Expected 2Q24 non-standard net profit +9% YoY /+4% month-on-month

We expect Qifu Technology's 2Q24 revenue +6% YoY/close to flat at 4.14 billion yuan, non-GM net profit +9% YoY +4% YoY to 1.25 billion yuan, and non-GM net profit margin +1.2ppt to 30% month-on-month.

Key points of interest

More focus was placed on the quality of loans, and the amount of loans remained close to flat from month to month. We expect the company to focus more on loan quality in 2Q24 and not take short-term scale growth as the primary goal. It is expected that 2Q24 will result in a loan scale of -20% YoY and close to flat at ~100 billion yuan month-on-month. In terms of the loan structure, we expect the company's asset-light and self-operated loan ratio to increase slightly in 2Q24. We expect the company's 2Q24 revenue +6% YoY/close to flat at 4.14 billion yuan, or the balance contraction due mainly to the increase in the share of the self-operated model and further optimization of capital costs due to the shortening of the average account period of the company's products and the gradual maturing of long-term loans.

Comprehensive operating capacity continues to be optimized, and profitability continues to rise steadily. We expect the company's 2Q24 non-standard net profit to be +9%/+4% month-on-month to 1.25 billion yuan, or mainly due to: 1) financial institutions are relatively strong in demand for high-quality retail assets, and we expect the company's average capital cost to be further optimized; 2) the company will focus more on refined operation, marketing efficiency or improvement of high-quality users; 3) we expect the company's 2Q24 asset quality or steady improvement, and total provision costs will decrease slightly month-on-month.

Under steady operation+high shareholder returns, we are optimistic about the company's valuation repair. We believe that the company's current position is aggressive and defensible: the offensive attributes stem from the market's conservative profit expectations for the company in the current macro environment. If demand and asset quality are repaired, there is an opportunity for both valuation and profit growth; at the same time, sustainable high shareholder returns under the company's steady operation (~ 17% comprehensive shareholder return calculated based on our estimated current dividends and repurchases) also make the company a high-quality defense target in a volatile market. Even considering the subsequent rise in stock prices and the decline in the comprehensive shareholder return rate, it still corresponds to considerable potential growth. (For details, see the published report “Qifu Technology: Steady Operation+Sustainable High Shareholder Returns, Timely Layout”) Profit Forecast and Valuation

Maintain the company's 24e/25e non-general standard net profit forecast. The company's US stocks are currently trading at 4.7x/4.4x2024e/25e P/E, and Hong Kong stocks are currently trading at 4.8x/4.5x 2024e/25e P/E. Maintaining the company's target price of US/Hong Kong stocks at $30.0/HK$116.4 (both US and Hong Kong stocks correspond to 7.1x/6.7x 2024e/25e P/E) and maintain the US/Hong Kong stock performance rating, the upside for US and Hong Kong stocks is 53%/48%, respectively.

risks

The regulatory environment is uncertain; market competition exceeds expectations; asset quality fluctuates greatly.