FINV’s 3Q20 results surprised on the upside, with net profit increasing 32.0% QoQ/ 0.8% YoY to RMB 603mn. Thanks to better-than-expected asset quality trend, provisions retreated 37.2% QoQ due to significant write-back. We remain optimistic on FINV’s earnings outlook as loan volume continue to pick up. Savings from funding and credit costs will partly offset decline in loan pricing, supporting a largely stable margin trend.
- Shifting to higher-quality user base is paying off. Growth in registered users/ borrowers was moderate at 2.2%/1.1% QoQ. Repeat borrowing rate stayed elevated at 89.7%, as FINV remained prudent and focused on serving existing clients with lower risk. Facing a challenging macro environment, the Company has been shifting use base to more prime borrowers since 2018. Despite lower pricing, asset quality improved notably. M3+ delinquency rate dropped to 3.4% in 3Q20 from 7.1% in 2Q20, even lower than pre-pandemic level. As such, FINV recognized RMB 690mn write-back of provisions in 3Q20.
- Loan volume started to pick up. FINV’s 3Q20 loan origination recovered strongly by 29.4% QoQ to RMB 17bn (above previous guidance of RMB 15-16bn) from a low base. Management expected RMB 18-20bn (up 6-18% QoQ) loan origination in 4Q20. Meanwhile, funding cost further declined by 60bp QoQ to 8.2% on favorable supply-demand dynamic.
- Downside in take rate is manageable. To avoid potential regulatory risk, FINV has proactively capped interest rate of new loans to 28% IRR since 3Q20. According to management, take rate fell to 3.9% from previous level of 4-5% and will slide to 3.5-3.9% before stabilizing in FY21.
- No material impact from new microcredit rules. Management acknowledged that there is little impact from the Provisional Rules for Online Microcredit Business issued on 2 Nov. Loans extended through microcredit license represents <1% of FINV’s total loans, and it has no co-lending business.
- Maintain BUY and TP of US$2.9. We raised FY21/22 earnings forecasts by 4.8%/10.3% to reflect assumptions on faster loan growth and lower credit cost. Our TP of US$2.9 is based on 0.58x target P/B and FY21E BVPADS of RMB34.7.
