This Chinese financial company beat analysts’ estimates by $0.37 last quarter, and four analysts have recently raised their EPS forecasts for the company.
LexinFintech Holdings Ltd. (LX)
From Cabot Emerging Markets Investor
In Asia many things are moving fast including young, upwardly mobile, tech savvy Chinese consumers. And this is the case across most emerging markets.
Financial service platforms based on mobile phones are often referred to as “fintech.” This is an exciting, crowded, fast-growing market offering huge growth potential. Our recommendation today, LexinFintech Holdings Ltd. (LX), is growing at an incredible rate yet its stock trades at only ten times expected 2019 earnings.
LexinFintech Holdings operates as an online consumer finance platform for young adults in the People’s Republic of China. The company operates Fenqile, an online consumer finance platform that offers personal installment loans, installment purchase loans, and other loan products, as well as Le Card credit line.
It also matches customer loans with diversified funding sources, including individual investors on its Juzi Licai online investment platform as well as institutional funding partners in its direct lending programs.
The company’s target customer cohort, educated young adults aged between 18 and 36 in China, features young people with high income potential, high educational background, high consumption needs, a strong desire to build their credit profile, and an appreciation for efficient customer experience.
During its most recent quarter, LexinFintech originated loans totaling about $2.5 billion U.S. dollars, 68% more than it did in the same quarter last year. In terms of outstanding principal owed by its borrowers, the company’s loan portfolio almost doubled to $3.73 billion.
And LexinFintech now has 37 million registered users, an increase of 56% in the past year, and 10.5 million users with credit lines, up 39%. Fourth quarter adjusted net income was up 473% year over year and for all of 2018, net income was up 439%.
In terms of risk, the key issue to watch at LexinFintech is credit quality, but it looks like the company has a good system in place and is adequately reserving for unexpected credit issues. The other possible risk is regulatory changes by the mandarins in Beijing. This is less likely to be a problem given the national agenda of moving to a more consumer-oriented economy.
There are two final points in favor of LX. First, there is no reason the company cannot take its system and platform to other Asian and emerging markets. And second, given its growth and rising profile and low valuation, LX seems to me to represent an ideal takeover candidate.
BUY A HALF.
Carl Delfeld, Cabot Emerging Markets Investor, www.cabotwealth.com, 978-745-5532, April 4, 2019