X Financial Form 20-F Summary
Business context and reporting period
X Financial is a Cayman Islands holding company whose operations are conducted primarily in China through wholly owned subsidiaries and contractual variable interest entities. It operates an online personal finance platform connecting borrowers with institutional funding partners, with Xiaoying Card Loan representing substantially all 2022 loan facilitation volume. The filing covers the fiscal year ended December 31, 2022; it does not provide a separate 2022 fourth-quarter presentation.
- ADSs trade on the NYSE under “XYF”; each ADS represents six Class A ordinary shares.
- The company had 287,918,569 ordinary shares outstanding at December 31, 2022, including 97,600,000 Class B shares carrying 20 votes each.
- The company ceased its P2P operations and fully settled individual P2P investor principal and earnings by December 2020.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total net revenue | RMB3,562.95 million (US$516.6 million) | RMB3,626.47 million | Down 1.8% |
| Operating income | RMB1,082.29 million | RMB1,311.04 million | Down 17.4% |
| Net income attributable to X Financial | RMB811.996 million (US$117.7 million) | RMB825.407 million | Down 1.6% |
| Operating margin | 30.4% | 36.2% | Down 5.8 percentage points |
| Net margin | 22.8% | 22.8% | Broadly stable |
| Basic EPS | RMB2.57 | RMB2.51 | Up 2.4% |
| Loans facilitated | RMB73.655 billion | RMB51.859 billion | Up 42.1% |
| Active borrowers | 3,326,774 | 2,371,537 | Up 40.3% |
- Loan facilitation service revenue under the direct model declined to RMB2,044.3 million from RMB2,545.4 million, primarily because of lower average borrower costs.
- Financing income increased 43.8% to RMB966.3 million as average loan balances increased.
- Post-origination service revenue increased 18.0% to RMB372.5 million.
- Origination and servicing expenses increased 8.3% to RMB2,126.7 million, while total operating expenses increased 7.1% to RMB2,480.7 million.
- A RMB137.7 million fair-value gain on financial guarantee derivatives in 2022 compared with a RMB170.3 million loss in 2021 partly offset operating pressure.
- Share-based compensation expense was RMB53.5 million; 35.8 million options and 21.9 million restricted share units were outstanding at year-end.
Cash flow, balance sheet, debt and liquidity
| Metric | December 31, 2022 | December 31, 2021 |
|---|---|---|
| Cash and cash equivalents | RMB602.3 million | RMB584.8 million |
| Restricted cash | RMB404.7 million | RMB407.3 million |
| Total assets | RMB8.838 billion | RMB7.343 billion |
| Total liabilities | RMB4.084 billion | RMB3.366 billion |
| Total equity | RMB4.753 billion | RMB3.977 billion |
| Short-term borrowings | RMB70.2 million | RMB166.5 million |
| Payables to investors and institutional funding partners at amortized cost | RMB2.628 billion | RMB1.487 billion |
- Operating cash flow was RMB322.7 million, down from RMB449.2 million in 2021.
- Investing cash outflow was RMB913.4 million, primarily reflecting loan funding and investment activity.
- Financing cash inflow was RMB576.4 million, including funding-partner receipts and borrowings, partially offset by RMB146.7 million of share repurchases.
- Cash and restricted cash increased modestly by RMB14.9 million to RMB1.007 billion. Management stated that available liquidity and expected operating and financing cash flows should cover the next 12 months.
- Contractual obligations included RMB74.3 million of operating lease commitments and RMB71.9 million of short-term borrowing obligations. The company also committed US$10 million to a venture capital fund, of which US$5 million had been funded by the filing date.
Material changes versus the prior comparable period
- Loan facilitation volume and borrowers grew strongly, but revenue declined because loan facilitation fees fell as average borrower pricing decreased.
- The product mix became more concentrated: Xiaoying Credit Loan represented 99.8% of 2022 facilitated volume, compared with 100% in 2021.
- Delinquency for loans 31–60 days past due improved to 1.02% from 1.48%; 31–90-day delinquency improved to 1.79% from 2.65%.
- Loans receivable from Xiaoying Credit Loans and other loans increased 53.4% to RMB3.810 billion, while deposits to institutional cooperators increased 18.0% to RMB1.770 billion.
- The company repurchased 48.1 million ordinary shares during 2022 for RMB146.7 million, reducing outstanding shares to 287.9 million from 329.1 million issued and outstanding at year-end 2021.
- The company changed its treatment of newly formed consolidated trusts beginning January 1, 2022, using amortized cost rather than the fair-value option for related loans and liabilities.
Guidance, outlook, commentary, risks and unusual items
The filing provides no formal numerical revenue, earnings or volume guidance. Management expects to continue emphasizing Xiaoying Card Loan, institutional funding, risk-management improvements and online microcredit operations. Management stated that it was not aware of trends or events reasonably likely to materially adversely affect results beyond those disclosed in the filing.
- Regulatory and VIE risk: X Financial does not own equity in its VIEs and relies on contractual arrangements that have not been tested in a PRC court. Regulatory changes could restrict or invalidate the structure, interrupt operations or impair investors’ ability to access the VIE economics.
- China regulatory and data risk: Evolving rules concerning online lending, microcredit, cybersecurity, data protection, credit information and overseas listings could increase compliance costs or require business changes. The company had not received a cybersecurity inquiry, warning or sanction as of the filing date.
- Funding and counterparty concentration: Institutional funding partners provided 97.3% of 2022 loan funding; own capital provided 2.7%. External guarantee and insurance providers remain important to funding-partner confidence.
- Guarantee transition: Shenzhen Xintang did not renew its financing guarantee license in 2022. It continues to cover existing loans, with RMB556.3 million of outstanding guaranteed loans at year-end, while the company expects to settle that business in 2023 and use other guarantors for future loans.
- Credit exposure: Xiaoying Microcredit funds loans with company capital, without insurance or guarantee protection; these loans represented 2.8% of outstanding loans at year-end.
- Internal controls: Management concluded that disclosure controls and internal control over financial reporting were ineffective as of December 31, 2022. One material weakness remained, involving insufficient financial reporting and accounting technical resources with U.S. GAAP expertise.
- HFCA Act: The company was identified as an SEC-identified issuer after its 2021 filing, but the PCAOB vacated its China inspection determination in December 2022. Future PCAOB determinations could again create delisting risk.
- Investments: The company recognized RMB8.9 million of impairment on financial investments and RMB26.9 million of impairment on long-term investments, including exposure to venture capital and blockchain-related investments.
- Related-party transactions: A financing guarantee company controlled by a senior management family member covered 29.6% of 2022 facilitated loans and generated RMB542.7 million of related service-fee revenue.
- Litigation: Two securities class actions arising from the 2018 IPO were dismissed or voluntarily dismissed with prejudice in 2022. The company reported no pending legal or administrative proceeding expected to have a material effect on its business or financial condition.
Important facts for investors to verify
- Reconcile the strong 42.1% increase in loan facilitation volume with the 1.8% decline in revenue and the lower operating margin.
- Review the quality, maturity and recoverability of RMB3.810 billion of loans receivable and RMB1.770 billion of deposits to institutional cooperators.
- Assess the sustainability of the 2022 delinquency improvement and the adequacy of RMB164.6 million of loan-loss provisions.
- Confirm the effectiveness and remediation status of the remaining internal-control material weakness.
- Evaluate the legal enforceability of the VIE agreements, the status of Shenzhen Xintang’s wind-down and replacement guarantee arrangements.
- Monitor institutional funding concentration, guarantee-provider exposure and the company’s reliance on PRC regulatory permissions.
- Verify the impact of share repurchases, outstanding options and restricted stock units on future share count and dilution.
- Consider potential PFIC consequences for U.S. investors; the filing states there is a significant risk that the company was or may be a PFIC.