Strategy Note /

The four most profitable listed EM fintechs

  • Growing macro challenges and the sell-off in global tech stocks has sharpened investor focus on fintech fundamentals

  • We highlight four companies with profitable business models: Angel One, Kaspi, 360 Digitech and Futu Holdings

  • Our selected firms earn a median 47% ROE and 37% net margin, and recoup customer acquisition costs in six months

The four most profitable listed EM fintechs
Rohit Kumar
Rohit Kumar

Global Financials/Thematics

Rabail Adwani
Rahul Shah
Tellimer Research
20 May 2022
Published byTellimer Research

Growth has been the major driving factor for fintech valuations in the past few years, but with rising macroeconomic challenges and the global tech sell-off, profitability is now likely to take the front seat. We think firms with self-financing sustainable business models could rebound more quickly when the dust settles.

In our previous notes, we have covered various topics of fintech economics including ARPUs, customer acquisition costs, contribution margins and customer payback periods. Here, we scan our sample of 20 consumer-oriented listed EM fintechs to highlight the four most profitable firms. These companies have delivered a median 47% ROE, earn a net margin of 37% and have a payback period of just six months on their customer acquisition costs. These four stocks are currently trading at a median 10.3x 2022 PE and 4.5x 2022 P/Sales. In addition, Russia’s Tinkoff also ranks at the top in profitability metrics, but due to recent sanctions on Russia, it may not be a viable investment for most foreign investors.

EM fintechs with most profitable operations

Kaspi (Kazakhstan)

Kaspi is the leading financial technology platform in Kazakhstan. It listed on the London Stock Exchange in October 2020. Kaspi started off as a payments platform but has since transformed itself into a super app offering payments (both mobile wallet and infrastructure services), digital banking, e-commerce, BNPL, travelling, mapping, messaging and other services.

Payments contribute c30% of revenues while e-commerce accounts for another 20%, with the remainder spread across other products, mainly consumer finance. Kaspi has 11.4mn monthly active users on its platform, who perform an average of 53 transactions per month; the transaction rate has risen by 60% in the past year.

Kaspi's userbase and activity are growing across all verticals; the experience of Alipay in China suggests that these network effects could represent a strong entry barrier to competitors. In addition to delivering strong growth, the company is also highly profitable, with 2021 ROE at 96.7% and a net profit margin of 46.5%.

Kaspi strong growth across all verticals

Source: Company presentation

Notes: (1) Adjusted for share-based compensation expenses

(2) 2022 is adjusted for share-based compensation, contribution to charitable fund “For the People of Kazakhstan”, January events’ losses

(3) Total cost of risk including macro factor of 1.7% equals 3.3%

Angel One (India)

Angel One, previously known as Angel Broking, is a digital investment services company offering its customers stock trading, advisory services, margin funding and mutual fund investments. It is one of the largest retail brokerage houses in India.

The company was incorporated in 1996 but shifted to a fully digital business model in 2019. Angel One has various innovative product offerings, which include ARQ (a robo-advisory platform), iTrade Prime (a trading platform offering flat per-order pricing for various asset classes) and AngelBee (a mutual fund investment platform). It currently has a total client base of 9.2mn, with 3.7mn active clients.

Angel One has been able to deliver high growth with rising profitability. Revenues rose 77% yoy in FY 2022 (March year-end) with average daily volumes up 130%, taking the company’s market share to 21% in India’s equity market. The company earned a contribution margin of 49%, an operating margin of 36% and an ROE of 47%. Angel One has one of the lowest CAC payback periods (the time required to earn back the acquisition cost) of 0.3 years among our sample EM fintechs.

Angel One volumes have grown sharply

360 Digitech (China)

360 DigiTech (listed on the Nasdaq) is a technology-driven platform connecting consumers and SMEs to financial institutions. The company’s core product is a digital line of credit that borrowers typically utilise for personal consumption, education, leisure, healthcare, etc. The company operates as both loan originator and as a third-party facilitator for financial institutions; the latter has been the major focus in recent years.

The firm also provides SaaS solutions to institutions such as risk management and post-lending credit management. 95% of credit applications are fully automated and do not require human interaction, with loans typically disbursed within five minutes.

As at end-2021, 360 DigiTech had 188mn total registered users, 38.5mn users with approved credit lines and 24.3mn cumulative borrowers. The company earned a contribution margin of 53.4% and a net margin of 34.7% in 2021, its ROE clocked in at 46.7%. One core strength of the 360 Digitech platform is its low delinquency rate, which stood at just 1.5% (90 days past due loans). In terms of growth, 360 Digitech's revenue rose 23% in 2021, with volumes up 45%.

360 DigiTech technology platform

Source: Company presentation

Futu Holdings (China)

Futu Holdings Limited, which was founded in 2007 and listed on the Nasdaq in March 2019, is an investech company offering a fully digitalised brokerage and wealth management platform, Futubull. Primary fee-generating services include trade execution and margin financing, with clients able to trade a wide range of securities such as stocks, warrants and options.

Futu has a strong and profitable business model. The contribution margin (revenue less cost of servicing customers) stands at 64% (US$670 per user) and its net margin is 40%. Return on equity is also good at around 19%.

In terms of customer acquisition, it spends cUS$250 to acquire a new customer, which is higher than the median US$50 for other EM fintechs, but the payback period is quick at around 0.4 years (median 3 years for peers) due to its strong profitability. The company is also growing at a fast pace, with 2021 revenues up 115% and volumes growing 77% compared to 2020.

Futu strong revenue progression