Yixin performs in line with the market

The online car loan facilitator’s business is growing at a similar pace to China’s auto market, which has decelerated after years of strong growth

Key Takeaways:

  • Transactions on Yixin’s car loan platform increased about 10% in the first quarter, on par with growth the broader market during the period
  • Despite China’s better-than-expected GDP growth in the first quarter, Yixin remains challenged by weak domestic consumption


By Warren Yang

It may not be zooming anymore, but online car loan facilitator Yixin Group Ltd. (2858.HK) seems to still be cruising along – albeit at reduced speed – in a wobbly Chinese auto market.

Last week, the company said the total number of transactions processed on its auto financing platform grew about 10% in the first quarter from a year earlier, roughly on par with a 10.6% increase in Chinese vehicles sales during the three months. In value terms, Yixin facilitated 16.1 billion yuan ($2.2 billion) in vehicle sales during the quarter, about 8% more than the year-earlier period.

Demand for new energy vehicles (NEVs) was Yixin’s big growth driver in the quarter, reflecting a major theme for China’s broader auto industry amid a policy push for green development. The company’s transactions for NEVs, both new and used, surged about 89% year-on-year during the quarter to account for about 16% of the total loans it facilitated during the period.

Its latest quarterly business update shows that Yixin isn’t beating or underperforming China’s overall auto market. That’s not bad in the current weak environment where consumers are reining in their spending, especially for big-ticket items like cars. But it’s not anything to get too excited over, either. And with domestic car sales slipping into contraction mode in April, simply keeping up with the market may not be enough for Yixin’s business to grow in the second quarter.

Reflecting the mixed mood, Yixin shares rose after the business update came out, but quickly stalled and gave back the gains. Its stock has lost 90% of its value since its IPO in 2017. It trades at a relatively weak price-to-earnings (PE) ratio of 7.8, well below the 14 for online car trader Autohome (ATHM.US; 2518.HK), perhaps reflecting the company’s added risk due to its status as a Chinese fintech company that’s subject to frequent regulatory adjustments.

The latest economic indicators are giving mixed signals on the prospects for China’s auto market. On the positive side, China’s GDP expanded 5.3% year-on-year in the first quarter, surpassing a 5% target for the whole year and handily beating market expectations. That also marked an acceleration of growth from the preceding three months.

But the economic strength is largely led by exports, which have returned to growth in recent months after falling for much of last year. While that’s good for the overall economy, it doesn’t help companies like Yixin that depend on domestic consumption to keep their business engines running.

There are some signs that domestic consumption is reviving, including rising consumer prices for three consecutive months, which suggests demand is picking up.

While that’s slight reason for encouragement, consumer sentiment is unlikely to pick up sharply anytime soon, especially as a prolonged slump in the real estate market continues to cast a dark shadow over the economy. And year-on-year growth in retail sales in March slowed from the prior two months, repeating a recent recurring theme where indicators briefly show signs of improvement, only to quickly run out of steam.

For Yixin, a major cause for concern is that domestic car sales decreased in April, even as auto exports surged by more than a third. That means that if it simply performed in line with the market, Yixin’s transactions may have also contracted during the month.

Multifaceted problems

China’s car industry is facing multifaceted problems. Consumer caution is one of the most obvious, which is leading to intensifying competition among car makers and dealers. That’s resulted in a brutal race to cut prices, which has pushed many auto dealers into the red.

While price cuts in theory should boost sales, they can also discourage potential buyers from making purchases while they wait for further price reductions. Nine of the 13 carmakers that have disclosed their annual sales for 2023 missed their targets, which may partly reflect that wait-and-see attitude by consumers.

China’s massive auto industry is a critical part of its economy, so it’s not surprising that policymakers have been rolling out measures to stimulate sales, especially for NEVs that also align with Beijing’s efforts to cut greenhouse gas emissions. As recently as March, Premier Li Qiang reiterated that the government will support consumption of environmentally friendly cars. But many government incentives are having little effect on sales.

Like many companies in the sector, the only way for Yixin to grow business in such a tough environment is by sacrificing its margins. Last year, financing on its platform grew more than 20%, both in terms of vehicles sold and by loan value, which led to a strong 30% increase in its annual revenue. But its gross profit rose just 12%, indicating it paid more commissions to its lending partners, causing its gross margin to drop 7 percentage points to 49% for the year from 56% in 2022. The company was able to partly offset that impact by controlling its operating expenses, which enabled it to post nice growth in its net profit for the year.

With the domestic market going nowhere fast, Yixin is taking a step popular with many Chinese companies and looking overseas for growth opportunities. Moving in that direction, it established partnerships with a number of foreign financial institutions last year. The company is also trying to diversify its domestic revenue sources, including by selling software as a service (SaaS) over its own platform for the auto industry.

But such efforts will take time to bear fruit, if at all. Overseas expansion, in particular, is often easier said than done, since it takes Chinese companies into unfamiliar territory where they frequently face strong competition from established local rivals. That means Yixin – and its ability to grow – is likely to remain directly tied to China’s car market and its ability to come back. Until that happens, Yixin – and its stock – are likely to face a bumpy road ahead.

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