Online lending platform 360 DigiTech, Inc. (NASDAQ: QFIN) had an impressive start to fiscal 2021, with loan volume growth accelerating and the shift to its popular capital-light model gaining steam. The company sees continued tailwinds from the ongoing economic recovery as financial needs continue growing in the post-COVID period.
Tech-driven Shift
When the China-based consumer finance firm published its first-quarter results last week, investors’ attention was drawn to a surprise shift in segment performance. In an interview with AlphaStreet, 360 DigiTech’s CFO Alex Xu said the spike in Platform Service revenue was driven by technology upgrades. Loan facilitation under the capital-light and other tech-driven models grew at a record pace of 50% in the early months of 2021, reflecting the management’s efforts to boost the Platform Services segment after ensuring effective measures to manage risk.
With the transition from the core Credit Driven Services to Platform Services continuing, it is expected that the nature of 360 DigiTech’s business would witness a fundamental change in the coming months. For example, the growing dominance of capital-light has brought the business to a safe zone where metrics like provision coverage ratio have become less relevant in terms of assessing the health of the business.
Read management/analysts’ comments on 360 DigiTech’s Q1 earnings
Broad-based Growth
Responding to a query on the acceleration in loan-volume growth, Xu said it was driven by stable demand recovery and ongoing initiatives to expand the business. “Besides the tech driver, we are happy to see that our embedded finance, SME finance, and collaboration with KinCheng Bank of Tianjin all made remarkable progress in Q1. As such, we believe we have successfully upgraded our core growth engines for diversification,” he added.
The company expects the leverage ratio to continue improving in the coming quarters, reflecting the solid operating results and continued contribution from the capital-light model. A marked increase in asset quality translated into a further improvement in the provision coverage ratio that was the best in the most recent quarter.
Intelligence Credit Engine
“Intelligence Credit Engine business is part of the bigger picture of our tech-empowered business lines. We’ve been developing multiple fronts and it’s really up to the need of our financial institutions,” Xu said on being asked about the prospects for the Intelligence Credit Engine solution. According to him, the company’s growth plans have not been negatively affected by the COVID-related disruption as elevated demand for finance during the post-pandemic period offers more room for growth.
In the first quarter of 2021, platform services revenue doubled year-over-year and more than offset a 13% drop in Credit Driven services. As a result, total revenues grew in double digits to RMB3.6 billion, lifting net income to a record high of RMB8.44 per share. The number of borrowers at the end of the quarter was around 21 million.
Shares of 360 DigiTech climbed to a record high this week, continuing the uptrend seen since the beginning of the year. The stock traded slightly lower in the NASDAQ Stock Exchange on Wednesday afternoon, after closing the last session at $33.76.
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