While still not a strong pricing, the good news for XYF is that it did outperform those prior three IPOs we just referenced. Specifically, its 11.0 mln ADS IPO priced at $9.50 vs. the $9-$11 expected price range. As we discuss in more detail below, its financials are clearly stronger than any of last week's Chinese IPOs, which likely played a role in its better pricing.
The IPO also had solid underwriters behind it, including Morgan Stanley and Deutsche Bank. The stock is expected to open for trading later this morning on the NYSE.
XYF is a technology-driven personal finance company in China that focuses on serving China's underserved prime borrowers and mass affluent investors. Its platform, backed by its risk management capabilities and technology, efficiently matches the loan requests of borrowers with the investment demands of investors and executes loan and investment transactions to promptly provide borrowers with funding.
In fact, in terms of outstanding loan balance, it is both the largest player offering credit card balance transfer loan products and the third largest player among non-traditional financial institutions offering high-credit-limit unsecured loans in China as of June 30, 2018. It is also the second largest online consumer finance marketplace offering multiple types of investment products in China in terms of transaction volume.
Its major loan products include Xiaoying Card Loan, primarily a credit card balance transfer product, and Xiaoying Preferred Loan, a high-credit-limit unsecured loan product, both offering borrowers a combination of large credit line, long-term and attractive APR in China.
XYF also offers diversified investment opportunities to investors in China through its wealth management platform, Xiaoying Wealth Management, which is one of the few platforms able to enhance investors' confidence in the investment products with insurance protection.
As for its customer base, 82% of the total outstanding funding balance for loans facilitated were provided by individual investors, and 18% were provided by corporate investors and institutional funding partners. As of June 30, 2018, 84% of the total outstanding funding balance for loans facilitated were provided by individual investors, and 16% were provided by corporate investors and institutional funding partners.
The company says it benefits from its partnership with insurer ZhongAn. The protection offered by ZhongAn's credit insurance on its investment products significantly enhances investor confidence. Its risk management system is also strengthened by ZhongAn's risk control of insurance decision opinion. ZhongAn's credit assessment model is based on information from various databases, including PBOC CRC which is only available to licensed financial institutions.
For the six months ended June 30, 2018, revenue surged by over 200% to RMB1.85 bln. By far, the company’s largest source of revenue is gathered through loan facilitation services (82% of revenue). Loan facilitation service fees are the portion of service fees charged from borrowers in relation to the loan facilitation services it provides through matching borrowers with investors.
For this period, loan facilitation fees soared by 350% to RMB1.52 bln. The increase reflects the rapid growth in the amount of loans it facilitated, and the change in product mix resulted primarily from the significant increase in the proportion of Xiaoying Card Loan, the service fee rate of which is generally higher than those of other products.
Total operating expenses also jump significantly, up 134% to RMB1.13 bln. Origination and servicing expenses increased significantly to RMB573.9 mln, mainly due to the significant increase of its transaction volume.
Still, operating income was up sharply to RMB713 mln compared to RMB 118.4 mln in the year ago period. And, from a margin basis, operating margin also improved significantly to 38.6% from 19.6%.