Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Equity Capital Markets

As the management started the IPO roadshow last week in Asia and this coming week in US &amp; Europe, we believe that, similar to <a href="https://www.smartkarma.com/entities/23681" target="_blank" data-smartkarma-citation="entities:23681:1">ZhongAn Online P&amp;C (6060 HK)</a> , <a href="https://www.smartkarma.com/entities/25915" target="_blank" data-smartkarma-citation="entities:25915:1">Qudian Inc (QD US)</a> is being well received and will likely be oversubscribed.  QD has a good story to sell. It rides the wave of young Chinese working class consumer spending on <a href="https://www.smartkarma.com/entities/787" target="_blank" data-smartkarma-citation="entities:787:1">Alibaba Group Holding Ltd (BABA US)</a>'s e-commerce Taobao and has access to the big data of the payment system of Ant Financial (likely to go public in the next 12 months or so) to analyze consumer shopping and credit behavior. Qudian is expected to be priced at $22 if not higher, reflecting low double digits price to 2017 earnings. An IPO (big) pop is a good possibility given its tremendous growth LTM in both top and bottom lines.  First trading day is likely to be on Oct 17/18.  QD is the largest Chinese “Fintech” company to list in the US so far.  Fintech gets investors’ attention both on Wall Street and more so in China.  Fintech adoption is much easier and faster in China than the developed markets as it benefits from low credit card penetration. ~15% of Chinese (vs. ~80% Americans) have credit cards.  Key to the stock performance beyond the IPO is investors’ view on the “normalized earnings” that the company is capable of making after the super growth that the nascent payday loan industry is experiencing.  <a href="https://www.smartkarma.com/entities/447" target="_blank" data-smartkarma-citation="entities:447:1">Lendingclub Corp (LC US)</a> and <a href="https://www.smartkarma.com/entities/3798" target="_blank" data-smartkarma-citation="entities:3798:1">On Deck Capital Inc (ONDK US)</a> are <a href="https://www.smartkarma.com/entities/25915" target="_blank" data-smartkarma-citation="entities:25915:1">Qudian Inc (QD US)</a>'s comps in the US.Founded in April 2014, Qudian was initially named Qufenqi.  Qufenqi was a payday loan lender to college students and had an offline operation team of thousands of staff till the government started to crack down on the “campus loans” practice during 2014-2015.  The crackdown was triggered by a few tragic suicides committed by deeply indebted students with little means to repay their loans.  Over a very short period of time since 2016, it has emerged as a leading payday loan lender (in terms of transactions) on Alibaba’s e-commerce platform.  Despite the radical change in the presentation of the company, DNA from its previous life as a campus loan provider might have stayed.  QD specializes in lending to Chinese consumers (age 18-35) who are mostly likely to have little fixed/regular income. Lending small amounts (~920RMB, 138USD) with a short average loan duration of ~2 months (1st month free, annualized percentage rate, or APR, kicks in the following months), at the max nominal APR allowed by the PRC government (36%, starting 2017<a href="#_ftn1" target="_blank">[1]</a>)

As the management started the IPO roadshow last week in Asia and this coming week in US &amp; Europe, we believe that, similar to ZhongAn Online P&amp;C (6060 HK) , Qudian Inc (QD US) is being well received and will likely be oversubscribed.  QD has a good story to sell. It rides the wave of young Chinese working class consumer spending on Alibaba Group Holding Ltd (BABA US)'s e-commerce Taobao and has access to the big data of the payment system of Ant Financial (likely to go public in the next 12 months or so) to analyze consumer shopping and credit behavior. Qudian is expected to be priced at $22 if not higher, reflecting low double digits price to 2017 earnings. An IPO (big) pop is a good possibility given its tremendous growth LTM in both top and bottom lines.  First trading day is likely to be on Oct 17/18.  QD is the largest Chinese “Fintech” company to list in the US so far.  Fintech gets investors’ attention both on Wall Street and more so in China.  Fintech adoption is much easier and faster in China than the developed markets as it benefits from low credit card penetration. ~15% of Chinese (vs. ~80% Americans) have credit cards.  Key to the stock performance beyond the IPO is investors’ view on the “normalized earnings” that the company is capable of making after the super growth that the nascent payday loan industry is experiencing.  Lendingclub Corp (LC US) and On Deck Capital Inc (ONDK US) are Qudian Inc (QD US)'s comps in the US.Founded in April 2014, Qudian was initially named Qufenqi.  Qufenqi was a payday loan lender to college students and had an offline operation team of thousands of staff till the government started to crack down on the “campus loans” practice during 2014-2015.  The crackdown was triggered by a few tragic suicides committed by deeply indebted students with little means to repay their loans.  Over a very short period of time since 2016, it has emerged as a leading payday loan lender (in terms of transactions) on Alibaba’s e-commerce platform.  Despite the radical change in the presentation of the company, DNA from its previous life as a campus loan provider might have stayed.  QD specializes in lending to Chinese consumers (age 18-35) who are mostly likely to have little fixed/regular income. Lending small amounts (~920RMB, 138USD) with a short average loan duration of ~2 months (1st month free, annualized percentage rate, or APR, kicks in the following months), at the max nominal APR allowed by the PRC government (36%, starting 2017[1])

Qudian (NYSE: QD) IPO: Payday Loan Company Shadowed by Ant Financial

United States

On Deck Capital, Inc. provides capital financing services to businesses. The Company offers online tools and resources including data aggregation and electronic payment technology, and to evaluate the health of small businesses. On Deck Capital serves small and medium sized businesses in the United States.

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On Deck Capital (ONDK US)

Qudian (NYSE: QD) IPO: Payday Loan Company Shadowed by Ant Financial

As the management started the IPO roadshow last week in Asia and this coming week in US & Europe, we believe that, similar to ZhongAn Online...

JL Warren Capital

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