China's top digital technology service provider in the new consumer sector. $LexinFintech (LX.US)$ Currently considering increasing the dividend ratio for next year from the current 20% to 25%, this information was revealed at a recent internal investor communication meeting organized by China International Capital Corporation.

The meeting attracted the participation of many institutions and high net worth investors. Lexin's founder, chairman and CEO Xiao Wenjie, CFO Zheng Xigui, CRO Qiao Zhanwen, and other top executives all attended.

At the meeting, the Lexin management had candid discussions with investors on risk control, asset quality, and profitability. They expect significant growth by 2025 and plan to gradually increase the dividend ratio starting from the first quarter of next year, from the current net income of 20% to approximately 25%.

Lexin has always prioritized investor returns. Since 2023, Lexin has been steadily distributing dividends to investors every six months. Based on the current stock price, a dividend rate of around 25% translates to an annual dividend yield of about 5%.

An attending investor disclosed that a 25% net profit dividend and a 5% dividend yield are both very attractive to investors, 'because this puts Lexin in a leading position among all Chinese concept stocks and ADRs (American Depositary Receipts).'

The reason Lexin dares to increase the dividend ratio is mainly due to the significant growth expectations of its net income. This growth is based on Lexin's industry-leading risk management team having been upgraded and the continuous iteration of underlying risk control capabilities, which have built a solid line of defense for the company.

As an example, in Q2 2024, LexinFintech's revenue increased by 12% compared to Q1 while the loan scale remained stable, and net income also increased by 12% compared to the previous quarter.

Behind this growth is LexinFintech's solid risk control foundation: with the upgrading of the industry-leading risk management team and the continuous development and iteration of the underlying risk control capabilities, LexinFintech's risk management capabilities have significantly improved. In Q2 2024, LexinFintech's FPD7 for newly added assets decreased by about 14% compared to the first quarter; the entry-to-collection rate of all assets at the end of the second quarter decreased by about 7% compared to the beginning of the quarter; the recovery rate also showed a good trend of improvement, with a 30-day recovery rate increasing by an absolute value of about 1.5% compared to the beginning of the quarter.

Since its establishment, LexinFintech has always focused on improving its risk control capabilities. Especially since the rise in industry risks in the second half of last year, LexinFintech has significantly improved its risk management capabilities by enhancing risk identification capabilities, implementing a full life cycle risk control system, introducing intelligent risk control tools, and introducing top industry risk control experts. The company has iterated and upgraded various core risk management positions from models to strategies, and risk control products.

With the company's proactive risk management, asset quality continues to improve, and revenue is steadily growing. According to the interim report, LexinFintech's loan scale reached 51 billion in Q2 2024. With the introduction of domestic economic stimulus policies, future credit demand is expected to gradually recover.

LexinFintech's management admitted that based on adjustments for existing risk and gradual recovery to pre-2023 risk cycle levels, the risk level of new assets has reached the preferred range (estimated risk to continue decreasing in Q4). Based on this, LexinFintech expects to achieve stable growth in scale. As a key player in the profit sector, the overseas market will make a significant contribution. Currently, LexinFintech mainly focuses on deepening its presence in Mexico and Indonesia, both of which are in the development stage but have shown significant growth. Additionally, the income rate of assets will outperform domestic business. For example, in the Mexican market, there was a 61% increase in loan scale and a 113% increase in revenue compared to the previous quarter.

In comparison with peers, LexinFintech has historically underperformed in terms of net margin, mainly due to poor past risk capabilities. However, with the upgrade of the risk team and the improvement of risk management capabilities, LexinFintech management expressed confidence in first reaching the industry average risk level in the future, and then aligning the profit margin with the industry average. These improvements will primarily be reflected in next year's financial reports.

In the long term, LexinFintech also has its unique advantage in the consumer ecosystem, such as other business sectors besides lending, including e-commerce. This provides strong support for LexinFintech to surpass the industry average level in the future.

As another important support for profit, the overseas market will make a significant contribution. LexinFintech is currently mainly focusing on expanding in Mexico and Indonesia, both of which are still in the exploration stage but have achieved significant growth, and the asset yield will be better than the domestic business. For example, in the Mexican market, there was a 61% increase in loan scale and a 113% increase in revenue compared to the previous quarter.

In conclusion, based on business, net income growth, and the increase in dividend payout ratio, Lufax presents an extremely attractive valuation trend.

From an investment perspective, Lufax's current net assets are approximately 10 billion, with P/E ratio (PE) and P/B ratio (PB) valuation levels lower than peers. Despite its recent astonishing stock price increase - over 100%, the P/B ratio is still only 0.4x, which is lower than the industry average. This indicates that Lufax has significant room for valuation recovery and remains highly attractive to investors.