AI Collaboration And NEV Expansion Will Drive Future Opportunities

Key Takeaways

• Collaboration with Tencent and AI implementation boosts technological capabilities, driving revenue growth and net margin improvement.
  
• Expansion in NEV auto financing and fintech growth positions Yixin Group for substantial future earnings and enhanced profitability.
  
• Aggressive growth and expansion strategies, paired with intense competition and reliance on new technology, pose substantial financial and operational risks to Yixin Group.

Catalysts

Operates as an online automobile finance transaction platform in China.

• The partnership with major shareholder Tencent and collaboration in fields such as big data, AI, and cloud computing could significantly enhance Yixin Group's technological capabilities, driving forward higher revenue growth and improving efficiency to boost net margins.
  
• Expansion in the auto financing of new energy vehicles (NEVs), with transaction volumes and financing amounts increasing by over 50% and 44% respectively, positions Yixin Group to capitalize on the rapidly growing NEV market in China, contributing substantially to future revenue growth.
  
• The fintech business, witnessing explosive growth with a 107% increase in transaction volume year-over-year, along with revenue surging by 490%, suggests a strong potential for future earnings growth and margin improvement due to technology-driven financial innovations.
  
• Yixin Group's investment in AI technology for risk management and operational efficiency is expected to reduce costs and enhance profitability, showing potential for an increase in net margins and thereby positively impacting earnings.
  
• The company's strategy to optimize the asset management structure via AI-aided risk assessments and financial solutions for clients aims to sustain high asset quality, which could lead to more stable earnings and improve investor confidence.

Yixin Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Yixin Group's revenue will grow by 18.5% annually over the next 3 years.
• Analysts are assuming Yixin Group's profit margins will remain the same at 9.8% over the next 3 years.
• Analysts expect earnings to reach CN¥1.4 billion (and earnings per share of CN¥0.2) by about March 2028, up from CN¥809.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, up from 9.1x today. This future PE is about the same as the current PE for the HK Consumer Finance industry at 10.0x.
• Analysts expect the number of shares outstanding to decline by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.64%, as per the Simply Wall St company report.

Yixin Group Future Earnings Per Share Growth

Risks

• The company's focus on rapid expansion and high growth targets, such as a 70% estimated increase in transaction volume in the next year, may lead to overextension and increased financial risk, potentially impacting net margins and overall financial stability.
  
• Intense competition in the auto finance sector, particularly from banks entering the market, could pressure Yixin Group's market share and profitability, impacting future revenue streams.
  
• Despite the rapid growth in fintech services, the company's dependency on new technology adoptions and AI penetration could lead to execution risks and substantial costs, affecting earnings if not managed effectively.
  
• There is a noted discrepancy in the financial penetration rate between China and developed markets, which although indicating growth potential, also highlights the challenge Yixin faces in increasing its market share, impacting revenue over time.
  
• High volume loans, while beneficial in the short term for business expansion, pose a risk of straining cash flow and liquidity, especially if market conditions worsen, potentially impacting the company's net margins and financial health in 2025.

Valuation

• The analysts have a consensus price target of HK$1.631 for Yixin Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$1.91, and the most bearish reporting a price target of just HK$1.35.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥13.8 billion, earnings will come to CN¥1.4 billion, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 9.6%.
  
• Given the current share price of HK$1.16, the analyst price target of HK$1.63 is 28.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.