Strategy Note /

Lexin: A fintech to benefit from China's crackdown on Ant Group

  • Lexin has transformed from a peer-to-peer lending provider to an independent loan facilitator

  • Lexin's profit-sharing mode will pivot to riskless and long-term growth as part of its pioneering role in the industry

  • Lexin will benefit from the anti-trust regulations that provide extensive market opportunities for niche fintech player

Lexin: A fintech to benefit from China's crackdown on Ant Group
1 June 2021
Published byEqualOcean

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Lexin's future prospects make its stock somewhat undervalued.

Lexin is a New York-listed Chinese fintech company, which in recent years has expanded its initial business from consumption installment loan services to a 'to-bank'-driven platform. The company has been rapidly growing over the past few years and is expected to maintain the high growth rate as huge market space has opened up – despite the presence of the giants – under new antitrust regulations.

 The company's stock is currently undervalued if compared to its industry peers. The equity market disregards Lexin's growth potential by deeming it as a traditional financial stock. Lexin's P/E ratio is under 20x, which is rather low for a rapidly growing company, and significantly below the levels of its US counterparts in the fintech space.

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Encouraging performance – non-stop transformation

Lexin was founded in 2013. At the very beginning, it leveraged investment platform Juzi Licai to generate large profits from its peer-to-peer (P2P) business. By the end of 2020, the company had removed all the P2P business in response to the regulation changes, with 100% payback to the investors. At present, Lexin is no longer a loan issuer but a loan facilitator with a to-Business (2B) transformation in progress. At the current stage, Lexin still offers guarantee services and takes credit risks for banks, accounting for over 60% of its total revenue.

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 But the company's journey of transformation will not end soon. Lexin is now expected to replicate Ant Financial's path to some extent. From previous loan issuers to technology solution providers, the two companies are concurrently transforming their business models. 

However, Ant Group, which still runs the co-lending model, earns profit mainly from the to-Consumer (2C) segments. Lexin, on the other hand, facilitates loans without investing its own capital. Also, Lexin is expected to fully transition into a 'profit-sharing' mode with no credit risk in three years. Its business will purely focus on technology-based client sorting and recommendation. The new model will differentiate Lexin from most of the fintech credit companies that are still using either co-lending or loan facilitation modes, and gives more freedom to Lexin on the capital and cash flow management. 

The breakthroughs for Lexin might negatively affect the income in the very short term but are going to generate sustainable developments with very limited risk exposure. During the fourth quarter of 2020, the technology-based services have taken over 50% of the new transaction amounts, ranking first in the industry. 

Thanks to its successful business transformation, Lexin has consistently met the market's expectations...

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