Leading market position. 51 Credit Card is the largest online credit card management platform in China, the largest P2P lending platform for credit card users, and the largest independent online credit card application platform. In May 2012, 51 Credit Card launched an app to manage credit card bills - “51 Credit Card Manager”. This tool meets the needs of users, especially those with multiple credit cards, to manage their own debts. By the end of 2018, the number of registered users of the 51 Credit Card Manager app reached 75.9 million, the cumulative number of credit cards managed reached 123 million, the market share reached 18%, and the annual credit card bill and other debt repayment transactions reached 187.2 billion yuan. By providing credit card management services, the company has accumulated a large amount of data, including users' credit card transaction records at different banks, consumption records of different consumption situations, and repayment records during the user's life cycle. On this basis, the company provides users with a number of services, including credit card technology services and online credit matching and investment services. Judging from the revenue structure in 2018, credit matching and service fees, credit card technology service fees, and credit introduction service fees accounted for 73%, 9%, and 7%, respectively.

The space is vast, and integration is accelerating. Along with the increase in residents' wealth income and consumer demand, consumption patterns have also been continuously upgraded. The habit of credit consumption is gradually being developed, and the consumer credit market has emerged, and the prospects are broad. According to our estimates, assuming that the year-on-year growth rate of consumer spending remains 10% over the next five years, and that the share of consumer credit and consumer spending increases to 30% year by year, by 2025, the scale of domestic non-housing consumer credit will exceed 16.8 trillion yuan, with a compound annual growth rate of 14%. Based on the broad development prospects of the consumer credit market, more and more participants have entered this market, mainly including banks, e-commerce, and internet lending platforms. Compared with banks, although the capital cost of Internet lending platforms is relatively higher, the requirements for asset quality are relatively low, and they can cover potential effective credit needs that banks cannot cover. The credit products they provide are more complementary to traditional financial institution products, and have the advantages of flexibility and convenience, and a faster and smoother transaction experience. Compared with e-commerce, although e-commerce has unique consumption scenarios and traffic entrances, the customer base is scattered and risk management experience is lacking. However, as a platform for vertical groups, Internet lending platforms attract a certain amount of customers. Most of them have high consumer demand, are active in credit, and are willing to use innovative financial platforms to meet financial needs. Companies can monetize services such as loans and investments by mining users' records such as income, consumption, repayment, and credit information, and reasonably control risks. The earliest internet lending platform in China was Yixin, founded in 2006. It entered a period of rapid development in 2011 and peaked in 2015. With a series of regulatory policies introduced at the end of 2017, the industry entered a period of contraction, and the number of online lending platforms dropped from 3,579 in 2015 to 1,021 in March 2019. At the same time as the number of industry platforms and turnover shrank, industry integration accelerated. The market shares of the top 20 companies and the top 50 companies increased from 45% and 59% in 2017 to 61% and 74%, respectively, in the balance to be repaid in the P2P online lending industry. Looking ahead, we believe that two types of market participants will stand out: companies that are deeply involved in vertical scenarios and segmented groups of people and can achieve differentiated competition from banks and e-commerce, and the other type is companies that can maintain stable asset quality through the use of technical means such as big data and risk control.

The core strengths are highlighted. 51 Credit Card is one of the leading Internet lending platforms. On the one hand, with its absolute leading position in the vertical industry of credit card management, it has its own traffic, thereby retaining users and gradually monetizing user needs and building a financial ecosystem based on credit card management; on the other hand, with legally compliant business and prudent risk management, it is expected to maintain steady business development and stable asset quality through compliance filing, and will continue to benefit from the acceleration of industry integration. (1) Legal business compliance: Beginning in 2015, the regulatory authorities began to pay attention to the supervision of online consumer finance. The State Council and the Banking Regulatory Commission issued several documents regulating the funding sources, depository, disclosure, and immediate exchange of P2P platforms. The company has always strictly complied with the requirements of national supervision and adheres to the credit intermediary position of matching loans, which helps reduce business risks and regulatory risks. 51 Personas Platform took the lead in completing the data docking and submission work of the P2P Online Loan Risk Special Remediation Data Submission System in September 2018, and has successfully completed the self-inspection in accordance with regulatory requirements. Currently, compliance filing is progressing smoothly. It is expected that the filing requirements will be clarified in the second half of 2019, and local pilot filing will begin. It is expected that the national filing will be completed in 2020. (2) An ecosystem based on credit card management: Most fintech companies that enter into credit demand use the P2P method. On the one hand, they need to continuously buy borrowers, and on the other hand, they need to continuously buy investors, and then match them. Companies are very few Internet lending platforms other than Internet giants that have their own traffic, can retain users, and gradually monetize users' needs. The company has become the absolute leader in the vertical industry of credit card management. The customers it attracts have certain characteristics in common. Most of them have high consumer demand, active credit, and are interested in using innovative financial platforms to meet financial needs. This user group has greater monetization potential. By mining records such as users' income, consumption, repayment, and credit information, the company monetizes by providing credit card applications and services such as loans and investments, and reasonably controls risk. The three types of businesses are collaborative. The 51 credit card management platform is the main traffic entry point for the ecosystem and is a user acquisition channel for the company's other businesses, while credit card technology businesses and credit matching services such as 51 Character Loan, 51 Character, Give You Money or Direct Users to Third-Party Platforms also increase users' stickiness to the platform through customer service, bringing new users to credit card management. (3) Prudent risk management: With the continuous expansion of the scale of consumer credit, consumer finance risks are constantly accumulating, and risk control capabilities will become the core competitiveness of future consumer finance companies. As a leader in the vertical field of credit card management, the company's user base is highly valuable. These users are strictly screened by traditional financial institutions, and the credit card usage and repayment information of these users is systematically recorded and managed. Based on a low-cost and high-value user base, and relying on a large amount of credit data accumulated from credit card management services, including transaction records of different bank cards, consumption records of different consumption situations, and repayment records within the user's life cycle, the company can comprehensively evaluate the user's repayment ability and form a reliable credit evaluation system for borrowers, thus helping the company effectively control risk in an environment with strict supervision.

The first coverage gave an increase in holdings. We forecast non-IFRS EPS to reach $0.70 (up 5.67% year over year), $1.12 (up 59.60% year over year), and $1.35 (up 20.49% year over year) in the 2019-2021E. Currently, the company's stock price corresponds to 5.38 times 2019 EPE, which is in line with the industry average. Based on China's broad market space for consumer credit and the company's leading market position, we think the company's risk-return ratio is attractive. Based on the cash flow discount model and relative valuation model, we arrived at a target price of HK$4.95, corresponding to a 6.2 times price-earnings ratio of 19E and an upward margin of 15%, covering an increase in holdings for the first time.