The Affordable Chinese Stock Worth Watching

Although this stock saw significant growth last year, it remains an appealing investment opportunity following yet another impressive earnings report.

Among my various Chinese stock holdings, one lesser-known company is making headlines as it opens the new trading week with positive financial results. Qifu Technology (QFIN 11.88%) released its fourth-quarter earnings report on Monday morning. If you’re not familiar with the company, it’s worth diving into its operations.

Qifu demonstrated strong growth once again, and they have also increased their semiannual dividend. Even after more than doubling in value last year, the stock now trades at a low earnings multiple, which has decreased even further due to an impressive earnings surprise. Let’s explore more about Qifu’s business and why it deserves a spot on your investment radar.

Connecting Financial Needs in Rural China

Qifu positions itself as a leading AI-powered credit technology platform in the second most populous country in the world. The company provides credit solutions to approximately 56.9 million users with approved credit lines, serving a total of 261.2 million consumers. It connects them with a growing network of 162 financial service providers.

This platform acts as a financial matchmaker for both consumers and small to medium businesses, catering especially to those in some of China’s smaller cities. Notably, a substantial 81% of its users reside in rural Tier 3 and Tier 4 communities. Despite its rural focus, Qifu employs advanced technology, relying on artificial intelligence to enhance its credit assessment tools. The company appeals to younger borrowers, with 70% of its clientele being under the age of 40. This model is effective for all involved, with a significant portion of their business coming from repeat borrowers.

In recent results, Qifu's revenue rose slightly by less than 3%, equating to $614.1 million, which is a minor decline from the 5% top-line growth reported for all of 2024. However, the company’s bottom line tells a more favorable story, as improved asset quality and reduced funding costs boosted adjusted net income by 8% in the fourth quarter. Analysts had anticipated flat year-over-year growth, making this beat quite notable.

The earnings surprise was not unexpected, as Qifu has consistently outperformed Wall Street expectations. A positive surprise of 8% may even feel modest after the company reported over 20% beats in the prior two quarters. For fiscal 2024, Qifu’s earnings per American Depositary Share (ADS) surged by 56% to $5.81.

Returning Value to Shareholders

Qifu's robust earnings per share can be partially attributed to its active share buyback program. While some investors may be skeptical of repurchases, especially when they occur while stock prices are falling, Qifu benefited from buying its own shares back while they were still undervalued. Over the course of the last year, the stock more than doubled, demonstrating that it was a smart move to buy at lower price points.

Additionally, Qifu announced a semiannual dividend of $0.70 per ADS for the latter half of 2024. This follows a prior dividend of $0.60 per ADS declared in September. This trend is not a one-time event; Qifu has raised its payouts every year since adopting a variable distribution policy in 2021, showing remarkable growth in shareholder returns:

• 2021: $0.54 per ADS
• 2022: $0.72
• 2023: $1.08
• 2024: $1.30

These latest increases raise the company's yield to 3%. Strong earnings growth, recent capital appreciation, strategic buybacks, and a significant dividend payout have contributed to Qifu’s surprisingly attractive valuation. With earnings of $5.81 per ADS for 2024, the stock is currently trading at just 7.4 times its trailing earnings. In other terms, Qifu could have been acquired at the start of the last year—before its shares skyrocketed by 138%—for only 2.6 times what it would earn in 2024.

Despite some revenue challenges, Qifu has managed to enhance its operations. The 5% increase for 2024 follows two previous years of flat growth. If demand for personal and small business loans in China begins to rise, this stock presents a compelling opportunity that has yet to receive the attention it deserves.

Rick Munarriz is an investor in Qifu Technology. The author holds no position in the companies discussed.

Stock, Qifu, Earnings