LexinFintech (LX, Financial), a leading Chinese digital consumption technology service provider, is contemplating raising its dividend payout ratio from the current 20% to 25% next year. This consideration was revealed during a recent internal meeting organized by China International Capital Corporation, which was attended by numerous institutional and high-net-worth investors. Key executives, including founder and CEO Xiao Wenjie, CFO Zheng Xigui, and CRO Qiao Zhanwen, participated in the discussions.
The management openly discussed risk control, asset quality, and profitability with investors. They anticipate significant growth by 2025 and plan to gradually increase the dividend ratio starting from the first quarter of next year. The new ratio of 25% would translate to an annual dividend yield of approximately 5% based on the current stock price.
An investor attending the meeting highlighted that a 25% profit dividend and a 5% dividend yield are highly attractive, placing LexinFintech at the forefront among Chinese ADRs. The decision to raise the dividend is largely driven by the expectation of substantial net profit growth, backed by an upgraded risk management team and improved risk control capabilities.
As a testament to this growth, LexinFintech's revenue and net profit both increased by 12% in Q2 2024 compared to Q1, despite stable lending volumes. The company's risk management capabilities have significantly advanced with enhancements in their leading risk management team and foundational risk control systems.
Since its inception, LexinFintech has prioritized risk control. Following a rise in industry risks since late last year, the company has enhanced its risk identification capabilities and implemented intelligent risk control tools. They have also recruited top risk control experts from the industry to upgrade core risk management roles.
With proactive risk management and improved asset quality, LexinFintech's revenue is steadily growing. In Q2 2024, the company achieved a lending scale of 51 billion yuan. As domestic economic policies spur recovery, credit demand is expected to gradually recover.
LexinFintech's management confidently predicts that the risk level of new assets will reach a favorable range as risk adjustments progress. This, combined with improving net income and dividend enhancements, positions LexinFintech attractively in terms of valuation.
Despite historical underperformance compared to peers' net profit margins, due to prior risk management issues, LexinFintech's management is optimistic about aligning with or surpassing industry risk levels and profit margins in the future.
Long-term prospects are bolstered by LexinFintech's unique consumer ecosystem, which includes e-commerce alongside its lending business. Furthermore, international markets, particularly in Mexico and Indonesia, are expected to contribute significantly to profits, with remarkable growth observed. For example, lending volume in the Mexican market grew by 61%, with revenue increasing by 113% in Q2.
Overall, with its business and net profit growth and an increase in dividend payouts, LexinFintech presents a compelling valuation case. Currently, the company's net assets are around 10 billion yuan, and its price-to-earnings (PE) and price-to-book (PB) ratios are below industry averages, indicating substantial potential for valuation recovery. Even with a recent stock price surge of over 100%, its PB ratio stands at just 0.4x, suggesting significant upside potential for investors.
