Bernstein's Linda Sun-Mattison initiated coverage of Qudian with an Outperform rating and $44 price target as the China-based company has compelling exposure to a strong and under-served segment of the credit market.
Chinese consumers under 35 years old account for Qudian's core customer, the analyst said. The demographic profile is those who are only children of a "more thrift generation" who are "much better off" with a greater willingness to borrow. Yet, many traditional banks ignored this group, which is where Qudian comes into play.
Qudian provides consumers with mostly revolving credit to 7 million young Chinese consumers on a digital platform that also happens to be fully integrated and bundled with e-commerce behemoth Alibaba Group Holding Ltd BABA, the analyst said.
Looking forward, household nonmortgage loans as a percentage of GDP per capita is expected to increase from a low-teens rate to the 30 percent range through 2019. More encouragingly, technology-driven credit providers that target the younger generation are expected to grow at an even faster rate, which could be as high as 70 percent.
Finally, Qudian is expected to post a 68 percent compounded annual growth rate through 2022 and a 29 percent return on equity, Sun-Mattison said.
Bottom line, while the fintech hype in China plays a role in the bullish case for owning the stock, the most compelling reason to own shares stems from the "strong, genuine credit demand" and the company's ability to access the "vivacious young spenders" on Alibaba's platforms.
At time of publication, shares of Qudian were up 6.44 percent at $31.06.
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