CICC: Consumer credit technology sector opens up a new period of stable growth, leading institutions expected to become stronger.

CICC released a research report stating that the valuation of the consumer credit technology sector is expected to gradually recover to 8-10x P/E or 1.5-2x P/B in the long term under the catalysis of continuous fermentation. On the profit level, "quantity" and "price" are both recovering synchronously, initiating a new period of stable growth. Currently, after the accelerated shuffling in the industry, the consumer credit landscape is trending towards stability. Leading institutions are expected to become stronger, as the regulatory uncertainty has decreased, and platform companies' financial operations are entering a normalized regulatory stage. It is suggested to focus on various high-quality targets. CICC's main points are as follows: Profit level: "quantity" and "price" are recovering synchronously, starting a new period of stable growth. 1) "Quantity": It is expected that the lending volume/balance of the top credit technology companies will grow by 5%-10% year-on-year on a low base (vs. -12% in 1-3Q24), mainly benefiting from demand improvement, more active lending pace, and new model expansions. 2) "Price": The pricing side of credit technology companies is relatively rigid, and there is still room for optimizing funding costs (sample institutions saw a year-on-year -140bp change in funding costs in 3Q24). Combined with the trend of asset quality optimization, it is expected to further support the widening of interest spread. 3) "Quality": Credit technology companies are expected to achieve further performance recovery under the trend of improving asset quality and optimizing funding/operational sides. Some institutions with significant fluctuations in asset quality in the past are likely to see more obvious improvements in their performance in 2025. Competitive landscape: After the accelerated shuffling in the industry, the landscape is stabilizing, and leading institutions are expected to maintain their strength. On the supply side, institutions that cannot meet regulatory requirements or have weaker operational capabilities have gradually exited the market under pricing adjustments and multiple rounds of pressure testing on asset quality. Top institutions that can maintain their scale and achieve stable profits are expected to maintain their strength. Concerning regulatory requirements, in the past year, regulatory documents in the consumer finance field have introduced more detailed regulatory requirements for financial institutions' internet loan cooperation partners. Credit technology companies with strong financial capabilities, large scale, adherence to regulatory requirements, and leading risk control abilities are more likely to be recognized by financial institutions in the future. From a market competition perspective, considering the high cost of acquiring customers through information flow channels, having a large base of existing customers and refined operational capabilities has become a necessary condition for the long-term sustainable development of credit technology companies. Furthermore, leading credit technology companies with the ability to go international are also expected to explore a second growth curve. From a regulatory perspective, the financial operations of platform companies have entered a stage of normalized regulation. At a macro level, under the policy direction of "boosting confidence and promoting consumption," credit technology companies are expected to play a more important role in helping financial institutions improve the quality and effectiveness of consumer credit services. In terms of industry chain cooperation, there is strong demand from financial institutions for high-quality retail assets to offset the downward pressure on interest spreads, and there may be an increase in regulatory acceptance of assisted loan models. At a micro level, after years of reform in internet platform financial operations, regulatory uncertainty has decreased, benefiting the future development of top compliant institutions. Risk warnings: Regulatory uncertainties; slowdown in business volume growth; significant fluctuations in asset quality.