Qifu Technology's 3Q23 performance exceeded our expectations
Qifu Technology (formerly 360 Mathematics)'s 3Q23 revenue was +3% /+9% month-on-month to 4.28 billion yuan, and net profit under non-general criteria was +14% /+3% month-on-month to 1.18 billion yuan, exceeding our previous expectations, mainly due to long-term increases in loan balances and further reduction in capital costs due to operational optimization.
Development trends
#1 Should we focus more on the company's business growth or the release of profit space in the future? We believe that in the long-term development of a company, more attention may be paid to an effective balance between business growth and risk. For example, a steady increase in loan volume while a steady increase in profitability or accelerated business volume growth while maintaining stable profitability can reflect further optimization of the company's operating capacity. The company's 3Q23 loan volume was +11% /-1% month-on-month to 123.1 billion yuan, and the loan balance was +18% /+3% month-on-month to 189.1 billion yuan. The slight contraction in business volume from month to month was mainly due to the company's greater focus on high-quality loan demand. Looking ahead, taking into account seasonal effects and the company's maintenance of a prudent loan strategy, the company guided the 4Q23 loan volume of 160-126 billion yuan (-6% y/y +2%) and the full year of 2023 loan volume of 473-483 billion yuan. We expect that the annual loan volume may eventually be in the middle of the guidelines, +16% year-on-year. At the same time, considering that current residents' demand for short-term consumer credit is still slowly recovering, we expect the company's loan volume growth rate for the whole of next year to be lower than this year.
#2 What information is mainly reflected in Company 3Q23 results? We believe that the company's performance mainly reflects the successful optimization of its unit economy model and that there is still room for optimization in the future. Although the company's 3Q23 provision fee ratio increased slightly month-on-month, its non-generic standard net profit was +14% /+3% month-on-month to 1.18 billion yuan, and after excluding 2Q23 tax subsidies, +16% month-on-month: 1) The company's 3Q23 revenue +3% /9% month-on-month to 4.28 billion yuan. The growth rate was significantly faster than that of business volume, mainly due to the effective increase in loan terms due to the optimization of its user operation strategy, driving the revenue take rate (revenue/average loan balance) to increase month-on-month. 2) Thanks to the gradual diversification of the company's customer acquisition channels, its customer acquisition efficiency was further strengthened. The number of credit users granted by the company in 3Q23 was +14% /4%, and the corresponding average customer acquisition cost was -20% /-6% month-on-month. 3) The company's 3Q23 average capital cost was -20bps month-on-month, mainly due to relatively abundant capital and ABS distribution. We believe that there may still be some room for optimization in its average capital cost next year.
#3 What are the other highlights of Company 3Q23 results? 1) The company combines enterprise operation information with the personal information of small and micro business owners to create a pan-small-micro risk control system. We believe that the pan-micro demand among the company's existing customers may have a certain potential to tap, and may be expected to contribute to a certain growth in the future. 2) From June 20 to November 16, the company has repurchased a total of 4.9 million ADS, totaling 80 million US dollars. We believe that the company may continue to actively repurchase in the future, combined with steady dividends, which is expected to enhance the company's long-term investment appeal.
Profit forecasting and valuation
Due to a slight reduction in the 24-year loan growth rate, the 23e profit forecast was maintained, and the 24e non-generic standard net profit was lowered 3% to 4.99 billion yuan. The company's US stocks are currently trading at 3.9x/3.4x 23e/24e P/E, and Hong Kong stocks correspond to 3.7x/3.4x 24e P/E. Maintaining the US/Hong Kong stock target price of $23.5/HK$91.2 (6.0x/5.3x23e/24e P/E) and outperforming industry ratings, the upward space for US/Hong Kong stocks was 52%/63%, respectively.
risks
The regulatory environment is uncertain; market competition exceeds expectations; and asset quality fluctuates greatly.