Forecast 3Q23 non-general standard net profit +7% yoy /-3% month-on-month

We expect Qifu Technology (formerly 360 Mathematics) 3Q23 non-generic standard net profit to +7% /-3% month-on-month to 1.1 billion yuan, with a non-generic standard net profit margin of ~ 28%.

Key points of interest

The 3Q23 loan scale is expected to maintain steady growth, and channel diversification may further improve customer acquisition efficiency.

We expect the company's 3Q23 to contribute +11% /-1% month-on-month to 123 billion yuan in loan scale. The month-on-month growth rate has slowed or is mainly due to fluctuations in customer loan demand due to uncertainty in the macroeconomic environment and the company's active balance between loan growth and risk control. Looking at the whole year, considering that market capital liquidity may still be relatively abundant, we expect the company to increase its loan volume by +16% year-on-year to 480.3 billion yuan in 2023. At the same time, we expect that with the diversification of channels in 3Q23, the company's customer acquisition efficiency may improve, and customer acquisition costs are expected to remain stable. In the long run, it is expected that growth space will expand based on steady expansion of customer size.

A two-pronged approach may effectively increase the current loan balance over a long period of time, and revenue take rate is expected to achieve a marginal recovery from month to month. We expect the company's 3Q23 net revenue to be -4% /+2% month-on-month to $4 billion. Among them, revenue growth is faster than the loan scale, or mainly because the company marginally reduces users' early payment behavior by adjusting KPIs and promotions, and optimizes risk control models and loan contract terms under the premise of balancing profit and risk, which may effectively increase the long-term loan balance and support the overall revenue take rate.

Ample liquidity may favor the decline in capital costs, and the overall net profit margin is expected to remain stable. From the capital side, considering the company's diverse financing channels and the relatively low cost of ABS issuance, and the fact that capital liquidity in the 3Q23 market is still quite abundant, we believe that the average capital cost of the company may continue to decline marginally from month to month. We expect that under macroeconomic challenges, with excellent risk control capabilities, the company will maintain stable asset quality and relatively stable risk indicators. It is estimated that the 3Q23 non-general standard net profit is +7% /3% month-on-month to 1.1 billion yuan, and the corresponding net profit margin will reach ~ 28%.

Dividend and stock repurchase plans are progressing steadily, and we are optimistic about the company's potential valuation repair room. The company announced on 1Q23 that it would increase the dividend rate from 20% to 30%. At the same time, on June 20, 2023, it announced plans to repurchase shares of $150 million over the next 12 months, and that it had repurchased US$28 million as of August 18, 2023. Furthermore, the company's 2Q23 results may indicate that more than half of the net profit will be fed back to shareholders through repurchases and dividends. We believe that the company's active stock repurchase and dividend policies may continue to boost market confidence and accelerate the arrival of an inflection point in valuation repair.

Profit forecasting and valuation

Basically, the company's 23e/24e profit forecast remains unchanged. The company's US stocks and Hong Kong stocks are currently traded at 3.6x/3.1x and 3.7x/3.2x 23e/24e P/E respectively. Maintaining the company's outperforming industry ratings, the current target price corresponds to 6x/5x 23e/24e P/E, and the upward space for the company's Hong Kong/US stocks is 58%/60%, respectively.

risks

Uncertainties in the regulatory environment; macroeconomic fluctuations; significant fluctuations in asset quality.