PPDAI Group's (PPDF) CEO Feng Zhang on Q1 2019 Results - Earnings Call Transcript

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About: PPDAI Group Inc. (PPDF)
by: SA Transcripts
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Earning Call Audio

PPDAI Group's (NYSE:PPDF) Q1 2019 Earnings Conference Call May 15, 2019 8:00 AM ET

Company Participants

Jimmy Tan - IR

Feng Zhang - Co-CEO

Simon Ho - CFO

Conference Call Participants

Anderson Cha - BNP Paribas

John Cai - Morgan Stanley

Daphne Poon - Citi

Tian Hou - T.H. Capital, LLC

Jacky Zuo - Deutsche Bank

Alex Ye - UBS

Operator

Hello ladies and gentlemen. Thank you for participating in the First Quarter 2019 Earnings Conference Call for PPDAI Group Incorporated also known as Paipaidai. At this time all participants are in listen-only mode. After management’s prepared remarks there will be a question-and-answer session. Today’s conference call is being recorded.

I’d now like to turn the conference over to your host Mr. Jimmy Tan, Investor Relations Director for the company. Jimmy, please go ahead.

Jimmy Tan

Hello, everyone and welcome to PPDAI’s first quarter 2019 earnings conference call. The Company’s results were issued via newswire services earlier today and are posted online. You can download the earnings release and sign up for the company’s distribution list by visiting the IR section of our website at ir.ppdai.com.

Mr. Feng Zhang our Co-Chief Executive Officer; and Mr. Simon Ho our Chief Financial Officer will start the call with their prepared remarks and conclude with a Q&A session.

During this call we will be referring to several non-GAAP financial measures to review and access our operating performance. These non-GAAP financial measurements are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the US GAAP. For information about these non-GAAP measures and reconciliation to the GAAP measures please refer to our earnings press release.

Before we continue please note that today’s discussions will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such the company’s results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties is included in the company’s filings with the US Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable laws. Finally we posted a slide presentation on our IR website providing details of our results for the quarter.

I will now turn the call over to our Co-CEO Mr. Feng. Please go ahead.

A - Feng Zhang

Hello, everyone and thank you for joining us today. Cliff, our Chairman and Co-CEO is unable to make today’s call. So I will be combining our remarks this time around.

As we continue successfully executing our management strategy, we are pleased to report another solid quarter as a leading online consumer finance marketplace in China. Performance wise, we delivered strong financials to start off fiscal 2019. To illustrate in the first quarter operating revenues increased by 53% year-over-year and a 21% quarter-over-quarter to RMB1.46 billion, and net profit increased 61% year-over-year to RMB703 million.

Our dedicated team has made excellent progress in driving revenue growth and enhancing profitability. The consecutive growth in loan volume further demonstrates the solid market demand for technology driven consumer landing services. We’ve also grown our user and borrower base at a steady pace as cumulative registered users reached 94 million and the number of cumulative borrowers reached 15.4 million at the end of the first quarter.

With much of the industry headwinds from 2018 behind us, we look forward to further expanding our funding sources while maintaining a strict compliance and risk control framework as a leading industry player. The regulatory framework for the industry continues to progress. We continue to cooperate closely with our regulators. As a byproduct of this regulation, we are well positioned to benefit from the ongoing industry consolidation and a market share gains that come with being a trusted brand and a leading platform in online consumer lending.

What is it becoming more self-evident our advantages as an early mover in this space as we continue to grow based on our deep resources core capabilities, brand reputation and ability to navigate change. Going forward, we continue to see great potential for PPDAI as we move into a healthier, well-regulated and better consolidated new online consumer finance industry that exists to connect and benefit borrowers, individual investors and financial institutions.

Looking at some of the benchmarks driving our financial performance, include total loan origination volume which in the first quarter of 2019 reached RMB19.1 billion, up 55% from the year-ago period and up 8% quarter-over-quarter. The growth in loan origination volume has been underpinned by our efforts to diversify funding sources as our institutional funding partner base expands further and the proportion of our total low volume funded by institutional funding partners increased to 31% from 20% in the prior quarter.

Looking forward, we remain confident in our ability to achieve further diversification in funding sources driving additional business growth in line with increasing consumer demand. Our institutional funding strategy has been performing ahead of expectations. In our previous calls, we said that our institutional funds could support 40% to 50% of our total loan volume by the end of this year. At this moment, the institutional funding proportion is already running at above 40% of total loan volumes. And we expect the portion to exceed 50% later this year. This will bolster continue to moderate, moderate to healthy growth in overall loan volume.

Now turning to credit, we have been very consistent in managing risks through the use of proprietary technologies such as our Magic Mirror Model. As such, credit risk has been generally stable in the first quarter and continued to perform within our expectations. If you look at our delinquency rates for all outstanding loans on our platform, they have in fact been slight improvement versus the prior quarter in almost every time bucket.

We look forward to continuing in the new year on the cost trajectory as mapped out by management with a focus on expanding our loan services, diversification of funding sources, increasing our industry leading space, while exploring new growth opportunities.

With that, I will now turn the call over to our CFO, Simon Ho, who will discuss our financial results for the quarter.

Simon Ho

Thank you, Feng, and hello everyone. We are delighted to have achieved solid operational and financial results in the first quarter as lending volume in the period picked up, underscoring the strength of our markets and the near-term growth trajectory of our business. In particular, our operating efficiency and profitability showed strong momentum, highlighted by a 95% year-over-year increase in non-GAAP adjusted operating income and significant improvement in non-GAAP operating margin that reached 55.3%. Thanks to our strong execution of cost control.

Our balance sheet remained solid with approximately RMB3.4 billion of cash and short-term liquidity. Notably, our quality assurance fund remains efficiently funded with the total balance of RMB5.5 billion [technical difficulty] 23.4% of the total outstanding loan protected by the quality assurance fund. Our results highlights the strength and resilience of our business model and our ability to navigate changing market dynamics.

Now let me briefly go over the financial results for the first quarter. In the interest of time, I will not walk through each item line by line on this call. Please refer to our earnings release [technical difficulty]. Operating revenues for the first quarter of 2019 increased by 53% to approximately RMB1.46 billion from RMB955 million in the same period of 2018, primarily due to the increase in loan facilitation service fees and interest income from loans invested mainly through Trust.

Loan facilitation service fees increased by 51% to RMB939 million for the first quarter of 2019 from RMB621 billion in the same period of 2018, primarily due to the increase in loan origination volume. Post facilitation service fees increased by 36% to RMB308 million for the first quarter of 2019 from RMB227 million in the same period of 2018, primarily due to the increase in origination volume and the rolling impact of differed transaction fees.

Non-GAAP adjusted operating income, which excludes share-based compensation expenses before tax was RMB807 million for the first quarter of 2019, representing an increase of 95% from RMB450 million in the same period of 2018. Other income was RMB50 million for the first quarter of 2019 compared with RMB132 million in the same period of 2018, primarily due to the fair value change of financial guaranty derivates.

Income tax expenses were RMB141 million for the first quarter of 2019 compared with RMB95 million in the same period of 2018. Net profit increased by 61% to RMB703 million for the first quarter of 2019 from RMB438 million in the same period of 2018. As of March 31, 2019, we held cash and cash equivalents of about RMB1.9 billion and short-term investments mainly in wealth management products of about RMB1.4 billion.

Next let me give an update of our share buyback. Our share repurchase program started in March 2018 and since then we have bought back approximately $69 million of our shares. Let me also give an update on our take rates and loan volume trend. As we look forward to 2019, it is clear that our business is changing towards a more diversified funding model. And as such, the take rate is becoming less and less relevant because most institutional funding partners charged the borrower a single rate of interest rather than a take rate.

Our take rate in the first quarter was 7.7% and we expected to return to historical levels in the 6% to 7% range as we focus more on borrowers with better credit quality, and strengthen our cooperation with institutional funding partners. As mentioned just now, the relevancy of this metric to our business is rapidly declining, so we don't think it is productive to continue to disclose this metric going forward.

Now we believe our efforts to strengthen cooperation with institutional funding partners will enable us to deliver healthy and sustainable growth for the business. Heading into 2019, our monthly loan originations are demonstrating continued healthy and steady growth.

In April, we originated approximately RMB6.4 billion of loans, which means for the first four months of 2019 we originated a total of RMB25.5 billion of loans. In May, we expect loan originations to increase to a range of RMB6.5 billion to RMB7 billion. We are confident that we are fully on track to deliver our goal of moderate to healthy loan volume growth this year.

Before I hand the call over to Q&A, I'd like to conclude by emphasizing that over the past year, despite the challenges and changes to the industry, we have continued to deliver consistent performance. This is a testament to our risk management capability, our technology of brand reputation and our ability to navigate change. The long-term opportunity in China's consumer finance market is fast, and we remain well-positioned to enjoy the benefits of this growth trajectory.

With that, I will conclude my prepared remarks. We will now open the call to questions. Operator, please continue.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Anderson Cha with BNP. Please go ahead.

Anderson Cha

Hi. This Anderson Cha from BNP Paribas. Congrats to your very strong first quarter earnings and thanks for taking my questions. I’ve three questions for you. The first one is can you share us some color on your institutional funding pipeline for the remainder of this year more specifically? I’m asking this question because I remember that you guided for about 30% institutional funding proportion for 2019 in the fourth quarter earnings release. Now you appears to be guiding up it to like 50% later this year. So does it mean that we are now expecting strong growth loan origination volume in the coming quarters, given that there's an ample demand from the borrower side? And also, can you remind me of your institutional funding target as a percentage of total loan origination volume for the full-year of 2019? And my second question is regarding potential acquisition outlook. I understand that the financial regulator in China is promoting mergers and acquisitions within the sector to accelerate the industry consolidation, which may or may not be value accretive for their larger players like PPDAI. Is there any intention to acquire any smaller players in the next 12 months? And do you find any value in doing such acquisitions given current industry and regulatory backup? And my last question is looking at your vintage delinquencies, your first quarter 2018 vintage appeared to have made a very benign finish in terms of 12-month delinquency ratio, especially in relation to the past three to four quarters. Does it indicate that credit environment has improved into the first quarter of this year? And can you also share with us any credit outlook going forward? Thank you.

Simon Ho

Anderson, thanks very much for your questions. Your first one about institutional funding pipeline, I think we’re trying to indicate that it's been strong and we are very confident of lifting this further. I think there may have been some confusion in the sort of the previous commentary we made in previous calls. Actually on the last call which was after -- in March, after our fourth quarter 2018 earnings, we actually guided for the first quarter proportion of institutional funding to be around 30%, for the first quarter. And at that point, we said we expect for -- by the end of the year we should be hitting 40% to 50%. So what we’ve seen is, yes, we’ve seen stronger performance in institutional funding and we are ahead of plan. So, as Feng just mentioned, at this current moment, we are already over 40% in terms of this proportion. And that's certainly before the end of the year we should be over 50%. And this is clearly what's been underpinning the growth in our loan origination volume. So we still calling the growth -- our growth trajectory as moderate and healthy. And I think we should continue to view it as such. That’s what we are targeting. For your second question on M&A, I’m going to hand it over to Feng to address.

Feng Zhang

Sure. Sure. Thanks, Anderson. Yes, so in terms of M&A opportunities, I think we’re open-minded. At this point, we don't have any active targets or deals to acquire another P2P platforms. Frankly speaking, part of this is to -- we are still waiting for more clarity in the regulatory environment. But as we see it clearer the outlook for the regulatory environment, we will continue to evaluate opportunities as they come. I will also quickly address your third question about loss environment. So as you guys can see from the numbers we disclosed, the delinquencies we are seeing generating stable in Q1 and continue to perform within our expected range. Our current outlook is in the near-term. We believe the trend will remain stable.

Simon Ho

Anderson, does that help?

Anderson Cha

Yes. Thank you very much. It was very clear. Thank you.

Simon Ho

Thank you.

Operator

Your next question comes from John Cai with Morgan Stanley. Please go ahead.

John Cai

Hi. Thank you management for taking my questions and congratulations on the results. So I have two questions. The first one is on the take rate. Yes, it's very helpful to guide us that take rate is becoming less and less relevance. So my question is what matters we should be looking at. And -- so basically I think that it is two part of the business. One is the institutional funding loan and the other part is the retail funding loan. So is it fair to say that its irrelevant to look at the retail part, while the institutional part we should probably look at the other measures potentially the balance, etcetera. And is there any disclosures or details on what’s the balance at the moment? And that’s my first questions on the take rate. The second question is on the credit quality and the related reserve related QAF related gain. So it seems like the delinquency rates by balance has improved on a Q1Q basis. Just wonder why we don’t -- we haven't seen a bigger QAF related gains for this quarter? Thank you very much.

Simon Ho

Right. John, thanks very much for your question. I will -- I think I will take these questions. With regards to the take rate, if we just rewind the business, when we list, when we went for an IPO, we were predominantly funded by individual investors and it would be individual investors through a take rate and then that get basically a service fee that got recognized as a loan facilitation and post facilitation service fees. Today the situation is a little bit more diversified due to the diversification of our funding base. So as you know within the -- you could divide the institutional funding base into two types. There are trust and there are non-trust. So the trust component as you are aware is recognized through our income statement through this line item called net interest income and loan loss provisions. And the non-trust proportion of institutional funds, we do recognize it through loan facilitation service fees as well as post facilitation service fees. Although -- again, we don't charge service fee, but -- and the -- but borrower doesn't pay a service fee to the financial institution, they pay a single rate of interest. But we still recognize our gain within loan facilitation and post facilitation service fee. It's a little bit more complicated today and that's why we’re dialing back the relevancy of the take rate as that is -- as it has been defined from day one when we’ve been using it. Now ultimately what drives all this at the end of the day is predominantly still loan origination volume as you can tell. Most of our revenue method that the revenue recognition method as you can see from what I’ve just said is still coming through loan facilitation and post facilitation service fee. So I would encourage you to still obviously look at those -- all those metrics I’ve just said, but lending volumes are still paramount in this environment. And secondly …

John Cai

Yes, so sorry -- hi, Simon.

Simon Ho

Yes, John.

John Cai

Yes, sorry. Yes, just quick follow-up on that part. My understanding is that the relevance of the take rate is probably becoming less due to the increased portion of the funding from -- funded by trust. So I think the trust lies basically reported as net interest income less the loan provision loss. So I think if we exclude, can we still look at the take rates and is there any way we can look at the discount related income in the separate metrics?

Simon Ho

Yes, sure. I will give you a bit more info -- I will give you a bit more information. In the first quarter the trust related revenues which is booked under net interest income and loan loss provisions and that amount I think is roughly a RMB133 million in the first quarter. That's about 9% of our total operating revenues. The total operating revenues that came from loans funded by our institutional funding partners in totality amounted to 24% of our total operating revenues. So there's actually roughly another 15 percentage points of loan facilitation and post facilitation service fees that relates to our other revenues from other institutional funding sources besides trust. So I hope that gives you an idea of the profit contribution of our institutional funds. And if I may add on, you asked about loan balance and all that, I just add that, you can you can track our retail funded fund balance very clearly, each month on the NIFA website that is disclosed publicly. And our total loan balance would be obviously the retail portion plus the institutional loans. The -- out of the total loan balance, outstanding balance, institutional and at the end of the first quarter was roughly around 25% of our total outstanding loan balance. So that I think would again give additional color. Does that …

John Cai

Thank you.

Simon Ho

Are you happy with this color?

John Cai

Yes, that’s very helpful. Yes.

Simon Ho

Okay. So I just wanted to wrap and say on the institutional fund, I know a lot of the analysts have been very concerned about the profitability of this part of the business. And we are happy to say that it's -- although it's 31% of our loan volume in the first quarter, it's 24% of our revenues, which is a very respectable number and we are not very far different from the contribution rate and the loan volumes. Now in terms of the quality assurance fund and why our gains won't be bigger? As you know, the QAF gain is in part of function of the credit risk environment as you said. And given the relatively stable outlook for credit risk at the moment, I think our outlook for the QAF gains will also be relatively stable. I think last time we guided towards saying that, look, the risk environment today is a bit higher than two years ago. So we should expect that the quality assurance fund gains from this QAF wouldn't be as significant as before. But we still -- as we said, we still have a very -- we still price our loans very conservatively, we still price in the buffer and we are sitting on a very nice cushion in terms of the total balance of the quality assurance funds as I mentioned in the call earlier.

John Cai

Yes, thank you very much. This is really helpful.

Operator

The next question comes from Daphne Poon with Citi. Please go ahead.

Daphne Poon

Hi. Thanks for taking my question. So just have one question about the operating margin. So we see a very strong increase in the operating margin in the first quarter. So I’m wondering whether it is because of your -- like proactive cost cutting measures, or like how do we look at this going forward? Is this a sustainable level of over 50% of operating margin? And more specifically if we look at the sales and marketing expense, it went down in both like the actual amount or on per new borrower basis. So is this an industry wide trend that you see the customer acquisition costs coming down or is there any other specific reason? Thanks.

Simon Ho

Sure. Daphne, thanks for your questions. The operating margin of 55% really has been a -- is a significant improvement versus last year, which was in the 40% plus range. Now this is the result of effective controlling costs and also a higher take rates during the quarter. As funding costs have come down, and we’ve passed on some of that gap in the funding cost and allocated it between sort of borrowers, quality assurance fund and also our service fee as well. But as we shift towards this fund and higher quality borrowers, we should expect erosion to the margins from [technical difficulty], but we will continue to work on improving operating efficiency and we will also work on reducing our costs, particularly from institutions, our -- as our scale and track record in servicing these financial institutions [technical difficulty]. And we have to emphasize that this proactive shift in our business towards institutional funds is geared towards enabling more growth for the business. So, Daphne, that’s the first part. In terms of the customer acquisition costs -- Daphne, could you mute your line, as we talk, we can hear you typing. So in terms of the customer acquisition costs, our -- the average acquisition cost for a new borrower in the first quarter was roughly between RMB130 and RMB140, this is a little lower than around RMB150 or so for --- throughout last year. Now this trend frankly at the moment appears relatively stable, I wouldn't say it's come off significant amount, I think generally the trends have been pretty stable. Does this help, Daphne?

Daphne Poon

Yes, that’s helpful. Thank you.

Operator

The next question comes from Tian Hou with T.H. Capital. Please go ahead. Mr. Hou, your line is open.

Tian Hou

Yes, I was mute my line. So, okay. So I would say congratulations for good quarter. So you guys have been through a lot after your IPO, so now you can take a breath. The question is several fronts. Why is in terms of borrowers, so in the past your borrowers borrowing like 3,000 that's actually the fund size of the borrowing. And what's the size of the borrowing today? In what sense you mean high-quality or good quality borrowers? So that’s one of the question. The second question is in terms of loan, in terms of the institution funding, what's the potential risk from this bank? And I know in the past that the lenders are in the institution, is there a potential risk, that the risk transfer from individual loan to institution loan. So that's two questions. Thank you.

Simon Ho

Sorry, Tian, can I just follow-up? What risk specifically are you referring to, that we are …

Tian Hou

Let me ask in Chinese.

Feng Zhang

Okay. Hi, Tian. Yes, this is Feng, I will take the first question. Yes, so I think as we discussed -- disclosed in the financial results, the loan amount, average loan amount for first quarter is RMB3,300 roughly. So it is still in that RMB3,000 range, very small ticket. Now to your second question in terms of better quality, little bit more higher end customers, mainly defining that as lower delinquency rate. So lower final loss rate. So now with that with lower loss with higher credit quality, we do expect those customers to get higher loan volume, low amount. So I would expect going forward over time, our average ticket size to gradually increase. Does that answer your question?

Tian Hou

Yes, yes. The second one?

Simon Ho

And I will answer your -- yes, your second one about the risks. I think the risk model is a little bit different under the institutional funds. If you know that for the individual funded loans what we do is, we -- the borrower obviously contribute to a quality assurance fund, money get set aside to protect individual investors from credit losses. Now in the institutional side of the funding business, depending on obviously what type of arrangements, generally speaking the credit risk is in effect borne by us and we need to be very careful about assessing credit risk at the end of the day, whether that is obviously through arrangements like in the trust situation, as you many of you widely known that the trust that we -- the trust structure that we use are -- have primary and secondary tranches and we tend to use our own capital to invest into the secondary tranche as well. So it is a bit different, but I think it all boils [ph] down whichever way you use it, it will boil us down to having effective and capable risk management at the end of the day.

Tian Hou

I see. Thank you.

Operator

The next question comes from Jacky Zuo with Deutsche Bank. Please go ahead.

Jacky Zuo

Hi, management. Congrats on the results. And I have three questions. First one is just a follow-up on the institutional funding. Try to get a sense of some details. So you mentioned the funding costs is actually trending down. So like in -- what's the current funding cost and how much is that lower from the previous quarter? And how many financial institutions are we cooperating with? How many banks, consumer finance companies extra and also trust. And lastly how much capital contribution we need to put with the trust and also are there any financial institutions? And then my second question is regarding to asset quality. I observe that the asset quality delinquency rate actually recovered in this quarter. So just trying to get a bit color, what actually drive this recover? And thirdly on regulations. We heard that the government started this P2P trial registration in late April. So can we get some color on the progress for this trial registration. And so was there any impact we should see for some new rules in this trial registration, for example the limitation of the single investor upper limits. And also the charge of general provision in the credit provision in these new rules. And lastly also on the regulation, because earlier in this year the regulator actually tried to encourage us to like complying P2P platforms to convert to loan facilitation model or online micro lending companies. So are we consider this transformation or for example are we hoping to get a lending license and probably become a micro lending license company in the future? Thank you.

Simon Ho

Jacky, thanks for your questions. Let me just elaborate further. Firstly on institutional funding, the majority of our institutional funding comes from licensed financial institutions, they are mainly through trusts, consumer finance companies and through banks. Currently our largest institutional channel is through trusts, which account for roughly about half of our total funding from institutional partners. We are currently working with a few commercial banks and we are working on signing up more. And of course we do trying to diversify our institutional funds going forward and aim to increase the proportion of funds that come from [technical difficulty]. Currently, we have -- we are working with around 20 or so institutional funding partners. In terms of the capital aspects and how much capital is used, clearly, it depends on the type of institutional funding, some require more capital, others require less. A substantial amount of the capital we currently deploy to support the institutional funds is for our trust programs. And there, the leverage as you know is typically 3x to 4x. The other channels with banks and consumer finance companies are substantially less in terms of capital needs. And at the end of the day, it will depend on the mix. And we will work to diversify our mix and improve capital efficiency. Currently, I just want to add we’ve sufficient internal capital to meet our growth plans. In terms of -- your next question was about delinquencies and you saw there's a recovery. It's not really I would characterize it as stable during the first quarter. And if you look at the numbers, it's a very slight decline in the delinquency rates, I would say, it's relatively stable versus the last quarter. And if you look at the vintage delinquency charge, the first quarter or the latest line that you see is pretty much running the same as in the previous quarter. So I think it's pretty much stable is how we would characterize and describe that. Now, on regulations, yes, you mentioned obviously there's been some news about trial registration program and that’s been going to start. We’ve seen the news on this trial registration for P2P platforms that was circulated in the media about a month ago. But we have not seen any formal notice issued downwards to us or to any of the companies in the industry. So frankly we are also waiting for confirmation of obviously this registration process. Next, you mentioned obviously the number of new requirements within those documents circulated in the media, I think it would be difficult for us to comprehensively make any assessments right now because -- again, we cannot confirm whether this version that was circulated in the media will impact with the eventual rules. And implementation of some of these rules would require further clarification and details from the regulators. Without going into all the details here, we would say that based on the high-level rules circulated last month, the impact and the changes we believe are manageable. And bear in mind that we are well capitalized, our quality assurance fund has all along been run conservatively. And that, at the end of the day achieving registered status that were being seen as a regulated and credible platform will attract a much larger market for individual investors. So, I think on that issue that’s probably as much as we should say at this point pending further clarification and details officially. And finally your question about converting to a loan facilitation model and micro lending license, this is exactly clearly what we are doing. We are ongoingly [ph] continuing to increase the proportion of funding from financial institutions. We have our own micro lending -- online micro lending license as well and we are already moving in that direction as suggested by the regulators. Does that answer your questions?

Jacky Zuo

Yes, very helpful. Thank you, Simon.

Operator

The next question comes from Alex Ye with UBS. Please go ahead.

Alex Ye

Hi. Thanks for taking my question. I have a few follow-up questions here. So the first one is on your sales and marketing expense. So we’ve seen the sales and marketing costs has come down from around RMB180 million on last three -- two quarters, RMB140 million, so -- but our new registered customer and new active customer has remained quite stable. So I’m wondering is it due to seasonality reason or is it because we’ve now have some lower cost customer acquisition channel. And we expect this such a high customer acquisition efficiency to return to like a normal pace in the coming quarters? And my second question is on the funding -- on the pricing front. So we have seen your take rate has gone up a bit as well apart from the distortion from the institutional funding. So do you -- do we have any adjustment in our pricing to the customers? And regarding our two different funding source is there any difference in terms of what we charge our customers if they're funded by institutional, because we understand some of the institutions may be more conservative in terms of what type of customer they want to lend their money to. So that’s the second question. And my final question is on regulatory front. So it's also related to the trust we discussed earlier. So I know it has not been finalized yet, but just wondering well if there is a very strict requirement or call off on the duration mismatch on the P2P investment program like this new Rainbow program you are offering now. So do you expect any disruption on this operating model? Thanks.

Simon Ho

Yes, Alex, thanks very much for your questions. With regards to the -- your first question customer acquisition costs, so you noticed -- I think you are right. Our sales and marketing expenses declined quarter-on-quarter. Within the sales and marketing expenses, it is not entirely consisting of online customer acquisition expenses. That is obviously the bulk of it, but not all of it. So there will be other activity such as funding and other marketing costs that are in that line item as well. Now, if you strip all that other stuff out and you look at online customer acquisition costs in totality, it is as I just explained, it's running between RMB130, RMB140, previous quarter it was probably in the RMB140 to RMB150. So it's come down a bit. I would say this variability is mainly due to product mix effects rather than changes in the underlying trends of each of the types of channels and acquisition costs. So we would characterize the outlook and to be still relatively stable. Secondly, your question is on the sort of loan pricing, take rate, what adjustments have we made. And as I explained just now, as many of you are aware actually over the past six months or so, we’ve been lowering the returns that are earned -- that is earned by retail investors. If you wind back up to sort of last summer, we were probably around -- retail investors were probably earning in the low teens. And now they are probably earning around 8% or so -- 8% plus. So these cost savings have to an extent been allocated between borrowers, our quality assurance fund contributions and also our service fees as well. So that explains why that take rate metric that I mentioned has increased. In terms of, obviously, the pricing difference between loans funded by institutions and individual investors, what we’ve been saying all along is the total borrowing costs of the loans that institutions require tend to be lower, tend to be the higher quality types of borrowers, amongst our pool of borrowers, okay? So -- and hence that’s why we are also increasing our efforts to increase this proportion in this segment of borrowers, okay? So -- and you can see this through, what I just mentioned earlier the revenue contribution from our institutional funding or institutional funded loans, it is lower than our retail funded loans, but not a huge amount lower. I would say it's a little bit moderately lower because the revenue contribution is 24% in the first quarter. The loan origination contribution was 31%, right? So it's a little lower, but it's not like half or not profitable at all. That's not the case. It is still highly profitable and attractive on its own, okay? So I hope that helps to clarify that issue. And on your final question about regulation and some of the duration mismatch, automated investing tools and all that stuff. Frankly, this requires much further clarification at the end of the day from the regulators. And in terms of what exactly this means and what exactly they would allow and disallow. So I think it is too early, too difficult with the given information to make a proper assessment. But at the end of the day, I think, I want to say that it's getting the registration status is paramount and we will be very positive for the business overall. And secondly this -- what we are pushing at the end of the day at the moment is working closer with the financial institutions and enabling growth through them. And I hope that helps to answer your questions.

Alex Ye

Okay, great. Thanks. Can I have one follow-up question?

Simon Ho

Sure.

Alex Ye

So, I see from your -- the monthly disclosure of your retail funding, so it looks like your -- both your balance and loan volume for April has come down a bit. I’m wondering what the reason of it. Is it due to your active control on the loans? And at present, do you have any guidance on the loan volume for the rest of the year? Thanks.

Simon Ho

Sure. So, yes, you are very -- obviously you are very diligent and you’ve noticed that our April loan balance has declined a little bit month-on-month. And I think the main reason is because there has been some volatility in the P2P industry in April, following the failure of a small medium -- the medium sized platform called [indiscernible], right? But this has since normalized and recovered and we've had experience obviously, now more -- much more experience in dealing with these industry volatility. And we think that’s -- we feel the situation has recovered and we’ve been effectively using our institutional fund to smooth out such variations. And our loan volume overall as you’ve seen has not been much affected by this incident at all. In terms of loan volume guidance, we are sticking with our practice all along and not giving a full-year loan -- explicit full-year guidance. But I think we've given you the trend so far in April and May and we’ve obviously indicated that our pipeline for institutional funding remains strong and will increase to over 50% of our total originations by the end of the year. And I hope that will be sufficient to allow you to make your forecasts.

Alex Ye

Very helpful. Thank you.

Operator

The next question is a follow up from John Cai with Morgan Stanley. Please go ahead.

John Cai

Hi, management.

Simon Ho

Hi, John.

John Cai

Thank you for taking my questions again. Yes. So just a quick follow-up on institutional funding. I think it's more and more or a higher portion now and potentially that might increase to like 50%, 60% by the end of the year. So I just wonder what’s our -- what’s the result of individuals going forward because obviously they have -- adding lower of individuals, currently we are guiding in excess to 8%, but in the future could you drop to like maybe 3% to 4% because of the high portion on the institution? Thank you very much.

Simon Ho

Yes, John, I think that’s a great question. The -- I think I will refrain from giving out an explicit number, because I think this business is still growing and it's changing. But as you’ve read through our discussions today, the borrowers that institutions want tend to be better quality. So I would say it is -- the delinquency rates we see currently are quite a bit better than our average vintage delinquencies that we are expect -- that we have. And overall platform we aim for about, we believe that 6% to 8% is a comfortable range for us for vintage delinquencies. The -- that the loans that the institutions are seeing tends to be quite a bit lower than that.

John Cai

Okay. Thank you very much.

Operator

[Operator Instructions] As there appears to be no further question, I would like to turn the call back over to the company for any closing remarks.

Jimmy Tan

Thank you once again for joining us today. If you have any further questions, please feel free to contact PPDAI Investor Relations through the contact information provided on our website or in the press release.

Operator

This concludes this conference call. You may now disconnect your lines. Thank you.