LexinFintech Holdings: Margin Expansion Unlocked, Initiate Strong Buy

2025-05-20 22:11:49 ET

Summary

• We rate LexinFintech Strong Buy with a $15 target, as the market underestimates durable margin expansion and above-consensus earnings growth.
• LX's capital-light, tech-empowerment pivot and AI-driven risk management are driving structural profitability, recurring high-margin income, and reduced cyclicality.
• Valuation is compelling: our $15 target reflects a conservative multiple on robust earnings, offering 67% upside as fundamentals surprise to the upside.
• Macro and regulatory risks remain, but are abating. We see LX as a high-conviction, mispriced opportunity for structural growth and re-rating in Chinese fintech.

Key thesis

We initiate on LexinFintech Holdings Ltd. (LX) with a Strong Buy rating and $15 PT. LexinFintech Holdings Ltd. is a leading Chinese online consumer finance platform that leverages technology to provide installment lending, scenario-based credit, and fintech services. Our Strong Buy rating is based on our view that market participants are materially underestimating the durability and magnitude of LX's margin expansion, with our FY25E EPS of 17.03 RMB (+25.0% y/y) and FY26E EPS of 20.78 RMB (+22.0%) both well above consensus, as the business shifts to higher-margin, capital-light tech enablement and benefits from structurally lower credit costs....

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