That performance pattern hasn't stoppered the flow of Chinese IPOs just yet, however. This morning, another priced, as Weidai's (WEI) 4.5 mln ADS IPO priced at the mid-point of expectations. Specifically, the deal priced at $10 vs. the $9-$11 expected price range, set to generate total gross proceeds of $45.0 mln.
Considering the poor performance and tepid pricings from the majority of China-based IPOs, the fact that WEI was able to price at the mid-point of expectations is actually fairly encouraging, especially when considering that the recent launch most closely comparable to it -- X Financial (XYF) -- has really struggled to generate much interest at all.
Whether WEI's more promising pricing translates into success in the open market remains to be seen, though. As the largest auto-backed financing provider in China, the company is highly dependent on a strong consumer and economy in China, making it an especially risky proposition given the current conditions. Furthermore, with the volatility in the stock market here, investors have become more risk-averse, as illustrated by the recent0 pull-back in IPO activity.
Nonetheless, the mid-point pricing represents a good start for WEI, and the stock is slated to open for trading shortly on the NYSE.
WEI is the largest auto-backed financing provider in China, according to total loan volume as recorded in 2015, 2016, and 2017, and it achieved a market share of about 35% in 2017. Its platform connects borrowers, the majority of which are small and micro enterprise owners, with both online investors and institutional funding partners. Small and micro enterprises create significant job opportunities in the country and are vital to China’s economic growth; in 2017, they were responsible for contributing 32% of the country’s GDP . However, they have substantial and growing unmet financing needs for daily operation and business expansion. Small and micro enterprises often have financing needs that are frequent, unpredictable, and time-sensitive.
Auto-backed financing represents an attractive solution for small and micro enterprise owners, as automobiles are their most commonly held valuable assets and proper collaterals enhance their credit profiles and enable them to obtain higher credit limit at lower cost. In addition, auto-backed loans currently have a low penetration rate in China -- 1.1% in 2017 -- and the loan volume is expected to grow at a compound annual growth rate of 48.6% from 2017 to 2022.
WEI's auto-backed loans generally have principal amounts between RMB30,000 and RMB200,000, tenures from one to 36 months, and APRs from 20% to 36%. In the six months ended June 30, 2018, the auto-backed loans it facilitated had an average amount of RMB61,779 and an average tenure of five months.
The company has built a nationwide network of 492 service centers across approximately 300 cities over the past seven years. This extensive offline network, seamlessly integrated with its centralized technology platform and risk management system, has enabled a fast and highly automated transaction process. WEI's lending decisions are generally made within 30 minutes of application after information collection and automobile appraisal, and loans are generally disbursed within the same day, including weekends, delivering superior user experience.
Taking a look at the financials, for the six months ended June 30, 2018, net revenue increased 20% year/year to RMB1,568 bln, primarily due to increases in loan facilitation service fees and post facilitation service fees. Loan facilitation service fees increased by 15.5% to RMB1,466.5 bln in the same period in 2018.
Operating costs and expenses increased by 18.2% to RMB1,253.5 bln in the same period in 2018. Operating costs and expenses as a percentage of its net revenues decreased from 67.6% in the six months ended June 30, 2017 to 66.6% in the same period in 2018.
As a result of the above, WEI generated operating income of $59.1 mln for the period.