Investment Rating - The investment rating for the company is "Outperform the Market" [5] Core Views - The company reported a strong performance in the first half of 2025, with revenue of 6.06 billion yuan, a year-on-year increase of 10.1%, and a net profit of 1.97 billion yuan, up 13.5% year-on-year, indicating stable growth [1] - The company is actively reducing the pace of credit expansion to solidify its foundation for smaller-scale operations, as retail credit demand remains weak [1][2] - The company has managed to maintain a stable non-performing loan ratio of 0.76% and a provision coverage ratio of 490%, which is better than its peers [2] Summary by Sections Financial Performance - In the first half of 2025, the company achieved a revenue of 6.06 billion yuan, a 10.1% increase year-on-year, and a net profit of 1.97 billion yuan, reflecting a 13.5% growth [1] - The total assets reached approximately 401.3 billion yuan, with total loans amounting to 251.5 billion yuan, marking a growth of 9.5% and 4.4% respectively compared to the beginning of the year [1] Deposit Management - The company’s deposit balance stood at 310.8 billion yuan, growing by 8.5% year-on-year, which is lower than the 14.0% growth seen in the same period last year [2] - The company is focusing on reducing high-cost long-term deposits and encouraging clients to shorten deposit terms to balance its asset-liability structure and lower deposit costs [2] Profit Forecast and Valuation - The forecast for net profit for 2025-2027 is set at 4.41 billion yuan, 5.21 billion yuan, and 6.17 billion yuan respectively, with year-on-year growth rates of 15.7%, 18.1%, and 18.4% [3] - The current stock price corresponds to a price-to-book (PB) ratio of 0.75x for 2025, 0.66x for 2026, and 0.58x for 2027, indicating a favorable valuation [3] Market Position - The company maintains a competitive edge in the small and micro-enterprise lending sector, with a comprehensive network in Jiangsu and opportunities for expansion into other provinces through village banks [3]

Core Viewpoint - The personal credit market in China is experiencing a divergence between banks and lending platforms, with banks facing increasing pressure on retail loan performance while lending platforms report strong growth in credit issuance and profitability [2][9]. Banking Sector - Banks, represented by institutions like China Merchants Bank (CMB), are struggling with retail loan performance, showing a retail non-performing loan (NPL) ratio of 1.01%, up 0.03 percentage points from the end of last year [2][3]. - CMB's retail loan balance decreased from 13.43 trillion yuan to 13.37 trillion yuan, with a mere 0.38% growth in retail loans during the first quarter, significantly lower than the 6.49% growth in corporate loans [3][4]. - The overall trend shows that all six major banks experienced a rare increase in personal loan NPL ratios, with one bank reporting a personal consumption loan NPL ratio of 12.37% [4]. - The asset quality pressure is attributed to economic downturns leading to higher unemployment and reduced income growth, impacting borrowers' repayment capabilities [4][10]. Lending Platforms - Lending platforms, such as Qifu Technology and Xiaoyin Technology, reported strong performance in the first quarter, with significant year-on-year growth in loan issuance, revenue, and net profit [5][6]. - For instance, Qifu Technology's loan balance increased by 2.38%, with a quarterly loan issuance of 88.89 billion yuan, reflecting a 15.76% year-on-year growth [5]. - The asset quality of these platforms remains stable, with most reporting a decrease in NPL ratios, and some platforms like Xiaoyin Technology showing a 63.45% increase in loan issuance [6][7]. - The overall performance of lending platforms contrasts sharply with banks, as they have adapted their risk preferences and improved their risk assessment systems, allowing for more agile responses to market conditions [9][10]. Market Dynamics - The relationship between lending platforms and banks has shifted, with lending platforms becoming the primary players (甲方) and banks taking a secondary role (乙方) in the lending process [8][10]. - Smaller banks are increasingly reliant on larger lending platforms for retail business expansion, often leading to unfavorable financial outcomes due to high funding costs and competitive pressures [10][11]. - New regulations have compressed interest rates for smaller lending platforms, creating challenges for their survival, while larger platforms continue to attract funding and maintain lower financing costs [11].