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  • Writer's pictureIshfaaq Peerally

Qudian 3Q20 Earnings Analysis

Business Description:

Qudian is a Chinese Fintech company currently with 83 million registered users, targeting the 225 million people who are unbanked in China. According to Qudian, their potential market is 430 million people who do not have access to credit facilities from banks. Qudian serves subprime clients at a maximum APR of 36%. Currently have 4.1 million active borrowers, down from 6.3 million a year ago.

Qudian also started an Open Platform, whereby they sell bigger loans to third parties (bigger financial institutions). Only 15% of the loan is on the balance sheet of Qudian while the rest is on the balance of the other financial institutions. This allows Qudian to give bigger loans and at the same time allows the other financial institutions to grow their business into the subprime market. The Open Platform is currently temporarily suspended because of the pandemic.

The average loan balance on the small credit facilitation is RMB 1.7k while that on the Open Platform is RMB 7.0k. The weighted average loan tenure is 4.6 months and 6.8 months respectively. Currently 1.0 million borrowers are still on the Open Platform.

In recent years, Qudian tried to start several other businesses. For example, Dabai Auto, which provided budget auto financing. The project was later abandoned. In June, Qudian invested $100 million in Secoo buying 28% of the company at $9.80/share (355% premium). Secoo is a luxury online retailer. Qudian started its own luxury online retailer, Wanlimu, earlier this year.

At the IPO in 2017, then CFO Carl Yeung (who resigned for personal reasons in March) said, “We want to build an M&A Warchest.” It seems that the plan of Qudian all along was to buy other companies and use the microcredit business only to generate float. Same as Warren Buffett did with insurance at Berkshire Hathaway.

However, Qudian faces many challenges. The 36% APR is quite high and will mostly be slashed down by regulators. Another problem that Qudian faces is the high delinquency rate as they serve subprime clients. The pandemic increased the delinquency rate even higher.

Qudian is now being more careful to whom they are giving loans, leading to less outstanding loans and less active borrowers but also lowering the delinquency rate.


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