China became the world’s first country to introduce a digital currency last month. The country’s fintech industry is one of the most advanced compared to the rest of the world, with comprehensive regulations to prevent regulatory arbitrage and unfair competition.
Given the increasing number of financial meltdowns caused by lack of oversight on the biggest financial institutions in the world, China’s aggressive monitoring approach is expected to mitigate excessive risks. The country is currently overseeing the restructuring of the highly controversial Ant Financial Services Group, following which the Ant IPO is expected to be scheduled. This should bolster the country’s fintech industry, owing to the Alibaba-backed company’s global market reach.
Also, the digital Yuan might pose as a competitor to the US dollar, which has been the reserve currency for decades. The high volatility of the US dollar, combined with rising inflation and benchmark Treasury yields, makes the prospects of the Chinese fintech industry promising.
Given this backdrop, analysts expect Chinese fintech stocks like 360 DigiTech, Inc. (QFIN), FInVolution Group (FINV), and Jiayin Group Inc. (JFIN) to witness solid upside in the upcoming months.
360 DigiTech, Inc. (QFIN)
QFIN is a digital consumer finance platform offering borrowing services to prime and underserved borrowers. Funded by institutional funding partners, QFIN’s operations are backed by resolute risk management. The company offers additional services such as credit assessment for potential borrowers as well as a financial guarantee on defaulted loans.
QFIN has been one of the first companies to file and receive app registration certification from the National Internet Finance Association of China. Filed in June last year, this registration is mandatory for apps to be launched in China. QFIN’s mobile banking app 360 Jietiao is one of the oldest certified apps in the market, making them highly popular among the people.
QFIN’s total loan facilitation and origination volume increased 29% year-over-year to RMB69.05 billion in the fourth quarter ended December 31, 2020. Its outstanding loan balance stood at RMB92.08 billion, up 27% from the same period last year. As a result, QFIN’s revenues rose 39% from the prior-year quarter to RMB3.34 billion over this period. Non-GAAP income from operations and net income improved 287.8% and 154.6% year-over-year to RMB1.35 billion and RMB1.31 billion, respectively. Earnings per ADS came in at RMB7.72, representing a 169.9% rise from the year-ago value.
Analysts expect QFIN’s EPS and revenues to rise 23.8% and 13.2% year-over-year to $4.74 and $2.37 billion, respectively, year-over-year. The company has an impressive earnings surprise history, as it beat Street EPS estimates in each of the trailing four quarters.
Shares of QFIN have gained 177.1% over the past year, and 99.8% year-to-date. All of the five Wall Street analysts that rated QFIN, rated it Buy. The stock has a median 12-month price target of $39.69, representing a 68.5% potential upside from the current value. The price targets range from a low of $32.60 to a high of $47.
QFIN’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.
The stock has a grade of B for Value, Quality, Momentum, Sentiment, and Growth. Of the 51 stocks in the Consumer Financial Services industry, QFIN is ranked #4.
Click here to view additional QFIN’s rating for Stability.
FInVolution Group (FINV)
The online consumer finance platform operates as an intermediary, connecting individual borrowers with financial institutions. Its main services are retail loan facility, investment advice, and services to institutional and retail investors in China.
FINV has extended its business to the Philippines and Indonesia over the past month, through subsidiaries and joint ventures. The company’s operations in the respective countries increased loan facilitation in the regions, propelling consumer and commercial borrowing. These expansionary measures in South Asia make FINV a budding player in the region, with substantial growth potential and target market.
Investor optimism and growth of the Chinese fintech industry allowed FINV stock to gain 296.9% over the past year, and 137.8% year-to-date.
For the fourth quarter ended December 31, 2020, FINV’s revenues improved 50.3% from the same period last year to RMB1.85 billion. This can be attributed to a 24.3% rise in loan origination volume to RMB21 billion. Non-GAAP adjusted operating profit rose 38% year-over-year to RMB613.40 million. Net income came in at RMB497.30 million, up 20.6% from the prior-year quarter. Earnings per ADS rose 30.3% year-over-year to RMB1.72 over this period.
The consensus EPS estimate of $1.18 for fiscal 2021 indicates a 20.4% improvement in year-ago value. The company surpassed the consensus EPS estimates in three out of the trailing four quarters, which is impressive. FINV’s revenues are expected to rise 23.2% from the same period last year to $1.44 billion in the current year.
Both the Wall Street analysts that rated the stock rated it Buy. Moreover, analysts expect FINV to reach an average price target of $9.30 soon, indicating a 46.5% potential upside. The stock’s 12-month price targets range from a low of $7 to a high of $11.60.
It’s no surprise that FINV has an overall rating of B, which equates to Buy in our POWR Ratings system. It has a grade of B for Value, Momentum, Sentiment, and Quality. FINV is ranked #3 of 78 stocks in the China group.
Beyond what we’ve stated above, we have also rated FINV for Growth and Stability. Get all FINV Ratings here.
Jiayin Group Inc. (JFIN)
JFIN is an online individual financing platform based in China. Apart from the retail borrowing services funded by institutional investors, the company offers post loan origination service, automated investment programs, and loan transfers.
On April 5, JFIN acquired a 95% equity stake in Shanghai Bweenet Network Technology Co., Ltd. for approximately RMB95 million. This gives JFIN direct access to acquire cryptocurrency chip-manufacturing business. Despite the Chinese government’s efforts to ban cryptocurrencies, Bitcoin mining remains hugely popular in the country. As the Western countries embrace the decentralized currency for major transactions in the future, many analysts expect China to roll over its strict policies banning cryptocurrency, given JFIN a head start in the race to dominate the nation’s crypto market.
JFIN’s loan from facilitation services increased 5.3% year-over-year to RMB291.30 million in the fourth quarter ended December 31, 2020. Revenue from the “Other” segment rose 66.3% from the same period last year to RMB45.40 million. Income from operations came in at RMB52.90 million, marking a significant improvement from the negative year-ago value.
The street expects JFIN’s revenues to rise 20.2% year-over-year to $54.05 million in the fiscal first quarter ended March 2021. The consensus EPS estimate of $0.21 for the most recent quarter represents a 90.9% improvement from the prior-year quarter. The company has an impressive earnings surprise history, as it beat the Street EPS estimates in three of the trailing four quarters.
JFIN has gained 173.7% over the past year, and 95.7% year-to-date. JFIN has a 12-month price target of $9.25, indicating a 54.9% potential upside.
JFIN has an overall rating of B, which equates to Buy in our proprietary rating system. The company has a grade of B for Growth, Sentiment, Quality, and Momentum. It is ranked #6 of 102 stocks in the Financial Services (Enterprise) industry.
In addition to the grades I’ve highlighted, check out JFIN’s Ratings for Value and Stability here.
QFIN shares were trading at $24.13 per share on Friday morning, up $0.58 (+2.46%). Year-to-date, QFIN has gained 104.66%, versus a 13.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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