Business Description:
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 3.2 million active borrowers, down 16% QoQ
The average loan balance on the small credit facilitation is RMB 1.5k while that on the Open Platform is RMB 6.8k. The Weighted average loan tenure is 4.5 months and 6.5 months respectively. Currently 0.8 million borrowers are still on the OpenPlatform, which is on pause.
Invested $100 million in Secoo buying 28% of the company at $9.80/share (355% premium). Secoo is a luxury online retailer. Secoo is going private soon. Qudian started its own luxury online retailer, Wanlimu.
Catalysts:
Economic recovery in China
Large market possibility
Risks:
Regulations could lower their interest rates
Subprime lending is risky
Lower number of customers if only good borrowers are chosen
Rapidly changing business environment in China
Business trying new ventures, many of which have failed
Currency risks
Financial Analysis:
Revenues of RMB 713 million ($104 million) in 4Q20 down 63% from 4Q19
Revenues of RMB 3.66 Billion ($564 million) in FY20 down 58% from FY19
Net income of RMB 673 million ($103 million) in 4Q20 up 427% from 4Q19
Net income of RMB 958 million ($146 million) in FY20 down 70% from FY19
Sales Income increased from Wanlimu business
Financing and Loan facilitation revenues down with lower loans given
Transaction revenues down with pause on OpenPlatform
$95 million FY20 net income from bond repurchase
Balance Sheet
Total assets: $2.05 billion ; total liabilities: $228 million; book value: $1.82 billion
Cash: $235 million, debts: $125 million, current assets: $1.79 billion, current liabilities: $71 million
Net current asset value of Benjamin Graham: $1.56 billion
Valuations
My personal Biases
4.9% of my portfolio
Considers risks of unaudited numbers in margin of safety
Focusing on balance sheet value
Assumptions
Generates $200 million in owner’s earnings per year in base case for next 5 years
Discount Rate of 20%, assuming all currency and business risks
Terminal Growth rate of 3%
Exit Multiples Analysis
Based on Book value in 2025
Book value doesn’t change in base case
20% higher in bull case and 20% lower in bear case
Conclusion
Deep Value Stock, looking at book value
Uncertainties surrounding business future
Undervalued even with a big margin of safety
