In spite of recent regulatory headwinds against Fintech, DBS believes that the long-term outlook on the new emerging sector still remains positive. Consumption upgrade, underserved borrowing needs by traditional banks, and a growing tech-savvy population are three macro trends that are underpinning growth in the sector. With an average trading valuation of 5-6 times price-to-earnings, valuation for fintech plays is undemanding. To tap onto the growth potential of Fintech in China, here are three Fintech plays you can invest in, according to DBS.
Investors Takeaway: 3 Chinese Fintech Plays You Can Invest In
- ZhongAn Online P&C Insurance
ZhongAn Online is the leading Insurtech player in China. ZhongAn possesses the greatest potential among scenario-based online insurers to grab China’s brick-and-mortar Property & Casualty insurance market share. Its strengths lie in mass data computing capability, scenario-based setting ability to explore new business opportunities to drive growth. ZhongAn Online is currently on an expansion strategy to accelerate its growth in health, consumer finance, and auto ecosystem from FY18 onwards.
ZhongAn Online has been focusing its efforts to migrate into an online-to-offline (O2O) integrated model. DBS expects the O2O model to mitigate the reliance on major ecosystem partners for growth, which ultimately helps to reduce the hefty service fees in the long term. ZhongAn Online’s strategy to export its technology know-how by launching five modularised services will also accelerate the monetisation of its technology investment.
BUY, TP HK$68.00; HK$50.45
- LexinFintech Holdings
LexinFintech is a peer-to-peer (P2P) and micro-loans lender in the Chinese market. LexinFintech provides installment loans on its e-commerce platforms to tap onto e-commerce players like JD.com and SF Express. DBS believes that this allows LexinFintech to expand rapidly by serving young adults whose current income is unable to support their purchasing desire.
In the last two years, LexinFintech’s loan facilitation jumped by 179 percent compound annual growth rate (CAGR) in 2016-17 with the help of 66 percent CAGR in active borrowers and 68 percent CAGR in loan sizes. LexinFintech’s repeat customer rate also hit 80 percent in 2017 (up from 63 percent in 2015), which indicates that LexinFintech has a strong customer stickiness with increasing loan ticket quantum. With the strong loan facilitation outlook and low borrower acquisition and funding costs, DBS expects LexinFintech’s earnings to grow at 209 percent CAGR in FY18-19.
BUY, TP US$21.00; Current Share Price: US$14.46
Yirendai is a fintech play that provides large sized and long-tenure loans to prime borrowers with credit history in China. After its spin-off from parent company CreditEase, Yirendai plans to have 100 percent online borrowers by 2019. According to DBS, the move signals that Yirendai has confidence in controlling its online acquisition cost and the maturity of its credit scoring and fraud detecting models.
Moving forward, Yirendai is likely going to accelerate loan facilitation through online channels, especially with loan tenure one-year shorter than offline channels. DBS expects Yirendai’s revenue to grow at a CAGR of 20 percent in FY18-19, supported by a 22 percent CAGR in loan origination and 12.8-13.1 percent growth in take-up rate.
At the moment, Yirendai is the only Peer-to-Peer (P2P) platform providing half-year dividend payout ratio of 15 percent, which implies a 2.4 percent dividend yield.
BUY, TP US$30.00; Current Share Price: US$20.49