Qifu Stock: More Upside Potential On Upbeat Outlook

The loan services provider has delighted investors with bumper earnings and an upbeat outlook, only months after fighting off allegations that it overstates its profits

Key Takeaways:

• Qifu reported a 46% jump in annual net profit, fueled by a strong fourth quarter
• The company said it had reduced its credit risks by using less of its own capital for lending 

China's economy may face plenty of challenges, but the online credit business looks to be thriving, at least for loan services provider Qifu Technology Inc. (QFIN.US, 3660.HK).

The firm, which facilitates small-scale loans through an AI-powered platform, delivered a forecast-beating set of earnings this month, helped by a persistent demand for credit in the private sector and by a move to scale back lending directly from its own pocket.

Qifu logged revenues of 17.2 billion yuan ($2.37 billion) for 2024, up 5.38% from the previous year. But the growth in the bottom line was more impressive. Net profit surged 46.2% to 6.26 billion yuan, with a net profit margin of 36.4% and earnings per share reaching 21.02 yuan ($2.9). The company attributed the rise to operational efficiencies under what it called its "capital-light" model, a tech-focused strategy of relying on partner institutions rather than its own resources to provide the actual loans.

Qifu announced a dividend of $0.35 per share on the back of the earnings, sending its stock price to a record HK$184.9 after the announcement. 

Bright earnings outlook

The credit platform also issued an upbeat outlook for the first quarter, predicting a net profit of between 1.75 billion yuan and 1.85 billion yuan and a non-GAAP net profit between 1.80 billion yuan and 1.90 billion yuan, between 49% and 58% more than in the year-earlier period. 

Other key business indicators were also encouraging. The share of loans financed with the company's own money fell, while those within its capital-light and tech framework rose to 58% of the total. In the fourth quarter, 93.9% of loans provided via its platform by financial institutions went to repeat borrowers, and another closely watched metric, the Day-1 deliquency rate, stood at 4.8%, the company said. Operating cash flow reached a record 9.34 billion yuan in 2024.

As Qifu reined in its self-financed lending, the total volume of facilitated or originated loans  dropped 12.8% to 321.97 billion yuan from the previous year, while the loan balance fell 5.7% to 137 billion yuan. 

However, the higher margin business of referral services delivered stronger returns. Meanwhile, a measure of the average length of loans declined from 11.21 months in 2023 to 10.05 months in 2024, suggesting reduced credit risks. 

A sprint finish

The online loan broker capped the year with a profit surge in the final quarter. Revenue doubled in the fourth quarter and net profit rose 72.7% to 1.91 billion yuan from the same period a year earlier. Compared with the third quarter, profits rose 6.3%.

Qifu's approved user base had risen to 56.9 million customers by the end of last year, up 11.8% from 50.9 million in 2023. The composition of the user base is also shifting, with 47% of new users obtaining credit through embedded financial channels. 

Qifu operates an AI-enabled platform that specializes in offering short-term consumer credit for relatively small sums. The company said its platform had connected 162 financial institutions with 261 million consumers with potential credit needs by the end of last year, acting as an online bridge between borrowers and lenders.

But the company's rise in the "credit tech" sector, with U.S. and Hong Kong share listings, has not been without controversy. Short-seller Grizzly Research called for a regulatory probe into the company's earnings last September, accusing Qifu of inflating its profits. Qifu disputed Grizzly's claims, saying the analysis of its earnings disclosures was flawed, triggering a rally in its stock price. The latest move to bolster the stock's dividend yield could be another move to keep the market sweet.

The company boasts healthy cash flow and a cash reserve totaling 4.45 billion yuan, up 6.6% from the prior year. It could unlock further efficiency savings by applying AI more widely across its business, as the technology becomes more powerful.

Using the company's projected first-quarter profit as a baseline, Qifu could earn around 7 billion yuan in 2025. That would produce a relatively attractive forward price-to-earnings (P/E) ratio of 7.75 times. With the company's dividend payout and share buyback plans, the stock could potentially enjoy further upside.