QFIN's weak pricing also coincides with another disappointing set of Chinese economic data. Specifically, industrial production decelerated to 5.4%, missing every analyst estimate out there. Additionally, Chinese retail sales increased by 8.1%, its slowest growth rate since May of 2003. The weakening Chinese economy, combined with the new tariffs imposed, have provided a stiff headwind as it relates to Chinese IPOs -- and that doesn't appear likely to change in the immediate future.
QFIN's IPO is set to raise about $51 mln in total gross proceeds. The lead underwriters on the deal were Citigroup, Haitong International, AMTD, and Lighthouse Capital. Shares are expected to opened for trading this morning on the Nasdaq at $16.81.
QFIN is a leading digital consumer finance platform and the finance partner of the 360 Group, the successor of Qihoo 360 Technology Co's business after its privatization in 2016 and one of the largest internet companies in China, connecting over one billion mobile devices. It provides tailored online consumer finance products to prime, under-served borrowers, funded primarily by its funding partners. From its inception until September 30, 2018, it facilitated over RMB94.4 bln (US$13.7 bln) in loans to 6.4 mln of its borrowers.
QFIN's core product is an affordable, unsecured, digital line of credit, which its borrowers typically utilize for consumption spending and often as a supplement to credit card debt. To apply, potential borrowers complete an online application, and for approximately 95% of recent credit applications, a fully automated credit decision is rendered. Approved borrowers are provided access to funds quickly and may select the loan structure best suited to their consumption needs.
The company's borrowers tend to be young and to have demonstrated credit histories; 74.1% of them hold credit cards, at least as recently as September 30. These borrowers are drawn to the platform for instant, transparent access to credit delivered through a simple interface. Often, QFIN is able to offer borrowers larger credit balance at lower prices and with more variable tenors in comparison to other online consumer finance platforms.
A majority of the company’s funding comes from its financial institution partners, who partner with it for access to its borrower base as well as platform tools, including borrower evaluation and matching, workflow automation, and enhanced risk management. QFIN delivered value in the form of M3+ delinquency rate of 0.6% as of September 30, 2018 and annual returns typically over 6.5% for its funding partners, materially higher than traditional investment and lending opportunities. As of September 30, it had partnerships with 18 financial institutions, the majority of whom are leading national and regional banks.
Taking a look at its financials, for the nine months ended September 30, 2018, revenue from loan facilitation services and from post-origination services increased significantly, from RMB41.4 mln and RMB17.8 mln, respectively, to RMB658.7 mln (US$95.9 mln) and RMB282.3 mln (US$41.1 mln) for the same period of 2018. This increase reflects the rapid growth of off-balance sheet loans originated through its platform, which increased from approximately RMB17.0 bln to RMB59.9 bln (US$8.7 bln).
Sales and marketing expenses increased significantly from RMB196.5 mln to RMB844.7 mln (US$123.0 mln), primarily attributable to an increase of RMB594.9 million (US$86.6 mln) in advertising expense.
As a result of the foregoing, QFIN recorded a net loss of RMB469.3 mln (US$68.3 mln) for the nine months ended September 30, 2018, compared to RMB171.8 mln for the nine months ended one year prior. Excluding share-based compensation expenses, its adjusted net profit was RMB60.7 mln (US$8.8 mln) in the nine months ended September 30, 2018.