FinVolution Group

FinVolution Group (NYSE: FINV) is one of China's most crucial fintech platforms, connecting banks with underserved individual borrowers. FINV is a pioneer in China's online consumer financing market, with innovative technology and extensive experience in credit risk assessment, fraud detection, big data, and artificial intelligence.

Why Should Investors Book Profit?

• Weak Margin Profile: In Q4FY21, FINV’s reported EBITDA margin of 45.2% in the period under consideration which was lower than the 48.8% reported in the same period of the corresponding previous financial year, and reported net margin was 26.4% vs. the industry median of 20.5%
• Declining ROE: In Q4FY21 FINV ROE reduced to 6.4% from 6.6% in Q3FY21.
• High Cash Conversion Days: Compared to the industry, the company has a long Cash Conversion Cycle (Days), meaning that it takes more days to convert its sales to cash. As of Q4FY21, its Cash Cycle was 85.6 days, compared to an industry median of 73.1 days.
• Political & Regulatory Risk: The Chinese authorities' crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent the company's operations. After the passage of a bill in the US, this could lead to the delisting of some Chinese companies from the country's exchanges (if the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

FINV's share price has increased 23.24% in the past week and is currently leaning towards the lower-band of the 52-week range of USD 2.68 to USD 10.41. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 4.03.

Considering the significant surge in the stock price, lower margins and ROE, declining cash cycle and other associated risks, we recommend a "Sell" rating on the stock at the closing price of USD 4.56, up 42.50% as of March 16, 2022.

Three-Year Technical Price Chart (March 16, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.