Chinese P2P platform Yirendai registers a revenue growth of 187 per cent year-on-year, but with a heavy reliance on D-class loans.
Beijing-based consumer lending platform Yirendai – floated last December with a $75 million IPO on the NYSE – has published its unaudited financial results for the quarter ended March 31, 2016. On the loan origination front, total amount of loans facilitated was US$534.5 million – an increase of 110 per cent year-over-year. Since inception, the Yirendai platform has facilitated approximately US$2.4 billion in loan principal. The substantial rise in loan origination volumes has had a positive impact on revenues. Total net revenue skyrocketed to US$85.1 million – a sharp increase of 187 per cent year-on-year.
Analysing the later stage of the income statement, Yirendai registered an EBITDA of US$31.6 million, increased by 426 per cent from US$6.0 million in the same period of 2015. According to the platform, this significant increase is primarily due to the substantial rise in revenues coupled with lower customer acquisition costs. Net income (US$20.1 million) increased by 54 per cent from the previous quarter and 355 per cent compared to the same period last year.
Mr. Ning Tang, Executive Chairman of Yirendai, offered comment:
"We continued to experience strong business demand in the first quarter of 2016, as we grew our loan origination sequentially during what is usually a seasonally slow quarter. Our loan portfolio credit performance remains solid. We expect to further extend our market leadership in China's consumer finance market through technology innovation and data driven credit underwriting and risk management capabilities […]”
A stellar start the year? Not so fast. It’s true that the company’s earnings of $0.34 a share exceeded analysts’ expectations of $0.15 a share by some way, and that shares are up more than 200% over the past three months, but this tells us only one part of the story.
Taking a deeper look into the numbers, we learn that Yirendai’s growth was mainly fostered by high-risk D-class loans, the lowest grade on the company’s A-to-D credit scale. In the first quarter of 2016, loans made to Grade A, B, C, and D borrowers represented 6%, 3%, 7% and 84% of the company's product portfolio, respectively.
Similarly, the overall delinquency rate for loans with interest payments between 15 and 89 days overdue was 1.8%, compared to 1.3% as of December 31, 2015. Finally, as of March 31, 2016, the charge-off rates for Grade A, B, C, and D loans originated in 2015 were 3.4%, 2.9%, 3.2% and 2.5%, respectively, compared to 2.4%, 1.3%, 1.7% and 1.4% as of December 31, 2015.
Does Yirendai represent a sound investment for investors on a risk and return basis? Forecasts for the Q2 2016 and for the full year appear promising. Expected total loan volumes are in the range of US$640 million to US$650 million and US$2,800 million to US$2,900 million, respectively, with total net revenue in the range of US$95 million to US$100 million and US$400 million to US$410 million, respectively. However, investors should be wary of the platform’s heavy reliance on D-class loans and of its rising delinquency rates.