X Financial Earnings Call: Growth Sacrificed for Resilience

X Financial ((XYF)) has held its Q1 earnings call. Read on for the main highlights of the call.

Claim 55% Off TipRanks

• Unlock trusted, data-backed investing tools with TipRanks Premium, from analyst ratings and forecasts to breaking news and portfolio analysis.
• Discover high-conviction stock picks and new investing opportunities with the TipRanks Smart Investor Newsletter

X Financial’s latest earnings call painted a picture of a lender in retrenchment mode, trading growth for resilience. Management stressed sharp cost cuts, tighter credit standards and strong liquidity, but these positives were overshadowed by collapsing origination volumes, weaker earnings and a marked rise in longer-dated delinquencies in a still-uncertain regulatory backdrop.

Disciplined Cost Control and Reduced Marketing Spend

Operating discipline was front and center as total operating costs fell to RMB 1.04 billion, down 24.1% year over year and 28.5% sequentially. The biggest swing came from borrower acquisition and marketing, which was slashed from RMB 709 million to RMB 219.8 million, reflecting a clear pivot from chasing volume to protecting capital efficiency.

Sequential Improvement in Operating Performance

Despite the tough environment, operating performance showed a notable quarter-on-quarter rebound. Income from operations recovered to RMB 140.7 million, lifting operating margin to 12% from just 1.4% in Q4 2025, as cost cuts and tighter underwriting helped offset the drag from shrinking scale.

Lower Sequential Provisions

Provision trends offered a rare bright spot, at least sequentially. Total provisions dropped to RMB 282.9 million from RMB 669.3 million in Q4 2025, a decline of roughly 57.7%, suggesting that earlier credit tightening and stronger collections are starting to ease near-term reserve needs.

Stronger Revenue Mix in Certain Lines

While overall revenue fell sharply, the mix shifted in a more defensive direction. Guarantee income more than tripled versus a year ago and financing income held broadly steady, helping to cushion the impact from lower facilitation fees tied to the company’s pullback in lending volumes.

Solid Balance Sheet and Liquidity Position

Management repeatedly pointed to balance sheet strength as a key buffer in the downturn. Total assets stood at about RMB 13.6 billion, backed by shareholders’ equity of roughly RMB 7.8 billion, and cash including restricted balances reached around RMB 2.4 billion, supporting the company’s ability to weather prolonged stress.

Share Repurchase Activity and Capital Return

Even as earnings compressed, X Financial continued to return capital to investors. Year to date, the firm has repurchased roughly 1.8 million ADS for about USD 8.2 million, with approximately USD 39.8 million still authorized under its buyback program running through late 2026, signaling continued confidence in its equity value.

Planned Origination Guidance Reflects Focus on Quality

Management’s tone on growth remained cautious, with origination guidance designed to prioritize quality over volume. For Q2 2026, the company expects total loan originations of RMB 11.5 billion to RMB 12.5 billion, reinforcing that disciplined underwriting and risk control will trump aggressive expansion.

Sharp Decline in Loan Origination Volume

The most visible trade-off of this strategy is a steep contraction in business activity. In Q1 2026, X Financial facilitated and originated loans totaling RMB 14.63 billion, down 58.4% year over year and 35.8% sequentially, reflecting both deliberate tightening and softer borrower demand amid macro and regulatory pressures.

Large Contraction in Active Borrower Base

Customer activity mirrored the collapse in volumes, signaling reduced reach and engagement. The active borrower base fell to about 956,520, plunging 60.6% from a year earlier and 43.5% from the prior quarter, underscoring the depth of the company’s retrenchment in new lending.

Decline in Outstanding Loan Balance and Revenue

This scaling back flowed through directly to the balance sheet and top line. Outstanding loan balance dropped to RMB 35.3 billion, down 39.6% year over year, and total net revenue slid to roughly RMB 1.18 billion, a 39.3% decline from a year ago and 19.9% sequentially, eroding operating leverage.

Deterioration in Delinquency, Especially Longer-Dated Arrears

Credit quality trends were a key concern on the call, particularly in longer buckets. The 31–60 day delinquency rate rose to 2.61%, while 91–180 day delinquency surged to 9.95%, up from 2.73% a year earlier and 6.31% in Q4 2025, marking a roughly 264.5% year-on-year spike in mid- to long-dated arrears.

Elevated Provisions Relative to Prior Year

Even with sequential relief, provisions remain a heavy drag versus last year’s benign credit environment. Total provisions more than doubled year over year to RMB 282.9 million from RMB 135.5 million, reflecting the severity of current credit stress and continuing to cap the company’s ability to translate revenue into earnings.

Collapse in Net Income and Earnings Metrics YoY

The combined hit from lower volumes, weaker revenue and heavier credit costs resulted in a dramatic earnings reset. Net income plunged to RMB 37.9 million from RMB 458.1 million a year earlier, with net margin shrinking to 3.2% and basic earnings per ADS sliding to RMB 0.96, leaving return on equity at a subdued 1.9% for the quarter.

Regulatory Uncertainty and Operating Risk

Overlaying the financial challenges is a shifting regulatory landscape for internet-based consumer lending in China. Management emphasized that evolving oversight and limited visibility on final rules could materially alter future operating results, warning investors not to rely on historical profitability as a guide to what comes next.

Cautious Guidance and Focus on Preservation

Looking ahead, X Financial reiterated a cautious stance, forecasting Q2 2026 loan originations of RMB 11.5 billion to RMB 12.5 billion, down again from Q1 levels. The company plans to keep prioritizing capital preservation, disciplined origination and tight cost control while navigating high delinquencies and regulatory ambiguity.

X Financial’s earnings call framed a company in active defense, trading rapid growth for survival and optionality. Investors heard a mix of encouraging cost and liquidity metrics, offset by steep drops in scale, rising credit risk and unclear policy headwinds, leaving the stock squarely in turnaround territory rather than a straightforward growth story.