IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Private Capital Markets

Lexinfintech Holdings / Private Capital Markets

Hot on the heels of <a href="https://www.smartkarma.com/entities/25915" target="_blank" data-smartkarma-citation="entities:25915:1">Qudian Inc (QD US)</a> and <a href="https://www.smartkarma.com/entities/26006" target="_blank" data-smartkarma-citation="entities:26006:1">PPDAI Group Inc (PPDF US)</a> IPOs, LexinFintech filed for an IPO in the US to raise $500 million on 13 November. It is a Chinese hybrid e-commerce and microlending platform backed by <a href="https://www.smartkarma.com/entities/446" target="_blank" data-smartkarma-citation="entities:446:1">JD.com Inc (ADR) (JD US)</a>, an 11.9% shareholder. In our view, LexinFintech’s strategy is to attract customers by selling products below cost on the e-commerce platform and convert the e-commerce customers into borrowing customers at point-of-sale. The profits are subsequently generated on the credit lines provided to these borrowers to finance their purchases.We are cautious about this IPO due to:<ol><li>LexinFintech is best-in-class compared to listed Chinese micro-lenders regarding the percentage of borrowers in the “lowest risk” category. However, the asset quality of LexinFintech’s loan portfolio is poor as it has the high delinquency rates and the largest provision ratio (for loan losses) among its listed peers.</li><li>LexinFintech’s profitability is materially below listed peers due to the combination of a loss-making e-commerce business along with a micro-lending business with the lowest margins in the industry.</li><li>Additional areas of concern are a high reliance on loans to college students and overstated profits due to an above-average use of off-balance sheet loans.</li></ol>We will provide a view on valuation once the IPO price range and post-IPO shares outstanding are announced.

Hot on the heels of Qudian Inc (QD US) and PPDAI Group Inc (PPDF US) IPOs, LexinFintech filed for an IPO in the US to raise $500 million on 13 November. It is a Chinese hybrid e-commerce and microlending platform backed by JD.com Inc (ADR) (JD US), an 11.9% shareholder. In our view, LexinFintech’s strategy is to attract customers by selling products below cost on the e-commerce platform and convert the e-commerce customers into borrowing customers at point-of-sale. The profits are subsequently generated on the credit lines provided to these borrowers to finance their purchases.We are cautious about this IPO due to:LexinFintech is best-in-class compared to listed Chinese micro-lenders regarding the percentage of borrowers in the “lowest risk” category. However, the asset quality of LexinFintech’s loan portfolio is poor as it has the high delinquency rates and the largest provision ratio (for loan losses) among its listed peers.LexinFintech’s profitability is materially below listed peers due to the combination of a loss-making e-commerce business along with a micro-lending business with the lowest margins in the industry.Additional areas of concern are a high reliance on loans to college students and overstated profits due to an above-average use of off-balance sheet loans.We will provide a view on valuation once the IPO price range and post-IPO shares outstanding are announced.

LexinFintech IPO Preview: The Worst of the Bunch

China

LexinFintech Holdings Ltd. operates as a holding company. The Company, through its subsidiaries, provides online consumer finance services. LexinFintech Holdings offers installments, money loans, wealth management, and other financial services. LexinFintech Holdings serves customers in China.

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Lexinfintech Holdings (LX US)

LexinFintech IPO Preview: The Worst of the Bunch

Hot on the heels of Qudian Inc (QD US) and PPDAI Group Inc (PPDF US) IPOs, LexinFintech filed for an IPO in the US to raise $500 million on 13...

Arun George

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