Qifu Technology's 4Q23 performance is in line with our expectations
Qifu Technology (formerly 360 Digital)'s 4Q23 revenue was +15%/+5% month-on-month to 4.496 billion yuan, and non-general standard net profit +25.1% YoY/-2.6% month-on-month to 1.15 billion yuan, in line with our previous expectations.
Development trends
The quality of loans has been further improved, and the focus is on steady and high-quality growth. The company's 4Q23 loan scale was +14%/-3% month-on-month to 119 billion yuan. Among them, the ratio of technology-resolved loans was +1.5ppt/month-on-month +0.8ppt to 57.3%, and the loan balance was +14%/-1% month-on-month to 186.5 billion yuan. The slight contraction in loan scale was mainly due to 4Q23 improving loan approval standards and further improving loan quality. Looking ahead, based on the current macro environment, we think the company may focus more on improving loan quality and profitability in the future. We expect the company's lending growth for the full year of 2024 to be slower than in 2023. Furthermore, considering the seasonal impact of 1Q24 and the company's active adjustment of loan strategies to enhance asset quality, we expect the company's 1Q24 loan scale to decrease sequentially or somewhat.
The economic model still has room for optimization, profitability, or steady improvement. 1) Pricing: The company's 4Q23 average product pricing was -0.4ppt to 21.3% month-on-month, which mainly reflects the improvement in the quality of the company's loan users. We expect pricing to remain at a similar level in the future. 2) Capital costs: The company's 4Q23 average capital cost is -100bp/month-on-month -20bp, mainly due to the relatively abundant loan capital of financial institutions and the acceleration of the company's ABS issuance. We expect that there is still room for optimization of its capital costs in the future. 3) Asset quality: The company's 4Q23 asset quality fluctuated slightly from month to month. The company's 4Q23 90-day+ overdue rate was +0.5ppt to 2.35% month-on-month, and the D1 overpayment rate was +0.4ppt to 5.0% month-on-month. As the share of new high-quality loans in the balance gradually increased, we expect the company's asset quality to gradually be optimized starting 2Q24 or beginning. Combining these positive factors, we expect the company's comprehensive service rate to continue to rise steadily in 2024.
Maintaining a steady dividend payment policy and continuing repurchases demonstrate confidence in development. In terms of dividends, the company declared $0.50/0.58 per ADS for 1H23/2H23 respectively, and the total dividend for 2023 was ~ US$170 million. In terms of repurchases, the company has repurchased 8.4 million ADS from June 20, 2023 to March 12, 2024, for a total of ~ US$132 million (average repurchase price ~ US$15.7). Furthermore, on March 12, 2024, the company announced an additional repurchase plan of US$350 million over the next 12 months, demonstrating confidence in long-term development.
Profit forecasting and valuation
Taking into account the company's business growth or improvement in asset quality in 2024, 24e non-standard net profit was reduced by 4.5% to 4.77 billion yuan, and a 25e forecast of 5.37 billion yuan was introduced. The company's US stocks currently trade at 3.8x/3.2x 24e/25e P/E, and Hong Kong stocks correspond to 3.9x/3.3x 24e/25e P/E.
Maintaining the target price of US/Hong Kong stocks at $23.5/ HK$91.2 (5.5x/4.9x 23e/24e P/E) and outperforming the industry rating, the upside for US/Hong Kong stocks is 44%/43%, respectively.
risks
The regulatory environment is uncertain; market competition exceeds expectations; asset quality fluctuates greatly.