【英文】瑞信报告：中国网络借贷行业：零售融资模式的转型China Online Lending Sector Transformation from a retail-funded mode（65页）

We expect accelerated P2P clean-up heading into 4Q, with continued roll-out of high regulatory  hurdles while the ‘triple-reductions’ remains in force for an extended period of time—likely  through 1H 2020. In the meantime, a majority (~98%) of the currently 708 operating platforms  will likely shut down during this process. We expect ‘trial regulation’ for compliant players  starting 4Q19, by either registering with high regulatory hurdles or transforming into licensed  online micro-lenders/consumer finance companies. We believe that at the core of the P2P model lie two fundamental conflicts: (1) an inherent  mismatch between the risk-profile of borrowers and the risk-appetite of investors; (2) high  regulatory cost with retail investor base of 4.5 mn at its peak vs low financial systemic impact  relative to the size of overall financial sector. Impact on listed players: Shifting business models The repetitive delay of registration deadlines and policy signals sent over the past few months  suggest reduced regulatory appetite for P2P registration. Without a registration scenario, the  likely exit options for existing players are: (1) acquiring licenses (2) sourcing funding from  licensed financial institutions, i.e., loan facilitation, and (3) orderly exiting from the industry. With limited licensing options available, loan facilitation is the most viable exit strategy for  existing P2Ps. Despite a generally negative impact on take-rate (higher funding cost and  potentially lower APR) and operating margin (higher sales & marketing expense), a faster  progress in transformation towards the loan facilitation model will be a key differentiation in loan  origination volume growth.

Qudian (100% institutional funded as of 2Q19), VCredit (100%),  and Lexin (78%) are progressing well ahead of peers. We expect better business sustainability,  stronger growth outlook and higher earnings visibility for the platforms that are better positioned  in obtaining institutional funding. In this report, we identify three areas of the online lending  business most valued by the licensed financial institutions: (1) customers, (2) asset quality, (3)  regulatory compliance, and conclude that Lexin and Qudian rank among the best-positioned for  transforming towards a 2B model; Yiren Digital ranks last.  Investment recommendation: Prefer Lexin and Qudian We maintain OUTPERFORM for Qudian and initiate Lexin with OUTPERFORM. We assume  coverage of PPDai with OUTPERFORM, and maintain OUTPERFORM on Vcredit. We assume  Yiren Digital with NEUTRAL and initiate 9F with NEUTRAL. We prefer (1) Lexin for long-term  sustainability, thanks to differentiated customer base and effective risk control, and (2) Qudian  for relative defensiveness of its evolving business model amid the regulatory uncertainty.  For Lexin, we initiate with TP of US$17.00. We believe Lexin has a sustainable business  model with comparative advantage in the areas that institutional partners value the most  from online lenders: (1) risk control capability, and (2) sustainable customer acquisition. We  forecast robust origination volume growth of 71/44/15% YoY for FY19-21E. Our TP of  US$17.00 implies FY19-20E P/E of 9.2x and 8.0x, and FY19E P/B of 3.2x. For Qudian, we maintain OUTPERFORM and TP of US$11.70. While we raise adjusted net  income by 21/52/43% to Rmb4.5/5.9/6.4 bn for FY19-21E to factor in revenue  contribution from QD’s open platform initiative and expect such shift in revenue structure to  significantly lift QE’s ROE to 34/32/26% for FY19E-21E vs 24% in FY18, we lower longterm growth to 3% from 5% to reflect lower visibility of the new business. Our TP implies  6.0x FY19E P/E and 1.7x FY19E P/B.