Investment Rating and Target Price - The report initiates coverage on Qifu Technology-S (3660 HK) with a "Buy" rating and a target price of HKD 114.30 [1] - The target price is derived from the average of PE (6.5x 2024E PE) and DCF (50-year forecast period, cost of equity 22.6%) valuation methods [2] Core Business Overview - Qifu Technology is a leading consumer credit platform in China, with a loan balance of RMB 157.8 billion and 250 million registered users as of 2Q24 [2] - The company primarily offers small-ticket (average loan size of RMB 7,500) and short-term (average contract duration of 10 months) internet consumer credit products [2] - The proportion of capital-light loans (where the company does not bear credit risk) has been increasing, reaching 65% of total loan issuance in 2Q24 [3] Loan Quality and Profitability - Loan quality has improved, with the first-day delinquency rate slightly decreasing to 4.8% in 2Q24 (from 4.9% in 1Q24) and the 30-day collection rate rising to 86.3% (from 85.1% in 1Q24) [4] - The improvement in loan quality led to a provision reversal of RMB 480 million in 2Q24, contributing to a higher net profit take rate of 3.4% (up from 2.6% in 1Q24) [4] - The company expects 3Q24 net profit to be between RMB 1.5-1.6 billion, representing a 9-16% sequential increase [4] Financial Projections - The report forecasts net profit attributable to shareholders of RMB 5.41 billion, RMB 6.58 billion, and RMB 7.18 billion for 2024, 2025, and 2026, respectively [2] - Loan issuance volume is expected to decline by 15% in 2024, followed by 5% growth in both 2025 and 2026 [9] - The provision-to-income ratio is projected to decrease to 25.1%, 22.2%, and 21.9% in 2024, 2025, and 2026, respectively [9] Capital Structure and Shareholder Returns - Qifu Technology has utilized USD 211 million of its USD 350 million share repurchase program as of 2Q24 [2] - The company expects a dividend payout ratio of 29% and a dividend yield of 5.4% for 2H24, consistent with 2023 levels [2] Industry and Regulatory Environment - The internet finance industry has entered a phase of normalized regulation, with most major issues in platform companies' financial businesses having been rectified [37] - Regulatory uncertainty has decreased, and the focus has shifted to improving the level of normalized financial supervision [37] - The Small Loan Company Supervision and Management Interim Measures (Draft for Comment) issued in August 2024 further clarified regulatory requirements, including a minimum 30% co-lending ratio and the establishment of a risk classification system [38]
奇富科技-S：业务出现回暖迹象