The significant expected difference in stock price movement after the "bull turns around", how to view the investment opportunities brought by Lexinfintech Holdings Ltd. Sponsored ADR Class A (LX.US) asset quality optimization

Among investors, there is a widely spread saying: investment is the realization of cognitive ability. This sentence can be applied to the secondary market, in simple terms, market perceptions form stock prices, and changes in perceptions create stock price fluctuations. By extension, it can be said that utilizing fluctuations is an important way for investors to achieve excess returns, and the key to this is timely detection of expectations gap. However, expectations gaps are always difficult to earn money from, as it requires investors to understand how the market perceives a company and at the same time have their own unique insights about the company. Take for example, Lexinfintech Holdings Ltd. Sponsored ADR Class A (LX.US), which recently disclosed its first-quarter report. The company's profit in the first quarter of this year reached the highest level in the last 13 quarters, however, strangely, the stock price of this leading domestic new consumer digital technology service provider continued to decline after the performance, dropping from $11 to a low of $7. From the trend, it seems that the market is paying more attention to revenue and provision data, which may not seem very appealing at first glance. However, according to GMTEight, the market's interpretation of the latest financial report of Lexinfintech Holdings Ltd. Sponsored ADR Class A may hide a significant expectations gap. Currently, the trend of profit recovery for Lexinfintech Holdings Ltd. Sponsored ADR Class A has been established, although there are fluctuations in short-term income indicators, institutions predict that repairs will soon be made. Taking a longer-term view, given the continuous improvement in asset quality for Lexinfintech Holdings Ltd. Sponsored ADR Class A, the company's long-term certainty is actually rising. Because of this, the recent fluctuations in the stock price of Lexinfintech Holdings Ltd. Sponsored ADR Class A seem more like a "false alarm", and after a brief divergence, the company is expected to resume its upward trend soon. Insight into Expectations Gap in Quarterly Reports The Q1 financial report of Lexinfintech Holdings Ltd. Sponsored ADR Class A shows that the company's overall revenue for the reporting period was 3.1 billion yuan, and did not continue its growth trend on a month-on-month or year-on-year basis. According to Lexinfintech Holdings Ltd. Sponsored ADR Class A CFO's explanation during the performance call, the quarter-over-quarter changes in total revenue were mainly due to a decrease in facilitated loan service revenue, with specific factors including proactive reduction of annualized interest rates to attract higher quality customers, increased early repayment, and changes in business structure due to the rising proportion of light asset model in facilitated loans. It is worth noting that in order to improve customer satisfaction and retention rates, Lexinfintech Holdings Ltd. Sponsored ADR Class A actively simplified the early repayment application process in the first quarter, and a considerable part of the revenue loss generated is a one-time impact resulting from adjustments of the assumed rates based on the early repayment situation of old loans, therefore it is expected that Lexinfintech Holdings Ltd. Sponsored ADR Class A's revenue will enter a rebound channel by the second quarter. However, considering the recent trend of Lexinfintech Holdings Ltd. Sponsored ADR Class A, the market probably does not have sufficient expectations for this. Furthermore, as Lexinfintech Holdings Ltd. Sponsored ADR Class A has a rich business structure, to explore the true situation of the company's core business, investors should focus more on the financial net income indicator. During Q1, the combined revenue of credit services and technology empowerment services for Lexinfintech Holdings Ltd. Sponsored ADR Class A was 2.82 billion yuan, and after deducting total costs such as funds and credit, a total of about 1 billion yuan, the financial net income was 1.82 billion yuan, which not only did not decrease from the fourth quarter of last year, but increased by nearly one hundred million, which may have been overlooked by many investors. In the current high-uncertainty market environment, the reason why the core business of Lexinfintech Holdings Ltd. Sponsored ADR Class A can maintain resilient growth is related to its deep-rooted stable genes. Over the past few quarters, Lexinfintech Holdings Ltd. Sponsored ADR Class A has strengthened risk control capabilities, improved customer identification accuracy by 10% through data algorithm optimization, and launched the Siasun Robot&Automation and pricing intelligence Siasun Robot&Automation to improve decision accuracy. At the same time, relying on automated asset inspection and review tools, Lexinfintech Holdings Ltd. Sponsored ADR Class A has effectively optimized the quality of existing assets; based on AI technology anti-fraud models and real-time behavior monitoring system, the overall fraud rate for the quarter decreased by 30% year-on-year. These "combined punches" reflected in the financial report, show that the forward risk indicators of Lexinfintech Holdings Ltd. Sponsored ADR Class A in the first quarter are still continuously optimized: the first-day delinquency rate of existing loans decreased compared to the previous period.The width reached 11%, the new asset early risk indicator 7-day FPD decreased by 5% compared to the previous month; the overall delinquency rate of 90+ decreased by 9% compared to the previous month.The quality of assets is still rising, no wonder Lexinfintech Holdings Ltd. Sponsored ADR Class A has made dynamic adjustments to overall provisions during the period. It may seem to have slightly decreased, but it should be noted that the company's provision coverage ratio has not decreased as a result. The provision coverage ratio is the total provisions divided by 90+ overdue assets, a simple calculation shows that the provision coverage ratio for the first quarter of 2025 is 268%, which is significantly higher than the 255% in the fourth quarter of 2024. This shows that the provision rate for Lexinfintech Holdings Ltd. Sponsored ADR Class A in the first quarter is actually more sufficient than in the fourth quarter of last year. Furthermore, the improvement in asset quality has also had a positive impact on releasing the profit potential of Lexinfintech Holdings Ltd. Sponsored ADR Class A. In the first quarter, the GAAP net profit of Lexinfintech Holdings Ltd. Sponsored ADR Class A reached 430 million yuan, an increase of 18.6% compared to the previous quarter, and a year-on-year increase of 113.4%. Looking at it over a longer period of time, the net profit take rate (the annualized ratio of net profit to average outstanding balance) has increased from 0.66% in the first quarter of 2024 to 1.58% in the first quarter of 2025, showing a clear trend of improving profitability. With maturing existing assets and improving asset quality, it is expected that the overall improvement trend in asset quality of Lexinfintech Holdings Ltd. Sponsored ADR Class A will continue, which also means that the growth expectations for Lexinfintech Holdings Ltd. Sponsored ADR Class A will continue to be realized. "The bull is turning around" or hitting the golden buying point The significant improvement in asset quality in the first quarter may not have been fully recognized by many people, as indicated by the short-term stock price reactions of some investors. However, many top domestic and foreign institutions that are considered as smart fund indicators have already clearly shown their optimism for the future of Lexinfintech Holdings Ltd. Sponsored ADR Class A. GMTEight noticed that recently, UBS Group AG, Huatai, and BOCOM INTL have given target prices of $13.6, $12, and $11.8, respectively for Lexinfintech Holdings Ltd. Sponsored ADR Class A, corresponding to a potential increase of 92%, 70%, and 67% from the closing price on June 3. Based on the first quarter report of Lexinfintech Holdings Ltd. Sponsored ADR Class A, analysts from UBS Group AG noted in their latest research report that the company's profit recovery trend has been established, and short-term revenue fluctuations do not hinder the long-term recovery trend. The analysts believe that the impact of the new regulations in April on Lexinfintech Holdings Ltd. Sponsored ADR Class A is controllable, and the company can mitigate the impact in various ways. Although the decrease in provisions in the first quarter has raised questions from some investors, the analysts believe that compared to the underlying asset quality, the credit provisions of Lexinfintech Holdings Ltd. Sponsored ADR Class A are still at a relatively reasonable level. Therefore, UBS Group AG has given a "buy" rating to Lexinfintech Holdings Ltd. Sponsored ADR Class A and maintained a target price of $13.6. Huatai, in its research report released on May 22, stated that considering the clearer bottom reversal of Lexinfintech Holdings Ltd. Sponsored ADR Class A, the ROE for 2025 may recover quickly, and they maintain their 2025E 1.15x expected PB, with a target price of $12 based on the 2025E net assets per ADS of 75.07 RMB. Due to the continued realization of performance in the first quarter, analysts at BOCOM INTL expect that the improvement in asset quality brought about by the improved risk control capabilities of Lexinfintech Holdings Ltd. Sponsored ADR Class A will continue to be evident, driving significant profit growth on a low base and expanding shareholder return space for the company. Therefore, the firm has raised its profit forecast for Lexinfintech Holdings Ltd. Sponsored ADR Class A, expecting a net profit of 1.93 billion yuan this year, an increase of 75% year-on-year; Non-GAAP net profit of 2.06 billion yuan, an increase of 71%. This research report maintains a "buy" rating and a target price of $11.8 for Lexinfintech Holdings Ltd. Sponsored ADR Class A. It is worth mentioning that as a growth company, Lexinfintech Holdings Ltd. Sponsored ADR Class A has indeed been actively strengthening shareholder returns in recent years, and its "cash cow" nature is rapidly increasing. Following the announcement of an increase in dividend ratio last November, the first quarter report of Lexinfintech Holdings Ltd. Sponsored ADR Class A.DR Class A officially announced that it will increase its dividend payout ratio again. Starting from the second half of this year, the dividend ratio of LexinFintech Holdings Ltd. Sponsored ADR Class A will be raised from 25% of net profit to 30%.Within a short period of just half a year, the dividend ratio of Lexinfintech Holdings Ltd. Sponsored ADR Class A has been raised twice, reflecting the company's emphasis on shareholder returns and confidence in its own development prospects. From the perspective of the capital market, based on the high visibility and large growth potential of Lexinfintech Holdings Ltd. Sponsored ADR Class A's future growth, combined with its increasing dividend payout ratio, the company's investment value at this point in time is self-evident. Especially when the market currently has high expectations for it, if investors can take advantage of the "bull's return" and actively position themselves, they may expect to achieve a certain degree of excess returns in the future.