360 DigiTech (QFIN) 20 Nov 242024 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to Qifu Technology Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that today's event is also being recorded.

At this time, I would like to turn the conference call over to Ms. Karen Ji, Senior Director of Capital Markets. Please go ahead, Karen.

Thank you, operator. Hello, everyone, and welcome to Qifu Technology's Third Quarter 2024 Earnings Conference Call.

Our earnings release was distributed earlier today and is available on our IR website.

Joining me today are Mr. Wu Haisheng, our CEO Mr. Alex Xu, our CFO; and Mr. Zheng Yan, our CFO.

Before we start, I would like to refer you to our safe harbor statements in the earnings press release, which applies to this call as we will make certain forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation non-GAAP financial measures to GAAP financial measures. Also, please note that unless otherwise stated, all figures mentioned in this call are in RMB terms.

Before we start, we would like to let you know that today's prepared remarks from our CEO will be delivered English, using an AI-generated voice.

Now I will turn the call over to Mr. Wu Haisheng. Please go ahead.

Hello, everyone. Thank you for joining us today. Autumn is a season of harvest, and we are pleased to share that our hard work has yielded remarkable results this quarter.

Since the start of 2024, we have adhered to a strategy of prudent operations, optimizing risk performance and boosting operational efficiency. These initiatives have led to substantial improvements in our risk metrics and record profitability in Q3.

Our solid business foundation has provided us with a margin of safety to pursue moderate sequential growth. In Q3, our loan volume stabilizes and begin bottoming out. Meanwhile, we continue to iterate on our business model to build a more open ecosystem. Through a platform approach, we are creating value for both users and financial institutions, broadening our business boundaries and strengthening our operational resilience.

By the end of Q3, our platform had empowered a total of 162 financial institutions and served more than 55 million users with approved credit lines on a cumulative basis.

Excluding the contribution from risk management SaaS services, or RM SaaS, total loan facilitation and origination volume on our platform increased by 13% sequentially.

Driven further improvements in risk metrics and operational efficiency, our non-GAAP net income for the quarter reached an all-time high of RMB 1.83 billion, an increase of 29.1% sequentially and 54.5% year-over-year.

Our ongoing share buyback is also contributing to improved non-GAAP net income per diluted ADS, which increased 34.8% sequentially and 71.5% year-over-year to RMB 12.4. Coupled with the ongoing optimization of capital allocation, our ROE in Q3 increased further to 32.2% well ahead of most financial services and Internet companies in China.

Despite macroeconomic headwinds, we have consistently improved upon our past results and outperformed our market commitments through ongoing involvement and enhancements to our business.

Now I'll walk you through the progress we made this quarter.

Asset quality further improved in Q3 as we continued to execute our rigorous risk strategy. We further optimized our product and service offerings for differentiated user groups.

For low-risk users, we tailored credit limits and pricing to offer more attractive terms, boosting user engagement while maintaining stable risk levels.

Additionally, we optimized our funding structure by collaborating with financial institutions whose risk management capabilities or appetite to complement our own, further strengthening our overall asset quality.

Within our post-lending processes, we reinforced repayment reminders for borrowers and refine the management of our partner institutions to improve collection efficiency. These initiatives resulted in a notable improvement in our risk metrics in Q3 with D1 delinquency rate falling by 0.2 percentage points sequentially and 30-day collection rate increasing by 1.1 percentage points to reach the highest level since 2022.

With the optimization of risk strategies already in place, we expect our risk performance to remain relatively stable in the coming quarters.

During Q3, liquidity in the financial system remained ample. Leveraging our robust asset quality and the long-term trust that we have built with financial partners, we maintained our negotiating leverage on the funding side and reduced funding costs by 30 basis points sequentially.

Additionally, we issued RMB 3.5 billion in ABS in the quarter with issuance costs falling by more than 50 basis points sequentially.

As a result, total ABS issuance for the first 3 quarters of 2024 reached RMB 13.4 billion, up by 23% year-over-year, further optimizing our funding structure.

We also successfully issued our first asset-backed note in the interbank market, which further expanded our funding channels and investor base by attracting international investors through China's Bond Connect scheme.

Given the seasonally tighter funding environment in Q4, we expect our funding costs to remain stable at current levels.

In terms of user acquisition, we further explored diversified channels to improve efficiency and moderately increased investment to acquire new users.

In Q3, new credit line users increased by 23.8% sequentially while average unit acquisition cost declined by 7.4%. Notably, the proportion of new credit line users acquired through our embedded finance channels increased by roughly 5 percentage points, with loan volume from this channel increasing by 85% year-over-year.

With improved user profiling accuracy on partner platforms, both credit costs and operational efficiency of our embedded finance business improved in Q3, driving an ROA increase of approximately 60 basis points from the previous quarter.

Furthermore, we continue to explore collaborations with financial institutions to engage their existing customer bases, leveraging their proprietary traffic alongside our differentiated pricing and service capabilities to expand the breadth and depth of our user coverage. To date, we have partnered with 5 financial institutions across various categories under this model, including Joint Stock Bank, municipal bank, private bank and consumer finance companies.

As these partnerships progress, they will create new opportunities for us to empower financial institutions and further extend our reach to high-value user segments.

In terms of managing existing users, we adopted a differentiated operation strategy based on user segmentation by their value and risk profiles. This enables us to provide more targeted offers, driving higher user engagement and conversion efficiency.

We also strengthened the long-term retention of high-value users with the rollout of a VIP service strategy and enhanced engagement and insight analysis.

For dormant users seeking large ticket, low interest loans beyond our core offerings, we refer them to our financial partners, which enhances our ability to serve users throughout their entire life cycle.

As a result of these initiatives, our log-in conversion rate increased by 11.6% sequentially in Q3. The number of users with successful drawdown grew consistently each month with the monthly average increasing by approximately 12% from last quarter.

After a year of refining and upgrading our business model, our capital light segment has assumed a more prominent role in our business mix.

Excluding contribution from RM SaaS, the capital light segment contributed 55% of total loan facilitation and origination volume in Q3, an increase of approximately 10 percentage points from same period last year.

From a long-term perspective, we plan to dynamically adjust the mix of capital light and capital heavy segments to balance returns and risks. By transitioning from a loan facilitation model to a platform model, we are building a comprehensive credit tech service platform that encompasses the entire user life cycle and promote financial inclusion. Under the platform model, we prioritize long-term user engagement. Based on realtime insights into user needs and risk profiles, we have collaborated with a broad network of financial institutions under different models, diversifying our products, pricing options and funding sources. This approach enables us to address users' credit needs at different stages of their life cycle, while achieving a better balance between scale and profitability of our business.

In today's uncertain macroeconomic environment, we believe that our long-term value lies in our ability to better understand user needs, respond more swiftly and provide consistent support throughout their financial journeys.

Our total Technology Solutions business has continued to make steady progress as we focus on building our Qifu DigiTech brand, which offers end-to-end technology solutions to banks.

Recently, Qifu DigiTech was included on the IDC China Top 50 emerging fintech list significantly enhancing our reputation and competitiveness in the industry. This year, we have partnered with an additional 9 financial institutions, bringing the total number of financial partners for our total technology solutions to 14.

Our solutions have already been deployed and launched with 10 of them.

Compound monthly growth rate in loan volume powered by our solutions reached 14% during the first 9 months of the year. Furthermore, our tech solutions are expanding beyond consumer credit services with the development of a proprietary solution tailored for SME lending. This solution features an integrated 3-tiered credit assessment system, which combines big data-driven risk management, user cell verification and offline intelligent due diligence.

We have already launched a pilot program for this solution with an institutional partner.

We are also seeing growing synergies between our tech solutions and credit businesses. Through our integrated solutions covering technology empowerment, joint operations, loan facilitation and user referrals, we will further deepen our support for financial institutions and expand user reach.

As a tech-driven company, we are committed using AI and large language models to empower our business and improve both the user experience and operational efficiency. We upgraded our efficiency-focused AI Copilot system, achieved a call rate of 96.3% and an accuracy rate of 98.8% in key information extraction for loan collection. This AI Copilot system has been deployed across various collection scenarios, including user information identification and case tracking, enabling our collection team to more effectively pinpoint critical information and promptly follow-up on cases.

This boosts both the quality and efficiency of our collection efforts. Average daily use of the system by our collection team has more than doubled since it was deployed.

Additionally, we also enhanced the Qifu report interpreting system by integrating the Qifu large language model with traditional natural language processing models allowing us to quickly gain deeper insights into the products of our SME borrowers. Combined with our financial knowledge graph, we can track operational changes for 30% of our SME borrowers, enabling us to offer more precise and customized financial services.

Since Q3, the [indiscernible] government has rolled out a [indiscernible] monetary and fiscal policies to drive high-quality economic growth. At the same time, various levels of government have issued guidelines, encouraging financial institutions to optimize credit books, provide differentiation services and increased funding support for key consumption scenarios while balancing risk and business sustainability. The guidelines also promote deeper integration of consumption scenarios and consumer credit services to enhance the consumer experience, boost confidence, unleash consumption potential, strengthen market vitality and drive consumption.

Recently, one leading fintech platform has made significant progress in its rectification process, indicating that regulators acknowledge the significant value of fintech industry and that regulatory trends are largely stabilizing. After a year of optimization, our core business has become more robust bolstered by diversified business models and broader strategic partnerships.

While we remain cautiously optimistic about the economic outlook, we are confident in our ability to achieve long-term and high-quality growth. This year, we further optimize capital allocation to enhance shareholder returns, executing our share repurchase plan at a pace significantly ahead of market expectations. We anticipate that total shareholder returns in 2024 will approach 100% of our net income for 2023, one of the highest payout ratios among Chinese ADRs having already completed the majority of our USD 350 million share repurchase plan this year, the Board has approved a new repurchase plan of USD 450 million set to start on January 1, 2025.

We are confident about the future of our company and believe that our share price remains undervalued.

As such, we have decided to further scale up our share buyback efforts and continue to reduce our share count over the next 2 years.

Going forward, we remain committed to efficient capital allocation and shareholder value creation through substantial repurchases and dividends.

With that, I will now turn the call over to Alex.

Okay.

Sorry, there's a line issue there.

Let me start again, thank you, Haisheng. Good morning, and good evening, everyone. Welcome to our third quarter earnings call.

While macro environment was still challenging, we start to see tentative indication of modest improvement in user activities with more stimulus economic policies released late in Q3.

However, it is still too early to call a sustainable recovery, and we continue to focus on optimizing operations, improving efficiencies and managing risk exposure.

Total net revenue for Q3 was CNY 4.37 billion versus CNY 4.16 billion in Q2 and CNY 4.28 billion a year ago. Revenue from credit-driven service capital heavy was CNY 2.9 billion in Q3 compared to CNY 2.91 billion in Q2 and CNY 3.07 billion a year ago. The year-on-year decline was mainly due to significant decline in off-balance sheet loans despite strong contribution from on-balance sheet loans and other value-added services.

Overall funding costs further declined over 30 basis points sequentially and over 150 basis points year-on-year with the help of ample supply of liquidity and additional ABS issuance. Revenue from platform service capital light was CNY 1.47 billion in Q3 compared to CNY 1.25 billion in Q2 and CNY 1.21 billion a year ago. The year-on-year growth was mainly due to strong contribution from ICE and other value-added services. More than offsetting the decline in capital light loan facilitation, excluding other Technology Solutions segment, the contribution from platform service further increases as we try to strike the optimal mix between risk-bearing and non-risk-bearing assets in an uncertain macro environment.

During the quarter, average IRR of the loan originated and on facilitated was 21.4% and compared to 21.6% in prior quarter.

Looking forward, we expect pricing to fluctuate around this level for the coming quarters.

Sales and marketing expenses increased 15% Q-on-Q but declined 21% year-on-year.

Although we saw a modest sequential uptick in consumers -- customers' activities, we maintain prudent pace of user acquisition in a still uncertain environment. we added approximately 1.58 million new credit line users in Q3 versus 1.28 million in Q2 unit cost to acquire new credit line users declined to 265 from 286 Q-on-Q.

We will continue to make timely adjustments to the pace of the new user acquisition based on macro conditions from time to time and further diversified our user acquisition channels.

Meanwhile, we will also continue to focus on reenergizing existing user base as repeat borrowers historically contribute vast majority of our business.

90-day delinquency rate was 2.7% in Q3 compared to 3.4% in Q2. Day 1 delinquency rate was 4.6% in Q3 versus 4.8% in Q2. 30-day collection rate was 87.4% in Q3 versus 86.3% in Q2. After a few quarters of proactive risk timing, we are comfortable with our current risk exposure, and we expect to see relatively stable risk metrics in the coming months.

Under current macro environment and geopolitical uncertainties, we continue to take a prudent approach to book provisions against potential credit losses. Total new provision for risk-bearing loans in Q3 were approximately CNY 1.63 billion versus CNY 1.31 billion in Q2. The write-back of previous provision were approximately CNY 910 million in Q3 versus CNY 480 million in Q2.

Provision coverage ratio, which is defined as the total outstanding provision divided by total outstanding delinquent risk-bearing loan balance between 90 and 180 days were 482% in Q3 compared to 421% in Q2.

Non-GAAP net income was CNY 2.83 billion in Q3 compared to CNY 1.41 billion in Q2. The significant improvement in profitability was mainly due to better asset quality and operational efficiency as well as favorable mix change in recent quarters.

Non-GAAP net income per fully diluted ADS was CNY 12.35 in Q3 compared to CNY 9.16 in Q2 and CNY 7.20 a year ago as proactive share repurchase create significant EPA accretion. The effective tax rate for Q3 was 23.4% compared to our typical ETR of approximately 15%. The higher-than-normal ETR was mainly due to approximately CNY 200 million withholding tax provision related to large sum of cash distribution from onshore to offshore for dividend payments and share repurchase programs during the quarter.

With solid operating results and higher contribution from capitalized models, our leverage ratio, which is defined as risk-bearing loan balance provided by shareholders' equity, was 2.3x in Q3 at a historical low.

We expect to see leverage ratio fluctuated around this level in the near future.

We generate approximately CNY 2.37 billion cash from operating in Q3 and compared to CNY 1.96 billion in Q2. Total cash and cash equivalents and short-term investments were CNY 9.77 billion in Q3 compared to CNY 8.7 billion in Q2.

As we continue to generate strong cash flow from operations, we believe our current cash position is sufficient to support our business development and to return to our shareholders.

On March 12, 2024, we announced a share repurchase plan to repurchase up to USD 350 million [indiscernible] ADS over a 12-month period starting April 1, 2024.

As of November 19,'24 at in aggregate purchased approximately 13.7 million ADSs in the open market for a total amount of approximately $298 million inclusive of commissions at the average price of $21.7 per ADS under the share repurchase plan. We intend to substantially complete the repurchase plan by the end of 2024.

Furthermore, on November 19, 2024, our Board of Directors approved a new share repurchase plan to buyback up to $450 million worth of our ADS over a 12-month period starting January 1, 2025. The proactive execution of the existing share repurchase plan and the launch of the new plan further demonstrates management's confidence and commitment to the future of the company. And the management intends to consistently use share repurchase to achieve additional EPS ADS accretion in the long run.

In addition, we will continue to distribute cash dividends under our current dividend policy and aim to achieve gradual increase in dividend per ADS on the semiannual basis.

With the full execution of a share repurchase plan and the dividend policy, we are generating one of the highest combined yield on a recurring basis among Chinese ADRs to our shareholders.

Finally, regarding our business outlook, we always start to see some tentative signs of marginal improvements in user activities.

We will continue to take a prudent approach in business planning and focus on enhancing efficiency of our operations.

For the fourth quarter of 2024, the company expects to generate non-GAAP net income between RMB 1.8 billion and RMB 1.9 billion, representing a year-on-year growth between 57% and 65%. This outlook reflects the company's current and preliminary view, which is subject to material changes.

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

[Operator Instructions]

Our first question comes from the line of Richard Xu from Morgan Stanley.

[Foreign Language] So let me put my question in English, first of all, congratulations for the very good quarter in a challenging environment.

We noticed in third quarter, loan volume increased 4.4% sequentially? So what are the drivers, given a lot of power we support recently to -- particularly to improve the function and market sentiment, will the company consider more positive loan volume growth next year? What are the remaining concerns and what are the outlook?

Okay. Thank you, Richard.

Let me answer the question about growth. Yes, we achieved good growth in the third quarter. And we have seen a slightly recovery of customer demand at the end of September. And our platform strategy had a positive effect in serving more customer base. And you know we have been upgrading our business model from a single loan service provider to a platform [indiscernible]. Under this model, we have created a better solutions to our financial institution to serve all kinds of customer needs on our platform. Therefore, we have better customer retention, and we can generate higher lifetime value. And there are more and more loan volume coming from our diversified customer channel.

For example, the loan volume from embedded finance channel grew by 85% year-over-year.

And looking forward, there is still a lot of uncertainty in macroeconomic, geopolitics and [indiscernible] policies. And it's [indiscernible] for us to say whether we are optimistic or concern about 2025. At this point, we want to remain prudent, and our top priority will still be focused on healthy operating and execute our platform strategy.

And the last time, I after several years of effort, we have made significant improvements in all capabilities, and we have become stronger than in the past. If more growth opportunities arise in the future, I believe we will be in a better position to seize these opportunities faster than others. Thank you.

Our next question comes from the line of Alex from UBS.

[Foreign Language] So I'll translate for my question.

First one is on our write-back amount over CNY 900 million, which appeared to be a sizable increase from last quarter. and also the average quarter in the past -- average in the past few quarters.

So I'm wondering what's the driver for the significant uptick in this write-back and how sustainable is that?

Also, we noticed that in the company's response to a [indiscernible] report previously, you have publicly disclosed a provision ratio for current period new loans was running at 3% to 4% for your both on and off capital-heavy loan models.

So I'm wondering where are we in terms of those provision ratios for this quarter?

Second question is on the competitive landscape, it's a bit longer-term question.

So can you discuss about the current landscape raised by [indiscernible] from both the competition from banks and other larger and smaller fintech players? How has that changed the are we going to? How is that affecting our strategy?

Okay. Alex, I will take the first part, and then Haisheng will deal with the competition question there.

So as you know, we have been adopting a very prudent policy in terms of booking provisions against the potential credit losses. Historically, the provision ratio that we booked are meaningfully higher than the eventual kind of vintage losses our portfolio is supposed to have.

For example, in the third quarter, the new provision that I mentioned in the prepared remarks, we booked about CNY 1.63 billion in new provision, if you do the math, that's roughly 4.3%, 4.4% of the recurring loan volume for the quarter.

So that's higher than last quarter for sure and significantly higher than our normal kind of vintage loss ratio between 2.5% to 3.5% as you note there.

So that's a very prudent kind of provision booking policy. We've seen always [indiscernible] write-backs in most quarters.

If you look at the history, although quarter-by-quarter, maybe you see some very significant volatility in terms of write-backs depending on that particular quarter's kind of a macro event and risk performance, but if you strip the time line from an annualized basis, look at it, almost in the last few years, on average each year, we have close to CNY 2 billion or somewhere around CNY 2 billion write-back basis. This year, in the first 2 quarters, in Q1 and Q2, total write-backs is only less than CNY 500 million.

So you use that annual average, meaning like for the second half, we still have like more than 1 write-backs need to be done. That's kind of an average look.

And also, one of the fundamental drivers for the write-backs, obviously, is really the risk improvement in our operation. Since we start to take more timing kind of standard late last year, we have shown very significant improvement in our risk metrics, as you saw our reporting. The improvement in risk metrics also drive up the write-backs because it reduced the actual loss of the portfolio there.

So that's the -- why have this kind of a bigger-than-normal write-backs in Q3, I think most likely, you will still see a very sizable write-backs Q4 as the reason I mentioned above.

From a more longer-term perspective, we look at it, we will continue to take a very prudent approach in terms of booking new provisions. And with that, you will probably continue to see write-backs for the ongoing forward basis. But keep in mind, as we're gradually shifting from capital heavy to capital light, the risk-bearing assets or the size of the risk-bearing assets won't be growing that much, in some cases maybe even shrinking on a going-forward basis.

So -- which means that we no longer on a going forward basis, we'll probably no longer need to book a very large summer provision, even though we still maintain a very prudent kind of a booking ratio.

And so that's kind of a more longer-term look there. But anyway, so that's -- the key point I want to say is that write-backs will continue. And if you put the line in an annual basis, it will be still very sizable write-back at least in the foreseeable future.

Okay. Alex, let me answer your question about competition. About competition, the first thing I want to say is we are not in a completely homogeneous market. Different players serve different customer groups. There is no one player that can succeed in every customer group. But in the group that we are good at, we have a huge competitive advantage. I believe you can track this point.

And secondly, as I said before, we have upgraded our business model from a single loan provider to a platform model. Under this model, we have a better customer retention rates and have lifetime value. And I'm very glad that after years of development, Qifu is no longer just a loan service provider but has become a [indiscernible] platform.

We are more confident to competition, and we believe that the platform model has made us more robust and resilient than anything single loan business model. Thank you.

Our next question comes from Emma Xu from Bank of America.

[Foreign Language] So congratulations on the very good results. I have a question about asset quality.

Your major asset quality metrics continued to improve in the third quarter. Could you please provide your outlook for your [ SSD ]? In the meantime, many banks are facing asset quality pressure in their retail and credit card business, but while QFIN is able to see improvement in its asset quality?

[Foreign Language]

Go ahead.

Okay.

[Interpreted] Okay.

Let me do the translation.

I think for -- as for management capabilities, I will answer this question from 2 perspectives.

First, our company strategy perspective, this year, we have adhered to a high-quality development strategy, focusing on quality instead of quantity. This is the underlying driver of the improvement in our risk indicators. We were probably one of the company to tighten our credit standards with the strongest determination.

And on technical level, the comprehensive risk management system we have built over the years can support us to quickly achieve our strategic goals.

Specifically, first of all, as a technology company we continuously invested into resources to enhance our risk management technology and strengthen our core competence.

In Q3, we significantly upgraded our risk model. Based on our cutting-edge graph network, sequence and natural language processing algorithm, we have effectively improved the performance of our main transaction [ B car ] model by more than 3 percentage points.

In addition, we built models around pricing sensitivity, credit limit sensitivity and the long-term balance risk which are related to our business strategy, giving us more tools to engage with high-quality customer groups.

Second, we optimized the allocation and distribution models for medium and high-risk assets by selectively introducing financial planners that can complement our risk capabilities or risk preferences. Furthermore, we introduced additional data to optimize risk identification model to reduce the risk level and our overall exposure to this customer group.

From [indiscernible] management perspective, our collection process in Q3 has also been further strengthened. By continuously optimizing the AI reminder before the repayment date, we have reduced our day 1 delinquency rate. Through our large language models, we have improved the efficiency of our overdue case assignments. By that way, adjusting our incentive schemes continuously stretching and introducing high-quality loan and buyback transaction resources, we have improved our collection efficiency.

So at this juncture, we have largely achieved our risk optimization goal and expect to maintain a relatively stable risk performance around this level in the near future, assuming a muted macro environment.

Our next question comes from Cindy Wang from China Renaissance.

[Foreign Language] My question is for the shareholder return. The pace of share buyback has been quite fast this year. And you also announced another USD 450 million share repurchase plan. Could you give us some color on the pace of buyback in 2025? And any consideration for the repurchase price?

Thank you, Cindy. Yes, yes, we have been very determined to our current share repurchase program this year. When all fully executed, we will spend up to 100% of last year's profit to buy back shares and pay cash dividend in 2024. This buyback will effectively reduce our share count by about 12%.

In the third quarter, we achieved 71.5% EPA [indiscernible] growth year-over-year.

I think we are very confident about our strategy and execution. We believe our shares are still significantly undervalued.

So we will continue to prioritize share buybacks among all capital allocation tool. We believe this is the most efficient capital allocation strategy for now, which will significantly further reduced our share count in true ADS and maximize shareholder return. Based on this, the Board of Directors has approved a new USD 450 million share buyback program that is set to start on January 1, 2025.

We will carry out this plan firmly in the coming year.

Yes. And Cindy, I just want to add up a little bit to your question. And regarding the price we are looking at, we don't have a really kind of a set price target for the repurchase, even though our shares have been moved positively in the last few months. But if you look at it on a forward PE basis, it still looks very attractive based on the current estimate will probably look like below 5x in terms of PE. To us, that's still a very attractive valuation.

So we will continue to proactively kind of in the market.

And for the 2025 plan, the basic assumption is that as we execute the plan and continue to deliver solid results, the share price will reflect to that positive momentum.

So we most likely will continue to take a similar approach as we did in 2024 unlike we will put more effort on the upfront, hopefully, to buy as much as we can when the valuations are still very [indiscernible].

So that's how we look at the next year's action.

In the interest of time, we will now take the last question. Last question comes from the line of Yada Li from CICC.

[Foreign Language] Congrats to the result.

As we noted that the take rate continued to improve from 4.4% last quarter, I was wondering what are the main factors that drove the increase? And considering the potential improvement of credit costs and funding costs, do we expect to see a further increase of take rate next year? And looking forward, how to view the long-term sustainable take rate?

Okay. Thank you, Yada. I will take this one. Yes, we did see a quite significant improvement in take rate in Q3. as you mentioned, the main driver, basically, there are 3 main drivers.

First and foremost, it's really the continued meaningful improvement on the rig side which basically reduced the overall credit cost.

On the P&L kind of financial statement, it will basically shown up as the provision write-backs.

As we mentioned or discussed earlier, there's a significant write-back in Q3 there.

And then the second contribution to -- contributed to the take rate improvement is really the funding cost.

With the macro environment and the ample supply of liquidity will continue to drive funding costs further lower, and so that's the second contribution -- contributor.

And the third one, is really the mix change happened in the previous couple of quarters that had the deferred impact on the Q3 and to a certain degree, Q4 as well.

So that's the three main reasons why you see a significant improvement on the take rate improvement.

If you look at Q4, based on the guidance we provided, you're probably looking at a similar kind of take rate versus Q3 there. And for the similar kind of reason, the risk, the funding cost and the deferred impact on the mix change.

Putting a more longer term, I think the risk and the funding side of the contribution will remain, meaning that we will probably maintain a pretty good risk performance for the next year. And finally, assuming the macro environment is not changing dramatically, then the overall funding environment will probably still be relatively friendly.

So those two factors will remain, but the third factor, the mix change, the deferred tax on the mix change, we're probably gradually facing a cooling off just because we are not expecting a very significant mix change at least in the near term.

So -- but on a full year basis, if you do the math, this year, most likely on a full year basis, we're looking at about 5-ish kind of overall take rate for the full year. And based on that, next year, we probably will still see some improvement off the full year basis, meaning like this year supply, next year will probably a little bit over 5% in terms of the net take rate there.

So that's how we look at 2025.

Longer term, it really depends on the -- how you project the macro environment. If we start to see some kind of a sustainable [ degree ] macro economy in the long run, we definitely will benefit from that kind of a macro change. But at this point, as we mentioned earlier in the call, we're not calling for that recovery yet.

We are still planning a relatively muted environment for 2025.

We have no more questions at this time. I would like to hand the call back to management for closing.

Okay. Thank you, everyone, joining us.

If you have any additional questions, feel free to contact us off-line. Thank you.

That does concludes today's conference call. Thank you for your participation.

You may now disconnect your lines.