. As you may already know, the new ruling from the Supreme People’s Court removed the more restrictive lending rate cap for our business. The new guideline on drug lending and micro-lending has a minimal impact on our business as our exposure to both is quite marginal. On the other hand, China’s antitrust and deleveraging push may squeeze some market share away from the industry giants, which will bring us spill over market opportunities.

[Foreign Speech] Next, let me share with you some of our plans for this year. [Foreign Speech] With the pandemic well under control and economy expanding, we’ll take a more proactive growth strategy this year. In the past, we deployed a large team of senior AI engineers to build our online marketing system, which builds the efficiency of our interaction with online [Indecipherable] customers. We have also built out an experienced offline team. Currently, this impact contributed roughly 15% of the total transaction of new borrowers compared to 2020 Q3. We target our virtual credit card product adding over 620,000 new merchants and processed 4 million transactions per month. Our customers use product in high-frequency consumption merchants such as McDonald’s, KFC, [Indecipherable] etc.

[Foreign Speech] We noticed that the embedded finance model has enhanced our competitiveness and provided strong growth. We are becoming the partner of the choice of this area for leading consumption traffic platforms in China for several reasons. First, compared with other platforms that only serve a strategic customer base, we are seeing a narrow price range, we have been serving broader-based customers with low, medium and high price options. This has allowed us to build capacity to operate under a wide spectrum of product setting.

Second, the fact that we do not operate a scenario-based consumption platform by ourselves, allow us to work with other consumption platforms without potential conflicts of interest. Third, those traffic platforms typically have strong need for monetization. Our outstanding risk management capabilities can generate superior returns for them. This also makes us an ideal partner. We believe the need for embedded finance service will increase among consumption traffic platform in the future, and we are very optimistic about the growth prospects of this business and our competitive edge.

So far, we have cooperated with 18 leading platforms, including [Indecipherable] with a few more in the pipeline, such as JD, China Telecom and China Unicom. Monthly transaction volume under this model reached RMB1 billion recently with some 150,000 new borrowers with approved credit lines. Both operation metrics showed about 100 gross compared with the number in October 2020.

[Foreign Speech] In addition to consumer finance, SME loans has gradually become a new growth engine for the existing platform. This is a blue sea market with estimated RMB90 trillion market size and nearly 50% of demand is unmet. Serving the SME market is also consistent with the Government’s policy of promoting financial services and accessibility to the SMEs. Alibaba Back to My Bank and Tantan Back to We Bank have developed some best practice in this market already and created considerable barriers of entry, leveraging our deep rooted partnership with KCB. We become one of the very few players that are capable of serving base market in a large scale. In addition to outstanding risk management probability, our robust capacity in funding customer acquisition allow us to quickly establish our competitive edge in this market. For SME lending, we have developed three customer acquisition channels, including through SaaS service partners, offline customer reach and online traffic acquisition.

So far, we have covered around 20 leading SaaS service providers, including [Indecipherable]. For offline channels, we now have a sales team about 1,000 and plan to expand it around 2,000 this year. As you can see, we have established a set of diversified customer acquisition channels in SME business. Currently, we are pilot running these channels and monitoring the loan performance through the process. Once the pilot completes, we will rapidly scale up the business with our well-designed products and readily available funding. So far, a total of 540,000 [Phonetic] borrowers received the credit line for SME loans, with total accumulated loan facilitation over RMB27.3 billion. Outstanding SME loan balance increased by about 200% from October 2020 to RMB7.4 billion.

[Foreign Speech] In addition, as we mentioned earlier, there might be some spill over market opportunities for us as a result of the ongoing antitrust and deleverage and push by the regulator this year. Currently, our team is exploring some new products catering to our broader customer group. We hope to share more updates with you later this year.

[Foreign Speech] So, this is our growth strategy for 2021. And I’ll now turn to our long-term business model upgrading. Our vision was an Internet company and our transition into a tech empowered credit platform will take credit risk as a natural evolution in our corporate development. Under the capital-light model, we are currently working with 39 institutions and have another 22 in the pipeline.

In Q4, loan facilitation within this model accounted for 34% of the total. And recently, this ratio exceeds 50%. We expect this trending of capital-light ratio to continue throughout this year. Meanwhile, we also aim to keep our take rate at around 4%, even with the mix change. Intelligence Credit Engine, ICE, our smart marketing service products for financial institutions also experienced a rapid growth in terms of numbers, customers and transaction volume. Our RM SaaS products provides smart risk management service, and we have already signed contracts with 19 institutions, supporting accumulated transaction volume about RMB16.7 billion. At this service group, our income from nonfinancial service exceeded 50% out of the total.

[Foreign Speech] With regard to our strategic partnership with KCB. We believe there are significant synergies in key areas of operations. First, through the partnership, KCB may help us expand the reach of the capital-light model. This will not only increase the overall scale of capital-light, but also help us attain better contractor terms with other partners.

Second, our RM SaaS may provide much needed risk management capability to KCB in their non [Indecipherable] related business. Currently, KCB is applying our RM SaaS and they are working with a couple of major platforms. The success of RM SaaS at KCB will not only drive the growth of our tech-driven volume and income, but also set a good example attracting other potential RM SaaS clients.

Third, KCB provides us a unique competitive edge in SME loans with the access of certain proprietary data. To sum up, our synergy with KCB will bring significant value in areas of capital-light models, RM SaaS and SME lending. Since we begin working together, the outstanding loan balance under our partnership has reached RMB4.25 billion, and accumulated loan volume reached RMB5.65 billion. We are actively advancing collaboration on other fronts as well.

[Foreign Speech] 2020 was a highly unusual year. At the year of extreme stress test, we emerged even stronger than before. Our partner transact more than ever, and our relationships have expanded. We are now in a stronger market position than ever. Looking ahead to 2021, we will capitalize on the unprecedented market opportunities and then return our shareholders with better business scale and quality.

[Foreign Speech] Next, I’ll hand over to our CFO, Alex Xu.

Alex XuChief Financial Officer

Thank you, Haisheng. Good morning, and good evening, everyone. Welcome to our quarterly earnings call. For the interest of time, I will not go over all the financial line items on the call. Please refer to our earnings release for the details.

Strong business momentum continued in Q4 and into the new year as consumer confidence and economic activities remain on a steady upward trend. We have experienced robust consumer demand for credit, along with a further improvement in asset quality. Total net revenue for Q4 was RMB3.34 billion, versus RMB3.7 billion in Q3 and RMB2.4 billion a year ago.

Revenue for credit-driven service cap-heavy was RMB2.56 billion, compared to RMB2.96 billion in Q3. The sequential decline was in part due to facilitation volume mix change as cap-light contribution increased significantly. And the decline in take rate, as we lowered our average interest rate in Q4 to 25.3% from 25.9% in Q3, following the Supreme Court ruling in late August. However, we are expecting interest rates to gradually recover somewhat throughout 2021 as the four times LPR rate cap is no longer applicable to institutional lending according to the Supreme Court’s latest judicial interpretation.

Revenue from credit driven service was also negatively impacted by a one-off reassessment of early repayment discount. Revenue from platform service cap-light was RMB782 million, compared to RMB748 million in Q3. If you recall, in Q3 there was a RMB150 [Phonetic] million onetime reversal of previous charges related to certain loans, risk performance versus performance benchmark set by the revenue sharing agreement between us and our partners.

Aside from this reversal of charge in Q3, for apple-to-apple comparison the sequential growth of platform service revenue in Q4 was approximately 33%. The growth was mainly due to higher volume under cap-light model as well as better contribution from the ICE model, under the — and the underlying take rate for the platform service also improved in Q4. For the full year 2020, platform service revenue grew about 80% as cap-light percentage contribution to total volume nearly doubled.

Total non-GAAP operating expenses, excluding provisions were up 5.6% Q-on-Q and essentially flat year-over-year. The sequential increase was mainly due to increase in facilitation volume and sales/marketing expenses. Average customer cost — acquisition cost per user with proven credit line was about RMB198 in Q4, compared to RMB172 in Q3. As the micro economy recovered, demand for online traffic increased significantly and Q4 was a seasonally high demand period for online traffic, particularly around intense online shopping events such as 11/11. For the full year, average customer acquisition cost was about RMB175. We will continue to use life cycle ROI as a key metric to determine the pace and scope of our customer acquisition process. This approach has enabled us to generate satisfied return and to mitigate major potential risks.

Non-GAAP net income was RMB1.31 billion in Q4 versus RMB1.29 billion in Q3 and RMB516 million a year ago. We once again set a new record in quarterly profitability driven by higher facilitation volume and a noticeable improvement in asset quality and the subsequent write-back of the credit risk provisions. For the full year, non-GAAP net income was RMB3.8 billion, up 38% from 2019. We are very proud of the achievement, particularly given the challenging market condition in early 2020. This further demonstrates the resilience of our business model, the effectiveness of our risk management and the consistency of our execution.

Please note, as we transition toward a more technology-driven business model, the structure of our financial model will also gradually change. With increasing contribution from capital-light and other technology solutions, total revenue growth may be not as fast as our facilitation volume growth given the different revenue booking methodology between cap-light and cap-heavy. However, the quality of the revenue will improve and operating margin should gradually expand along the way. As such, overall profitability growth should be more or less keep pace with the facilitation volume growth.

With strong operational results and increased contribution from cap-light model in Q4, our leverage ratio which is defined as risk-bearing loan balance divided by shareholders’ equity, further declined to 6.6% — 6.6 times from 7.4 times in Q3 and 9.5 times in early 2020. We expect to see continued deleveraging in our business driven by accelerating movement toward cap-light model and solid operating results.

Meanwhile, our provision coverage ratio reached to 470% in Q4, compared to 436% in Q3 and 401% in early 2020. This was the highest provision coverage ratio in our corporate history, reflecting significant improvement in asset quality and our prudent approach in estimating provisions.

During the fourth quarter, we continue to generate strong cash flow from operations at approximately RMB1.4 billion. Also during the quarter, we deployed approximately RMB1.7 billion cash to fund loan origination under our micro-lending operation and additional pre-ABS assets. As such, total cash and cash equivalents declined slightly to RMB7.7 billion in Q4 from RMB7.8 billion in Q3. Non restricted cash was approximately RMB4.4 billion in Q4 versus RMB4.8 billion in Q3.

As you know, a significant portion of our cash was allocated to security deposit, with our institutional partners and the residual capital of the different entities to support our daily operation. While we continue to generate strong cash flow through operations, we will also proactively deploy cash to expand our business, invest in key technologies and satisfy potential regulatory requirements. We believe that sufficient cash position will not only enable us to compete in ever-changing market, but also position us to capture potential growth opportunity in the market recovery.

Finally, let me give you some color about our outlook for 2021. While we intend to keep our tradition of prudent decision-making and the business planning, we are encouraged by continuous strong business momentum so far in 2021 as micro-economy continues on a steady growth path along with some regulatory clarity emerges. As such, we now expect total loan facilitation volume for 2021 to be between RMB310 billion and RMB330 billion, representing year-on-year growth of 26% to 34%. As always, this forecast reflects the company’s current and preliminary view, which is subject to change.

With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.

Questions and Answers:


Thank you. We will now begin the question-and-answer session. For those who speak Chinese, please kindly ask your question in Chinese first, followed by the English translation yourself. [Operator Instructions] First, we have from Jacky from China Renaissance. Jacky, your question please?

Jacky ZuoChina Renaissance — Analyst

[Foreign Speech] So let me translate my questions. So congrats on the strong results. I have three questions to ask. Number one is about our loan guidance. So you gave a very strong full year guidance. I just want to try to understand the rationale behind the guidance. Do we expect a larger budget for sales and marketing? How much contribution were from the MSE lending? And what is the run rate for the first quarter so far?

Second question is about the customer acquisition channels. I tried to understand in terms of the channels, how much will be from the cooperation with leading Internet platforms and as well as the offline sales and also the traditional online traffic channels?

And third question is about our take rate. I’m certain that the capital-heavy model, our take rate was a bit lower in the fourth quarter. So I saw probably the impact is from a lower APR and also early repayment impact. I just want to understand the rationale about the lower take rate, and what’s the outlook for this year, 2021? Thank you.

Haisheng WuChief Executive Officer and Director

[Foreign Speech] Thank you, Jacky, for your question. Great question. I will handle the first two. And I’ll let our CFO, Alex Xu to answer your third question. For the first question, as the fundamental logic for our loan guidance, we are building this guidance considering in the past few years we have successfully achieved decent growth and considering the macro environment and the industry policy tailwinds for the whole industry development. That’s how we developed this 24% to 36% year loan origination guidance.

[Foreign Speech] Well, for first point, for our — for the existing customer acquisition channel, which is online traffic channels, this year we will increase largely in terms of scale, while maintaining stable customer acquisition cost. If you benchmark across the whole market, as some of our peers disclose the CPS cost, we have very strong competitive edge on this front.

[Foreign Speech] Second point, as we mentioned in my remarks that we will spend more efforts on embedded finance customer acquisition channel this year. Thanks to our input last year, we will embrace rapid growth in — on this channel in this year. We expect the customer — new customer — well, new customer from this channel will contribute 30% this year.

[Foreign Speech] The third driver for our growth strategy this year is SME loans. There are two parts of the growth. The number one is the transition from existing high-quality individual consumers from our existing customer base. Second part is the newly acquired SME entrepreneurs. In total, these two parts adding up will contribute around 10% of total loan book this year.

[Foreign Speech] The fourth growth driver comes from the RM SaaS service products. As we mentioned in the remarks, we are expanding the cooperation with KCB and ramping up this kind of smart risk management service to more and more financial institutions.

[Foreign Speech] As for the customer — our diversified customer acquisition channels, number one is the online traffic customer acquisition. Number two is the embedded fintech — embedded finance customer acquisition, we expect this to contribute 30% this year. Number three is the offline team. Currently, this offline team contributes 15% of new customer acquisition. Besides that, the SME consumptions [Indecipherable] will be an additional channel.

[Foreign Speech] Our CFO, Alex Xu, will address your third question.

Alex XuChief Financial Officer

Okay. Thank you, Haisheng. I just want to add one small color to the earlier questions regarding the customer acquisition costs. Some of our peers disclosed their CPS cost, and we look at it at the same logic and the same methodology to calculate it. We are running roughly 40% below that number. So that’s just a small color on that customer acquisition cost.

In terms of take rate for Q4, yes, the Q4 take rate, particularly on the tech heavy side was impacted by basically three — or maybe two major items. One is really the interest rate cap causing the lower rate, as I mentioned in the prepared remarks, we lowered to 25.3% versus 25.9% in Q3. So that’s hurt the take rate on the cap-heavy side.

The other one is more like a one-off item. If you recall, around November of 2019, the regulator put out a ruling or requirement basically allow customers to make early repayment without any meaningful penalty in there. So, we start to change our practice along with other companies in the industry to adopt that. But at the time, when we get into the — like Q1 and Q2 of this — of 2020, we don’t know exactly how many or how much of the impact this early repayment will be. So from a financial kind of a planning or accounting perspective, we have to put out a best estimate in there.

Back then, the estimate was about — the early repayment discount ratio, we put in — it’s about 12%. And we need to wait for the full long cycle finish for this batch of particular customer to fully understand what the real impact of the discount will be. Once we get into the fourth quarter, keep in mind, our average long-term is somewhere around nine months. So once we get to fourth quarter, we saw the whole performance of the entire batch of customer. And back then, we realized the actual early repayment ratio or discount ratio was higher than the — our estimate in the previous quarters. So from accounting perspective, we need to basically kind of take — almost like take a charge to reflect the actual repayment discount ratio. This charge amount in Q4 account for roughly RMB170 million to RMB180 million. So that’s a — I would say, it’s a one-off hit to the top line there.

And then the third overall impact to the top line is really the mix change, meaning like the increased contribution from cap-light and the decreased contribution from cap-heavy. We do a back of the envelope kind of a calculation for every $10 we facilitate under cap-heavy model, we roughly can make about $3 in the bottom line. But if we want to make the same $3 in the bottom line, we only need $6 in cap light facilitation. So if you do the quick calculation, if you can get, let’s say, 30% earnings growth for 2021, we only need 10% revenue growth to reach that. It’s just because the mix change will continue throughout this year and actually pretty fast.

So that’s why in my prepared remarks, I asked all the analysts as well as investors to change your financial model to gradually move toward a kind of more cap-light driven model with relatively slower revenue growth versus the loan volume growth, but improving margin that drives the comparable earnings growth versus the volume growth.

Jacky ZuoChina Renaissance — Analyst

That’s very clear. Thank you. [Foreign Speech]

Alex XuChief Financial Officer

Thank you.


Thank you, Jacky. Next, we have Xu from Morgan Stanley. Xu, your question please.

Richard XuMorgan Stanley — Analyst

[Foreign Speech] Basically, two questions. Basically, with the clear clarity on the interest rate environment, I just want to know whether the interest rates — how much the interest rates will rebound? What will be the proper level for the interest rates, given there’s still some window guidance and stuff like that? Secondly, on the loan volume growth, what will be the long term thinking? There is also some, I guess, regulatory focus on the pace of consumer credit growth. What will be the — I guess, more sustainable proper pace for the longer term? Thank you.

Haisheng WuChief Executive Officer and Director

[Foreign Speech] Thank you, Richard, for your question. I will answer your first question. Yes, after new ruling from Supreme Court at the end of last year 2020, we did see some — a little bit rebound of the interest rate on our product level. However, as you mentioned, considering the whole regulatory environment and as a company with social — of society responsibility, we will intend to carry out the long-term downward trending price.

[Foreign Speech] Yes, we — it can be shown on our several new business initiatives. For example, we are exploring products covering more — better quality prime clients, as well as use the — we are tapping into the SME loan business. Both new products have a lower interest rate compared to the existing products we are operating.

[Foreign Speech] Yes, we will take a comprehensive consideration while operating our business. The price is just one front. Actually, we take more focus on the right time value of our customers.

[Foreign Speech] Yes, considering though a diversification of geography range and different attitude of local regulators across China, we as a loan facilitation platform, our purpose is to facilitate the demand and need between the borrowers and the financial institutions. There are some financial institutions, they have the demand for higher pricing rand. That’s why we all cover more broader price range products.

[Foreign Speech] Well, as for your second question, compared to the industry giants who has already RMB1 trillion loan balance, we are still at a very — at a comparatively early development stage compared to them. Therefore, in the view of originators, we are not the target. They will regulate in terms of the antitrust approvers.

[Foreign Speech] As we mentioned in the remarks, SME loan is a very important business driver for us this year. This is very consistent with the government promoting policy to provide the acceptability and the financial service to SMEs.

[Foreign Speech] Thank you.


Thank you. Next on the line, we have Steven Chan from Haitong. Steven, ask your question, please.

Steven ChanHaitong — Analyst

[Foreign Speech] My question focuses on two things. One is about, there could be post penso [Phonetic] a big increase in cash position, especially now we’re moving toward capital-light. I believe that probably the demand for restricted cash remain likely to reduce. And if that’s the case, with increasing balance of cash position, what will be our plan in the coming years? Will we consider to pay out some of the cash as dividends like what — like our peers did? That’s the first question. And second question is what is your current plan of returning back to Hong Kong for leasing? Thanks.

Haisheng WuChief Executive Officer and Director

[Foreign Speech] I’ll answer your first question. In terms of the use of that cash, the number one very important aspect as we are still growing our business aggressively, we’ll invest in the new business areas. For example, the product development and new customer acquisition.

[Foreign Speech] Well, in the long term, we expect there will be a balanced mix for these fintech players. There will be — the mix will be majority loan book comes from the capital light model, there will be a portion of the transitional loan facilitation model. And as well, there will be a portion for the own balanced loans of clients, self financed.

[Foreign Speech] There are a few reasons to increase their own balance sheet business. Number one, it returns with very high ROE, about 40%.

[Foreign Speech] The third important use of cash is some major equity investments. For example, one of our affiliates, an Internet insurance company with rapid growth and promising prospects. Secondly, we are actively looking at some target — investment targets with great potential synergies.

[Foreign Speech] The third aspect of cash use is regarding to the license. There might be capital rejection into our micro-lending license or guarantor license, as well as we may consider to repurchase more license.

[Foreign Speech] What about the — if our — yeah, OK.

Alex XuChief Financial Officer

Okay. Sure. Hi, Steven. Basically, Haisheng has sort of covered the cash usage throughout this year. Supporting our business growth, get the proper license, get the sufficient registered capital under certain license. And also some potential M&A, although mostly looks like a relatively smaller size.

And with all these considered, of course, we’re also looking at the operations, because we’re expecting operations to continue to generate very strong cash flow throughout this year. And at some point, at some time, when we look at the cash position, when we satisfy all these needs, if there’s still kind of “free cash” available to us, we’re not ruling out any other sort of return to shareholders kind of activity down the road. But right now, the priority, like we always said, is focused on expand our operation, get ourselves ready for this market.

And then in terms of the Hong Kong listing, we are still in the process of dealing with some technical kind of province savvy [Phonetic]. So as you know, the requirements by Hong Kong Exchange on VIE structure, loading power and everything is highly different than the US. So we need to make some changes, in some cases, some small restructurings under these new requirements. We are doing it as we’re speaking. And those process take time because some of them need government kind of sign off on that. Once we finish these technical issues, we will be more kind of a — sort of a push — the operational push for the listing. Right now, it’s still in the — what they call the pre-A1 stage there. I think we’re almost running out of time. We can take one more question.


Thank you. We will be taking our last question from Ethan from CLSA. Ethan, your question please.

Ethan WangCLSA — Analyst

[Foreign Speech] So my question is on the 90-day delinquency ratio. It will be helpful if management can help us break that down into capital-heavy and capital-light model so we can observe the trend there. Thank you.

Haisheng WuChief Executive Officer and Director

[Foreign Speech] I will hand this question to our CRO, Zheng Yan. Zheng Yan, please.

Yan ZhengChief Risk Officer

[Foreign Speech] Our last quarter Q1 delinquency rate is 5.2%, I think this improved this quarter and the [Technical Issues] And for the capital-light kind of taking model, the risk performance of capital-light model is higher than risk taking model.

Alex XuChief Financial Officer

Hi, sorry, this is Alex. We heard a little bit breakdown of the voice. I’ll just do the translation again for the audience. So basically, our D1 delinquencies at this point it stand at about 4.8%, which is obviously the best level in our corporate history. And then the 30-day kind of a collection rate in the fourth quarter, we were above 90%. Right now, we’ll continue to improve slightly from that level. The difference between cap-light and cap-heavy, by definition, the cap-light, we try to kind of offloading relatively lower kind of the quality assets out. So the cap-light delinquencies was slightly worse than the cap-heavy, but not a huge difference there, basically.

Ethan WangCLSA — Analyst

Got it.

Haisheng WuChief Executive Officer and Director

[Foreign Speech] Well, I just wanted to add some color to our asset quality. Yes, the market, all the investors will look at the risk management metrics, for example, they want delinquency or that delinquent — or the M1 delinquency rate. However, I want to point out that maybe you better look at the whole picture of business together with the asset quality operating metrics. Considering how much customers we acquired from customer acquisition channel then how much — how many customers got approved the credit line, then plus considering the asset quality metrics. In short, we acquire more customers, and we have a higher approval rate, and then we still maintain very stable superior risk management performance compared to some of other peers because they acquire less customers and they have lower approval rate. That in logic — in logic, naturally, they have better risk management performance.

Ethan WangCLSA — Analyst

Sure got it. [Foreign Speech]

Alex XuChief Financial Officer

Okay. I think that — thank you. Thank you for everyone joining us for the conference call. If you have additional questions, please feel free to contact us through our IR team and thank you. Have a good day.


[Operator Closing Remarks]

Duration: 73 minutes

Call participants:

Mandy DongInvestor Relations Director

Haisheng WuChief Executive Officer and Director

Alex XuChief Financial Officer

Yan ZhengChief Risk Officer

Jacky ZuoChina Renaissance — Analyst

Richard XuMorgan Stanley — Analyst

Steven ChanHaitong — Analyst

Ethan WangCLSA — Analyst

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