JFIN - Jiayin Group: High Dividends Meet Fintech Innovation

2024-01-18 03:49:44 ET

Summary

• Jiayin Group is a leading AI-driven fintech platform in China, transitioning from P2P lending to institutional loan facilitation.
• The company's business model focuses on AI and fintech for enhanced risk control, utilizing big data analytics and proprietary risk assessment models.
• JFIN has experienced skyrocketing growth through partnerships with institutional investors and is expanding its international operations, particularly in Nigeria and Indonesia.
• Jiayin Group declared a high 11.5% dividend yield for 2023 with bi-annual payouts, totaling $0.80 per share, reflecting its strong financial position and commitment to shareholder returns.

Investment Thesis

Jiayin Group Inc. ( JFIN ) is one of the earliest fintech platforms in China. It has survived several waves of industry reshuffling and consolidation and has been reborn as one of Asia's leading AI-driven fintech platforms.

In the dynamic landscape of the Asian fintech sector, Jiayin stands out as a compelling opportunity, especially against the backdrop of the stabilized regulatory environment for Chinese fintech lenders. The company's successful transition from peer-to-peer (P2P) lending to institutional loan facilitation aligns seamlessly with the emerging recovery trend among China's fintech lenders.

Despite Jiayin Group's transition from P2P lending to institutional loan facilitation, which has undoubtedly brought new opportunities and challenges, the company might face challenges in loan origination growth. These developments require strategic management to sustain growth in the evolving fintech landscape. Despite these challenges, Jiayin's ongoing adaptations show potential for continued progress.

Business Model: AI+Fintech Approach for Enhanced Risk Control

Jiayin, founded in 2011 and initially acting as a marketplace for P2P lending, operates as a fintech platform in China, facilitating connections between underserved individual borrowers and institutional funding partners. Recently, the company announced its strategic rebranding initiative to Jiayin Technology following the release of Q3 financial results. This change highlights Jiayin's future focus and ambition in the AI+Fintech domain.

The company employs a secured and open online platform with a risk management system and proprietary risk assessment models. Using big data analytics and algorithms, Jiayin assesses the risk profiles of potential borrowers, primarily creditworthy individuals underserved by traditional financial institutions. Utilizing online channels, including websites, search engines, app stores, and partnerships with online traffic marketplaces, Jiayin targets creditworthy individuals with stable income and credit history.

Additionally, Jiayin ensures borrowers enjoy a seamless and efficient user experience accessible through its mobile applications and website. The platform leverages sophisticated, proprietary technologies for seamless transactions. The company employs a comprehensive risk management system, including an authentication module, an anti-fraud module, and a scorecard module. These modules use advanced technologies like OCR, facial recognition, and big data analytics to assess and mitigate risks.

Jiayin's credit assessment model continuously evolves, utilizing data collected from applicants and third parties, including modules for identity verification, fraud detection, and a scorecard for evaluating a borrower's creditworthiness. Moreover, Jiayin Group has registered trademarks, domain names, and copyrights for proprietary techniques, emphasizing its commitment to intellectual property protection. Overall, Jiayin uses technology to connect underserved borrowers with institutional funding partners, emphasizing transparency, efficiency, and rigorous risk management in all operations.

Finally, Jiayin adopts a cooperation model with some of its institutional partners. Through this model, Jiayin supports financial institutions in implementing their IT-driven services. As of September 30, Jiayin had initiated cooperation with six financial institutions under this model, with several more actively discussing participation.

Skyrocketing Growth with Institutional Partnerships Amidst Evolving Market Dynamics

In 2020, Jiayin underwent a strategic shift, transitioning from a P2P lending marketplace to a loan facilitation business for institutional funding partners. This transition was fueled by substantial funding from partner institutions, enabling rapid scalability.

Leveraging the technology initially developed for P2P lending, Jiayin effectively partnered with institutional investors. The loan origination value in 2020 amounted to USD 1,584 million (using the exchange rate of USD to RMB as of September 2023). Remarkably, within three years, this figure surged to USD 11,912 million in the trailing twelve months as of September 2023, marking a staggering 7.5x increase.

Jiayin's additional growth drivers have been flat. In Q3'23, the company welcomed four new funding partners, accounting for 5.5% of the cumulative funding partners, and attracted 480 thousand new borrowers, constituting 3.0% of the cumulative borrower base.

Interestingly, the average borrowing amount per borrower has exhibited growth. The slight uptick in the average borrowing amount per borrower indicates a modest pace of growth within the current borrower base. Rather than bolstering growth by enhancing the value of existing borrowers, the company has predominantly relied on adding new borrowers. This strategy, however, may face challenges, particularly in the face of macroeconomic headwinds and as the company approaches a certain revenue threshold.

In light of this expansion, it's important to note the shift in repeat borrowing rates. This aspect underscores the potential for even greater loyalty and commitment among users of the Jiayin platform. By navigating these changes thoughtfully, the company has a valuable opportunity to enhance its revenue streams through new borrower acquisition and deepening relationships with its current borrowers, leveraging their trust for long-term growth.

Balancing Growth and Margins in a Competitive Fintech Market

Jiayin's revenue composition has undergone noteworthy changes. The other revenue segment, which includes financing guarantee services, referral services, and overseas business, contributed 36.1% to the total revenue in Q3'23, a surge from 11.3% in Q3'22. Within this category, financing guarantee services stand out as the primary contributor.

Jiayin partners with independent third parties to finance guarantee services, with these entities receiving a smaller share of compensation than services related to loan facilitation and risk control. Considering the company's loan origination guidance and the base effect, there is an expectation that other revenue will increase in the company's revenue mix, potentially negatively affecting the gross margin. However, the cooperation model may bring in a new revenue stream, but the margin contribution from the segment remains to be determined.

While the company anticipates encountering increased competition as it expands from its current base, it's noteworthy that Jiayin is actively accelerating its expansion in overseas business.

Jiayin Fintech's Profit Breakthrough in Nigeria Spurs Bold Global Expansion

According to its latest earnings call , in the third quarter, Jiayin Fintech's international operations exhibited a resilient growth trajectory, with particular emphasis on the advancements in the profitability of its Nigerian segment. This period marked a strategic milestone as the company achieved a pivotal goal of attaining a net positive profit in the region for the first time.

Not only did Jiayin attain profitability, but most importantly, it was adept risk management, as evidenced by a substantial improvement in a crucial risk metric-the 30-day delinquency rate. This positive trend reflects Jiayin's commitment to maintaining a prudent and responsible lending approach, contributing to the sustained viability of its business model.

Jiayin is making a big move in Indonesia since Jiayin Fintech has partnered with a well-known local financial institution partner, marking a breakthrough in securing access to the Indonesian loan facilitation business. Moreover, the recent progress in Indonesian regulatory policies and the evolving industry landscape suggests a rapid realization of the loan facilitation business model in this growing market. The founder of Jiayin Fintech, Mr. Yan, also mentioned that discussions with several other potential partners are in progress.

Similarly, Jiayin Fintech is expanding its expansion plans to more than Nigeria or Indonesia alone. The company is actively conducting explorations and feasibility analyses for business implementation in other emerging market countries across Africa, Southeast Asia, and Latin America. Pursuing potential expansion opportunities reflects Jiayin's belief that its international business can contribute to the inclusive growth of local economies and create substantial value November 22lders.

These international expansions add significant value to the company in terms of valuation. The rationale lies in the fact that the costs of research and development (R&D) are more fixed on July 10, and the transferability of loan services from one country to another enhances operational efficiency. By leveraging a scalable business model, Jiayin Fintech can optimize its R&D investments, spreading the benefits across diverse markets.

Finally, Jiayin's strategic approach to expansion diversifies its geographical risk and positions the company as a global player with a resilient and adaptable business model. As a result, the company can capitalize on economies of scale and scope, leading to enhanced overall efficiency and profitability.

Jiayin Announces Stellar 11.5% Dividend Yield, Commits to Bi-Annual Payouts

In a recent development, on November 22, 2023, the company's board of directors approved a cash dividend of USD 0.40 per American depositary share (ADS) for the second tranche of dividends in fiscal year 2023. Previously, on July 10, 2023, the board approved a cash dividend of USD 0.40 per ADS. Jiayin distributed USD 0.80 per share in 2023, implying an 11.5% dividend yield.

Additionally, the total cash distribution for these dividends is estimated to be approximately US$21.2 million. Furthermore, the company has announced that starting from 2023, it may opt to declare and distribute cash dividends twice each fiscal year, totaling at least 15.0% of the net income after tax from the previous fiscal year.

A Closer Look Beyond the Attractive Valuation and High Dividends

At first glance, the company appears undervalued with a P/E ((TTM)) of 1.77x compared to the sector median of 10.57x, an EV/EBITDA ((TTM)) of 1.69x compared to the sector median of 11.60x, and a noteworthy annual dividend yield of 11.5%.

Being an asset-light business, the company has demonstrated impressive Return on Equity ((ROE)). However, the ROE is on a declining trajectory, as it dropped to 106.8% in the trailing twelve months as of September 2023, down from 186.3% in 2022, while the Return on Invested Capital ((ROIC)) also declined to 64.1% from 111.1% during the same period.

The results are impressive after taking a closer look at Jiayin's latest Q3 earnings report. The operational and financial highlights for the third quarter of 2023 showcase significant growth for the company. Specifically, the loan origination volume surged to $3.3 billion, a 62.4% increase from 2022, and the average borrowing amount per borrower also rose by 8%, reaching $1,504.

Most importantly, the repeat borrowing rate experienced a substantial increase, reaching 71.5% compared to 63.8% in the same quarter of 2022. Hence, a higher repeat borrowing rate indicates customer loyalty and satisfaction and contributes to a stickier business model. Similarly, a sticky business model can lead to cost efficiencies, implying that the company can spend less on acquiring new customers because it can rely on the loyalty and recurring business from existing customers. This, in turn, can positively impact the overall profitability of the business.

In terms of financial performance, net revenue saw robust growth, increasing by 64% to reach $201 million. Also, net income recorded a significant growth of 30.6%, totaling $44.4 million, compared to the third quarter of 2022. The policy rectification towards the P2P in PRC (People's Republic of China) has reached its conclusion, eliminating policy uncertainties. In 2021, PRC regulatory authorities issued various guidelines that guided financial institutions in multiple regions, required to cap the annual percentage rates (APRs) of personal loan products at under 24%.

After the guideline, Jiayin shifted its funding base from individual investors to institutional partners, including commercial banks, consumer finance companies, trust companies, and micro-loans for small businesses. While JFIN offers attractive valuation metrics and a high dividend yield, these factors must be weighed against the increasing customer acquisition costs and rising industry delinquency rates. Therefore, these considerations are crucial to assess the company's ability to maintain its growth trajectory and profitability amidst the intense competition in the overall industry.

Takeaway

Investors eyeing JFIN will find a company offering a compelling mix of high dividends, including a notable 11.5% yield and bi-annual payouts, an attractive valuation, and a progressive approach in the fintech sector.

Jiayin has successfully transitioned from P2P lending to institutional loan facilitation, integrating AI for enhanced risk management and demonstrating financial robustness with significant loan origination growth and a strong repeat borrowing rate.

However, challenges like rising customer acquisition costs and variable industry delinquency rates are factors to consider. Finally, Jiayin's shift to a more sustainable business model and global expansion endeavors indicate the potential for sustained growth.

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