Deutsche Bank-China Fintech Interim results wrap-up – Staying with qualit...-110347917

17 September 2024Deutsche BankResearch Asia China Banking / Finance Other Financial Services Industry China Fintech Date Industry Update Interim results wrap-up – Staying with quality names in these tough timesPost-interim-results wrap-upIn general, 1H24 China fintech results imply a tougher domestic operating environment amid weaker macro growth. Most fintechs' (except Futu's and Lianlian's) headline growth remained subdued, due to households' restrained consumption and borrowing. We suggest that investors remain selective within quality fintech names; our top picks are Futu and Qifu. Our preference is for Futu for which the current share price is not demanding, but it yields greater upside potential, should Hong Kong equity turnover rally. On Qifu, its share price has rallied 29% since August, due to a 4% FY24F dividend yield and improved EPS through a faster-than-anticipated share buyback. However, with expectations that buybacks are likely to slow in 2H24E, and amid a shortage of catalysts on loan-book expansion (while asset quality should not be compromised), we think Futu is positioned with higher upside potential than Qifu. We provide our key takeaways from the 1H24 China fintech results below:Online lendersnMajor online lenders continue to de-leverage domestic loan books, as loan demand remains soft and credit risk remains elevated.nQuality leaders, such as Qifu, expect new loan origination to reaccelerate in 2H24, as they have seen a slight increase in loan demand since June.nWe expect lenders' credit costs to remain at a higher run rate until we see more notable signs of a macro recovery.Online brokersnLess impacted by China domestic macro, online brokers' share prices saw a strong rally in 1H, with solid earnings growth in 1H24 benefiting from an uptrend in US equities and a strong rally in Hong Kong equities in 2Q24.nFutu's share price has fallen back since May, as sentiment surrounding trading in Hong Kong stocks and Chinese tech ADRs has cooled.nWe think Futu can convert new momentum in client acquisitions in Malaysia and Japan into headline growth in the following quarters. The current share price is not demanding, but it yields greater upside share price potential.Johnny XieResearch Analyst+852-220-36141Deutsche Bank AG/Hong KongIMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. MCI (P) 041/10/2023. THE CONTENT MAY NOT BE DISTRIBUTED IN THE PEOPLE"S REPUBLIC OF CHINA ("THE PRC") (EXCEPT IN COMPLIANCE WITH THE APPLICABLE LAWS AND REGULATIONS OF PRC), EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAU. Distributed on: 16/09/2024 20:37:06 GMT7T2se3r0Ot6kwoPa17