Lufax Holding Limited (LU), a leading Chinese personal financial services platform, reported its fourth-quarter earnings for 2023, revealing a strategic shift towards a 100% guarantee business model and a special dividend announcement.
The company faced a decline in new loan sales, revenue, and outstanding loan balance due to major derisking initiatives and macroeconomic challenges affecting small business owners. Despite a net loss in the quarter, Lufax maintains a strong balance sheet and plans to focus on quality over quantity in its loan sales for 2024, with a range of RMB 190 billion to RMB 220 billion expected.
Key Takeaways
- Lufax completed major derisking actions and shifted its business strategy, focusing on a 100% guarantee business model.
- The company reported a net loss of RMB 832 million for the fourth quarter, with a basic and diluted loss per ADS of RMB 1.48 or USD 0.21.
- New loan sales, revenue, and outstanding loan balance decreased in the fourth quarter due to derisking and the transition to the new business model.
- A special dividend of approximately RMB 10 billion was announced, payable in cash or scrip, subject to shareholder approval at the Annual General Meeting on May 30.
- Lufax expects to prioritize quality over quantity in 2024, with new loan sales projected to be between RMB 190 billion and RMB 220 billion.
Company Outlook
- Lufax anticipates gradual improvements in asset quality in the coming quarters.
- The company has a strong capital base, with a capital adequacy ratio and liquidity position well above regulatory requirements.
- The focus for 2024 will be on quality rather than quantity in the market, with an expected new loan sales range of RMB 190 billion to RMB 220 billion.
Bearish Highlights
- The macroeconomic environment has been challenging for small business owners, contributing to a decline in SME development and business conditions indices.
- The transition to a new business model and derisking measures led to a decrease in financial performance metrics for the fourth quarter.
Bullish Highlights
- Despite the net loss, Lufax has a strong balance sheet and capital adequacy ratio, supporting operations and shareholder returns.
- Funding costs have decreased due to a change in business mix, and the company retains a significant cash position for future growth.
Misses
- Lufax's C-M3 ratio increased slightly from 1.1% to 1.2% due to a reduction in the Puhui business outstanding balance and the negative impact from restructuring.
Q&A Highlights
- Management discussed the possibility of reducing the capital base further to provide more special dividends but currently has no plans for additional capital release.
- The company emphasized its recovery in profitability due to improved portfolio credit performance and optimization of operating and funding costs.
- Lufax chose special dividends over buybacks due to limited liquidity and listing rules, providing shareholders with flexibility.
In conclusion, Lufax Holding Limited is navigating a challenging macroeconomic landscape with strategic business model changes and a focus on long-term profitability. The company's commitment to maintaining strong financial health is underscored by its special dividend announcement and emphasis on high-quality loan sales.
InvestingPro Insights
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InvestingPro Data indicates that Lufax has a market capitalization of $2.6 billion and is trading at a low Price / Book multiple of 0.21, suggesting that the company's stock might be undervalued when considering its book value. This could be particularly compelling for value investors looking for potential opportunities. Moreover, the company has experienced significant price volatility, which is reflected in its one-week total return of 68.73%, indicating a sharp recent increase in its stock price.
Two InvestingPro Tips that stand out in the context of Lufax's current situation are the analysts' anticipation of a sales decline in the current year and the expectation that net income will drop. These insights could be critical for investors considering the company's future performance, especially in light of the reported net loss and strategic transitions mentioned in the article.
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Full transcript - Lufax Holding Ltd (NYSE:LU) Q4 2023:
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Lufax Holding Limited Fourth Quarter 2023 Earnings Call. [Operator Instructions]. After management's prepared remarks, we will have a Q&A session. Please note, this event is being recorded. Now, I'd like to hand the conference over to your speaker host today, Ms. Liu Xinyan, the company's Head of Board Office and Capital Markets. Please go ahead, madam.
Xinyan Liu: Thank you very much. Hello, everyone, and welcome to our fourth quarter 2023 earnings conference call. Our quarterly financial and operating results were released by our newswire services and are currently available online. Today, you will hear from our Chairman and CEO, Mr. Y.S. Cho, who will provide an update of our latest business strategies, the macroeconomic trend, recent developments of our business and special dividends. Our co-CEO, Mr. Greg Gibb, will then go through our fourth quarter results to provide more details on our business priorities and outlook. Afterwards, our CFO, Mr. David Choy, will offer a closer look into our financials before we open up the call for questions. Before we continue, I would like to refer you to our Safe Harbor statement in our earnings press release, which also applies to this call as we will make forward-looking statements. With that, I'm now pleased to turn over the call to Mr. Y.S. Cho, Chairman and CEO of Lufax. Please.
Yong Cho: Thank you. Thanks for joining today's call. During the fourth quarter, the economy environment remains complex and SBOs continue to come under pressure. Nevertheless, as we prioritize quality over quantity, we have now completed our major derisking actions and will continue to carry out a prudent strategy. We are confident that the strategic initiatives we have implemented from a solid foundation for longer control and profitability and believe that cumulative impact of our strategic upgrades will optimize and recalibrate our risk return profile to align with the prevailing macro environment in China. Now, let me provide some updates to our quarter -- for the quarter. First, the broader macro environment remained challenging for SBOs. This is reflected in the SME development index published by the China Association of Small and Medium Enterprises, which declined slightly to 89.1 in the fourth quarter of 2023. Furthermore, the SME business conditions index published by Cheung Kong Graduate School of Business declined from 49.9 in September to 47.8 in December. This indicates that SBO segment is likely to recover at a somewhat slower pace. Next, let's turn to our business. Throughout 2023, we've made 5 major derisking and diversification actions, including 4 mix changes and 1 business model adjustments. First, we have changed our segment and product mix. Our heavier concentration in the SBO segment and offerings or both business loans generated hasty profit prior to 2022. However, with the change of macro environment, macro economic environment, such concentration drove a deterioration in both our operational and financial results in the past 18 months. To address this, we have strategically adjusted both product offerings and segments. In terms of product offerings, we have shifted from a predominant focus on SBO loans to a more balanced offering of business and consumption loans. For our product portfolio, we've expanded our offerings to be more comprehensive encompassing both installment and revolving payment options. Within the SBO segment, we refined our focus by targeting customers with better risk profiles, specifically those in the R1 to R3 rating range. Second, we have adjusted our regional mix. Since the second half of 2022, we will observe significant variations in credit performance and resilience across different areas. Accordingly, we have completed the reduction in our footprint and are focusing on higher-quality geographies with expected greater economic resilience. Third, we have optimized our channel mix, especially our direct sales channel, which is the most important for our business. We recognize that our repeat historical expansion had resulted in lower productivity and higher risk with direct sales team and responded by optimizing the scale of our direct sales team. As a result, the number of direct sales team reduced from 47,000 at the end of 2022 to around 21,000 at the end of 2023. Fourth, we have adjusted our industry mix, reflecting the relative sustainability of industries under the changing macro environment. In our internal assessment, we have assigned great importance to conservation of each industry's economic cycle stage within our models and increased KYB and industry factors for enhanced model predictiveness. Finally, we have completed migration of our business model. As discussed previously, the high CGI premium charged by our business partners had negatively impacted our revenue and profit. We recognize the high third-party reliance reduced our technical freedom, therefore, restarted negotiations with our funding partners at the end of 2022 and successfully completed transitioning to a 100% guarantee business model by the end of third quarter of 2023. In the fourth quarter of 2023, all the new loans were either granted by our customer finance subsidiary as on-balance sheet loans are enabled by our guarantee company under the 100% risk-bearing business model, thus eliminating the drag factor of CGI. On a single account basis, new loans enabled on the 100% guarantee models are expected to realize lifetime profitability. However, made record net accounting loss for the first calendar year due to higher upfront provisioning as compared with the launch on the CGI model. While this strategic shift enables us to capture greater economic value, it has also increased our risk exposures. Therefore, we remain prudent and prioritize quality over quantity throughout 2024. In terms of asset quality compared to the third quarter, C-M3 flow rate experienced an increase in the fourth quarter. This was mainly driven by the reduction in our outstanding loan balance and short-term impact from the restructuring of our direct sales team and branches. With the completion of all the restructuring measures, we have seen gradual improvement of the flow rate in the first quarter of 2024. To sum up, during the fourth quarter, with the completion of derisking initiative, the downsize of our business is under control and we have strong visibility of our businesses. However, the upside we still need more time due to our prudent strategy and transformation of our business model. Finally, over the past quarters, we have consistently heard our shareholders' request for us to improve investor returns and capital efficiency, considering the progress in business derisking and business model transformation as well as our outlook for the growth and capital requirements for the next several years, we believe we have the capability and now is the right time to return value to our shareholders through a special dividend and an estimated dividend size of approximately RMB 10 billion. Thanks. I will now return the call over to Greg.
Gregory Gibb: Thanks, YS. I'll now provide more details on our fourth quarter and full year 2023 results and our operational focus for this year. Please note all figures are in renminbi unless otherwise stated. I'd like to start with an overview of our performance during the fourth quarter. During the fourth quarter of 2022, our performance remained under pressure from the complex macro environment and challenges faced by SBOs. Our overall new loan sales were RMB 47 billion, representing a year-on-year decline of 39.6%. This was mainly due to subdued demand for high-quality loans from SBOs, coupled with our prudent strategy as we transit to the 100% guarantee model. Among total new sales, approximately 40% was contributed by consumer finance as we transition our portfolio mix. Fourth quarter revenue was RMB 6.9 billion, a decrease of 44.3% year-over-year. This was primarily due to the reduction of our outstanding loan balance, which stood at RMB 315 billion at the end of 2023, a decline of 45% on an annual basis. We recorded a net loss of RMB 832 million in the fourth quarter. This was mainly driven by elevated credit losses stemming from front-loaded provisions associated with loans enabled under the 100% guarantee model, heightened risk exposure under the model and certain one-off nonoperating losses. Now, let's delve into our derisking initiatives that we have made progress on in 2023. As YS just explained, we have executed on 5 major derisking strategies, which included 4 significant changes to our business mix and transition to the new business model. First, our segment adjustments have fundamentally shifted the new business mix in favor of R1 to R3 rated customers. In 2023, 73% of unsecured loan new customers were rated R1 to R3 compared to 49% in 2022. In addition, strategic adjustments to our product offerings have resulted in a new business mix that reflects our significant derisking measures. This has prompted a gradual transformation of our existing portfolio mix. In 2023, consumer finance sales accounted for 34% of new loan sales, up from 12% in 2022. Concurrently, the proportion of unsecured loans and secured loans decreased to 44% and 22%, respectively, from 64% and 24% in 2022. As a result, our balance mix has shifted with consumer finance balance as a percentage of total balance rising to 12% at the end of 2023 compared to 5% at the end of 2022. The proportion of unsecured loans decreased from 66% from 73% as of the end of '22, while the proportion of secured loans remained flat. During 2024, we anticipated continued consumer finance diversification and majority of the unsecured balances will fall under the 100% guarantee model by the end of 2024. Next, our regional adjustments have involved the target reduction of our footprint in less economically resilient regions characterized by relatively higher risk. This strategic shift is reflected in our geographic coverage, which has decreased from over 300 cities at the end of 2022 to 146 cities at the end of 2023. In terms of channel adjustments, we have concluded the restructuring of our direct sales. The number of direct sales team members was reduced from 47,000 at the beginning of the year to 21,000 by the end of the year. In 2023, the direct sales channel contributed to 63% of new sales, up from 57% in the previous year. Turning to our business model, starting in the fourth quarter, we completed a strategic pivot as we fully transition to the 100% guarantee model. This move has transformed our portfolio mix and increased our risk-bearing as vintages run-off and the loans under the new model take shape. As a result, our risk-bearing by balance increased to 39.8% at the end of 2023, up from 23.5% at the end of the previous year. During the fourth quarter, our overall C-M3 increased to 1.2% from 1.1% in the prior quarter. This was primarily due to a reduction in our Puhui business outstanding balance and temporary negative impact from our geographic and direct sales restructuring in the past quarter. Although, we have seen improvement in the C-M3 ratio in the first quarter, given our increased risk closure under the new model, we continue our prudent strategy to prioritize quality over quantity in 2024. Now, let's turn to our outlook for 2024. We expect new loan sales of 2024 to be in the range of RMB 190 million to RMB 220 billion and the ending balance to be between RMB 200 billion and RMB 230 billion. Meanwhile, although we expect loans under the 100% guarantee model will be lifetime profitable on a single account basis, it is important to highlight that loans under this model may record accounting loss in the first calendar year due to higher upfront provisions. Under our projected business scale, we believe we have a strong balance sheet to support the business operations, capital and liquidity requirements. At the end of 2023, the leverage ratio of our guaranteed subsidiary was 1.8x, far below the regulatory limit of 10x. Our consumer finance capital adequacy ratio stood at approximately 15.3%, well above the required 10.5%. As for the balance sheet, we hold liquid assets of RMB 84 billion, with our cash and bank balance outstanding at RMB 39.6 billion. With the strong capital position and visibility into our business growth in the medium term, we are well positioned to further respond to our shareholders' consistent feedback to increase shareholder returns. And on top of the regular dividend and share buybacks that we have performed over the past 3 years, our Board of Directors has approved, subject to shareholders' approval, a special dividend of USD 2.42 per ADS or $1.21 per ordinary share with a total estimated size of approximately RMB 10 billion. To offer our shareholders full flexibility, each shareholder may elect to receive the dividend either all in cash or all in scrip. As we are dual listed in the U.S. and Hong Kong stock markets, the shareholders in each market will have to follow the respective procedures for receiving the special dividend. More details will be disclosed in our announcements and the statutory circulars in due course. The special dividend is subject to the approval of shareholders at the Annual General Meeting, which will be held on May 30, with a record date of April 9. I will now turn the call over to David, our CFO, for more details on our financial performance.
Siu Choy: Thank you, Greg. I will now provide close look into our fourth quarter results. Please note that all numbers are in renminbi terms and all comparisons are on a year-over-year basis unless otherwise stated. As YS and Greg mentioned before, our performance was impacted by macroeconomic environment in which the small business-owned sector has been under pressure throughout the period. Through strategic adjustments to 100% guarantee model and prioritizing higher-quality customer segments and better geographical regions, we sacrificed some of our business scale for backlog quality in the future. This strategic transition inactively caused our average loan balance and total income to continue to decrease. Whilst the expected credit loss provision is required to be booked upfront in day 1, boosting the accounting loss in early quarter life cycle under the business model. In the fourth quarter 2023, out total income was RMB 6.9 billion, decreasing by 44.3%. During the quarter, our technology platform based income was RMB 3 billion, representing a decrease of 29%. Our net interest income was RMB 2.3 billion, a decrease of 47% and our guarantee income was RMB 886 million, a decrease of 47%. All are basically in line with the decrease of outstanding loan balance, in which guarantee income decreased by a lesser magnitude due to the offsetting effect of an increase in [indiscernible] by the company. Turning to our expenses. We remain committed to cost optimization. Our total expenses, excluding credit and asset impairment losses, finance costs and other losses decreased by 33.2% year-over-year to RMB 4.4 billion this quarter, as we continue to enhance operational efficiency. In the fourth quarter, total expenses decreased by 38.5% to RMB 7.9 billion from RMB 12.9 billion a year ago. This decrease was primarily due to a decrease in credit impairment losses and sales and marketing expenses. Highlighting just a few of the key expense items here. Our total sales and marketing expenses, which mainly include expenses for acquisition costs as well as general sales and marketing expenses decreased significantly by 45.9% to RMB 2 billion in the fourth quarter. The decrease was mainly due to decreased loan-related expenses as a result of the decrease in the new loan sales and decreased retention expenses and referral expenses from the platform service attributable to the decreased transaction volume. Our credit impairment losses decreased by 43% to RMB 3.6 billion in the fourth quarter, primarily due to the decrease in provision of loans and receivables as a result of the decrease in loan volume. Our finance costs decreased by 90.1% to RMB 50 million in the fourth quarter from RMB 501 million in the same period of 2022, mainly due to the decrease of interest expenses as a result of the repayment of Ping An and C-Round Convertible Promissory Notes during the year. As a result, net loss for the fourth quarter was RMB 832 million, basically flat as compared to RMB 806 million net loss in the same quarter of 2022. Meanwhile, our basic and diluted loss per ADS in the fourth quarter were both RMB 1.48 or USD 0.21. Turning now to our balance sheet. With abundant cash, we had repaid the outstanding bond of RMB 2.1 billion, an optionally convertible promissory note of RMB 8.1 billion for the year 2023. After all these payments as of December 31, 2023, we have total equity attributable to owners of company of RMB 92.1 billion and a cash balance of RMB 39.6 billion and financial assets through fair value through P&L of RMB 28.9 billion. In terms of capital as of the end of December 2023, the 2 main operating entities are well capitalized. Our guaranteed subsidiary's leverage ratio was only 1.8x as compared to a maximum regulatory limit of 10x, and our consumer finance company capital adequacy ratio well stood at approximately 15.3%, well above the required 10.5% regulatory requirement. Overall speaking, we are in a net cash position after taking into account all the external bank debt. All of these factors offer substantial backing for the company to navigate through the challenging macroeconomic environment and the transition period while providing foundations for us to continue rewarding back to our investors. That concludes our prepared remarks for today. Operator, we are now ready to take questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Emma Xu with Bank of America (NYSE:BAC) Securities.
Emma Xu: I think, first and foremost, everybody care about the special dividend. So, what's the consideration behind this RMB 10 billion special dividend? What are the key numbers or information that you rely on to arrive this RMB 10 billion special dividend? And I have another question about your asset quality. So your flow rate, a leading indicator for the delinquency continued to rise in the fourth quarter to 1.2%. But I also noticed in your report, you also mentioned that you actually see improvement of the flow rate in first quarter or quarter-to-date. So, could you tell us how much improvement you already seen in first quarter? And what's your expectation for the overall asset quality trend in the coming quarters?
Yong Cho: Thanks for your question. Let me answer. Let me start with why we believe now is the right time for this special dividend. With successful completion of our 5 major derisking initiatives I mentioned, including 4 mix changes and 1 business model adjustments, we believe now the risk is under control and we have a clear visibility of our capital requirement for the coming next 2 to 3 years, 2, 3 years. And then our stock has been traded at less than 0.2x PV and then we have been continuously requested by investors to enhance investment return. And you see that our ADS price is -- if you compare with our -- the cash per ADS is far lower, far lower. So, market has not even reflected the operable cash on our book in our valuation. So, we hope to unlock hidden value behind our cash on hand by increasing our shareholder value through this dividend. And if I explain why we arrived, how we arrived at this amount, why RMB 10 billion, right, this number. Of course, first, we first started our future 3 years development potential and how much capital we need to support the development. And then we also assumed, in this characterization, we also assumed a reasonably large buffer to ensure our stable operation in the future. So this is how we arrived at RMB 10 billion. And then the size of dividend, it seems maybe -- it looks like a very big company with our the market cap. But I want to emphasize, actually, it is only just roughly 10% of our net asset. So, this is a reasonably good amount, I believe. And then to answer your last question about asset quality. Let me explain first about what's going on with our consumer finance business. Their NPL ratio has been consistent at around 1.5%, 1.4%. And then if I explain about Puhui side, we said C-M3 net flow ratio for Puhui loan increased from 1.11% in third quarter last year to 1.25% in the fourth quarter last year, right? And then it increases mainly due to reduction of our Puhui's outstanding loan balance and the temporary [indiscernible] impact from our adjustment in our geography and direct sales restructuring. But fourth quarter, we see improvements in net flow. And we believe with completion of all those resourcing measures, we see gradual improvements of flow rate in the coming quarters. And also, you understand the old portfolio that we booked before 2023 is of worst quality. And that port is now running off. So when you get to the end of 2024, that our legacy portfolio, OI in other words, accounts we booked before 2023, we take nearly 10% of total portfolio. So in that sense, I think our gradual continuous improvement is of no doubt.
Operator: Your next question comes from Richard Yu with Morgan Stanley (NYSE:MS).
Ran Xu: A couple questions from me. First of all on capital gain, after the special dividend, what do you think the capital needs to support the growth for loans? Will there still be enough buffer given obviously most of the loans will be guaranteed by your own capital at the moment. So on the flip side, given the projection on the reduced loan volume, are there some room to further reduce maybe the capital base and then do more special dividends with the smaller loan balance [Technical Difficulty]. Lastly...
Gregory Gibb: You were just cutting off there. Could you just repeat the last 2 sentences?
Ran Xu: Sure. I just want to say, like, one, are there enough capital to support the loan volume growth after the special dividend? And secondly, if are there still potentially excessive excess capital if the loan volume will be smaller, right? I mean whether there's opportunities for another release of dividends down the road. And then lastly is the funding cost trends that we're seeing at the moment. So, two on the capital. One is on the funding cost.
Gregory Gibb: Richard, thanks. This is Greg speaking here. Overall, we have gone through, as YS was just laying out quite a comprehensive process looking out over the next couple of years on expected industry trend, our relative growth trend, capital requirements, liquidity requirements, buffer, we operate multiple licenses. We obviously have the guarantee license. We have the consumer finance license and we always keep our mind open for other licenses in the future. So after going through all that, we arrived at -- given our significant cash position, a view on what we could release today that gives us still a very substantial buffer going forward over the next couple of years. Obviously, our outlook for the market right now is still quite prudent. We're still focusing on quality over quantity. But in a year or 2, that macro situation were to change and there were more opportunities, we've certainly retained enough capital that we can deploy in our current licenses to meet higher growth. So, I think that your question is whether or not there could be additional capital release down the road. We're not considering that for the moment. We want to keep our flexibility for maybe a more positive market outlook, let's say, 12 to 24 months down the road. So, I think our strategy here has been to provide the reward to make it meaningful to deliver it in a way that allows investors to make a choice on whether they want to take some cash or do they actually want to effectively double down with the company in taking shares to make that a meaningful number today. But while leaving the company flexibility to continue to do the right thing and capture opportunities going forward with sufficient buffer. So that's, I think, the grounding or the ranging on this. In terms of funding cost, we did see funding costs over the last 12 months continue to come down. There's been 2 drivers of that. One has been the overall lower rate environment. The second, though, has been the change in the mix of our new business between guarantee and consumer finance. Consumer finance able to tap the interbank market, multiple funding sources has a lower net funding cost than the facilitation model by working with banks and trust companies. So, as we continue to see the mix change so that there is a greater proportion of consumer finance, even though we don't think the rate environment will necessarily drop that much in the foreseeable future, we do think that our mix change will continue to optimize slightly the overall cost of funds in the model.
Operator: Your next question comes from Yada Li with CICC.
Yada Li: This is Yada with CICC. And my first question is by 4Q '23, the company has completed the transition into 100% guarantee model, but the bottom line was still under pressure. And I was wondering what are the main causes and how long does it take before profits could be released? And what are the main drivers for the profitability recovery? And secondly, for the consumer finance company, how was the profitability and the future development, how we could balance the growth of the SBO and consumer finance segments and which one could be the strategic focus. And lastly, I was wondering, are we considering additional buybacks? And what is the main cost that we choose the special dividend instead of buying back?
Yong Cho: Let me pick up your first question. This is YS speaking. Because of our decline in new loan volume and the revenue we generate from new book cannot offset the decrease caused by all the group shrinkage. And on the 100% guarantee model -- new model, you know that we have to accrue a lot higher, a lot higher off-loan provision that delay the public account of our new business. But on a single account basis, new loans that we enable on the 100% guarantee model is delivering lifetime profitability, but adjust record net accounting loss for the first calendar year because of the higher account provision. So that's original delaying public [indiscernible]. And if I explain about what are the main drivers for profitability recovering. How can you understand this ahead? I would say 3 things, right? The first is actually the portfolio credit performance, which we can measure by net flow rate. And the second is optimization, further optimization of what Greg mentioned, operating costs and also importantly, funding costs. And then lastly, our pace of new sales loan growth. We decided 3 factors will make -- mostly decide our profitability recovery in coming years. And then if I was to answer your -- the last question, it was about why special dividends over buybacks, have you considered buyback. If you compare dividend versus buyback, we believe considering the situation we are in, dividend has several more advantages. First, our ability to deliver return to shareholders through buyback is quite limited because of low liquidity. The second as a dual primarily listed company in U.S. and also in Hong Kong, we do maintain a list, 25% public float by Hong Kong listing rules. And our current public float is only less than 32% now. So we have very, very limited space for buyback at this moment. And this time, our dividend that it comes with an option to choose cash or scrip. So we believe this provides more flexibility than buyback to our shareholders. So that's the reason why we decided to provide special dividends over buybacks. And then one more question.
Gregory Gibb: Yes. Greg here. On consumer finance, basically, 2023 was the third kind of full year of operation for the company and it has been scaling up from scratch when the license was acquired. So, 2023 is a profitable year for consumer finance. As the scale of that business continues to increase, it's relative efficiency, there's still some room there as it continues to scale up and we change the overall mix of the portfolio. The question of how do we balance this and what is our main strategic focus going forward. So, I think the way for us to describe this is our main strategic focus, our differentiation in the market remains around serving the small business owner. This is still our core element. Where we see consumer finance playing an important role is really in 2 ways. One is that we do believe that there are good consumer finance opportunities to work through multiple channels to diversify our product offering into providing more smaller ticket, shorter-term loans that makes us to be more nimble in a dynamic environment, but also providing these capabilities to small business owners as well because small business owners sometimes act in the capacity of their company needs, which we cover under the Puhui business model. And sometimes, they have their individual needs. Of course, we're looking at these customers from a full credit view, right? But we sometimes find that small business owners, once they have taken a long-term loan, they may still have smaller interim needs. And so we want to be in a position to serve these customers kind of on a longer life cycle with more opportunities to interact with them and through the interaction, creating more data points to understand them and their needs. So it is a way, consumer finance is a way to diversify our product offering to provide some nimbleness in terms of ticket size to provide some additional data in terms of behavior as well as additional touch points to our existing customers as well as a deeper reach into the market. So, we will continue to have SBO as a core capability. But if you look at the mix between the Puhui model and the consumer finance model, you've seen that mix change quite a bit over the last 12 months and that transition to a more balanced development, you'll probably see continue in the near to medium term.
Operator: Thank you. That concludes our question-and-answer session for today. I'll now turn the call back over to management for closing remarks.
Xinyan Liu: Thank you. This concludes today's call. Thank you for joining the conference call. If you have more questions, please do not hesitate to contact the company's IR team. Thanks, again.
Operator: Thank you. This conference is now concluded. You may now disconnect.
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