On August 28th, LexinFintech Holdings Ltd. (LX.O) announced its financial results for the second quarter of 2024. Q2 revenue reached 3.64 billion yuan, a sequential increase of 12.3%; net profit was 230 million yuan, a sequential increase of 12.4%. Transaction volume was 51.1 billion yuan, and the managed loan balance was 115.2 billion yuan.
From the perspective of the external market environment, credit demand remains insufficient, high-quality credit demand has not been fully restored, and corporate performance has weakened. These are the main reasons for the industry's overall valuation pressure over the past period. However, Lexin's Q2 financial report shows a continuous improvement in revenue and profit, which is commendable in the current market environment.
Risk infrastructure is solidified, and revenue and profit continue to improve.
The current internet finance industry has entered the second half of the game of stock competition, facing multiple pressures such as traffic saturation, increased customer acquisition challenges, and intensified industry competition. Solidifying basic skills and continuously strengthening the underlying capabilities have become the key to standing undefeated in fierce competition. Since the end of last year, Lexin has begun a comprehensive upgrade of the risk team and risk system, significantly enhancing the underlying risk control capabilities and continuously strengthening the ability to systematically resist risk cycles.
In terms of results, forward-looking indicators in daily monitoring have significantly improved - the FPD7 of new assets in Q2 decreased by about 14% compared to the first quarter; the delinquency rate of all assets at the end of the second quarter decreased by about 7% compared to the beginning of the quarter, and the collection recovery rate has also gradually increased, with the 30-day recovery rate increasing by about 1.5% (absolute value) compared to the beginning of the quarter.
The only downside is that the 90-day+ overdue rate, a lagging risk indicator, increased slightly quarter-over-quarter as of the end of June. However, this is understandable: on one hand, the 90-day+ overdue rate is a relatively lagging monitoring indicator, mainly reflecting the asset level of last year; on the other hand, due to the active control of scale in the second quarter and the overall decline in the balance scale, the decrease in the denominator has led to an increase in the 90-day overdue rate. At the conference call, Lexin's Chief Risk Officer stated, "We suggest that everyone pay more attention to the forward-looking risk indicators of daily monitored asset quality."
In terms of the process, Lexin's construction of underlying capabilities such as risk control has been continuously deepening. For new assets, Lexin deeply implemented the Low&Grow strategy in Q2, strictly controlled the quality of new assets, and increased the proportion of high-quality users; for the tail end of the existing assets, through transaction control, reduction, and negative processing robot clearance, it continued to reduce and clear; in terms of underlying capabilities, Lexin further deepened the risk system upgrade in Q2 from the dimensions of data, models, analysis monitoring, and strategies.
In addition, Lexin also attaches great importance to technological innovation and R&D investment. Financial report data shows that Lexin's R&D investment in Q2 was 143 million yuan, a sequential increase of 6%. Long-term technological accumulation has significantly enhanced the company's underlying risk control capabilities, while also driving the business towards a more refined and digital intelligence direction.
For example, after the further application of Lexin's self-developed "Singularity" AI large model in Q2, it has been deeply applied in fields such as real-time intent recognition and code assistance, greatly improving business operation efficiency and accuracy. It can be anticipated that Lexin's innovative upgrades to systems such as risk control will continue to release dividends, and the solidification of underlying risk control capabilities will bring growth in profit space, becoming a new anchor for Lexin's value growth.
Overseas business enters a growth period, building a new moat for future development.From a global perspective, the pursuit of high-quality assets in the capital market is becoming increasingly urgent. Lexin's domestic business continues to recover, and its overseas business has entered a growth phase, making it clear that Lexin possesses the potential for high-growth high-quality assets.
Financial report data shows that Lexin's overseas business achieved rapid growth in Q2, with the loan scale in the Mexican market increasing by 61% quarter-on-quarter, and revenue increasing by 113% quarter-on-quarter.
Building on the initial success in the Mexican market, Lexin's management stated in a conference call that they will regard overseas business as an important strategic direction, promoting the accelerated development of overseas business and finding a "high-growth" path for the company's subsequent growth. The performance growth and financial returns brought by Chinese companies going overseas are self-evident. Once the logic of Lexin's overseas expansion is verified, the company's development space will be greatly increased, and the company will be re-priced.
From the perspective of policy tools, the Internet consumer finance industry has formed a relatively stable business model after rapid development and has entered a normalized regulatory stage. The "Guiding Opinions on Promoting the Healthy Development of Internet Finance" issued by ten ministries and commissions on July 18 further confirmed and standardized the management of Internet finance.
As the regulatory attitude and approach towards Internet platforms participating in credit business become clearer, the transparency and predictability of regulatory policies have significantly increased, reducing industry uncertainty, which undoubtedly provides a solid underlying guarantee for Lexin's future development.
Continuous high dividends, Lexin may usher in a revaluation of value.
For a long time, oversold high-quality stocks have been an important investment opportunity. The simple and hard-core reason is that investment returns usually come from performance growth, valuation increase, and dividends, which are closely related. Oversold high-quality stocks correspond to expectations in these three aspects, and their investment value is particularly significant.
The performance growth has been demonstrated above. From the perspective of valuation increase, Lexin's closing price on August 28 was $1.77, with a price-to-book ratio of only 0.19 times, and the market value was seriously underestimated, providing investors with a high enough safety margin.
From the perspective of continuous dividends and shareholder returns, Lexin's continuous dividend strategy is sincere, sharing the growth of the enterprise with investors twice a year. This time, a cash dividend of about $0.072 per ADS will be paid, which is about 20% of the net profit in the first half of 2024, and is expected to be paid on October 18, 2024, applicable to shareholders registered on September 16.
If calculated based on Lexin's closing price of $1.77 on August 28, even assuming that the second half of the year's dividend is equal to the first half, the annual dividend yield of investing in Lexin's stock is nearly 10%, far exceeding the yield of mainstream financial management on the market. It can be seen that Lexin is in a "value lowland" with enough cost-effectiveness.It is not difficult to infer that, supported by the continuous improvement of risk management capabilities at the foundation and the ongoing increase in profits, Lexin's potential dividend-paying ability is strong. In the long term, it is expected to maintain an attractive dividend payout ratio, continuously rewarding shareholders and enhancing intrinsic value.
Summary:
In summary, Lexin fits the characteristics of being oversold and improving performance, possessing the potential of an "oversold high-performing stock." Coupled with proactive actions in dividend distribution, it reflects the company's emphasis on corporate governance and shareholder returns, providing a solid guarantee for realizing long-term investment value. Currently, Lexin's valuation is attractive, and it has already built a substantial investment safety cushion, allowing investors to have higher expectations.
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