X Financial 2023 Form 20-F Summary
Business context and reporting period
X Financial is a Cayman Islands holding company whose operations are conducted primarily in the Chinese Mainland through wholly owned subsidiaries and consolidated variable interest entities (VIEs). The company operates an online personal finance platform that connects borrowers, principally prime borrowers, with institutional funding partners. Its principal product in 2023 was Xiaoying Card Loan. The filing covers the fiscal year ended December 31, 2023; it does not provide a separate standalone fourth-quarter financial statement.
- Reporting currency: Renminbi; convenience translations use RMB7.0999 per US$1.
- Loan facilitation volume: RMB105.557 billion, up from RMB73.655 billion in 2022.
- Active borrowers: 4.496 million, up from 3.327 million in 2022.
- Institutional funding provided 97.2% of 2023 loan funding; company capital provided 2.8%.
- As of December 31, 2023, the company had 293,553,607 ordinary shares outstanding, including 195,953,607 Class A shares and 97,600,000 Class B shares.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total net revenue | RMB4.815 billion | RMB3.563 billion | +35.1% |
| Operating income | RMB1.438 billion | RMB1.082 billion | +32.8% |
| Net income | RMB1.187 billion | RMB812.0 million | +46.2% |
| Operating margin | 29.9% | 30.5% | Down 0.6 points |
| Net margin | 24.6% | 22.9% | Up 1.7 points |
| Net income per diluted share | RMB4.08 | RMB2.52 | +61.9% |
| Cash flow from operating activities | RMB814.1 million | RMB322.7 million | +152.2% |
| Cash and cash equivalents | RMB1.195 billion | RMB602.3 million | +98.5% |
| Restricted cash | RMB749.1 million | RMB404.7 million | +85.1% |
| Total assets | RMB11.650 billion | RMB8.838 billion | +31.8% |
| Total liabilities | RMB5.803 billion | RMB4.084 billion | +42.1% |
| Shareholders’ equity | RMB5.847 billion | RMB4.753 billion | +23.0% |
Revenue composition shifted with growth in loan facilitation service revenue to RMB2.741 billion, post-origination service revenue to RMB596.6 million, financing income to RMB1.137 billion, guarantee income of RMB24.5 million, and other revenue of RMB315.5 million. Origination and servicing costs rose 34.9% to RMB2.870 billion, while provisions for loans receivable increased to RMB233.4 million from RMB164.6 million.
Cash used in investing activities was RMB1.106 billion, principally reflecting loan funding and purchases of financial investments. Cash provided by financing activities was RMB1.227 billion. Cash and restricted cash increased by RMB937.5 million during the year, although restricted cash is not generally available for the group’s general liquidity needs.
Payables to investors and institutional funding partners increased to RMB3.584 billion from RMB2.628 billion. Short-term borrowings increased to RMB565.0 million from RMB70.2 million, with a weighted average interest rate of approximately 6.35% at year-end. The filing states that 2023 cash, expected operating cash flows and financing resources should be sufficient for anticipated needs over the following 12 months.
Material changes versus the prior comparable period
- Loan facilitation volume increased 43.3%, while active borrowers increased 35.1%.
- Total revenue increased 35.1% and net income increased 46.2%, supported by higher facilitation volume, larger average loan balances and lower income tax expense.
- Operating margin declined modestly because origination and servicing costs grew broadly in line with revenue.
- Delinquency for loans 31–60 days past due increased to 1.57% from 1.02%; 31–90-day delinquency increased to 2.81% from 1.79%, and 91–180-day delinquency increased to 3.12% from 1.94%.
- Management attributed higher delinquency to the slow recovery of the Chinese Mainland economy and intensified industry competition.
- Shenzhen Xintang did not renew its financing guarantee license and its remaining business was settled in the first quarter of 2023. Tianjin Yuexin, a licensed subsidiary, began financing guarantee activities and assumed 20% of guarantee liability in a new model with external guarantee companies.
- Guarantee income began in 2023, while guarantee liabilities of RMB61.9 million and deferred guarantee income of RMB46.6 million were recorded at year-end.
- Consolidated Trusts and Partnerships became more significant: their combined assets increased to RMB4.338 billion and their payables to investors and funding partners increased to RMB3.584 billion.
- The company repurchased approximately 5.0 million shares during 2023 for RMB24.9 million. Cumulative repurchases totaled 8.852 million ADSs for approximately US$24.5 million.
- Previously identified material weaknesses in internal control over financial reporting were reported as remedied as of December 31, 2023. Management and KPMG Huazhen concluded that internal control was effective.
Guidance, outlook, risks and unusual items
- No formal revenue, earnings or loan-volume guidance is provided. Management expects to diversify funding sources, enhance risk management and deepen cooperation with financial institutional partners in 2024.
- The board adopted a discretionary semi-annual dividend policy beginning in 2024 and approved a US$0.17 per ADS dividend for the second half of 2023. A special US$0.17 per ADS dividend was also announced in 2023.
- Approximately 85.0% of outstanding loans were covered by external insurance or financing guarantee services at year-end. Continued availability, pricing and enforceability of these protections are material to funding capacity and credit performance.
- The company’s exposure to its own microcredit loans is increasing. Approximately 3.0% of outstanding loans were funded with company capital, and these loans lack external insurance or guarantee protection.
- The filing highlights substantial regulatory uncertainty involving online microcredit, financing guarantees, credit information, personal-data protection, cybersecurity, foreign investment and overseas listings.
- The VIE structure has not been judicially tested in the Chinese Mainland. The company does not own equity in its VIEs and relies on contractual arrangements to control operations and receive economic benefits.
- VIEs and consolidated Trusts and Partnerships contributed approximately 31% of 2023 revenue and represented approximately 57% of consolidated assets and 71% of consolidated liabilities at year-end.
- Restricted cash, statutory reserves and Chinese Mainland foreign-exchange controls may limit the ability to transfer cash to the Cayman Islands holding company or pay dividends.
- The company was identified under the HFCA Act for 2021, but the PCAOB removed Chinese Mainland and Hong Kong from its restricted-inspection list in December 2022. A future loss of PCAOB access could again create delisting risk after two consecutive identified years.
- The filing discloses a correction of an error in previously issued financial statements; it states that the correction did not affect a financial reporting measure and was not a restatement requiring incentive-compensation recovery analysis.
- Unusual or judgment-sensitive items include RMB233.4 million of loan-loss provisions, RMB67.5 million of contingent guarantee provision, RMB46.8 million of impairment on long-term investments, and RMB42.6 million of share-based compensation expense.
- The company has significant exposure to estimation risk in revenue recognition and credit-loss allowances. A 0.5 percentage-point change in expected loss or prepayment rates would have materially affected 2023 loan facilitation revenue and credit-loss expense.
Most important facts for investors to verify
- Whether the increase in delinquencies continues and whether credit-loss provisions adequately reflect the higher loss rates.
- The enforceability and regulatory status of the VIE agreements, microcredit license, VATS or ICP licenses, and financing-guarantee arrangements.
- The liquidity of restricted cash and the practical ability of Chinese Mainland subsidiaries and VIEs to remit funds offshore.
- The concentration, renewal terms and financial strength of institutional funding partners and external guarantee or insurance providers.
- The repayment profile and credit quality of RMB4.948 billion of loans receivable and RMB1.702 billion of deposits to institutional cooperators.
- The company’s growing short-term borrowings, guarantee liabilities and payables to institutional funding partners.
- The valuation and liquidity of venture-capital, blockchain-related and other financial investments, including the RMB608.2 million financial-investment balance.
- Future PCAOB inspection access and the resulting HFCA Act and NYSE trading risks.
- The filing contains inconsistent ADS conversion-ratio disclosures: the cover and several sections state one ADS represents six Class A ordinary shares, while Item 9 states one ADS represents two shares. Investors should verify the currently effective depositary ratio.