The fintech industry is gradually becoming a market consensus that investors should pay attention to. This is not only because the industry regulation has entered the final stage and the regulatory environment tends to be stable and normalized, but also because financial institutions maintain a relatively strong demand for high-quality consumer credit assets in the context of the slowdown in residential loans growth and have significantly strengthened their willingness to cooperate with leading credit technology companies. In addition, the rapid development of AI is leading a new round of financial innovation, and the industry's ceiling may be opening up.
Looking across China's entire fintech industry, the most worth watching is undoubtedly Qifu Technology-S(03660), which operates steadily and has become the largest listed consumer credit technology company in China.
Data shows that even after experiencing stringent regulation since 2020, Qifu Technology has achieved sustained growth. Its loan size has increased from 95.98 billion yuan in 2018 to 475.83 billion yuan in 2023, with a five-year compound growth rate of 37.7%. During the same period, the outstanding balance increased from 43.08 billion yuan to 186.48 billion yuan, with a five-year compound growth rate of 34.1%. As of the first quarter of 2024, Qifu Technology's loan size/loan balance both ranked first among listed consumer credit technology companies.
While leading the market scale, Qifu Technology has successfully completed the adjustment of its business in accordance with regulatory requirements. The company has begun to fully focus on financial technology strategy, helping financial institutions to achieve digital transformation, thereby realizing steady business operations, which is reflected in the following aspects:
First, it has created a diversified service model that can not only meet the cooperation needs of financial institutions but also effectively resist market risks.
According to the degree of participation in the financial institution's loan process and whether it assumes risk, Qifu Technology's current lending models are mainly divided into two types: credit-driven and platform-driven. Among them, credit-driven models include self-operated and guarantee-assisted loan models, and platform-driven models, Qifu Technology does not assume risk and can be further divided into light-asset-assisted loan models, intelligent credit engines, recommendation services, and risk management SaaS models.
Data shows that in the first quarter of 2024, the proportion of Qifu Technology's credit-driven and platform-driven loans was 39% and 61% respectively, while the indicator was 77% and 23% in the first quarter of 2020. Obviously, Qifu Technology's platform-driven service model, which does not need to assume risk, has accounted for the majority of the company's lending size.
Second, Qifu Technology's comprehensive service fee rate has gradually stabilized and continued to rise.
Under the requirements of regulation, the service fee rate of credit technology companies has been declining since 2020. But thanks to the reduction in funding costs and the release of profits due to improving the quality of assets, Qifu Technology's comprehensive service fee rate has touched the bottom since the fourth quarter of 2022 and increased to 2.7% in the first quarter of 2024, and there may be further room for upward mobility in the future.
Third, rigorous risk control, relatively leading risk control capability.
Qifu Technology has built an intelligent risk control system eco-cycle based on "data-model-strategy-experiment" to continuously improve its own risk control level. In April of this year, Qifu Technology also jointly released the first domestic financial risk control technology maturity curve with Datafun, and promoted good cooperation with 159 financial institutions, escorting 19 trillion yuan of financial assets. In the first quarter of 2024, Qifu Technology's assisted loan institution's 90+ day delinquency rate was 3.35%, which is at a relatively leading level in the industry. With the continuous improvement of the company's risk control capabilities, there is further room for this indicator to decline in the future.
Fourth, the average funding cost continues to be optimized and has reached its historical lowest level.
In the context of the slowdown in residential loans growth, financial institutions have maintained a relatively strong demand for high-quality consumer credit assets, so their willingness to cooperate with leading credit technology companies has significantly strengthened. In this context, Qifu Technology continues to deepen its cooperation with financial institutions and has greatly reduced its overall funding cost by increasing ABS issuance, and it has reached its historical lowest level.
Thanks to the stable development in the four dimensions above, Qifu Technology delivered impressive business data for the first quarter of 2024 in May. During the reporting period, the number of consumers on the Qifu platform with credit demands, the number of users approved for credit quotas, and the number of withdrawers who have withdrawn accumulated funds have all achieved double-digit growth. Meanwhile, the company's net income for the period was RMB 4.153 billion, a YoY increase of 15.39%, and its attributable net income was RMB 1.164 billion, a YoY increase of 24.64%. In addition, Qifu Technology provided guidance for net income in the second quarter of 2024 with an estimate of RMB 1.17-1.23 billion, a YoY growth of 7%-12.5%, indicating a potential for continued rapid growth.
Based on its high-quality fundamentals and future development prospects, Qifu Technology has received "strong support" from several well-known institutions. For example, the globally renowned investment bank Deutsche Bank recently covered the Chinese fintech industry for the first time and gave Qifu Technology a "buy" rating with a target price of USD 24.5. It believes that the rapid development of AI is leading a new round of financial innovation, and Qifu Technology, with its leading position and strong risk control technology in the online lending field, has shown strong performance resilience and good growth prospects.
Furthermore, China International Capital Corporation recently released a research report on Qifu Technology, which believes that under the situation of industry differentiation, head companies will benefit, and Qifu Technology is a leading credit technology company that has been through a period of testing and has steady operations. Its high shareholder return will help drive the company's long-term development and valuation improvement. CIC believes that the company is in a position to attack or defend: the attacking attribute comes from the market's conservative profit expectations for the company under the current macro environment, and if demand and asset quality accelerate their recovery, there is potential for dual increases in valuation and profit. At the same time, the sustainable high shareholder return under the company's stable operations also makes it a high-quality defensive target in a volatile market. The company's comprehensive shareholder return rate is around 17%. Compared with comparable companies in the same industry, even considering a subsequent rise in stock price and a reduction in the comprehensive shareholder return rate to 12%, the company still corresponds to a potential upward space of around 42%. Therefore, CIC has given Qifu Technology a target price of USD 30/HKD 116.4 for its US/HK stocks, representing an almost 50% increase over the current stock price.
It is worth noting that Qifu Technology paid out a dividend of USD 170 million in 2023 and is expected to continue to provide high shareholder return in 2024. Moreover, after completing the repurchase of approximately USD 150 million in ADSs in 2023, the company announced on March 12, 2024, a new repurchase plan of USD 350 million over the next 12 months, which was officially implemented on April 1 and at a faster pace than scheduled. The continued repurchase with real money will become an important force driving the value return of Qifu Technology.