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I am going to create a piece of artwork that showcases my creativity and skill, using my imagination and hands to bring it to life.
In my investment thesis, I want to highlight Qifu Technology as an undervalued gem in the Chinese Credit-Tech industry. Despite concerns about geopolitical tensions and regulatory challenges, this company stands out with its advanced technological credit assessment capabilities. In a world that is increasingly relying on machine learning for loan origination, Qifu Technology’s expertise sets it apart from its competitors. With a dividend yield of 4.08% and a low forward EV/EBITDA multiple of 3.0x, the stock price offers a significant margin of safety for savvy investors. Its steady profitability and promising prospects in the Chinese fintech market make it an attractive investment opportunity. I recommend an overweight rating on Qifu Technology, with a target share price of $31.26 based on a discount rate of 17.50% and an exit EV/EBITDA multiple of 3.5x.
Qifu Technology, founded in 2016, is a leading Credit-Tech platform in China that offers technology services throughout the loan lifecycle to financial institutions, consumers, and SMEs. Using cutting-edge artificial intelligence and machine learning models, the company provides borrower acquisition, credit assessment, fund matching, and post-facilitation services. Its business can be divided into two segments: credit-driven services and platform services. The credit-driven services segment generates revenue by facilitating connections between borrowers and financial institutions, while the platform services segment charges financial institution partners for loan facilitation and post-facilitation services. Qifu Technology has experienced steady growth in both segments, with the platform services segment growing at a CAGR of 42.45% over the past four years. The company aims to generate a larger share of its revenue from platform services in the future, reducing working capital requirements and credit risks.
The Chinese fintech industry is poised for growth, as outlined in the Fintech Development Plan (2022-2025) by the People’s Bank of China. The government recognizes the importance of fintech in driving economic progress and has committed to cultivating new growth engines through the development of the digital economy. Despite past regulatory crackdowns, the government remains supportive of the fintech sector and aims to achieve improvement in its core competitiveness by 2025. Qifu Technology’s commitment to maintaining stable pricing and its leading position in the consumer finance sector position it well to capitalize on the industry’s growth. Forecasts indicate a promising future for the Chinese fintech industry, with a projected CAGR of 9.1% in total consumer loan balances outstanding from 2021 to 2025.
Key drivers and catalysts for Qifu Technology include its impressive track record of loan origination volume growth, particularly under the capital-light business model. The company’s shift towards a capital-light model reduces credit risks and optimizes resource utilization. Additionally, the company’s focus on technology-driven solutions and commitment to excellence position it well for success in the dynamic Chinese market.
Overall, Qifu Technology presents a compelling investment opportunity due to its advanced technology, attractive valuation, and promising prospects in the Chinese fintech industry.
