Jiayin Group Stock: Risk-Reward Is Balanced (NASDAQ:JFIN)

Elevator Pitch

My investment rating for Jiayin Group Inc. (NASDAQ:JFIN) stock is a Hold.

In my earlier December 13, 2023 initiation article for JFIN, I wrote about its financial prospects and valuation multiples. This update analyzes Jiayin Group’s key metrics disclosed as part of its FY 2023 results announcement in late March.

I have a favorable opinion of Jiayin Group’s share buyback program expansion and the company’s loan facilitation outlook. On the flip side, I am negative on the increase in delinquency rates for some of JFIN’s loans outstanding and the potential margin compression relating to a change in top line mix. A Hold rating for JFIN is maintained, taking into account the above-mentioned factors which point to a balanced risk-reward.

Delinquency Rates

The outstanding loans facilitated by Jiayin Group’s platform that are delinquent for the 31-60 days, 61-90 days, and 91-180 days time periods increased on both QoQ and YoY terms as of end-Q4 2023.

The Delinquency Rates For Loans Outstanding Facilitated By JFIN’s Platform

At its Q4 2023 results briefing on March 28, JFIN highlighted that China’s “economic environment still faced multiple challenges and uncertainties” last year and noted that “the economic recovery speed (for the Chinese economy) is still very slow.” This helps to explain why there was an increase in the delinquency rate for some of Jiayin Group’s loans towards the end of the previous year.

As an indicator of potential downside risks for China’s economy, a March 15, 2024 Seeking Alpha News article indicated that the country’s “new home prices” experience contraction for the eight consecutive month in February 2024. In its FY 2023 results announcement, JFIN mentioned that it has “extensively leveraged artificial intelligence technology” to “improve risk identification” and this is likely to put the company in a better position to manage delinquency issues. Nevertheless, if the Chinese economy underperforms in 2024, there is a risk that the delinquency rates for Jiayin Group’s loans continue to trend upwards this year.

Profitability Prospects

JFIN’s future profit margins could possibly be affected by its top line mix optimization.

The company’s bottom line decreased by -31% YoY to RMB367.6 million in the final quarter of the previous year. Jiayin Group explained at its Q4 earnings call that a key reason for the earnings contraction was an increase in the “proportion of guaranteed income” which has margins that are “lower than our facilitation and risk control services.”

The revenue contributed by JFIN’s core loan facilitation services as a proportion of the company’s top line decreased significantly from 85% for Q4 2022 to 48% in Q4 2023. Jiayin Group has been seeking out new revenue growth drivers such as guarantee services, and this is reflected in the declining top line contribution for its core loan facilitation services.

Looking forward, it is reasonable to be concerned that Jiayin Group’s future profitability might weaken in the scenario that the top line contributed by the lower-margin guarantee services continues to grow in the future.

Loan Facilitation Volume Outlook

In its FY 2023 financial results release, JFIN shared its guidance for loan facilitation volume in the first quarter of 2024 and full-year 2024.

In specific terms, Jiayin Group sees its loan facilitation volume expanding by +11% YoY and +9% QoQ to RMB22 billion for Q1 2024. The company also anticipates that its full-year loan facilitation volume can increase by +8% to RMB95.5 billion as per the mid-point of its guidance.

Growing its presence in international markets outside Mainland China and the expansion of its partnership network are likely to be the key loan facilitation drivers for JFIN.

At its fourth quarter earnings briefing, Jiayin Group revealed that the company’s “expansion into overseas markets is progressing steadily” and cited certain markets with good growth potential like Indonesia, Nigeria, and Tanzania.

On the other hand, JFIN disclosed at its Q4 2023 analyst call that it has 36 potential funding partners in the pipeline that are under discussion as of December 31, 2023. Going forward, Jiayin Group’s partner network might possibly increase significantly from the 71 partners it had as of end-2023.

Buyback Plan Expansion

JFIN recent increased the size of its current share repurchase program from $10 million to $30 million, in tandem with its Q4 2023 financial results disclosure.

The company still has $19.4 million remaining from its current buyback authorization as of March 28 this year. Jiayin Group stressed at its most recent quarterly earnings call that the expansion of its buyback plan is aimed at “reaffirming our commitment to creating value for our shareholders and our confidence in the company’s long term growth prospects.”

If Jiayin Group utilizes its remaining $19.4 million share repurchase authorization in the coming year, this could translate into a potential buyback yield of 5.6%.

On the other hand, JFIN distributed dividends amounting to $0.80 per ADS (American Depositary Share) in the past twelve months, which are equivalent to a trailing dividend yield of 12.2% (source: S&P Capital IQ).

But the company’s $0.80 per ADS dividend distribution was based on a 25% payout ratio, while its policy is to pay out a minimum 15% of its earnings as dividends on an annual basis. As such, there is uncertainty regarding Jiayin Group’s future dividends, as there is no assurance that the company will continue with a payout ratio as high as 25% considering its stated dividend policy.

Nevertheless, the recent buyback plan expansion and dividend distribution send a clear message that JFIN is very much committed to shareholder capital return.

Closing Thoughts

My view of JFIN as a potential investment candidate is mixed. The negatives for the company include higher delinquency rates and margin contraction risks. The stock’s positives relate to its loan facilitation guidance and shareholder capital return.