Analyst: Qudian Ultimately Benefits From Chinese Loan Industry Turmoil

Shares of Chinese microlender Qudian Inc – ADR QD bounced back recently after pulling back sharply in November then flatlining. 

The Analyst

Stifel analyst John Davis downgraded shares of Qudian from Buy to Hold and lowered the price target from $19 to $15.

The Thesis

Qudian could ultimately benefit from the turmoil in the Chinese cash loan industry, with recent regulations likely leading to reduced competition, Davis said in a Thursday note. (See the analyst's track record here.) 

The December regulation has created a liquidity crunch and led to a spike in delinquencies across the industry, Davis said. 

Qudian's near-term outlook is impacted by higher expected credit losses and a significant shift in its business model, he said. 

Despite the near-term revenue implications, shrinking the balance sheet in order to weather the industry turmoil is the right thing to do, the analyst said.

The company's recent shift into the auto dealership and lender market, though presenting meaningful growth opportunity, could impact the forward outlook in the near term, Davis said. It's preferable for Qudian to simply offer financing, as owning dealerships and managing inventory increases the capital intensity of the business, he said. 

"Given the recent bounce in the stock and uncertain outlook, we believe it is prudent to take a wait-and-see approach at this point." 

Stifel's $15 price target is based on 10 times its updated 2019 earnings per share estimate, with the new target suggesting 4-percent upside from current levels.

The Price Action

Since its listing on Oct. 18, Qudian shares have declined about 52.6 percent.

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