Operational Efficiency And SME Lending Expansion Will Improve Future Prospects

Key Takeaways

• Operational efficiency and risk management have boosted profitability, suggesting potential for increased net margins.
  
• Expanding tech solutions into SME lending could diversify revenue streams and support future earnings growth.
  
• Geopolitical uncertainties and reliance on credit risk management pose risks, while strategic model shifts and share buybacks may impact growth and resources.

Catalysts

Operates credit-tech platform under the 360 Jietiao brand in the People’s Republic of China.

• Operational efficiency improvements and risk management optimizations have led to record profitability and lower delinquency rates, suggesting potential for increased net margins in the future.
  
• Ongoing platform model transition, leveraging credit tech services, is intended to enhance user engagement and broaden market reach, which could bolster long-term revenue growth.
  
• Share repurchase programs signal confidence in undervaluation and aim to increase EPS through substantial reduction in share count.
  
• Strategic partnerships with financial institutions to enhance funding structure and cost efficiency could improve profitability and stability in earnings.
  
• Expansion of tech solutions beyond consumer credit, particularly into SME lending, offers opportunities for diversified revenue streams and future growth in earnings.

Qifu Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Qifu Technology's revenue will grow by 4.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 31.8% today to 39.2% in 3 years time.
• Analysts expect earnings to reach CN¥7.8 billion (and earnings per share of CN¥59.62) by about December 2027, up from CN¥5.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 0.9x on those 2027 earnings, down from 7.8x today. This future PE is lower than the current PE for the US Consumer Finance industry at 11.7x.
• Analysts expect the number of shares outstanding to decline by 5.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.72%, as per the Simply Wall St company report.

Qifu Technology Future Earnings Per Share Growth

Risks

• Despite strong financial performance in Q3 2024, Qifu Technology acknowledges macroeconomic headwinds and geopolitical uncertainties, posing potential risks to future revenue growth and overall financial stability.
  
• The company relies heavily on prudent credit risk management and tighter credit standards. Any deterioration in asset quality or failure to maintain current risk levels could adversely affect net margins and profitability.
  
• Qifu's significant write-backs depend on continued improvements in risk metrics. A reversal in these metrics or unfavorable macroeconomic conditions could impact earnings and financial health.
  
• The company's strategic shift from capital-heavy to capital-light models could affect revenue generation if not managed effectively, particularly given the reduced growth in risk-bearing asset size.
  
• Continuous execution of large share buybacks reflects confidence; however, it also emphasizes reliance on share price performance and could strain resources, impacting long-term investments and growth if market conditions deteriorate.

Valuation

• The analysts have a consensus price target of CN¥43.12 for Qifu Technology 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 CN¥47.8, and the most bearish reporting a price target of just CN¥37.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be CN¥19.8 billion, earnings will come to CN¥7.8 billion, and it would be trading on a PE ratio of 0.9x, assuming you use a discount rate of 7.7%.
• Given the current share price of CN¥37.66, the analyst's price target of CN¥43.12 is 12.7% 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.