Shift To Platform Model And DeepSeek AI Will Transform Fintech Operations

Key Takeaways

• Shift to a platform model and strategic collaborations boost revenue, improve user profiling, and enhance loan volume growth.
  
• AI integration and effective capital strategies, including share repurchases, enhance operational efficiency, reduce costs, and increase earnings per share.
  
• Macroeconomic challenges, regulatory changes, and increased competition threaten Qifu Technology's profitability, with reliance on AI advancements adding execution and investment risks.

Catalysts

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

• As the business model shifts towards a platform model, Qifu Technology's enhanced organizational capabilities and improved user profiling accuracy may drive increased revenue and improved net margins.
  
• The expansion into embedded finance and collaborations with leading Internet platforms are expected to rapidly grow loan volume, positively impacting revenue and net income growth.
  
• The development and integration of AI technologies, such as DeepSeek and AI-driven marketing and operations, are anticipated to enhance operational efficiency and reduce costs, thus improving net margins and earnings.
  
• Increasing loan facilitation volumes, supported by improved asset quality and risk management, are likely to maintain stable growth and positively influence total revenue and profitability.
  
• Ongoing share repurchase programs and optimized capital allocation are set to increase earnings per share (EPS), supported by strong cash flow and a commitment to returning capital to shareholders.

Qifu Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Qifu Technology's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 36.5% today to 42.2% in 3 years time.
• Analysts expect earnings to reach CN¥7.9 billion (and earnings per share of CN¥59.84) by about March 2028, up from CN¥6.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CN¥7.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.2x on those 2028 earnings, down from 8.4x today. This future PE is lower than the current PE for the US Consumer Finance industry at 11.0x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.96%, as per the Simply Wall St company report.

Qifu Technology Future Earnings Per Share Growth

Risks

• Macroeconomic headwinds could negatively impact Qifu Technology's revenue and profitability, especially if there is a downturn in the broader economy affecting credit demand and financial stability.
  
• Increased competition in the fintech sector, particularly in China, could pressure Qifu Technology's market share and revenue growth, as well as potentially erode its net margins.
  
• Regulatory changes and uncertainties in the financial sector may pose risks to Qifu Technology's platform operations and could lead to increased compliance costs, impacting overall earnings.
  
• Fluctuations in interest rates or changes in funding costs could negatively impact Qifu Technology's operating margins and reduce net income.
  
• Dependency on technological advancements, particularly in AI, carries execution risks and may require substantial investment, which could affect net margins and delay profitability improvements.

Valuation

• The analysts have a consensus price target of $50.639 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 $60.05, and the most bearish reporting a price target of just $42.63.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥18.8 billion, earnings will come to CN¥7.9 billion, and it would be trading on a PE ratio of 7.2x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $46.69, the analyst price target of $50.64 is 7.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.