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Mark Yu
Mark Yu
Articles (412)  | Author's Website |

These Chinese Online Lenders Are Not For the Weak at Heart

Trading at incredibly low multiples, foreign online lending companies seem not to be in many investors’ purview

September 11, 2019 | About:

Beijing-based online lender Yirendai (NYSE:YRD) and Shanghai-based Paipaidai, or PPDAI Group (NYSE:PPDF), shares have been pummeled down to their lowest levels in the past year. Yet aside from receiving credit lines from large Chinese institutions amid China’s crackdown on fraud lending in their industry, both lenders appear to remain in a healthy state.

PPDAI — the older and bigger of the two lenders — came out strong in its recent quarter, beating earnings expectations. The $1.2 billion online lender reported it had 29% year-over-year growth in loan origination volume to $3 billion, compared to just 1.6% growth a year earlier.

The loan operator also has earned more institutional investors' trust, with 45% or $1.2 billion of its loan originations funded by the monied entities compared to mid-teen percentages a year ago. Further, PPDAI expects its newfound institutional partners to contribute more to its growth later this year. PPDAI sees its institutional investors alone funding approximately $5 billion of its loans in the second half of 2019.

Meanwhile, online lender peer that fewer analysts cover, Yirendai, came out with lower earnings accompanied by a 12% slump in its loan originations down to $1.4 billion compared to its year-ago figure. Yirendai seemed not to indicate how much, if any, of its institutional investors have participated in its loan originations, but it did mention that it has received 30 billion renminbi or $4.2 billion funding from its institutional partners and expects to use the money to fund loans for the rest of this year. Yirendai reported 20% profit decline for its recent quarter.

With both online lenders trading at just three times their forward earnings while carrying with them negligible debt on their balance sheets, it is easy to gamble on either of the two lenders and simply anticipate fair returns in the future.

Upon assessment, however, it looks like it is the older lender that has obviously taken a lead in the transition to gaining more institutional support amid the ever-changing landscape in China’s online lending market. This is not to disregard other significant online lenders, such as Jack Ma’s Ant Financial. The market has noticed that PPDAI’s execution, as well as its stock price, has already recovered recently. Although still hovering near its corresponding 52-week lows, PPDAI’s stock has already climbed 33% since last month while Yirendai’s stock has yet to make any recovery.

Disclosure: No shares in any of the companies mentioned.

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About the author:

Mark Yu
I'm a doctor in physical therapy (DPT) with a passion for finance. Not a registered financial analyst. Value seeker. Long only. Global investing. Long-term investing.

I attempt to dissect one company filing every day. I dislike goodwill and intangible assets.

One company (review) a day keeps the speculation (hopefully) away.

"The only source of knowledge is experience."

"I have no special talent. I am only passionately curious." - Albert Einstein

"To strive, to seek, to find, and not to yield." - Alfred, Lord Tennyson

"We find one a year, that's terrific. You do not need a hundred or a thousand great investment ideas to do well. You need a couple. And, the discipline is the most important thing." - Warren Buffett

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