FinVolution raises $150m for expansion and ADS repurchase

FinVolution Group has successfully completed its offering of convertible senior notes totaling $150m, including the full exercise of the initial purchasers' option for an additional $20m. These senior, unsecured notes bear an annual interest rate of 2.5%, payable semi-annually. The net proceeds will be allocated to international business expansion, working capital replenishment, and repurchasing the Company's ADS. Following this positive development, the stock rose over 4%.

FinVolution Group, founded in 2007 and traded on the NYSE as FINV, is a prominent fintech company in China, specializing in online consumer finance. The company offers a range of products and services, including loan and investment solutions for both individual investors and institutional funding partners. FINV leverages advanced credit technologies for credit risk assessment, fraud detection, big data analytics, and artificial intelligence to enhance its operations.

Geographically, most of the company's revenue comes from China, accounting for 81%, followed by 14% from Indonesia, and 5% from the Philippines and other markets. As of FY 24, FINV has over 3,600 employees, reflecting its substantial presence and dedication to the fintech sector.

Overseas expansion to fuel future growth

FINV has strategically expanding its presence in the Indonesian and Philippine markets in response to rising demand for loans and personalized financial services. This expansion, along with other strategies, includes a major acquisition of a multi-finance company in Indonesia, which has contributed to the increase in revenue from these overseas markets, rising from 10.3% in FY 22 to 19.4% in FY 24. Consequently, this expansion has led to a strong increase in the number of registered users, which grew from 15.5m in FY 22 to 35.7m in FY 24.

Despite this substantial growth, the TAM remains significant, with an estimated $3.6tn in outstanding loans for a population of 620m. Currently, FINV serves approximately $10.2bn for 35m borrowers, indicating considerable room for further market penetration. Furthermore, according to BCG, Bain and Temasek market size is projected to grow at CAGR of 7%, 28%, and 38% for China, Indonesia, and the Philippines, respectively, over the next 2 to 5 years. This presents a promising opportunity for FINV to achieve exponential growth in the fintech sector.

Steady growth and strong balance sheet

FINV posted a steady revenue CAGR of 11.1% over the FY 21-24, reaching RMB13.1bn in FY 24, This growth was driven by strong and consistent business expansion in overseas markets. Concurrently, operating income exhibited a strong CAGR of 15.4%, rising from RMB4.7bn in FY 21 to RMB7.1bn in FY 24. As a result, the operating margin expanded by 585bp to 54.6% in FY 24, reflecting a positive growth trajectory and improved operational efficiency.

In comparison, Futu Holdings, a competitor in the fintech sector, experienced a significantly higher revenue CAGR of 21.1%, reaching HKD11.9bn, and an operating income CAGR of 24.6%, rising to HKD6.6bn during the same timeframe.

Moreover, FINV’s operational cash flow saw a significant rise, increasing from RMB0.6bn in FY 21 to RMB2.9bn in FY 24. This growth can be attributed to the implementation of sustainable and self-funded operational strategies. As a result, cash and short-term investment surged from RMB5.6bn in FY 21 to RMB7.5bn in FY 24, with negligible debt, implying financial flexibility for future expansion.

In contrast, Futu Holdings presents a slightly higher financial risk, evidenced by a debt-to-equity ratio of 30.6% as of FY 2024. This comparison underscores FINV's stronger financial position and lower risk profile, which may appeal to investors seeking stability and sustainable growth.

Significant upside potential

The stock has risen significantly over the past twelve months, up from $4.8 to $9.2, marking a notable gain of over 94%. In comparison, Futu's stock increased from $68.8 to $121.6 during the same period, reflecting a rise of over 77%.

At present, FINV is trading at a P/E multiple of 5.8x, based on an estimated EPS of RMB11.8. This valuation is higher than its three-year average of 4.6x but remains significantly lower than Futu’s P/E of 17.2x. In addition, the company is currently trading at EV/EBIT of 4.8x, which is higher than Futu’s 3.9x.

FINV is currently covered by eight analysts, all of whom have 'Buy' ratings on it, with an average target price of $84.9. This implies 28.6% upside potential from the current price, indicating strong confidence in the company's future growth prospects and suggests significant upside from current levels.

Overall, FINV demonstrates strong profitability and growth in emerging markets, driven by sustainable, self-funded strategies. Its stable business model, financial health, and stock performance position it well for increased global exposure and future potential.

However, FINV faces diverse risk factors inherent in the online consumer finance sector. Operating in a rapidly evolving industry subjects the company to complex laws, regulations, and compliance requirements, potentially hindering operational efficiency. Expansion into new markets carries risks, particularly with innovative products and services. Financial risks, including credit risk and loan defaults, are exacerbated by economic fluctuations. In addition, platform risks, FX exposure, and geopolitical tensions can impact business stability and performance.