Performance review

Qifu Technology's 3Q24 non-standard net profit exceeded our previous expectations of Qifu Technology (formerly 360 Mathematics) 3Q24 revenue +2.1% YoY +5.1% to 4.37 billion yuan, and non-GM net profit +54.5%/month-on-month +29.1% to 1.83 billion yuan, exceeding our previous expectations, mainly due to the higher provision amount and lower capital costs under the trend of improving asset quality.

Development trends

The ability to accurately stratify the customer base continues to improve, and the trend of platformization of business models is obvious. The company's 3Q24 loan scale was -19.1% /month-on-month +4.1% to 99.6 billion yuan, excluding the RM SaaS model's loan scale +13.1% month-on-month to 82.4 billion yuan (light assets account for ~ 55%). The increase in month-on-month growth was mainly due to the steady growth of the company's smart credit engine business and a slight recovery in user demand in September as the precise stratification and matching capabilities of target customer groups continued to improve. Looking ahead, combined with the macro environment and seasonal effects, we expect the company's 4Q24 loan scale (excluding RM SaaS) to remain flat or close to the same.

Risk indicators have all been optimized to a certain extent, and comprehensive service rates have been further increased. The company's 3Q24 revenue +2.1% month-on-month +5.1% month-on-month to 4.37 billion yuan; the company's 3Q24 non-general standard net profit +54.5%/month-on-month +29.1% to 1.83 billion yuan, mainly due to: 1) Due to relatively abundant market capital, relatively strong bank demand for high-quality retail assets, and the company's successful issuance of ABS/ABN, the company's 3Q24 average capital cost was -30bp; 2) 3Q24 forward-looking risk indicators continued to improve (D1 overflow rate month-on-month- (0.2ppt to 4.6%, 30-day recovery rate +1.1ppt to 87.4% month-on-month); at the same time, due to the company's prudent early bad debt accrual strategy, the company recorded a high provision return (3Q24 transfer amount ~ 0.9 billion yuan); 3) Due to the continuous improvement in customer acquisition efficiency of the company's multiple customer acquisition channels such as embedded finance, the company's average customer acquisition cost for 3Q24 was further reduced (2Q24/3Q24 customer acquisition costs were 286/265 yuan, respectively).

Maintain high and sustainable shareholder returns and announce a new round of repurchase plans. At the dividend level, the company maintains a semi-annual dividend policy, and 1H24 has paid a cash dividend of $0.6 per ADS. At the repurchase level, as of November 19, 2024, the company's $0.35 billion repurchase plan has accumulated repurchases of 13.7 millionAds, with a repurchase amount of ~0.298 billion US dollars. At the same time, the company announced a new repurchase plan and plans to buy back no more than 0.45 billion dollars of ADs within 12 months from the beginning of next year. We believe that a sustainable high shareholder return under the steady operation of the company is expected to continue to enhance the long-term attractiveness of the company.

Profit forecasting and valuation

Due to improved asset quality and improved operating efficiency, the company's 24e/25e non-common standard net profit forecast was raised 11%/9% to 6.27/6.41 billion yuan. The company's US stock is currently trading at 6.5x/6.4x 24e/25ep/e, and Hong Kong stocks are currently trading at 5.8x/5.8x 24e/25e P/E. The company's target price for US/Hong Kong stocks remained unchanged at $47.8/HK$185 (corresponding to 8.8x/8.7x 24e/25e P/E for US stocks, 8.0x/8.0x24e/25e P/E for Hong Kong stocks), and maintained an outperforming industry rating. The upside for US and Hong Kong stocks was 36%/38%, respectively.

risks

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